Privatization of transit in Yokohama : social and financial impacts

Abstract

This research examines both social and financial impacts of the privatization of municipally-owned transit systems from the perspective of a privatizing city and its citizens by studying the case of Yokohama, Japan's second largest city whose transit systems are now subject to privatization arguments. First, privatization models are defined based on two dimensions - degree of privatization and deregulation, which are frequently commingled and misused. Then, this research examines the social impact on fare levels, service quality, safety, service provision, and labor condition is analyzed based on prior privatization cases such as Singapore's MRT system, the UK municipal bus systems, and Japan National Rails. Third, this research suggests a new framework and methodology based on the perpetuity valuation for financial impact analysis and quantifies the financial value of each option from the perspective of the City of Yokohama and its citizens.

(cont.) Based on the above analysis, this research concludes that publicly-controlled full privatization in which government retains regulatory power over a privatized entity after full privatization is the most effective managerial model among the examined options at least for the City of Yokohama because this option maximizes the net financial value (Citizens' Equity Value) for the city, while at the same time minimizing the social risks potentially caused by privatization. More generally, this research recommends that government should keep its control over a privatized public transit service even after full privatization and should not rely much on market mechanism in order to alleviate public concerns and protect public interest. Because transit privatization is a hot public policy issue discussed widely among major municipalities in Japan and in developed nations, this research is expected to provide evidence and policy guidelines not only for Yokohama but also for other municipalities in developed nations that own and operate transit systems.