Japanese Jolted by Demands of Future
An era that Yoshiaki Onoue and Mamoru Naito never wanted to witness has abruptly arrived in their beloved Japan.
Onoue, a nameplate maker, recently was abandoned by two longtime customers, Toshiba Corp. and Matsushita Electric, for cheaper Southeast Asian suppliers. He now is under unprecedented pressure to lay off staff--a move that would violate his deepest beliefs that Japanese companies are families.
Naito tells of devoting his life to corporate Japan. But now, middle-aged and highly paid, he says he is being harassed to quit his large firm to cut costs. Like many of the 1,800 executives who have besieged the Tokyo Managers Union in the last two years, Naito, 48, says he refused to take early retirement, turned down transfers to menial jobs and now has been relieved of all job responsibilities and had his pay and bonuses slashed.
Count these two men as casualties in a brutal shakeout gripping this nation. Japan is being buffeted by relentless, global economic trends as it struggles for a resurgence after a five-year recession. A strong yen, high domestic wages, freer world trade and the growth of global communications technology have thrown the country into a wrenching restructuring--one that is creating new winners and winnowing the losers.
Some of its economic rivals may be dismissive about Japan, seeing it mired in recessionary woes, technological weaknesses and outdated institutions. But, in fact, this nation retains tremendous strengths--and has been taking harsh and painful measures to build them up.
As Japan enters a period of slower growth, sharper world competition and an aging work force, it no longer can afford the bloated payrolls that many of its traditional practices engendered, such as:
* Guaranteed “lifetime employment” until at least age 55 for most men in larger companies.
* Automatic wage increases, based not on profits or performance but seniority.
* Family-like ties with domestic subcontractors that shut out cheaper foreign suppliers.
One by one, such traditional Japanese business practices have come under attack. “There is a whole feeling that the system doesn’t work well. It is not sustainable when we don’t have growth,” says Hiroya Ichikawa, a Sophia University economics professor and former top executive of the Keidanran, Japan’s largest business organization. “If we remain as is, we don’t see many prospects.”
Japan has survived repeated recessions and restructurings. But analysts say this is the worst period, hitting white-collar workers for the first time and subjecting smaller businesses to fiercer pressures than ever experienced in two previous oil shocks.
Companies are cutting payrolls, bullying people to quit, moving factories offshore, introducing exacting new standards of job performance and merit pay, and relentlessly squeezing subcontractors for ever-lower costs. They are loosening “lifetime employment” systems to rid payrolls of pricey, unproductive managers.
Breaking Ranks
They also are breaking ranks with rigid corporate seniority systems to dump deadwood and nurture younger talent--from high-tech whiz kids in research labs to Sony Corp. President Nobuyuki Idei, who leapfrogged over 14 other executives to take the helm last year at the relatively precocious age of 58.
The trend toward younger presidents bypassing seniors has hit a range of firms, including Ricoh, the electronics company, and Toshiba, the manufacturing giant. Even the Keidanran business organization--regarded as Japan’s bastion of traditional capitalism--has shifted to a “group leader” system in which the most talented may lead regardless of age and make decisions without consulting elders.
“To have young CEOs gives a shock to the system. We need change, and we need it from the top,” says Ichikawa, who added that such moves would have been impossible without the current climate of catch-up and panic.
To Americans thunderstruck by wholesale layoffs, Japan’s downsizing may seem enviably mild. But to some Japanese workers, it is causing deep psychological shocks as it challenges this society’s cherished ideals of loyalty, stability and seniority.
Traditions Fade
As economic pressures heighten competition and workers’ sense of self-preservation, older men like Onoue, 62, lament the end of giri-ninjo, a tradition of obligations and warm human ties that long have shaped business relationships here.
Younger workers, however, are embracing the chance to succeed on the strength of their individual skills as they lose their fealty to firms in favor of more self-determination.
The road to restructuring will create a more formidable Japan. But it has exacted a high human toll in record bankruptcies, soaring unemployment, mental stress, divorce, rising crime and homelessness.
The nation’s leading-edge firms--the Fujitsus, Sonys and Toyotas, which compete globally--may emerge stronger than ever.
But not all workers will be able to make the new grade.
Nor will all of the small- and medium-sized businesses, which long have supported Japan’s top companies in a multilayered subcontracting system, survive. A new government report confirms that many smaller firms, which employ 77% of the nation’s workers, are being left out of the present recovery--the first time they have not led the way. As large corporations expand their exodus for cheaper land, supplies and labor overseas, the structural shakeout among Japan’s smaller companies is the most severe.
Young women, middle-aged male managers, older laborers and blue-collar subcontractors bereft of new technology are in the most precarious position.
Such human casualties are found in grimy places like Toshimi Yoshida’s auto parts workshop, where punching presses and pinups of women clutter a space no larger than a garage. For 25 years, Yoshida’s one-man shop in the Ota district of Tokyo has produced steel parts for the likes of Mitsubishi and Nissan. But as they switched to plastic products and abandoned him for cheaper suppliers, his earnings plummeted and pushed him to the brink of bankruptcy during the early 1990s.
To survive, Yoshida, 54, used up $57,000 in savings and slashed his lifestyle--eating sushi only twice a year rather than three times a week, drinking a few times a month instead of every day. His wife began working at a curry restaurant.
Like other small company owners, Yoshida feels betrayed. “I used to absolutely trust Mitsubishi and Nissan. In the old days, we took care of each other. . . . Now that’s all gone,” he says. “Now, if someone else is cheaper, they’ll abandon you. Japan is moving toward American thinking.”
Energetic and determined, Yoshida has begun to recover his earnings by developing new businesses, such as fluorescent lighting equipment and machinery coating.
But older men in similar straits, such as Minoru Kagoshima, 70, say they have no clue how to start anew.
An electric wire maker, Kagoshima and his wife have closed one factory, said goodbye to 30 employees and used up their savings. There is no money for the karaoke, golf and trips to hot-springs resorts that used to brighten their lives.
Even if they wanted to quit, they can’t: They are awash in debt, and their pension covers just half their monthly rent.
“I have no pleasures left in life, and I’m worried things won’t get better,” he laments.
For Kagoshima, the fax machine brought the beginning of the end of a distinctively Japanese way of life. In the past, his customers would come to see him and drink, share business plans and gossip; Kagoshima even acted as a matchmaker for one young client. Now, the orders zip impersonally across his fax; he has never met “Fukuda” who faxed just the facts--volume, price and shipping date needed--on a recent order.
“Before, we would all make money together and struggle together,” Kagoshima says. “Now you have to protect yourself.”
At the Tokyo Managers Union, Kiyotsugu Shitara says the same thing. He and others began the union in December 1993 after Japanese firms began targeting white-collar managers for the first time--easing out 255,000 in 1993 and 1994, often through such insidious harassment as pay cuts, demotions, isolation and menial assignments. A “Workplace Bullying” hotline set up in June drew more than 500 calls in one week.
Because Japanese regulations make it difficult for firms to fire people--and require substantial severance packages if they do--firms often resort to bullying people to quit instead.
Yoshikazu Tomita, an editor for an arts magazine, said he had his pay cut, was consigned to meaningless work and given a lousy desk location to force him out of his job. Finally, after the union organized demonstrations in front of the office building and the president’s home, Tomita agreed to resign in return for a lucrative settlement.
Each week, a group of men who refuse to quit gather at the union office to give each other moral support and advice. They call themselves “the untouchables.” As Naito pours out his anger at his company--which stripped him of duties, then cut his pay under a new merit system by saying he did no work--he speaks of appearing on television to expose the injustice but notes that his wife is urging him to keep quiet.
‘Hard to Handle’
Toshihiko Matsuo, 39, said that stress caused by changes at his software development company--which ranged from imposing a new merit-pay system to pressure to learn computing--have pushed some employees to leave their jobs. Those toughing out the topsy-turvy turn in human relationships--a younger person may now become the boss of an older one--find it “really hard to handle,” he says.
Others who often believe that they face a grim new era are women, who still are the last hired and first fired, and older, unskilled workers.
Katsumi Hirayama, 59, earned $200 a day as a construction worker during the economic boom but became homeless and hungry when the recession hit in the early 1990s. Now, he says, no one hires men older than 40. If he’s lucky, he might land day work by lining up overnight to buy sumo and baseball tickets for scalpers. But, generally, he subsists on free noodles from the Shinjuku ward office in Tokyo.
“I have the will to work,” Hirayama says with a firm nod, “but they won’t take me. They’re only taking men in their 30s and 40s.”
Older Workers Cut
Men ages 45 to 54, in fact, have become Japan’s fastest-growing group of unemployed--their numbers rising 37.5% over last year--both through bankruptcies and layoffs, the latest government labor report shows. Demographics and economics help explain why. Workers older than 45 have climbed to 46% of the labor force from 34.8% in 1976, pressuring firms to trim bloating payrolls.
At the semipublic Industrial Employment Stabilization Center, which seeks jobs for workers whom companies want to dump, a rundown of one computer printout detailed the problem: Almost all candidates were in their late 40s and 50s, making more than $100,000 a year but largely without the technical skills demanded for the new global Information Age. The center recently has begun promoting jobs overseas, in places such as Singapore, to absorb Japan’s excess.
But many senior managers lack the proper competitive attitude, says Noboru Takahashi, a consultant for the Nikkeiren employer group. His business card bills him as an “elderly worker employment advisor.”
Takahashi, 67, noted that most of the displaced seniors, expecting the respect of their status, initially demand high-paying, easy jobs with juniors to do their bidding. “They need a reform of consciousness and skills,” says Takahashi, who is developing a government retraining program for older workers.
Behind the individual shaken lives are relentless changes sweeping the world. They began building in the mid-1980s, when the yen doubled in value under an agreement among rich industrialized nations, which hoped to hold down Japan’s ballooning trade surplus.
But the yen’s further ascent last year to a peak exchange rate of 79.75 to the U.S. dollar--a dizzying climb that made most Japanese goods more expensive and less competitive in global markets--shocked manufacturers into accelerating what had been halfhearted restructuring efforts, says Richard C. Koo, senior economist at Nomura Research Institute Ltd.
A $10,000 Japanese auto, for instance, would have to be sold for $30,000 abroad to recoup the same profit margin at 80 yen to the U.S. dollar compared with the 1985 rate of about 240 yen to the dollar. But because that pricing would gut Japanese competitiveness abroad, firms have scrambled to build cars in their overseas markets, buy more parts abroad and otherwise insulate themselves from “yen shock.”
Although the yen has weakened to about 110 to the U.S. dollar today, restructuring proceeds apace as other factors continue to press Japan.
The end of the Cold War and collapse of the socialist system also opened a global pool of cheap labor, intensifying pressure on Japan’s high-priced workers. Meanwhile, far-reaching trade agreements are wrenching open this nation’s most protected--and inefficient--industries, such as agriculture.
From Hubris to Panic
The hubris evident in the high-flying days of the bubble economy of the late 1980s, when land and stock prices soared, changed to panic--and Japan began running scared. “Eighty yen to the dollar [as an exchange rate] was a living hell to very many people in Japan, manufacturers in particular,” Koo says.
The reaction was swift: By 1994, 80% of manufacturing firms recently surveyed by the Japan Labor Research Organization had increased overseas production, and the same percentage expect more expansion by 1997.
Meantime, Japan cannot, in a flash, abandon the patterns of its post-World War II economic miracle and copy the U.S. practices of corporate downsizing and wholesale layoffs--nor does it want to.
When Nikkeiren, a major economic group, recently proposed new management practices, including more flexible hiring, pay and promotion systems, it took pains to assure workers that Japan had “little to learn from Western models” and would take a “cautious approach.”
Caution, indeed, has been the watchword. Despite the omnipresent buzz for change, only 9.8% of firms had introduced merit-pay systems, although the number of those considering them has leaped to 68.2% this year compared with 29.7% in 1992, a recent survey by the Social Economic Productivity Center shows.
An analysis by Schroder Securities (Japan) Ltd. found that Japan overall had not reduced its fixed costs--mainly labor--but had only arrested their growth. It contended that deeper cuts are necessary for a roaring recovery.
But many here doubt that corporate captains can win social consensus for further, rapid cuts. “The workers themselves, the people, want the status quo,” says Yukio Noguchi, a Tokyo University economics professor.
Others, such as Keio University economics professor Heizo Takenaka, lament that Japan has not even begun to make the systematic reforms needed for the new age: more vibrant universities to nurture free thinkers and technological specialists; and a retraining system that would give laid-off workers a place to turn to for new skills.
Japan’s labor market is far less flexible than America’s, since workers tend to be trained in skills specific to their firms’ needs and cannot easily transfer them to new jobs--one reason the government is reluctant to allow routine layoffs, Takenaka says.
Beset by Deficits
More broadly, Japan is beset by spiraling deficits, the world’s most rapidly aging population, underfunded pensions, reams of bad bank debt and a looming consumption tax hike that could chill consumption just as the economic recovery is taking off.
And some fear that the restructuring will bring a rising gap between the haves and have-nots, ultimately shaking Japan’s fabled social stability.
But stock analysts such as Reinier Dobbelmann, who covers technology for S. B. C. Warburg in Tokyo, have heard the doomsday scenarios before. He has seen Japan’s intelligent, diligent populace rise above them in the past--and expects that they will do so again.
“This is a country with a lot of economic drive, like the United States. There is not the complacency you find in Europe; people are very competitive and innovative,” Dobbelmann says. “So when things get bad, you can be sure things will improve.”
Megumi Shimizu, Chiaki Kitada and Makiko Inoue of The Times’ Tokyo Bureau contributed to this report.
NEXT: Those who win in Japan’s restructuring.
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Why Restructure?
In the late 1980s, Japan’s economy looked invincible--its stock exchange was zooming through the roof, the price of its real estate rising faster than a Titan rocket. But this rosy picture had a dark side: the yen reached record rates in exchange against the U.S. dollar. Japanese goods became less competitive overseas. The “yen shock” was among the factors that caused Japan to plunge into a recession.
The Stock Plunge
Closing price on last trading day of each year for Tokyo Stock Exchange Nikkei index:
‘96*: 21,656.45
****
From Yen Shock to Sticker Shock
Number of yen equal to $1 (average for year):
‘96*: 110
Price of Toyota Lexus LS 400 in the United States:
‘96: $52,900
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Land for Less
Percentage change in commercial land values in Tokyo, Osaka and Nagoya:
‘96: -17.2%
* As of July 12.
Sources: Bank of Japan, National Land Agency, Toyota Motor Corp.
