Rail 470: Unlike the UK, the sun is rising on Japan’s privatisation

With privatisation frequently held as the ultimate model of how to run a railway, Christian Wolmar believes that Britain’s failure to learn from the country’s successful privatisation experience was a great missed opportunity.

The success of the Japanese railways has often been presented in Britain as irrelevant to our situation because of the huge cultural differences between the two countries. Even the fact that, like here, the railway network has been privatised, the only other major passenger system entirely in private hands, has failed to elicit much interest.

Yet, paradoxically, the British experience of privatisation has always attracted considerable attention in Japan, as witnessed by the fact that my book, Broken Rails has sold more copies there than in the UK. In order to remedy this imbalance, a book on Japanese privatisation, by Yoshiyuki Kasai, the president of JR Central, the operator of the oldest high speed Shinkansen line, the 500km long Tokaido which links Tokyo, Nagoya, Kyoto and Osaka, has been translated into English and published this summer.

The book, Japanese National Railways, its break-up and privatisation (Global Oriental), debunks a lot of myths about the history of the Japanese railways and, interestingly, the author is not too shy to analyse the mistakes made in the UK model of privatisation and to suggest where we went wrong.

The common assumption here is that the Japanese have always been super-efficient with a disciplined workforce and effective management which ensured that the trains worked like clockwork. That could not be more wrong. When the railways were state owned, the unions were incredibly strong. They were, as Mr Kasai told me in a recent interview, completely politically motivated :’They wanted to have a socialist government and their leadership’s policies were entirely focussed towards that aim.’ The unions resisted all change and had enormous power at the local level to defend restrictive working practices and high manning levels.

The results of such union domination make the British experience with the relatively militant NUR and ASLEF look like poodles. In his book, Mr Kasai recalls a near disaster caused by the appalling behaviour of the unions and the supine nature of the management. A train separated near Aizu-Wakamatsu station because it had not been properly coupled. Fortunately no one was hurt but when the incident was investigated, it was found that an assistant manager had filled in for a job that should have been carried out by his staff. This was because most had gone on a camping expedition run by Tetsuro, one of the unions and most of the rest were playing softball in a game organised by Kokuro, another union. The station master had not dared to ask for one of these events to be cancelled and consequently his assistant ended up having to do far too much work. As it turned out, this kind of thing was a frequent occurrence and the poor man had not had a day off, even a weekend, for the past two months. What a contrast that suggest with our conventional view of Japanese railway staff.

Therefore, it took effective management to force through a reform of industrial relations. According to Mr Kasai, that could not have happened without privatisation and indeed was one of the key factors why the railways had to be privatised. There were two other reasons: the debt and political interference. First, the Japanese National Railways had built up a quite staggering level of indebtedness – an absolutely amazing $308bn (say, £200 billion) – which meant there was no hope of ever becoming solvent without radical reform and a setting aside of the debt. Secondly, the government interfered in the running of the railways. As Mr Kasai put it to me, ‘The government controlled fares, wages and decided on capital investment, yet expected JNR to behave like a private company and make a profit’.

Indeed, it was largely because of the political interference that the debt was built up. Fares increases were politically too damaging as were closures of loss making rural lines. Nor did the government dare to confront the unions and did not allow the railways to benefit from the sale of surplus land – which given the skyrocketing land values in Tokyo, could have cleared the debt.

The privatisation, therefore, had to address these three issues. The main reason why the industry could not be privatised into one country-wide entity was in order to break up national wage agreements. Staff in rural areas where the cost of living was much lower could not be paid the same as those in the big towns. Therefore the model chosen was to break up JNR into six railways – three on the main island, Honshu, which were expected to be profitable and three on the smaller islands which were recognised as needing subsidy – plus a freight company.

The government was pressing strongly that the railways should be vertically separated, as it wanted to retain the infrastructure. Mr Kasai, who at the time was a senior executive with JNR, recalls that there was a big battle between the railway managers and the Ministry of Transport over this issue: ‘We were able to win this because we agreed that reform was necessary but wanted to ensure it was carried out in a way which took our view into account.’ This is a key difference with the UK, where British Rail managers, expecting a Labour victory in 1992, did not address the issue of privatisation early enough and press for their own model.

The Japanese railway managers were insistent that the new structure should be vertically integrated. To explain why this is essential, Mr Kasai outlines the story of the upgrade of the Tokaido Shinkansen which will bring speeds up to 270 KPH when the new schedule starts next month, a story which has much resonance with the West Coast fiasco.

He explains that to increase speeds, the rolling stock as well as the track and signalling had to be upgraded. But it is only when the work is all done that the higher speeds for all the trains could be achieved and this has taken 15 years. Yet, much of the high rolling stock has been operating for some time and if the train operator wanted to maximise revenue, it would have insisted on putting it to use, creating a distorted timetable with the slower trains having to wait at intermediate stations. Only with integrated ownership was a coherent project possible, he argues.

Of the British experience, Mr Kasai clearly finds it difficult to maintain the normal Japanese politeness. He says: ‘It is no accident that railways traditionally have preserved an integrated management and operation structure, quite different from roads. British railways’ disaster resulted directly from failure to recognise this fact.’

The Japanese privatisation has largely been very successful and the government is soon set to sell its remaining shares in the three larger companies which are quoted on the Tokyo stock exchange. However, there are still many outstanding issues, not least because the privatisation process was a compromise between the theoretical and the achievable. And because one of the immutable laws of railway operations is that they will always be subject to political interference since the rail network is such a vital part of any nation’s infrastructure.

For example, prices on the Tokyo – Osaka Shinkansen are much higher than they need to be because the revenue is used to cross-subsidise loss making lines. If the fares were set at the market rate, then they would completely undercut the rival airlines which currently operate 55 return flights from Tokyo to towns on the Tokaido Shinkansen route. As Mr Kasai points out, this would make sense environmentally as, per passenger, the new high speed Nozomi create one tenth of the emissions of a Boeing 747.

While Japan is indeed very different from the UK, it could well be argued that since Japan privatised its railways in 1987, nearly a decade before ours, the failure to analyse and learn from what happened there was a great missed opportunity. It is, perhaps, a result of the British trait of being wary of anything that ‘Johnny Foreigner’ is up to or merely the feeling that Japan is too different for comparisons to be made. Either way, it is a great shame and could well have prevented many of our mistakes. And even now, there are clearly still lessons to be learnt which could inform our ongoing debate about the structure of the railways.

Ad money is a step too far in the railway war

I can see why the Strategic Rail Authority was tempted to respond to the Evening Standard splash which screamed ‘massive cuts’ to services when, in fact, it was a relatively minor tinkering about with the timetable by Connex – with, of course, the sanction of the SRA which got away rather lightly in the coverage. The SRA’s decision to pay £28,000 for an advertisement in The Times responding to the sensationalist reporting therefore initially seems quite sensible. Why not, runs the argument, respond in kind and give the bastards some of their own back?

Well here’s four good reasons why it is a bad idea:

First, how can the SRA which is in dire financial straights, having cut back on its Rail Partnership Programme, justify spending this money which could, say, go on refurbishing a station toilet or putting up cycle stands at half a dozen stations?

Second, the response may well be the opposite to what’s intended. I’m sure Dick Murray, the Standard’s transport man will have received a herogram from his editor when she saw The Times ad. ‘Touché’, they will have said. It was, incidentally, weird, to choose The Times, when the story was in another paper.

Third, there are other, cheaper, outlets. There is a Press Complaints Commission which may be ineffective and self regulated, but nevertheless would have provided a cheaper option.

Fourth, where will this end? There has been a whole summer worth of rather blown-up anti rail stories. While it is good to see the SRA putting out press releases to defend the industry, placing ads to respond to these stories cannot be justified given the expense. Moreover, the SRA is a government agency and therefore has to learn to take it on the chin – it is the politicans who should be responding. Why, for example, did the SRA not get Alistair Darling to write a letter rather than spending such a vast sum? This is a game for big, nasty political bruisers, not a bunch of quasi civil servants who think they can outwit the press in the spin game.

So in future, reluctantly, the SRA should avoid the temptation of making responses that look like pique.