Zaibatsu (財閥, literally "wealthy clique") refers to industrial and financial combines of a conglomerate type that dominated the Japanese economy between the Meiji Period (1868-1912) and World War II. Created by powerful industrial families, they were operated through a tight network of parent companies (本社 honsha) and subsidiaries. Although officially dissolved in the Occupation period following the war, the new corporate groupings called keiretsu (系列, "series", or "grouping of enterprises") - often regarded as their direct successors - were instrumental in the economic post-war boom and of immense significance to Japan's economy until the beginning of the 21st century.
The term "zaibatsu" is composed of two elements: 財 (zai, "wealth") and 閥 (batsu, "group", "clique", or "estate"). Originally a term referring to political groups, it has been commonly applied to business combines since World War I. While the historical and even the corporate usage of the term is vague, there is common agreement that the Big Four combines were zaibatsu:
- Mitsui (三井)
- Mitsubishi (三菱)
- Sumitomo (住友)
- Yasuda (安田)
The corporate logos of Mitsubishi, Mitsui, and Sumitomo
Under the Occupation six additional combines - the Other Six - were designated: Nissan, Asano, Furukawa, Ōkura, Nakajima, and Nomura. Other groups such as Shibukawa, Matsushita (Panasonic), Riken, and Nichitsu (Chisso) have also been considered zaibatsu, depending on the criteria chosen.
What were zaibatsu?
A zaibatsu was a complex of companies resting on a common ownership base and operated as a unit. A top holding company, the command centre of the entire group, determined a unified direction for all subsidiaries and subsubsidiaries. The top holding company either focused on group control, as in the case of Mitsui or controlled while maintaining some operating functions as well, as was the case with Sumitomo whose holding company comprised a department serving as the group's trading company. Ownership control was exercised through the top holding companies, however often the owning families supplanted this structure with direct holdings in the subsidiary companies. Intersubsidiary ownership was common, too.
Mitsui-gumi's first building in Kaiunbashi-dōri, Nihonbashi, built in the early 1870s, then requisitioned by the government to accommodate Japan's First National Bank (Dai-ichi Kokuritsu Ginko) [Ukiyo-e by Utagawa Kuniteru]
Most zaibatsu were established during the Meiji and the Taishō eras, though some of them date back to the 17th century (Mitsui and Sumitomo). The term zaibatsu itself was not employed in Japan until the World War I period, taking into account the years it took the combines to accumulate enough fortune as to constitute "an estate of wealth". By World War II they had grown to a considerable size; by the time of the occupation, it was estimated that Mitsui comprised some 300, Sumitomo some 250 corporations.
"Designated subsidiaries" were affiliated companies strategically most important to the conglomerate; they were called chokkei kaisha (直系会社) or bunkei kaisha (文系会社) and tightly controlled by the parent company. They served in turn as holding companies for countless subsidiaries beneath them and were referred to as second-tier holding companies when their subsidiary networks grew very large and complex. In addition to the designated subsidiaries, there were ordinary subsidiaries called bōkei kaisha (母系会社), resulting in a pyramid-shaped hierarchy, in which the level of ownership by the top holding company typically - but not always - was highest among the designated subsidiaries.
The following key characteristics can be observed in all zaibatsu:
- Family control over ownership: the families retained exclusive ownership of the shares of the top holding companies in the older conglomerates and did not issue public shares until the 1920s and 1930s. With the growth of foreign investment in the course of the military and economic expansion of the 1930s and 1940s, more financial means, thus outside ownership was required. Family control was determined according to each family's house law. The House of Mitsui, composed of 11 houses, had the most complex structure and established ranks and proportionate income based on the 1722 will of Mitsui Takatoshi (revised 1900); only the heads of the 11 houses were allowed to hold shares of the top holding company.
- Interlocking directorships: appointment of directors for the top holding companies and appointment and approval of directors for the designated subsidiaries was under strict family control as well. Such positions required not only excellent business skills but also a display of loyalty to the house. It was not uncommon for managing directors of the holding company to hold positions on the boards of multiple subsidiaries. Often directors with the power to commit the subsidiary were contractually obliged to report any issue that might come up in board meetings to the top holding company for guidance before a vote was taken by their board, as was the case with Sumitomo. The newer zaibatsu established in the 1930s (such as Nissan) were of a more "democratic nature", allowing public shareholding and not requiring any family "fealty".
- Control over buying and selling: buying and selling was centralised and executed through group trading companies. This discriminatory practice meant that the weight of the entire conglomerate could be employed in commercial negotiations and the families could thereby easily monitor all business transactions that took place. Prices and fees charged within the combine were far lower than those charged to outside companies.
- Credit control: subsidiary companies were obliged to rely on the financial institutions of their group if they required credit for commercial purposes. Lending and borrowing between different combines was practically nonexistent, and only if the financial means required surpassed what the group's financial institution could provide, would outside borrowing be permissible. The quick expansion of the Big Four and their dominant position could be attributed to the fact that they had their commercial banks, while only one among the Other Six had their credit institute. Mitsubishi's group bank was a department of the top holding company until 1919 and did not issue public shares until 1929.
- Cordial oligopoly: contrary to Western corporations that aimed at achieving monopolies, the zaibatsu engaged in diverse commercial activities such as banking, trading, insurance, mining, shipbuilding, and the manufacturing of vehicles, aircraft, chemicals and electrical products. While technically competitors that together occupied market after market, none of the Japanese conglomerates enjoyed a consistent top position nor did they directly challenge one another for fear of being challenged in a different market by their co-oligopolists.
This concentration of power and capital allowed the zaibatsu to exercise political influence, cemented by cash payments from top holding companies to parties and politicians. Two of Japan's main political parties in the pre-war era, the Rikken Seiyūkai (立憲政友会, Constitutional Association of Political Friendship), with close ties to the Imperial Japanese Army, and their rival, the Rikken Minseitō (立憲民政党, Constitutional Democratic Party), with ties to the Imperial Japanese Navy, were regarded as tools of Mitsui and Mitsubishi interests. Given their political clout and the complete absence of checks and balances in the form of antitrust laws the zaibatsu were therefore deeply distrusted by both, the political left and right.
In 1932, the debate between the political parties and the military over increasing the military budget boiled over. Turning the issue into an anti-zaibatsu campaign, parts of the army leadership argued that only those who endorsed increased military spending were true supporters of the emperor. The dissatisfaction over the rampant corruption and the apparent collusion between the conglomerates and the politicians led to tensions that escalated in the assassination of three prominent figures: in the "The League of Blood Incident" (血盟団事件 Ketsumeidan Jiken) in March the Director-General of Mitsui, Dan Takuma (團 琢磨) and the former Minister of Finance, Governor of the Bank of Japan and head of Rikken Minseitō, Inoue Junnosuke (井上準之助) were murdered by ultranationalists, while Prime Minister Inukai Tsuyoshi (犬養毅) was assassinated by young naval officers on 15 May.
Although a not insignificant part of their production facilities was nationalised during the war, the conglomerates contributed considerably to the Japanese war effort before and during World War II; after the surrender of Japan, they were accused of complicity in militaristic policies. While the newer zaibatsu - the Other Six and others - devoted a more significant share of their economic activities to Japan's programme of military expansion, the older zaibatsu were in fact far bigger military suppliers, managing to double their total paid-up capital in the domestic market from 1941 to 1945.
8 Nov 1946: property transported from the Teikoku Bank (帝国銀行) (left); share certificates seized under the watchful eyes of the Military Police from the Mitsui HQ in Nihonbashi (right) [Source: Mainichi]
After the war, these contributions to the military as well as their rigid hierarchy and anti-democratic authoritarianism led to the dissolution of the top holding companies of the Big Four, to the sale to the public of the stockholdings of the Zaibatsu families, to an economic purge and to the implementation of anti-monopoly legislation, all measures taken by the Japanese post-war government under the direction of the SCAP (Supreme Commander for the Allied Powers) administration.
Zaibatsu share of the Japanese conomy in 1945 (in percent):
The total includes other industries not listed. Percentages are calculated on the basis of paid-up capital per industry.
Industry Big Four Other Six Others Banking & insurance 49.7 3.3 47.0 Mining 28.3 22.2 49.5 Metal working 26.4 15.4 58.2 Machinery & equipment 46.2 21.7 32.2 Shipbuilding 5.0 7.5 87.5 Chemicals 31.4 7.1 61.5 Textiles 17.4 1.4 81.2 Agriculture 2.7 7.7 89.6 Electricity & gas 0.5 - 99.5 Land transport 4.9 0.7 94.4 Shipping 60.8 0.6 38.6 Foreign & domestic trade 13.8 6.7 79.7 TOTAL 24.5 10.7 64.8
Source: Noda Kazuo, Zaibatsu; Chūō Kōronsha 1967
The economic purge General McArthur was ordered to carry out by the Joint Chiefs of Staff was part of a more extensive political purge devised in 1946. All top zaibatsu as well as other business leaders were regarded as "active exponents of militant nationalism and aggression"; companies earmarked for dissolution were selected for "being conspicuously monopolistic". In total, sixteen zaibatsu were targeted for complete dismantlement, and twenty-six for reorganisation after dissolution: in 1947 Asano, Furukawa, Nakajima, Nissan, Nomura, and Ōkura were designated for total dissolution, Yasuda dissolved itself in 1946. The family assets were seized, holding companies eliminated, and interlocking directorships, essential to the old system of inter-company coordination, outlawed. This "deconcentration" process did not always move smoothly; the Communist victory in China and the heightening of the Cold War made the U.S. lose interest in pursuing economic reform in Japan. In 1951, the purge was rescinded.
It was argued that by freeing the former zaibatsu subsidiaries, Japan's postwar economy saw a much fiercer market competition evolve which in turn triggered a remarkable economic growth. Companies could now make decisions based on what they perceived to be to their advantage rather than to adhere to an overall group strategy. Uemura Kōgorō (植村甲午郎, 1894-1978), a former president of Japan's most influential business organisation Keidanren (日本経済団体連合会 Nippon Keizai-dantai Rengōkai) admitted that the "zaibatsu dissolution was a major factor in Japan's high postwar growth".
The Zaibatsu have not completely vanished but re-emerged as keiretsu, or group enterprises, that are horizontally aligned, with interlocking business relationships and shareholdings and centred on a core bank. These horizontal relationships of association and coordination among group enterprises are what differentiates keiretsu from the rigid, vertically integrated chain of command of the former zaibatsu.
- Eisele, Ursula, Holdinggesellschaften in Japan: Entwicklung, Verbot, Wiederzulassung und aktueller Rechtsrahmen; Tübingen 2004 (in German)
- Hadley, Eleanor, Antitrust in Japan; Princeton University Press 1970
- Hadley, Eleanor, Memoir of a Trustbuster: A Lifelong Adventure with Japan; University of Hawaii Press 2002
- Nussbaum, Louis-Frédéric, Japan Encyclopedia, Harvard University Press 2005
- Roberts, John G., Mitsui: Three Centuries of Japanese Business, New York 1973