World War I brought unprecedented human disaster to Europe. In Asia it brought some unexpected opportunities. The war cut European traders off from their Asian customers, and this gave a huge boost to Japan’s newly industrializing economy. Be
tween 1914 and 1918, Japan’s industrial output rose from 1.4 billion to 6.8 billion yen. Exports surged with particular speed. Overseas sales of Japanese cotton cloth rose 185 percent during these years.1 Industrial employment ballooned as well, and with workers suddenly in scarce supply, wages rose sharply. Unfortunately for most workers and consumers, prices rose even faster. Japan experienced its worst inflation
ary surge in modern times. Between 1914 and 1920 the retail price of rice increased 139
174 percent, and overall wholesale prices rose almost 150 percent.2 The social emblem of this wartime boom was the so-called narikin, or nouveau riche. This figure was lampooned in cartoons—in Japan as elsewhere—in the form of an overfed business
man lighting a room with his money. The white-collar employees of such magnates prospered as well. They sometimes received bonuses that quadrupled their normal salaries.
The good times continued briefly for these men and their families after the war ended, but the boom came to an abrupt close in April 1920. The stock market plunged, as did the market in silk, Japan’s major export commodity. Many banks failed. The value of production in key industries fell as much as 40 percent in one year. Major employers dismissed thousands of workers.
For the rest of the decade, the economy sputtered from crisis to crisis. One fun
damental problem was that Japanese goods had climbed in cost during the war and remained overpriced in global markets. This placed exporters at a sharp disadvantage when European competitors returned to Asia after the war. One solution would have been to devalue the Japanese yen against other major currencies, thus lowering the cost of Japanese exports. But such a step went against the orthodox thinking of the day, which dictated that nations seek a stable and strong currency linked firmly to the gold standard. From this perspective, the solution for the Japanese economy was to restore competitivity by lowering domestic prices. The government thus consistently called for retrenchment and restraint as the harsh medicine needed to restore economic health, although its policies on occasion contradicted its own rhetoric.3
Manufacturing output showed some signs of recovery by 1922 and 1923. But then, on September 1, 1923, the Great Kanto¯ Earthquake struck Tokyo and its environs with horrifying effects. The shocks came just at noontime. Lunch fires were burning in thousands of charcoal and gas stoves around the city. As wooden buildings collapsed and hibachi stoves tumbled over in neighborhoods crowded with rowhomes and nar
row alleys, fire broke out all over the city. Particularly huge whirlwinds of fire swept through the eastern wards over the following two days. The city’s distinctive mix of residential, commercial and industrial neighborhoods was devastated. Estimates of the dead and missing ranged from one hundred thousand to two hundred thousand. Trem
ors or fire destroyed 570,000 dwellings, roughly three-fourths of all those in the city.4 For a time, economic activity in Japan’s largest city came to a virtual standstill.
In the years after this disaster, tentative signs of recovery appeared. A “recon
struction boom” in the aftermath of the earthquake temporarily stimulated jobs and businesses in the Tokyo area. The government encouraged liberal bank lending as further stimulus—against the orthodox logic of retrenchment. Industrial production did increase steadily in key industries such as machine building and shipbuilding. But the basic problem of high international prices remained, and many producers stood on shaky grounds. Domestic textile mills, for example, were losing ground to lower- cost competitors in China, including Japanese producers with overseas investments.
In 1927 several long-standing weaknesses of the Japanese financial system con
verged to produce a major banking crisis. Japanese banks were numerous but quite small and quite vulnerable. Many of them were poorly diversified. Many were in far weaker condition than their balance sheets indicated because they had delayed writing off failed loans of the immediate postwar depression. In addition, many of the new
this captain of industry leaves a banquet, the geisha or waitress complains, “It’s so dark I can’t find your shoes.” He lights a hundred-yen note and says, “How’s that, it’s brighter now isn’t it?”
Courtesy of Kyuman Museum and Saitama Municipal Cartoon Art Museum.
141
loans banks made after the earthquake stood on shaky ground. Individual banks often concentrated their loans to a small number of large borrowers in a few industries in their region. The government offered no guaranteed protection to depositors.
Like matches dropped on this dry tinder, events at home and in the empire sparked a panic in the spring of 1927. Rumors spread that shaky loans made in 1923 and 1924 to promote earthquake recovery had placed numerous banks on the edge of collapse, just as news emerged that a Japanese colonial institution, the Bank of Taiwan, was going to fail. This semiofficial bank had been founded to promote development in Taiwan. It had aggressively expanded activities to include loans to speculative ventures of a Japanese major firm operating in Taiwan. When this borrower—the Suzuki Trad
ing Company—was reported to be insolvent in early 1927, the Bank of Taiwan’s investors pulled their short-term loans from the bank, forcing it to shut down. In a good example of the close links between imperial expansion and domestic economy and society, these events sparked a panicky chain reaction of depositor “runs” on domestic banks, followed by a three-week “banking moratorium” in April and May and the failure of dozens of small and medium-sized banks.
Over the next several years, the number of banks fell nearly in half because of failures and mergers. Although manufacturing output continued to rise through the end of the decade, the overall rate of economic growth in the 1920s was only half
Common scene of a run on a bank during the financial crisis of 1927, during which thirty- seven banks failed. Here, in April 1927, a crowd of women and men anxiously wait to with
draw their money from the Tokyo Savings Bank.
Courtesy of Mainichi newspaper.
that of the previous thirty years. Even before the world depression jolted Japan in 1929–30, the economy had been stumbling for the better part of a decade. Both popular and intellectual opinion blamed the nation’s political leaders for lining their own pockets at the expense of the majority.
When critics parceled out blame, the zaibatsu combines came under particular fire. The major zaibatsu had been founded in the late nineteenth century and often had Tokugawa roots. But the term zaibatsu itself only came into widespread use around the time of World War I. A widespread belief that the zaibatsu wrongly dom
inated the economy—and politics as well—also dates from this time.
The Mitsubishi, Mitsui, Sumitomo, and Yasuda groups, and a handful of some
what lesser combines, were indeed a dominating presence. In their mature form by the 1920s, each of the major zaibatsu was a sprawling business empire embracing dozens of corporations in finance, transport, trade, mining, and manufacturing. Each zaibatsu was held together at the apex by a holding company. Until the start of World War II, individual families (the Mitsui, Yasuda, and Sumitomo families and, in the case of the Mitsubishi combine, the Iwasaki family) were the exclusive owners of these holding companies. Through them, they controlled the overall affairs of the combine.
The zaibatsu were self-contained and exclusive in some respects. Mitsui manu
facturing enterprises agreed to market their exports exclusively through the Mitsui Trading Company. Firms charged lower prices to businesses within the combine. One important exception to this exclusive behavior was the fact that zaibatsu banks made loans outside the combine, to spread risk and expand their power. Another exception was the policy of filling managerial positions by recruiting talented graduates from Tokyo Imperial University who were not members of the zaibatsu families. But even in these appointments, loyalty to the controlling family was valued highly alongside business skill and energy. Devotion was further reinforced when rising managerial stars on occasion married the daughters of zaibatsu families.
Through the economic troubles of the 1920s, the zaibatsu extended their reach.
Already in 1918, the eight largest zaibatsu held more than 20 percent of all private capital in the manufacturing, mining, and trading sectors of the economy. The two largest combines, Mitsui and Mitsubishi, accounted for 12 percent of all capital in these sectors. The bank crisis of 1927 opened the way for the zaibatsu banks to dominate the financial world even more, and to take control of numerous smaller businesses as well. The reach of the Mitsui and Mitsubishi empires at their peak was extraordinary (see Table 9.1).
The zaibatsu were controversial at the time. In the late 1920s and early 1930s right-wing assassins targeted top executives, justifying their acts with the claim that
“behind the political parties are the zaibatsu bosses.”5 The zaibatsu have remained controversial among historians ever since. On one hand, they played a central role in the industrialization of Japan. They mobilized resources and expertise—capital, labor, raw materials, and technology—in ways that smaller enterprises could not have du
plicated. On the other hand, as they amassed extraordinary fortunes the zaibatsu gen
erated and reinforced an extremely inegalitarian distribution of wealth and income.
Although zaibatsu magnates opened their wallets to support the political parties in the imperial Diet, they hedged their bets by cultivating close ties to military and bureau
TABLE 9.1 Core Subsidiaries in the Mitsui and Mitsubishi Combines at War’s End
Mitsui Mitsubishi
First-line designated subsidiaries
Second-line designated subsidiaries
Trading Mining Trust Real estate Chemicals Shipbuilding Precision machinery Life insurance Agriculture and forestry Steamship
Taisho Marine Fire Insurance Mitsui Warehouse
Mitsui Light Metal Tropical Produce Mitsui Petrochemical Sanki Engineering Toyo Cotton Japan Flour Milling Toyo Rayon Toyo Koatsu
Trading Mining Trust Real estate Chemical process Oil
Steel fabricating Bank
Electric Warehouse Heavy industries
Tokyo Marine Fire Insurance Japan Optical
Japan Steel Construction Japan Grain Products Mitsubishi Chemical
Machinery Mitsubishi Steamship Japan Aluminum Meiji Life Insurance
Source: From Eleanor M. Hadley, Antitrust in Japan (Princeton, N.J.: Princeton University Press, 1970), pp. 63–
64.
cratic elites as well. The business elite wanted autonomy and stability above all. They offered no consistent or principled support for democratic or liberal politics.