Japan
“the land of the rising sun”
Japanese Capitalism
1800’s – 1945.
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250 years of self-imposed isolation from the
outside world.
1854 US warships arrived and demanded the
opening of trade.
Modern capitalistic production started in the late
19th century in the cotton and textile industry.
Japanese production was more efficient than US,
Russia & UK.
Japan was 1st Asian country to master western
manufacturing techniques.
Early Stages of Capitalism
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It was attributed to private entrepreneurs
and NOT through government protection.
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Government lacked power to impose tariffs.
Govt. promoted growth through publicly
subsidized firms.
These Govt. policies created large deficits.
Private business became the dominant mode of
economic policy.
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Japan (1800-1945) cont..
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Until 1930’s Govt. intervention in the
economy was limited
Banking was almost unregulated.
Govt. had little role in financing industrial
development
Shares were purchased by wealthy investors.
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Formation of Zaibatsu
This created basis for business expansion.
Japan (1800’s – 1950) cont…
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In the 1930’s isolationism and the great depression
caused problems for the Japanese govt.
Military took control of the government.
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Meiji Dynasty
Private business were forced to merge and become
govt. controlled.
Dec 7th ,1941 Japan military regime attacked Pearl
harbor.
This war could not be won , because of Japan’s need
for imports.
Japan
Miracle Years
Japan – 1945 – 1990’s
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After its defeat, Japan became a truly democratic
country under civilian rule.
Article 9 of the new constitution prohibited
Japan from establishing an offensive military
capability and eliminated any political power of
the military.
Japanese economy was finally on the road to
economical recovery.
Japan – 1945 – 1990’s
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1953 to 1971 , Japan enjoyed a 9.6% growth in GDP.
Growth was driven by Japan’s lack of military budget.
Japan relied on fewer imports.
Falling of trade barriers allowed for Japanese exports.
During this period , Japan had a high surplus of
educated workers for industrialization.
Surplus funds for investment which came from private
savings.
Japan – 1945 – 1990’s cont…
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Japan had industrial trade unions instead of
craft employment.
Lifetime employment.
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Growth and Little Competition
Stable political environment.
Japanese manufacturing techniques & quality
control was superior to rest of the world.
Japan began to dominate the automobile and
electronic industries.
Iron Triangle
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Ministries
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Keiretsu
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Ministry of International Trade
Ministry of Finance
Major Conglomerates
Government
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Liberal Democratic Party
Keiretsu
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Diversified Industrial groups held together by
interlocking shareholding rather than being held by a
single parent.
Major shareholding in other companies
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Cross-sharing of holdings
Cross-sharing of board members
Cross-sharing of Ideas and Views
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Research and Develop to get better view of the world views.
Prevent hostile take over
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Prevent foreign investors
Keiretsu’s
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Conglomerates
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Mitsui Group
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Mitsubishi
Fuji
Vertical
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Toyota – making own parts
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History back to 1568
Just-In Time Inventory
Keiretsu Exclusive Retail Stores
Japan, Inc.
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Sony – A Japanese miracle.
In 1945 , Sony started with 190,000 yens
(approx $2000). In 1996 its worth approx $15
billion.
Honda achieved similar success in the
automotive industry.
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GDP
 1 World $ 51,480,000,000,000 2003 est.
 2 United States $ 10.9 Billion 2003 est.
 3 China $ 6.4 Billion 2003 est.
 4 Japan $ 3.6 Billion 2003 est.
 5 India $ 3.0 Billion 2003 est.
 6 Germany $ 2.3 Billion 2003 est.
 7 United Kingdom $ 1.7 Billion 2003 est.
Depression
Bubble Burst
Market Failure
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Purchase from Keiretsu members only
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Causing non-competitive markets
Life-time Employment
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Inability to react to market
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Workers protected from
Seniority Wages
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Based on time with company not based on
qualifications
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Middle Management Stagnation
Market Failure – cont.
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Stock Market Inefficiency
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1989 – 38,916 yen
2002 – 8,579 (78% decrease)
Unemployment
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Life-time employment only applies to 55.
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Globalization
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Some Keiretsu force employment of retirement people.
Increase competition from transitional countries
Address Foreign Competition
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China and other countries are new competitors for same
foreign market place.
Human Capital
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Highest percentage citizens over 65 in a developed
country.
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Low consumer confidence
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Limited Investment Returns
Low infant birth rate
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Burden working age population
Limited work force in the years ahead
Networking with Keiretsu
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Banking – non performing loans
Government fiscal policy
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Not conducive to growth
Supports Keiretsu and status quo
Government Policy
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Restructure Social Security
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Upcoming working class will have to support
aging society
Protect of Agriculture
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Government shielding of agricultural sector
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High Tariffs on Agricultural Imports
Protectionism
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Overextending loans non-performing
companies
Household Savings yield low rate of return
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Investment into low yield funds
Consolidation of Banks
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Non-profit maximizing Keiretsu
City Banks funding of MITI projects
Status quo
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Inflation rate (consumer prices):
-0.3% (2003 est.)
Labor force:
66.66 million (2003)
Population growth rate:
0.08% (2004 est.)
Birth rate:
9.56 births/1,000 population (2004 est.)
Unemployment rate: 5.3% (2003)
Imports: $346.6 billion (2003 est.)
Exports: $447 billion
Recharge
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Restructure fiscal policy and tax structure
 2050 – pension payments will double
Increase own production of domestic energy
Revamp banking system
More responsive to external actions
 Slow on decision making process
Financial Sector - Future
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Dismantling of Keiretsu
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Creation of Competitive Markets
Creation of profit maximization and cost minimization
Restructure Banking system
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Profit-maximizing investments
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Loosen Restrictions on Market
Liquidate non-performing debt
Abandon
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Lifetime employment
Seniority Wages