Antitrust in Japan

by Eleanor M. Hadley

Overview

Before and during World War II, Japan's economy was controlled by power economic concentrations, large family holdings that passed from one generation to another, called zaibatsu. This book is a full assessment of the American postwar attempt to break up these powerful combines. Miss Hadley recounts both General Douglas MacArthur's efforts to implement the American occupation's antitrust policies and the Japanese government's resistance while it appeared to comply with zaibatsu dissolution. As the Cold War developed, American defense thinkers began to emphasize recovery rather than reform, and conservative American businessmen supported the abandonment of antitrust policy in Japan. The second half of the book examines the consequences of the antitrust measures and reaches conclusions which challenge prevailing Japanese and American views.

Originally published in 1970.

The Princeton Legacy Library uses the latest print-on-demand technology to again make available previously out-of-print books from the distinguished backlist of Princeton University Press. These editions preserve the original texts of these important books while presenting them in durable paperback and hardcover editions. The goal of the Princeton Legacy Library is to vastly increase access to the rich scholarly heritage found in the thousands of books published by Princeton University Press since its founding in 1905.

Product Details

ISBN-13:	9780691621289
Publisher:	Princeton University Press
Publication date:	03/08/2015
Series:	Princeton Legacy Library , #1354
Pages:	542
Product dimensions:	6.00(w) x 9.10(h) x 1.20(d)

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Antitrust in Japan

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By Eleanor M. Hadley

PRINCETON UNIVERSITY PRESS

Copyright © 1970 Princeton University Press
All rights reserved.
ISBN: 978-0-691-04194-0

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CHAPTER 1

Japan's Combines, Target of Occupation Reform

World War II differed radically from previous wars in the terms imposed by the victors on the defeated. Previously exactions had been limited to territorial changes, restrictions on the military establishment, and reparations. World War II, representing for the first time "total" warfare, extended to the peace conditions "total" peace, with demands for change in the political and economic structure of the defeated powers. In both Germany and Japan the victors attempted to revamp the social structure, to establish democracy. In the words of one descriptive title, the Germans and the Japanese were "forced to be free." In the Allied view, Germany had started three major conflicts within a century; Japan, following its emergence from self-imposed isolation, had pursued a pattern of unremitting territorial expansion — Formosa, Korea, Manchuria, China, and Southeast Asia. Allied leaders saw the expansionist foreign policy of Germany and Japan as the product of their undemocratic governments, and believed that the future security interests of their own countries required nothing less than the social reconstruction of these two nations. By themselves, proscription of army-navy-air force, along with territorial adjustments, were insufficient. Nothing less than basic social reconstruction was needed if democracy, which would be peaceable, were to take root.

But not in all parts of the world has democracy been so closely associated with peaceful foreign policy as it was in official Allied thinking. Many Asians and Africans might have wondered what such analysis did with the facts of empire, with colonial Asia, with colonial Africa, perpetrated by metropolitan powers, the majority of which had democratic governments. In the Western view these colonial holdings were not the consequence of deliberate glorying in war; rather they came about almost as a by-product of the enormous increase in productivity of certain national economies at a time when the industrial and scientific revolutions began shrinking the world. By contrast, German and Japanese territorial expansion was seen as the product of deliberate exaltation of war, of a philosophy which held the battlefield to be the testing ground of men.

Colonialism is a contradiction to democratic beliefs, as the postwar period has demonstrated. There was, however, no contradiction between German and Japanese political beliefs and territorial expansion. Regarding themselves as "chosen people," both peoples believed in the theory of a master race. Denying civil liberty at home, they openly professed subjugating others. The more extravagant Japanese imperialists called for the entire world to be under Japanese domination. "Hakko ichiu" was their cry: "Eight corners of the world under one roof." The Allies believed that governments that tended to respect the rights of citizens at home were more likely to respect the rights of others abroad. Thus it was that the Allies undertook their experiment in democratizing.

The programs for democratization in Germany and Japan were essentially similar. In both instances they called for a new constitution, new leadership, and change in the structure of the economy. Economic change was demanded for political reasons. The Allies believed that a democratic constitution would be meaningless unless the key pressure groups of the nation supported its ideology. In both Germany and Japan concentrated business was seen as one of the most powerful pressure groups, and because German and Japanese concentrated business was not considered to support democracy but rather oligarchy, it became a target of Occupation reform.

The Allied assumption in the case of both countries was that giant enterprises, benefiting greatly by a policy of foreign aggression, had supported the leadership directing the foreign aggression, except when military projects seemed unduly risky. But more fundamentally, the charge was that the political climate that suited such giant structures was not equality but hierarchy, not individual rights and liberties but their suppression. If there was to be an effort to develop a different philosophy of values in Germany and Japan and the pyramided structure of business were ignored, the chance of success would be a great deal smaller than if the structure of business enterprise were changed.

That Allied thinking was highly critical of giant enterprise reflected American New Deal views. In the Roosevelt New Deal period, longstanding American distrust of big business came together with massive malperformance of the American economy. The first two Roosevelt terms were periods of idle men and idle machines. The consequent criticism of big business had a sharpness to it which it would not have had if American capitalism had been performing well. On top of this, it became apparent with the outbreak of war in Europe that large German corporations had been actively and closely involved with the hated Third Reich. In the eyes of the Allies German big business was not as concerned with the historic bourgeois values of civil liberties and the diffusion of power, as it was a willing collaborator in their overthrow. It turned out that German private business arrangements with foreign firms in the form of cartels and patent agreements had been drawn to the national advantage of the Third Reich and the injury of nations opposing its policies.

Thus to those in Washington it appeared of utmost importance to remake the character of enterprise in Germany and Japan if democracy were to be realized. Accordingly it seemed essential to break up the I. G. Farbens and the Krupps, the Mitsuis and Mitsubishis, into competitive enterprises. Because of the scale of the American contribution to the Allied effort, American views were predominant, and so were born the two greatest experiments in trust-busting the world has seen.

The extent, successes, and consequences of the Japanese experiment form the subject of this book. The entire arduous and contradictory episode is strewn with lessons about Japan, about what antitrust action can hope to accomplish, and about American views on competition.

"'Dissolve' Large Industrial and Banking Combinations"

Because U.S. policy on the Japanese Occupation was still incomplete at the time of surrender, MacArthur was instructed on U.S. policy in two separate documents, a presidential statement of September 6, 1945 and the Basic Directive of November 1, 1945. The presidential statement represented the key portions of the Basic Directive. While the statement was sent by President Truman and the Basic Directive by the Joint Chiefs of Staff, both documents were in fact the product of the State, War, Navy Coordinating Committee, frequently abbreviated SWINCC (with the "I" for pronunciation only). In the presidential statement MacArthur was told that,

Encouragement shall be given and favor shown to the development of organizations in labor, industry, and agriculture, organized on a democratic basis. Policies shall be favored which permit a wide distribution of income and of the ownership of the means of production and trade....

To this end it shall be the policy of the Supreme Commander: ... To favor a program for the dissolution of the large industrial and banking combinations which have exercised control of a great part of Japan's trade and industry.

In the more detailed Directive, which carried the Joint Chiefs of Staff number JCS 1380/15 ("15" representing the number of successive versions), MacArthur was informed: "... you will require the Japanese to establish a public agency responsible for reorganizing Japanese business in accordance with the military and economic objectives of your government. You will require this agency to submit, for approval by you, plans for dissolving large Japanese industrial and banking combines or other large concentrations of private business control."

So much nonsense has been spoken and written in Japan about the origins of these instructions that it will be worthwhile to look in detail at how, in fact, MacArthur came to receive them. The first and most fundamental point is the indebtedness the Basic Directive for Japan, JCS 1380/15, owed the German Occupation document, JCS 1067. Policy for Germany and Japan was conceived in essentially similar terms, but because events were happening faster in the European theater than in the Pacific, American policy was developed for Germany first. At the Potsdam Conference in July 1945, in an understanding entitled "Principles to Govern the Treatment of Germany in the Initial Control Period," Truman, Stalin, and Atlee agreed that, "At the earliest practicable date, the German economy shall be decentralized for the purpose of eliminating the present excessive concentration of economic power as exemplified in particular by cartels, syndicates, trusts and other monopolistic arrangements."

In the United States document governing U.S. policy in the American sector of Germany, it is stated in Part II, Economic:

You will prohibit all cartels or other private business arrangements and cartel-like organizations, including those of a public or quasi-public character....

It is the policy of your Government to effect a dispersion of the ownership and control of German industry....

In Part III, Finance, it is stated:

You will make full application in the financial field of the principles stated elsewhere in this directive.

And in Part I, General and Political, it is stated under Denazification:

All members of the Nazi Party who have been more than nominal participants in its activities, all active supporters and all other persons hostile to Allied purposes will be removed and excluded from public office and from positions of importance in quasi-public and private enterprises....

The companion Japanese document to JCS 1067 was "Basic Initial Post-Surrender Directive to Supreme Commander for the Allied Powers for the Occupation and Control of Japan," JCS 1380. Under Part II, Economic, of the document it is stated:

It is the intent of the United States Government to encourage and show favor to: a) Policies which permit a wide distribution of income and ownership of the means of production and trade; b) The development of organizations in labor, industry and agriculture organized on a democratic basis. Accordingly, you will:

1) Require the Japanese to establish a public agency [which] ... will ... submit for approval by you plans for dissolving large Japanese industrial and banking combines or other large concentrations of private control....

3) Dissolve the Control Associations....

4) Abrogate all legislative or administrative measures which limit free entry of firms into industries to be reorganized where the purpose or effect of such measures is to foster and strengthen private monopoly.

5) Terminate and prohibit all Japanese participation in private international cartels or other restrictive private international contracts or arrangements....

Part III, Financial:

In the financial field you will make full application of the principles stated elsewhere in this directive....

And Part I, General and Political:

... in no circumstances will persons be allowed to hold public office or any other positions of responsibility or influence in public or important private enterprise who have been active exponents of militant nationalism and aggression, who have been influential members of any Japanese ultranationalistic, terroristic, or secret patriotic society, its agencies or affiliates, who have been influential in the activities of the other organizations enumerated ... below, or who manifest hostility to the objectives of the military occupation.

Although the document for Japan was the product of SWINCC and the Germany document of the Informal Policy Committee on Germany (IPCOG) made up of representatives from State, War, Navy, and Treasury, the indebtedness of the former document to the latter is abundantly clear. In fact, an officer with drafting responsibility for the Japan document within the War Department commented to this writer that when he attempted to take a fresh approach to the Japan document he was told by his superior officer to abandon such efforts and proceed on the basis of the Germany document.

The Germany document clearly established a policy of economic deconcentration, but there had been differences of view within the State Department as to the merits of applying this policy to Japan. The argument was concentrated at the Japan desk and in one of the newly created economic divisions, the International Business Practices Branch of the Commodities Division. Officers at the Japan desk tended to see in Japan's combines political liberalism of the Western variety; officers of the economic division asserted that such giant aggregations of business power were "by definition" antidemocratic, that businesses employing hundreds of thousands of workers and covering the gamut of the modern sector of the economy could not help but represent quite different values than those found in free, competitive enterprise. Some estimates at the end of the war have put Mitsubishi employees at one million, and Mitsui employees within Japan at 1.8 million and in the whole of the Far East at two to three million.

Japan-desk officers tended to interpret pre-Pearl Harbor Japanese history as a contest between the military and business elements, in which the military won out; officers of the economic division were not long on Japanese history, but, arguing analytically, they asserted that the scale of the combine investments in heavy industry, where the military were the chief consumers, made it impossible that there could be basic differences between the two. Further, the economists were impressed by the manner in which the combines gained business advantages in the areas falling under Japanese military control. In any event, the policy toward giant business in Japan followed that for Germany.

It has been said that American policy toward the combines was the handiwork of one or two subordinate persons in the State Department. To anyone with sophistication in government-policy matters, such a notion is inherently ridiculous; American governmental machinery simply does not work that way. As in all other matters, American policy for Japan's combines was the product of many officers working together, officers representing three different departments whose work was reviewed as policy proposals moved from the working level" to enunciation by responsible spokesmen as formal United States policy. At the working level drafting sessions on the economic section of the Japan document, in which I participated as a State Department member, it is my recollection that the meetings consisted of some 25 to 30 officers from the three departments. Proposals from these sessions were reviewed by intermediate-level committees before going to the State, War, Navy Coordinating Committee itself made up of assistant secretaries from the three departments for formal adoption.

The Allied Position

The foregoing is an explanation of the development of American policy with respect to Japan; the Occupation, at least ostensibly, was Allied. Where did the voices of Allied representatives enter policy formulation? By and large, they did not enter at all. Allied policy machinery was almost entirely overtaken by events. Understandably, the United States government was insistent on avoiding the pattern of a divided occupation, as in Germany; the 11-nation Far Eastern Commission as the policy organ for Japan was the compromise. But while it was the official policy organ of the Occupation, it was not created until the Moscow Conference of December 1945, and it transmitted its reworking of the United States' Initial Post-Surrender Directive to MacArthur on June 26, 1947, 22 months after the start of the Occupation! If policy is to be effective, it must be enunciated while events are in the making.

There was no difference of opinion among the Allies about the desirability of economic deconcentration in Japan. Differences concerned only what should replace Japans system of private collectivism. The United States wanted free private competitive enterprise, and under the circumstances, this policy prevailed. Most broadly put, the United States position, which became the Allied position, called for removal of the zaibatsu families from their position of business power and severing the ties — ownership, personnel, credit, contracts — which bound the component corporations into combine structures. Proposed, but essentially abandoned, was an effort to split up certain of the giant operating companies of the combines. This way, the Allies sought to achieve free competitive enterprise in the modern sector of the economy.

Some observers construed the Allied aim to have been one of establishing atomistic competition in the modern sector, a sort of industrial Morganthau plan. This interpretation is quite mistaken. In calling for a competitive structure to replace concentrated business in Japan, the Allies were attempting to create a situation in which there would be reasonable opportunity for entry into the markets of the modern sector of the economy and in which ownership of the means of production in that sector would be widespread, rather than concentrated under the control of a handful of business families. They were in no sense proposing to atomize Japanese industry along textbook lines.

(Continues...)

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Excerpted from Antitrust in Japan by Eleanor M. Hadley. Copyright © 1970 Princeton University Press. Excerpted by permission of PRINCETON UNIVERSITY PRESS.
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Table of Contents

• Frontmatter, pg. i
• Contents, pg. vii
• Preface, pg. ix
• 1. Japan's Combines, Target of Occupation Reform, pg. 3
• 2. Combine Enterprise in Japan, pg. 20
• 3. Japanese-developed Zaibatsu, pg. 32
• 4. Combine Dissolution: Severing Ownership Ties, pg. 61
• 5. Combine Dissolution: Severing Personnel Ties, pg. 77
• 6. The Deconcentration Law and the Antimonopoly Law, pg. 107
• 7. The Public Debate: FEC 230 and All That, pg. 125
• 8. The Dissolution of Two Trading Giants; Financial Institutions Untouched, pg. 147
• 9. The United States Reorients Its Economic Policy in Japan, pg. 166
• 10. The Sale of Securities and Other Deconcentration Developments, pg. 181
• 11. Zaibatsu Yesterday, Business “Groupings” Today — Is There a Difference?, pg. 205
• 12. Other “Headless” Combines and Financial Groupings, pg. 257
• 13. Still More Groupings: Subsidiaries and Kombinato, pg. 291
• 14. Concentration Without Monopoly, pg. 316
• 15. Cartels, pg. 357
• 16. Government in the Economy, pg. 390
• 17. The Postwar Performance of the Economy, pg. 408
• 18. Assessment, pg. 439
• APPENDIX, pg. 455
• Index, pg. 519