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Have the Japanese Model of Labor Relations Collapsed or Not

Under the Current Globalization?1

What has been discussed in Japan, and what should be discussed, on the topic, "Has the Japanese Model of labor relations collapsed----or not----under the current globalization?”

The aim of this paper is two-fold. One is to introduce to readers in foreign countries the ongoing discussion in Japan, and the other is to emphasize the necessity for an analysis that goes below the surface in order to promote the status of working people and the international solidarity of the labor movement. 2 Too innocently political or "pro-capital" is the seemingly "academic" or "neutral" discussion on the Japanese Model held by researchers and scholars over these past few decades.

This paper comprises four sections: (1) the Japanese Model has collapsed; (2) it is wrong; (2a) the Japanese Model has not collapsed, it is still alive; or (2b) it has not collapsed because it never really existed from the beginning; (3) the Japanese Model has not collapsed but been evolving and purified; and (4) the "collapse" (or evolution) of the Japanese Model has little to do with the phenomenon of globalization currently discussed. The course of the discussion below will not provide extensive empirical data to verify each of the contentions, but symbolic cases and exemplifying data to support each will be given.

To make our discussion simple, two assumptions shall be made. First, labor relations are composed of two parts: (1) Relations with labor unions or union movements and (2) personnel or human resource management. Second, (1) enterprise unionism and (2) lifetime employment with the seniority-based wage and promotion (hereinafter referred as nenko3) system represent the Japanese Model.4 These were highly praised as core elements of the Japanese success story----at least until 10 or 15 years ago.

1. The Collapse of the Japanese Labor Relation Model

The Japanese Model has collapsed, say the overwhelming majority. Labor unions are disappearing. Lifetime employment has gone and the nenko system has been replaced with an outcome-based system.

1.1 Unionization Rates and Strikes

The organizational rate has been declining every year and is now down to lower than 20 percent (19.6% in 2003). It was 55.8 percent in 1949. Even the real number of union members has been declining since 1995. (MHLW, 2003a) Nearly 70 percent (68.8%) of labor unions lost membership. (MHLW, 2004)

Hardly any strikes occur in Japan today, with only 7,000 participants in a total of 74----which lasted longer than half a day----in the entire year of 2002 and throughout the country. There were 3,300-5,200 strikes with 2,200,000-3,600,000 participants in the middle of the 70s. (MHLW, 2003b)

The term "collective labor relations" is obsolete. "Individual labor relations" is in fashion. Some even refer to "non-union unionism."

1.2 Personnel Management

Lifetime employment has disappeared. (e.g. Yamada, 2001: 3-4) The nenko system has been replaced with competence (noryoku)- or outcome (seika)-based systems. (JPCSED, 2004)

"Regular" workers have been frequently permanently laid off and non-regular workers have been increasing both in number and ratio. One epoch-making event was a 1995 Japan Federation of Employers' Associations (Nikkeiren) report titled “Japanese Management” in a New Era. (JFEA, 1995) It proposes to classify employees into three categories: Core employees, professional employees, and general employees. Lifetime employment should be restricted to the first category.

According to a MHLW (Ministry of Health, Labor & Welfare) survey, half (48.6%) of corporations with 30 employees or more say that they "don't care" about lifetime employment while only 8.5 percent "attach much importance" to it. More than half (55.9%) say they give weight to competence in their personnel management while few acknowledge nenko. (MHLW, 2002) According to a TV Asahi survey, forty-five (45) percent of the Top 100 corporations listed in the Tokyo Stock Exchange 1st Section say that they "have a plan for permanent layoffs." White collar workers in leading banks, security firms, and information & computer firms, who most typically enjoyed lifetime employment, were interviewed in Kabuto-cho5 to answer seemingly that they had taken "employment restructure" for granted. (Otani & TV Asahi, 2000)

According to a JIL (Japan Institute of Labour) survey on future personnel management, two thirds (67.9%, MA) of firms with 100 employees or more say "Competence" will be a basis for pay increases and promotions, more than half (54.6%) say "Individual Achievement [gyoseki]" will be reflected in bonuses, and nearly half (44.5%) and a third (32.9%) say "Competence" and "Individual Achievement" factors will be increasingly considered among determinants for basic wage and salary, respectively. (JIL, 2003)

Restructuring, deregulation, flexibility, competition, a free market economy, a new economy, and globalization are key words and phrases constituting this entire trend. The mass media and books and articles by researchers and academicians are full of these words and phrases. The discussions are identical with those held in the United States around the 1980s. Japanese labor relations seem to be converging into the US model. People say, "Follow the American model."

2. No Collapse of the Japanese Model

“No, there has not been a collapse of the Japanese Model,” say the minority. There are two different arguments. One, the Japan Model persists, as a simple fact. Two, such characteristics as enterprise unions, lifetime employment, and nenko system never existed from the very beginning as practices unique to Japan. Thus there has been no collapse.

2.1 The Japanese Model Has Not collapsed

2.1.1 Labor unions

The organizational rate of 20 percent is much higher than that of the United States, more than 10 million working people are still in unions, and 64 thousand labor unions are functioning in Japan. More than 95 percent of those unions are typical enterprise unions. (MHLW, 1997)6 The percentage of enterprise unions is even slightly higher than several years ago (MHLW, 2003a). Various new forms of unions such as community unions, women's unions, and managers' unions have drawn media and researcher attention, but their numbers and influence are just minimal. Almost all mainstream employees are still members of enterprise unions.
2.1.2 Lifetime Employment with the Nenko System

The notion of lifetime employment is still deeply rooted in Japanese management. Canon Inc., Nippon Express, Yokogawa Electric Corp. as well as other leading corporations clearly state that lifetime employment is their core principle of the management. (e.g. The Nihon-Keizai Shinbun, 2004a: 13) Ascribing their successful achievement since the mid-90s to their technology, not to the destruction of Japanese employment system, Fujio Mitarai, President of Canon, agrees with the an idea of "the strength of (Japanese) manufacturing industries, in comparison with US and European corporations, comes from lifetime employment.” (Mitarai & Ito, 2004: 126 & 130) "Now Is the Time For Lifetime Employment" is the title of a book on Yokogawa. (Otani & TV Asahi, 2000) Many corporations once abandoned the practice of lifetime employment but a number have now returned to it after some bitter experiences. (Takemura, 2001: 48)

The JIL survey referred above in Sub-section 1.2 found that three out of four corporations have the intention to maintain lifetime employment with or without modifications: 36.1 percent "will retain lifetime employment", 40.0 percent "will retain it with some revisions," and only 15.3 percent “won't”, saying, "A total overhaul is necessary." (JIL, 2003) What the MHLW survey above shows is that half of corporations would maintain the lifetime employment regardless. (MHLW, 2002) Non-regular workers increased in number—though ten (10) percent at most in ratio. (?, ?) It is only less than thirty percent (28.2%) of corporations that are considering an increase in non-regular workers. The majority (52.0%) are "status quo," and some 14.4 percent are considering a decrease. (MHLM, 2002)

On the other hand, the nenko system seems to be much less popular among today's management. A MHLW survey found that, in the past five years 30 percent of corporations actually increased the relative weights of competence (shokumu-suiko noryoku), achievement, and outcome factors among their wage determinants. (MHLW, 2001) However, nenko factors have not been totally swept away. The crux of the matter is their weight or the proportion.7 (cf. Go, 2002: 111-113; JPCSED, 2004: 34)

Statistically speaking, the average years of service for Japanese working people is actually becoming longer these years (Go, 2002: 109-111 & 114), and the curve to upper-right-up on a graph of wage by age is readily apparent although the inclination has become less steep. Yasushi Tsuru, a professor of Hitotsubashi University Institute of Economics using MHLW’s Wage Structure Basic Statistical Survey, found that both long term employment and nenko wage have continued. The percentage of employees with long years of service among middle and older age male employees has increased since the 80s regardless of company size and education level. Steep wage curves by age have been maintained across-the-board although the curve of male university graduates, which is the steepest, has become gradual. (Tsuru, 2003: 4-5)

2.2 The Characteristics Never Existed From the Beginning

2.2.1 Labor Unions

"Enterprise" unions existed but enterprise "unions" did not. This is a matter of definition of the term. Labor unions were dead or had stopped functioning at least 15 or 20 years ago8 when globalization started being discussed in Japan or while the Japanese Model was praised all over the world. Wages and salaries have not been raised and members employment is not protected by union efforts any more. (Fujimura, 2004: 79-80; Tsuru, 2003: 4) There are no "struggles" or "fights" against individual corporations while Rengo, the largest national center, actively seeks to improve public policies and programs in various governmental advisory councils or in meeting rooms. (cf. Sakauchi, 2000; Tsuru, 2003: 4 & 10)

Not a few unions recently dissolved their strike funds to return them to their members. The accumulation of a huge amount of funds itself is a witness of their lack of use over the past few decades. Unions did not and do not know how to use them, or did not and do not have any intention to use them for their original purpose.
2.2.2 Lifetime Employment and the Nenko System

Lifetime employment and the nenko system were not prevailing programs in Japan from the beginning. Their coverage was very limited―by industry, occupation, firm size, gender, and educational level. Probably only a quarter of all working people in Japan enjoyed them. Non-regular workers, most of the smaller firm workers, and practically most female workers did not. (Akimoto 1987, 74-76) Even many core employees left their firms halfway through their careers.9 Hamashima proves, using the Employment Trend Survey [Koyo-doko Chosa] of the national government, that 50-60 percent of newly employed workers of Japanese corporations were from other employment since the middle of the 1960s—except for the first half of the 80s, and only 20-30 percent were new participants in the labor market, including school graduates. Even when limited to male regular employees in big corporations with 1000 or more employees, the first figures were still 40-60 %, which have been increasing since 2000. In big corporations with 1000 or more in 2000, standard employees (those who entered a corporation immediately on graduation and continue working in the same corporation) were already fewer than 60 percent in 20-24 year old bracket among male high school graduate employees and fewer than 56 percent in 25-29 year old bracket among male university graduates employees, (Hamashima, 2003: 179-183 & 207)

The programs and consequences should be distinguished. Whether or not the lifetime employment and nenko system may be programs unique to Japan, long term (or even lifetime) employment of white collar workers in big corporations and the upper-right-up wage curve by age could be found in many countries. (Mitsuya, 2002: 73) “Their turnover rate in US first-class corporations is less than two percent.” (Mitarai & Yonekura, 2002: 216) The average years of service for Japanese workers is not necessarily longer than that of other countries. Age and years of service function as alternative variables of the maturity of skills, knowledge, and human relations, including workability in cases of trouble and emergencies, which would justify a gradual wage increase and promotion. Sueki, 2003:2-5)

Programs and norms should also be distinguished. Lifetime employment was not a program. The idea of no-layoffs was never guaranteed. Some people even say, "It was not a fact but an illusion." (Nomura, 1994: 195) There was simply no need for Japanese companies to layoff their employees during the high economic growth period. Most companies continued expanding. This created a social norm for the lifetime employment together with the humanism, paternalism, and Confucianism of Japanese employers' philosophy, the unions' anti-layoff struggles, and the accumulation of layoff-restrictive court rules for a certain period after World War II. (cf. Takemura, 2001: 49-50) When the need to eliminate part of the workforce reached a certain level and no counter power existed, layoffs and discharges were actually executed relatively easily even during the most prosperous periods.

The extensive use of non-regular workers, or “Just in time system in employment,” is of Japanese origin. Temporary workers (rinjiko) were a social problem in Japan for many years after World War II. Half of the workers who were working in a steel plant were not its own employees (shagaiko). More than half of the workers in a Toyota plant at a certain point in the early 1970s were non-regular workers such as trainees and seasonal workers. (Kamata 1973) Many firms used part-time and student employees. “Why not use non-regular workers?” was always the advice to US employers given by the author in consultative meetings in the late 1970s and the 80s, far before a “Learn from Japan” movement started.

The nenko was a program, but the reality is quite different from what is merely imagined. There were few personnel management programs exclusively adopting age and years of service as wage and promotion determinants. Factors of age and years of service were only a part of the total determinants. Even among civil servants, who are regarded as the most typical workers with the nenko system, supervisors and managers range from their late 20s to 50s in age. (Hamashima, 2003: 196)

3. The Evolution and Purification of the Japanese Model

Regardless of whether the Japanese Model survives or not and did or did not exist from the beginning, the discussions on enterprise unions, lifetime employment, and the nenko are ones at the program or institutional level. Let us go down a step below, below the surface or the more essential level. Let us return to the fundamental question of "What is the Japan Model? What were and are characteristics of Japanese labor relations?

3.1 Labor Unions

The essence of enterprise unions is "Cooperativeness" when euphemistically expressed, or to be part of the management when narrowly expressed.

Japanese unions have shouldered the responsibility for management----how to lead the company to profits. This was destined half a century ago by GHQ's policy to "utilize labor unions" as an instrument to "reconstruct the Japanese economy". With the ineffective management just after World War II, unions had to have double missions: (1) To protect members' livelihoods and (2) to promote production. (Saga, 2001: 131-132 & 135)

When the first mission was fulfilled, to some extent, only the second remained. The ultimate form of the second mission is the absence of union unionism, or “no union” unionism. Japanese unions have been evolving and purified. With the completion of the Japanese Model in this sense, the Japan Employers' Association, the counterpart of the Japanese labor movement, dissolved themselves recently. There is no need to exist any more.

No, “no union” unionism is not the ultimate form, or acme, of Japanese enterprise unions. “No union” unionism is not the Japanese employers' choice. They want to keep their enterprise unions, as a communication tool or as an indispensable partner expecting them to "persuade" members. (Hamanaka, 2001: 44-45 & 47) One president of an enterprise union has answered in an interview (Ohtani & TV Asahi, 2000: 161-162):
All information that the management has is given to the union. The union fully understands the situation [genba] of the company and presents its demands. This leads us to a choice of direction based on mutual understanding.

-----Then any conflicting relationship won’t be born, will it?

No, it won’t.

Mitsubishi Motors Corp. Union recently not only dissolved their strike fund as a sign of no more fighting but also will refund it to each member as an alternate "year-end bonus", which the union could not or did not get from the management. (The Nihon-Keizai Shinbun, 2004b: 3)
3.2 Lifetime Employment with the Nenko Program

The essence of lifetime employment with the nenko program is the "enclosure" of a workforce within a fence of a corporation. (e.g. Hamashima, 2003: 175; Takemura, 2001: 49-50)

Given the present internal and external conditions in Japan such as educational institutions and the quality level of the workforce, this is the best way, the most cost-efficient way, to secure the workforce----the necessary quantity with necessary quality whenever necessary----through training and personnel reshuffling or internal transfers. (cf. Asahi, 2001: 66; Fujimura, 2003: 26-27) Fujio Mitarai, President of Canon, who has rich personal experience in both the United States and Japan, says, “If I were president of a US corporation, I would constantly replace employees….In present Japan and for present Canon employees, this technique [the lifetime employment management] is rational10….” (Mitarai & Ito, 2004: 131) What he says is that “Given conditions in and out of our company, e.g. high quality able young men (or women) and the lack of training & educational institutions in society, this is the most efficient.”

You can expect the most reliable workforce with not only skills, knowledge, and human relations but also the attachment, loyalty, and obedience due to the dependency that comes from insulation from the external labor market. (Asahi, 2001: 68)

Thus, combining 3.1 and 3.2 above, the essence of Japanese labor relations is few or no regulations. Rule out regulative powers----regulations by unions and regulations by the (labor) market----as much as possible. Maximize freedom and flexibility.

In this sense the recent change of the Japanese Model is not towards collapse but towards the evolution and purification. (Asahi, 2001: 77)

4. Relevance to Globalization

How does the discussion of whether the Japanese Model has collapsed or not relate to today's discussion on globalization? Three points should be noted.

4.1 No Relations

Globalization had little to do directly with this "collapse" of the Japanese Model. Major contributors to this change in the Japanese Model were the aging population and the longer years of service of women. The average life span, which used to be 50 for men and 54 for women in 1947? and 70 and 75 in 1971, reached 79 and 86 in 2004. (MHLW 2004) The baby boomers have reached the managerial level. Women used to leave the labor market at marriage or motherhood, but now they won't. Now the coverage of the lifetime employment with Nenko system, if it is a program or a norm, must be altered, in order to maintain the Japanese Model. The "no-layoff practice/norm", for example, could be discarded if the need exceeds a certain level and if there is no regulative power----the regulation of unions or legislations.

The discussion on, or the campaign for, globalization promoted this trend directly or through the legislative support by the state, such as the revision of the Labor Standards Act and Tempo Staff Act. Globalization served as a sort of tail wind. Globalization as well as the "deregulation", the "flexibility" and the neo-classic school "free market" theories all perfectly follow to the direction in which the Japanese Model proceeds.
4.2 Mutual Learning of Tools and Techniques

Until 10 or 15 years ago people all over the world—including Americans—were busy "learning from Japan," saying "the United States is down," and "Japan as No.1." 11 Now, however, we hear "Learn From the United States.” People have been always looking for various models whose countries have good business performance, e.g. the Netherlands Model, New Zealand Model, and German Model.

Their interest is in the "how-to" level. With a generalization of the discussion at the level of Section 3 above, nothing would be peculiar to Japan. Employers, regardless of their nationality, would adopt whatever is usable—enterprise unionism, lifetime employment, the nenko system,12 QC, team work, lean production, job performance appraisal for blue collar workers, etc. (Sueki, 2003: 3; Asahi, 2001: 66; Fujimura, 2003: 49) These are organizational software, or tools, techniques, and programs. The one concern is, both for practitioners and researchers, their adaptability and adjustment or transferability and modification, with given conditions. When a QC circle program was, for example, transferred to an auto plant in the United States, three modifications were made: (1) the goal was limited to an improvement in product quality, not productivity; (2) voluntarism was emphasized, and (3) the program was reinterpreted as a form of participation and industrial democracy (Akimoto & Cole 1983: 39)

Management’s interest in this mutual learning is certainly heightened under the globalization of its operations as well as information in general. The difference is that the Japanese Model was focused on internal management techniques and the US Model on external management.

4.3 Labor Relations of Japanese Corporations Outside

The newly altered Japanese Model would be more applicable to the international operations of Japanese corporations. The trichotomy portfolio by JFEA, for example, may be more universally applicable, limiting the culture-ridden arrangement, or the uniqueness to the country, to a small circle of cadres.

Perhaps the intentional dichotomy of the workforce between in-house procurement and outsourcing, and the suppression of the swollen numbers of the first group into a small number of cadres, make the essence of the Japanese Model bloom as that of this model is "no regulations". The phenomenal or concrete, i.e. institutional and program level, operations could vary depending on given conditions, from the most primitive and violent of labor relations (urwüchsiges Arbeitsverhältnis) to the most sophisticated forms with human rights considered, when Japanese corporations go into other countries—including “the two thirds world—under the present globalization.

The majority argue that Japanese Model has collapsed, with the insistence of "should" included. A minority, however, argue that it has not collapsed, with the desire of "should not" included. Verifying which voice is correct is not the aim of this paper, but probably it is fair to say that Japanese Model has not collapsed totally but its coverage has been significantly narrowed. (Go, 2002: 113) Labor unions have been losing members. Most of them may not be labeled labor unions any more, lacking independency from the management. Lifetime employment and nenko, especially the latter, seem to be unpopular.

Another category of the minority voice is that the Japanese model such as people think did not exist at least when globalization started being discussed or the Japanese Model was most popular around the world. In that sense it has not collapsed.

All of these arguments are ones found at the level of a program or an institution. The more intrinsic characteristics of the Japanese Model are cooperativeness (or jointness) and enclosure of workforce with which regulative power is averted and the management’s free hand for man- and woman -power procurement is secured. Old programs and institutions have now become unable to contribute to their ultimate goal of higher productivity and profitability and must be altered. In this sense, the Japanese Model has been purified and evolved.

The collapse of the Japanese model has little to do with the present globalization. Without it, Japanese labor relations would have proceeded down the same road due to other forces, primarily the aging population and increasingly feminine makeup of the labor market.

Interest in leading discussion to the “ultimate goal” is shared by employers across nationalities. They will adopt whatever tools and technologies available regardless of their country as far as they are effective for achieving the goal. The interest would converge in the quest for applicability and modification. The present globalization is only a parameter for the collapse of the Japanese Model and mutual learning from among various models.

On the other hand, under the present globalization, Japanese corporations have been moving into other countries. Here, the newly altered Japanese Model would is more functional because of its broader flexibility and universality. The Japanese Model may take on various forms depending on the given conditions of the country. The form could vary from violent exploitation to a sophisticated appearance.

Finally, we should not be wrapped around employers' little fingers by such arguments as which country's model they implement—the Japanese model, US Model, UK Model, Dutch Model, French Model, or German Model, or others.

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Akimoto, Tatsuru & Cole, R.E. 1983. “A QC circle in a US auto plant.” The Monthly Journal of the Japan Institute of Labour [Nihon Rodo Kyokai Zassi]. 25(9). September. pp.24-39.

Asahi, Kichitaro. 2001, “The change of Japanese management and labor relations under globalization,” Bulletin of Kagoshima Prefectural College. 52, pp.61-80.

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Hamanaka, Shoitiro. (President, Japan Tsuun). 2001. “Management-labor consultation system is the culmination of Japanese system. The maintenance of mutual trust by conversation would keep the healthy collective labor relations in future.” Keieisha. 55(12). December. pp.44-47.

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1 This paper was originally presented by the author as material to provoke and promote intellectual discussion among participants at the AKRIS (Association of Korean Researchers on Industrial Society) International Conference, “The State, Market and Labour Movements: Changing East Asia in the 21st Century,” held at Chung-Ang University, Seoul, Korea on October 21-24, 2004.

2 The participants of the session were labor union activists and academicians from Australia, Singapore, Taiwan, Germany, the United States, Japan, and Korea.

3 Nenko means “age and years of service” (Nen-) plus “merit and contribution” (-ko) in the literal sense. (Hirosuke Kawanishi, “Assessment Criteria of ‘Noryokukyu’ in the ‘Densan Wage System’,” Human Sciences Research[Ningen-kagaku Kenkyu] (Department of Human Environment, Faculty of human Sciences, Waseda University), Vol.18, No.1, 2005. p. 2)

4 Other contenders raise the “high-context” society, community-minded loyalty, top-down communication, paternalistic personnel management, just-in-time system, small group activities, quality-consciousness, etc. as Japanese characteristics of labor relations. Some others may even refer to various characteristics of Japanese management, e.g. “the Convoy” system, the mutual holding of stocks, sub-contracting, keiretu and kanban-method.

5 The financial district around Tokyo Stock Exchange.

6 The equivalent data has not been collected after this year.

7 The campaign to replace nenko with these factors is not new but was carried out a few times since the late 1960s. “Ability-qualification” (shokuno-shikaku) system was, for instance, emphasized after the first oil shock.

8 It is a matter of dispute to identify the year when Japanese “labor unions died or stopped functioning.” One idea is 1989, when the Japan labor Union Congress [Sohyo] was dissolved, or probably the year leading up to the event. Yasushi Tsuru designates “the early 1990s”. (Tsuru, 2003: 4)

9 Lifetime employment was defined by the author in the 1970s as “a practice that employers do not hire employees halfway through their careers.” Otherwise, a pyramid shape for the workforce of an organization could not be maintained.

10 Because technology is accumulated within people, communication speed from the management to employees is hastened and management-employee trust is fostered. (Mitarai & Ito, 2004: 130)

11 The author’s response was always "Just wait for a while, 10 or 20 years. Japan will go down."

12 Remember that enterprise unions and lifetime employment with nenko were discussed as a symbol of backwardness till the late 70s.

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