- Email: [email protected]
Transport coordination debate and the Japanese National Railways problem in postwar Japan
Trmpn. Rcr..A. Vol.23A.No. 1.pp.13-18. 1989 Printed in Great Britain.
0191-2607189 13.00 + .@I P 1989 Pergamon Press plc
TRANSPORT COORDINATION DEBATE AND THE JAPANESE NATIONAL RAILWAYS PROBLEM IN POSTWAR JAPAN Department
TAKAHIKO SAITO of Business and Economics, Kinki University, 577, Kowakae 3-4-1, Higashiosaka-shi, Osaka, Japan
Abstract-As the “railroad problem” in Japan became serious, there was a widespread debate calling for the implementation of a policy of transport coordination. Much debated themes were “inherent advantage, ” “equal-footing, ” “comprehensive transportation system,” and “economizing in transportation.” However, this not only had the effect of hampering the modernization of economic regulations for Japan’s railroad industry, but also caused the Japanese National Railways’s cumulative deficit to expand and placed a heavy economic burden on the public.
1. TRANSPORT COORDINATION RAILROAD Transport
coordination
transportation debates among
policy
has been the leading issue in in postwar
on this subject academics,
AND THE
PROBLEM Japan. Numerous
have taken place not only
but also government,
and transport industry
political,
circles, too. A huge number of papers on transport coordination were published, mainly in the 1960s and 1970s. Originally, the economic theory of transport coordination was an object of academic research founded on the normative price theory in conjunction with transportation economics. Indeed, before the railroad problem arose in Japan, transport coordination was only an economic theory of transport policy imported from industrialized countries, and in the 1940s and 19.50s it was mostly a field of specialized research among transport economists. However, since the 1960s when the railroad problem first emerged as an important issue in transport policy in Japan, the debate over transport coordination has spilled over from the confines of academic research. Not only has it attracted the attention of many ordinary citizens but it had an important influence on the government railroad policy as well. With the rapid growth of the economy in the 1960s the economic climate surrounding Japan’s railroad industry underwent dramatic changes. New highway construction, the explosion in motor vehicle ownership, and the rapid growth of domestic air transportation in the 1960s and 1970s suddenly made transportation a very competitive field, as shown in Tables 1 and 2. However, along with the rapidly expanding economy went increased demand for passenger and freight capacity of the Japanese National Railways (JNR), which led to crowding and bottlenecks in the JNR’s railroad system. As a result, the government railroad policy for the JNR in the 1960s consisted almost entirely of intensive capital investment to expand the capacity of the railroad system. When the Shinkansen rail link (Tokyo and Osaka) TR(A)23:1-8
first opened in 1964, the JNR went into the red and never bettered its financial condition until the privitization of the JNR in 1987. Although it was not obvious until after the event, the expansionary policy for the JNR paved the way for a full-fledged railroad problem. Two factors were responsible for the JNR persistently following such an expansionary policy, just at a time when the railroad problem in Japan was reaching industrialized country proportions. One was the gross overestimation of future demand for the, JNR business, and the other was continued emphasis by the government on a railroad-centered transport policy. The transport coordination issue, which suddenly came to the fore around 1960, is closely related to these two factors. A uniquely Japanese debate on transport policy, which attempted to use transport coordination to solve the railroad problem, supported overoptimistic demand forecast for the JNR rail network. The government believed that a policy of transport coordination would be effective-in maintaining and increasing the competitiveness of railroads against other competing modes of transportation by equalizing of the burden of fair track costs and social costs-and made it a basic pillar of its transport policy. However, this created a major obstacle to the adoption and execution of realistic measures to deal with the JNR problem, be it through deregulation or public subsidies. The emphasis of the government on transport coordination was of course a reflection of the central position the railroads occupied in its transportation policy. Notwithstanding the advent of competition in the transport market, the government attempted to maintain a nationwide JNR network (including unprofitable services) and to achieve a “just and reasonable” JNR price level and fare system, including concessionary fares, through market-entry control. The JNR’s use of cross-subsidisation and the old-fashioned regulatory system for the railroad industry continued to exist until the mid-1980s. 13
T.
14
SAITO
Table 1. Japan’s domestic transport by modes in selected years Passenger-km (billions) Fiscal year 1955 1965 1975 1985
(JW
Railroad 136.1 255.4 323.8 330.1
(82%) (67%) (46%) (39%)
Highway
(91.2) (174.0) (215.3) (197.5)
27.5 120.8 360.9 489.3
(Private auto)
(17%) (32%) (51%) (57%)
Air
Water
(1.7) (29.4) ;:::::;
2.0 3.4 6.9 5.7
(1%) (1%) (1%) (1%)
0.2 2.9 19.1 33.1
(0.1%) (1%) (3%) (-1%)
Freight ton-km (billions) Fiscal year
(JW
Railroad
1955 1965 1975 1985
43.3 57.3 47.3 22.1
(53%) (31%) (13%) (5%)
(Private truck)
Highway 9.5 48.4 129.7 205.9
(46.6) (21.6)
(12%) (26%) (36%) (47%)
(5.7) [$g; (68.6)
Water 29.0 80.6 183.6 205.9
Air
(36%) (-13%) (51%) (47%)
0.0 0.02 0.2 0.5
(0%) (0%) (0.1%) (0.1%)
Source: Ministry of Transport (1987). Though this regulatory system was finally partially dismantled with the privatization of the JNR in April 1987, the JNR’s cumulative deficit had climbed to 25.4 trillion yen by the end of 1986. Of course, the profound changes that had taken place in the structure of transportation market since the late 1960s were well-nigh impossible to predict. However, the demand forecast by the Ministry of Transport in 1971, which estimated passenger demand of 617 billion passenger-km and freight demand of 418.5 billion ton-km for Japan’s railroad system (the JNR, private companies, municipal undertakings) in 198.5, was seriously off target. The actual figures for 1985 were 330.1 billion passengerkm (54% of the forecast) for passenger services and a mere 22.1 billion ton-km (5.3% of the forecast) for the freight shipments, 2.
EVOLUTION
OF THE TRANSPORT
COORDINATION
DEBATE
Research in Japan in the field of transport coordination began after the end of World War II, influ-
enced by British economic theories of transport coordination. The topic developed into a national debate over 20 years, from the mid-1960s onward. The “inherent advantage” argument
From 1947 to 195Os, British economic theories on transport coordination (by H. 0. Mance, G. Walker, W. A. Lewis, and others) were introduced into Japan by scholars in the field of transportation economics; studies on implementing transport coordination were conducted. The main theme of transport coordination theory in this period centered on how to set up an appropriate division among transportation modes based on the inherent advantages of each through the introduction of an optimal price system reflecting social marginal cost (including escapable cost of track). However, while the railroad industry in Japan was still in disarray in the immediate postwar period, it continued to monopolize the transport market. The JNR, which became independent of the government and made a public corporation in 1949, went through a difficult period because of the extensive wartime damage to its facilities, but began
Table 2. Japan’s intraurban passenger transport by modes-market (passenger carried) Three metropolitan
share in selected years
areas (Tokyo, Osaka, Nagoya) Private
(Private Fiscal year
Railroad
(JNR)
company)
(Subway)
Tram
Stage bus
Taxi
auto
1966 1976 1984
61.3% 63.3% 64.0%
(26.3%) (23.1%) (20.8%)
(25.2%) (23.1%) (23.8%)
(9.8%)
7.0% 0.5% 0.3%
14.4% 9.2% 6.2%
9.1% 5.4% 5.2%
8.0% 21.6% 21.3%
[t;::?; o
Other urban areas (selected for the MOT investigations) Fiscal year
Railroad
(JNR)
1966 1976 1984
29.4% 13.9% 11.5%
(17.1%) (8.9%) (7.2%)
(Private company) (E:2?{ (4.3;)
Stage bus
Private bus
Taxi
Private auto
Others
48.0% 24.3% 16.5%
3.3% 3.7% 3.0%
10.7% 9.8% 8.9%
6.9% 47.3% 59.2%
1.7% 1.0% 0.9%
Source: Ministry of Transport, White Paper on Transport (each year).
Transport coordination debate and the Japanese National Railways problem in postwar Japan
showing a profit in 1957 and regained its sound financial condition. The “equal-footing” argument
In the 196Os, the debate on the transportation policy in Japan was influenced by debate on transport coordination overseas, chiefly by the J. E Kennedy Transportation Message in 1962 and the West German Leber Plan in 1967. In addition, the repeated assertion by the Ministry of Transport in Japan that motor vehicles had an unfair advantage over railroads in terms of track costs fueled the debate over transport coordination. Equalizing competition between road and rail transport by evening out the disparity in the burden of track costs became the dominant theme in transport economic policy. This subject was not confined to scholarly journals on transportation but was frequently taken up in general interest publications as well. The words “equalfooting” entered the layman’s language to refer to this crucial problem of transport policy. Most of the debate over railroad policy called for increasing taxation of motor vehicles. Some people, mostly transportation economists, urged a revision of railroad economic policy itself, but they were a minority at that time. Both the government and the JNR management agreed that increasing competitiveness by the reinforcement of the trunk lines capacity was the most effective way of reducing the JNR deficit. In addition, faced with the overwhelming spread of motor vehicles, the JNR management decided to eliminate 2,600 km of unprofitable lines of its network, but, in the end, government intervention made it impossible to shut down all but 121 km of low traffic density lines. Far from that, the Japan Railways Construction Public Corporation was established in 1946 through a resolution of the Diet, and began to promote the construction of the JNR new lines, which were prescribed in the Railway Construction Act of 1922. In contrast with the case of the JNR, private railroad companies went ahead with the abolition of unprofitable railroad lines, and their cumulative length amounted to 1,300 km between 1966 and 1976. The “comprehensive system” argument
transportation
The debate over transport coordination reached a climax in 1970 and 1971. The Diet and the Ministry of Transport set the establishment of a comprehensive transportation system as a basic tenet of Japanese transport policy. In order to achieve a comprehensive transportation system, in other words an appropriate division among various modes of transportation from social and long-term points of view, politicians and bureaucrats held that it was necessary to guide the transport demand through the functions of price mechanisms. In 1970, the Ministry of Transport advocated the need for higher taxes on motor vehicles and for diverting funds allocated for high-
15
ways to public transportation through the reallocation of special funds for highway construction as a way of guiding demand for public transportation. This issue of transport coordination was taken up by the mass media and soon became quite common among the general public. As a result of the debate, new taxation for motor vehicles (automobile-weight tax) was introduced in 1971, but it disappointed both the Ministry of Transport and the JNR management. Notwithstanding their expectation, as things turned out, almost 80% of new tax revenues had come to be used for highway construction under circumstances of urgent necessity to reduce serious highway congestion. Although most transportation economists pointed out the sterility of such an idealistic debate and argued that realistic action was needed on the JNR problem, they failed to have much effect. At that time, universities throughout the country were in the throes of student strife and public opinion was growing increasingly critical of the materialism that rapid economic growth had spawned. Realistic debate on the questions of transport policy continued to be avoided. Meanwhile, the volume of freight carried by the JNR had dropped for the first time in 1970 and it began trying to get its financial house in order again through more efficient management, rising prices, and asking for governmental subsidies. However, it failed to win any sizeable increase in governmental subsidies, and the Diet rejected its application to increase fares and charges. The “economizing
in transportation” argument
The oil crisis of 1973 plunged the Japanese into an economizing mood, particularly with regard to cutting back on gasoline consumption by motor vehicles. The government immediately established a committee charged with revamping its transport coordination policy. It also attempted to establish a more vigorous policy of adjusting transportation demand so as to cut back on energy, environmental resources, transport labor, and the spaces for transportation in metropolitan and urbanized areas. However, this attempt to economize was severely criticized by academics and politicians alike, and the committee did not even produce a final report. To us, it might seem that the emphasis on frugality prevalent in the country at that time built a stronger public consensus supporting transport coordination, but in reality, exactly the reverse occurred. The oil crisis was a major setback for the debate of transport coordination in Japanese transport policy. This unexpected development occurred because the oil crisis-induced recession dealt a heavy blow to the JNR’s business. The volume of freight decreased 10% yearly after the oil crisis, and in 1975 even the volume of JNR’s passenger transport started to decline. This brought the railroad problem home to ordinary citizens and changed public opinion visa-vis the government’s idealistic transport policy. In
T. Shrro
16
Table 3. Outline of the JNR’s financial reporting, 1963-1985 (hundred million yen) Fiscal year Items
1965
1970
1975
5,681 5,144 30 514 6,890 -
6,341 7,571 0 - 1,230 11,102 -
11,457 13,006 32 - 1,517 26,037 122
18.209 27,444 88 -9,147 67 .I93 2,679
29,637 39,643 -78 - 10,084 143,992 6,761
35.528 55,728 1,723 - 18,478 235,630 6,001
20,665 455 .I97
20,754 462.436
20,890 459.677
21,272 -130.051
2 1,322 413.594
20,789 276.774
1963
Operating revenues Operating expenses
Nonoperating income Net income (loss) Long-term liabilities Governmental subsidies Km of railroad lines Personnel (total)
1985
Source: “Audit of the Japanese National Railways” (each year).
1976, the Diet decided to shelve the JNR’s cumulative deficit of 2.5 trillion yen and approved public subsidy for the JNR’s rural lines. but deferred a fare increase. Retreat of transport coordination debate
The Ministry of Transport’s policy toward the JNR underwent a major change starting around 1975. The Ministry’s new JNR policy, made public in a White Paper on transportation of 1975, called for the JNR to set price on its own, curtail unprofitable freight transport business, eliminate rural services, and make drastic personnel cuts. In line with this, the Diet agreed to loosen restrictions on JNR price formation, and the JNR finally won the right to set price without seeking Diet approval in 1977. The year 1980 saw the long-awaited dismantling of the traditional discriminatory tariff system for the JNR freight transport business. Still, the JNR’s cumulative deficit ballooned to almost 15 trillion yen in that year, as shown in Table 3, reflecting its diminishing stature in the transportation market, its one trillion yen loss in a single term, and the fact that public subsidies and compensation for losses were wholly inadequate. With this, the idea of transport coordination rapidly lost its allure. In 1981, the government began administrative reform, aiming for “smaller, cheaper government.” The public supported this drive and the govern-
ment’s JNR policy pointed straight to privatization. This spelled the end of a rail-centered transport palicy that had been in effect since the World War I. In April 1987, the JNR was split into nine corporations. These are seven railway corporations called the JR Group (six railway passenger corporations and one railway freight corporation, as shown in Table 4), the Shinkansen Holding corporation, whose business is to lease its Shinkansen infrastructures to three of the railway passenger corporations (East Japan, Tokai, and West Japan), and the JNR Settlement Corporation, which was established with the special task of dissolving the ex-JNR’s personnel surpluses and cumulative deficits. 3. THE FAILURE
OF THE TRANSPORT
COORDINATION
DEBATE
The prominence of the transport coordination debate in postwar Japan resulted in delaying the implementation of the most important kind of transport coordination, i.e. adjustment of government regulation among the transport industries (modes). The “equal-footing” issue focused on the difficult question of how to equalize the track cost burden, making it difficult to reach a conclusion on how to carry this out. Furthermore, discussions on guided coordination of demand always ended up trying to reach an unattainable ideal.
Table 4. Japan’s railroad industry in 1987 JR group (ex-JNR)
Km of lines
Passenger M.kmt
Hokkaido East Japan Tokai West Japan Shikoku Kyushu Freight
2,542 7.4545 1.9845 5,0911 837 2,101 11(9,886)
3,600 99,400 38,400 45,300 1,500 6900 t54M. ton
Private & municipal Private company Major 14s Medium & small Commuter Freight Others Municipal Tokyo RT Authority
tForecasted figures for 1987. $Actual figures for 1985. §Includes Shinkansen. l/Rents tracks from passenger corporations.
Companies 14 132 88 20 24 11 1
Km of
Passenger
lines
iM.kmt.
2,817 2,503
97,536 11,777
369 142
9,313 14,013
Transport coordination debate and the Japanese National Railways problem in postwar Japan Two factors contributed directly to the delay in establishing a realistic railroad policy in Japan. One was overconfidence in the monopolistic position of rail transport, which led to overestimating the capacity of the JNR in handling cross-subsidization. The other was the expectation that transport coordination could halt the move away from railroads or revive demand for rail transport. The first factor was responsible for blocking the reform of economic regulations for the railroad industry dating from the days when the railroads had a monopoly in transportation market, and for delaying the assumption of public responsibility for the public service obligations of railroad industry in general and the JNR in particular. The second not only hampered the JNR in eliminating unremunerative services but also prevented the modernization in response to changes in market conditions. The JNR’s freight rate structure continued to be based on charging what-the-traffic-will-bear, a carryover from monopoly days, right up to the early 1980s. Woefully, insufficient governmental subsidies for rural lines were introduced in 1976. While elimination of these lines began in earnest in 1981, it was not until 1984 that differential pricing for them was introduced. Until then, the JNR had been compelled to adopt a nationwide standard price system. These regulatory actions, based on entry control and crosssubsidization mentioned earlier, were a continuation of the traditional economic regulation system on transportation industries. Even today, with the JNR now privatized, there have been no major reforms of economic regulations on the transportation industry as a whole. After all, with privatization of the JNR, the total amount of the long-term liabilities arising from starting on the new railroad transport system reach up to 37.4 trillion yen. This is made up of 25.4 trillion yen of the JNR’s cumulative deficits, mentioned earlier, 5.4 trillion yen of capital cost burdens for the Japan Railways Construction Public Corporation (as related to the Joetsu Shinkansen and the Seikan Tunnel) and for the Honshu-Shikoku Bridge Authority, 4.9 trillion yen of the fund for the JNR’s pensioners, one trillion yen of the revenue support fund for three railway passenger corporations (Hokkaido, Shikoku, and Kyushu), and 0.7 trillion yen to meet the ex-JNR’s personnel surplus measures. Although the JNR Settlement Corporation was to have a responsibility to dissolve almost 26 trillion yen of these liabilities through disposal of the ex-JNR’s real estate, transfer of income that the Shinkansen Holding Corporation acquires, and so forth, 14.6 trillion yen of this was decided to be thrown onto the burden of taxpayers. The revenues that the Shinkansen Holding Corporation gains is nothing else but the charges for newly-established railway corporations that operate the Shinkansen lines (East Japan, Tokai, and West Japan), so that they are forced to be at a disadvantage in competing with other modes of transportation.
17
These enormous losses that now worry the Japanese people owed a great deal to delay in taking realistic actions on the JNR problem, in other words, to the long time wasted on the debate over transport coordination. In effect, the debate over transport coordination was merely a cosmetic excuse for delaying realistic solutions to difficult transportation problems. The biggest loser in the search for an unattainable ideal was the JNR, as described above. The burden that the JNR has left the public includes “unavoidable” losses caused by unpredictable changes in our transportation market, but the biggest losses are those humanly caused by the adoption of inappropriate transportation policies. SELECTED REFERENCES
Akiyama K. (1970). Kou~~ron (Economics of Transportation). Yuhikaku, Tokyo. Akivama K. (1979) Economics of transoort infrastructure. tin-yu Keizai (Transp. Econ.) 39(4),&S-15. Fujii Y. (1978) Coordination of freight transport in Eng land’s motorization period: New approaches to the problem since Gilbert Walker wrote “Road and Rail” in 1942. Un-yu Keizai 38( 1), 8-14. Fujii Y. (1981) Passenger transportation in a comprehensive transportation system. Koutsuguku Kenkyu-1981 (Annual Report on Transportation Economics-1981). JSTE, pp. 23-35. Hirai T. (1971) The problem on the coordinated transportation system. Koutsugaku Kenkyu-1971. JSTE, pp. 89106. Hirooka H. (1967) Comparison of railway and highway transport from the national economy viewpoint. Kosokudouro Jidousha (Expressways Auto.) lO(3). 13-16.
Kakumoto R. (1975) Ningen To Idou (Humans Mobil.). Chuokoron-sha, Tokyo. Konno G. (1970) Problem of much debated theme of “equal footing competition between road and rail.” Kousokudouro Jidousha 13(6), 19-23.
Kudo K. (1947) Transport coordination between railway and road transport. Un-yu Keizai 6(8), 2-8. Kudo K. (1952) Theoretical basis of transport coordination. CIi-yu Keizai 11(12), l-5. _ Maiima K. 11969) Methodoloaical nroblem in relation to the track cost analysis. Kot&gaku Kenkyu-1969. JSTE, pp. 121-143. Masui K. (1970) Transport economic policy-equal-footing, comprehensive transportation system. Iln-Yu Keizai 30(9), 11, 63-73. Ministry of Transport (1987) Handbook of transport economic statistics. Tokyo. Nakanishi K. (1970) Competition and coordination in transport investment-as related in the “equal-footing” argument. Keizai Hyoron (Nihon-Hyoronsha’s Econ. Rev.) 19(2), 116-127. Nomura T. (1956) Transport coordination. Kokumin Keizai Zusshi (J. Econ. Business Admin. Kobe Univ.) 93(2), l-15. Nomura T. (1961) Transport coordination in England. Kokumin Keizai Zasshi 103(6),
l-17.
Okada K. (1971) Some problems on the comprehensive transnortation svstem. Koutsuaaku Kenkvu-1971. JSTE. pp. 89-87. ’ Okada K. Situation and future of the JNR in comprehensive transportation system. Keizai Hyoron 21(l), IOO110. Okano Y. (1970) A second-best problem in relation to transport coordination-on the proposal of “equal-footing.” Keiznigaku Ron&u (J. Econ. Univ. of Tokyo) L%(2), 2-11.
18
T.
Okano Y. and Kurashimo K. (1979) Comprehensive transportation system and highway transportation. Gendui Jidousho Kouturon IEcon. Modern Hizhway Transu. ), 205
238. University of Tokyo Press, Tikyo.’ ‘ ’ Okano Y. (1980) Market theory and transportation policy-railway policy in England. Un-yu Keizai 40(3), 3945. Saito T. (1982) A survey of transport coordination debate in Japan. Koutsu Gakusersushi no Kenkyu (History Transpn. Econ. Japan) 1,245-278. Japan Transport Economics Research Center, Tokyo. Saito T. (1984) Postwar transportation policy and the trans-
SAITO
port coordination argument. Korsugaku Kenkyu-1984. JSTE. DD. 13-17. Suzuki K: ‘(1954) Practical Problem of Transport Coordination. Kotsukeizai-sha, Tokyo. Tawara E. (1969) An introduction to transport coordination, Oifu Univ. Econ. Rev. 21(3), 146-176. Takeda F. (1967) Pitfalls of the “efficiency comparison of road and rail.” Kosokudouro Jidousha 10(12), 29-34. Tsuru S. (1969) Highway vs. railroad; economic comparison. Keizai Kenkyu (Econ. Rev., Hitotsubashi Univ.) 20(l), l-9.
0191-2607189 13.00 + .@I P 1989 Pergamon Press plc
TRANSPORT COORDINATION DEBATE AND THE JAPANESE NATIONAL RAILWAYS PROBLEM IN POSTWAR JAPAN Department
TAKAHIKO SAITO of Business and Economics, Kinki University, 577, Kowakae 3-4-1, Higashiosaka-shi, Osaka, Japan
Abstract-As the “railroad problem” in Japan became serious, there was a widespread debate calling for the implementation of a policy of transport coordination. Much debated themes were “inherent advantage, ” “equal-footing, ” “comprehensive transportation system,” and “economizing in transportation.” However, this not only had the effect of hampering the modernization of economic regulations for Japan’s railroad industry, but also caused the Japanese National Railways’s cumulative deficit to expand and placed a heavy economic burden on the public.
1. TRANSPORT COORDINATION RAILROAD Transport
coordination
transportation debates among
policy
has been the leading issue in in postwar
on this subject academics,
AND THE
PROBLEM Japan. Numerous
have taken place not only
but also government,
and transport industry
political,
circles, too. A huge number of papers on transport coordination were published, mainly in the 1960s and 1970s. Originally, the economic theory of transport coordination was an object of academic research founded on the normative price theory in conjunction with transportation economics. Indeed, before the railroad problem arose in Japan, transport coordination was only an economic theory of transport policy imported from industrialized countries, and in the 1940s and 19.50s it was mostly a field of specialized research among transport economists. However, since the 1960s when the railroad problem first emerged as an important issue in transport policy in Japan, the debate over transport coordination has spilled over from the confines of academic research. Not only has it attracted the attention of many ordinary citizens but it had an important influence on the government railroad policy as well. With the rapid growth of the economy in the 1960s the economic climate surrounding Japan’s railroad industry underwent dramatic changes. New highway construction, the explosion in motor vehicle ownership, and the rapid growth of domestic air transportation in the 1960s and 1970s suddenly made transportation a very competitive field, as shown in Tables 1 and 2. However, along with the rapidly expanding economy went increased demand for passenger and freight capacity of the Japanese National Railways (JNR), which led to crowding and bottlenecks in the JNR’s railroad system. As a result, the government railroad policy for the JNR in the 1960s consisted almost entirely of intensive capital investment to expand the capacity of the railroad system. When the Shinkansen rail link (Tokyo and Osaka) TR(A)23:1-8
first opened in 1964, the JNR went into the red and never bettered its financial condition until the privitization of the JNR in 1987. Although it was not obvious until after the event, the expansionary policy for the JNR paved the way for a full-fledged railroad problem. Two factors were responsible for the JNR persistently following such an expansionary policy, just at a time when the railroad problem in Japan was reaching industrialized country proportions. One was the gross overestimation of future demand for the, JNR business, and the other was continued emphasis by the government on a railroad-centered transport policy. The transport coordination issue, which suddenly came to the fore around 1960, is closely related to these two factors. A uniquely Japanese debate on transport policy, which attempted to use transport coordination to solve the railroad problem, supported overoptimistic demand forecast for the JNR rail network. The government believed that a policy of transport coordination would be effective-in maintaining and increasing the competitiveness of railroads against other competing modes of transportation by equalizing of the burden of fair track costs and social costs-and made it a basic pillar of its transport policy. However, this created a major obstacle to the adoption and execution of realistic measures to deal with the JNR problem, be it through deregulation or public subsidies. The emphasis of the government on transport coordination was of course a reflection of the central position the railroads occupied in its transportation policy. Notwithstanding the advent of competition in the transport market, the government attempted to maintain a nationwide JNR network (including unprofitable services) and to achieve a “just and reasonable” JNR price level and fare system, including concessionary fares, through market-entry control. The JNR’s use of cross-subsidisation and the old-fashioned regulatory system for the railroad industry continued to exist until the mid-1980s. 13
T.
14
SAITO
Table 1. Japan’s domestic transport by modes in selected years Passenger-km (billions) Fiscal year 1955 1965 1975 1985
(JW
Railroad 136.1 255.4 323.8 330.1
(82%) (67%) (46%) (39%)
Highway
(91.2) (174.0) (215.3) (197.5)
27.5 120.8 360.9 489.3
(Private auto)
(17%) (32%) (51%) (57%)
Air
Water
(1.7) (29.4) ;:::::;
2.0 3.4 6.9 5.7
(1%) (1%) (1%) (1%)
0.2 2.9 19.1 33.1
(0.1%) (1%) (3%) (-1%)
Freight ton-km (billions) Fiscal year
(JW
Railroad
1955 1965 1975 1985
43.3 57.3 47.3 22.1
(53%) (31%) (13%) (5%)
(Private truck)
Highway 9.5 48.4 129.7 205.9
(46.6) (21.6)
(12%) (26%) (36%) (47%)
(5.7) [$g; (68.6)
Water 29.0 80.6 183.6 205.9
Air
(36%) (-13%) (51%) (47%)
0.0 0.02 0.2 0.5
(0%) (0%) (0.1%) (0.1%)
Source: Ministry of Transport (1987). Though this regulatory system was finally partially dismantled with the privatization of the JNR in April 1987, the JNR’s cumulative deficit had climbed to 25.4 trillion yen by the end of 1986. Of course, the profound changes that had taken place in the structure of transportation market since the late 1960s were well-nigh impossible to predict. However, the demand forecast by the Ministry of Transport in 1971, which estimated passenger demand of 617 billion passenger-km and freight demand of 418.5 billion ton-km for Japan’s railroad system (the JNR, private companies, municipal undertakings) in 198.5, was seriously off target. The actual figures for 1985 were 330.1 billion passengerkm (54% of the forecast) for passenger services and a mere 22.1 billion ton-km (5.3% of the forecast) for the freight shipments, 2.
EVOLUTION
OF THE TRANSPORT
COORDINATION
DEBATE
Research in Japan in the field of transport coordination began after the end of World War II, influ-
enced by British economic theories of transport coordination. The topic developed into a national debate over 20 years, from the mid-1960s onward. The “inherent advantage” argument
From 1947 to 195Os, British economic theories on transport coordination (by H. 0. Mance, G. Walker, W. A. Lewis, and others) were introduced into Japan by scholars in the field of transportation economics; studies on implementing transport coordination were conducted. The main theme of transport coordination theory in this period centered on how to set up an appropriate division among transportation modes based on the inherent advantages of each through the introduction of an optimal price system reflecting social marginal cost (including escapable cost of track). However, while the railroad industry in Japan was still in disarray in the immediate postwar period, it continued to monopolize the transport market. The JNR, which became independent of the government and made a public corporation in 1949, went through a difficult period because of the extensive wartime damage to its facilities, but began
Table 2. Japan’s intraurban passenger transport by modes-market (passenger carried) Three metropolitan
share in selected years
areas (Tokyo, Osaka, Nagoya) Private
(Private Fiscal year
Railroad
(JNR)
company)
(Subway)
Tram
Stage bus
Taxi
auto
1966 1976 1984
61.3% 63.3% 64.0%
(26.3%) (23.1%) (20.8%)
(25.2%) (23.1%) (23.8%)
(9.8%)
7.0% 0.5% 0.3%
14.4% 9.2% 6.2%
9.1% 5.4% 5.2%
8.0% 21.6% 21.3%
[t;::?; o
Other urban areas (selected for the MOT investigations) Fiscal year
Railroad
(JNR)
1966 1976 1984
29.4% 13.9% 11.5%
(17.1%) (8.9%) (7.2%)
(Private company) (E:2?{ (4.3;)
Stage bus
Private bus
Taxi
Private auto
Others
48.0% 24.3% 16.5%
3.3% 3.7% 3.0%
10.7% 9.8% 8.9%
6.9% 47.3% 59.2%
1.7% 1.0% 0.9%
Source: Ministry of Transport, White Paper on Transport (each year).
Transport coordination debate and the Japanese National Railways problem in postwar Japan
showing a profit in 1957 and regained its sound financial condition. The “equal-footing” argument
In the 196Os, the debate on the transportation policy in Japan was influenced by debate on transport coordination overseas, chiefly by the J. E Kennedy Transportation Message in 1962 and the West German Leber Plan in 1967. In addition, the repeated assertion by the Ministry of Transport in Japan that motor vehicles had an unfair advantage over railroads in terms of track costs fueled the debate over transport coordination. Equalizing competition between road and rail transport by evening out the disparity in the burden of track costs became the dominant theme in transport economic policy. This subject was not confined to scholarly journals on transportation but was frequently taken up in general interest publications as well. The words “equalfooting” entered the layman’s language to refer to this crucial problem of transport policy. Most of the debate over railroad policy called for increasing taxation of motor vehicles. Some people, mostly transportation economists, urged a revision of railroad economic policy itself, but they were a minority at that time. Both the government and the JNR management agreed that increasing competitiveness by the reinforcement of the trunk lines capacity was the most effective way of reducing the JNR deficit. In addition, faced with the overwhelming spread of motor vehicles, the JNR management decided to eliminate 2,600 km of unprofitable lines of its network, but, in the end, government intervention made it impossible to shut down all but 121 km of low traffic density lines. Far from that, the Japan Railways Construction Public Corporation was established in 1946 through a resolution of the Diet, and began to promote the construction of the JNR new lines, which were prescribed in the Railway Construction Act of 1922. In contrast with the case of the JNR, private railroad companies went ahead with the abolition of unprofitable railroad lines, and their cumulative length amounted to 1,300 km between 1966 and 1976. The “comprehensive system” argument
transportation
The debate over transport coordination reached a climax in 1970 and 1971. The Diet and the Ministry of Transport set the establishment of a comprehensive transportation system as a basic tenet of Japanese transport policy. In order to achieve a comprehensive transportation system, in other words an appropriate division among various modes of transportation from social and long-term points of view, politicians and bureaucrats held that it was necessary to guide the transport demand through the functions of price mechanisms. In 1970, the Ministry of Transport advocated the need for higher taxes on motor vehicles and for diverting funds allocated for high-
15
ways to public transportation through the reallocation of special funds for highway construction as a way of guiding demand for public transportation. This issue of transport coordination was taken up by the mass media and soon became quite common among the general public. As a result of the debate, new taxation for motor vehicles (automobile-weight tax) was introduced in 1971, but it disappointed both the Ministry of Transport and the JNR management. Notwithstanding their expectation, as things turned out, almost 80% of new tax revenues had come to be used for highway construction under circumstances of urgent necessity to reduce serious highway congestion. Although most transportation economists pointed out the sterility of such an idealistic debate and argued that realistic action was needed on the JNR problem, they failed to have much effect. At that time, universities throughout the country were in the throes of student strife and public opinion was growing increasingly critical of the materialism that rapid economic growth had spawned. Realistic debate on the questions of transport policy continued to be avoided. Meanwhile, the volume of freight carried by the JNR had dropped for the first time in 1970 and it began trying to get its financial house in order again through more efficient management, rising prices, and asking for governmental subsidies. However, it failed to win any sizeable increase in governmental subsidies, and the Diet rejected its application to increase fares and charges. The “economizing
in transportation” argument
The oil crisis of 1973 plunged the Japanese into an economizing mood, particularly with regard to cutting back on gasoline consumption by motor vehicles. The government immediately established a committee charged with revamping its transport coordination policy. It also attempted to establish a more vigorous policy of adjusting transportation demand so as to cut back on energy, environmental resources, transport labor, and the spaces for transportation in metropolitan and urbanized areas. However, this attempt to economize was severely criticized by academics and politicians alike, and the committee did not even produce a final report. To us, it might seem that the emphasis on frugality prevalent in the country at that time built a stronger public consensus supporting transport coordination, but in reality, exactly the reverse occurred. The oil crisis was a major setback for the debate of transport coordination in Japanese transport policy. This unexpected development occurred because the oil crisis-induced recession dealt a heavy blow to the JNR’s business. The volume of freight decreased 10% yearly after the oil crisis, and in 1975 even the volume of JNR’s passenger transport started to decline. This brought the railroad problem home to ordinary citizens and changed public opinion visa-vis the government’s idealistic transport policy. In
T. Shrro
16
Table 3. Outline of the JNR’s financial reporting, 1963-1985 (hundred million yen) Fiscal year Items
1965
1970
1975
5,681 5,144 30 514 6,890 -
6,341 7,571 0 - 1,230 11,102 -
11,457 13,006 32 - 1,517 26,037 122
18.209 27,444 88 -9,147 67 .I93 2,679
29,637 39,643 -78 - 10,084 143,992 6,761
35.528 55,728 1,723 - 18,478 235,630 6,001
20,665 455 .I97
20,754 462.436
20,890 459.677
21,272 -130.051
2 1,322 413.594
20,789 276.774
1963
Operating revenues Operating expenses
Nonoperating income Net income (loss) Long-term liabilities Governmental subsidies Km of railroad lines Personnel (total)
1985
Source: “Audit of the Japanese National Railways” (each year).
1976, the Diet decided to shelve the JNR’s cumulative deficit of 2.5 trillion yen and approved public subsidy for the JNR’s rural lines. but deferred a fare increase. Retreat of transport coordination debate
The Ministry of Transport’s policy toward the JNR underwent a major change starting around 1975. The Ministry’s new JNR policy, made public in a White Paper on transportation of 1975, called for the JNR to set price on its own, curtail unprofitable freight transport business, eliminate rural services, and make drastic personnel cuts. In line with this, the Diet agreed to loosen restrictions on JNR price formation, and the JNR finally won the right to set price without seeking Diet approval in 1977. The year 1980 saw the long-awaited dismantling of the traditional discriminatory tariff system for the JNR freight transport business. Still, the JNR’s cumulative deficit ballooned to almost 15 trillion yen in that year, as shown in Table 3, reflecting its diminishing stature in the transportation market, its one trillion yen loss in a single term, and the fact that public subsidies and compensation for losses were wholly inadequate. With this, the idea of transport coordination rapidly lost its allure. In 1981, the government began administrative reform, aiming for “smaller, cheaper government.” The public supported this drive and the govern-
ment’s JNR policy pointed straight to privatization. This spelled the end of a rail-centered transport palicy that had been in effect since the World War I. In April 1987, the JNR was split into nine corporations. These are seven railway corporations called the JR Group (six railway passenger corporations and one railway freight corporation, as shown in Table 4), the Shinkansen Holding corporation, whose business is to lease its Shinkansen infrastructures to three of the railway passenger corporations (East Japan, Tokai, and West Japan), and the JNR Settlement Corporation, which was established with the special task of dissolving the ex-JNR’s personnel surpluses and cumulative deficits. 3. THE FAILURE
OF THE TRANSPORT
COORDINATION
DEBATE
The prominence of the transport coordination debate in postwar Japan resulted in delaying the implementation of the most important kind of transport coordination, i.e. adjustment of government regulation among the transport industries (modes). The “equal-footing” issue focused on the difficult question of how to equalize the track cost burden, making it difficult to reach a conclusion on how to carry this out. Furthermore, discussions on guided coordination of demand always ended up trying to reach an unattainable ideal.
Table 4. Japan’s railroad industry in 1987 JR group (ex-JNR)
Km of lines
Passenger M.kmt
Hokkaido East Japan Tokai West Japan Shikoku Kyushu Freight
2,542 7.4545 1.9845 5,0911 837 2,101 11(9,886)
3,600 99,400 38,400 45,300 1,500 6900 t54M. ton
Private & municipal Private company Major 14s Medium & small Commuter Freight Others Municipal Tokyo RT Authority
tForecasted figures for 1987. $Actual figures for 1985. §Includes Shinkansen. l/Rents tracks from passenger corporations.
Companies 14 132 88 20 24 11 1
Km of
Passenger
lines
iM.kmt.
2,817 2,503
97,536 11,777
369 142
9,313 14,013
Transport coordination debate and the Japanese National Railways problem in postwar Japan Two factors contributed directly to the delay in establishing a realistic railroad policy in Japan. One was overconfidence in the monopolistic position of rail transport, which led to overestimating the capacity of the JNR in handling cross-subsidization. The other was the expectation that transport coordination could halt the move away from railroads or revive demand for rail transport. The first factor was responsible for blocking the reform of economic regulations for the railroad industry dating from the days when the railroads had a monopoly in transportation market, and for delaying the assumption of public responsibility for the public service obligations of railroad industry in general and the JNR in particular. The second not only hampered the JNR in eliminating unremunerative services but also prevented the modernization in response to changes in market conditions. The JNR’s freight rate structure continued to be based on charging what-the-traffic-will-bear, a carryover from monopoly days, right up to the early 1980s. Woefully, insufficient governmental subsidies for rural lines were introduced in 1976. While elimination of these lines began in earnest in 1981, it was not until 1984 that differential pricing for them was introduced. Until then, the JNR had been compelled to adopt a nationwide standard price system. These regulatory actions, based on entry control and crosssubsidization mentioned earlier, were a continuation of the traditional economic regulation system on transportation industries. Even today, with the JNR now privatized, there have been no major reforms of economic regulations on the transportation industry as a whole. After all, with privatization of the JNR, the total amount of the long-term liabilities arising from starting on the new railroad transport system reach up to 37.4 trillion yen. This is made up of 25.4 trillion yen of the JNR’s cumulative deficits, mentioned earlier, 5.4 trillion yen of capital cost burdens for the Japan Railways Construction Public Corporation (as related to the Joetsu Shinkansen and the Seikan Tunnel) and for the Honshu-Shikoku Bridge Authority, 4.9 trillion yen of the fund for the JNR’s pensioners, one trillion yen of the revenue support fund for three railway passenger corporations (Hokkaido, Shikoku, and Kyushu), and 0.7 trillion yen to meet the ex-JNR’s personnel surplus measures. Although the JNR Settlement Corporation was to have a responsibility to dissolve almost 26 trillion yen of these liabilities through disposal of the ex-JNR’s real estate, transfer of income that the Shinkansen Holding Corporation acquires, and so forth, 14.6 trillion yen of this was decided to be thrown onto the burden of taxpayers. The revenues that the Shinkansen Holding Corporation gains is nothing else but the charges for newly-established railway corporations that operate the Shinkansen lines (East Japan, Tokai, and West Japan), so that they are forced to be at a disadvantage in competing with other modes of transportation.
17
These enormous losses that now worry the Japanese people owed a great deal to delay in taking realistic actions on the JNR problem, in other words, to the long time wasted on the debate over transport coordination. In effect, the debate over transport coordination was merely a cosmetic excuse for delaying realistic solutions to difficult transportation problems. The biggest loser in the search for an unattainable ideal was the JNR, as described above. The burden that the JNR has left the public includes “unavoidable” losses caused by unpredictable changes in our transportation market, but the biggest losses are those humanly caused by the adoption of inappropriate transportation policies. SELECTED REFERENCES
Akiyama K. (1970). Kou~~ron (Economics of Transportation). Yuhikaku, Tokyo. Akivama K. (1979) Economics of transoort infrastructure. tin-yu Keizai (Transp. Econ.) 39(4),&S-15. Fujii Y. (1978) Coordination of freight transport in Eng land’s motorization period: New approaches to the problem since Gilbert Walker wrote “Road and Rail” in 1942. Un-yu Keizai 38( 1), 8-14. Fujii Y. (1981) Passenger transportation in a comprehensive transportation system. Koutsuguku Kenkyu-1981 (Annual Report on Transportation Economics-1981). JSTE, pp. 23-35. Hirai T. (1971) The problem on the coordinated transportation system. Koutsugaku Kenkyu-1971. JSTE, pp. 89106. Hirooka H. (1967) Comparison of railway and highway transport from the national economy viewpoint. Kosokudouro Jidousha (Expressways Auto.) lO(3). 13-16.
Kakumoto R. (1975) Ningen To Idou (Humans Mobil.). Chuokoron-sha, Tokyo. Konno G. (1970) Problem of much debated theme of “equal footing competition between road and rail.” Kousokudouro Jidousha 13(6), 19-23.
Kudo K. (1947) Transport coordination between railway and road transport. Un-yu Keizai 6(8), 2-8. Kudo K. (1952) Theoretical basis of transport coordination. CIi-yu Keizai 11(12), l-5. _ Maiima K. 11969) Methodoloaical nroblem in relation to the track cost analysis. Kot&gaku Kenkyu-1969. JSTE, pp. 121-143. Masui K. (1970) Transport economic policy-equal-footing, comprehensive transportation system. Iln-Yu Keizai 30(9), 11, 63-73. Ministry of Transport (1987) Handbook of transport economic statistics. Tokyo. Nakanishi K. (1970) Competition and coordination in transport investment-as related in the “equal-footing” argument. Keizai Hyoron (Nihon-Hyoronsha’s Econ. Rev.) 19(2), 116-127. Nomura T. (1956) Transport coordination. Kokumin Keizai Zusshi (J. Econ. Business Admin. Kobe Univ.) 93(2), l-15. Nomura T. (1961) Transport coordination in England. Kokumin Keizai Zasshi 103(6),
l-17.
Okada K. (1971) Some problems on the comprehensive transnortation svstem. Koutsuaaku Kenkvu-1971. JSTE. pp. 89-87. ’ Okada K. Situation and future of the JNR in comprehensive transportation system. Keizai Hyoron 21(l), IOO110. Okano Y. (1970) A second-best problem in relation to transport coordination-on the proposal of “equal-footing.” Keiznigaku Ron&u (J. Econ. Univ. of Tokyo) L%(2), 2-11.
18
T.
Okano Y. and Kurashimo K. (1979) Comprehensive transportation system and highway transportation. Gendui Jidousho Kouturon IEcon. Modern Hizhway Transu. ), 205
238. University of Tokyo Press, Tikyo.’ ‘ ’ Okano Y. (1980) Market theory and transportation policy-railway policy in England. Un-yu Keizai 40(3), 3945. Saito T. (1982) A survey of transport coordination debate in Japan. Koutsu Gakusersushi no Kenkyu (History Transpn. Econ. Japan) 1,245-278. Japan Transport Economics Research Center, Tokyo. Saito T. (1984) Postwar transportation policy and the trans-
SAITO
port coordination argument. Korsugaku Kenkyu-1984. JSTE. DD. 13-17. Suzuki K: ‘(1954) Practical Problem of Transport Coordination. Kotsukeizai-sha, Tokyo. Tawara E. (1969) An introduction to transport coordination, Oifu Univ. Econ. Rev. 21(3), 146-176. Takeda F. (1967) Pitfalls of the “efficiency comparison of road and rail.” Kosokudouro Jidousha 10(12), 29-34. Tsuru S. (1969) Highway vs. railroad; economic comparison. Keizai Kenkyu (Econ. Rev., Hitotsubashi Univ.) 20(l), l-9.