Trade Unionism, MNCs and Industrial Organization: A Comparison of European and Asian Experiences

Thursday, 2 July 2015: 2:15 PM-3:45 PM
OLD.2.22 (Old Building)
Patricia A. Nelson, Stockholm School of Economics, Stockholm, Sweden
In recent decades, the interests of multinational corporations (MNCs) have gained leverage over small and medium sized enterprises (SMEs), labor and other interest groups. Taking a comparative approach, I argue that Japan’s trade unionism and in particular its industrial organization are at the heart of why Japan and some other Asian economies produced dramatic and relatively egalitarian growth in the post-WWII era. Sweden, another example of relatively equal growth, is the main comparative case in the European context.

     In Japan, the interests of MNCs and in particular the leading companies that control Keidanren (Japan’s peak federation of employers), known as ‘the boss’ of all industry, have generally controlled the economy. The term ‘Japan, Inc.’ originates in this notion and some go so far as to argue that it is the ethos behind of the rise of the newly industrializing economics (NICs), the Asian Tiger economies, and more generally the impressive economic growth of East Asia in recent decades. The World Bank’s East Asian Miracle study, largely funded by the Japanese government, had the objective of projecting the view that strong, supportive government policy coupled with cutting edge technology developed by major corporations and company-based unionization helped create the most impressive economic growth in Japan and Asia that the world had ever seen. The government surely wanted to take credit for Japan’s (and Asia’s) success, but is that the whole story?

     Since Japan’s economic bubble burst in the early 1990s, the country has, according to most measures, been limping along primarily because of misguided government policy. Japanese companies it would seem have not been working hard enough for Japan to regain its position as the so-called ‘head goose’ in Akamatsu’s ‘Flying Geese’ analytical framework. While Japan was never the head goose in Akamatsu’s analyses (the US was), idea of Japan’s inherent weaknesses persist. And yet Asia is still growing and has pulled more people out of poverty in the shortest span of time ever in modern history.

     The structure of Japanese industries is the central element of this story, yet the predominance of corporate unions, especially in Japan’s largest industries, notably in the heavy industries, plays a role too. One of the simplest methods of understanding Japan’s intricate organization of industries is to draw from its similarity with a number of European countries. Although not an exact copy of any single European system, they share aspects and, as institutions tend to do, they developed over time to reflect the economic system within which they operate. In the paper, I analyze the main elements and effectiveness of the system.

     In the early 2000s, with the merger of peak business interest groups in Japan (as in Sweden, Norway and Ireland), MNC power over trade unions seemed to grow. There are a number of reasons for this trend. Part of the explanation was formal links were severed between the ruling political party and organized labor when the fortunes of the dominant ruling party came into question. Another part is the challenge facing MNCs to participate in interest groups across the various countries and regions in which they operate.

     Details of what happened in Sweden in comparison to Japan are instructive. In Sweden, the dominant labor organization, LO (Landsorganisationen), cut its ties with the Social Democratic Party (SDP) in 1991. Previously membership in LO had automatically meant membership in the SDP. This in effect represented a break in the social contract of 1938 that is aligned with Sweden’s dramatic growth and the so-called ‘Third Way’. Further damage to that contract came in 2001 when the two peak employers’ organizations, IF (Industriförbundet) and SAF (Sveriges Arbetarföreningen), merged to form Svenskt Näringsliv (SN). Without the old ties linking workers’ and employers’ interests inside the new organization, business- government relations were skewed toward the strong voice and power of MNCs (interviews with SN, 2012 and 2014).

     In Japan, the breaks in the social contract that is largely credited with creating Japan’s economic miracle were slightly different. The first crack in the system came in 1993 when Japan’s Keidanren severed its financial ties to the Liberal Democratic Party (LDP). Like the SDP in Sweden, the change in fortunes of the LDP was primarily due to the challenges at the ballot box that the party faced from smaller parties that seemed more in tune with the wishes of the majority of voters. Keidanren could no longer count on its historically good relations with the LDP (and a massive network of contacts within the LDP) to get things done. A second crack in Japan’s social contract came in 2002 when the two main employers’ organizations, Keidanren and Nikkeiren, merged. Nikkeiren, like SAF in Sweden, represented the social welfare interests of business e.g. pensions, labor rights and healthcare. The merger signaled to all that Japan’s workers had lost its strongest voice and some argued that the postwar system of egalitarian growth was dead (interviews and correspondence with Keidanren, 2012 and 2014).

     Much of the pressure on peak business interest groups to merge originated from the member companies that operated in an increasingly globalized environment. Globalization gradually made it clear that MNCs needed to be active across regional markets. Domestic interest groups, while still important especially vis-à-vis the government, were just one of the many interest groups in which they needed to participate; multiple memberships were unnecessary. Further, as the domestic market contributed to a decreasing proportion of MNC revenues, the need for multiple domestic business interest groups came into question. While membership in fewer interest groups may be practical from a MNC viewpoint, the variety of interest groups had represented a range of concerns from workers to SME employers.

     In recent years, the traditional balance between MNCs and labor and SMEs was altered negatively affecting income distribution. Individuals and greater societal interests need to be better represented in the future. Perhaps institutions, such as political parties and grassroots network organizations, that represent individuals, who do not see themselves as party to traditional organized labor have the capacity to fill the void.