Strange Public Works Allergy

Gregory Clark (Honorary President of Tama University)

Sunday saw the opening of the long-delayed Morioka-Hachinohe extension of the Tohoku Shinkansen (Northeast Japan bullet-train line). Local people will be happy. But don't expect great outbursts of joy elsewhere. Japan is into one of its periodic antipublic works moods.

I traveled the original Tohoku line the day it opened in 1982. As we streaked across this hitherto neglected area of Japan, even this jaded foreigner could not suppress a twinge of excitement. But arriving back in Tokyo that evening I found the media most unimpressed: "a waste of money," "a concrete dinosaur," "the Kakuei Tanaka Shinkansen" (a derisive reference to the former prime minister who had pushed hard for a network of expressways and shinkansen lines across Japan.)

Today, even the critics must realize the importance of the line, not just to the Tohoku region but to the nation. As for wasted money, the line now runs at close to full capacity and covers its costs easily. Even the Joetsu line to Niigata, which opened the same year and was much more vulnerable to criticism (since Tanaka was notorious for pushing public monies into his native Niigata Prefecture) is doing quite well financially.

This distaste for needed public works is strange. In other advanced economies, the indirect or ripple effects of new transport links are carefully calculated. Governments are happy to use tax monies to fund projects that promise large indirect gains, even if there is little or no direct return on income. Japan, though, tries to insist that projects be entirely self-financing with direct income from day one.

I was once a member of a committee monitoring construction of the Inland Sea bridges linking Honshu with Shikoku. From the start, it should have been obvious that the expected traffic could not possibly provide enough toll revenue to cover costs and that, in any case, the tolls should be kept low enough to increase traffic and to encourage Shikoku developments that would benefit the nation.

But when I put this to the "amakudari" (bureaucrats headed for cushy private-sector jobs upon retirement from government service) in charge, all I could get were recitations of Ministry of Finance directives saying tolls had to be set at levels that would cover all capital repayments and costs, including the high interest rates on funds borrowed from the post office savings system. Now the government faces public ridicule and anger over the high tolls, the low traffic volumes and the fact that large deficits will have to be filled with tax funds.

The Aqualine tunnel and bridge linking Kawasaki and the Boso Peninsula has suffered the same abuse, despite its potential for assisting in the development of another very neglected area close to the nation's capital.

The Japanese mind seems to find it hard to grasp intangibles like indirect benefits. True, the public is entitled to anger over the waste and corruption in public works. But this leads to yet another Japanese mind-set: a weakness in making causal connections. Rather than tackle the waste and corruption head on, the call is for no more public works. Throwing out babies with the bath water makes about the same kind of sense.

Another baby to suffer has been Japan's post office savings system. It is blamed for letting its funds be used to finance deficit projects. Few seem to notice that without those funds, these projects would from the start have had to be funded with tax monies.

The Japanese liking for thinking small -- the fascination with bonsai and "bento" boxes, as one author put it -- could be another antipublic works factor. The Chinese are quick to let the world know about their large projects. When the Europeans build a tunnel under the Alps, prime ministers and presidents from neighboring countries flood in for the opening ceremony. But when the longer and more impressive Oshimizu tunnel under volcanic central Honshu was opened, only a construction minister showed up.

True, the Japanese ability to focus intently on what they see before them and ignore everything else has its merits. It makes for good quality control, trains that run on time and quite a few other virtues. But just now Japan needs more than this. It needs to realize that a chronic weakness in consumer demand is crippling this otherwise powerful economy and that, for the time being at least, the only solution is a large increase in useful public works spending. Japan's reformist politicians and economists manage to think the exact opposite. They are caught up with Western supply-side economic theories that were supposed to have rescued our economies from prolonged slumps of the past -- structural reforms, cuts in taxes and government spending, etc.

But Japan's economy, like much of its value system, is fundamentally different from that of the West, or China for that matter. Supply is chronically overabundant relative to demand. It is demand that has to be increased.

In effect, Japan is being told to put on the brakes when it should be pressing the accelerator. Halfhearted stabs at the accelerator when the car stalls do little to help. The current fiscal policy farce is a good example -- an administration insisting that it is on track to cut spending even as it is forced to bring in a supplementary budget to increase spending to cope with worsening economic and employment conditions caused by its spending cuts.

Japan should reverse course, quickly. A commitment to finish the second Tomei Expressway project -- yet another victim of the current public works allergy despite its obvious development effects and high potential toll revenues -- would be a good start. A second Wangan highway linking Tokyo with Chiba and extending the Tohoku Shinkansen line to Aomori should be other priorities.

Improvements to congested urban highways can have even larger benefits. In a rare example of calculating indirect gains, the Nihon Keizai newspaper has told us that the 60 billion yen spent to widen a notorious bottleneck on the Tokyo ring road two years ago saved 20 billion yen a year in congestion costs.

By taxing and spending more for public works, Japan would both improve its infrastructure and rescue its economy -- killing two very large birds with one stone.

(This article originally appeared in the December 1, 2002, issue of The Japan Times)