Before the March 2011 tsunami, that is what it appeared to be doing. But now there is talk of reverting to the neoliberal model, selling off public assets to find the funds to rebuild. Christian Caryl commented in a March 19 article in Foreign Affairs, published by the Council on Foreign Relations:
"As horrible as it is, the devastation of the earthquake presents Japan and its political class with the chance to push through the many reforms that the DPJ [Democratic Party of Japan] has long promised and the country so desperately needs."
In other words, a chance for investors to finally get their hands on Japan's prized publicly-owned bank, and the massive deposit base that has so far protected the economy from the attacks of foreign financial predators.
The Devastating '90s:
How the Japanese Banking Giants Were Brought Down
Before the 1990s, Japan was the world's leading industrial and consumer goods innovator. The Japanese public-private model promised a high standard of living and leisure time for all, with much of the work done by robot-driven machines. But Japan was also the world's largest creditor, posing a threat to other international interests. The Bank for International Settlement (BIS), the "central bankers' central bank" in Basel, Switzerland, demonstrated in 1988 that it had the power to make or break banks and economies, when it issued a Basel Accord raising bank capital requirements from 6% to 8%. Japan's banks were less well capitalized than other banks, and raising the capital requirement forced them to cut back on lending. Housing in Japan was in a major bubble, and the Basel Accord supplied the pin. When credit collapsed, so did the housing market, creating a recession in Japan like that in the U.S. today. Property prices fell and loans went into default, as the security for them shriveled up. A downward spiral followed, ending with the total bankruptcy of the banks. The banking system had to be rescued by the government. Essentially, the banks were nationalized, although that word was avoided to prevent arousing criticism.
The Nikkei stock market crashed and took Japanese industries down with it. By 2001, Western investors were finally able to penetrate Japanese markets that had previously been closed to them, entering the merger-and-acquisition market to acquire crippled Japanese enterprises. Major public companies were at least partially privatized, including the railway, telegraph and telephone companies; but the government resisted letting go of its vital postal service system.
"Japan's Second Budget"
The history of the Japanese Postal Savings System (JPB) is detailed in a University of Leipzig discussion paper called "Behold the "Behemoth' -- The Privatization of Japan Post Bank." The authors note that the postal savings banks, founded in 1875, were quite popular with the Japanese people; and Japan soon had more post office locations than the United States and other countries. Japanese postal savings banks specialized in offering small accounts for low-income households, in competition with private savings banks that paid higher interest rates but were considered less safe than the government's postal savings system.
Postal savings banks were also attractive to savers because they offered special time deposits on quite favorable terms, called "teigaku" savings or "fixed amount postal savings." These were ten-year time deposits from which depositors could withdraw funds on short notice without penalty, making them very liquid and reducing interest-rate risk. There was a formal limit of 10 million Yen in postal deposits per individual or household, but it was not rigorously enforced; and wealthy savers could circumvent it by holding multiple accounts.
JPB formed the basis of a unique and opaque system of borrowing and lending. It operated as a "shadow" banking system, sometimes referred to as "Japan's second budget." Postal savings were channeled into government-related banks or forwarded to various government-affiliated institutions, where lending was guided by the Japanese Ministry of Finance (MoF). Formalized after the Second World War and named FILP, this system turned postal services into "a huge, opaque pool for funding for various policy lending purposes." Unlike the national budget, budget allocation to FILP did not require parliamentary approval. Funds were channeled to local governments, government-affiliated public companies, and government financial institutions acting as highly specialized lenders. Although many countries have government-sponsored loan programs, the Japanese program was remarkable for its size. By 2001, the FILP program involved over 400 trillion Yen, a sum equal to 82% of Japan's GDP.
That was the year Japan Post was formed as a newly independent public corporation; but it was still owned by the government, and employees retained their status as public servants. New regulations encouraged government agencies that had relied on FILP loans to issue their own securities, and FILP agencies no longer had automatic access to postal savings funds. But Japan Post bought the bonds issued by the government agencies, and the flow of funds was largely unchanged.
The Tug of War Over Privatization
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