As Japanese conglomerates swallow up Manhattan skyscrapers and Hollywood film studios, and as Japanese factories spread across the industrial landscape, from Peterborough, New Hampshire to San Diego, California, many Americans have become fearful that their economic sovereignty is at stake. Will the basic decisions about whether a midwestern town thrives or withers now be made in Osaka and Tokyo? Will decades-old patterns of work and life be disrupted to fit the needs of foreign owners?
No doubt these fears are exaggerated. Foreign investment has bolstered our economy; more than a century ago, it helped lay the groundwork for America's Industrial Revolution. But some policy experts, in dismissing public fears about Japanese direct investment, go farther than merely saying that it is benign. They contend that Japanese firms set a positive example, for which we ought to feel thankful.
The Japanese, these experts say, are bringing superior methods of industrial organization to the United States. In The Sun Also Sets, Bill Emmott, the business editor of The Economist, writes that "getting Japanese management, organization and technology is the fastest route to raising productivity to Japanese levels. What seems like an enormous 'rummage sale' of American industry to the Japanese could, paradoxically, lead to America's salvation."
According to these experts, the Japanese companies are a boon to the towns in which they locate. "Most regions have found Japanese companies to be constructive corporate citizens and a welcome addition to their communities," according to The United States and Japan, a report published by Johns Hopkins University's Reischauer Center. Emmott suggests that if a town had to choose between a U.S. and Japanese firm, the town fathers would be wise to choose the foreign firm. "Newcomers are even more concerned about establishing themselves in local communities than old hands. They have something to prove." Brookings Institution fellow Philip H. Trezise reminds critics of Japanese firms that it is "in their interest to be seen as good corporate citizens here."
In addition, the policy experts argue, the Japanese are introducing a model of labor relations that the U.S. would do well to emulate. Two researchers from the Columbia University School of Business, Martin Starr and Nancy Bloom, praise the Japanese for inculcating a sense of "family" among their workers. "By stressing communication and openness, they have given employees a sense of importance and the knowledge of having a meaningful place in the organization," Starr and Bloom write.
These authorities invariably cite the same examples: the Japanese tire company, Bridgestone, which took over a failing Firestone plant in Lavergne, Tennessee and expanded employment four-fold; the Toyota plant at Fremont, California, which has introduced American managers and the United Auto Workers to the advantages of team production; Honda, which now does the design and engineering for the Accord entirely in the U.S., even exporting the car from Marysville, Ohio to Japan.
Indeed, if every firm followed the example of these firms, Emmott, Trezise, Starr, and Bloom would be right: public fears would be entirely groundless. Yet, with the exception of Honda, none of these firms has been in the United States more than a decade or has even had to endure a recession. Evaluating these firms now is like evaluating a marriage after the first six months -- before a couple have had to raise children and to weather job loss and illness.
What will happen to these Japanese firms after the first blush of local enthusiasm wears off? Will they still be good corporate citizens? Will their workers still feel part of a family? These questions are worth pondering as one examines the record of Kawasaki, a Japanese company that has been here for over fifteen years. It is a company that, like Toyota and Bridgestone, was widely acclaimed when it first invested in the U.S. But unlike them it has successively betrayed every aspect of its early promise.
Kawasaki is one of Japan's oldest companies. In 1878 Shozo Kawasaki, the son of a minor Samurai, got government help to establish a shipyard in Tsukiji, Japan. A year later, as 1,000 people looked on, Kawasaki launched its first ship and laid the foundation for what would later become Kawasaki Heavy Industries (KHI), one of Japan's leading conglomerates. Known in Japan for its ships and for the cars in the "bullet train," Kawasaki also builds subways, aircraft, machine tools, motorcycles, lawn mowers, and jet skis.
As befits a company whose prosperity was always rooted in international trade, Kawasaki was one of the first Japanese companies to set up shop in America. In 1974, four years before Honda opened its first factory in Ohio and a decade before the wave of Japanese investment hit, Kawasaki began building its "let the good times roll" motorcycles in Lincoln, Nebraska. In 1986 it began building subway cars in Yonkers, New York -- the first Japanese transit car builder to set up an American plant.
In the U.S., each of these ventures was greeted with applause. Kawasaki's Lincoln factory was seen as a model of Japanese productivity and worker-management relations. Kawasaki Motors even made nationwide television news in October 1981 when it lent eleven of its employees to Lincoln's city government so that it would not have to lay them off. Kawasaki symbolized the Japanese manufacturer's commitment to lifetime employment.
Kawasaki's just-in-time production facility in Lincoln even became the centerpiece of management consultant Richard J. Schonberger's highly influential 1982 book, ]apanese Manufacturing Techniques. According to Schonberger, Kawasaki showed that the best of Japan could be successfully brought to America: "The Kawasaki, Nebraska experience is that Western managers and workers behave more like their Japanese counterparts as just-in-time techniques are adopted."
In New York, public officials and the local media were no less enthusiastic about Kawasaki's decision to build subway cars in Yonkers. Kawasaki's move was heralded as a sign of Japanese willingness to invest in an old industrial city with a large minority population -- one that had suffered high unemployment even during the boom of the 1980s. Kawasaki rented a plant that Otis Elevator had vacated two years before, leaving 2,000 skilled workers idle. A grateful Mayor Angelo Martinelli declared in 1987, "The revitalization of that plant is the best thing that ever happened to this city."
But as the applause has died down, and as Kawasaki has settled into doing business in the United States, it has become increasingly evident that the company has not lived up to its early promise as an employer and corporate citizen. Kawasaki's health and safety record at Lincoln would make a nineteenth-century coal mine operator wince. In Yonkers, the firm's dismissal of local black workers and its recruitment of Korean-born workers from New York City has infuriated black community leaders and led to demonstrations in front of the plant and a national boycott of its products by the AFL-CIO. And, most recently, Kawasaki has even run afoul of congressional investigators, who claim that the company perpetrated a fraud in using its Yonkers address to win a Taiwan subway contract that was supposed to go to a company committed to building subway cars with American-made parts.
As criticisms of the company have mounted, Kawasaki officials claim that they are being victimized because they are Japanese. Trying to explain congressional hostility toward its Taiwan deal, Kawasaki Rail Car's president, Masakazu Fudo, interviewed in the company's new Yonkers office, insinuates that differences in "culture may be a part of such judgment."
But when Kawasaki's conduct is closely examined, its complaints of mistreatment ring hollow. Whatever hostility it has incurred, it has brought on itself. Once held up as a model foreign investor, Kawasaki now offers a case study in how a company should not conduct itself in America.
Lincoln, Nebraska
In the end it's up to you to decide the future of this plant. In the end it's up to you to decide your future. -- Kawasaki Motors Promotional Film, 1982
In the early 1970s, Kawasaki, which had been importing its motorcycles through Los Angeles and then shipping them eastward, decided to begin producing motorcycles in the central United States for sale in the Midwest and East. It bought a 250,000-square-foot factory in the midst of a sorghum field on the outskirts of Lincoln, Nebraska and painted a large "K," visible from miles away, onto an adjacent water tower. Then, with engines and other key parts from Japan, it began assembling motorcycles in Lincoln.
Company officials say that they chose Lincoln for its proximity to midwestern markets, but like other Japanese companies, Kawasaki was probably also attracted by the virtual absence of unions in Lincoln -- the capital of right-to-work Nebraska and the home of its state university. Says economist Douglas Woodward, an economist and co-author of The New Competitors, "When the Japanese consider locations, two things matter most, markets and unionization. There is a strong anti-union bias."
In its first years in Lincoln, the company did everything it could to win over the local inhabitants. It sent Lincoln's mayor on a free trip to Las Vegas to talk to Kawasaki dealers. It shipped three University of Nebraska students to Japan to study. It paid half of the expenses for the Lincoln Star's business reporter to visit Kawasaki's facilities in Kobe.
Kawasaki also tried to ingratiate itself with its workers. The company hired American managers and told the workers that they would be treated as part of a "family," a familiar refrain among Japanese companies. The workers came to assume that, like workers in Japan, they would have lifetime jobs at the plant. And Kawasaki held regular meetings among workers and management and welcomed workers' suggestions for shopfloor improvements. "If you had a good idea, they'd generally be receptive," said one worker who began at Kawasaki in 1975. But in less than a decade, Kawasaki's Lincoln plant was transformed from a model factory that encouraged its employees to feel they were "family" to a late twentieth-century sweatshop rife with injury and discontent and staffed by a growing number of temporary workers without benefits or ties to the company.
One reason for the change was Kawasaki's relentless and obsessive drive to keep the United Auto Workers (UAW) from organizing its plant. Other Japanese firms have resisted unionization at their plants by winning over their workers; Kawasaki did so primarily by instilling fear. In the end, the tactics Kawasaki used to keep out the union became a permanent part of its management strategy.
The UAW began organizing at the Lincoln plant in 1978, appealing to workers disgruntled about compulsory overtime and about their wages, which were above average for Lincoln but well below the industry average. The UAW held two elections at Kawasaki in 1978 and 1979, but both times the National Labor Relations Board (NLRB) threw out the results, finding that Kawasaki had used the threat of closing the plant to fight the union. In 1979 Kawasaki also tried to intimidate the workers by firing organizer Daniel Bennett. When the UAW tried to hold another election in 1982, Kawasaki again hinted that if the union won, it might have to close the plant. For the third time, the NLRB ruled against Kawasaki, but after several rounds of appeals, three Reagan appointees to the NLRB reversed this ruling, saying that Kawasaki's threats were "protected speech." They did, however, decide that Kawasaki had illegally fired Bennett, and ordered the company to reinstate him and give him his back pay.
As Kawasaki stepped up its resistance to unionization, it discharged Dennis Butt, its American president, who had been widely acclaimed in management circles, and replaced him with a Japanese executive. Schonberger, who describes Butt as having been a "very innovative manager," still does not understand why he was fired, but Stan Hansen, now a vice president and the only remaining top American manager in Lincoln, hints that Butt was too lenient in granting wage concessions. He acted as "if we run out, there was more," says Hansen, a man whose speech still bears the mark of his working-class background.
The new Japanese managers, led by President Takehiko Saeki, abandoned what remained of Kawasaki's earlier commitment to "family." In 1982 Kawasaki started laying off workers, prompting the American personnel manager, Robert Summers, to resign in protest. Summers charged that the Lincoln layoffs were designed to prevent Kawasaki from having to lay off workers at its Kobe, Japan factory. The Japanese supposedly believe in lifetime employment and good employee relations, but that doesn't seem to apply to their American workers," Summers told the press.
Hansen stayed on as plant manager, but there was a noticeable social distance between Hansen, a Robert Mitchum look-alike who had never graduated from college but worked his way up from foreman, and the top Japanese managers. Even though Hansen was a vice president, he was referred to as "Stan" by the office staff and workers, while to Hansen and everyone else Saeki was always "Mr. Saeki." Nor was Hansen nor any other American represented on Kawasaki Motors' board of directors.
As the recession eased, and as Kawasaki began to shift the plant's focus from luxury motorcycles to jet skis and all-terrain-vehicles, the plant re-hired some workers, but it never returned to its peak 700-plus employment of the late 1970s. Moreover, it kept its core employment at about 300 and began hiring temporaries to supplement it, a practice it started during the union drives.
In 1984, the local newspaper reported that Kawasaki was using 150 to 200 temporaries out of fewer than 500 workers. Over the last six years, the proportion of temporaries has varied with the factory's business volume -- from 10 to almost 50 percent, according to workers at the plant.
Because temporaries don't enjoy the same wages and benefits as full-time employees, hiring them saved the company money. Fearful of being laid off, they also acted as a permanent obstacle to unionization. But perhaps most important, they fit the needs of Kawasaki's evolving system of just-in-time production, a system that accentuates the peaks and valleys in a company's production history by eliminating inventories. In an interview at the factory, Hansen explained, "We got into the use of temporaries, because you had no use building up stuff and letting it sit in the warehouse."
Yet by hiring temporaries, Kawasaki threw aside any pretensions of sustaining lifetime employment or creating a family among its workers. Instead, it created a kind of two-tier workforce in the plant. To the Japanese, temporaries "don't count. They're nothing in the firm," says Martin Kenney, a professor of applied behavioral science at the University of California, who is conducting a study of Japanese plants in the United States.
During the same period, Kawasaki's managers also eliminated whatever remained of employee participation. They stopped holding regular employee meetings, which remain common at the newer Japanese transplants. Says Hansen, "You read about it a lot, and I don't know how popular that thing is in Japan, but we don't get into quality circles and stuff like that." Workers began to find management less receptive to suggestions. One worker, who did not want to be identified for fear of reprisal, said, "You have absolutely no voice in anything. If you don't like it, you know where the door is. We got ten other guys to replace you."
At the same time, life on the factory floor became increasingly brutal. Just-in-time production increases plant productivity by cutting inventories, but it can also lead to a harsh speedup at peak times, as management studies have stressed and as several workers at Kawasaki reported. Greg Harm, who worked in the Lincoln plant's production and material control department until he quit last year, says, "I'd have to go fetch the same part 25 or 26 times a day. I was physically running for the full eight hours."
Kawasaki's particular use of just-in-time production may have also contributed to a rash of injuries at the plant. Many Japanese plants that use just-in-time production try to avoid repetitive motion injuries by rotating jobs. As Kenney notes, "Rotation, if done correctly, exploits the human body, but doesn't put pressure on one point. As rotation ends, there are more chances of carpal tunnel syndrome and other repetitive motor injuries." But Kawasaki used just-in-time methods without rotating jobs.
Every worker that I interviewed had tales of being injured and of knowing people who were injured. In 1985 Mary Alber, a nine-year veteran of the Kawasaki assembly line, had to go on leave because of carpal tunnel syndrome -- an ailment that causes numbness and may lead to semi-paralysis in wrists and forearms. After undergoing surgery, Alber returned to work six months later and was put back on the line doing overhead operations on a fast-moving conveyer. Only five feet tall, Alber had to stand on her tiptoes and, after less than a year, developed another repetitive motion injury, thoracic outlet syndrome, in her shoulder, forcing her to go on leave and to undergo another operation. When she could not return to work after six months, Kawasaki fired her. At the time, Alber says, eight of her co-workers "were going through the same thing, and all of us lost our job[s]."
Alber had become a union sympathizer, and her claims about other workers might be dismissed as union propaganda, but they are thoroughly confirmed by statistics obtained from Nebraska state records. On the advice of an official from Nebraska's Department of Economic Development, I compared Kawasaki's workers' compensation record with that of Tenneco Manufacturing Co.'s Walker Muffler plant in Seward, a plant of similar size and function. The difference in claims is astounding. Over the period from 1984 to 1989, Tenneco reported 285 claims; Kawasaki reported 831 claims, almost three times as many. Kawasaki also paid out as much as 200 times more in annual compensation, an indication that its injuries were more serious and of longer duration.
With the proliferation of temporaries and the high incidence of injuries, Kawasaki's Lincoln operation seems to resemble a war zone rather than a comfortable family home. In fifteen years, Kawasaki has run through several thousand employees in Lincoln. Workers who have survived have become cynical. One worker, who voted against the union both times, is now thoroughly disillusioned. Of Kawasaki, he says, "They are just churning people up and spitting them out."
Kawasaki's Lincoln operation represents all the disadvantages of the Japanese system without any of the advantages. The workers have to endure speedup and risk injury without the benefits of lifetime employment or worker participation in plant decisions. In contrast, in many plants in Japan middle-aged workers who can no longer keep up with the line are shifted to other kinds of jobs, for instance, positions as mechanics for car dealers. But once Kawasaki's workers in Lincoln have had enough of the line, they have nowhere else to go.
Some policy experts argue that, through direct investment, a foreign company will transfer its expertise to an entire region's workers, creating a "stimulus for regeneration," in Bill Emmott's words. No doubt this happens in many foreign factories in the U.S., but it is doubtful that it is occurring at Kawasaki's Lincoln facility. Like Mary Alber, the workers at Kawasaki seem more likely to end up behind the counter at a gas station convenience store than sharing their knowledge of just-in-time production with the local citizenry.
Yonkers
"When the elevator company moved, it threw hundreds of people out of jobs. Since URC [Union Rail Car] moved in, many Americans have found jobs, helping to revitalize the Yonkers economy." -- Kawasaki promotional film, 1990.
Kawasaki is the largest train builder in Japan, but by the 1970s it was looking outside of Japan to sell its subway cars and high-speed trains. Because of rising oil prices, Africa and Latin America, once sources of business, were no longer able to afford new train lines. And Western Europe, like Japan, protected its own train builders from foreign competition. That left the U.S., which, under the banner of free trade, was welcoming foreign investment. Kawasaki Rail President Fudo says, "In those days for Japanese car builders the only possible market was the United States."
Like other Japanese manufacturers, Kawasaki relied on a trading company, Nissho Iwai, for negotiating contracts with foreign customers. In 1979 Kawasaki and Nissho Iwai got their first order in the U.S., to produce 141 light rail cars for Philadelphia's Southeastern Pennsylvania Transportation Authority. But, like other car builders, Kawasaki always had its sights set on New York City, the home of the world's largest subway and train system. In 1985 Kawasaki and Nissho Iwai found their opening in Yonkers.
In the mid-1980s, Yonkers, a decaying industrial city of 200,000 perched picturesquely on the shore of the Hudson River, with the Bronx to its south and wealthy suburban towns like Irvington to its north, was reeling from the departure of Otis Elevator, whose plant the city had helped finance. Otis had pulled out in 1983 after having been acquired by United Technologies. The Port Authority of New York and New Jersey bought the plant overlooking the Hudson from United Technologies and established an industrial park there.
Desperate to find a tenant for the Otis plant and needing 95 new subway cars, the Port Authority found the solution in Kawasaki.
In 1985, the Port Authority hired Kawasaki to build its cars, and Kawasaki agreed to rent the Otis space. To sweeten the deal further, the Port Authority, the city, and New York State showered Kawasaki with rebates and write-offs, even though the car builder might have rented the plant without them, since the Port Authority required that the cars be assembled within 25 miles of the Statue of Liberty.
The New York State Industrial Development Agency provided Kawasaki with a $4.5 million industrial revenue bond. The Port Authority built a $2 million test track for Kawasaki; it gave the company a ten-year lease exempting it from property taxes and water charges and requiring the company to pay only 30 percent of its electricity expenses. Yonkers agreed to pay half the salary of 27 local workers being trained by Kawasaki. All the city and the Port Authority expected in exchange was that Kawasaki hire local workers, especially those whom Otis had laid off. State Assemblyman Terence Zaleski, who has been closely involved with Kawasaki, says, "There was a good bit of enthusiasm and hope that the jobs that were going to be provided here would offset some of the very skilled technical jobs that had been lost when Otis Elevator pulled out."
In early 1986, Kawasaki began building cars for The Port Authority's PATH system. The first cars it assembled entirely from Japanese parts, but after a year, the plant was constructing much of the body at the Yonkers plant. Toward the end of that year, it won another contract from the Port Authority to refurbish 295 cars for PATH, and the next year, it won still another contract for 200 cars from New York City. Within a brief time, Kawasaki had established itself as the premier transit car builder in the region. It had fulfilled its own expectations, but not those of Yonkers; as it turned out, most of the workers Kawasaki hired did not come from the city.
To manage its labor force at the Yonkers plant, Kawasaki engaged General Electric, and GE subcontracted the job to Qualified Personnel Systems (QPS) of Wilmington, North Carolina. Kawasaki's Japanese managers, including thirty engineers brought over from Japan, maintained overall control of the factory, but Kawasaki put QPS in charge of hiring and firing at the plant. QPS also played another role: preventing a union from organizing the plant's workers, even though Yonkers, unlike Lincoln, was a union town.
Kawasaki claims it does not have the employment records for its first three years of operation at the Yonkers plant. But, piecing together interviews, newspaper reports, and employment lists compiled by the unions, one can arrive at a rough account of what happened. With Kawasaki's acquiescence, QPS took what was initially a local work force and transformed it, reducing the percentage of Yonkers workers drastically and making Korean-born commuters from Queens in New York City the largest single group at the plant.
Kawasaki and QPS did this, it seems, primarily to prevent the union from organizing the plant. Like other recent immigrants, the Koreans were less amenable to union appeals than local blacks, many of whom had already belonged to unions. Just as occurred in Lincoln, Kawasaki officials allowed their fear of unionization to dictate a whole range of personnel and management policies.
When the plant opened in February 1986, it had about 100 employees. More than half came from Yonkers, and about 40 percent were black, reflecting Yonkers's own racial composition. In the summer, the Teamsters started organizing at the Kawasaki plant. At that point, Kawasaki and QPS appeared to adopt century-old tactics for fighting unions. They brought in anti-union workers from the South and Korean-born workers from Queens, an hour a way by a combination of subway and train. By September of that year, when the election was held, employment lists show a total of 142 workers, with 52 from Yonkers, 8 staying at a nearby motel and recruited presumably from the South for the election, and 16 Koreans recruited from Queens.
After the Teamsters lost the election, the Transport Workers Union (TWU) became interested in organizing Kawasaki, but according to labor law, the union could not begin signing people up for a year. Meanwhile, as Kawasaki won new contracts, employment swelled to over 500. Many of the new workers QPS hired were Korean-born residents of Queens, recruited from contacts with the original Korean workers. By the fall, former workers report that half the labor force was Korean, and the proportion of Yonkers workers had dropped significantly.
Moreover, the blacks who worked at the plant complained bitterly that they were being asked to train the semi-skilled Koreans, who were then promoted ahead of them to leadership positions at the plant. (Many of the Korean workers initially did not speak English, and factory signs at the Yonkers plant are now in both Korean and English.) John Peterkin, a local black, who was hired in early 1986 as a welder, and now works for CONRAIL, said, "Some of the Koreans became lead men, even though I was the first welder there." On October 14, 1987, three days before another union would become eligible to organize at the Yonkers plant, Kawasaki began laying off workers, even though the company had still not finished work on its initial contracts. First to go were Peterkin and others that had favored the union, even though Peterkin was among the more skilled workers at the plant.
Over the next nine months, Kawasaki laid off several hundred more workers. By June 1988, its workforce was about 150, or roughly what it had been in September 1986. According to contemporary accounts, Yonkers residents had fallen from 35 to 20 percent of the company's workforce. Blacks reportedly made up less than 10 percent of the workforce, and Koreans about 50 percent, although an unedited union-made videotape of workers arriving in the morning at the plant showed an even higher percentage of Koreans, perhaps as high as 75 percent.
Meanwhile, according to Yonkers officials, only one or two of the original 27 Yonkers residents whose training the city had subsidized were still working at the factory. In an interview with a local newspaper, John Zakian, director of Yonkers's development agency, said, "My belief is that right now what started to be a great benefit to Yonkers is a joke."
Kawasaki's hiring policies enraged local community leaders. The Reverend Darryl George, the slim, bearded black pastor of the Baptist church that sits across the street from Kawasaki's factory, took the lead in trying to pressure Kawasaki to hire back the Yonkers residents it had fired or laid off. In early 1988, George says, "a number of employees approached me and told me they were being discriminated against."
Stonewall Odom, the leader of a local group called Black Men Against Drugs and Violence, also started to hear complaints. "Blacks felt they were training Asians, and they would train these people and then they would find themselves being supervised by the same people," Odom said.
When Peterkin and other union allies were laid off in October 1987, the Transport Workers Union gave up hope of organizing the Yonkers plant. Instead, the union began a public campaign to protest Kawasaki's hiring policies. "We had never encountered anything so unique," Thomas McAdam, the president of Local 2001 of the TWU, said. Although Kawasaki was laying off local workers, telling them that there was no work, according to McAdam they were simultaneously hiring Koreans from out of town.
With the help of a New York communications firm, McAdam put together anti-Kawasaki commercials that appealed nakedly to American fears of immigrant workers. McAdam, Odom, and George held demonstrations in front of the plant, and McAdam and other TWU leaders also convinced the AFL-CIO that the situation in Yonkersalong with what had already happened in Lincolnmerited a national boycott of Kawasaki products.
The AFL-CIO decision came only after a thorough investigation of Kawasaki's hiring practices. While the union federation has favored stricter disclosure of foreign investment, it has not adopted a hostile position toward Japanese and other investors in the U.S.
"We support foreign investment. It can be extremely useful in maintaining jobs and improving company prospects," explains Howard Samuel, the president of the federation's Industrial Union Department. Samuel says that mere opposition to unionization is also not sufficient to land a company on the boycott list. 'There are tens of thousands of anti-union companies," Samuel says. "Normally boycotts are only called in relation to particularly egregious, hostile labor acts. I think Kawasaki particularly in Yonkers but also in Lincoln deserves it."
Kawasaki officials now claim that they had no responsibility to hire Yonkers residents. Sitting in his small, spartan office, smoking and weighing his words carefully, Kawasaki Rail President Fudo says, "When we came here, there was no one working here. There was no way for us to make any commitment to the management of the city about all this. They had a desire for a deal, but there was no way for us to make any deal." Asked about what happened to the original 27 workers, Fudo says, "It was a deal between GE and the PIC [Yonkers's Private Industry Council]. We are out of the picture." Fudo and other officials also disclaim any responsibility for the recruitment of the Korean workers. They call their current workforce a "legacy" of GE and QPS's management.
Qualified Personnel Systems has its own explanation for what happened. QPS official Craig Shingelton says that QPS hired the out-of-town Koreans instead of local residents because they were better workers. "We couldn't find qualified people in Yonkers to do the job. We recruited, we recruited, and we recruited, we hired, we hired, and we hired, and they wouldn't do the job. Some Korean employees applied, and they worked out real good. They were much more dedicated to their job, much harder workers, than the local work force. It was a poor area for skilled people."
Shingelton's account contradicts that of local workers like Peterkin or Lionel Turner, who claim that the Koreans hired were semi-skilled and had to be trained on the job. It also cannot be squared with the presence in Yonkers of 2,000 skilled workers who worked at Otis in the early 1980s. Assemblyman Zaleski says, 'There is indeed a good well-trained group out there that are accessible in the Yonkers area." Zaleski believes that if Kawasaki did have trouble recruiting skilled labor in Yonkers, it could have been because of the company's hostility toward unions. "Yonkers is a heavily unionized town. Perhaps one of the problems they had in obtaining the skilled labor from Yonkers is that people around the area might have been reluctant to get involved because of the lack of union representation," Zaleski adds.
McAdam and George are both convinced that Kawasaki hired Koreans from Queens because they believed that the Koreans would be dependable opponents to a union. "In my educated opinion, they considered that anybody of American descent could be a threat to them," McAdam says. Whatever the reason, however, the central fact is that Kawasaki had spurned the residents of the town that had opened its door to the company and paid for training a quarter of its initial workers.
Taipei
"We are steadily expanding our operations overseas, with the goal of making the Kawasaki brand name better known throughout the world. For this purpose, we are further expanding our operations at our production plant in Yonkers." -- Kawasaki Annual Report, 1990.
In the last decade, as Kawasaki was establishing itself in Yonkers, it discovered another lucrative market for its subway cars and trains: the fast growing economies of Southeast Asia. In the early 1980s Kawasaki won a contract to build trains for Singapore. Then in 1984 Taiwan announced that it would be accepting bids for a multi-billion dollar new subway system for Taipei. The cars, powered by AC rather than DC propulsion, would be among the most advanced in the world. Whichever firm won the contract would be in a good position to win the most profitable contracts of the early twenty-first century, including those for New York City. Kawasaki was determined to win the bid, but to do so, it had to overcome a significant obstacle.
During the 1980s, Taiwan had consistently run a trade surplus with the U.S., a result in part of its own protective trade policies. Under pressure from the Reagan administration to open its markets, it agreed to buy its subway cars from a company in America that could guarantee that at least half of the parts were made in America. To win the contract, American firms, such as Westinghouse and General Electric, with State Department funding and a Justice Department exemption from antitrust laws, formed the U.S.-Taiwan Transit Group (USTTG).
Within the USTTG, only the Quebec-based Bombardier, which had bought the American car-body maker Budd and took its place within the consortium, was foreign, but its factories were in Vermont. By all odds, the USTTG should have been able to win the contract against Kawasaki, but a series of odd events occurred, which eventually convinced congressional investigators that Kawasaki acted improperly, either on its own or in collusion with the Taipei authorities.
At the beginning of 1988, Taipei officials suddenly announced that they would not accept bids from consortia, even though they were willing to accept a bid from United Rail, the partnership formed by Kawasaki and Nissho Iwai. If USTTG wanted to bid on the cars, Bombardier, the car builder, had to represent it. The Taipei authorities thereby removed an obvious advantage that the American-dominated USTTG had over Kawasaki/United Rail. Now the bidding appeared to be between one American-based foreign company and another. The cards had been in USTTG's favor; now they were being reshuffled.
After Bombardier, representing USTTG, had consistently underbid Kawasaki and an Italian firm with a New York mailing address, the Taipei authorities changed the specifications of the cars. Their stated aim was to lower the cost. The effect, however, was to set up specifications that conformed not with those of typical American subway cars, but instead with specifications of cars that Kawasaki had previously built for Singapore. This gave Kawasaki an advantage because it could rely on existing designs.
In the next round of bidding, Kawasaki came in under Bombardier and one percent under Taiwan's secret ceiling prices, winning the contract. Even though the Taiwanese had estimated that the new specifications would reduce costs only 10 to 15 percent, Kawasaki's new bid was 37 percent below its previous bid. How was Kawasaki able to drop its price so low? And how had it managed to bid barely one percent under Taiwan's ceiling price? Bombardier officials charged collusion between Kawasaki and the Taipei authorities.
Afterwards, Kawasaki claimed that its victory was a victory for American car builders. "Now there is an American company competitive enough to take on the world market in rail cars," a new promotional film announced.
But there is good evidence that Kawasaki got the bid without committing itself to Taiwan's stipulation that at least 50 percent of the car's parts be produced in America. Taiwan had asked for detailed specifications of the cars' components and their cost. Bombardier's specifications showed that 71 percent of their cars would be composed of American parts. But Kawasaki's specifications listed companies that it had apparently never contacted or that did not make the parts that it claimed it would be buying from them.
In AC propulsion cars, the propulsion system and the brakes make up about 40 percent of the car's cost. Kawasaki declared that Mitsubishi Electric Sales America, Inc. and ABB of Lawrenceville, New Jersey would furnish the propulsion system, and Westcode Incorporated and Westinghouse Air Brake the brakes. When an enterprising Taiwanese reporter, Louise Ran of China Times, called up Mitsubishi Electric Sales, a representative told her they marketed audio-visual equipment and had nothing to do with propulsion systems for subway cars. When she contacted ABB, the company would not respond to her inquiries. Westcode told her they had just had talks with Kawasaki, implying that they had not talked to them prior to their winning the contract. Westinghouse Air Brake was not at the location listed in Kawasaki's specifications, and when Ran finally tracked the company down, representatives said that they had made no arrangement with Kawasaki.
Bombardier nevertheless could not interest the U.S. Trade Representative's office in what had happened. "I can tell you my unit spent no time on the case," Sandra Kristoff, the U.S. Trade Representative for Asia and the Pacific, said.
But Bombardier did get the attention of several prominent House and Senate members, including Vermont Senator Patrick Leahy and Michigan Democratic Representative John Dingell, who heads a subcommittee on investigations and oversight. Dingell put his own staff to work and their conclusions bore out what Ran had discovered. In an angry letter on November 15, 1989 to U.S. Trade Representative Carla Hills, Dingell charged that the Kawasaki-United Rail Car offer was a "sham." "At least 60 percent of the subway car would have originated in Japan," Dingell wrote.
Faced with the threat of an investigation, Kawasaki tried to make amends. The company contacted Westinghouse, which had been slated to supply the propulsion system for Bombardier, and signed a contract enabling Westinghouse to supply Kawasaki's propulsion system. But Dingell thinks that Kawasaki will still not meet the 50-percent requirement.
Kawasaki and Nissho Iwai officials insist that they are victims of cultural misunderstanding. Gosuke Mabuchi, the youthful vice president of North American Transit, a division of Nissho Iwai, and United Rail Car's director of procurement, says that Kawasaki played by the rules. Mabuchi claims that Kawasaki intended all along to use Westinghouse, but could not list them because the propulsion maker was committed to Bombardier. "We couldn't have included their proposal in our package, but that didn't mean we couldn't use AEG-Westinghouse," he says. Kawasaki tried to leave the door open to Westinghouse, Mabuchi says, by listing "other U.S. vendors" in the proposal. But when asked whether Kawasaki ever contacted Mitsubishi and ABB, Mabuchi says emphatically, "No, no, no."
By admitting that Kawasaki did not contact the companies, Mabuchi is in effect acknowledging that Kawasaki won the bid through subterfuge. In its 23-page "Instructions to Tenderers," the Taipei authorities had demanded exact specifications. If Kawasaki had planned all along to use Westinghouse rather than the companies listed, it could not have known what the cost of the propulsion system would have been; it could not have filled out the specifications accurately. Kawasaki and Nissho Iwai appear to have made a travesty of Taiwan's commitment to buy American, to have cynically manipulated American trade relations with Taiwan to beat out a company that was committed to building cars in the U.S.
In winning the contract, Kawasaki got considerable help from Yonkers officials. In January 1989 the company sent Assemblyman Zaleski, state Senator Nicholas Spano, and Mayor Michael C. Wasicko to Taipei to convince the Taiwanese authorities that Kawasaki was a bona fide American company. For their part, the city officials tried unsuccessfully to get Kawasaki to promise, in writing, that if it won the Taipei contract, it would set a goal of at least a 50 percent local workforce.
The usually impassive Fudo becomes annoyed when asked about making any sort of agreement to hire Yonkers residents. "We are always talking to the mayor or to state officers asking us to make such [a] commitment. We can't make any such commitment," Fudo insists. Asked whether he feels any responsibility toward Yonkers, Fudo remarked that if Yonkers "ordered 100 cars and then asked us to hire only persons in Yonkers, then we [would] do it."
Even without a promise, Yonkers officials are happy about 150 to 200 jobs that the new contract will bring. Zaleski is even optimistic that United Railwhich, ironically, changed its name recently to "Union Rail"will eventually come to terms with the Transport Workers Union. "If they are looking to break into highly skilled personnel, they might have to reassess what they are going to do about that," Zaleski says. But although Kawasaki is unionized in Japan, Fudo remains adamant about keeping unions out of the Yonkers plant. American unions, he said, "place the interest of the union member first. Very frankly speaking, they interfere with operation, the smoothness of the operation."
Fudo does acknowledge that certain problems occurred in the early years of the Yonkers plant, but he will not say what they were. He claims that now that GE is no longer in charge, Kawasaki will be able to "rectify the previous history." But if the newly christened Union Rail won't commit itself to hiring local laborers and if it remains determined at all cost to prevent a union from coming in, Kawasaki's past history in Yonkers is very likely to repeat itself.
Kawasaki: Exception or Rule?
"URC is owned by the US subsidiaries of two highly respected Japanese companies, Kawasaki and Nissho lwai, but it is in every way a very American company." -- Kawasaki promotional film, 1990
Compared to other foreign companies or to the Japanese companies that set up plants in the 1980s, Kawasaki looks very bad. Toyota, for instance, has auto plants in both Georgetown, Kentucky and Fremont, California. In Georgetown, a non-union town, Toyota has successfully resisted unionization; but in Fremont, a union town where it is working with General Motors, Toyota has accepted the United Auto Workers. Both the Georgetown and Fremont plants have records of reasonably high worker morale and productivity. And in both cases, Toyota has adapted its labor relations to existing circumstances.
Bridgestone succeeded in a similar manner. It took over a unionized plant in a right-to-work state. But instead of trying to oust the union, it won the union's cooperation in establishing new work rules and worker-management participation. Now the United Rubber Workers is one of Bridgestone's biggest boosters.
Perhaps the Japanese companies that came later learned from the experience of the first-comers, but perhaps also as the Toyotas and Bridgestones pass into their second decade, perhaps they will betray their initial promise of good citizenship. "I'd like to see what happens to the workers at Toyota or Nissan in ten years. I think you're going to find that there is a ten-year life expectancy at these factories," says UAW official Polly Connolly, who tried to organize the Kawasaki plant in Lincoln. Indeed, Joseph and Suzy Fucini's in-depth study of Mazda's Detroit plant, Working for the Japanese, shows virtually the same health and safety problems as have occurred at Kawasaki's Lincoln plant.
Other Japanese companies have avoided the kind of racial controversies that Kawasaki stirred in Yonkers, but some of them may have done so simply by choosing plant sites where few blacks lived. In 1988 economists Robert E. Cole and Donald E. Deskins showed that Japanese auto companies were skirting black areas in deciding where to set up plants. In a study completed last year, Douglas Woodward found the same pattern persisting among these companies. Dispelling the hypothesis that Japanese companies were merely avoiding poverty-stricken areas, Woodward found that they also tended to skirt "non-poor black populations."
Of course, American firms have done everything Kawasaki does, from the infliction of occupational injury and illness to the manipulation of rival ethnic groups. They have used vicious tactics to break up unions; and they have tried to avoid unionization altogether, establishing plants or relocating them in areas where there are few minorities. In the 1970s, for example, General Motors embarked upon a "southern strategy," building new plants in states with little union activity. IBP Inc., the nation's largest meat-packing firm, has brought in immigrant Laotians to its plants in Iowa and Nebraska to defeat union drives.
What the example of Kawasaki provides is an instructive counterpoint to the cumulative wisdom about Japanese industrial management, long heralded as a management that appreciates its human resources and seeks a reciprocal, if paternalistic, relationship with its employees over the long run. Kawasaki's record shows that Japanese industrial management is not necessarily any better than that of American or other foreign corporations, and that, in some respects, certain Japanese firms may turn out to be significantly worse. The public's fear of foreign ownership of American facilities -- however exaggerated -- is thus not entirely groundless.
The Kawasaki experience also raises disturbing questions about the policy that the American government has pursued toward its industries. As Fudo acknowledged when I interviewed him, European countries protected their own transit car builders against Japanese competition. "For every country these areas are very fundamental to national security, and they are very important places for diversification and technology development," Fudo said, explaining European policy.
As Fudo might have added, Japan adopted exactly the same policies to protect its fledgling car builders. Without substantial government subsidies and protection, Kawasaki would have remained a passing fancy of Shozo Kawasaki rather than a powerful and prosperous keiretsu, or super-conglomerate.
American business and government leaders, in contrast, have steered clear of subsidies to specific industries. A decision was never made, or even debated, about whether the U.S. should have its own subway car maker. In 1984, when the last of the American companies, Budd, was sold to Bombardier, the event passed virtually without notice. Now there are no more American subway car makers, and, having won the Taipei contract, Kawasaki is easily the largest of the foreign companies. Defenders of foreign investment like Bill Emmott argue that Japanese companies provide American firms with a "stimulus for regeneration," but in this case there are no more domestic companies to stimulate.
In addition, American cities and states are now at the mercy of foreign companies when they want to build rail systems. As long as these builders compete vigorously against each other, American cities and states will not suffer, but if Japanese companies, for instance, ever achieve a monopoly, they might be able to control prices in this multibillion-dollar industry, as they do in Japan. American consumers, long thought to be the beneficiaries of foreign competition, will become its victims.
Should America have done differently? I asked Fudo. Should we have followed the example of Japan and Western Europe and tried to protect and nurture our own car builders? Or were we better off following the dictates of free trade and open markets?
Fudo's reply spoke directly and eloquently to the dilemma posed by Japanese direct investment, and by the Kawasaki experience in America. "Who is we?" he asked.
