SUBSIDIES

Under existing laws, the Department must provide at its expense a number of subsidies. These subsidies are of two kinds-one in the form of reduced rates to users of the mails and special services, the other in the form of excess prices to suppliers of service to the Post Office Department.

On the one hand the Congress, for reasons of public policy, requires the Department, acting as representative of the Government, to subsidize postal service in certain fields with little regard for the relation between revenues and expenses or for differences in the cost of handling the various types of mail within specific classifications. According to cost ascertainment studies there is some subsidy in every classification of mail, including even first class mail,' and in all but one of the special services. In addition, there are several types of free mail which the Department is required to handle.

On the other hand, the Department has been subjected to external influences on its operating results because of the dictation of prices it must pay for certain services purchased. In such instances, where the Department cannot bargain for price in a free market but must pay a price established by another Government agency, the possibility of subsidy will always be present and the Department cannot be held entirely responsible for the net results of its operation. A clear example of this type of subsidy exists in the rates set for air mail transportation by the Civil Aeronautics Board. Such rates are set with a view not only to reimbursing the air carriers for services rendered but also to encourage the growth of the air transportation industry and to assist in maintaining its financial stability.

GENERAL

At the present time the Department is not in position to recommend to the Congress a full and proper charge for any of its services because it is not equipped to prove what reasonable costs of these services should be. The reasonable cost of any service can be determined only when the Department has established standards of performance, is in position to demonstrate that its costs reflect good operating methods, effective management, and reasonable productive efficiency, and knows what part of the price it pays for each purchased service represents a subsidy to the supplier of that service.

Until it is in position to prove what reasonable costs of its services are, the Department's rate recommendations to the Congress cannot carry proper weight. When it is in this position, the Department should have a strong voice in the determination of its rates. In the meantime, however, necessary revision of rates should not be postponed.

1 Although first-class mail as a whole shows a substantial profit, the current annual loss on penny postal cards, which are included in this classification of mail, is estimated to be around 50 million dollars.

While the Post Office Department should always place national interest above departmental expediency, if it is to be held responsible for carrying on a businesslike operation it should receive recognition for the subsidies which it provides or which it pays directly. Such recognition could take the form of specific subsidy appropriations approximately equal to the costs of the free services provided, that part of the cost of other services not covered by authorized rates, and the amounts required to be paid to suppliers of services in excess of the true commercial value of those services.

Services Performed for Other Agencies

There are good reasons why the nation-wide facilities of the Postal Establishment should be available to perform certain functions for other departments and agencies of the Government. There should be no question, however, that the Post Office Department is entitled to reimbursement in some manner for such services.

It should be immaterial to the Post Office Department whether it is reimbursed by a particular agency of the Federal Government for services performed for that agency or by an appropriation made by the Congress directly to the Post Office Department to defray the cost of that service. The simpler accounting in the case of direct appropriations would appear to outweigh any advantages of the other method. It is important, however, that the actual cost to the Post Office Department be identified and provided for either directly or indirectly.

There is no compelling reason for the Post Office Department to continue to be responsible for allocation of surplus office space in Federal buildings occupied in part by the postal service. Custodial services in such buildings, however, should continue to be performed under the jurisdiction of the postmasters. The post offices are operated longer hours than other offices in such buildings and the mail must always be adequately protected. It is better for the postmaster to exercise authority over custodial employees working in post office space, and it would be uneconomic for the Government to have two separate custodial services operating in a single building.

Relations With the Public, Large Users, and Suppliers

Every progressive business concern gives serious attention to the opinions and suggestions of the distributors, retailers, and users of its products and encourages them to express their ideas. As noted pre

viously, many companies organize actively to secure customer facts. Of equal importance in private business are the opinions and suggestions of suppliers of goods and services.

Through consideration of ideas from all such sources, successful sales plans are frequently developed, and cooperative undertakings to improve products and services or to reduce costs often take form. Product research, advertising, traffic, distribution, packaging, labeling, and many other problems are jointly and profitably considered.

The Post Office Department has neither a sales department nor a purchasing department comparable to those found in industry or commerce. It has neither the organization, policies, nor incentives. necessary aggressively to promote the sale of its services to the public or to foster active and imaginative working relationships with large users and suppliers. While it is recognized that limitations surround the steps which Government can take in such matters, much work of this nature could be carried on advantageously.

RELATIONS WITH THE PUBLIC

Public relations and advertising activities of the Post Office Department provide only the bare essentials. Publicity concerned with topics such as activities of officials, special events, new regulations, and service changes is regularly used and secures satisfactory attention from publishers.

Publicity and limited forms of advertising are used with varying degrees of success in appeals for public cooperation, such as "zone your mail" and "mail early" campaigns. The personal appearance of postal officials at public gatherings, occasioned by some celebration or issuance of a commemorative stamp, is another form of public relations and does much to gain good will for the Postal Establishment. A postal management with well-defined commercial objectives would find a broader use of organized public relations and advertising of great value. At the present time it could be put to better use in appeals for public cooperation. In the future it can conceivably become an important instrument of management in promoting new services and conditioning the public for possible curtailment or elimination of other services.

RELATIONS WITH LARGE USERS

Users of postal service, aside from the general public, include large business concerns such as newspaper and magazine publishers, mailorder houses, and direct mail advertisers. For years there has been only meager communication on common problems between these organizations and the Post Office Department, although the Congress has made some efforts in this respect. In fact, because of divergent viewpoints in rate matters, many mutually advantageous opportunities for joint effort seem to have been overlooked.

During the course of the work at the Post Office Department the Postmaster General accepted the principle that better service and economies might be derived from having the Department sponsor joint undertakings, and authorized a project suggested by Robert Heller & Associates for delivering, without addresses, certain magazines having wide circulation.

Post-office representatives were brought together with magazine publishers and it was jointly determined that if each publisher would furnish post offices with individual cards bearing the names and addresses of subscribers in the respective postal districts, letter carriers, by referring to these cards, could make delivery without previous sorting and re-sorting of magazines by clerks. Publishers, in turn, could eliminate stenciling or labeling operations and deliver to their subscribers copies in better condition as a result of less handling. The conclusion was unanimous that time and money could be saved for both the publishers and the postal service, and that the public would be better served through speedier delivery and less damage.

A test of this plan, involving the country's four largest weekly magazines and two monthly magazines, is in progress in two widely separated cities. Other suggested improvements, concerned with bulk handling of magazines and notification of changes of address, are also under test.

More cooperative work of this nature should pay off for the Post Office Department as well as for many large users of the mails.

RELATIONS WITH SUPPLIERS

Similar to the benefits to be expected from better working relationships with large users of the mails, much can be gained by more active attention to suppliers of goods and services. The railroads of the country are one example in this category. Railroads and the postal service have tremendous handling problems in the transportation of mails, which is a good field for cost reduction. Great strides in modernization of handling methods and equipment can be made if active steps are jointly taken. The railroads would undoubtedly cooperate.

General Comment

In this part of the report numerous references have been made to the deficiencies and difficulties in top management organization. It is important, therefore, to state that postal officials have used the facilities and administrative tools at their disposal conscientiously.

They are excellent public servants. Deficiencies seem primarily due to lack of incentive and a need for up-to-date policies and modern implements with which to manage.

Because of the control exercised over postal affairs by the Congress, regulatory bodies, the General Accounting Office, the Bureau of the Budget, and the Civil Service Commission, postal officials in the past have tended generally to abdicate responsibility for operating results beyond careful and conscientious adherence to legislation, regulation, and appropriations. They have been expense conscious rather than cost conscious.

Postal officials, unlike business executives, have, as previously stated, only a limited voice in determining the price of their products (postal rates) and in provision of operating funds (appropriations). By business standards they have inadequate accounting and statistical data with which to manage the affairs of the Department, and are tightly restricted in their control over wages and salaries and other personnel matters. Furthermore, the Department is called upon to provide uneconomic services and to absorb hidden subsidies which increase expense and enlarge deficits.

Aside from responding to constantly recurring investigations of special nature, postal officials are not required to demonstrate that the Department is providing satisfactory service at the lowest practicable cost. No yard sticks exist which are generally applicable for measuring service or efficiency. Postal management thus has no compelling reason to make a true accounting for productivity of manpower, facilities, and money; and inefficiency naturally follows. The owners of a progressive business would not long tolerate such a condition.

It can be said, with no reflection on postal officials, that circumstances beyond their control have created a philosophy of management which is sluggish, irresolute, and wasteful, rather than imaginative, decisive, and cost conscious. Furthermore, because certain key positions in the Department are regularly filled from time to time with political appointees, there is a lack of continuity of management and little incentive for self-improvement. While it may be shown that over the years postal methods have been improved and costs reduced, it has been an uninspired, low-geared effort which progressive business management would regard as mediocre.

In view of rising expenses and the current tax burden, it is to the public interest to correct these conditions at the earliest possible date. The Postal Establishment should clearly be put in business for itself, and on this basis management should be held strictly accountable by the Congress and the President for operating results. Such a move would present difficulties and would require a well-conceived, long-range program of modernization. It can, however, be accomplished on a progressive basis if seriously undertaken.