Japan's nuclear power subsidies to rural areas a case study in sick dynamics: how governments eviscerate local economies and addict them to what destroys them
We can see the same phenomenon in extractive economies wherever governments own the resources, but locals own the risks – as in the Gulf of Mexico/BP (as I noted in a number of posts) accident, Nigeria, Ecuador/Texaco, etc.
We can also see this more generally with crony, corporation-based capitalism.
Japan’s version is more complicated and seductive: the locals get paid off – at the expense of electric power ratepayers who are subject to a government-supported monopoly – in a way that encourages them to abandon their own livelihoods and further dependent on handouts.
Below are excerpts from a May 31 article at the New York Times: In Japan, a Culture That Promotes Nuclear Dependency
Excerpts:
When the Shimane nuclear plant was first proposed here more than 40 years ago, this rural port town put up such fierce resistance that the plant’s would-be operator, Chugoku Electric, almost scrapped the project. Angry fishermen vowed to defend areas where they had fished and harvested seaweed for generations.
Two decades later, when Chugoku Electric was considering whether to expand the plant with a third reactor, Kashima once again swung into action: this time, to rally in favor. Prodded by the local fishing cooperative, the town assembly voted 15 to 2 to make a public appeal for construction of the $4 billion reactor. …
As Kashima’s story suggests, Tokyo has been able to essentially buy the support, or at least the silent acquiescence, of communities by showering them with generous subsidies, payouts and jobs. In 2009 alone, Tokyo gave $1.15 billion for public works projects to communities that have electric plants, according to the Ministry of Economy, Trade and Industry. Experts say the majority of that money goes to communities near nuclear plants.
And that is just the tip of the iceberg, experts say, as the communities also receive a host of subsidies, property and income tax revenues, compensation to individuals and even “anonymous” donations to local treasuries that are widely believed to come from plant operators. …
In a process that critics have likened to drug addiction, the flow of easy money and higher-paying jobs quickly replaces the communities’ original economic basis, usually farming or fishing.
Nor did planners offer alternatives to public works projects like nuclear plants. Keeping the spending spigots open became the only way to maintain newly elevated living standards.
… Towns become enmeshed in the same circle — which includes politicians, bureaucrats, judges and nuclear industry executives — that has relentlessly promoted the expansion of nuclear power over safety concerns. …
“This structure of dependency makes it impossible for communities to speak out against the plants or nuclear power,” said Shuji Shimizu, a professor of public finance at Fukushima University. …
Much of this flow of cash was the product of the Three Power Source Development Laws, a sophisticated system of government subsidies created in 1974 by Kakuei Tanaka, the powerful prime minister who shaped Japan’s nuclear power landscape and used big public works projects to build postwar Japan’s most formidable political machine.
The law required all Japanese power consumers to pay, as part of their utility bills, a tax that was funneled to communities with nuclear plants. …
Political experts say the subsidies encourage not only acceptance of a plant but also, over time, its expansion. That is because subsidies are designed to peak soon after a plant or reactor becomes operational, and then decline.
“In many cases, what you’ll see is that a town that was depopulating and had very little tax base gets a tremendous insurge of money,” said Daniel P. Aldrich, a political scientist at Purdue University who has studied the laws.
As the subsidies continue to decline over the lifetime of a reactor, communities come under pressure to accept the construction of new ones, Mr. Aldrich said. “The local community gets used to the spending they got for the first reactor — and the second, third, fourth, and fifth reactors help them keep up,” he added.
Critics point to the case of Futaba, the town that includes Fukushima Daiichi’s No. 5 and No. 6 reactors, which began operating in 1978 and 1979, respectively.
According to Professor Shimizu of Fukushima University, Fukushima Daiichi and the nearby Fukushima Daini plants directly or indirectly employed some 11,000 people in communities that include Futaba — or about one person in every two households. Since 1974, communities in Fukushima Prefecture have received about $3.3 billion in subsidies for its electrical plants, most of it for the two nuclear power facilities, Mr. Shimizu said.
Despite these huge subsidies, most given in the 1970s, Futaba recently began to experience budget problems. As they did in Kashima, the subsidies dwindled along with other revenues related to the nuclear plant, including property taxes. By 2007, Futaba was one of the most fiscally troubled towns in Japan and nearly went bankrupt. Town officials blamed the upkeep costs of the public facilities built in the early days of flush subsidies and poor management stemming from the belief that the subsidies would remain generous.
Eisaku Sato, who served as the governor of Fukushima Prefecture from 1988 to 2006 and became a critic of the nuclear industry, said that 30 years after its first reactor started operating, the town of Futaba could no longer pay its mayor’s salary.
“With a nuclear reactor, in one generation, or about 30 years, it’s possible that you’ll become a community that won’t be able to survive,” Mr. Sato said.
Futaba’s solution to its fiscal crisis was to ask the government and Tokyo Electric, Fukushima Daiichi’s operator, to build two new reactors, which would have eventually increased the number of reactors at Fukushima Daiichi to eight. The request immediately earned Futaba new subsidies.
“Putting aside whether ‘drugs’ is the right expression,” Mr. Sato said, “if you take them one time, you’ll definitely want to take them again.”
Eiji Nakamura, the failed candidate for mayor of Kashima, said the town came to rely on the constant flow of subsidies for political as well as economic reasons. He said the prefectural and town leaders used the jobs and money from public works to secure the support of key voting blocs like the construction industry and the fishing cooperative, to which about a third of the town’s working population belongs.
“They call it a nuclear power plant, but it should actually be called a political power plant,” Mr. Nakamura joked.
Thanks for your comments, Stephan.
1. Calling shareholders “passive” might be a fair representation of the existing, government-created system – especially for listed, “public” companies, but that’s pretty much my point. This is NOT true of partnership or other traditional types of business organization, and the grant of limited liability itself deliberately signals shareholders that they can turn a blind eye to activities that profit the company while posing costs and risks to others.
Sure, it’s probably not now “fair” to passive shareholders to “attribute vicarious liability to them … for torts committed by employees”, but that is both a strawman and besides the point. The point is that the government grant of limited liability MAKES A DIFFERENCE; the strawman is that I am certainly NOT proposing a new rule that shareholders be assigned liability for acts by corporate employees, but simply that the limitation on liability be eliminated – just as other grants by the government of liability limits (nuclear power, offshore oil drilling, and pollution permitting generally) should be eliminated.
Your assertion that limited liability of shareholders “would also be present in a free society in which private contractual ‘corporations’ arose” is totally unsupported. Can you point to where Rothbard, Hessen or Pilon argue that private contracts that limit liability of investors against voluntary creditors could serve to limit their personal liability against INVOLUNTARY creditors, viz., tort victims?
Just as you, surely, have no objection to private agreements between parties to protect the information created by one of them (private “intellectual property”) but simply oppose state-created IP, so too should you (as a lawyer!) be able to understand that in principle, of course, I have no objection to contract-based companies, but oppose the obvious and important favors granted by the state in the case of all corporations?
2. Not to be missed is that the grant of limited liability is extremely important and consequential:
See: The Cliff Notes version of my stilted enviro-fascist view of corporations and government – TT’s Lost in Tokyo http://bit.ly/9oBkC7
It has allowed owners to divorce themselves from formal reponsibility for the acts of their agents/employees, to divorce themselves from the communities in which their firms act, and to dodge claims of moral responsibility.
So we are left with massive corporations which are massively entangled with government and are powerful buyers of favors, which citizens forever clamor for “more control!”, and which lack any clear locus of responsibility — and in which we find anarchist libertarians like yourself and Lew Rockwell acting as their lawyers, and calling them and their shareholders “the biggest victims” (not the little people on the short end of the stick of projects like Gulf oil drilling, nuclear reactor meltdowns or even mundane health/air/water/soil damage from pollution) whenever bad decisions resulting from government-institutionalized buck-passing results in unfortunate “accidents”.
As Mises long ago noted, moral hazard matters. Mises on fixing externalities: progress along the Kuznets curve is not magic, but the result of institution-building – TT’s Lost in Tokyohttp://bit.ly/cM4iVb
Clearly, our continuing crises in our banking sector are due not simply to money-printing by the Fed, but to massive moral hazard within banks, investment banks and other advisers, all of which can be laid at least in part at the foot of government. Government’s role in guaranteeing deposits has the effect of telling them they get a free lunch, and don’t need to worry about how well the banks invest their deposits – and of shifting to our wonderful government the risk of failure. Government responds by imposing “prudential rules” (like “investment-grade” requirements and capital standards that are always gamed by insiders to put bonuses in pockets, while leaving risks to the banks and thus the government. Somehow – inevitably – the government is always late to diagnose the gaming and to tighten up rules – which, like Sarbanes^Oxley and other rules imposed on super-duper “public” companies, serve to further raise barriers to entry and to distance managers from shareholder control.
Tell me again that the massive games that a fairly insulated managerial class is engaged in at mega-firms are both natural and inconsequential?
3. While in principle any partnership can keep going even when one partner dies or decides to leave and new partners are added, surely you are aware that this is a very cumbersome process, not in small part because of the concerns that the partners and its lenders, suppliers and customers all have about who, precisely, is managing the business and who has liability for potential losses?
Just as for limited liability, the grants of legal entity status, unlimited life, unlimited purposes and the ability to own subsidiaries are all substantial AND consequence-laden gifts from the state.
Show me a partnership that has any of these, without a grant from the state. Precisely because all of these matter, business people of all stripes clamor to incorporate (or to adopt a new, state-created limited partnership form that makes pass-through tax treatment possible).
4. Your long paragraph of the entity theory that “the state has foisted” on us has much I agree with. The state creation of corporations has do much to muddle who, exactly, is responsible for injuries to third parties caused by “the corporation”. In fact, this is one of my points about limited liability and other benefits that the state bestowed on individual investors – and you and Lew exhibited the same confusion yourself last year when you were stumbling over yourselves to feel sorry for BP’s shareholders, executives and employees:
Corporations uber Alles: Conveniently inconsistent on “abstractions” like “the environment”, Austrians overlook their preference for “corporations” over individuals,& their lack of interest in problem-solving – TT’s Lost in Tokyo http://bit.ly/lWpvol
http://mises.org/Community/blogs/tokyotom/search.aspx?q=kinsella+victim
Getting rid of limited liability would do much to provide moral clarity, and to end not simply risk-shifting and purchase of government favor, but demands by citizens for preventative regulation by government.
5. I would note that, just as if deposit insurance were eliminated, market actors would step up to advise on which banks are safe and to provide deposit insurance, so too would insurers step up if limited liability were ended.
We are NOT talking about bringing down capitalism.
Thanks for the substantive engagement.
Best,
Tom