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Reversing reform: How special interests rule in Japan

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In Brief

The wind-back of former Prime Minister Koizumi’s postal privatisation reforms is a spectacular example of how special interests are exerting pivotal influence over key economic policies in the Hatoyama administration.

Japan’s postal lobby is strongly committed to government ownership of postal services. Its grass-roots components consist of postmasters’ organisations and Japan’s largest labour union with 229,000 members (the Japan Postal Group Union). In the past, postmasters’ organisations strongly backed LDP candidates in Diet elections, but Koizumi’s privatisation reforms seriously frayed this long-standing link.


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The People’s New Party (PNP), a party of ex-LDP postal rebels, formed in August 2005 to fight Koizumi’s postal privatisation plans and the September 2005 election against the LDP, effectively became the postal lobby party. The Japan Postal Group Union supports the DPJ as well as the PNP and the Social Democratic Party (SDP), another anti-postal privatisation party in the ruling coalition.

Although the DPJ did not outline any policy on the postal privatisation issue in its 2007 Upper House election manifesto , it gradually aligned its position with the PNP’s from 2007 onwards By the time of the 2009 election campaign, the DPJ was professing a clear commitment to reversing postal privatisation. Its 2009 manifesto adopted a counter-reform posture in clear contrast to its 2005 manifesto, which adopted a distinctly pro-privatisation line. The result was that postmasters gave their support to DPJ candidates in the August 2009 election.

On gaining power, the Hatoyama-led coalition government quite early signalled its commitment to unravelling postal privatisation. It moved quickly to put a moratorium on the sale of shares by the government holding company, Japan Post Holdings (JPH), of its wholly owned financial subsidiaries Japan Post Bank and Japan Post Insurance (which was due to start in 2011 and end in 2017).

The DPJ also pledged to make the three main postal services (mail, banking and insurance) available in an integrated form nationwide. This implicitly backed the notion of universal service, which meant offering banking and insurance services throughout the country in addition to mail services.
The Hatoyama administration’s policy on postal privatisation is not simply a reflection of a special-interest lobby successfully exerting its influence over government. This is one element, but it is not the whole picture.

Prime Minister Hatoyama appointed one of the ringleaders of the ex-LDP postal rebels and PNP leader, Kamei Shizuka, as Minister of State for Financial Services and Postal Reform. It was the price Hatoyama had to pay for bringing the PNP into the coalition to help ensure a majority in the Upper House. Subsequently, the prime minister has made no attempt to rein in Kamei’s attempts to assert almost exclusive control over the anti-privatisation process.

Moreover, another member of the PNP (in the Upper House) and former Ministry of Posts and Telecommunications (MPT) official, Hasegawa Kensei, was appointed Parliamentary Secretary for the Ministry of Internal Affairs and Communications (MIAC). MIAC is the ministry that administers the Japanese postal system.

Their activities initially became apparent on February 2nd this year when they unilaterally reached a basic agreement with the SDP and PNP. The agreement incorporated a duty on the part of the government to hold 51 per cent or more of the stock of the parent company (born from the merger of Japan Post Holdings, Japan Post Service and Japan Post Network) and of the stocks of the two subsidiary financial companies (Japan Post Bank and Japan Post Insurance), making it clearly a state-owned firm. Furthermore, the basic agreement included an expansion in the deposit cap at Japan Post Bank to ¥30 million (three times the present level) and the maximum life insurance coverage of Japan Post Life Insurance to ¥50 million (3.8 times the present limit).

Hasegawa, in particular, insisted that the government must own more than half of Japan Post’s stocks. He threatened to quit his position if his opinion were not accepted, angering even Kamei, as well as the postal lobby who were prepared to accept one-third ownership by government (enabling it to exercise a veto over potential hostile takeovers by foreign funds) as long as the deposit cap and maximum life insurance coverage were expanded.

When Kamei and MIAC Minister Haraguchi Kazuhiro released their final proposal for postal reform on March 24th, their blueprint largely embodied the postal lobby’s position.

Having seized the policy initiative, Kamei (refusing to make any concessions on the key elements of his plan) secured the backing of Ozawa to the plan, who gave his blessing presumably in view of the upcoming Upper House election. Despite strong public opposition to the proposal from Deputy Prime Minister Kan Naoto and Minister of National Strategy Sengoku Yoshito, Prime Minister Hatoyama quickly came down on the side of the Kamei-Haraguchi plan in an attempt to demonstrate decisive leadership.

The government at a special meeting of all cabinet members held at the Kantei on the evening of 30th March decided to draw up a postal reform bill based on the final proposal announced by ministers Kamei and Haraguchi. Specifically, the cabinet members decided to adopt the key elements of Kamei’s plan: the limit for deposits at Japan Post Bank and the limit for coverage at Japan Post Insurance would increase (from ¥10M to ¥20M, and from ¥13M to ¥25M respectively); and the government would hold more than a third of the shares in a new parent company (created through the merger of Japan Post Holdings, Japan Post Service and Japan Post Network into a new holding company) which would in turn hold more than a third of the shares in Japan Post Bank and Japan Post Insurance, thus giving the government indirect control of these companies through the parent company.

This was clearly not a plan based on thorough consultation amongst cabinet ministers first. It was a plan that was developed independently by the proponents of renationalisation and the postal lobby, agreed to by two other key players (Haraguchi and Ozawa) and then publicly released as the government’s blueprint for postal ‘reform’. Only after its public release was the wider cabinet involved, revealing such wide divisions that Prime Minister Hatoyama had to step in the resolve the dispute (in Kamei’s favour).

These developments in Japan’s postal policies tell us: first, that the DPJ is not a party of free market reform; secondly, policy decision-making remains in many respects a special-interest driven process where politicians representing special interests have primary carriage of policymaking. This calls into question Maehara Seiji’s 2005 pledge as DPJ leader that ‘We must free ourselves from the fetters of vested interests and old habits’.

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