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The "Publicness" of Transportation and Public Utilities, and Their Place Between the Government and the Market

2018.10.25
Takao Goto




Takao Goto
Associate Professor, Faculty of Economics, Chuo University
Areas of Specialization: transport economics, public utilities economics

1. The Relationship Between Transportation, Public Utilities and the Government

Transportation and public utilities are vital elements of our everyday lives, and are something we are all familiar with. Because of this, stories related to transportation and public utilities are often covered by the media. For example, stories about road congestion during holiday periods, price hikes and cuts in electricity, gas and water, and the development of autonomous driving technology are all related to transportation and public utilities. On the other hand, stories about the increase of tourists using LCCs (low-cost carriers) to visit Japan and problems surrounding labor shortages in the logistics industry are also issues that relate to transportation and public utilities.

When stories about transportation and public utilities are discussed, you'll often hear commentators making statements about the responsibilities of the state, or of local or municipal governments. The narrative tends to center on the government's responsibility.

However, in the case of manufacturers and retailers that provide products and services—what we call "private-sector businesses"—if the companies fail or go bankrupt, it is considered the sole responsibility of those companies and the government is generally not scrutinized. (The responsibility is placed on the management team of the companies with poor financial conditions or of the bankrupt companies.)

Why is it, then, that when commentators in the media talk about transportation or public utilities, they scrutinize the government along with pursuing liability of the companies? One of the reasons is the concept of "publicness," which is rooted in the history of how government has, up until now, intervened in the market of transportation and public utilities. I would like to talk about this concept of "publicness," which is a crucial topic when discussing transportation and public utilities, and when attempting to analyze them.

2. What is "Publicness"?

First of all, what does the word "publicness" mean, and how is it used? According to Yamauchi/Takeuchi (2002), when undergraduate students at a university were asked the question, "what is the 'publicness' of transportation services," they responded with the following six answers.
 
  1. Transportation services are necessary in people's everyday lives, so the idea of "publicness" relates to services such as those.
  2. Railways and bus companies are usually regional monopolies, so the idea of "publicness" relates to services that are provided in such form.
  3. For the general public, transportation services are not used for their own sake, but is something that is required to achieve separate goals. Services like these are said to have "publicness."
  4. Transportation services must be available to the public when they are needed, such as taxis that drive around in the middle of the night to pick up passengers and railways and buses that operate early in the morning and late at night.
  5. Transportation services are used by an unspecified large number of people, which is what gives these services the quality of "publicness."
  6. Services provided by the state or by local governments are said to have "publicness."

I'll defer to Yamauchi/Takeuchi (2002) for detailed explanations of the above six answers, but one thing I would like to point out is that it is very difficult to define the term "publicness." To put it another way, the word "publicness" can be interpreted arbitrarily by the people who use it and we should be careful in using it easily.

However, this ambiguous word “publicness” can sometimes have very real consequences when being used to discuss matters related to transportation and public utilities. As transportation or public utility services are deemed to have "publicness," if, for example, a railway company wants to discontinue the operation of a certain railway line due to unprofitability (operating in the red), until recently, they first had to request permission from the government. In addition, for the same reason, if a company that provides transportation services or public utility services considers raising fares or fees, consumers tend to express their dissatisfaction to the government.

As I said earlier, the word "publicness" has been understood by many people in ambiguous ways, with vague interpretations, and has been used as such. Based on this ambiguous definition of "publicness," the government has traditionally been intervening in the market of transportation and public utility businesses by imposing regulations, providing subsidies and charging taxes.

Is it possible to avoid using such a vague word or concept like "publicness," and analyze the characteristics of transportation and public utilities to create measures and policies to cope with the real-world problems that occur from time to time, as well as to grapple with it as an academic subject? A useful discipline when trying to formulate such measures is economics. I would like to continue by offering a concise overview of how transportation and public utilities relate to economics, especially microeconomics.

3. The Microeconomics of Transportation and Public Utilities

The studies of transport economics and public utilities economics are a field within applied economics that proposes policy measures by analyzing transportation and public utilities based mainly on the theories of microeconomics. Accordingly, in transport economics and public utilities economics, when discussing matters such as the above-mentioned "responsibilities of the government with regard to transportation services," we do not use ambiguous words like "publicness." Instead, we conduct analyses using the frameworks that traditional microeconomics offer.

Traditional microeconomics advocates that with regard to products and services (collectively called "goods" in economics terms), business transactions should be carried out according to the market mechanism, a free trade system based on a commonly understood and very simple concept of "value." This is because it is theoretically clear that if the market mechanism operates based on these preconditions, limited resources can be used without waste. (This is called the efficient allocation of resources.)

However, just as there are no perfect panaceas in the world, prior research has shown that the market mechanism is not a one-size-fits-all solution. One factor that can stop the market mechanism from functioning is something called "market failure," which has been researched extensively in the past.

Transportation and public utilities are known as a field that strongly emphasizes the market failure factor. In other words, it has become clear that if we allow the free transaction of transportation and public utilities as we do with other goods, it does not yield the same positive results as anticipated.

So then, what are the effective policy measures for dealing with the market failure factor? This is where the organization known as the government first emerges in the theory of traditional microeconomics. The government is expected to take steps to correct the path of the market mechanism so that it functions correctly. These steps come in three forms: regulations, subsidies and taxes.

However, just as the market mechanism is not a perfect system, research has shown that the government is also an imperfect entity. This is called "government failure," and is a subject where research continues to be conducted, centered on the public choice theory.

One category of government failure is where the government fails to take appropriate steps to intervene when failures occur in the transportation or public utilities market. Another prominent category of government failure is where the government needlessly continues to intervene in the market due to precedent or out of habit, even when the times and the environment have changed in such ways that market failures no longer occur; or in other words, when it would be better to let the market function freely. The illusion of "publicness" that I mentioned earlier serves to obscure the impact of government failure.

As shown above, we can apply the theories of traditional microeconomics to transportation and public utilities to remove ambiguity as much as possible, critically analyze the various problems we face today and formulate policies to deal with them.

However, in the field of transportation and public utilities, technological innovation is advancing at a rapid pace, which is blurring the boundaries between industries and is in turn causing new problems and challenges. For this reason, we as researchers must use the existing frameworks that are afforded to us now, and continue to advance new research in the field of transportation and public utilities.

References

Hirotaka Yamauchi and Kenzo Takeuchi (2002), Kotsu Keizaigaku (Transport Economics), Yuhikaku Publishing
Takao Goto
Associate Professor, Faculty of Economics, Chuo University
Areas of Specialization: transport economics, public utilities economics

Takao Goto was born in Hiroshima Prefecture in 1975.
2000: Graduated from the Keio University Faculty of Business and Commerce.
2002: Completed his master's course at Keio University Graduate School of Business and Commerce.
2006: Completed his doctoral course at Keio University Graduate School of Business and Commerce.
He is a Doctor of Commerce (Keio University).
He assumed his current post in 2018 after teaching as a full-time lecturer and associate professor at the Faculty of Commerce in Kyushu Sangyo University and as an associate professor and professor at the Faculty of Business Administration in Kindai University.
His current focus of research includes issues surrounding cost burdens in transportation infrastructure and the efficient operation of its organization, as well as the state of regulatory measures that impact transportation facilities.
Major publications include Doro Seisaku no Keizai Bunseki: Kotsu Service no Hiyo Futan to Shijo Mechanism (Road Policies and Economic Assessment: Cost Burden of Transport Services and the Market Mechanism) (Dobunkan Publishing, 2015), among others.