The Thick System of Change in the Japanese Economy from 1950 to 1999

Executive Papers Comments (3)

Executive Summary

During the period of the 1950 to 1999 the Japanese culture went through a period of change and/or prosperity which many contributed to Japan moving away from its central control structure under the Zaibatsu and the Keiretsu. However, using Gordon Reading’s thick description system of business analysis I will attempt to show that two forces, the External Ideational Logics of the Wa and the Material Logics of Protecting against outside Influences have molded Japanese culture how the culture has adapted to meet those two forces.

 

Central Issue.

At first glance the central issue in the case seems to be that the Japanese system has benefited from some change as Anglo Saxon Capitalism has pushed at the door, while the Wa supported conglomerations have served Japan poorly. The “Economic Miracle” following post WWII Japan seems to be a prime example of the successful implementation of this plan and the breaking of the Zaibatsu seemed to be directly responsible for this.

I would submit that the Zaibatsu merely changed to confront a new enemy, an outside influence, a common theme dating back to ancient Japan. And their new form -the Keiretsu- is itself incompatible with the western system of “shareholder Value.”

Japan, like China, had seemed to be heading for semi-colonial status, with foreigners trading on highly favourable terms out of six of Japan’s ports, and controlling its international shipping. [1]

When the Zaibatsu were broken apart by the americans during their occupation, they merely morphed as they has done time before and will again. To understand the morphing fully one must first understand where the Wa was formed; to understand how the society is still ruled by the Wa, and bracketed by outside change is to understand what Redding would call, the ideational logics.

Trajectory A – The. Shogunate Authority and the Wa Origin

Wa (Ideological Logics) -> Came from Authority, Ownership and Human Capital.

The Wa, plays a vital role among the Japanese society. This leads to a bottom up reach into the system.

Using Redding’s Model the Wa can be seen to have played a part in Japanese Identity, especially during the shogun period. The shogun period one could argue was the first place Authority, Rationale and Identity were firmed. Bushido warriors owed allegiance to Shoguns, who claimed all authority over large areas of Japan. Rational was based on both a divine mandate and the need to belong as well as safety, while individual identity was often times dependent on whom exactly one’s shogun was. Often times, a family line followed a single shogun for generations. This turbulent time in the 1900 I submit, is where the Wa fully developed.

Moving up Redding’s chart, from Authority, the bushido warrior’s loyalty to his shogun was absolute, as dictated by the bushido code, and was this authority was seen as legitimate more so because it was voluntary. Often times this authority was enough to for a shogun to challenge the Emperor if he wanted to. Ownership under this system was seen as deriving from that Authority of the Shogun, where he owned the land and the people on it. His control passed from his Diyamo’s, feudal lords who controlled vast lands and monitored the day to day of an area or providence. Often, Daimyo’s were large family lines who controlled other smaller family lines, a reflection of the Keiretsu structure explained by J. McGuire and S. dow (2003)[2] in the modern age (see below).

Ownership directly led to a shoguns control over the Human Capitol on any land he claimed or his subordinates claimed. The shogun was as responsible for the people on that land, providing and security, employment protection and organizing them, as much as they were to provide him with foodstuff and goods.

With cronies in government, these samurai secured lucrative monopolies, subsidies and, especially, cheap state assets;[3]

Loyalty of the people on the land to the shogonate was not voluntary as it was for the warriors, but it was seen as legitimate because of the care the shogun showed to his human capital, in effect, because the shogun treated the Human capital as his own and took care of them, Ownership was established and Authority solidified. This strong bond of the shogun helped to combat outside influences upon the group, and was first made to protect the shogun itself.

Trajectory B – Maintain Identity

Wa (Ideological Logics) -> Identity, Networks and Capital. –Combat outside influence (Material Logics)

The Strong Wa has reflected the structure of the shogunate to the Zaibatsu of the premodern (pre WWII) age. These main families, who often controlled smaller families, are the same model of the concentric circle within a circle of the Shogun, who controlled the Daimyo Lords, who then controlled various village chiefs and so on down. But a Material logistic which was there changed in type but not in scope. Japan has always been trying to keep outside influence away. From the warrior days, and wars with the Mongols and the Chinese, is other tenant defines who the Japanese are and would play a part in maintaining identity.

As the Zaibatsu were broken up as outlined in Harvard Business School article (2001), the Keiretsu developed, but it was a natural outgrowth of the same shogunate origin; to Combat Outside Influence. I submit that as the families were broken up, The Wa again took hold but this time as the means for combating outside influence. This time starting with Authority (yet still working from the bottom up) questions needed to be answered. To whom does a bank manager, corporation, or even a worker owe allegiance? According to Alston (2001) it is to the group above all things, therefore it doesn’t matter if the families were broken up. If one’s family has served another for 4 generations, when they come calling it is impossible to say no. The Keiretsu therefore used the new laws and means available to them to secure these loyalties again, but as before, the relationship is both ways. In securing these previous subsidiaries, they showed they were fulfilling their past job of securing the safety of the group. Linked by the Wa’s bond, we immediately move to Networks.

What emerged were the keiretsu, bound neither by family ties nor holding companies. But cross-shareholdings and interlocking directorships resurrected a good deal of the old group solidarity, and even the family names were allowed into circulation again. [4]

Using Vertical and Horizontal controls, the Keiretsu secured safety of the group from the danger of outside influences (foreign FDI) (HBR 2001). These network linkages between banks and the companies the Keiretsu now owned still reflect the old Shogun structure; A powerful single entity (Shogun, Zaibatsu, Keiretsu bank) in control of a subsidiary (Daimyo, Family Businesses, Tightly held Corporation ) who then controlled or did something to ensure the continued existence and safety of the group. These Networks gave the Keiretsu controls over Capital, which gave them control over who could buy their companies they held or even attempt to buy them. Under such a structure money becomes less important. Favors become traded faster than money, as it would seem like moving money from one pocket to anther. I would also submit that record keeping actually falls away, leaving what an outsider would call corrupt or bad loan. In a complicated society as Japan a favor can be accurately quantified, but a monetary value on that favor cannot. The act of lending someone 100 Million Yen may not be as important as the favor or the loyalty now earned. That single act, under the western model is recorded as a bad loan, while in a Japanese model may mean that company and that family now for generation have to pay off that debt by working it off.

Conclusions.

…with their concentrations of industrial power, cartels, state-led investment and feudal management, the zaibatsu also offended American notions of business. Yet they had served Japan well—and were still to do so for decades.[5]

As the Shogun morphed into the Zaibatsu and the Zaibatsu morphed into the Keiretsu so too will they morph into something else as more FDI threatens to change Japan. Japan will continue to resist the changes imposed on it as its two competing material and external influences push against each other. To the Western driven system of shareholder value, The Japanese system seems enclosed and can appear corrupt but it’s only in resisting and keeping to its history of companies privately or closely held will the Japanese system survive.

References used by not directly quoted.

ZAIBATSU – The Columbia Encyclopedia, Sixth Edition CopyrightU+00A9 2004, Columbia University Press. Licensed from Lernout U+0026 Hauspie Speech Products N.V. All rights reserved

External Pressure and Japan 1603 1867. http://www.japan-guide.com/e/e2128.html

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[1] Yes, General, Dec 23rd 1999 Economist Millennium Issue. http://www.economist.com/diversions/millennium/displayStory.cfm?Story_ID=347271

 

[2] journal of International Business Studies (2003) 34, 374-388. doi : lO.l057lpalgrave.

j1bs.8400038 J . McGuire and S. Dow

 

[3] Yes, General, Dec 23rd 1999 Economist Millennium Issue. http://www.economist.com/diversions/millennium/displayStory.cfm?Story_ID=347271

 

[4] Yes, General, Dec 23rd 1999 Economist Millennium Issue. http://www.economist.com/diversions/millennium/displayStory.cfm?Story_ID=347271

 

[5] Yes, General, Dec 23rd 1999 Economist Millennium Issue. http://www.economist.com/diversions/millennium/displayStory.cfm?Story_ID=347271

OceansOfThought @ April 18, 2008