Zaibatsu Essay

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The term zaibatsu refers to the conglomerate business groups that became prominent in Japan during the Meiji Restoration (1868–1912), although some had roots going back to the Edo Period in the 1600s and earlier. The groups survived through the first half of the 20th century until they were forcibly disbanded after the end of World War II. They have transitioned in form since then to the keiretsu, which retain many, but not all, of their features. A notable difference between the two organizational forms is that zaibatsu had a vertical chain of command under one family, while linkages in keiretsu are generally horizontal in nature. Some important zaibatsu whose business names remain influential today include Mitsui, Mitsubishi, Yasuda, and Sumitomo (known collectively as the Big 4 zaibatsu), among others.

In the early 1850s, Japan was forced to open its borders by the United States under the leadership of Commodore Perry, ending a self-imposed isolation that had lasted since the 1630s with very limited exceptions, primarily for trading in select ports. During the early stages of the Meiji Restoration, the Japanese rulers sent scholars to study leading institutions around the world in an effort to incorporate Western ideas into Japanese society so that Japan could effectively participate in the world economic system. Along with resulting changes to societal institutions (e.g., a new constitution and education system), these leaders provided preferential treatment to prominent, well-connected families to develop industries deemed necessary for the advancement of the Japanese economy. Some of these initial advantages came during a mass privatization of government-owned companies that occurred in 1880, and allowed these family firms to expand into numerous new lines of business; these firms became known as the zaibatsu. While precise definitions of the term zaibatsu vary, they are generally defined in terms of a pyramidal group of firms under the leadership of a family-owned company.

The zaibatsu were generally organized as a combination of industrial firm(s) and a bank(s), which were controlled by a family-owned holding company that maintained ownership over each of the participant companies. The industrial (manufacturing) firms were responsible for producing products for consumption in Japan and export, while the bank handled financing for the conglomerate. In addition, the zaibatsu generally contained trading companies, which were responsible for selling merchandise overseas. Because Japan had been closed off from the rest of the world for centuries, the role of the trading company was particularly crucial in providing intelligence regarding the various markets where products would be sold, what types of products would be desired by those markets, and the existence of local competition. By maintaining trading offices in major cities around the world, the zaibatsu were able to gain a stronger grasp of the world market from which Japan had been isolated for so long.

From the late 1800s through World War II, the zaibatsu helped build the Japanese economy, such that it quickly became an economic power. While estimates vary, it is clear that the zaibatsu controlled a major portion of the economy. For example, one estimate states that by the mid-1930s, the Big 4 zaibatsu alone controlled one-third of all bank deposits in Japan as well as one-third of all foreign trade. The zaibatsu were also known for their strong association with political parties during the early 20th century and, as such, were closely tied to the military buildup of Japan during this period. In particular, both Mitsui and Mitsubishi were associated with major political parties, with Mitsui also maintaining strong ties with the Imperial Japanese Army, while Mitsubishi maintained ties with the Imperial Japanese Navy. At times, tensions existed between the zaibatsu and Japanese leaders over the level of zaibatsu influence on government, although efforts to limit zaibatsu power were often unsuccessful.

After World War II, during the occupation of Japan by the United States under the leadership of General Douglas MacArthur, the zaibatsu were initially targeted for dissolution to prevent a recurrence of their previous role in the buildup of the Japanese military. However, they were later allowed to reappear under the form of the modern-day keiretsu, largely for strategic reasons, so that Japan could help counter what was considered a growing communist threat in Asia.

Bibliography:

  1. Conan Paul Grames, The Japanese Zaibatsu: Its Dissolution, Revival, and Role in the Reconstruction of the Japanese Economy (Grames, 1972);
  2. Randall Morck, ed., A History of Corporate Governance Around the World (NBER, 2005);
  3. Hidemasa Morikawa, Zaibatsu: The Rise and Fall of Family Enterprise Groups in Japan (University of Tokyo Press, 1992).

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