Zaibatsu

Iwasaki (1879-1945), the 4th leader of the Mitsubishi zaibatsu with his family.

While in Japan the term describes a large, family-controlled conglomerate, in the rest of the world it has a meaning of any large business or financial group. The term zaibatsu consists of two words – “zai” which means money or possessions, and “batsu” denoting a closely related group of people difficult to access. The first zaibatsu – namely Sumitomo, Mitsui, Mitsubishi and Yasuda - were called the “Big Four” and will be discussed in this paper. Later, this term was applied to other companies like Furukawa, Asano, Okura, Suzuki, Kawasaki and others.

This is an Edo-period depiction of Sugura street. It should give you some idea of what the merchant-dominated markets of the Edo period looked like.

The zaibatsu originated from the late Edo (1603-1867) period and were linked to “goyō shōnin”, a wealthy chartered merchant authorized by the government to operate a large-scale business. During the early Meiji period (1868-1912) they have assumed its classical form by virtue of their founders called “seisho” or political merchants.

Under the slogan “Rich country, strong nation” the state began the process of industrialization and modernization through establishment of state-owned enterprises in a wide range of industries. These powerful mercantile dynasties used their connections with powerful politicians and bureaucrats to additionally increase their fortunes and expand the power. When in the early 1880s thousands of government owned businesses, including mining, trading, financing and war industries were put on sale on favorable conditions, they used their connections to convert them into private enterprises. In order to support their activities that contributed to the overall development of the national economy, the state granted them various privileges.

Consequently, in the late Meiji period these giant, family-owned business organizations practically dominated the Japanese economy. Their control over large areas of the economy is the main force behind the successful modernization and rapid economic growth of Japan.

In terms of size and influence the zaibatsu achieved its highlight during the 1930s. By the end of decade the four leading zaibatsu controlled 1/3 of Japanese bank deposits, 1/3 of all foreign trade and ½ of shipbuilding and maritime shipping, as well as most of the heavy industries in Japan. In comparison, at the beginning of the Meiji era 70% of country’s national production comprised of agriculture and ¾ of its population worked in this sector.

According to definition, the zaibatsu were family-owned conglomerates made up from a holding company on the top, banking subsidiary which provided finance, and several industrial subsidiaries which dominated specific sectors solely or through a number of sub-subsidiary companies.

The zaibatsu were owned and completely controlled by the respective family which possessed a tremendous wealth. Although the Mitsui and Sumitomo families of Edo period gave some limited authority to their employees in management of daily administrative tasks, the key important decisions remained under the family’s control. However, with the industrialization and growth of business in scope and scale, separation of ownership and management became essential for the well-being of the extended business. Therefore, zaibatsu evolved in family-controlled enterprises that were managed through an extensive hierarchy of salaried and capable managers called “bantô” (“clerk”). In other words, families reigned but did not govern.

Mitsui zaibatsu

The House of Mitsui from which the Mitsui zaibatsu evolved was one of the oldest and largest commercial companies in Japan. It was founded in 1673 by Mitsui Takatoshi (1622-1694) who started the business by opening textile shops in Edo and Kyoto, and soon branched to moneylending and currency exchange business. Eventually, the company managed to monopolize the silk trade and money-changing business in Edo (1683), Kyoto (1686) and Osaka (1691). Due to its efficiency and reputation, the members of the Mitsui family succeeded to acquire the post of “goyō shōnin” or chartered merchants of Tokugawa shogunate from 1691 onwards. Close ties with the government proved to be a valuable asset for the further business development of the company. In the late 19th century, the Mitsui zaibatsu emerged to banking, trading and mining area. By owning 270 companies by 1945 and employing almost 3 million people in the prewar period, the Mitsui zaibatsu emerged as the largest zaibatsu in the history of Japan.

Mitsubishi zaibatsu

The Mitsubishi zaibatsu was a trading and shipping concern known as the second largest zaibatsu in the country and Japan’s largest shipping company. It was formed in 1870 by Iwasaki Yatarō (1835-1885) as a trading and shipping firm named the Tsukomo Company. The name Mitsubishi means “three diamond shapes” and is taken from the design of the Iwasaki family crest.

The Mitsubishi group prospered through exclusive government contracts for transportation of troops and provisions for a military expedition to Taiwan. Eventually it diversified its interests, first into mining and then to finance, warehousing, shipbuilding, real estate and banking. These diversification was motivated by desire to secure the resources for their shipbuilding industry.

During the 1930’s and 1940’s the Mitsubishi zaibatsu became one of the major military contractors of the Japanese government. It built numerous warships and airplanes for the Japanese army. Thanks to its engagement in war production, the company expanded and comprised around 200 companies by the end of the World War II.

Sumitomo zaibatsu

The Sumitomo zaibatsu emerged from the House of Sumitomo, one of the greatest merchant houses of the Edo period which would become the third largest zaibatsu of Japan.

Contrary to the first two houses that have developed on commercial basis, the activities of the Sumitomo group were concentrated around mining. The founder of the House was Sumitomo Masatomo (1585-1652) who established a medicine and book shop in Kyoto in 1630. His son-in-law and adopted son Tomomochi was familiar with the Western procedure of extracting the gold and silver content of copper ores. In 1690 the Sumitomo family acquired the Besshi Copper Mine in Shikoku that became the basis of their future enterprises. They managed to establish a close business relationship with the government as official supplier of copper to the Tokugawa shogunate and a main exporter through the Nagasaki route to China and the Netherlands despite the general ban on overseas trade. In later period the Sumitomo group diversified into various areas, especially in manufacturing branches. By 1945 when it was dissolved, the Sumitomo zaibatsu controlled around 135 companies.

Yasuda zaibatsu

The Yasuda Zaibatsu, founded by Yasuda Zenjirō (1838-1921), was the fourth largest group that dominated the Japanese economy until the mid-20th century. Its founder accumulated initial capital working as a money-changer during the final years of the Edo period and managed to increase his assets by acting as a fiscal agent of the new Meiji government. With this wealth, Zenjirō founded a banking empire. In contrast with the other zaibatsu which had origins in industry and trade activities, the Yasuda zaibatsu had grown on finance-related companies, insurance and real estate. By the time zaibatsu were dissolved, the Yasuda zaibatsu numbered more than 50 companies. Its descendant is known as the Fuyo Group.

The later development of zaibatsu

Since interests and activities of zaibatsu with time became inevitably intertwined with those of the government, the zaibatsu were charged as a major economic support if not the source of Japanese militarism and were dissolved by the U.S. Occupational forces in the end of World War II. Another aim of this decision was to democratize and decentralize the postwar Japanese economy.

Despite these circumstances some zaibatsu restructured their business in the 1960s as “keiretsu” groupings and managed to preserve their distinguish position in many industrial and financial fields of Japan to this day.

Endangered by the European imperialist ambitions already present in other parts of the Asian soil, Japan recognized the need for modernization on Western model as a means of preserving its autonomy. Therefore, historical event known as the Meiji Restoration of 1868 is considered as a birthdate of modern Japan. Obsolete feudal system with its economic, political and social structures passed through fundamental reforms along with the 250 years old policy of isolationism. Newly created conditions marked a turning point in economic and business history of Japan and provided a favorable ground for the growth of entrepreneurship.

An important role in transformation of Japan from feudal into capitalistic country belonged to zaibatsu, large and diversified enterprise groups exclusively owned by a single or extended families. With time, zaibatsu evolved into the core of economic and industrial activity in the country and exercised a great influence on the national and foreign policies of the Japanese Empire.

The Meiji Restoration modernized Japan's economy and military and allowed it to become a dominant power in Asia.