Japan invented the zombie company: a once proud and innovative name that has lost its way and staggers from one crisis to another. But has Asia's second biggest economy now created the zombie privatization?
It is worthwhile to ask as Japan Post Holdings, the mail-to-banking conglomerate, lurches into scandal -- this time involving its insurance unit overcharging for premiums. As investigations spring to life, Tokyo is extending the timeline for divesting further from this 145-year-old creature -- and reminding us why Japan's economy is losing energy yet again.
That Japan Post is still a problem might surprise overseas investors who thought it had been tamed. Getting the nation's biggest employer -- more than 400,000 staffers and about 24,700 branches at its peak -- out of government hands was Prime Minister Junichiro Koizumi's crowning achievement and Tokyo's most epochal reform in decades.
Until meddling bureaucrats hobbled the process, that is.
Though current Prime Minister Shinzo Abe talks a great game of disruption, it was Koizumi who took action during his 2001-06 premiership. At the time, Japan Post boasted more than $2.4 trillion of private savings, which gave rise to concerns that it stymied competition not just for Citibank and HSBC but domestic giants Nomura and Tokyo-Mitsubishi.
The bigger worry was how politicians used postal savings to fund pet projects, a dynamic that fueled white elephants around the nation. Most of the savings and life insurance cash Japan Post took in was channeled to the Ministry of Finance. It helped finance wasteful infrastructure projects, small businesses loans and low-interest mortgages for homeowners.
Naturally, politicians schemed for access to those funds to finance public works projects in home districts. All the largesse being doled out, and the multiple layers of leverage they fed, became hard to track and manage. Once the 1980s asset bubble burst, untold numbers of projects went sour, putting Japan Post cash in harm's way. Mountains of debt piled up to cause Tokyo's lost decade.
Koizumi was right to get postal savings money as far away from politicians and bureaucrats as possible. Once in the premiership, he got to work. The bill passed through parliament in 2005, followed by a 2007 split into separate companies -- postal services, a bank, a life insurance outfit -- all later intended to be privatized.
And then Japan Inc. moved in to hinder change. First, bureaucrats limited the banking unit's latitude to move hundreds of billions of dollars out of government bonds. The fear was a surge in debt yields. But the implication was that Japan Post was beginning to look like privatization in name only.
Even after two tranches of privatization, the Japanese government still holds 57% and -- with the five-year postponement just announced -- we are now looking at a March 2028 deadline for Tokyo to trim its stake to just over one-third. Meanwhile, here we are with a scandal demonstrating how the big events of 2005 are still going awry.
"Japan Post is a lesson in how to destroy a brand," says Jeff Kingston, head of Asian studies at Temple University's Tokyo campus. "From being a national pillar of reliability and trustworthiness it's now a symbol of mismanagement and skulduggery, lurching from one crisis to the next -- not exactly the poster child for privatization."
Lawmakers should have acted boldly and clearly 15 years back. Leaving so many details to chance and being so vague about timelines offered myriad openings for politicians and bureaucrats to save the status quo. Abe must avoid these mistakes.
The Japan Post saga shows how difficult change can be in Tokyo. Because Japan Post is still in government hands, decisions on product development, cost-cutting and rationalizing the national network are bogged down by politics. Anyone who wonders why Japan remains a smoker's paradise need look no further than Tokyo's 33% stake in Japan Tobacco.
Unless Abe knuckles down, and fast, his reform drive will take on its own walking-dead stasis. At the margin, moves since 2012 to tighten corporate governance and increase immigration are welcome. Yet neither initiative has the teeth, clarity or scale to alter Japan's course significantly for years to come.
Nor has Abe made notable progress, seven years on, in reducing the power of the bureaucrats stymying change. He has done little to loosen labor markets, foster greater private-sector innovation, wean Japan off its reliance on giant exporters or prod companies to fatten paychecks. The key is getting the government's tentacles out of a change-averse private sector.
Now Team Abe is also pushing back plans to sell its 53.4% stake in the Tokyo Metro until 2027. This is yet another sign of backtracking on big reforms -- and of how Japan's biggest reform triumph morphed into a cautionary tale.
William Pesek is an award-winning Tokyo-based journalist and author of "Japanization: What the World Can Learn from Japan's Lost Decades."