Raking Japan Over the Coals

Some 60 aging coal miners lace up their boots, snap on headlamps and raise their fists three times in the air with shouts of “Yosh!” in a pledge to complete their shifts without an accident. Then the mostly middle-aged men head toward the mouth of the No. 2 Incline Shaft, lights bobbing, to begin the 40-minute trip into this damp, dusty world 2,000 feet beneath the sea.

The Taiheiyo Coal Mine, most of which lies off the coast of Japan’s northernmost island of Hokkaido, is one of only two active coal mines left in Japan. The experienced miners work hard using advanced technology. They produce minimal pollution and, by the standards of the industry, have an exemplary safety record.

That said, the fact that Taiheiyo still works Japan’s fault-filled geology long after it is economically useful or strategically important illustrates much that is wrong with the Japanese economy today, and why this once-vaunted nation is having so much trouble finding its way out of a decade-long downturn.

Japan’s domestic coal-mining industry hasn’t been competitive with its overseas counterparts for 40 years. Heavily subsidized mines continue to produce some of the most expensive coal in the world, roughly three times as high as the world price. Their customers--government-regulated electricity companies--are arm-twisted by bureaucrats and politicians into buying the gold-plated fuel. Rather than fret about it, the power companies simply turn around and pass on the cost to consumers.

This contributes to some of the world’s most expensive electric bills, undermining the competitiveness of Japanese companies and the wider economy.

It wasn’t supposed to be that way. Taiheiyo and Japan’s only other remaining coal mine--the Ikeshima operation near Nagasaki--were slated to close along with the rest of Japan’s coal mines under a policy outlined in 1987 to shut down the noncompetitive industry by the end of the 20th century. Then-Prime Minister Ryutaro Hashimoto applied further pressure in 1995 by calling for a 20% cut in Japanese electric bills by 2000.

The mines toil on, however, kept on life support by about $1 billion a year in various government transfusions. In the government’s latest rationale for keeping them operating, the two are being readied as showcase mines for Chinese, Vietnamese and Indonesian students under Japan’s foreign aid program--what one coal expert terms “coal-mining museums.”

Coal’s special standing here dates to the arrival of Commodore Matthew Perry’s black ships in the 1850s and Japan’s struggle to catch up to the West. Shortly after World War II, Japan earmarked coal as a priority industry, both to drive its ambitious industrial plans and to avoid the dependence on foreign resources that had contributed to its humiliating defeat. At the peak in 1961, Japan was producing 55.4 million tons of coal from 574 mines.

But the record output masked a problem that would only grow worse. Already by the 1950s, Japanese coal was noncompetitive against imports. In an echo of Soviet central planning, Japan’s first of several five-year coal plans in 1958 called for a $3.30-a-ton price cut by 1963 to spur flagging demand. Prices did fall a bit, but every year saw the gap expand with lower-cost imported fuels.

Japan’s 40-year effort to protect the coal industry costs far more than the $1 billion spent annually to cover past labor, economic, debt and environmental costs trigged by mine closures.

Millions more are spent trying to breathe some life into the depressed local economies left behind. Thus former mine sites are now trying to make a go of it as hot springs, coal history exhibits, nursing homes, garbage-drying centers, experimental vineyards, Swiss villages, weightlessness research centers, a “Hawaiian Spa Resort” and an “Ann of Green Gables” Canadian World theme park.

Meanwhile, miners at the Taiheiyo complex can live in housing, eat in restaurants, relax in spas, get married in wedding halls, attain final peace in funeral homes and see their memories preserved in shrines, all owned by the company.

And to keep mines going, the Japanese government has tried almost everything over the years: it has taxed oil imports to subsidize coal, spent billions on thermal power plants to spur demand, poured huge amounts into roads and infrastructure, paid off the debt of private mining companies, subsidized corporate restructuring, funded labor payoffs, granted loans and handed out safety payments.

Despite the tens of billions spent trying to keep mining afloat, however, conditions only worsened.

“In spite of the enormous government protection, the industry showed signs of total collapse almost immediately after the new program was put into effect,” one account says of a 1966 plan.

Finally, in November 1986 in the eighth coal plan, the government declared that enough was enough and set a 1995 deadline for subsidies to end.

The 1995 deadline came and went, however, and the subsidies continue. Rather than admit that the eighth coal protection plan was not in fact the last, the government is calling the current plan--which is supposed to last until 2001--the “post-eighth coal plan.”

“It’s not called the ninth plan because it was decided that the eighth plan would be the final restructuring stage,” says Toshiaki Koizumi, deputy general manager of the Federation of Electric Power Companies. “So if you say the ninth plan, it gives the impression it’s not being carried out.”

Putting Off the Inevitable

Certainly every nation has its sacred cows. And shutting down coal mines has not been easy in any of the industrialized countries, including the United States, Britain and Germany. And since 1956, Japan has wound down more than 840 money-losing pits that once employed more than 250,000 under policies that have brought far less social strife or labor violence than in the West.

What is different is the extraordinary lengths to which Japan is willing to go to put off the inevitable. Coal miners, in turn, are hardly alone under a national quilt that has worn threadbare from shielding Japanese against global competition. They are snuggled up with rice farmers, shopkeepers, small manufacturers, middle-aged “salarymen,” fishermen, truck drivers and construction workers, among others.

Collectively, these policies have not only propped up the losers and handicapped the winners. They are also placing an increasingly onerous burden on Japan’s government coffers, already hard-pressed by recession. This partly explains why Japan recently overtook the United States as the world’s largest public debtor.

In contrast with the heavy subsidization of coal mines in Britain and Germany, Japan’s policies appear less aimed at preserving miners’ jobs than protecting the money-losing companies and, some suggest, the army of bureaucrats charged with overseeing the industry.

In fact, part of Taiheiyo’s survival strategy is to further automate and cut workers--with generous severance subsidies from the Labor Ministry--by 33% to around 800 workers over the next two years. “We need to boost our productivity,” says Yoichi Murakami, the mine’s international manager.

Luck, Location, Clout Play Role

While the other coal mines were closing by the hundreds, Taiheiyo and Ikeshima survived through a combination of luck, location and political clout, energy experts say.

Fastest to fold were mines with bad safety and labor records or those that produced a lot of pollutants, faced lawsuits or mined the wrong kind of coal. Taiheiyo has not had a major accident in two decades and its brand of coal has not produced the black-lung victims seen elsewhere. Like its counterpart near Nagasaki, it is also located in an economically depressed area with enough political influence to keep the public largess flowing.

“The Japanese people feel strongly about coal, just as they do about rice,” said Naoto Kitamura, a member of Japan’s House of Representatives. “I believe the subsidies we spend are reasonable. It’s not really that much.”

The $1.28 billion spent on various coal-related subsidies amounts to less than 0.02% of the government’s annual budget, or about $10 for each Japanese man, woman and child.

And supporters like Kitamura point out that the 3 million tons of overpriced domestic coal produced annually accounts for only about 2.5% of Japan’s total coal consumption, a burden easily borne by Japanese consumers.

But the electric utility companies, which have been forced to buy the expensive coal for years, disagree. They say the policy hurts them at a time when they are under growing pressure from the government and consumers to pare rates, and from big industrial users who will soon be able to buy power from other sources.

Part of the reason Japanese coal is so expensive to produce is its extreme depths, unstable geology, and high water and methane content.

At the farthest reaches of Taiheiyo’s 108 miles of shafts is an evil-looking $3-million machine with giant rotating teeth that moves back and forth, eating the wall for a living. The coal flies onto a conveyor belt for the long trip to the surface. The dusty faces of the miners blend in with the floor and walls as an automatic support system moves in behind the chomper to prevent collapses.

“In the old days, two people used to have to carry 100-kilogram bags like a donkey. Now you just push a button,” said Yutaka Mimura, 53, a 35-year veteran of the mine. “Still, I would not recommend that my son do this work. The mining industry is in very hard times.”