Hirotaka Yamauchi: Aiming for Sustainable Railways

Hajime Seki, the 7th Mayor of Osaka, graduated from the undergraduate program of the Higher Commercial School (now Hitotsubashi University) in 1893. After serving in the Ministry of Finance (at the time), he returned to his alma mater in 1897 to become a professor. He was responsible for social policy theory, transportation theory, and other subjects. However, Seki was not satisfied with the position of a university faculty member; he was invited to become the Deputy Mayor of Osaka and assumed the office of Mayor in 1923. While Seki is famous for "urban planning" during his time as mayor, his greatest achievement was likely the development of the Midosuji Subway Line.

In constructing the Midosuji Line, Seki introduced a beneficiary-pays system. This was based on the "City Planning Act" and the "Urban Building Act" enacted in 1919. It involved drawing a circle with a radius of 700 meters centered on subway station entrances and exits, and requesting contributions from landowners within that area. The purpose of the contribution system was, of course, to secure "project funding," but according to researchers of the time, it was also to ensure fairness based on the premise that land prices in the surrounding area would rise due to the subway development. He put the theory of "return of development profits" into practice.

“Every Tub Must Stand on Its Own Bottom.” In the world of railways, this famous idiom is interpreted as "a business must be self-supporting." However, looking back at the history of railway development, there are few examples where railways have succeeded solely through self-support. As socio-economic infrastructure, railways generate significant external effects. The establishment and development of railway businesses have been realized by capturing these external effects and "monetizing" them. The development of areas along railway lines by Ichizo Kobayashi, the founder of the revival of Hankyu Railway, was the pioneer of this approach.

Railway businesses, which require massive capital investment and long gestation periods, have a high fixed-cost ratio and significant economies of scale. Self-support becomes possible only when there is enough demand to sufficiently lower the unit cost of transport. However, demand is often insufficient, especially at the start of operations. As the region develops and passengers increase, a phase arrives to recover the initial investment. Even then, the recovery of massive initial investments and fixed costs requires the return of development profits. It has been theoretically proven that this method is correct in terms of resource allocation. This is an application of the Henry George Theorem, which analyzed optimal city size.

Triggered by the drop in demand due to the COVID-19 pandemic, the state of local lines and regional railways has become a topic of discussion. In the case of JR, local lines are supported by the transfer of profits from profitable lines (internal subsidies), but if the railway business as a whole becomes sluggish, that surplus capacity is limited. The impact of the recent pandemic has been immense, shaking the very backbone of the JR main entities. Furthermore, there are cases where financial recovery becomes difficult due to damage to railway facilities caused by earthquakes or extreme weather.

In regional railways, internal subsidies between lines cannot be expected in the first place. The number of passengers for the 95 operators currently surviving (of which 31 lines from 26 operators were converted from the former Japanese National Railways' "Specified Local Lines") decreased by 22% from the peak in 1990 to 2019. Only 21% of all operators are in the black on an ordinary income basis; 80% are loss-making companies. These figures are from 2019, before the pandemic.

This year, the 150th anniversary of railways, a council of the Ministry of Land, Infrastructure, Transport and Tourism compiled a proposal aiming for the "renewal of regional mobility through collaboration between railway operators and regions." The government will establish a "forum for discussion" between railway operators and local governments along the lines. Through these discussions, they plan to categorize lines into "sections where the public policy significance of operating a railway is recognized" and "sections where public policy significance can be realized through BRT or buses," and consider exit strategies. Of course, even in the former case, a corresponding burden on the region and users is a prerequisite, and operators are required to achieve thorough efficiency. In the latter case, a system that enables a smooth transition to BRT or bus transport is required.

Operators and regions discussing to explore the future of railways is the only solution for the future railway business, and I believe it is a reasonable proposal based on the current situation. However, as can be easily predicted, those discussions will take a long time and, in some cases, may worsen the situation further. Rational decisions are needed before it is "too late." Additionally, there are examples where regional railways have been revitalized through partnerships between regions and innovative operators. So-called innovation is precisely important in such situations.

In doing so, the capture of external effects brought about by railways, as mentioned above, should definitely be considered. Of course, it would be far-fetched to expect the return of development profits along railway lines that Hajime Seki or Ichizo Kobayashi realized for regional railways under conditions of population and user decline. However, among the external effects brought by regional railways, there are some that can be recognized precisely because it is the modern era.

For example, to contribute to the realization of a pressing decarbonized society, the construction of regional power systems using railway facilities has been proposed. This includes the introduction of renewable energy using railway land, power transmission and distribution systems laid along the lines, decarbonized urban planning combining these elements, and the construction of regional power sources. Regional power sources are also effective for strengthening resilience.

Whether these fall under "external effects" in the strict sense is not the issue. For regional and local lines to be sustainable, their importance as social infrastructure should be emphasized, and cross-sectoral initiatives are necessary.