Download Chapter 6 – Business-Government Trade Relations CultureQuest

Chapter 6 – Business-Government Trade Relations
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Japan: Zaibatsu and Keiretsu . . . the Sumo Wrestlers of Business
Governments around the world have routinely intervened in trade and investment policy.
Japan’s postwar economic rise shows how government intervention was used first to
promote Japanese industry and exports and then, as a result of external pressures, to
increase domestic demand and consumption.
Much of Japan's post-World War II success was the result of a well-crafted
economic policy closely administered by the government in alliance with big businesses.
Historically, Japan’s economy was controlled by zaibatsu, huge conglomerates. The main
ones, Mitsubishi, Mitsui, Sumitomo, and Yasuda, were interested primarily in making
profits and expanding their heavy industries, banking, and international trade, and their
leaders largely ignored the mounting financial crisis. To support its growing heavy
industry, Japan needed a steady supply of oil, iron ore, and coal. Thus began a period of
military aggression in Southeast Asia, Korea, and China, which eventually led to the
outbreak of war in the Pacific on December 7, 1941. After Japan's defeat in World War
II, Allied forces under U.S. General MacArthur occupied Japan, with the purpose of
establishing a “stable democracy.”
General MacArthur had planned to dismantle the zaibatsu and other monopolistic
companies after the war, but concerns about the U.S. involvement in Korea and the
growing Cold War with the Soviet Union led the United States to focus instead on
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strengthening the Japanese economy. In fact, the financial aid the United States pumped
into Japan helped the zaibatsu, which reemerged, with the addition of some new groups,
as a stronger network of interdependent companies called keiretsu. The keiretsu are
conglomerates that share resources, customers, and distributors. Unlike the former
zaibatsu firms, which were controlled by holding companies, horizontal keiretsu are tied
to a bank that may hold shares in other companies; hence, the companies and bank have
very strong links financially. The companies may be affiliated, or they may be in
completely different industries and of varying sizes. Keiretsu may also take a vertical
form. In this case, they usually include a supplier and a distributor, and a large
manufacturer is at the center. One of the advantages of keiretsu is that they can take over
large projects that smaller companies could not support.
The keiretsu have long enjoyed a very close relationship with the government.
Since 1990, the United States has challenged some of their exclusionary practices, and, as
a result of changes in their economic influence and roles, it has gradually become easier
for foreign companies to do business in Japan.
The outbreak of the Korean War accelerated Japan's opportunity to export its
products, and from 1954 until 1972, the gross national product increased at a rate of more
than 10 percent annually. Silk textiles were a major export, accounting for about onethird of the total. Production increased by 300 percent in the decade following 1962.
Bolstered by its cheap labor force, high-quality products, and government-supported
industrial output, Japan became a leader in exporting ships, steel, and electrical goods,
followed by automobiles and electronic products. By 1971, Japan was the third-largest
exporter in the world.
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Faced with two oil crises in the 1970s, Japanese companies started developing
more fuel-efficient products and more efficient manufacturing processes. Throughout this
period, the value of the yen was as low as 308 to the dollar, making imports very
expensive. In 1985, the Plaza Accord (G-5 Plaza Accord), an agreement among the
world's major industrialized countries, took steps to reduce this imbalance by lowering
the value of the dollar. Japan also agreed to stimulate consumer desire to buy American.
As the rate of the dollar dropped, imports became cheaper and the price of exports
became higher. Thousands of import regulations were eliminated, and Japanese business
began to feel the competition as profit margins dropped. Many companies adapted by
cutting their production costs and moving their manufacturing operations to Europe and
America.
Japan's so-called bubble economy grew soon after the signing of the Plaza Accord
and of other trade agreements in the mid-1980s that committed Japan to a policy of
increasing domestic demand and lowered interest rates. By 1991, though, Japan had
plunged into its worst recession in the modern era. The Japanese economy has continued
to remain weak well into the current decade.
Japan's huge trade surpluses and what many claimed were unfair trading practices
damaged its relations with the United States and with major countries in Europe. By
2000, these relationships were strained even further by a perceived lack of understanding
and attempts by the Japanese government to reform its economy. Despite the
government's efforts, which included spending vast sums from the public coffers on
infrastructure projects, prospects for the short term remained bleak.
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The government is now actively pursuing more foreign investment by pushing
ahead with measures to create a new tax system, better work environments, and improved
health and education services for foreign nationals.
Multimedia Exploration
In Japan, Sumo wrestlers are not just big, they’re some of the hottest sex symbols around
and they capture the hearts—and minds—of many an admirer.
READ, SEE, and HEAR more about Japan and why culture is so important in shaping
its people, its economy, and the way business is done.
TEST YOUR KNOWLEDGE by answering the questions as well.
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