Global Economics

Japan's Pricey Public Works


Japanese infrastructure is in far better shape than that of the U.S., but the country pays an exorbitant price due to pork barrel spending and corruption

For first-time visitors to Japan, it soon becomes apparent this is a country with a rare talent for big infrastructure projects. Its roads, although congested in urban areas, are nearly always billiard-table smooth. Japan's vast rail network, including the bullet trains that criss-cross the country at speeds of up to 200 miles per hour, is a source of national pride, racking up 22 billion passenger-journeys every year. It is among the safest in the world.

And its spectacular bridges, whether the Rainbow Bridge in Tokyo or the Akashi-Kaikyo Bridge, the world's longest suspension bridge, linking the main island of Honshu to Shikoku, are major feats of civil engineering. And all this has been achieved in a country regularly hit by earthquakes, typhoons, and tidal waves.

You'd think Japan could offer some valuable lessons to the U.S., where a fatal bridge collapse in Minneapolis and a steam pipe explosion in Manhattan have cast an unflattering light on the States. Yet as a starting point for how other countries should approach their infrastructure investments, Japan is hardly a good example. For all the glittering bridges and high-speed trains, investment in big projects in Japan has long been poorly directed, costly, and riddled with the worst excesses of pork barrel politics.

Signs of Serious Corruption

"Japan's infrastructure gives you a very mixed impression," says Jun Saito, assistant professor in the government department at Franklin & Marshall College in Lancaster, Pa., and a former member of Japan's House of Representatives. Saito points out that while finished projects are nearly always impressive and well-maintained, there aren't nearly enough of them relative to the huge bill footed by the taxpayer. "The roads are smooth, but the supply is bad, despite a remarkable spending record, which is an indication of serious corruption," he says, adding "sewage systems, parks, and other kinds of infrastructure suggest similar patterns."

For sure, no one could accuse Japan's government authorities of skimping on large public works projects. Despite cutbacks in recent years, Japan spends about 4.5% of gross domestic product on public fixed capital formation. That's down from a peak of more than 10% in the late 1970s but is still significantly higher than other developed economies. In the U.S. and Britain, for example, equivalent spending is around 2.5% and 2% of GDP, respectively.

Japan's huge spending on public infrastructure is also an important factor explaining why its government debt, despite a solid economy and government cutbacks, is expected to weigh in at 148% of GDP at the end of the current fiscal year. That compares unfavorably with all other major developed economies, such as the U.S. (62%) and Britain (49%).

Take The Train

The high price doesn't fall solely on taxpayers. End users also pay a high price. For example, while Japan has numerous well-appointed airports, air travel is still heavily regulated and dominated by two major players, Japan Airlines and All Nippon Airlines. Budget airlines like those that crisscross Europe have yet to make serious inroads and even short flights on busy routes remain expensive.

Car drivers are arguably hit the hardest, though, particularly if they plan on using highways. Toll fees are extraordinarily high. For example, tolls for the journey by car from Tokyo to Hakata in the west (a trip of around 600 miles) run $200. An excursion from Tokyo to a ski resort in Yuzawa, Niigata, barely an hour's drive, once on the highway sets one back $40.

Throw in the high cost of gas ($5.30 a gallon) and other auto taxes that are directed into road building and maintenance, and the train looks like an attractive option. "Highways are smooth, simply because the highway agencies are charging the world's highest tolls," adds Saito. "It's basically preventing potential users from using them." (The four highway companies, which were privatized in October, 2005, have combined debts of $341 billion.)

White Elephants in the Countryside

Just as worrying, though, is that gargantuan infrastructure budgets have been invested poorly for years. Remarkably, for all the trillions of yen thrown at infrastructure projects in Japan, highway mileage per capita or compared to land area is about average among the major developed economies. Traffic jams in urban centers such as Tokyo, meanwhile, remain a nightmare, while commuter trains are crammed.

Yet when it comes to expensive dam projects or using public funds to build huge white elephants in the countryside, there are examples aplenty. Perhaps one of the more absurd ones is the $1.5 billion state-backed Seagaia resort in Miyazaki, which didn't make a profit in a decade before being acquired by Ripplewood Holding in 2004 for just $120 million.

Much of the problem lies with the pork barrel politics that characterized postwar Japan. The ruling Liberal Democratic Party draws much of its strength from rural constituencies, which means public works projects have long led to huge spending in the countryside to shore up local support.

Allegations of Bid-Rigging

While the situation is improving, few would disagree that corruption and waste have been anything other than endemic. One road project that did get off the ground, for example, is the $84 billion No. 2 Tomei-Meishin Expressway, which will cover the 300-mile stretch between Tokyo and Kobe to the west when it is eventually completed.

The highway project, which was started in 1993, mostly follows the same route as the first Tomei-Meishin Expressway, shaving just 25 miles off the total journey. In 2005, it emerged that numerous contracts awarded for the route were the result of bid-rigging and collusion between private companies and the then-state-owned Japan Highway Public Corp..

Prosecutors alleged that as many as 90% of bridge building tenders made by the highway company along the route were rigged. Pork barrel politics also partly explains how the Kashiwazaki-Kariwa nuclear plant, the world's largest, which was damaged in the July 16 earthquake in Niigata, spilling radioactive water into the sea, could be built in such a seismically active area.

Shocking Earthquake Revelation

Former Japanese Prime Minister Kakuei Tanaka, the pork-barrel king who famously commissioned a bullet train line to his hometown in the 1970s, had a hand in negotiations for the plant, which is designed to withstand quakes of 6.5 on the Richter scale.

Last month's tremor registered 6.8 and killed 11. "We did not assume an earthquake of this magnitude at the time of designing the nuclear power plant. After looking at aftershock location data, we have come to realize a fault lies right below the nuclear power plant," a Tokyo Electric Power, which runs the plant, told the Nihon Keizai newspaper following the disaster.

Perhaps more mundane, but of great long-term concern to many Japanese, is what will happen to the large public infrastructure projects built in the 1960s and 1970s as they begin to show their age.

A Country of Aging Bridges

Saito says that one worry is the bridges along some bullet train lines, especially those between Hiroshima and Hakata in western Japan, where construction companies are alleged to have used beach sand in the building process, which has led to corrosion of metal reinforcement within the structures.

Another is how to fund maintenance costs to keep bridges and the like up to snuff. According to the Ministry of Land, Infrastructure & Transport, Japan spends around $940 million a year maintaining its 138,000 road bridges that are longer than 15 meters. The cost, though, will almost certainly rise. The ministry estimates that concrete bridges have a life span of up to 75 years, while those made from iron and steel have a life expectancy of around 60 years. Within 20 years almost half of Japan's bridges will be 50 years old or more.

Takeshi Higai, a professor of civil and environmental engineering dept at Yamanashi University, says that will be a test for local governments, many of which are struggling with budget shortfalls. "Maintenance requires financial strength," he says. Without it, a bridge collapse like the one in Minnesota could be repeated in Japan. "If it can happen in the U.S. it can happen here." If so, those wasted billions could have proved handy.


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