In striking contrast to the privatization of the Japanese National Railways in 1987, the ongoing project to turn postal services into private businesses is apparently not driven by any clear prospect of benefits that would offset foreseeable risks.

There are two main benefits for privatizing a public entity: The revitalization of the entity due to competition in a free market and deregulation, and higher efficiency from newly gained independence of its management.

In the case of the national railways, the focus of the privatization was on ensuring management independence.

The Diet maintained complete control over the state-run operator of nationwide railway services. It made all the important management decisions for the public enterprise, including those concerning fares, wages and capital investment.

As a result, the public enterprise was plagued by a widespread sense of lassitude, poor accountability and deterioration of labor-management relations, which combined to keep operations very inefficient. Privatization changed all that by giving the management of the new railway operators decision-making freedom.

The state-run railway services were already bankrupt with a pyramid of debt. The company was losing 1 trillion yen every year despite some 700 billion yen of annual government subsidies. A way had to be found to maintain nationwide railway services. The solution adopted by the government was a plan to split and privatize the operations without any negative impacts based on a drastic debt workout and massive job cuts.

Privatization is by nature a microeconomic approach to improving the efficiency of public enterprises.

The plan to privatize Japan Post is complicated by the involvement of the postal savings and insurance services, which are closely linked to the government's macroeconomic policy.

When the government set out to privatize the Japanese National Railways, it was clear that it was the only chance of survival for the money-losing, heavily indebted entity.

But there is no such consensus view with regard to the public operator of postal services.

The fuzzy outlook for the proposal to split up the postal operations into separate businesses is also troubling.

The national network of post offices, used for all the three postal services of mail delivery, postal savings and postal insurance, is composed of both facilities and workers. No clear and convincing plan for dividing the network into independent units has emerged yet.

It was much easier to break up the state-run railway company into regional operators.

In the post office network, however, the workers in one office handle all three services. Such operators don't lend themselves to a simple breakup.

If Japan Post were a private company, its operations would be divided into separate units within the company but not into new independent companies.

Breaking up Japan Post's operations into completely separate and mutually independent new businesses doesn't make good management sense.

Japan Post's management was given a high level of independence when it was established to take over the postal operations from the government. This approach reflects the lessons learned from the experience in reorganizing three other public enterprises, including the national railways.

The number of decisions that have to be approved by the Diet has been reduced sharply. The president has complete discretion to determine the wages of Japan Post employees and also has the power to decide on postal charges with the permission of the government.

Converting Japan Post into a special corporation is a plausible step to further enhance management independence and efficiency.

If Japan Post's operations are to be divided into four separate units, however, they should be wholly owned by a holding company in which the government has a stake. The new structure of the postal operations should be designed in such a way as to allow the new entities to respond flexibly to unpredictable developments after they are launched.

A large chunk of funds in the postal savings and insurance systems are invested in government bonds. If the new postal savings and insurance companies start selling their bond holdings, it could trigger a crash in bond prices.

The government should weigh the risks carefully when it considers whether the postal savings and insurance companies should be left to free competition on an equal footing with private financial institutions.

The postal savings system has attracted such a tremendous amount of money because demand for capital in the private sector has been very weak, not vice versa. When demand for capital in the private sector starts picking up, or spending cuts allow the government to reduce debt issues substantially, then measures can be taken to trim the amount of funds in the postal savings system.

Proponents of postal privatization say the step would reduce government bond issues and increase the flows of funds into the private sector, thereby revitalizing the overall economy and boosting the government's tax revenue. But the logic behind this argument is quite tortured.

The government's argument for the privatization of Japan Highway Public Corp. was also dubious. Privatization should mean that users, not taxpayers, pay for the maintenance and upgrade of the existing highway network.

The government was wrong in thinking privatization would stop the construction of unnecessary roads. It is, after all, politicians who decide whether a new highway should be built or not, as the decisions concerning the construction of new Shinkansen lines.

Moreover, establishing a new public entity to take over the assets and liabilities of the public-road corporations, a step to prevent private ownership of the highway network, appears to have made the accountability system even more complicated than in public corporations.

Ensuring effective and beneficial privatization of a public enterprise requires clever and careful planning based on a long-term perspective.

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The author is chairman of Central Japan Railway Co. (JR Tokai). He was once known as a leading champion of reform within the Japanese National Railways. He was a member of the government's advisory panel on the privatization of postal services, which released a report in 2002. He contributed this comment to The Asahi Shimbun.(IHT/Asahi: November 25,2004)