Japan’s financially floundering airports represent as classic examples of Keynesian policy of “socialization of investments” gone awry intertwined with the dynamics of a busted bubble.
From the Japan Times
Japan has 98 airports, and most of them are operating in the red as a result of exaggerated demand forecasts and rampant, costly and arguably pork-barrel construction projects.
The transport ministry hopes to mitigate the problem by selling off the management rights to 27 state-owned airports as soon as 2014. The ministry also plans to issue an airport reform blueprint by summer
And guess which among Japan’s airport business remains profitable?
Again from the same Japan Times article, [bold emphasis mine]
In most cases, the central and local governments manage the runways, aircraft aprons and other regulated facilities while private companies or joint public-private ventures run the terminal buildings and parking lots. Of the 98 airports, 28 are run by the central government and 67 by local governments…
Not all but most facilities specifically linked to flight operations are running at a loss, even though most terminal buildings and parking lots are turning profits.
Most of the income to cover the operations of runways, aprons and other aircraft-related facilities, however, comes from landing fees, which have suffered for years at airports nationwide amid the sluggish economy and lack of passengers.
And how the losses came about? [bold emphasis mine]
One key reason is overcapacity. The government built too many airports based on overrated demand projections, experts say.
Because airports are considered public infrastructure, profit is not the only consideration taken into account when building them.
The nation has many remote islands whose only transportation link to the outside world is by air, even when demand for travel is minimal and steers aviation operations into the red.
But the situation was compounded in large part by politics, with decisions made to build airports in rural, virtually no-traffic areas where turning a profit was never a realistic proposition but just a way to get voters government-backed jobs from more pork-barrel projects.
Another drawback has been the "pool system" of state budgetary allocation, a one-size-fits-all policy for financing airport operations that did little to clarify which airports were at risk of habitually losing money, experts say.
The more or less blanket operations of all state-run airports provided little incentive for individual hubs to seek more efficient operations, Sayuri Hirai, a senior consultant at Daiwa Institute of Research, told The Japan Times.
The easiest way to spend money is to spend other people’s money. Since politicians and their bureaucracy are not held accountable and are not disciplined by profits and losses and lack stakeholdings for their decisions, miscalculations, inefficient allocations and wastages are the common or typical outcome. This is exactly what has transpired with Japan’s airports which have been bleeding Japanese taxpayers dry. Hence the recent thrust to privatize parts of these.
Besides, political actions have mostly been about short term vote enhancing considerations, hence the proclivity to undertake on grand projects regardless of their feasibility such as “build airports in rural, virtually no-traffic areas”.
Not included in the report are the influences by vested interest groups on the decisions of policymakers, which again makes government spending sensitive to the allures of venality.
Moreover, politicians have not been incented to acquire or don't possess the knowledge to take upon viable projects for the same reasons—they are not subject to market forces. There hardly has been any efforts on these, as evidenced by “one-size-fits-all” financing.
Another reason for such massive scale of miscalculation and malinvestments had been that the real estate boom days may have influenced the decision of policymakers. Japan's bubble had been fueled by a credit boom that had been designed to offset the US dictated Japan's policy to appreciate the yen that gave the artificial impression of lasting prosperity which eventually was unmasked.
Also I would surmise that many of these projects had been from the pump priming or fiscal stimulus undertaken by the government to offset the economic decline. This again tells us how government dictated efforts results to resources mostly going down the drain.
As the great Ludwig von Mises wrote,
The fashionable panacea suggested, lavish public spending, is no less futile. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from commercial banks, it means credit expansion and inflation. Then the prices of all commodities and services must rise, whatever the government does to prevent this outcome.
Apparently Japan fell for the enticements of interventionism and still endures the consequences for their sins.
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