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Public finance and investment out of the Japanese post office : a history of the postal savings system Spooner, Matthew 2004

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PUBLIC FINANCE A N D INVESTMENT OUT OF THE JAPANESE POST OFFICE - A HISTORY OF THE POSTAL SAVINGS S Y S T E M by M A T T H E W SPOONER B.A. , University of Calgary, 2002 A THESIS SUBMITTED IN PARTIAL F U L F I L L M E N T OF THE REQUIREMENTS FOR THE DEGREE OF M A S T E R OF ARTS, ASIA PACIFIC POLICY STUDIES in THE FACULTY OF GRADUATE STUDIES (Institute of Asian Research) We accept this thesis as conforming to the required standard THE UNIVERSITY OF BRITISH C O L U M B I A April 2004 © Matthew Spooner, 2004 Library Authorization In presenting this thesis in partial fulfillment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of this thesis for financial gain shall not be allowed without my written permission. Name of Author (please print) Date (dd/mm/yyyy) Title of Thesis: p ^ l i c f , J d i p A A e i c I Post 0 f -f', c<e A H^it^ry c ' f Ik*. Pe±1*{ S**>~£S 3 y> irt yyy D e 9 r e e : M.h.y As-*. P*c\fi<Lp*t;iy M ^ . ^ s , Y ^ r : lOOH Department of / ^ - f . T u f c P - f /Ajx'a* Res<iar-ck The University of British Columbia Vancouver, BC Canada A B S T R A C T The historical development of the Postal Savings System (PSS) can be viewed as serving two functions in the Japanese economy. First, the PSS has served as a savings regime for Japanese households since postal savings were established in 1875. The other function concerns the investment of postal funds collected by the network of post offices across Japan. In view of the relationship between the savings and investment functions, the political and economic implications of postal banking are highlighted by its institutional arrangements with public finance and investment. In the post-World War II period, Tanaka Kakuei seized the opportunity to safeguard and strengthen the affairs of the PSS. The realignment of political factions and consolidation of financial policy undertaken by Tanaka between the 1950s and 1980s brought to the forefront the compounding political and economic benefits and impending costs arising from postal banking in Japan. This characterized the political landscape of Japan for the next thirty years. Tanaka utilized the might of his political faction within the Liberal Democratic Party and a postal affairs interest group to effectively promote and safeguard the PSS and the Fiscal Investment Loan Program (FILP) budget. The innovations of Tanaka Kakuei are presented as the primary reasons for continued opposition to reform the Postal Savings System. The analytical framework presented in this paper is consistent with the historical development of the Japanese political economy. TABLE OF CONTENTS Abstract ii Table of Contents iii List of Tables vii List of Figures viii List of Acronyms ix Acknowledgements x i Introduction • 1 Chapter I Establishment and Development of the Postal Savings System (PSS): 1875-1953 5 1.1 Introduction 5 1.2 Inception of the PSS 6 1.3 Historical Context 8 1.4 Growth and Ministerial Authority 13 1.4.1 The Emergence of Inter-Ministerial Rivalries 17 1.5 Reversion Back to Maeshima's Vision 19 1.6 Rise of Special Government Banks 21 1.7 The MOF's Deposits Bureau (Yokinbu): Investment in Special Government Banks and Companies 22 1.8 Terauchi Scandal implicating the Deposits Bureau 26 1.9 Deficit Financing out of Postal Savings 30 1.10 Postal Life Insurance and Postal Pension Plan 31 1.11 Prioritization of Public Savings under Military Leadership 32 1.12 Rebirth of Public Finance and Investment out of the Post Office 36 1.13 Conclusion 38 Chapter II Establishment of the Fiscal Investment Loan Program and Tanaka Kakuei's Entrenchment of Political and Economic Benefits of the PSS: 1953-1973 41 2.1 Introduction 41 2.2 Debate over Administrative Control of Postal Funds 42 2.3 Tanaka Kakuei and his Etsuzankai 46 2.4 Informal Politics through the Commissioned Post Office 49 2.5 The Postal Affairs Group (Yuseizoku 52 2.6 Direction of FILP Investments: 1953-1974 53 - Infrastructure Investment: 1953-1963 53 - Industrial Promotion: 1953-1963 55 2.6.1 Maturity of Investment from 1964 to 1974 56 2.7 Full Review and Approval of the FILP by the Diet '. 58 2.8 Conclusion 59 Chapter III Tanaka's Realignment of Political Power and his Faction's Defense of Postal Banking: 1973-2004 62 3.1 Introduction 62 V 3.2 Tanaka Kakuei and a New Era of Fiscal Investment: A New Direction for the PS Sand FILP . . 63 3.3 Maintenance of Tanaka's Influence 68 3.4 Advantages of the Postal Savings over Private Banks 72 - Maruyu Tax Exemption System and the Green Card Identification Card System. 72 3.4.1 Attacks on Postal Savings Interest Rate Advantage 76 3.5 Predominance of Tanaka's Political Faction 81 3.6 Growth of the PSS and FILP Budget: 1975-1985 82 3.7 Realignment of the Tanaka faction and Revisions to Postal Banking in the late 1980s: The Political Decline of Tanaka Kakuei 85 3.7.1 Abolishment of the Maruyu system and Imposition of Taxation on Savings 86 3.8 Decline and Ascent of Postal Savings Before and After the Bubble Economy 89 3.9 The "Big Bang" Financial Reforms and the Defense of Postal Affairs 93 3.10 Questionable Reform of the FILP 96 3.10 Conclusion 97 Chapter IV Contemporary Reform Initiatives, Recommendations 100 4.1 Can Koizumi Crack the Tanaka Faction Complex and Break the PSS? 100 4.2 Three Avenues for Reform 101 v i 4.3 Removal of Complete Guarantees on Deposits 104 4.4 Resilience of the Opponents to Reform: Expanding Links with the Private Sector 107 4.5 The Current Battle 109 Conclusion 112 References 116 Tables 128 Figures 140 V l l LIST OF TABLES Table 1: Sources of Government Revenue in the First Eight Fiscal Years: 1868-1875 (Unit: Thousand ¥ ) 128 Table 2: Japanese Yearly GNP per-capita Income (Unit: ¥ ) 129 Table 3: Postal Savings Accounts: 1893-1901.... 129 Table 4: Growth of Postal Savings and Investment of Deposits Bureau Funds: 1900-1928 (Unit: Thousands of ¥ ) 130 Table 5: Growth of Postal Savings and Investment of Deposits Bureau Funds: 1929- 1953 (Unit: Millions of ¥ ) 131 Table 6: Invested Funds for Post Life Insurance and Postal Pension Plan: 1930- 1953 (Unit: Millions of ¥ ) 132 Table 7: Liabilities of the Fiscal Investment Loan Program: 1953-1974 (Unit: Million ¥ ) 133 Table 8: Assets of Trust Fund Bureau: 1953-1973 (Unit: Million ¥ ) 134 Table 9: FILP Investments: 1953-1963 (Unit: Million ¥ ) 135 Table 10: FILP Investments: 1964-1974 (Unit: Million ¥ ) 136 Table 11: Comparison of a Teigaku deposit versus a Ten Year Fixed-Term Bank Deposit Withdrawn before Maturity (Contractual Rate = 2.45 percent) 137 Table 12: FILP Investments: 1975-1985 (Unit: Million ¥ ) 138 Table 13: Liabilities and Assets of the Trust Fund Bureau: 1985-2000 (Unit: Billion ¥ ) 139 v i i i LIST OF FIGURES Figure 1: Deposits Bureau/Overall Savings Deposits: 1930-1953 140 Figure 2: Private Bank Deposits vs Postal Savings: 1972-1985 141 Figure 3: FILP and General Account Budget out of GDP: 1953-2001 142 Figure 4: Private Bank Deposits vs Postal Savings: 1986-2000 143 L I S T O F A C R O N Y M S BOJ: Bank of Japan BPOSB: British Post Office Savings Bank DIC: Deposit Insurance Corporation FILP: Fiscal Investment Loan Program JCP: Japanese Communist Party JDB: Japan Development Bank JNR: Japan National Railways KDD: Kokusai Denshin Denwa (International Telegraph and Telephone) LDP: Liberal Democratic Party (of Japan) M A C : Ministry of Agriculture and Commerce MOF: Ministry of Finance MP: Member of Parliament MPT: Ministry of Post and Telecommunications NACP: National Association of Commissioned Postmasters (Zenkoku Tokuteiyubinkyokuchokai) NTT: Nippon Telegraph and Telephone Corporation OECD: Organization for Economic Cooperation and Development PARC: Policy Affairs Research Council PLI: Postal Life Insurance PPP: Postal Pension Plan PSS: Postal Savings System SCAP: Supreme Commander of Allied Powers (U.S. Occupation of Japan commander: General Douglas MacArthur) X SME: Small and Medium-sized Enterprises TFB: Trust Fund Bureau x i A C K N O W L E D G E M E N T S This thesis could not have been written without the assistance of numerous individuals. The majority of my writing took place in Vancouver at the Institute of Asian Research at the University of British Columbia. My research, however, was conducted in Canada and also in Japan during a three-month visit in the summer of 2003. Likewise, I am grateful to individuals in both countries for their favourable assistance and support in the writing of this thesis. I would like to extend my thanks to my advisors, Dr. Hyung Gu Lynn and Dr. Bill Wray at the Center for Japanese Research at the Institute of Asian Research for their valuable guidance and advice. I am also indebted to Dr. David Edgington, the director of the Center, who, as well offering me ongoing encouragement, provided me with a research grant to help facilitate my studies in Japan. Dr. Julian Dierkes and Dr. Yves Tiberghien of the Center, respectively, extended my knowledge of organizational theory and contemporary issues surrounding public finance and investment in Japan. As well, Professor Joong-Ho Kook from Yokohama City University and Dr. Tetsuyo Umemoto from Momoyama Gakuin University in Osaka, Japan, visiting scholars to the Center, educated me and opened up doors previously unknown to me. I am grateful to Dr. Tetsuyo Umemoto for introducing me to his colleague, Dr. Norio Takehara. From our conversation/correspondence in Osaka, Dr. Takehara provided me with favourable insight into his perspectives on public finance and investment in Japan. As well, the staff at the Asian Library at the University of British Columbia was very helpful in the locating of sources. x i i And finally, I would like to thank my family and friends in both Canada and Japan for their encouragement and assistance. Deep appreciation goes to my family in Calgary, Ontario, and London U.K., my Japanese family in Iwaki and Aviva Li . 1 Introduct ion The historical development of the Postal Savings System (PSS) can be viewed as serving two functions in the Japanese economy. Since 1875 the PSS has served as a savings regime for Japanese households. In its capacity as a provider of postal services, the Japanese post office has offered postal savings (yubin chokiri), life insurance (kani seimei hoken), and postal pension (yubin nenkiri) since 1875, 1916 and 1926 respectively. Numerous authors including Stephen Anderson (1990), Frances Rosenbluth (1989), and Sugiura Seishi1 (1986, 1990) have remarked upon the historical significance the post office has played as a source of public finance in Japan. Early development and promotion of the PSS throughout the Meiji and into the Taisho era has been well documented by Sugiura. Rosenbluth outlined the growing competition between the PSS and the private banking sector in the post World War II period. Patricia Kuwayama (2000) has presented the leading comparative analysis of historical postal banking in the US and Japan. Both Kuwayama and Rosenbluth point to advantages that the PSS has enjoyed over the private banking sector in its ability to attract a growing share of public savings. Another view of the PSS concerns the investment of postal funds collected by the network of post offices across Japan. Kent Calder (1990), Thomas Cargill and Yoshino Naoyuki (1997, 2003), and Takehara Norio (1988) have addressed recent issues surrounding both the finance and investment aspects of the PSS and the Fiscal Investment Loan Program (FILP). Takehara Norio has provided an in depth examination of the track of FILP investments in its first three decades between 1953 T h r o u g h o u t t h i s w o r k J a p a n e s e n a m e s w i l l a p p e a r w i t h t h e f a m i l y n a m e f o l l o w e d b y t h e g i v e n n a m e . A s w e l l , m a c r o n s , w h i c h i n d i c a t e e l o n g a t i o n o f a s y l l a b l e , u s e d f o r t h e t r a n s l i t e r a t i o n o f J a p a n e s e w o r d s a r e n o t u s e d i n t h e t e x t o f t h i s w o r k . 2 and 1983. As Kent Calder demonstrates, the PSS, and its investments via the FILP, have been responsible for linking welfare objectives and government industrial transformation targets. This view compliments Chalmers Johnson's (1982) concept of a developmental state whereby the state employs industrial policy to target strategic industries in the pursuit of enhancing the nation's competitiveness on the world stage. Cargill and Yoshino (2003) argue that the PSS and the FILP are incompatible with recent attempts to modernize the Japanese financial system. Okina Yuri (2000), a member of a current government panel debating the privatization of postal services, highlights the recent developments and future prospects for reform of the PSS. Now a public corporation as of April 1, 2003, Okina speculates that the post office will continue to assume the character of a financial convenience store. By expanding its links with private financial institutions, the post office will increasingly offer a greater number of private sector financial products at its outlets. It is not the intention of this paper to focus solely on the savings function of the PSS. This perspective falls short of addressing the historical development of investment of these funds in the economy by the Japanese government. The analytical framework presented in this paper is consistent with the historical development of the Japanese political economy. In view of the relationship between the savings and investment functions, how are the political and economic implications of postal banking highlighted by its institutional arrangements with public finance and investment? Between the inception of postal savings in 1875 and 2004, postal banking has moved through four distinct periods. Chapter one covers the first two periods of postal banking between 1875 and 1953. The initial section of this chapter covers the first twenty-five years of the PSS from 1875 to 1900. The establishment of postal savings and the creation and fulfillment of two objectives by its creator, Maejima Hisoka, 3 characterized this period. The closing years of the 19th century marked the beginning of a second stage of postal banking. At this time, a series of specific investment government banks and companies were established. The first half of the twentieth century, leading up to the end of World War II coincided with increasing government administration and diversified use of postal funds. In the early post war period, public finance and investment bodies were reorganized, and in 1953 a new special budget, the Fiscal Investment Loan Program (FILP) was established. The second chapter marks a third period of postal banking. This period spans the first twenty years of the FILP budget during which time Japan experienced high rates of economic growth. The immediate postwar investment objective of the FILP prioritized industrial policy with the intention of reinvigorating economic activity. The roles of internal and external participants to the FILP highlighted the interdependency among formal and informal structures in finance and investment decision making regarding the PSS and the FILP budget. Chapter three builds upon the display of political and economic benefits arising from postal banking as reflected in the 1953-1973 period, covered in the second chapter. Chapter three outlines the seizure of the opportunity to safeguard and strengthen the affairs of the PSS by Tanaka Kakuei. Political realignment undertaken by Tanaka in the early 1970s characterized the landscape of public finance and investment in Japan for the next thirty years. Tanaka utilized the might of his political faction within the Liberal Democratic Party (LDP) and a postal affairs interest group to effectively promote and safeguard the PSS and FILP budget. The purpose of the fourth and final chapter of this work is to highlight the prospects for contemporary reform of the PSS and the FILP budget while presenting policy recommendations and overall conclusions. In the post Tanaka Kakuei era, his legacy endures. Attempts to reform the PSS and the FILP since the late 1980s demonstrate the effective opposition of the Postal Affairs Group and the National Association of the Commissioned Postmasters (NACP). In this final section, the inventions of Tanaka Kakuei are presented as the primary reasons for continued opposition to reform, fundamentally, the PSS and the FILP. 5 Chapter I Establishment and Development of the PSS: 1875-1952 1.1 Introduction > Late nineteenth century Japan witnessed a response to Western European and American hegemony in industrial and technological innovation. Japan's subsequent push for modernization and industrialization of the national economy stimulated fundamental alterations to its economic and social structures. Ultimately, construction of a modern state, capable of situating itself on an equal level with foreign powers, entailed far-sighted policies conducive to its national wellbeing. One such area that received attention was the financial sector, namely the instituting of a national savings regime through the post office. The advent of postal savings in Japan dates back to the 1870s. Promotion of the post office as a provider of financial services affirmed the efforts to raise funds for the industrialization and modernization of Japan. The argument put forward in the first half of this chapter reflects that of Sugiura (1986). Postal savings were envisioned as serving two primary purposes: creation of a stable savings pool from which government financial policy could be conducted and creation of a social safety net for low-income citizens to deposit small savings. The first twenty-five years of the PSS highlight a temporary deviation from the system's intended path. This period was characterized by inter-ministerial debate over the administration and allocation of postal savings funds. At the turn of the 19th century, the intended goals set out by the savings regime's founder were put back on track. In the first half of the twentieth century, the scope and size of the PSS evolved, effectively strengthening the influence of postal savings in the economy. Placed under the authority of the MOF's Deposits Bureau, funds were increasingly used for specific investment purposes through government-affiliated institutions. These targeted investments grew in depth and breadth while Japan pursued national development goals. 6 Reflecting upon the analysis of economic historians Lockheed (1955), Teranishi (1995) and others, the PSS expanded and diversified, in the first half of the twentieth century, its investments via the Deposits Bureau. Establishment of numerous special banks near the beginning of the twentieth century corresponded to a progressive relationship with funds from the Deposits Bureau. Furthermore, the inception of Postal Life Insurance in 1916 and a Postal Pension Plan in 1926 augmented the funds of the Deposits Bureau. Funds that accumulated from the services offered through the post office were primarily directed towards reinforcing industrial modernization and the banking system. Contributions from the Deposits Bureau constituted a large source of financing for banks and companies for particular purposes. As the Japanese Empire expanded, it became necessary to finance military and colonial enterprises. This necessitated a divergence of funds towards these efforts. The first half of the twentieth century marked an era of institutionalization of diversified investment and political maneuvers in the PSS. The last section of this chapter presents the post World War II construct of a new and evolved institution to conduct public investment from the PSS funds. The FILP was created in 1953 as an extension of financial policies, modeled after the tradition of the Deposits Bureau. The FILP reflects government intervention in the economy. Up to 1953, the progression of the PSS brought to the forefront the impact of its expansion and diversification of investments on the Japanese economic and political landscapes. 1.2 Inception of the Postal Savings System (PSS) Meiji era Japan (1868-1912) undertook rapid industrialization and modernization of its economy and society in an attempt to address external pressures from foreign powers. The Ministry of Finance, created in 1869, constituted the primary 7 government body in which all finance related decisions would be processed. The immediate concern surrounding how Japan would finance its development presented four avenues: foreign loans, expansionary monetary policy, taxation revenue and utilization of domestic savings. Reliance upon the first would place Japan in a position of indebtedness to the very foreign powers it strove to emulate and would increase its sensitivity to fluctuations in foreign exchange. Borrowing large sums of financial resources from abroad translates into a burgeoning foreign debt. The inherent risk of such a venture is that the economy becomes dependent upon maintaining favourable rates of foreign exchange. In the Japanese case, if the yen appreciates, enabling the purchase of more units of a foreign currency for a set amount of yen, then the debt is less burdensome. On the other hand, if the currency depreciates, the yen would be incapable of purchasing the same amount of foreign currency. This would lead to a more burdensome foreign debt. If Japan pursued a policy of massive foreign borrowing and accumulated a large foreign debt the yen would depreciate. In the short term, borrowing from abroad was validated as Japan's meagre rate of savings failed to supply adequate funds for industrialization.3 Raising the magnitude of domestic savings offered an attractive alternative to foreign loans. Conditions of borrowing and lending out funds for development would fall strictly under national jurisdiction. In the long term, MOF officials advocated self-sufficiency and a shift towards other domestic sources of finance. Postal savings were introduced in Japan on May 2, 1875, based on the British Post Office Savings Bank (BPOSB) established on September 16, 1861. In 1859, C W . Sykes of the Huddersfield Banking Company proposed the idea to then British 2 Kato, 2002. 8 Dec. 2002 <http://wwwl.tcue.ac.jp/homel/katoi/semi/2001semi/report02.html>. 3 Calder, 1990: 38. 8 Chancellor of the Exchequer, William Ewart Gladstone. Al l classes of citizens (particularly the lower class) would be encouraged to deposit small savings into a savings bank that utilized the preexisting infrastructure of the 2,500 money-order offices across Britain.4 The BPOSB constituted a supplementary source of government revenue which Japanese government officials in the 1870s strove to replicate. The rationale behind Japan's adoption of such a system was identical to that of the British case fourteen years prior. Japan was the fourth country to adopt a PSS. New Zealand (1867), Belgium (1870), and Great Britain (1861) were the predecessors.5 In the Japanese case, a government official from Niigata prefecture was responsible for ushering in the Postal Savings System. As minister of the Postal Bureau, in the Ministry of Home Affairs (Naimusho), Maejima Hisoka outlined two primary policy objectives in establishing postal savings in 1875. First, it offered low-income citizens a safety net into which to deposit their savings in response to future financial uncertainties. Secondly, by creating a stable savings regime, which wasn't in direct competition with the banking sector, active implementation of financial policy could be conducted by the central government.6 Offering interest on the postal savings deposits attracted customers for Maejima's first objective. The agglomerated savings of these customers would generate the second objective: a pool of financial resources for the government to utilize for investment purposes at its discretion. 1.3 Historical Context Maejima's vision of the PSS came about three years following the Banking 4 R o b i n s o n , 1 9 5 3 : 1 9 7 . 5 W e s t n e y , 1 9 8 7 : 1 1 7 . 6 S u g i u r a , 1 9 8 6 : 5 1 4 . 9 Act of 1872, and four years after the yen was founded as the national currency in 1871 by then Vice-Minister of Finance, Okuma Shigenobu. It was imperative that a unified banking system be established to recognize a single currency and provide transparency in the financial sector. During the Tokugawa era, a variety of moneylenders, circulating their own notes across Japan, served the function of banks. Under the new Meiji government, Yuri Kosei, a previous manager of finances in Fukui prefecture during the antecedent feudal regime, was appointed the first head of finance for the central government.7 Yuri found himself in an awkward position with regards to spending. The Bakufu, predecessor to the Meiji government, failed to leave substantial financial resources with which to commence modernization policies. By implementing a two-track program of expansionary monetary policy and borrowing from wealthy merchant g houses such as Mitsui Yuri sparked an inflationary spiral. The subsequent inflation produced by printing vast stocks of currency raised skepticism inside financial circles. Negative repercussions of Yuri's monetary policy sparked considerable disgust, particularly from Okuma. His opposition combined with that of other prominent individuals spelled the collapse of Yuri's short-lived reign over the affairs of the MOF. Okuma was appointed vice-minister of the MOF in 1869 and later, minister of finance in 1873. Furthermore, he received backing from Japanese Prime Minister, Ito Hirobumi. This was a clear indication to Yuri of the discontent his policies were raising among the leading figures of the Meiji Restoration. Okuma's most impressive accomplishment was the standardization of a national currency under the banner of the yen in 1871. Although his response to the controversy surrounding his predecessor's policies was painful, it was far sighted. For several reasons MOF found it hard pressed for funds for modernization. Government tax revenue base was at a minimum. 7 Kato, 2002. 8 Dec. 2002 <http://wwwl.tcue.ac.jp/homel/katoi/semi/2001semi/report02.html>. 10 Moreover, pressures were exerted by the continuance of stipends being paid to the defunct samurai class. In his early tenure, Okuma didn't have the 1873 land tax reforms to boost Meiji's tax revenues.9 In pursuing a monetary policy divergent from Yuri, the new MOF Minister followed a path of unifying currency on a national level. This was accompanied by the massive printing of a unified currency. The expanding, though necessary, supply of paper money saddled the young banking system with enormous growing pains: inflation. Although Okuma's adoption of the yen prolonged Japan's exposure to high inflation, future stability and perception of confidence in the Japanese economy were being achieved. By adopting a national unified currency, Okuma cemented the foundation for a competent financial sector in Japan. Table 1 highlights the shift from expansionary monetary policy advocated by Yuri in 1868 and 1869 towards reliance upon tax revenue by 1875. Yuri relied largely upon newly printed paper money for overall government revenue, 72.6 percent and 69.5 percent respectively for the years 1868 and 1869 (Table 1). Under Okuma's growing influence, a clear departure from this path was demonstrated from 1870 onwards. The contrast between the 1869 figure (69.6 percent) and 1870 (25.5 percent) levels of "paper money" corresponds to a sharp decline in this source of revenue. Okuma shift of the MOF's revenue base towards the existing money supply reflected a conservative monetary policy. For both 1870 and 1871, the levels are remarkably lower, while in 1872 the figure jumps in response to the National Banking Act of 1872. This legislation was the first of its kind that attempted to provide clarity in the infant banking system, following the introduction of the yen in 1871.Therefore, it is reasonable to expect the level of government revenue derived from paper money to remain high. By using vast quantities of the currency for revenue purposes in its inaugural year, the government H i r s h m e i e r a n d Y u i , 1 9 7 5 : 7 9 . 11 demonstrated a push for acceptance of the universality of the yen in the Japanese economy. The disappearance of paper money as a source of revenue in 1873 coincided with an increased reliance upon currency in circulation (Table 1). The increasing tax base sufficed to cut out reliance upon newly issued money for revenue purposes. Okuma's policies addressed the inflationary spiral of the economy and prioritized real rather than nominal growth of the economy. Inflation represents an output gap between the potential and actual performance of the economy. With high inflation rates, there is little incentive to improve productivity levels, and speculative investment intent on taking advantage of inflation will occur. This form of investment would effectively expand business to seek higher revenues. Such a move would address the rising production costs attributed to the decreasing value of the yen. Under this blanket of rapidly oppressive production costs, expansion of industrial growth is stifled. It is imperative to maintain low inflation in order to keep the economy on a smooth trajectory for long-term economic growth. As a share of government revenue, domestic savings sources were limited. The creation-of a stable savings regime in the 1870s translated into a pool for domestic borrowing. Japan would have the potential to offset reliance upon other sources of "extraordinary" areas of government revenue (Table 1). It was this primary motivation that led to the adoption of the PSS in 1875. Domestic borrowing in 1868 was higher than in 1869, indicating the cost of start-up investments for beginning of a different structure of government following the Tokugawa Bakufu. However, national pools of savings were limited in scope. The 1869 figure highlights a figure substantially lower than that of the first year of the Meiji era (Table 1). Taxation progressed from 1868-1875 as the largest component of "ordinary" revenue sources. This was largely due to 9 Fairbank et al., 1989: 508-509. 12 the 1873 standardization of the taxation system with respect to the collection of taxes from local regions.10 In the 1870s, a comparable progression was sought in the "extraordinary" sector of government revenue sources. At a time of national mobilization for industrialization and modernization, the PSS was the tool used to achieve higher domestic savings rates. The success of the PSS depended largely upon how it was incorporated into the fledgling Japanese banking sector. The First National Bank (Dai-Ichi Ginko) was the largest of four national joint stock banks, based upon the U.S. Banking Act of 1863." Postal savings' funds were initially deposited into this bank, however in a short period of time, impediments to maturity of these funds in this bank's account arose. Fears of bankruptcy struck one of its primary shareholders, the House of Ono, only to be compounded by the over issuance of currency by the four banks in the embryonic Japanese financial sector. Yuri and later Okuma reverted to printing vast sums of money. This occurred in order to 12 finance numerous government projects plagued by an inadequacy in domestic savings. After the Revised Banking Act of 1876, the maturing foundations of a modern banking system in Japan were strengthened. In 1878, the MOF's Deposits Bureau inherited the responsibility of the funds from postal savings, following the turbulent spell of the early 1870s. Within this Bureau, the entire funds were deposited in the form of government bonds. Revision of Japan's financial sector in the 1870s achieved only limited success for Maejima's objectives for the PSS. Kato, 2002. 8 Dec. 2002 <http://wwwl.tcue.ac.jp/homel/katoi/semi/2001semi/report02.html>. 1 1 Hirshmeier and Yui, 1975: 88-89. 1 2 Ibid.: 80. 1 3 Cargill and Yoshino, 2000: 209. 13 1.4 Growth and Ministerial Authority The Japanese government used the preexisting network of post offices in urban centers to initiate the PSS. Expansion into rural regions resulted from the land tax exemptions and commissions offered to the landed gentry (meiboka), most notably village leaders (shoya), as an incentive to establish post offices in the rural areas.14 The distribution of post offices in the countryside allowed for the collection of savings from the rural populace. Prior to the Sino-Japanese War (1894-95) the expansion of the banking sector in the local domains was limited. Post offices commanded the only extensively distributed savings regime in Japan. Al l social classes deposited funds into one institution that was the logical and convenient choice. What minimal contributions low-income earners could deposit were dwarfed in comparison to those of wealthier wage earners. As a result, the PSS was largely dominated by wealthier class contributions, in direct contrast to Maejima's intention. Contrary to Maejima's objective to attract the lower class to use the PSS, a paradox emerged in the system's first twenty-five years. At a time of strenuous inflation and poor distribution networks of products in rural areas, incentives to save were weak. Their priority was to address short-term consumption. Wealthy individuals were in a better position to set aside savings. Savings constitute the use of currency for reserve purposes in light of future uncertainties. The decision to hold onto hard currency is associated with the interest forgone by not holding an interest-bearing asset. This is illustrated by a postal savings deposit account. In the presence of rising inflation, the nominal interest rate rises. The lost interest on potential savings incurred by holding currency increases. This inflicts a higher cost to the holder of currency. 1 4 Rosenb lu th , 1989: 169. 14 Set against the scene of high inflation in the 1870s, a minimal deposit amount was set in the PSS's inaugural year of 1875.15 It was not the intention of the government to enact an onerous minimum level of deposit in accordance with Maejiima's agenda. Such an act would have constituted a barrier to entry of lower class use of the PSS. Due to an impotent tradition of high savings, this class failed to contribute significantly. Mobilization of Japanese society on the savings front, including scores of low-income citizens, was vital to the vision of a sanguine path to economic development. The PSS was outfitted to provide the backbone for accumulation of savings from these individuals. The lower class citizenry was severely restricted in its opportunities to save; thus postal savings accounts were the viable option. Had inflation continued along its current path, stimulating rises in wages of lower income earners, the burden of meeting the minimal deposit requirement would have diminished. However the 1880s demonstrated that deflation heightened the entrance barrier and the PSS became strongly defined as a system for the rich who could continue to afford this minimal amount. In 1875 a maximum yearly contribution was imposed: ¥ 100 with an upper limit on the overall account balance of¥500. 1 6 This maximum level of ¥500 served to deter the wealthy from using the PSS as a primary savings institution. Substantial profits attained through private business would be invested elsewhere. For example, if an owner of a Japanese company collects ¥ 10,000 in profit, that money could be funneled into business reinvestment and or personal consumption at his own discretion. Research and development in the firm would fall under the category of reinvestment. Personal consumption would maintain the purchasing power of the customer in the 1 5 Sugiura, 1986: 516. 1 6 Sawamoto, 1993: 14. 15 domestic market. However, on an individual basis, ¥ 500 was worth a considerable amount in early Meiji Japan. Japanese yearly per-capita income for both the working and all class citizens were well below ¥500 in the late 19th century Japan. A PSS account with this level clearly demonstrated a long-term savings strategy for citizens with a ceiling notably higher than their yearly income. In 1878, ¥500 represented more than eight times the yearly per-capita income of workers and sixteen times for all classes in Japan (Table 2). Tracking ahead to 1890, following the Matsukata deflationary era in the 1880s, per-capita income for the two categories nearly doubled. The value of ¥500 relative to yearly per-capita worker decreased to five years worth of income and eight years for all classes (Table 2). The attractiveness of PSS accounts as a long term stable savings regime for retirement or other large accumulation priority purposes becomes apparent in light of these figures. The arbitrary upper limit had a potential to act as a goal for lower classes to save towards realizing these objectives. The ¥500 cap was temporarily abolished in 1880 for the duration of the decade until 189017. It is imperative to note that the 1880s were marked by deflation rather than the inflation of the 1870s. Even at the zenith of deflation implemented by Finance Minister Masayoshi Matsukata, the ceiling was not reapplied, translating to an increased attractiveness for the rich to invest their deflated currency. With the value of money increasing as a result of deflationary pressure, the purchasing power of money rose. Compounded by a lack of a formal banking sector, postal savings accounts became a more attractive target for investment for the rich whose principle deposits would be supplemented with rewarding interest. Although the same effect would be enacted upon the savings accounts of lower income clients, the percentile growth on wealthier client 16 accounts would be greater. A deposit of ¥ 2 0 in the former's account at a hypothetical interest rate of 5 percent would culminate in ¥ 1 return on the original investment. On the other hand, the same interest rate on a principle of ¥500 would ¥ 2 5 . When pervasive deflation is factored in, the difference between ¥ 1 and ¥ 2 5 can be staggering in an environment where currency is in an increasing scarce supply. In 1881, the ministerial authority of postal savings transferred from the Ministry of Home Affairs (Naimusho) to the newly created Ministry of Agriculture and Commerce (Noshomusho). From 1881 to 1885 the Ministry of Agriculture held authority over postal savings. From 1885 to 1949 the Ministry of Communications (Teishinsho) provided a stable resting place for the PSS. On June 1, 1949 the Ministry was renamed the Ministry of Posts and Telecommunications.18 The juggling of authority over the program that commenced in the first half of the decade corresponded to a reevaluation of the PSS. In direct contrast to the experience of the 1870s, deflation afflicted Japan in the 1880s. Accompanied by the absence of a minimum level of deposit, the potential for growth of postal savings among all economic classes progressed sluggishly. Unlike his predecessor Okuma, Finance Minister Matsukata favoured deflationary measures to combat economic distress. By encouraging the growth of savings for national purposes, inflation would be dampened by a parallel hike in the prevalence of savings. Matsukata brought the entire assets of the PSS underneath the newly established Deposits Bureau (Yokinbu) of the MOF in 1885 under the accounts of the National Treasury.19 Control over the investment of these funds, effectively shifted from their previously state autonomous investor, Dai-ichi Bank, to 1 7 S u g i u r a , 1 9 8 6 : 5 1 5 . 1 8 J o h n s o n , 1 9 7 8 : 8 4 . 19 M i n i s t r y o f F i n a n c e , 1 9 9 8 : 2 . 17 20 • . . . state jurisdiction. Not only had Matsukata been brilliant in his execution of tying the necessity of increasing national savings to imperative deflationary measures, he also initiated governmental control over the investment of the funds from the PSS. In 1885, the Meiji government assumed full authority over both the PSS and the investment of these funds for the first time since inception in 1875. It would be entirely the prerogative of the central government to decide how the PSS would evolve in the support that it could offer Japanese industrialization and modernization. 1.4.1 The Emergence of Inter-Ministerial Rivalries With complete control over the allocation of postal savings for investment purposes, the MOF endeavored to launch a government-sponsored loan program. The deflation instigated by Matsukata in 1881 spelled formidable anxiety on the part of local regions dealing with the effects of his overriding policy. For this reason numerous politicians lobbied on behalf of the residents in these areas for the national government to address development issues. Disbursement of postal savings funds, along with resources from other special government accounts, would be utilized for subsidizing 21 local infrastructure projects linked with special banks. However, the MOF policy initiatives clashed with that of the Ministry who retained administrative authority over the PSS between 1881 and 1885, the Ministry of Agriculture and Commerce (MAC). A subsequent power struggle erupted in which the MAC desired specialized banks to extend credit to particular firms and industries in the pursuit of the ministry's export promotion plan. On the other hand, the Ministry of Home Affairs, while in virtual consensus with the MOF's proposal for investment into local infrastructure, requested input as to how the PSS would be used in light of its history of previous authority over 2 0 Calder, 1990: 40. 18 the system. Which ministry would assume leadership in regards to the regulatory power over the affairs of the financial institutions linked to the disbursement of the funds was the debate. After failure to resolve the dispute, the MOF proved to be the successor at a time of continued inter-ministerial tension, particularly between it and the MAC. Control over distribution would ultimately rest in the hands of the MOF, while the Ministry of Communications assumed authority over the funds from its predecessors: the Ministries of Home Affairs, and Agriculture and Commerce. However, an insecure compromise was reached under the administration of the Ministry of * 22 Communications. The path towards realizing specialized banks with the agenda of utilizing PSS funds for an array of projects progressed. Future consultation between the MOF and the Home Affairs and the MAC ministries was agreed upon. This was not to be unconditional. The concerned ministries were entitled to offer their opinions as to how these banks would offer loans. Eventually such special governmental financial establishments were conceived. The Japan Hypothec Bank (Nihon Kangyo Ginko), the Agricultural and Industry Bank (Noko Ginko), and the Industrial Bank of Japan (Nihon Kogyo Ginko) were all respectively established in the closing years of the 19th century, the first two in 1896 and the third in 1900. After lengthy deliberation among the concerned ministries, these banks were created out of unbalanced consensus. Deliberation was unbalanced due to the MOF's predominant voice over that of the other ministries. The MOF gained regulatory authority over all three entities, although consideration would be paid to input from both Home Affairs and the MAC on how and where loans would be dispersed. In spite of the MOF's apparent monopoly in authority over dispersal of the funds, constraints imposed by the Deposit Regulations of 1885 stipulated a limit to 2 1 Rosenbluth, 1989: 170. 19 investment in government bonds.23 However, the MOF circumvented any potential constraints arising from the Deposit Regulations by taking advantage of investment in government bonds. This form of investment would have the effect of financing infrastructure and development related projects set out in the agenda of the three special banks. When a government issues bonds, they seek funds to spend on the provision of public goods and services and or to finance their public debt. By restricting PSS funds to government bonds, the government facilitated the emergence of an institution with the fundamental pursuit of financing government initiated projects when large amounts of capital were difficult to acquire in early Meiji Japan for modernization and development purposes. Deficiency in government budgets exerted enormous pressure for PSS funds to provide desperately needed capital for economic development. Borrowing money from the Japanese citizenry, savings comprised in the PSS served the function of a banking institution in this regard. Special interest banks sought to utilize the savings in deposit accounts for national investment purposes. The Bank of Taiwan {Taiwan Ginko) and Hokkaido Development Bank {Hokkaido Takushoku Ginko) were established in 1899 and 1900.24 The allocation of funds from the PSS into such banks sparked a long-term commitment of public savings towards development of the Japanese nation and the empire. 1.5 Reversion Back to Maejima's Vision In the last decade of the 19th century, Maejima's first intended objective of creating a savings regime dominated by low class citizens was achieved. The 1880 decision to abolish a ceiling on postal savings accounts and an underdeveloped banking Rosenbluth, 1989: 170. Johnson, 1978: 85. 20 sector had impeded this objective. In 1890 the ceiling on postal savings accounts was reestablished.25 At a time of greater currency stability following the high inflationary and deflationary periods in the 1870s and 1880s, a ceiling on account deposits was reinstated. Such a limit demonstrated to the wealthier classes that their large sources of financial resources were best invested elsewhere in the economy rather than in the PSS. The overall impact of this change in governmental policy alone was not enough to bring about a dramatic change in the face of postal savings accounts. Following the Sino-Japanese War (1894-95), the banking system expanded outwards from cities to rural areas. The primary stimulus was the rapid prosperity following the war. This was spurred on by the formidable compensation Japan received from China in the post-war period. The Sino-Japanese Treaty of Simonoseki signed on April 17, 1895 gave Japan a 200 million taels of silver indemnity.26 An intention to increase the number of banking outlets across the country occurred to accommodate the boom in the amount of capital circulating in the Japanese economy. A twenty-fold increase in the number of savings branches (22 to 444 branches) occurred between 1893 and 1901. This figure represents a twenty-fold increase distribution of bank savings account outlets. Meanwhile, the total number of banks in all categories reached 720 in 27 1901. Expanding and diversifying the banking sector produced a fundamental shift in the character of postal savings accounts. The increased availability of commercial bank accounts as an alternative to depositing funds in PSS accounts, witnessed an outpouring of wealthier client funds to the newly established bank outlets. As a result the average J o h n s o n , 1 9 7 8 : 6 6 . S u g i u r a , 1 9 8 6 : 5 1 6 . F a i r b a n k et a l , 1 9 8 9 : 5 5 4 . S u g i u r a , 1 9 8 6 : 5 1 8 . 21 level of savings per account dropped more than a fifty percent drop from ¥24.67 to ¥ 11.64 in the same period (Table 3). Reversion back to a savings regime dominated by the lower income class occurred between 1893 and 1901. Maejima Hisoka's original vision began to materialize over this time period. A progressive shift from the PSS dominated by wealthier clients to lower income clientele unfolded in accordance with Maejima's first objective. Maintaining a stable savings regime for the central government to utilize in conducting its financial policies was the second prerogative of Maejima. A fall in the average level of deposits in accounts between 1893 andl901 satisfied his first objective. A parallel growth in both the accumulation of total savings in PSS accounts and yearly contributions (Table 3) highlights an increase in the flow of funds entering into the savings regime. While average account levels decreased substantially, there was no corresponding decline in overall funds in the system. This indicates a heightened presence of lower income citizens depositing savings into the PSS. Although Maejima envisioned such a phenomenon in 1875, his vision did not materialize until twenty-six years later. 1.6 Rise of Special Government Banks In early Meiji Japan (1868-1812), the Yokohama Specie Bank (Yokohama Seikin Ginko) was established in 1880 to serve as the chief foreign exchange bank of Japan. After the inception of the Bank of Japan (Nihon Ginko) in 1882 special banks formed in a sign of growing maturity of the Japanese financial sector. In 1896, the Japan Hypothec Bank (Nihon Kangyo Ginko) was created as the central organ of a nation wide Agriculture and Industry Bank (Noko Ginko) across the forty-seven prefectures of Japan. In furthering economic development in the Japanese hinterland, the Hokkaido 22 Development Bank was established in 1900. The Japanese victory in the Sino-Japanese War (1894-95) produced a fundamental shift in the direction of specialized financing in the Japanese economy. Modernization and development efforts on the Japanese archipelago expanded outwards to newly acquired territories commencing with the creation of the Bank of Taiwan in 1899. The Industrial Bank of Japan {Nihon Kogyo Ginko) of 1900 extended finance to large-scale industry and investment overseas. A notable example of this was the South Manchuria Railway Company. Two additional specialized financial institutions arose near the end of the first decade of the twentieth century. In 1908 and 1909 the Oriental Development Company and the Bank of Korea (Chosen Ginko) were established.29 By 1910 Japan had created an extensive network of specialized financial institutions with the goal of strengthening economic development at home and abroad in her colonies. 1.7 The MOF's Deposits Bureau (Yokinbu): Investment in Special Government Banks and Companies Following the Boxer Rebellion, the Treaty of September 7, 1901, committed China to pay eleven countries (including Japan) an indemnity of 450 million taels of silver within 39 years. The unpaid balance carried an annual interest rate of 4 percent in gold so that by 1940 the repaid interest and principal would total 978 million taels.30 In a strategic maneuver to gain considerable control over the financial affairs of the Chinese State, Japan intervened and purchased indemnity credits from other countries. The Deposits Bureau was fundamentally affected by this increased investment. First, the MOF began purchasing foreign national bonds through special banks. Secondly, Ouchi, 1958: 207. Lockwood, 1955: 249. Fairbank et al., 1989: 640-641. 23 investment of special banks and companies bonds out of the Deposits Bureau commenced.31 Subsequently the role of special banks strengthened as stimulators of economic development. The latter increased the domestic borrowing capacity of these banks. The Industrial Bank of Japan (IBJ) provides one example of a special bank's experience with bond issuance. For the bank's two primary sources of financing, bonds consistently surpassed savings with the exception of in 1906 and 1907. In 1902, bonds overtook savings at ¥ 3 million compared to ¥1 .1 million. Concurrently, bonds exceeded savings from 1908 onwards as the largest source of debt. In 1909, bond issuance more than doubled to ¥ 3 3 million from ¥13.9 million in 1908. The lending capacity of the IBJ rose in response to this eight-fold increased in financing from ¥3 .2 million in 1902 to¥26.6 million in 1909.32 Loans were directed largely towards factory, mining and railroad investments. A relationship developed with shipping firms where by the IBJ utilized ships for collateral to aid in their cash flow of exporting and importing commodities from investments. The relevance of special banks in the economic development of Japan is apparent through the IBJ's growing lending role in industrial investments. | Up to 1900, virtually all-postal savings were invested in public bonds as stipulated by the 1885 Deposits Regulations.34 In 1902 diversifying investment of funds ,was endorsed. One prominent area of new investment was the purchase of special bank and company bonds. The immediate years leading up to 1902 witnessed the creation of five special development banks: the Japan Hypothec Bank (1896), Agriculture and Industry Bank (1896), Bank of Taiwan (1899), Hokkaido Development Bank (1900) 3 1 Teranishi, 1995: 160. 3 2 Asahi Shinbunsha, 1999: 497. 3 3 Asahi Shinbunsha, 1999: 339. 3 4 Johnson, 1978: 85. 24 and the Industrial Bank of Japan (1900). A growth in the balance of postal savings occurred synchronously with the ascension of funds in the Deposits Bureau. The Deposits Bureau was called upon to evolve as an instrument of government financial policy. As the demands for fiscal expenditures expanded, the use of postal savings filled in gaps left by taxation and public-issue bonds. Postal savings grew steadily in the first decade of the twentieth century. Their contribution to the Deposits Bureau directly links them to the growing purchase of special bank and company bonds. For three consecutive years from 1908-1910 the share of special banks and company bonds stood at 11 percent (Table 4). Following the establishment of the Bank of Korea in 1909, the appropriation of Korea as a Japanese colony in 1910 stimulated increased investment into Korea's economic development. As a result, 1911 witnessed a doubling of investment into special bank and company bonds at 21 percent. This field of investment never fell below a fifth of overall in the 1910s and 1920s. Simultaneously, phenomenal growth of postal savings facilitated a diversification of funds within the Deposits Bureau. Other investments benefiting from the inflow of postal savings funds were foreign national bonds and loans (Table 4). In 1902 the MOF consented to the purchase of foreign national bonds through special banks. This facilitated a significant portion of investment under the Deposits Bureau. The purchase of such bonds through a special bank would increase their capital flow from Japan. Nurturing the development of these banks was instrumental to expanding the economic growth of Japan's colonies: The absence of a public market for securities necessitated bank funds and business savings as the chief sources of capital for industry 25 and trade. In collaboration with private banks, the Deposits Bureau provided the basis of domestic funds for economic development.35 Japanese demands for capital for its modernization outstripped domestic financing capabilities. Ambitions to expand abroad compounded the necessity of accessing foreign loans. In contrast to the ¥200 million taels of silver indemnity received from China following its defeat in the Sino-Japanese War (1894-95), the Russo-Japanese War (1904-05) provided no indemnity from Russia.36 Japan borrowed heavily to finance this successful though costly venture. A series of loans were received from both England and France during and after the conflict. By 1914 debt owing to England amounted to £129 million and Fr. 650 million to France. As a percentage of overall debt, foreign debt had inflated from 19 percent in 1900 to a debilitating high of *J*7 60 percent in 1914. Foreign loans served to extend finance to the rapid economic and military expansion spurred on by the inclusion of Taiwan and Korea into the Japanese Empire. However, the increase in foreign debt burden would amplify inflation and restrict government spending capabilities in the long term. The outbreak of World War I in Europe transformed Japan overnight from a debtor to creditor nation. A subsequent boom in exports and shipping during the war years offered temporary refuge for Japan in her foreign indebtedness. However, the real test stood in her capabilities to conduct far-sighted policy away from foreign to domestic sources of capital to achieve sustainable economic development. This implied a tremendous effort to raise domestic sources of financing. Optimizing the balance between domestic and foreign debts is imperative to achieve a more efficient financing structure. Lowering the ratio of foreign In addition to the Deposits Bureau, the First National Bank (Dai-Ichi Ginko), Mitsui, Mitsubishi, Sumitomo, and Yasuda, and the Imperial Household also provided financing for economic development. Lockheed, 1955: 515. 3 6 Fairbanket al., 1989: 554.. 37 Asahi Shinbunsha, 1999: 183. 26 to domestic debt will alleviate vulnerability to fluctuations in foreign exchange rates in debt servicing. Ultimately, bridging the gap between domestic savings and investment was essential for Japan to strength her foundations of economic development. The Deposits Bureau served this purpose through heavy reliance upon postal savings for its capital. The central government orchestrated a loan program to special banks and companies through the Deposits Bureau. These institutions benefited from allocation of funds towards targeted economic development projects. Increasing the scope of loans out of the Bureau was feasible in light of the contributions from postal savings into the account. Loans filtered down through special government financial entities to private-sector and semi-private sector interests. The Financial Policy Bank (Seisaku Kinyu Ginko) coordinated loan disbursals to the private sector.38 Within the Deposits Bureau bond purchases overshadowed loans prior to 1914. An unprecedented doubling in the value of loans occurred between 1913 and 1914 from ¥46.5 million to ¥ 9 3 million. Throughout the war years, 1914-1918, the growth rate of loans slowed, failing to record a repeat doubling of funds in a consecutive year period (Table 4). It is important to realize that the lending regime out of the Deposits Bureau was in its infancy. Guidelines behind lending practices lacked both clarity and accountability. 1.8 Terauchi Scandal implicating the Deposits Bureau The rapid growth of postal savings in the 1910s coincided with the First World War. The savings regime experienced an unprecedented boom during the War. Postal savings grew by three and a half times from their 1914 level of ¥ 195.9 million to ¥698.2 million in 1919. Subsequently funds in the Deposits Bureau more than tripled T e r a n i s h i , 1 9 9 5 : 1 6 0 . 27 from¥314.9 million to ¥981.6 million in the same period (Table 4). At this time, Japanese maneuvers at empire building implicated postal savings in deteriorating China-Japan relations. With war preoccupying European powers, Japan seized German territories East Asia. The Anglo-Japanese alliance of 1902 and recognition by the Allies of military assistance authorized annexation of these territories into the Japanese Empire The Shantung Peninsula in China, housing Germany's premier outpost Tsingtao, fell on November 7th, 1914 to Japanese forces. The acquisition of territory on the Asian continent culminated in demands for advancing Japan's presence in China. A list of Twenty-one Demands composed by Uchida Ryohei, a renowned advisor on continental empire building strategy, were submitted to Prime Minister Okuma Shigenobu and Foreign Minister Kato Takaaki shortly after the fall of Tsingtao. In January 1915, the formal list of demands was presented to Chinese President Yuan Shi-kai. Protests arose from the United States and European powers on the preferential economic and political concessions demanded by Japan. Perceiving threats to their relative influence in China» compelled foreign nations to quell impressive Japanese encroachment. Subsequent revision to the memorandum reduced the original demands sought by zaibatsu interests. Diplomatically ostracized China faced little choice but to capitulate to Japanese demands. Despite the granting of widespread concessions by China, ardent Japanese militarists detected weakness in the will of the Okuma administration. Failure to obtain the complete twenty-one demands spawned the creation of a new government headed by Choshu general Terauchi Masatake. Between 1916 and 1918, Prime Minister Terauchi Masatake highlighted the political attractiveness of postal savings. Terauchi, the military general credited with the annexation of Korea, enlisted Deposits Bureau funds in an attempt to advance Japanese Roberts, 1973: 193-199. 28 interests in China. In 1917 and 1918, Terauchi dispatched his personal secretary Nishihara Kamezo to Beijing. Nishihara extended loans to Chinese warlords in order to transfer greater influence of the economy over to Japanese interests. Countries embroiled in the war effort in Europe suspended their foreign loans to China, opening the door to Japan to fill the void. However Chinese officials defaulted on the ¥295 million loans dispersed primarily from special banks: Yokohama Specie Bank, the Industrial Bank of Japan, Bank of Korea, and the Bank of Taiwan. Exposure of this coordinated effort of mass bribery backfired on Japan both at home and abroad. In China, the anti-Japanese protest of May Fourth Movement 1919 erupted in Beijing. Meanwhile in Japan, MOF resorted to postal savings funds to cover the incurred losses of the affected special banks.40 The MOF utilized the Deposits Bureau to liquidate these unpaid loans. The two investment areas impacting special banks in the Deposits Bureau are the Special Banks and Company Bonds and Loans columns in Table 4. In 1918 Special Banks and Company Bonds posted their largest one-year increase yet. This category grew 35 percent from ¥ 123.3 million in 1917 to ¥ 166.9 million in 1918. Between 1918 and 1921 investment in special banks and company bonds doubled from ¥ 166.9 million to ¥325.9 million. Concurrently, Loans witnessed a comparable rise. From their 1917 figure of ¥ 106.5 million, loans increased 74 percent to ¥ 185.3 million by 1920 (Table 4). This constituted the fastest growth in loan disbursements in a four-year period up to that time. Terauchi's actions exposed state intervention in nullifying bad loans of public institutions. Prescription of public savings for political leaders' indiscretions was strongly denounced by the citizenry. The misuse of public Roberts, 1973: 197-199. 29 funds by the Terauchi government precipitated a transformation in the nature of loan disbursements via the Deposits Bureau and ultimately through postal savings. Reform of the MOF management of the Deposits Bureau was undertaken in 1925. In revision to the 1885 savings guidelines, new savings laws were enacted. A separate savings division accounting law and government financial management laws were established for medicating the Terauchi scandal and modernizing public savings management. Bolstering national economic development efforts had the effect of further appeasing public criticism over misuse of funds from the Deposits Bureau. Direct government loans utilizing postal savings via the Deposits Bureau were granted to prefectures in 1927 and cities/towns in 1932.41 Demands for allocating additional funds to national and local development stimulated higher rates of increase in both national and local bonds purchases after 1925. Between 1925 and 1928, investment in national bonds rose 78 percent from ¥306 million to ¥543 million while local bonds doubled by an additional ¥200 million. Foreign national bonds fell sharply juxtaposed against rising national and local bond purchases. From a height of ¥408.9 million in 1920, purchase of foreign national bonds plummeted to ¥ 12.3 million in 1928. In the immediate post-1925 reform era, large payouts for special banks and company bonds and loans continued to grow (Table 4). The misuse of loans by the Terauchi government precipitated transformation in the nature of loan disbursements via the Deposits Bureau and ultimately through postal savings. By increasing the scope of loans to prefectures and smaller urban centers, a subsequent rise in loans was legitimized. Public opposition had been quelled while the Deposits Bureau continued to play a vital role in government financial policy. 4 1 Teranishi, 1995: 162-164. 30 1.9 Deficit Financing out of Postal Savings Contrary to the experience of other major powers, Japan did not reinstate the gold standard following the First World War. In response to external pressures for the granting of foreign loans, Minister of Finance, Inoue Junnosuke returned the yen to the gold standard on January 11, 1930. Inoue was compelled to pursue greater exchange stability by lifting the gold embargo. Domestic prices would be tied to world prices under the gold standard. However, reversion occurred during the global economic depression sparked by the crash of the New York stock market in the fall of 1929.42 The Great Depression intensified the despondent state of the Japanese economy. Pegging the exchange rate to the gold standard constituted a deflationary policy. The culmination of these two events depressed the prospects of the industrial landscape. Japanese exports suffered a dual blow by a reduction in global demand for manufactured products and the appreciation of the yen by the gold standard. Both circumstances imposed export obstacles for Japanese business. Adversely, fierce opposition erupted over Inoue's decision to peg the yen to gold culminating in the reversal of his monetary policy. On December 13, 1931 Finance Minister Takahashi Korekiyo took the yen off the gold standard. Consequently the foreign exchange value of the yen fell sharply, effectively lowering the price of exports. In response, a surge in exports to other Asian countries came at the expense of a depreciated currency. The average exchange rate of the yen for one U.S. dollar fluctuated ¥50.63 ¥40.75 in the 1919-1931 period. Following the abandonment of the gold standard by Takahashi, the rate dropped from ¥48.87 to ¥28.12 from 1931 to 1932.43 The severely weakened terms of trade compounded by Takahashi's response to the economic depression in Japan. Deficit 4 2 K o k u s h i D a i j i t e n H e n s h u I i n k a i , 1 9 7 9 : 7 5 6 - 7 5 7 . 4 3 H o n m a , 1 9 9 9 : 7 7 . 3 1 financing was unleashed through increased military spending. The MOF resorted to covering the fiscal deficit by the Bank of Japan's purchase of newly issued national bonds. Funds from the Deposits Bureau were enlisted to finance a significant portion of these bonds.44 A corresponding rise between 1932 to 1934 from ¥ 1,093 to ¥ 1,614 million effectively doubled the purchase of national bonds in the three year period of 1929 to 1932 (Table 5). The injection of postal savings funds into deficit financing failed to spark outbursts from disgruntled citizens similar to that produced by the Nishihara loans scandal. 1.10 Postal L i fe Insurance and Postal Pension Plan Strengthening the capabilities of the Japanese government to finance a range of projects induced the establishment of two additional services through the post office: Postal Life Insurance (1916) and Postal Pension Plan (1926). These entities reinforced the contributions of postal savings for the conducting of government financial policies.45 Allocation of Postal Life Insurance (PLI) and Postal Pension Plan (PPP) funds were analogous to that of postal savings in the Deposits Bureau. Comparable to the Deposits Bureau, areas of intensive investment were loans to public institutions and local and national government bonds. However, no funds were dispersed for the purpose of special bank and company bonds. In addition, only a fraction of the overall funds in PLI and PPP were deposited into the Deposits Bureau in the 1930s (Table 6). Administration over PLI fell under the Ministry of Communication; furthermore the ministry established a committee on the investment of Postal Life Insurance funds, Kani seimei hoken seikiritsukin unyo iinkai.46 The Ministry of Communications sought to Johnson, 1982: 120. Ande rson , 1990: 69. Takehara , 1988: 145. 32 maintain control over the investment function of PLI explaining why only a small portion of these funds were deposited in MOF's Deposits Bureau. The decision to place postal savings under the Deposits Bureau in the accounts of the National Treasury in 1885 occurred ten years after the savings regime's inception.47 In the incidence of both PLI and PPP, neither experienced such an immediate massive shift of their funds to the Deposits Bureau. During the 1930s deviation of funds to the Deposits Bureau steadily declined contrary to sustained growth in the value of these funds. From a decade high of ¥ 8 6 million in 1933, contributions to the Deposits Bureau fell to ¥ 7 million in 1939 (Table 6). Concomitantly a lack of transparency over the direct amount deposited exists. The above figures include cash on hand maintained within the PLI and PPP agglomerated account. One reason for this occurrence is to address the increase in consumption needs of the account's customers. Comparable to postal savings, PLI and PPP are pools of public funds. The holding of cash on hand is necessitated in respect to a positive change in individuals' consumption behaviour who invest in either or both the post office's insurance and pension programs. Nevertheless, a pervasive dichotomy in funds collected from PLI and PPP opposed to postal savings attests to entrenched accounting practices under the MOF. In an era of increasing military control over government finances, the respective funds in these two accounts remained highly detached. 1.11 Prioritization of Public Savings under Military Leadership Over the course of the 1930s MOF lost considerable influence in bureaucratic leadership. After the establishment of Manchukuo in March 1932, military influence over budgetary spending systematically clashed with that of the MOF. Ambitions to Min i s t r y o f F inance, 1998: 2. 33 expand the Manchurian Incident in 1935 threatened to enact inflation brought on by an increase in the budget. On the offensive, Minister of Finance Takahashi Korekiyo attempted to impose reductions on both the military budget and government bond issuance. His subsequent assassination on February 26, 1936 by junior army officers marked an essential surrender by the MOF to demands for increased military expenditures.48 From this point onwards until the end of the Second World War, finance ministers had an intimate relationship with the military. The most attractive savings option offered by the PSS commenced on September 13, 1941. Fixed-amount postal savings, teigaku yubin chokin, presented a flexible ten-year savings deposits program with a fixed interest rate and a no penalty withdrawal after the initial six-month deposit period.49 Securing public savings for investment into the war effort acted as primary motivator for instituting this form of postal savings account. Already engaged in a protracted war with China since 1931, Japan was preparing itself for a future conflict with the United States. The resulting rise in military expenditures necessitated an increase in domestic savings to help finance an expanded war effort. The Prime-Ministership of Tojo Hideki from October 18, 1941 - July 21, 1944 embodied the pinnacle of military dominance over politics and economics. Tojo appointed Kaya Okinori as the 48th Minister of Finance under his first cabinet of October 18, 1941 - February 18, 1944.50 Kaya previously served as finance minister under the first Konoe Fumimaro Cabinet (June 4, 1937 - January 4, 1939). In 1938 he was appointed director of the Northern China Development Corporation (Kitashina Kaihatsu Sosai). Under the Tojo cabinet Kaya tightened central control over the 4 8 Yoshino, 2002: 45. 4 9 Shigematsu, 2001: 77-78. 34 economy. Furthermore, he assumed the role of financial supervisor of the Greater East Asia Co-Prosperity Sphere economic community of vanquished territories established in November 1942. The pressing demand to conduct extensive financial policy for the war effort stimulated initiatives to raise taxation and savings rates.51 Kaya's leadership mobilized postal savings and the Deposits Bureau to new heights. Concurrently, the PLI and PPP account witnessed the start of an unprecedented shift of funds to the Deposits Bureau. As a result, the MOF extended its jurisdiction over the funds from services offered through the post office. Consolidation of post office services' funds commenced under Kaya's tenure at the MOF. In 1943 funds from the PLI and PPP began to shift substantially to the Deposits Bureau. The wartime government initiated a special wartime measures act to integrate PLI and PPP funds into the Deposits Bureau, thus transferring substantial administrative control of these funds over to the MOF. 5 2 ¥ 1 million was transferred to this account in 1942 while the following year marked a jump to ¥462 million. This rapid increase was not the result of a fixed rate at which funds would be transferred out of the account. In contrast, PLI and PPP funds in the same two years rose by a much more modest amount ¥ 3 billion to ¥3 .8 billion (Table 6). No clear delineation exists in the separation of funds for either direct deposit in the Deposits Bureau or for cash on hand purposes in the "Deposits with Deposits Bureau and Cash on Hand" column in Table 6. It is possible that Kaya initiated a snowballing of funds for cash on hand during wartime for emergency purposes. If this were the case, the immediate post-war period would have witnessed a decline in this column. Notwithstanding, the share of PLI and PPP funds rose consistently from 0.03 percent to 91.2 percent from 1942 to 1952 (Table 5 0 Website of the Prime Minister of Japan and his Cabinet. 22 Mar. 2003 <http://www.kantei.go.jp/jp/rekidai/kakuryo/40.html>. 5 1 Moriki etal., 1988: 692. 35 6). Evidently a fundamental revision to the conducting of government fiscal policy out of trust fund accounts had occurred. The sheer size of postal savings greatly overshadowed the rising contributions of funds from other post office services into the Deposits Bureau. During wartime, consolidation of postal funds into the Deposits Bureau represented a concerted effort to centralize channels to intervene into the economy. The Deposits Bureau reached its zenith as of a percentage of overall bank deposits near the end of the Pacific War (1937-1945). Finance Minister Kaya's efforts to raise savings for war financing corresponded to a doubling of postal savings since his appointment as minister of finance in 1941. Between 1941 to 1943, postal savings doubled from ¥9,975 million to ¥ 18,973 million. Subsequently, Deposits Bureau funds rose from ¥ 12,378 million to ¥27,217 million. National bonds were the largest beneficiary of this sharp rise in funds due to extended financing for the war effort; more than doubling from ¥8,129 million to ¥20,266 million (Table 5). Kaya's probing of domestic savings for expansive spending stimulated the largest two-year increase in the Deposits Bureau out of national deposits. Through out the 1930s the account experienced stagnant growth out of overall national savings. Under Kaya's initiative, overall national savings were greatly consolidated into the Deposits Bureau from 31.3 percent to 48.3 percent (Figure 1). His wartime successors, Ishiwatari Sotaro, Tsushima Juichi, and Toyosaku Hirose continued this trend with the account peaking at 56.1 percent in 1944 (Figure 1). At the end of the Second World War, the Deposits Bureau represented over half of all national deposits highlighting the importance postal savings, pension and life insurance played in public finance and investment. Takehara, 1988: 145. 36 1.12 Rebirth of Public Finance and Investment out of the Post Office: 1945-1953 Rejuvenation of the government's intimate relationship with postal savings in the post-war period took shape in the creation of the Trust Fund Bureau in 1951 and the Fiscal Investment Loan Program in 1953. The United States occupation (1945-1952) initiated a decline in the prestige of the Deposits Bureau. Over the course of the occupation, the account fell from 54.9 percent to 23.5 percent from 1945 to 1953 out of overall national deposits (Figure 1). The ability to conduct extensive public investment for reconstruction was restrained by the Financial Adviser to the SCAP, Joseph Dodge. Dodge arrived in Japan on February 1, 1949 and met with Japanese Prime Minister Yoshida Shigeru to address the national budget. Yoshida submitted a proposal for a balanced budget along with a special account running a deficit to cover national bond issuance for public investment into the national railroads and communication. Dodge returned a carefully scrutinized balanced consolidated budget, including all budgets.53 Dodge initiated an anti-inflationary policy directed at over balancing the national budget having the effect of terminating over-loaning practices by public institutions.54 The occupation offered opportunities to revise postal banking. Inter-ministerial debate, reminiscent of that witnessed in the late 19th century, resumed over control of the funds. The former Ministry of Communications (Teishinsho), renamed as the Ministry of Posts and Telecommunications (Yuseisho), desired to gain administrative control from the MOF over the investment function of postal pension and life insurance. With the support of countless politicians, the Ministry of Post and Telecommunications' (MPT) labour union, Zentei, and commissioned postmasters across Japan, the Liberal Party decided on July 25, 1950 to retain control over postal life insurance and pension Sugi ta and Thorsten, 1999: 28. Johnson, 1982: 190-191. 37 funds to the MPT. Shortly there after, SCAP (Supreme Commander of Allied Powers) announced its preference for administration over and investment of all funds collected at the Japanese post office to be tunneled through the MOF for economic reconstruction efforts.55 SCAP's decision to insist the MOF to acquire control over investment of postal funds under rested heavily upon the application of political pressure by Ikeda Hayato. Ikeda rose in prominence within MOF to become the undersecretary to Finance Minister Ishibashi Tanzan in the first Yoshida Shigeru cabinet in 1947. The short term of Ashida Hitoshi as prime minister in 1948 culminated in a setback to Ikeda's career. However, the ushering in of the third Yoshida cabinet marked Ikeda's promotion to Minister of Finance in 1949. Ikeda held this position for the next three years and eight months.56 Ikeda successfully lobbied on behalf of the Deposits Bureau to enlist funds from Postal Savings, Postal Life Insurance and Postal Pension Plan for reconstruction efforts. On March 31, 1951 the account was abolished and funds were deposited into a new account, the Trust Fund Bureau (Shikin Unyobu). By creating this account, Ikeda effectively steered funds collected through the postal savings, insurance and pension plan on the path to economic reconstruction by the 1951 Trust Fund Bureau Law. 5 7 Postal savings reemerged as an instrumental tool of public savings and government financing. The Trust Fund Bureau (TFB) incorporated postal savings for the first time with welfare pensions, national pensions, and other trust funds. After occupation forces left Japan in 1952 concerns over control of postal funds were addressed by the National Diet. To quell ministerial rivalries, a decision was passed down to grant joint jurisdiction over postal funds to the MOF and the MPT. In R o s e n b l u t h , 1 9 8 9 : 1 7 2 - 7 3 . K o k u s h i D a i j i t e n H e n s h u I i n k a i . 1 9 9 3 : 4 7 4 . T a k e h a r a , 1 9 8 8 : 1 1 0 - 1 1 . 38 the following year Japan regained control over its finances following the end to occupation and suspension of U.S. aid; the Fiscal Investment Loan Program (FILP) was 58 established and adopted the Trust Fund Bureau as its primary financial account. The foundations of the FILP are an extension of financial policies modeled upon the tradition of the Deposits Bureau. The FILP reaffirms the roots of government intervention in the economy through the heavy use of postal service funds. Symmetrical with the Deposits Bureau, FILP receives its funding largely from the services offered by the Japanese post office: postal savings, postal transfer savings, and postal life insurance. In building upon the legacy of the Deposits Bureau, FILP is distinct from spending out of tax revenues in that the government borrows funds to meet a range of policy objectives. Spending through the Deposits Bureau and its post war offspring, FILP necessitates repayment of the principle and the incurred interest on a loan. In size and scope, the amassed and diversified investment of funds came to constitute a supplementary national budget stimulating a deepening of governmental fiscal involvement in the-economy. The establishment of the FILP will be discussed in more depth in the following chapter. 1.13 Conclusion Maturity of the PSS between 1875 and 1900 developed alongside inter-ministerial debate in the 1880s concerning the administration and use of these funds. By the end of the 19th century, Maejima Hisoka's vision of the system as a stable savings pool in which government financial policy could be conducted, as well as a social safety net for low-income citizens to deposit savings, had been achieved. Monopolization of the PSS by wealthier clients was reversed following the Sino-Japanese War. This Rosenblu th , 1988: 174. 39 reversal resulted from the expansion of the financial sector and subsequent increase in savings and investment options for the general public. The development of a modern, unified, stable and widespread financial system in 19th century Meiji Japan was fundamental to the parallel growth of postal savings. The creation and promotion of the PSS in the late 19th century demonstrated a concerted effort to raise funds for the industrialization and modernization of Japan through the domestic savings regime. In an era of intense pressure on Japanese financial institutions to finance industrialization and modernization, development of the PSS underscores the adversities the nation faced in establishing a stable savings regime. In the first half of the twentieth century, funds accumulated by postal savings were directed towards industrial modernization and reinforcement of the banking system. The development of Postal Life Insurance and Postal Pension Plan augmented the contributions of postal savings to the pools of national savings within which the government conducted financial policy. Contributions from the Deposits Bureau constituted a large source of financing for banks and companies for both national and colonial economic development. Dynamic growth of postal savings as the largest contributor to the account coincided with varied uses of funds for both legitimate and illegitimate investment purposes. In the savings regime's maturing years of the early twentieth century, the system was employed in attempts to mask the indiscretions of politicians. Through his personal secretary, Nishihara Kamezo, Prime Minister Terauchi extended loans to Chinese warlords. When the warlords defaulted on these loans, the PSS was sought to cover the resulting losses to intermediary special government banks. This policy highlighted the first incidence of political abuse of the PSS. As the Japanese Empire expanded, military and colonial enterprise financing necessitated a diverting of funds towards these efforts. Increasing military control of the 40 economic and political arenas culminated in advancing dependency upon the PSS to address growing government expenditures. In a state of national mobilization for a sustained war effort, high savings rates were prioritized, inducing a rapid expansion of postal savings funds and subsequent boom in the Deposits Bureau account. Higher concentrations of funds collected from the services offered through the post office were placed into the Deposits Bureau. The immediate postwar period witnessed a continued consolidation of postal funds in the Deposits Bureau. Concomitantly, a sharp decline in the prestige of the Deposits Bureau occurred under United States occupation. Rejuvenation of the government's intimate relationship with postal savings in the post-war period took shape in the creation of the Trust Fund Bureau in 1951 and the Fiscal Investment Loan Program in 1953. The foundations of the FILP are an extension of financial policies modeled upon the tradition of the Deposits Bureau. The FILP reaffirms the roots of government intervention in the economy through the heavy use of postal funds. By 1953, the government's use of postal savings demonstrated their capacity for economic gains but also revealed their potential for political abuse. 41 Chapter II Establishment of the Fiscal Investment Loan Program and Tanaka Kakuei's Creation of a Protective Shell over the PSS: 1953-1973 2.1 Introduction Revitalizing an extensive public finance and investment regime in the postwar period was congruent with the new priority to rebuild the Japanese economy. As a contribution to public finance, the PSS continued to expand. On the investment front, the creation of the FILP in 1953 provided a formal organizational framework by which the government continued to invest in the economy. In its first twenty years, the FILP invested in various government projects to fulfill industrial policy and, increasingly, welfare objectives. Industrial policy, as Johnson (1982) and Noguchi (1982) pointed out, was instrumental in economic development of the 1950s and into the 1960s. As a large source of finance for the FILP, postal funds (postal savings, postal life insurance, and postal pension plan funds) constituted a formidable source of financial resources upon which the Japanese government relied. These funds had the effect of strengthening the weight of public investment directives. Over the course of two decades characterized by high economic growth rates, the FILP budget and the PSS aided economic recovery. Newly emerging institutional arrangements surrounding the PSS and the FILP took root in the 1950s, 1960s and into the early 1970s. In this chapter the relationships of internal and external participants to the PSS and FILP are examined in order to highlight the interdependency between formal and informal structures in public finance and investment decision-making. Rational and institutional organizational system perspectives inform the analysis on institutional arrangements surrounding the PSS and the FILP. Participants are linked with one another through the existence of complex informal systems as well with others external to the official boundaries of the 42 organization.59 Linkage with the Japanese post office, as a primary source of finance for the FILP, fostered reciprocal informal relationships between politicians, bureaucrats, and commissioned postmasters.60 On the ministerial front, the MOF dominated decision-making regarding investment of funds collected at the post office. The roles of two other primary participants to the PSS would however increase. As the ministry maintaining authority over the network of post offices across Japan, the MPT sought to strengthen its role as an internal participant in the promotion of public finance and investment. Concurrently, the political attractiveness of the extensive commissioned post office system was to be capitalized upon. The position of the PSS as an expanding pool of financial resources for public investment via the FILP underscores the potential for it to be wielded as a tool for political power and prestige. Tanaka Kakuei, an ambitious politican from Niigata prefecture, advocated an expansionary fiscal policy targeting urban planning and redevelopment. Commencing with his tenure as Minister of Post and Telecommunications, Tanaka led an initiative to safeguard and strengthen the institutions of the PSS and the FILP. A reciprocal relationship flourished between the commissioned post office, Tanaka's support base, and ultimately the LDP. 2.2 Debate over Administrative Control of Postal Funds Establishment of the FILP in 1953 corresponded to an expansion of public finance and investment out of the services offered by the Japanese post office. The FILP 5 9 Selznick, 1948: 25. "Commissioned Postmasters" refers to the chairmen of commissioned post offices. These individuals were predominately from well-established local families who ran the largest network of government post offices across Japan. Calder, 1990: 47-48. 43 was inaugurated to utilize public funds, including postal savings funds, to meet the demands for postwar reconstruction. State investment of these resources in the economy steadily increased with the rise of postal savings, the largest contributor to the FILP. Table 8 illustrates the liabilities of the TFB and the FILP between 1953 and 1974. In 1953 the contributions from postal savings, pension and life insurance accounted for 75 percent of the liabilities of the TFB. Consequently, postal savings provided the largest and most reliable source of financing at over half of the total funds deposited in the TFB (Table 7). With the TFB under the jurisdiction of the MOF constituting the largest contributor to the FILP, it is evident that Japanese postal savings play a significant role in the collection of funds for public investment in the economy. The creation of a new organization by which to conduct public investment stimulated debate between the MOF and the MPT over the financing of FILP. Previously, the U.S. occupation reaffirmed the MOF's authority to maintain administration over investment of postal savings, pension, and life insurance for reconstruction efforts.61 The restraints placed on national spending by the Financial Advisor to Supreme Commander for Allied Powers (SCAP), Joseph Dodge, had effectively halted the inflationary spiral Japan experienced during the early stage of U.S. occupation. Dodge effectively cut governmental subsidies and loans through such public institutions as the Reconstruction Finance Bank6 2 in his prioritizing of overbalanced consolidated budgets63 to eliminate inflation.64 When the occupation ended in April 1952, Japan set out on the path to extensive public investment and 6 1 Rosenbluth, 1989: 172-73. 6 2 The Reconstruction Finance Bank was created on January 24, 1947 as one of the public banks created to help finance the rebuilding of the Japanese economy. Arisawa, 1976: 286-289; Johnson, 1982: 179. A consolidated budget includes general and special budgets, and budgets of other gov't-related institutions, as well as local governments. 64 Sugita and Thorsten, 1999: 28. 44 finance. After Japan regained control over its finances, issues concerning public finance and investment were immediately reassessed. The integration of postal savings, pension and life insurance into the TFB sparked considerable debate between the MOF and the MPT. The Japanese government and the MOF advocated for the integration of funds into the TFB to guarantee a low interest lending rate structure by which FILP investments would be facilitated. Integrating postal pension and life insurance into the TFB would prevent greater transparency of debt surrounding investment of postal savings, through the use of a unified low interest rate applied to all investments.65 From the MOF's standpoint, unifying the sources of finance from the post office at the same low interest rate would enact an effective formal organization by which to conduct public finance and investment. However, the MPT lobbied for acquisition of complete administrative control over postal pension and life insurance from the MOF. Administrative control of postal savings had fallen under the MOF since 1878 when the Deposits Bureau inherited responsibility for investment of these funds.66 The justification for division of postal pension and life insurance funds from that of postal savings would provide the MPT with an increase in autonomy from the MOF. Ultimately, the MPT voiced its concern over the investment directives of the TFB. The MOF sought to funnel TFB funds into the FILP for the pursuit of industrial policy in close concert with the Ministry of International Trade and Industry's (MITI) Enterprise Bureau.67 The MPT was dissatisfied with the lack of emphasis on regional investment and wanted to utilize postal pension and life insurance funds for investment into localities.68 Takehara, 1988: 152. Cargill and Yoshino, 2000: 209. Johnson, 1982: 210. Takehara, 1988: 152. 45 In the first half of 1952, a compromise was temporarily reached between the MOF and the MPT. With the support of both governing and opposition parties, the Law Regarding the Investment of Postal Pension and Life Insurance Funds (Kani Seimei Hoken oyobi Yubin nenkin no Tsumitatekin noUnyo ni kansuru horitsu) was passed on May 10, 1952.69 The MPT gained control over postal pension and life insurance; however MOF retained a strong degree of administrative intervention over the investment decisions surrounding these funds. On December 24, 1952 a revision to the May law further increased the MOF's influence in local investments through postal pension and life insurance by the mandated intervention of the Trust Fund Bureau Council (Unyobu Shingikai), in local finance decisions.70 In light of this inter-ministerial debate, examination of the dual contributions of postal pension and postal life insurance in Table 8 is more clearly understood. Within the FILP budget, these funds fall under the direct jurisdiction of the MOF in the TFB with a second category falling outside the TFB. The second category provides recognition of the compromise reached between the two ministries. Over the course of the 1950s the contributions outside the TFB rose steadily and eventually in 1962 overtook those deposited in the TFB (Table,7). However, a growing symmetry in the nominal amount of postal pension and life insurance deposits arose in the two categories. When contributions within the TFB began to increase again after 1965, the differences between these two areas narrowed. The existence of the two deposit categories of postal pension and postal life insurance demonstrates the MPT's ability to exert a degree of control over investment decisions. The FILP was shaped by the demands from the MOF and the MPT to prioritize both industrial and local investments. 154. 155. 4 6 2.3 Tanaka Kakuei and his Etsuzankai According to Endo Shokichi, the FILP as an institution was characteristic of state monopoly capitalism and became the single most important tool of public finance in Japan's postwar economic development.71 Local governments were targeted as a key area of investment out of the FILP's largest source of finance: the Trust Fund Bureau. Upon becoming the primary beneficiary of investments in the first half of the 1950s, local governments witnessed their share of TFB funds decline sharply from 45.2 percent in 1953 to 15.8 percent in 1974. During the same period, government agencies doubled their share of funds from 23.3 percent to 46.3 percent (Table 8). Regardless of this fundamental change, the share of TFB funds lent to the FILP rose substantially, accounting for 46.8 percent of FILP funds in 1953 and 75.9 percent of funds in 1973 (Table 8). The percentage reduction in Trust Fund Bureau allocations failed to unseat local governments as the largest beneficiary of FILP funds. Local governments commanded a strong lead over the next largest recipient, Japanese National Railways (JNR). From 1953 to 1973 FILP investment in local governments rose from ¥129.2 billion to ¥1,262.9 billion compared to JNR from ¥22.6 million to ¥844.1 million (Tables 9 and 10). However, it is misleading to focus solely on the "local government" category in Tables 9 and 10 to determine the level of investment directed at localities. Finance and public corporations that receive financing from the FILP engage in numerous projects across Japan, which create positive externalities for local governments. JNR in itself presents a case for investment into railroad lines across the Japanese archipelago with inherent benefits to the regions through which these lines pass. While the MOF 7 1 Endo , 1968: 179. 47 increased its power over decision making in regards to investment of postal savings, postal pension, and postal life insurance, local autonomy in these investments suffered.72 Decisions regarding JNR projects demonstrate the significant involvement of local and national government actors in addition to other participants. To secure railway contracts, the case of Niigata prefecture in northwest Japan presents a compelling argument for the importance of informal relations with internal and external participants to the FILP. Tanaka Kakuei, the chief architect of postwar Japan's fiscal investment, was elected for the first time as a member of Parliament from Niigata in the April 1947 election. Applying his first hand knowledge and expertise in the construction industry to politics, Tanaka set out on a legislative path to land development.74 On June 28, 1953 he officially established the "Association for Crossing the Mountains" (Etsuzankai) in the Niigata town of Kamo as a vehicle by which to lobby for public works spending in 75 • • • his native prefecture. Designed as a political support movement to develop Niigata prefecture, he steered the organization to become a formidable political machine. Tanaka successfully lobbied for road construction, railroad, tunnels and dam projects for Niigata. In 1961 he was appointed as the Chairman of the Policy Affairs Research Council of the LDP (Jiminto Seichokaicho) assuming a considerable degree of influence Takehara, 1988: 155. 7 3 Schlesinger, 1999: 34. 74 In his capacity as a subcontractor to the military industrial complex, the Riken Industrial Group, Tanaka was involved in the business and construction plans of factories. After he married his wife Hana Sakamoto in March 1942, Tanaka took over her late father's construction company, Sakamoto-gumi, and merged it with Tanaka's small company established in 1937, Kyoei Architectural Office. This act culminated in the creation of Tanaka Civil Engineering and Construction Industries, or Tanaka Doken. In the following year, Tanaka Doken became the top 50th construction company in Japan. Huziker and Kamimura, 1995: 41, 44; Kobayashi, 1980: 27; Schlesinger, 1999: 29. 75 Tanaka employed the aid of a friend whom he served with in the army during WWII, Seiji Takano, along with Jiro Kikuta and the vice-mayor of Kamo, Seihei Watanabe, to transform a Kamo village based Tanaka fan club and others into a Niigata development policy lobby group. The name given to this policy group was Etsuzankai. Hunziker and Kamimura, 1995: 60. 48 over the national budget.76 His first priority was the twinning of the Joetsu Tokyo-. . . 77 Nngata rail line in the early 1960s. In 1962, Prime Minister Ikeda Hayato appointed Tanaka as Minister of Finance. A three-year tenure at the MOF demonstrated his ability to establish control over bureaucrats and accelerate public finance for transportation and construction purposes. Likewise, the strength of his political faction within the LDP permeated into the Ministry of Construction. Between 1967 and 1970, three of the six Ministers of Construction came from his faction, and from 1970 to 1976 all seven were considered close associates of Tanaka.78 With this substantial political clout, Tanaka successfully convinced top JNR officials to expand the preexisting bullet train (shinkansen) network to Niigata. The Niigata shinkansen line was the costliest venture on JNR at an average cost of ¥ 6 billion per kilometer over the course of its 11-year construction (1971-1982). 79 Subsequently, JNR plunged into debt. The sharp rise in the contributions to the "Japanese National Railways" and "Japan Railway Construction Corporation" rows in Table 10 from 1971 to 1973 indicate the effect that interest groups had on public works projects like the Niigata shinkansen within FILP investments. The first half of the 1970s coincided with Tanaka Kakuei's tenure as prime-minister (1972-1974) and his advocacy of the development policy covering the "General Principles of Urban Policy" outlining 80 directions for transportation and communication network improvements. Tanaka presents a strong case for the role of participants in shaping an organization by the set of values, interests and abilities they bring with them. The Etsuzankai provided the motivation for him to establish railways as a key element in his vision to stimulate 7 6 In 1961 Tanaka was also appointed to the Railroad Construction Council. 7 7 Kobayashi, 1979: 76. 78 Johnson, 1986: 9. 79 Schlesinger, 1999: 104. 8 0 Tanaka, 1973: 115-116. 49 regional development across Japan. The sharp hikes in investments in JNR and Japan Railway Construction Corporation can therefore be understood as personal interests influencing the flow of FILP investments. The construction of the Niigata shinkansen represents the debate surrounding the public financing of local infrastructure projects. Applying a cost benefit analysis approach highlights the incredible costs incurred to Japanese citizens via public savings and taxation. However, the basis of Tanaka's argument for the line supports the premise of public finance and investment serving a role to spread economic development to all regions of Japan. The Etsuzankai constituted the basis of Tanaka's claim for the Niigata shinkansen line. This organization operated outside the MOF and the MPT; but Tanaka succeeded in bringing it into the fold of benefits arising from FILP investment directives. A rational systems approach would fail to credit the informal role of external participants in shaping investment decisions. The policies, programs and procedures of an organization are enforced by public opinion, and, more importantly, by the views of participants with particular interests.81 The Estuzankai demonstrates the relevance of an institutional theory approach in the manner of internal and external participants contributing to decision making. The Etsuzankai embodied the personal charisma of Tanaka Kakuei. This constituted an invaluable, individual resource that he wielded to gain acceptance for his advocated public works projects. 2.4 Informal Politics through the Commissioned Post Office Tanaka's success in having the Niigata shinkansen built reflects the role individual participants play in creating informal structures within an organization. The establishment of the Etsuzankai in 1953, near the beginning of his political career, 1 Meyer and Rowan, 1977: 343. 50 demonstrated the priority he placed upon working arrangements that aimed to promote public investment and finance ventures in Japan. The postwar relationship with the United States provided a fertile environment within which Tanaka established his priorities. In the wake of post-war defeat and the signing of the U.S. - Japan Security Treaty, the United States dictated much of Japan's foreign policy. In effect, the U.S. removed issues of global stability and security from the Japanese political agenda. This environment was conducive to the growth of a political machine that elevated the importance of mundane government matters and public works.82 The absence of controversial issues allowed the government to attract a strong alliance of supporters and to focus on local administration instead of wider public policies. In 1957 Tanaka was appointed Minister of Post and Telecommunications, a position he held until 1960. In the same year, the commissioned post office (Tokutei Yubinkyoku) enjoyed an increase in political prestige due to the inauguration of a research group, the Committee of the Commissioned Post Office System (Tokutei Yubinkyoku Seido Chosakai)P Since its establishment in the late 19th century, the commissioned post office has continued to command a strong lead in its share of post offices across Japan. The commissioned post office system allows a select number of private individuals, postmasters, to operate government post offices autonomously under franchise-like arrangements. Post offices in Japan were historically divided into three categories: regular, commissioned, and simple function post offices (which commenced in 1949). In 1926 there were only 273 regular post offices compared to 8,511 commissioned post offices, while in 1973 there were 1,106 (regular), 3,763 (simple function) and 16,810 (commissioned). Commissioned post offices are divided 8 2 S c h l e s i n g e r , 1 9 9 9 : 1 4 - 1 5 . 83 " O g o r u Z e n t o k u n i S h i n o b i y o r u N a i b u H o k k a i n o A s h i o t o " [ In t h e F o o t s t e p s o f I n t e r i o r C o l l a p s e o f t h e A r r o g a n t N a t i o n a l A s s o c i a t i o n o f C o m m i s s i o n e d P o s t O f f i c e ] , Nikkei Bijinesu, J u n e 18 J u n e 2 0 0 1 : 3 4 . 51 into two categories depending upon the services provided: mail (shuhaikyoku) and non-mail services (mushuhaikyoku); non-mail service commissioned post offices address postal savings, postal pension and postal life insurance accounts. In 1936, the number of non-mail service outlets overtook mail-service outlets for the first time at 5,337 versus 5,198 outlets. After 1936 mail service outlets never regained their numerical lead. Since peaking in 1944, the number of mail service post offices steadily declined, while non-mail service post offices continued to increase.85 This presented a clear prioritization of non-mail services for the network of commissioned post offices. The overwhelming majority of commissioned post offices have an enormous impact on the manner in which the Japanese government conducts public finance through the post office. Since post offices are the collection centers for postal savings, postal pension and postal life insurance funds, the relationship between these entities and the central government is extremely important. In order for the central government to conduct public investment, it must rely upon the commissioned post office to attract a large portion of the pooled public funds for the FILP budget. As previously mentioned, the combination postal savings, postal pension and postal life insurance funds constitute the largest source of finance for the FILP. Upon assuming the portfolio of the MPT, Tanaka expanded the network and political benefits inherent in public finance and investment out of the services offered at the post office. While the network of commissioned post offices continued to grow, a deeply entrenched reciprocal relationship flourished between the post office and Tanaka's political faction and ultimately the LDP 8 6 . Under an electoral system characterized by an overrepresentation of the rural vote, the growth of post office Calder, 1990: 47. Ministry of Post and Telecommunications Administrative Statistics Department, 1975: 228. Inoguchi and Iwai, 1987: 203. 52 outlets in the rural setting provided the LDP with an incentive to rely upon the extensive post office network to attract a large share of the rural vote. After the merging of the conservative Liberal and Democratic parties, the 1958 election provided the first indication of the importance of the rural vote to the LDP since its inception in 1955. Between 1958 and 1972 while support for the LDP in metropolitan areas fell by 14.7 percent, it only dropped 5.4 percent in the rural areas. In the rural areas, conservative politicians were able to strengthen, more effectively, electoral support by manipulating and mobilizing the rural electorate to their cause.87 Abe et al. highlight the tendency for rural voters to be more likely to support conservative politics over their urban counterparts. Urban voters who had uprooted from traditional village society adopted new social relationships in cities. Consequently, organizations who mobilized the conservative vote were less effective at recruiting urbanites that tended to be non-Q Q partisan or to display weak political party loyalties. An extensive network of commissioned post offices in the rural regions offered to strengthen support for the ruling party of Japan and public financing at the post office. 2.5 The Postal Affairs Group (Yuseizoku) Tanaka Kakuei fostered an informal relationship between the commissioned post office and the government's conducting of public finance and investment that is best explained by an institutional approach. Tanaka assumed a leadership position in postal affairs that extended beyond his tenure at the MPT (1957-1960). In recognition of the political influence chairmen of commissioned post offices held in their respective communities, Tanaka envisioned this group offering nationwide election support system Abe etal., 1994: 159. 8 8 Ibid. 53 for his political faction within the LDP. 8 9 Building informal political relations with commissioned post office chairmen (commissioned postmasters) would serve to strengthen and safeguard the role of post offices as a source of public finance. By using the growing strength of his faction within the LDP, Tanaka conceived the Postal Affairs Group (Yuseizoku) to represent the political and economic interests stemming from the Japanese post office.90 A reciprocal relationship flourished between the commissioned post office and Tanaka's faction, and ultimately the LDP. Postmasters secured votes within their neighbourhoods for electoral support of the LDP while their establishments acted as the collecting centers for postal savings, pension and life insurance funds transferred to and invested by the national government. The political patronage of the Tokutei Yubinkyoku was credited for securing countless numbers of votes at election time.91 The links of commissioned postmasters to local politicians' support associations 92 (koenkai) presented a strong case for the fostering of informal political ties. The LDP would be in the position to reciprocate political favours by dispersing FILP funds towards projects in localities. This would provide the LDP with considerable support in elections. 2.6 Direction of F I L P Investments: 1953-1974 Infrastructure Investment: 1953-1963 The allocation of loans out of the FILP in the 1953-1973 embraced two primary investment priorities: public infrastructure and industrial promotion. PSS funds, via the FILP, played an instrumental role in industrial recovery. The FILP budget provided 8 9 Rosenbluth, 1989: 177-78. 90 Inoguchi and Iwai, 1987: 204. 91 "Ogoru Zentoku ni Shinobi yoru Naibu Hokkai no Ashi oto" [In the Footsteps of Interior Collapse of the Arrogant National Association of Commissioned Post Office]. Nikkei Bijinesu, June 18, 2001:34. 9 2 Calder, 1990: 48. 54 crucial financing to capital-intensive sectors, such as the steel, shipping and coal mining industries. Simultaneously, infrastructure financing was prioritized as an essential key i 93 to economic growth. Diversification of FILP funds increased steadily over the course of the 1950s and into the early 1960s; with local governments remaining the top recipient of funds. In the face of scarce financial resources in the 1950s and 1960s, the central government prioritized administrative control to develop public infrastructure deemed essential for postwar economic development.94 JNR led the investment drive in transportation infrastructure followed by the Japan Highway Public Corporation, Tokyo Expressway Corporation, Teito Rapid Transit Authority, Hanshin Expressway Corporation and the Japan Railway Construction Corporation (Table 9).9 5 These six entities may be divided into national and locally focused ventures. JNR, Japan Highway Public Corporation, and Japan Railway Construction Corporation centered on national improvements while the Tokyo Expressway Corporation, Teito Rapid Transit Authority, and Hanshin Expressway Corporation were concentrated on regional improvements to transportation infrastructure. The Electric Power Development Company and Nippon Telegraph and Telephone Company (NTT) represented investments into electric power utilities and telecommunications infrastructure. While these two companies witnessed steady increases in their receivership of FILP funds, the Housing Loan Corporation and Japan Housing Corporation surpassed them (Table 9). In the postwar period, a high demand for housing, combined with the difficulty of low-income households obtaining loans for the purchase of homes, stimulated the creation of these two companies in 1950 and Noguchi, 1982: 129-32. 9 4 Lincoln, 2001:47. 95 The Teito Rapid Transit Authority was created in 1941 as the public segment of the Tokyo subway system. Johnson, 1982: 163. 55 1955 respectively.96 Strengthening the infrastructure base in Japan would benefit society on the whole by the provision of this public good. At the same time, domestic industries would gain access to an extensive network of transportation, electric and telecommunications infrastructure to smooth out the production process. Industrial Promotion: 1953-1963 Direct investment into industries by the FILP was facilitated through government financial institutions. The post office provided the primary fund collecting institution through postal savings, pension and life insurance while two banks and nine finance corporations acted as lending institutions.97 The two government banks were established in the early 1950s. On December 15, 1950 and March 31, 1951 the Export Bank (renamed the Export-Import Bank of Japan in April 1952 after the U.S. 98 Occupation ended) and the Japan Development Bank (JDB) were established. The Export-Import Bank of Japan offered to supplement the contributions of private financial institutions by providing financial aid to Japanese companies to help facilitate trade between Japan and foreign countries. The JDB provided long-term financing to promote and augment financing by other financial institutions for industrial and economic development purposes. The finance functions of the JDB are divided into four categories. First, development loans for projects overlooked by private financial institutions, loans to guarantee payment of funds for development projects, capitalization funds for the construction of industrial parks, and miscellaneous C a r g i l l a n d Y o s h i n o , 2 0 0 3 : 4 6 ; K o k u s h i d a i j i t e n , 1 9 9 0 : 1 9 0 . 97 T h e n i n e f i n a n c e c o r p o r a t i o n s i n c l u d e : t he H o u s i n g L o a n C o r p o r a t i o n , P e o p l e ' s F i n a n c e C o r p o r a t i o n , S m a l l B u s i n e s s F i n a n c e C o r p o r a t i o n , t he A g r i c u l t u r e , F o r e s t r y , a n d F i s h e r i e s F i n a n c e C o r p o r a t i o n , L o c a l P u b l i c E n t e r p r i s e F i n a n c e C o r p o r a t i o n , E n v i r o n m e n t a l S a n i t a t i o n B u s i n e s s F i n a n c e C o r p o r a t i o n , H o k k a i d o D e v e l o p m e n t C o r p o r a t i o n , a n d the O k i n a w a D e v e l o p m e n t F i n a n c e C o r p o r a t i o n . ( T a b l e 3 , 4 n o t e s ) ( M i n i s t r y o f F i n a n c e , 1 9 9 9 : 3 4 6 - 3 5 4 ) 9 8 J o h n s o n , 1 9 8 2 : 2 0 8 - 2 0 9 ; S u z u k i , 1 9 8 7 : 2 9 1 - 2 9 2 . 56 activities." These two banks served to fulfill industrial policy objectives set out by MITI. Since being renamed in April 1952, the Export-Import Bank of Japan targeted importers for financing on advance payments for commodity imports approved by MITI. The JDB, however, constituted the most important instrument of industrial policy. This Bank was placed under the administrative jurisdiction of the MOF while the MITI oversaw the granting of loan applications.100 At the end of the 1950s, these two government banks placed third and fourth as recipients of FILP funds, behind "local governments" and "Japan National Railways" (Table 9). The position of these two banks in the FILP budget highlights the significance of the MOF and the MITI coordination of industrial policy. 2.6.1 Maturity of Investment from 1964 to 1974 The 1960s marked increased investments in infrastructure and industry. First, the growing FILP budget prioritized transportation infrastructure. JNR strengthened its position as the second largest recipient of FILP funds in the early 1970s (Table 10). At the same time, the Japan Highway Public Corporation and the Japan Railway Construction Corporation allocations both surpassed those of the JDB. While the Japan Railway Construction Corporation lagged behind these entities in allocations, its share rose sharply between 1963 to 1974 further indicating the growing importance placed upon transportation infrastructure. During the 1950s the JDB and Export-Import Bank were upheld as the two most important instruments of industrial policy by MITI. In the 1960s and into the 1970s, these two banks continued to receive large portions of funding. However, their positions in the FILP budget fell. By 1974, the Export-Import Suzuki, 1987: 291-292. ' Johnson, 1982: 209. 57 Bank placed sixth while the JDB had fallen to ninth position as recipients of FILP funds. One decade prior, in 1963, they were in the third and fourth positions respectively (Table 9). The positional decline of the JDB and the Export-Import Bank of Japan highlights a strengthening of investments in public works with a declining preference for industrial policy conducted through the two government banks. Three financial institutions rose in stature and serving to stimulate growth in Small and Medium Sized Enterprises (SME) and housing. The Housing Loan Corporation, People's Finance Corporation and the Small Business Finance Corporation all recorded impressive hikes in their share of FILP funds between 1963 to 1974. These corporations grew in favour over the JDB and Export-Import Bank of Japan as the three prominent financial institutions in the FILP budget (Table 10). Originally the Housing Loan Corporation was established for the purpose of addressing housing shortages in the immediate postwar period. However, as Japanese industry established itself as a global player by the 1970s, FILP shifted its focus steadily towards social programs.101 The Housing Loan Corporation, along with the Japan Housing Corporation, raised their stakes in the financing and providing housing through the support of increasing FILP fund allocations. By the early 1970s, these two corporations had moved into the ranks of the JDB and the Export-Import Bank of Japan, with the Housing Loan Corporation surpassing the two government banks from 1972 onwards. The redirecting of investments towards social programs was accompanied by increased investment in SMEs. The People's Finance Corporation and the Small Business Finance Corporation 102 were established in 1949 and 1953 respectively to provide loans to SMEs. An increased shift in SMEs investments represented a departure from the objectives of 1 0 1 Cargill and Yoshino, 2003: 56-57. 102 . . . , . , Ibid.: 46. 58 MITI's Enterprises Bureau's Industrial Rationalization Council created in December 1949. This Council was instrumental in the transition to economic development in the 1950s and into the 1960s, a period dominated by heavy industries such as steel, shipping and automobiles.103 Heavy industries are predominately characterized by large firms. The increased focus on strengthening SMEs indicates a revision to the industrial policy investment directives laid out in the early 1950s for the FILP. From 1971, the People's Finance Corporation (5) and the Small Business Finance Corporation (4) overtook both the JDB and the Export-Import Bank of Japan to become the fourth and fifth largest recipients of FILP funds (Table 10). The reestablishment of heavy industries by the 1960s legitimized a shift towards increased support for SME growth in the FILP budget. The early 1970s presented a new direction for the FILP and inevitably postal banking in Japan. 2.7 Full Review and Approval of the FILP by the Diet Prior to fiscal year 1972, approval of the FILP by the Diet was only necessary for a small portion of its overall budget. Only the contributions from the national government's General Account of the budget and special accounts had qualified for review and subsequent approval by the Diet. 1 0 4 In its first four years, the FILP received marginal financing from the General account of the budget leading up to 1956, after which time no further contributions were made. Lending and investment by the Industrial Investment Special Account and a special account concerning Government-guaranteed bonds and loans provided long-term financing for the FILP (Table 7). As a percentage of the overall FILP budget, the above three were dwarfed by the growing contributions from the TFB. By 1973 the TFB provided over 80 percent of funds for the 1 0 3 Johnson, 1982: 40. 59 FILP budget (Table 7). The expansion of the FILP over the course of a successful twenty years in rebuilding Japanese economic strength brought it to a new stage in the early 1970s. In recognition of its enormous scale and influence in the economy, opposition parties to then Tanaka Kakuei's LDP successfully pressured for the full annual FILP budget to be presented to the Diet for approval. In March 1973 in the seating of the 71 s t Session of the Diet, the Special Measures Act for Long-term Appropriation of the Trust Fund Bureau Fund and Postal Life Insurance Reserves (Long-term Appropriation Act", Law No. 7 of 1973) was passed.105 The investment of TFB, postal life insurance, and postal pension funds for periods of over five years now required approval by the Diet. 1 0 6 After the adoption of this law, the FILP continued to grow as a formidable tool of fiscal investment in the economy. 2.8 Conclusion During the postwar reconstruction period, FILP investments focused on industrial policy in order to strengthen key industries and stimulate economic growth. This was reflective of the MOF and the MITI pursuing clearly established investment objectives. As the Japanese economy regained its economic footing, allocation of FILP funds shifted increasingly away from industrial ventures. In response, the positions of the Japan Development Bank and the Export-Import Bank of Japan as recipients of FILP funds fell from the early 1960s up to the early 1970s. As Japanese industry established itself as a global player by the 1970s, FILP investments shifted their focus steadily towards fulfilling welfare objectives. A declining preference for industrial Suzuki, 1987: 274. Suzuki, 1987: 274; Takehara, 1988: 237. Suzuki, 1987: 274. 60 policy gave way to a subsequent shift towards investments in housing, infrastructure and SMEs. In the early 1950s, ministerial debate regarding administrative control over postal funds between the MOF and the MPT resulted in a compromise between the two ministries. The MPT retained a separate account for deposits of postal pension and postal life insurance funds in the FILP outside the MOF's Trust Fund Bureau. This outside deposit account was administered by the MPT although the MOF maintained the right to intervene into investment decisions surrounding these funds. This situation demonstrates the shaping of public finance and investment out of the FILP arising from two ministries. This compromise is indicative of an institutional perspective on organizational theory. A rational perspective would have expected the MOF to consolidate all sources of public finance under its direct jurisdiction to enact a more effective organizational structure. However, the MOF exercised the right to intervene in the MPT investments of postal pension and postal life insurance outside the Trust Fund Bureau. This alludes to a rationalization of formalized roles with the MOF posing as the predominant ministry. Over the course of the 1950s, 1960s and into the early 1970s, the PSS and the FILP highlighted a new age of institutional arrangements. Interdependency between formal and informal relationships developed surrounding public finance and investment decision making. Consequently, Tanaka Kakuei was responsible for fostering an entrenchment of political and economic benefits in an expanding public finance and investment regime. Two notable examples of informal relations with internal and external participants to the FILP were Tanaka's Etsuzankai and informal political ties between the LDP and commissioned postmasters. 61 The establishment of the Etsuzankai in 1953, near the beginning of his political career, demonstrated the priority Tanaka placed upon working arrangements aimed to promote public finance and investment in Japan. This special interest group of Tanaka's was instrumental in lobbying for public works projects that the FILP budget assisted in financing. The overwhelming majority of commissioned post offices have an enormous impact on the manner in which the Japanese government conducts public finance through the post office. As post offices constitute the collection centers for postal savings, postal pension and postal life insurance funds, the relationship between these entities and the central government is extremely important. In order for the central government to conduct public investment, it must rely upon the commissioned post office to attract a large portion of the pooled public funds for the FILP budget. Tanaka assumed a leadership position in postal affairs that extended beyond his tenure at the MPT (1957-1960). In recognition of the political influence that chairmen of commissioned post offices held in their respective communities, Tanaka envisioned this group offering a nationwide election support system for his political faction within the LDP. 62 Chapter III Tanaka's Realignment of Political Power and his Faction's Defense of Postal Banking: 1973-2004 3.1 Introduction Since the early 1970s, the growth of the PSS has marked a decline in the validity of maintaining an extensive public finance and investment regime. This was contrary to its historical public finance and investment roles. The path of development of the PSS and FILP coincided with a decline in the productivity of capital. Consequently the level of domestic savings outstripped investment priorities. At the same time, the FILP underwent a transformation to a secondary budget encompassing a diversified investment portfolio. This chapter outlines the development of Tanaka Kakuei's considerable influence on the Japanese political landscape since the early 1970s. Commencing with his tenure as prime minister from 1972 to 1974, Tanaka advocated for hikes in fiscal expenditures in part to be financed by the FILP budget. Despite being implicated in a political scandal, Tanaka strengthened his position to become the most powerful individual in Japanese politics. According to Schlesinger (1999) Tanaka Kakuei rose to become a "shadow shogun" of Japanese politics, pulling political strings to accommodate his desires. Johnson (1986) highlighted the political corruption behind Tanaka-style money politics of the 1970s and 1980s. These two authors among others influence the analysis in this chapter. Tanaka's influence on the PSS continued far past his resignation as prime minister in 1974 and later from the LDP in 1976. Despite ceasing to be a member of the LDP, Tanaka steered the largest political faction within the party, in the pursuit of reinforcing his influence. Tanaka cemented the support foundations of postal banking for the next thirty years. 63 Seizing the opportunity to capitalize upon the expanding PSS and accompanying FILP budget, Tanaka sought to install a protective shell over the affairs of postal banking. Tanaka used the might of his political faction within the LDP and the Postal Affairs Group to promote and safeguard the PSS and FILP budget. His political maneuvers elevated the prestige and magnitude of public finance and investment in Japan. The realignment of political factions and consolidation of financial policy undertaken by Tanaka Kakuei brought to the forefront the compounding political and economic benefits as well as the impending costs arising from postal banking. The legacy of Tanaka's contributions to the promotion and protection of public finance and investment endured his personal downfall in the late 1980s. In the 1990s, the move to reform the PSS and the FILP were opposed by the institutions that had grown under Tanaka's leadership. The Postal Affairs Group and the National Association of the Commissioned Postmasters (NACP) continued to wield considerable influence in the political and economic affairs of Japan. The inability of the "Big Bang" financial reforms and successive initiatives to restructure fundamentally the PSS and the FILP underscores the strong political pressure against such reform. As of 2004, initiatives to reform the PSS and FILP have failed to establish the transparency needed in investment of PSS funds and the FILP budget. 3.2 Tanaka Kakuei and a New Era of Fiscal Investment: A New Direction for the PSS and FILP By the late 1960s recognition of the negative externalities of postwar Japan's rapid economic success had grown. In 1968, Tanaka Kakuei led the legislative drive to draft "The General Principles of Urban Policy" to effectively address issues concerning acute concentration of both population and industry along the Tokyo-Nagoya-Osaka 64 corridor, depopulation of rural areas, environmental degradation and public health.107 Tanaka rationalized expanding infrastructure investment for a number of reasons: to stem further population imbalances; to limit environmental deterioration; to achieve a higher standard of living; and to relocate industry across the Japanese archipelago. Foremost in Tanaka's mind was the amassing of resources necessary to finance his grandiose vision of remodeling such projects as the national transportation network. In his own words, "only the accumulations that come from economic growth through our (Japan's) own vitality can provide an adequate source of money for social welfare spending".108 During the high economic growth era of 1950 to 1973, the Japanese economy grew at an average annual rate of ten percent. Rapid productivity growth, technological development, and dynamic industrial transformation characterized this period.109 In periods of high economic growth, increased employment and industrial activity correspond to higher corporate and personal tax revenue for the national government. The central government also had the resources from the PSS and subsequent public finance funds allocated to the FILP budget. To realize his vision of a new Japan, Tanaka sought extensive financial resources from both the public and private sectors. Investment during a high economic growth period was desirable to maximize the financial capacity of economic players. Prior to his assuming the position of prime minister, in 1972, Tanaka consolidated his political support. He effectively acquired eighty percent of his supporters from the former Sato Eisaku faction (prime minister from 1964-1972). On May 9, 1972 he officially announced the formation of his own political faction and on July 5 t h beat rival Fukuda Takeo to become the president of the LDP and prime minister 1 0 7 Tanaka, 1973: 2-5. 1 0 8 Ibid, 62. 1 0 9 Cargill et al., 1997: 32. 65 of Japan. Both men had held senior positions in the Sato administration. Fukuda served as finance minister while Tanaka served as the Secretary General of the LDP and briefly as a successful MITI minister between 1971 and 1972.111 Tanaka's political faction was first known as the "Political Friends Society". This name was later changed to the Mokuyo Club, (The Thursday Club). His political faction was commonly labeled "Tanaka's gundan " (Tanaka army corps). His aggressive leadership capabilities and the loyalty of his followers combined to represent a political clique indicative of a tightly knit army unit. His charisma and his generous monetary handouts to faction members ensured Tanaka of the support he required to win the position of prime minister. On July 7, 1972 Tanaka assumed the post of prime minister, a position he held until November 26, 1974.112 Tanaka plunged into an inflation saddled early 1970s. The 1971 breakup of the Bretton Woods system of fixed exchange rates accompanied U.S. pressure for Japan to appreciate the undervalued yen. 1 1 3 In response, the central government relaxed restrictions on finance and subsequently raised fiscal expenditures. The new government of Prime Minister Tanaka advocated an expansionary fiscal policy based upon the inadequacy of available sources of funds to finance "the necessary social overhead capital improvements".114 Fiscal expansion is most often associated with concerns over fueling inflation and accruing balance of payment deficits. Tanaka stressed the existence of Japan's growing productivity capacity and accumulation of Suzuki, 2000: 95. 1 1 1 Hunziker and Kamimura, 1995: 83; Schlesinger, 1999: 63. 112 Liberal Democratic Party, 1999. 17 Jan. 2003 <http://www.jimin.jp/jimin/english/history/index.html>. 1 1 3 The Bretton Woods system of fixed exchange rates based on the convertibility of U.S. dollars into gold was established in 1944 lasting until 1971. Foreign governments and central banks maintained fixed exchange rates by intervening in the foreign exchange market by buying and selling U.S. dollar assets (Mishkin and Serletis, 2002:431-432). Japan resisted the revaluation of its currency due largely to the inherit benefits in the previous¥360 to US SI exchange rate. First, this rate was fundamental in assisting to postwar economic success. Secondly, the government desired to continue protection of export-based industries with a weak yen. The Tanaka administration bailed out industries that claimed to have been adversely affected by the capital liberalization arising from the dismantling of the Bretton Wood system. Cargill et al. 1997: 34; Johnson, 1982: 295. 1 1 4 Tanaka, 1973: 69. 66 large foreign currency reserves. By defending his policies, he virtually eliminated these concerns. Placing greater emphasis on balancing public finance over the long term, as opposed to annually balancing budgets, would not only lead to a richer social overhead, improved education and medical care, and faster technological development but also would act to stimulate further economic growth. Public investment into railways and road improvements would increase the availability of land and in turn provide opportunities for housing development.115 The onset of further inflation, induced by the 1973 OPEC oil crisis, pressured Tanaka to scale down some of his infrastructure projects under the auspice of "The General Principles of Urban Policy". 1 1 6 In response, Tanaka curbed his fiscal expenditures, but retained the foundations for cementing a new era of fiscal investment dominated by the influence of his political faction. Despite to protests from MOF officials, Tanaka demanded a ¥ 1.5 trillion supplementary budget for the 1972 fiscal year, as opposed to ¥ 180 billion advocated by the MOF. Upon meeting with the MOF Budget Director Aizawa Hideyuki and FILP director Hashiguchi Osamu in September, the ¥ 1.5 trillion supplementary budget was unveiled in October 1972. As a result, between 1970-1974 the FILP budget grew from ¥3,798,700 million to ¥9,457,800 million, its fastest rate since its inception. This represented a 249 percent increase. Under Tanaka's tenure as Prime Minister the PSS and FILP both posted their largest gains since the FILP commenced in 1953 (Table 7). The Tanaka government was able to rely on the PSS as an effective source of public finance for the FILP budget. The enormous advantage behind the PSS was that it enabled the government to borrow from, 1 1 5 I b i d : 6 9 - 7 0 . L i b e r a l D e m o c r a t i c P a r t y , 1 9 9 9 . 17 J a n . 2 0 0 3 < h t t p : / / w w w . j i m i n . j p / j i m i n / e n g l i s h / h i s t o r y / i n d e x . h t m l > . 1 1 7 S u z u k i , 2 0 0 0 : 9 7 . 67 and invest, preexisting public funds without reverting to expansionary monetary policy. This eliminated the effects of inflation. Between 1972 and 1974 the PSS, as a percentage of overall TFB funds, continued to rise steadily from 53.3 percent to 55 percent. At the same time, the TFB grew from 78.3 percent to 84.7 percent, the largest source of finance for the FILP (Table 7). During this time, the Housing Loan Corporation rose remarkably in the ranks of FILP budget. This government financial institution grew at the fastest rate amongst FILP fund recipients. By 1974, it had narrowed the gap between second place Japanese National Railways and far surpassed the growth of the fourth and fifth largest FILP recipients: the Peoples' Finance Corporation and the Small Business Finance Corporation respectively (Table 10). The availability of an ever-expanding source of public funds through the FILP provided Tanaka with an incentive to strengthen fiscal expenditures and expand the landscape of postal banking. Despite the 1973 opposition-led legislative decision to mandate Diet approval of the FILP budget Tanaka gained greater access to the FILP budget for LDP gains. Rising support for the Japanese Communist Party (JCP) gain enough support over the 1960s to capture the second place ranking among opposition parties in the 1972 election. This 118 corresponded to a growth of overall opposition to the LDP . Tanaka attributed the JCP's success to a small businesses organization, Zenkoku Shoko Dantai Rengo Kai (National Commercial Association Cooperative Movement). Growing membership in this organization motivated Tanaka to enlist the aid of MITI Minister Nakasone Yasuhiro to introduce low-interest loans to small business within the 1973 FILP budget. In association with Nissho, a pro-LDP business organization, no collateral loans were Abe etal., 1994: 117-119. 68 supplied through the People's Finance Corporation.119 Two FILP fund recipients specialized in small business loans: the Peoples' Finance Corporation and the Small Business Finance Corporation. Between 1972 and 1974, FILP disbursements to these two public corporations outpaced that of the Japan Development Bank, Export-Import Bank of Japan, Japan Housing Corporation and the Japan Highway Public Corporation. In 1973 and 1974 the two public corporations effectively overtook the latter four to become the 4 t h and 5 t h largest recipients of FILP funds (Table 10). Maurice Wright remarks that Prime Minister Tanaka inaugurated the "welfare era" of fiscal investment in Japan.120 In addition to the increased utilization of the PSS and FILP budget, Tanaka unleashed the first welfare budget, Fukushi Gannen Yosan in 1973. This budget called for tax cuts on ordinary wage earners and heightened welfare expenditures. Subsequently, welfare pensions rose by 50 percent, social security pensions increased, and a contributions-based ¥50,000 national pension system was established. In the following year a ¥ 2 trillion tax cut was introduced.121 During a time of high inflation, Tanaka's administration was characterized by rising fiscal expenditures and social security spending. The purpose of the welfare budget was to compliment his drive for fiscal investment and to minimize the negative externalities arising from the high economic growth era. 3.3 Maintenance of Tanaka's Influence On November 26, 1974 Tanaka Kakuei was forced to resign as prime minister. Controversies surrounding his huge expenditures for the July 1974 election and allegations of personally profiting during his tenure in office had driven him out. While 1 1 9 Calder, 1988: 318-319; Suzuki, 2000: 98. 1 2 0 Wright, 2002: 462. 121 Liberal Democratic Party, 1999. 17 Jan. 2003 <http://www.jimin.jp/jimin/english/history/index.html>. 69 serving as prime minister, Tanaka had accepted a ¥500 million, (US $1.6 million) bribe by Lockheed Corporation to pressure the Ministry of Transportation and Al l Nippon Airways to sign a US $430 million contract for purchase of Lockheed aircraft.122 Tanaka was subsequently arrested in 1976. Seven years later a guilty verdict was handed down.1 2 3 Despite his fall from grace, Tanaka managed to strengthen his political faction and the Postal Affairs Group. It is remarkable that Tanaka was able to strengthen his influence despite his resignation and disgrace from the LDP. In four Lower House elections of the Diet (House of Representatives), scandal-plagued Tanaka won landslide victories as an independent in his Niigata Third Electoral District in 1976, 1979, 1980 and 1983.124 These electoral victories coincided with the drawn out court proceedings and eventual verdict (October 1983) in the Lockheed scandal. The true indicator of Tanaka's enduring power in Japanese politics is the continuing influence of his political faction. Tanaka arranged for key members in his gundan to assume critical leadership roles in the LDP while he acted behind the scenes as the puppet master. Tanaka secured, for a member of his faction, the position of Minister of Post and Telecommunications in twelve out of sixteen cabinets between 1957 and 1982.125 Japan's three prime ministers from 1978 to 1987, Ohira Masayoshi, Suzuki Zenko, and Nakasone Yasuhiro all owed their success to Tanaka's gundan. In a show of gratitude for the pivotal support Tanaka's faction provided in LDP intraparty voting and its effective electoral tactics, the three prime ministers reciprocated when they formed their own cabinets. Four members of Tanaka's faction were appointed in Ohira's 1978 cabinet, six members in Suzuki's 1980 cabinet, and eight in Nakasone's 1 2 2 J o h n s o n , 1 9 8 6 : 1-2; S c h l e s i n g e r , 1 9 9 9 : 8 3 - 8 5 . 1 2 3 J o h n s o n , 1 9 8 6 : 1 5 ; S c h l e s i n g e r , 1 9 9 9 : 9 5 . 1 2 4 J o h n s o n , 1 9 8 6 : 1 7 - 1 9 ; S c h l e s i n g e r , 1 9 9 9 : 9 7 - 9 9 . 125 I s o g a i , T . , " J i m i n t o Y u s e i z o k u : T a n a k a - h a S h u j i k u k a r a S u s o n o h i r o g a r u S o z e i 3 0 0 n i n n o " K y o a t s u D a n t a i . " [ L D P ' s P o s t a l A f f a i r s G r o u p : E x p a n d i n g 70 1982 cabinet.126 Nakasone Yasuhiro's 1982 and 1983 cabinets were essentially dubbed the "Tanakasone cabinet" in light of the pervasive influence Tanaka continued to wield in the LDP political structure. Using the growing might of his faction within the LDP, Tanaka wielded the Postal Affairs Group to strengthen the political and economic interests surrounding public finance through the post office.127 To protect and further entrench the benefits of postal banking, Tanaka selected one of his top political lieutenants, Kanemaru Shin, to inherit the leadership role of yuseizoku, the postal affairs group.128 By handpicking his successor, Tanaka ensured that the reciprocal LDP-local support relationship he had fostered through the network of commissioned post offices would endure. It was during Yamauchi Ichiro's tenure as Minister of Post and Telecommunications under the Suzuki administration (1980-1982) that the Postal 129 Affairs Group was acknowledged to have existed for the first time. The structural framework of the Postal Affairs Group encompasses three groups. The first of these includes the Minister of Post and Telecommunications and possibly the parliamentary vice-minister. As previously noted, Tanaka was deliberate in exerting his influence to ensure that a loyal political supporter filled the rank of Minister of Post and Telecommunications. The Postal Affairs Committee within the LDP's Policy Affairs Research Council (PARC) constitutes the second group. Established in 1955, PARC serves three primary functions. PARC committees are a key element of policymaking in the Japanese government. First, they conduct intra-party discussion and generate outwards from its Foundation as a Tanaka Faction strong hold], Kinyu Bijinesu 16, (1986): 56; Rosenbluth, 1989: 178. 1 2 6 Schlesinger, 1999: 121. 1 2 7 Inoguchi and Iwai, 1987: 204. 128 Isogai, T., "Jiminto Yuseizoku: Tanaka-ha Shujiku kara Susono hirogaru Sozei 300 nin no "Kyoatsu Dantai." [LDP's Postal Affairs Group: Expanding outwards from its Foundation as a Tanaka Faction strong hold], Kinyu Bijinesu 16, (1986): 56 71 approval of proposed legislation before it is presented to the cabinet. Secondly, they provide opportunities for Members of Parliament (MP) to study legislative proposals while building relationships with civil servants. Lastly, PARC committees resolve 130 disagreements among branches of the bureaucracy regarding legislative proposals. Since the formation of policy in the 1970s party politicians have enjoyed a rise in their influence over civil servants. Abe, Shindo, and Kawato comment on the significance of LDP MPs aligning themselves in intraparty interest groups, zoku, to effectively strengthen their power over the bureaucracy. While Parliament had to the authority to write and pass laws, the nascent PARC of the 1950s lacked both knowledge and expertise in policymaking. Thus LDP politicians were largely dependent upon a highly skilled civil service. However over the years MPs acquired both expertise and influence in legislative areas. PARC committees became the primary sphere within which zoku MPs exerted their highest degree of influence.131 Tanaka acknowledged the importance of manipulating the civil service to his will. His primary advice to Nakasone Yasuhiro upon assuming office as prifne minister in 1982 was to "stay on top of the bureaucrats".132 As the number and size of zoku MPs grew, the policy planning capabilities of the LDP increased. Cultivating LDP politicians with expertise in budget-making procedure enabled the LDP to fill the ranks of the PARC with competent and assertive figures to erode the budget powers of the MOF. The third and last group making up yuseizoku entails the Diet's Communications Committee, Tsushin Iinkai.m Prior to the plenary session of the Abeetal. 1994: 126-127. 131 Ibid.: 127. 1 3 2 Johnson, 1986: 6. 1 3 3 Isogai, 1986: 57. 72 Diet, committees meet behind closed doors to reach a consensus prior to official proceedings in the Diet. 3.4 Advantages of the Postal Savings over Private Banks Maruyu Tax Exemption System and the Green Card Identification Card System In July 1975 the BOJ officially announced its new constrictive monetary policy. From 1956 to 1973 the annual money supply expanded between 15 to 30 percent. Over the course of the next ten years growth fell to just over 7 percent in 1983.134 Designed to control the steep hike in inflation induced by the OPEC oil shock, the BOJ policy had a positive effect on the FILP budget. The tightening of the accepted level of monetary expansion increased the reliance upon the PSS to eliminate inflationary effects of public investment. The tumultuous events of the first half of the 1970s boded well for the PSS. A decline from the high economic growth levels experienced in the two decades prior to the 1973 OPEC oil shock corresponded to increased pressures for households to seek out more attractive savings options. Japanese households responded in kind by shifting their deposits to postal savings accounts, attracted by their tax-exemption and relatively high yields.1 3 5 Japanese savers were entitled to deposit up to ¥ 14 million across four tax-free accounts: ¥ 3 million yen in a postal account, ¥ 3 million in a bank account, ¥ 3 million in government bonds, and ¥ 5 million (for salaried workers) in a retirement investment fund.136 Private bank accounts had an inherent tax disadvantage over that of postal bank accounts. Tax Agency auditors subjected private bank records to stringent review of information surrounding personal bank accounts. On the other hand, postal 1 3 4 Cargill et al., 1997: 35-36. 1 3 5 Anderson, 1990: 87. 1 3 6 B etween 1946 to 1973 the ceiling on tax exemption on interest income on deposit accounts including both private banks and the PSS rose from ¥ 100,000 to ¥ 3 million. Chadha et al., 1996: 140; Matsuzawa, 1985:202-203. 73 accounts fell under the jurisdiction of the government and were beyond the reach of tax authorities. Detection of private bank accounts above the ¥ 3 million tax exemption level by taxation authorities uncovered an excess of¥38 billion between 1973 and 137 1978. Meanwhile, tax evasion at the post office was rampant. Savers were allegedly encouraged by postmasters to open up multiple accounts at other post offices to ensure account balances did not exceed the ¥ 3 million mark.138 This system of non-taxable interest income on ¥ 3 million in deposit accounts was known as the maruyu system. Tax evasion through the post office culminated in lost revenue for the Japanese government. Efforts to address tax evasion via postal banking by either abolishing or curtailing tax exemptions on savings commenced in December 1976. At that time the Tax Advisory Council released a report on recommendations for reform. Prior to the report's release, the National Tax Agency estimated that postal banking accounted for an estimated¥200 to ¥300 billion in lost tax revenue.139 The Postal Affairs Group and the LDP were less than receptive to an overhaul of the tax advantage the PSS enjoyed. With the PSS constituting a fundamental source of finance for the FILP, abolishing a tax exemption on savings would risk a potential shift in funds from postal savings accounts to private bank accounts. Stiff resistance by the Postal Affairs Group and the NACP presented an insurmountable obstacle to taxation reform. The chairmen of commissioned post offices often pressured local LDP politicians not to support abolishing tax exemption on savings accounts. Tax Commission officials in the LDP were also targets of hostility from commissioned post office chairmen. In his capacity Rosenbluth, 1989: 182. Anderson, 1990: 88. Rosenbluth, 1989: 183. 74 as the LDP's Tax Commission Chairman Yamashita Ganri was threatened by a local commissioned post office chairman not to abolish the maruyu system.140 A window of opportunity to reintroduce measures for taxation reform presented itself in 1979. Only a damaging scandal could weaken The Postal Affairs Group sufficiently enough to reignite debate over abolishing tax-free accounts. Since 1953 the MPT and Nippon Telegraph and Telephone Corporation (NTT) jointly controlled the affairs of Kokusai Denshin Denwa (KDD) which held a monopoly in Japan's international telephone and telegraph exchanges. Both NTT and KDD offered amakudari posts to retiring MPT officials. High-ranking positions at KDD were made readily available to MPT officials, including the presidency.141 In October 1979 numerous members of the Postal Affairs Group were implicated in a scandal over the acceptance of political payoffs from managers in the K D D . 1 4 2 The MOF jumped at the opportunity to counter an embattled yuseizoku and readdress the maruyu system. Advocating for greater transparency over tax-exempt savings accounts, the MOF presented a solution to tax evasion in December 1979: the Green Card System. The Green Card System would introduce personal identification cards whereby the saving activities of all depositors would be monitored. This would track the income individuals derived from interest on deposits in accordance with the maruyu system.143 In April 1980 a bill was passed in the Diet to enact the Green Card System as of January 1984.144 This bill failed however to specify key areas of concern including whether or not the law would be retroactive to accounts set up prior to 1984. The majority of postal funds were in the form of long-term deposits, teigaku, which spanned a ten-year time 1 4 0 Isogai, T., "Jiminto Yuseizoku: Tanaka-ha Shujiku kara Susono hirogaru Sozei 300 nin no "Kyoatsu Dantai." [LDP's Postal Affairs Group: Expanding outwards from its Foundation as a Tanaka Faction strong hold], Kinyu Bijinesu 16, (1986): 56. 1 4 1 Nakano, 1998; 99, 105. 1 4 2 "Yoru no Shinjuku "KDD Shachoshitsu," Asahi Shimbun, 29 Oct. 1979: 23. 1 4 3 Rosenbluth, 1989: 184. 75 frame. If the 1980 bill was successfully adopted, the Japanese public would have a four year window in which to establish teigaku accounts without fear of falling into the Green Card framework. In a surprising turn of events, private banks and the MPT discovered they shared the same position on a key policy matter. Opposition to the Green Card system mounted from both groups, although for different reasons. Private banks lobbied Diet members to guarantee rigourous review of postal accounts congruent to that placed on bank accounts, or to dismantle completely the Green Card system. Meanwhile, the Postal Affairs Group reiterated the position of private banks. In a pseudo display of mutual understanding, LDP and Postal Affairs Group member Tamisuke Watanuki declared that the Green Card would disrupt the balance between banks and the postal savings system. This strategy effectively strengthened widespread opposition to the proposed system while protecting the interests of the MPT and the network of commissioned post offices across Japan.145 Disdain for the Green Card system intensified when, on March 14, 1981, the chairman of the PARC, Abe Shintaro, blamed MOF officials for the hasty passage of the 1980 bill and its resulting complications. In a display of force on April 16, 1981, Kanemaru Shin led a group of about three hundred LDP politicians, along with others from the Postal Affairs Group, to attend a Diet members' League for the Reappraisal of the Green Card. The Diet voted to delay the introduction of the Green Card system until 1987, one year before its intended inauguration. In March 1985, the Green Card framework was effectively discarded by a vote in the Diet. 1 4 6 The debate over the Green Card system in 1980-1981 bore witness to a display of the extension power the Postal Affairs Group wielded. With the Tanaka faction as its strongest 1 4 4 Kato, 1994: 231. 145 Kinyu Janaru, 1980: 55-60. 1 4 6 Rosenbluth, 1989: 186-187. 76 political proponent, along with the tightly knit network of commissioned post offices, postal banking continued to enjoy a tax evasion advantage over private banks. The 1985 decision to jettison the Green Card initiative highlighted the considerable influence the Postal Affairs Group held in the formation of public policy. The flawed nature of the 1980 Green Card bill in failing to stipulate to the identification system a detailed provision of all accounts, including retroactive savings accounts, further guaranteed the ability for postal banking to maintain its status as an attractive tax evader. 3.4.1 Attacks on Postal Savings Interest Rate Advantage During its debate over the Green Card identification system, the post office became the object of further attacks over its teigaku deposits accounts. The interest rate structure established by the MPT on these fixed-amount deposit accounts enjoyed a degree of partial autonomy from the interest rate structure maintained by the MOF and the BOJ. As neither ministry held legal authority to impose its will over the other, the MPT was able to offer a different interest rate framework for the teigaku deposits accounts. Chadha et al provide a clear picture of the inherent advantage teigaku deposits possess over a comparable long-term deposit offered by a private bank.147 Contrasting the rate of interest of the two at a contractual rate of 2.45 percent highlights the attractiveness of teigaku deposit accounts at the post office (Table 11). The largest interest rate differential between the two savings avenues occurs within the initial 6 month to one-year period. If the deposit holder wishes to withdrawal their savings between 6 months to a year, private banks would offer a deposit rate of 0.1 percent compared to the postal deposit rate of 0.35 percent (Table 11). The corresponding rate of return on a postal deposit is more than three times that of a private bank deposit. Chadha et a l . , 1996: 148. 77 While the interest rate differential between the two institutions narrowed as time passed, it was not until the sixth year that private bank deposits gained parity with teigaku deposits at 1.2 percent (Table 11). The ability to withdraw funds after six months without a penalty allowed the Japanese saver the luxury of a lower level of interest rate risk. If interest rates increased at the end of the initial six months from the initial deposit rate, then the deposit holder could withdraw and redeposit his/her funds at the higher interest rate. Likewise, deposits would be unaffected by a reduction in the interest rate since the deposit holder would maintain the rate congruent with when they initially deposited their funds. Private banks were hard pressed to offer a comparable framework for a no withdrawal penalty after six months, accompanied by the semiannual interest payments that the PSS offered. Contrary to the state of the PSS as a government institution, private banks could not rely upon the government for the same degree of financial support. While the financial capabilities of large private banks might be able to compete with teigaku deposits, inevitably it would be financial suicide for weaker banks to likewise. This was due to the potentially devastating effects from variations in the interest rate.148 The PSS enjoyed considerable freedom from the fear of insolvency since the government could use contributions from the general budget to subsidize any losses arising from postal banking. An earlier attempt by the MOF to acquire control from the MPT over the setting of the postal system's interest rates in July 1972 failed. The MOF desired to lower interest rates on loans to stimulate economic growth. The MPT ferociously attacked the proposal for a reduction in the deposit rate. Watchful of their competitors at the post office, private banks stood their ground and refused to cut their loan rate as long as the deposit rate remained constant. Only when the MPT and the MOF reached a Oishi, 1981:23. 78 compromise six months later did the issue get resolved. The MPT consented to a drop in deposit interest rates on the condition that the ministry would acquire the right to lend out a share of postal funds to customers, as opposed to the MOF's FILP. Subsequently the post office entered the loan business with the inauguration of its customer loan, Yuyu Ron.149 The position of the MPT reflected the successful promotion of the interests of the yuseizoku and the commissioned post office. The acquisition of administrative control over a larger share of postal funds to lend its customers demonstrated an enhancing of the ministry's autonomy from the MOF. Simultaneously the MPT and commissioned post offices stood to gain from another line of service, by the direct lending of postal funds to their customers. Eight years, on December 28, 1980, later the issue over a single interest rate structure resurfaced. The Minister of Finance Michio Watanabe, Minister of Post and Telecommunications Ichiro Yamanouchi, cabinet secretary Kiichi Miyazawa and Prime Minister Suzuki met to reassess the matter. Once again the MPT declared that it would only yield to demands if it could introduce a new service at the post office. Yamanouchi reiterated the position of the Postal Affairs Group promised to the MPT prior to the 1980 general election. Individual pension plans (Kojin nenkin) were the next item on the wish list of services to be offered at the post office. As was the case with the introduction of consumer loans in 1972, the MPT and the commissioned post office chairmen would expand their services into another lucrative line of business. Recognizing the importance of guaranteeing the MPT's involvement, the MOF caved in to the ministry's demand.150 Despite this promise by the MOF, the MPT tried to dominate the discourse surrounding the achievement of a unitary framework for savings rates. The MPT and the Postal Affairs Group labeled the members of the newly formed 1 4 9 Rosenbluth, 1989: 189-190. 79 Study Group on the Role of Government in Finance (created by Miyazawa) as heavily biased towards the private banking sector. Hence the MPT created a counterpart: the Postal Savings Research Group. The MPT bolstered its position by utilizing the Postal Affairs Committee (Tsushin Bukai) in the PARC and its extensive network of commissioned post offices.151 At the end of July 1981, the MPT conducted a nationwide survey to confirm support for their position, seeking greater freedom over the discretion of postal funds. Two factors contributed to the MPT's ability to garner 55.9 percent support through this survey. First, the influence of commissioned post office chairmen, particularly across rural communities, enabled the MPT to gather support. Secondly, the MPT promised to grant a higher degree of autonomy, compared to loans from the MOF, to local governments through lending of postal funds and increased purchases of local government bonds.152 On August 20, 1981 the Study Group on the Role of Government in Finance presented its report to Prime Minister Suzuki. The Study Group outlined six conclusions, all with direct implications for the PSS. These were: 1) effective monetary policy could not be implied in the absence of a unified interest rate structure, in accordance with both the private banking and postal banking sectors; 2) the PSS's teigaku deposit accounts should be reviewed in light of its advantage over private banks' fixed-amount deposit options; 3) the tax exemption on savings accounts should not be raised from ¥ 3 to ¥ 5 million as requested by the MPT; 4) commissions granted to the postal system's workers for drawing in deposits should be scaled back; 5) strict limits had be placed on the PSS's entry into new fields of financial business; 6) the PSS should not gain disposal of postal savings funds as the MPT desired. Rather the MOF should continue to 1 5 0 Hagiwara, 1981: 145. 1 5 1 Rosenbluth, 1989: 191. 152 "Seiji Kosei ni Yurare Ugoku Yuchokon Toshin," Kinyu ZaiseiJijo, 17 Aug. 1981: 6-7. 80 utilize these funds for the FILP budget.153 These six recommendations by the Study Group implied a retraction of the role of postal banking in the economy. Following the end of the high economic growth period in the early 1970s, the rationale for maintaining an expanding FILP budget became increasingly difficult to sustain. No longer was the Japanese economy plagued by a shortage of domestic funds for capital investment. Since the Meiji era, the policy outlining that domestic savings had be used for national interests acted as the foundation for financing industrial development by the state. The Study Group on the Role of Government in Finance indicated that the time had come to reflect upon the PSS's historical roles in the economy, and the need to address its future outlook. The future of postal banking presented by the Study Group conflicted with the MPT's power base. The Postal Affairs Group unwilling to relinquish the benefits of an extensive postal banking network. The Postal Affairs Group was quick to mount an offensive. On the same day that the Study Group presented their report to the Prime Minister, the chairman of the LDP Postal Affairs Committee, Yoshihide Mori, banded together a group of fifty colleagues to draft an opposition statement. Before long, 333 LDP Diet members, including eight members of the cabinet signed a petition against a unitary interest rate structure.154 A second body, sponsored by the banking community within the LDP to lobby on behalf of their interests, took the form of The Study Group on a Free Economy. Created in the thick of the debate between the MPT and the MOF and the banks in the summer of 1981, this new Study Group amassed the support of over 200 LDP Diet members out of a total of 423. 1 5 5 The debate over establishing a unitary interest rate structure drew the PSS and private banks into an intense struggle with each other. Two conclusions can be drawn R o s e n b l u t h , 1 9 8 9 : 1 9 3 . " S h i m b u m n o M o t e n : Y u c h o k o n , " Kinyu Zaisei Jijo, 31 A u g . 1 9 8 1 : 10 . " S e i k a i Y u c h o S e n s o , " Toyo Keizai, 19 S e p t . 1 9 8 1 : 1 6 - 1 7 . 81 from the alignment of support for the MPT and the Postal Affairs Group versus the MOF and the private banks. First, the Postal Affairs Group commanded overwhelming support within the ranks of the LDP, effectively impeding any initiative to reduce the scale and inherent advantages postal banking enjoyed. Secondly, the split support for the two camps by some LDP Diet members demonstrated the desire to pursue a mutually inclusive and acceptable solution to the financial landscape in Japan. On September 30, Minister of Finance Michio Watanabe, Minister of Post and Telecommunications Ichiro Yamanouchi, and LDP cabinet secretary Kiichi Miyazawa agreed to continue the debate over a unitary interest rate. The practice of the MPT consulting with the MOF prior to revision of interest rates would continue. The MPT introduced its individual pension plans in September 1981.156 Unencumbered by any cabinet ordinances that might have limited its movement. In late 1981, the MPT and the Postal Affairs Group emerged unscathed from two brushes with the MOF and private banks over tax exemption savings accounts, and over whether or not to establish a unitary interest rate. On both occasions the strength and solidarity of the Postal Affairs Group prevailed. 3.5 Predominance of Tanaka's Political Faction In 1983 Tanaka Kakuei's political faction, Mokuyo Club held incredible strength. According to Huziker and Kamimura the political clique accounted for sixty-five members of the House of Representatives and fifty-two from the House of Councilors. With Tanaka's inclusion, the Mokuyo Club numbered 118 members. Tanaka appointed six lieutenants all from the House of Representatives. These six LDP politicians were: Nikaido Susumu, Takeshita Noboru, Gotoda Masaharu, Yamashita Ganri and Rosenblu th , 1989: 194. 82 Kanemaru Shin. Other noteworthy members of the Tanaka faction were future prime ministers Hashimoto Ryutaro and Keizo Obuchi.1 5 7 Effectively, the Mokuyo Club constituted the largest intraparty bloc ever, and accounted for more than one in four 1 c o t LDP MPs. In the early 1980s the overwhelming clout of the Tanaka political faction coincided with the Postal Affairs Group's successes in delaying reform of postal banking. The inability of the MOF and the private banking sector to induce reform of the PSS demonstrated the influential role Tanaka held on the Japanese political scene. Through his appointed lieutenant Kanemaru Shin, Tanaka bolstered the position of the Postal Affairs Group. Likewise the MPT and the commissioned post offices continued to enjoy a rise in their power and influence in public finance and investment. 3.6 Growth of the PSS and FILP Budget: 1975-1985 Figure 2 highlights the share of postal savings and private bank deposits out of the overall deposits between 1972 and 1985. This time frame spans Tanaka's tenure as prime minister and his pervasive political influence up to the time of his stroke in 1985. The basis of the MOF's and the private banking sector's attack on the PSS is clearly identified in figure 2. By 1985, private bank deposits had steadily, by 15 percent, lost their share of overall deposits to the PSS. In 1985 private bank deposits held 69.1 percent while the PSS held 30.9 percent of overall deposits (Figure 2). The government had effectively attracted nearly a third of the overall deposits of Japanese savers. The investment of these funds fell under the auspices of the national government. Maintaining a public finance regime is imperative to invest into goods and services into which the private sector is less inclined to invest. From an equity standpoint, investment into public welfare and infrastructure projects is needed to provide the 1 5 7 Huz i ke r and K a m i m u r a , 1995: 178-185. 83 socially optimal level of provision. Investment into public housing, health care and education are three such areas where the role of government is fundamental. The position of the FILP as a government budget enables it to focus on investment into low productivity though socially desirable projects. Wanting to invest in higher profit projects, the private sector is less likely to finance projects that yield a long-term return on investment or no expected profit. Extending the reach of public investment past such fundamental areas, however, risks pockets of inefficiency. As a government-administered savings regime, the PSS is insulated from market forces, in contrast to competitors in the private banking sector. The PSS has the potential to areas where productivity is low in order to compensate for losers or to maintain and enhance the political power of politicians and bureaucrats.159 Restricted by the need to remain profitable without complete government backing, private banks could not engage in such low return and low productivity investments without the risk of becoming insolvent in the future. Projections of the declining share of private bank deposits in Figure 2 startled the private banking sector and the MOF. If the growth of the PSS continued unabated, the government would acquire further control over a larger share of Japanese savings which would decrease the level of business at private banks. The FILP budget grew commensurately with the PSS, growing as a reliable supplement to the general budget. As a percentage of GDP, the FILP budget rose from 6 percent in 1972 to 9 percent in 1985 (Figure 3). Between 1975 and 1985 postal savings grew four time from ¥24,199 billion to ¥ 101,324 billion. In the same period the FILP budget nearly tripled from ¥ 11,402 billion to ¥29,431 billion (Table 12). The six recommendations presented by the Study Group on the Role of Government in Finance on August 20, 1981 implied that the PSS had come to the end of its successful historical Schlesinger, 1999: 119. 84 tract of public investment into the economy. These six proposals advocated for a retraction on the role of postal banking in the economy. Regardless, the FILP budget and the role of government investment continued to grow. The allocation of FILP funds further shifted towards social programs. The most significant trend in FILP investments in the 1975 to 1985 period involved the Housing Loan Corporation. Previously local governments were the top recipients of FILP funds (Tables 9 and 10). The growth of investment in the Housing Loan Corporation in this ten-year period outstripped local governments. The Housing Loan Corporation nearly tripled its allocations compared to less than a doubling of investment in local governments (Table 12). Between 1981 and 1984, the financial institution overtook local governments as the largest recipient of FILP funds. Support for small business remained a priority of the FILP. From 1980 to 1985 the People's Finance Corporation and the Small Business Finance Corporation remained the third and fourth largest recipients of FILP funds. Leading investment into transportation infrastructure, JNR and the Japan Highway Public Corporation held steady at fifth and sixth positions. These six largest avenues of investment reflected a focus on the improvement of social and welfare infrastructure and small and medium-sized businesses. The ability to sustain high levels of government investment into these projects was dependent upon a high interest rate. However, the increasingly market-oriented Japanese financial system of the early 1980s pressured the viability of retaining the framework of postal banking. Kent Calder recognized the destabilizing effects of a declining long term prime rate on the PSS and FILP budget. Until 1987 the long term lending rate of FILP funds was fixed by law at a floor lending rate of 6.05 percent.160 In the early 1980s, the surplus of savings over investment in the economy intensified. In response, long-term Cargill etal.,2003: 100, 104. 85 interest rates began to fall induced by market forces. The fall of the market-lending rate closer to the 6.05 percent FILP rate impaired public financial institutions and their activities in fiscal investment. These entities found it increasingly difficult to borrow funds through the FILP budget, to lend to private borrowers at attractive lending rates.161 Between 1975 and 1986 the long-term prime lend rate fell from 9.2 percent to 6.2 percent.162 Each successively lower long-term prime rate brought this rate closer to the cost of borrowing FILP funds.163 The three-percentage point drop in the long-term prime rate effectively reduced the attractiveness of the FILP loan interest rate to the private sector. If the prime rate fell below the stipulated level of 6.05 percent, public institutions would be required to enlist the aid of government subsidies. 3.7 Realignment of the Tanaka faction and Revisions to Postal Banking in the late 1980s: The Political Decline of Tanaka Kakuei The Tanaka gundan in 1984 was a pillar of strength. Within its ranks however, focus shifted to the question of who would become Tanaka Kakuei's successor. Tanaka's conviction on October 12, 1983 for his involvement in the Lockheed Scandal impaired his ability to perform public duties. As a consequence, Tanaka transferred an increasing amount of responsibilities to his entourage. Two of Tanaka's lieutenants, Takeshita Noboru and Kanemaru Shin gained considerable clout. Takeshita was the most prolific fundraiser for the Tanaka gundan in the early 1980s. Kanemaru served as the LDP party secretary and the head of the Postal Affairs Group.1 6 4 In December 1984 the two men launched an initiative with the aid of Ozawa Ichiro to speed up the transfer 1 6 0 C a l d e r , 1 9 9 0 : 5 3 . 1 6 1 I b i d . : 5 3 1 6 2 Y u c h o s h i k i n K e n k y u K y o k a i , 2 0 0 3 : 4 5 1 . 1 6 3 T h e P r i m e ra te i s t h e b a s e i n t e r e s t ra te c h a r g e d b y c o m m e r c i a l b a n k s o n c o r p o r a t e b a n k l o a n s . T h i s i n t e r e s t ra te i s a n i n d i c a t o r o f b u s i n e s s b o r r o w i n g f r o m b a n k s . M i s h k i n a n d S e r l e t i s , 2 0 0 2 : 2 5 . 86 of leadership in Tanaka's faction. In February 1985 the Soseiaki (Creative Politics Society) was established. The Soseikai reflected Takeshita's desire to be named Tanaka's successor. Effectively, the Soseikai represented a Takeshita faction within Tanaka's political faction.165 Despite Tanaka's inability to maintain control, the political power he had built over the years transferred from himself to his faction. On February 27, 1985 he suffered a debilitating stroke. Tanaka's weakening health and the Tokyo High Court's second guilty verdict in 1987 on the Lockheed scandal all but destroyed the possibility for a political comeback. Takeshita attracted a growing number of Tanaka's supporters. In 1987 Takeshita officially formed his political faction, the Keiseikai. The name Keiseikai was inspired by a Chinese proverb translating to "Wise government, relieving the people's suffering." The strength of the Tanaka gundan remained largely intact. Of the 141 members of Tanaka's faction, 113 joined Takeshita on July 3. 1 6 6 Takeshita became Tanaka's self-appointed successor. 3.7.1 Abolishment of the Maruyu System and Imposition of Taxation on Savings The transformation of the Tanaka faction coincided with an important period for postal banking. The framework of benefits arising from the political relationship between the network of commissioned post offices and the LDP was deeply entrenched. Tanaka's creation, the Postal Affairs Group continued to wield considerable clout in the political economy. However, recognition of the dire fiscal state of the central government propelled LDP officials to reexamine the issue of the tax-free savings system. In November 1984, the MOF presented a proposal to the Diet for a ten percent taxation on all interest income. The following month, on December 7th the NACP Rosenbluth, 1989: 196-198; Schlesinger, 1999: 183. Hunzikerand Kamimura, 1995: 134-135. 87 mounted their opposition. In a show of force, 240 Diet members and nearly one hundred personal representatives of other Diet members joined the NACP to rally against taxation on postal savings accounts. In light of the difficulty to reach a consensus within the LDP, the final decision was left to the top five posts in the party. These were: the party secretary Kanemaru Shin, PARC chairman Fujio Masayuki, Executive Council chairman Miyazawa Kiichi, vice-president of the LDP Nikaido Susumu, and chairman of the LDP caucus in the House of Councillors, Gotoda Masaharu.167 On December 19, 1984, the five men came to consensus on a self-check system of postal savings accounts to nullify tax evasion on interest income. In addition, it was determined that the MOF and the MPT would consult with each other as to how to reach a mutually agreeable monitoring system.168 The Tax Reform Act of 1986 provided a new monitoring system of savings accounts. From this point onwards, individuals would be required to present identification in order to perform any banking operations. At the insistence of the MPT, identification was not mandated for pre-exisiting deposits until they reached their maturity or were withdrawn.169 In due time, long standing concerns over tax evasion surrounding postal savings accounts would come to an end. Legislating mandatory identification for all deposit actions would curb the practice of opening up multiple accounts. This would ensure they postal savings depositors would not exceed the ¥ 3 million tax exemption level. Under the new system, postal savings accounts would as equally transparent as their private bank counterparts. The ¥ 3 million tax exemption level on savings accounts was set to present an equal playing field for the two ways of saving. Imposition of taxation on savings deposits never lost favour with the MOF. 1 6 7 Rosenbluth, 1989: 196-197. 1 6 8 "Maruyu Kaikaku Aimai Ketchaku," Asahi Shimbun, 20 Dec. 1984: 3. 169 "Kakekomi Maruyu Okotowari,''Asahi Shimbun, 2 Feb. 1985: 9. In the mid-1980s concerns arose over the need to impose a tax on savings. The Japanese corporate sector feared the potential for cuts in OECD (Organization for Economic Cooperation and Development) countries' corporate tax levels, at which time the 170 Japanese rate would become less attractive. Another concern surrounded the appreciation of the yen following the Plaza Accord of the Group of Five industrialized countries meeting in September 1985. Between February 1985 and August 1986 the yen appreciated from ¥260 to ¥ 150 to the US dollar.171 At this time, the FILP budget presented itself as an attractive avenue for the government to provide relief to SMEs (Small and Medium sized Enterprises). Imposing a tax on savings would increase the additional revenue base needed to broaden the role of government in this area of policy. The state of Japan's large current account surpluses in the 1980s rendered a third rationale for a tax on savings. One of the primary factors behind this surplus was a 172 higher level of aggregate savings over aggregate investment in the economy . Inaugurating a tax rate on both postal and private bank savings accounts was intended to lessen the incentive to save and stimulate consumption. The Tax Reform Act of 1986 led to the abolishment of the Maruyu tax exemption system in April 1988. A twenty-percent levy on interest would apply to both postal and bank deposits. Three classes of citizens would however be entitled to retain tax exemption on ¥ 3 million savings accounts: those sixty-five years of age and older, the physically handicapped, and single I 73 mothers. The end to the Maruyu system eliminated tax evasion in the PSS. This act removed the practice of opening multiple postal savings accounts by offering greater transparency in regards to savings accounts' levels. 1 7 0 Rosenbluth, 1989: 200. 1 7 1 Cargill etal., 1997: 65. 1 7 2 Ministry of Foreign Affairs, 2004. 20 Feb. 2004 <http://www.mofa.go.jp/j_info/japan/socsec/maruo/maruo_2.html>. 1 7 3 Anderson, 1990: 88; Rosenbluth, 1989: 203. 89 The PSS was compensated for the elimination of the Maruyu system and imposition of a tax on interest income on postal savings accounts. First, the ceiling on these accounts rose from ¥ 3 to ¥ 5 million. 1 7 4 Secondly, from 1987 the ministry was allowed to invest a portion of its postal savings independently of the TFB into increased foreign"and domestic investments.175 If the PSS had based its capability to attract a large portion of Japanese savers' money on reliance upon an inherent tax evasion scheme, its post 1988 outlook would have been grim. As will be discussed in the next section, the long lasting pillars of strength for the PSS are its savings options and the institution itself. The institutional framework Tanaka Kakuei fostered since his reign as Minister of Post and Telecommunications in the late 1950s endured. 3.8 Decline and Ascent of Postal Savings Before and After the Bubble Economy After the introduction of tax on interest income and the restriction of maruyu accounts, the PSS temporarily lost a share of overall savings deposits to private banks. From 1986 to 1990 the PSS dropped from 30.6 percent to 22.5 percent of overall savings deposits. During the same period, private banks increased their share from 69.4 percent to 77.5 percent (Figure 4). It is important to note that this period coincided with the Bubble Economy. From 1985 to the end of 1987 the BOJ's official discount rate fell from 5 to 2.5 percent. Five successive cuts in the rate from January 30 t h 1986 to February 23 1987 accompanied by an appreciating yen sparked an asset-price The hike in the ceiling on postal savings accounts did not apply to the level of tax exemption for the three qualifying classes: the sixty-five years of age and older bracket, the physically handicapped, and single mothers. "Shin Rishi Kazei Seido Seishorei no Jitsumu Pointo," Kinyu ZaiseiJijo, December 21, 1987: 20. Previously in 1983 the Postal Insurance system was permitted to invest in foreign bonds. The MPT held a large degree of control over the investment of Postal Life Insurance and Postal Pension Funds. In 1988 the MOF granted the MPT the right to independently invest a share of postal savings funds as opposed to deposited them all into the Trust Fund Bureau. As a result, the PSS expanded its investment into both foreign and domestic investments. Hoshi and Kashyap, 2001: 261; Nihon Ginko, 1993: 402. 90 speculation known as the Bubble Economy.176 Postal savings interest rates fell in response to the BOJ's official discount rate cuts. On February 24, 1986 the long term interest rate on teigaku accounts fell from 5.75 to 5.25 percent. From February 1986 to 177 • March 1987 the rate fell further to 3.64 percent. Combined with government deposit guarantees on savings accounts, the Japanese public elevated their investment risk and shifted more of their savings to potentially higher profit investments in the stock 178 . . . . . market. The hike in private banks' share of domestic savings reflected a growing preference of Japanese savers to invest in private, as opposed to the public, sector of the economy. In 1990-91 the Bubble Economy collapsed. Real estate and equity prices fell from the heights they had enjoyed in the late 1980s. While the private banking sector laboured under a mounting pile of unpaid loans originating from the prosperous late 1980s, the PSS and the FILP budget benefited greatly from the chaos in the Japanese economy. Cargill and Yoshino (2003) and Kuwayama (2000) demonstrate how the collapse of the Bubble Economy underscored the contemporary relationship between the PSS and the private banking sector. Depositors perceiving instability of private financial institutions opted for the government backed the PSS. In 1991 savings accounts in private banks were insured and guaranteed by the Deposit Insurance The Official Discount rate is the interest rate the central bank sets on short term borrowing to banks. In the case of Japan, successive cuts between January 1986 and May 1989 facilitated a rise in corporate borrowing from banks to invest into the economy. In 1986 the Bank of Japan cut the official discount rate four times. On January 30, 1986 the rate was cut from 5 percent to 4.5 percent, on March 10 to 4.0 percent, on April 21 to 3.5 percent, and on November 1 to 3.0 percent. On February 23 the rate was further reduced to 2.5 percent and held until May 31 s t 1989 when it rose to 3.25 percent. Cargill et al. 1997: 108-116; Muramatsu and Okuno, 2003: 278). 177 Yucho shikin kenkyu kyokai, 2003: 454. 178 Both Postal savings accounts and private bank accounts were shielded by deposit guarantees by the central government. Postal savings were exempted from paying deposit insurance unlike their private bank counterparts. As a public finance regime the PSS was fully supported by the government. Under the guidelines of the Deposit Insurance Corporation (DIC) established in 1971 private banks had to pay deposit insurance premiums and taxes to ensure the government support against insolvency. (Cargill et al. 1997: 127, 136; Cargill and Yoshino, 2003: 20; Muramatsu and Okuno, 2003: 278. 91 Corporation (DIC) established in 1971.179 When Japan slid into an economic recession in the early 1990s, private bank accounts and postal savings accounts were insured for the same amount. Private bank deposits were insured for up to ¥ 10 million while the upper ceiling on postal savings rose in November 1991 to ¥ 10 million. 1 8 0 Contrary to the equal guarantee both sectors were granted, the Japanese public perceived postal savings to be safer than their private bank counterparts. Beginning in 1992 the DIC provided assistance for the mergers of troubled credit cooperatives, nonprofit cooperative banks (shikin ginko) and regional banks. By 1994 the DIC was rendered 181 insolvent. The weak financial state of private financial institutions and the subsequent insolvency of the DIC provided a basis for the concerns of Japanese depositors over the banking sector. It is important to note another justification for shift of funds from private banks to the PSS in the early 1990s. The MPT lagged behind private banks in readjusting their 182 interest rates on postal savings accounts. As interest rates, declined Japanese depositors were attracted by the fixed long-term (teigaku) savings option offered by the PSS. Funds deposited into these accounts would be fixed at a higher rate prior to forthcoming declines in interest rates. In response to these two primary factors, the PSS increased its share of domestic savings deposits. From a low of 22.5 percent in 1990, the PSS returned to its 1986 level of 30.6 percent in 1994 (Figure 4). In the same four-year period, private banks shed an eight percent share of domestic savings. The PSS's expanded share of domestic savings corresponded to a rise in the FILP budget. As a percentage of GDP, the FILP budget rose from nine to twelve percent between 1990 to 1994 (Figure 3). Once again critics of 1 7 9 Cargill and Yoshino, 2003: 20. i Rn Cargill and Yoshino, 2003: 20; Nihon Ginko, 1993: 420, 434. 1 8 1 Cargill and Yoshino, 2003: 20; Milhaupt, 1999: 414.5. 92 postal banking voiced concern over the scope and size of the PSS and FILP in this period. Alarm bells rang when the PSS broke through the ¥200 trillion mark in 1995, becoming the largest financial institution in the world in terms of assets. Based upon the i pi growing debt load the PSS carries it will inevitably collapse. In 1995 the primary financial account for the FILP budget, the Trust Fund Bureau, received 56.8 percent of its funds from the PSS. In the same year the TFB invested 18 percent of its overall funds into national bonds (Table 13). The large share of TFB funds allocated to financing the national debt directly implicates the use of postal savings for this purpose. Authors such as Asai and Otomo perceive reliance on the PSS for government debt financing as an inefficient and potentially devastating allocation of public savings in the economy. It must be recognized that as a public finance regime the PSS would be used to some degree to serve the public debt. A high reliance upon postal savings for this purpose however would apply pressure to decrease the interest rate offered to depositors. This would in turn decrease the attractiveness of the PSS as a savings avenue, compared to a less debt ridden private banking sector. The 1990s demonstrated that the private banking sector had its own concerns over rising debt loads. The PSS thus continued attracting depositors. Over the course of the first half of the 1990s, four measures were taken to restore faith in the private banking sector. To stem the effects of the PSS's acquisition of increased levels of domestic savings, the MPT first reversed their policy of using their network of post offices across Japan to advertise the problems of the banking system. Second, the MOF and the MPT agreed in October 1994 that postal deposit rates would be set closer to their private bank counterparts. Third, the DIC was reformed and re-capitalized in 1995. Fourth, an interim and complete deposit guarantee for the private Cargill and Yoshino, 2000: 219. 93 banking system was announced by the MOF in 1995. This remained in effect until 1 April 2001.1 8 4 Regardless of these revisions, the PSS continued to attract a larger share of domestic savings. However, in contrast to the 1990-1994 period, the rate of growth of the PSS in the post 1995 period slowed down. In 1995 the PSS fell slightly to 29.9 percent from 30.6 percent in 1994. The PSS reached a peak of 34.6 percent of overall savings deposits in 1998 before settling at 33.8 percent in 2000 (Figure 4). Effectively the PSS retained a hold on one third of the domestic market for savings at the turn of the 21 s t century. As will be examined in the following section, the interests of the commissioned post office and the Postal Affairs Group are still very much alive in the post Tanaka Kakuei era. 3.9 The "Big Bang" Financial Reforms and the Defense of Postal Affairs In November 1996, Prime Minister Hashimoto Ryutaro announced the "Big Bang" financial reforms. The inspiration for the name of these reforms came from the financial deregulation undertaken in Britain in 19 86. 1 8 5 The intention of the "Big Bang" reforms was to shift Japan towards a more market-oriented financial system with less reliance upon banking and more on securities186. Fear quickly spread among supporters of postal banking that these reform efforts would unleash debate over privatization of postal banking services. The NACP stood united in their opposition to any such discussions. In 1997 their chairman Shimizu Katsuji led a successful drive to shift discourse away from privatization to the question of whether or not to establish a new Asai and Otomo, 1997: 64-66. Cargill and Yoshino, 2000: 219. Hoshi and Kashyap, 2001: 289. Lincoln, 2001:160. 94 public corporation to oversee the affairs of postal services.187 Over the course of the next seven years the desire of Shimizu and the NACP was fulfilled. On June 12, 1998 the Basic Law on the Administrative Reform of the Central Government (Chuo Shocho Kaikaku Kihon-ho) was passed in the Diet. Article 17 of this law applied to the reform of postal services. Clause 7-b of Article 17 stipulated that the transformation of the Postal Service Agency under the Ministry of General Affairs would become a government-run corporation.188 Subsequently on July 31, 2002 the Diet passed the Japan Postal Public Corporation Law (Nihon Yubin Kosha-ho) and the Regulations for the Enforcement of the Japan Postal Public Corporation Law (Nihon Yubin Kosha Shiko-ho).m The following year on April 1, the Postal Services Public Corporation also known as "Japan Post" was established. This entity assumed responsibility over the three services offered by the post office: postal service (including mail services), postal savings, and postal life insurance.190 The establishment of Japan Post represented a victory by the NACP and their supporters within the LDP. The consolidation of postal services under a new public corporation had taken precedence over debate surrounding privatization of postal services. Debate over privatization of the PSS and abolishment of the FILP were omitted from the "Big Bang" reforms. Expanding the range of investment options for Japanese savers did however implicate the PSS. Beginning in December 1998 banks and insurance companies were entitled to offer investment trusts to their customers. Furthermore, the Investment Trust Act (December 1998) facilitated the sale of 187 "Tokutei yubin n o Meikyu: TfCage n o SoriJ n o Akanai Tobira, Abakareru Ijona Seikai" [Labyrinth o f the Commissioned Post O f f i c e : Revealing o f the World o f Shadow Prime Ministers], .Nikkei Bijinesu, 18 June 2001: 28. 188 Website o f the Prime Minister o f Japan and his Cabinet, 1998. <http://www.kantei.go.jp/jp/gyokaku/980303houan.html>, viewed February 26, 2004 1 8 9 National Diet, 1998. 26 Feb. 2004 <http://www.houko.com/00/FS_NE.HTM Houko.com>. 190 "Yusei Kosha, Minkan to Kobo he," [ In Defense o f Japan Post as a Public Entity] Nihon Keizai Shimbun, 1 April 2003: 4. 95 "company-based" trusts. These trust funds closely resemble mutual funds offered in North America.1 9 1 New investment options seek to address the priority to shift a larger share of personal savings into high risk, high return investments to offset financing needs for an aging populace. Increasing the variety of investment avenues to Japanese savers, however, would ultimately raise the competitive stakes with the PSS. The underlying efforts of the "Big Bang" reforms to achieve greater market transparency depended upon applying the same standards to the entire spectrum of the financial sector. As the PSS controlled one third of overall domestic savings (Figure 4) failure to enhance the transparency over its investments would hinder meaningful financial reform. Departure from the status quo financial system risked unseating the beneficiaries of an extensive public finance and investment regime. Historical maintenance of the publicly administered PSS and FILP budgets had provided the LDP, most notably Tanaka Kakuei and his political faction members, the Postal Affairs Group, and the NACP with intrinsic political and economic benefits. Plotting the trajectory of the Tanaka faction into the 1990s underscores why a lack of political to reform the PSS and the FILP existed. At the end of 1992 the Takeshita faction split into the Obuchi Keizo and Ozawa Ichiro camps. The Obuchi faction succeeded in ousting Ozawa and his 192 supporters from the LDP to form the Japan Renewal Party (Shinseito). Subsequently, Obuchi became the heir to the former Tanaka faction. Another rising politician aligned with Obuchi was Hashimoto Ryutaro. As the prime minister who initiated the "Big Bang" financial reforms in 1996, it was no surprise that Hashimoto omitted fundamental reforms of the PSS and the FILP. For political gain, Hashimoto cooperated with the interests of postal affairs. In exchange for his promise not to pursue debate over 1 9 1 Hosh i and Kashyup , 2001: 291. 96 privatization of the PSS, Postal Affairs Group leader Nonaka Hiromu requested for the NACP to provide Hashimoto with political support.193 The enormous political support that commissioned postmasters offered to the LDP at election time compromised the governing party in debate over privatization of the PSS. Estimates for the 1980 House of Councilors election credited the NACP for securing one million votes for the LDP. 1 9 4 Fast-forwarding to twenty years later raises the prospect of the largest vote gathering entity for the LDP, collecting an equivalent or even greater nominal share of votes. 3.10 Questionable Reform of the FILP The 1998 Basic Law on the Administrative Reform of the Central Government introduced the first steps towards reform of the relationship between the PSS and the FILP. Under Article 33 Paragraph 2, the practice of mandatory deposits of postal savings into the Trust Fund Bureau was discontinued. Investment of PSS funds was to be managed independently.195 In 1998 the FILP budget peaked at 12.8 percent as a percentage of GDP. In the same year the General Account reached 17 percent of GDP (Figure 3). The Basic Law on the Administrative Reform of the Central Government became effective on April 1, 2003.1 9 6 However, the effects of this set of reforms in fact commenced from 1998. As a result of the changes made by Article 33 Paragraph 2, the FILP fell sharply during the next three consecutive years. In 2001 it plummeted to 4.8 percent of GDP, a level unprecedented since 1964 (Figure 3). Disconnecting postal 1 9 2 Schlesinger, 1999: 194, 282; Wright, 2001: 42. 193 "Jiminto to Ayunda Sogo Bocho no Hanseiki: Tokuteiyubinkyoku chokai ga Mamoro to suru: Hyotoriken no Kokan Shisutemu" [Growth of the Mutually Beneficial Relationship between the LDP and the National Association of the Commissioned Post Office], Nikkei Bijinesu, June 18, 2001: 30. 194 Ibid.: 30 195 Website of the Prime Minister of Japan and his Cabinet, 2004. 26 Feb. 2004 <http://www.kantei.go.jp/jp/gyokaku/980303houan.html>. 196 Cargill and Yoshino, 2003: 152. 97 savings from the FILP budget highlighted the extent to which the PSS acted as the primary source of funds for public investment. Beginning on April 1, 2001 fund recipients moved towards a system of financing themselves through three methods. The first two measures entail the issuing of two kinds of FILP agency bonds, one with a government guarantee and another 197 without. A third source of finance for FILP agencies are bonds issued by the MOF. Due to the government backing the MOF's issuance of FILP agency bonds, this type of bond is essentially classified as a general government bond. Another concern arises over the issuance of FILP agency bonds with a government guarantee. These bonds are virtually identical to general government bonds with a guaranteed government backing. It is debatable whether or not the FILP agency bonds, without a government guarantee, are free from government meddling. If the government is expected to bail out a faltering FILP agency, what would prevent bonds without a government guarantee from being implicitly backed by the government? The reform of the financing structure of FILP agencies does not improve the transparency and incentives to make profitable and efficient improvements over the business practices of FILP agencies. 3.11 Conclusion Despite his resignation as prime minister in 1974 and from the LDP in 1976, Tanaka's power in Japanese politics rose. Between 1976 and 1983, Tanaka won landslide victories as an independent in the Niigata Third Electoral District. The true indication of the endurance of his power was demonstrated through his political faction. His inability to remain a member of the LDP failed to curtail his aspirations. Tanaka maintained the leadership position over the largest faction within the LDP. Ibid.: 153. 98 Consequently, he arranged for members of his faction to fill key ranks in government, including that of the Minister of Post and Telecommunications. The Tanaka faction provided pivotal support in LDP intraparty voting, in addition to its effective electoral tactics. From 1978 to 1987, Prime ministers Ohira Masayoshi, Suzuki Zenko, and Nakasone Yasuhiro all owed their success to the indispensable support offered by the Tanaka faction. During the tenure of Yamanouchi Ichiro, Minister of Post and Telecommunications in the early 1980s, the Postal Affairs Group acquired official recognition of its existence. By handpicking one of his top lieutenants, Kanemaru Shin, as his successor to lead the Postal Affairs Group, Tanaka ensured that the interests of postal banking would be upheld. Subsequently, the reciprocal LDP-local support relationship Tanaka had fostered through the network of commissioned post offices endured. The compounding political and economic benefits and impending costs arising from postal banking become more entrenched. Under Tanaka's guidance, the PSS -succeeded in becoming an enormous savings pool with which the government conducted financial policy. With the Tanaka Faction at the helm, the advocates of postal banking, the Tanaka Faction, the Postal Affairs Group and the NACP posed a considerable obstacle to reform of the PSS. As a result, the public finance regime fell into conflict with the private banking sector. The private banking sector met head on in intense competition over Japanese public savings. Over the course of the 1980s, a contentious debate raged between the PSS and the private banking sector. Eventually the Tax Reform Act of 1986 led to the abolishment of the Maruyu tax exemption accounts system in April 1988. The Tax Reform Act of 1986 stipulated that individuals were now required to present identification when performing any banking operations. This act removed the practice 99 of opening multiple postal savings accounts to avoid tax on personal savings account balances exceeding the¥3 million tax exemption level. Only those sixty-five years of age and above, the physically handicapped and single mothers were to be exempt from the new taxation on interest income earned on both postal and private bank savings accounts. As demonstrated by the rise of the PSS's share of overall bank deposits after these revisions, advantages behind postal banking remained. The strength of the PSS continues to be in its savings options and the reality that it is a government institution. In the post-Tanaka Kakuei era, his legacy endures. Attempts to reform the PSS and the FILP since the late 1980s have demonstrated the effective opposition of the Postal Affairs Group and the NACP. Tanaka was directly responsible for the establishment of the first group in the early stages of his political career. The Postal Affairs Group represented a stronghold of the Tanaka political faction. Members and supporters of the Tanaka faction filled the ranks of this lobby group. While Tanaka's personal power eluded him in the late 1980s, the Postal Affairs Group evolved. The basis of the Postal Affairs Group support transferred to the Takeshita Noboru faction, later to be succeeded by Obuchi Keizo and Hashimoto Ryutaro. These three men became the successors to the Tanaka faction. Their factions inherited the linear remnants of the Tanaka faction as well as new members. These entities continued to provide the largest base of political support granted to the Postal Affairs Group. Since the time of his tenure as Minister of Post and Telecommunications in the late 1950s, Tanaka was also responsible for fostering the mutually reinforcing relationship between the LDP and the network of commissioned post offices across Japan. The NACP has become the strongest electoral vote collecting institution for the LDP. Continued opposition to initiatives to reform fundamentally the PSS and FILP can be attributed to the inventions of Tanaka Kakuei. 100 Chapter IV Contemporary Reform Initiatives and Recommendations 4.1 Can Koizumi Crack the Tanaka Faction Complex and Break the PSS? On April 24, 2001, Koizumi Junichiro became the prime minister of Japan. His victory in the LDP presidential election was significant. It marked widespread support for his platform advocating economic and financial reforms to pull Japan out of economic stagnation. Koizumi successfully edged out his closest rival Hashimoto Ryutaro by 298 to 155 votes. Koizumi's victory marked the first time that the LDP had elected a party leader without the backing of the party's largest political faction. The largest faction within the LDP, led by Hashimoto, had controlled party politics since the 198 late Prime Minister Tanaka Kakuei was in office, in the early 1970s. Koizumi's election represented an opportunity to reexamine fundamental reform of the PSS and FILP. Whether or not Koizumi is able reform the PSS and the FILP is contingent upon his ability to dismantle the entrenchment of economic and political benefits that Tanaka initiated and his successors have maintained. To be successful, Koizumi must accomplish one of three options. First, retain management of the PSS under the public sector but substantially reduce its scope and size and reestablish it as a narrow government bank. In becoming a narrow government bank, the PSS would limit its business activities. Its investment portfolio would be restricted to the purchase of safe assets such as government bonds and other government-guaranteed securities. As well, the PSS would cease offering loans to public or private entities.199 A narrow bank PSS could compliment the private financial sector only if it were small in both its scale and scope. The business activities of the 198 "Koizumi takes LDP helm," Japan Times Online, 25 April 2001. 1 Mar. 2004 <http://www.japantimes.co.jp/cgi-bin/getarticle.pl57nn20010425al.htm>. 1 9 9 Okina, 2000: 74. 101 PSS would then supplement those of the private financial sector. The reformed PSS would invest in projects that the private sector is less inclined to, such as social welfare projects. The government must provide investment into socially desirable projects, yielding very little or no profit in the long term. However, subsidizing such projects must be justified within the context of the inherent burden placed upon both taxpayers and public savings in general. As noted by Okina Yuri, investment into safe assets, such as government bonds would act to stabilize the business of the PSS. The last two options are far more radical than the first. Koizumi could either seek to privatize or altogether abolish the PSS. These three policy options were presented for debate over reform of the PSS in late August 2002. 4.2 Three Avenues for Reform On August 27, 2002 Koizumi's Council to Reform the Postal Business presented its three proposals for reform of the PSS. Ten days later the Council presented their final report to Prime Minister Koizumi. 2 0 0 These three proposals to restructure the postal system constitute the basis of contemporary debate on reform of the PSS. Bearing in mind that the PSS is the dominant source of finance for the FILP, all three proposals would impact the FILP budget. The first proposal advocates privatization of mail delivery service and abolition of both postal savings and insurance activities. Privatization of all three postal businesses constitutes the second proposal. The third proposal calls for consolidation of the three postal businesses under the banner of a new 201 public corporation. As previously noted, both the Postal Affairs Group and the NACP support this last option (pp. 80-81). "Postal panel compiles final report", Japan Times Online, 7 Sept. 2003. 1 Mar. 2004 <http://www.japantimes.co.jp/cgibin/getarticle.pl57nb20020907al.htm>. 201 "Postal Proposal all have pros, cons," Nikkei Weekly, 2 Sept. 2002: 4. 102 Under the first proposal, the privatized mail delivery company would be able to offer to private financial institutions the advantages of its extensive network of post offices across Japan. The new entity could joint venture with private financial institutions in order to offset the loss of postal savings and insurance funds and to subsidize any losses in mail delivery to unprofitable rural regions. On behalf of private financial institutions, the mail delivery company could offer a range of financial • * 202 * institutions' services at their postal outlets. This reform option has two damaging implications for the status quo. First, the abolition of both postal savings and postal life insurance services would correspond to a substantial decline in the influence of both the Postal Affairs Group and the NACP. A significantly retracted PSS would lessen the two groups' influence over investment of a large portion of public savings in the economy. On the positive side, this option would relieve the central government of an over extended public finance and investment regime through the PSS and the FILP budget. A second repercussion would be the justification for a substantial reduction in the number of post offices across Japan. According to the president of Japan Post, Ikuta Masaharu, eighty percent of commissioned post offices rely solely upon postal savings and postal life insurance operations. Abolishing both of these services would correspond to a sharp decline in the prestige and power of commissioned postmasters. For the Postal Affairs Group and the LDP as a whole, the abolition of postal savings and life insurance would cut off two prime purchasers of government bonds. As evident in Table 13, government bonds accounted for the allocation of sixteen to twenty-seven percent of Trust Fund Bureau funds between 1985 and 2000. In light of these realities the cards are heavily stacked against this first option of reform. "Ikuta defends Postal Savings, Life Insurance," Nikkei Weekly, 26 Jan. 2002: 7. 1) 103 The second reform proposal would see all three postal services privatized. Postal savings and life insurance would become subsidiaries of a newly established mail delivery company. This new entity would gain enormous monopolistic powers unless it broke up into separate regional entities, similar to the experience of Japanese National Railways which when privatized broke into several regional companies.204 Concern arises in regards to the ability of this private mail delivery company to force the closure of unprofitable post offices in remote areas. If the entity breaks up into regional companies, then the likelihood of such post office closures rises. Contrary to a single company providing service to the entire Japanese populace, geographic breakup would allocate smaller service areas to regional companies. Due to economies of scale, the provision of postal services by more than one entity would become costly. Break up would threaten the basis of a cross-subsidy system in order to provide equitable service across all regions. Traditionally, basic postal services hold a natural monopoly. Therefore, the fear of a new private entity gaining monopoly status would be understandable from an economic rationale. If indeed postal savings and postal life insurance became subsidiaries of a newly privatized entity, the Postal Affairs Group would pose to lose out through this venture. Control over the public finance capacity of the network of post offices would transfer to the private sector. As a result, the power and prestige of the Postal Affairs Group would decline. Commissioned postmasters would lose their positions as public servants, • . . . . . . 205 and the tradition of their decedents inheriting these positions would be disrupted. From a competitive standpoint, the new mail delivery entity would inherit an incredible 204 "Postal proposal all have pros, cons," Nikkei Weekly, 2 Sept. 2002: 4. 205 An examination system exists for the selection of positions at post offices. Recruits are intended to be hired based upon their skill but relations with local regions and their association with postmasters figure predominantly. The successors of commissioned postmasters continue to be largely family members. Nikkei Bijinesu, 18 June 2001: 32. 1 0 4 advantage over its private financial institution counterparts. The new body would commence business without any bad loans.206 In contrast, private financial institutions continue to be saddled with bad loans originating from the Bubble Economy era. The third and final proposal was enacted on April 1, 2003. As a new public 207 corporation, Japan Post oversees the affairs of all three postal services. Both the Postal Affairs Group and the NACP need not be concerned over a deterioration of their prestige and influence. Accompanied with the earlier decision to discontinue the mandatory deposit of funds into the MOF's Trust Fund Bureau, the new public corporation gains control over the investment function of postal funds. Japan Post will * * • * 208 allocate postal funds through its own decision-making process. The Japanese government could gradually sell off its shares in this new public corporation. Harnessing the political willpower to disconnect the government from this new entity, however, would be an arduous task. Japan Post enjoys the amenities granted to other public services. Preferential tax treatment and government guarantees are two areas with which Japan Post is able to hold a competitive advantage over their counterparts in the private financial sector.209 Under the banner of Japan Post, the interests of the Postal Affairs Group and the NACP risk further entrenchment. The incentive to maintain the new public corporation will be greatest from these two anti-reform bodies. 4.3 Removal of Complete Guarantees on Deposits On April 1, 2002 the special measures for complete guarantee of time deposits, including those at private financial institutions, were removed. As of April 1, 2003, the "Postal proposal all have pros, cons," Nikkei Weekly, 2 Sept. 2002: 4. Ibid. Cargill and Yoshino, 2003: 16. "Panel's draft urges big changes to postal savings, insurance," Nikkei Weekly, 4 Aug. 2003: 2. 105 210 government removed its complete guarantees on transactions and other deposits. The principal and interest guaranteed on deposits at private financial institutions now have a ceiling of ¥ 10 million. While the postal savings deposits are fully guaranteed by the government, there is a ¥ 10 million limit on the size of accounts. Contrary to the perception of equal treatment, there is no penalty for holding postal savings accounts above this level. Nothing prevents individual depositors from transferring their excess funds past the ¥ 10 million mark to postal transfer accounts. In fact, postal transfer 211 accounts have no ceiling. Upper limits on postal savings accounts must be enforced to establish an equal playing field with private financial institutions. Strengthening transparent monitoring of the PSS accounting practices is imperative to achieve this aim. Under the Financial Services Agency, established in 1997, the Inspection Bureau conducts inspections of banks, insurance companies, securities companies and other financial institutions. The Inspection Bureau has at its disposal numerous laws and ordinances including the Banking Law, to apply to the business activities of the above financial institutions.212 The same inspection procedures of the Financial Services Agency should extend on the same basis to Japan Post. Mitigating the discrepancy between inspection of the PSS and private financial entities is dependent upon eliminating the system of postal transfer accounts. Under the current complete guarantee system, the government backs both postal savings and postal transfer accounts. According to Fukao Mitsuhiro and Fueda Ikuko, only if Japan Post is privatized will it be obligated to eliminate postal transfer accounts. Upon privatization, Japan Post would acquire a current account with the BOJ. From this Cargill and Yoshino, 2003: 139. 2 1 1 Okina, 2000: 49. 212 Financial Services Agency, 2002: 12. 106 point onwards it would be subjected to supervision by the BOJ. The abolition of postal transfer accounts would eliminate the BOJ's burden of guaranteeing two deposit systems at the post office.213 It is important for the Japanese government to retain a public finance and investment regime to fulfill public welfare projects. The effects of a declining fertility rate and aging populace will pressure the government to invest in certain socially beneficial projects that the private sector is less likely to. Therefore, the PSS should be reformed as a public body, with strict supervision of the levels of postal savings deposit accounts. As well the operation of postal transfer accounts should be eliminated. This will result in a reduction in the level of funds allowed in the PSS. It is imperative to reduce the size and scope of the PSS in order to reduce its distortions within the financial sector. As previously noted on page 102, government bonds accounted for the allocation of sixteen to twenty-seven percent of Trust Fund Bureau funds between 1985 and 2000. The maintenance of large investment into both government and municipal bonds raises national bond prices. As a result, long-term interest rates are suppressed to unusually low levels.214 This effect makes it difficult for private banks to remain profitable. Whereby, banks are constrained in their ability to lend out high-risk loans. As a consequence, private banks purchase larger quantities of government bonds in order to carry a lower risk in investments. As Okumura Hirohiko points out, this culminates in both public entities and private banks falling into the spiral of supporting a growing budget deficit.215 Therefore, it is desirable for the National Diet to pass a law to establish a new framework of inspection and supervision of the public Japan Post by 2 1 3 Fukao and Ikuko, 2001:24. 214 "Interview/ Hirohiko Okumura: Public Funds should be Invested Transparently," Asahi.com, 29 Oct. 2002. 8 Dec. 2002 <http://www.asahi.com/english/op-ed/K2002102900290.html>. Ibid. 1 0 7 the Financial Services Agency. Only then will postal transfer accounts be eliminated and the ceiling on postal savings accounts strictly supervised. 4.4 Resilience of the Opponents to Reform: Expanding Links with the Private Sector Reforming the PSS continues to be a daunting task. In a January 2004 interview in the Nihon Keizai Shimbun, Matsuzawa Shigefumi, the Governor of Kanagawa Prefecture and supporter of Koizumi's reform initiatives, reiterated the two main obstacles to reform of the PSS. According to Matsuzawa, the NACP and the LDP's Postal Affairs Group constitute the two major opponents of reform.216 An area of concern for proponents of reform is the expansion of A T M (Automatic Teller Machine) 217 and CD (Certificate of Deposits) tie-up services with the PSS. The PSS has had a short history of linkages with ATMs and CDs. In 1985, the first ATMs and CDs were installed outside post offices.218 The year 1999 was a benchmark year for the PSS and its relationship with ATMs and CDs . It marked an opening up of its network to partnership applications with private financial institutions. By the end of 1999, 1,823 institutions were negotiating connection to the PSS network. This figure included a number of large city, trust, and regional banks. Among the major city bank applicants 219 were Daiwa, Tokai and Asahi. The shift towards increased cooperation between the PSS and private financial institutions demonstrates the attractiveness of the extensive network of post offices across Japan. "Koizumi unlikely to deliver on reform of post," Nikkei Weekly, 26 Jan. 2004: 6. 217 A certificate of deposit (CD) is a debt instrument sold by a bank to depositors that pays a fixed amount of annual interest and pays backs the original purchase price when its reaches maturity. CDs are also known as "time deposits" due to the holder's consent to keep their money in the account for a specified period of time. These forms of deposits are both low risk and low return investments. Bank of Japan, 2003: 2-3; Mishkin and Serletis, 2002: 22. 2 1 8 Okina, 2000:42. 219 Ibid.: 42, 52. 108 At a time when Prime Minister Koizumi and Takenaka Heizo, his Economy and Financial Services minister are on the reform offensive, the PSS is expanding its services. Since becoming a public corporation on April 1, 2003 some post offices have introduced convenience stores and flower shops into their buildings. In August 2003 the Yoyogi Post Office in Tokyo allowed the Lawson Inc. convenience store chain to open the first joint post office-convenience store outlet in Japan. Meanwhile, the Yamahana 220 Post Office in Sapporo allowed a flower shop to open a post office outlet . The expansion of joint ventures between post offices and private businesses can be viewed from two perspectives. First, these ventures introduce more private-sector management methods into the PSS. Upon expanding the linkages between Japan Post and the private sector, the PSS will be pressured to apply an increasing degree of private management techniques. Secondly, in reference to Okina Yuri's perspective, the PSS is acquiring the character of a financial convenience store. This prospect raises new concerns about the over extended PSS. As a public corporation, Japan Post is now gearing up to extend competition with networked businesses in the private sector. The most visible competitor is that of convenience store chains across Japan.221 What will be the future prospects for private financial institutions? In order to survive the private sector must bolster partnerships with the PSS network as previously demonstrated. If left under the umbrella of the government, no private financial institutions will be able to compete without a partnership with the PSS. The consequences of this arrangement risk undermining Koizumi's efforts to revitalize Japan's financial sector. "Private sector gives post offices ideas for diversification," The Japan Times. 19 Feb. 2004. 26 Feb. 2004 <http://www.japantimes.co.jp/cgi-bin/Jtsearch3.pl5?Postal+Savings+&&&>. 2 2 1 Okina, 2000:54-55. 109 4.5 The Current Battle On September 20, 2003 Koizumi captured 60.7 percent of all votes cast by LDP lawmakers to emerge victorious in the LDP leadership election.222 On July 29, shortly before the election, Koizumi pledged to privatize the three postal services in April 2007.223 In what has been equated by Watanabe Tsuneo as the collapse of the Berlin Wall of Japanese politics, Koizumi's reelection signifies the decline of the largest LDP political faction. For the past thirty years, since Tanaka served as prime minister in the early 1970s, the Tanaka-Takeshita-Obuchi-Hashimoto faction has been the power broker for the LDP. Koizumi's bold refusal of political support from the Hashimoto faction began when he set out on the road to privatize postal services.224 The Hashimoto faction is mounting opposition to Koizumi's reform initiatives, as the LDP faction to cultivate the political and economic benefits arising from the PSS and the network of commissioned post offices. For the second consecutive time in thirty years, this faction has failed to influence the outcome of the election of the party president. The first time was when Koizumi was elected in April 2001 and the second time was his LDP presidential re-election in September 2003. Has Watanabe's metaphoric "wall" been permanently breached? How effective will the Hashimoto faction be in leading the opposition against reform of the PSS? One thing is certain: the faction is calling upon its allies to combat Koizumi on the reform front. Koizumi must contend with intense opposition by prominent members of the LDP. Hiromu Nonaka, former LDP Secretary-General and Aoki Mikio, current Secretary-General of the LDP's House of Councilors' Members, announced their "Victorious Koizumi sets Sights on Fall Election", Nikkei Weekly, 22 Sept. 2003: 1. Postal Privatization to Star in Polls," Nikkei Weekly, 4 Aug. 2003: 2. Watanabe, 2003: 1. 110 • • • * • 225 opposition to any bills that would call for the privatization of postal services. In true Postal Affairs Group fashion, key figures within the LDP have shown their support against reform initiatives. In January 2004, the Postal Affairs Group appointed a new head, Watanuki Tamisuke.226 Tamisuke has been a long-standing member of the Tanaka-Takeshita-Obuchi-Hashimoto faction for over twenty years. His appointment marks the continuance of original Tanaka faction members in assuming the leadership role over the Postal Affairs Group. Kanemaru Shin, Obuchi Keizo, Nonaka Hiromu and 227 Watanuki Tamisuke were all members of the Tanaka faction in 1983. Accompanying Aoki and Watanuki as the two dominant voices of opposition, is Nukaga Fukushiro. Nukuga serves as the Chairman of the LDP's PARC. Al l three men are visible members 228 of the current Hashimoto faction. It is too early to speculate whether or not Prime Minister Koizumi and Takenaka Heizo, his trusted Minister of Economy and Financial Services, can overcome opposition by the Postal Affairs Group and the NACP to fundamentally reform the PSS. What is certain is that the two groups with a vested interest in maintaining the status quo PSS continue to wield considerable influence in the Japanese political economy. Regardless of Koizumi's two successive electoral victories as the president of the LDP, the battle ahead will be characterized by significant challenges. Koizumi must achieve success in other areas of economic reform in order to demonstrate his ability to fulfill reform promises. The creation and protection, by the Tanaka faction, of political and economic advantages in maintaining an extensive PSS and public investment regime will likely remain for some time to come. Koizumi's task of scaling down the scope of 225 "Postal Privatization to Star in Polls," Nikkei Weekly, 4 Aug. 2004: 2. 2 2 6 "Postal Reform: Here we go again," Nikkei Weekly, 26 Jan. 2004: 6. 2 2 7 Hunzikerand Kamimura, 1995: 178-185. "Postal Reform: Here we go again," Nikkei Weekly, 26 Jan. 2004: 6. 11 the PSS in order to retain a smaller public finance and investment regime is desirable. The tradition of the Tanaka faction to promote and safeguard postal banking over the decades will continue to influence heavily any future debate over reform. It appears unlikely that Koizumi Junichiro will be able to reform the Japanese post office to his own vision. 112 Conclusion Since 1875 the investment roles of the Postal Savings System (PSS) have changed in response to demands in the Japanese economy. Between 1875 and 1900 the PSS served two primary purposes: creation of a savings pool for government financial use, and creation of a social safety net for the citizenry to deposit small savings. Modernization and industrialization were key targets of government policy. To this end, massive pools of public funds from the PSS were invested. In 1878 the Deposits Bureau assumed the responsibility of postal savings. The nascent PSS sparked ministerial debate over administration of postal funds. Control over PSS investments fell into the . hands of the Ministry of Finance (MOF). In 1885, the Ministry of Communications assumed authority over PSS funds and the network of post offices. No political factions vying for influence in the direction of investments were created at this time. In the closing years of the 19th century, the government established a series of banks with specific investment objectives. Postal funds were directed primarily towards the reinforcement of industrial modernization and the banking sector. In the years prior to the end of the Second World War, the government increased its administration and utilization of PSS funds. Government banks and companies drew from Deposits Bureau funds. The size and scope of the PSS evolved to strengthen the influence of postal funds in the Japanese economy. As the Japanese Empire expanded, the financing of military and colonial enterprises grew. This necessitated the diverting of funds towards national and colonial economic development. During the U.S. occupation after World War II, it became difficult to maintain extensive public investment. Joseph Dodge, the Financial Adviser to the Supreme Commander of Allied Powers (SCAP) imposed severe budget constraints on public investment. Eventually, Minister of Finance Ikeda Hayato succeeded in lobbying for the 113 allocation of Deposits Bureau funds for reconstruction efforts. Inter-ministerial debate, reminiscent of that experienced in the late 19th century, re-ignited over control of postal funds. The former Ministry of Communications, renamed in 1949 the Ministry of Posts and Telecommunications (MPT), gained control of the partial investment function of postal pension and postal life insurance. Joint jurisdiction over postal funds was shared by the MOF and the MPT. On March 31, 1951 the Trust Fund Bureau Law dissolved the Deposits Bureau. As a direct result, the deposit of postal funds shifted to the Trust Fund Bureau under the MOF. In 1953 the Fiscal Investment Loan Program (FILP) was established. The Trust Fund Bureau was adopted as its primary financial account. The establishment of the FILP corresponded to an expansion of public finance and investment of PSS funds. The FILP was created in response to the need for postwar reconstruction. Postal savings were the largest contributor to the FILP. As the PSS grew, government investment of resources in the economy increased steadily. Through the heavy use of postal funds, the FILP reaffirmed the roots of government intervention in the economy. In building upon the legacy of the Deposits Bureau, the financing for the FILP budget came out of public funds distinct from tax revenues. The immediate investment objective of the FILP focused on industrial policy. This was consistent with the effort to reinvigorate economic activity. The FILP program aided economic development leading up to Japan reestablishing its position within the international economic landscape of the 1960s and into the 1970s. The FILP became the single most important tool of public investment in Japan's postwar economic development. Contrary to the historical investment objectives, public finance and investment in the post-WWII period incorporated a new dimension. The roles of internal and external participants to the FILP highlighted the interdependency among 114 formal and informal structures in finance and investment decision-making regarding the PSS and the FILP budget. As the PSS and the FILP expanded, the potential for them to become instruments for political power and prestige increased. Tanaka Kakuei began his tenure as Minister of Post and Telecommunications, by leading an initiative to safeguard and strengthen the foundations of public finance and investment in Japan. Seizing the opportunity to capitalize upon the burgeoning PSS funds and FILP budget, Tanaka installed a protective shell over the affairs of postal banking. Utilizing the might of his political faction within the Liberal Democratic Party (LDP) and a postal affairs interest group he effectively promoted and safeguarded the PSS and FILP budget. His realignment of political factions and consolidation of financial policy between the 1950s and 1980s brought to the forefront the compounding political and economic benefits and impending costs that arose from postal banking. Under Tanaka's guidance the PSS continued to expand, becoming an enormous savings pool for the government to invest in the economy. However, the savings regime fell into conflict when they met head on in intense competition over Japanese public savings. Tanaka's legacy endures. Attempts to reform the PSS and the FILP since the late 1980s have underscored the effective opposition of the Postal Affairs Group and the National Association of the Commissioned Postmasters. Tanaka was directly responsible for the establishment of the Postal Affairs Group in the early stages of his political career. The Postal Affairs Group represented a stronghold of the Tanaka political faction. The ranks of this lobby group were filled with members and supporters of his faction. 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Oxford: Oxford University Press, 2002. "Yoru no Shinjuku "KDD Shachoshitsu." Asahi Shimbun, 22 Oct. 1979: 23. Yoshino, Toshiko. "The Varied Fortunes of Takahashi Korekiyo." Journal of Japanese Trade and Industry 21, no 3. (May/June 2002): 41-45. Yucho Shikin Kenkyu Kyokai. Shinpan Yubinchokin Shikinunyo no Gaisetsu Heisei 15 nenhan [New Overview of Postal Savings and the Trust Fund Bureau for 2003]. Tokyo: Yucho Shikin Kenkyu Kyokai, 2003. "Yusei Kanbu Takaru." Asahi Shimbun, 29 Oct. 1979: 23. "Yusei Kosha, Minkan to Kobo he," [In Defense of Japan Post as a Public Entity]. Nihon Keizai Shimbun, 1 April 2003: 4. Yusei Shingikai. 21 Seiki wo Tenboshita Yubinkyoku Kaikaku Bijyon [Twenty-127 First Century Outlook on The Ministry of Post and Telecommunications' Vision of Reform]. Tokyo: Nikkan Kogyo Shinbunsha, 1997. "Yuseiha vs Okura-Kinyuha." Toyo Keizai, 15 Oct. 1981: 36-41. "Yucho: Waga To no Kangae." Kinyu Janaru, Nov. 1980: 55-60. V 128 Table 1. Sources of Government Revenue in the First Eight Fiscal Years, 1868-1875 (Unit: Thousand ¥ ) Source of Revenue 1868 % 1869 % 1870 % 1871 % 1872 % 1873 % 1874 % 1875 % Ordinary 3,655 11.0% 4,666 13.5% 10,044 47.9% 15,341 69.3% 24,423 48.4% 70,562 82.5% 71,090 96.8% 83,081 96.2% Tax 3,157 9.5% 3,157 9.2% 9,324 44.5% 12,852 58.0% 21,845 43.3% 65,014 76.0% 65,303 88.9% 76,432 88.5% Government Enterprise - - 34 0.1% - - 119 0.5% 144 0.3% 2,002 2.3% 1,988 2.7% 2,451 2.8% Return on Funds 124 0.4% 56 0.2% 83 0.4% 424 1.9% 698 1.4% 792 0.9% 441 0.6% 632 0.7% Others 384 1.2% 177 0.5% 720 3.4% 1,946 8.8% 1,736 3.4% 2,754 3.2% 3,358 4.6% 3,566 4.1% Extraordinary 29,425 88.9% 29,772 86.5% 10,916 52.1% 6,804 30.7% 26,022 51.6% 14,946 17.5% 2,355 3.2% 3,241 3.8% Paper Money 24,037 72.6% 23,963 69.6% 5,355 25.5% 2,145 9.7% 17,825 35.3% - - - - - -Borrowings 4,732 14.3% 912 2.6% 4,782 22.8% - - - - 10,834 12.7% - - - -Domestic 3,838 11.6% 811 2.4% - - - - - - - - - - - -Foreign 894 2.7% 101 0.3% 4,782 22.8% - - - - 10,834 12.7% - - - -Return of Funds 11 0.03% 4,497 13.1% 174 0.8% 4,015 18.1% 5,359 10.6% 849 1.0% 820 1.1% 505 0.6% Others 645 1.9% 400 1.2% 605 2.9% 644 2.9% 2,838 5.6% 3,263 3.8% 1,535 2.1% 2,736 3.2% Total 33,090 100.0% 34,438 100.0% 20,960 100.0% 22,145 100.0% 50,445 100.0% 85,508 100.0% 73,445 100.0% 86,322 100.0% Source: Koichi, Emi. Government Fiscal Activity and Economic Growth in Japan: 1868-1960. Tokyo: Kinokuniya Bookstore Co., Ltd, 1963. p. 113. 129 Table 2. Japanese Yearly GNP per-capita Income (Unit: ¥ ) Year Per worker Per -capita 1878 56 30 1879 75 40 1880 81 43 1881 73 39 1882 70 37 1883 72 38 1884 71 39 1885 85 47 1886 99 56 1887 93 52 1888 92 52 1889 88 48 1890 101 57 Source: Ouchi, 1958: 340. Table 3. Postal Savings Accounts: 1893-1901 Year Accumulated level of Postal Savings (Thousand ¥ ) Amount of annual savings received (Thousand ¥ ) Average level of savings per account ( ¥ ) 1893 26,155 14,523 24.67 1894 25,901 13,446 23.37 1895 28,965 17,195 23.68 1896 28,479 16,236 22.26 1897 26,157 14,262 20.69 1898 22,490 10,620 17.92 1899 24,014 12,832 16.91 1900 24,733 14,268 12.29 1901 27,971 18,128 11.64 Source: Sugiura,1986: 519. Extracted from data compiled by Yubin Kawase Chokin Jigyo Gaiyo [Summary on Postal Savings Exchange Business]. 130 Table 4. Growth of Postal Savings and Investment of Deposits Bureau Funds: 1900-1928 (Unit: Thousands of ¥ ) Year Postal Savings Deposits Bureau Funds Postal Savings / Deposits Bureau Funds Bonds Loans Reserves Others Total Funds National Bonds Local Bonds Special Bank and Company Bonds Foreign National Bonds Amounts % of Total 1900 24,015 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1901 27,009 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1902 28,804 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1903 31,471 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1904 38,779 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1905 52,836 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1906 72,266 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1907 91,531 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 1908 105,330 121.061 N/A 23,509 11.1% 35,007 N/A N/A 32,725 212,302 49 .6% 1909 123,379 129,510 N/A 25,550 11.0% 34,924 13,000 6,750 23,441 233,175 52.9% 1910 161,026 134,611 7,142 33,361 10.7% 33,822 41,500 N/A 61,428 311,864 51.6% 1911 183,513 128.188 15,158 59,195 20 .5% 33,722 43,500 N/A 8,494 288,257 63 .7% 1912 197,293 113.911 16,112 75,754 24 .1% 33,622 61,977 N/A 12,966 314.342 62 .8% 1913 195.673 101,875 18,331 80,464 27.0% 33,284 46,529 N/A 16,989 297.472 65 .8% 1914 195,896 52,526 17,791 89,330 28.4% 33,049 93,139 N/A 29,047 314,882 62 .2% 1915 221,842 66,-173 15,329 89,359 24 .5% 44,661 101,962 N/A 47.196 364,680 60 .8% 1916 298,565 68,590 14,666 100,177 22 .3% 125,966 105,945 N/A 33,484 448,828 66 .5% 1917 416,947 58,593 16,584 123,345 20.4% 190,090 106.486 7.810 100,928 603,836 69 .0% 1918 562,628 70,556 18,878 166,909 21 .3% 139,974 138,486 208.974 41,082 784,859 71.7% 1919 698,162 103,788 37,226 219,620 22.4% 383,241 165,843 40,659 31,266 981,643 71 .1% 1920 847,003 112,709 61,634 310,328 27.2% 408,902 185,287 37,088 24,002 1,139.950 74 .3% 1921 906,726 168,575 83,644 325.883 25 .3% 350,356 171,747 43,194 146,480 1,289,879 70 .3% 1922 976,375 239,779 97.038 309,647 21.7% 361.670 189,477 41,172 186,599 1,425,382 68 .5% 1923 1,102,129 237.370 140,430 340,315 22 .1% 270,582 257,843 143,516 150,085 1,540.141 71.6% 1924 1,100,410 309,063 165,659 403,480 24.4% 199,262 367,916 95.193 115,711 1,656,284 66.4% 1925 1,133.593 306.203 195,672 432,534 25.2% 164,378 430,803 100,820 84,143 1,714.553 66 .1% 1926 1,156,415 417.633 222,007 424,201 23.7% 152,597 436,155 56,438 79,307 1.788,338 64.7% 1927 1,523,037 448.877 298,799 491,682 22 .1% 49,048 438,114 370.279 129,092 2,225,891 68.4% 1928 1,742,781 543,536 395,977 630,240 26.0% 12,325 496,415 202,921 144,775 2.426,189 71.8% Data sources: Ouchi,1958:208-09; Asahi Shinbunsha,1999:536. Note 1: Data for Deposits Bureau prior to 1908 unavailable. Note 2: "Loans" include loans to government institutions and public organizations. 131 Table 5. Growth of Postal Savings and Investment of Deposits Bureau Funds: 1929-1953 (Unit: Millions of ¥) Year Postal Savings Deposits Bureau Funds Postal Savings / Deposits Bureau Funds Bonds Loans Reserves Others Total Funds National Bonds Local Bonds Special Banks and Company Bonds Foreign National Bonds Amounts % of Total 1929 2.201 712 475 661 23.8% 17 550 218 142 2,775 79.3% 1930 2,497 918 466 767 24.6% 6 652 168 146 3,123 80.0% 1931 2.816 1.087 620 781 22.7% 4 709 102 144 3,447 81.7% 1932 2,772 1,093 735 875 24.1% 0.3 668 112 150 3.634 76.3% 1933 2.919 1,348 824 879 22.8% 6 531 140 135 3,863 75.6% 1934 3.065 1,614 892 892 21.9% 0 471 77 122 4,068 75.3% 1935 3,233 1,740 961 894 20.8% 0 505 72 125 4,297 75.2% 1936 3,483 1,910 1,031 778 16.6% 0 739 94 142 4.694 74.2% 1937 3,891 2,248 1,058 734 14.1% 0 818 170 191 5,219 74.5% 1938 4,739 3,177 1,059 753 12.6% 0 731 56 197 5,973 79.3% 1939 6,153 4,674 1,086 823 10.7% 0 840 49 229 7,701 79.9% 1940 7,915 6,465 1.180 1.286 12.8% 0 819 29 295 10,074 78.6% 1941 9,975 8,129 1,250 1,674 13.5% 0 901 30 394 12,378 80.6% 1942 13,044 12,865 1.333 2,645 14.3% 0 1.049 41 588 18,521 70.4% 1943 18,973 20.266 1.486 2.927 10.8% 0 1,089 44 1,405 27,217 69.7% 1944 30,375 32,405 1,427 4,485 10.3% 0 3,323 343 1,720 43,703 69.5% 1945 47,152 45,481 1,404 5,265 8.0% 0 5,522 6,145 1,934 65,751 71.7% 1946 53.356 44,827 1,337 5,144 8.4% 0 8,048 130 1,934 61,420 86.9% 1947 53,525 48,358 1,171 5,207 7.6% 0 11,390 197 1,935 68,258 78.4% 1948 80,558 70,741 923 5,615 4.6% 0 44,135 1,295 N/A 122,709 65.6% 1949 122.076 77,439 522 1,433 0.7% 0 103,380 1,946 13,996 198,716 61.4% 1950 154,725 87,386 405 1,221 0.5% 0 132,858 16,137 17,960 255,967 60.4% 1951 200,896 178,876 610 49.139 11.3% 0 202,930 4,695 N/A 436,250 46.1% 1952 266,773 204,082 533 85,303 13.6% 0 332,692 4,541 N/A 627,151 42.5% 1953 355,086 64,181 451 115,342 18.1% 0 451.343 5,019 N/A 636,336 55.8% Data sources: Ouchi, 1958:208-09; Statistics Bureau, Office of the Prime Minister, 1961:309. Note : "Loans" include loans to government institutions and public organizations. 1 3 2 Table 6. Invested Funds for Post Life Insurance and Postal Pension Plan:1930-1953 (Unit: Millions of ¥ ) Year Total Value Loans to Public Bodies Government Bonds Debt and securites Stocks Other Securities Short Term loans Loans on Policies Deposits in Deposits Bureau and Cash on Hand Loans on Deeds Local Gov't Bonds Amount % of Total Value 1930 483 223 81 81 4 0 0 0 50 45 9.3% 1931 597 241 126 102 19 0 0 0 68 41 6.9% 1932 702 252 139 123 24 0 0 0 86 78 11.1% 1933 815 200 248 139 43 0 0 0 98 86 10.6% 1934 950 189 369 164 77 0 0 0 109 43 4.5% 1935 1,087 247 392 189 111 0 0 7 122 20 1.8% 1936 1,237 288 411 247 136 0 0 4 138 12 1.0% 1937 1,414 313 454 307 163 0 8 12 148 8 0.6% 1938 1,594 361 473 372 192 0 8 32 150 6 0.4% 1939 1,797 392 495 455 253 0 11 39 145 7 0.4% 1940 2,069 408 488 555 396 13 11 58 139 3 0.1% 1941 2,454 430 478 714 538 65 11 75 134 9 0.4% 1942 3,010 462 499 964 770 110 11 68 125 1 0.03% 1943 3,797 520 635 1,109 831 123 11 0 107 462 12.2% 1944 4,847 616 677 1,200 900 129 11 0 82 1,231 25.4% 1945 6,134 820 658 1,175 956 131 11 0 68 2,316 37.8% 1946 7,573 765 646 1,175 949 131 11 0 57 3,840 50.7% 1947 8,681 724 635 1,175 943 131 11 0 45 5,018 57.8% 1948 10,072 636 630 2,192 402 39 0 0 38 6,135 60.9% 1949 12,826 584 625 2,092 397 39 0 0 49 9,041 70.5% 1950 23,259 536 617 2,043 273 40 0 0 386 19,365 83.3% 1951 44,301 489 586 1,898 145 39 0 0 1,418 39,724 89.7% 1952 71,453 448 541 1,241 106 39 0 0 3,940 65,138 91.2% 1953 109,370 16,631 503 1,212 52 36 0 0 6,817 84,118 76.9% Source: Statistics Bureau, Office of the Prime Minister, 1955: 321. 133 Table 7. Liabilities of the Fiscal Investment Loan Program: 1953-1974 (Unit: Million ¥ ) Fiscal Investment Loan Program Year Trust Fund Bureau Trust Fund Bureau Funds Deposited in FILP %of FILP Postal Life Insurance & Postal Pension industrial Investment Special Account Govt guaranteed bonds and loans Fiscal Investment Loan Program Liabilities Total Funds Postal Savings %of Total Postal Life Insurance & Postal Pension %of Total Welfare Insurance %of Total National Pension %of Total Other Deposits %of Total Others %of Total 1953 349,975 55.0% 126,597 19.9% 81,587 12.8% N/A N/A 73,213 11.5% 4,966 0.8% 636,338 174,600 51.7% 20,100 56,700 38,500 337,400 1954 451,448 58.4% 123,801 16.0% 110,596 14.3% N/A N/A 83,113 10.8% 3,487 0.5% 772,445 168,500 59.0% 45,400 17,500 34,400 285,800 1955 533,452 59.2% 128,868 14.3% 142,046 15.8% N/A N/A 90,269 10.0% 6,582 0.7% 901,217 152,900 51.3% 48,200 34,000 51,600 297,800 1956 645,452 58.9% 135,220 12.3% 182,009 16.6% N/A N/A 114,756 10.5% 17,940 1.6% 1,095,377 159,700 48.9% 56,400 22,900 85,800 326,800 1957 748,143 57.6% 142,273 11.0% 239,372 18.4% N/A N/A 158,662 12.2% 10,276 0.8% 1,298,726 235,800 59.4% 78,000 37,800 45,200 396,800 1958 833,799 55.0% 143,320 9.5% 296,574 19.6% N/A N/A 226,905 15.0% 15,976 1.1% 1,516,574 254,800 59.9% 89,100 27,700 53,600 425,200 1959 967,006 56.5% 142,827 8.3% 358,595 21.0% N/A N/A 222,084 13.0% 20,718 1.2% 1,711,230 318,200 56.6% 109,800 38,200 95,900 562,100 1960 1,117,609 53.8% 141,765 6.8% 450,408 21.7% N/A N/A 345,592 16.6% 22,732 1.1% 2,078,106 347,100 55.5% 119,900 39,800 118,300 625,100 1961 1,294,687 51.2% 146,895 5.8% 570,965 22.6% 25,372 1.0% 487,264 19.3% 29,107 1.2% 2,528,918 475,400 57.3% 143,000 47,800 164,100 830,300 1962 1,524,287 50.6% 129,779 4.3% 695,889 23.1% 60,341 2.0% 530,595 17.6% 73,539 2.4% 3,014,430 556,300 58.5% 149,600 53,200 192,200 951,300 1963 1,817,993 52.0% 92,995 2.7% 877,732 25.1% 100,991 2.9% 564,149 16.1% 43,091 1.2% 3,496,951 720,200 59.7% 158,000 69,400 259,200 1,206,800 1964 2,208,726 53.7% 41,250 1.0% 1,081,723 26.3% 143,184 3.5% 591,557 14.4% 48,543 1.2% 4,114,983 898,000 62.8% 149,500 81,000 302,000 1,430,500 1965 2,673,220 52.9% 89,794 1.8% 1,406,096 27.8% 188,448 3.7% 642,314 12.7% 54,025 1.1% 5,053,897 1,187,200 66.8% 109,500 43,000 436,700 1,776,400 1966 3,267,077 52.4% 143,653 2.3% 1,819,833 29.2% 239,986 3.8% 711,708 11.4% 55,939 0.9% 6,238,196 1,254,200 60.1% 168,900 48,500 613,800 2,085,400 1967 4,063,384 52.3% 150,935 1.9% 2,222,216 28.6% 319,095 4.1% 839,278 10.8% 169,999 2.2% 7,764,907 1,602,700 64.2% 218,500 66,200 609,400 2,496,800 1968 5,048,703 52.4% 216,536 2.2% 2,839,467 29.5% 418,863 4.4% 1,039,310 10.8% 64,889 0.7% 9,627,768 1,904,000 68.4% 265,200 68,900 545,200 2,783,300 1969 6,255,533 52.6% 263,504 2.2% 3,487,813 29.3% 548,564 4.6% 1,271,864 10.7% 68,983 0.6% 11,896,261 2,241,600 70.5% 335,400 88,500 515,000 3,180,500 1970 7,675,661 52.5% 350,067 2.4% 4,343,531 29.7% 717,178 4.9% 1,471,836 10.1% 71,457 0.5% 14,629,730 2,791,300 73.5% 406,900 103,500 497,300 3,798,700 1971 9,565,888 52.7% 458,350 2.5% 5,362,323 29.6% 918,024 5.1% 1,766,757 9.7% 73,508 0.4% 18,144,850 3,748,000 74.8% 504,800 85,300 670,600 5,008,700 1972 12,162,235 53.3% 603,431 2.6% 6,579,758 28.8% 1,122,773 4.9% 2,281,564 10.0% 66,671 0.3% 22,816,432 4,729,700 78.3% 602,600 76,300 629,200 6,037,800 1973 15,233,981 54.8% 732,239 2.6% 7,808,841 28.1% 1,337,302 4.8% 2,618,951 9.4% 60,691 0.2% 27,792,005 6,148,400 82.9% 754,800 80,200 430,000 7,413,400 1974 19,158,477 55.0% 897,672 2.6% 9,930,388 28.5% 1,570,981 4.5% 3,199,307 9.2% 71,393 0.2% 34,828,218 8,011,800 84.7% 979,300 66,900 399,800 9,457,800 Data sources: Ministry of Finance, Financial History Department, 1999: 368,371; Statistics Bureau, Office of the Prime Minister, 1979:358,466. Note: Postal Savings category includes: Postal Savings and Postal Transfer Savings Note 2: -In 1961 the National Pension System Contributory Plan was inaugurated to facilitate deposits of national pension funds into the Trust Fund Bui Note 3: In its first four year, the FILP received a portion of its financing from the National government's general account budget. 1953: ¥47,500 million; 1954: ¥20,000 million; 1955: ¥11,100 million; 1956: ¥2,000 million 134 Table 8. Assets of Trust Fund Bureau: 1953-1973 (Unit: Million ¥ ) Trust Fund Bureau Investments Year Long term Bonds %of Total Short term Bonds %of Total General and Special Accounts %of Total Govt Agencies %of Total Local Govt Orgs %of Total Semi-govt Organization %of Total Bank Debentures %of Total Others %of Total Cash on Hand %of Total Total Funds 1953 32,271 5.1% 31,910 5.0% 7,685 1.2% 148,057 23.3% 287,931 45.2% 3,255 0.5% 113,740 17.9% 6,470 1.0% 5,019 0.8% 636,338 1954 20,376 2.6% 21,800 2.8% 13,590 1.8% 221,222 28.6% 334,885 43.4% 4,191 0.5% 132,728 17.2% 20,872 2.7% 2,781 0.4% 772,445 1955 14,178 1.6% 30,389 3.4% 19,652 2.2% 301,347 33.4% 364,879 40.5% 5,126 0.6% 135,426 15.0% 27,565 3.1% 2,655 0.3% 901,217 1956 14,178 1.3% 40,139 3.7% 12,699 1.2% 381,546 34.8% 393,701 35.9% 24,782 2.3% 172,360 15.7% 54,559 5.0% 1,413 0.1% 1,095,377 1957 54,532 4.2% 79,471 6.1% 14,087 1.1% 461,441 35.5% 411,853 31.7% 30,270 2.3% 161,268 12.4% 80,712 6.2% 5,092 0.4% 1,298,726 1958 49,537 3.3% 133,221 8.8% 21,344 1.4% 561,763 . 37.0% 429,907 28.3% 56,352 3.7% 156,980 10.4% 105,687 7.0% 1,783 0.1% 1,516,574 1959 14,171 0.8% 156,198 9.1% 34,726 2.0% 681,092 39.8% 448,439 26.2% 70,935 4.1% 163,368 9.5% 140,549 8.2% 1,752 0.1% 1,711,230 1960 82,810 4.0% 227,439 10.9% 42,003 2.0% 807,688 38.9% 478,884 23.0% 87,042 4.2% 167,387 8.1% 183,997 8.9% 857 0.0% 2,078,107 1961 207,795 8.1% 96,121 3.8% 49,996 2.0% 1,083,089 42.4% 526,020 20.6% 147,852 5.8% 231,557 9.1% 211,182 8.3% 678 0.0% 2,554,290 1962 178,987 5.9% 197,078 6.5% 57,051 1.9% 1,274,763 42.3% 619,254 20.5% 205,136 6.8% 251,793 8.4% 229,709 7.6% 659 0.0% 3,014,430 1963 144,467 4.1% 56,326 1.6% 66,290 1.9% 1,576,648 45.1% 721,176 20.6% 320,072 9.2% 370,466 10.6% 240,868 6.9% 638 0.0% 3,496,951 1964 - 0.0% 314,789 7.6% 100,214 2.4% 1,930,376 46.9% 848,544 20.6% 398,190 9.7% 266,096 6.5% 255,685 6.2% 1,089 0.0% 4,114,983 1965 88,740 1.8% 411,148 8.1% 198,466 3.9% 2,429,621 48.1% 1,040,342 20.6% 555,159 11.0% 55,713 1.1% 274,276 5.4% 432 0.0% 5,053,897 1966 258,349 4.1% 335,807 5.4% 257,376 4.1% 3,039,334 487% 1,286,792 20.6% 686,093 11.0% 84,847 1.4% 288,617 4.6% 981 0.0% 6,238,196 1967 628,719 8.1% 281,233 3.6% 290,826 3.7% 3,785,376 48.7% 1,518,851 19.6% 851,167 11.0% 103,821 1.3% 303,741 3.9% 1,173 0.0% 7,764,907 1968 487,870 5.1% 511,626 5.3% 354,473 3.7% 4,866,706 50.5% 1,733,782 18.0% 1,228,564 12.8% 126,056 1.3% 316,117 3.3% 2,574 0.0% 9,627,768 1969 530,153 4.5% 737,741 6.2% 399,042 3.4% 5,983,786 50.3% 1,964,397 16.5% 1,715,943 14.4% 242,728 2.0% 320,132 2.7% 2,339 0.0% 11,896,261 1970 1,112,534 7.6% 602,989 4.1% 504,567 3.4% 7,333,127 50.1% 2,240,664 15.3% 2,207,236 15.1% 298,104 2.0% 329,419 2.3% 1,090 0.0% 14,629,730 1971 2,180,803 12.0% 477,966 2.6% 670,934 3.7% 8,837,786 48.7% 2,609,285 14.4% 2,665,299 14.7% 353,754 1.9% 347,961 1.9% 1,062 0.0% 18,144,850 1972 1,301,417 5.7% 2,131,368 9.3% 1,456,013 6.4% 10,531,663 46.2% 3,262,412 14.3% 3,334,366 14.6% 450,166 2.0% 346,707 1.5% 2,320 0.0% 22,816,432 1973 3,549,611 12.5% 403,738 1.4% 1,448,759 5.1% 13,109,454 46.3% 4,476,037 15.8% 4,354,160 15.4% 618,989 2.2% 374,409 1.3% 3,070 0.0% 28,338,227 Source: Ministry of Finance, Financial History Department, 1999: 371. 135 Table 9. FILP Investments: 1953-1963 (Unit: Million ¥ ) 1953 1954 1955 1956 1957 1958 1959 1960 1961 1962 1963 Special Accounts 4,600 2,500 4,500 2,800 5,100 12,300 19,600 9,500 10,400 10,700 13,400 Japanese National Railways (JNR) 22,600 19,500 24,000 29,500 29,400 28,500 50,500 71,600 85,100 106,700 152,600 Nippon Telegraph and Telephone Company 8,800 4,200 7,500 4,000 9,400 3,500 5,000 8,000 12,200 12,500 19,000 Financial Institutions Housing Loan Corporation 15,800 14,500 18000 19600 23,300 27,300 35,000 36,000 40,000 49,000 59,500 People's Finance Corporation 9,600 11,100 11,000 14,000 27,000 25,500 31,200 32,500 45,500 52,000 62,500 Small Business Finance Corporation 13,000 13,000 12,000 15,500 30,000 29,500 35,800 35,500 52,500 66,500 72,800 Agriculture, Forestry,and Fisheries Finance Corporation 25,600 20,000 17,500 16,000 16,000 19,500 32,500 29,900 38,500 41,400 55,100 Local Public Enterprise Finance Corporation 500 500 500 300 300 19,300 20,000 Japan Development Bank 55,700 32,000 15,500 8,000 34,700 35,500 45,000 43,000 57,200 89,400 91,600 Export-Import Bank of Japan 5,000 21,000 16,300 3,500 _ 31,600 48,500 77,000 56,000 91,000 Hokkaido & Tohoku Development Corporation 8,000 10,900 11,000 12,000 11,000 14,000 16,000 18,500 Enironmental Sanitation Finance Corporation Others - - - - - - 2,000 2,800 6,800 5,900 7,200 Public Corporations Japan Housing Corp. 15,000 20,900 24,200 31.200 35,200 35,400 43,500 53,900 67,200 Japan Highway Public Corp. _ 8,000 4,500 8,500 13,400 16,500 29,100 40,500 61,900 Pension Welfare Service Corp. _ _ _ _ _ _ 10,900 15,000 20,000 Tokyo Expressway Corp. _ _ _ _ _ 3,700 11,900 20,100 28,800 Hanshin Expressway Corp. _ _ _ _ _ 1,000 5,700 Public Nuisance Prevention Corporation Japan Railway Construction Corp. _ _ _ _ _ 1,000 Teito Rapid Transit Authority 1,500 1,000 1,000 1,500 2,900 3,000 3,500 5,500 8,500 10,000 12,000 OECF - - - - - - - - - - -Other Public Corps - - - - 2,700 10,000 10,400 8,100 7,300 17,600 39,100 Electric Power Development Company 20,000 24,500 26,900 35,500 44,000 44,700 43,600 43,500 40,900 32,600 30,300 Shoko Chukin Bank - - 1,000 1,000 8,200 4,700 7,800 7,600 11,900 11,000 11,500 Other Corporations 31,000 20,000 5,300 7,700 8,000 18,200 10,900 7,600 7,000 7,300 11,100 Local Government 129,200 118,500 117,600 118,500 112,500 111,800 136,600 168,600 219,800 216,900 255,000 TOTAL 337,400 285,800 297,800 326,800 396,800 425,200 562,100 625,100 830,300 951,300 1,206,800 Note 1. "Others" category under "Finance Institutions" includes: the Medical Loan Corporation, Environmental Sanitation Finance Corporation, and the Okinawa Development Finance Corporation. Note 2. The number of "Other Public Corporations" grew to seventeen in 1963. Note 3. "Other Corporations" category Includes: semi-governmental corporations and government debentures. Note 4: "OECF" is the Overseas Economic Development Fund 136 Table 10. FILP Investments: 1964-1974 (Unit: Million ¥ ) 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 Special Accounts 19,700 26,300 24,100 26,600 32,600 36,700 38,100 44,500 61,400 89,500 128,100 Japanese National Railways (JNR) 153,400 184,900 192,000 231,100 263,900 289,900 380,000 460,400 654,300 844,100 1,027,600 Nippon Telegraph and Telephone Company 19,800 21,500 28,000 32,000 15,000 10,000 20,000 18,000 40,000 42,000 33,000 Financial Institutions Housing Loan Corporation 70,000 96,400 118100 135,700 155,400 191,200 234,800 319,300 424,200 584,200 1,019,800 People's Finance Corporation 76,400 96,800 127,900 176,700 195,000 233,500 284,400 372,100 412,700 614,900 752,600 Small Business Finance Corporation 93,300 115,300 142,000 164,700 193,400 237,500 272,800 375,600 371,900 601,600 721,500 Agriculture, Forestry.and Fisheries Finance Corporation 70,500 82,900 93,200 114,900 133,000 145,600 151,900 195,500 202,200 248,800 278,000 Local Public Enterprise Finance Corporation 28,100 39,100 41,200 42,300 42,200 42,000 42,000 71,900 105,100 108,200 115,500 Japan Development Bank 98,100 137,700 154,200 168,800 193,700 228,600 263,200 352,000 364,000 385,700 448,200 Export-Import Bank of Japan 116,200 150,900 182,000 253,000 263,000 345,500 379,000 349,000 358,000 536,000 616,500 Hokkaido & Tohoku Development Corporation 28,900 27,400 19,000 23,400 27,900 31,900 38,000 56,500 57,500 68,000 78,000 Enironmental Sanitation Finance Corporation 23,300 34,400 51,000 57,000 69,800 80,500 99,900 114,000 Others 8,500 14,000 18,000 21,300 25,000 27,000 29,000 36,800 61,000 100,200 115,500 Public Corporations Japan Housing Corp. 77,400 113,000 149,300 178.000 210.900 234,700 328,400 447.400 421,900 402,500 454.000 Japan Highway Public Corp. 73,000 94,900 126,800 165,500 182,700 176,600 218,200 294,600 405,300 505,000 541,500 Pension Welfare Service Corp. 26,600 37,000 37,000 38,000 40,000 48,000 68,000 70,500 48,600 95,600 143,900 Tokyo Expressway Corp. 27,700 15,800 25,500 38,400 45,700 53,200 55,300 50,800 62,400 73,500 73,000 Hanshin Expressway Corp. 10,800 22,100 23,400 29,500 34,400 37,700 33,800 40,300 49,700 55,400 54,300 Public Nuisance Prevention Corporation 2,000 4,500 5,000 5,500 10,500 24,100 31,600 37,400 50,500 80,300 Japan Railway Construction Corp. 2,000 5,000 10,000 19,800 25,100 35,700 45,800 50,300 88,700 121,900 126,700 Teito Rapid Transit Authority 15,000 11,900 8,000 11,000 13,900 15,400 21,600 19,800 29,100 28,200 30,600 OECF - 1,000 7,500 9,000 20,000 15,300 15,500 40,000 56,000 64,500 77,000 Other Public Corps 35,800 48,900 63,500 92,400 98,800 112,600 134,100 173,300 199,900 287,600 322,600 Electric Power Development Company 31,800 28,700 24,600 17,500 27,800 19,000 20,800 28,900 39,300 35,700 31,700 Shoko Chukin Bank 16,000 16,400 7,000 18,500 27,300 14,500 20,700 49,600 43,000 104,000 143,900 Other Corporations 10,900 10,100 10,700 5,000 9,400 9,700 6,200 2,300 7,700 3,000 3,100 Local Government 320,600 376,400 447,900 455,400 465,300 522,700 611,400 977,900 1,352,000 1,262,900 1,529,400 Others - - - - 2,000 4,500 4,900 10,000 4,000 - -TOTAL 1,430,500 1,776,400 2,085,400 2,496,800 2,783,300 3,180,500 3,799,000 5,008,700 6,037,800 7,413,400 9,060,300 Data sources: Ministry of Finance, Financial History Department,! 999:355-364;! Statistics Bureau, Office of tl TO Prime Minister, 1976:45-»-455. Notel: "Others" category under "Finance Institutions" Includes: the Medical Loan Corporation, Environmental Sanitation Finance Corporation, and the Okinawa Development Finance Corporation. Note 2: The number of "Other Public Corporations' grew from nineteen in 1964 to twenty-eight in 1973. Note 3. "Other Corporations" category Includes: semi-governmental corporations and government debentures. Note 4. "Others" category ranging from 1968-1972 corresponded to funds to Taiwan. Note 5: "OECP is the Overseas Economic Development Fund Table 11. Comparison of Teigaku Deposit versus a Ten Year Fixed-Term Bank Deposit Withdrawn before Maturity (Contractual Rate = 2.45 percent) Term Interest Rate Bank Deposit 6 months to 1 year 0.1 percent (equal to ordinary savings account) In the second year 10 percent of 2.45 percent = 0..245 percent In the third year 20 percent of 2.45 percent = 0.49 percent In the fourth year 30 percent of 2.45 percent = 0.74 percent In the fifth year 40 percent of 2.45 percent = 0.98 percent In the sixth year 50 percent of 2.45 percent = 1.2 percent Teigaku Deposit 6 months to 1 year 0.35 percent In the second year 0.4 percent In the third year 0.65 percent 3 years to 10 years 1.2 percent Source: Chadha et al., 1996. 138 Table 12. FILP Investments: 1975-1985 (Unit: Million ¥ ) 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Special Accounts 192,900 263,600 294,200 351,800 360,100 367,900 374,000 405,700 426,900 439,000 436,900 Japanese National Railways (JR) 1,077,000 1,049,600 1,138,700 1,275,300 1,252,300 1,367,000 1,408,000 1,453,000 1,457,000 1,456,000 1,386,000 Nippon Telegraph and Telephone Company 48,000 63,000 63,000 51,000 50,000 50,000 150,000 150,000 15,000 70,000 Financial Institutions Housing Loan Corporation 1,199,000 1,306,000 1,816,600 2,162,900 2,784,500 3,101,900 3,292,100 3,527,000 3,661,000 3,562,000 3,483,000 People's Finance Corporation 741,700 916,100 1,159,600 1,083,500 1,345,000 1,506,600 1,860,100 1,929,000 1,947,000 1,958,000 1,870,000 Small Business Finance Corporation 715,000 878,000 994,900 890,700 1,196,000 1,526,500 1,583,800 1,596,000 1,649,000 1,685,000 1,592,000 Agriculture, Forestry.and Fisheries Finance Corporation 340,000 433,000 500,000 460,000 550,000 576,000 613,000 542,000 528,000 515,000 502,000 Local Public Enterprise Finance Corporation 120,300 350,500 501,000 701,000 850,800 930,700 970,700 1,081,000 1,219,000 1,221,000 1,101,000 Japan Development Bank 536.000 517,000 629,700 537,800 643,500 724,500 752,000 849,000 814,000 818,000 769,000 Export-Import Bank of Japan 651,500 770,600 745,100 388,000 820,000 723,000 745,000 1,063,000 1,025,000 913,000 693,000 Hokkaido & Tohoku Development Corporation 89,500 100,000 131,900 106,500 123,400 99,000 122,000 124,000 105,000 121,000 115,000 Enironmental Sanitation Finance Corporation 151,000 164,500 192,000 200,500 266,800 253,000 287,500 208,000 185,000 216,000 195,000 Others 122,800 134,900 157,900 154,300 195,200 189,200 202,200 190,000 168,000 132,000 115,500 Public Corporations Japan Housing Corp. 756,900 892,200 786,900 586,900 888,800 930,600 974,000 780,000 754,000 751.000 802.000 Japan Highway Public Corp. 633,100 638,500 763,100 856,100 758,800 789,500 897,100 1,133,000 1,208,000 1,308,000 1,396,000 Pension Welfare Service Corp. 181,200 211,400 264,400 329,300 399,800 402,700 644,800 760,000 775,000 778,000 815,000 Tokyo Expressway Corp. 86,500 97,600 102,500 122,000 106,000 102,700 120,700 153,000 155,000 154,000 157,000 Hanshin Expressway Corp. 60,800 72,000 70,100 81,800 71,500 71,900 87,000 109,000 111,000 111,000 126,000 Public Nuisance Prevention Corporation 109,500 85,300 21,000 13,800 45,000 28,600 37,100 40,000 43,000 47,000 46,000 Japan Railway Construction Corp. 149,200 166,700 249,900 271,000 286,900 283,800 302,900 167,000 168,000 168,000 185,000 Teito Rapid Transit Authority 31,600 34,800 31,700 29,900 20,200 21,300 23,000 26,000 25,000 25,000 25,000 OECF 94,500 97,800 98,000 125,100 230,100 267,300 260,000 230,000 290,000 380,000 422,000 Other Public Corps 432,000 467,400 443,300 414,900 474,900 492,200 447,100 489,300 647,100 604,000 652,600 Electric Power Development Company 40,300 50,100 65,500 83,500 96,400 103,500 103,500 99,000 41,000 83,000 78,000 Shoko Chukin Bank 62,300 66,200 63,000 63,100 75,000 72,200 76,200 73,000 73,000 80,000 82,000 Other Corporations 3,100 2,600 3,300 23,400 31,700 21,000 15,000 5,000 5,000 12,000 15,000 Local Government 2,080,000 1,559,900 2,176,100 2,671,500 2,962,600 3,106,700 3,274,600 3,422,000 3,224,000 3,500,000 3,798,000 Others - - - - - - - - - - -TOTAL 10,705,700 11,389,300 13,463,400 14,035,600 16,885,300 18,109,300 19,623,400 IAA M 1077 4H 20,604,000 007 20,719,000 21,107,000 20,858,000 Notol: "Others" category under "Finance Institutions" Includes: the Medical Loan Corporation, Environmental Sanitation Finance Corporation, and the Okinawa Development Finance Corporation. Note 2: The number of "Other Public Corporations" grew from nineteen In 1964 to twenty-eight in 1973. Note 3. "Other Corporations* category includes: semi-governmental corporations and government debentures. Note 4. "Others" category ranging from 1988-1972 corresponded to funds to Taiwan. Note 5: "OECP is the Overseas Economic Development Fund Note 6: In 1981 the "Japan Housing Corporation" merged with the Dueling Land Development Corporation to form the Housing end Urban Development Corporation . 139 Table 13. Liabilities and Assets of the Trust Fund Bureau: 1985-2000 (Unit: Billion ¥ ) Trust Fund Bureau Trust Fund Bureau Funds Deposited in FILP Fiscal Investment Loan Program TFB funds out of FILP Liabilities Assets Total Funds Postal • Savings %of Total Postal Life Insurance & Postal Pension %of Total Welfare Insurance %of Total National Pension %of Total Other Deposits %of Total Others %of Total Long tern Govt Bonds Short term Govt. Bonds National Govt Bond Assets out of Total Others 1985 101,324 60.6% 2,575 1.5% 50,304 30.1% 2,493 1.5% 10,261 6.1% 111 0.1% 39,520 93 24% 127,455 167,068 23,642 29,432 80% 1986 108,872 60.0% 3,050 1.7% 55,100 30.4% 3,072 1.7% 11,136 6.1% 121 0.1% 47,984 39 26% 133,328 181,351 23,424 29,579 79% 1987 116,829 59.2% 3,763 1.9% 59,684 30.2% 3,638 1.8% 13,262 6.7% 128 0.1% 53,673 61 27% 143,570 197,304 26,381 32,636 81% 1988 125,292 58.3% 4,161 1.9% 65,253 30.4% 4,203 2.0% 15,768 7.3% 136 0.1% 58,677 74 27% 156,061 214,812 25,674 32,224 80% 1989 131,337 57.1% 4,132 1.8% 67,713 29.4% 4,542 2.0% 19,087 8.3% 3,316 1.4% 55,596 1,977 25% 172,553 230,126 27,735 35,205 79% 1990 135,931 55.5% 4,380 1.8% 74,275 30.3% 4,925 2.0% 21,759 8.9% 3,645 1.5% 56,867 23 23% 188,025 244,915 29,818 37,814 79% 1991 154,638 56.1% 4,966 1.8% 83,869 30.4% 5,796 2.1% 26,381 9.6% 169 0.1% 63,615 3,161 24% 209,043 275,819 41,278 49,527 83% 1992 168,650 55.7% 6,993 2.3% 89,915 29.7% 6,718 2.2% 30,150 10.0% 239 0.1% 64,789 2,812 22% 235,064 302,665 40,192 48,086 84% 1993 181,475 55.6% 8,032 2.5% 96,633 29.6% 7,537 2.3% 32,215 9.9% 395 0.1% 61,671 791 19% 263,825 326,287 45,982 55,404 83% 1994 195,234 56.3% 7,435 2.1% 103,023 29.7% 8,180 2.4% 32,323 9.3% 529 0.2% 55,907 926 16% 289,891 346,724 39,172 50,324 78% 1995 208,187 56.8% 8,588 2.3% 105,684 28.9% 8,472 2.3% 33,557 9.2% 1,794 0.5% 59,921 4,200 18% 302,161 366,282 42,405 52,939 80% 1996 221,366 57.0% 7,499 1.9% 112,029 28.8% 9,217 2.4% 36,366 9.4% 1,904 0.5% 64,258 1,664 17% 322,459 388,381 39,706 50,881 78% 1997 235,497 57.0% 6,538 1.6% 119,406 28.9% 9,764 2.4% 39,846 9.6% 2,314 0.6% 73,519 5,498 19% 334,348 413,365 47,272 57,200 83% 1998 249,718 57.6% 6,725 1.6% 124,726 28.8% 10,208 2.4% 38,635 8.9% 3,397 0.8% 92,549 1,972 22% 338,888 433,409 55,821 65,620 85% 1999 256,598 57.9% 4,698 1.1% 129,347 29.2% 10,661 2.4% 36,516 8.2% 5,334 1.2% 80,109 999 18% 362,046 443,154 36,473 45,804 80% 2000 250,588 56.9% 4,020 0.9% 131,802 29.9% 11,080 2.5% 34,917 7.9% 8,021 1.8% 79,512 0 18% 360,916 440,428 28,707 38,653 74% Source: Statistics Bureau, Management and Coordination Agency, 1990: 411; Ministry of Finance, Financial Bureau, 1993:460; General Affairs Agency, 1997:199; General Affairs Agency, 2000:197; General Affaire Agency, 2000:201; Yucho Shikin Kenkyu Kyokai, 2003:424. Note: Postal Savings category includes: Postal Savings and Postal Transfer Savings 140 Year 142 Year 143 Figure 4. Private Bank Deposits vs Postal Savings: 1986-2000 90% '(/) o Q. QJ Q (/> c > ro co ro O 3 O O) ro +-» c QJ O i_ 0) Qu 80% 70% 60% S%jre 4%65.5%66t2%l ™ 50% 4 0 % 30% 20% 10% 30.6% 29.2% 28.8% 28.1% 29.3% 30.6% 29.9% 31.1% 32^5%, 34.6% 34.5% 33 8o / o • Private Bank Deposits Postal Savings to 00 CT) O (\l CO in <£> CO CD O 00 00 00 CO CD CD CD CD CD CD CD CD CD CD O CD CD CD CD CD CD CD CD CD CD CD CD CD CD O CM Year 

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