Reducing carbon emissions: The limits of voluntarism

The global advance of the 'market economy' has had at least two major consequences for the general public, the consumer: the increased drift towards 'privatization', and the growth of shareholder power. I would like to briefly discuss the effect both trends have had on actual conditions in Japan and the U.K.

What does privatization mean? Vital public services such as railroads, public utilities, postal and telecommunication services and motorways are sold off to the private sector by governments burdened by deficits and, perhaps, by a shortage of capable managers. The private company then takes over the running of the service, and in most cases is free to set prices and policies, based on free market principles. In the U.K., following the example set by the United States, even the privatization of prisons has been gaining momentum in recent years.

Whenever a public service is sold off to the private sector, we the public are always told that it is in our best interests: that it will lighten the burdens of the taxpayer, and that we will enjoy better service, and - because privatization often involves more than one buyer, thus ensuring competition - more choice and lower prices. But is this what actually happens?

In the U.K., I have seen no such improvements, except perhaps in the area of public utilities, where competition is keeping prices in check and services are generally reliable. I can't speak for the effect of privatization on the quality of U.K. prisons, but the privatization of the postal services in the U.K. - as elsewhere in Europe - has resulted in a decline in the availability of services such as the number of post offices and postboxes and the frequency of delivery, while prices have risen rather sharply.

The worst effects of privatization have been seen in U.K. public transport. At the railroads and the London Underground services have deteriorated markedly, prices have skyrocketed, and the stations are, if anything, dirtier and more chaotic than they were when they were still run as public corporations. Technical breakdowns, cancellations and serious delays have become the order of the day. When an accident happens or service is interrupted, the train operator routinely blames poor maintenance of the tracks, which are owned by a different private entity. To compound travelers' misery, labour unions go on strike when they don't get what they want, even when - as in a recent dispute with the London Underground - they have already reached substantial agreement on their demands.

In telecommunications services the picture is more complex. Both in the U.K. and in Japan, prices have been kept down by a proliferation of competing providers, but for the average consumer the increased 'choice' of products, providers and 'packages' has also added to a sense of bewilderment. Besides, after low-priced promotions designed to entice new customers usually are followed by pricing that is probably no better than with any other provider.

The fundamental problem is that a private company's ultimate goal is to maximize profit, while what the customer wants more than anything is a reliable service. The two aims are essentially incompatible, particularly when the consumer expects a top quality product for a rock-bottom price. But the railroads in the U.K. these days don't even deliver a decent service for the steep prices they charge!

What clearly is lacking here is a proper consideration for the customers' interest in the way these formerly public services are run. In the now-dominant U.S./U.K. model of capitalism the shareholders' (and top executives') interest is paramount, and supersedes the legitimate interests of customers and employees. The media are rife with reports of takeover battles and shareholder actions motivated solely by the greedy aim to maximize 'shareholder value.' The returns to shareholders - dominated by private equity and hedge funds - of such actions can be huge. How else could these funds afford to pay the astronomical compensation to their managers? The International Herald Tribune reported on 30 August 2007 that the top 20 U.S. fund managers last year earned an average of $657.5 million, or $210,700 an hour!

No wonder, therefore, that in the 1980s the concept of the 'stakeholder' gained ground in socially-aware circles in the U.S. and Europe. A stakeholder is any person or firm with an interest in the health of a corporation: customers, suppliers, employees, managers, and of course shareholders. A corporation with a business ethic of social responsibility, its advocates hold, should shape its policies with all stakeholders in mind. Unfortunately, this balanced approach to running a business is clearly not appreciated by die-hard capitalists.

The Japanese way

How does Japanese business stack up against these predatory capitalist activities? Japanese trains do run on time, and always have, even if they are traditionally owned by private companies such as Hankyu, Keikyu, Tobu or Seibu. The carriages are clean, the stations well equipped, and the fares reasonable. JR trains, too, have kept up their quality in all areas after the breakup and privatization of the Japan National Railways in 1987. So what does Japan do right that the U.K. and increasingly other countries as well, do wrong?

First, Japanese railway companies - and many other sectors too - have always believed in the stakeholder principle, long before the term was coined. During the four decades of the post-war Showa era, the guiding principle of the Japanese corporate world was to maintain 'harmony' (wa) - both within the company and in society as a whole. Experience in the 1950s with militant unions had taught them a valuable lesson: that it's better to avoid confrontation and strikes by looking upon your workers as family members rather than adversaries.

In addition, the tradition of maintaining healthy social relations through personal attention, gift-giving and formal respect had engendered at least nominally a culture of 'the customer comes first', which by and large is observed to this day. The public, too, behaves responsibly when using public buildings and transport services, by not littering, keeping the toilets clean, not smearing the coaches with graffiti, etc. Add to all that the pride and high training Japan's workers and engineers, and the constant updating of the technological and physical infrastructure, and it should not be surprising that Japan's trains always look fresh and run on time.

This system only works as long as the transport companies - and any company providing services - are not exposed to corporate raiders bent on improving 'shareholder value', which usually means imposing severe cost-cutting measures that hurt the work force and the quality of the product delivered. As globalization progresses, the pressures on Japanese corporations to abandon their 'harmony model' are bound to grow.

Soon I was exploring the differences and connections between the hard-working, optimistic mid- to late Showa era (1950-1989) and its unruly successor, Heisei, which began in 1989. The result, after two years of research, travel, discussions and thought, is a book tentatively entitled Showa Japan: the Post-War Golden Age and its Troubled Legacy.

It is to be hoped that Japan's public transport companies and other service providers will find the means to resist the deleterious effects of such practices, by maintaining the high morale of their workforce and keeping their companies out of the hands of unscrupulous owners. It is worth every possible effort to maintain the high standards of this sector, which is of such vital importance to the smooth functioning of Japan's complex society.

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© 2007 Hans Brinckmann