Editorials

Privatization of JNR, 30 years on

The turnaround of Japan Railways group firms servicing Honshu and Kyushu over the past 30 years paints the 1987 privatization and breakup of the Japanese National Railways as a successful reform of the state-run train operator that was incurring more than ¥1 trillion in losses each year and piling up mountains of debt. However, the success of JR companies that benefit from the popular shinkansen superexpress services, profitable local train operations for urban commuters as well as diversification of their business comes in sharp contrast to the problems confronting group firms in rural regions where many train services remain in the red — a problem that threatens to get worse across the country as Japan’s population continues to shrink.

The JNR, which accounted for half of the nation’s passenger and freight transportation in the 1950s, began incurring heavy losses in the 1970s with the increasing use of automobiles and competition with air travel. Political meddling in its management meanwhile led to the construction of unprofitable railway lines nationwide, with its long-term debts snowballing to ¥37 trillion. In April 1987, the state-run behemoth was privatized and broken up into six regional railway firms and a nationwide freight train operator.

In the ensuing 30 years, the three Honshu-based JR firms — East Japan Railway, West Japan Railway and Central Japan Railway (JR Tokai) — steadily made progress in turning their operations into profitable businesses. Last year, they were followed by Kyushu Railway in having their shares listed, with the government selling off all of its stakes in the four firms to achieve full privatization of their management. Still, it must be remembered that the turnaround was achieved at a cost; as much as ¥24 trillion of the long-term JNR debt was eventually shouldered by the government at the expense of taxpayers, and out of the 277,000-member workforce of the JNR, only about 200,000 people were hired by the JR firms — with the remainder, including many memberse of a JNR union that continued to oppose the privatization and breakup, rejected.

Over the years, the shinkansen operations by the JR firms were expanded and made more convenient with the introduction of faster services. Privatization enabled more flexible management and investments that paved the way for diversification of their businesses. Today, revenue from non-railway business such as real estate and the operation of commercial establishments in or adjascent to train stations account for a major portion of the JR firms’ income — about 60 percent of total sales in the case of JR Kyushu. Such non-transport business — especially the competitive operations in prime locations connected to railway stations — will be even more crucial for the profitability of the JR firms as significant increases in passenger transport revenue is not to be expected in the future with the nation’s population decline.

But if the profitable operations of JR East, West, Tokai and Kyushu represent the benefits of the JNR privatization and breakup, the tough prospects of JR Hokkaido highlight the problems facing railway operations in rural areas that were left unresolved three decades ago. Last November, JR Hokkaido announced that train services on roughly half of the lines it runs in the nation’s northernmost prefecture are no longer sustainable due to continuing operation losses amid shrinking passenger demand caused by local population declines. It is seeking talks with local municipalities over possibly terminating train operations and switching to bus services, or sharing of the costs if the train services are to be maintained. JR Hokkaido expects to incur a record pretax loss of ¥23.5 billion in the year that ended in March, with the company’s president likening its loss-making business structure — due to loss of passengers caused by falling local populations and the expansion of expressway networks — to “a bucket with holes in the bottom.”

The loss-making structure of local train services in depopulated areas is not a problem unique to JR Hokkaido. What to do with railway operations in such areas will be a common challenge for all JR group firms — and increasingly so as the population exodus and decline continue in many rural parts of the country. Despite the privatization of the JR firms’ management, their train operations serve the public need by providing key means of daily transportation for people across the country. The problem confronting JR Hokkaido points to the need for national and local governments, along with railway operators, to work out strategies on how to secure public means of transportation in those areas — including who should shoulder the cost.