- 4 -

considerations of the long-term health of the industry. Compounding the ossification may be an accretion of governmental regulations and implementing bureaus of hoary antiquity. If management, labor, and regulators are so encrusted in their thinking and intransigent in their behavior as to resist all attempts to make the railway more responsive to modem needs for both transportation and fiscal responsibility, then only a complete upheaval -- effectively dismantling the existing entity from top to bottom -- may effect the necessary changes. Some of the reshaping options discussed in Chapter 2 may provide approaches to achieving such a deliberate and controlled upheaval. The total restructuring of the Japanese National Railways (JNR) exemplifies a reorganization deliberately undertaken to create new railway entities in place of the old.<sup>5</sup> '

# Separation **Is Not** The Only **Option**

14. One approach -- "separation" of fixed facility ownership from train operations -- gained prominence in recent years as a response to some of the objectives above. This emphasis on "separation" has, to some degree, miscast and oversimplified the issue. In fact, a full spectrum of options exists for reshaping the railway entity.<sup>6</sup> ' In any country, the aptness of each option depends on several complex factors, including the following: _15._ **The relative weight and urgency of governmental objectives.** If totally eliminating the railway's operating deficit is the primary goal, then dividing the system into "commercial" and "noncommercial" markets -- the latter to be funded with a PSO -- will help, but not suffice. (Uruguay, for instance -- faced with exhausted assets, vanishing traffic, and soaring operating ratios and deficits -- chose to eliminate the entire passenger market in an effort to control the railway's costs.)<sup>7</sup> ' Likewise, if governmental development plans call for increased industrial development in a remote area at the end of an unprofitable branch line, then complete privatization of the rail network will not necessarily protect the government's long-term interest. These are extreme examples illustrating a basic principle: _the form of the reshaping must follow its intendedfunction._ 16. **The relative importance of the** various **markets served by the railway.** If the railway primarily carries bulk freight, with insignificant passenger or parcel services, then a

- _5/_ Kato, Hiroshi, _Ihe Japanese Economy in Transition,_ see especially the appendix "Privatization in Japan." See also Tanahashi, Yasushi, _Reform of Railways in Japan._

- 6/ This paper focuses on options for reshaping the railway entity per se. For more specifics on the restructuring of relationships between the railway and the State, see (for example) Lee Huff and Louis S. Thompson, _Techniquesfor Railway Restructuring,_ and Galenson and Thompson, op. cit.

- 7/ J.F. Berchesi, "The Rebirth of the Railway in Uruguay," in International Union of Railways (UIC), "Management and Policy Studies (MAPS)," seminar, Paris, September, 1989. See also Louis S. Thompson and Jorge C. Kohon, _Institutional Reform in Iransport, Case Study: Uruguayan Railway._