Japan to Privatize Its Post Office

When Japanese Prime Minister Junichiro Koizumi took office in 2001, one of his top priorities was the privatization of Japan's Post Office. In the US, the Post Office has the job of making Federal Express and UPS look good by comparison. It isn't a bank. In Japan, not only is the Post Office a financial institution, but it is the 800-pound gorilla in the economy. That is why it has taken almost four years to get the process going. It isn't going to get done over night either, but this reform is the biggest thing to hit Japan's economy in decades.

To appreciate just how significant the Japanese Post Office is to the financial system there, a few tedious statistics are in order. The system has ¥350 trillion (about US$3.2 trillion) in assets that politicians have freely made available for pet projects on favorable terms over the years. It has ¥225 trillion in deposits. Some 25,000 post office branches sell savings products and insurance policies in addition to plain old stamps (and there are others that do only that). It employs 300,000 people. By comparison, the seven national banks have just 2,600 branches in all. The biggest savings entity in Japan after the Post Office, Mitsubishi Tokyo Financial Group, has ¥67 trillion in deposits -- around 30% of the PO's. And insurers aren't very relaxed about the ¥122 trillion in insurance assets the PO has. Privatized, Jesper Koll at Merrill Lynch told the BBC, "It will be a Godzilla bank."

So long as it is owned by the government, it is a regulated monopoly of sorts. Privatized, it dwarfs the competition. And as Mrs. Thatcher proved while PM in the UK, the only thing worse than a public monopoly is a private monopoly. So, Mr. Koizumi has spent a great deal of time and effort in getting the privatization formula in order. He did so, in part because it is the right thing to do, but also because there is significant opposition to his plan within his own Liberal Democratic Party.

So, he has said that the legislation will require that the Post Office continue to offer services nationally once privatized. And savings and insurance products cannot be offered as the local manager chooses -- all must be on sale across Japan. Of course, the free marketeers at the University of Chicago and the Cato Institute will decry these built-in inefficiencies, but without them, the Post Office crushes the competition, and the market vanishes.

To get to his destination, Prime Minister Koizumi has decided to set up a holding company that will take control of the entire Postal System, and then, four separate subsidiaries will emerge: one for savings, another for insurance, one for good old fashioned mail delivery, and a fourth covering personnel and property management. Starting in 2007, these units will be sold off. However, the savings and insurance companies will get to keep their cross-shareholdings. The idea is to prevent a takeover that would allow a financial institution to buy the commanding heights of both markets.

Japan is still struggling with the lingering effects of a lost decade economically. Prime Minister Koizumi managed to get the economy growing again, but things have slowed to a halt. This change in the fundamental process of capital accumulation may not result in immediate improvement, but it is needed for long-term Japanese economic health. With a greying population and a shrinking workforce, Japan needs a more efficient and flexible way to recycle savings into investment.


© Copyright 2005 by The Kensington Review, J. Myhre, Editor. No part of this publication may be reproduced without written consent.
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