Japan's Electricity Deregulation: Prices, Profits, Productivity and the "Reform Idea"

This presentation examines attempts to restructure the Japanese electric power industry over a long period. It focuses on an investigation of political and economic factors exercising an impact on attempts to restructure the industry. The most important intellectual problem that it seeks to tackle is why concerted attempts to restructure the provision of electric power to industry and to private residencies during the 1990s along market competitive lines ran into the sand with the new millennium. The ultimate failure of such attempts appears surprising in view of the fact that Japanese consumers pay considerably more for electricity than do consumers in many other comparable countries. This presentation first lays out three rival theories explaining variation in the pace of Japan’s deregulation movement, with special attention paid to the emerging but relatively untested factor of foreign economic ideas infiltrating the decision-making process. To address which theory holds the strongest explanatory power, we examine Japan’s high electricity prices from 1965-2005 using a principal component analysis alongside an analysis of the electric power sector’s profitability, total factor productivity, and potential rent-seeking behavior. It is found that Japan’s promotion of a safe energy supply in the form of nuclear power not only explains why post-oil-shock prices were (and are) so high relative to other countries, but also why most actors continued to tolerate them for so long.

Short CV:
Paul J. Scalise (D.Phil., University of Oxford, 2009) is Adjunct Fellow at the Institute of Contemporary Japanese Studies at Temple University, Japan Campus. A former Tokyo-based financial analyst and energy industry consultant, his work currently focuses on agenda-setting and decision-making in the government-business relationship.