Made In Japan

by Akio Morita

  Because of their tremendous economic power, the zaibatsu, as they were known, had political power: they could support a politician of their choice with money and election manpower and whatever else was needed. But actually once the zaibatsu gave their support to the military-men-turned-politicians, when they took control of the government, the tail began to wag the dog; the zaibatsu thought they had hired a watchman, but pretty soon the watchman was giving orders to the zaibatsu, and they became, in a way, captives of the system they thought they were controlling.

  When the war was over, the Occupation authorities declared that the country could not be democratized so long as the zaibatsu system of interlocking companies and enormous holdings in land continued. Almost immediately, fifteen of the zaibatsu were disbanded by the Holding Company Liquidation Commission. Their assets were frozen, and in the end the shareholdings of eighty-three holding companies were transferred. Another forty-five hundred companies were declared “restricted concerns.” These companies were not allowed to own stock in any of the other companies, and their employees were forbidden to work for another company in the old group.

  One of the figures involved in the planning of the zaibatsu dissolution, economist Eleanor Hadley, said recently in a seminar on the Occupation period in Tokyo that the program “did not go forward coherently and elegantly. We were woefully ignorant of Japanese economics and society. But even the Japanese didn’t have a good idea of how the zaibatsu operated because of the great secrecy they had always maintained.”

  The attempt to crush the interlocking relationship of the zaibatsu was effective, but it caused some unusual situations. For instance, it was impossible to open a company branch or new division of a restricted concern, and that is the reason the sales arm of Toyota Motor Company, Toyota Motor Sales Company, which was established in 1950, was operated with complete managerial independence from Toyota Motor Company, which made the cars. Actually, the two companies did not merge into one until 1984, thirty-five years later.

  Wealth and power were also taken away from the richest families. Compensation was limited. New banking laws were imposed, and controls were needed because inflation was high, soaring to 150 percent in 1947. The new constitution (still the law of the land in Japan) was written by GHQ, in English, and was translated into Japanese and quickly approved by the Diet. The document gave equal rights to women and minorities, established the basis for divorce and marriage laws and the rights of individuals. The nobility was deposed and their ranking system abolished. But land reform may be the most significant single reason for change in the social structure after the war. Many families who owned a lot of land, which was used to farm and to give employment to local people, were dispossessed, as in the case of my family. Landowners were only allowed to keep their homes and their forest land, and some of the richest people in Japan today, consequently, are those who had a great deal of forest land at that time, which did not fall under the land reform program.

  The American New Deal economic and social technicians also made it virtually impossible to fire anybody; they enabled—they actually encouraged—labor organizing, which was banished dining the war years except for a government-sponsored nationwide company-type union. Before, loyalty to the zaibatsu company was the main goal of any worker’s organization. The designers of the labor laws knew that there would be a problem with the Communists, who would be sure to move into the labor organizations now that the party was no longer outlawed. The American labor experts knew there was a risk, but they thought whatever troubles might be caused would be part of Japan’s education in democracy. In a way the Occupation authorities’ attitude showed a lot of faith in the basic conservative nature of the Japanese people. But what an education it turned out to be!

  As soon as the new labor laws were passed, as many as twenty-five thousand labor unions sprang up and five million Japanese workers joined. It was a heady time for the long-suppressed liberals, socialists, and Communists, and they wasted no time getting organized. Many of the unions came under the domination of the Japan Communist Party (JCP), and on May Day 1946, they paraded in front of the palace with red banners and flags and placards. The parade turned into a full-scale riot with some of the marchers attempting to storm the palace. The nation was shocked. There was a flurry of strikes over workers’ rights and many protests to the government over wages. When the Communist-controlled unions threatened to call a nationwide general strike to demand the resignation of Prime Minister Shigeru Yoshida and to get a big increase in pay, the prime minister and GHQ finally came down hard on them.

  Yoshida, who was always suspicious of the Communists and their motives and who was against legalizing the JCP, wrote in his 1957 memoirs, Random Thoughts from Oiso (his country home was in the town of Oiso), that “immediately after the war’s end, the Soviet Union as an Allied Power set up its mission in Tokyo, which was manned by more than five hundred trained propagandists and secret agents who guided and directed the activities of the Japan Communist Party, who abetted labor strikes, incited riots of Koreans, and created all manner of disturbances throughout the country.”

  With the support of the Supreme Commander Allied Powers, General Douglas MacArthur, Yoshida introduced a bill into the Diet banning strikes of public employees. It put the Communists on warning, and they backed down from their threatened general strike. But the new social legislation, which included social security and other welfare benefits, in addition to the new labor laws, was with us to stay.

  The effect of three things—the new laws, the revision of the tax system, and the elimination of the zaibatsu conglomerates—was to make Japan an egalitarian society for the first time. There was an opportunity for lower-income people to improve their life-styles, and even today if you come to Japan you can see that there is virtually no poverty as it is known elsewhere in the world. You will find a kind of egalitarian society rare in the world, which the Japanese people prize.

  Off and on for centuries, the people had to deal with privation and even famine. Poverty in the city and in the countryside was common. In fact, for generations of Japanese of the lower classes, life was little more than a bitter struggle for survival. Today if we have no poverty, we also do not have family wealth as it was once known. Every year the prime minister’s office takes a survey of people’s attitudes, and for more than ten years the number of people who consider themselves to be in the middle class has been over 90 percent.

  Today’s Japanese do not think in terms of privilege. Although some of our trains have first-class cars, we had no first-class section on our domestic airliners for many years. I am reminded of how Konosuke Matsushita, the grand old man of the Japanese electronics industry, even in his nineties, gets on the commercial flight from his headquarters city of Osaka to Tokyo together with hundreds of simple salarymen. Nobody thinks twice about it. Very few companies have private planes or helicopters, as Sony has, but these companies that have them do not use them to ferry executives on thinly veiled private junkets as is done in some countries; they are devoted to business travel and efficiency.

  Japan’s postwar success has made many people rich, of course, but today there is no such thing as the great wealth of the landed families of Britain or the Continent, wealth that seems to survive upheaval, change of government, even war. Some years ago I was visiting Paris, and at a party I admired the diamond necklace being worn by a lovely Rothschild lady. Her husband immediately and very generously offered to give me the name of his jeweler so that I could have him craft a similar fabulous thing for Yoshiko. I thanked him, but I told him I could never afford such an expensive object.

  He raised his eyebrows. “But you are rich,” he said. “You can afford it, I am sure.”

  “There is a major difference between you and me,” I told him. “Yes, I am rich. But you are wealthy. And that is why you can buy such jewelry and why I cannot.” Japan has no wealthy families as in the old days, families with vast holdings and untold riches. Confiscatory inheritance taxes
have helped to destroy real personal wealth, just as the peerage was abolished after the war. Today the idea of wealth seems somehow badly out of place to most Japanese, and in reality, the acquisition of vast amounts of land and control of many large companies is simply not possible, and that was the basis of the family wealth that once existed in Japan.

  Before the war, families like mine were very rich. We lived a completely different kind of life from what anybody lives in Japan today. All of our neighbors were the richest—the wealthiest—people in Nagoya when I was growing up. We had tennis courts, a real luxury in land-poor Japan, maids and butlers, and private cars with chauffeurs. My family had all of this, foreign cars and everything we wanted, and it was all paid for by my father, who had a substantial income. Taxes were low, and so no one ever thought of having a company-paid car or company-paid entertainment. The Japanese teahouses, where the business entertaining took place, would send the bill once every six months or once a year, and rich people like my father would write their own personal check, not a company check, to cover it.

  After the war, the situation completely changed because with the new laws, if you had to pay 85 percent of your income in taxes, it was difficult to afford a car and hire a driver and pay other business expenses. That is why it became the custom, gradually, for companies to pay these expenses for their executives.

  My family was lucky that despite the heavy bombing of Nagoya our business and home properties were not damaged at all, and, in fact, we were almost an exception. But after the war, we no longer had a maid or a butler, and my mother had to start to do her own housework. She said it was good for her health, and I am sure it was. We had to pay a huge wealth tax, and we lost a lot of our property in the land reform. Almost all of our land was being rented to farmers who grew rice to sell to the Morita family business. So we lost almost everything, but that was all right; we were grateful that the three sons had come out of the war uninjured and that we still had the basic business. But it was a big change. My father had to ride a bicycle to work during the war, and now? there was no chance of having a chauffeured car. It is a common saying in Japan today that inherited wealth will not last three generations unless a family works and adds to it, because the inheritance taxes are so high.

  GHQ wrote new laws aimed at making the worker and the employee more powerful and at seeing that the wealthy people would not rise again. Their view was that the wealthy families, especially the dozen or so main zaibatsu families involved with the industrial war machine and those of their kind, had to be weakened because they had collaborated with the military. Somehow they must have thought that all people of wealth were responsible for the war, which was wrong, of course. Many people could see at the time that the zaibatsu had become captives of the military they thought they could control. But the result of the GHQ orders was, ironically, to make Japanese industry strong again. One positive aspect of the purge was to weed out some top-level deadwood from management, although many good people were lost too, and put into control the second- and third-echelon employees who were the actual working engineers and technicians and younger managers with new ideas. This helped to revitalize the companies and made it possible for others to start new companies, such as our own, and Honda Motors, to name only a couple, now that it was obvious that the old giant companies would not be able to dominate everything. But even in the big old companies, the purge put younger and more active, more technically trained executives in charge.

  The concept of lifetime employment arose when Japanese managers and employees both realized that they had much in common and that they had to make some long-range plans. The laws made it difficult legally, and expensive, to fire anybody, but that didn’t seem like such a bad idea, since workers were badly in need of work, and struggling businesses needed employees who would remain loyal. Without class disputes, despite the Communist and Socialist party propaganda, the Japanese, who are a homogeneous people, were able to cooperate to provide for their common welfare. I have often said that the Japanese company has become very much a social security organization.

  In the postwar era, the tax laws make it useless for a company to pay an executive a lot of money, because the graduated tax rises sharply very quickly, and you are very soon in the highest bracket. Company-paid amenities such as worker dormitories and allowances for commuting, for example, help workers make up for the tax system. Tax shelters and tax avoidance are virtually unknown in Japan. Today, the salary for a top management official is rarely more than seven or eight times that of an entry-level junior executive trainee. This means Japan has no multimillion-dollar brass, and companies give no huge executive bonuses, no stock options, no deferred income, no golden parachutes, and therefore the psychological, as well as the real, gap between employees is narrower than in other countries. There may be some exceptions to the general rule, but I am sure they are few.

  The national tax agency every year releases a list of the top income earners, and it is always printed in the national newspapers for everybody to see. In 1982 the agency reported that only twenty-nine thousand Japanese citizens had earnings of over eighty-five thousand dollars. And yet a typical Japanese male manufacturing sector worker with a two-child family and the wife not working, according to the Organization of Economic Cooperation and Development, had annual gross earnings about two-thirds of that of his American counterpart in 1983. But the ratio of his disposable income is higher, for at that level he pays lower taxes than the American. The Japanese worker works longer hours to get his money, because he still is somewhat below the U.S. wage, but we in Japan do not think it is wrong to work hard for our pay. In fact a government survey in 1985 showed that most Japanese workers do not take all the vacation time to which they are entitled.

  What we in industry learned in dealing with people is that people do not work just for money and that if you are trying to motivate, money is not the most effective tool. To motivate people, you must bring them into the family and treat them like respected members of it. Granted, in our one-race nation this might be easier to do than elsewhere, but it is still possible if you have an educated population.

  The interest in education goes back to the Tokugawa era, when the nation was closed to the outside world for nearly three hundred years beginning just after the turn of the seventeenth century. During that period, the society was completely isolated except for a small part of Nagasaki where foreigners could trade. During that time—despite what many people saw some years ago in a popular American television series called “Shogun”—Japan may have been the only country in the world where complete peace reigned for such a long time. I was amazed to read the other day that the forty-year period since the end of World War II is the longest time in the recorded history of Europe that there has been no war there. It is very interesting in this context, then, I think, to realize that in Japan from 1603, when Ieyasu the first Shogun took over, until just before the Imperial Restoration, which ended the Tokugawa era in 1868, a period of more than two hundred and fifty years, there was no war. We call it the Great Peace. Even though samurai carried swords, many of them didn’t even know how to use them.

  There were very rigid class lines and everybody was locked into a class, with the samurai at the top—there even were many classes of samurai in the system—and the merchants at the bottom. There was one way to break out of your class, though, and that was to become an artist or a scholar. In those days, the arts were encouraged, such as literature, painting, pottery, the Noh theater, Kabuki, tea ceremony, and calligraphy. Scholars in Japanese and Chinese classical literature were very much in demand, and if you were a scholar, no matter where you were born, or what your class, you could move up. So if you were a farmer or merchant, your interest in education would be keen, because that was the only way to be admired by others, and the only route to moving up in your class. All parents wanted to send their children to school, and many private schools were opened.

  When the enlightened reign of Emperor Meiji began
in 1868, the population of the nation was about thirty million and the number of schools already functioning was about ten thousand. The enrollment at each school was small, of course, in total numbers, so we cannot compare it to today. Now, a junior high school education is compulsory, and 94 percent go on to high school, while 37 percent of the high school graduates go on to college. Today we have a population of one hundred and twenty-one million, but the number of primary and secondary schools is forty-five thousand, which is about the same density of schools as during Tokugawa and Meiji times. Even uneducated parents in the Tokugawa era knew the value of education to their children. If school was available and the child was clever, they would send him to study.

  So with this broad interest in education, when Meiji opened the ports and the government decided to introduce Western culture, the interest among the general public to learn about the world was very strong. When the compulsory education system started, literacy developed very fast. The high level of education explains why a worker or even the head of the local union will sometimes rise to become president of a corporation in Japan. For example, Kenichi Yamamoto, the president of Mazda Motor Corporation, joined the company as a graduate engineer and rose from his early job as a shop floor foreman to became the head of the company, then called Toyo Kogyo Company. In 1985, when his company decided to establish a plant to manufacture cars in the United States, he sat down personally with officials of the United Auto Workers Union to talk about a labor agreement. He could do it because he knew all sides of his business; he had even been president of the Mazda employee union many years ago, and he could talk the UAW language.