Takenaka Heizo: Small government's unsung hero

ANYONE IN GOVERNMENT WHO ENGINEERS the privatization of a government agency in this statist age deserves recognition for his efforts by those who favor small government—if not a medal.

That’s just what Takenaka Heizohas accomplished, because the process of fully privatizing Japan’s former Postal Services Agency, now known as Japan Post, a public corporation, will begin on 1 October.

Japan Post is not merely a post office—it also is a bank and a life insurer. In fact, it is the largest financial institution in the world, with more than 300 trillion yen (more than $US 2.5 trillion) in assets in its postal savings accounts and life insurance premiums. The entity will be split into four companies, with Japan Post remaining as the holding company.

This is due in no small measure to Mr. Takenaka, an economist who was appointed the Minister for Economic and Fiscal Policy in 2001 in Koizumi Jun’ichiro’s first Cabinet. He later went on to hold portfolios as Minister of Internal Affairs and Communications and Minister of State for Privatization of the Postal Services in the Cabinet.

His efforts to straighten out Japan’s banking system, which was choking on non-performing debt after the collapse of the economic bubble in the 90s, generated a Takenaka-for-prime minister boomlet. He seems to have considered the possibility—the Constitution requires that a prime minister be a member of the Diet, and Mr. Takenaka ran for and won a seat in the Upper House. (It also had the benefit of helping deflect criticism from anti-reformers.) He subsequently resigned, however, and took a professorship at Keio University.

He was the subject of the occasional newspaper or magazine profile in the West, but as so often happens, those Japanese worthy of international acclaim for their accomplishments are largely overlooked. While his achievement would not have been possible without the full backing of Prime Minister Koizumi, himself buoyed by enormous public support, a similar accomplishment would be close to unimaginable in the United States, to cite just one country.

With the privatization process starting next week, the Nishinippon Shimbun published a brief interview with Mr. Takanaka. It was uncredited and not on line, so here is my quick and dirty translation:

Is this a turning point for the economy?

I hope so. For the past 10 or 20 years, the privatization of the former Japanese National Railways and the former Nippon Telegraph and Telephone Public Corporation has underpinned the Japanese economy. Had Nippon Telegraph and Telephone remained in the same form, the information and communications industry would not have grown as it has. Had JNR remained in the same form, transportation costs would be even higher. These two privatizations pulled the trigger on development. The privatization of Japan Post will have a major impact on the strategic banking and insurance sector in the future.

Why now?

Failure to privatize now would have serious consequences. While the amount of mail is decreasing each year, the market for international distribution is expanding, centered on Asia. We will provide operational freedom because the business of mail handling must survive. To the extent that we provide private sector freedom, we also will provide private sector competitive conditions.

The classic business model for the postal savings business was accepting money for deposits and investing it in government bonds. In many countries, the interest rate on bank deposits and government bonds is roughly the same, so there was no profit margin. That’s why we have to provide a form in which different things can be done freely.

What effect will it have on daily life?

Mail delivery is conducted as a public service, but this could also be handled by a private sector company. The Tokyo Central Post Office occupies prime real estate. Why should centralized collection and delivery be conducted on prime real estate when it can be done with trucks in the suburbs? With privatization, the company also can get involved in the real estate industry, the retail industry, or the hotel industry, providing more convenience for the citizens.

There are concerns that the post office network won’t be maintained.

Some post offices in urban areas are fewer than 200 meters apart. Are all those post offices are really necessary? On the other hand, the post offices play an important role in regional areas, so we should have them perform that function. That’s why we will create standards for establishing a post office, and the postal company will have the obligation to uphold them. Yet, they still must rationalize the parts of their business that can be rationalized.

We will maintain a strong post office network. But it will be the determination of management whether to maintain the incidental services they now provide without any changes. The essential services will remain. It is unreasonable, however, to make the post office the sole provider of services based on the social policy conducted by the national government. If there is a consensus that a service is essential, then it should be performed as a government service.

Endnote: There are definite signs of a small libertarian wing within the ruling Liberal Democratic Party, which I plan on writing more about in the future. One of its members is former Prime Minister Koizumi himself, who often remarked on the necessity of allowing the private sector to assume some of the functions handled by government in Japan. These people are not pure ideologues, however—Mr. Takenaka wanted to privatize NHK, the quasi-public broadcaster, but Mr. Koizumi demurred.

For his part, Mr. Takenaka favored the use of public funds to help the banks dispose of their non-performing debt. This was opposed by then-Minister of Financial Services Yanagisawa Hakuo. Mr. Takenaka prevailed in their policy debate, while Mr. Yanagisawa went on to become Prime Minister Abe Shinzo’s Minister of Health, Labor and Welfare. He later generated a firestorm that contributed to the downfall of the Abe Cabinet when he called women “baby-making machines” during a speech.

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