No. 34 — September 1, 2000

 

Weekly Review

JAPAN RETHINKS PUBLIC WORKS POLICY
--- by Jon Choy

Ever since the Japanese economy was sent reeling by the first global oil crisis in the early 1970s, government-funded construction projects have been a mainstay of Tokyo's arsenal of recession-fighting tools. The public welcomed initiatives that poured massive amounts of money into parks, roads, railways, sewers, flood-control systems, airports, harbors and other infrastructure since Japan lagged its Western peers in these areas. As the nation reconsiders its economic, bureaucratic and government frameworks in the wake of a decade-long slump, however, public works policy is a natural focus of debate.

While they always have been present, critics of this type of government largess began to erode the pro-public works consensus in the 1990s. Several trends turned in their favor:

These gradual changes prepared the ground and planted the seed for a backlash against massive public works spending. Subsequent developments brought the debate into full flower:

Four controversial public works projects crystallized the issue for many people:

Nagara River dam - First proposed in 1960, this dam was completed in 1995 at a cost of ¥150 billion ($1.4 billion at ¥110=$1.00). The river-straddling structure is part of a waterworks designed to control floods and provide drinking water to residents of metropolitan Nagoya as well as to people living elsewhere in Aichi prefecture and in Mie prefecture. However, the Ministry of Construction's estimates of these areas' fresh water needs have proved to be wildly inflated. Current consumption is about 6.3 million tons per day, but local officials expect the figure to drop because of Japan's low birth rate. In any case, actual demand is well below the ministry's estimate of 9.1 million tons a day. Furthermore, according to MOC figures, completing the final dam in the waterworks will make about 11 million tons of water available each day.

Besides being unnecessary, the Nagara River dam has saddled local authorities with sizable debts. Aichi prefecture borrowed ¥72.2 billion ($656.4 million), Mie prefecture took out a loan of ¥57.7 billion ($524.5 million) and Nagoya signed for another ¥15 billion ($136.4 million) to complete the dam as well as to build the ¥145 billion ($1.3 billion) worth of infrastructure needed to deliver the fresh water to users.

In addition to the obligations behind these hard numbers, the Nagara River dam has, according to many nearby residents, changed lives for the worse. Fishing grounds have been altered, and traditional businesses affected. Environmentalists also have decried the project as harmful to neighboring wetlands.

Isahaya Bay reclamation - The idea of draining tidal flats in Isahaya Bay, Nagasaki prefecture for farming first was raised in 1952, but work did not start until 1986. Originally scheduled for completion in FY 2000 at an estimated cost of ¥135 billion ($1.2 billion), the project already has required ¥249 billion ($2.3 billion) to drain just over 1,400 acres and now is not expected to be finished until FY 2006. The Construction Ministry, which initially calculated that the reclamation would generate ¥103 (93.6 cents) in new economic activity for every ¥100 (90.9 cents) spent, recently figured that the project's rate of return has slid to a barely positive 101 percent. Critics maintain, however, that the payback has dropped into the negative range and will be just ¥58 (52.7 cents) for every ¥100 (90.9 cents) spent.

As is the case with the Nagara River dam, nearby residents have criticized the reclamation project's impact on the area's fishing grounds. They also cite the negative environmental consequences of draining scarce wetlands and the changes that have occurred in local life-styles.

Lake Nakaumi reclamation - Launched in 1963, this effort aimed to turn about 1,000 acres of Lake Nakaumi, located between Shimane and Tottori prefectures, into usable farmland. The project was halted in 1988 with only about 40 percent of the work completed because of declining demand for farmland and rising complaints by residents about the environmental impact of the reclamation work. Since the suspension, prefectural and municipal authorities have not been able to reach a consensus with local citizens about the project's fate.

Yoshino River dam - Proposed in 1982 and approved by Tokyo in 1998, this ¥100 billion ($909.1 million) project is designed to replace the 250-year-old Daijuzeki flood barrier on the island of Shikoku with a modern dam across the Yoshino River in Tokushima prefecture. MOC says that the rock and wood structure has decayed and does not provide an adequate margin of safety in case of a major flood. Residents and environmentalists maintain that the rock dam is sound and works with the existing network of rivers, streams and marshes to mitigate the impact of high-water events. They also say that MOC's planned dam would not provide much greater protection from a 100-year flood than would the existing Daijuzeki structure.

Performance issues aside, residents argue that the present dam is an archeological treasure that should be preserved. Environmentalists add that the proposed dam would harm fishing grounds and wetlands in the area.

In a plebiscite held last January, MOC's proposal won the support of only 10 percent of the participating voters. The poll was unusual in that the local assembly had set a minimum voter turnout of 50 percent for the referendum to be considered valid; 55 percent of eligible voters cast ballots. Since the vote, MOC and local officials appear to be taking a more conciliatory approach. However, they have not entirely given up on building the dam.

These high-visibility battles have spawned some changes. For example, a 1997 amendment to the River Law requires the government to take into account the opinions of local residents when planning projects. In 1998, MOC adopted a rule mandating a complete audit and evaluation of major projects every five years. The four cited projects also have led to the creation of local citizens' groups to fight them as well as to the formation of a caucus of Diet members pledged to attack wasteful public works projects. Opposition parties have drafted bills to kill long-running, wasteful and environmentally harmful projects, but they have not been able to move the legislation through the Diet.

Recently, though, the Liberal Democratic Party and its coalition allies, the New Komeito and the New Conservative Party, have taken up the cause. Smarting from its losses in the June lower house elections, the LDP proposed guidelines in August to avoid wasteful infrastructure spending. They were ratified by a new triparty review panel. The group will recommend the cancellation of a public works project if it has:

Using these generous parameters, the vetting panel recommended August 25 that 250 public works projects should be halted, including the Lake Nakaumi reclamation and the Yoshino River dam projects. This unusual move, the coalition parties claim, will save taxpayers ¥2.8 trillion ($25.5 billion). The ruling bloc also has said that it will continue to review projects to prune out unnecessary spending.

Critics doubt the economy of the proposed cancellations, the total of which, they argue, will not be reflected in reductions in the overall public works budget. Instead, they say, the money just will be spent elsewhere. Some observers add that setting up the triparty panel to review public works spending was an attempt by politicians to wrest greater control of this rich source of patronage from bureaucrats. Others see it as the result of internal LDP politics, noting that a key proponent of the review group, Shizuka Kamei, may be trying to reduce the influence of the party faction led by former Prime Minister Ryutaro Hashimoto.

The review panel certainly does not seem to have reined in the ministries and the agencies that oversee the country's huge public works budget. According to the Ministry of Finance, initial requests for construction spending in FY 2001 add up to about the same total as for the current fiscal year — ¥9.4 trillion ($85.5 billion). However, the National Land and Transport Ministry, which will be created January 1, 2001 by combining the Ministries of Construction and Transport with the Hokkaido Development and National Land Agencies, is seeking a combined 8.5 percent increase in its FY 2001 construction budget to just over ¥8.1 trillion ($73.6 billion). The megaministry wants ¥1.4 trillion ($12.7 billion) for afforestation and flood control (up 5.3 percent), ¥2.8 trillion ($25.5 billion) for roads (up 7.6 percent) and ¥794.9 billion ($7.2 billion) for ports, airports and railways (up 29.9 percent). The last category includes a 4.3-fold increase in funds for Shinkansen (bullet train) construction, spending that is roundly criticized as pure pork barrel.

Bureaucrats seem to be on a collision course with politicians and the electorate over public works spending priorities. As always has been the case, though, how to sort out worthwhile projects from unnecessary or excessive ones is the tricky issue.

The views expressed in this report are those of the author
and do not necessarily represent those of the Japan Economic Institute

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