The secret innovative history of the Post Office

In 1897, a year when mail was still largely delivered by horse and wagon, construction began on an innovative scheme beneath the streets of Philadelphia. Using an intricate network of compressors and metal pipes, the new system could shoot a capsule holding a few hundred letters across a city in several minutes, far faster than a postman could get it there. The investor in this new technology wasn't some kind of delivery startup, the FedEx or UPS of its day. It was the U.S. Post Office.

Behind the experiment was Postmaster General John Wanamaker, who was inspired by Paris, London, and other European cities that were trying out pneumatic posts. It seemed a natural fit for America's growing metropolises, where mail was hauled by horse cart and carried on foot. Wanamaker had the sense not to try to concoct such a system in-house, since the agency had no such expertise. So he did something clever: He called for private proposals to build pneumatic tube systems.

The Pneumatic Transit Co. of New Jersey was the winning bidder, and a public-private partnership was born. It agreed to pay to build the system, then to charge the Post Office for its use. The first tube could shoot a capsule of mail nearly three-fifths of a mile through a 6.5-inch tube from the city's main post office to the East Chester Street post office. Soon, similar systems were installed in Boston, St. Louis, and Chicago. New York City's system, the largest, could move 6 million pieces per day at 30 miles per hour from the Bronx to Manhattan and Brooklyn. Collectively, the Post Office's pneumatic tube system ran more than 120 miles, with 130 postal "rocketeers" feeding mail into it every 15 seconds.

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When Americans think about the most innovative agency in the government, they think about the Pentagon or NASA. But throughout much of its history, that title could just as easily have fallen to the Post Office, which was a hotbed of new, interesting, sometimes crazy ideas as it sought to accomplish a seemingly simple task: deliver mail quickly and cheaply. The Post Office experimented with everything from stagecoaches to airplanes — even pondered sending mail cross-country on a missile. For decades, the agency integrated new technologies and adapted to changing environments, underpinning its ability to deliver billions of pieces of mail every year, from the beaches of Miami to the banks of Alaska, for just cents per letter.

We think a lot about how innovation arises, but not enough about how it gets quashed. And the United States Postal Service is a great example of both. Today, what was once a locus of innovation has become a tired example of bureaucratic inertia and government mismanagement. But its descent into its current state was not foretold. A series of misguided rules and laws have clipped the Post Office's wings, turning one of the great inventors of the government into yet another clunky bureaucracy.

In a sense, innovation was baked into the Post Office from the beginning. America's national postal service precedes the founding: It was born in July 1775, a year before the Declaration of Independence was ratified. During the American Revolution, the U.S. postal system's duty was to deliver communications between Congress and the military commanders fighting the British. And for the first postmaster general, Congress appointed an inveterate tinkerer, Benjamin Franklin. He rigged up a system of contractors to haul mail by horse and on foot. It worked.

From the start, the Post Office Department, as it was called until 1970, had to be innovative. There was little money to fund the startup agency, and its task — delivering mail to anywhere in the country — was immense. In turn, Congress gave the agency a good amount of operational freedom. In 1785, Congress authorized the Post Office to hire private stagecoaches to deliver mail. It was a smart idea that leveraged private-sector investments in transportation but did not commit the agency itself to bearing the great cost of purchasing horses and hiring riders. Later, the Post Office would contract to have mail carried by steamboats, railroads, and private delivery companies.

The agency also had the authority to erect post offices, but at first it licensed tavern owners to provide postal services to thirsty customers instead. That changed during the 19th century, when the postal service expanded massively. In 1790, the nation had 75 post offices; by 1900, there were more than 76,000. Then came home delivery: Mail reached many city dwellers at home by the mid-1860s and expanded to farmhouses and remote houses in the 1880s. Henry Ford built his first car in 1901. Four years later, the Post Office was experimenting with mail delivery by automobile.

The first half of the 20th century was a dynamic time for the Post Office. It immensely improved delivery by adopting innovations from the private sector and abroad. Much like the pneumatic tubes, some of the schemes incorporated new technology we no longer even associate with mail. During World War II, the Post Office adopted V-Mail, an idea pioneered in England. Families wishing to correspond with soldiers overseas would write the letter on a V-Mail form, which was placed in a capsule and shipped to a facility where it was scanned to microfilm. The hundred-foot rolls of film, which could hold 1,700 letters, were carried overseas and unsealed, and then the letters were individually printed and delivered to GI recipients.

Overshadowing all the invention, however, was the creeping sclerosis of the Post Office as an institution. As a monopoly, it was insulated from competitive pressures, allowing inefficiency to creep into its operations and management. Worse, political interests had sunk deep, with Congress setting postage rates too low and too frequently trying to dictate the location of post offices and mail-sorting facilities.

Booming business, however, enabled the postal system to avert a crisis for decades. In 1900, 7 billion pieces of mail were delivered; by 1960, the agency was moving 63 billion letters and parcels. The department often ran a profit, and it sowed those profits into new mail-delivery technologies.

Things began to change in the 1960s. Postal workers unionized, and President John F. Kennedy authorized them to bargain collectively in 1962. Despite growing mail volume, the Post Office ran perennial deficits, and its investment in the guts of the system — mail receipt and sortation — lagged. The system broke down in Chicago in 1966, and 10 million pieces of mail were backlogged for days.

After a wildcat strike broke out in New York City in 1970, Congress abolished the Post Office Department and replaced it with the U.S. Postal Service, an independent agency. The Postal Reform Act removed some of the congressional involvement in its operations. In exchange, policymakers reduced the agency's dependency on the U.S. Treasury and demanded it become self-sufficient.

This new-look postal system had been conceived by a Nixon-appointed corps of brain trusters and businessmen with the aim of turning the agency into a public corporation with minimal political interference. Instead, the plan infused the new agency's DNA with some of the same clashing political interests that were hobbling the agency. Big mailers benefit from subsidies written into the law. Postal workers must be unionized and are entitled to bargain collectively. Folks in far-flung Alaska and Hawaii are entitled to the same postage rates and services as everyone else — no matter the cost — and Congress continues to insist that mail be delivered six days per week to appease certain big mailers, postal unions, and some rural residents.

Innovation at the agency flagged. Upgrades in mail-processing machinery were delayed over union objections that jobs would be lost. So, too, were attempts to contract out more postal work to private carriers or delivery companies. USPS operations became increasingly governmental as collaboration with private-sector companies flagged.

At the same time, technology was rapidly catching up to the Postal Service. The first threat was actually a miss: Although the electronic fax arrived in the early 1970s, it did not eat into the USPS's business. So when cellular-phone technology arrived in the late 1980s and the internet erupted in the mid-1990s, USPS officials mostly shrugged. Annual revenues climbed, and the USPS's employee cohort rose to nearly 800,000 before the end of the 20th century.

The USPS did upgrade some of its internal technology. Its letter-sorting machines have sensors with optical character recognition. Yet relative to the world around them, these improvements are nothing compared with the Post Office Department's innovations in the 18th and 19th centuries. Some of the new sorting machines have not been reliable, and the agency's parcel logistics lag behind those of private-sector companies like FedEx and UPS. It is as if the agency has given up on innovation and is utterly confident that mail volumes and revenues will grow forever.

Which has been a huge mistake. In 2008, the Great Recession's teeth hit the mail business. Most mail is sent by big mailers, many of whom slashed their postal budgets and accelerated transferring their communications to less costly online means. Mail volume is down 25 percent since 2008, and the agency has hemorrhaged money. More of what USPS carries is advertising mail, which generates low profits. The mail-volume crash laid bare the cost of the USPS's loss of innovation mojo. It is a labor-intensive, paper-toting company in a digital age, and USPS leadership has belatedly awakened to the reality that mail is not a growing business.

Private-sector companies may soon eat even more of the USPS's lunch. Amazon is building a delivery network of its own, with lockers instead of post office boxes, and experimenting with drones. Uber also has nosed into the delivery business, and other companies are experimenting with autonomous delivery vehicles and robots.

USPS so far appears unable to innovate its way out of the mess it is in. The agency has $15 billion in debt and has shown little imagination to fundamentally transform the way it does business.

The agency has piloted a grocery-delivery business, despite the 2006 congressional prohibition on the agency entering new non-postal businesses. To date, the USPS has not released any financial results for this experiment, which seems doomed to fail. Why grocers would rather pay highly compensated letter carriers, rather than less costly bicycle delivery people or Uber drivers, is anything but obvious.

Nothing may sum up the Postal Service's inability to innovate more than its failed partnership with Staples. A few years ago, the Postal Service agreed with Staples to expand consumer access to its shipping services. Upon entering select locations of the office-supply chain store, shoppers would "find a familiar-looking counter resembling a mini post office containing the most popular postal products and services," the agency crowed. It was "one-stop shopping and shipping," and Staples postal counters would be open seven days a week. The agency began piloting the Staples arrangement in November 2013 in Boston. More than 500 Staples stores nationwide had retail postal counters by the end of last year.

At first blush, the USPS-Staples partnership looked like a win-win arrangement. But the American Postal Workers Union did not see it that way. It decried the deal as an effort at union busting, because Staples personnel would man the postal counters.

Earlier this year, the National Labor Relations Board killed the USPS-Staples deal. Too weary to fight or fearful that it could not win in court, the USPS capitulated, and the Staples postal counters are being dismantled.

Pneumatic tubes didn't survive, either: They became a victim both of their design and the Post Office's success. Mail volumes grew fantastically over these decades, and the tubes could only carry so much. Ripping them out and replacing them with bigger tubes was deemed too pricey. Moving mail by truck would be more efficient. So the Post Office shut down its pneumatic mail tubes on Dec. 12, 1953.

That was an investment decision — the kind any company would have made, and one that allowed the Post Office to keep growing. The Staples deal, by contrast, drowned in a bureaucratic swamp, tangled up in politics and labor relations. Absent fundamental changes to these kinds of structural obstacles, the odds are long that the USPS will become the innovator it once was.

Excerpted from an article that originally appeared in Politico. Reprinted with permission.