Public works 'investment' hasn't worked so well in Japan

As Obama promises massive public works spending, it is worthwhile looking at Japan, which has tried to use massive public works spending to lift its economy out of the doldrums for the better part of two decades.  The problem always is that when politics is in command of investment decisions, some useless projects get built at huge cost, while more pressing needs get ignored. After trying to preserve existing corporations for about a decade (known in retrospect as the "lost decade"), Japan finally bit the bullet and let major banks and other companies fail and be absorbed. That has helped it recover, but the economy still relies far too much on government spending, which hasn't really accomplished the goal of boosting economic growth.

Case in point:  Ibaraki Airport in Japan, scheduled to open in 2010, with runways capable of handling jumbo jets, and a terminal capable of docking them. The only problem: no airlines are interested in flying there, and the airport is as much in the middle of nowhere as one can get in crowded Japan. Road access exists, but not via good roads. No rail link exists or is contemplated. Chris Cooper and Bradley Martin of Bloomberg write:

The government and Ibaraki prefecture, home to 3 million people, are paying for the airport north of Tokyo, which won't have train services and is a half-hour drive from Ibaraki's capital, Mito. Japan Airlines Corp. and All Nippon Airways Co., which operate 90 percent of flights in the country, don't plan to use it.  ...

Japan has borrowed money every year since 1965 to finance its budget, saddling each household with the equivalent of 17 million yen ($182,000) in debt. The spending has pushed the government's debt to the highest among the Group of Seven economies -- 170 percent of annual gross domestic product last year, compared with 63 percent in the U.S., according to the Organization for Economic Cooperation and Development.

Local officials hope to attract low fare airlines, as their landing fees will be lower than at Narita or Haneda Airports already serving Tokyo. They hope Asiana Airlines of Korea will offer flights, but that seems a rather slim hope, given that Narita Airport is nearby and offers many flights to Korea already. Domestic carriers are unlikely to be interested, as bullet train connections to important destinations like Nagoya and Osaka already exist.
Ibaraki Airport map

Having an airport is quite a status symbol among Japanese cities, but with the largest international airport less than 20 miles away, and far more convenient transportation options readily available, Ibaraki Airport looks like a waste of money.

Update:

Tom Olson writes:

After seeing an article in Newsweek two or three weeks ago that made exactly the point in yours today about Japan trying to create jobs via large public works projects that don’t work because they don’t make any business sense, I read the following and started dreading what I’m pretty sure is going to happen:

—ROADS AND BRIDGES: “[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

Source:  http://www.politico.com/news/stories/1208/16258.html - Emphasis added.

If everyone thought the Alaskan “Bridge to Nowhere” was a scandal, just wait until this money hits the proverbial Washington D.C. pig trough.  In fact, I can practically hear the grunting and squealing around the trough as Pelosi, Boxer, Reid & Company start maneuvering to get the biggest chunk of this pie, without anyone using serious business sense as to what gets built where.  Inasmuch as Barney Frank and the others on the committee did a wonderful job of grilling the Detroit auto executives, someone ought to be front and center in challenging Obama and Company about where and how (not how fast!), this money is spent.  After all, it’s OUR money.

As Obama promises massive public works spending, it is worthwhile looking at Japan, which has tried to use massive public works spending to lift its economy out of the doldrums for the better part of two decades.  The problem always is that when politics is in command of investment decisions, some useless projects get built at huge cost, while more pressing needs get ignored. After trying to preserve existing corporations for about a decade (known in retrospect as the "lost decade"), Japan finally bit the bullet and let major banks and other companies fail and be absorbed. That has helped it recover, but the economy still relies far too much on government spending, which hasn't really accomplished the goal of boosting economic growth.

Case in point:  Ibaraki Airport in Japan, scheduled to open in 2010, with runways capable of handling jumbo jets, and a terminal capable of docking them. The only problem: no airlines are interested in flying there, and the airport is as much in the middle of nowhere as one can get in crowded Japan. Road access exists, but not via good roads. No rail link exists or is contemplated. Chris Cooper and Bradley Martin of Bloomberg write:

The government and Ibaraki prefecture, home to 3 million people, are paying for the airport north of Tokyo, which won't have train services and is a half-hour drive from Ibaraki's capital, Mito. Japan Airlines Corp. and All Nippon Airways Co., which operate 90 percent of flights in the country, don't plan to use it.  ...

Japan has borrowed money every year since 1965 to finance its budget, saddling each household with the equivalent of 17 million yen ($182,000) in debt. The spending has pushed the government's debt to the highest among the Group of Seven economies -- 170 percent of annual gross domestic product last year, compared with 63 percent in the U.S., according to the Organization for Economic Cooperation and Development.

Local officials hope to attract low fare airlines, as their landing fees will be lower than at Narita or Haneda Airports already serving Tokyo. They hope Asiana Airlines of Korea will offer flights, but that seems a rather slim hope, given that Narita Airport is nearby and offers many flights to Korea already. Domestic carriers are unlikely to be interested, as bullet train connections to important destinations like Nagoya and Osaka already exist.
Ibaraki Airport map

Having an airport is quite a status symbol among Japanese cities, but with the largest international airport less than 20 miles away, and far more convenient transportation options readily available, Ibaraki Airport looks like a waste of money.

Update:

Tom Olson writes:

After seeing an article in Newsweek two or three weeks ago that made exactly the point in yours today about Japan trying to create jobs via large public works projects that don’t work because they don’t make any business sense, I read the following and started dreading what I’m pretty sure is going to happen:

—ROADS AND BRIDGES: “[W]e will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We’ll invest your precious tax dollars in new and smarter ways, and we’ll set a simple rule – use it or lose it. If a state doesn’t act quickly to invest in roads and bridges in their communities, they’ll lose the money.”

Source:  http://www.politico.com/news/stories/1208/16258.html - Emphasis added.

If everyone thought the Alaskan “Bridge to Nowhere” was a scandal, just wait until this money hits the proverbial Washington D.C. pig trough.  In fact, I can practically hear the grunting and squealing around the trough as Pelosi, Boxer, Reid & Company start maneuvering to get the biggest chunk of this pie, without anyone using serious business sense as to what gets built where.  Inasmuch as Barney Frank and the others on the committee did a wonderful job of grilling the Detroit auto executives, someone ought to be front and center in challenging Obama and Company about where and how (not how fast!), this money is spent.  After all, it’s OUR money.