Privatization of Japanese National Railways: Railway management, market and policy, The

Privatization of Japanese National Railways: Railway management, market and policy, The

Bagwell, Philip

Tatsujiro Ishikawa and Mitsuhide Imashiro, The Privatization of Japanese National Railways: railway management, market and policy, London, Athlone Press (1998), 272, pp., 45.00.

Of the two authors of this book, Tatsujiro Ishikawa served for thirty years from 1948 in various management posts of Japanese National Railways and was subsequently chairman of the Japanese Institute of Transport Statistics. His practical experience as a railwayman caused him to look with a more critical eye on railway administration both before and after privatisation. Mitsuhide Imashiro has had an academic career and is Professor of Business Administration at Daito Bunka University, Tokyo, and concentrates on the business efficiency of his country’s railways. It is a valuable partnership.

From the hotly contested nationalisation of some five-sevenths (by mileage) of Japanese railways in 1906, through forty years of direct government ownership and management, and the creation of a State-owned corporation – the JNR – in 1948 to privatisation in 1987, the railway system has been a subject of political policy and controversy.

Although privatisation was considered by the Diet at various times in the 1980s, its legal basis was established by the passing of eight Bills in 1986. The switch to private ownership was made more cautiously, and for different reasons from those which prompted the passing of the Railways Act in the UK in 1993. The JNR was split into seven different companies, three of which – the Japanese Eastern Railway, the Japanese Central Railway and the Japanese Western Railway — operated on the island of Honshu, where there is by far the greatest concentration of population and industrial activity. A separate company served each of the three other islands, Hokkaido, Kyusyu and Shikoku. The seventh company was JR Freight, to run all the freight transport of the former JNR.

Chapters 1, 2 and 4 of this book, written by Imashiro between 1991 and 1993, provide an excellent summary of the process of privatisation and its early effects. In chapters 3, 5 and 6, occupying two-thirds of the narrative, Ishikawa examines the causes of JNR’s rapidly growing deficits from the mid-1960s onwards – the main reason for privatisation. Political interference with management took place in a number of important ways. In 1950, for example, when JNR was still making a healthy overall profit, but local authorities were in financial difficulties, the government required it to provide financial assistance to the local authorities of cities, towns and villages through which the railways passed. This obligation continued up to the year of privatisation, when JNR’s finances had been in the red for fifteen years and the local authorities had enjoyed many years of prosperity. The amount contributed by JNR to the local authorities between 1964 and 1986 was over 300 billion yen. It was an absurd situation, since it would have made more sense for local authorities to subsidise JNR, but the local authorities had a strong lobbying group in the Diet.

Influenced by considerations of prestige, as well as of providing efficient transport, governments in the 1960s and 1970s supported the construction of the Shinkansen lines, particularly that linking Tokyo and Osaka (1964) and its extension to the island of Kyushu in 1975. These spectacular improvements were financed principally by loans rather than equities. When JNR indebtedness increased, following budgetary tradition in Japan, the outstanding deficits were carried forward from year to year and not written off and absorbed into Treasury finances.

A by-product of the building and extension of the expensive Shinkansen lines was that the parallel rail routes lost traffic and revenue to their more speedy rival within JNR,

The controversies which came with these remarkable technological innovations, according to the authors, ‘obscured the deficiencies in JNR management’ and delayed necessary reforms in the company’s business structure. They also delayed proper attention being given to freight business. In 1983 the board of JNR recommended the building of Freight Industry Tracks which would have laid down sidings to factory premises, but the Diet ignored the proposals, with the result that in a period of industrial boom stocks were piling up in freight yards. Long delays caused traders to switch to road haulage and to coastal shipping, taking advantage of the country’s extensive coastline and ports. The number of freight wagons shrank from 98,000 in 1981 to 14,000 in 1986; JNR obtained 84 per cent of its revenue from passenger traffic and only 4.6 per cent from freight (the remaining income coming mainly from station shops and from land).

The authors dismiss the claims that privatisation was necessary because of the great size of JNR. At the beginning of the 1970s the company had a staff of nearly 460,000, but they point out that Alfred P. Sloan, the chief executive of General Motors, managed its staff of 600,000 without apparent difficulty. The trouble with JNR was inadequate management and too much political interference in response to demands from the motor and local authority lobbies.

Although the book contains twelve statistical tables and four maps it is unfortunate that these record developments only up to 1986. Also some three-fifths of the authors’ account was written before privatisation became law. They were unable to be more precise than to write, ‘It looks as though each of the new companies has set off to a good start’ (reviewer’s emphasis). They stress that it was an advantage that Japanese Railways JR), which replaced JNR, were largely free from government interference. The floating of the shares of the three big Honshu companies on the stock exchange would make more equity capital available, which would provide more flexibility than the previous dependence on long-term loans. Recently published statistics (see James A. Doherty’s article in the January 1999 issue of the Journal of Transport Economics and Policy) reveal that the increase in passenger numbers, continuous in the last thirty– three years of JNR’s operation, grew at about the same rate in the first ten years of the privatised industry, but that bus travel decreased sharply from 1986 to 1995 and that, over the same period, motor car travel rose from 483 per cent to 55.3 per cent. Thus, in claiming that the reorganisation was `by most criteria … a success’, Doherty and the two authors of this book are equating ‘success’ with financial viability rather than with the achievement of a well balanced and environmentally sound transport system. There is no discussion of environmental issues in The Privatization of Japanese National Railways.After ten years of private operation of the railway the results of earlier interference by Diets, prompted by political pressure groups – in this case the `low taxation’ protagonists – are manifest. In 1984, before privatisation, the board of JNR saw that with an ageing work force it was necessary to fund a soundly based pension scheme. It appealed to the government to give financial support to its pension proposals but the government of the day did not follow up this lead. Now in 1999 the Diet has decided that the problem can no longer be swept under the carpet. A report in the Financial Times in May 1999 noted that the East Japan Railway, though still profitable, had sharp falls in earnings because of the decision by government to oblige the railway to meet its share of the railway pension debt. Thus the problems which prompted privatisation have still not been fully resolved twelve years after the legislation was passed. On the one hand the large companies were generally given clearer control of their own finances. On the other, the environmental consequences of Japanese transport policy may well loom larger in the future.

This book is essential reading for an understanding of why Japanese railways were privatised, but more recent journal articles and financial reports are necessary for a fuller understanding of the results of the 1986 legislation.

Philip Bagwell

Copyright Manchester University Press Mar 2000

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