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Every so often, we are presented with a privatization example that raises questions and challenges our assumptions that privatization is never a good idea. Such is this story about Japan’s post office.

The Japan Post Corporation was created shortly after the Second World War during Japan’s modernization movement. Today, it is the nation’s largest employer, with more than 400,000 employees. It operates 24,700 post offices throughout Japan, and is worth about ¥330 trillion (about $3.2 trillion CDN), more than half of the nation’s gross domestic product.

Japan Post is about much more than delivering mail, however. It is also the world’s largest savings bank, worth trillions of yen in personal savings accounts, and constitutes one of the largest insurance companies in Japan.

As Japan Post became an economic powerhouse, it developed into a major player in political appointments and patronage. Since Japan Post had offices in nearly every village and neighbourhood, its employees exerted powerful influence during elections. So much so that one party began to dominate national, regional and local politics to the disadvantage of nearly all other political parties.

As a BBC reporter discovered, the roots of Japan Post’s influence run deep. Local post office jobs, patronage appointments by the long-ruling Liberal Democratic Party, are often handed down from father to son. Employees handling the savings deposits of people openly contribute a portion of their clients’ money into a huge slush fund LDP politicians spends on local building projects.

For example, in the village of Onomichi, the LDP has built three huge bridges in the last 10 years. They are running at a loss, because the tolls are expensive and few locals use them.

This is why some local politicians are so attached to the present system,” the BBC noted. “It offers a pot of gold they don’t want to lose.”

It looks like those halcyon days may be coming to an end. Japanese Prime Minister Junichiro Koizumi has pledged to dismantle Japan Post’s stranglehold both on Japan’s economy and its politics. Koizumi failed in his first attempt in 2005. However, he called a snap election, was re-elected by a landslide, and replaced opponents of postal reform with supporters. The following month, Koizumi made good his promise.

By the fall of 2007, under new legislation, Japan Post will be split into four entities –banking, insurance, mail delivery and counter services – under a holding company controlled by the government. At the end of a 10-year transition period, by 2017, the state’s stake in the holding company will be reduced to a third. The other two-thirds of the company’s shares will be sold to the public.

It will remain to be seen whether Koizumi’s reforms will have the desired effect, or whether they will merely lead to corruption and inefficiency of a different kind.

- With files from the BBC and Reuters