A business perspective on social change and human values at a time of global competition

ILO ENTERPRISE FORUM 96

Jiro Nemoto, Chairman
This lecture was delivered under the auspices of the International Institute of Labour Studies Japan Federation of Employers' Association (Nikkeiren)

International Labour Organization

Big changes on a global scale
The current state of the Japanese economy
The economy and unemployment in the US and Europe
Comprehensive reform in Japan
A new Japanese model
Raising quality of life
Human-oriented management and the importance of education

At the ILO conference held in June last year, I commented that the events which we have been witnessing since the end of the Cold War are as dramatic in scale as those of the French Revolution in 1789. A great tide of change is taking place throughout the world.

In 1990, the Conference on Security and Co-operation in Europe, in its Paris Declaration, undertook to uphold three universal values: respect for human rights, achievement of multi-party democracy and the rule of law. And the fifteen countries of the European Union are working tirelessly to achieve the goal of unification.

In Asia, the countries of the region accepting each other's historic traditions and multifaceted values are working to achieve sustained economic development through voluntary liberalization in the framework of the APEC. Various dialogues are also taking place in the transatlantic forum. Therefore, it is important to realize that the "global competition" we talk about involves issues of nationalism and regionalism, interwoven in a complicated way. Such complicated factors request us to advocate the values of tolerance and patience; respect for historical traditions and diverse values is also needed.

In this time of great change, I believe that we must strengthen awareness of the historical perspective. With history as the vertical axis and international relations as the horizontal axis, we are now at the point where these axes meet. This point changes constantly and it is important to distinguish between what is changing and not changing and to read global mega-trends with this awareness in mind.

Big changes on a global scale

First, we are facing the largest employment crisis since the Great Depression. Approximately one billion people around the world are unemployed, and 1.2 billion are living in desperate poverty. At the UN World Summit for Social Development held in Copenhagen in March last year, world leaders confirmed that the priority issue today is to secure employment.

Second, having passed through the scientific revolution and the industrial revolution, we are now in the age of the information and telecommunication revolution. The giant wave of information and telecommunication revolution is shaking the conventional company management to its foundations, exerting a greater impact on the labour market.

Third, it goes without saying that the economies all over the world are now turning to market-oriented ideas and are exposed to borderless mega-competition. Enterprises are moving across borders to seek the optimum business environment, provoking problems which are sometimes called "hollowing out of those industries in a high-cost country". On the other hand, the prices of goods produced are converging to one level on a global scale. In the face of such global changes, how should we, business people, behave? I would like to give my views by introducing Japanese experiences.

The current state of the Japanese economy

The condition of the Japanese economy seems to be turning a major corner and entering a different stage, with low growth and high unemployment, similar to the US and European types.

For 50 years, the Japanese economy was driven by the goal of catching up with the economies of the United States and European countries. After the turmoil of the immediate post-war years, the economy entered a period of high growth, beginning in the 1960s. During that time, the growth rate exceeded 10 per cent yearly, and unemployment was an average 1.2 per cent which meant near full employment. However, growth tapered off in the succeeding decades and both the unemployment rate and the number of unemployed grew steadily.

In 1995 and 1996, the economy did recover somewhat, in reaction to the collapse of 1992-1994 but the rate of growth was still only at the 2 per cent level. Thus, the signs are clear that our economy has undergone a structural shift, and that we are now entering a low-growth high unemployment pattern. For this year, economic growth is expected to be 2.5 per cent at most and the unemployment rate around 3.5 per cent. However, the latter figure would be 6-7 per cent if potential excess labour within companies was shed, as I will mention later. The systematic difficulties of the economy which remained hidden during the high growth period have become apparent under the accelerated global changes.

Our country is now in a period of structural adjustment.

Such adjustments will take several years and in this adjustment period, some economic mini-cycles will repeat.

The economy and unemployment in the US and Europe

Now let us see the economy and the employment picture in Europe and the United States.

In the European continent, economic growth seems to be low and unemployment is stuck at a high level. High wages and a generous social welfare system are considered major problems. The total national burden, that is the ratio of social security and taxes to national income, now exceeds 50 per cent in Germany and the UK, a bit more than 60 per cent in France and 75 per cent in Sweden. The figures are 36 per cent for the US and 37 per cent for Japan. Japan, however, has issued a huge number of government bonds. If these are taken into account, the figure has already reached approximately 43 per cent. I find it very reasonable that Germany take prompt and drastic actions towards a more severe physical policy burden, in order to overcome great financial deficit. Nikkeiren has been carrying out a joint study with BDA, Bundesvereinigung der Deutschen Arbeitgeberverbande, on national policy in both countries, particularly medical care, housing and education.

In the United States, the economy is steadily expanding and the unemployment rate is on a declining trend. The US economy stagnated throughout the 1980s, but after quite severe restructuring, downsizing and outsourcing, corporate performance revived, which proved that only higher productivity can produce employment. In the United States, as you know, there is little direct government involvement in measures to maintain employment. Instead, the government actively offers occupational training and re-training programmes.

Comprehensive reform in Japan

It is encouraging to see that other industrial nations have made fiscal reconstruction a political and economic priority. The European Union has made a fiscal deficit of under 3 per cent of GDP and governmental accumulated indebtedness of under 60 per cent of GDP the conditions for joining the unified European currency scheme. The respective countries, in accordance with conditions prevailing there, are cutting outlays and achieving notable successes as they work to put their fiscal houses in order. The United States is also reducing expenditure in an effort to achieve a balanced national budget by the year 2002.

According to the OECD calculations of government debt, in 1996 Japan had a fiscal deficit equivalent to 8.2 per cent of GDP; the national debt is equivalent to 90.1 per cent of GDP. Even though the financial assets of the Japanese people amount to 1200 trillion yen, we have to prepare for the rapidly ageing trend of our society, with declining birth rates in the next century.

In the United States and Europe, especially the Anglo-Saxon countries, economic growth does not seem to depend upon government expenditure. The vitality of the private sector and market economy under deregulation have been the forces at work, with administrative and tax reform taking place concurrently. The time has come for Japan to adopt a comprehensive reform package involving administration, finance and the national economy. Government outlays, including disbursements to local governments and for social welfare, must be urgently overhauled in a comprehensive manner. The public in Japan must be made fully aware of the state of the nation's finances.

Nikkeiren proposed to our prime minister this September that he set out a Structural Reform Act in order to carry out reforms in government, finance and the national economy including education and national welfare. This reform must be initiated by private sectors and operated under the leadership of the Prime Minister. I hope that our Prime Minister will take prompt action in this respect.

A new Japanese model

Modern governments have four major economic priorities. These are employment, economic growth, prices and the international balance of payments. It is important to adopt a well-balanced approach to these four priorities. In Japan, we have a particular problem of price gaps between domestic and international prices in low-productivity sectors and we need to solve this as well.

The world is watching to see in which direction Japan proceeds. I believe the direction should be towards a new Japanese model, keeping our good system further improved, taking the experiences of the United States and Europe into account. European governments, labour unions and employers are outlining various plans to create employment and improve competitiveness: the Essen Employment Process, which aims to halve unemployment by the year 2000, the European Pact of Confidence for Employment proposed by the Commission Chairman Jacques Santer, and legal amendments in Germany to reduce social welfare costs.

In the United States, wages and welfare costs have been restrained; unemployment has dropped as a result of restructuring and re-engineering. Efforts are also being made to cope with social problems such as the widening income gap between rich and poor. I would like to pay high tribute to these efforts.

Taking those various experiences into consideration, I believe that there is a third way to cope with the issues, that is the new Japanese model, avoiding as much increase of unemployment as possible and trying to raise the quality of life of people. That is easier said than done, as there is no historic precedent for such an undertaking. However, the government, labour and employers must co-operate to make this possible. Since April of this year, Nikkeiren has been developing the Bluebird Plan Project. It is named after the fable of Maeterlinck, the Belgian Nobel Prize winner, in hope of achieving our goal. The aim of the project is to determine over the next three years the priorities for addressing the structural issues facing Japan and to come up with an action programme.

Of the four major economic priorities of nations which I mentioned before, I believe that the most important for Japan is to secure employment raising the quality of the life of people. This is the first issue of our Bluebird Plan Project. Here I wish to refer to the so-called Japanese style of management, a seniority wage system and enterprise-based labour unions. Most companies in Japan attach great importance to the value of trust between labour and management as a stabilizing element of society. This system, I think, has supported sound development of enterprises in Japan, minimizing unemployment.

However, Japan will have to undertake an overhaul of its economic structure and streamline government administration. We will now have to be prepared for possible reduction of jobs, not only in the private sector but in public administration as well, as a result of this structural reform.

In New Zealand, unemployment which had been at the 4 per cent level in 1985, peaked at over 10 per cent in 1991-92 as reforms proceeded. Although economic expansion later resumed, the unemployment rate remained high at 6 per cent. Similar situations occurred in the UK and the US and I suppose Japan may face the same thing.

In general, unemployment can be attributed to cyclical and non-cyclical factors. The cyclical factor is the changing economy. Non-cyclical factors are industrial restructuring, the mismatch in labour supply and demand, changes in social attitude and companies' shedding of excess personnel. It is very important to adopt the appropriate remedies for unemployment, depending on the causes.

In this context, creating new industrial sectors is vital. In Japan, the fields of information and telecommunications, the environment, home care and health care, and housing construction and renovation, are promising, as they are in Europe and US. But new industries alone are not enough to create full employment, and more expansion in existing sectors is desirable as well. In Japan, it is also important to create an environment where smaller enterprises, which carry such a large weight in every industrial sector, can become more active.

Eliminating mismatches in labour supply and demand is also a priority. This must be done by making the labour market more flexible. In Japan, this area is highly regulated and therefore deregulation is needed.

I am aware that there are various opinions within the ILO concerning privately operated employment agencies. However, I believe that employment agency services operated with private sector vitality should be encouraged, with due care taken that workers are not exploited.

Raising quality of life

The second issue and goal in the Bluebird Plan Project is to raise the quality of life of people. Nominal wages in Japan are already among the world's highest, and we cannot continue raising wages if we expect to remain competitive in international markets. Accordingly, living costs, such as expenses for public utilities, land, housing, education, etc. which are relatively high by international standards, must be lowered to an appropriate level, in order to raise the quality of life.

For that purpose, enterprises must be prepared to share the pain and work out measures to improve the efficiency of low productivity sectors, which are largely responsible for the high prices in Japan. At the same time, we are urging the government to relax and eliminate excessive regulation and protective measures which are causing problems. In the era of mega-competition, efforts to bring price levels close to the international average are considered all the more necessary.

Human-oriented management and the importance of education

In Japan, there is a saying that "the human factor is the key of enterprise". The secret of enterprise management is the optimum combination of people, materials, money and information, but the most important element is people.

Japan began to modernize with the Meiji Restoration of 1868 and eventually became a modern capitalist nation within the international community. In the post-war years, the strong trust between labour and management was the primary reason for the sustained economic growth which we achieved.

Since its establishment in 1948, Nikkeiren has consistently advocated policies emphasizing "human-oriented management" and "management from a long-term perspective". Enterprises have respected labour-management relations and aimed for corporate growth on the basis of this relationship, which has been a force for social stability.

Today, countries all over the world are following market economies. However, it must be borne in mind that market economies have not only positive aspects such as economic growth and trade expansion, but they also have their shadow, namely negative aspects.

Expressed in the simplest terms, a market economy can be described as an exchange of wants and desires. It can lead to frightful results unless ethical conduct and self-restraint are practised. Further, an over-emphasis on efficiency and technology can adversely affect the human element. Relativism, nihilism and even apathy spread, and depersonalisation of the individual will be the result. We have to endeavour to establish corporate ethics, while it is important to continue our efforts, through education, to eliminate feelings of depersonalization.

In October, Nikkeiren dispatched a delegation to China, to co-host a symposium with the China Enterprise Directors' Association, thanks to the co-operation of its president, Mr. Yuan Baohua, who attended the ILO Enterprise Forum. On this occasion, I was very impressed by Chinese policy to strengthen both practical economic and moral growth as the two necessary wheels of the country.

As you know, the ILO was established in 1919 to achieve universal and lasting peace based upon social justice. At the International Labour Conference held in Philadelphia in May 1944, the Declaration was adopted and various actions were advocated. Of the ten programmes which were adopted at that time, I am very moved by the first one, which called for "full employment and the raising of the quality of life" to achieve social justice, which is the basis for lasting peace in the world.

We find here no difference between the idea of our predecessors in the ILO half a century ago and what I have said today. I firmly believe therefore that we, enterprise management people, have to address various challenges we are facing at the present moment in the global competition, with renewed conviction on this idea.

Finally, using the ideas of the "Golden Means" advocated by Confucius, the ancient philosopher of China and at the same time ideas of "liberté morale" advocated by Jean-Jacques Rousseau, we should work to uphold and implement the basis spirit and ideas of the ILO.