Towards
a True Reform of the Postal System
1.
Introduction
Flying the banner of postal
privatization, the
Liberal Democratic Party of Japan scored an overwhelming victory in the
lower
house elections on
We agree that a genuine reform
of the postal
system is necessary. However, we also find that the bill resubmitted by
the
government contains a number of serious flaws. Having gained
overwhelming
support from the public, the LDP should revise the proposal and
introduce a
bill that would achieve a true reform of the postal system. Postal
privatization
is indeed an important task, but the contents of privatization may be
even more
important than whether to take that step or not. In fact, an
ill-conceived
privatization may make matters worse. For example, bad management of
the
privatized postal companies may impose a heavy burden on taxpayers. On
the
other hand, if the postal system is privatized in its current
gargantuan shape,
its enormous postal savings and insurance operations may just overwhelm
private
financial institutions. If the creation of privatized postal companies
ends up driving
existing banks and insurance companies into bankruptcy in the process,
the
privatization process should be considered a failure. Thus, having won
the
general election, important next challenges for the government are how
to
ensure that competition on an equal footing prevails and the
privatization
process is properly executed.
In this proposal, we present
our views on and
proposals for the privatization of the postal system.
2.
Problems
of the postal system
At the moment, the postal savings
system and the postal life insurance scheme appear to stand on a sound
financial footing and do not seem to be plagued by any major problems.
In
reality, however, the revenues of the postal savings and insurance
system are bloated
by government subsidies. Then,
they
compete with private sector financial institutions, which do not
receive such
explicit subsidies from the government.
More specifically, the current
postal system
has the following problems.
(1)
Japan
Post is largely exempted from taxes such as corporate taxes and stamp
duties. Although
any surplus generated by the postal services is supposed to go to the
treasury Japan
Post is not expected to generate such surplus in the near future and
any positive
contributions to the treasury are unlikely to be forthcoming.
(2)
Postal
savings and life insurances are guaranteed by the government at no
cost. This
government guarantee may compensate for having to provide a unified
country-wide service, but it also seriously distorts the competitive
environment for other financial institutions.
(3)
There
are complex risks involved in the running of businesses with very
different
characteristics (postal delivery services, the postal savings and the
postal
insurance) at the same time.
(4)
The
amount of savings deposited with Japan Post exceeds that of the four
mega-banks
combined, while the assets of the postal insurance match those of the
four
largest life insurers.
(5)
Funds
collected through postal savings and insurance are allocated
inefficiently
through government-owned financial institutions.
Note that the most important
problems are those
related to the savings and insurance business. In other words, the
reform of
the postal savings and insurance system is more important than the
reform of
postal delivery services.
3.
“Privatization” according to the postal
privatization bill
The
postal
privatization bill that is expected to resubmit to the Diet,
unfortunately, is
not going to resolve the above-mentioned problems. The key points of
the postal
privatization bill can be summarized as follows:
(1)
The
abolition of government guarantees on all new postal savings and
insurance
contracts from April 2007.
(2)
“Complete
privatization” is to be attained by April 2017. Yet, while
the government’s
shareholdings in the postal bank and postal insurance corporations are
to be
reduced to zero by 2017, the government will continue to hold more than a third of the shares in the holding company that holds 100% of the postal delivery and the postal
network
corporations even after “complete privatization.”
(3)
Even
after “complete privatization,” the postal network
and postal delivery
corporations as well as the holding company will be able to hold shares
in the
postal bank and postal insurance businesses.
(4)
Government
guaranteed deposits received before April 2007 and deposits received
after
April 2007 not guaranteed by the government will be formally separated
into
“old accounts” and “new
accounts.” The
postal bank,
however,
will then
bundle those funds and invest them; any profit or loss from the
“old” or “new
accounts” will accrue to the postal bank.
(5)
The
privatization plan does not contain any measures to prevent the
proceeds from the
sales of
the postal bank and the
postal insurance company from
being used to cover the losses of postal delivery and
the postal network corporations.
This
bill
suffers from many serious problems. First, deposits received until
April 2007
will continue to be government guaranteed, meaning that the competition
in the
financial industry will continue to be distorted. Second, even if
postal
savings will officially no longer be government-guaranteed, if the
government
continues to hold a large amount of shares in postal savings
corporation
through the holding company, savers are likely to believe that their
deposits
are still backed by the government. Third, if the postal delivery and
the
postal network corporations –which continues to be under the
government control
– are allowed to acquire shares in the postal bank and the
postal insurance
corporations, there remains a risk of de facto re-nationalization. The fourth
and
biggest problem is that the transition period to “complete
privatization” is
too long. Since the holding company continues to enjoy a government
guarantee
for the postal savings in the “old accounts,” it
may end up expanding the
postal bank and postal insurance businesses even more, taking advantage
of
these privileges.
4.
Proposals
A
privatization that truly deals with the problems of the postal system
would include
the followings.
(1)
To
ensure a level playing field, the postal bank and the postal insurance
should
each be immediately split into, say, four smaller entities (for
example, by
region). (An alternative would be to speedily shrink their scale
considerably.)
(2)
Again
to provide a more level playing field, the profits or losses of the
“old
accounts” of the postal bank and postal insurance funds which
continue to enjoy
explicit government guarantee, should be completely separated from the postal bank and the postal
insurance company.
(3)
After
the postal bank and postal insurance have been split up or shrunk, the
government should sell off its shareholdings within three years. The
ten year
period envisaged in the postal privatization bill is too long and the
incompletely privatized postal bank and postal insurance in the
meantime are
likely to disrupt the functioning of the financial sector.
(4)
If
the problems of the postal bank and postal life insurance are
completely solved,
postponing the privatization of the postal delivery and postal network
businesses may not be that costly. However, privileges
vis-à-vis private parcel
delivery companies should be greatly reduced, new entry to the business
should
be facilitated, and competition should be encouraged. In addition, if
the
privatization is to be postponed, the postal network company should clarify its scope of business.
(5)
The
postal delivery and postal network corporations, which the government
will
continue to control, should be barred from holding shares in the
privatized
postal bank and the postal insurance or from influencing their
management
decisions by getting involved in personnel affairs.
If
such a swift
privatization is achieved, Japan Post may face a serious redundancy of
workers.
To minimize the pain of employment adjustment, it may be necessary to
take some
measures to
protect employment using
the postal delivery and postal
network companies.
A few additional changes to the government bill, such
as those suggested here, could solve many of the current problems of
the postal
system and achieve a true privatization. Having purged the anti-reform
faction
from its own ranks and having gained an overwhelming mandate in the
national
elections, the LDP, lead by Prime Minister Koizumi, could now surely
propose a
privatization plan that would form a part of true reforms. What
This
proposal is written and
endorsed by the following members of the Japanese Shadow Financial Regulatory Committee:
Takatoshi
ITO
(Tokyo University)
Zenichi
SHISHIDO
(Seikei University)
Kimie
HARADA (
Mitsuhiro
FUKAO (
Takeo
HOSHI
(
Kaoru
HOSONO (
Masaya
SAKURAGAWA (