The Postal Struggle

August 7, 2005

A bill to privatize the Japanese postal services by 2017 passed in the lower house by five votes and is to be voted on in the upper house on Monday. There is firm opposition to privatize from most of the rural politicians in all parties, not just in the opposition parties but even in the main party that is supposedly trying to pass the reforms. And one of the most striking thing about the news coverage of the whole battle in the media and the debate amongst politicians, is that no one is willing to cross a certain line, that really should be one of the main points in the debate. That is, how the ¥386 trillion ($3.6 trillion) that the postal savings system holds is being used.

The money is often used by politicians to fund their pork barrel projects, the money being even more important to rural politicians, that buy their voters on their next river filling or bridge building project that they will support. The rural politicians that loath to let go of their main source of support, are battling against politicians like the Prime Minister, that want to privatize this economy distorting institution (the largest financial institution in the world) and make them enter the market without benefits of the government. Yet, for love of his party or pressure being placed on him, even the PM refuses to bring up the connection between postal money and rural power.

The PM has threatend to dissolve the Diet if the bill does not pass tomorrow, if it does come to that hopefully, he will finally show the balls to actually bring up the postal money trail. Though it might be the last thing he will do as Prime Minister. The whole struggle seems to be a reflection of all the corruption that runs deep into the core of Japan.

Here is some background:

From this article a couple of months back in the Economist.

LONG before he became prime minister in 2001, Junichiro Koizumi wanted to privatise Japan Post. This anti-competitive monstrosity not only delivers the mail and offers over-the-counter services in every corner of the archipelago, but also functions as a bank and insurance provider for Japanese households. It is thus sitting on ¥386 trillion ($3.6 trillion) in assets, making it the world's biggest financial institution. After battling for decades as an MP, and four years as prime minister, Mr Koizumi is now close to getting a vote on a bill that will—eventually—turn it over to the private sector. The bill is still being bandied about in parliament, but most observers expect it to pass sometime this summer.</p>

Japan Post's massive pool of misallocated savings is an important reason why the economy remains heavily influenced by the state. Privatise it and get out of the way, Mr Koizumi has long argued, and Japan will regain some of its dynamism. Unfortunately, both for Mr Koizumi and for Japan's economy, such a shift would also be a blow to the ruling Liberal Democratic Party. Not only are postal workers an important voting block, but the money that Japan Post has funnelled to state-backed and politically connected businesses—such as construction—has helped to keep rural voters sweet on the LDP.</strong>

More analysis from this other article from the Economist.

THE privatisation of Japan’s postal monopoly has long been the overriding political ambition of Junichiro Koizumi, prime minister since 2001. He has called it the country’s biggest reform in a hundred years and thus regards it as the centrepiece of his legislative programme. So Mr Koizumi must have felt a huge sense of relief when, on Tuesday July 5th, his postal-reform bill squeezed through the lower house of parliament, by 233 votes to 228. He had pulled out all the stops to get it passed. Cabinet members who had been minded to vote against the measure were warned that they would be “severely punished” if support was not forthcoming—a couple chose to resign over the matter. Despite Mr Koizumi’s insistence that a defeat for his bill would be tantamount to a no-confidence vote, some 40 members of his ruling Liberal Democratic Party (LDP) opposed the legislation.</p>

This level of opposition might seem surprising, given that the privatisation is not due to take full effect until 2017. But then, Japan Post holds a greater sway over the country’s financial and political system than would a service that merely transported letters and parcels. As well as providing mail and over-the-counter services at some 25,000 post offices, it is the world’s biggest financial institution by far, with assets of around ¥386 trillion ($3.6 trillion). Turning its banking and insurance services over to the private sector is set to cause considerable upheaval as an enormous dollop of money under the aegis of the state is exposed to the market. Mr Koizumi’s bill will split Japan Post into four separate units by 2007: banking, insurance, post delivery and post offices. The banking and insurance arms will be sold off completely by 2017.

Much of the criticism of Japan Post’s role as the leading savings bank and life-insurance provider is based on the misallocation of resources in a country where the financial system is under considerable strain. The company holds deposits of ¥265 trillion in individual savings accounts, some 30% of the national total. Yet Japan Post is exempt from paying most taxes and contributing to state-backed deposit-insurance schemes. This provides the group with an implicit subsidy that is not enjoyed by rival financial institutions. Similarly, Kampo, the firm’s life-insurance scheme, has assets of ¥121 trillion, some 40% of the total, which are also under government guarantee.</strong>

How did the postal savings system get all the money? Slate answers that here.

Postal savings accounts. For 130 years, the postal system has served as a local savings bank for anyone with a cent to spare. (In the early days, you could start an account with a deposit as small as one two-hundredth of a yen.) Postal savings began a few years after the postal service was founded in 1871, and several years before the first private savings bank opened in Tokyo. Today, Japan Post holds about a third of all personal savings in the country. (It does not make big profits from mail delivery.)</p>

The post runs around 25,000 branch offices, where you can send letters, deposit money, make payments, or buy insurance. It also owns far more ATMs than any commercial bank and offers competitive interest rates. But its biggest selling point may be financial security. Customers have repeatedly flocked to the postal system during major banking crises like that of the 1990s.</strong>

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