In the January 21, 2012, issue of The Economist, the main focus of both the feature articles and the special report was on the resurgence of “state capitalism.” The magazine’s reporters described a world in which major companies in major markets were either owned directly by national governments, or subject to control or heavy influence, even if they were privately owned or had issued shares to the public.

The stories reminded me that, for the last 21 years of my Pitney Bowes career, I dealt continuously with the encroachment of state capitalism in the postal sector.  In the late 1980’s and throughout the 1990’s, we successfully fought a series of battles with the U.S. Postal Service to keep it from becoming another entity with all the powers and privileges of the federal government, but with none of the regulatory constraints associated with federal government agencies.  Several senior postal officials aspired to create a power base similar to many government-owned entities, such as the Tennessee Valley Authority (which Marvin Runyon, the Postmaster General from 1992 to 1998, had led) or the New York-New Jersey Port Authority.

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I love the New York Post headlines.  One of my favorites was in the Sunday, December 11, 2011, issue.  The headline was “E-Z CASH: Change he can believe in: Toll collector makes $100K.” On page 5, the story to which headline refers is entitled “High-Pay PA Crew Taking Their Toll.”  It describes what we have learned is an all-too-common rip-off of taxpayers, the use of what is called “pension spiking” to give people making a certain level of income the chance to get an even larger pension by awarding them a huge amount of overtime pay opportunity in their last year of employment, the only year that counts for pension calculations in many public-sector collective bargaining agreements.

In this case, the employer is the Port Authority of New York and New Jersey, an entity created by a contract between New York and New Jersey and jointly owned by the two states.  This entity is not accountable to elected officers or voters, except for the indirect influence that elected officials from the two states sitting on its board of directors have on the entity’s operations.  Oddly enough, entities like the Port Authority were created over several decades in the 20^th century because elected officials believed that they would operate in a more business-like fashion and not be subject to the corrupting influences of elected officials trying to “buy” votes by bestowing favors on constituents. However, the lack of public accountability means that the customers of the Port Authority, namely those who travel in the New York Metropolitan area, will bear the brunt of the abuses of the pension system.

In one sense, it should be easy to solve this problem: abolish this “pension spiking” scheme in the next collective bargaining session.  However, we get a hint of why these kinds of schemes are so hard to uproot. A toll collector named Princesella Smith is quoted as saying: “I’m blessed. I have a great job, and, in this economy, it’s great that I can cover everything with my eight hours a day and overs.”

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Devin Leonard, a reporter for Bloomberg Business Week wrote a great article diagnosing the issues facing the U.S. Postal Service, entitled  “The U.S. Postal Service Nears Collapse.” He delivers a number of great insights, among them:

• The near-term insolvency of the Postal Service was created by a Congressional action in the 2006 Postal Reform legislation which required the Postal Service to prefund all its retiree benefit obligations over the first 10 years after the legislation passed.  Why?  Since the Postal Service is off-budget, and it was getting its overpayments into the federal pension system returned to it, the artificially fast prepayment was a budget-balancing gimmick.  The Congress should have made the Postal Service prefund the retiree benefit obligations the way any private sector company would do so: over the expected 30-40 year life of the obligations.
• The longer-term problems of the Postal Service are driven by rapid and deep declines in mail volumes.  The Postal Service needs to reduce its cost structure much faster.  There are many good ideas that have been proposed for years, but that have not been adopted, such as the relocation of retail postal functions into convenience stores and supermarkets.  However, the Congress and the White House have to step aside and let the Postal Service take some of these steps.
• The Postal Service wants to reduce mail deliveries from 6 to 5 days.  I am not convinced that this step can be taken without damaging the growth potential of certain categories of mail.  What the Postal Service needs to consider is whether it needs to do 6-day-a-week to every address.  Sweden has variable frequency delivery, with 5 days in urban areas, three days in remote mainland rural areas, and two days to remote islands.  The Postal Services needs to begin delineating differences between profitable urban delivery routes and unprofitable rural delivery routes.
• On the flip side, the Congress and the Postal Service need to consider whether pricing for mail originating or being delivered to remote areas should be priced the same as mail traveling a few city blocks.  Uniform pricing has always been seen as a core feature of a communication system on which Americans have depended for political discourse, educational content management, charitable purposes, and other important social causes.  The broad penetration of the Internet makes many of the needs for uniform pricing less compelling.  However, to the degree that we continue uniform pricing, it can be for certain categories of mail, with others starting to move toward distance and cost based pricing.

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In the October 21, Wall Street Journal, there was an article entitled “Japan Post Goes in New Direction.” Reporters Atsuko Fukase and Allison Tudor reported on a change in leadership and the potential reversal of the government’s commitment to privatization.  As they described the unfolding situation, they cite a statement from the chairman of the Japanese Bankers Association, who stated that he believed that private banks would face unfair competition from a government-owned Japan Post that offers banking services.

If this sounds like the concern expressed about the “public option” U.S. health insurance reform proposal, there is a good reason: the issues are remarkably similar.  In the U.S., the U.S. Postal Service has largely avoided competition with the private sector, except in the area of package delivery, in which it competes with UPS and FedEx, express mail, in which it also competes with these same companies, and international mail, in which it competes with DHL, and, more recently, Pitney Bowes.

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Having just finished attending the Conference on Research in Regulated Industries sponsored by Rutgers University and led by Dr. Michael Crew, I have been immersed in many presentations relating to many subjects, but one, in particular, caught my attention:

• What universal or public services do we expect of major communication media?

With respect to mail, postal services around the world all have a variety of what are called “universal service obligations.” They are expected to maintain a network that allows every citizen in their country to transact business, to deposit mail into collection boxes or at a conveniently-located post office, and to receive mail at a designated home or business address 5-6 days a week all year. Additionally, their governments expect them to subsidize charitable and educational organizations, to charge affordable and uniform prices for mail originating from individual citizens and to be large employers and anchors for rural communities. In the U.S., the Postal Service also absorbs an enforcement responsibility for obscene, offensive, and fraudulent material that gets sent through the mail. In recent years, Congress has deferred its payments to the Postal Service for the mandates imposed on the Postal Service to subsidize certain categories of mail and certain types of users, such as non-profits. (more…)

I recently had the opportunity to speak with Eleanor Trickett, the editor in chief of DM News, about the inaugural DM News/Pitney Bowes survey on direct mail and the environment.

The survey reveals that consumers greatly overestimate the environmental impact of direct mail. Eleanor and I discussed the implications of this survey and how the industry can implement new technology and other initiatives to reduce the environmental impact of mail. We also discussed how industry leaders can work to improve the public perception of mail, and grow the value of mail as a medium in the long-term.

Listen to the Podcast

Twice in the past three weeks I have been in Europe to meet with key mailing industry stakeholders to discuss postal issues. During the last week, the European Union has again considered postponing the effective date for full market opening from 2009 to 2011 for many countries, and to 2013 for many others. This reform process was started with a directive issued in 1997.

Why has it been so difficult? Postal issues are indicative of challenges governments all over the world have in effecting fundamental reform:

• While the broader public may benefit, the benefited individuals and businesses are focused on many issues. Those who might be harmed in the short term, in this case, postal workers, are highly focused, well-organized, and often very militant. They will react far more negatively to reform than the benefited public will act positively. Therefore, in the short run, elected officials find reform very risky.
• Competition, privatization, or other reforms are often disruptive in the short run, but beneficial only in the longer term. Politicians are much more likely to think in the short term because election cycles are relatively short.
• The disruption when reform does not work perfectly, which is often the case, is usually a highly-visible media event, whereas improved service quality does not create the same media opportunities.

The U.S. actually made some good decisions in effecting postal reform. We left a great deal of discretion to an independent regulator, and took a great deal of the heat from elected officials. Europe, on the other hand, has issued broad guidelines, but has left postal reform squarely in the hands of elected officials and regulators in each of the member countries. Some countries have dealt with more of the issues through the decisions of elected officials; others, like the UK, have had more active regulators. (more…)