View from Tokyo: Hammer hangs over the job of a lifetime

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AUCTIONEERS are used to pausing between the 'going, going' and the final 'gone' of their selling routine. It is a tense moment, with a trace of last-minute uncertainty, but it is dominated by the imminence of the falling hammer. Lifetime employment in Japan now inhabits this twilight zone. Although some executives find it hard to accept, most know that corporate Japan can no longer afford the huge labour costs that have built up over the years of break-neck expansion. The hammer is about to fall.

In a survey of top executives conducted last month by the Kyodo news agency, 86 per cent said the lifetime employment system in Japan was set to disappear. An even larger 95 per cent said that companies would increasingly adopt pay scales based on merit, rather than the current system under which employees are rewarded according to seniority.

The shift away from lifetime employment will not happen rapidly - it is inconceivable that Japan would undergo the mass lay-offs and high unemployment rates of Europe or the US. Unemployment now runs at 2.3 per cent in Japan, and if it rises to 3 per cent red lights will begin flashing. But even a gradual move towards shorter-term labour contracts will mark the beginning of a fundamental change in Japanese management practice.

Up to now, one of the strengths of Japanese companies has been the generally co-operative atmosphere that has existed between management and labour, in stark contrast to the confrontations between management and trade unions that have plagued the West.

Workers put in long hours when demand was high, much of their pay was in the form of adjustable bonuses that rewarded them in good times but saved the company outlays during slumps, and strikes were rare. But in exchange the workers knew that the company would look after them, and that an economic downturn would not automatically put their jobs at risk.

This was affordable when the Japanese economy was expanding rapidly and even one or two years' downturn were sure to be followed by another spurt of rapid growth. But the Japanese economy has matured and companies can no longer expect the exponential growth rates of the 1970s and 1980s. Their bloated workforces are becoming an unbearable burden.

This long-term trend has been brought into sharp relief by the recession. With profits and revenues falling, personnel managers are having to address the problem of over- staffing more urgently than they had perhaps expected. Already companies have been announcing early retirement plans, and there are anecdotal stories of workers being made to feel so unwelcome that they quit before they want to. Another increasingly common tactic is to reassign employees from the parent company to subsidiaries or associated companies, or to transfer them from fixed- salary jobs to commission-based jobs in the sales force.

But no company has yet announced a substantial series of involuntary lay-offs. 'No one wants to be the first,' said a senior manager for one of the big car firms in Japan. 'I can tell you that we will certainly not be the first in the car industry.' But in real terms, and in the absence of any dramatic pick-up in the Japanese economy, he said his company could hold on for another year or 'two at the outside', before cutting its workforce.

Another clear sign that companies are serious about cutting labour costs has been the recent phenomenon of 'fired before you're hired' college students. Officially companies are supposed to exercise restraint in recruiting students before they have graduated, but in practice many companies trawl through universities and technical colleges for good candidates months before graduation. Unofficial job offers are made, so that students can expect to have a job to walk straight into after graduating.

But as the recession in Japan gets deeper, companies have begun writing to students who had been offered job promises to tell them that these offers were being withdrawn. Not yet hired, and fired already.

Just as the recession is forcing companies to take an overdue look at their labour costs, it is also prompting some soul-searching by bureaucrats in the Ministry of International Trade and Industry (Miti), who see an opportunity to use the recession as an excuse to address long-term problems of international competitiveness.

With Japan's enormous trade surplus with the rest of the world reaching dollars 132bn ( pounds 93bn) last year, it might sound strange that Miti is worrying about Japan's ability to compete in world markets. But Miti is looking a long way down the road, and is worried that to prosper in the next century Japanese industry needs to move beyond the saturated markets for cars and electronics into more high-technology areas.

What Miti has in mind is to corner some of the money the government is planning to spend to boost the economy. This is currently destined for public works projects - roads, bridges and so on - but Miti is arguing that the money could be better spent by investing in a new telecommunications infrastructure for Japan, and by putting more computers in Japanese schools.

One idea is that government funds could contribute to a Y33,000bn ( pounds 190bn) plan by Nippon Telegraph and Telephone to connect every house in Japan to a fibre-optic telecommunications network. So far the Ministry of Finance is opposing the plan, which it regards as a short-term handout to hard-pressed electronics companies rather than a long-term plan to reform the industry.

But the Miti officials are irrepressible. In January they sallied forth to impose anti-dumping duties on Chinese ferro-alloy exports to Japan, despite years of Japanese complaints about themselves being subjected to anti-dumping duties by the US and Europe. Miti's latest venture into irony is a campaign to stop other Asian countries from copying Japanese products - despite the long list of intellectual copyright infringement cases being brought against Japanese firms by US and European companies.

According to Miti, there were 378 documented cases of Japanese copyrights being violated in 1991 - a 32 per cent increase on the year before. Top of the bad boys' list was Taiwan, followed by South Korea and China. Electronic goods are the most likely to be copied, and some companies even had the gall to try to export copies of Japanese goods to Japan, at a lower price than the original. Incensed, Miti has been sending officials to other Asian countries to persuade them to tighten their intellectual property laws.