US Postal Servise/The last monopoly. On one hand, a friendly letter-carrier and a mailbox full of letters. On the other, a $385 million deficit, pay cuts for top management, talk of another rate increase. Will the real United States Postal Service please stand up? ...To bind the nation together

The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people. -- Title 39, Section 101(a),

United States Code It's the nation's largest purchaser of rubber bands -- 6,145,850 pounds last year.

Its $28 billion budget outranks all but one of the Fortune 500 service companies.

It's the largest employer in the nation, whose 746,000 paid workers constitute 25.6 percent of all nonmilitary federal employees.

And it is now entering what many observers feel may be the most perplexing and difficult decades of its existence.

Fifteen years after President Nixon signed into law the Postal Reorganization Act on Aug. 12, 1970, this unruly teen-ager known as the United States Postal Service (USPS) is still growing up. Gone are the days of the old tax-supported and patronage-laden Post Office Department, with its cabinet-level postmaster general and its cadres of political appointees turning over with every new administration.

Now, as the result of one of the most comprehensive and controversial changes ever to touch the executive branch of American government, the USPS is a quasi-governmental corporation designed to operate like a business and pay its own way. Is it working?

``I see this time in the Postal Service as being one of the most exciting and challenging times in the history of our organization,'' says Deputy Postmaster General Jackie A. Strange, the organization's chief operating officer. She also sees it as one of the ``most difficult periods.''

``In every way I can think of,'' she adds, ``we're going through a dynamic change.''

For many Americans, of course, the 210-year-old institution continues to do a sound job of collecting, sorting, and delivering a steadily increasing volume of mail -- some 131.5 billion pieces of it in 1984. Most of it arrives on schedule. Very little gets lost. According to a 1984 Roper survey, 80 percent of the general public were favorably impressed by the post office -- despite the then-pending increase of postage, which on Feb. 17, 1985, jumped from 20 to 22 cents for a first-class stamp.

``Overall, the Postal Service is doing a pretty good job delivering the mail,'' says Richard A. Barton, senior vice-president for governmental affairs of the 2,500-member Direct Marketing Association. ``We complain [about it] like we complain about a brother or sister.''

``The next time you fly into Los Angeles at night,'' says A. Lee Fritschler, director of the Advanced Study Program at the Brookings Institution and former chairman of the Postal Rate Commission, ``just think that every light you see out there represents three or four postal addresses. It's kind of a miracle that this stuff gets delivered anything like on time.'' He adds, however, that ``the Postal Service really has a split personality. People love it and they hate it -- they hate the Postal Service bu t love their postman.''

And although ``hate'' may be too strong a word for many observers, most of those who study the behemoth operation, both from outside and within its ranks, agree that it faces major challenges.

Its costs are widely thought to be out of control. After three years of modest surpluses, postal management foresees as much as a $500 million deficit this year. Earlier this month Postmaster General Paul N. Carlin took steps to contain the overrun -- announcing, among other measures, a 3.5 percent pay cut for senior managers.

It is feeling severe pressures of competition from private companies engaged in express mailing, time-sensitive courier services, parcel-post delivery, and even letter-sorting.

It is looking down the barrel of electronic mail delivery. In particular, automatic funds tranfer systems (AFTS), through which payments are made between computers rather than by check, could drain away a substantial share of its moneymaking first-class mail operations in coming decades.

By the turn of the century the so-called ``private express statutes'' -- the body of law that gives the USPS a virtual monopoly on some kinds of mail delivery -- could be eroded so far that the Postal Service monopoly effectively vanishes.

From numerous discussions in recent weeks with Postal Service managers, union leaders, mailers, lobbyists, academicians, and think-tank researchers, two other points emerge.

First, the Postal Service is poorly understood. Many Americans think it is still supported by tax dollars -- although the major public service subsidy was finally phased out in 1983. Postal costs are now essentially borne by the price of postage -- including the 30 billion stamps sold in 1984, enough to circle the globe 19 times. Although the Postal Service owns more than 130,000 vehicles and holds real estate valued at $9.4 billion, by far the largest chunk of its costs -- about 84 percent -- goes to

pay rank-and-file workers whose median annual salary exceeds $29,000 a year.

These costs are growing in what many observers see as a monopoly-engendered atmosphere of bureaucratic defensiveness, lack of accountability, and public indifference. Among the ``people who aren't doing their job,'' says Michael Cavanagh, a Washington-based consultant on postal matters, ``are the press. . . . If [the] numbers have been inaccurate, then the press should criticize those numbers.''

Second, even the most blue-sky futurists, weighing all the possibilities of computerized homes and global villages, see a continuing need for a postal system. The question is not whether the Postal Service will survive, but what form it will take as it shoots the rapids of technological change into the 21st century.

The Postal Service's Strategic Business Plan for 1986 through 1990, published in June, asserts that it will retain its monopoly status, that rate increases will be below inflation levels, that volume will continue to build, and that ``diversion of existing mail to alternative electronic message systems will not be significant.'' But some observers worry that a combination of poor service, climbing rates, and unmanageable volumes (up a record 10.2 percent in 1984) could bring increased pressure from Cong ress and the public for some kind of restructuring.

In some ways, such restructuring has always been a characteristic of the postal system. The nation's postal system is no longer significantly engaged (as it was when Benjamin Franklin became the first postmaster general in 1775) in binding a democracy together through the free flow of news, information, and letters.

Under the impact of the telephone (replacing personal letters) and the electronic media (providing alternatives to print journalism), the postal system now serves an entirely different audience: America's commercial and financial mailers. Of the four kinds of mail identified in the 1970 statute (``personal, educational, literary, and business''), the fourth is far and away the major component.

How important is ``business'' mail? Some statistics make it clear. First-class mail accounts for just over half of total mail volume. These days, 94 percent of it consists of bills sent to homes and businesses, checks sent back to pay bills, and bank statements and tax forms that chart these transactions. Only 6 percent of first-class mail is ``Aunt Minnie'' letters between individuals -- and much of that is in the form of greeting cards.

Even second-class mailings (largely newspapers and magazines) now make up only about 7 percent of the volume. New to the mix is a peculiarly American phenomenon: third-class mail, including catalogs, fliers, and other bulk mailings. It now makes up about 37 percent of the mail. Last year it posted a phenomenal 18.4 percent increase in volume, and forecasts project continued growth.

While postal authorities are aware of consumer complaints about ``junk mail,'' they generally welcome the increase. ``We think that the third class supports the first class,'' says John R. McKean, chairman of the USPS Board of Governors, ``and the more we have, as long as it's properly priced, the more it helps us to absorb our institutional costs.''

``If we didn't have junk mail,'' says Coleman W. Hoyt, vice-president of Reader's Digest Association and observer of postal trends, ``you and I would be paying 30 cents per letter today rather than 22. Third-class mail is to the post office as commercials are to television.''

As the mix of mail has changed, so has the character of the postal work force. ``We have a fairly different, new breed of people who are now are employed in the Postal Service as compared to 10 years ago,'' says Deputy Postmaster General Strange. A survey by Yankelovich, Skelly, & White, completed in 1983, bears out her contention. It concluded that some 64 percent of postal workers are ``new value'' employees -- younger, better educated, and with stronger desires for challenge, responsibility, and crea tivity than the traditional old-line managers who now supervise them.

``As you push for these dynamic and dramatic changes in what has been a traditional and a very conservative organization,'' says Mrs. Strange, ``then it does become a real challenge for us as we try to change mindsets. We try to change habits that have been in place for 200 years.''

Can such changes occur at anything more than glacial speed? Can a new system of management take hold in time to cope with increasing volumes and bring costs into line?

``The real question for the viability of the Postal Service,'' says Janet D. Steiger, chairman of the Postal Rate Commission, ``is going to be controlling their costs. . . . At the moment they are in a period that seems to be very troublesome. You are seeing costs that have escalated in a manner that is way out of proportion to the volume increase.''

They are also, say some observers, out of proportion to inflation. ``The price of a first-class stamp in March 1981 was 15 cents,'' says Mr. Cavanagh. ``The price of a first-class stamp in February 1985 went to 22 cents. That's a 47 percent increase in 47 months. That's a 12 percent [annual] rate of inflation at a time when the national economy is less than 4 percent inflationary.''

The Board of Governors. Like the board of directors of a private corporation, this group sets the major directions of policy, rates, pay, and service. The nine governors, appointed by the president with Senate approval for nine-year terms, select the postmaster general and his deputy, both of whom also serve on the board. The governors are not full-time employees, but hold regular monthly meetings (usually in two-day sessions), for which they are paid annual salaries of $10,000 and stipend s of $300 per meeting day. No more than five of the nine may be of the same political party. During the 1970s, the governors tended to rubber-stamp decisions taken by management. In recent years, however, the boards have taken increasing interest in the nuts-and-bolts operations of the Postal Service -- sometimes to the discomfiture of the postal management. ``Our position here,'' says board chairman John R. McKean, who is president of his own accounting firm in San Francisco, ``is to see that the financial integrity of this institution is preserved. We as governors want this company to be able

to compete with the private sector.''

Postal management. Managing the day-to-day operations of a corporation that delivers more than half the world's mail falls to Postmaster General Paul N. Carlin (see box below). Deputy Postmaster General Jackie A. Strange, the first woman to hold this position, functions as the chief operating officer. With 33 additional senior officers, they are responsible for the Postal Service's 746,000 employees and 39,000 postal facilities -- and for balancing the often-conflicting pressures from Cong ress, the unions, the mailers, the Board of Governors, and the Postal Rate Commission.

The senior managers, taking their cue from Mr. Carlin, appear willing to use the latest techniques of participatory management and the delegation of authority. Outside observers, however, point out that they are saddled by a heavy burden of career bureaucrats in the middle ranks, accustomed to working ``by the book'' and unused to making decisions.

The Postal Rate Commission. Unlike the governors, the five commissioners of the independent Postal Rate Commission serve full time. Appointed by the president and confirmed by the Senate, they are charged with recommending schedules of rates, fees, and mail classifications to the Board of Governors -- schedules which, for the most part, have been suggested to them by the board, and which the board ultimately approves. Although it has no subpeona power, the Postal Rate Commission has recen tly been flexing its muscles: It has a voracious appetite for data, and its commissioners have become increasingly outspoken in criticizing postal management for failing to supply all the data it wants.

The unions. Some 649,000 employees are organized into the four largest postal unions: the American Postal Workers Union, the National Association of Letter Carriers, the National Rural Letter Carriers Association, and the National Post Office Mail Handlers. Over the years, they have developed considerable influence: For example, the political-action committee of the National Association of Letter Carriers, one of the top 50 in the nation, stood ninth in contributions to federal

candidates in 1983-84.

Mail users. The various industry groups that depend heavily on the mails have also developed extensive lobbying organizations. They include the Direct Marketing Association and the Third Class Mail Association (for bulk or ``junk'' mail), the American Newspaper Publishers Association (which takes interest in second-class rates), the Postal Policy Council (made up of commercial mailers), and a host of others.

Congress. Although Congress no longer makes direct appropriations to the Postal Service, it holds regular oversight hearings. Now and then it even gets directly involved in operations. Last summer, when postal management announced plans to start all newly hired employees at 20 percent less pay, the unions complained -- and Congress shot back with a bill outlawing the move. CHART:Postal Service dollar How it is spent Spending the Postal Service dollar Personnel compensation 70.99 cents Personnel benefits 12.82 cents Transportation 7.51 cents Rent, communications and utilities Printing, other services Interest on notes and bonds Supplies and materials Depreciation and write offs Travel of persons Insurance claims and indemnities 12.81 cents First of a three-part series. Tomorrow: What drives postal costs?