A government panel discussing privatization plans for highway corporations has been meeting stiff resistance from a predictable source: the corporations themselves. They have held back some of the financial data requested by panel members, thus effectively blocking progress toward highway reform, a priority commitment of Prime Minister Junichiro Koizumi.
The corporations have a duty to cooperate with the commission, a third-party body established by law to promote privatization of the Japan Highway Public Corp. and three other corporations that build and manage motorways across the country. Without the necessary reference data, the commission cannot begin to make an objective analysis, an essential precondition for making recommendations.
The level of frustration among commission members increased recently when they openly demanded the resignation of JHPC President Haruho Fujii. The corporation has been criticized for refusing to produce, among other things, profit-and-loss figures for national expressways and other major toll roads — data indispensable for an accurate review of the deficit-ridden highway system.
The four highway corporations, including those in charge of expressways in the Tokyo metropolitan and Hanshin (Osaka and Kobe) areas as well as the Honshu-Shikoku bridge motorways, have a combined debt of 40 trillion yen. The debt is expected to be reduced gradually through privatization, a process that is likely to take years.
Relevant data is also considered vital to the discussion of what to do with the existing 9,342-km highway construction program. Specifically, the question is whether to complete construction of the unfinished roads (2,400 km), freeze work for the time being or cancel it for good. These are critical questions. No wonder panel members, from the chairman on down, have been frustrated over the scarcity of cooperation.
The crushing debt is essentially the result of poor management — a problem common to government-funded corporations that have paid little attention to cost efficiency. The same problem, it should be remembered, forced the privatization of the Japanese National Railways, imposing a heavy burden on the taxpayer. If the tollway corporations keep piling up debts as JNR did, taxpayers may again end up picking the tab. The implications are far-reaching because government debt is already reaching crisis proportions.
The trouble with public corporations in general, not just the highway corporations, is that their financial condition is not always transparent. This is because they do not use the same accounting rules that apply to private companies. That helps explain why their management tends to be loose. For starters, the highway corporations should begin disclosing as much financial data as possible in ways that approximate corporate accounting standards.
There is also a case to be made for appointing private managers as heads of the highway corporations, just as a former shipbuilding magnate, Mr. Hisashi Shinto, was picked to head Nippon Telegraph and Telephone Public Corp. He later became president of the privatized NTT. By the same token, private appointments will help to smooth the transition of the road entities. The success of privatization depends largely on cost and debt reduction.
These are hard times for public corporations as well. With public finance in a shambles, they can no longer take government largess for granted. Their public nature notwithstanding, profitability is now a key consideration. It will become an article of faith once they are put in private hands. To generate profits, of course, costs must be reduced and the quality of services improved.
Meeting these basic requirements of private enterprise requires the insight and skill of private managers. This is hardly a task for retired bureaucrats who used to work in a world that had little or nothing to do with cost and efficiency. It makes sense, therefore, to reform public corporations under the aegis of highly experienced corporate executives — those who have survived the rough and tumble competition in the world of business and who are staunchly committed to the principles of corporate management. In this sense, NTT privatization offers a useful example.
Prime Minister Koizumi should continue to take the lead in highway reform. If a corporation’s manager is not sufficiently willing to cooperate, he should appoint private managers if necessary, even before privatization begins. He can, and should, learn from the successful experience of JNR, where proreform managers were put in charge to push privatization.
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