JapanJapan“the land of the rising sun”“the land of the rising sun”

Japanese CapitalismJapanese Capitalism1800’s – 1945.1800’s – 1945.

250 years of self-imposed isolation from the 250 years of self-imposed isolation from the outside world.outside world.

1854 US warships arrived and demanded the 1854 US warships arrived and demanded the opening of trade.opening of trade.

Modern capitalistic production started in the late Modern capitalistic production started in the late 1919thth century in the cotton and textile industry. century in the cotton and textile industry.

Japanese production was more efficient than US, Japanese production was more efficient than US, Russia & UK.Russia & UK.

Japan was 1Japan was 1stst Asian country to master western Asian country to master western manufacturing techniques.manufacturing techniques.

Early Stages of CapitalismEarly Stages of Capitalism

It was attributed to private entrepreneurs It was attributed to private entrepreneurs and NOT through government protection.and NOT through government protection.

Government lacked power to impose tariffs.Government lacked power to impose tariffs. Govt. promoted growth through publicly Govt. promoted growth through publicly

subsidized firms.subsidized firms. These Govt. policies created large deficits.These Govt. policies created large deficits. Private business became the dominant mode of Private business became the dominant mode of

economic policy.economic policy.

Japan (1800-1945) cont..Japan (1800-1945) cont..

Until 1930’s Govt. intervention in the economy was Until 1930’s Govt. intervention in the economy was limitedlimited

Banking was almost unregulated.Banking was almost unregulated. Govt. had little role in financing industrial Govt. had little role in financing industrial

developmentdevelopment Shares were purchased by wealthy investors.Shares were purchased by wealthy investors.

Formation of ZaibatsuFormation of Zaibatsu This created basis for business expansion.This created basis for business expansion.

Japan (1800’s – 1950) cont…Japan (1800’s – 1950) cont…

In the 1930’s isolationism and the great depression In the 1930’s isolationism and the great depression caused problems for the Japanese govt. caused problems for the Japanese govt.

Military took control of the government.Military took control of the government. Meiji DynastyMeiji Dynasty

Private business were forced to merge and become Private business were forced to merge and become govt. controlled.govt. controlled.

Dec 7Dec 7thth ,1941 Japan military regime attacked Pearl ,1941 Japan military regime attacked Pearl harbor.harbor.

This war could not be won , because of Japan’s need This war could not be won , because of Japan’s need for imports.for imports.

JapanJapanMiracle YearsMiracle Years

Japan – 1945 – 1990’sJapan – 1945 – 1990’s

After its defeat, Japan became a truly democratic After its defeat, Japan became a truly democratic country under civilian rule.country under civilian rule.

Article 9 of the new constitution prohibited Article 9 of the new constitution prohibited Japan from establishing an offensive military Japan from establishing an offensive military capability and eliminated any political power of capability and eliminated any political power of the military.the military.

Japanese economy was finally on the road to Japanese economy was finally on the road to economical recovery.economical recovery.

Japan – 1945 – 1990’sJapan – 1945 – 1990’s

1953 to 1971 , Japan enjoyed a 9.6% growth in GDP.1953 to 1971 , Japan enjoyed a 9.6% growth in GDP. Growth was driven by Japan’s lack of military budget.Growth was driven by Japan’s lack of military budget. Japan relied on fewer imports.Japan relied on fewer imports. Falling of trade barriers allowed for Japanese exports.Falling of trade barriers allowed for Japanese exports. During this period , Japan had a high surplus of During this period , Japan had a high surplus of

educated workers for industrialization.educated workers for industrialization. Surplus funds for investment which came from private Surplus funds for investment which came from private

savings.savings.

Japan – 1945 – 1990’s cont…Japan – 1945 – 1990’s cont…

Japan had industrial trade unions instead of Japan had industrial trade unions instead of craft employment.craft employment.

Lifetime employment.Lifetime employment. Growth and Little CompetitionGrowth and Little Competition

Stable political environment.Stable political environment. Japanese manufacturing techniques & quality Japanese manufacturing techniques & quality

control was superior to rest of the world.control was superior to rest of the world. Japan began to dominate the automobile and Japan began to dominate the automobile and

electronic industries.electronic industries.

Iron TriangleIron Triangle

MinistriesMinistries Ministry of International TradeMinistry of International Trade Ministry of FinanceMinistry of Finance

KeiretsuKeiretsu Major ConglomeratesMajor Conglomerates

GovernmentGovernment Liberal Democratic PartyLiberal Democratic Party

KeiretsuKeiretsu Diversified Industrial groups held together by Diversified Industrial groups held together by

interlocking shareholding rather than being held by a interlocking shareholding rather than being held by a single parent.single parent.

Major shareholding in other companiesMajor shareholding in other companies Cross-sharing of holdingsCross-sharing of holdings Cross-sharing of board membersCross-sharing of board members Cross-sharing of Ideas and ViewsCross-sharing of Ideas and Views

Research and Develop to get better view of the world views.Research and Develop to get better view of the world views.

Prevent hostile take overPrevent hostile take over Prevent foreign investorsPrevent foreign investors

Keiretsu’sKeiretsu’s

ConglomeratesConglomerates Mitsui GroupMitsui Group

History back to 1568History back to 1568 MitsubishiMitsubishi FujiFuji

VerticalVertical Toyota – making own partsToyota – making own parts

Just-In Time InventoryJust-In Time Inventory Keiretsu Exclusive Retail StoresKeiretsu Exclusive Retail Stores

Japan, Inc.Japan, Inc.

Sony – A Japanese miracle.Sony – A Japanese miracle. In 1945 , Sony started with 190,000 yens In 1945 , Sony started with 190,000 yens

(approx $2000). In 1996 its worth approx $15 (approx $2000). In 1996 its worth approx $15 billion.billion.

Honda achieved similar success in the Honda achieved similar success in the automotive industry.automotive industry.

GDPGDP 1 1 WorldWorld $ 51,480,000,000,000 2003 est. $ 51,480,000,000,000 2003 est. 2 2 United StatesUnited States $ 10.9 Billion 2003 est. $ 10.9 Billion 2003 est. 3 3 ChinaChina $ 6.4 Billion 2003 est. $ 6.4 Billion 2003 est. 4 4 JapanJapan $ 3.6 Billion 2003 est. $ 3.6 Billion 2003 est. 5 5 IndiaIndia $ 3.0 Billion 2003 est. $ 3.0 Billion 2003 est. 6 6 GermanyGermany $ 2.3 Billion 2003 est. $ 2.3 Billion 2003 est. 7 7 United KingdomUnited Kingdom $ 1.7 Billion 2003 est. $ 1.7 Billion 2003 est.

DepressionDepression

Bubble BurstBubble Burst

Market FailureMarket Failure

Purchase from Keiretsu members onlyPurchase from Keiretsu members only Causing non-competitive marketsCausing non-competitive markets

Life-time EmploymentLife-time Employment Inability to react to marketInability to react to market

Workers protected from Workers protected from

Seniority WagesSeniority Wages Based on time with company not based on Based on time with company not based on

qualificationsqualifications Middle Management StagnationMiddle Management Stagnation

Market Failure – cont.Market Failure – cont. Stock Market InefficiencyStock Market Inefficiency

1989 – 38,916 yen1989 – 38,916 yen 2002 – 8,579 (78% decrease)2002 – 8,579 (78% decrease)

UnemploymentUnemployment Life-time employment only applies to 55.Life-time employment only applies to 55.

Some Keiretsu force employment of retirement people.Some Keiretsu force employment of retirement people. GlobalizationGlobalization

Increase competition from transitional countriesIncrease competition from transitional countries Address Foreign CompetitionAddress Foreign Competition

China and other countries are new competitors for same China and other countries are new competitors for same foreign market place.foreign market place.

Human CapitalHuman Capital

Highest percentage citizens over 65 in a developed Highest percentage citizens over 65 in a developed country.country. Burden working age populationBurden working age population

Low consumer confidenceLow consumer confidence Limited Investment ReturnsLimited Investment Returns

Low infant birth rateLow infant birth rate Limited work force in the years aheadLimited work force in the years ahead

Networking with KeiretsuNetworking with Keiretsu Banking – non performing loansBanking – non performing loans Government fiscal policyGovernment fiscal policy

Not conducive to growthNot conducive to growth Supports Keiretsu and status quoSupports Keiretsu and status quo

Government PolicyGovernment Policy

Restructure Social SecurityRestructure Social Security Upcoming working class will have to support Upcoming working class will have to support

aging societyaging society Protect of AgricultureProtect of Agriculture

Government shielding of agricultural sectorGovernment shielding of agricultural sector High Tariffs on Agricultural ImportsHigh Tariffs on Agricultural Imports

ProtectionismProtectionism

Overextending loans non-performing Overextending loans non-performing companiescompanies

Household Savings yield low rate of returnHousehold Savings yield low rate of return Investment into low yield fundsInvestment into low yield funds

Consolidation of BanksConsolidation of Banks Non-profit maximizing KeiretsuNon-profit maximizing Keiretsu City Banks funding of MITI projectsCity Banks funding of MITI projects

Status quoStatus quo Inflation rate (consumer prices):Inflation rate (consumer prices):

-0.3% (2003 est.) -0.3% (2003 est.) Labor force:Labor force:

66.66 million (2003) 66.66 million (2003) Population growth rate:Population growth rate:

0.08% (2004 est.) 0.08% (2004 est.) Birth rate:Birth rate:

9.56 births/1,000 population (2004 est.) 9.56 births/1,000 population (2004 est.) Unemployment rate: Unemployment rate: 5.3% (2003) 5.3% (2003) Imports: Imports: $346.6 billion (2003 est.) $346.6 billion (2003 est.) Exports:Exports: $447 billion $447 billion

RechargeRecharge

Restructure fiscal policy and tax structureRestructure fiscal policy and tax structure 2050 – pension payments will double2050 – pension payments will double

Increase own production of domestic energyIncrease own production of domestic energy Revamp banking systemRevamp banking system More responsive to external actionsMore responsive to external actions

Slow on decision making processSlow on decision making process

Financial Sector - FutureFinancial Sector - Future

Dismantling of KeiretsuDismantling of Keiretsu Creation of Competitive MarketsCreation of Competitive Markets Creation of profit maximization and cost minimizationCreation of profit maximization and cost minimization

Restructure Banking systemRestructure Banking system Profit-maximizing investmentsProfit-maximizing investments

Loosen Restrictions on MarketLoosen Restrictions on Market Liquidate non-performing debtLiquidate non-performing debt

Abandon Abandon Lifetime employmentLifetime employment Seniority WagesSeniority Wages