'Old guard' thwarts reform in Japan

For Prime Minister Junichiro Koizumi, privatizing Japan's beloved post office – a place where many ordinary Japanese keep some $2.1 trillion in savings – was the first step in rescuing the country's economy. More important, it was Mr. Koizumi's high-stakes bid to take on his country's old guard and reform its rigid political system.

But with the lower chamber of parliament ready today to accept a series of watered-down bills that are unlikely to spur private competition, Koizumi's bid seems to be headed for failure. The defeat could further sap a whole range of initiatives that Koizumi's government last year confidently announced – from welfare to public works.

Some observers say Japan's old guard is continuing to thwart structural changes needed to bring its economy and political system into balance. "You have people who have benefited from a certain style of politics for 50 years, and you now see that the policy of writing checks and hoping for the best is going to continue," says a former Clinton official and a Japan expert at a US think tank. "If Japan is not careful, the rest of Asia is just going to write them off."

Japan has the second-largest economy in the world. But after a decade of a sliding yen and offshore manufacturing, Japan is now importing small cars and spending so freely that its bond rating is lower than that of Botswana.

The prime minister's defeat comes on the heels of a blow for another high-profile Japanese reformer, Yasuo Tanaka. As the governor of the Nagano district, Mr. Tanaka lost a no-confidence vote over his policies that demanded fewer public works projects, including expensive dams.

Like Koizumi, the young and outspoken Tanaka was elected on a wave of voter zeal for change, in a district known for its conservatism. But when he challenged the Asakawa and Shimosuwa dam projects, he faced a 44-to-5 vote against him in the Nagano legislature.

Koizumi's lost battle over ending a postal monopoly reveals a serious conflict within his Liberal Democratic Party over the future of Japan. The LDP is by far the most dominant political force in the country, comparable, some argue, to the absolute rule once held by the Nationalists in Taiwan. The party is seen as supporting a rigid and inflexible system.

The battle lines in the LDP are in some ways drawn between generations, says Minoru Morita, a political consultant in Tokyo: Party members in their 40s and 50s have studied in the US, were globalized, and now are moving toward an antiglobalization trend. "The thinking is different."

"Koizumi is our last hope," says one of the younger reformers, Tara Kono, a member of parliament. "He was going to change the LDP. And I don't see an alternative to him. If he goes, the LDP goes, and then you've got a huge mess."

Koizumi, whose initial popularity has been in decline for months, is expected to reshuffle his cabinet in August and fight on – despite scattered rumors of a showdown over his job later in the year.

Japanese voters have become so cynical, say analysts, that few truly expected Koizumi's reform to succeed, and they've already accepted his defeat. Moreover, no clear candidates are waiting in the wings to replace Koizumi.

Japan has faced a series of prime ministers who last a year or less.

When Koizumi was elected, his youth, fashionably wavy hair, and professed love of pop music helped him achieve an 80 percent approval rating, the highest of any elected leader in recent Japanese history.

"He [Koizumi] is at 50 percent [approval rating], and that is enough," says Yasunori Sone, an outside adviser to Koizumi. "[He] is trying to change the old LDP to a new LDP, and that will continue to have voter appeal."

In a society that has long had an intricate and iron-clad system of patronage between corporations, government bureaucracy, and politicians, the post office was seen as a relatively unthreatening place to initiate change.

Koizumi's aim has been not only to bring faster and cheaper mail delivery to Japan, but also to create reform mentality inside the LDP, Japan's dominant party. His plan was to turn the post office into a public corporation, which would theoretically attract private businesses to deliver mail.

Koizumi's plans also called for a separation of the function of the post office as bank – with vast holdings used as collateral in a variety of financing schemes benefitting the LDP – from its function as a mail service.

The current bill allowing for private competition requires an astronomical investment by any business wishing to compete, including the purchase of 100,000 postal boxes, and a guarantee that all services would immediately match the current standard of delivery. No takers have come forward.