By Ichiro Suzuki As the beginning of a new fiscal (and academic) year in Japan, April is a month when labor unions negotiate wages and bonuses for the next 12 months. It is called ‘shunto’, or spring wage offensive. Japanese labor unions are known for their company-based organizations, and an industry-wide structure on top of individual companies. Ahead of all other industries, it is customary that the automobile industry unions, led by Toyota Motor, reach an agreement with management as the largest and one of the best-paying. Toyota’s numbers have strong influences on the rest of the industry and then the rest of the country. This spring Toyota Labor Union has reached an agreement with the management for bonus that is worth 6.0 months of monthly salary for FY2021, to be paid in two tranches in June and December, and an average salary hike of 9,200 yen ($83) per month, exceeding the previous year’s hike of 8,600 yen ($76). Labor unions and management work together for a common goal of enhancing workers’ life through achieving greater sales, profits and productivity. On top of pay hikes, Toyota management and its union have reached a medium term agreement this spring on the company’s further drive to digitalization and carbon-neutral society, with minimum costs on employment. Young employees from elite colleges join their company’s union and stay there until they are promoted to managers’ rank, usually after ten years or so. Until then, these future managers with a potential of becoming management are union members along with people with a high school diploma. This is what sets Japan’s labor unions apart from those in the rest of the world. It wasn’t this way in the old days. Having been banned till the end of WWII, labor unions were given a new lease on life immediately after the war by General MacArthur’s occupation forces, as a part of their policy to democratize Japan. Under strong influences of the newly legalized Communist Party, unions became intensely hostile to management, to the tunes of those seen in the U.S. and the U.K. Stunned by their militancy and the rising influence of communism in the Far East at a time when McCarthyism was raging in the U.S., General MacArthur shifted direction to contain labor movements. In the early 1950s, management at a variety of companies spent a bulk of their time dealing with labor movements. Eventually, they succeeded in installing a second union that is friendly to the management, and in luring members from a militant one to a quieter one. David Halberstam’s “The Reckoning” vividly describes how Nissan Motor was saved from its militant labor union that drove the company to the brink of collapse. When ‘Japanese management’ became a popular buzzword in the 1980s in the classrooms of U.S. business schools, friendly labor unions were touted as one of the success factors. The age of super normal growth that spanned from the latter half of the 1950s through the end of the 1960s obviously made it easier for management to give what workers wanted, and this period cemented management-union relationships. Though these years of frenetic growth are long gone, it is almost miraculous that basic relationships between management and workers remain essentially intact, at least on the surface. While management is able to give much less than what they used to in the old days, they continued to share common goals of driving their company to the next level. Maybe, labor is too tamed. Perhaps this could be what the Chinese Communist Party wants in corporations in its own land. This cohesive labor-management relationship has its drawbacks. To begin with, the system is not very kind to those who did not enter the company at the time of college graduation. Since ‘classmates’ are moved up more or less in the same fashion for the first ten years, compensation systems based on seniority, that is deeply rooted in unions, is not capable of treating people differently, especially those with special skills. While some companies are introducing special pay packages, particularly in the technology area, it remains to be seen how this sticks in the medium term. Good labor-management relationships proved to be helpless amid changes that shook up industries forced by global structural changes. Some unions had to go through far harder times than others. Then, they were no longer able to stay so nice to management. Nissan Motor escaped the post-war crisis and sailed through the years of high growth. By the end of the 20th century, Nissan was suffering severe deteriorations in financial performances, and had to be rescued by capital infusion from an outsider that turned out to be Renault. The French car maker sent Carlos Ghosn, who had been known as cost-cutter, and he embarked on massive lay-offs through factory closures. What needed to be done on Nissan was evident to anyone, but the company’s all Japanese management team was not able to make a hard decision to close factories. The Nissan union had to take Mr. Ghosn’s proposal in order to save as many jobs as possible even at the sacrifice of many jobs. The same kind of storm hit the electronics industry. Once famed companies lost competitiveness in the 1990s, as the technology world had entered the digital age, and Asian competitors beat Japan on costs. Jobs disappeared. Bonuses and fringes were cut on those who did not lose jobs. The industry has been downsized considerably, and now is a shadow of former self that has failed to keep up with changing times. Preceding automobiles and electronics, other industries that went through a structural decline also suffered the same fate. Those included textile, steel, shipbuilding, etc. Labor-management relationships can bring only so much. (Today, Nissan is once again teetering in a demand shock created by the pandemic. Renault that once rescued Nissan is also in difficulties. And Carlos Ghosn is living in Beirut, Lebanon as a fugitive, having fled from Japan at the end of 2019. ) Toyota mow faces a mega challenges of coming carbon-neutral society, as the company is already talking to its union about it. The company tries to save as many jobs as possible over the course of next two decades though not all of them would be retained. While a coming change could be fierce, Toyota’s labor-management relationship might not change much, if their track record is of any guide. That said, the largest ever structural change on the automobile industry is likely to hit other car makers a great deal harder. It is interesting to see in the future how labor reacts to it. About the author: Mr. Suzuki is a retired banking executive in Tokyo, Japan.