THE MAKING OF JAPANS RAILWAY SYSTEMS

WITH A COMPARISON WITH BRITAIN

Jiang Qian Ying

Department of Regional Policy, Gifu University, Japan

1. INTRODUCTION

Why Britain and Japan have a much different railway transport system, even
though they are geographically similar island countries? The difference of
population density is widely considered as the main factor that makes the
difference: high density population in Japan makes it possible for a profitable
vertically integrated railway transport system, while a franchising scheme for
train operation on the separated tracks has advantage in efficiency especially
for less densely populated countries such like Britain and other European
countries (see e.g. C. Nash, 2007 for a comparison). Given this fundamental
different condition, there may still exist other factors that are relevant to the
formation of the two railway systems. An exploration on what are such factors
and how they possibly affect the formation of a railway system will be helpful
for making correct policies in the future. It would also be worth examining in a
historical perspective how had the two systems come to be todays forms.
Particularly, by investigating what different policies had been taken for the two
systems and what are their consequences, we may know better how have
policies determined the formation of railway systems, this will also certainly be
helpful for making better transport policies in the future. This work is an
attempt toward the exploration of social economic factors and policy decisions
that have affected the formation of railway systems. We will focus on
passenger railways because in both countries freight rail companies run on
tracks of other infrastructure holding companies and their distinctions are not
significant as compared the passenger railway transport sector.

In next section we will make a brief review on major events that happened in
the formation of Japans railway transport system, and give an outline of the
current structure of Japans railway system and some of the financial facts
featuring the management of Japans railway industry. Then in Section 3 some
corresponding financial facts for Britains railways are described for
comparison. In Section 4, we will analyze several factors to which the
differences of the two railway systems may be attributed.
Association for European Transport and contributors 2009 1
2. THE MAKING OF JAPANS PASSENGER RAILWAY SYSTEM

2.1 A brief history of Japans railways

Japans early construction and operation of railways were conducted by both

the Japanese government and private investors. The main route from Tokyo to
Osaka-Kobe via Nagoya was built and operated by the government, but other
national routes were built as private railways. Most of the private railways were
nationalized to form the Japan National Railway in 1906. Since then, national
railways had a continuous expansion until its privatization in 1987 (See Figure
1). It is worth noticing that private railways again began to expand after the
nationalization in 1906, until the mid 1930s. This period was featured by the
advance of industrialization and urbanization in Japan. During this period the
nowadays so-called Big (Scale) Private railways which are mainly
commuting passenger railways had been established.

Figure 1. The change of rail track lengths.

In the 1950s, the after-war economic recovery and development generated

large demands for both the passenger and freight transport. A high speed
railway route from Tokyo to Osaka, the Tokaido Shinkansen, began to be built
in 1959 and completed in 1964 to meet this growing transport demand.
Although this Shinkansen route was originally planned to carry passengers as
well as freights, but the high demand of passenger transport after its
completion had changed the plan and made the Shinkansen a pure passenger
railway. Not all the opinions in the 1950s supported the Shinkansen project.
Actually, the motorization that had already advanced in western countries also
made some Japanese people to doubt about the future role of railways. But in
Japan, road conditions in the 1950s were very bad, and highways were just
beginning to be built. Due to inadequate public funding, highways in Japan
have been built and operated based on the so-called cost recovery
principlemeaning that the construction and maintenance costs should be
Association for European Transport and contributors 2009 2
fully covered by toll revenues. As a result, railways have been remaining
competitive in some regions even after motorization had advanced in Japan.
However, the Japan National Railway (JNR) already had fiscal problems in the
1960s and actually ran into deficit in 1964. The essential cause of JNRs
difficulty may still be attributed to motorizationwhich did had threatened the
future of railway in low density regions of Japan, though not so much
threatened that in high density and highly industrialized regions. Japan
National Railway had to continue the operation in very low density areas with
deficit. At the same time, for reducing the congestion problems in metropolitan
areas like Tokyo, Japan National Railway had invested on expensive urban
line construction (Noda et al. 1986). For the private urban railway companies,
their investments on railways could generate profits not only through the
transport sector, but also through the real estate sector. By legislation Japan
National Railway could not do such profitable related business and its
investment on urban railways was not profitable especially compared with
private railways.
With the fiscal problem worsening, efficiency breaking down and labor
problems (Matsuda, 2002) became serious since the 1970s. After several
unsuccessful rebuilding plans implemented by JNR itself, in 1987 JNR was
finally divided to form the current JR companies: 6 regional passenger
companies: JR East, JR Central, JR West, JR Hokkaido, JR Shikoku and JR
Kyushu, and a freight company. This division is geographically very like the
location form of railway firms before their nationalization in 1906.

All railway infrastructures were assigned to the JR passenger rail firms as their
property except the Shinkansen lines at the stage of 1987. A public
Shinkansen Holding Corporation was established to own the Shinkansen
lines and lease them to JR companies (JR East, JR Central and JR West) in
the mainland of Japan. These JR companies had good financial performances
since their establishment and were to be floated in Tokyo Stock Exchange
(TSE). JR Central and TSE hoped the Shinkansen infrastructures to be sold to
JR passenger companies before they become floated. Actually, there was a
risk that the lease price of Shinkansen could be raised by change of
legislations if the JR companies profits exceed what were expected by the
reform policy designers. Another threat for JR Central was that there existed
the possibility that it might be charged more because it operates the most
profitable Tokyo-Osaka Tokaido Shinkansen and has outstanding financial
performance (Kasai, 2007). JR East and JR West were not so eager to buy the
Shinkansen lines they were operating. Actually JR East objected the proposal
Association for European Transport and contributors 2009 3
of JR Central to buy the Shinkansen lines at the beginning. However, since JR
East was endowed with the conventional railway network and attached land in
metropolitan Tokyo and JR West the network and land in Osaka, which had
very high values then due to the asset bubble that occurred in the end of
1980s. Under such a background, an agreement on the division of Shinkansen
infrastructures was achieved among JR East, JR Central, JR West and the
former Ministry of Transport of Japan. As shown in Table 1, a dominating
share of JR Central comes from Shinkansen. Shinkasens revenue share for
JR East is low, this reflects its feature as a huge urban railway company in
metropolitan Tokyo.

Table 1. JR revenue composition in 2006/2007

Shinkansen All Shinkansen/All
JR Central 1,043 1,147 90.9%
JR East 479 1,702 28.1%
JR West 320 765 41.8%

2.2 Current structure of Japans railway industry

The following table shows the track length, passenger trips and passenger
kilometers carried by different categories of railways in Japan in the year
2006/2007.

Table 2. Profiles of different categories of railways in Japan.

JR Big Small Urban
Private Private Public
length (km) 1,9998.0 2,748.7 3,943.1 768.6
passenger trips(million) 8,778.2 7,077.7 1,363.1 5,112.2
passenger km (million) 248,782.9 99,951.3 11,284.6 35,601.6

The Big (Scale) Private companies include eight in Tokyo (Tobu, Seibu,
Tokyu, Odakyu, Sotestu, Keikyu, Keisei and Keio), one in Nagoya (Metestu),
five in Osaka (Kintestu, Hanshin, Hankyu, Nankai and Keihan), and one in
Fukuoka (Nishitetsu). Small Private companies are distributed over the
whole country. Urban Public consists mainly of underground railways in big
cities. (Tokyo Metro, the largest underground company, is a company limited
by shares owned jointly by Japanese central government and the Tokyo
Metropolitan Government, is usually classified in the Big Private category in
Association for European Transport and contributors 2009 4
Japanese literature, since it has the form of a company limited by shares.) Big
Private and Urban Public railways have high densities of passengers (Figure
2). The Small Private and JR island companies have very low densities.

Figure 2. Densities of passengers by categories of railways.

In the JR category, the three island companies: JR Hokkaido, JR Shikoku and

JR Kyushu, compared with the mainland JR companies, have a very low
density of passengers. For this reason they were endowed with funds at their
establishment in order to meet operating deficit.

The following figure shows the change of railway patronage by prefecture

since 1975 (with that of 1975 as 100%). It can be observed that only a limited
number of regions have seen increase of railway patronage in the past 30
years. They are regions around Tokyo, Osaka, or regional central cities such
as Sendai and Nagoya.

Figure 3. Change of railway patronage by prefectures since 1975.

Source: Regional Transport Statistics.

Association for European Transport and contributors 2009 5

Figure 4 shows a strong positive relationship between annual railway usages
per person and population per square kilometers in the 46 prefectures of
Japan (excluding Okinawa).

Figure 4. Relationship between the log of railway use frequency (y-axis) and
the log of population density (x-axis).

Table 3 shows the operating revenues and profits of railways in the 2006/2007.
It can be observed that Big Private companies have a large share of real
estate both for revenue and profit. Railway is actually not the main source of
revenue and profit for Small Private companies. Private and urban public
companies have road transport sector (bus, taxi, etc.) which are not profitable.

Table 3. Revenues (upper row) and profits (lower row) by railway categories
and sectors billion, Railway Annual Statistics, 2006/2007)
Railway Road Transport Real Estate Other Total
Big 1,276 50 558 316 2,200
Private 262.6 -3.2 130.5 4.6 394.5
Small 390 85 84 2,627 3,186
Private 19.1 -0.7 16.5 324.2 359.2
Local 818 146 0 17 980
Public 127.4 -21.2 0 3.3 109.5
JR 4,280 0 0 116 4,395
751.0 0 0 49.0 800.0

2.3. Management of big private railway companies

Most Japanese Big Private railway companies have subsidiary companies

Association for European Transport and contributors 2009 6

which undertake various businesses including rod transport, retailing,
entertainment, etc. In Figure 5 are shown the segmental composition of
revenues of railway company groups. In Figure 6 are shown the segmental
composition of their profits. It can be observed that while the revenues come
from a variety of sectors, the main sources of profits are the transport and real
estate sectors.

Figure 5. Annual revenue of Big Private railway company groups averaged

over 2001-2008 (million)

Figure 6. Annual profit of Big Private railway company groups averaged over
2001-2008 (million)

Association for European Transport and contributors 2009 7

3. A COMPARISON WITH BRITAINS RAILWAY INDUSTRY

Perhaps a satisfactory comparison can only be made by having a description

on the institutional and organizational structure of Britains railway system.
Here the reader is assumed to be familiar with this, or otherwise can refer to
relevant literatures (e.g., Bradshaw, 2001, Nash, 2008). In the following, some
tables revealing the revenue structures of railway industry in Britain will be
given in order to make clear the features of Japans system by comparison.

Table 4 shows the composition of the operating revenue and profit of some of
the firms that operate trains in Britain. All of these operators have a large
share both for revenue and for profit from the bus transport sector, this is in
contrast to the case of Japan where bus transport does not make profit. And,
besides transport operations in the United Kingdom, they also have transport
businesses in mainland Europe and North America. Though not included in
this table, there are also train operators whose main body is actually in
mainland of Europe. For example, Chiltern Railways is a train operator owned
by Deutsche Bahn AG and is part of Deutsche Bahns local and regional
service provider DB Regio.

Table 4. Operating revenues and profits of firms which operate trains in UK

(million GBP, Annual Reports of 2006)
National Express Stage- First Go-Ahead Arriva
coach Group Group Group
UK Rail 1497.6 506.7 1164.9 744.9 253.9
28.3 58.9 50.6 36.3 12.3
UK Bus 494.9 814.2 1031.2 460.0 762.8
68.0 86.7 112.4 46.3 76.0
Mainland Europe 249.3 712.3
23.5 52.0
North America 283.7 247.6 826.3
34.6 16.9 65.5
Others 8.5 258.7
-12.8 -18.9 -17.8 6.9 -13.6
Total 2525.5 1568.5 3030.9 1463.6 1729.0
141.6 143.6 210.7 89.5 126.7

Association for European Transport and contributors 2009 8

This shows a clear distinction between the current systems of Japan and
Britain. Japanese railway companies do businesses and make profits based
on the region where rails are located. And especially for the original big private
companies, their businesses range from railway transport to real estate
development and leasing, retailing and so on, providing various services to
people residing in the region. In contrast, railway transport in Britain is a
market open to operators which are doing business in different modes of
transport and in different places. Also Japanese railway firms do have a bus
transport sector, but it plays basically a complementary role for the railway
transport and is not necessarily profitable. In Britain, buses or coaches are
more like alternative modes competing with the railway.

Britains railway does also have property rental as a subsidiary business. This
is conducted by Network Rail, the infrastructure company. However, the share
of property rental among the total revenue is still small. In Japan, railway firms
operate trains and hold infrastructures, and also explore their business
opportunities around the stations to greatest extent. In Britain, it is currently
the business of infrastructure holding company to explore these opportunities.
Does the separation of train operation from infrastructure holding, compared
with an integrated system, pose any kind of limitations to do station based
businesses? This seems to be an interesting issue to be studied when there
are accumulated enough evidences on Network Rails practice in the future.

Table 5. Revenue composition of Network Rail (million GBP, Annual Reports)

2003 2004 2005 2006 2007
Franchise revenue 1,899 1,435 1,515 2,206 2,301
Revenue grants 452 2,058 1,983 3,227 3,283
Freight revenue 68 73 97 95 90
Property rental income 167 172 183 206 219
Other income 20 62 59 61 67
Total 2,606 3,800 3,837 5,795 5,960

4. SOME FACTORS THAT AFFECTED THE FORMATION OF THE TWO

SYSTEMS

In Japan, low population density regions have proportionally small and

decreasing railway usages (Section 2). It is clear that high population density
is a primary condition for the existing of large share of railway mode in

Association for European Transport and contributors 2009 9

transport. Therefore, it is difficult to draw overall conclusions regarding which
system could perform better than the other given differences of this condition.
However, it is still desirable to identify factors beyond population density that
make a specific system work in a specific country where such factors exist,
and to find out what policies adopted at important historic stages that have
eventually made up the system. The following are some tentative findings
regarding such kind of factors and policy decisions.

(i) Social Economic Factor

The primary condition for the Japanese railway company to be able to have a
large real estate sector may be attributed to the big real estate market of
Japan. In Japan the number of new houses per thousand persons built
annually is about 10, about three times that in the United Kingdom (Figure 7).
This is because that houses in Japan usually have a life much shorter than
those in the United Kingdom. In this sense Japanese railway companies are
endowed with a housing market that can continuously brings them large
income.

Figure 7. Housing markets in Japan and UK.

Sources: Ministry of land,

Infrastructure, Transport and
Tourism, New Built House
Statistics in 2006;
UK Communities and Local
Government Housing Statistics
Live tables on house building

UK has a much smaller house construction market, which adds difficulty for
the Japanese urban railway company model to work.

(ii) Historical Factor

In Britain there had existed the kind of model which combines real estate
development with railway transport. It is said that a considerable part of land
(5%) in London was owned by the railway company (Armstrong and Gourvich,
2000). This implies that policy decisions might as well be responsible for
subsequent change of the system. One of such policy is the nationalization of
all transport companies in London in 1933 to form the London Passenger
Transport Board. This nationalization was to solve the disorder of public
Association for European Transport and contributors 2009 10
transport in London caused by unregulated over competition from the then
emerging bus transport (Wolmar Christian, 2005).
Japan faced with the same problem in Tokyo, and had also considered
Londons policy as a candidate solution. But the final policy taken was to
regulate public transport industry, mainly by forcing the merging of small
companies into big ones (Noda et al., 1986). Had the urban railways been
nationalized then, there could not exist the current form of business model
integrating real estate and transport.
In UK, once the properties have been sold, the railway firms will then have little
opportunity for new housing business since this market is not large, and will be
difficult to absorb the rent generated by railway transport in the surrounding
areas.

And, since the previous nationalization of Japans national railways in 1906,

private railway (especially urban railway) companies have grown in parallel
with Japan National Railway and have served as a model for the reform of
JNR in 1987. Actually, JR East has a nature of private railway company. It is
said that for the policy makers responsible for the JNR reform, if at least one
the new passenger companies can have good performance, then their reform
could not be recognized as a failure, so they endowed JR East not only a huge
railway network in Tokyo but also a lot of high value lands so that JR East can
have good performance with certainty by following the private railway model
(Kasai, 2007).

(iii) Transport Policy Factor

As mentioned in Section 2, Japans national highways and urban highways
have been built and operated based on full cost recovery principlemeaning
that the construction and maintenance costs should be fully covered by tolls.
This is also an important factor that makes Japan have a smaller share of car,
63%, in passenger kilometers traveled, than Britains 86%, and a higher share
of railway (27%, Britain is 7%).
And while Britains buses and coaches have had a share higher than railway
until recently, Japans bus and coach share is about 1/4 to 1/3 of that railway.

5. CONCLUDING REMARKS

Japan and Britain did have difference in social and economic backgrounds,
but their railway system evolution seems have had a path-dependent nature.
Association for European Transport and contributors 2009 11
In Japan, national and private railways had long been coexisting. This seems
to be helpful for the growth of profitable urban based private railways, which
eventually have influenced the Japan National Railways reform. However, the
integrated transport and real estate business model seems to hold only in
regions with high density population and with large real estate market. In less
densely inhabited regions of Japan such kind of model does not work and
railway transport is shrinking. The integration of management of rail and
bus/coach transports which is popular in Britain seems to be a natural choice
in less dense regions.

In this paper efforts have been made to explore social economic factors and
policy decisions that have affected the formation of railway systems in a
unified historical perspective that seems have not existed in the existing
literature. However, our findings are very limited simply because such kind of
research has too many factors to consider so that we have inevitably to focus
on several selected aspects of the whole story. For example, EUs policy has
certainly had influences on Britains railway reform. This is one of the important
factors that have not been treated in this paper. We hope that we can explore
more such factors and in greater depth toward the understanding of what and
how social economic factors and policy decisions have influenced the
evolution and revolution processes of railway systems.

Acknowledgements

This work was financially supported by the Grant-in-Aid for Scientific Research
by Japan Society for the Promotion of Science (C 20510133), The Asahi Glass
Foundation Research Grant and Oversea Research Grant of Gifu University.

References

Noda, M., Aoki, E., Harada, K. and Oikawa, Y. eds. (1986) Japans
RailwayIts Formation and Development (Railway History Series), Nihon
Keizai Hyouronsha (Japan Economic Review Press), Tokyo. (In Japanese)

Matsuda, S (2002) JR East Japan15 Years Locus of Independent

Management, Japan Productivity Press, Tokyo. (In Japanese)

Kasai, N (2007) The Truth of National Railway ReformCourt Revolution and

Enlightenment, Chuokoron-Shinsha (New Central Public Opinion Press),
Association for European Transport and contributors 2009 12
Tokyo. (In Japanese)

Armstrong, J. and Gourvich, T. (2000) Londons Railways-Their Contribution to

Solving the Problem of Growth and Expansion, Japan Railway & Transport
Review, 23, pp. 4-13.

Bagwell, P. S and Lyth, P. (2002) Transport in Britain : From Canal Lock to

Gridlock 1750-2000, Hambledon and London.

Bradshaw, B. (2001) Lessons from a Railway Privatization Experiment, Japan

Railway & Transport Review, 29, pp. 4-11.

Nash, C. (2007) Results and Perspective of the Japan National Railway

Reform from a European Point of View, Transportation and Economy, 67-4
pp. 74-76, Institute of Transportation Economics, Tokyo.

Nash, C. (2008) Passenger railway reform in the last 20 years European

experience reconsidered, Research in Transportation Economics 22,
Elsevier, 6170.

Wolmar C. (2005) The Subterranean Railway: How the London Underground

Was Built and How it Changed the City Forever, Atlantic Books.

Association for European Transport and contributors 2009 13