Halt the Growth of StateCapitalism with the TPP

In the ongoing negotiations for the Trans-Pacific Partnership, an initiative to make new rules for international trade and investment, reforming state-owned enterprises has become a central issue. The government assistance that SOEs of developing Asian countries receive presents an unfair advantage over private companies. This endangers the system of market competition on which the free conduct of business is based upon.

The reform of Asian SOEs is of serious concern to Japan. With the assent of Asia as the center of global economic development, Japanese companies need to increase investments in the region.

Foreign companies cannot apply their technologies and business models to compete in emerging markets if SOEs are throwing their weight around. This is essentially a non-tariff barrier. This is why the United States, the leader of the TPP negotiations, is pressing for the privatization of SOEs in Vietnamese and Malaysian, for example.

This particular objective fits with Japanese national interests. Japan can no longer rely on exports, but must make money from foreign investments. Japan must hurry to participate in the TPP negotiations and join the United States in seeking the reform of SOEs and the creation of new investment rules.

A point of concern, however, is the privatization of Japan’s own SOEs. The Democratic Party, the LDP, and the Komei Party submitted a reform bill for the Postal Privatization Law, wherein they propose that the JP Bank and JP Life Insurance sell off all of their stocks. It is doubtful whether or not the state of fair competition can be maintained in the financial and life insurance industry.

Disappointed by Japan’s progress in privatizing its postal system, voices within the U.S. government are raising doubt about Japan’s participation in the TPP negotiations. They find a contradiction between the wording of the postal privatization law and the principles of the TPP. It is problematic for the U.S. to hastily assume, based on one postal privatization law, that we do not share common values about fair market competition.

Faced with this concern, the Japanese government must clearly explain its commitment to protecting fair market competition. This is not a case of bowing to American pressure. The government must do so with the national interest in mind.

When a government uses SOEs to become the primary participants in markets, this is called “State Capitalism.” China is a representative example: the greater majority of powerful companies in its finance, energy, investments and automobile sectors are run by the state.

There are more than a few emerging countries that have drawn inspiration from China’s economic model. We must stop the growth of state capitalism, and bolster fair competition in markets. The TPP is a powerful means for this cause.