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Pork-Barrel Express In an isolated valley near Kanazawa, on Japan's west coast, a regiment of concrete pylons stands in the rice paddies between two massive tunnels blasted into opposite hillsides. The statue-like structures seem strangely out of place in the pastoral setting, where bees and dragonflies flit across the landscape. In a few years' time, though, they won't be the only ones flying through--the concrete supports are the shock absorbers for elevated tracks that will carry Shinkansen bullet trains. A new route will loop around the mountains of central Japan and link sparsely populated areas in the west with the metropolises on the Pacific coast. The cost? More than Yen2 trillion ($19 billion).
Tokyo is pumping billions of dollars into bullet-train lines to far-flung places in an effort to revive its economy. But this and other public-works spending has massively increased the national debt. Could Japan be headed for a payments crisis that would hurt the global economy?
By Chester Dawson in Kanazawa and Tokyo
Far East Economic Review-dated November 11, 1999
For much of the world, the bullet train has come to symbolize Japan and its technological prowess. For some Japanese, however, the unending quest for new routes is a symbol of something else--pork-barrel spending that's more political than practical.
The Hokuriku line, which will run through Kanazawa and along the Sea of Japan coast, is one of these. Funding to keep it and other national projects alive is expected to account for about Yen155 billion of a multitrillion-yen stimulus package to be partially funded by a supplementary budget that will go before parliament in the next few weeks. There are also plans afoot to dramatically increase funding in subsequent years. Tokyo is betting that the increased spending will strengthen Japan's fragile economic recovery, particularly since consumer spending remains weak and the strong yen is hurting exporters.
Yet Japan's spendthrift ways are worrisome: Much of the money is being spent on projects that are expected to provide little more than a short-term shot in the arm to general contractors. Critics say the government would be better off leaving more money in consumers' pockets by expanding income-tax cuts and promoting deregulation to stimulate new business. If the latest pump-priming measures don't sustain the recovery, Japan, the world's second-largest economy, won't be able to take up the slack from any slowdown in the United States.
Even worse, failure would mean less revenue coming in to pay off Japan's huge government debt--now over Yen600 trillion and rising, thanks to massive outlays such as new Shinkansen lines. Government critics fear this debt will hobble the nation in future years by sucking up savings and acting as a drag on growth. David Asher, a research fellow at the MIT Japan programme, describes Tokyo's appetite for public-works projects as "strategic surrealism." If interest rates rise from their present record lows, servicing this debt could be trickier still. At worst, Japan could face a payments crisis that would reverberate around the globe. "It could be a very ugly situation for the world economy and Japan," says Asher.
Despite questions about the feasibility of new bullet-train lines, senior officials in Prime Minister Keizo Obuchi's coalition government want to lavish funds on routes both to Hokkaido and Kyushu, the most northern and southern of Japan's main islands (see map). The ruling Liberal Democratic Party and a minority coalition partner agreed in September to spend Yen150 billion annually--up from Yen30 billion in this year's regular budget--over the next 15 years on five major Shinkansen extension routes, including the Hokuriku line.
The government has yet to bless the plan, but Yoshiro Mori, secretary-general of the LDP and a native of the Hokuriku region, says he expects "quite a bit" of money to go toward new bullet trains in a supplemental budget now being compiled. And he wants even bigger allocations in the budget for the fiscal year starting next April. Mori says new bullet trains are needed to upgrade Japan's transport links and provide a strategically important back-up route between Tokyo and Osaka.
Lawmakers and industry heads from rural areas have long championed such proposals as a way to create construction jobs and boost traffic. In 1972, Prime Minister Kakuei Tanaka dreamed of a nationwide network of bullet trains criss-crossing the country in a famed paean to public works entitled A Plan for Remodelling the Japanese Archipelago. He built a Shinkansen line direct from Tokyo to his home district in Niigata, a rural backwater on the Sea of Japan coast.
But after completion of a route from Tokyo to Nagano--site of the 1998 Winter Olympics--money for new bullet trains started to dry up. In 1997, Prime Minister Ryutaro Hashimoto implemented a fiscal reform drive that would have stopped the Hokuriku line, the subject of extensive lobbying by local politicians and businessmen since 1965. Officials in the Finance Ministry and other long-time critics cheered, but the freeze was short-lived. Hashimoto was forced to ramp up spending as the economy sputtered, while the power of the penny-pinching Finance Ministry was undercut by an influence-peddling scandal.
Obuchi, who succeeded Hashimoto, has demonstrated no such qualms about pump-priming. One of his first moves was to pass a huge bailout for banks. The government then pushed through a series of economic stimulus packages that resuscitated the Hokuriku line.
All of this is being paid for by a expanded issuances of government bonds, adding to a debt load that has doubled since 1990 and which last year exceeded annual GDP for the first time. Japan's fiscal condition is now one of the worst among major industrialized nations.
So far this decade, Finance Ministry figures, show Yen112 trillion has been sunk into public-works projects alone. Taxpayers will eventually have to foot the bill for the government bonds. Yet the rapid ageing of Japan's population means there will be fewer workers to bear the tax burden--and at the same time, social-welfare costs will be rising.
On top of those worries, there are questions about how much return can realistically be expected from public-works "investments" in rural areas. "It's a very dangerous situation because nobody is asking whether or not this money is being spent wisely," says Hiroshi Ikariyama, an economics professor at Kanazawa University. "In fact, there's no basis for arguing that this is good for the economy--but no politician from a rural area can run against the Shinkansen."
Initial construction costs are only part of the problem. It's also likely that the government will have to take over unprofitable local lines once new bullet-train services begin. This key compromise was offered to Japan's privatized regional railway companies in a 1996 accord designed to shield them from additional debt.
Supporters say new bullet-train routes will bring in more tourists and businessmen, attracted by shorter travel times and more convenient access to major industrial hubs. Tadayasu Fujiya, executive director of the Hokuriku Economic Federation and a retired board member of Hokuriku Electric Power, says his group estimates the bullet train will bolster industrial productivity in the region by 1.6%, or Yen3.2 trillion. But local governments haven't commissioned any independent studies on the likely economic impact and Japan's Transport Ministry refuses to disclose the results of its own surveys.
The Hokuriku Shinkansen will shave little more than an hour off the almost four-hour journey between Tokyo and Kanazawa. (Flights from Tokyo to either of two major airports in the region take only one hour.) And there are other concerns: What appear to be structural defects in many tunnels on older Shinkansen routes have shaken public faith in the network.
Despite all these worries, however, there are few signs of public outrage. Residents of Hokuriku seem resigned to accepting the new bullet train even as they worry that their local train services may suffer. "Average people don't care so much one way or the other," says Shigeru Nakamura, a 64-year-old Kanazawa taxi driver. "It's mostly for politicians and their backers."
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