Battle Over the Privatization of Japan Post

Koizumi Risks All in Snap Poll

Japanese shoppers gaze at television news reporting that Koizumi will call a general election

Announcing the Sept. 11 snap poll immediately following the defeat of his controversial bill to privatize Japan Post, Koizumi will now use the issue to seek a mandate from the Japanese electorate. (Photo: Yoshikazu Tsuno / AFP-Getty Images)

By calling a surprise early election last week, Japanese Prime Minister Junichiro Koizumi has challenged elements within his party opposed to his economic reforms and in doing so, placed both his and his party’s political future on the line. Announcing the Sept. 11 snap poll immediately following the defeat of his controversial bill to privatize financial giant Japan Post in the Upper House of the Diet (Parliament), Koizumi will now use the issue to seek a mandate from the Japanese electorate to push through his divisive privatization agenda.

The bill was eventually defeated after 22 of Koizumi’s colleagues in the Upper House voted against the proposal. This followed last month’s vote in the Lower House where 37 Liberal Democratic Party (L.D.P.) members crossed the floor to vote with the opposition against the legislation.

In one of the most volatile political atmospheres in decades, Koizumi told the Japanese press that his determination to restructure the L.D.P. would result in the tendering of his resignation should his party not win a majority of seats in the Diet.

“I will make every effort for the L.D.P. and [coalition partner] the New Komeito to win a majority and if we cannot, I will not cooperate with those who opposed privatization of the postal system,” Koizumi said.

“If we fail to win a majority, I will resign.”

Senior editor of The Economist Intelligence Unit Robert Ward, speaking to The Observer, has described the situation as “uncertain” calling it the L.D.P.’s “biggest crisis” in its 50-year history. “Unless the Koizumi L.D.P. win really convincingly, I think volatility and uncertainty is almost inevitable. He needs quite a clear mandate to carry on with what he wants to do,” said Ward.

The institution at the center of the political storm, Japan Post, the world’s largest financial institution, has assets of 355 trillion yen ($4.13 trillion) and over 25,000 branches spread throughout the country. It functions both as a savings bank and insurance broker for millions of ordinary Japanese and plays a vitally important role in the well-being of the nation’s economy. Though offering relatively low interest rates on savings, all deposits are government-guaranteed and its vast pool of capital has acted as a readily available source of revenue for the government to support export-driven industries and contribute towards Japan’s post-war reconstruction.

Significantly though, Japan Post also plays a politically important role especially in rural areas — a traditional L.D.P. stronghold — where it is both an important source of employment and an unofficial vehicle for garnering votes for the L.D.P. It is chiefly for this latter function that more conservative factions within the L.D.P. have strongly resisted attempts for its privatization.

As economic growth has stalled in recent years however, successive governments have used postal savings to finance massive public works, often more concerned with vote buying than for the benefit of the country. This pork barreling has led to a colossal rise in the nation’s budget deficit with public debt estimated to have risen to a sky-high 700 trillion yen ($6.3 trillion). One of the primary aims of postal service privatization according to The Japan Times would be the “choking off of the money flow … to reduce the government’s tendency to rely on borrowed money and to bring self-restraint to the government's financial behavior.”

The legislation proposed by Koizumi called for Japan Post to be partially privatized by 2007 with private companies handling the separate tasks of mail delivery, banking and insurance by 2017 when full privatization occurs. Though likely to result in the loss of many jobs as non-performing branches in less populated areas are shut down, pro-business advocates have indicated that the sell-off will benefit Japan as the postal savings revenue is distributed more equitably rather than through government spending.

Though unlikely to lose the upcoming election, Koizumi’s radical privatization agenda has split the ruling L.D.P. — Japan’s dominant ruling party since its inception in 1955 — with Koizumi refusing to allow his party to endorse renegade lawmakers who voted against the postal privatization legislation and running pro-Koizumi candidates against them.

The Prime Minister’s attempt to purge his party of anti-reformists and autocratic manner has led to some discontent though, even within loyal sections of his party. Speaking anonymously to the Asia Times Online one dissatisfied member of Parliament sounded a warning to Koizumi, “With an election to fight, we obviously have no option but to unite around Koizumi, but his style has become too dictatorial and if he fails to deliver a solid victory, he is finished.”

The Democratic Party of Japan

Hoping to be able to benefit from the L.D.P.’s internal bloodletting is Japan’s largest opposition party the Democratic Party of Japan (D.P.J.). Formed in 1998 as an alliance of four previously independent liberal parties opposed to the conservative policies of the L.D.P., the D.P.J. has opposed Koizumi’s privatization agenda though its fiscal policy of cutbacks on public spending closely reflects the government’s platform.

The D.P.J. has made impressive electoral gains in both Houses of Parliament in recent elections at the expense of the L.D.P. to the extent that party powerbrokers are now entertaining the possibility of a non-L.D.P. Government for the first time since 1993. “This is our chance to grab power from the L.D.P.,” said D.P.J. President Katsuya Okada following the dissolution of the Lower House, “This is the most important election since the end of World War II.”

The D.P.J. will focus on Koizumi’s lackluster reform record, Japan’s continually deteriorating relations with important neighbors such as China and South Korea and Koizumi’s unpopular obedient support for U.S. foreign policy.

An enthusiastic champion of President Bush, Koizumi’s tenure has been marked by increasingly militaristic and nationalistic policies such as visiting Japan’s Yasukuni Shrine to honor Japan’s war dead, a move condemned by Japan’s neighboring countries as justifying the country’s martial past, and the sending of Japanese servicemen to Iraq at the request of the United States despite widespread public opposition. In one of the main areas of difference between the two parties, the D.P.J. has designated its opposition to extending the one-year tenure of Japanese defense personnel in Iraq and has stated its policy is to recall troops when this term expires.

In an implicit rejection of current L.D.P. foreign policy and an indication of the direction of future Japanese foreign policy should the D.P.J. gain office, a document released by leader Katsuya Okada clearly shows its intention to rely on U.N. resolutions for a “collective security framework”, rather than formulate its foreign policy based on U.S. objectives.

“Our vision … contains an orderly international community in which the United States has regained its respect for international cooperation, and in which a collective security framework wherein the use of military force takes place based on U.N. Security Council resolutions is the norm,” Okada said.

Okada also pointedly condemned the unilateral nature of U.S. policy by criticizing the existence of “a school of thought that does not hesitate to sanction unilateral action and preemptive attacks when necessary.”

Observers have noted that Koizumi must not only win but also win well to retain the leadership of the L.D.P. and therefore pursue his reformist agenda. His ideological battle with more conservative colleagues within the party and refusal to endorse renegade M.P.’s has left open the possibility of a opposition D.P.J. victory; however with initially favorable opinion polls, the backing of politically influential corporate institutions and the timeworn proven ability of the L.D.P. to win elections, many commentators believe that Koizumi’s gamble will pay off.

See also, “Speculation Over Agenda as Koizumi Wins Mandate.”