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Postal privatization comes off back burner

by Jun Hongo

Staff Writer

The Lower House’s passage Thursday of a bill to revise the Postal Privatization Law is a key development in an issue that was relegated to the back burner for years, experts said.

The bill includes provisions to reduce the number of companies under the control of Japan Post Holdings from four to three and allows the government to sell its shares in Japan Post.

“Considering that everything had come to a halt in regards to privatization, (the passage of the bill) is a step forward,” Naoyuki Yoshino, an economics professor at Keio University, told The Japan Times.

But others consider the bill a step backward since it scraps the deadline for the government to sell all its shares in Japan Post Bank and Japan Post Insurance, which would complete the privatization process. Instead, the bill states that the government should sell all of its shares “as early as possible” instead of by September 2017.

As Bob Vastine, president of the U.S. Coalition of Service Industries, stated in a press release earlier this month, the revision could complicate Japan’s chances of joining the negotiations on the Trans-Pacific Partnership.

The bill “would make it easier for Japan Post businesses to introduce new financial services products from an advantaged competitive position” and create an unfair condition for competitors, Vastine charged.

Differences of opinion and a convoluted debate is nothing new to the topic of splitting up and privatizing the behemoth organization.

Japan Post began the denationalization process in the 2000s under the initiative of Prime Minister Junichiro Koizumi, who wanted to increase efficiency and allow more independence for the group to make use of its vast assets.

In 2007, Japan Post was put on the road to becoming a private company for the first time in its more than 140-year history by being divided into Japan Post Service Co., Japan Post Network Co., Japan Post Bank Co. and Japan Post Insurance Co.

All were put under the holding company Japan Post Holdings Co., with the government holding all the shares. The postal law allows the government to reduce its holding to a third.

Japan Post Service manages mail delivery services, while Japan Post Network is in charge of the post offices and their real estate.

Japan Post Bank Co., which at the time held a whopping ¥188 trillion in deposits, was scheduled to go public as early as 2010 along with Japan Post Insurance.

But the game changed with the 2009 Lower House election, when the Democratic Party of Japan pledged to review the privatization process and knocked the conservative Liberal Democratic Party out of power for the first time in decades. Both the banking and insurance units have not yet made the transition to private entities because the government has decided to freeze its divestiture.

Opponents of privatization also said the birth of a mammoth bank would put too much pressure on existing bank groups and regional banks. Others worried that privatization would lead to unprofitable post offices in rural areas getting shut down.

Some say the planned merger of Japan Post Service Co. and Japan Post Network Co. will work to the advantage of customers, who were complaining they couldn’t receive the same level of service after the initial stages of privatization took place. Under the new structure, mail delivery and other services will again be provided by one point of contact.

For the ruling DPJ it was also imperative that the privatization make progress so as to sell the government’s shares in Japan Post and bolster the March 11 disaster fund.

“The government was hoping to use the profit made from selling its Japan Post-related shares for reconstruction and restoration from the Great East Japan Earthquake,” Hirotaka Shimazu, an economist at the Daiwa Institute of Research, wrote in a report earlier this month.

The law has to be revised before the share sales can begin.

If the bill passes the Diet, the government will be able to sell two-thirds of its shareholdings, which some say could amount to several trillion yen. This may also impact the level of tax hikes the public may have to endure to rebuild the Tohoku region.

Meanwhile, critics say the new bill regresses too far from the original privatization plans, since it would scrap the deadline of September 2017 for selling all Japan Post Bank and Japan Post Insurance shares, leaving the gigantic entity in the hands of the government. The new “deadline” merely states the selloff should happen “as early as possible.” This leaves the government’s involvement in managing Japan Post intact for the time being.

“We strongly request that an appropriate means will be taken” not to violate the rules of the industry by giving advantage to the Japan Post Bank and in the process hurting other private banks, Japan Bankers Association Chairman Katsunori Nagayasu said in a press release last month.

The Coalition of Service Industries of the U.S. also made it clear that the bill will continue an unfair trend in Japan and harm the country’s economy.

“If Japan hopes to join the TPP, it will have to demonstrate that it welcomes competition in all sectors of its economy on a level playing field, including with its state-supported enterprises,” CSI’s Vastine said in his release.

But the opposition LDP, which initiated postal privatization in the first place, has agreed to support the bill now that the charismatic Koizumi is no longer prime minister. In late March, when the LDP decided to endorse the revision, those who stood by the original privatization plan were a minority.

No obstacles stand in the way of the bill making it through the Diet during this session.

Keio University’s Yoshino suggested that instead of debating privatization or getting sidetracked by political motivations, reform of Japan Post should be based solely on providing the best service for the public.

“Mail delivery services are being hurt by online technology and need to be reconstructed. Fundamental changes are required,” he said, adding that there are uncertainties over whether Japan Post can provide an adequate banking service that competes properly with its rivals.

“The bottom line is that Japan Post needs to continue providing fine services to customers, or else everything else won’t matter. The government needs to consider that factor,” Yoshino said.