Zaibatsu. Zaibatsu a large Japanese business conglomerate. Two of the Big Four started during the early Tokugawa Era

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1 Zaibatsu Zaibatsu a large Japanese business conglomerate Two of the Big Four started during the early Tokugawa Era Sumitomo founded by Sumitomo Masatomo 1615 Buddhist monk turned book seller Mitsui founded by Mitsui Takatoshi 1673 Merchant family (father lost Samurai status opponent of Oda Nobunaga opened soy and sake brewery) started with a Kimono shop Two others started during the nascent Meiji Restoration Yasuda founded by Yasuda Zenjiro 1863 Poor samurai family started money changing and tax-farming (profited on the time (use of fund/interest) taxes were collected and the forwarding of them to the government) Mitsubishi founded by Iwasaki Yataro 1870 Grandson of a poor Samurai who sold his status to pay debts and became a farmer. Iwasaki repurchased his family s samurai status Trading

2 Zaibatsu The relationship of Capitalism to Zaibatsu formation the involvement of the State Zaibatsu contributed to the formation of the capitalist state structure, to Kokutai the national spirit, and to Japan s imperial aspirations

3 Zaibatsu Mitsui Group (example) House code governed all facets of business(es) and social relations Headed by Mitsui Honsha the main holding company which in turn was directed by the Mitsui Family Council Mitsui managers picked from male members of eleven Mitsui families based on competency during apprenticeships Outside managers brought in to run day-to-day operations of businesses based on feudal social relations oyabun/kobun - master/vassal

4 Zaibatsu Zaibatsu as monopolistic or oligopolistic enterprises, or Zaibatsu as monopolistic oligopolies Zaibatsu business from industry to trade, and finance to banking Near the end of WWII, each of the Big Four Zaibatsu employed over a million individuals in Japan and abroad Mitsui employed almost 3 million persons at its height at the end of WWII Fluid movement between Zaibatsu employment and government employment What is a monopolistic oligopoly?

5 Zaibatsu Zaibatsu control over the economy is based on a wide range of associated subsidiaries Example no separation of commercial banking and investment banking Both vertical and horizontal monopolistic oligopolies Impact on real wages kept them artificially low for most of the population The impact of historical social relations (feudal) on social relations within a different economic system (capitalist)

6 Zaibatsu Zaibatsu structure Zaibatsu family Honsha holding company Major operating subsidiaries Minor or lessor operating subsidiaries and affiliates

7 Zaibatsu Zaibatsu structure The Mitsui Group example House council made up of the heads of the eleven Mitsui families Mitsui House Law Mitsui entities

8 Zaibatsu From Zaibatsu to Keiretsu Zaibatsu a large Japanese business conglomerate controlled by a group of closely related families via a central holding company (Honsha) as set forth under family law Keiretsu a conglomeration of businesses linked together by cross-shareholdings to form a robust corporate structure controlled by a central holding company (Honsha)

9 Zaibatsu From Zaibatsu to Keiretsu real change or symbolic change? Supreme Commander Allied Powers SCAP General Douglas MacArthur, followed by General Matthew Ridgway One part of the governing mission was to address the contribution of Zaibatsu to Japanese imperialism and to Japan s future economic structure the breakup years time to reverse course dismantling of the occupation of Japan, and on to the Korean peninsula to address the spread of communism

10 Zaibatsu to Keiretsu

11 Zaibatsu to Keiretsu

12 Keiretsu (not)

13 Keiretsu - 1 st layer

14 Keiretsu - 2 nd layer

15 Keiretsu - 3 rd layer

16 Keiretsu Keiretsu formation The Mitsubishi Model Trading Company Mitsubishi Corporation Bank Mitsubishi Bank Manufacturing Mitsubishi Heavy Industries Shares held intra-keiretsu Ten shareholders hold over 42% of Mitsubishi Corporation Keiretsu members - Mitsubishi Bank, Tokyo Marine & Fire, Mitsubishi Heavy Industries, Meiji Life Insurance, and Mitsubishi Bank & Trust - held >5% each In contrast, the ten largest shareholders of Apple hold under 27% of the company none are related entities

17 Keiretsu Keiretsu formation The Mitsubishi Model Trading Company Mitsubishi Corporation Bank Mitsubishi Bank Manufacturing Mitsubishi Heavy Industries Kinyokai Friday Club Strategic Planning - meeting of the presidents and board members of major Mitsubishi companies ~25-30 members Ringi-sho/Nemawashi operational consensus ~25% of sales are generated via intragroup trading

18 Keiretsu Baburu Keiki ( ) Asset price bubble comprised of overvalued corporate stock and real estate A consequence of: Expansionist monetary policy Easy credit a contributing factor was the Nihon no endaka-fukyo (a recession caused by the appreciation of the Japanese Yen) Keiretsu formation While the BOJ may have wanted to start tightening credit as early as the end of 1987, the stock market crash [US equities] of October 1987, contributed to a policy of continued easy money. Tightening was delayed until the 2 nd quarter of 1989

19 Keiretsu Ushinawareta Ni-junen ( ) Economic stagnation Nominal GDP fell from $5.33 Trillion in 1995 to $4.36 in 2007 Brought on by the bursting of the asset bubble Exacerbated by Keiretsu formation, and Liquidity trap an inability to lower nominal interest rates (near zero [currently 0.1%])

20 Keiretsu Ushinawareta Ni-junen ( ) Economic stagnation Contributing factors Globalization Low foreign direct investment, coupled with an over-valued currency Reliance on Japanese ex-pat management high costs, low efficiency cultural differences and lack of trust Inability to retain skilled managers and professionals Low aversion to risk Low immigration

21 Keiretsu Ushinawareta Ni-junen ( ) Economic stagnation Factors contributing to economic stagnation in Japan Low and decreasing fertility rate 3.65 in 1950 to 1.37 in 2007 Aging population, increasing dependency rate and shrinking domestic labor force In 1950, 10 workers for every person >65 years of age In 2007, 2.8 workers for every person >65 years of age Projected workers for every person >65 years of age Declining investment rate Gross savings expected to fall from 40% in 1970 to 17.5% in 2050 Increased social security costs - 90 trillion in 2006 to a projected 141 trillion in 2025, concurrent with a 7% population decline over the same time period Small foreign labor force primarily Koreans, Chinese and Brazilians of Japanese descent amounting to approx. 1.5 million individuals (2007) Decreasing economic output Slowing productivity growth Decreasing output per unit of labor Decreasing GDP per capita

22 Keiretsu

23 Keiretsu