Passenger rail privatization: A lesson from Japan

By Robert A. Letteney - TheHill.com - April 07, 2005

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Even though passenger rail is supported by national governments in the rest of the world, the Bush administration has recently proposed shutting down U.S. intercity passenger rail service by zeroing out funding for Amtrak in fiscal year 2006.

The Bush budget proposal comes during a fierce debate over how to reform the U.S. passenger-rail system. Some proponents of privatizing Amtrak have pointed to privatization efforts in other countries, including Japan, as proof that Amtrak could also be privatized. Are there lessons U.S. policymakers can learn from the Japanese experience with privatization?

In the mid 1980s, Japan National Railways (JNR) was a monolithic national monopoly with an operating deficit, huge debt, declining ridership, high fares, poor service and political interference. In other words, JNR had many of the same problems that plague Amtrak today.

In its place, the Japanese government created six separate private passenger-rail companies to serve different regions of the country. Three of the six companies that served rural areas would be eligible for a yearly operating-deficit subsidy from a revolving government fund. The other three companies, which largely served urban areas, were expected to cover their operating costs. Each private company would be responsible for both rail operations and infrastructure management.

By most measures, privatization in Japan has been a success. Since privatization, yearly profits for the three main companies have increased to between $600 million and $2 billion, accidents have decreased by close to 50 percent, fares are stable, the number of rail employees has been reduced by 50,000 and ridership as measured by passenger-kilometers has risen by nearly 20 percent.

However, any discussion of Japan’s privatization efforts must also note the Japanese government’s role in financing rail infrastructure projects and the operating deficits of rural railroads.

While the Bush administration’s proposal would effectively destroy passenger rail in the United States, the Japanese government has launched an ambitious effort to expand high-speed rail service over the next 10 years. The cost, close to $30 billion, will be funded by the national government, local governments and revenues generated from existing high-speed lines. When construction is complete, the new lines will be owned by the government and leased to the rail companies. The same private rail company that manages operations will also manage maintenance for the new high-speed lines.

Obviously, there are limitations in comparing the U.S. and Japan rail systems. Japan is especially well-suited for rail because of its high population density and short distances between major cities. Furthermore, in the current budgetary climate it is impractical to believe that the United States could build the type of dedicated high-speed rail network in its high-density corridors that Japan possesses.

Yet the main difference between the Japan and U.S. rail systems is political. The United States has never had the political will to make the necessary infrastructure investments to create a competitive rail system. Instead, from the time Amtrak was created in 1971, Congress has given the struggling railroad barely enough to survive from year to year.

As a result, Amtrak does not have enough money to fix its growing backlog of capital maintenance or promote a true high-speed rail system. In the Northeast Corridor alone, it is estimated that $28 billion is needed for rail infrastructure over the next 20 years, and billions more would be needed to implement higher speed rail.

As U.S. highways and airspace become more and more congested, the lack of investment in rail infrastructure has made it difficult for passenger rail to compete successfully with these other transportation modes (all of which receive much more federal subsidy).

By contrast, Japan has consistently poured billions of dollars into its rail infrastructure (even after privatization) and has created a competitive transportation alternative to plane and automobile travel.

The lesson from Japan is obvious: Intercity rail systems, whether private or public, need stable sources of public investment to be successful. Unfortunately, this simple fact is often ignored by advocates of privatization in the United States.

The administration’s legislation to privatize Amtrak does not guarantee any specific amount of federal funding for rail infrastructure. Without a specific dollar amount of stable, guaranteed funding, promises from the administration to rebuild the nation’s rail infrastructure ring hollow. An empty federal financial commitment in the name of “flexibility” for the states is a recipe for disaster.

As Japan has shown, successful passenger rail systems need more government investment, not less.

Letteney was legislative director for Rep. John W. Olver (D-Mass.) and currently works in the Japanese Parliament and Ministry of Transport as a Mike Mansfield Fellow.

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