Postal Privatization: Hellagood or Hogwash?

[Big Booger]

* The Impact of Postal Savings Privatization is Potentially Enormous

If the Japanese public abandons the caution fostered by unlimited government guarantees and preferential tax treatment for PSS deposits, and begins to invest their savings in private banks and other investment vehicles -- the country's economy will never be the same. Huge amounts of pent-up capital would then be moved into private financial markets. This would help to bolster not only Japan's incipient economic recovery but, over time, financial markets around the world.

PSS privatization will also push Japan to more efficiently allocate capital and account for risk. The government will be forced to become more fiscally prudent. Since the postal service would no longer be required to purchase government securities, Japanese Government Bonds (JGB) would have to be sold to private investors. They are less likely to be forgiving about chronic budget deficits and will need to perceive a risk-reward ratio that effectively balances the ability of JGB's to provide stability, liquidity, diversification and Yen exposure with the interest rate that is provided.

http://www.kwrintl.com/press/2004/jet-12-22-04.html

[Big Booger]

U.S. evaluates performance

The Koizumi Cabinet is close to drawing up an outline of the postal privatization bill. However, the ruling parties are still discussing why it is necessary to privatize the postal services. The fact that this basic question is being discussed at this late stage shows how unreasonable the privatization proposal is.

Why are the ruling parties unable to clearly state their case for postal privatization? It's because the call for privatization originates in the self-centered demand of the financial sector and the United States.

In order to increase opportunities to make profits, the financial sector has been demanding that postal savings and post office "Kampo" insurance be downsized or abolished. The United States is also calling for postal services to be privatized so that U.S. businesses can prosper through take-overs of postal savings and post office insurance programs.

In the Japan-U.S. summit talks in September 2004, U.S. President George W. Bush raised the topic of postal privatization and asked about its progress. Prime Minister Koizumi said, "We will do our best."

In June 2001, just after he took office, Prime Minister Koizumi held his first talks with U.S. President Bush and agreed to launch the Japan-U.S. economic partnership for growth. The partnership is in name only. It is a framework in which the United States places unilateral requests on Japan's structural reform and then appraises its progress.

Japan-U.S. trade talks are based on "The Initiative Regulatory Reform and Competition Policy" established by the USTR and Japan's Foreign Ministry, and "The Investment Initiative" by the U.S. State Department and Japan's Ministry of Economy, Trade and Industry.

http://www.politicalaffairs.net/article/view/922/1/87

I have read several sides of this issue and wondering if it is indeed a good thing or if it will turn out to be a rotten apple?

I think the US is standing to gain the most from the deal overall.. once the government privatizes the postal service it does look like foreign firms will rush in and divvy up the spoils.....

What is your take on it?

[Blah Pete]

Like most gov. operated functions the post office is overstaffed and inefficient. Privatization, if done right could be would be good for Japan.
But, this being Japan it will probably turn out to be a big amakudari /construction industry type of a mess.

[Mulboyne]

[Big Booger]

What I really don't understand is why Koizumi doesn't come out and explain in layman's terms why he wants to privatize the postal service, what benefit will come, and what it will do for the long and short term of Japan...

I've asked several Japanese that I know concerning this and ALL of them had no idea why Koizumi is pushing the privatization. And the people I asked represented differing ages, sexes, occupations and so on...

Most have said Koizumi wants to go down in Japanese history and he is using the privatization scheme to do so.

I do think it will change the political scene of Japan for years to come.. I just hope it is for the best.

[Mulboyne]

Japanese media is reporting that the chances of the bill being voted down on Monday are rising:

Asahi: Opposition to postal bills gains momentum in LDP

Opponents of the postal privatization bills gained a huge boost Friday from a former Cabinet member whose influence has sparked panic among ruling coalition leaders over Monday's vote in the Upper House. Hirofumi Nakasone, a former education minister and now an Upper House member, told a general meeting of a ruling party faction that he would vote against the postal bills. "Voting is at the discretion of individual lawmakers. I am going to oppose," he told members of the Kamei faction of the Liberal Democratic Party... His decision deals a blow to LDP leaders who had thought resistance to the bills was waning..."There is now a high probability of the bills being rejected-and we can't do anything about it," said a senior LDP official close to Koizumi.

Ampontan posted a good follow-up piece here

[cstaylor]

Why else do politicians want to give away a public good? Whatever company purchases the insurance companies will most likely be employing Koizumi or a relation.

[Big Booger]

Why else do politicians want to give away a public good? Whatever company purchases the insurance companies will most likely be employing Koizumi or a relation.

YOu hit it CS.... if they didn't stand to gain from this ordeal, they would never propose it in the first place.

And you can bet they have first dibs on any IPO being offered on the company... kickbacks, and so on....

I think it is a risk that both England and Australia took and learned some hard lessons from... at least from the few gaijin whom with I spoke concerning privatization of their respective postal systems. The guy from England said the British post after privatization was the pits. A similar rhetoric came from the Aussie.

[cstaylor]

There's definitely something fishy when the government wants to break something that works very well right now (the Japanese postal system).

I suggest that we break the LDP into four separate units and sell them off to the highest bidder instead.

[Mulboyne]

[cstaylor]

It is the most conservative interests which oppose privatization so I'm not sure the you are right to argue that the bill is simply self-serving. The other opposition is from people who believe the reform does not go far enough.

So what you're saying is even worse: Koizumi and his merry band are destroying the excellent postal service in order to shift the balance of power within the LDP? It's still self-serving either way, but those on the short end of the stick are complaining.

As someone with nothing to gain from a change to the balance of political power and everything to lose from shoddy private control of a public good, I hope this legislation gets the thumbs down.

[Big Booger]

I am wondering what the effect will be. Koizumi made a weak case of privatization, he didn't come out and explain why and how...

His own party votes against him...

A free market is good, but there is something to say about the system now as it stands and works well enough.

I think this step is about 10 years too premature... and this fight is one Koizumi should have never taken up to begin with.

[cstaylor]

His own party votes against him...

It's better to consider the LDP not as a single party, but as several competiting factions united under a common cause: keeping other parties out of power. You've got hardline rightwingers like Abe and Hashimoto as well as avowed pacifists like Kato all calling themselves LDP members.

The factions also change leadership as time passes. IIRC the faction that used to belong to former Prime Minister Tanaka (father of motor-mouth Makiko) is now run by Hashimoto.

[Mulboyne]

Koizumi and his merry band are destroying the excellent postal service

there is something to say about the system now as it stands and works well enough.

Japan Post is not just a mail delivery service. It is not even mainly a mail delivery service. The central role of the post office is as an inefficient financial institution, pooling the nation's savings and generating below average returns on them in order to subsidize pork barrel projects. This is what Koizumi wants to dismantle. It must be possible to secure an efficient mail delivery system without paying that kind of price.

[cstaylor]

The central role of the post office is as an inefficient financial institution, pooling the nation's savings and generating below average returns on them in order to subsidize pork barrel projects. This is what Koizumi wants to dismantle. It must be possible to secure an efficient mail delivery system without paying that kind of price.

Isn't that following the same "Starve the Beast" philosophy that GW and friends are using to dismantle Federal programs in the U.S.?

Wouldn't it be easier to just pass legislation forbidding the use of postal savings for non-postal use?

[Mulboyne]

Wouldn't it be easier to just pass legislation forbidding the use of postal savings for non-postal use?

Easier? That would have even less chance of passing. My problem with the bill is that it remains only a first step to freeing up the management of savings assets.

Bloomberg: Japan Goes Postal. Should Investors Care?

Beneath the grand pronouncements about moving the postal system out of public hands are realities that make you wonder whether Koizumi's efforts are being watered down to the point of irrelevance. For one thing, it's hard to get excited about a process that will play out until at least 2017. Twelve years is a very long time for any economic initiative to survive. What if Japan's economic fortunes take a turn for the worse five years from now, prompting politicians to keep parts of Japan Post under state ownership? For another, a number of concessions mean any privatization will lack the teeth of earlier plans. In order to get lawmakers to back a plan that's slated to begin in April 2007, Koizumi had to make several concessions. One includes dropping plans to penalize Japan Post if it fails to sell its savings and insurance units by 2017. Perhaps more important, he agreed to a provision to allow unlimited cross-shareholdings between separate postal units after the sale.
... Is this really the revolutionary reform Koizumi is advertising? If you think so, consider that a privatized postal savings system under this formula wouldn't have much discretion over its investments. Japan Post holds about 140 trillion yen of government bonds, or a fifth of the total outstanding, making it the biggest owner of the nation's public debt. A newly independent entity may decide to dump Japanese bonds yielding less than 2 percent in favor of Australian debt yielding more than 5 percent, rocking Japan's market. So, Japan Post will be expected to stay put in public debt...That would amount to a non-privatization privatization. It also shows that all roads toward reforming this rigid economy run through the bond market. It makes politicians reluctant to do anything that might precipitate a sharp and destabilizing surge in interest rates... The postal savings has long been a piggybank politicians tapped to fund their pet projects and help out government-linked companies. Having access to those funds -- through the issuance of special securities -- has slowed economic reforms over the years. Why make politically risky changes when you have ready access to trillions of yen to paper over the cracks?

We may not see the savings invested more productively but taking away the LDP's piggy bank would be compensation enough.

[Big Booger]

Koizumi and his merry band are destroying the excellent postal service

there is something to say about the system now as it stands and works well enough.

Japan Post is not just a mail delivery service. It is not even mainly a mail delivery service. The central role of the post office is as an inefficient financial institution, pooling the nation's savings and generating below average returns on them in order to subsidize pork barrel projects. This is what Koizumi wants to dismantle. It must be possible to secure an efficient mail delivery system without paying that kind of price.

Yeah but even at those sub-satisfactory returns, the system is safe for all who "invest" or save with it as it stands now. That is what the turn on is for many Japanese. They don't want a huge return on their savings. They want a safe secure way to save their money. I believe that is why they use the postal savings system. At least that is the explanation that my wife who is Japanese gave me.

I have to agree with CS. The simpliest way to prevent it would be to change the way postal savings are used.

Getting a bill like that passed would prove impossible... but so is changing the current status quo.

It makes politicians reluctant to do anything that might precipitate a sharp and destabilizing surge in interest rates...

Who wouldn't be reluctant, especially a policitian... who wants a sharp and destabilizing surge in interest rates???

It seems like the smart bill would leave the system intact and change the way postal savings are used... and the EXPLAIN it to the nation in simple terms that everyone can understand.

[Taro Toporific]

The priviatization is losing live on NHK 108 to 28!

[Taro Toporific]

The priviatization is losing live on NHK 108 to 28!

108 to 125 duh I cannot tell who won.

[Captain Japan]

The priviatization is losing live on NHK 108 to 28!

Yeah, only 46% supported it.

[Taro Toporific]

[Taro Toporific]

108 to 125
Aug.08 13:46 Upper house nixes postal bills, Koizumi likely dismiss lower house

Upper house votes down postal privatization billsTOKYO, Aug. 8 KYODO
The House of Councillors on Monday voted down a set of bills to privatize Japan Post in a move Prime Minister Junichiro Koizumi has threatened will lead to a snap general election.
The upper house rejected the bills by 125 to 108 votes, as many members of Koizumi's Liberal Democratic Party joined the opposition camp in casting dissent votes. The bills narrowly cleared the House of Representatives last month.
==Kyodo

[Taro Toporific]

Yen Extends Decline as Japan Postal Bill Fails to Gain Majority
Aug. 8 (Bloomberg) --The yen extended declines against the dollar and euro after Prime Minister Junichiro Koizumi failed to get an upper house majority for a sale of the postal system.
The yen dropped to 112.53 per dollar as of 1:44 p.m. in Tokyo from 111.95 late on Aug. 5 in New York[url].....[/url]

[Mulboyne]

Yeah but even at those sub-satisfactory returns, the system is safe for all who "invest" or save with it as it stands now. That is what the turn on is for many Japanese. They don't want a huge return on their savings. They want a safe secure way to save their money. I believe that is why they use the postal savings system.

It is only "safe" if the government can stand by it's guarantees. A government guarantee is worthless if its finances are in disarray and money politics is the main factor behind the deterioration in public finance. There is nothing intrinsically safe about a public insitution.

The rest of the world largely leaves the private sector to manage its savings. Japanese were likewise happy to use private institutions until they started to fail spectacularly from the mid-nineties onwards. The perceived safety of the post office is in direct contrast to the perceived unreliablility of the private sector so a full rehabilitation of the economy requires greater efficiency at, and trust in, private banks. The privatization of the post offices banking and insurance functions would represent a massive step in that direction.

[cstaylor]

Easier? That would have even less chance of passing. My problem with the bill is that it remains only a first step to freeing up the management of savings assets.

But unlike this confusing step to break up the postal system into four companies, that would be pretty cut and dry. I would be surprised to see many people supporting "postal savings can be wasted on unrelated pork barrel projects".

Sure, it may not pass the Diet, but the people could get behind that, it wouldn't threaten the regular postal system at all... in fact, it would strengthn it.

[Mulboyne]

But unlike this confusing step to break up the postal system into four companies, that would be pretty cut and dry.

It would be less cut and dried. It wouldn't pass because reformers would see it as a sham and would reject such a proposal. That debate came up very early. Leaving three trillion dollars withiin a public institution still puts it in reach of politicians brought up with a sense of entitlement to those funds. That would do nothing to change public finances and, by definition, money politics. Such a move would neither strengthen nor weaken Japan Post but would also do nothing to to advance political reform. Even as the bill stood, it is unlikely that the post office asset allocators would develop a sudden liking for overseas debt. They would, however, be separated from their current political masters.

What result do you think would be best for Japan in the upcoming election?

[Big Booger]

Yeah but even at those sub-satisfactory returns, the system is safe for all who "invest" or save with it as it stands now. That is what the turn on is for many Japanese. They don't want a huge return on their savings. They want a safe secure way to save their money. I believe that is why they use the postal savings system.

It is only "safe" if the government can stand by it's guarantees. A government guarantee is worthless if its finances are in disarray and money politics is the main factor behind the deterioration in public finance. There is nothing intrinsically safe about a public insitution.

The rest of the world largely leaves the private sector to manage its savings. Japanese were likewise happy to use private institutions until they started to fail spectacularly from the mid-nineties onwards. The perceived safety of the post office is in direct contrast to the perceived unreliablility of the private sector so a full rehabilitation of the economy requires greater efficiency at, and trust in, private banks. The privatization of the post offices banking and insurance functions would represent a massive step in that direction.

You are saying a private company is a safer bet than a public one? Then you go right on a type:

apanese were likewise happy to use private institutions until they started to fail spectacularly from the mid-nineties onwards.

Then you say:

so a full rehabilitation of the economy requires greater efficiency at, and trust in, private banks.

How can you trust a private bank that failed a couple of years ago? And all the while the public postal savings service stroked right along without fail???

I don't understand... guess that is why I am not an economist. I see a safer bet in a publicly funded organization.

In the US private banks are guaranteed by the FDIC...

Federal deposit insurance protects the first $100000 of deposits that are payable in the United States.

So I suppose if the government wanted to build up "a full rehabilitation of the economy requires greater efficiency at, and trust in, private banks." perhaps they should guarantee funds in private banks through an insurable system like the FDIC.

At this juncture, privatization failed... so now what? What happens from here on out?

[Somerandomgaijin]

Does anyone know what exactly is going on with the Lower-house? I am not particularly political, but I do not know what the "dissolving" issue entails.
Please educate this Random fool.

[FG Lurker]

In the US private banks are guaranteed by the FDIC...

Federal deposit insurance protects the first $100000 of deposits that are payable in the United States.

So I suppose if the government wanted to build up "a full rehabilitation of the economy requires greater efficiency at, and trust in, private banks." perhaps they should guarantee funds in private banks through an insurable system like the FDIC.

Funds in Japanese banks are guaranteed the same way. Until fairly recently there was no limit to that guarantee, but now I think it is 25 million yen? 10 million? Per person per bank though, in any case. But anyone who is keeping 25 million yen in a bank account is a complete (financial) fool! Or 10 million yen, for that matter.

[FG Lurker]

Does anyone know what exactly is going on with the Lower-house? I am not particularly political, but I do not know what the "dissolving" issue entails.
Please educate this Random fool.

Basically he's booted them out on their asses and called an early election. This is not all that uncommon in parliamentary democracies.

http://en.wikipedia.org/wiki/Parliamentary_democracy