Japan Post may hold a nation's fate

Japan Post may hold a nation's fate
By James Brooke
The New York Times
WEDNESDAY, AUGUST 24, 2005

KOBE, Japan
Red and white loading cranes loomed like steel sentinels over an empty wharf on a recent afternoon here. Capable of unloading shipping containers at a rate of almost one a minute, these computerized towers often stand frozen for days at a time for lack of ships.

Kobe's ranking in world container traffic tumbled to 43rd place last year from fourth in 1980. Though Kobe's importance as a port started waning in the early 1990s, government bureaucrats responded to the 1995 earthquake here by renovating and expanding the port - at a cost of $50 billion.

Kobe's idle cranes and deserted wharves are emblems of a broader habit in Japan: the propensity to spend lavishly on public projects that may or may not have much use, let alone economic return. Given the country's dependence on such building, the proposed sale of Japan Post, a linchpin for government spending, has triggered a political firestorm.

Japan Post, which still delivers the country's mail, is also Japan's largest savings bank, with \329.7 trillion, or $3 trillion, in assets, and sells insurance as well. The question posed by its sale is this: Will Japan take a decisive turn toward free markets and privatize Japan Post, converting the world's largest state-run bank into the world's largest private bank? Or will the country continue as a semi-socialist economy in which bureaucrats and politicians make multibillion-dollar investments with little regard to the country's economic health?

An arcane issue to outsiders, the privatization of Japan Post was volcanic enough in Japan to spark a revolt in Parliament among members of the Liberal Democratic Party, which has held almost uninterrupted power here for the past half-century. Fearful of losing access to Japan Post's assets, upper house members rejected a privatization bill Aug. 8.

For Prime Minister Junichiro Koizumi, who first called for postal privatization in 1992, it looked like the defeat of a lifetime dream. But, breaking with Japan's tradition of bland consensus politics, he responded that very day with a huge political gamble. He dissolved the lower house, called an election for Sept. 11, and kicked 37 legislators who had voted against privatization out of the party. The upper house cannot be dissolved; its members serve fixed terms.

"The post office has been the big piggy bank for the bureaucrats and the politicians," said Alex Kerr, an American who chronicled in his book, "Dogs and Demons," the long-running love affair between Japan's politicians and cement for construction. "The politicians really depended on the flow of these funds."

Although Japan's landscape is littered with monuments to what is often called "the construction state," engineers continue to build what some observers lampoon as "bullet trains to nowhere."

In Okinawa, Japan's southernmost prefecture, the authorities recently inaugurated a bridge 1.9 kilometers, or 1.2 miles, long to Kourijima Island. It is billed as the country's longest toll-free bridge, and it is easy to see why no one expects to recoup the investment through tolls. The \27.4 billion bridge serves an island with a population of 361.

In Hokkaido, Japan's northernmost prefecture, work started in May on a 10-year, \472.6-billion project to extend bullet train service north to Hakodate, population 280,000.

After decades of spending on public works, Japan has a ratio of government debt to gross domestic product of 150 percent, the highest for a major, developed economy. The weight of this debt, compounded by the shrinking of Japan's work force and by politicians' resistance to changes that would enhance productivity, will give Japan, through 2010, the lowest per capita growth rate among 30 major economies, according to an economic forecast issued in May by the Organization for Economic Cooperation and Development.

Although Japan's economy is growing at an annualized rate of 1.1 percent, the economy has been in recession for almost half of the 14 years since the stock and real estate bubble burst in 1991.

In an emerging country, like China or Brazil, infrastructure investment often unleashes growth. But in Japan, with a mature economy and stagnant population growth, a new railroad, bridge, port or airport often gives no more than a quick shot of economic stimulus.

The bills for those projects will be increasingly difficult to pay. Over the next decade, the number of Japanese workers is expected to decline by four million.

Yet the building continues. Japan, which is slightly larger than Italy, has 83 airports. Five more are under construction. Although Osaka's Kansai International Airport has yet to make a profit after a decade in operation, Nagoya recently opened its own international airport, only 128.7 kilometers away.

In 2006, Kobe is scheduled to open a multibillion-yen domestic airport, about 30 kilometers from Kansai. In 2007, Kansai will counterattack with a new runway. Both airports are built on expensive landfill, the kind of base that turned to mush during Kobe's 1995 earthquake.

Japanese airports, notably in Tokyo and Osaka, charge the highest jet-landing fees in the world. In this environment, Japanese cities often build their airfields of dreams, only to discover that the passengers do not come.

In Kobe, the overinvestment in the port was obvious on a recent motorboat tour of the harbor, a bay that opened to foreign ships in 1868.

"Most of the cranes are up - up means no ship," Takashi Shimada said during one of his last tours as director general of the Kobe Port and Harbor Office. After the earthquake, he recalled, "the facilities were completely restored, but the cargo did not come back."

Even though Kobe's cargo traffic stagnated in the early 1990s, shipping lines still concentrated regional cargo here for shipping overseas. But when the earthquake halted most operations at the port, Japanese companies discovered that they could send their goods to places like Pusan, South Korea, for shipment to the United States and Europe, and it was faster and cheaper.

With such white elephants taking shape before the public's eyes, austerity is catching on. Despite the political firestorm, Koizumi's election call has been greeted with advances in Japan's stock market and upticks in polls charting public and business approval ratings for his cabinet.