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Writing by Sam Denby, Tristan Purdy, and Christine Benedetti
Editing by Alexander Williard
Animation by Sara Stoltman, Derek Brown, and Kate Ermolenko
Sound by Manni Simon and Dony Bullen
Thumbnail by Simon Buckmaster
References
[1] https://www.jstor.org/stable/pdf/42747282.pdf?refreqid=fastly-default:6d072d56559c327d07aea278166c0dfb&ab_segments=0/basic_search_gsv2/control&initiator=search-results&acceptTC=1
[2] https://documents1.worldbank.org/curated/es/256221468752350809/pdf/multi-page.pdf
Instagram: http://Instagram.com/sam.from.wendover
Twitter: http://www.Twitter.com/WendoverPro
Sponsorship Enquiries: wendover@standard.tv
Other emails: sam@wendover.productions
Reddit: http://Reddit.com/r/WendoverProductions
Writing by Sam Denby, Tristan Purdy, and Christine Benedetti
Editing by Alexander Williard
Animation by Sara Stoltman, Derek Brown, and Kate Ermolenko
Sound by Manni Simon and Dony Bullen
Thumbnail by Simon Buckmaster
References
[1] https://www.jstor.org/stable/pdf/42747282.pdf?refreqid=fastly-default:6d072d56559c327d07aea278166c0dfb&ab_segments=0/basic_search_gsv2/control&initiator=search-results&acceptTC=1
[2] https://documents1.worldbank.org/curated/es/256221468752350809/pdf/multi-page.pdf
Category
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FunTranscript
00:00When conjuring up an image of Japan's ultra-successful passenger rail system, one likely thinks of
00:06this—the Shinkansen.
00:07It's a fair association—this was, after all, the world's very first high-speed rail
00:12line, collapsing what was a six-hour journey between Japan's two largest cities into
00:16just three.
00:18Only getting faster since its opening in 1964, and adding more and more service to match
00:22demand, this route ran an average of 372 trains a day in 2023, shuttling 158 million
00:30passengers on the year.
00:32Across six decades, the line's total passenger count sits north of 6.5 billion, all without
00:37a single derailment, without any serious accident, without even a single fatality.
00:43All of this success opened the door for the Shinkansen network to expand nationwide.
00:47As it has grown, this network's become a point of national pride and international
00:52And yet, it only begins to explain why Japanese passenger rail works so singularly well.
00:58Annually, Japanese rails rank next to the likes of India and China, two far larger countries,
01:04in total ridership, and most of the rail companies themselves manage to turn healthy profits
01:08while keeping customers content and services frequent.
01:11Much of this mileage traveled and profit garnered is done on the backs of trains moving at far
01:16more conventional speeds.
01:18Take Japan's southernmost major island, Kyushu.
01:22Here, too, are important high-speed rail connections.
01:24JR West, a private entity whose district of operations lies mostly on Honshu, runs the
01:29Sanyo Shinkansen connecting Kyushu's largest city with Osaka in just two hours and 28 minutes,
01:35while JR Kyushu, the island's main rail operator, runs two additional Shinkansen lines
01:39that connect most of the island's major cities in an hour and 16 minutes or less.
01:44And while this island's local Shinkansen are lotted for much the same reason as the
01:47Tokaido line, this only accounts for a fraction of the trips made, stations serviced, and
01:53lines ran.
01:54The JR Kyushu service map looks like this.
01:57In addition to its two high-speed rails, it runs eight main and 13 regional lines that
02:01serve over 500 stops across the island.
02:04For a student living somewhere around here, for instance, a Shinkansen is just not an
02:08option if they need to get to another university campus for a conference, but another train
02:12is.
02:14From this station, they could catch the higher-speed limited express Sonic starting at 625 AM and
02:18running every 20 minutes, and be in the heart of Fukuoka in just 22 minutes for a $15 ticket.
02:24Or, if on a stricter budget, they could opt for a 40-50 minute local train along the Kagoshima
02:28line for only about $5.
02:31But regardless of their choice of train, rail simply makes the most sense.
02:35Even the local will be faster than navigating traffic and figuring out parking, and unlike
02:39the uncertainties of driving, the student should be confident the train will be on time.
02:43Across JR Kyushu's entire network, average delays hover around a minute, and should one
02:48occur, it'll be posted here, where the few odd-end holdups are communicated.
02:52And the student should be confident that it's going to be a decently full train, too.
02:56Whether it's daily commuters in similar situations, or the flocks of tourists coming
03:00from the north or abroad connecting onto the island's fleet of unique sightseeing travel
03:04trains, this network moves a ton of people at a fraction of the speed of a Shinkansen.
03:09In all rail-related revenue for JR Kyushu in 2023, the Shinkansen accounted for only
03:14about a third.
03:16In total rail passengers, conventional rail operated by the company carried passengers
03:20almost four times the distance, and in that same year, conventional rail on the island
03:24moved some 300 million passengers to the Shinkansen's 12 million.
03:29The fact is, the success of Japanese rail is punctuated by high-speed options, but the
03:34bedrock to its success is still run-of-the-mill conventional passenger trains.
03:39Passenger works here because the trains are trusted—they're safe and always on time,
03:43they're so frequent that the traveler doesn't feel like they're sacrificing flexibility,
03:47and they offer so many unique routings that, no matter if it's a daily commute, a weekend
03:51trip to the city, or a ski vacation to the north, taking the train just makes the most
03:56sense.
03:57Being fast helps, but the success has just as much to do with a culture of rail as it
04:01does technological achievement.
04:04Setting the stage for this culture to take root is the fact that rail on the island does
04:08have some geographical advantages.
04:10Because of a rugged, mountainous topography, Japanese population centers are focused and
04:15dense.
04:16Because of its island geography, these urban areas are distant from one another by European
04:19standards, but not American or Australian ones, allowing for earlier and easier rail
04:24connections between them.
04:26With rail taking hold in the final years of the 19th century, expanding the network was
04:30associated with industrializing and connecting the nation, so as Japan prioritized growth
04:34in the beginning of the 20th century, it did so on the back of the rails.
04:39Yet, while freight and industry helped lay the tracks, they really didn't need them
04:43post-war.
04:44As a country with limited raw natural exports and ample port access to begin with, then
04:49increasingly favorable conditions for trucking, passenger rail since the mid-century has not
04:53really had to compete with freight for line access.
04:56But geography and timing aren't solely responsible for success.
05:00Japan, for one, is a car country.
05:02In car exports, Japan's the third largest in the world.
05:06In car ownership, it's at 670 per 1,000 people, placing it comfortably in the world's
05:11top 30 near countries like Canada, France, and Norway.
05:15And cars, it seemed, might spell the end of passenger rail in Japan in the 1980s.
05:20Established in 1949, Japanese National Railways, a state-run enterprise, owned 80% of Japanese
05:26rail after World War II, and was eager to expand in the post-war period.
05:30It did so to the world's marvel with the launch of the Shinkansen in 1964.
05:34And yet, while a massively successful addition to the network, 1964 marked another first—the
05:41first year the nationalized rail posted a loss.
05:44From there, as car ownership rose, trucking companies grew, and airlines expanded, things
05:50only got worse.
05:52Millions of yen in losses quickly turned to billions, then eventually, trillions.
05:57With failed reforms ranging from network expansion to rate hikes across the 60s and 70s, rail's
06:02share of total passenger traffic dropped from north of 50% to the mid-20s, while freight
06:07cratered from a 50% share to 5%.
06:10Undeniably overstaffed, inflexible in its strategy, and bloated in bureaucracy, JNR's
06:15spiral continued into the 1980s.
06:18Burdened by a slowing national economy and a nationalized rail system that's debt had
06:22now reached 20 trillion yen—a number comparable to the debt of entire nations at the time—Japan
06:27Japanese politicians were now urged to take on bolder reform.
06:31Quietly, the idea of privatizing the rails began to bounce around subcommittees, then,
06:36by the mid-80s, it seemed the only logical option to halt the downward spiral.
06:43The process of privatizing JNR was, more than anything, a process of division.
06:48One organization would become nine, and the idea was that, while in sum they'd fulfill
06:52the same function, the division between them would lead to strength not found in their
06:56nationalized form.
06:58The core of the network was divided between JR West, JR Central, and JR East.
07:03More or less, JR West would operate rail west of Nagoya, JR Central would operate between
07:07Nagoya and Tokyo, while JR East would operate within and east of Tokyo.
07:12The logic of where to place the borders was dictated, largely, by traffic patterns.
07:17Planners believed that, by defining the borders such that as much travel as possible stayed
07:20within a company's borders, each company could specialize its operations to best serve
07:25the unique needs and wants of that region.
07:27For example, among other things, JR Central could learn how to best operate the super-high-traffic
07:32Tokyo to Osaka long-distance route, whereas JR East could focus on how to operate Tokyo
07:36commuter service most effectively.
07:38This map fulfilled that goal well—upward of 95% of all passenger trips stayed within
07:43each rail company's territory.
07:46Beyond that, another goal of the map was for each of the companies to inherit a balance
07:49of profitable and unprofitable lines.
07:52For example, JR West would inherit the Kobe line, relied upon by daily commuters to travel
07:56from this highly-populated area to Osaka proper.
07:59With tremendous passenger counts, this was also tremendously profitable.
08:02But along with that, it would inherit the Gebe line, running through a sparsely-populated,
08:07mountainous region of the Hiroshima prefecture.
08:10With operating speeds often far slower than that of the bus, its passenger counts were
08:13tiny and therefore it was deeply unprofitable.
08:17Japanese railways can technically close down lines, but gaining approval is a difficult
08:21and time-consuming process that often isn't worthwhile, so in practice the companies would
08:25largely continue to operate low-traffic lines using the profits from high-traffic ones.
08:30But with these geographic divisions, the benefits and burdens were shared roughly equally between
08:35the three companies.
08:36But then, there was the crown jewel, both physically and financially, of the Japan Rail
08:41Network—the famed bullet train, the Shinkansen.
08:45While each of the three companies would inherit some of the network, their portions certainly
08:50were not created equal.
08:51JR Central would get the least, at 344 miles, but this stretch from Tokyo to Osaka was the
08:57original Shinkansen, traveling between the largest and second-largest metro areas in
09:01the country.
09:02Demand on the stretch was tremendous, and so was profit.
09:05JR West inherited more track, 388 miles, but demand and profit in this area was lower,
09:11whereas JR East got 519 miles of track, but through the less-populated north of the country
09:16where the Shinkansen struggled to achieve strong financial returns.
09:20Therefore, at first, the Shinkansen lines were the only not-owned outright by the JR
09:25companies, and instead they were placed within a newly-formed entity called the Shinkansen
09:29Holding Company, which would then lease the track and associated infrastructure to the
09:33operators.
09:34The fees for this would be calculated not based on the capital cost of the infrastructure
09:37itself, but rather proportionally to the profits of the rail segments as a way of correcting
09:41the geographic imbalance and profit margins.
09:44But this is not the entirety of Japan.
09:47This is the entirety of Honshu, the main island of Japan.
09:51There are three other major islands that make up the country—Kyushu, Shikoku, and Hokkaido.
09:57The profitable Shinkansen network did not yet reach the islands, except for a small
10:00portion of the Sanyo Shinkansen reaching Fukuoka, and their lower population densities meant
10:04they lacked as many profitable conventional lines as well.
10:08So, whereas JR West, Central, and East were formed with the intention of quickly becoming
10:12profitable, these three were treated differently.
10:15Most notably, they'd receive a subsidy from the government to offset their inevitable
10:19losses.
10:21Also sliced off from JNR was their freight business.
10:24Freight rail was never massive in Japan, and it only decreased as the truck industry grew
10:28and took market share away.
10:30JNR's freight business therefore operated at a loss.
10:33It also tended to operate over long distances spanning beyond the borders of the individual
10:37JR companies, so they rather formed one nationwide freight company.
10:41That way, no one JR company would be burdened with its losses, while JR freight could reduce
10:46costs by not having to maintain track, and rather just pay for track usage.
10:50Finally, the last of the nine new companies was called the JNR Settlement Corporation.
10:55It acted as an umbrella company, owning all the other companies, while it itself was owned
11:00by the Japanese government.
11:02This mattered in part because of debt—there was a huge amount of it, and just simply
11:07distributing it amongst the JR companies themselves would leave them in the same struggling position
11:11as JNR.
11:13Therefore, only a portion of the trillions of yen in debt was transferred to the JRs,
11:18distributed amongst JR West, Central, and East, whereas the island JRs received none.
11:23Another substantial portion went to the Shinkansen Holding Company, roughly equivalent to the
11:26value of its assets, then the vast majority of liabilities went to the umbrella company,
11:32JNR Settlement Corporation.
11:34The hope was that, through time, the value of the JRs would increase, and therefore the
11:38eventual sale of the companies could cover the debt.
11:41JNR Settlement Corporation was owned and controlled by the government, so ultimately this meant
11:45that Japan's railways weren't fully privatized, at least at first.
11:49Rather, they were divided into government-owned companies that were intended to act as private
11:53companies would, and strive for profits.
11:55The state of the Japanese railways was such that the newly formed JRs would hardly be
11:59attractive investment opportunities, meaning the government would struggle to take them
12:03fully private at what they considered a reasonable valuation.
12:06Rather, the thought was that they needed to give time for the reforms to take hold and
12:10improve the company's prospects.
12:12But more practically, the manner of full privatization chosen was to list the JR companies on the
12:17Tokyo Stock Exchange, and there are certain requirements that need to be met for listing,
12:21such as pre-tax profits in the period immediately before listing needing to be more than 40%
12:26of paid-in capital.
12:27Crucially, though, the Tokyo Stock Exchange would only list companies at least five years
12:32old, and the JR companies were brand new.
12:35Of course, in order for this grand plan to work, for the railways to become self-sufficient,
12:40for the government to be freed of its debt, for Japan's rails to improve their service,
12:44the JRs had to genuinely, effectively reform—and they certainly did.
12:50Bureaucratic bloat was quickly fixed—90,000 redundant employees were removed, largely
12:55through transfer offers to other jobs in the public and private sectors.
12:58Prior to privatization, there was one employee for every 311,000 miles or 510,000 kilometers
13:04traveled by passengers.
13:06After, it was up to 897,000 miles or 1,443,000 kilometers.
13:12And despite the cuts in headcount, service actually improved.
13:16The frequency of service, on average, increased, serious accidents halved, and improvements
13:21were made to stations and rolling stock.
13:23Financially, things improved too.
13:25The revenue-to-cost ratio went from 0.771 to 1.167, meaning, on average, the trained
13:31companies were earning an operating profit thanks to a combination of cost reductions
13:34and revenue increases.
13:36And this wasn't thanks to heavy government subsidies—subsidies were far lower, overall,
13:40than prior to privatization—nor was it thanks to fare increases—the rate of increase actually
13:44slowed significantly relative to prior to privatization.
13:48Perhaps the primary confounding variable was the fact that Japan's economy was in a boom
13:52throughout much of the period immediately post-privatization, so there was plenty of
13:56demand for rail travel.
13:57But all in all, the process worked.
14:00So much so that, as soon as JR West, Central, and East hit the required five-year mark,
14:04they began the process of listing on the Tokyo Stock Exchange.
14:07Through the sale of shares, the JNR Settlement Corporation generated revenue that was used
14:11to pay down its debt, while the JRs were also profitable enough to start buying the Shinkansen
14:16Network from the Shinkansen Holding Company, further generating revenue for the Settlement
14:19Corporation.
14:20But beyond the reforms on the rails and in-company structure, there was another crucial change
14:25that allowed the JR companies to flourish.
14:27Prior to privatization, Japan's National Railway really stuck to the rail business
14:31itself.
14:32But other private rail operators in Japan were finding profits in a different business—real
14:37estate.
14:39Long before privatization, smaller private rail operators were pioneering a technique
14:43of using rail to grow the value of land and property.
14:47Basically, the better an area's rail access, the higher its property value.
14:51In Tokyo, privately held Tokyo corporations started developing commuter lines in the 1920s.
14:56This is Geogakka, nicknamed Little Europe or Liberty Hill.
15:00To get there, a person hops on a Tokyo Corporation-owned Tokyo Railways train from Shibuya Station.
15:05The entire ride lasts 11 minutes and costs just 181 yen, or $1.25, delivering riders
15:10to one of Tokyo's more charming neighborhoods.
15:13It's a high-density, mixed-use, pedestrian-friendly development with European-style architecture
15:17and private schools.
15:19Parts of the development around the station, like this and this, are all owned and developed
15:23by Tokyo Corporation.
15:25This approach, to leverage real estate around stations to invest in retail and hospitality,
15:29was likely born from some necessity, and not just ingenuity, thanks to the country's
15:34Railroad Nationalization Act, which nationalized 17 of the country's 37 private railways
15:38from 1906 to 1907, when it was enacted.
15:42Because of its limitations, restricted private railways from directly competing with government
15:45lines, so the private operators pivoted and looked to real estate and diversified assets
15:50in order to create revenue when building new rails.
15:52But it turns out that that technique worked tremendously well.
15:56So much so that the JRs adopted it following privatization in 1987.
16:01This happened all over the country—it happened with JR Kyushu, which quickly launched a fast-food
16:05division, retail operations, and a country club.
16:08It happened here, with JR East, which owns the Gala-Yuzawa Ski Resort, as well as the
16:12train line that services it, dropping riders into a station that's part of the resort's
16:16main building.
16:17And it happened here, where these are just one chain of hotels that JR West owns across
16:22its network.
16:23All around the country, the JR companies have been able to find plenty of opportunities
16:27to capitalize on the real estate long owned by the railroad, but long ignored.
16:31In the case of JR West, for example, about 20% of their revenue now comes from the real
16:35estate business, allowing for diversified income streams in a traditionally concentrated
16:40sector.
16:41Japan's railways have a recipe for success—the structural reforms created companies capable
16:46of turning a profit, the real estate businesses made that profit diversified, and the network
16:50these companies inherited was such that they could run fast, frequent, reliable service
16:55at an affordable cost.
16:56But it didn't turn out to be a one-size-fits-all solution.
17:00JR Kyushu listed on the Tokyo Stock Exchange in 2016, becoming the first of the island
17:04JRs to do so, but JR Shikoku and Hokkaido still lag far behind.
17:09JR Hokkaido struggles most—subsidies account for almost half of its revenue.
17:14The population of the region is declining and ridership is decreasing as people opt
17:18for cars.
17:19As a result, train frequency is going down, creating a vicious cycle.
17:23At one point in 2019, JR Hokkaido enlisted Tokyo Corporation, with obvious interest to
17:28develop rail in the region thanks to their ski industry investments, to partner on increasing
17:32service and adding a luxury train service to the island, but so far it's only manifested
17:36in a sporadic sightseeing operation.
17:38There are plans to extend the Hokkaido Shinkansen to Sapporo, which would likely help boost
17:42revenue for the company.
17:44Construction is underway, but even this project has been stalled and delayed until 2031 because
17:49of construction issues.
17:50Of course, rail is not necessarily intended to turn a profit, just like highways are not
17:55necessarily intended to turn a profit, and even the JR companies that do do so on the
17:59backs of massive, but perhaps less obvious, government subsidies.
18:03While the dream was for the sale of the JR companies and Shinkansen infrastructure to
18:07pay down the JNR debt and liabilities, that never panned out.
18:11Ultimately, the Japanese government, and by extension taxpayers, paid off about $200 billion
18:16in liabilities following the dissolution of the JNR Settlement Corporation.
18:20It's, at least in part, thanks to this that four of the JR companies could become standalone,
18:25self-sufficient businesses.
18:27Rail privatization experiments around the world have had a spotty history.
18:31Japan's is considered highly successful, but then there are countries like the UK or
18:34Argentina where the results are, at best, controversial.
18:37So, it's tough to attribute too much of the success to the very fact that the companies
18:42are privatized.
18:43More so, it's the particular structure of privatization that seemed to work—regionalization
18:48in operations, strict government oversight, and a competitive marketplace combined to
18:52create a situation in which, at least now, Japanese railways are largely a self-sufficient,
18:58highly effective service.
19:00Of course, what makes Japanese railways great goes far beyond their corporate structure.
19:04They're fast, frequent, and reliable, but that's part of a virtuous cycle enabled
19:09by the success of the companies.
19:11The fact that they are fast, frequent, and reliable is made possible thanks to the success
19:15of the companies, and the success of the companies is made possible thanks to the fact that they're
19:19fast, frequent, and reliable.
19:21So, if you trace this back to its origin, what truly made Japanese rail great was the
19:25fact that the Japanese government, and by extension taxpayers, was willing to invest
19:29a tremendous amount of money into kicking off this virtuous cycle—into building a
19:33railway network that would go on to grow Japan's economy and society for generations to come.
19:41If you know anything about me, it's that I travel a lot—often over 100 days a year.
19:46Much of that is outside the US, and these days you kind of need phone data to survive,
19:50but my normal US carrier charges $10 a day for data outside the US, which really adds
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20:00That's why I don't use expensive roaming data—I use Salee.
20:04They sell eSIMs that work in over 160 countries and 8 regions, meaning if you have an eSIM
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20:13For example, in Japan, where I was recently filming Jetlag, you can get 5GB of data for
20:17just $11, or 20GB for $25.
20:21Buying and installing is super simple—you just download the app, pick your plan, and
20:25then, crucially, enter code WENDOVER to get 15% off, and finally you follow the instructions
20:30and install the plan on your phone.
20:32It takes just two or three minutes, and this way you don't have to pay high roaming rates,
20:36you don't have to waste time and risk getting scammed at the SIM card shops at the airport,
20:39you just simply install and go.
20:42Once again, to get 15% off, download the Salee app and use code WENDOVER at checkout.