transportation investment and japan’s experiencelicly-owned body such as the old jnr. likewise,...

4 Japan Railway & Transport Review • April 1997

Big Project Financing

Features

Copyright © 1997 EJRCF. All rights reserved.

Transportation Investmentand Japan’s Experience

Ryohei Kakumoto

Investment and Demand

Error of overestimating demandInvestment in transportation facilitiespromises benefits, but at the same time,it can also impose a large burden. Evenentirely independent transport compa-nies operating under genuine marketprinciples can overestimate demand, orunderestimate construction costs, caus-ing later financial difficulties. When theinvestment is by central or local govern-ment, politics comes into play and theburden is often borne by taxpayers.This happened to the Japanese NationalRailways (JNR) prior to March 1987,when JNR was privatized partly as a re-sult of losses incurred due to huge invest-ment.Normally, transportation investment be-gins when the future seems bright. In theJNR case, the future was promising untilthe Tokaido Shinkansen was completedin 1964; JNR’s financial hardship could

have been avoided if the shinkansen con-struction had been limited to the lucra-tive section between Tokyo and Osaka.However, the interests of factions withinJNR favouring extension of shinkansenservices to other areas coincided with theinterests of some politicians, and theshinkansen was extended to the Sanyoregion (between Osaka and Fukuoka). Bythe time the extension was completed in1975, JNR had dug itself into a seriousfinancial hole beyond recovery. This typeof unjustifiable investment was not onlymade in the shinkansen; it was also madein conventional railways. The situationwas made worse because investmentswere not financed by increasing fares.Instead of increasing fares in line with theprice index, JNR was forced to keep fareslow as part of a national price controlpolicy.Investment in transportation facilities usu-ally starts in a high-demand area to cor-rect the capacity shortage. However, themassive required investment causes a

sharp and immediate rise in costs, butincome rises only very slowly. Therefore,the financial condition of the businessmay decline for several years.Politics is another element. Politiciansoften demand that similar transportationservices be provided in all areas even ifthere is no capacity shortage. Such po-litical demands can be readily rejectedby a private company, but not by a pub-licly-owned body such as the old JNR.Likewise, construction costs increasewith time, but politicians require fares innew sections to be held at the same levelas those in sections completed earlier,making losses inevitable. A railway com-pany might survive if it can offset suchlosses by profits from lucrative lines, butif the loss is very high, or if the companyis forced to operate under a price con-trol policy, it is soon operating in the red.

Railways versus expresswaysThe situation was made worse by com-petition with other means of transporta-

Nagoya-Kobe expressway with Tokaido Shinkansen in 1964 (Transportation Museum)

5Japan Railway & Transport Review • April 1997Copyright © 1997 EJRCF. All rights reserved.

tion. The completion of the TokaidoShinkansen coincided with the rapidgrowth in car ownership and air networksin Japan. Railway demand began fallingin most areas, but politicians kept de-manding shinkansen, even in low-de-mand areas.A further factor affecting both the railwaysand all other means of transportationequally, was the shift in the nationaleconomy from high to low growth. De-mand was expected to increase substan-tially as a result of the high growth periodin the 60s, but the expectation provedwrong in the 70s. The oil crisis in Octo-ber 1973 marked the start of a low-growth economy. As a result, JNR’sdeficits kept rising until 1987 marked itsprivatization.Among the different means of transpor-tation, JNR suffered the largest deficit,which is understandable because it wasthe oldest service provider. Any trans-portation provider would have experi-enced similar problems when investingin non-profitable areas.Growing car ownership required anexpressway along the old Tokaido Road.At that time, expressways were to be in-dependent of each other in terms of fi-nancing, expenditure and income.However, in 1972, a new toll pool sys-tem was introduced by which profits fromthe Tokyo-Osaka Expressway would beused to extend expressways in other ar-eas. Today, expressways in Japan totalapproximately 6,000 km. The express-way network was extended into regionswith low transport demand. At the sametime, the Tokyo-Osaka Expresswayneeded a capacity increase. Financialindependence was difficult to achieve inboth cases because of the low demandin the former case and the extremely highconstruction costs in the latter. The lackof financial independence was exactlywhat JNR had experienced.Another factor experienced by JNR wasthe short supply of land (or space) in

heavily-populated large cities. This pre-vented JNR from building additional fa-cilities along the tracks. The situation waseven worse for construction of express-ways in large cities and for expandingairport capacity in the Tokyo metropolis.The various efforts to provide means oftransportation in Japan over the past 50years were soon limited by the short sup-ply of land in areas where the need wasthe highest and by financial problems inlow-demand areas.

Cost Sharing

Various cost-sharing methodsIn Japan, investment in roads includesboth the construction, improvement andmaintenance costs; investment in rail-ways includes only the constructioncosts—maintenance costs are treated aspart of operating costs.In the case of railways, transportationinvestment is reflected in railway expen-diture only in terms of depreciation andfunds for paying interest and dividends.The interest or dividend payment de-pends on whether the investment wasmade out of own capital (shares) or debt.During the JNR days, there was no con-cept of dividends. Interest was includedin the operating costs and both interestand depreciation were defined collec-tively as capital-related costs. Today, in-terest is considered non-operatingexpenditure by the JR companies (JRs).During the JNR era, costs were dividedinto operating costs (staff costs, costs forenergy, materials, etc.), and capital-re-lated costs. When investing in railways,the cost-sharing method must be deter-mined first.All these costs were to be borne in Japanby the users, which had been a funda-mental principle ever since the start ofrailway construction. This principle isalso endorsed in today’s law. However,it takes many years from when a railway

is built until passenger and freight de-mand increases to the break-even point.In some areas, the break-even is neverreached. Therefore, other cost-sharingmeans must be developed if a railwaymust be built in low-profit areas.If just the capital-related costs must bereduced, some or all of the investmentmay be borne by taxpayers. This methodhas been used in Japan in the form ofsubsidies for part of construction costs.Once a railway is built, survival may bedifficult due to changes along the rail-way or due to competition with othermeans of transportation. Consequently,part of the operating costs is sometimessubsidized. This may be the only effec-tive measure if a local railway is to sur-vive competition with cars.In contrast to users bearing both operat-ing costs and capital-related costs, allsuch costs can be borne entirely or al-most entirely by taxpayers. An examplecan be found in Tokyo’s Musashino Citywhere a circular bus service covering 4km charges a very low fixed fare, withdeficits borne from the city’s budget.

Cost sharing by taxpayersIf one has to choose, the obvious prefer-ence is for users to bear the costs entirely.JNR started construction of the TokaidoShinkansen in 1959 based on this as-sumption.Nevertheless, the government insisted(probably because it was the easierchoice) on the same method for theSanyo Shinkansen where it was obviousthat such a method would never work,and marked the start of JNR’s ultimatedemise.The role of railways can be categorizedas (1) long-distance and inter-citypassenter transportation, (2) passengerservice in large cities, (3) passenger trans-portation by local railways, and (4) freighttransportation. When it is time to builda new railway without jeopardizing fi-nancial independence, new construction




may be feasible if it serves one of roles1, 2, or 4, assuming that: (a) demand ishigh, and (b) the construction cost is keptto a minimum. Condition (a) becomesharder to meet with the progress of mo-torization and air transportation. If a rail-way must be built at the risk of financialindependence, the next resort is cost shar-ing by taxpayers.Investment in railways for freight trans-portation (role 4) with taxpayers bearingthe cost, is still unthinkable in Japan.Although there is an argument for reli-ance on railways to reduce pollution fromtrucks and to cut energy, the amount offreight that can be carried by Japaneserailways is limited by line capacity andloading gauge, etc., and does not seemsufficient to produce the required effects.This leaves roles 1 and 2 for investmentin railways to be supported by taxpay-ers. Indeed, there was a strong opinionaround 1970 to inves t more inshinkansen between large cities (role 1).Sooner or later, a similar demand willmost likely be raised by politicians asdemonstrated in late 1996.In Japan, as in many other countries, sub-ways are built to provide intra-city trans-portation (role 2), and about half theconstruction cost is borne by taxpayers.It is unclear whether operating costs aresubsidized by local communities al-though many communities operatingboth subways and buses are reportedlysuffering from overall deficits in transportservices.However, with few exceptions, until re-cently, construction costs were never sub-sidized whether in the case of JNR/JR orprivate railway companies. This is be-cause existing railways were used heavilyand the burden of new investment wasrelatively small, so financial indepen-dence could be maintained by modestfare increases. However, despite themagnitude of the need, investment aimedat reducing congestion is very slow be-cause construction costs are huge and

space is limited.

Investment by JNR and JR

Last golden eraThe capacities of land transportation byautomobiles was very low in pre- andpost-war Japan. Both railways and ship-ping were devastated and could not playthe leading role they had before the war.Japan had to first recover rail and ship-ping capacities while gradually buildingroad and air capacities.The country enjoyed high economicgrowth from the mid-1950s to the late1960s with a sharp increase in transpor-tation demand, and investment in trans-portation created still greater demand.JNR invested in strengthening its capac-ity; income and expenditure were bal-anced for 7 years from 1957 to 1963thanks to increasing demand in both pas-senger and freight transport and appro-priate fare increases. The future seemedbright and completion of the TokaidoShinkansen in October 1964 gave finan-cial and engineering confidence to JNRexecutives.The equilibrium would have been main-tained if train fares had been increasedto a reasonable level and investmentskept within the scope of financial inde-pendence. But the Japanese and theirgovernment demanded investment ofevery possible kind from JNR, whichrushed to achieve many things at once,including passenger and freight transport,inter-city and intra-city transportation,mainline and local railways.To make things worse, the publicliked the high speeds of the TokaidoShinkansen and demanded moreshinkansen even in areas covered suffi-ciently by existing tracks. Even this wasnot the end; the public wanted an un-dersea tunnel between Honshu andHokkaido as well as tracks on the roadbridge connecting Honshu and Shikoku.

The railway market had matured in themid-1960s and Japan should have reliedon automobiles for local and freight trans-portation. However, the government wasreluctant to accept such a transition andforced continued investment by JNR inthese markets.Granted, there was a need to convertsingle tracks between large cities todouble tracks and to increase capacityin large cities to meet increasing popula-tion. But the completion of expresswaysduring and after the 1970s reduced de-mand for inter-city transportation by rail.Moreover, although the investments in in-creasing the capacity of intra-city railtransportation are highly evaluated today,they imposed a heavy burden on JNR.During the 1960s, JNR suffered from in-creasing liability for investments and asharp increase in interest payments. Infiscal 1960, the amount of long-term debtwas 0.89 times the operating revenue, butit had risen to 2.27 times by fiscal 1970.Similarly, interest payments increasedfrom 5.9% of operating revenue in 1960,to 13.3% in 1970.These burdens did not stop the govern-ment from maintaining two conflictingpolicies comprising increased investmentand suppressed fares. As the result, infiscal 1971, JNR’s operation sank into lossbefore depreciation meaning it had toworry about additional liability. By fis-cal 1980, long-term debt had risen to4.86 times the operating revenue with in-terest payments reaching 24.9%. At thatstage, special measures were taken in-cluding shelving part of the debts, butthey did not prevent losses accumulat-ing.

Destruction of JNRBy the mid-1960s, JNR had already lostthe power to finance its own investments.Had investment been truly necessary forsome reason, subsidy measures similarto those introduced for subways shortlyafterwards should have been taken.


When the government demanded con-tinued investment without offering nec-essary subsidies, JNR should havedisclosed the difficulty to the public andconvinced them that it could not makefurther investments. However, in the na-tional land planning policy introducedfrom the mid-1960s to early-1970s, thegovernment had already overestimatedthe demand for JNR due to the contin-ued high economic growth. If demandhad been as high as estimated, increasedoperating revenue would have offset theaccumulated deficits. In reality, JNRchose continued massive investments.JNR’s freight transportation peaked in fis-cal 1970 and then began to decrease. Pas-senger transportation peaked 4 years laterin fiscal 1974, and the peak was neverachieved again. But JNR kept making hugeinvestments until the early-1980s. Com-parison of investment and transportationvolume between different means of trans-portation after fiscal 1975 clearly shows theposition of JNR at that time and its failureto quickly switch to a new direction forsurvival (Tables 1 and 2).Although JNR had experienced a favor-able cycle in which investment increasedoperating revenue which in turn, in-creased the opportunity for further invest-ment, the cycle moved from JNR to roadtransportation after the 1960s. Growthof motor transport brought increasing rev-enues from the Fuel Tax which was usedexclusively for road construction, gener-ating more revenue from the Tax. Thesituation is shown in the amount of in-vestments (Table 1) and volume of trans-portation (Table 2).JNR’s freight transportation lost the com-petition to trucks in fiscal 1966. Simi-larly, JNR’s passenger transportation lostthe competition to passenger cars 5 yearslater in fiscal 1971. Afterwards, the gapbetween JNR and road transportation in-creased year-after-year.Railway operators in Japan were fortu-nate in having large passenger volumes,

Table 2 Modal Split of Transport(Million yen)

[Passenger-km]

FY JNR/JR Other Buses Cars Ships Airrailways

1975 215,289 108,511 110,063 250,804 6,895 19,148

1980 193,143 121,399 110,396 321,272 6,132 29,688

1985 197,463 132,620 104,898 384,362 5,753 33,118

1990 237,657 149,821 110,372 552,412 6,275 51,623

1994 244,378 151,954 99,781 591,048 5,946 61,289

[Freight tonne-km]

FY JNR/JR Other Trucks Coastal Airrailways shipping

1975 46,577 770 129,701 183,579 152

1980 36,961 740 178,901 222,173 290

1985 21,410 509 205,941 205,818 482

1990 26,728 468 272,157 244,546 799

1994 24,077 416 278,509 238,540 871

Table 1 Investment in Transportation Facilities

(Billion yen)

FY JNR/JR (a)Private railways/ Roads Ports Airports (c)subways (b)

1975 943.1 394.3 2,955.0 268.8 90.21980 1,376.6 484.2 5,829.0 441.5 224.11985 565.3* 538.8* 7,187.4 458.9* 216.6*1990 579.2 565.8 10,732.8 588.7 316.61991 661.4 620.2* 11,464.3 600.5 466.51992 788.6 13,392.1 729.7 453.31993 799.6 15,064.2 890.0 558.41994 842.1 13,930.6

* Not strictly comparable due to change in data collection method

Notes:(a) Passengers only (JR)(b) 14 Private railway companies, Teito Rapid Transit Authority subway, public subways(c) New Kansai International Airport excluded

JNR Audit Report up to FY1985; Transportation Economic Statistics Summary, Railways in Figures,Facts about Private Railway Companies, and Roads Pocket Book for FY1990 and later




trains.Table 3 shows shinkansen use after theJNR pr ivat izat ion. The TokaidoShinkansen’s service in fiscal 1988 washigher than fiscal 1975, but the result forfiscal 1991 only registered a 19% in-crease. In the case of the SanyoShinkansen, there was a 10% decrease.These results show that speed is not theonly factor in winning the competition.The results for the Tohoku and JoetsuShinkansen reflect the increased popu-lation in metropolitan Tokyo, but the re-sults in the early-1990s are expected toremain unchanged through the years tocome, although there may be an increasewhen services are extended to Naganoand Akita.

resulting from areas with large popula-tions and high densities. Railway com-panies other than JNR grew more thanJNR because their markets were limitedto large cities. But in the case of freighttransportation, there is no such massiveand concentrated market for the railway,and Japan’s geography allows coastalshipping to carry most bulk cargoes.

Role of Shinkansen

Tokaido ShinkansenThe capacity of the old Tokaido Line hadreached its limit and the region neededat least one additional double-trackedrailway. This was the main reason for

building the shinkansen. However, if anew line had to be built, it should be asfast as possible. And the very high de-mand was not expected to be affectedby the completion of the Tokyo-Osaka ex-pressway.However, it should have been realizedthat even the Tokaido Shinkansen wouldcease to grow once the volume passed acertain point. This oversight was regret-ted even more in the case of othershinkansen (Sanyo Shinkansen, etc.)completed after private car ownershipand road networks were consolidated.To make matters worse, the fare increasesin and after 1976 to amend the losses re-sulting from the previous price controlpolicy discouraged people from riding

Chain of combined rail and road bridges between Honshu and Shikoku (Honshu-Shikoku Bridge Authority)


One serious issue is the low transporta-tion densities and hence low revenuesof the Sanyo Shinkansen and othershinkansen completed later. These lineshad much higher construction costs butthe same fares are applied. For example,the Sanyo Shinkansen’s transportationdensity is only 35.2% that of the TokaidoShinkansen but the construction cost wasmore than 2.5 times greater (Table 4).Table 5 shows the financial balance forboth the shinkansen and existing lines forfiscal 1985. The old Tokaido Line op-eration was in the red, but the combinedbalance between the old line andshinkansen operations was in the black.The Sanyo Shinkansen was in the blackbut the surplus was not large enough tooffset the red from the older line. Boththe old and new line were in the red inthe case of the Tohoku and JoetsuShinkansen.These results show that JNR should nothave attempted to finance the Sanyo andsubsequent shinkansen lines. It shouldhave obtained a guarantee of public sub-sidies prior to construction.

Over-expectation of shinkansenThe next issue is the effect of theshinkansen on other means of transpor-tation. One point is very clear: air trans-portation has been eliminated betweenany two points that are 2 or less hoursapart on the shinkansen. However, theair route between Tokyo and Osaka (3hours by shinkansen) was only slightlyaffected shortly after the TokaidoShinkansen began operating and therewas no subsequent effect due to the over-all increase in demand.Shinkansen operation does not seem tohave had any effect on expressways—both shinkansen and expressways areused equally. The slight decrease in pas-sengers on the Sanyo Shinkansen mightreflect the effect of the Chugoku Express-way.During the mid-1960s, both JNR and

Table 3 Changes in Number of Passenger-km of Shinkansen(Million)

1975 1987 1988 1989 1990 1991 1992 1993 1994

Tokaido 35,200 32,123 36,299 37,404 41,341 41,841 40,655 40,504 38,907

Sanyo 18,200 13,153 14,792 15,002 16,064 16,277 16,161 16,026 13,310

Tohoku — 8,929 9,677 9,892 10,678 11,689 11,837 11,695 11,763

Joetsu — 3,209 3,583 3,666 4,089 4,413 4,408 4,339 4,267

Total 12,138 13,260 13,558 14,767 16,102 16,244 16,034 16,030

Notes: 1. The section between Tokyo and Ueno was completed on 20 June 1991.2. Figures for FY1994 reflect the effects of the Great Kobe Earthquake on 17 Janu-

ary 1995.

Table 4 Shinkansen Construction Costs and Transport Density

Construction cost One-way transportationper kilometer (Completion year) density per kilometer-day(Million yen) (persons) (FY1992)

Tokaido 640 (1964) 100,781 (100.0)Sanyo 1,643 (1975) 35,518 (35.2)Tohoku 5,358 (1991) 30,292 (30.1)Joetsu 6,048 (1982) 19,889 (19.7)

Joetsu Shinkensen in snow country (JR East)




other administrative agencies seem tohave had too much confidence in therailways. They thought time reductionswould attract more passengers which, inturn, would help the local communitiesprosper. Actually, the greater effect wasconcentration in Tokyo.If so, why was the shinkansen extendedto the less favourable Sanyo area and whywere matters made even worse by ex-tending it to Tohoku and Joetsu?There are at least two reasons. First, theleaders and planners around 1960 did notunderstand motor transportation. Theyhad done the necessary research in othercountries, but since Japan’s land area issmall and the population density is veryhigh, they thought Japan was the lastcountry where private car ownershipwould boom so expressways were builtprimarily for transporting freight. Second,high-speed trains on the Tokaido andSanyo lines had been planned in the late-1930s, and it was taken for granted thatit was only natural to extend the

shinkansen to the Sanyo area. Carefulstudy would have shown that the SanyoShinkansen was never a reasonableproposition.Nevertheless, the JNR officers had otherideas. They wanted to expand theshinkansen network to all parts of thecountry, build an undersea tunnel be-tween Honshu and Hokkaido, and con-nect the two by shinkansen.Naturally, the plans excited the nation.JNR took the easy route leading to its fi-nal demise on the assumption that thepopularity of the plans would persuadethe politicians to provide subsidies.Needless to say, government financinghad its limits. In 1970, a law was legis-lated enabling construction of 7,000 kmof shinkansen network but the networkin 1996 totals only 1,835 km. Even poli-ticians could not beat the trend of thetimes.

Political Pitfalls

Technologies to dig a long undersea tun-nel, build a long bridge, or run high-speed trains are very costly and theirapplication requires the highest level ofjudgment.Japan was already in the motor age whennew legislation was passed in 1970 tobuild a nationwide shinkansen networkincluding the Seikan (Honshu-Hokkaido)Tunnel and Seto (Honshu-Shikoku)Bridge. Both JNR and the politiciansshould have been aware of the heavy fi-nancial burden that the new technolo-gies would impose.JNR turned to the politicians for help, andthe politicians who were inclined to useconstruction projects as bait to collectmore votes, approved increasing the defi-cit further.That JNR’s destruction is attributable tothis corrupt link between business andpolitics is not just my personal view. To

Revenue

Expense

Profit and loss

Operating ratio

Revenue

Expense

Profit and loss

Operating ratio

Revenue

Expense

Profit and loss

Operating ratio

6.756

2.857

3.899

0.042

3.386

4.943

–1.557

0.146

10.142

7.800

2.342

0.077

2.843

2.065

0.778

0.073

1.563

3.449

–1.886

0.221

4.406

5.514

–1.108

0.125

9.599

4.922

4.677

0.051

4.949

8.392

–3.443

0.170

14.548

13.314

1.234

0.092

2.076

3.667

–1.591

0.177

1.533

2.520

–0.987

0.164

3.609

6.187

–2.578

0.171

0.815

1.594

–0.779

0.195

0.608

1.068

–0.460

0.176

1.423

2.662

–1.239

0.187

12.490

10.183

2.307

0.082

7.090

11.980

–4.890

0.169

19.580

22.163

–2.583

0.113

Section Tokyo–Hakata

Tokaido Sanyo TotalTohoku Joetsu Total

Item

Shinkansen

Conventional

Total

(Billion yen)Table 5 Balance between Shinkansen and Conventional Line Operations within Same Sections (FY1985)

Note: Figures reflect ordinary profit and loss after sales of fixed assets and other extraordinary profits and losses. Source: JNR Audit Report - FY1986


quote Atsushi Kusano in JNR Reforma-tion (Chuo Koronsha, 1989):‘First, the Finance Ministry’s approval isneeded before JNR’s requests are re-flected in the budget draft. With its ex-pectation for government support to putan end to the worsening finances grow-ing higher and higher, JNR had to rely onthe influence of the ruling Liberal Demo-cratic Party (LDP) members on the Fi-nance Ministry.‘Since the goal of Diet members is re-election, no wonder LDP members, whenasked to use their influence, expectedsome sort of vote-catching favour in re-turn. JNR was aware of this and actedaccordingly even when the politiciansdid not make explicit requests.‘Budgets were not the only issue. Untilfiscal 1977, any revision in train fares,which was the main source of income,had to be approved by the Diet. Thecheer-leading team consisting primarilyof LDP members was a most reliablegroup for JNR.’The regional division and privatizationof JNR in April 1987 aimed to minimizepolitical control over the enterprise, or,in other words, to break the corrupt linkbetween business and politics. It soughtrecovery of management independenceand autonomy.However, some politicians continuedexercising their influence in local areasby favouring resumed construction ofmore shinkansen, some of which actu-ally occurred, but their scale was smalland half the construction cost was borneby central and local government. A fu-ture issue is whether such a measure issufficient for solving the problems andsome new attempts may be introducedin the 1997 budget.Today, taxpayers are in no position toassume such responsibility. The govern-ment must settle JNR’s historic debts heldby the JNR Settlement Corporation andnow amounting to ¥28 trillion (of which¥20 trillion is to be borne by taxpayers).

This debt is only a part of the govern-ment’s total liabilities which approach thenation’s GDP. Before making further in-vestment in railways, the governmentmust solve these problems.

Three Honshu JRs in Profit

Shinkansen cost sharingLuckily, the three Honshu JRs have theexisting shinkansen and have maintainedsound management for the past 10 years.They have managed to stay in the blackand two are listed on the stock market.How is the shinkansen operation contrib-uting to these three JRs?In terms of the transportation volume, the

shinkansen accounted for 12.6% and29.7% of the total volume of JR East andJR West, respectively. The amount was79.4% for JR Central (Table 6). In termsof operating revenue, the figures must besubstantially higher.JR East’s 838.9 shinkansen route kilome-ters is greater than the JR Central 552.6 ki-lometers or JR West’s 623.3 kilometers.However, the transport volumes do notnecessarily match the route kilometers asshown in Table 6, causing the differencein transportation density shown in Table 4.Shinkansen operation accounts for some-what lower ratios in transportation vol-umes in the case of JR East and JR Westbecause JR East has a massive volume ofpassenger transportation primarily in the

Seikan Tunnel between Honshu and Hokkaido (Japan Railway Construction Public Corporation)

Table 6 Ranking of Shinkansen in Number of Passenger-km for Three JRs(Million passenger-km)

Total volume ofShinkansentransportation

(B)B/A

(A)

JR East 128,486 16,245 12.6%JR Central 51,201 40,655 79.4%JR West 54,423 16,161 29.7%Total 234,110 73,061 31.2%

Note: Tohoku and Joetsu Shinkansen operated by JR East, Tokaido Shinkansenoperated by JR Central, and Sanyo Shinkansen operated by JR West




Ryohei Kakumoto

Dr Kakumoto was born in Kanazawa in 1920. After studying law at the University of Tokyo, he

joined the Ministry of Railways in 1941. After Leaving JNR as a Member of the Audit Board, he

served as President of Japan Transportation Economics Research Centre. He was a visiting

professor at Waseda University for many years, and wrote a number of books on transport policy,

urban transport, railway management, etc. Dr Kakumoto was one of the earliest advocates of JNR

reform. In the late 1970s, he proposed splitting JNR into several regional networks. He served on

the government’s commissions for JNR reform as an advisor.

Tokyo area, and JR West primarily in theOsaka area.Nevertheless, the financial balance of theshinkansen operation during the JNR dayswas poor (Table 5). Both the Tohoku andJoetsu Shinkansen services were in thered, and JNR’s Sanyo section with theconventional and shinkansen lines com-bined, was also in the red. These resultswould have imposed a very heavy bur-den on JR East and JR West had the defi-cits been directly inherited.Initially, a special measure was intro-duced to impose a greater burden on JRCentral and a lesser burden on the othertwo companies with regard to the cost ofoperating their respective shinkansen ser-vices. When the three companies pur-chased the shinkansen in 1991, thepurchase price was set higher than thereplacement value for JR Central andlower for the other two. The figures be-low indicate the purchase price and re-placement value per kilometer.

The cost per user is still higher for JR East,which is understandable given the varia-tion in the transport densities, as shownby the purchase price per passenger-kmin fiscal 1992 given below.

The figure for JR Central, having a highertransportation density, falls very close tothe average, despite higher purchaseprice per route-km.

Epilog

Before closing, I would like to expresstwo personal views.First, JNR was lucky to have the Tokaidoarea with such a high population den-sity. Without it, the JRs would face a se-rious financial crisis. At the same time,the shinkansen concept itself would havenever been envisaged. In that case, JNRwould have maintained sound operationand survived as a public corporation.For reference, the Tokaido area consistsof thirteen prefectures covering 65,247km2 accounting for 17.28% of the entirenation. The population of the area was40,977,000 in 1960, rising to 65,346,000in 1990. This is 43.45% to 52.86% ofthe nation’s population. It is equivalentto the entire French population and moreliving in an area equal to Belgium andHolland.Second, before starting a large-scaleproject, it is important to confirm whetherdemand justifies investment, and whetherthe users and taxpayers can bear or arewilling to bear the cost.The Tokaido Shinkansen enjoyed de-mand close to capacity until 1975 de-spite the rapid growth of car ownership.It remained profitable although the slug-gish growth after 1975 was unexpected.In the case of the Seikan Tunnel betweenHonshu and Hokkaido, the maximumtransportation volume by ferry operationwas 4.99 million passengers in fiscal1973, and 8.55 million tons of freight infiscal 1971. These are the results when

the tunnel construction started. Theproject planners believed the figureswould continue to grow, but they werewrong. The tunnel began operation inMarch 1988. The number of passengerstopped 3.04 million that year, but wasonly 61% of the result in fiscal 1973. Thefreight transportation was 5.67 milliontons in fiscal 1991, representing only66% of the result in fiscal 1971.In planning a project of this scale, it isessential that there is somebody to bearthe cost even when demand drops. Plan-ners of big projects must be very cautious.

End of eraAs symbolized by the shinkansen, thepast 50 years have seen the fruition ofrevolutionary ideas in transport such asprivate car ownership, jet aircraft andsupertankers accompanied by the devel-opment of expressways, international air-ports and big deepwater ports. The de-velopment of new districts in cities suchas Shinjuku in Tokyo, La Défense in Parisand Canary Wharf in London creatednew demand for transport in general.However, in the 1990s, revolutionaryideas in transportation supply and de-mand seem to have dried up and it hasalso become practically impossible to ac-quire new space for transportation. Thesituation is especially bad in highly-popu-lated Japan. The era when technicalrevolutions in transportation can changesociety is coming to an end.People in the 21st century may say as faras transport is concerned ‘... there is nonew thing under the sun.’ (Eccles. 1:9) �

(Million yen/km)

Purchase Replacementprice value

JR East 4,056 5,769JR Central 9,887 5,741JR West 1,759 3,249(Average) 5,001 5,001

JR East ¥191.26 ¥272.03JR Central ¥125.34 ¥72.78JR West ¥60.28 ¥111.30(Average) ¥125.60 ¥125.60

transportation investment and japan’s experiencelicly-owned body such as the old jnr. likewise,...

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