AMPONTAN

Japan from the inside out

The Japan Post privatization: A dim view

Posted by ampontan on Thursday, September 27, 2007

AS MUCH AS THOSE WHO CHAMPION small government would like to make disposable bureaucracies go poof with the stroke of a pen, the political realities in free market democracies make that an impossible dream.

The privatization of Japan’s former Postal Services Agency (and the elimination of the Ministry of Posts and Telecommunications) demonstrates that the task demands a strong-willed leader who has captured the imagination of the citizens, is determined to overcome the opposition of politicians with vested interests and an entrenched bureaucracy, and has the political capital to pull it off.

ogawa 2

To achieve his objective, former Prime Minister Junichiro Koizumi had to take the drastic step of dissolving the lower house of the Diet and holding a special election with the privatization issue as the centerpiece of the campaign—after throwing out of his own party those MPs who voted against him. He ignored the party bigwigs who begged him not to go through with it. Scorched earth tactics are possible only once in an administration, and only in popular administrations at that.

It helped that 70% of the public supported the privatization of Japan Post, according to an Asahi Shimbun poll at the time. (And the left-of-center Asahi’s polling methods always produce lower counts for right-of-center politicians and programs.) I suspect a good chunk of this support came from people who were thrilled by the political spectacle and supported Mr. Koizumi in the same way that sports fans will back an athlete in a high-stakes match. But that’s part of the reality of politics, too.

The prime minister’s legislation as originally submitted would not have made it through the lower house unless certain aspects of it were watered down or omitted. Politics is, after all, the art of the possible, and compromises were necessary. But many in the financial industry are displeased with the plan, particularly the government’s continuing involvement in the enterprises after privatization.

Yesterday’s post featured an interview with the Cabinet member who engineered the privatization, Heizo Takenaka. Today’s post includes an interview from the same series published by the Nishinippon Shimbun. As I noted before, these are uncredited and not on line, so I’m offering my quick and dirty translation.

The man interviewed was Tadashi Ogawa (photo), the chairman of the Regional Banks Association of Japan. (There are 64 of these financial institutions in the country.) His viewpoint is representative of those in the private sector who are not thrilled at the prospect of competing with a behemoth that could continue to receive government support for the next decade.

Mr. Ogawa is a former Finance Ministry official and a past chairman of JT (the former Japan Tobacco & Salt Public Corporation). Thus, he has extensive experience and knowledge of the nexus of the financial industry and government—not to mention inessential public corporations that survive well beyond their useful lifespans and have the functional efficiency of an appendix.

What areas cause you concern about privatization?

From the time it is established, the Yucho Bank (the Japan Post bank) will remain (indirectly) supported by government funds for (a maximum of) 10 years. In other words, the implicit government guarantees will continue. These conditions mean that the corporation will already be endowed with trust–the banking industry’s most important asset. As long as the government maintains its financial stake, the bank should not embark on any new enterprises.

These conditions for competing with existing private sector banks are unfair. No matter how often the term privatization is used, the post offices will stay the same as they are now. In fact, they themselves are already conducting a PR campaign based on the phrase, “We won’t change”. It won’t seem to the users as if the Yucho Bank were a private sector bank. With that being the case, of course there won’t be any changes in their business content.

The Yucho Bank is planning to become involved in consumer loans, such as home loans.

Today, with the Japanese economy growing at a gradual pace, private sector financial institutions have a low deposit/loan ratio, and they are having a hard time finding borrowers. Under these conditions in the Japanese economy, and with these financial mechanisms, the Yucho Bank’s position in the industry should be clearly identified.

There will be minimal conflict (with other private sector banks) for those banks whose objective is only investing the money received from deposits. The bank will be rational from the perspective of business efficiency. It is inappropriate for them to be involved in lending, however. In the home loan business, many regional banks are doing everything possible to survive in a climate defined by harsh interest rate competition. I think it’s inappropriate for them to be involved (in home loans).

Are there any advantages for the megabanks in forming ties with the postal bank, which has many regional branches in its network?

The banking industry has repeatedly criticized the bloated businesses and other aspects of the Yucho Bank. If we begin to talk about a specific business, it would naturally be strange for the industry to change its position and say, “We could use this to our advantage.”

What recommendations do you have for the Financial Services Agency’s approach toward inspections?

I want them to take the same approach from the first day of privatization that they take with us. They don’t need to be given any breaks because they’re new to the industry*.

Regional banks thoroughly study and prepare for new regulations in-house before they are implemented. The Financial Services Agency should conduct proper inspections (of the Yucho Bank) in the same way they inspect private sector banks, including their manner of conducting business.

* The phrase Mr. Ogawa used was wakaba maaku, or literally “new leaf sign”. Those Japanese with a new driver’s license must prominently display a special sticker, or wakaba maaku, on their automobiles during their first year behind the wheel.

Try this article for some pertinent information.

8 Responses to “The Japan Post privatization: A dim view”

  1. bingobangoboy said

    Thanks for this post; it’s a nice companion to your previous post about Japan Post privatization. I don’t personally believe that blogs have any obligation to be “balanced” or but it always impresses me when someone sincerely provides equal time for the other side.

  2. ampontan said

    BBB: Thanks for your comment. There also was an interview with the head of the postmasters’ association complaining about the number of postmasters leaving the business, but that was more equal time than I was willing to provide!

  3. bender said

    Ampontan,

    Did you know that the postmaster positions in Japan are de-facto inherited, especially in the rural areas? When I found that out, I couldn’t belive it…and this is of course before privatization.

  4. tomojiro said

    “Did you know that the postmaster positions in Japan are de-facto inherited, especially in the rural areas? ”

    To be fair, not all, some of them. They are called “Tokutei yuubinkyoku”.

  5. Rick said

    Thank you for this article,

    My Mother In Law is currently employed with the Japan Post. I knew that privatization was underway but I wasn’t aware of the details. My Mother In Law has been working under six month contracts that have been regularly renewed for the last couple of years. However we fully expect that her contract will not be renewed after January. My understanding has been that the Japan Post wants to avoid any downsizing until after the transition process is complete.

    For us, this is acceptable since we have been preparing for her retirement. We expect she’ll be moving to our home in Texas within a year or so.

  6. ampontan said

    Rick: Thanks very much. I’m glad you found it to be useful.

    Bender: In addition, some of the postmasters own the land on which the post offices are located. The government pays them money for its use.

    I met a father-son combination, in which the son had taken over the post office, many years ago in a small town in Kagoshima. And I do mean small. When they wanted to have a good time on Saturday night and do something special, they went to Miyakonojo. That was the big city.

    You know how one thing reminds you of another? I just remembered going to a bathhouse in Miyakonojo on that trip. Natural water. There were white ribbons of stuff floating in the tub, coming up from the deep. Smell of sulfur. It was great!

  7. bender said

    Ampontan,

    I’m more familiar with Hokkaido, and like Kyushu, there’s tons of hot springs. I always soak myself into one of them whenever I go there. And it is mighty cheap.

  8. Orwell said

    Now it is apparent that Japanese Postal Privatization was a fake and a total failure, and only robbery boomer barons were benefited.

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