Postal Privatization to Energize the Japanese Economy

Jiro USHIO (Chairman and CEO, USHIO INC. and Member of the Council of Economic and Fiscal Policy)

Background for Postal Privatization

Japan is facing the problem of aging population with fewer children and definitely needs revitalization policies to solve it. In particular, the government sector should be reformed and more efficient to facilitate necessary changes. The key to this reform is the privatization of postal services to due to begin in April, 2007. As of today, Japan Post has total deposits of 360 trillion yen--one quarter of Japan’s total deposit in financial institutions--and employs a total of 400 million workers. It is, therefore, crucial to revitalize this huge asset of deposit and workers by privatizing the postal services for the rebirth of the Japanese economy, while aiming at sustainable security and safety in the financial and labor markets.

About two decades ago three giant public corporations in telecommunication and railway, tobacco and salt (now known as NTT and JR and JT) were privatized, which led to the revitalization of the economy for the past decade or so. In fact, since that time Japan has become a world leader in mobile communication and Internet infrastructure, and the consequent information revolution has affected all the sectors of the economy through scale economｙ and productivity improvements. Postal privatization may well be regarded as the next step to take for further revitalization of the Japanese economy.

Diversification of New Postal Business

Now that the policy direction toward the privatization of postal services has officially been set, the actual contentｓ of privatization is becoming most important. Management cannot be made successful by official announcements or legal arrangements alone. Improvements depend on managers, human quality, management strategies, execution plans, actual procedures and, most of all, market expectations and acceptance.

Through privatization there will be four subsidiaries under the umbrella of a holding company, namely postal saving company, postal life insurance company, postal services company and over-the-counter services network company. Over-the-counter services network company will be something like a sales division of the holding company. Postal saving, life insurance and mail delivery will be marketed by the over-the-counter operations. If any more room is left, they might take up one-stop services for communities such as stocks and mutual funds sale, travel agencies, ticket offices, health care services, etc. However, from the long-term viewpoint it is up to the new postal saving company to decide whether their banking services should be provided through the over-the-counter network or through their own subsidiaries. In any case, new post offices under the network of over-the-counter services could be more diversified in their business, most likely opening up convenience stores along with their main services.

Remaining Problems and Prospects

There are a number of problems that should be overcome for successful privatization of postal services in Japan. First, equal footing with existing private companies must be ensured. For that purpose, there will no longer be any government guarantee for postal deposits or life insurance payments once they are privatized. This means that they must offer truly attractive services for customers in competition with existing private businesses. Whether or not they can do this is a big point.

The second question is what to do with the huge number of employees at Japan Post. Currently in the nation-wide postal office network there are about 270,000 full-time employees and more than 100,000 part-time or temporary workers. All of these employees will be taken over by the new privatized corporation. The question is how to rationalize and reallocate this workforce within the framework of a new incentive system, while maintaining high morale and good labor relations, especially in the first few years after privatization.

Finally, in relation to the above two points, the most important question is whether appropriate executives can be selected for the new corporation. There may be no choice but to recruit capable executives from the private sector in order to manage the new privatized corporation, who can train and educate employees, work out effective management strategies and define specific time schedule toward privatization by 2007. If the new postal corporation can secure a number of capable executives, the success of postal services privatization will be as good as assured. Moreover, in the future process, the government should fully respect the principles of private business revitalization, consideration of employment, and resource utilization as stipulated by Mr. Takenaka.