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How to deal with the growing incentives competition

This article was originally published in the Columbia FDI Perspectives series of the Columbia Center for Sustainable Investment, #131, September 29. I have left it largely unchanged, except for adding a link and a comment, and correcting a grammatical error.

 

As I discussed in an earlier Perspective,[1] the use of investment incentives is pervasive and growing. The most recent example [this was completed prior to the Tesla auction] of a big bidding war was when Boeing threatened to move production of its 777-X aircraft out of Washington state, prompting some 20 states to offer incentive packages to the company (including $1.7 billion from Missouri). In the end, Washington gave Boeing a package of tax incentives worth a record-breaking $8.7 billion over the 2025 – 2040 period to stay, and the unions made substantial concessions regarding pensions.

What can be done to control such auctions, which are often international in scope? The most robust control method, regional in scope, is embodied in the European Union (EU) Guidelines on Regional Aid. These rules guarantee transparency, set variable limits (in terms of “aid intensity,” which equals subsidy/investment) for aid levels based on each region’s per capita income, and reduce the value of aid to large investment projects over €50 million. They require projects to stay at least five years and mandate the use of clawbacks for firms that fail to meet their commitments in investment contracts. Moreover, the guidelines provide demerits for firms in a dominant position in their industry, although they do not mandate a particular reduction in aid.

The other international control measure comes under the World Trade Organization (WTO) Agreement on Subsidies and Countervailing Measures. While these rules are more tailored to production subsidies than to investment incentives, the latter certainly come under the purview of the Agreement as well, as illustrated by the EU’s successful complaint against subsidies for Boeing in the states of Washington, Illinois and Kansas.

However, this case also illustrates the limits of WTO subsidy control. The EU has already filed a compliance complaint,[2] and there is little likelihood the United States (US) will comply anytime soon (the US Trade Representative’s office claims that the US has complied, but as long as the state and local tax credits continue in Washington state, that is not correct). Indeed, as mentioned, Washington state has approved a new round of subsidies for Boeing that is likely to initiate a new WTO dispute.

While the WTO rules require frequent notification of subsidies, there is no penalty for failure to notify, with the result that subsidy notifications are of very uneven quality. Federal states outside the EU frequently make poor quality notifications regarding subnational subsidies. Finally, the TRIMs and GATS agreements regulate performance requirements, but not investment incentives.

What, then, can be done against incentives competition? First, there must be continuing efforts to improve the transparency of location subsidies. This is necessary for jurisdictions to make effective investment promotion policy (especially in a region such as the European Union and the United States, where there are many competing governments) as well as for international policy discussion.

Second, the EU’s example shows that incorporating subsidies rules into regional agreements can be a fruitful way to bring bidding wars under control. For many products, such as automobile assembly and steel, corporate location decisions still focus on a single region, meaning that such rules would be geographically comprehensive enough for a variety of industries. Consequently, major stakeholders—including the Columbia Center on Sustainable Investment, the International Institute for Sustainable Development, the United Nations Conference on Trade and Development, the World Association of Investment Promotion Agencies, the International Monetary Fund, the World Bank, and the Organisation for Economic Co-operation and Development—should unite in promoting location subsidy guidelines within regional trade areas. There are no doubt numerous other non-governmental organizations that would endorse such a move.

Third, WTO notifications should be strengthened. Incomplete notifications should be flagged and countries involved should be pressured to give cost estimates for subsidies at all levels of government. Still, it is difficult to envision that sanctions for non-compliance will be introduced.

Fourth, no-raiding zones could be a first step for countries to negotiate controls over investment subsidies. A no-raiding agreement simply commits a state to not give a subsidy to relocate an existing facility from another state; it would not apply to new investments. Their track record is mixed—several agreements among US states failed quickly, but Australia (2003-2011) and Canada (1994-present) have been more successful.[3] Despite these mixed results, it is easier to demonstrate to policymakers the futility of relocation subsidies, since they create no new jobs, than it is to do for incentives for new investment, which could make this a more feasible first step.

Though national and subnational jurisdictions have incentives to offer location subsidies, these proposed measures would help keep their value to more reasonable levels with a lower likelihood of distorting competition and international investment flows.

 

[1] Kenneth P. Thomas, “Investment incentives and the global competition for capital,” Columbia FDI Perspectives, No. 54, December 30, 2011.

[2] Emelie Rutherford, “EU wants $12 billion in U.S. sanctions over Boeing subsidy spat,” Defense Daily, September 27, 2012.

[3] Kenneth P. Thomas,  “Regulating investment attraction: Canada’s Code of Conduct on Incentives in a comparative context,” 37 Canadian Public Policy, 3 (2011), pp. 343-357; Kenneth P. Thomas, “EU control of state aid to mobile investment in comparative perspective,” 34 Journal of European Integration 6 (2012), pp. 567-584.

From: Kenneth P. Thomas, “How to deal with the growing incentives competition,” Columbia FDI Perspectives, No. 131, September 29, 2014. Reprinted with permission from the Columbia Center on Sustainable Investment (ccsi.columbia.edu).

Cross-posted from Middle Class Political Economist.

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Cleveland Plain Dullards

You’d think that, by now, people would understand that, once it is on the web, there is no point locking the barn door after the cat has gotten out of the bag.

This is today’s hot meme

The Cleveland Plain Dealer filmed (and posted) a joint interview with current (and likely re-elected) governor John Kasich and challenger Ed Fitzgerald. Kasick pretended Fitzgerald didn’t exist, repeatedly refused to answer a question and generally acted like a Republican.

The Plain Dealer endorsed him anyway. Then they removed the video from there web site. I guess they stand for the principle that it’s not news if it makes the candidate they prefer look bad (that’s journamalism 101).

Then a site of which I have never heard posted the video and, evidently determined to make sure it got maximum exposure “The Northeastern Ohio Media Group, a business partner with the Plain Dealer newspaper in Cleveland, has demanded that an Ohio liberal political blog pull a video of Gov. John Kasich’s awkward interview with the newspaper’s editorial board.”

As a result, the video is, as I type this not available only at the obscure* Plunderbund**

But also at
Eschatonblog
Talking Points Memo (same link as above)
Balloon Juice
Wonkette

and, well you get the picture.

All those sites link to a YouTube video which will be taken down. However, YouTuber John Manyjars (whom you really really want to follow) can e-mail it to others who can post it (for example to robert.waldmann@gmail.com).

Kasich is way ahead in the polls and will probably win in spite of the efforts of the Northeastern Ohio Media Group to suppress a video which is embarrassing to him. However, someone at the Northeaster Ohio Media Group has demonstrated not only complete contempt for journalism but also utter total incapacity to understand current media.

If it’s on the web, it can’t be suppressed and trying to suppress it is not only an attempted assault on the public’s right to know but also utter total idiocy.

Update: Better late to the pile on than never, The Daily Kos shows it’s huge number of readers the link

THU OCT 30, 2014 AT 10:35 AM PDT
John Kasich dodges question on his rape crisis counselor gag rule, bratty kid style

I wondered where they were. Now I’ll check
Media Matters (still nothing)
and
Crooks and liars.(still nothing)

*to me, but I’m not from Cleveland, although my mother is.

** update 2. Typo corrected. Thanks to Jason in comments

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Boehner Making a Point on Bush Foreign Policy as Compared to Obama’s

Click on the Post

Boehner is talking about a man who put the minimum amount of time in at his National Guard air base of duty, failed to qualify as a pilot in 1972, and was subsequently grounded. Guess flying missions in Vietnam was out of the question?

But according to Boehner in a “my dad would whip your dad moment,” Bush would have punched Putin.

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Scott Brown Solves the Mystery of What All Those Mega-Corporations Are Doing With Their Record Profits

They’re spending it on lawyers!

I’m not kidding.  Brown told a 27-year-old Fidelity Investments retirement specialist that big corporations can’t afford to hire people because they’re spending so much money on lawyers.  Which they have to do because of all those regulations.  Which is why he wants to “loosen regulations on big companies”: “So they could spend more money on hiring instead of on lawyers.”

And to think that I thought he wants to loosen regulations on big companies because the owners of one of the biggest companies of all—Koch Industries, which can afford to hire as many people as it wants, despite its big attorneys’ fees—wants loosened regulations and is spending huge sums of money to buy his election.  Silly me.

Obviously, I’m wrong about that, because the 27-year-old Fidelity Investments retirement specialist—her name is Erin Henson—accepted this and now plans to vote for Brown.

Although there also is another reason she’s decided to vote for him.  His opponent, Sen. Jeanne Shaheen, has been highlighting her support for small businesses.  “Her ads show her walking around Main Street, America — that means nothing to me,” Henson told Associated Press reporter Holly Ramer, who’s in New Hampshire covering the race.  “I don’t think small businesses are going to be the wave of the future for people of my generation. I think she’s a little too focused on the little guy, and I’m not the little guy.”

No, she’s not the little guy. But her clients will be if they don’t change financial advisers, since their current one doesn’t keep up with corporate-profits news.  And if her supervisors at Fidelity read the AP article and realize that she’s clueless about current corporate profits and about what big corporations do with those profits, she might soon become a little guy herself.

Unless, of course, Paul Krugman’s been pulling my leg.

Shaheen should point this out.  If Brown isn’t aware that U.S. corporations are seeing record profits, and if he actually believes that the reason that companies aren’t hiring more than they are is that their regulatory lawyers’ fees are so high, he’s probably not someone most people would want in the U.S. Senate.  I mean, what if he becomes chairman of the Banking Committee or the Finance Committee?

Then again, Ms. Henson’s a Fidelity Investments retirement specialist, and she thinks Brown is onto something.  Although on second thought, I’m guessing that if Brown wins, Henson plans to recommend that her clients invest in those derivatives that bet against the stock market.

____

ADDENDUM: Does anyone know how to reach someone high up in Shaheen’s campaign or in the DSCC?  I saw Ramer’s report on Yahoo News yesterday; it’s my opening page on Chrome.  But it certainly wasn’t a big political story–I just happened to catch it—and neither the Shaheen campaign nor the DSCC may be aware of Brown’s comments.  But this is exactly the kind of thing that the voting public should be told of, because it really does get into the essence of public policy.

So, please, if anyone knows how to reach someone high up at the Shaheen campaign or at the DSCC, and cares about the outcome of the Senate elections: Can you contact whoever and pass along the link to my post here?  Even reaching someone important in Harry Reid’s office might work.

Political pundits, our-side economists … anyone who can reach someone, directly, who matters ….

I mean it.

Thanks!

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How Do Households Build Wealth? Probably Not the Way You Think. Three Graphs

Work hard. Save your money. Spend less than you earn. That’s how you become wealthy, right?

That’s not totally wrong, but if you think that’s the whole story — or even a large part of the story – you may be surprised by this graph:

Screen shot 2014-10-28 at 8.45.12 AM

(Note: these are not realized capital gains, which really only matter for tax purposes. If the value of your stock portfolio or house goes up for twenty or thirty years, you’ve made cap gains even if you haven’t “realized” them by selling.)

Household “saving” — households spending less than they “earn” – contributes a remarkably small amount to increasing household net worth. And that contribution has shrunk a lot since the 90s.

Screen shot 2014-10-28 at 9.00.09 AM

The accounting explanation is simple: “Income” doesn’t include capital gains; it comprises all household income except capital gains. So capital gains are also absent from “Saving” — Income minus (Consumption) Expenditures. (This is why HouseholdSavings1 + HouseholdSaving ≠ HouseholdSavings2 — not even vaguely close.)

The capital gains mechanism appears to dominate the ultimate, net delivery of rewards to household economic actors. Earning more and spending less is weak beer by comparison.

What does this say about our understandings of how the economy works? Does economists’ fixation with “saving” provide a useful picture of macro flows in the economy? Since asset ownership is hugely concentrated among the wealthy (even real estate), can we think about the economy’s workings at all without looking at distribution? Does this dominant mechanism allocate resources “efficiently,” or deliver the kind of incentives that make us all better off? And etc.

There’s much more I’d like to say about this reality, but I’ll just provide one more graph for the time being and let my gentle readers ponder the bare facts.

Screen shot 2014-10-28 at 9.10.30 AM

The spreadsheet’s here. Have your way with it. (It’s kind of messy; drop a line with questions).

Cross-posted at Asymptosis.

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"Cake without Flour" — Duncan Foley on the Dilemmas of Economic Growth

by Sandwichman (at Econospeak)

“Cake without Flour” — Duncan Foley on the Dilemmas of Economic Growth
The following excerpt is from Duncan Foley’s outgoing Presidential Address to the Eastern Economics Association, “Dilemmas of Economic Growth,” presented March 9, 2012 (Reprinted by permission from Macmillan Publishers Ltd: Eastern Economic Journal (2012) 38, 283–295 published by Palgrave Macmillan). The title is an allusion to Herman Daly’s parody of Cobb-Douglas production function hyperbole “as implying that it is possible to bake a cake without eggs or flour as long as the cook whisks the empty bowl faster and faster.”

CAKE WITHOUT FLOUR

Some growth economists might regard the considerations we have just reviewed as rather quaintly anachronistic in putting so much emphasis on the material nature of economic production. Well-established patterns of economic growth show that as incomes rise, the proportion of output as measured by such indexes as real GDP consisting of material goods steadily declines. The major sources of growth in incomes (and, given the way we measure GDP, in indexes of output) shift to the tertiary sector, particularly services. The chief input to services is human intelligence, and at least in some accounts, intelligence is an unlimited resource. So why couldn’t real GDP, measured to include the use-value of services, continue to grow without limit?
There are some immediate problems with this conception. (below the fold)

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Volatility in the Emerging Markets

by Joseph Joyce

Volatility in the Emerging Markets

Volatility has returned to the financial markets. Stock prices in the U.S. have fallen from their September highs, and the return on 10-year Treasury bonds briefly fell below 2%.  Financial markets in emerging markets have been particularly hard hit,. The Institute for International Finance estimates that $9 billion was withdrawn from equity markets in those countries in October, while the issuance of new bonds fell.

The increased volatility follows a period of rising allocations of portfolio investments by advanced economies to assets in the emerging market economies. The IMF’s latest Global Financial Stability Report reported that equity market allocations increased from 7% of the total stock of advanced economy portfolio investments in 2002 to almost 10% in 2012, which represented $2.4 trillion of emerging market equities. Similarly, bond allocations rose from 4% to almost 10% during the same period, reaching $1.6 trillion of emerging market bonds.

The outflows are due to several factors. The first, according to the IMF, is a decline in growth rates in these countries below their pre-crisis rates. While part of the slowdown reflects global conditions, there are also concerns about slowing productivity increases. China’s performance is one of the reasons for the lower forecast. Its GDP rose at a rate of 7.3% in the third quarter, below the 7.5% that the government wants to achieve.

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By Default or Design: The Demise of the Postal Service

Guest Post by Mark Jamison, retired Postmaster Webster, N.C.

This post originally appeared on Save The Post Office Blog. This is Part 2 of three posts and following Invisible Hands: The Businessman’s Campaign to Dismantle the Post Office.

Default.  It’s an ugly and dangerous word.  It gives the impression that the individual or enterprise attached to it has utterly failed.  It implies defeat and irresponsibility.  

The news media use the word with relish.  Like a car crash, a hurricane, or a murder, it sells newspapers.  Combined with the word “bailout,” it’s also a surefire way to advance a particular political agenda.

On August 1, 2012, the United States Postal Service did not make a payment of $5.5 billion to the United States Treasury.  On September 1st the United States Postal Service will fail to make a second payment to the Treasury of $5.6 billion.  The Postal Service, blare the headlines, is thus guilty of an “historic default.”  But it’s all hot air.  The Postal Service is simply not making payments it should never have been required to make in the first place.

Whose fault is the default?

The two payments behind all the headlines were prescribed by the 2006 Postal Accountability and Enhancement Act (PAEA).  The payments were ostensibly designed to pre-fund the health benefits of future retirees from the Postal Service; but, they were actually nothing more than an accounting place holder used by Congress to mask federal budget deficits and to satisfy an arcane accounting system that exists primarily to deceive and dissemble. 

invisible hand

In 2002, an examination of the postal pension liabilities revealed that the Postal Service was actually overpaying into one of its pension fund by tens of billions of dollars.  But lowering the payments would have added to the federal deficit, so Congress had the Postal Service put the money it was saving from reduced pension payments into an escrow account.

A few years later, when PAEA was being crafted, Congress created a retiree health care fund, and shifted the money from the escrow account to the new fund.  It also mandated that the Postal Service pay off the balance of its retiree health care liability in ten years.  A forty-year payment schedule would have been totally adequate, since the fund was intended to cover retirees for the next seventy-five years, but the payments would have been too small to balance out what the federal government was losing with the reduced pension payments.

The retiree health care fund now has in excess of $44 billion.  As it grows with interest, the fund will have more than enough to cover the costs of retiree health care for decades to come.  The fund, it’s important to note, is not being used for current retirees.  As with most businesses, that expense is paid for out of current revenues, on a pay-as-you-go basis.   The $5 billion payments to the fund were excessive to begin with.  They are now totally unnecessary.

Yet in spite of all this, the word DEFAULT issues from the lips of Congressmen as a foul epithet.  It reverberates through the media as an example of the failure and profligacy of government.  It is worn as a talisman of triumph by those who insist that government cannot, will not, and must not succeed in a utopian world of free unfettered markets.

invisible hand

The Postal Service has over $320 billion dollars in its pension and health care plans.  These plans are widely recognized to be significantly overfunded.  Claiming that the Postal Service has failed to meet an obligation and has therefore defaulted is a little like saying that a man who fails to add a monthly payment to his multi-million dollar 401K ought to file for bankruptcy. 

Claiming that the Postal Service has defaulted is merely an excuse to further the notion that the Postal Service is an anachronistic dinosaur that ought to be broken up or privatized.  It’s also a means for Congress to avoid and evade its responsibilities to govern effectively.

The reality of the situation is that several groups and forces have combined, through ignorance and cupidity, to dismantle a significant piece of our national infrastructure and to eliminate 500,000 good, solid middle-class jobs. The truth, at this point, is that the fate of the Postal Service is the result of a bad dream, a dream that has us on a runaway train heading for a cliff.  Solving the problem is less a matter of saving the train than simply waking up.

It was a very bad year

I’ve written many times over the past year, on “Save the Post Office”, other websites, and filings with the Postal Regulatory Commission, about the value of the postal infrastructure, the mismanagement of the Postal Service, and steps that could be taken to put things on the right track.

Last August, in post entitled “The Perfect Storm: How everything is coming together to take the Postal Service apart,” I suggested that Patrick Donahoe may go down in history as the last Postmaster General of the United States Postal Service and that he would almost certainly be considered the worst PMG of all time because of his substantial efforts to dismantle and decapitate a cherished national institution.

invisible hand

In “How to Save the Postal Service Before It’s Too Late,” I offered a series of modest, reasonable, and realistic proposals designed to both calm the growing mentality of crisis surrounding the Postal Service and to begin updating the business model of the Postal Service so it could build on its significant assets and retain its relevance into the 21st Century.

Over the past twelve months, the situation has only gotten worse.  It’s been an endless stream of overwrought claims of impending disaster.  The fire has been stoked by the media, which look for conflict and controversy rather than reason and fact.  The crisis mentality has been furthered by a Congress that seems of incapable of discerning the public interest, let along legislating and governing in a responsible manner.  The situation has been exploited by ideologues, who have used it to advance their agenda of privatization, and by many stakeholders in the mailing industry, who have licked their lips over the prospect of a postal system operated for their benefit alone.

There is a great deal of blame to go around — virtually everyone involved in this theater of the absurd has failed in some manner — yet the simple fact of the matter is that we stand today in a situation that can be easily and reasonably resolved to the benefit of the American people.  A great and useful institution has been damaged and demeaned.  Tens of thousands of jobs have been lost, while ill-considered and even idiotic plans have been advanced.  But the damage is all self-inflicted.  Despite the weighted words of “default” and “bailout,” the postal crisis — at least the one grabbing all the headlines — is essentially fictitious and fraudulent.

An infrastructure that builds infrastructure

The Postal Service has been and continues to be an essential infrastructure.  It furthers our democratic ideals and our commercial opportunities.  The postal network — the thousands of facilities and plants, the millions of miles of routes, the machinery and data processing capacity that supports everything, and the human capital that drive the network — the mailhandlers, clerks, carriers, and postmasters — is a useful and important piece of our national infrastructure.

invisible hand

Yes, electronic communication, the Internet, cell phones, and all the other modern means of moving information have challenged the postal system.  But the postal network has adapted to technological change before and remained not only relevant but an important driver in the utility and productivity of new technologies.

Those who think that the postal network is no longer valuable should read the recent report from the USPS OIG, Postal Service Contributions to National Infrastructure.  As the report makes clear, the postal infrastructure has enabled the country to grow, businesses to prosper, and new technologies to evolve.  Even in today’s advanced electronic environment, there is still considerable value and benefit in being able to deliver to every house and business, six days a week. There is still considerable value in having a positive and useful government presence in small towns and communities in every corner of the nation.  There is still considerable value in having a means to distribute the printed word across a neutral and trusted network, as well as a system for handling voting by mail.

In addition to the value of the infrastructure and the ongoing opportunity it offers for business and commercial development, one cannot easily discount the social value of the network.  The Postal Service has offered meaningful and worthwhile employment to millions of Americans, and it has lifted many families into the middle class.  We hear all about how postal workers are paid too much and receive benefits that are too generous, and how this is an unfair burden to taxpayers.  But postal workers do not receive a dime of taxpayer money.  Their salaries and benefits have been fully paid for by reasonable and sustainable postal rates that are among the cheapest in the world.

invisible hand

The postal network has bound the nation together by making the commerce and goods produced in one part of the country available throughout the country.  Thanks to the postal system, a person in a remote region of rural America can shop for the same products as a person in a busy metropolitan area.  Certainly television and the Internet now offer windows into other worlds, bringing the world to our living rooms and now even our phones, but as broadening as those connections are, they lack the unique capacities offered by the physical connections embodied in the postal network.

We have built a tremendous asset in the postal network, yet most of our leaders — our elected representatives in Congress and the executive officers of the Postal Service — seem willing to simply disassemble that asset and consign it to irrelevance or worse.  This cavalier treatment of an asset owned by the American people borders on the criminal.  What is worse, the reasons they offer for what they’re doing are as thin as the paper we claim to no longer need.

The postal network offers unlimited potential.  It could be used to assist local and state governments in their missions.  It could be used to assist federal agencies, the way it helps with the census and elections. The use of the postal network could save millions if not billions of dollars in taxpayer money if we allowed it to be used effectively and efficiently by other governmental bodies.  The network also offers huge potential in data and resource collections through mobile sensors on postal vehicles.  Its vehicle fleet could be used as a proving ground for new technologies.  Its facilities could be early locations for charging stations.

The only thing that stands in the way of a more productive use of this national asset is our lack of imagination, our parochialism, and our ideological inflexibility.  The promise of binding the nation together is an open and ongoing one, providing we are prepared to acknowledge the potential of the postal network.

Instead, that potential is being lost.  Instead of dedicating ourselves to finding value in our national infrastructure, we have donned blinders of self-absorption that limit our vision to only those things that offer immediate return.  The financial crisis was driven by this narrowed vision of immediate gain, and our failure to find a robust recovery is rooted in the same blindness.

Taking the service out of the Postal Service

Once the Kappel Commission of 1968 laid the foundation for the new Postal Service, the agency’s leadership has been fixated on the idea that it must become something other than what the Founding Fathers created it to be.  Rather than performing the essential and necessary work of binding the nation together, the leadership of the Postal Service has been seduced by the idea of privatization. They may not always call it that, but the fact is that when your goal is to jettison every characteristic that makes the postal system a service infrastructure in favor being “more businesslike,” then ultimately the goal is privatization.

invisible hand

Patrick Donahoe and the current Board of Governors represent the culmination of forty years of dishonest thinking.  Their plans spell the destruction of a public postal network.  They would turn the country’s postal system into a private logistics company. The healthcare prepayments mandated under PAEA and much else that Congress has done are part of what’s behind the current crisis, but Mr. Donahoe and the BOG are also part of the problem.  Their actions have served to undermine the stability of a national institution, and thanks to them, there are 400,000 fewer good paying jobs than there were five years ago.  They say the cuts have been made necessary by declining mail volumes, but Mr. Donahoe and the BOG seem congenitally unable to tell the truth about the state of postal affairs.

One need only look at the Postal Service’s offerings in the Nature of Service Cases before the Postal Regulatory Commission.  In the five-day case, the Postal Service sought to cut 17% of service for about a 3% savings.  In the network rationalization case, they withheld research that showed huge revenue losses as a result of the proposed changes in service standards.  In PostPlan, they propose to reduce service to 13,000 communities for virtually no cost savings. Worse, the plan is little more than a political sop to disguise office closings.

The sum total of their plans has been nothing short of massive reductions in service with the goal of abdicating their responsibilities to provide universal service.  The plans are poorly conceived and poorly presented.  More often than not, they have been revised on the fly, as expedience and publicity requires.  That’s because the plans lack any fundamental basis in preserving our postal system.

invisible hand

The BOG and Mr. Donahoe have not acted as managers entrusted with a national asset. They have acted more like vulture capitalists stripping the organization of its assets so that what’s left can be sold to the highest bidder.

If the Postal Service stands in dire straits today, it’s because those charged with running the service have done everything in their power to gin up a crisis.  Each month, Mr. Donahoe and his senior managers offer up another prediction of doom.  We’re told there’s a cash flow crisis, but somehow there are billions of dollars available to spend on unproven and still unproductive systems like the FSS machines.  We’re told that volumes are falling precipitously due to the Internet, but instead of showing all the ways it’s adapting to the new environment, the leaders of the Postal Service make ever more hyperbolic predictions of doom.  What prudent business that uses the Postal Service wouldn’t be making alternative plans right now?

invisible hand

The management culture of the Postal Service is rotten and bankrupt.  For years we have heard reports of managerial bullying.  Just the other day, an arbitrator took the unprecedented step of requiring a District Manager to apologize for the ongoing atmosphere of bullying in offices in the Los Angeles area.  Many have heard the story of Jerry Lane, the former Cap-Metro Area Vice-President who left the Postal Service after assaulting an employee.  How does someone like that reach such a senior position anyway? The behavior that resulted in his “separation” was neither unique to him or others in the organization.

Whether it’s fudging numbers to make a plan more palatable or looking the other way at abusive managers, the senior management of the Postal Service has lost the capacity to be self-critical.  The problems of the Postal Service can be attributed, at least in part, to a management culture and a senior management that have become hopelessly dysfunctional.  No solution to the postal crisis that does not include a restructuring of the senior management and a thorough housecleaning at L’Enfant Plaza will be effective.

Where’s a Congress when you need one?

While senior postal management bears the lion’s share of the blame for our current circumstances, Congress owns the problem.  As the day of the faux default approached, we saw senators screaming that their colleagues in the House were letting the American public down by not acting on a bill to resolve the situation.  But in doing so, they unnecessarily amped up the already overheated rhetoric with misleading talk of “$25 million a day” losses and the impending default.

invisible hand

The leadership in the House has run from its responsibilities.  Darryl Issa, chairman of the committee with oversight responsibility for the Postal Service, has offered prescriptions that would immediately destroy the Postal Service.  At least Mr. Issa is ideologically consistent.  He stands for a view of America and the American economy that leaves most of our citizens behind and actively denigrates government.  His offerings on postal matters reflect that.  It’s no wonder that his colleagues do not support his bill. It’s easy to argue that Mr. Issa may be the biggest beneficiary of the current situation. When words like “default” and “bailout” start getting thrown around, his radical solutions don’t seem so radical.

The problem is that if the House were to act tomorrow on the bill already passed by the Senate, we would simply be taking bad legislation and making it worse.  Tom Carper, the Democrat from Delaware, plays the point man in postal legislation.  His prescriptions are, for the most part, endorsements of the course Mr. Donahoe and the BOG have set.  They dismantle the institution and the postal network and harm hundreds of thousands of postal employees and thousands of American communities.  Mr. Carper’s proposals seem designed to satisfy the direct mailers, which is no surprise since they are major contributors to Mr. Carper’s campaigns.

Whatever his motivations or reasons, Mr. Carper has increasingly portrayed himself as the savior of the Postal Service.  It is a role similar to the one Mrs. Collins of Maine played during the debate on PAEA, and the results are likely to be the same.

invisible hand

Many news outlets have opined that Congress ought to get out of the way and let postal management and the BOG run the Postal Service, the more businesslike the better.  Others have simply said the Postal Service is irrelevant and should be privatized.  My response to both of those views is that no government is not good government and it certainly isn’t better government.

While Congress has clearly failed to function as a thoughtful body in governing the Postal Service, that’s not reason for removing the postal system from Congressional control.  We, as citizens, ought to demand that Congress fulfill its role in overseeing the Postal Service in a professional and effective manner.  Those who think no government is a good idea or that the Founders had no faith in government are delusional.  Without a strong government based on democratic principles, the end result will be either anarchy or plutocracy.

The default of leadership

The issue is not large or small government.  The fact is that many of those who argue for small government actually support the expansion of government, so long as that government favors their interests.  The largest expansion of government in our history has occurred under two Republican presidents.  

The issue ought to be effective government.  Clearly those who designed our political system understood the need for infrastructure.  They understood the need for and value of postal services.

invisible hand

One of the greatest challenges our country faces today is rebuilding our infrastructure. We have done best economically when we focused on investing in foundational infrastructure.  Good infrastructure expands economic opportunity and allows more people to participate more fully in the economy.  Growth built on broad economic participation is growth that is both sustainable and growth that is broadly beneficial.  The postal network has played a major role in providing that kind of growth, and it can continue to do that.

The Postal Service does not have a fiscal crisis.  There are billions of excess contributions in retirement accounts.  Those accounts, including the ones designed to fund retiree benefits, are well funded. The crisis facing the Postal Service is one of management and governance.

The management of the Postal Service has no credibility. It has offered plans that do not protect or utilize a great American asset.  Instead, their plans transfer the assets and revenues of the Postal Service into the hands of a small segment of the mailing industry and serve to dismantle the postal network, a useful and essential infrastructure.

The Congress of the United States has abdicated its responsibility with respect to postal matters. It is not simply about the failure of the House of Representatives to act on a bill.  It goes much deeper than that.  When the legislature of the United States is no longer able to see the value in an infrastructure that sustains not only our commerce but our democratic values, when they are willing to sacrifice services that thousands of American communities rely on, when they are willing to undermine the useful, effective, and economically efficient employment of nearly half a million Americans, when our legislators are willing to do these things casually and cavalierly, then they have failed the country, miserably.

There is no Postal Service default. The Postmaster General and the Congress of the United States have defaulted on their responsibilities to the American public.  Shame.

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