Japan's keiretsu: company webs built from the zaibatsu the Allies failed to break
After 1945 the occupying Allies set out to dismantle the family conglomerates that had powered Japan's war machine. Washington then changed course, wanting a strong Japan against communism. The broken pieces bought shares in one another and regrouped around big banks, forming the keiretsu that dominated the postwar economy.
The zaibatsu had driven Japanese industry since the Meiji era and gained political clout after victories over Russia in 1904-1905 and in the First World War, later profiting from contracts tied to conquest in East Asia. Under General Douglas MacArthur, sixteen were marked for complete dissolution in the late 1940s and 26 more for reorganisation. The United States later rescinded those orders, and the scattered firms re-linked themselves through cross-shareholdings.
Two shapes emerged. Horizontal keiretsu cluster around a main bank that lends to members, owns stakes in them, watches over them and bails them out; the Big Six included Mitsubishi, Mitsui and Sumitomo. Because each member holds small slices of the others, the group shields itself from market swings and hostile takeovers, which were rare in Japan partly because nobody could challenge the banks. Vertical keiretsu, like Toyota's, tie suppliers, manufacturers and distributors of one industry into tiers, with the parent on top and smaller workshops in the third and fourth tiers. That tiered arrangement is regarded as a strong competitive model for carmaking.
The system peaked around 1988, when cross-shareholdings made up over half the value of the Japanese stock market. The 1990s recession then crippled banks laden with bad loans, forcing mergers; Sumitomo Bank and Mitsui Bank combined in 2001. Firms could no longer count on rescue, and Sharp and Toshiba had to accept foreign investment in the 2010s. A 2015 governance code obliging listed firms to justify cross-holdings pushed the megabanks to sell down further. In 2015 trade talks, US negotiators even demanded that Japanese dealer networks sell American cars.
Not everyone accepts the standard story. Law professor J. Mark Ramseyer and economist Yoshiro Miwa have called the postwar keiretsu a fable promoted by Marxist academics in the early 1960s, pointing to thin shareholdings and weak ties to the main banks. Their view has itself been disputed.
Source: Keiretsu
