Mr. MCCLOSKEY. Thank you very much, Mr. Heath.

Mr. Myers.

Mr. MYERS. No questions, Mr. Chairman.

Mr. MCCLOSKEY. No questions.

Well, thank you, gentlemen. That was excellent testimony.

Let's take 5 or 10 minutes. Obviously, with all the issues developing now and that you raise, we could talk with any given one of you for 30 or 45 minutes and still be just starting. I have one basic simple observation: I was intrigued in reading Mr. May's statement last night as to something that maybe has no direct relation to the administrative policy and technical things we are covering today.

But, Tim, I thought it was interesting that you alluded to the Postmaster General process and the alleged failure of the Board of Governors or the Postal Service to develop leadership in the sense that it could not be the case that someone from inside is capable of running and improving the Postal Service. I have said that for years, and for some reason it always falls on deaf ears. Obviously this is no prejudgment of Mr. Runyon, I have very positive feelings about him, but I just think, no matter what, the best person in the world has at least an 18 months' learning curve, if you are Leonardo da Vinci on this, if you don't have previous postal experience. Can you comment on that?

Mr. MAY. Yes. I agree with everything you said, and to reinforce what I said before, this is the Board of Governors' judgment that no one in the Postal Service is capable. I don't make that judgment. I don't presume to know more than they do, but they have indicted themselves. If they are correct, in that four times in a row they have had to go outside to get somebody competent to run the Postal Service, then they have convicted themselves of gross negligence in permitting that situation to occur. They would be sacked from any board of directors they sat on in private industry if that board, four times in a row, had to go out and find somebody to run the company. Now that is a scandal.

I think probably they are wrong, that there have been people competent to run that agency from within. But, in any event, I don't think they fully understand how silly they look when they are kind of pointing the finger when they, themselves, are responsible for this failure, and it has got to end, because it is clear that part of this problem has been a lack of continuity. You can't have these constant turnovers, bringing in brand new people.

The new Postmaster General has got a wonderful reputation, and my hat is off to him for putting that reputation at stake. There aren't too many people that can survive the Post Office with their reputations intact, and we do owe him a debt. There are very few people that I can think of in private industry, who have his competence and his reputation, who would be willing to take on what may be the toughest job in town.

But we simply have to get out of this business of constantly going outside for new PMG's. It is ridiculous to believe that we cannot grow our own leaders within the Postal Service.

Mr. MCCLOSKEY. I appreciate your comments about service. Along the lines of just doing the work, I might say they are always just implementing automation, and it never gets structured quite right. We are having major backup problems now, as John may

know, in Indiana as far as people complaining to me, and I'm going to hold a hearing on this soon in Indiana.

It has taken 6 days for mail to travel a mile in Bloomington, IN, from the east side to the west side, and it is getting to the point that I'm hearing from all over my district. An Indiana Bell bill mailed in the same town or 10 miles taking 6 days for delivery. You cannot rely on the 6 days for the posting with confidence that your bill is going to be paid.

The feelings I am getting and having read the GAO report recently, I think there is more on the line than the Postal Service believes right now. We have been over and over this with Mr. Sackler and others, but I am very concerned that the Postal Service realize, as I said at a hearing the other day, that in 5 or 10 years, with all the competition and all the perceived problems right now, they could be radically down-sized.

Mr. SACKLER. I couldn't agree with you more, Mr. Chairman, about that. Looking ahead to the year 2000 and beyond, the signs all look very adverse, maybe even ominous, for the Postal Service, and I think everyone has to take a hard look at what we are going to want and need by that time.

Mr. MCCLOSKEY. I did not get a chance to study your testimony, Mr. Bair, but is there any difference between you and Mr. May on the UPS parcel post relationship?

Mr. BAIR. I think we are concerned that the distinction that we feel books should enjoy over other kinds of parcels be continued to be maintained. We feel that books have a special place in the system and that it was Congress' intention to give to books special rate treatment. So to the extent that that distinction is maintained, I think we are in total agreement with the parcel shippers. The parcel post needs to be able to compete, needs to be freed from some of the shackles of the ratemaking process as long as, in the process, the book rates don't get hurt.

Mr. MAY. Yes. We have no disagreement with the book publish

ers.

Mr. MCCLOSKEY. Okay.

Would any or all of you care to comment on the March GAO report on demand pricing? Is there substantial agreement, or are there any reservations?

Mr. MAY. Certainly we totally agree with it, and it is what we have advocated for 20 years for parcels. As a matter of fact, the Postal Rate Commission has been engaging in demand pricing for parcel post in the last several cases. They have recognized this price sensitivity. Why they haven't carried that over into other classes of mail, particularly third class, is a mystery to me, but they have done it for parcel post.

Mr. MCCLOSKEY. Art, do you have any observations on that?

Mr. SACKLER. Yes, Mr. Chairman. Demand pricing is something that I would hesitate to say there is absolute unanimity in the business community or even within the Council on, but certainly a lot of the mailing community would be very interested in seeing the Commission take a much closer look at that and incorporate it into its calculus.

Mr. MCCLOSKEY. Okay. I appreciate your good efforts today.
Does anyone have any further observations?

Yes, Mr. Heath.

Mr. HEATH. Mr. Chairman, I would just like to say that in working with the NNA and on the Competitive Services Task Force, although there was some considerable support for the demand pricing, our feeling at the NNA and also among, I thought, many members at least of the Competitive Services Task Force was that if delivery were correct and if the regulations were less of an obstacle— as long as there is no revenue lost to the Postal Service-that significant volume could be retained. So we think that is where the emphasis really needs to be placed: on delivery, on credibility, and on regulation simplification.

Mr. MCCLOSKEY. All right. Thank you very much. I really appreciate it.

Our second panel includes: Ian D. Volner, general counsel, Advertising Mail Marketing Association; and Mr. Michael McSweeney, chairman, Direct Marketing Association, accompanied by Richard Barton, senior vice president of the Direct Marketing Association.

Good morning, gentlemen-Mr. McSweeney, Mr. Barton, Mr. Volner. You have a certain familiarity with the committee and the materials. As you know, your statements have been accepted for the record, and please proceed as you are most comfortable. Mr. McSweeney, we will call on you for the kickoff here.

STATEMENTS OF MICHAEL MCSWEENEY, CHAIRMAN, DIRECT MARKETING ASSOCIATION, ACCOMPANIED BY RICHARD BARTON, SENIOR VICE PRESIDENT; AND IAN D. VOLNER, GENERAL COUNSEL, ADVERTISING MAIL MARKETING ASSOCIATION

Mr. MCSWEENEY. Very good. Thank you, Mr. Chairman and members of the committee. I appreciate the opportunity to testify this morning.

My name is Michael McSweeney. I'm actually here in a dual role. I am chairman of the Direct Marketing Association's Government Affairs Committee. I am also president and CEO of DIMAC Direct, which is a large direct response advertising agency with locations throughout the country. DMA, as you are probably familiar, is a trade association representing in excess of 3,000 member companies throughout the United States, all not only engaged in but highly dependent upon the U.S. Postal Service. We have a vested interest in all categories of mail-first, second, third, and fourth-and most all of the subclasses thereto.

We are in dire concern over the future of the U.S. Postal Service not only for our industries but for our society in total. As you are well aware, there have been in excess of 50 percent, in some cases up to 80 percent, increases in postage rates over the past 4 years. This onerous level of increase has literally wiped out many, many companies, and we tend to talk very generically about companies; companies are people, and, most important, it has wiped out literally thousands of jobs across this land; many companies have gone out of business. Further rate increases which, unfortunately, are almost inevitable will simply exacerbate that situation.

The volume decreases which you have heard about in earlier testimony and were well aware of even prior to these hearings have hurt the USPS to an extreme degree. Further decreases in volume will simply drive up the price of a third-class stamp which the individual citizen throughout the country will cave under in time.

As you have heard and are well aware, companies out of desperation are seeking alternate forms of delivery. They are also moving to other advertising media. Throughout the eighties, we saw unprecedented growth in mail volume and in direct mail advertising. The most recent figures have come out for 1991, and the projections for 1992 show that even as a percentage of the total advertising marketplace direct mail is slipping. It is being eclipsed by, of all things, network television, which, we have heard, has been on the decrease for some time, but the latest projections are that that will grow at a greater rate than will third-class mail.

There are three main reasons, I believe, for the high rates and the loss of business both to the Postal Service and to the private sector. No. 1 is the failure of the Postal Service to contain its costs, No. 2 is a severely flawed ratemaking process, and No. 3 is a historically operations-oriented Postal Service versus a customer service-oriented operation.

The first one, the failure to contain costs-it is absolutely critical that that be reversed. Costs are running far, far ahead of inflation. The current projection calls for a $2 billion deficit for the current year. That will lead to a further rate increase which will be crushing to the industry. Congress and the administration have hit the U.S. Postal Service with an excess of $9 billion in unwarranted costs. Recognizing that this originates with the OMB and that this committee has gone on record in opposition to the increase, we are deeply grateful for that action. However, the Congress in total has supported the increase, and this absolutely must stop; it is intolerable for the Postal Service.

Next is the strategic plan, which was introduced a couple of years ago by Tony Frank, calling for the Postal Service to maintain rate increases at least 2 percent below the rate of inflation. As we know, they have fallen dismally short of this objective. However, I think that it is critically important that we hold their feet to the fire on this and encourage them strongly to get back on track on their own strategic plan.

We are encouraged as an industry by the appointment of Marvin Runyon. I certainly share the sentiments which were expressed by the chairman, by the committee, and by the previous panel regarding the lack of ability to promote an insider to the Postal Service. That said, we are encouraged by Mr. Runyon and have high hopes for his accomplishments within the Postal Service.

We are also encouraged by the strong statements which were entered into testimony before this committee in earlier phases of these hearings by the Deputy Postmaster General Michael Coughlin and also by Norma Pace. We certainly hope that those statements will come to fruition.

We encourage the Congress to allow the Postal Service to do what is necessary to cut costs, or ultimately there will be many, many fewer jobs within the Postal Service and within the private sector. The ratemaking process itself we recognize as being severely

flawed. We agree strongly-not totally but strongly-with the GAO report that failure to price competitively has severely impacted the Postal Service. We also agree with the Institute for Public Administration report which came to a similar conclusion. The Joint Task Force between the Board of Governors and the Rate Commission is a step in the right direction. The DMA certainly supports that effort.

Congress should be very sensitive to these reports and to the actions necessary, and if it comes down to it, although we believe that most of these key recommendations can be implemented through rulemaking within the respective institutions, we encourage Congress to be sensitive to passing the necessary legislation.

We also believe that the Postal Service must continue its efforts to move more into a customer service orientation versus an operations orientation. We commend the Postal Service for strides that have made in that direction, but they have a long, long way to go, as is recognized right within the State of Indiana in the example that you just used, Mr. Chairman.

We are encouraged by the work of the Competitive Services Task Force which the Postal Service has implemented. It is developing recommendations that would make the USPS more user friendly and more sensitive to the necessity for cost containment. Congress must continue to encourage this trend. We believe we can achieve the goal of a healthy, competitive USPS if we-meaning the mailing community, the Congress, and the Postal Service continue to work together.

Thank you, Mr. Chairman. I appreciate your time and attention. [The prepared statement of Michael McSweeney follows:]