First Published in 2005. Routledge is an imprint of Taylor & Francis, an informa company.

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This book has been written as an outline history of the develop­ ment of Japanese business. A good deal of literature exists on some aspects, and some periods, but this is the first attempt to follow the entire course from the Tokugawa period to the present, and to analyse the salient features from the vantage point of

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Chapter 1

1.1 SOCIO-ECONOMIC CONDITIONS Toyotomi Hideyoshi laid the foundations of a new, centralised feudal system through a number of thorough administrative

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chōnin (a word which became practically synonymous shinpan or related han (territorial unit administered by a daimyō) whose daimyō were bakufu maintained a metsuke - at their side to watch tozama were never given the income of the Tokugawa House domain, which amounted bakufu always gave the figure fiefs which came close to

with merchant - shōniri). Thus the four-class system was created which remained undisputed in its rigidity, at least in theory if not always in fact, until the beginning of the Meiji era. Given the over­ riding goal of preservation of the status quo, Ieyasu and his successors enforced a policy of national seclusion in order to those of the minor daimyō, while the lesser ranks were paid out of the tax receipts through the Treasury and were employed in various government posts and other public duties. Under the pres­ sure of rising costs of the government bureaucracy, and the need to sustain the large army of samurai, the bakufu evolved an effi­

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shōgun seldom took a direct hand in government affairs, which shōgun ruled in the name of the Emperor, and the high officials ad limina visit to the shōgun every other samurai class became something sho-hatto (rules for the military houses) of samurai class, which was presented as a model for society, was

were left to high officials drawn mainly from the related han. Thus in turn ruled in the name of the shōgun. Among the high officials, jealousies and a policy of balance of power prevented any han from gaining an upper hand permanently, so the stability of the

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years and more neither the rates of tax on

the yield, nor the estimates of yield of the land had been revised, or if it had, only slightly and mainly by adding newly reclaimed land. The feudal class, then, while increasing its expenditures over time, due to both the rise in general consumer levels and its natural increase of numbers, felt ever more an economic squeeze.

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was 'pushed out' as a result of agricultural modernisa­

tion. The bakufu system of administration, as well as that of the han, were firmly based on agriculture, with commerce given only marginal importance. Due to a straitjacket of a self-imposed

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into land samurai and rōnin (masterless the dissolution of the guilds was

reclamation schemes and strengthened their positions. Yoshimune also had encouraged the growing of commercial crops; this, too, promoted the power of the merchants. Later, when during the Tempo era (1830—43) calamities caused poor crops, and peasants, led on by dissatisfied impoverished

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its influence and inspira­ han favoured the development of

tion during the Tokugawa period when it was reduced to the function of registering the people according to temple-parishes and performing funerals. The unruly monks of Mount Hiei had lost all actual power. Yet Buddhism inspired much of the arts with its elaborate rituals, and flowery ornaments. Buddhist monks

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fishing,organising the famous herring fishing industry this chapter deals.

by investing their capital there, being the main organising element, and marketing the fishery products all over Japan. As suppliers they established a monopoly on articles like rice, miso, sake, salt, tobacco and iron articles. They established an export cartel of various Hokkaido fishery products, notably dried herring as

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ryōgaeya business credit, usually at 15 per cent a year, and with­ ryōgaeya so that cash flow

drew it as they needed. Commercial credit among merchants was settled periodically by their respective was almost totally avoided in any larger transaction. Osaka be­ came the financial capital of the country, and the notes and bills on which the name of one of the large ryōgaeya was written

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samurai customers and bringing the goods to their

homes. On the whole Edo merchants remained more dependent on the feudal class, and on the vagaries of political change within the bakufu, and hence did not evolve that proud, almost Puritan, mentality which became typical of the Osaka merchants.
ByKyoto merchants were much fewer than those of either Osaka or

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tatami makers,

well diggers, etc., were not an attractive investment outlet. Mining was under direct bakufu control and major technological innova­ tions did not come forth. In short, the most attractive forward- looking investment outlets were located in the rural areas where landless labourers and tenants could be employed but these were

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bakufu initially abolished these za, but they continued unofficially, ryōgaeya also were granted guild char­ year. Each member received a certified

as is evident from the repetitive character of the prohibitions. After the Genroku period which was the major benchmark in the development of business, the bakufu changed its policy in order to assure orderliness of the market. The beginning was made with the charter of pawnbroker guilds; pawnbrokers were apt

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was definitely from top to bottom, and the people at the bottom, the merchant class, became thus a meek, though not always enthusiastic, imitator of the samurai class which was highly conscious of its role as model for the common man.

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himself, very much functions of the horizontal

web which gave security, but demanded self-effacing subservience. Merchants as well as other social groups were expected to live harmoniously and peacefully together. Yet business demands by its very nature that competition exists, one way or another. The city merchants thus followed the only reasonable way: they sacri­

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noren as

the ultimate rationale of their exertions for business prosperity. While Japanese society of the Tokugawa period was closely inte­ grated through this flow of continuity, it was only a matter of political conditions to return society to the top-level integration between loyalty and filial piety, and make Japan strongly con­

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samurai had to play their samurai preferred death junshi might be. Duties of status and public expec­

role and it did not matter how they felt. Men moved and were moved by public role-expectations. The to going against the public's expectations, no matter how non­ sensical such tation became tyrants, so much so that sometimes the Japanese

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? We shall grope for an answer to this complex question by the most outstanding novelists. His erotica, at odds samurai code of morality, purported to assert

reviewing the contents of the Japanese merchants' attempts in this direction, and how these attempts became frustrated through the above-described value system. We shall point out how similar problems received different answers in the West (Italy) and Japan on account of differences in the social values.

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shingaku movement (know your heart). himself, as well as to teach his samurai pride:

His aspiration was to maintain for fellow-merchants, a harmony between busy work and spiritual enlightenment. Bellah evalues Baigan's shingaku movement highly, discovering in it something akin to the Western this- wordly mysticism. According to Baigan a merchant could, and

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he be the only son, he is shihainin the head of the Chief House, and that manage­ the family should take up the

to be disinherited and an adopted son taken in. But whether natural or adopted son, as long as he is young he must work and be treated like any other employee. 12 (Some details on management of capital funds.) 13 Should disaster strike the joint family enterprise, only the

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the ominous visits of the ships of Western countries anti-bakufu sentiments became geographically concentrated han which had been forced to adopt some modernisation han were mainly located anti-bakufu scholars and their eager disciples han which actually led the Meiji Restora­

demanding opening of the ports, these scholars and their ad­ herents blasted the bakufu as treacherous when it agreed to the opening of the ports in 1854. in those

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the old system of monarchies. Later, the Pan- ? The fact is that, what the Frankfurt Assembly

German assembly at Frankfurt, in 1849, provided another chance but the would-be Emperor Friedrich Wilhelm of Prussia would not accept the crown 'from the common people'. The German monarchies were not functional, as the daimyō were; they were hereditary and 'of divine right'. It is a moot question what would

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was otherwise a shōgun of his governing functions,

The Restoration of Imperial Rule, as the Restoration was also called, was, of course, of symbolic importance but euphemism. When the coup d'état occurred in Kyoto, on 3 Jan­ uary 1868, depriving the last the Emperor was barely fifteen years old. The men who took over

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the area around Nagasaki the entire feudal system with all class privileges, han and their independent administrations, samurai with their feudal revenues;

and the offshore islands were sought out and banished to the main­ land with their possessions confiscated. Though Shinto worship did not remain important, the role of the Emperor as unifying symbol did; in his name the young radical leaders were able to make sweeping changes which resulted in a

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a local bank manager. Graduates of Tokyo university course the Iwakura Mission of 1871-73. Most of the prominent

were so imbued with their importance to the nation that most refused any position in private enterprise - no matter how well paid. This extremely high regard for school records had a lasting influence on the course of Japanese modernisation, and in itself shows how strong and successful the ideology of progress was.

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Liquidation of the feudal system samurai class the very potential needed to

Although the Meiji government officials were radical revolution­ aries, they could not abolish the feudal system, Marxian style. And this was not only due to their respect for the feudal class whose members they were. The only army the government had initially, was composed of these very samurai whose privileges

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bakufu the Meiji government relied han began a thorough was certainly per cent fiscal revenue, being overtaken in 1900

from the start on agricultural tax as a source of fiscal revenue, though in the first few years until the abolition of the han that income was low. With the abolition of the discussion, and preparation of a fundamental reform of the land tax system resulting in the land tax reform of 1873. by tax on sake. Japan fits therefore into the classic development model whereby agriculture bears the main initial burden of in­ dustrialisation. But the above figures also indicate that the rate of

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per cent a surplus of labour, per cent to a high of 2 per cent. A 2 per cent

increase in agricultural productivity the rise in population caused no problem. The surplus which during the Tokugawa period had been either squandered or unevenly distributed, notably in favour of the wealthy merchant class, could be made available towards modernisation investments. The labour-intensive character of

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the land tax was its monetisation.

The relative burden of the tax now depended of course greatly on the price of agricultural commodities, notably rice. With a fall in the price of rice the weight of the tax increased. During the inflationary period of the 1870s commodity prices kept rising steadily, from a base of 100 in 1868 to 138 in 1873 and 148 in

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in the well as armament. Light industries as silk and cotton spinning were also undertaken but to a lesser samurai daughters were working, as models for

field of heavy industry: mining, shipbuilding, railways, machinery, construction-related factories, as extent. The stress was clearly in two directions: the securing of national defence and the establishment of a communications system.

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financial policy a modern banking

During the Tokugawa period the large money changers had per­ formed the functions of banks with their notes circulating in the whole country with a high degree of confidence. But the imposi­ tions of heavy forced loans, the collapse of the feudal order, the dissolution of the guild system, and the cancelling or drastic

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tsūshōshi - was established in 1869. Under this ryōgae system was gone. They were

department, eight cities were selected in which joint stock com­ merce companies were established for the fostering of foreign trade. The exchange companies, mentioned previously as the first type of banks after the Restoration, were entrusted with financing operations of foreign trade. For this purpose they could issue

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ryōgae system. bummei kaika. But if we deal with entrepreneurs, these

In 1873 the government abruptly terminated the privileges of the three official purveyors and called in its deposits. Only Mitsui, which was forewarned and could pay up the money, survived; Ono and Shimada went into bankruptcy. And thus ended the 'romance' between the government and the commission merchants which

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zaibatsu-like business combine. He was the small size of the market in terms of purchas­ The other question is why these initial quasi-monopoly

not only a profiteer in arms sales but established the first foreign trade office in London as early as 1874, and we find him active in such diverse fields as coal mining, chemical industries, construc­ tion and beer brewing. Godai Tomoatsu is another example of an inseparable mixture between favouritism and personal pioneer­

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image builders as central group samurai status himself. But it is perhaps better to look upon these men as busi­

Neither the adventurer merchants nor the seishō could establish an image of independent, progressive and responsible entrepre- neurship. On the one hand the backwardness of the merchants' methods was exposed and even reviled for failing to meet the economic challenges. But neither the corner-cutting merchants of

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himself, one samurai code of ethics. like Tanaka Gentaro of Kyoto and Okuda Masaka is due on the men who worked, as a central group, in the the Osaka business community, for his leading influence

could say. He established his own private community of young businessmen whom he taught informally his own principles and basic business rationale. This group, called ryūmonsha, edited its own journal and eventually became a very influential business group with the goal of propagating Shibusawa's business ethics:

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the spread-effect

The modernisation of Japanese business and industry proceeded in wave-like movements from the centres to the periphery. The first wave was the opening of the ports which attracted eager men to the centres but provided also new opportunities to the men at the periphery: they benefited from the new exports and we find a

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all imports consisted of cotton yarns and samurai

cloth did a government-sponsored drive for the building of mech­ anical spinning mills get under way. Exhibitions, discount sale of spinning machinery, and verbal encouragement were chosen rather than direct building of government-run mills, with the exception of three model mills which were later sold.

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the former

guild structure; the internal organisation within the firms; the formation of an industrial labour force with corresponding management-labour relations. We can expect from the outset that this side of the modernisation of business posed specific difficulties since it was closely dependent on attitudes, and inter-

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per cent, quite independent of the actual earnings,

and disregarding the accumulation of reserves. And when dividends could or were not paid out because business was bad, the con­ servative and timid capital suppliers often demanded scrapping of the enterprise, an attitude Shibusawa did not tire of chiding. Though companies, even large-scale ones, were established in

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noren as trade mark, now the government

intended to introduce the Western system of registration of trade­ marks, to stop the confusion and quality deterioration. The Tokyo chamber judged that, in 1878, the time was too early for this new way, but three years later the debate ended with adoption of such a system.

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he entered a fierce bidding competition with Mitsubishi million yen, and only by scraping fields of modern business.

and finally acquired them for 4.5 million yen, outbidding Mitsu­ bishi by a bare 2,000 yen. Masuda had to fight for that purchase against the closed ranks of most prominent Mitsui men who felt reluctant to enter this new, unexperienced field of mining. Mitsui Bank refused a needed loan of We find Masuda frequently in the company of Shibusawa, pro­ moting modern business wherever it seemed reasonable. We find his name along with that of Shibusawa at the foundation of the Osaka Spinning Mill, the Kyodo Shipping Company, the Tokyo Fertilizer Company and others. In the Tokyo Chamber of Com­

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all that activity is beyond description.'

The First World War came to Japanese industry at an opportune time, just when expansion was approaching the ceiling of market capacity. The war demands from the warring nations, and the Asian markets now left completely to Japanese suppliers, created unique chances for industry and, above all, the shipbuilding and

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: there were those with straight continuity from

the Tokugawa time; they catered for the traditional market and maintained their artisan or merchant traditions. Weaving, dyeing and finishing of silk products, pottery and paper making, tatami, and bamboo utensils production belonged to this category. While much of the public sector's demand was supplied by the modern

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issuing long- finance minister in 1906-07, commented on this point:

term bonds up to ten times their capital and supplied long-term credits to industry. Then there were the Banks of Agriculture and Industry (Nōkō Ginkō), one for each of the forty-six prefectures, which later became amalgamated with branch offices of the Hypothec Bank. These served then largely the needs of agricul­ 'Neither traders nor industrialists can do great things without borrowing money, and the more credit becomes available the greater things can be done in these fields. In this country bankers actively engage in many different ways to foster industry and help in the establishment of enterprises; finally the officials of banks

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the top executive director. Of course, the interests of

the shareholders could thus increasingly become subordinated to the general interests of growth in the company. Yet this tendency did not come so strongly to the surface in pre-war Japan because of the high concentration of ownership - in the zaibatsu the family interests were safeguarded through the holding company

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samurai tradition with emphasis on constant

learning and training, the second was taken from the village tradi­ tion of mutual help and joint economic community formation, the third from the world of village festivals which were to foster the feeling of family unity. 3.4 IMPACT OF VALUES ON MANAGEMENT

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Continuity and family unity

Answering the call of the Rescript on Education, Japanese child­ ren in primary and secondary schools were taught, increasingly so through various revisions of the history books and moral training books, that Japan was a divine nation originating from Amaterasu O Mi Kami. All people were essentially children of the divine

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self-no hongi, mentioned before, express the business leaders. But businessmen were equally 'visible hanď: harmony instead of class struggle itself. In

interest. . spirit of broadmindedness and assimilation . . . .' These words from the kokutai the role of the collectivist ethics perfectly. Familism, traditional­ ism, verticality, all these had lastly one basic objective, to make the

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zaibatsu and began the reform work with his the Joint Family and another seven outside men kaisha (unlimited partnership company). was composed of the chairman of the Mitsui Joint Family Council, the Mitsui divisions.

Nakamigawa Hikojiro became, from 1891 to 1900, the actual leader of the Mitsui typical determination. He occupied the position of senior execu­ tive director of the Mitsui Bank and director of the Mitsui head office. The work was begun with the formation of the Mitsui

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the bank against expansions the Mitsui industrial empire. A case in

which seemed risky to the Mitsuis yet evidently necessary to the industrial leaders without Mitsui. Masuda, Dan and others felt the brakes of the bank on their initiative more than once. In the 1920s Mitsui Bank had a difficult time finding profitable and safe outlets for its growing deposit volume; since the smaller

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the coun­ zaibatsu centrally. By some 120 Mitsubishi's political stance

try; (b) do not compete with the small trading companies and concentrate on large-volume trade. Mitsubishi was more progressive than Mitsui in entering early the fields of chemical industries as well as military industrial production. It would go too far afield to enumerate the various

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in toppling the

Kishi Cabinet but could not change the course of events in spite of street violence and chaos. In the 1960s the intellectuals who had felt alienated from society, began to turn towards more moderate views. Many had spent some years in the United States studying and came back with modified views on political and The Economic White Book of 1957 lamented that Japanese industry suffers through a polarity where on the one extreme there are the large modern enterprises and on the other the many small and tiny, family-managed, firms and farms based on pre-modern labour relations. Yet the White Book was optimistic, considering

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rice growing which has no parallels

(and models) in the Western developed nations. Japanese agriculture has a tradition of being small-scale labour intensive; the reforms introduced after the Second World War have set upper limits on agricultural holdings to prevent a return of landlordism. But thus small plot farming was stabilised; sales

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the fashionable slogan 'to hell with GNP\ Yet the

portents of things to come should not be dismissed lightly. 4.2 THE POST-WAR EXECUTIVES The dissolution of of Japanese business was meant to rob the Japanese economy of

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and 90 per cent of Japan's executives of large companies This percentage is considerably higher than that of American

graduated from college or equivalent institutions of higher learn­ executives and by far exceeds that of the advanced European countries. The background of college education helps con­ siderably towards the self-identification as professionals and

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fierce competitive struggle

stimulated under the overall growth euphoria. Many of the smaller producers saw their chance in boom times, they invested ahead of demand trusting in the growth so generously forecast by the Economic Planning Agency. When the recession hit, all had over­ capacity on hand which could not be taken care of by lowering

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recession came MITI helped to bring about an agreement

to impose quotas among the leading thirty-three steel firms which reduced total production by 30 to 50 per cent, depending on the products. Then, in 1959 the steel industry moved to the third expansion phase, not heeding the warnings of MITI to exercise

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zaibatsu people began to make earnest plans for their future: the zaibatsu companies began to zaibatsu firms, Sumitomo ? Is it the role of

new presidents of the former three meet regularly; there was the Monday Club for the Mitsui firms' presidents, the Friday Club for those of Mitsubishi, and the White Water Club for the Sumitomo Group's presidents. It was essential for the emergence of the grouping phenomenon that the

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zaibatsu dissolution meas­ zaibatsu banks gave preference to their former zaibatsu- is Ito Chu, and in the Sanwa group Nissho Iwai. fierce compe­

ures and retained control, leading the others in total deposits. Only Mitsui Bank dropped from its former top position to, at present, seventh place, because it had been ordered to separate from the Dai Ichi Bank with which it had merged. In a sense it was natural, out of former acquaintances and traditional ties, tition would arise between companies within the same grouping.

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the most important

Actually, the presidential clubs have grown in importance ever since they started in the early 1950s. Mitsubishi's Friday Club of the 26 core companies, Mitsui's Second Thursday Club of 19 companies, and Sumitomo's White Water Club of 16 companies are the central power. There the presidents of

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Keidanren people. While Keidanren is busy lobbying with the government, Japanese man­

Japanese businessmen are involved in their daily work, and agement as a whole becomes increasingly conscious of its very broad responsibility for Japan's future in general, not only eco­ nomically but socially and even culturally.

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zaibatsu families from direct involvement in 1 per cent had no director called from the president who is their line superior.

business, the GHQ urged the Japanese government to revise commercial law and pattern it according to the American model, with the object of facilitating the spread of stock-ownership on the one hand, and strengthening the powers of the board of directors on the other, thus carrying out a de facto separation

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(shokuin and kōin); all those

permanently employed were given the same basic treatment. The entire firm would be classified in several large categories of em­ ployees, beginning with the top management down to the plain workman. Furthermore, to underscore the basic equality, many firms began to pay everybody a monthly salary, abolishing day

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kobun) type.

This rotation system makes the young company men repeatedly adjust to new conditions and thus a too early specialist's routine rut is avoided; the men remain flexible and can easily face new tasks. The system is made workable by the willingness of Japan­ ese to work as a group rather than as individuals.

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zaibatsu at a time when Japan began to lose its goal was abandoned in favour of labour management based on loyalties

orientation, and the traditionalist backlash began. Labour relations were skilfully adapted to fit the basic attitudes of labourers coming from the villages: the open labour market and group solidarity. Management was thus 'dualistically'

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that the large banks became again the centres of details differ considerably, the chief features are visible. The phe­ nomenon of group formation in the entire economy is most clearly represented in the keiretsu, both as horizontal and as vertical formations. While embedded in familist values which are made
Byzaibatsu-like formations. Although the structural

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is also the Japanese value system which, of course, was as a model to be imitated. It

eroding the values and patterns sketched above. We tried to indicate this erosion process, notably in the field of labour man­ agement. The very success of development tends to wash out the original cultural elements; social relations, and other aspects of modern society tend to become the same all over the world, in