The BBC recently broadcast a TV
series in the UK called Locomotion. It
charted the history of railways
throughout the world, and Japan's
railways merited significant attention
—indeed, the commentator was
moved to say, "Japan's railways are
the envy of the world; fast, clean, frequent
and punctual, they are a daunting
example to other nations of what
can be achieved when government,
business and science cooperate for the
benefit of all."
Few would argue with these sentiments,
for Japan is one of the few countries
to maintain faith in the use of a
railway network as an integral part of
the mass transportation market. In
highlighting the development of new
light railway systems in the USA and
elsewhere as well as the restructuring
of the railways in many countries including
Britain, Locomotion itself revealed
a level of interest in rail transport
that would have been unheard of
10 years ago. The revived enthusiasm
for railways in a wide variety of countries
reflects the growing realization
that the Japanese system of urban
transportation by rail, and its mediumrange,
high-speed railway network is a
model for all to emulate.
There are fundamental reasons for
the continued importance of railways
relative to other means of transport in
Japan; the country's geography with
high population densities in urban areas
in the small percentage of the inhabitable
land mass militates against
construction of an efficient national
road system. Despite a strong road
lobby and the world-famous car industry
which has spawned a 'my car' movement
among the public, the railways remain
a key means of transport in and
around cities. Even in long-range
transport where, as in other
industrialised countries, air transport
has gained an increasing market share,
the railways have maintained a strong
position as a result of far-sighted development
of high-speed networks linking
the population centres.
Cultural factors also explain the importance
of railways in Japan. The
growth of car transport for individuals
was pioneered in the USA as the
epitome of individual expression. In advertising
the merits of buying and owning
a car, the emerging car industry
used the virtue of personal motivation
—the freedom to go wherever and
whenever one wanted—over any social
considerations. The social cost of owning
and using a private car on public
roads was not an important concept in
the early days of the car industry.
The critical difference between the
present transport systems of the socalled
'individualistic' nations exemplified
by the USA, and the 'group-oriented'
nations like Japan, is that the aspirations
of the individual dominate the
transport policies in the individualist
countries to the detriment of society as
a whole. By contrast, in Japan it is
recognised, despite 'my-carism', that
there are group considerations transcending
individual preferences shaping
what transport policies might be
best for the common good. The acceptance
of high levels of congestion on
public transport—particularly commuter
rail transport—which has been a
persistent feature of urban railways in
Japan since WWII, may reflect the subjugation
of individual will to the implicit
aim of preserving social harmony.
After 2 years of commuting on the
Keio Line from my home in suburban
Chofu into central Tokyo, I can vouch
for the fortitude of the Japanese public
in putting up with extreme overcrowding
without rocking the common boat.
In fact, it was hard to make my UK colleagues
believe that the Tokyo rush
hour is worse at 9 pm than at 5:30 pm.
The congestion I experienced on the
private Keio Line was certainly no
worse than on any of the other urban
lines operated by the JR companies or
other private groups, and it is to these
private companies that the JRs are
looking for models of future development.
Japanese private railways have
successfully blended highly-utilised rail
services with associated activities in
real estate, hotels, etc., to generate high
levels of profitability—a compelling mix
that the JR companies would like to
emulate.
The favourable results of Japanese
private railway groups have attracted
considerable attention overseas since it
is thought that the ability of companies
such as Tokyu, Odakyu and Hankyu to
run railways at a profit must provide
lessons for others.
Even in the UK, Japanese private
railways merited mention in the government
White Paper on the Privatisation of British Rail which
said: 'In other countries, the private
sector is actively involved in the railways.
Already 40% of Japan's railways
are private and it is the Japanese
government's intention to
privatise the remainder'. However,
this quote implies that the 40% of
Japanese railways that are private became
so recently, no doubt to support
the British government's policy of introducing
private capital and operating
'skills' into British railways. It ignores
the truth that Japanese private
railways groups are not the result of
some new government initiative, but
are very long standing, and that their
quasi-monopoly in a market with very
high localised population densities
makes profitable operation less than
difficult to achieve.
For example, my travelling on the
Keio Line was less a decision of choice
than of necessity. Keio, like several
other private groups in the Tokyo
area, operates geographically-distinct
services facing little direct competition
from peers in the private sector
or from JR. While the quality of service
is impressively high, customers
of private railways like myself have
no other realistic choice of transport.
The carving up of major cities like Tokyo
into commuter-transport monopolies has lent itself to make money for
private investors in a way not readily
open to railway operators in other
countries at present.
However, there is a contentious point
with regard to private railways in Japan
related to the virtue of their diversification.
Critics point to the lack of
capital investment particularly in the
Tokyo area where the real demand for
transport services has consistently outstripped
the expected demand. Delays
in investment have been compounded
by the government's policy of suppressing
fare increases with the result that
the railway groups have sought to assign
resources to other business fields
because they have doubts about the potential
earnings rate of their railway
business. Therefore, the overcrowding
levels are not being alleviated to any
extent through capital investment by
the private companies themselves.
In addition to looking at profitable
private railways companies in Japan,
railway operators in other countries
also look to the privatisation of JNR as
evidence that privatisation is the universal
answer to operating railways.
The JNR privatisation drew a great
deal of attention with The Times newspaper
of 27 October 1993 saying 'Japanese
show Britain the right way to run
a Railroad. Plans to privatise British
Rail could draw important lessons from
the latest big listing in Japan'.
The big listing to which The Times referred
was the first tranche of shares in
JR East, the largest of the six regional
companies created by the break-up of
JNR which was dissolved and divided
into separate operating units in 1987.
Although this was commonly called
'privatisation', the implementation of
the change in ownership required to
complete privatisation is only now taking
place. The lengthy delays in floating
shares have prevented observers
such as The Times from deciding that
the privatisation has been a success
from which others could learn.
Studies of the JNR privatisation
have concentrated on the financial
performance of the new JR companies
which has ostensibly been much better
than in the JNR era. Likewise, the
state of labour and management relations
is now more harmonious than
pre-1987. The third main strand of
the 'benefits of privatisation' school of
thought is that the JRs have been able
to achieve significantly higher growth
rates in traffic volume than in the JNR
days because they operate as private
companies with a simplified set of objectives
compared to those imposed on
a national railway.
Passenger volume growth of the JRs
has surpassed that of the private railways
and although this has been
achieved in the period of strong economic
growth until last year, the effective
increase in market share must to
some extent reflect the efforts by JR
managements to generate new business
through improved services and
better marketing. The JR companies
have also begun using their substantial
customer base to develop non-railway
business. In this, and in the increased
emphasis on marketing non-railway
services, the concept of competition in
what is essentially a non-competitive
market has acted as a spur to JR managements.
Consequently, while the division
of JNR into regional companies
ensured a minimum of cross-border
traffic—thereby creating an
oligopolistic market—there is a spirit of
competition between JR companies acting
as an incentive for both management
and employees.
The positive financial results of the
JRs in the 6 years since 1987 are seen
as the ultimate expression of the benefits
of the division and privatisation.
However, this achievement owes much
to the implementation of a number of
crucial pre-conditions to the
privatisation legislation established before
the dissolution of JNR. In the stage
management of the privatisation policies
—a brilliant handling of the political
process—a structure was established
for the new JR companies with
built-in safeguards against failure.
These pre-conditions, which included
substantial cuts in employment and the
hiving off of the vast bulk of the JNR
debts to a new public corporation set up
for the purpose, facilitated the attainment
of profits by the JRs giving an instantly
favourable impression of the
benefits of privatisation.
Another of the prior conditions to
which I alluded in talking of the simplification
of the objectives of the JRs
raises important issues for the future of
railways in Japan. The removal of the
full social obligation which existed in
the JNR era to provide sufficient capital
investment to maintain a nationwide
service immediately lowered railway
infrastructure spending and helped
boost the short-term profitability of the
new JRs. However, this also has consequences
for the long-term outlook for
investment in Japan's rail system, an
issue of prime importance within the
context of the government's overall
transport policy.
The future basis of decisions on capital
investment must change because
the JRs no longer have to face the difficult
task of balancing the pursuit of
profitability with social considerations.
In the run up to the dissolution of JNR,
the establishment of a Third Sector to
manage local lines, whose existence can
only be justified by their social contribution
irrespective of their operating
losses, formed an important precedent.
The setting up as part of the JNR
privatisation process of the Management
Stabilization Fund to subsidise
the continued loss-making services of
the three island JRs took the new approach
a stage further. The long-term
question of whether or not the remaining
unprofitable lines operated by the
JRs will stay open has moved the debate
into the public arena. In the future,
investment to maintain services
on unprofitable lines will be more a
matter of government transport policy
than for JR managements.
A second related concern in the context
of future transport investment is
epitomised by the changes implemented
in the post-privatisation era in
the operation of the Shinkansen network.
Perhaps the only aspect of the
privatisation planning that did not significantly
meet the approval of the JRs
was the leasing system introduced to
pay for the acquired Shinkansen assets.
However, the alteration in 1991 of the
arrangements for financing the
Shinkansen network to a long-term
purchase agreement was a success for
the JR argument that the JRs operating
the Shinkansen lines should be allowed
to use depreciation to improve
cash flow. The new system coincided
with the establishment of the Railway
Development Fund to facilitate construction
of the Seibi Shinkansen (new high-speed lines) including the line to
Nagano—the site of the next Winter
Olympics.
The establishment of the RDF to provide
financial support for new lines
other than the Shinkansen is a positive
initiative and it represents a muchneeded
acknowledgment by the government
of the requirement for substantial
public-sector participation in major
railway projects. However, it confirms
the changing balance of power between
the participants in the formulation of
transport policy. The RDF is clearly a
response to the JRs refusal—a luxury
not allowed to the old JNR—to fund
construction of a new Shinkansen. This
intransigence was rewarded by the allocation
of 50% of the costs of the Seibi Shinkansen from public funds—a further
indication, which will not be lost on
the JRs or the private railways that
they are no longer expected to meet the
full costs of investment in the railway
infrastructure. The onus has firmly
switched to the government to formulate
long-term transport policies incorporating
a coherent strategy for future
railway investment.
It remains the contention of the JRs
that the regulatory regime—a legacy of
the JNR era—is unreasonably harsh.
The JRs have long anticipated becoming
real private corporations with the
flotation of shares accompanied by easing
of controls on their activities by the
Ministry of Transport. However, the
transport bureaucracy views the regulatory
framework within the context of
an overall transport policy serving to
maximise the benefits to the travelling
public of a safe and efficient railway
network.
The key issue for the future is finding
a suitable balance between the potentially
conflicting aims of the private sector
—maximising profits—and the national
interest as a whole—provision of
rail services for the broader good of the
people.
The crystallisation of this issue will
be achieved by establishing a financial
system that guarantees a level of capital
investment in the railway infrastructure
sufficient for the BBC's claim
that "Japan's railways are the envy of
the world..." to be as true in 20 years
time as it is today.
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