EDITORIAL: Postal privatization
After 136 years of operating under state control, Japan's postal service on Monday started its transformation as a private-sector company. At long last, after the 2005 Lower House election was fought over this heated issue, postal privatization is becoming a reality.
Japan Post has been reorganized into a holding company wholly owned by the government--Japan Post Holdings Co. and four subsidiaries. The subsidiaries are taking over the mail, post office, banking and life insurance services that were formerly handled by the government operation.
The banking and life insurance units--Japan Post Bank Co. and Japan Post Insurance Co.--are to go private by 2017 when their shares will have been sold.
The privatization process is a radical approach that aims to shift part of the bloated national public financial burden to the private sector. We strongly urge the new Japan Post to remake itself into a "normal" company in both size and business style. This must be done quickly to ensure Japan's social and economic recovery continues.
We have already stated our concerns that both the mammoth postal bank and insurance companies are too big. Their size might hurt fair competition with private-sector rivals. The two units have combined total assets of 300 trillion yen. They are expected to reduce those assets gradually in the next 10 years until full privatization. But Japan Post's planned pace of downsizing is too slow. It needs to hurry the process along.
Japan Post is burdened with clusters of affiliated organizations and companies that have grown fat on business contracts and transactions from the postal behemoth. Their dealings have been less than transparent. The first step is to sharply slash such affiliates for more efficient and slimmed-down postal operations.
Japan Post's corporate culture and business approach also present monumental problems.
The most serious is poor legal compliance. Japan Post has been plagued by endless embezzlement and other scandals involving postal workers. Illegal business practices are rampant in postal insurance operations--postal insurance policies are often sold without the legally mandated direct meeting with the purchaser. In fact, compliance has been so poor, the Ministry of Internal Affairs and Communications has given the postal insurance service a record-low quality rating of "D." Recent evidence has also emerged that employees unlawfully destroyed documents that legally should have been preserved.
These episodes point to serious corporate ills. The new Japan Post management must ensure it competes with industry rivals in a legal and fair manner. The first test for the postal giant's compliance will be whether it starts properly explaining to customers the risks involved in its financial products.
With privatization has also come the end of government guarantees for postal savings and insurance policies--yet Japan Post will still be selling a wide range of risk-carrying financial products, such as investment trusts.
For many years, people have entrusted their savings to government-guaranteed postal accounts. Many have no understanding about risky financial products and the fact that investors can lose their initial investment principal if the market turns sour.
That makes it imperative for Japan Post to clearly offer detailed explanations about such risky investments to customers. Should troubles emerge over sales tactics, this would damage consumer trust--its reputation for reliability--and have a serious effect on its bottom line.
A government postal privatization panel will review any proposals for new services from Japan Post. If the proposed services aren't feasible, the panel will not give its approval. Key criteria for approval are whether the service follows the relevant laws and regulations and whether it ensures fair competition. Japan Post must improve its legal compliance with such services or it will never become profitable.
If the privatized Japan Post becomes a fair competitor in its banking and distribution businesses, this will stimulate rival companies in the private sector. Such a happy outcome is the original reason behind privatization. We sincerely hope Japan Post can repair its slipshod internal governance to become a thriving "normal" company.
--The Asahi Shimbun, Oct. 2(IHT/Asahi: October 3,2007)