The Fable of the Keiretsu: Urban Legends of the Japanese Economy by Yoshiro Miwa, J. Mark Ramseyer | | NOOK Book (eBook) | Barnes & Noble
The Fable of the Keiretsu: Urban Legends of the Japanese Economy

The Fable of the Keiretsu: Urban Legends of the Japanese Economy

by Yoshiro Miwa, J. Mark Ramseyer

View All Available Formats & Editions

For Western economists and journalists, the most distinctive facet of the post-war Japanese business world has been the keiretsu, or the insular business alliances among powerful corporations. Within keiretsu groups, argue these observers, firms preferentially trade, lend money, take and receive technical and financial assistance, and cement their ties


For Western economists and journalists, the most distinctive facet of the post-war Japanese business world has been the keiretsu, or the insular business alliances among powerful corporations. Within keiretsu groups, argue these observers, firms preferentially trade, lend money, take and receive technical and financial assistance, and cement their ties through cross-shareholding agreements. In The Fable of the Keiretsu, Yoshiro Miwa and J. Mark Ramseyer demonstrate that all this talk is really just urban legend.

In their insightful analysis, the authors show that the very idea of the keiretsu was created and propagated by Marxist scholars in post-war Japan. Western scholars merely repatriated the legend to show the culturally contingent nature of modern economic analysis. Laying waste to the notion of keiretsu, the authors debunk several related “facts” as well: that Japanese firms maintain special arrangements with a “main bank,” that firms are systematically poorly managed, and that the Japanese government guided post-war growth. In demolishing these long-held assumptions, they offer one of the few reliable chronicles of the realities of Japanese business.

Editorial Reviews

Pacific Affairs

"The keiretsu is only one of the mythological beasts slain by ridicule and meticulous statistics in this highly readable knockabout polemic."—

Ronald P. Dore, Pacific Affairs

— Ronald P. Dore

Gary Saxonhouse

“In this sparkling tour de force, Miwa and Ramseyer drive a final stake through the heart of that venerable vampire, the keiretsu. Fearlessly criticizing almost everyone who has previously written on this subject, they clear away the thicket of nonsense that has for so long obscured for so many the true workings of the Japanese economy.”—Gary Saxonhouse, University of Michigan

Roberta Romano

“Miwa and Ramseyer so systematically dismantle the conventional understanding of Japanese economic institutions that The Fable of the Keiretsu will no doubt be an instant classic. Their no-holds-barred account leaves the prior conception of the Japanese economy as a system of interrelated corporations and banks with little connection to a market economy in a shambles. There will surely be a strong reaction to their thesis that the keiretsu, main banks, and successful central government planning were figments of the imagination of academics on both sides of the Pacific. But Miwa and Ramseyer’s data are so compelling that I don’t see how the pieces could ever be put back together again.”—Roberta Romano, Yale Law School

Daniel F. Spulber

The Fable of the Keiretsu is so important and well written, it should become a classic in both the academic and popular literature on Japan. Urban legends about Japan view the country as following some kind of Confucian collectivism that does not follow behavior that would be consistent with economic rationality. Yoshiro Miwa and Mark Ramseyer instead argue that the facts about Japan conform closely with what would be both observed and expected in a market economy in which firms maximize profits.”—Daniel F. Spulber, Kellogg School of Management, Northwestern University

Pacific Affairs - Ronald P. Dore

"The keiretsu is only one of the mythological beasts slain by ridicule and meticulous statistics in this highly readable knockabout polemic."

Product Details

University of Chicago Press
Publication date:
Sold by:
Barnes & Noble
File size:
1 MB

Read an Excerpt

The Fable of the Keiretsu

Urban Legends of the Japanese Economy

By YOSHIRO MIWA J. MARK RAMSEYER The University of Chicago Press

Copyright © 2006 The University of Chicago
All right reserved.

ISBN: 978-0-226-53270-7

Chapter One


Patronize any boathouse for the light and narrow racing rowboats called sculls and sweeps, and sooner or later a rower will tell you about the Japanese Eight. Most rowers set the story at the 1964 Tokyo Olympics-Japan's debut among the wealthy industrialized countries. The 130-mph bullet train had just tied Tokyo to Osaka in three hours and ten minutes flat. The government had recruited modernist darling Kenzo Tange to design the spectacular new sports complexes. Japan's membership in the Organization for Economic Cooperation and Development would soon follow, along with superhighways, more and faster bullet trains, and all the other indices of national wealth.

National pride was at stake. So determined to win for their country were the Japanese crew, the rowers continue, that two of the eight rowed themselves to death on the boat. Two more made it out of the boat but dropped dead on the dock. The other four died in hospitals over the several next months.

* * *

Patronize any social science or business panel on Japan and sooner or later the experts will tell you whether (and usually how) Japan is about to change fundamentally.Patronize any good book store and sooner or later you will find books such as Japan's Democracy: How Much Change? or Economic Reform: Can the Japanese Change? or Japan's Economic Structure: Should It Change? or the 1998 Brookings study Is Japan Really Changing Its Ways?

Search for comparable panels or books on the United States, Canada, or Germany and you come up dry. Brookings does not sponsor conferences on whether the United States is changing its ways. The University of Chicago Press likely will not publish a volume titled Is Canada Really Changing Its Ways? Indeed, we doubt it would even take one on Economic Reform: Can the Germans Change? You come up dry for a good reason: we know all too well that there is no "essential" U.S., Canadian, or German nature to change.

Switch to Japan, however, and authors, publishers, and readers happily soldier on-blithely writing, publishing, and buying books about whether Japan is changing. To be sure, these books do not give the same answer. Rather, they are "unanimous" (as one nineteenth-century Irish jury foreman famously put it) "in being unable to agree" (Minda 1999, 27). But they do ask the same question.

It is worth asking why we place Japan in this niche. The reason we can plausibly tell and re-tell the tale of the Japanese Eight is straightforward enough: kamikaze pilots. Until the Palestinians and Iraqis adopted the habit, we had precious little experience with suicide missions. No one tells tales of Harvard crew teams rowing themselves to death, even against Yale. They row hard, they win or lose, they throw up, and they go drink beer. Tennyson's light brigade did not ride into the valley of death out of fanatical loyalty. They rode because an officer had "blunder'd."

Like Fitzgerald's rich, however, "the Japanese" are different from you and me-or so we are told. Pity the poor economists (two of them Japanese nationals) who had the bad judgment to forget that fact in a recent book on Japanese labor markets. According to the decidedly mainstream Journal of Economic Literature, in "neglecting cultural determinants of Japanese internal labor markets" they committed "serious error." After all, "the philosophical foundation of Japanese culture is entirely anti-individualistic," continued the reviewer. The "collectivist ethics of Confucianism"-one can hear the wind sweeping over the oars as the Suicidal Eight surge forward-"naturally sustain giving and accepting orders rather than responding to incentives" (McLaughlin 2002, 944).

* * *

"Accepting orders" rather than "responding to incentives"? By now we all know that alligators never infested New York sewers, no department store ever soaked a patron $150 for a chocolate-chip cookie recipe, no poodle found itself fried in a microwave, and Eskimos do indeed have an all-purpose word for snow. We think we know urban legends when we hear them.

Yet urban legend comprises most of what we collectively think we know about the Japanese economy, and those urban legends are what this book concerns. The principal points are easy enough to relate:

The keiretsu do not exist (chapters 2 and 3). They never did. An entrepreneurial "research institute" in the 1950s created the rosters to sell to Marxist economists looking for the "monopoly capital" that their theory told them would dominate their "bourgeois capitalist" world. Western scholars, hoping for examples of culture-specific forms of economic organization, then paired accounts of a couple dozen company presidents meeting for lunch with rosters of hundreds of firms whose presidents were never invited-and repatriated the stories to the United States.

The zaibatsu of pre-World War II did not succeed because they bought politicians, exploited the poor, or manipulated dysfunctional capital markets (chapter 3). They succeeded for all the usual varied reasons a few firms succeed in any modern economy. They acquired the (pejorative) zaibatsu label because they happened to be thriving when muckraking journalists in the 1920s and 1930s came looking for someone to blame for the depression.

Japanese firms have no "main bank system" and never did (chapter 4). Economists popularized the idea as an anecdote on which to peg their mathematical models, and non-economists use it (like the keiretsu) as yet another putatively culture-bound economic phenomenon.

Japanese firms are neither short of outside directors nor badly governed (chapter 5). The charges represent yet another variant on populist journalism. Like firms in other competitive capitalist countries, Japanese firms survive only if they adopt governance mechanisms appropriate to the markets within which they must compete.

The Japanese government never seriously guided or intervened in the Japanese economy (chapter 6). When the economy boomed, politicians and bureaucrats took the credit. They had created the success through their own farsighted leadership, they claimed. Marxist scholars dominated Japanese social science departments, and they were not about to suggest that market competition might have accounted for the success. Happy as they were to find an example of successful government intervention, neither were most Western scholars of Japan.

As all this should make clear, the tales in the West about the Japanese economy are not exaggerated. Nor are they biased or misleading. They are simply wrong, fictitious accounts with no basis (not little basis, but no basis) in anything on the ground. For the academy, the tales are nothing less than a profound embarrassment. But they serve also as a reminder-of how badly wrong things can go when academics write about an economy without studying economics, of how disastrously things can end when they subordinate their research to political agenda, and of how embarrassing matters can become when they focus on the detail and miss the vacuum at the center of their research.

We realize that readers intent on the current Japanese economy will grow impatient with our discussion of the 1960s and 1970s. If you are one of these, we beg you not to abandon the book mid-ship. We do indeed turn to the 1990s recession, but one cannot understand the 1990s without knowing what came before. To explain what came before, we leave the 1990s recession for chapter 7. By then, you should have the tools and instincts with which to analyze what went wrong during the decade. By then, however, we think you will also have much more: the tools and instincts with which to make sense on your own of what you hear about Japan over the years to come.

We ask you to remember that the Japanese economy is an economy first and Japanese second. Whether in Tokyo or in Peoria, all else equal, most people will prefer more money to less, and in transactions involving large amounts they will calculate their interests carefully. Given the same price, they will prefer higher-quality goods to lower; given the same quality, they will prefer cheaper goods to costlier; and given two investment opportunities presenting the same risk, they will park their money at the investment paying more. Because people do all this, firms necessarily compete with each other to raise the funds they use, to buy the supplies they need, and to sell the goods and services they produce. In the competitive markets that ensue, the firms that survive will-inevitably-tend to be those that maximize profits. Microeconomics simply traces the many logical consequences of this process.

People and firms buy, sell, and invest within institutional structures, of course, and those structures can vary from country to country. In this book, we try to couple standard microeconomics with a close look at the institutional constraints in place in Japan. Too often in writing about the Japanese economy, non-economists in the West have dismissed the logic of economics as so much culture-bound bias. Given that they "described" without understanding what they saw, they missed "reality" by a mile. Economists then premised their analyses of the Japanese economy on the institutional descriptions that these non-economists provided. Given that the economists "analyzed" nonsensical descriptions, they did no better.

* * *

Both of us remember Tange's Olympic buildings when they were new. We remember the first bullet trains. We remember the superhighways. And having watched the 1964 Olympics on television, we even remember Abebe Bikila winning the marathon. But neither of us remembers anything about eight rowers dying.

Fortunately, the Groton Academy crew coach decided to check. After a dinner lecture to the crewing alumni of a major Tokyo university, he popped the question. "There is a story," he began, "that in the Tokyo Olympics a Japanese eight rowed [at a] very high [strokes/minute count] ... and after the race, many of the men died. Do any of you know about this story?" He recalls the silence that followed (Anderson 2001, 4):

Finally, Mr. Okamura said, "We know of no such story." He looked around the group for confirmation. "The German eight rowed very high. Do you mean the German eight?"

"No, the story that everyone tells is of a Japanese eight. Most of the crew died because they had rowed so high." Long pause. "I've never believed it," I added.

"This is not a true story." He looked at me with steely eyes. "What do you think it means?"

"I'm not sure," I stammered. I'm your friend, I wanted to say. I'm not making this up.

"Maybe kamikaze idea? We Japanese would row to kill ourself?"

"Maybe that's it. So this story is not true? Now I can tell everyone in America."

"Do you remember the man who asked you the [technical] question about [boat geometry]?" my friend Mr. Ito asked. "That man rowed in the Olympic 8." He paused and looked around the group. "He was alive, neh?"

Chapter Two

The Fable of the Keiretsu

"Quietly, secretly, without warning, keiretsu have infiltrated our daily lives and engulfed everything we know," a 1990s vintage business guide ominously assures us (Miyashita and Russell 1994, 7). "We are surrounded by the keiretsu," indeed we "deal with them every day-every time we turn on the TV, pick up a paper, eat at a fast-food chain, or go to work." Others claim the keiretsu used to dominate but do so no longer. The 1950s and 1960s was "the keiretsu era," write economists Takeo Hoshi and Anil Kashyap (2001, 91). When the government deregulated the financial services industry in the 1980s, that "system" then "unravel[ed]" (128).

If you know one Japanese business word, you know keiretsu, those massive corporate groups such as the Mitsubishi and the Sumitomo. The term seems to capture the heart of Japanese business. The keiretsu exclude American firms. They embody the essence of the anti-individualist Confucian ethic. They epitomize the "socially embedded" character of markets. Or they prove the culturally contingent nature of the Wall Street Journal's op-ed page.

And yet, one might wonder. Out of the blue, in the late 1980s, the Japanese Fair Trade Commission (FTC) called up Toyota Motors (Miwa and Ramseyer 2001a, 87). "Your firm's affiliated with the Mitsui group, isn't it," declared the FTC investigator. What fraction of your trades are with other group members?"

"To be honest, it was embarrassing," recalled the executive who handled the inquiry. "If you check, apparently quite a few books put us in the Mitsui group. The biggest reason seems to be that we're in the presidents' club. But it's not as if our keiretsu affiliation was something I kept in mind every day, and it's not as if we tracked the figures I needed to calculate the fraction the FTC wanted. We were really stuck."

"And when it comes to the Mitsui group, which of our business partners are in it anyway?"

The one Japanese word every sophisticated American executive knows, the Toyota executive could not understand. Why? What are the keiretsu anyway? How did they come to take center stage in our imagined Japan? And what-if anything-might they have to do with the actual business world? In this chapter we consider the keiretsu stories we tell ourselves and what the group rosters represent. We then ask whether many-or even any-of the stories we tell ourselves fit the data from Japan. Some observers locate a second set of keiretsu in the ties between automobile (and sometimes electronics) assemblers and their suppliers. Occasionally, they extend those supplier keiretsu to firms in several other industries. We conclude this chapter by examining these "vertical" keiretsu.

In chapter 3 we return to the tales of the keiretsu to ask how they came to be, why they capture our collective imagination, and what they tell us about ourselves. For the tales tell us nothing about Japan. There are no keiretsu and never have been any. They are not less important than we have thought, less clear than we have asserted, or currently in decline. Instead, they do not exist and never have. At root, the keiretsu instead represent a fable-a tale that, by capturing our mythical vision of the Japanese economy, tells us instead about ourselves and the world we wish we inhabited.


What Are They?

By most accounts, there are (or were) six of them: the Mitsui, the Mitsubishi, the Sumitomo, the Fuji, the Daiichi Kangyo, and the Sanwa. At least until the mid-1990s, they dominated the Japanese economy. Within each group, a massive money center bank dominated the other members. (In the language of the literature, the money center bank was a "city bank" that played "main bank" to the others; see chapter 4.) To them, as Business Week explained, the bank "provide[d] low-cost, patient capital" (Kelly and Port 1992). Around it, dozens of industrial and service firms borrowed, built, and traded among themselves.

"Dozens" of firms-that figure is according to the more careful of writers. Like your grandfather's prize trout, however, the tale improves with the telling. The Harvard Business Review put keiretsu membership at 12,000 firms and claimed that in Japan "virtually all business activity is part of one or another keiretsu or cartel" (Cutts 1992, 49). One Japanese studies scholar put the number of the Mitsubishi firms alone at 15,540 (not 15,538, not 15,541) and the number of "people who are, in some way, directly associated with the Mitsubishi Keiretsu" at 31 million (Kensy 2001, 252). Given that only 130 million people live in Japan, he concluded-reasonably enough, given his Mitsubishi estimate-that "almost the entire Japanese population is directly or indirectly linked to the Keiretsu."

Whether several dozen or tens of thousands, the keiretsu firms in these accounts together scheme, invest, trade, and cooperate toward their collective self-preservation. From their money center bank, they obtain a variety of services. Most basically, they borrow most of their loans from that bank. Because they seldom raise money through stocks, they effectively obtain the bulk of their funds from the money center bank. From it they also receive strategic business advice and help in times of trouble, effectively obtaining insurance against financial distress. And from it as well they buy the myriad other financial services that modern firms need.

According to these standard accounts the keiretsu firms collectively adopt several other strategies besides. Together, for example, they insulate themselves from stock market pressure by each buying stock in the other group members. No one firm individually owns enough of another to control it, but collectively they hold controlling interests-by one estimate, over 60 percent at the Mitsubishi and Sumitomo groups (Richter 2000, 22). In the process, they eliminate the pressure to maximize short-term profits, shield the firm from hostile takeovers, ensure that foreigners will never gain control, and guarantee that they each follow group norms.


Excerpted from The Fable of the Keiretsu by YOSHIRO MIWA J. MARK RAMSEYER Copyright © 2006 by The University of Chicago. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Meet the Author

Yoshiro Miwa is professor of economics at the University of Tokyo. He is the author or coauthor of several books, including, most recently, State Competence and Economic Growth in Japan.J. Mark Ramseyer is the Mitsubishi Professor of Japanese Legal Studies at Harvard Law School. He is the author or coauthor of several books, including, most recently, Measuring Judicial Independence: The Political Economy of Judging in Japan.

Customer Reviews

Average Review:

Write a Review

and post it to your social network


Most Helpful Customer Reviews

See all customer reviews >