In its final report submitted Dec. 6, Prime Minister Junichiro Koizumi’s advisory commission for privatizing four road-related public corporations called for a halt to runaway highway construction. The report warns against the “triangle of collusion” among “road tribe” legislators, related bureaucrats and public-works contractors, which has distorted Japan’s political, economic and social structures and left a combined debt of 40 trillion yen on the books of the four toll-road operators.
Will the public regain benefits lost to this “political-bureaucratic-corporate complex”? Will Koizumi push privatization along the lines of the report? Or, will he strike a compromise with the road tribe and other antireform forces in his party? The success or failure of highway reform, an integral part of the public-sector reform pillar in Koizumi’s structural reform initiative, hinges on these questions.
The commission’s blueprint, based on a public-sector consolidation plan approved by the Cabinet last December, lays out two clear-cut principles: (1) Highways that are not really necessary should not be constructed, and (2) taxpayers’ burden should be minimized.
The 40 trillion yen debt owed by the public four corporations equals half of the government’s 81 trillion yen general-account budget for fiscal 2002. It is more than 1.2 times the gross national income of Russia, $253.4 billion, according to the World Bank.
“The country is in ruins, yet its mountains and rivers remain as they were,” wrote Chinese poet Tu Fu (712-770). In the case of an inflation- and debt-wracked Japan, it may be more appropriate to say: “The country is in shambles, yet the highways extend far and wide.”
The outdated national highway program calls for the construction of 9,342 km of toll roads throughout the country. Of this, 2,300 km are unfinished because of financial and other reasons.
The program is tailored under political pressure toward optimistic projections of construction demand, with little regard for profitability and efficiency. Funding has been supplied generously under the “zaito” investment and loan program, including postal savings and life insurance accounts.
At the root of this is the lack of self-discipline in Japanese society itself. This also helps explain why, since the collapse of the economic bubble more than a decade ago, various financial institutions have failed, unemployment has climbed to a record 5.5 percent and public debt has ballooned to 700 trillion yen.
The report blames the “demoralized, bloated bureaucracy” for playing a role in the protracted economic slump. The bureaucracy, it says, has aggrandized its privileges, including the “amakudari” (descent from heaven) employment of retired bureaucrats at public corporations, and has created a web of regulations detrimental to private-sector economic activity.
The report says the proliferation of public corporations, subsidiary groups and their “family enterprises” has steadily undermined public interests. In this case, the term family enterprises refer to firms that have close business ties to Japan Highway Public Corp. These firms are described as “amakudari havens for JHPC retirees” and as supporting “a community of interests representing the corporation.”
A clubby relationship is maintained among the bloated bureaucracy, road-related enterprises and road tribe. They are all dead set against privatization, precisely because it threatens the “community of interests” that bind them. Key points of the commission’s report are:
* The 40 trillion yen debt should be paid back in annual installments over 40 years. This would leave little money available for new construction projects.
* Whether to build new roads should be decided by privatized companies with due regard for profitability. Fund shortages would be covered, if necessary, by the central and local governments.
* Zaito funds would not be used; privatized companies would secure financing on their own. This would effectively preclude lavish spending If the report is implemented, the four corporations will be privatized in April 2005 following Diet approval of related bills in 2004.
Predictably, the road tribe has reacted sharply to the report, saying it is “totally unacceptable.” A group of legislators from the ruling parties adopted a resolution last Tuesday demanding prompt action to complete the remaining 2,300 km. Prefectural governors are also opposed strongly to privatization.
Already a tug-of-war is going on between Koizumi and the road tribe over fiscal 2003 funding for new construction projects. With the Liberal Democratic Party scheduled to hold a presidential election next September, the face-off is likely to affect the political situation as well.
Prospects for a privatization package are also uncertain. The road tribe and the land ministry may work together to take the teeth out of the key recommendations. “It’s no use drafting bills that have no chance of becoming law,” says the minister in charge, Chikage Ogi.
Koizumi, meanwhile, seems to be playing both sides. While saying he will respect the report, he concedes he will have to “consult the ruling parties.” His indecisiveness is part of the reason the commission’s chairman, Takashi Imai, resigned immediately before the panel adopted the report. Koizumi faces a critical test of his leadership. If he makes a dubious compromise under pressure from the road tribe, his make-or-break campaign to revamp the money-guzzling highway system will likely come to nothing.
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