PRIVATIZATION, BUT AGAINST ALL ODDS

Koizumi’s posts plan a Pyrrhic victory?

by Reiji Yoshida

Prime Minister Junichiro Koizumi has made privatizing the cumbersome postal system his key reform pledge, and with the Cabinet’s Friday approval of the basic plan it would seem he was victorious in getting the process on a firm footing.

For more than a decade, Koizumi has sought the privatization, hoping to cut off the flow of funds from the massive postal savings system into deficit-ridden state-backed corporations and into the purchase of Japanese government bonds.

But although the Cabinet OK’d the privatization plan, which would break up the postal services into four entities — mail delivery, postal savings, “kampo” insurance and management of over-the-counter postal services — starting in April 2007, there is no given that this will actually occur, mainly due to the stiff opposition he faces from members of the ruling Liberal Democratic Party, which he heads.

Those foes have vested interests in the postal system, especially as a rural vote-generating machine, and they have vowed to veto his plan.

Experts say Koizumi saved his reformist face by overriding his opponents and getting the Cabinet to approve the bare minimum of privatization by his deadline. But this may be far from a major victory, and his plan, like his administration, could be in jeopardy, they say.

“I’d give Koizumi a score of 60 out of 100, the lowest passable score,” said Satoru Matsubara, a professor at economics at Toyo University.

“He managed to include the breakup of the postal services (in 2007) in the final few days (of negotiations). Otherwise, I’d have given him a sore of zero,” said Matsubara, who was a member of a now-defunct privatization advisory panel for Koizumi.

Dividing mail delivery, postal savings, insurance and over-the-counter services into separate entities is considered essential to make each operate on fair market principles and become true private companies.

Koizumi rejected demands from within the LDP to delay Friday’s Cabinet approval of the privatization plan. But in meeting his deadline, he effectively foreclosed on a chance to secure support from most of the rank and file.

Opponents within the LDP, who have relied heavily on votes organized by postmasters nationwide, have threatened to block enactment of the planned postal privatization bills when they are drawn up and submitted to the Diet next year.

“The government will adopt its own (privatization plan) by itself. It won’t have any binding power over us,” said Tamisuke Watanuki, a LDP veteran who leads a group of party lawmakers opposing the privatization.

Watanuki warned of “great chaos” if the government submits its own privatization bills, indicating his group, numbering 250 LDP lawmakers, will try to block their passage in the next regular Diet session, convening in January.

Chief Cabinet Secretary Hiroyuki Hosoda said the government and Koizumi administration will continue trying to get LDP members behind the plan before the bills are submitted.

But Koizumi’s plan, even if passed by the Diet, has serious flaws, said Kazuaki Tanaka, professor of politics at Takushoku University and an expert on administrative reform.

Tanaka said that a privatized “yucho” postal savings system — if kept as a single entity — would still be too big to ensure fair competition with other private financial institutions. Yucho savings now amount to 230 trillion yen, almost half of all the money held in savings and deposits nationwide.

Tanaka, echoing many other experts, argued that the postal savings system must be divided into several regional companies to ensure a level playing field with other financial institutions.

Koizumi’s watered-down plan includes no measures to further split up or downsize the postal savings system. Whether the privatized entities will be split up regionally in the future is up to their management, which would be reluctant to elect to make them less competitive, Tanaka pointed out.

“Mr. Koizumi will be satisfied even if all he accomplishes is a ‘privatization’ in name only. He doesn’t care about its substance, only about the term,” Tanaka said.

Matsubara of Toyo University said Koizumi’s plan lacks a broad vision of the future of the financial industry.

Much of the money held in postal savings and “kampo” insurance has been used to buy JGBs or invested into inefficient state-run special corporations. This has restricted the flow of money into the private sector, a major reason experts advocate postal privatization.

But Koizumi’s plan doesn’t spell out when and how the state will stop meddling in the privatized entities so that money can flow to the public sector.

To boost the money flow, the privatized postal entities must acquire investment and lending skills by, for example, initially merging with other state-linked financial institutions, Matsubara said, noting, however, that no such plans have been submitted.