Reckoning

by David Halberstam

  He was always connected. He had placed some of his people in the Diet. He had close friends in the prime minister’s office, and it seemed not to matter who the prime minister was. Many who knew the structure of Nissan well thought that by the early seventies he was its single most important figure. It was Shioji who supplied the muscle during those hard and difficult years when the auto industry was defining itself. He at once represented labor and brought it into line. Not only had he played a key role in breaking the Masuda union, not only had he helped arrange the Prince merger under terms satisfactory to Nissan, but in the sixties he had played a critical role in one other area. For though it was not something that the high executives of Nissan liked to admit, it was Shioji as much as anyone else who had helped bring the supplier companies into line.

  That step was important to the modernization of the company. As the sixties started, the leading assembly companies were themselves emerging for the first time as fiscally sound enterprises. But the supplier companies were another thing. Many were in terrible shape, appalling little shops, often with dirt floors, their wages much lower than those at companies like Nissan. The competition was ferocious between them. They were seriously underfinanced and teetered constantly on the edge of bankruptcy. Some of them would bloom one year and go bust the next. Their quality was erratic, and when it was not high, it limited the quality of the assembly companies. In those days MITI, perceiving that this was the glaring weakness in the Japanese auto industry, was pushing for stabilization and rationalization of the supplier companies. It wanted fewer but more profitable supplier companies, and it wanted them to have closer ties to the assembly companies. These newly stabilized companies would have the kind of access to banks normally denied smaller companies, and they could count on long-term relationships with the main companies. That would allow them to upgrade their facilities and, eventually, their quality.

  Soon Nissan developed a formula. On a vital piece of equipment, something without which the line might shut down, Nissan wanted the supplier company to be a direct subsidiary and wanted 90 percent of the stock. For all intents and purposes, these companies became part of Nissan itself. On parts for which there were alternative suppliers if needed, Nissan wanted 40 percent of the stock. That in itself was a virtual takeover. It allowed family companies to remain family companies, but it made sure they fit the specifications of Nissan and that the will of Nissan would be decisive. If the company refused to accommodate, Nissan—or Toyota or one of the other bigger companies, for the same process was going on throughout the industry—simply went elsewhere.

  Many supplier companies found Nissan’s proposed arrangements tempting. For a relatively small company whose principal nonautomotive products might be kitchen tools or children’s toys, businesses in which the competition was ruthless and often fatal, the future was always uncertain. A connection with Nissan was a guarantee of success. It was an offer that few turned down. Almost as soon as the deal was done, however, the owner learned that he was no longer master of his own shop. Now he was taking orders not just from Nissan but from Shioji as well. For if Nissan was to become modern and highly technological, the new supplier companies had to be disciplined, their pay scales adjusted, their owners and workers introduced to their proper place in the hierarchy. That became Shioji’s job. Again, he was the muscle. He was to make sure that they and their workers joined Nissan on terms acceptable to the head company. If he thought they paid their workers too much, he let them know. If he thought their workers were insufficiently respectful to him when he visited their factories, he let them know. Once when he visited a supplier company, he became angry because, in his opinion, the workers there did not render him the proper deference.

  “I apologize for any disrespect they showed you,” the owner, Akira Sugita, told him, “but they’re only kids—not even high school graduates.”

  Shioji persisted. “You are too soft on them,” he retorted. “Your workers are demanding tremendous increases in their bonuses.”

  “It is not their demands,” Sugita said. “It is what I choose to pay them.”

  They argued for a while, and later one of the other supplier-company presidents took Sugita aside. “You can’t do that—fight with him. Your job is to say yes. You are the only one of us who argues.”

  Shioji’s purpose went beyond saving Nissan money. He wanted to keep the subsidiary companies’ presidents on constant notice that he represented Nissan, and that he was above them, and that, if they crossed him, they might lose their contracts with Nissan. He was not subtle in his reminders. If the association of supplier presidents was about to have its monthly golf game, he would sometimes call one of the presidents and demand that the president play golf with him, letting them all know that a golf game with Shioji was more important than playing with one another and deliberately casting a pall over the day. They were being taught their place. Once Shioji was to speak at a meeting of supplier companies; so were Kawamata and Sohei Nakayama, head of the Industrial Bank of Japan, and other Japanese executives. The others had already spoken, and it was Shioji’s turn—but there was no Shioji. Eventually Shioji drove up.

  “We must hurry,” said the supplier-company president who was his escort. “Everyone is waiting.”

  “No,” said Shioji. “I haven’t eaten yet.”

  “But they are all waiting,” the president insisted.

  “I am hungry,” Shioji said, “and I am going to eat,” and he did, while the presidents of all those companies waited. The message was loud and clear.

  Soon everyone who had any connection with Nissan had received that message. They came to understand, for example, that at certain Nissan meetings only Kawamata and Shioji spoke. Board members, technically Shioji’s superiors in the hierarchy, never dared challenge him. The supplier-company presidents realized that he was the company; Kawamata was becoming a distant figure in the background whom they rarely saw. Shioji was the man to deal with. Some took him to dinner and flattered him. Knowing that he had spent time in America and was proud of having learned to mix cocktails, a rare skill in Japan, they passed the word among each other that at dinner in the Ginza Shioji liked to be asked to mix drinks for them, and to be told how exceptionally good his drinks were. At dinner Shioji was to be given the seat of honor: in front of the scroll.

  For Nissan, dominating the supplier-company managements was not sufficient. Their workers had to be controlled as well. They all belonged to the Suppliers Union, which was supposed to be distinct from Shioji’s Japan Auto Workers. But Shioji had installed his own man, Hideo Kuze, as head of the Suppliers Union. Kuze was a Shioji protégé, one of his most trusted assistants. He had been part of the Miyake-Shioji union from the beginning, and when Shioji made his trip to the Harvard Business School, Kuze had written up Shioji’s adventures in the union newsletter, making them seem duly glorious. During the early sixties it was as if Kuze were Shioji’s personal deputy, and some union members assumed that Kuze would be his successor. In the late sixties, Shioji placed Kuze as head of the Suppliers Union. It was assumed that he would follow Shioji’s wishes in detail. But it soon became clear that Kuze intended to run a somewhat independent union. Presently there were small disagreements between them, and then minor tensions. Shioji rebuked Kuze for being not quite respectful enough on the phone, then of not clearing his policies with Shioji. At one point a contract came up with two supplier companies. On his own, without telling anyone, Shioji negotiated contracts. It was Kuze’s misfortune then to go to the same two companies and ask for larger pay raises. That humiliation sealed his fate. Quietly, supported by Nissan management, Shioji squeezed Kuze out. Defeated, Kuze came apart, going into hiding and making several unsuccessful suicide attempts.

  With Kuze’s destruction the independence of the Suppliers Union was over and Nissan’s domination of its suppliers was complete. It was a crucial step. Now the supplier companies, as extensions of Nissan, could be modernized, and there would be no strikes at the suppl
iers to disrupt Nissan production. Now Kawamata could control both quality and costs to a degree not previously possible. From its relatively impoverished beginning Nissan could now move into boom years, with enough flex to sustain the high rate of capital investment the company required, while giving the workers salaries that placed them at the very top of the Japanese pay scale.

  The subjugation of the suppliers was not an accomplishment anyone at Nissan liked to talk about very much; it came to be regarded as something that simply had occurred. MITI had envisioned it, and Shioji had made it happen. That he had achieved it confirmed his special position within Nissan. Already Kawamata’s closest confidant, he became almost like his son. Nothing important took place without his clearance. The Prince labor union leader whom he had destroyed, Takashi Suzuki, found Shioji a fascinating man in contemporary Japan, the outsider who had done the work of the establishment. Suzuki was reminded of the time-honored adage that Miyoji Ochiai had used to caution Nissan union leader Tetsuo Masuda: The nail that stands out gets hammered in. I was the nail, thought Suzuki, and he was the hammer. He wondered, however, if Shioji, powerful as he was, would become a nail himself.

  PART EIGHT

  27. WAR AND OIL

  THE EQUATION THAT PERMITTED the United States to survive on cheap oil was growing ever less stable. The Middle East was becoming increasingly turbulent, and the signs of rising Arab nationalism (and a declining Western ability to control that nationalism) were clear from the mid-fifties on. In 1954, Gamal Abdel Nasser had come to power in Egypt, in a coup engineered by young army officers. More than any other figure in the Arab world he seemed to have a vision of Arab nationalism. He had read in American books that it cost the oil companies only 10 cents to produce a barrel of oil in the Middle East, and that the average Middle Eastern well produced four thousand barrels a day, far more than the average American well. Oil, then, he perceived, was at the center of Arab power. His power base as a pan-Arab leader was undermined, however, by the fact that Egypt lacked oil. Other Arab leaders were wary of him and hesitant to share their oil revenues with a country that had none, led by a man they might not be able to control. Still, Nasser loomed as the first of the truly important nationalist leaders in the Arab world.

  In 1956 he seized the Suez Canal. French, British, and Israeli troops moved against him; on the verge of victory, they were forced to call off their expedition by pressure from the Americans, who were nervous about what seemed to them virtually a restoration of colonial power in that region. After Suez, the former colonial powers in the area would not again use force there to try to change governments. The Americans had vital economic interests there, but for thirty years nothing short of ensuring the survival of Israel or keeping the Saudi fields open would compel them to back up those interests with their military power. That meant that in this postcolonial era there would be an inevitable surge of nationalist feeling, much of it anti-Western; the West would be reduced to trying to protect those more conservative Arab nations that were its friends, principally Saudi Arabia and Iran. If the West was not actually in decline, its military and political power in the Middle East was no longer as great as its economic interest.

  The next important crisis came in 1958 in Iraq, where the military revolted against a particularly brutal and autocratic regime installed by the British. Gradually, the nationalism that Nasser symbolized was spreading throughout the area. Even the more moderate leaders that the West regarded as allies portrayed themselves now as nationalists. The Shah of Iran, clearly America’s man, dared not look like a Western puppet. On occasion he was harder to deal with than other Arab leaders, in part because the West had installed him and therefore had to play to his megalomania. Besides, no matter how conservative and autocratic a Middle East leader was, there was a subsurface rage against the Western nations for taking so much out for so little. That feeling grew stronger during the sixties. There was growing frustration with the power of the oil companies, a sense that the companies were not fair in their dealings, and an equally important frustration with Western support of Israel.

  Nevertheless, for about twenty years the companies were able to stabilize the posted price of oil—in effect, the price at which they chose to sell (vastly above the cheap price at which they bought). It was a price pegged not to the ease of taking oil out of these lush new fields but instead to the higher cost of oil that came from the Gulf of Mexico. The right hand was doing a very good job of protecting the left hand. From about 1948 to 1971 the price was remarkably even, staying near $2 a barrel. But beneath the seeming stability there was volatility. For the first time the Arab nations began to talk of unity. Given the political, religious, social, and historical differences in the region, as well as the awesome egos of the leaders themselves, that they even spoke of unity was surprising, and a measure of their discontent.

  In 1967 the Egyptians and the Syrians attacked Israel in what became known as the Six-Day War. The speed and completeness with which the Israelis defeated their Arab opponents only made the Arabs more aware of their weakness and deepened their rage. In the aftermath there was a brief and somewhat pathetic attempt to use oil as a weapon. The only victims were the nations themselves. Some of the Arabs tried to shut down production. (Iran did not join in.) The Saudis shut down their fields for a month and lost $30 million in revenues. Later Sheik Ahmed Yamani, the Saudi oil minister and a forceful spokesman for the Arabs, admitted that they had used their power poorly. “We are behaving like someone who fires a bullet in the air, missing the enemy and allowing it to fall on himself,” he said. The impotence of the Arabs simply created more contempt for them in the West. But it was this demonstration of their own ineffectuality that prompted real change, at last compelling the Arab nations to cooperate with one another.

  At the same time the buyer’s market in oil was beginning to become a seller’s market. The Six-Day War took place twenty-two years after the end of World War II. By then Western Europe had become a full-fledged member of the oil culture, despite the counsel of some planners, like Jean Monnet, who had urged coal, in which Western Europe was rich, as the basis for the European economy. Instead, with American encouragement, Europe had become increasingly dependent on oil. From 1950 to 1965 the six Common Market countries’ reliance on oil as an energy source increased from 10 to 45 percent while coal decreased from 74 to 38 percent. Japan’s economy, a scaled-down replica of the American model, became ever more oil-based; and countless smaller countries were also beginning to demand oil. In 1973, for example, Jim Akins, one of the top American experts on the subject, forecast that in the ensuing twelve years the world would use more oil than had been used in all the years up until then.

  Another factor acting inexorably in the Arabs’ favor was that the American reserves had gone flat. In 1970, for the first time, American production began to decrease; in that year 28 percent of America’s oil was imported, even though there were restrictions on imports. With any other commodity that might have profoundly affected the price; but because of the Middle East reserves and the seeming ability of the cartel to control things, the price remained the same. That meant oil was seriously undervalued. The market for it had exploded, and normally the price should have risen dramatically. But the companies prevented it. They might have their rivalries, their internecine bitterness and feuds, but the stakes were so large that they had managed some exceptionally ingenious methods of accommodating to each other in order not to be divided and thus lessen their control. They had managed to keep out the more vulnerable independents (they never wanted a country to have too much leverage over a company; the cartel must be mightier than the state), and they had managed to keep down the price of oil. The countries might be immensely bitter about it, but they had no choice. The cartel could deny access to markets to any oil-producing country that challenged the arbitrarily low price.

  The first substantial break came in 1969 in Libya. In September of that year, King Idris was overthrown by a group of radical officers head
ed by a young army colonel named Muammar Qaddafi, a fanatic moralist, bitterly anti-Israel, fiercely anti-Western. His first act after coming to power was to outlaw liquor. He soon banned the use of Latin print in Libya and forbade the use of non-Arabic words like “helicopter” and “taxi.” He had taken power to avenge the past, to rid his country of any vestige of colonialism and the corruptions he believed the colonialists had inflicted on his country. He had also taken power in the country where the major companies were most vulnerable. For unlike most other Arab countries, where the government dealt with only one main concessionaire, Libya had opened itself up to a variety of companies, and its fields were allotted among them. Thus someone like Qaddafi could exert considerable leverage on a single firm he chose to isolate. Advised by experts that his oil was underpriced, he sought an increase; the companies rejected his request. In May 1970, his patience exhausted, he took on Occidental Petroleum, an independent and, among the many companies doing business in Libya, the weakest link. Occidental was already unpopular; the people who staffed its engineering contractor, Bechtel, were disdainful of its Libyan workers, referring to them not by their names but by their payroll numbers. Qaddafi ordered Occidental to cut its production back by 300,000 barrels a day.

  It was probably the first time one of the oil countries did to a company what the companies had been doing to them. Occidental quickly offered a modest increase in the price, but it was too late. Knowing how helpless he was, Armand Hammer, the head of Occidental, flew to New York to cut a deal with John Jamieson, the head of Exxon; he would stand firm against Qaddafi if Exxon would make up for his Libyan losses from other sources. In the past, despite antagonisms between its members, commonality of interests had always held the cartel together, but Hammer was an outsider, and Jamieson distrusted him. (When Peru had nationalized some Exxon fields, Hammer had volunteered to step in and operate them. Jamieson had not forgotten.) That decision, without anyone realizing it at the time, for at first it was only regarded as a rebuff against Hammer, was the beginning of the break in the cartel.