Privatizing Public Transit
Understanding the success behind public transit privatization efforts in Tokyo, Japan
A research proposal submitted to the Urban Studies and Planning Program
Senior Sequence Class 2011-2012
November 8th, 2011
Kenton Trinh
University of California, San Diego
Urban Studies and Planning Program
Section A01
ketrinh@ucsd.edu
Abstract
This proposal outlines a research strategy to analyze the privatization of public transit in Tokyo,
Japan. Current research on the privatization of public transit suggests that privately owned
transportation projects have showed mixed outcomes in both quality and efficiency. Specifically,
this study will focus on the success of privatized high-speed rails in Tokyo. It will utilize case
studies as a basis for intensive research on the history of their transportation system as well the
activities and developments that helped facilitate its success in the modern world. Additionally,
interviews with professionals of privatized transit will be conducted to understand the
components behind this success. The research will contribute to the literature on privatization of
public transit, but it will also be shared with officials within the public and private sector in the
hope that a better understanding of its successes and failures can help revitalize struggling
transportation system in the U.S. in lieu of its debt crisis.
Key terms: privatization, public transit, high-speed rail, Japan Railway
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Introduction: New Visions of Transportation
“Greece is having a fire sale of its publicly-owned transportation system, with planes, trains and
roads all being sold off as the country attempts to dig out of its debt crisis. Americans should
watch and learn: We could well be privatizing large segments of our own transportation system
soon because of the U.S. debt crisis.”
- Lisa Schweitzer, Los Angeles Times
As the debt crisis in the United States worsens, there have been calls for the reprivatization of the country’s infrastructure, most notably of its transportation system. Prior to
1964, a majority of transit agencies were privately owned. Automobile ownership and
suburbanization of the population eventually contributed to the financial problems experienced
by these private firms. Naturally, policy makers began supporting public ownership and
operation of the U.S. transportation system. The government would eventually take over and the
losses were covered through federal subsidies. In addition to curing financial woes, it was the
hope publicly owned transit “would play an important role in preserving and revitalizing cities,
satisfying the transport needs of the less privileged, creating a better urban environment, and
providing a more energy efficient form of transport” (Karlaftis and McCarthy 28). However, the
promised success has largely been invisible. The United States is facing an infrastructure crisis
that requires maintenance and repair while transportation spending is being reduced. Many
believe that privatizing large segments of the transportation system will lead to better services
while making transit more responsive to users rather than politicians (O’Toole 22).
Privatized transportation projects do not come without risks; there are as many success
stories as there are failed ones. Essentially, successful implementation of privatization could
come down to the way in which it is managed. Two common strategies include local shedding,
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which is done by transferring all public transit services to the private sector, or through
contracting, where the government sets the service standards with private contracts controlling
the means of operation.
While the United States and other countries turned to government support in running
their transportation systems, Japan moved away from it and transitioned to private ownership of
their transportation system. Japan Railway, previously known as Japan National Railway, is an
example of one of the most successful cases of privatized transit. Despite its title, the Japan
Railway Group controls everything from railways to trains to double-deckers. This study will
provide a variety of strategies and lessons learned from Japan’s process of privatizing transit,
which transit-defunct cities like Los Angeles can look to mirror. It is the hope that it will not
only add to literature on Japan’s public transportation systems, but the overarching theme of
privatized public transportation in general.
In the context of privatized public transit, success can be defined by its productivity and
profitability. Simply put, can privatized public transit get people where they need to go and is
there enough revenue generated to sustain its operations? When analyzing Japan Railway, it will
also be important to look at several factors: their (1) pre-privatization organization, (2) reasons
for reform, (3) structural changes made toward privatization and (4) post-privatization
organization. All of these topics will be accounted for in order to uncover the reasons behind the
success of Japan Railway and identify areas of improvement for future public transit
privatization efforts. Through a detailed analysis of Japan’s process of privatization, the research
will provide an answer as to why privatization efforts are working well for their public
transportation system, but not for others. In the end, it would also be helpful to identify the
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discrepancies in the perceptions of the efficacy of privatization between policymakers in Japan
versus the United States.
Literature Review
As the financial problems of public transit continue to grow, researchers and policy
makers are beginning to question its effectiveness in urban areas. The current recession has
reduced tax support for transit, making it hard for transit service to be maintained at optimal
levels. In addition, the public transit system is believed to be moving backwards. This has led to
a reconsideration of the strategy of transferring public transportation services over to the private
sector. Cities that are looking to revitalize their public transportation opt to look at privatization
efforts put forth by Japan on their transportation system. According to Fumitoshi Mizutani and
Suji Uranishi, the preferred type of transportation in Japan is still the automobile, but its Japan
Railway experiences heavy usage as well (3).
Privatization of transportation systems has shown success in some cases and disastrous
results in others. Many researchers argue that a huge reason for the failure of governmentregulated public transit results from subsidies given to them. When the government takes over
and fully controls a previously privatized transit company, they provide financial assistance that
raises the cost of public transit through higher wages and the threat of unionization (Scholl 145).
Congress requires that union support be gained before any transit agencies are eligible to receive
any form of federal subsidy. Karlaftis and McCarthy argue that rising costs created by subsidies
leads to decline in productivity lack of innovation and initiative, and failure to manage finances
properly (28).
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Privatization, along with the removal of subsidies, is believed to help alleviate inefficient
and debt-ridden public transit systems. Karlaftis and McCarthy (1999) examine the effects of
privatization on public transit costs. Like Scholl, they find that the lower costs of transit in
comparison to the public sector are made possible through lower wages. Private firms work
under the motivation of profit and seem to be offering benefits that purely public transit lack
such as “labor cost differentials, diseconomies of scale, increased flexibility of service provision
and work rules, and increased competition” (Scholl 145). However, drivers for private firms are
generally paid substantially less than public transit operators and receive less benefits. This leads
to higher turnover rates in labor, thus affecting the quality of service, especially in road safety.
According to Karlaftis and McCarthy, privately owned and operated systems are able to
gain more output per dollar and higher amounts of revenue as well as better financial
management compared to the public sector (31). Publicly owned and operated transit systems are
susceptible to economic downturns. As tax support for transit gets reduced, fares either get raised
or services get cut. For example, the Great Recession in the United States caused the Chicago
Transit Authority to lay off “1,100 workers, or about 10 percent of its work force” (O’Toole 7).
Eventually, these types of cutbacks will reduce profit and level of ridership.
Private transit firms have the motivation in the form of market competition to increase
productivity, keep transit equipment effective, and avoid the construction of unnecessary and
expensive infrastructure. Opponents of public transit privatization argue that cities are opting to
build expensive rails over buses that offer service at a much cheaper price. Several things are
thought to come with the privatization of transit. Some examples include improved transit
service in the inner cities and the replacement of these high-cost railways with low-cost bus
services (O’Toole 20). Most states are serviced by public transit monopolies, though there are
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private companies where private transit is allowed. Jitneys and other types of shared transit
service are prevalent in cities such as Puerto Rico, Chile, Brazil, Argentina, New Jersey, New
York, Miami, San Francisco and Los Angeles. Nemer and Teal (1989) outline the impact of the
Los Angeles jitney experience and its quality of service through surveys with passengers.
Jitneys, privately owned and managed vehicles that operated “on relatively fixed routes with
unspecified user-defined stops and unscheduled headways,” showed considerable success in Los
Angeles during the 1980s. Jitney operations eventually fell apart due to competition with the
Southern California Rapid Transit District, but demonstrated certain qualities that could prove
beneficial under better circumstance. Currently, Los Angeles is connected to San Francisco and
Las Vegas through intercity bus services referred to as “Chinatown buses.” Though it cannot be
considered urban transit, it does provide a private transportation success story whose lessons are
useful for public transit” (O’Toole 19).
Complete shift of public transportation into the private sector is not the only strategy of
privatization. Contracting appears to be most common form of privatization, at least in the
United States. Scholl (2006) examines the contracting of public transit that allows for
government-owned systems to be operated by public firms, “With contracting of public transit,
the public agency coordinates schedules, routes, and fares to overcome the problem of multiple
providers, while the private operator owns and maintains vehicles and hires drivers” (144).
Despite its popularity, Babitsky and Perry (1986) find that, in terms of efficiency, there was little
to no difference found in contract managed systems versus publicly managed ones (63).
Although Scholl does see costs savings under these conditions, it is at the cost of service quality
and safety, “Furthermore, lower wages and higher turnover rates associated with contracting may
be in turn related to the observed increase in accidents and lower quality transit service” (156).
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Therefore, it may be important to review case studies of both forms of public transit regulation to
determine what makes them more appealing than other systems, especially given its success in
the 1980s (Babitsky and Perry 64).
Literature on the privatization lacks a clear consensus on the degree of its success.
Japan’s privatized forms of public transit, however, have shown to be effective. The case study
on Japan Railway will provide further evidence that privatization of public transit can work
under certain circumstances. These conditions and developments will be analyzed in detail in
order to improve the struggling public transportation systems in the United States.
Research Methods and Design: Japan Railway Throughout History
The research proposal is specifically focused on the high-speed railways in Japan because
of its success in terms of both level of ridership and profitability. Privatization of public transit
has had its fair share of failed efforts in the past. However, publicly owned and managed public
transit has failed to live up to its expectations as well. Therefore, it is necessary to address the
past and present organizational systems of Japan Railway as means to drawing lessons from
proven entities.
The research will undergo data collection in late November of 2011, which will be then
followed by the pursuit and utilization of surveys and interviews. The research will utilize the
use of historical and modern literature records of the previous Japan National Railway and
current Japan Railway. This will help understand what did not work before and what spurred the
transition from public ownership to private ownership of their transportation system. The
research will also address its current organizational form and the degree of its success. For the
purposes of this research, success of railways will be defined by its profitability and productivity.
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Quantitative data of ridership costs, operating costs and level of ridership will be gathered and
analyzed in order to measure its profit. Other forms of gathered data will include number of
routes, frequency of railways, speed of railways and flexibility of schedules. With this
information, it will be easy to understand how Japan Railway operates on a daily basis, which
will be useful in grasping the concept of its effectiveness.
The research on Japan Railway will include a spatial aspect as well. Through GIS, the
geographic aspects of the land surrounding the privatized transit system will be analyzed.
Specifically, the GIS map will include data on Japan Railway’s transportation routes,
surrounding land use and population density around transit stations. It is important to include
these elements in order to determine whether or not these factors play a role in high ridership.
Despite the level of detail intended to go into this research of the privatization of public
transit in Japan, there are limitations that will hinder the final product. Although interviews with
professionals with knowledge of Japan Railway will be sought after, there is no possibility of
conducting on-site surveys and interviews with the people who actually utilize the railways on a
daily basis. Interviews with professionals who have knowledge of Japan Railway will be done
through phone. If that is not possible, then an exchange of e-mails will be the likely method.
Additionally, the research will not actually apply the strategies gained from privatized transit in
Japan onto other systems of transit. Therefore, the application of these strategies may not display
the same success.
Conclusion
It is the hope that this research project will help formulate new policies on privatization
of public transit in the United States. Though it has not carried much success in the past,
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innovative ways of thinking about transportation systems may influence its next efforts.
Transportation systems continue to see decline in productivity, large increases in costs and not
much to show for it. Strategies learned from privatization of Japan’s railways could be applied to
failing transportation systems. Especially important is the process in which Japan Railway
underwent to achieve complete privatization. The process of governmental actions needs to be
looked at as well their anticipation of public reaction to a change in operation. Lessons learned
could influence how decisions are made, what gets developed and how policies are managed
when it comes to privatization of public transportation. Additionally, the research will help
identify areas of improvement for Japan Railway.
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Works Cited
Karlaftis, Matthew, and Patrick McCarthy. "The Effect of Privatization on Public Transit Costs."
Journal of Regulatory Economics 16 (1999): 27-43. Print.
Kitchen, Harry. "Urban Transit Provision in Ontario: a Public/Private Sector Cost Comparison."
Public Finance Review 20 (1992): 114-28. Print.
Litman, Todd. "Contrasting Visions of Urban Transport." Victoria Transport Policy Institute
(2011): 1-31. Print.
Luger, Michael I., and Harvey A. Goldstein. "Federal Labor Protections and the Privatization of
Public Transit." Journal of Policy Analysis and Management 8.2 (1989): 229-50. Print.
Mizutani, Fumitoshi, and Kiyoshi Nakamura. "The Japanese Experience with Railway
Restructuring." Governance, Regulation, and Privatization in the Asia-Pacific Region 12
(2004): 305-42. Print.
Mizutani, Fumitoshi, and Shuji Uranishi. "Privatization of the Japan Highway Public
Corporation: Policy Assessment." European Regional Science Association (2011): 1-21.
Print.
O'Toole, Randal. "Fixing Transit: The Case for Privatization." Policy Analysis 670 (2010): 1-28.
Print.
Perry, James L., and Timlynn T. Babitsky. "Comparative Performance in Urban Bus Transit:
Assessing Privatization Strategies." Public Administration Review 46.1 (1986): 57-66.
Print.
Scholl, Lynn. "Privatization of Public Transit: A Review of the Research on Contracting of Bus
Services in the United States." Berkeley Planning Journal 19 (2006): 143-61. Print.
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Teal, Roger F., and Terry Nemer. "Privatization of Urban Transit: The Los Angeles Jitney."
Transportation 13 (1986): 5-22. Print.
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