In Japan, Layoffs Don't Stop Some Workers From Working
By Yumiko Ono
Staff Reporter
The Wall Street Journal
July 5, 2001

MOBARA, Japan -- Yasuo Kiuchi was living a blue-collar version of the Japanese dream: a wife and two kids, a small house and a good job running a small machinery factory. Then, six years ago, his company was forced to close, and Mr. Kiuchi and his colleagues were told they'd lost their jobs.

Instead of yielding to the grim reality sweeping Japan's economy, the soft-spoken Mr. Kiuchi took control of the factory, sleeping on the floor for months. To fend off creditors, he posted a loud-barking mongrel outside. Taking advantage of the fact that the defunct company hadn't formally filed for bankruptcy, he and five colleagues managed to hang on at the factory, where they still bang and solder away. Mr. Kiuchi has slashed salaries by a third, including his own, to hang on in the dying industry -- and may have to cut them again. Yet he says he'll soldier on.

"A lot of Japanese people, including myself, feel that what we're doing here is the only thing we can do," says Mr. Kiuchi. "You can't just tell us to start afresh."

A decade into Japan's economic slump, 37-year-old Yasuo Kiuchi is one of countless diehard Japanese clinging to an era that has passed. At the commanding heights, politicians have stuck to a failed old formula for growth -- pumping money into roads and other projects for fading rural areas. Bankers put off the unpleasant task of foreclosing on longtime clients and clearing away bad loans estimated at as much as $1.2 trillion. The result: a swelling national debt and a financial system unable to provide adequate credit.

The hunker-down mentality extends to the men at Mr. Kiuchi's factory, who belong to a circle of laid-off workers holding onto the remains of collapsed companies. At least three labor unions have carved out a specialty of advising victims on how to save their jobs by taking advantage of Japan's loophole-ridden bankruptcy procedures. They advise workers to get courts or creditors to give them equipment and other assets to keep their livelihoods on life support. The practice is for the truly desperate, since these are companies whose owners have given up hope and opted to shut down.

'At Least Give It a Go'

"I tell everyone they should at least give it a go," says Ippei Torii, a leader of one such labor organization, the Zentoitsu Workers Union. He calls the tactic "self-resuscitation."

The diehards are bucking a tide of bankruptcies in recent years. In the 12 months through March, 18,926 companies went bankrupt, according to Teikoku Databank, a researcher that tracks failures. The number of people affected by the bankruptcies rose 59% to a record 199,280.

For those victimized by this shakeout, hanging on to one's job for dear life can be a perfectly logical response. The jobless rate -- a record-high 4.9% in May -- remains low by world standards but is more than twice Japan's rate in the 1980s. For older workers, getting a new job is tough, as age discrimination is legal. A survey last year by the Japan Institute of Labor, a government-affiliated think tank, found that 90% of Japanese companies impose age limits on hires, with an average cutoff of just 41 years old.

Support for Change

But for the economy as a whole, the country's collective unwillingness to break with the past adds up to stagnation. According to Junichiro Koizumi, Japan's reformist new prime minister, the painful pruning of troubled industries is what the country needs to break its cycle of price deflation and near-zero growth. Mr. Koizumi has won sky-high public-support ratings in part because of his plans for fixing the banking system and ending wasteful pork-barrel spending -- even if doing so throws Japan into even tougher times.

Japan's economy minister warned recently that the economy can be expected to grow by only 0% to 1% annually for the next two or three years, as banks push to dispose of bad debts. HSBC Securities (Japan) Ltd. economist Peter Morgan calculates the foreclosures and bankruptcies resulting from a banking cleanup would lead to 500,000 to 2.2 million job losses.

On a recent night in Tokyo, nine bankruptcy victims gathered in a grimy, paper-strewn office for a monthly support group organized by labor activist Mr. Torii. The topic, as usual: how to hang tough in hard times.

Yuji Kawanobe, a 54-year-old with eyes bloodshot from overwork, had spent 34 years selling cameras when his employer went bankrupt three years ago. Discouraged by the dearth of jobs -- the only openings were as a gas-station attendant or a night watchman -- he led colleagues in seizing one of the company's shuttered shops, taking turns sleeping there for a year. They raised cash to buy new cameras and re-opened the store, without permission from the court-appointed administrator. Later, after new owners bought the building, the men squeezed out a tidy payment from the landlord before agreeing to move on. (Neither Mr. Kawanobe nor the other men profiled in this article have been accused of violating bankruptcy laws.)

Mr. Kawanobe's camera store remains in business in northern Tokyo, employing seven workers. The salesman admits the store isn't making a penny. He has had to slash everyone's salary by almost half from the days before the bankruptcy, to $1,600 a month, a pittance in Tokyo. Still, he tried to buck up the somber crowd at the support-group meeting. "I can assure you, the work itself is great," he said brightly.

The meetings take place at the office of Masahiko Takiguchi, 43, who is trying to figure out how to keep selling products for a company that technically no longer exists. His employer, Reiki K.K., was a 340-man maker of industrial refrigerators that declared bankruptcy in December. So far, Mr. Takiguchi has made do by repairing old clients' refrigerators. But for goods to sell, he's counting on a group of colleagues holding out at the company's shuttered headquarters in Saiki, a rustbelt city of 51,200 in southern Japan.

'Don't Cave In!'

When Reiki went bust in December, Saiki was already a desperate place. A string of small employers had recently collapsed. The city's employment center began suggesting that jobless men become farmers. About 100 employees, concluding that sticking to Reiki was the only way to survive, occupied the abandoned factory.

Today, a defiant banner hangs from the quiet building: "Don't Cave In to Bankruptcy!" But the number of holdouts has dwindled to 25, who are planning to soon start making refrigerators and other products on their own. Among those who have moved on is the original leader, Kenzo Makino, a 51-year-old former manufacturing chief. He got wind of an entry-level job fixing equipment at a cement-making company and seized it. "I started wondering if it was really worth the effort," he says.

Similar doubts tear at Mr. Kiuchi, operator of the small machinery factory and a core member of the union's support group. Just surviving has been a feat -- but Mr. Kiuchi sometimes wonders if he made a big mistake. He could have taken a different job, but now he works so hard that he has no time for hobbies or friends.

Mr. Kiuchi joined the factory, which lies 40 miles east of Tokyo, shortly after vocational school in the mid-1980s, as the Japanese economy was entering its heyday. The factory gang was like a family; he went to cherry-blossom-viewing parties with his mates and married a co-worker.

One day in December 1995, a flock of creditors entered the shop floor, telling Mr. Kiuchi the company had failed to pay its debts, effectively putting it out of business. Mr. Kiuchi was soon offered a good job as a manager at another factory but turned it down. His old workplace had a stream of orders; it felt wrong to close what seemed a going concern, he says. And he couldn't bring himself to abandon his colleagues, who lived in the same community, many of them older men who might not find new jobs.

So Mr. Kiuchi and 14 workmates locked the gates and began camping out at the factory, to prevent creditors from carting away the sheet metal and machine tools. He brought in an ill-tempered dog named Kuro and put him on a leash that extended to the chain-link fence. The former owners never made a formal bankruptcy filing, preferring to try settling privately with creditors. That prolonged a resolution of the firm's fate. Taking advantage of the limbo, the holdout workers set about resurrecting the dead business.

Winning orders wasn't easy. Big former clients refused to do business with a failed company's ex-employees -- especially after hearing they were fending off creditors. So the workers had to scramble to find new clients. Mr. Kiuchi, a shy engineer, says he felt embarrassed to go begging for work from former subcontractors to whom he used to hand down business. But he forced himself to make the rounds, knowing he needed any customers he could get.

While he was making sales calls, his wife, Kazuko, juggled as many part-time jobs as she could get to support the family. She worked as a waitress on weekdays; on weekends, she was a bill collector and a meter-reader for a water company. "Of course, I wanted him to look for a more stable job that will give him a paycheck each month," especially with a home mortgage of more than 20 million yen ($160,000) to pay, says Ms. Kiuchi, now 33. But she says she understood how her husband felt responsible for the group, since she had also worked at the factory's sales department before her two sons were born.

Resistance Efforts

Soon, the holdouts faced new challenges. Their old employer's main bank, Chiba Bank Ltd., foreclosed on the modest, two-story factory, which it held as collateral, and put it up for auction. So, the workers cranked up their resistance efforts. They decorated the factory with red union flags, to further spook potential buyers. When bolder ones did visit the factory, the workers would loudly declare they were earning their livelihood there and had no intention of leaving quietly.

Mr. Kiuchi and his colleagues could have been evicted, but as is common in Japan, such forceful legal action never happened. The workers managed to keep working, and the factory remained unsold until last year. The new owner now charges rent, Mr. Kiuchi says. A spokesman for Chiba Bank declines to comment.

In 1998, 10 of the original 15 employees registered a new company, called Towa Giken, which they capitalized with their own savings and the profit they'd eked out the previous two years. Mr. Kiuchi became president. He aimed to freshen up the factory's image, hiring an artist to paint a huge mural of a tropical fish on the facade. The employees decided to stop mass-producing machine parts, as competition was fierce, and focus on custom-making parts. Kuro the dog was tied to a shorter leash, now that guests were welcome.

Business was good for a few months, but it didn't last. The machinery-parts industry has been declining for years. Clients are demanding hefty discounts. Big manufacturers are shifting production to China, Malaysia and Taiwan, where labor is cheaper. There were 15% fewer workers at machinery and parts companies in 1999 than at the industry's peak in 1991.

Over the past three years, Mr. Kiuchi has had to cut the average salary of his workers at least three times, to an average of 200,000 yen from 300,000 yen. His own salary, from which he must pay considerable expenses for entertaining clients, started off at 700,000 yen but is down to 450,000 yen. He has had to borrow from banks. Sales are running 25% short of the monthly target, forcing Mr. Kiuchi to consider another pay cut.

At the support-group meeting, Mr. Kiuchi aired his concerns. He doesn't want to cut his workers' pay yet again, because "you want to assure a certain level of payment for everybody," he said. But that would mean adding to the 14 million yen ($110,000) debt he currently owes banks.

Share the Pain

Camera salesman Mr. Kawanobe, puffing a cigarette at the rickety coffee table, blasted Mr. Kiuchi for growing soft. "Who's going to guarantee anyone's pay? You all have to do that yourselves," rasped Mr. Kawanobe. He suggested all employees share the pain by having their salaries pegged to whatever the company makes that month, rather than let the debts pile up. "Why, people in my company don't even take it for granted that they'll get paid on time," he boasted. Mr. Kiuchi remained silent, his eyes cast down.

Later, he says he doesn't like Mr. Kawanobe's talk of ruthless economizing but concedes he has no other choice. He has recently told his employees that their pay will depend on whether or not the company meets monthly sales targets.

He admits he wonders what would have happened if he had deserted his colleagues and taken the other factory-management job he was offered six years ago. "It's so much easier to become a salaried worker. You have time off, to start with," he says.

Then he tries to shake away such negative thoughts. "I've borrowed money from banks," Mr. Kiuchi sighs. "I can't afford to run away now."