Japanese Postal System Reform — Significant?

Once again I’m using this blog as a quasi-academic tool…not a whole lot of other (blog-able) material on my mind these days!

So I’ve spent the last day or so trying to cobble together a passable, brief paper on the following question: Does the highly publicized (and politicized) issue of Postal system privatization in Japan have anything to tell us about the evolution of Japan’s political institutions?

First, the Postal system in Japan is way more important than you’d think — about half of the Japanese population put all of their savings in it, which is a lot. That supposedly makes it one of the biggest financial institutions in the world. The cabinet then uses all this money as a sort of ‘second budget’ not subject to legislative review, which they generally pump into infrastructure projects. This is how you get Japan spending way more than the US on construction without having a comparable land mass or population — clearly inefficient. More generally, huge infrastructure spending and industrial policy are great for developing countries, you could argue, and they propelled Japan’s “take off” post WWII — but they are really no longer a benefit to Japanese society.

Calls for postal reform came in the 90’s after the bursting of the bubble (see below) when the word ‘reform’, the cutting of government waste, and especially the deregulation of the banking sector, entered the vogue. But actually the public was quite happy with the postal system, since it was convenient and offered cushy government subsidized interest rates, and no political actors really wanted to change it either — besides which the Ministry of Finance needed control over the postal system more than ever, since commercial banks were already saddled with bad debt in the financial turmoil…

So what’s the deal? First a word about “institutions,” since they are the contemporary buzz word, apparently. There is certainly a lot of theory floating around there about them. According to Doug North, every society has certain formal or informal rules that shape the behaviors of individual actors. If you view behavior in terms of exchange relationships (which economics tends to) then institutions are like the ossified patterns of exchange that accumulated over time because, essentially, they were (thought to be) beneficial for the actors involved.

North uses the metaphor of a football game: actors or organizations are the players, and institutions are the rules of the game. Note that a lot of these rules are not codified or formalized, but remain unspoken or informal — as in, “No Dogs” or “No Nudity.”

Now there are plenty of cases where ossified patterns of exchange encourage behavior that turns out not to be beneficial over all anymore — don’t get me started about pollution, for example, and/or don’t get economists started on trade protectionism. This is where you get into the nebulous territory of institutional change. How do rules of the game get changed over time? In the world of Japanese politics this is a particularly salient question — in 50 years of one party dominance we’ve seen that under the table money-for-votes exchanges exist in very rigid “iron triangle” structures (politician to bureaucrat to industry). How do you change them?

My argument is that Postal reform became an extraordinarily polarizing ideological issue with very little actual political merit one way or the other — like abortion in the US. The ethics of abortion are hard to parse out — and the economics of postal privatization are also quite nebulous (particularly because the private banking sector would really have no way to compete with a privatized postal system). So it became the case that you were either ‘for it’ or ‘against it.’ This certainly benefited the political career of former Prime Minister Koizumi, who made it his signature issue and managed to pass a privatization bill past a befuddled Diet.

This enlivened politics in a certain way. It sounds crazy for me to advocate for more debate about polarizing issues, but in the case of Japan, where the real decisions are usually made behind closed doors, and the voting public is increasingly disinterested, it might be just the thing to push “institutional change.” Koizumi, like mavericks everywhere, pissed a lot of people off and bought factional rifts among rulers out into the open. Maybe this ultimately helped bring the Democratic Party of Japan (which was only founded in 1996!) into its current position of power — and maybe it nudged the whole system along towards the two party state. Of course its all very ambivalent…but such is the study of institutional change.

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2 Responses to “Japanese Postal System Reform — Significant?”

  1. tincolor Says:

    I wonder about the issue of inefficiency. I read somewhere recently that Japanese department stores hire nearly twice as many employees as ones in comparable developed countries. The author of the article assumed that this was a form of inefficiency, basically, operating on the lowest possible costs is always seen as the most efficient option. While in general I find this to be true, I feel that when what is “necessary” is calculated, only things that can be seen or numerically counted are considered. When I think about Japanese department stores I often think that there are way more employees than necessary, employees who’s job it is just to greet customers, employees who’s job it is to bag items and hand them to the customer. However, I also get the sense that given two department stores, one with the current level of employees and one with an “efficient” number of employees, the one with more employees would be more frequently visited by customers. Why? Because for one, having the minimum number of employees makes it appear that the department store is in financial trouble. Because the average Japanese person actually relies on employees to do what in Western society is viewed as the job of the customer. Because Japanese society values service much more than western society, so if a customer has to search for an employee for more than a few seconds the department store could potentially lose business. In other words, the presence of those employees is far more important than the calculable worth of their physical labor.

    The Spanish historian Americo Castro made some similar remarks in terms of Spanish historical identity. That Western society often ignores that which cannot be expressed numerically. I feel like a similar case can be made in determining whether or not Japanese Department stores are in fact inefficient.

    Sorry this comment is so long, but I also wonder if a similar case might be made about Government spending in Japan, specifically on infrastructure. Basically, if the government is spending big money then the public is happy because it looks like the government is doing something. I’m not sure that the two are the same but it just struck me that sometimes western interpretation of eastern problems fails to take seriously societal differences.

  2. tripinchina Says:

    Well, I guess my point would be that the huge amount of public money pumped into building infrastructure doesn’t actually benefit the public — instead it quite deliberately benefits powerful interests within both the industry and the bureaucracy. Meanwhile bids for construction projects are artificially high because the different firms are in cahoots with one another i.e. they are a cartel. There is no competition between them, and hence no incentive to get ahead by thinking of ways to do things cheaper or better. So prices end up being higher than they otherwise would have been — with the taxpayer paying the difference. In this instance, that’s what I meant by “inefficient.”

    And I mean, at least from the stuff I’ve read, it appears that the public is actually not very happy about having the environment destroyed and the country covered in concrete…but that’s neither here nor there.

    On the topic of stores, I saw some pretty crazy statistics about the retail grocery sector — like, the big companies that control it pretty much cooperate to each establish market share. So they don’t make investments with an eye towards increasing market share — instead each company already knows what their budget is gonna be…and they have to spend it on something…and they’ll get concessions from local politicians if they open a new store in such and such a district, to employ people and such…so why not open a new grocery store in the middle of nowhere? Who cares if its profitable? This is apparently a common phenomenon.

    That said, I definitely believe in keeping an open mind when looking to see if things are “efficient” or not — the stock example is that it may be “efficient” for a country to burn coal to generate electricity, but it may also end up having greater costs down the line. Coal is cheap. If you look at easily quantifiable costs and benefits, then coal is definitely the way to go. But if you factor in other costs involved in mining, washing, and transporting the coal (which is pretty bulky, unweildy substance) not to mention pollution and climate change effects, the picture is a little more complex.

    So yeah, I agree that cultural differences will be part of that complexity.

    Are you gonna be in the area for Christmas/Thanksgiving??

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