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Friday, June 23, 2006

Making Japan a Nation of Economic Disparities

by Bill Totten

Nihonkai Shimbun and Osaka Nichinichi Shimbun (April 13 2006)

(I've written a weekly column for two Japanese newspapers for the past several years. Patrick Heaton prepared this English version from the Japanese original.)

Prime Minister Koizumi and his Liberal Democratic Party (LDP) have been promoting deregulation and privatization under the euphemistic label of "reform" to slowly erode the social base that was built over a long time with citizens' taxes. Japan is becoming the kind of society that Koizumi has been hoping for, a society that enriches a few winners by exploiting the vast majority of citizens, making them losers.

Postal Savings to Flow Overseas

Previously, when I heard the word "reform", I envisioned a process by which a small number of wealthy people with power transferred some of that wealth and power to the majority, who have neither. Since Koizumi became prime minister, however, it is clear his version of "reform" means something entirely different. To Koizumi, "reform" means the few who already have wealth and power should get more of both through privatization and deregulation.

Using data from the Bank of Japan I have shown previously how savings deposited by Japanese citizens in commercial banks have been flowing abroad ever since the beginning of the "Big Bang" financial deregulation several years ago. The postal savings and life insurance accounts that Koizumi now is privatizing and deregulating have, until now, been invested in government bonds and other instruments that benefit Japan and its citizens generally. As private investors gain control of those funds they, naturally, will use them to increase their own private profits. For example, by taking advantage of the differences in yields and interest rates between the US and Japan. Since Japan's colonial administrators ensure those yields always favor their US masters, the postal savings funds of Japanese citizens will flow out mainly to the US as surely as have their savings deposited in private banks. Koizumi's privatization and deregulation of Japan's postal and insurance accounts will further drain Japan's economy of funds to subsidize his, and his quisling Liberal Democratic Party's, American masters.

In 2003, in their campaign to revise the securities tax system, the LDP used the slogan "from savings to investment". The LDP greatly overhauled the ultra-low interest policy and tax structure, forcing private assets to be reduced as they were transferred from savings into investment in stocks. Because investing wisely is a personal responsibility, risk was also transferred to individuals. Of course some individuals have even gotten lucky in this new money game, like the trader who made 27 billion yen on a typing error by an employee of Mizuho Securities.

The Japan Postal Service for a time managed to escape privatization, but after the most recent election it is clear the postal system will be reorganized in preparation for privatization under the rubric "rationalization". Those connected with the process are saying postal services will simply be consolidated and not reduced. But according to statistics put out by the Japan Postal Service, many post offices around the country are losing money. It is only a matter of time before a privatized postal service will be compelled to cut such unprofitable post offices, leaving many customers without any postal services at all.

Sudden Rise in Electric Power Prices

Electric power companies in the United States have also undergone privatization in recent years. We can look to their experience to see what happens when this occurs.

The electric power market in America was deregulated in the 1990s, and many policies were implemented to promote liberalization of the electric power business. Several electric power plants used natural gas, which was an inexpensive fuel in the latter half of the 1990s. The large-scale electric power shortages that occurred in California and other western states in 2000 and 2001 and in the eastern US in 2003 were a direct result of deregulation and privatization.

The retail price of electric power rates in states that did not deregulate remains cheaper than in those that did, or prices have not risen as dramatically. According to the Wall Street Journal, between November 2004 and November 2005, energy prices in the US rose an average of 28% across the country, and 80% in Texas alone. Even though the price of crude oil went up during this period, the cause of the jump in price of electrical energy cannot be attributed simply to the rise in the price of crude oil. About half of the electric power plants in the US use coal, which did not experience increases in price as much as those that use natural gas or crude oil. Further, charges for electric power in states that did not deregulate have not increased during this period more than a single digit.

Theoretically, deregulated private electric power companies should be able to provide ever cheaper power to consumers through free competition and more effective management. But the reality is that the process is unpredictable and power shortages and increases in the price of electric power continue to occur.

Of course private power companies made a great sum of money through price hikes because with deregulation, they were free to raise prices as much as they liked. Between 2002 and 2005 electric power company stocks increased in value twice as much as the average of all other US stocks. Electric power is a necessary commodity and people have no recourse but to use it even if prices rise dramatically. Consumers can greatly curtail spending in many areas but they cannot entirely eliminate their use of electric power.

Citizens Take the Brunt

Privatization of the Japan Postal System will affect a service that is as important to the citizens of Japan as electrical power is to Americans. Of course the real motivation of this privatization is to make available to investors a cache of 350 trillion yen in Japan's postal and industrial insurance savings funds.

Prime Minister Koizumi Junichiro and Minister of State for Economic and Fiscal Policy Takenaka Heizo's scheme of forcing the post office to compete with convenience stores to increase convenient postal services is nothing short of a scam. Minister Takenaka claims that the post office, which has until now never paid taxes, will finally be able to contribute to the nation's finances. But if a privatized postal system becomes saddled with a large number of bad loans as a result of speculation permitted by deregulation, it is likely that publicly-funded bail outs - that is, citizens' taxes - will have to be tapped anyway, as has occurred repeatedly since the Big Bang deregulation of commercial banks. Either way, one thing is certain: it will be the average citizen who is burdened with the brunt of this privatization scheme.

Bill Totten


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