JAPAN: Move towards privatisation meets stubborn resistence

SURVEY – JAPAN: Move towards privatisation meets stubborn resistence: POST OFFICES by Michiyo Nakamoto: The trouble the prime minister faces in trying to modernise the Postal Services Agency epitomises the difficulties he faces with his reform programnme overall

Financial Times, Sep 25, 2001
By MICHIYO NAKAMOTO

The post office, with its bright red mailboxes and bike-riding mailmen, does not generally conjure up images of political scheming.

But in Japan the Postal Services Agency has recently caused concern with revelations about the lengths that some of the 18,800 post office chiefs throughout the country are prepared to go to in order to protect their vested interests.

Late last month, Tsuyoshi Mishima, a postal supervisor in Kinki, western Japan, was arrested on charges of violating Japan's election laws.

Mr Mishima is suspected of using his position as a public employee to collect votes in July's Upper House elections, for Kenji Koso, the Liberal Democratic Party parliamentarian and former official of the Postal Services Agency.

His arrest – along with that of 15 other public employees believed to have violated the same law to help Mr Koso – confirmed the public's suspicion that the postal chiefs use their close ties with the ruling party to protect their privileged status. Mr Koso has so far resisted calls for his resignation from the Upper House.

The post office scandal comes as Junichiro Koizumi, the prime minister, is trying to push through far-reaching reforms of Japan's public institutions, aimed at raising efficiency, invigorating the private sector and revitalising the economy.

Mr Koizumi has put public sector reform at the centre of his programme to cut back on government spending and reduce its role in economic activities better left to the private sector. Public sector reform is critical to Mr Koizumi's plans to stem the country's economic decline and set it back on a growth path.

But the post office scandal highlights the depth of the problem Japan faces in reforming the public sector.

For one thing, the political clout of the post office has meant that Mr Koizumi has faced tremendous opposition to his privatisation plans, not only from the bureaucrats in the Postal Services Agency but also from members of his own LDP.

The post office, which has a formidable network of 239,000 supporters, including the families and relatives of the post office chiefs, has been a dependable provider of votes to the LDP.

Although post office employees, including the heads of local post offices, are public employees and therefore banned from public political activity, their wives and relatives have been vocal participants at political rallies and grass roots political activities.

The 200 or so women who attended a late July political gathering in Osaka to support Kenji Koso, for example, were mostly wives of post office chiefs.

In return for its votes, the post office has won the protection of the LDP.

It has been able to resist growing calls for its privatisation, in spite of the financial burden it poses on the public purse.

Last year, the postal services operations of the post office recorded a Y10bn loss, while its postal savings operations lost Y1,296.9bn. Both operations were in loss for the third year running. The postal life insurance system made a profit of Y173.6bn.

The postal savings operations of the post office have also attracted widespread criticism for depriving the private sector of a huge pool of funds, which is then channelled into public works projects.

The post office had about Y250,000bn in savings at the end of March. If this is combined with the Y120,000bn in the postal insurance system, the Postal Services Agency controls more than one-fourth of Japan's Y1,390,000bn in individual savings.

Private banks complain that the post office presents unfair competition since it is not taxed and its deposits are guaranteed by the government.

Those savings are largely channelled to public institutions in the form of loans under the fiscal investment and loans programme, which has been criticised for supporting wasteful public projects.

The position of the post office chiefs, which is more or less hereditary, has also spurred criticism of the cosy relationship between the post office and the LDP.

Although post office chiefs are public employees, they do not have to pass the civil service exam that is required of other public employees.

The system is a relic of the days when the Japanese government could not afford to set up its own post offices all over the country. Instead, it encouraged powerful local businessmen to offer their services and their property to build a post office network in return for the prestige of becoming a public bureaucrat.

These post offices, which are like small family-run businesses, make up two-thirds of Japan's post offices.

Post office supporters claim that privatisation would harm the interests of the weaker members of society – the elderly, and those who live in remote areas with no access to banks.

"The post office network does not take any government money. It doesn't use any taxes. So, it is a huge (employment) safety net," says Mr Koso. "What is wrong with this system?"

In reality, the post office chiefs do receive funds from the government, known as watashikiri-hi, or money that is handed over and does not have to be accounted for. In theory, the watashikiri-hi is supposed to be used to cover running costs.

But this watashikir-hi has come under intense criticism of late, after reports that some post office chiefs had been using the money for personal matters. Last year, this watashikiri-hi and rent for the post offices cost the public a total Y170bn.

The postal services agency is set to become a public corporation in 2003. But critics point out that a mammoth organisation that competes directly with the private sector while enjoying the unfair advantages of non-taxation and government protection distorts market mechanisms. The situation, they say, calls for nothing short of full privatisation as initially advocated by Mr Koizumi. Copyright: The Financial Times Limited