Market Urbanism

Liberalizing cities | From the bottom up

“Market Urbanism” refers to the synthesis of classical liberal economics and ethics (market), with an appreciation of the urban way of life and its benefits to society (urbanism). We advocate for the emergence of bottom up solutions to urban issues, as opposed to ones imposed from the top down.

Japanese transit and what it can teach us

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For a libertarian urbanist blogger, I’ve always felt kind of embarrassed by my lack of knowledge about East Asian transit, considering that it’s the only place left on earth with a thriving competitive private transportation market (they even have profitable monorails!). I’ve heard good things about South Korea, Singapore, and Hong Kong, but it looks like Japan is really the world leader in market urbanism. I always found Japan’s post-WWII dynamism quite intriguing – despite its supposed lost decade and what I understand to be a fairly corporatist entrepreneurial model (in the end, they lost the tech innovation game to Silicon Valley), Japan has managed to remain an elite economic power. I have a (completely unfounded) theory that a lot of the dynamism comes from not having to carry the burden of a shitty, state-run transportation network and stunted land use market – as I understand it, private railway companies are pillars of the Japanese economy, similar to what the auto industry was to the US at its height.

Anyway, I’ve been reading papers on Japan’s transit companies, and the first half of the abstract of this one I think sums up pretty succinctly the reasons why private transit (and, therefore, urbanism writ large) succeeds in Japan and fails in the US:

In Japan, a liberalization policy was implemented over railways and buses in 2000 and 2002 respectively. Under that policy, quantity regulations for railways and buses were abolished, withdrawal regulations were eased, although fare regulations were maintained. However, even after this liberalization, institutional design remains considerably different between Japan and EU countries. An argument for competitive tendering is missing in Japan as 87.5% of rail passenger transport in the three major metropolitan areas is provided by profitable private railway companies that enjoy high social evaluation in respect to managerial efficiency, quality of transport services, and the adequacy of are levels and systems. The major private railway companies in the big cities have built their present status by 1) being blessed with favourable transport markets, 2) developing commercialism in their investment activities, 3) pursing efficient management, and 4) engaging in business diversification. The Japan Railways group companies (former Japanese National Railways) and Tokyo Metro Co., which is in the midst of privatization, are now copying the style of corporate management of major private railway companies.

Each of these points offers a lesson for America:

  1. While it may be true that Japan is “blessed” with limited land, the Japanese state also doesn’t forbid the sort of density that allows transit to be viable. America doesn’t allow much dense development around rail stations, and its transit agencies actively prevent it by paving and maintaining free (or, at most, very low cost) parking lots around their stations. It may be that America’s geography will always be a problem for private transit, we can’t know this until we liberalize urban land use.
  2. American transit agencies don’t develop property.
  3. “Efficient management” is partly code for “is not run by an inept governmental bureaucracy.” But even those averse to private transit ownership could understand this as not hobbling transit agencies with restrictive union labor costs, trade protectionism, and onerous safety regulations. Systemic Failure covers this well from a left-ish perspective.
  4. “Business diversification” is partly the simple idea of owning restaurants, hotels, etc. near stations, but I think may partly be a result of the intensely corporatist Japanese policy incentives. I don’t think the latter point is really necessary for sustainable private transit.

I should add that the second half of the abstract deals with the “market failures,” so it’s not all roses. But even these are dealt with by relatively minor subsidies – on the order of 20% of new infrastructure costs and 5-20% subsidization of operative costs, which appear to be much lower American road subsidies. Not to mention that all Japanese rail companies (I think?) also pay taxes. And even these subsidies seem to be concentrated in more far-flung locales, which themselves might be the result of the Japanese tendency to subsidize rural constituents (rural, not suburban/exurban) with rice subsidies and road spending.

Western Europe does a little better on these four metrics than the US, but it doesn’t do nearly as well as Japan, which may account for its lower overall transit use. It allows more density around its stations than America does, but I believe that height and density restrictions are much more prevalent than in Japan. European transit agencies also don’t own property or diversify. And while their union, safety, and protectionist regulations may not be as bad as America’s, the agencies are still publicly run bureaucracies and therefore take a certain efficiency hit.

Anyway, you can consider this an open thread for all things Japan. Also, in addition to the paper excerpted above, here are a few more that I’ve found if you’re looking for more info:

  1. Shoji, Kenichi and Bruce Killeen. “Diversification strategy of the ‘minor’ private companies in Japan.” [source]
  2. Enoch, Marcus. “Japan – the world’s leading transport technology test-bed.” [source]
  3. Smith, Jeffery and Thomas Gihring. “Financing transit systems through value capture: An annotated bibliography.” [source]
  • Alon Levy

    In his thesis, Paul Barter also makes a few additional points about Japan – some market-based, some not:

    1. Japan never engaged in widespread planning of cities, leading to a more market-based, mixed-use urban form. (It also never did urban renewal.)

    2. Japan’s economic planning preferred local industries, and cars and oil were both imported. The Japanese auto industry was insignificant until the 1960s, so it couldn’t exercise political pressure to build roads. Barter contrasts the experience of Japan, Korea, Hong Kong, and Singapore, which have no auto industries or didn’t in their formative years, with that of Malaysia, which had a state-owned car industry to protect and built a lot of freeways to create demand for it.

    3. Stronger property rights protections than in the West and high land value have made it prohibitively expensive to build super-highways in urban areas.

  • Private doesn’t mean non-unionized. I’m not sure what the situation in Japan is like, but privatized transit in North America would likely still be unionized.

  • It’s definitely true that Malaysia had a domestic auto industry to protect, but it’s also true that Malaysia had a much deeper history with urban planning than Japan, Korea, and China/its diaspora, as I wrote about here.

  • Sure, and I hope it will be unionized. A long-tenured workforce committed to sustainability is good for essential services. Public sector unions are the ones that tend to get out of control to the detriment of service. Private sector employers are better at negotiating.

  • >>which had a state-owned car industry to protect and built a lot of freeways to create demand for it.<<

    It's really parking mandates rather than freeway construction that usually creates demand. I wonder if Japan is now feeling pressure for that kind of regulation from its mature industry.

    I understand that it is still required to have access to a dedicated parking space to register a car in Japan.

  • Simon

    I lived in Japan for 5 years (1999-2005).

    Yes, you still need “proof of parking” to get your car registered. If you live in apartment this means you must rent a parking space, either from the parking lot attached to your apartment building (if such a thing exists), or a nearby parking lot.

    Much of Japan’s railways are only newly privatised, and so aren’t really an example of how private ownership works. But there are a few that have always been private (as far as I know). They seem to be owned by the big department stores, and there’ll usually be a massive department store built over the top of the main station on the line. You can see the nexus between land usage/development and transport systems right here. The company sells people a ticket to travel to the company’s store. The higher the density of both residential and commercial uses around the stations, the better for the company, both for ticket sales, and sales at their store.

    There are some pretty big negatives to the system though. Each of the private lines has their pwn ticketing systems, different from the JR (Japan Rail) and subway systems. This means that you often have to buy multiple tickets for a single journey, which is expensive and a hassle. It’s especially galling if you’re only travelling a couple of stops on a private line before switching to the standard JR lines. Property on those private lines is cheaper, reflecting the increased expense and hassle of the transport system there.

    O for a unified ticketing system!

  • Simon

    I lived in Japan for 5 years (1999-2005).

    Yes, you still need “proof of parking” to get your car registered. If you live in apartment this means you must rent a parking space, either from the parking lot attached to your apartment building (if such a thing exists), or a nearby parking lot.

    Much of Japan’s railways are only newly privatised, and so aren’t really an example of how private ownership works. But there are a few that have always been private (as far as I know). They seem to be owned by the big department stores, and there’ll usually be a massive department store built over the top of the main station on the line. You can see the nexus between land usage/development and transport systems right here. The company sells people a ticket to travel to the company’s store. The higher the density of both residential and commercial uses around the stations, the better for the company, both for ticket sales, and sales at their store.

    There are some pretty big negatives to the system though. Each of the private lines has their pwn ticketing systems, different from the JR (Japan Rail) and subway systems. This means that you often have to buy multiple tickets for a single journey, which is expensive and a hassle. It’s especially galling if you’re only travelling a couple of stops on a private line before switching to the standard JR lines. Property on those private lines is cheaper, reflecting the increased expense and hassle of the transport system there.

    O for a unified ticketing system!

  • Bill Nelson

    Japanese railways are generally owned by private conglomerates that own property along the train lines. It’s my understanding, though, that the government paid for some (all?) of the construction costs.

    Nevertheless, they are nothing like trains elsewhere. They feel very private — in fact, as private as the department stores that they operate to. That is, picture a subway line as clean as, say, the inside of Nordstroms. There is no litter, no bad odors, no menacing-looking people, etc. And they are punctual, fast, and frequent.

    BUT…perhaps one reason that they are profitable is that they operate in crowded conditions beyond what anyone would tolerate here. Yes, it’s inspiring to see competing railways on different routes service the same city pairs…and one could look at amazement at the heavy bi-directional traffic on trains that run every two minutes…BUT…they can be so crowded that you cannot even move your hands. The passengers almost become one mass — like a huge container of human Jello that sways with every pitch of the train.

    Yes, all transportation is heavily subsidized. But it’s fallacious to assume that without government, any specific kind of land use or transportation would arise.

    (Which reminds me that I have long felt that the term “market urbanism” is a bit peculiar. What if, in a free market, people reject urbanism?)

  • Hi Bill!

    Which reminds me that I have long felt that the term “market urbanism” is a bit peculiar. What if, in a free market, people reject urbanism?

    Of course, many people will reject urbanism. That’s fine. I have a post I’ve been piecing together in my head further discussing the term “market urbanism”. Here’s the idea: “market” refers to the ethics of a free-market system, while “urbanism” refers to a set of subjective values shared by those who appreciate cities and agglomeration.

    Thus, ethically, a market urbanist would have no problem with one who values non-urban living as long as he didn’t advocate coercion to support his subjective value system.

    Ultimately, I hope to communicate the subjective values of urbanism to free market supporters, and communicate the ethics and efficacy of the free-market to those who already value urbanism.

    What do you think of that?

  • Bill Nelson

    That sounds pretty good, especially the non-coercion part (which I assume works in both directions; i.e., market urbanists do not use coercion to support their value system.)

    Incidentally, I’m sure you’ve seen the NY Times interactive census map that they released a few days ago. (The only thing the Times does well, IMO, is graphics…) Anyway, for a given census tract, “percentage of people with Masters Degrees” is an excellent predictor of how “urban” places are — big cities, small cities, suburbs, etc. I’m not sure that this is a direct cause-and-effect, but it does suggest that people who do not value formal education also do not value urbanism.

    (Which BTW could explain why there is little urbanism near Walmarts — their target market is not relatively well educated.)

  • Don

    Few comments:

    First Stephen:
    “But even these are dealt with by relatively minor subsidies – on the order of 20% of new infrastructure costs and 5-20% subsidization of operative costs, which appear to be much lower American road subsidies.”
    Which report was this number from? I only looked over the excerpted paper, but from the “PUBLIC SUBSIDIES IN THE LOCAL PUBLIC TRANSPORT POLICY OF JAPAN” section saw 70% for subway infrastructure and 35% for rail infrastructure – but didn’t see anything about operating subsidies (also those subsidies had limitations – looked like the private companies we are interested in get nothing now). I was also curious if you were referring to direct subsidies or the tax treatment. At least in Kanto, probably the rest of Japan as well, employers are legally required to pay for transportation (I sometimes see skechier part time jobs with a 500yen or 1000yen limit – don’t know about the legality of that). This payment is not included in employee income. So it’s an indirect subsidy at the marginal tax rate, including national/local tax, national pension, and the national health care.

    From Bill:
    “It’s my understanding, though, that the government paid for some (all?) of the construction costs.”
    It was my understanding that in the early part of the 20th century rail companies were assisted with land grants, similar to some rail expansion in the US in the 19th century. I don’t remember my source though and couldn’t find it in a brief search. Anyone know?

    “perhaps one reason that they are profitable is that they operate in crowded conditions beyond what anyone would tolerate here.”
    I agree. There are sometimes options to pay more and have better conditions, but it’s too expensive for the vast majority. I’ve been reading “Downtown” as well, after the recent commenter recommendation, and it sounds like it used to be similar in the US 100 years ago. But we’re a lot wealthier now and while I still prefer the crowded train to a crowded highway, I don’t think most would stand it…

    Another cultural difference that affects the urban structure is acceptable commuting time. Around Tokyo one hour one way is normal, two hours is not surprising. I’m not sure how this affects profitability.

    From Simon:
    “Much of Japan’s railways are only newly privatised, and so aren’t really an example of how private ownership works.”
    Table 1, 2, and 4 from the excerpted article break down transportation by travelers, miles, and long term private vs JR vs subways for the major cities and Japan. I would agree that for Japan as a whole, the market is dominated by previously public corporations, but in Tokyo, for example, 38% of the carried passengers and about 48% of the rail miles were on long time private lines. Not the same as a totally private market, but I think plenty enough to learn from.

    “I lived in Japan for 5 years (1999-2005). … O for a unified ticketing system!”
    Agreed this used to be a pain in the ass. They finally got one in 2007 – http://en.wikipedia.org/wiki/Suica#Usage_with_other_systems

    From leonsp:
    “Private doesn’t mean non-unionized. I’m not sure what the situation in Japan is like, but privatized transit in North America would likely still be unionized.”
    I believe most, if not all, are. I used to live on one line, Sotetsu, with a ridiculous union. They did a minor track widening while I was there. No matter the time of day I went there, there were always loads of people – like 10-20 – sitting around doing nothing. I now live on a JR line and have seen widening on JR and another line. Didn’t see anything like what I saw on Sotetsu. Then either this year or last, they had a strike for a couple days (some of my students missed classes). I have no idea why they have such visible issues but I’ve never heard of things about the other unions.

  • Regarding the subsidy numbers – I got them from somewhere in the article about the minor private companies.

    And regarding crowding in private trains, I can’t speak for Japan since obviously I know very little about it, but my reading of the transit chapter in Downtown was that after the short “golden period” where els were being built relatively freely in NYC and Chicago and a few other cities, rapid transit was actually heavily constrained by the start of the 20th century, so I’m not sure that it’s an inevitable outcome of profitable private systems, especially nowadays when technology has advanced our ability to cram trains in and run them faster. If more els had been allowed to be built and private subways would have been allowed to charge more than 5¢ per ride, we might have seen that congestion be alleviated with more lines. (As an obvious contemporary example, the Lexington Ave line in NYC wouldn’t be nearly as crowded as it is today if the elevated line on 2nd Ave. hadn’t been torn down.)

  • Alon Levy

    You can get some subsidy numbers by going to the railroads’ websites and looking at financial reports. They’re pretty good about including depreciation and interest in the numbers. The ones I looked at – Tokyo Metro, Toei, and the mainland JRs – are operationally profitable, sometimes highly so. (This is after the JNR debt wipe, naturally).

    Suica is good, but unlike the unified ticketing systems of the German-speaking countries, it hasn’t created a fare union. As far as I can tell from Hyperdia, you get charged multiple fares if you transfer between two different companies.

  • Leroy W. Demery, Jr.

    “BUT…perhaps one reason that they are profitable is that they operate in crowded conditions beyond what anyone would tolerate here.”

    Sir:

    I shall not look this up “right now,” but there is documentation – in English – for exactly this.

    The explanation for why the large private-sector railways are able to remain profitable is because peak-period demand outstrips supply by such a wide margin. In other words, supply levels (and therefore peak-period operating expenses) are constrained by the inability to operate any more trains. However, “demand” is not managed – people simply continue crowding aboard until no more can be accommodated.

    In other words, during peak periods, the railway finds itself in the enviable position of spending significantly less on operations than it might be required to otherwise – while earning lots of revenue.

  • Leroy W. Demery, Jr.

    “Japan never engaged in widespread planning of cities, leading to a more market-based, mixed-use urban form. (It also never did urban renewal.)”

    Sir:

    This one is a stretch. See, for example, Cervero’s description of the master planning performed as part of suburban development conducted by private-sector railway companies (I think the example he used was Tokyu). See also the “new towns” constructed in many locations throughout the country,

    Also, Japan has had to “do” urban reconstruction on a scale which has not been required in this country. Reasons are 1.) natural disasters (e.g. Tokyo and vicinity 1923; Hakodate 1934) and 2.) large-scale (“massive” is a better choice of words) firebombing during the spring of 1945. Most Japanese cities of any size (and some that were quite small, e.g. Choshi) were firebombed.

    Tokyo and Osaka did not conduct large-scale road widening during reconstruction – but Nagoya did. Hiroshima did not do this at first, but roads were widened after the initial period of reconstruction. I am not certain that one could describe these decisions as “market-based.”

  • Leroy W. Demery, Jr.

    “Yes, you still need “proof of parking” to get your car registered.”

    Sir:

    1.) Is this true throughout the country, or only in Tokyo and the the other “biggest” cities.

    2.) Aside from the JR Group companies, the “established” private-sector railways have always been just that (with a few historic anomalies that are probably not of interest). The “large” companies are “not” owned by department stores – exactly the opposite is true, at least with reference to historic development. The trend started about 100 years ago when the management of an excursion railway near Osaka realized that they weren’t going to make much money on excursion traffic. So they diversified, and began selling homes along the line and so forth. The “diversification” reached the department-store stage by the late 1920s or early 1930s. Today, each “established” private-sector railway has its “group” of subsidiaries. Whatever the ownership structure might be today, the railway divisionss were the historic antecedents and remain the “threads” which tie the whole thing(s) together.

    3.) As for ticketing systems: as recently as 1985, virtually all railways and subways did things the old-fashioned way: paper tickets were punched by hand upon entry and collected by hand upon exit. Balances due, at least in small amounts, were paid to the ticket collector on exit. (For large balances due, or for long-distance travel, you went to the fare-adjustment window.) Granted, that was 25 years ago, but I anticipate that fare system unification will take place in due course.

  • Leroy W. Demery, Jr.

    “I’m not sure what the situation in Japan is like.”

    Sir,

    Yeah, and you probably don’t want to know.

    A certain right-wing politician, even more arrogant than he was conservative, once ruled Japan as a virtual dictator. He detested the thought of Western-style craft unions and did all he could to prevent their formation. Meanwhile …

    As demobilized soldiers and returnees from former colonies poured into the country, the government began putting them to work in the transport sector, which was about the only major segment of the economy with a significant share in state hands. The government was anxious – or desperate – to head off the sort of political unrest that facilitated the military takeover of the country during the 1930s.

    The “Supreme Commander” ordered the abolition of state monopolies, such as railways, and their reorganization as independent “public corporations.” (It is on record that the Japanese asked the U.S. occupation officials to give an example, which the U.S. officials were unable to do.) Thus was born the Japanese National Railways. This was to be accompanied by staff reduction. That drew strong opposition from the railway union, but “SCAP” had ordered the government to ban strikes – and collective bargaining – by public employees. Result: A shocking wave of violence broke out, including thousands of sabotage incidents, two major wrecks and the apparent murder of JNR’s first president. It has been written that the government “failed” to rationalize JNR staffing levels. “Did not dare to try again” is perhaps a better assessment. The unions not only resisted staff reductions, but introduction of labor-saving technology such as centralized traffic control, automatic signaling on branch lines, and
    automated fare collection.

    Japan’s “tradition” of complacent “company unions” and, um, non-complacent public-sector ones is to a large extent the product of the U.S. occupation years.

  • Lived in Japan

    One major difference between mass transit in Japan as opposed to public transit in the US is that they mainly run on a distance fare structure; shorter the ride, the cheaper it costs, the farther the ride, the more you pay. In contrast, most US public transit runs on a flat rate system where there is no distinction made between a passenger that rides the city train for one or two station or ten station away.

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