Moving in the right direction

Never in recent memory has a government advisory group engaged in such a bruising battle of words and ideas. Last week, following a stormy debate that caused its chairman to resign, a commission on privatizing debt-ridden highway corporations adopted a final report calling for a drastic cut in toll-road construction and stepped-up debt repayment. What happened there is a far cry from the predictable course of an ordinary advisory panel, where discussions are usually conducted more or less according to a script written by bureaucrats. The commission’s seven members — dubbed the “seven samurai” — split over the issue, with two of them (including the chairman) pressing for a scheduled expansion of the highway network and the remaining five fighting for a major downsizing.

The divisive debate was symbolic of the ongoing confrontation between vested interests and reform forces in Japan — a struggle between continuity and change that appears inevitable in a period of historic transition. In this sense, the highway commission was Japan in microcosm: a nation in the throes of rebirth.

The central issue boils down to money — the gargantuan cost of building a nationwide network of expressways. The two proconstruction members maintained that the program should be carried out in spite of the massive debt owed by four highway operators. The five reformist members argued, however, that it should be drastically curtailed because of the 40 trillion yen debt.

With both sides sticking to their guns, Mr. Takashi Imai, the chairman, proposed that the panel submit a compromise report stating their respective positions side by side. In protest, the five reformers presented a motion against Mr. Imai demanding that he quit his post. Surprisingly, Mr. Imai accepted their demand and abruptly resigned, strengthening the hand of the reformers. In the end, a report produced by the five was adopted by a majority vote of 5-1.

Although it still represents a compromise, the final report makes two key proposals. First, the debt should be repaid regularly in a way that minimizes the taxpayer’s burden. Second, no more highways should be built unless they are absolutely necessary. All this should be accomplished through privatization of four corporations — Japan Highway Public Corp., Metropolitan Expressway Public Corp., Hanshin Expressway Public Corp. and Honshu Shikoku Bridge Authority.

The four operators would be privatized into five regional units, but their assets and debts would be transferred to a new public holding company. The privatized firms would lease toll roads from the company in return for toll revenues and buy its assets about 10 years after they were established. At that time, the holding entity would be disbanded.

Roads are public goods that, normally, should be built by the central and local governments. This does not mean, however, that every road should be constructed without regard for debt or profitability. Cost-benefit analysis is indispensable given the sorry state of public finance. The report takes basically the same position.

The road issue is politically charged, with the old guard in the Liberal Democratic Party pushing for more construction. Their impassioned appeal to voters — “Let’s build an expressway through our town” — has tended to overshadow vital questions. Who in a remote village really needs a toll road? What benefit, if any, will it bring to the community? Even if it is urgently needed, will it pay for itself? The 40 trillion yen debt is largely the result of skirting these questions.

Under the current program, construction work has yet to start on about 2,300 km of highways. If it is continued as scheduled, the debt will continue to climb, imposing a new burden on the taxpayer. The right response, as the report points out, is to pay due attention to profitability so the debt will not get out of hand.

It is not that the report is calling for a halt to all construction projects. Roads that are really needed, it says, can and should be built, providing they will make ends meet. To that end, funding may be provided jointly by the privatized companies and public authorities, both national and local. The way is also left open to direct financing by the central and local governments. The worry that residents in underdeveloped areas might be left out in the cold seems exaggerated.

After all, privatization will have no meaning if it does not bring greater benefits to users. In this respect, the proposal to reduce tolls by an average 10 percent, for example, represents a step in the right direction. The government should resist pressures from the road lobbies and respect as much as possible the recommendations made by the majority of its advisers.