hope you will spell out a policy for postal ratemaking that can be a guide for the future. And we hope you will do something to modernize our present archaic postal system. The May 1957 issue of the Reader's Digest carried an article on the problems of the postal crisis (reprint attached). After studying the subject for months the author came to conclusions, with which I am sure you all agree. He said: "It's clear that in the 20th century even this wealthy country cannot subsidize a 19th century mail system indefinitely. So let's put our human brains and our electronic brains to work. Let's create a modern mail system." The February 1958 issue of Reader's Digest carries another article (reprint attached) about the post office. The author is your chairman, Senator Olin Johnston. He recommends that Congress take four steps to end what he refers to as "Our Post Office mess" and concludes with the following: "If these four steps are taken by Congress I believe that in a few years we can get out of this postal mess and have the best mail service in the world." We hope Congress will take these four steps. We think the American people deserve the best mail service in the world and we know every member of this committee thinks so too. Thank you. WASHINGTON NEWSPAPER PUBLISHERS ASSOCIATION, INC., Hon. WARREN G. MAGNUSON, United States Senate, Washington, D. C. DEAR SIR: It has been called to our attention that an entirely new postal bill is now being written in Washington to replace former H. R. 5836 and H. R. 7910. We would like to present to you the sentiment of our newspaper association relative to the proposed new postal bill. We are aware of the fact that the Postal Department is operating at a great deficit and that there must be some increase in revenue to help cut down on the losses in the department. We feel that we should go along and would like to recommend an increase in second-class postal rates of 30 percent, to be spread out on a 10 percent increase each year during the next 3 years. A greater increase than this would work considerable hardship on many of our newspapers as their costs are so high that even a small expense means a great deal to each of them. Each year during the past few years we have had 2 or 3 of our newspapers suspend operations because of inadequate income to cover expenses. Thus we are fearful of any rate increase that would be excessive. I might mention to you that the Darrington, Timber Bowl Tribune, one of our smaller newspapers, just suspended publication this month. The reason for this was the expenses were too high, with insufficient income to cover them. Also, there have been recent proposals that free, or controlled, circulation newspapers should be given second-class mailing privileges. We would like to protest vigorously any change in the present second-class mail regulations as we do not feel that free, or controlled, circulation newspapers should merit the same consideration as paid circulation publications. Paid circulation publications are those desired by subscribers, whereas free, or controlled, circulation newspapers fall into the category of being forced upon the consumer whether he wishes it or not. We feel that a change in second-class regulations to allow free, or controlled, circulation newspapers in the same category would work to the great detriment of paid circulation newspapers. We shall appreciate your consideration of these matters and support of our viewpoints when the postal bill comes up. Your influence and support has been most helpful in the past and we want you to know that we appreciate your continued assistance. Yours sincerely, C. B. LAFROMBOISE, Manager. Hon. OLIN D. JOHNSTON, AIR TRANSPORT ASSOCIATION, Washington, D. C., February 20, 1958. Chairman, Committee on Post Office and Civil Service, United States Senate, Washington, D. C. DEAR SENATOR JOHNSTON: Like most others, the airlines are concerned about the mounting postal deficits. We are sympathetic with the Postmaster Generals desire and program to reduce or eliminate the deficit. We would like to take this opportunity to present our views on the postal rate bill (H. R. 5836). We believe in the general principle that the Post Office Department should be operated on a nonprofit, but break-even basis. At the same time, it is recognized that the Post Office Department performs many public service functions which, for reasons of national policy, the Congress may decide cannot or should not pay their own way. The cost of these functions should not be charged against Post Office Department revenue nor to other users of the postal service but, rather, should be paid by the National Treasury. In recognition of the importance of reducing the postal deficit, the airline industry has not opposed an increase in airmail rates from 6 to 7 cents. This position was taken even though there is no factual justification for the increase, except to help ease the deficit. We are strongly opposed to the suggestion that the airmail rates should be increased to 8 cents. Such a rate would be adverse to the public interest and should be rejected. (1) Airmail (at 6 cents) returned a profit of about $18 million to the Post Office Department according to the last cost ascertainment report (1956). This was the only significant mail group that showed a profit. (After allocation of second- and third-class losses, airmail showed a loss of $14.5 million compared with a surface mail loss of $346 million.) Drastic reductions in the amounts paid to air carriers for transporting the mail have offset increases in ground handling costs. Consequently, even with increases in post office costs, a 7-cent rate, which amounts to a 16%-percent increase in price, will more than meet expenses and return a profit to the post office. (2) Neither the President nor the Postmaster General has asked for an increase to 8 cents in airmail. (3) Generally, we believe that airmail users should not be required to subsidize other users of the postal services. (4) The Postmaster General testified that the post office saves money every time they fly the mail. (5) Studies will show and past experience has proved that too high a rate will cut down on the volume of airmail use because of diversion. Based upon past experience, an 8-cent airmail rate may mean an overall reduction in revenue to the post office. (6) No current study has been made and there is no evidence in the record to show the possible adverse effect on post office revenues of an 8-cent airmail rate. It would be unwise to gamble on pricing out of the market the Department's most profitable service. (7) Unlike the railroads which have increased their rates, the airlines, in a voluntary settlement, reduced their rates for transporting the mail. It would be inequitable now to establish an 8-cent rate on airmail which will reduce the volume of airmail on which the airlines were relying. (8) There is no logic to the idea of charging twice as much for airmail as for first-class mail. Certainly, if the rate bears any relation to the cost of giving the service, no such differentiation can be justified. In fact, the ratio could just as logically be 3 to 2 or even 7 to 5. The rates have historically been set so as to render the best service at the lowest possible cost. (9) Converse to the impression that railroads furnish a standby service for airmail in adverse weather, the airlines in many parts of the country are today providing emergency airlift for all letter mail because of delays in surface transportation. (10) Most of the countries of Europe send all letter mail by the most expeditious method. Our neighbor, Canada, has had an expedited mail program since July 1, 1948. The rate for all letter mail in Canada is 5 cents. One of the principles set forth in title II of H. R. 5836, which is to be considered in postal rate policy is the "development and maintenance of a postal service adapted to the present needs and adaptable to the future needs of the people of the United States." The natural development of communications and commerce among the people of the United States points to the need for taking advantage of every means of speeding up the postal service. An 8-cent rate will not accomplish this. Instead of enabling those who use the mails to take advantage of the tremendous technological advances now unfolding in air transportation, as has been our historic postal policy, it will mark a step backward in postal service. Moreover, it is discriminatory against those geographical areas of our country which are so dependent upon airmail service. For all of these reasons, the 8-cent rate on airmail should be rejected and a new look taken at means of improving the postal service at the most reasonable rates to the public which will yield the maximum revenue to the Post Office. The experiment to expedite first-class mail by sending it by air on a deferred basis has been a sound one and it was appropriate for the Postmaster General to undertake it. It has improved mail service, especially to many communities served by the local service carriers. It has proved that letter mail can be speeded up when it is sent by air. It has demonstrated that the airlines have the capacity to carry more mail and could carry even more if it were offered to them. The committee acted in the public interest to reject efforts to discontinue the experiment. Very truly yours, S. G. TIPTON, President. STATEMENT OF J. M. GEORGE, PRESIDENT, NATIONAL ASSOCIATION OF DIRECT SELLING COMPANIES, WINONA, MINN. I am J. M. George, president of the National Association of Direct Selling Companies, which has its headquarters at 165 Center Street, Winona, Minn. This statement is presented for consideration by the committee and for the record of these hearings. In my capacity, I have very little contact with the detailed commercial rate aspects; hence I must testify generally as to what I think are the important considerations in respect to the issues involved in this legislation. I should like to say also that the primary interest in this legislation of the people whom I represent, is in third-class rates. With most direct selling companies third-class mail is the principal means of recruiting salespersons. It is also extensively used to promote sales volume by these salespersons. This association consists of member concerns whose merchandise ultimately reaches the consumer through house-to-house solicitation. The problems of our members are the same as the problems of all companies in the United States having similar methods of distribution. There were last year about 2,500 such companies in the United States. There are fewer this year. We, of course, are not the only people who similarly or otherwise depend upon third-class mail for the procurement of business and the promotion of business volume. It is hardly necessary to say that the United States has no difficulties in the area of production. The economic bottleneck is in selling. It would serve no point for me in this testimony to quote from the matter so well included and handled in the Citizens' Advisory Council Report of February 26, 1957, which report is directed to the Senate Committee on Post Office and Civil Service. Historically, the postal service, with few interludes, is and has been considered and treated by the Congress as a public service operation. The original purpose of its establishment was to carry letter mail. During the following years many extensions and augmentations of and to the service were established by the Congress. In many instances, these augmentations were on the basis of a calculated loss with full knowledge that they could not pay their own way. Illustrations are such public welfare services as post roads, rural free delivery, star routes, fourth- and to some extent third-class post offices, and this is to name only a few. The calculated loss policy was a wise and farseeing concept. This concept was probably the compelling factor in keeping North America from becoming a breakdown of numerous more or less unimportant separate nations, comparable to the situation in the Balkans. By this policy the Congress commencing over 150 years ago, set a pattern with results which Europe is striving to accomplish today. The Congress also accepted, early, the fact that since letter mail had to be carried, it would be beneficial to extend the scope of the postal service beyond that type of mail so as to occupy and increase the usefulness of the necessary facilities and help pay the cost of operations. This laid the pattern for an everextending service for the convenience, education and unification of a widely scattered people into a closely knit political body of one people. What could be more conclusive, than its own history, that the overall objective of the postal service was and still is public welfare service. Throughout its long history most of the important action of the Congress has consisted of some phase of enhancement of the public welfare and justifiable humanitarianism. Getting beyond the letter mail era, three well-defined classes of mail service was established. The congressional motive and intent back of these three later developments was to increase the value of the service to the public. It took business use of the service to carry out this congressional motive and intent. The availability of these areas of service was an invitation to business to come in and use the postal service to increase the scope and value of services to the people. Without business participation these three classes of mail would never have been implemented and it can be said that these new services were not established for the benefit of businessmen, but rather for the benefit of the people. Billions of dollars of business, annually. has been built up on the basis of availability of postal rates in these three classes of mail which are not higher than the traffic can bear. It seems that it logically follows that even in the business use functions of the service, there is a strong element of public welfare, service and convenience. In recent years there has developed a feeling that the postal service is simply a business, that it should pay its own way, or in other words that income should equal expenditures. This is a definitely erroneous concept and when it has been advanced at 2 or 3 different times during the history of the postal service, the Congress has come in and denied the validity of that concept, knowing full well that the end result of such a policy would be the reduction of the postal service and its value to the people. If the pay-its-own-way concept were correct, the Congress never would have set up or retained calculated-loss features in the postal service of which there are many and which inescapably brand the service as primarily one of public service and this, of course, is as it should be. To name only a few of the types of service just referred to, they are: Star routes; Third- and fourth-class post offices, which are unable to pay their way; Services performed which are measurable and for which no fees or rates have been provided; and Those services which are not measurable and hence of a character that do not lend themselves to rates or fees. The crying need now, and for sometime, has been for the establishment by the Congress of a postal policy which— (1) Realistically and fully recognizes the public-welfare character of the services rendered and excludes them from the basis of ratemaking; (2) Excludes also the calculated-loss features; (3) Eliminates restrictions on the Department as to choice of transportation facilities; (4) Restores uniformity of size and weight limitations throughout the country; (5) Turns back to the Congress all ratemaking functions. It is respectfully submitted that under such changed conditions it would be found that, on the whole, the services now specifically rated are paying their way and even that some of these services are being overcharged. It is also respectfully submitted that no ratemaking activity should be undertaken until a definite congressional policy shall have been established. It would appear that in no other way can there be eliminated this repeated annual or biennial controversy which takes up so much time of the Members of the Congress and of business and other interested persons and organizations. It has come to my attention that Mr. Stans of the Post Office Department stated to the Senate Committee on Post Office and Civil Service that the difference in cost between the post-office payments for parcel-post carriage and the lower rates charged by railroads for the transportation of other matter amounts to about $100 million per year, and this seems to be an important operational cost which could be eliminated or excluded from the ratemaking figures. It must be admitted that the present prosperity is spotted and that the future of small business, in an important degree, is at stake. Small business has not been doing too well and this has been emphasized in the news by reporting agencies and by public statements made by Members of the Congress. At least 95 percent of the concerns engaged in our method of distribution fall into the small-business category. It is suggested that rate increases in second- and third-class mail and other postal services would bring literally thousands of business concerns into a loss position or lowered income-tax brackets, thereby conceivably reducing revenue from taxes on income to an extent substantially exceeding the added amount of revenue taken in for the Post Office Department by way of stiff rate increases. Third-class mail is an advertising tool, one of the most important in American business and its availability on a practical rate basis is of terrific importance to the entire American economy. While we are not heavy users of second-class mail, we wish to state that we are not disclaiming the same importance to the American economy of advertising carried in that class of mail. Is there any certainty that a stiff raise in mail rates will not considerably reduce mail volume and hence fail to relieve the so-called deficit situation? Has any Government agency made any study on this question? CONCLUSIONS It is quite apparent that the present administration of the Post Office Department is doing everything possible, under current statutes, to reduce cost of operating the postal service without lowering the character of services rendered. To some extent it is prevented by statute from eliminating or reducing some important cost factors. Important instances are: (1) Its lack of right in some cases to make its own choice of method of transportation of mail matter; and (2) the size and weight limitation requirements of Public Law 199. We favor "payment of their own way" by all classes of mail, as close as may be reasonably computed, on a rate basis that makes due allowance for elimination of costs of calculated losses and cost of public-welfare services. If adequate and fair allowance is not made for such cost the proposed higher rates on the four classes of mail can be impractical, prohibitive, and destructive to many business-mail users, thus impairing the public service value of the Post Office Department, and increasing the downward trend of business activity. Approximately $17 billion of annual sales are involved by the several thousand companies using third-class mail for business promotion. Many of them are very small companies and many of them will have to quit if the proposed rates are put into effect on this class of mail. It is apparent that even with steep raises in all classes of postal service there will still remain an expenditure greater than income from postal charges. It is believed that not only the cost of public service features of the postal service, but the cost of calculated loss expenses must be left out of ratemaking calculations and this is a matter of congressional policy and it is not taken care of in the provisions of the House bill, which seems to about freeze the present system of cost finding for the making of rates. Concerns which use third-class mail for business promotion are confronted with an economic barrier which they cannot surmount. If the rates on thirdclass mail are higher than possible profitable returns from the use of third-class mail, the business involved must either close its doors or seek other methods of business promotion. Twenty-five percent of the companies in this field have gone out of business since January 1, 1949, at which time new high rates on third-class mail went into effect. Our people are not asking for a subsidy. They would like first, to have a realistic congressional policy affecting ratemaking. They would like secondly, to have the Congress give consideration to the importance to the American economy of the thousands of small-business concerns using third-class mail for business promotion, and in the realization of that importance, to give consideration to the establishment of rates which will save such companies from being brought squarely up against the economic barrier just referred to. One wonders what would happen to the postal service if its activities became limited to the handling of first-class mail only, together with the special services applicable to that class of mail. What would happen to the cost of handling first-class mail under such conditions? What would be the good sense of maintaining the calculated loss services if they were to be maintained solely for first-class mail? |