Bending Adversity: Japan and the Art of Survival

by Pilling, David

  The Americans lifted the ban on shipbuilding. The naval yards at Kure, which had built the Yamato, the largest battleship ever made, converted production to tankers and other merchant vessels. At that time, Britain was producing half the world’s ships. But even during the shipbuilding ban, Japanese engineers harboured what looked like fantastical dreams of surpassing it. Universities continued to churn out shipbuilding engineers even though there were no jobs for them. As soon as the ban was lifted, they were put to work. In Kure, managers adopted the so-called block construction method of shipbuilding in which prefabricated sections of a ship are welded together. They were soon turning out ships in seven months, less than half the time in other countries. A secret mission was sent to study shipbuilding on the Clyde in Scotland. Its members discovered that Japanese methods were already more advanced. Less than a decade after work at the shipyards resumed, Japan had overtaken Britain as the biggest shipbuilder in the world.

  • • •

  It was shortly after Dodge arrived that the Ministry of Trade and Industry, the legendary MITI, was formed. The ministry that was subsequently credited by many with overseeing Japan’s economic renaissance was a direct descendant of the Ministry of Munitions. In that incarnation it had beseeched Japanese companies to work together for the purpose of increasing weapons production. Now the bureaucrats of MITI rallied Japan’s industrial potential in the interests of peacetime revival. One of its priorities was steel, what one official called ‘the food of industry’. If steel was sustenance, it was thin on the ground. In the aftermath of the war, Japan was turning out just 5 million tonnes against the 90 million tonnes being produced in America. Every tonne produced took seven times more man hours. In a strategy reminiscent of the post-Meiji Iwakura mission, in which Japanese had scoured the world for tips on modernization, steel study groups were sent to the US. MITI concluded that new mills would be needed in strategic port locations. Using the tools of what was then a semi-command economy, it ordered the reclamation of large tracts of land on which ultramodern steel plants could be built. As was to happen with other favoured industries, the government gave mills preferential access to cheap finance and foreign currency. Meanwhile, Japanese engineers were quick to see the potential of a new steel production technique using blown oxygen. They proved rapid learners. By 1960, Japan had quadrupled steel production to 20 million tonnes and had vastly improved efficiency. Five years later, it had more than doubled it again.

  Something similar was repeated in the auto industry. In the 1920s, there were only a few thousand cars in Japan, all of them foreign made. General Motors and Ford dominated. As Japan militarized, this was considered a threat. American companies were expelled and Toyota and Nissan were asked to build military trucks. Toyota, which had hitherto made textile looms, began building vehicles only from the mid-1930s. Quality was poor. Yet days after Japan’s defeat, Kiichiro Toyoda, Toyota’s president, told his engineers they must catch up with American technology within three years. Even for Toyota that proved a fanciful goal. When the company started exporting cars to the US in 1957 under the Crown brand, they flopped. The car could not accelerate fast enough to get onto American freeways. Still, at home Toyota was doing better, helped by high protective tariffs on foreign imports and by cheap finance. The men at MITI had fought with the more economically ‘rational’ officials in other parts of the government, who had argued Japan should leave car production to the far more advanced Americans. As in other industries, car manufacturers received a huge boost from the Korean War, Toyota’s ‘salvation’, according to Toyoda. ‘I felt a mingling of joy for my company and a sense of guilt that I was rejoicing at another country’s war.’17 Although Toyota went it alone, other car companies signed tie-ups with foreign manufactures. MITI made sure that the country was not swamped by superior foreign technology. Instead, Japanese companies were given strict timetables to indigenize the manufacture of components and finally to build entire cars in Japan.

  Certainly, MITI officials were not averse to practising a mercantilism that came to be known as ‘industrial policy’. Of their protection of start-up industries behind high tariff walls until they could fend off foreign competition, Yoshihiko Morozumi, a senior MITI official, said, ‘Until we were strong enough, we kept the doors tight shut. If we opened them too early, the winds might blow everything flat.’18 It would be wrong, however, to suggest that MITI and other ministries orchestrated Japan’s industrial and economic revival singlehandedly. Some recent studies have even suggested that those industries left alone by government were the ones that did best.19 That view is exaggerated. But there was a great deal of bottom-up entrepreneurial activity as well as state planning. One example is Honda, which became a car manufacturer in direct contravention of MITI’s orders. Soichiro Honda, a self-taught engineer who began his career tuning racing cars, turned his attention to motorbikes after the war. He built his first by attaching a small engine to a standard pushbike. After he launched the Honda Cub, he was determined to graduate to cars and trucks. He recalled a meeting with the officials at MITI, who tried to block his entry into an already crowded arena. ‘The bureaucrats still had their heads full of the old notions of central control,’ he remembered more than three decades later. ‘They were absolutely no help. You wouldn’t believe what a hard time I had with MITI. When I wanted to make cars, they said, “Keep out. Toyota and Nissan are doing it already.” I said, “I’m free to do what I want. The war’s over you know.”’20

  Honda was by no means the only entrepreneur to invent a business from scratch. More than any company, Sony exemplifies Japan’s rise from the rubble and its transformation from a producer of shoddy trinkets to a manufacturer of world-beating technology. It began its life, quite literally, in a bombed-out building, the shell of the Shirokiya department store in Nihombashi, where Masaru Ibuka opened a radio repair shop in late 1945. The following year, he and Akio Morita, who had been expected to take over his family’s 300-year-old sake business in Nagoya, founded a company with the unpromising name of Tsushin Kogyo, or Tokyo Telecommunications Engineering Corporation. The initial investment was $500.

  Morita and Ibuka had met the year before the war ended when they were both put on a project to develop a heat-seeking missile. Ibuka, an electrical engineer with thick spectacles, ‘shovel hands’21 and a working-man’s accent, was an inveterate tinkerer. After the war, whenever he travelled to America, he would return with toys, but never presented them to his children without first pulling them apart and putting them back together again. Sometimes he bought two sets so that he and Morita could dismantle them together. Early on Ibuka experimented with electric rice cookers (a flop) and reel-to-reel magnetic tape recorders, the first to be sold in Japan. The big breakthrough came in the 1950s when he paid $25,000 to Bell Laboratories to license its transistor technology. His aim was to adapt transistors for use in radios. Bell told him it was impossible. Ibuka persisted and in 1955 Sony became the first company to make transistor radios a commercial success. The transistor was actually a little large for most pockets. So Morita, a marketing genius, had salesmen wear shirts with slightly bigger pockets to foster the illusion of portability.22

  Morita, thirteen years younger than Ibuka, was the company’s commercial brain. His entrepreneurial attitude was exemplified by one incident in 1955 when he was in New York. The Bulova watch company had offered to buy 100,000 units of Sony’s transistor radio, an order that was worth more than the entire capitalization of the fledgling company. The only stipulation was that they be sold under the Bulova name. Against the advice of Sony’s board, Morita turned the offer down, arguing that Sony needed to build its own brand. He later called the decision the best of his career. ‘Morita was an entrepreneur in precisely the American sense of that word, a bold venturer in the mould of John D. Rockefeller and Bill Gates,’ said John Nathan, who wrote a superb history of Sony.23 ‘He relied on his gut feeling about products and disdained market research.’24

>   Sony, like Honda, at first struggled in its home market, where it lacked the retail connections of more established, and officially favoured, companies. Both made their initial breakthroughs in the US. Morita criticized some aspects of Japanese business practice, for example the obsession about which school and university an employee had attended. Sony was one of the first companies to introduce merit pay. Though everyone, from the president down, wore the same uniform – still common in many Japanese manufacturers today – the outfits were designed by Issey Miyake.25 Morita, for all his success, was considered an arrogant maverick by the men at MITI.

  • • •

  I met James Abegglen a couple of times towards the end of his life. In 2006, we had lunch in the modern surroundings of his private club, where he was treated with the deference you might expect to be accorded one of the first people who had ‘got’ Japan. Abegglen was somewhat frail by then but it was clear he had once been an imposing figure. He possessed what seemed to be an unshakable faith in his own convictions. The other time I met him was when I semi-crashed his eightieth birthday party held in a swanky Tokyo hotel. The celebrations were presided over by his Japanese wife and family and attended by some of the great and the good of the business world. He gave a speech in which he recapped the main episodes of his lifelong entanglement with Japan. The son of a Wisconsin cheese maker, Abegglen first got to know Japan when he was trying to invade it. As a US Marine he was wounded in Iwo Jima. Later, as part of the US Strategic Bombing Survey, he spent time assessing wartime damage to Tokyo and Hiroshima. He returned in 1955 when, as a Ford Foundation fellow, he began a study of what was then the virtually unknown world of the Japanese company, or the kaisha in the Japanese word that he helped to internationalize. He was given unprecedented access to several companies, unglamorous cogs in Japan’s industrial machine, including Nippon Electric Company, Sumitomo Chemical and Fuji Seitetsu, which would later become Nippon Steel.

  Abegglen was the first to identify what became some of the best-known features of the Japanese model, lauded by many in subsequent decades as the ‘secret’ of the country’s industrial success. In his 1958 book The Japanese Factory, he emphasized the importance of company-based unions, whose leaders had a stake in raising productivity as well as their members’ wages and conditions; lifetime employment; and an emphasis on continuous improvement in production, known as kaizen. Abegglen viewed Japanese companies as ‘social organizations’. The expectation, at big companies at least, was that people would stay for their entire working lives. From the workers’ point of view that meant absolute job security and the prospect of continuous promotion and wage increases until retirement. It was a career escalator determined not by merit but by length of service, a system that encouraged loyalty and cooperation, not a battle among employees to prove who was most worthy of advancement. These companies hired graduates en masse, partly because they wanted to train (or indoctrinate) their workers in-house and partly because it made sense to grab them early in an era of rapid growth and potential labour shortage. ‘Especially for Japanese men, companies play the role of a religious community,’ one Japanese academic told me.26 There were company songs, company dormitories, company holidays and, of course, lots of company overtime and company drinking sessions. Matsushita’s official song, performed by workers wearing identical grey jumpsuits, went:

  We will send our products to the people of the world

  Our hard work and toil like the sound of water

  Gushing from the spring; industrial progress, industrial progress

  Number one for harmony, Matsushita Electric27

  ‘Japanese companies are not simple economic machines with the purpose of rewarding shareholders and executives,’ Abegglen wrote.28 ‘The Anglo-American notion that all is owed the shareholder has no currency in Japan. The primary stakeholders in the kaisha are its members, the employees.’ Westerners looked at the peculiar characteristics of large Japanese companies with bemusement. ‘The conclusion in the west was that you couldn’t possibly run a company that way,’ Abegglen said.29 The fact that companies were not beholden to their shareholders, in his view, enabled them to play a longer game. According to a senior partner at the Boston Consulting Group, where Abegglen later spent much of his career, he would say, ‘Profits are for now or for later. Westerners want their profits now. Japanese want growth now and profits later.’30 That view enabled Japanese companies, liberated from quarterly earnings targets, to prioritize market share and to plot multi-year takeovers of entire industries. From steel and shipbuilding to cars and semi-conductors, that is exactly what they did.

  Success certainly wasn’t all down to Japanese business practice. Many techniques, both organizational and technical, were borrowed from abroad. William Deming, an American consultant, became revered in Japan, more so than in his native America, for his lectures in the 1950s on quality control and testing. Japanese executives were almost fanatical about learning ‘best practice’ and they took ideas from wherever they came. In the early 1950s, Eiji Toyoda, who went on to become president of Toyota, spent three months at Ford’s River Rouge Plant in Michigan learning about quality control and efficiencies of scale. There were, though, some peculiar features of the Japanese model that later came to be seen as important.

  The Americans had attempted to break up the old zaibatsu conglomerates, which they had seen as part of Japan’s war machine, but these lived on in other forms. Companies retained close links with each other through cross-shareholdings and close relationships with suppliers. These horizontal and vertical ties, which in later decades were almost impossible for foreign entrants to penetrate, were known as keiretsu. These loose groupings, often served by a ‘main bank’ acting more like a sponsor than a profit-driven lender, became instruments of mutual support. In the so-called ‘convoy system’, companies moved together, ensuring that no one in their group fell behind. That did not mean, as was sometimes assumed, that there was no competition. In many ways, it was quite the reverse. Some studies concluded that Japanese industry was more fiercely competitive than in other countries since competitors did not simply go bust and leave the field to a few dominant players. There were at least ten car companies, five steel makers and later ten semi-conductor manufacturers. Overcapacity meant slim margins. That made the pursuit of volume, including the conquering of foreign markets, vital to success. Vertical keiretsu, between large companies and their myriad suppliers, were different from horizontal ones. Small companies, many not much more than family workshops in big industrial cities such as Osaka, were the equivalent of the German Mittelstand. They acted as shock absorbers for big business. Larger companies squeezed them mercilessly, placing orders at short notice and demanding absolute flexibility of working practice. In this way, the price of components was kept low and Japan’s famous just-in-time system, whereby manufacturers kept inventory at a minimum, was sustained. Small companies, where conditions were less generous and jobs less secure, took the strain. This allowed bigger organizations to fulfil the generous social contract of lifelong employment and ever-rising wages for which Japan became famous.

  The system had obvious flaws. Industrial production was prioritized over consumer goods, market share over profits, saving over spending and large companies over small ones. The entire economy revolved around exports – a legacy that Japan still lives with. At home, thrifty households were given meagre interest by banks and the post office, allowing the government to lend cheaply to industry. Big businesses were allowed to pollute the environment in the interests of profit and to charge Japanese consumers more than foreign ones in the interests of the nation’s balance of trade. Some of the fruits of Japan’s rapid growth were, in other words, sacrificed to the greater, abstract, goal of nation-building. These were the seeds of what some have called Japan’s ‘empty affluence’.31

  As far as nation-building projects go, though, Japan’s was supremely successful. In 1960, after a period of political turm
oil surrounding the renewal of the US–Japan Security Treaty, Prime Minister Hayato Ikeda announced his national income-doubling plan.32 Japan was progressing faster than anyone imagined. That year, Charles de Gaulle, the French president, had referred snidely to the Japanese prime minister as ‘that transistor salesman’.33 Two years later, the transistor salesman was running a country with a larger economy than France. In 1967, Japan also overtook Britain, and in the following year it surpassed West Germany to become the world’s largest capitalist economy after the US. If Japan had been hopelessly lost in the 1930s and 40s, surely now it was found.

  Something of the excitement of those catch-up years is captured in a trilogy of films, Always: Sunset on Third Street, the first of which was released in 2005. As Japan’s economy has slowed, it has been common to look back nostalgically at the high-growth years for clues as to the spirit that drove rapid development.34 In the first of the trilogy, set in the back streets of Tokyo, the country is getting back on its feet in the 1950s. A young woman comes from Aomori, in the poorer, rural north, to work at Suzuki Auto, a tiny repair shop catering to the few cars then on the road. She represents the mass exodus to the cities that took place in the decades after the war. By the end of the film, the main protagonists, though poor, have traded in their ice-coolers for refrigerators and one or two have bought black-and-white televisions. In the late 1950s, in a play on the imperial regalia of sword, mirror and jewel, the Japanese talked of the three ‘sacred treasures’ of refrigerator, washing machine and black-and-white television. The film and its two sequels take place in the shadow of Tokyo Tower, a fire-engine red version of the Eiffel Tower completed in 1958 that became a symbol of Japan’s economic resurgence. Built in part from the carcasses of US tanks used in the Korean War, Tokyo Tower was thirteen metres higher than the French original and the tallest self-supporting steel tower in the world. In the third of the films, set in 1964, the neighbourhood prepares for the Tokyo Olympics by buying colour televisions, one of the three new must-have items – the other two being air-conditioner and car – that had replaced the earlier sacred treasures. At the end of the film, the country girl from Aomori befittingly embarks on her honeymoon by boarding the Shinkansen bullet train to Osaka, unveiled in time for the Olympics. Just nineteen years after its surrender and seeming total devastation, Japan had built the fastest train in the world.