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Jewish World Review April 5, 2001 / 12 Nissan 5761

Philip Terzian

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Consumer Reports

Stamp of disapproval -- SIX months ago the US Postal Service projected a surplus of $150 million for the coming fiscal year. But during the winter those projections were revised, and now the Postal Service estimates it may lose between $2 billion and $3 billion this year.

Of course, circumstances change, projections can be wrong, and the Postal Service is no different from private businesses whose earnings fall short of expectations. But there is one very important distinction: When businesses lose money, they look for ways to lower costs while maintaining services the public demands. If they can't reduce the cost of doing business, without raising prices, they risk losing customers, or losing business altogether.

Unfortunately, the Postal Service has no such incentive: Faced with rising costs and diminishing returns, it merely repairs to Congress when the red ink appears, and requests a rise in prices. And Congress usually delivers. As anyone who has mailed a letter recently can attest, the USPS increased postal rates this winter by an average of nearly five percent. Now it is demanding an average 15-20 percent increase for the cost of mailing publications.

This time, however, there is a difference. Congress is balking at the prospect of yet another postal rate increase, and the House Government Reform Committee is holding hearings this week to ask some pertinent questions. Why did the projections move from surplus to loss, and how harmful will this be to the principle of affordable mail service? Does it make sense for the USPS to greet every potential loss with a price hike, or are there ways that the USPS can save money without compromising service?

The answer to that last question is yes, according to the Magazine Publishers of America. To be sure, the MA has a vested interest in the matter; but so do we as consumers. The big players in the game can absorb the added costs of a major postal rate hike. But for smaller, less profitable, publications, a one-fifth increase in postal rates could easily mean the difference between survival and collapse. This is not only unfair to smaller businesses, where quality might trump quantity, but detrimental to the nation as a whole. We benefit from a variety of choices in the marketplace, including the marketplace of ideas.

Moreover, as the MPA points out, it is not as though the Postal Service has no alternatives. In fact, as the USPS governors themselves acknowledge, there is an urgent need for legislative reform to contend with "a situation which, if not addressed, will begin to have a significant and negative impact on the economy." That situation includes rapidly-changing markets, outdated regulations and needlessly restrictive provisions in labor law.

Still, the governors miss the point: Those are long-term problems demanding evolutionary reform. The fiscal crisis in the Postal Service is upon us today, and less than three months after the system's last rate hike, it makes little sense to raise prices again. The Postal Service board of governors needs to look at ways to lower costs now without jeopardizing service or cutting into business and wounding the economy.

First, the USPS would be well advised to impose a hiring freeze. There are over 900,000 postal workers in America today -- an increase of better than 25 percent since 1980 -- despite massive investments in automation. Of those workers, about 130,000 USPS employees are expected to retire in the coming year. Given the normal rate of attrition, the General Accounting Office estimates that just a one-year hiring freeze would save almost $700 million in labor costs the first year, and $1.4 billion every year after that.

Second, the Postal Service needs to take a close look at facilities. Approximately one-third of the USPS processing lants in America handle about 10 percent of the mail. Consolidation would allow the Postal Service to raise the productivity of individual plants, and close some 50-100 plants, with substantial savings.

Indeed, on the subject of productivity, the Postal Service falls woefully short of private industry. It is true that the USPS enjoyed a 2.5 percent increase in productivity last year, but 2000 was the exception, not the rule. Between 1990 and 1998 Postal Service Total Factor Productivity actually dropped six-tenths of a percent while private manufacturing productivity grew by nearly 14 percent. If the Postal Service had enjoyed productivity rates comparable to private industry, its current expenses would be reduced by billions of dollars.

It's easy to criticize the U.S. Postal Service, which performs miracles every day. But every machine needs a tune-up now and then, and sometimes an overhaul, to keep the engine running. Congress will be doing the Postal Service a favor -- and serving its constituents -- by raising the hood and asking pointed questions.

JWR contributor Philip Terzian is associate editor of The Providence Journal. Comment by clicking here.


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© 2001, The Providence Journal