The World of Savings

Why can frugality and thrift nurture rapid economic and social development? How do different economic systems utilise small savings deposits for public purposes? Is there any geographical or cultural explanation for the popularity of savings or is it simply an economic choice?

Small Savings Mobilization and Asian Economic Development: The Role of the Postal Financial Services, a product of collaborative research between the United Nations Project on Postal Savings for Development (led by Mark J. Scher) and Keio University (Center of Excellence, represented by Yoshino Naoyuki), offers important and also challenging answers to these and other questions.

Readers will, when they look at the content of this volume, quickly understand why this project was supported by the UN. According to the editors, Scher and Yoshino, the book is the result of a decade of research. Its purpose is no less than to analyse and evaluate small savings financial systems across the world. The book may also encourage decision-making authorities to refine their views on governmental policy, on savings in general and also, in particular, on how to utilise those savings.

Small Savings is divided into two parts. The first, entitled 'Postal Savings for Development' and written largely by Mark Scher, is a theoretical and conceptual overview of the various postal financial service networks (PFSNs) and their changes in the last decade. The second part deals with various Asian case studies, including China, Korea, Japan, India, Kazakhstan, Vietnam and the Philippines.

The first part, which in essence analyses the main PFSN models, consists of three chapters. The first chapter is an overview and proposal for postal savings in developing countries. The second deals with policy and management issues confronting PFSNs today. The third analyses the Asian experience of postal savings.

There are five main PFSN models. The first—the national savings organisation model—is used in India and Bangladesh, while the second—the postal savings bureau model—can be found in Japan, the Republic of Korea, China and Vietnam. A third model, a special (partial) variation, whereby postal remittance and benefit payments are linked to postal savings accounts, was recently introduced in Kazakhstan and several other countries in the Commonwealth of Independent States (CIS). The fifth model, the national savings bank model, is used in Malaysia, Sri Lanka and formerly in Singapore. Finally, the sixth model, a post-bank model, exists in the Philippines and Iran (pages 8–9).

In this review, I focus on two main topics analysed in the book. The first is the question of why the postal service offers probably one of the most convenient, thus most popular, loci of savings, as well as access to cost-efficient forms of various financial transactions for the population, regardless of whether it is in European Union countries or in developing Asian countries. The second issue, which has recently provoked fierce debate all over the world, is whether this easy, convenient service should be publicly operated (by some form of governmental organisation) or privately operated (because private enterprise is more efficient, regardless of its profile or activities). On this second issue, Small Savings argues (pages 39–44) that privatisation per se is not a guarantee for profitable efficiency at all, since there are several countries (especially in Europe) where privatised PFSNs have not led to higher returns or lower costs.

The idea of using post offices for savings originated in Scotland as a movement for thriftiness and frugality. In 1861 the United Kingdom introduced savings accounts in post offices. This system rapidly spread throughout the European continent as well as to Japan and the British colonies. After colonising several countries in East Asia, Japan implemented (in similar fashion to the British) its Postal Savings System (PSS) in its colonies, including Korea. Not completely independent from the postal system, the money-remittance system (giro system) was first introduced in the Austro-Hungarian Monarchy in 1883, and rapidly spread in Asia. Japan adopted the giro system only in 1906, more than three decades after introducing the PSS, probably because the money order system was by then very advanced, and thus the giro network did not offer a completely new form of money transfer.

According to Small Savings, the various PFSNs (albeit in different forms) offer a double advantage (pages 4–7). From the individual perspective, the system is convenient, because it provides easy access and geographical proximity to savings even in remote areas. It also provides security: the money of individual savers is protected by a governmental guarantee. As the book's empirical studies show, this governmental guarantee is perhaps the most important element for individual savers, especially in times of major financial and monetary crises (e.g. the Republic of Korea and Japan) or simply in regions where the commercial banking sector is weak or not well known amongst the populace.

PFSNs also allow governments to mobilise domestic capital more easily, especially where industrialisation, technological development or infrastructure lack sufficient capital resources. One of the most important conclusions of the first conceptual chapter is that saving is insensitive to the level of interest rates (from an individual perspective) because safety and secure 'hosting' of deposits are far more important—especially in countries where alternative financial institutions lack stability—than the actual return on deposits (page 3).

Japan is probably one of the most well-known countries to have a fully government-owned PFSN linked to an unusual slush-fund, the government-owned Fiscal Investment and Loan Program (FILP). Or it was, because in the last eight years (since 1997) successive cabinets, including the current Koizumi-led government, have vigorously attempted to liberalise and privatise both the PSS and FILP. In fact, postal privatisation was the main issue of the recent lower house election.

Interestingly, the idea of privatising public service sectors has been strongly advocated and supported by the World Bank (page 31). Considering the World Bank's enormous influence on developing nations' policy formulations, it is unsurprising that no newly created market economy (except the unified Germany) has an efficient, convenient and governmental PFSN. From the fall of the Berlin Wall, these countries were attracted to various concepts of liberalism and market capitalism, as none trusted their own governments, even if they were democratically elected.

This leads to the second main issue of the book—the privatisation of PFSNs. The analysis of the editors, Scher and Yoshino, who look at Japan's postal (or the world's largest public saving network) privatisation, is a significant contribution to the existing literature. The Japan case is especially important because it may offer a good guide to the near future of rapidly expanding and very popular PFSNs in countries such as India and China.

Chapter 7, entitled 'Policy Challenges and the Reform of Postal Savings in Japan' and co-authored by Scher and Yoshino, strongly argues that the planned privatisation and marketisation of the PSS and FILP contains significant problems, unsolved dilemmas and contradictions.

Since their respective introductions (1873 and 1883), the PSS and FILP have had multiple roles. The PSS has helped make social frugality and thriftiness 'inculcated values' in Japanese society. Meanwhile, FILP (known as the Deposit Fund before the Second World War) has offered a non-transparent, thus convenient, 'extra fund' for state finances—a fund from which financial authorities could draw in times of currency or monetary crisis or during banking difficulties.

The capital behind the Deposit Fund, known as the 'second Bank of Japan' in the pre-war period and the Second Budget (under FILP) in the post-war period, helped the government maintain the right to define 'public' and realise its 'public purposes'. It also offered an invisible, and thus efficient, policy tool to secure local political support through subsidies (FILP investments) for sunset industries or through simple pork-barrel policies.

Nevertheless, the idea of privatisation, which first came onto the government's agenda under the Hashimoto cabinet, was strongly influenced (along with other state financial problems) by the rapidly failing commercial banking sector and its mountain of bad loans.

Japanese governments in the last decade have all put forward the need for transparency, accountability and efficiency in state finances as the main rationale for privatisation. The second Koizumi cabinet has just recently told the public, after its extraordinary election victory, that a full privatisation of the world's largest state-owned financial network and postal services was an unavoidable and indispensable condition for making the Japanese economy internationally competitive. However, another motivation for privatising the PSS and FILP has been the lack of funds for repeatedly bailing out the troubled banking sector.

By contrast, Scher and Yoshino argue that the PSS and the Japan Postal Service have always been efficient and have not incurred losses, and thus privatising both may be a case of throwing the baby out with the bathwater (pages 127–9). In other words, market liberalisation, without considering its effect on specific sectors, could well lead to absolute declines in specific services. As Scher and Yoshino point out (page 31), 'no less an advocate of privatization of public services than Adam Smith praises the post office as both a necessary and successfully managed government-run mercantile project in his classic treatise, The Wealth of the Nations.'

Privatising the Postal Service and the PSS (in addition to FILP) confuses economic efficiency with political expediency. Whereas the Postal Service and the PSS are world class, independently managed, and have functioned quite successfully in both pre-war and post-war periods, FILP has always been highly problematic. It was the conduit of pork-barrel politics, at both local and central levels, through which public financial authorities moved assets from the PSS, through FILP, to achieve various political objectives (pages 127–32).

PFSNs, if publicly maintained and managed, are always likely to face criticism from various, usually private, circles (page 32 in general, and pages 130–1 for the Japanese case). Criticism that they are inefficient often comes from commercial banks. Yet in the Japan case the criticism should go in the opposite direction. The direction of cross subsidies in Japan (a cross subsidy is where profit in one market is used to cover losses in another market, page 32) has been from public sector to private sector. '[S]ome 8.4 trillion Yen (US$ 80 billion) in public funds have been injected into the recapitalization of sixteen major commercial banks and eleven regional banks, mostly in March 1999' (page 33).

As even non-specialists know, the Japanese Postal Service had been the most efficient, rapid and reliable postal system in the world. Although it has always been one of the most expensive, Japanese society has trusted it fully, just as they have trusted the PSS. Scher and Yoshino correctly stress that government-run services like those in Japan are not merely offering services, but are deeply embedded in the local societies, and trust is an element that market rationality or even the highest return cannot substitute.

Finally, the other common argument (similar to the above-mentioned World Bank policy) is that the PSS has been highly privileged (for instance, through the provision of tax-free deposits at post offices) by the government, and as a result commercial and city banks have simply been unable to compete. Scher and Yoshino prove that this argument is simply false, since neither in the first stage of privatising the PSS nor even nowadays have commercial banks been able to attract more household and individual deposits than previously.

The commercial banks, despite multiple reorganisations and amalgamations, are still unable to attract individual customers, since they charge 105 yen for every withdrawal from an automatic teller machine (at night and on weekends) and 5000 yen for every international money transfer, regardless of the amount. On the other hand, Japan's PSS introduced the 24-hour automatic teller service (without a fee) years ago, and also introduced (two years ago) an international money transfer system far cheaper than that of the commercial banks (page 134).

There are various reasons for this lack of competitiveness. One is that the banks have no commercial interest in expanding their services when the PSS is cheaper and more convenient. Their assets mainly come from corporate accounts, including employees' income and other financial transactions. Another is that opening new branches during a decade-long bailing-out period has been too costly for the banks in an era of attempted cost-saving.

What, within a few years, will be the unintended consequences of this wave of 'liberalisation'? In view of Japan's privatisation attempts so far and the experiences of transitional economic systems, many doubts hang over the process. An unlimited belief in the market, regardless of a society's traditions and institutional background, may lead to serious social and economic losses. Various PFSNs that collect small deposits have been managed and maintained by some form of public entity, be it a ministry or another state organ. In a society where, for example, the populace is strongly minimising risks and lacks trust in many commercial banks, it is dangerous to assume that privatisation itself can change this attitude. According to Small Savings, something is missing from this simplified logic. Unless private banks learn from publicly-owned organisations, just as the Japanese PSS had been learning from the private sector, there will be little possibly for successful reform. As Derek Hall (2005, 136) notes, in his recent analysis of Japan's attempts to overcome its economic slump through liberalisation, Koizumi's privatisation reforms 'cannot simply involve importing Anglo-Saxon socioeconomic institutions'.

Japan's political economy must remain in some important sense 'Japanese': hence the vagueness of Koizumi's proposals, which most analysts agree was key to his popularity.
(Hall 2005, 136)

Small Savings Mobilization and Asian Economic Development is superbly written. It asks many valid questions and offers important new information and statistics. In both structure and style, it is pleasantly different from the conventional publications offered by international organisations. I would highly recommend it to readers who are unfamiliar with this topic and also to experts who can enjoy it for its excellent case studies.

Chapters

Part I: Postal Savings for Development

Scher, Mark J. with Naoyuki Yoshino, 'Introduction: Overview and Summary of Policy Proposals for Postal Savings in Developing Countries'.

Scher, Mark J., 'Policy and Management Issues Confronting Postal Financial Services Today'.

Scher, Mark J., 'Asian Experiences in Postal Savings'.

Part 2: Asian Country Case Studies

The Postal Savings Bureau Model

Peng Min'an, 'Developing Postal Savings in China'.

Chan Ki Nam, 'Postal Savings as a Financial Intermediary in the Republic of Korea'.

Jae Seog Park and Chan Ki Nam, 'Postal Banking and the Financial Crisis in the Republic of Korea: Policy Strategy Proposals for the Postcrisis Era'.

Scher, Mark J. and Naoyuki Yoshino, 'Policy Challenges and the Reform of Postal Savings in Japan'.

National Savings Organization and the Post Office Savings Bank Model

Swarup, Dhirendra and Anil Bhattacharya, 'The National Savings Organization and the Status of Small Savings in India'.

Pal Singh, Ashok, 'The Post Office Savings Bank of India'.

National Savings Bank Model

Narangoda, Eastman, 'Postal Savings in Sri Lanka'.

New Postal Savings Start-Ups in Asian Transitional Economies

Mambetalin, Serikzhan with Arken Arystanov and Dauren Moldagaliyev, 'Report on the Postal Savings System in the Republic of Kazakhstan'.

Cao Thi Hoai Duc, 'Vietnam's Postal Savings Service'.

The Postbank Model

Felix-Racelis, Evangeline, 'The Philippine Postal Savings Bank, A Thrift Bank'.

Reference

Hall, Derek (2005), 'Japanese Spirit, Western Economics: The Continuing Salience of Economic Nationalism in Japan', in Eric Helleiner and Andreas Pickel (eds), Economic Nationalism in a Globalizing World, Ithaca: Cornell University Press, pp.118–40.

Article copyright Katalin Ferber.

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