Could AT&T Run the Post Office? M. Barger

COULD A.T.&T. RUN THE POST OFFICE? t'J melvin::b. Barger a,Custom has so strongly imbedded the mo nopoly myth in our minds that the mere sug gestion of a private postal system seems incongruous." FRANK CHODOROV 1 IT IS PROBABLY one of the miracles of the past half century that the giant American Telephone and Tele graph Company has escaped direct government owner ship. It is miraculous because such a tidal wave of printed and spoken propaganda has been produced in criticism of the mighty telecommunications firm, while oncoming generations of future leaders have been carefully taught by their economics and political science instructors to be fundamentally suspicious of A. T. & T. and other privately-owned utility monopolies. Also, many people have been conditioned to oppose and fear "bigness" in privately-owned enterprise, and of course, A. T. & T. is indeed "bigness." Also, there is substantial support throughout the country for the view 1 Frank Chodorov, The Myth of the Post Office (Hinsdale, Illinois: Henry Regnery Company, 1948).

389 390 MELVIN D. BARGER that "natural" monopolies ought to be publicly owned. Finally, almost every advanced nation in the Western world has a government-owned and operated telecom munications system, with the exception of large systems in Italy, Spain, Denmark, and Finland. 2 At least four countries-Great Britain, France, Holland, and West Germany-,...have combined postal and telephone services, with whatever advantages this is supposed to produce. Yet 1962 finds A. T. & T. safely in private hands, though tightly regulated by the F.C.C. and numerous state commissions. But an even greater miracle is that few people of in fluence have ever argued for private ownership and op eration of the U. S. Post Office. Perhaps many people assume that a private postal system is impossible. Others may believe it is impractical. And some may even think it is unpatriotic. Yet there have been many times when persistent men have argued with success against ideas which were generally assumed to be impossible, imprac tical, or unpatriotic. Why have so few done so in the case of the Post Office? Since it is intellectually respecta ble to argue for a government takeover of telecommu nications services, why hasn't it been just as respectable to argue for an opposite viewpoint-say, for example, a private takeover of certain faltering government busi nesses?

Such a faltering business is the U. S. Post Office De2 From The World's Telephones, 1961, American Telephone and Telegraph Company, 195 Broadway, New York. It should be noted that the Italian telephone system is government-owned but privately-operated, while the Finnish and Danish systems are mixed.

COULD A. T. & T. RUN THE POST OFFICE? 391 partment, which drifts from one crisis to another with out apparently finding the roots of its problems. There has been mounting criticism of its operations in recent years. "The American public and American business have been paying higher and higher prices for worse and worse postal service," said the trade magazine A dvertising Age in May 1960, in a critical editorial op posing further rate increases. Reader's Digest published an article in May 1957 entitled "Our Horse and Buggy Mails," with another the following year significantly called "How To End Our Post Office Mess Perma nently."3 And N ewsweek~ in a special national report in the July 13, 1959 issue, observed that the U. S. mail is slow because of "antediluvian methods and equip ment, human error, a system plagued by bureaucracy and petty politics." It was further noted in the same article that the service was so bad that one in four let ters was being delayed, sometimes for days, en route or at a delivery point. Worse yet, it was stated that the Post Office's problems were getting worse, and seemed to be outrunning its solutions.

A. T. 5 T.'sContinuing Success In sharp contrast with the Post Office's dimming im age is the Bell System, whose corporate parent is The American Telephone and Telegraph Company. It has been attacked as an overpowerful monopoly, threatened 3 The Reader's Digest, February, 1958.

392 MELVIN D. BARGER with punitive legislation, subjected to rigid controls, and regularly scrutinized by state and federal agencies. But for all the stumbling blocks strewn in its path, A. T. & T. has consistently provided· the finest telephone service in the world, a fact that even its statist-minded critics freely concede. 4 Ironically, though a profit-making corpo ration, its service record has greatly surpassed that of the Post Office, which has often excused its deficits on the grounds that its purpose is public service rather than profits. The Bell System had a humble origin shortly after the first patents were issued to Alexander Graham Bell in 1876 and 1877, and has since become the colossus of American public utilities. A. T. & T. has assets of $21.7 billion, employs 750 thousand persons, and has 63 mil lion telephone installations. 5 Although the country is peppered with small independent telephone companies and subsidiaries of the substantial General Telephone and Electronics Corporation, A. T. & T. commands the industry with all but 16 per cent of domestic telephone installations. And by possessing a complex nationwide 4, Horace Coon, whose American Tel &: Tel was itself a book highly critical of A. T. &: T. on many counts, wrote: "It is gen erally conceded, even by its critics, that (A. T. &: T.) has given the United States the best telephone system in the world, in nearly every respect superior to any of the government-owned systems in Europe." Horace Coon, American Tel & Tel. New York: Longmans, Green and Co., 1939. (It should be noted that Coon's observation preceded A. T. &: To's tremendous growth and improvement of services in the post-World War II period.) 51961 Annual Report~ A.T. & T. All A.T. & T. statistics. unless otherwise noted, are from this report.

COULD A. T. & T. RUN THE POST OFFICE? 393 network of interconnecting telephone lines, A. T. & T. has a part in all but a very small percentage of long distance calls. The pattern for success was established early in the Bell System's history by Theodore N. Vail, one of the company's early founders who headed the corporation in its infancy, dropped out for a time, and returned in 1907 to push A. T. & T. toward its present level of great ness. Vail had been a railway mail supervisor before stepping into the fledgling telephone business, and was apparently the first man to have thought of having rail way mail clerks sort the mail on trains so that it could be distributed to the post offices with a minimum of handling. A management genius who probably could have succeeded in almost any business, Vail had a spe cial dedication to A. T. & T., and was probably chiefly responsible for the fact that the company never passed into government hands even though telecommunications systems the world over were being nationalized.

Vail recognized as early as 1909 that pressures for government ownership were soon to arise. In 1912 tele communications systems in Great Britain were nation alized, a move which aroused sentiment for a similar action in the U. S. But, Vail believed that A. T. & T. could survive and prosper even under government regula tion, and could resist a government takeover if he could build a system far better than any of the nationalized systems in other countries. This, plus a rather inept performance on the government's part when it con trolled the company briefly during the closing days of 394 MELVIN D. BARGER World War I, finally killed, for the time being, most of the political impetus for government ownership.6 Four decades after Vail, the case was never better for his belief that he could build a service vastly superior to the world's nationalized systems. A. T. & T. today has a great depth of talented management, sound or ganizational procedures, almost unmatched technical personnel, and comfortable reservoirs of financial strength. While we take most of its services for granted, a little thought about the Bell System would reveal that not only has it "kept up" with the progress of the eco nomic environment in which it operates, but it has also spearheaded much of that progress. A large amount of today's business and government affairs is handled smoothly and quickly because the Bell System had the technical ability to create faster long distance services and such improvements as direct distance dialing, wide area telephone services, teletype equipment, and CEN TREX systems (permitting dialing to and from exten sion phones in large organizations) . It would be almost intolerable to imagine the state of our present economy and government if the art of telecommunications were to be set back ten, twenty, or thirty years.

The Constitutional Monopoly Meanwhile, the Post Office had been in business al most a hundred years before the Bell System was born. It certainly had an auspicious beginning, for Article 1, 6 Coon, op. cit.

COULD A. T. & T. RUN THE POST OFFICE? 395 Section 8 of the U. S. Constitution documented the gov ernment's right to own and operate a Post Office: The Congress shall have power to establish Post-offices and post-roads. 7 In 1790, the first full year after the Constitu tion was ratified, the Post Office had revenues of $37,935, against expenditures of $32,140. This was obviously a profit, and for good reason: it is doubtful that the frugal citizens of those lean years would have tolerated serious postal deficits under any pretext. For many years after that there were private mail carriers competing very suc cessfully with the government, but by the middle of the last century most of them had been firmly legislated out of business. In those years postal operating losses were at a minimum, and it wasn't until after the Civil War that the annual postal deficit became a recurrent pestilence.

Today the Post Office is the government's largest busi ness, with 580,000 employees, 35,000 post offices, and an nual revenues of $3.4 billion. Its visible deficit in 1961 was more than $800 million, and since 1946 its. cumula tive deficits have been almost $8.5 billion. It does not pay income taxes, of course, so a realistic analysis of Post Office operations should actually add to the present deficit an estimated amount that the Department would have paid into the federal treasury if it were a private corporation and earned average profits. The loss to the government units in taxes may actually be the Post Of'( Annual Report of the Postmaster General, U. S. Post Office Department, Washington, D. C., 1961. Unless otherwise noted, all subsequent statistics concerning Post Office operations are from this report.

396 MELVIN D. BARGER fice Department's largest "deficit," for as we shall see later, American Telephone and Telegraph Company has paid far more to federal, state, and local tax collec tors than the total of its net earnings. Since even a casual examination yields evidence that our telecommunications industry towers head and shoul ders above our postal service, the next problem is to discover why. And while many reasons are often given to explain why the Post Office is the way it is, few go further than to plead for changes in rates, use of auto mated equipment, higher wages, greater employee ef ficiency, and similar so-called solutions. Yet what has prevented the Post Office from improving its operations regularly and without fanfare, as might any other busi ness? Does it take an act of Congress to bring these things about? Yes, it does. And this is the core of the Post Office problem: The Post Office is a politics-oriented institu tion~ and has been ever since the day our Constitution first breathed it into life. As a politicalized enterprise, it will forever do an adequate or superior job of satisfy ing its political masters in Congress and the White House, but under these circumstances it hasn't the slight est chance of turning in an operating performance that would be considered superior by business standards. The Department is far more sensitive to the most dominant political winds than it is to the need for "breaking even" or giving users "better service." This is, in fact, its central malignancy. "When the politics motive super sedes the profit motive," wrote Frank Chodorov, "the COULD A. T. & T. RUN THE POST OFFICE? 397 direction and intensity of effort is completely altered.

The officeholder's bread is not buttered by a customer but by a higher-up, and hence his natural inclination is to cater to the latter, not the former."8 And the Newsweek article previously cited took note that though the Post Office Department needs technological improve ment almost desperately, "there is little incentive to re place postal clerks, who can vote, with machines, which can't vote." Political Pressures Call the Tune At no time does this political sensitivity of the De partment become more obvious than when a proposed postal rate increase comes before Congress. Tremendous pressures are imposed on Congress by those who have an interest in preventing the increases on the classes of mail they use. This year the second and third-class users have bitterly denounced the fact that proposed in creases for first-class mail are proportionately less than on the others. Yet as one looks at the bewildering rates system used by the Post Office Department, it is clear that political considerations made it expedient to give second-class users (i.e., paid circulation periodicals) ex tremely low rates and third-class mailers (usually busi ness organizations) special advantages. 9 8 Chodorov, op..cit.

9 To use only two examples. It is safe to say that the rates and handling of all mail and every type of delivery (such as R.F.D.) have been influenced by political forces.

398 MELVIN D. BARGER If one doubts that political considerations shape the running of the Post Office, he should check some of the national magazines earlier this year and read the edi torials and articles which they ran in their own interest in bitter opposition to the proposed increases on second class matter. For example,in an article entitled "Second Class Mail Rates Can Ruin First-Class Magazines," in The Reader's Digest~ April, 1962, the magazine summed up its case against higher rates for newspapers and maga zines by urging readers to make their views (that is, The Reader's Digest's views) known to their congress men. While again scoring the Department for its inefficien cies and obsolete methods, as it had done some years before, the Digest failed to explain how the Post Office got that way. It was said that the Department performs many functions which are unrelated to the carrying of mail and for which no payment is made. But isn't it obvious that these functions must have at one time or another been assigned to the Department by either the legislative or executive branches of the government, and that, therefore, the very Congress to whom we are sup posed to appeal for a solution to the "postal mess" is, in fact, a partial cause of it? We expect the Post Office to be efficient and modern and flexible; yet we have imposed on it a 535-man "board of directors" that has, itself, often used its free postal privileges shamelessly.

There's nothing wrong with the Post Office that couldn't be corrected quickly if we really did have the courage and good sense to put it on a "businesslike COULD A. T. & T. RUN THE POST OFFICE? 399 basis." This would actually mean cutting it loose from all political control whatever, and releasing it from government ownership, for the distressing truth is that the government cannot resist meddling with that which it owns. In the case of the Post Office, this political meddling has led the Department in directions which no private business could travel and remain solvent. Again in sharp contrast is A. T. & T., which has been able to manage its affairs so that special interest groups of customers aren't at war with the company and each other. A T. & T.'s chief advantage is that it has the good fortune to be a profits-oriented organization. It is still primarily a business organization and must earn profits to survive at all. Its excellent earnings re cord also accounts for A. T. & T.'s continuing growth and vigor.

In the years 1946-1961, A. T. & T. earned profits of $9% billion. Out of this amount it paid dividends of $6.6 billion, leaving $3.2 billion retained in the business. This was part of the company's investment in its future. Without these profits, there would have been little or no growth, for additional capital for expansion simply wouldn't have gravitated toward a losing business. Incidentally, the Bell System's revenues have also contributed mightily toward the support of government, for in the same period it has paid out more than $15 billion in local, state, and federal taxes. 10 10 A.T. & T. yearly financial figures obtained from Moody's Pub lic Utility Manual, 1961, and Moody's Public Utilities, February 20, 1962, published by Moody's Investor Service, New York. Totals were computed by author.

400 MELVIN D. BARGER A. T. f§ T. vs. the u.s. Post Office It can be argued that it is unfair to attempt compari son of A. T. & T. and the Post Office, since the methods of communication differ radically. A. T. & T. deals pri marily with circuitry, which when installed can handle verbal messages instantaneously. Not so the Post Office, which must transport solid objects over great distances and is necessarily limited by the reasonable speed at which man and machine can travel. It is unfair, for ex ample, to say that because the Bell System can connect aNew York caller with a San Francisco number in two minutes, or less, the Post Office should deliver a letter with similar speed. Moreover, the Bell System with its automatic dialing systems and other creations is rapidly eliminating the possibility of human error, while postal clerks are still forced to waste long minutes studying, for example, 7Ja~*,/hML..., and finally determining that this is a communication addressed to Jackson, Michigan, and not Jackson, Mississippi. Obviously, A. T. & T. and the Post Office have completely different operating problems.

Still, it is fair to say that of two dissimilar communi cations systems, one is partially failing us while the other seems destined for greater achievements. It is fair to wonder how the delivery of written communications would have been handled if our national traditions hadn't imposed on us an ironclad government postal monopoly. Would the Postal Service now be faced with mounting deficits? Would there have been a long period COULD A. T. & T. RUN THE POST OFFICE? 401 of time when the service actually made no investment for new buildings, as union official William Doherty has charged, due to the unwillingness of Congress to appropriate money for this purpose?ll Would a letter carrier now earn a starting salary of $4,345 a year, with a 25-year maximum of $5,605, or would wages and sal· aries be much higher?12 Would the service be using such antiquated methods that as late as 1953, incoming Post master General Arthur E. Summerfield could make the shocking discovery that postal clerks in Denver had to sort mail out on the street because of cramped building space?13 Would deliveries be faster or slower? Would automated methods of handling mail have been put into widespread use? Would it be possible to get letters de livered the same day of mailing in metropolitan areas?

One final remark: It is said that thousands of special delivery letters are actually delivered by regular carrier, since no special delivery service exists at certain times in many communities. Yet the person mailing the letter has no practical way of knowing this, and thus wastes 11 "In the twenty-year period between 1938 and 1958 Congress failed to appropriate as much as a single dime for the construc tion of new postal facilities," William C. Doherty, Mailman, U.S.A., (New York: David McKay Company, Inc., 1960). Mr. Doherty who is president of the National Association of Letter Carriers (AFL/CIO), credits Summerfield's plan of leasing postal facilities built by private capital with having saved the system from abso lute chaos. (Elsewhere in his book he is less complimentary toward the embattled postmaster general of the Eisenhower administration.) 12 Salary information obtained from National Association of Letter Carriers, AFL/CIO, Bulletin No.1, January 2, 1962.

13 Arthur E. Summerfield, U.S. Mail (New York: Holt, Rinehart and Winston, 1960).

402 MELVIN D. BARGER his extra 30¢ postage. 14 If a private postal enterprise existed and engaged in this dubious form of customer deception, would government regulatory agencies not order a full-scale investigation? It is~ then, fair to say that A. T. & T. gives excellent service in its field, while the Post ()ffice is giving medi ocre service that is obviously incompatible with our present state of economic development. It is fair to say that A. T. & T. operates efficiently, with a persistent at tempt to cut costs and improve its own organization, while the Post Office operates with only a fair degree of efficiency, often because Congress does not appropriate capital funds. It is also fair to say that A. T. & T., de spite its monopoly status, runs its affairs as competitively as any other U. S. enterprise, going to great lengths to promote new telephone services, courteous treatment of customers, and installation of additional telephones in businesses and residences.

But postal units do not seem to be competing with anybody, and hardly appear to recognize that it would be possible to increase the department's revenues by hard hitting promotional campaigns and programs designed to give customers better service. It is also fair to ask if it is even a moral thing for the federal government to maintain such an enterprise as the Post Office, or any business, using the power of the state to force citizens to subsidize a service which is of much greater benefit to some users than it is to others. All other businesses, 14 Floyd Clymer, The Post Office Dilem,ma (Los Angeles: Floyd Clymer, 1960), p. 166.

COULD A. T. & T. RUN THE POST OFFICE? 403 monopolistic or otherwise, must rely on the customer's voluntary patronage in order to survive. But in the case of the Post O'ffice, the money which makes up its deficits is taken from us against our will, while federal police power prevents other competitors from entering the field and giving us alternate forms of letter delivery. Could A. T. & T. run the Post Office? Certainly it could, although it's not certain that there is any great advantage in combining the telecommunicat,ions and letter-carrying systems, despite the example of Great Britain and others. However, it is clear that somebody, if not A. T. & T., could run it much better than the U. S. Congress and President can, or are allowed to by the political nature of things. At some point in future government deliberations over postal policies, a hardy soul ought to inquire into the reasons why the United States has the world's best telephones and the Western world's slowest mailbags. 15 The answers might cause some government official to say, in a somewhat facetious manner, "Hey, maybe we ought to turn the Post Office over to A. T. & T. and see what they could dol"

After the chuckles had subsided, a few thoughtful persons in attendance might conclude that this wasn't a bad idea after all. 15 At least in the metropolitan areas, according to The New York Ti,mes) November 27, 1955, U. S. News & World Report, February 7, 1958, and Newsweek, Ope cit. Some foreign cities (London, Paris, Berlin) have same-day delivery.