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Japan PRIVATE ENTERPRISE
The engine of Japanese economic growth has been private
initiative and enterprise, together with strong support
and
guidance from the government and from labor. The most
numerous
enterprises were single proprietorships, of which there
were more
than 4 million in the late 1980s. The dominant form of
organization, however, is the corporation: in 1988 some 2
million
corporations employed more than 30 million workers, or
nearly half
of the total labor force of 60.1 million people.
Corporations range
from large to small, but the favored type of organization
is the
joint-stock company, with directors, auditors, and yearly
stockholders' meetings.
Japan's postwar business system dates back to the
dissolution
of the zaibatsu during the Allied occupation.
Central
holding companies were dissolved and families and other
owners were
compensated with non-negotiable government bonds.
Individual
operating firms were then freed to act independently. At
the same
time, the government instituted antimonopoly legislation
and formed
the Fair Trade Commission. Together with agricultural land
reform
and the start of the labor movement, these measures helped
introduce a degree of competition into markets that had
not
previously existed.
It was not long, however, before the spirit and the
letter of
these reform laws were neglected. During the 1950s,
government
guidance of industry often sidestepped the provisions of
the law.
While market forces determined the course of the vast
majority of
enterprise activities, adjustments in the allocation of
bank credit
and the formation of cartels favored the reemergence of
conglomerate groupings. These groups competed vigorously
with one
another for market share both within and outside Japan,
but they
dominated lesser industry.
In contrast to the dualism of the prewar era--featuring
a giant
gap between modern, large enterprises and the smaller,
traditional
firms--the postwar system is more graduated. Interlocking
production and sales arrangements between greater and
smaller
enterprises characterized corporate relations in most
markets. The
average Japanese business executive is well aware of the
firms that
lead production and sales in each industry and is
sensitive to
minute differentiations of rank among the many
corporations.
At the top of the corporate system are three general
types of
corporate groupings. The first includes the corporate
heirs of the
zaibatsu (including many of the same firms). The
second
consists of corporations that formed around major
commercial banks.
The nation's six largest groupings are in these two
categories.
Mitsui, Mitsubishi, and Sumitomo are former
zaibatsu, while
other groupings were formed around the Fuji-Sankei, Sanwa,
and DaiIchi Kangyo banking giants. A third type of corporate
grouping
developed around large industrial producers.
The relations among the members of the first two types
of
groups are flexible, informal, and quite different from
the holding
company pattern of the prewar days. Coordination takes
place at
periodic gatherings of corporation presidents and chief
executive
officers. The purpose of these meetings is to exchange
information
and ideas rather than to command group operations in a
formal way.
The general trading firms associated with each group can
also be
used to coordinate group finance, production, and
marketing
policies, although none of these relationships is entirely
exclusive
(see Trading Companies
, ch. 5). The practice of
crossholding shares of group stock further cements these
groups, and
such holdings usually make up about 30 percent of the
total group
equity. Member corporations typically, although not
exclusively,
borrow from group banks.
Similar relationships characterize the third type of
corporate
group, which was established around a major industrial
producer.
Members of this group are often subsidiaries or affiliates
of the
parent firm or are regular subcontractors. Subsidiaries
and
contracting corporations normally build components for the
parent
firm and, because of their smaller size, afford several
benefits to
the parent. The larger firm can concentrate on final
assembly and
high value-added processes, while the smaller firm can
perform
specialized and labor-intensive tasks. Cash payments to
the
subcontractors are supplemented by commercial bills whose
maturity
can be postponed when the need arose. In the late 1980s,
subcontracting firms accounted for more than 60 percent of
Japan's
6 million small and medium-sized enterprises (those having
fewer
than 300 employees).
This characterization of the economy as consisting of
neat,
hierarchical corporate groupings is somewhat simplistic.
In the
1970s and 1980s, a number of independent middle-sized
firms--
especially in the services and retail trade--were busy
catering to
increasingly diversified and specialized markets.
Unaffiliated with
the nation's large conglomerates, these corporations
dueled each
other in a highly competitive market. Bankruptcies among
such
companies and the smaller firms were much more common than
among
the large enterprises. Small business was the main
provider of
employment for the Japanese--two-thirds of Japanese
workers were
employed by small firms throughout the 1980s--and thereby
the
source of consumer demand; small business engaged in
almost half of
business investment as well.
The issue of who controlled the enterprise system is
complex.
While theoretically corporations are owned by
stockholders,
individual stock-ownership fell throughout the 1970s and
1980s, and
in 1990 it was less than 30 percent. Financial
corporations
accounted for the remainder. Relative to capital, almost
all large
corporations carry enormous debt, a phenomenon known as
overborrowing. Such an unbalanced capital structure
results from
the easy availability of credit from the main group bank
and the
network of corporate relations, which reduces the need to
resort to
capital markets. Corporate shareholder meetings are often
only
window dressing. Thugs sometimes terrorize stockholders,
demanding
payments to vote for management or refrain from exposing
scandals.
The auditing system also is not well developed. Until the
late
1980s, few companies engaged outside auditors, and
accounting
practices gave corporations room to mislead both the
public and the
shareholders. The law was changed in 1981 to control this
kind of
excess, to enhance the power of auditors, and to reduce
the number
of stockholders in the employ of management. But in
general, it
seems that business management holds the reins of
corporate
control, often with little public accountability. The
corporate
system maintains itself by smoothing relations with the
government
bureaucracy, expanding benefits to workers and consumers,
and
inceasingly engaging in public relations and philanthropy.
Data as of January 1994
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