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‘Red purge’ during MacArthur era hurt unions now pushing on wages

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Bloomberg

As annual wage talks climax this month, one of the obstacles to Prime Minister Shinzo Abe’s campaign for outsize pay raises has its roots in the 1940s: a stunted union movement.

The nation’s top union boss, Nobuaki Koga, doesn’t personally know what it’s like to go on strike. Koga, the president of the Japanese Trade Union Confederation, says he has mixed feelings about what became a cozy relationship between employers and their company-based unions.

Cooperation — encouraged during the U.S. Occupation, when Gen. Douglas MacArthur cracked down on aggressive unions — helped fuel the nation’s rapid postwar revival. Now, weakened by economic stagnation and the legacy of a fractured labor movement, unions are struggling to pressure the nation’s biggest companies, even as they post record profits amid low unemployment.

“Sometimes unions focus on their own company and can’t see what to do for Japanese society as a whole,” said Koga, 63, whose group, known as Rengo, incorporates most of the nation’s union members. “There are times when I feel they could do more, and other times when I’m happy we’ve got company-based unions.”

Any failure to secure higher pay during the annual spring campaign risks accelerating a decline in the number of union members, which peaked in 1994. Public support for Abe’s government is also on the line, along with his effort to reflate the world’s third-largest economy.

Without wage increases that induce consumers to spend rather than save, Japan may struggle to sustain price gains to keep its tentative emergence from deflation on track, according to Daiju Aoki, an economist at UBS Group AG in Tokyo.

Early signs indicate that unions will have a tough time.

Toyota Motor Corp., which has forecast a bigger annual profit than all the other Japanese automakers combined, last month rebuffed a proposal from its in-house union for the largest pay rise since 1998.

The union is calling for an increase in base wages and payments linked to seniority or time served of 3.7 percent for the fiscal year starting April 1, plus bonuses equivalent to 6.8 months of salary. Talks continue, with union officials expecting a result by about March 18.

The most recent inflation data show an increase of 2.4 percent for consumer prices, including food and energy.

“Overseas, unions are industry-based,” Koga said in an interview on Feb. 20. “We are fundamentally different.”

He started his union career in 1975 at Matsushita Electric Industrial Co., later renamed Panasonic Corp. Strikes were already a thing of the past in the electronics industry, said Koga.

By contrast, AFL-CIO President Richard Trumka earned his stripes in the U.S. labor movement when he led mine workers on a 10-month strike against the Pittston Coal Co. in Pennsylvania in April 1989.

Japan’s system today owes much to a decision by MacArthur during the 1945-52 Occupation to abandon an initial move to encourage U.S.-style unions. As the Cold War began taking hold, he acted against left-wing groups, and banned a general strike in 1947.

The so-called red purge that ensued also hobbled opposition parties. Thousands of union members were fired from both public sector and private jobs.

Companies backed the expansion of in-house unions, ushering in a movement based on individual enterprises rather than trades or industries, as was more common in North America and Western Europe.

The unions that exist today also reflect the “idiosyncrasies of the Japanese” and their tendency to keep a lid on grievances and demands, said Koga.

“The priority for union members is for their company to be strong and profitable, so their jobs are safe,” said Hiroyuki Fujimura, a professor of business administration at Hosei University in Tokyo.

Strikes and other labor disputes peaked at about 10,000 in 1974, when unions fought to preserve jobs amid a recession triggered by the first oil shock, labor ministry data show. There were 507 cases in 2013.

Friction eased in the 1980s as the economy boomed. When the boom turned to bust, unions found themselves — like many policymakers — struggling to manage the sea-change with the start of deflation. Falling prices meant even with flat wages, purchasing power was increasing.

What Abe calls a “deflationary mindset” took hold, with employers and workers both curbing their ambitions. Now, there are few senior union officials left with the experience of tough negotiations, according to Fujimura.

There are 9.9 million union members in Japan, down from a high of 12.7 million in 1994, according to the labor ministry. They account for about 18 percent of employees.

Rengo is calling for a pay hike of more than 4 percent, excluding overtime and bonuses. More than 2 percentage points of this is for base wages, with the remainder linked to seniority.

UBS’s Aoki and Yoshitaka Suda, an economist at Nomura Holdings Inc., forecast unions affiliated to Rengo will win increases of 0.5 percent for base wages. Aoki said the figure may climb to 2.3 percent after accounting for seniority adjustments while Suda projected 2.2 percent.

Average earnings, including bonuses and overtime, climbed 0.8 percent in 2014. Pay adjusted for inflation fell 2.5 percent, ministry data show.

Part of the picture is explained by the growing ranks of part-timers and contract workers, who typically fall outside the company-union system.

About one-third of the labor force is comprised non-regular employees, according the Internal Affairs Ministry.

“Japan’s rapid growth happened because unions cooperated to increase productivity,” Koga said in an interview on March 5. “But in a slow-growth, mature society, unions can no longer afford to look solely at their own companies. They need to take a broader approach.”