- Regulatory Reform of Public Utilities: The Japanese Experience by Fumitoshi Mizutani
When this book landed on my desk, I was quite excited: the economic analysis of regulation in Japan continues to be a gap in the English-language literature on Japan. While we can draw on an extensive body of literature in the politics and political economy of regulation, deregulation, the lack thereof, and the possible reasons for Japan’s particular approach to governing its markets, would it not be helpful to also gain a better understanding of the economic rationale that Japanese bureaucrats have applied in their slow yet steady progress in undoing the many rules and laws of the postwar years? Beyond my own edification, I could see many potential applications for such a book, including teaching. To preempt my own conclusion: this book takes us a few steps in that direction, but there is room for more research in this area.
Challenges facing any writer on this subject include how to structure the narrative and how to make the economics of regulation interesting, given that it involves neither juicy politics nor—at least in this case—clever cartels. Fumitoshi Mizutani divided his work into five parts, but the reader is likely to perceive it as two main sections: an introduction to eight industries (divided into three parts), followed by an analysis of various approaches [End Page 440] to regulation in some of these industries (part 5). The first section is very descriptive. We get a brief summary of regulation in eight industries, which I think of as verticals: electric power, gas utility, water, railway, local bus, postal service, telecommunications, and broadcasting. The second section looks at four different horizontals: yardstick regulation, universal service obligation, privatization, and private-sector involvement. That is to say, the horizontals underlie the verticals and form the basis of the regulatory discourse. As it is offered here, the main challenge is that in order to understand the descriptions in the first section, you need to know what “yardstick regulation” is, yet once you get to that part, you are reading about the verticals all over again. I recommend reading part 5 first.
The author is clearly an expert in his area, and the industry chapters are all solid, even as they vary in depth and breadth. All end in or about 2007, so we miss out on some of the recent excitement in post office deregulation, cell phone market developments, and hostile takeover attempts of broadcasting stations through Livedoor and Rakuten—not to mention, of course, the energy debate after Fukushima. That is perhaps understandable, given long cycles in book publishing. What is harder to fathom is that the book is entirely focused on the former “natural monopolies.” For example, only in passing does the description of postal deregulation mention the competitive threat through takkyūbin (Yamato and others). That is akin to writing about the U.S. Postal Service without mentioning FedEx and UPS. Likewise, the telecommunications chapter does not really talk about cell phones and carries us not much further than the revision of the Telecommunications Business Law in 2003, when Softbank was still a small maverick startup. Many possibilities remain for future research.
The final four chapters on the “horizontals” are more interesting, as they integrate the various aspects of deregulation in a more analytical way. But here, too, one wishes for a bit more detail, as well as evaluation. The author is clearly a big fan of “yardstick regulation,” an approach first conceptualized in mathematical terms by Harvard’s Andrei Shleifer in 1985. Mizutani describes the essence of this concept in this way:
The regulator evaluates each individual firm’s performance by using such information as the firm’s average cost. If a firm outperforms others, the regulator will grant approval for a fare revision. To the contrary, if a firm’s performance is inferior to others, approval for fare revision will be withheld until the less efficient firm reduces its cost.(p. 168)
It remains unclear which way the fare revision is to...