Question: What is, or at least could be, one of the wealthiest institutions in the world? That would be the Japanese postal system. One might call it the world's largest bank, with almost 3 trillion dollars. (This Slate article provides a glimpse into how they got it.) Yes, that's right, Japanese citizens can send their aunt Noriko in Karuizawa a box of rice (there are special rice boxes for sale in our post office here in Nakajo) and make a deposit in their savings account at the same time by stepping a couple of windows to the left.
They can also by insurance for their dear aunt, as well. So talk of privatization of this service is no small thing. There are a lot of vested interests, including...
Question 2: What democratic party has held power for over 55 years...in effect, since the US's Truman administration? That would be Japan's Liberal Democratic Party, currently headed by Prime Minister Junichiro Koizumi, whose graying mane has made him a hit in Japan and abroad.
So why is the chief of Japan's most monolithic party trying to upset the persimmon cart of Japan's most monolithic financial institution. Especially when the rest of his party thinks it's a bad idea? From the NYT:
The upper house rejected his bills to privatize the country's postal services, which he had long described as the main pillar in his plans to reshape Japan's political and economic structure, but which is also a traditional source of financing for popular public works projects.
The upper house's vote underscored the deep divisions inside the Liberal Democratic Party, which now faces the real possibility that it could lose its nearly continuous, half-century grip on power next month. It also left uncertain the future of Mr. Koizumi, the longest-serving Japanese prime minister in a generation. He has been one of President Bush's strongest supporters.
Well, it is the Times, so any dig at Bush is mandatory, I suppose. I wonder if there's any connection between relations with America--and the world in general--and the date chosen for a snap election:
Mr. Koizumi called an emergency cabinet meeting shortly after the vote this afternoon and went through with a threat to dissolve the lower house of Parliament, setting a general election for Sept. 11.
(...)"The Parliament's judgment was that there is no need for postal privatization," an angry Mr. Koizumi said at an evening news conference. "But I'd like to ask the Japanese people whether there really is no need for it. In other words, this dissolution is a postal dissolution. Whether they agree on postal privatization - this is what I want to clearly ask the Japanese people."
Some are calling this political suicide--the LDP's rivals are rested (they should be after 55 years) and ready. The Asia Times Online:
A recent survey by the highly regarded Shukan Bunshun magazine suggested that if an election were held in September it would hand the DPJ a solid majority and reduce the number of LDP lawmakers to below the 200 mark from the current 237. The results of recent Tokyo municipal elections also underlined the DPJ's ability to attract vital floating voters, who are normally the key element in winning Japanese elections. Political momentum is clearly with the DPJ.
Not surprisingly, the DPJ is relishing the prospect of a snap election and last Friday its secretary general, Tatsuo Kawabata, gleefully summed up party feeling, "If the Lower House is dissolved, we will take it as the chance of a lifetime, and say 'thank-you'."
One of the reasons for LDP weakness is the existence of divisions within the party. Some members have their reasons for dragging their feet over postal service reform.
The LDP is currently so riven over the issue that those lawmakers who opposed Koizumi may break away to form their own party, especially if the LDP leadership carries out its threat of refusing to endorse Lower House rebels in the election.
Many of the LDP postal privatization rebels depend on the state-run postal system as a solid vote-gathering machine in their constituencies, where local post office chiefs often act as reliable vote-gatherers during election campaigns. This bond lies at the heart of the fierce opposition to privatization proposals and the forces it generates may rip the LDP apart. (Emphasis mine)
While Koizumi could be freeing himself up for more time to waltz around with the likes of Richard Gere, he'd only be sacrificing one year of his potential tenure, as Japanese term limits would require him to give up office in September, 2006 anyways. Even a victory could ring hollow, as the Economist points out.
Mr Koizumi, likewise, could find himself in an awkward position even if his party wins. In the election, the LDP is likely to withhold support from the 51 lower-house party members who failed to back the Japan Post bills when that chamber voted on them last month. The LDP coalition would lose its lower-house majority if the party and its partner, New Komeito, lost 43 seats or more. So at a minimum, Mr Koizumi must find enough new candidates to defeat some of the LDP rebels in their own districts; or else he will have to win back some of the seats that the DPJ gained in the 2003 general election.
If it can win, the LDP might be more of a “pure” party, having purged some of the anti-reformists. But if that results in a slimmer majority, it may not make reform any easier. And since the next upper-house election is not until 2007, Mr Koizumi’s hopes of getting the Japan Post bills approved now seem dead.
But, after all is said and done, isn't privatization a good thing? Is Koizumi putting concern for the economic well-being of Japan's future ahead of his own? Koizumi's plan seems sound, and some economists have praised him for his previous efforts in weaning Japan from the teat of corporate welfare, of which the Japanese Post Office may by the most generous source:
It is now sitting on ¥331 trillion ($3 trillion) of such assets: were it a private financial institution, it would be the world’s biggest by far. These assets help to finance Japan’s unique system of corporate welfare, which props up small firms, farmers, construction lobbies and rural interests in general. Mr Koizumi’s plan was to put that huge pool of capital gradually to better use, by separating the bank and insurance arms from the post-office network and encouraging them to invest in line with market forces.
(...)If the politics of reform are unclear, so are the economics. While some economists remain downbeat about Japan’s economy, there is also an important division between two schools of recent optimists. The first bunch—which has included Robert Feldman of Morgan Stanley—reckons that the economy has recovered over the past few years largely because Mr Koizumi has done such a good job reforming it: he has pushed to privatise roads, fix the banks, cut public-works spending and free up market forces, according to this view, and Japan has been reaping the rewards. So now that reform appears stalled, this group is now more pessimistic. Mr Koizumi's resounding defeat in the upper house, says Mr Feldman, “implies a long period of policy gridlock” which will be “bad for bonds, stocks and the yen”.
Another group of optimists, however, places much more emphasis on the business cycle and good fortune. Economists such as Richard Jerram of Macquarie Securities reckon that buoyant China-driven exports and investment over the past few years have lifted company profits and given the economy a boost, while making it easier for the banks to begin writing off their bad loans. Mr Koizumi’s government may deserve some credit, they argue, but most of his reforms have been gradual and do not yet add up to much. Japan’s economic prospects, in their view, depend on whether healthier exports and profits continue to translate into more hiring, and eventually lead to rising wages, more consumer confidence and an end of deflation.
How odd, that the leader of the longest running show in democratic politics is pressing for true reform, while everyone else seems quite content with gridlock. Of course, what the Democratic Party of Japan might do if they can capture a majority remains unclear.
This may be a ridiculous comparison, but at the end of the Second World War, Japan, lacking one dominant ruling force, could not bring itself to surrender. Finally, after the atomic bomb attacks and the entrance of the USSR into the theater (which would certainly have been less prone to maintaining the emperor system), Hirohito finally broke the gridlock. I'm not among those who view Hirohito as the pacifist savior of Japan, and his gamble was probably one of calculated self-interest, it is interesting to contemplate the chemical makeup of what it takes for Japanese bureaucracy to free itself.
I'll be on the lookout for political/economic analysis of why Koizumi, an ex-Postal Office head, is risking so much to scuttle his former organization and perhaps his own political party.
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