Japan | Uber's Kyotango experiment and what it says about Abenomics' third arrow

Uber’s Kyotango experiment and what it says about Abenomics’ third arrow

June 25, 2016 7:48 AM (UTC+8)

 

TOKYO–Anyone who has lived in a Japanese commuter town should be familiar with the long line of weary salarymen and women as well as late-night revelers at the taxi stand after the last bus out has left the train station. It’s easy to see the perfect opportunity there for enterprising car owners to fill the breach between supply and demand.

But there’s a snag: it’s illegal. And the police enforce the law vigorously, not to mention the local taxi drivers, who will not hesitate to take justice into their own hands if necessary. Which explains why Uber, Lyft, or any other ride-sharing services for that matter have not gained any traction in Japan.

This is where the city of Kyotango comes in. Kyotango is partnering with Uber to seek government approval to roll out a ride-sharing program under the special zone system, a featured item for deregulation as part of the structural reform that is supposed to be under way as part of the Abe administration’s long-term growth strategy. But the program is likely to wind up exposing a fatal flaw in what one analyst has charitably called the “incrementalism” of the third arrow of the self-proclaimed policy of Abenomics. Let me explain.

Uber Utopia?

Kyotango is located at the northern tip of Kyoto Prefecture, a sprawling, sparsely populated city created from five neighboring townships in 2004 during the nationwide municipal consolidation campaign led by the national government. Like most municipalities far from metropolitan centers, it has a population that is shrinking and aging quickly. This is particularly acute in the remoter regions, making it all the more difficult to provide public transportation (usually including taxis under Japan law) to aging residents who cannot drive their own cars.

To its credit, Kyotango has been more creative than most. It subsidizes some bus services and directly operates on-demand bus services where that doesn’t work. And in September 2015, it secured Uber’s help to submit a plan seeking approval under the Act on National Strategic Special Zones, a mainstay of the third Abenomics arrow, to establish a ride-sharing program for “cases where sufficient services cannot be provided by public transportation systems.” Current law already allows ride-sharing in areas with no public transportation to cover tourism demand, some commuter traffic and other special circumstances.

A tourist from Singapore (L), who is the first user of the car sharing service supported by Uber in Kyotango, waves from the car in Kyotango, Kyoto prefecture, Japan May 26, 2016. REUTERS/Junko Fujita
A tourist from Singapore (L), who is the first user of the car sharing service supported by Uber in Kyotango, waves from the car in Kyotango, Kyoto prefecture, Japan May 26, 2016. REUTERS/Junko Fujita

Taxi dancing

To no one’s surprise, the taxi industry watched this development warily. Then, ten months later, in May, with no visible signs of movement on the special zone application, Kyotango announced the rollout of a ride-sharing program for an area with no public transportation available under existing law.

Nobody seems to be quite sure what this means. Is this a trailer, so to speak, for the pilot episode that is still in the works? Or have Kyotango and/or Uber given up, and is doing what little “right thing” that can be done?

Very depressing if the latter; you might as well give up on Abenomics altogether. But what would the original proposition have achieved? The circumstances allowing ride-sharing in the Uber-assisted Kyotango proposal requires the approval of a “local council.” Again, the details aren’t publicly available. But it would be surprising if the local taxi company (companies?) are not represented and/or the council is designed to make decisions by majority vote. And you can bet that the taxi companies will resist like heck.

A woman walks on a street as a car (R) used for a sharing service supported by Uber drives past in Kyotango, Kyoto prefecture, Japan May 26, 2016. REUTERS/Junko Fujita
A woman walks on a street as a car (R) used for a sharing service supported by Uber drives past in Kyotango, Kyoto prefecture, Japan May 26, 2016. REUTERS/Junko Fujita

Peak commuter and tourist traffic are exactly when taxis clean up, as their long hours of waiting are eliminated and it is their fares that have to do all the waiting. The late-night traffic is likely to qualify for surcharges, making it particularly sweet. Taxi companies will never allow ride-sharing programs to skim off the cream, since they cannot survive without the peak demand that makes up for the valleys in between.

Kyotango’s latest minimalist experiment may be replicated at the fringes in the remotest corners of Japan as subsidized “public transport” where nothing else is available. But the more ambitious special zone project is likely to be tabled forever or made so unthreatening to existing taxi fleets that it will be hard to distinguish from the pilot program. If so, this new business model that information and communication have made possible will pass Japan by, leaving the nation largely untouched (at least in terms of population). More troubling, how many other innovative computer technology-driven innovations will wind up in similar circumstances? And what does all this say about the special strategic zones and more broadly the structural reform that everyone in the abstract agrees that Japan needs? Let’s hope that Kyotango proves me wrong.

Jun Okumura is currently a visiting scholar at the Meiji Institute for Global Affairs. He is a 30-year veteran of the Japanese civil service. During his career with the Ministry of Trade, Economy and Industry, he took part in several bilateral and multilateral negotiations, including UNCLOS II and and the Uruguay Round as the lead METI negotiator for trade in services. He headed METI’s Trade Finance Division during the Asian financial crisis. As president of JETRO New York, he worked with the Japanese consulate and business community to assist evacuated businesses and their employees in the aftermath of Sept. 11 2001.

The opinions expressed in this column are the author’s own and do not necessarily reflect the view of Asia Times. 

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