Published by EH.Net (June 2017)

Patrick Fridenson and Kikkawa Takeo, editors, Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective. Toronto: University of Toronto Press, 2017. xvi + 215 pp. $55 (cloth), ISBN: 978-1-4875-0106-8.

Reviewed for EH.Net by Carl Mosk, Department of Economics, University of Victoria.

Virtue is its own reward; bad money drives out good; you catch more flies with honey than vinegar; do unto others as they would have them do unto you; catch two birds with one stone: pithy Western aphorisms to be sure. Still in Meiji Japan, enamored with all things Western, these may well have been translated into Japanese. For sure “two birds, one stone” was.

Why not imbibe Western aphorisms? Meiji period thinkers, politicians, business leaders, movers and shakers of all stripes — perhaps more than during any other period in Japanese history — struggled with identity. Were they firebrands committed to root and branch reform of Japan carving out channels through which Western concepts, Western manufacturing techniques, Western scientific learning, Western institutions, and Western laws could flow into the body politic, finding ingenious ways to cloth this program in traditional neo-Confucian garb? Or were they staunch traditionalists, committed to reviving government by Emperor, reinvigorating a failed military campaign to bring Korea, perhaps even China, to its knees, a daring assault plan inspired by the last of the great sixteenth-century warring overlords, Toyotomi Hideyoshi?

Cobbling together a coalition of elites wholeheartedly signing onto one or both of the two agendas — imperial aggrandizement or wealth creation — proved to be challenging. Still, as it turned out — at least for a half century – it proved eminently feasible. Defeating China in the mid-1890s and Russia in 1905-6 opened the door to Japan’s renegotiation of the unequal treaties granting Western powers extraterritorial rights in treaty ports and it allowed Japan to join the gold standard system. All of this served the interests of business, facilitating the import and export of goods and the promotion of Pacific Ocean based shipping services. At the same time it pleased the military elite intent on carving out an empire in mainland Asia. The ideology cementing this unlikely coalition was known as fukoku kyohei (wealthy country/strong army). During the Meiji period the glue of mutual advantage created a “big tent” under which business and ambitious nationalistic politicians could and did jointly flourish.

Great people are great partly because their personal drive dovetails nicely with the era during which they strut upon the stage of history. Ideally suited to operate under the fukoku kyohei ideological umbrella, Shibusawa Eiichi emerged as a paramount figure in Meiji Japan. Born into a wealthy peasant family during the dwindling twilight of Tokugawa rule rudely opened up to the West by the United States, Shibusawa began his colorful career as an anti-foreigner, pro-Emperor rule firebrand. Active in the events leading to the destruction of Tokugawa feudalism and restoration of the Emperor, Shibusawa abandoned his anti-Western agenda, bursting out onto the stage of Meiji Restoration drama as national bureaucrat who had tasted Western culture firsthand through visits to Europe, especially France.  Joining his illustrious colleague Fukuzawa Yukichi (founder of Keio University), he was assiduous in promoting the education of native elites thirsting for Western knowledge.

As Shibusawa saw it, the supercilious bureaucrats he hobnobbed with in Tokyo were more likely to serve a strong army agenda, willing to jettison a wealthy nation program in flexing Japan’s nascent military muscle in the Far East. Fueled by this belief, he resigned from government service at the Ministry of Finance, plunging into the hustle-and-bustle world of private business as banker and creator of joint-stock companies extraordinaire. He conceived of a program of joint-stock creation known as gapponshugi (a gappon-kaisha is a joint-stock company). In many ways it was the perfect embodiment of fukoku thought, of fukoku practical action. As Shibusawa conceived of gapponshugi, commoners were encouraged to purchase stock in businesses, openly and transparently participating in stockholders meetings, their names prominently displayed for public view. In a nutshell it was economic democracy.

Shibusawa’s gapponshugi model was the diametric opposite of the zaibatsu model associated with closed family-centered conglomerates like Mitsui, Mitsubishi and Sumitomo. To be sure separation of management from ownership was a prominent feature of zaibatsu businesses: they were managed by head clerks promoted from within the ranks of employees, not family members. However the zaibatsu were reluctant to issue stock; they coveted secrets about ownership; as often as not in acquiring assets they exploited elite connections with imperial bureaucrats and powerful politicians. The contrast between open gapponshugi and closed zaibatsu is highlighted in Chapter 1 of the edited volume under review here. Penned by Shimada Masakazu the chapter emphasizes the fact that Shibusawa was the most prominent of a number of Meiji business leaders, the so-called zaikaijin. His duties as a zaikaijin included finding astute managers, putting together boards of directors, serving as temporary president of fledgling firms if needed, and arranging stockholder meetings. As well he acted as investment banker, exploiting his knowledge of dealings on the stock market, even in some cases taking out personal loans to get new businesses afloat.

Testimony to the remarkable ability of Shibusawa — operating from his perch atop the powerful First National Bank, Dai-Ichi (Dai-Ichi Kokuritsu Ginko) — is his role in starting and/or promoting hundreds of joint-stock companies, serving on the boards of directors as chairman in many cases. The diversity of chairmanships is remarkable. Consider the range of enterprises running from infrastructure to standard commerce: Sapporo Beer, Tokyo Gas, Tokyo Rope, the Imperial Hotel, Oji Paper, Tokyo Ishikawajima Shipbuilding, Tokyo Artificial Fertilizer, Iwaki Coal Mining, and Hiroshima Hydro Electricity. The list goes on and on.

Why was Shibusawa so successful in these manifold business dealings? In Chapter 4, Miyamoto Matao provides a tantalizing hypothesis: in terms of paid-up capital, joint-stock capital formation outstripped all other forms of private capital formation during the period 1896-1939 (as a percentage of paid-up capital joint-stock capital always exceeded eighty percent). In an era when business information was unusually costly — because auditing of corporate books was in its infancy and many persons where only marginally literate in finance — highly respected zaikaijin like Shibusawa were instrumental in putting together companies. Their reputations as astute financiers loomed large. The best example of this is Osaka Spinning Company established in 1882. As the “kitchen of the bakufu (shogun)” Osaka had been the merchant capital of Tokugawa Japan. But the Osaka merchants were too conservative — bereft of imagination and knowledge of foreign techniques — to start a steam-driven, Western-style mill in their own backyard. Enter Shibusawa who had toured textile mills in Europe. Not only did he — an outsider — put together financing from warring wealthy Osaka families, he also recruited Yamanobe Takeo who was mastering spinning technologies in Lancashire.

Operating under fukoku kyohei meant operating under constraints. For instance, in defeating China Japan gained the right to operate in Chinese treaty ports on an equal footing with Western powers — rights that included investing directly in Chinese treaty ports. As a result Japanese cotton textiles and Japanese silk reeling companies began to cut into the businesses run by Western merchants, especially the British. Not surprisingly the British reacted negatively. In Chapter 5 Janet Hunter highlights criticism of Japanese business practices in Great Britain. The British press labeled the Japanese liars, cheats, and devious in their ways. For Japanese zaikaijin, like Shibusawa, the message was clear. Diplomacy was needed on the international front; on the domestic front cajoling Japanese merchants into adopting morally acceptable norms was imperative.

Along similar lines, in Chapter 6, Kimura Masato shows that Shibusawa’s diplomatic touch was particularly crucial during the period when extraterritoriality was alive and well in Japanese treaty ports. He points out that some of the criticisms directed at the Japanese were ill founded: it was poorly-informed Western traders operating in Japanese treaty ports who were at fault. Shibusawa stepped in, helping finance through the offices of Dai-Ichi Bank a consortium of Yokohama silk merchants involved in exporting silk, thereby undercutting the Western merchants. Fortunately abrogating the unequal treaties solved this problem. Still it did not dispel Western critiques. Kimura goes on to discuss the accusations directed at Japanese companies by the American business community during the early twentieth century: just as in the 1970s and 1980s the Americans were incensed that the bilateral trade balance between the two countries was favorable to Japan. Shibusawa, realizing the American market was crucial to Japanese exporters, led a delegation to the United States with the aim of encouraging Japanese importers to increase their American sourcing of raw materials and finished products.

That Shibusawa was under international pressure to act as a model zaikaijin in upgrading the standards of Japanese merchant activity goes without saying. That he coupled the commoner/transparency model of gapponshugi with a moral imperative calling for virtuous community-oriented ethics is another matter altogether. There is little doubt that Shibusawa was a sincere believer in the neo-Confucianism he imbibed in his youth. Shibusawa believed that business could be carried on according to Confucian ethics; he was steadfast in asserting that capitalists could and should place a strong emphasis on righteousness and benevolence, eschewing greed-oriented profit, despite engaging in competition. This conclusion is made obvious from a number of the chapters in this volume, notably the chapters written by Tanaka Kazuhiro, Geoffrey Jones and Kikkawa Takeo. How much of this commitment was due to Confucianism per se and how much of it was due to experience with Christian-inspired Western thought is less clear. For instance in Chapter 3 Patrick Fridenson argues that the theories of Saint-Simonism may have influenced Shibusawa. What is clear is that Shibusawa’s neo-Confucianism was mainly focused on the aphorisms I cited at the beginning of this review. Adhering to degraded morals drives out good morals; virtue is noble; giving back to the community through philanthropy is essential. It is not simply good advertising. Ethical, community-oriented, capitalism is possible; nay, it is more than possible; it is indispensable. Tragically for Shibusawa and the ethics he espoused, his life came to an end in 1931 just as pendulum swings in fukoku kyohei were propelling Japan away from internationalism onto a fraught-laden path of military aggrandizement he personally deplored. Did he go to the grave believing he had failed?

It is easy to be cynical about business ethics. It is tempting to call it a con job. That said there are decent cons; there are indecent cons; there are actual facts. Without a moral compass self-styled great people cannot be great. To be sure persons devoid of ethical intelligence can become notable; craven con artists strut many a national stage; but they are far, far, far from great. To his credit Shibusawa was sincere in following his moral compass. In that lies his truest greatness.

(Patrick Fridenson is Professor of International Business History at the Recherches Historique at L’Ecole des Hautes Etudes en Science Sociales in Paris. Kikkawa Takeo is Professor at the Graduate School of International Studies, Tokyo University of Science.)

Carl Mosk is Emeritus Professor at the University of Victoria and a lecturer at the University of California at Davis. He is the author of a number of books concerning Japanese economic history including Japanese Industrial History: Technology, Urbanization, and Economic Growth and Japanese Economic Development: Markets, Norms, Structures. His forthcoming book Capitalism and Religion in World History: Purification and Progress explores the long-run global relationship between religious ideology and capitalist ideology.

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