Bending Adversity

5

The Magic Teapot

Two months before Japan surrendered to the Allies, Shijuro Ogata, the seventeen-year-old son of a famous newspaper editor, secured a ticket for the Japanese Philharmonic Orchestra. The concert was Beethoven’s 9th Symphony. It was to be held in the Hibiya Public Hall, a brick construction erected as part of the capital’s modernization effort after the Great Kanto Earthquake of 1923. On the evening of the concert, Ogata remembers taking a tram from Shibuya to Shimbashi, a distance of some three miles. The journey covered what are now some of the city’s most expensive neighbourhoods, a choc-a-bloc jumble of neon, skyscrapers, office buildings, parks, homes, department stores, boutiques, bowling alleys, arcades, cinemas, theatres, clubs, museums and thousands of cafés, restaurants and bars. Back then the scene was desolate. From early 1945, the US had sent dozens of low-flying B-29s to drop incendiary bombs on the Japanese capital, much of which was constructed of wood. On the night of 9–10 March, some 300 bombers had roared over the city, dropping bombs that destroyed sixteen square miles of buildings and unleashed raging fires. That night alone, an estimated 100,000 civilians died and a million homes went up in flames. It is considered the most destructive bombing raid in all human history, more deadly, even, than the atomic bombs. The Ogatas’ house in the then up-and-coming Shinjuku district survived the March raid only to succumb to another in late May. ‘Tokyo was completely devastated,’ Ogata recalls of his journey through the charred wasteland to the concert in Hibiya Hall. ‘Everything was flat, just flat.’1

Now in his eighties and retired from the Bank of Japan, where he spent most of his professional life, Ogata has a kindly face and a ready wit. It was he who had introduced me to the proverb about ‘bending adversity’ and who had professed his faith that Japan could recover again, both from the devastation of the tsunami and from its current economic and political malaise. In ordinary people’s dignified response to adversity, he had seen something of the post-1945 spirit that had enabled the Japanese to confront adversity and build something positive from the wreckage of war. Ogata loves a political discussion and to venture opinions that many would consider a little risqué, especially those on the right of Japan’s political spectrum. Much of his time is spent in the Japan Press Club and the Foreign Correspondents’ Club of Japan where he attends lectures and press conferences and talks about issues of the day. He has his stock of little sayings, rarely delivered without a twinkle in his eye. ‘Japan is a country of good soldiers but poor commanders’ is one of his favourites. It is a lesson perhaps learned from Japan’s wartime experience, but one that he finds applicable to modern Japan too, particularly in its current phase of drift. For him, the aphorism captures the diligence and decency of common people – exhibited again in the aftermath of the tsunami – but the disappointment he feels in the nation’s leaders. Although he was a senior figure at the Bank of Japan, he likes to introduce himself with a self-deprecatory, ‘I am Sadako’s husband,’ acknowledging the greater renown of his wife, former United Nations High Commissioner for Refugees and one of Japan’s most famous citizens.2

Ogata’s grandfather and great-grandfather on his father’s side, both born well before the Meiji Restoration, had been students of Dutch learning. His father, Taketora, was editor-in-chief of the liberal Asahi newspaper and a proponent of greater democracy in the late 1920s. Despite this liberal upbringing, Ogata remembers celebrating the fall of Nanking as a primary school student. As the rape and slaughter of civilians unfolded, archive photographs show innocent-faced ranks of Japanese schoolchildren like Ogata waving Rising Sun flags outside the Imperial Palace. Four years later, the surprise attack on Pearl Harbor had shocked the teenage Ogata, but he confessed that news of the distant hostilities brought a certain thrill. ‘The initial victories excited most of us, including those who had been opposed to the war,’ he writes in his memoirs.3

Because of his father’s connections to the newspaper business Ogata was better informed about what was going on than most Japanese, for whom censored news media spewing imperial propaganda was the only source of information. He guessed before most that Japan would lose the war. By 9 August, less than two months after he had attended the Beethoven concert, he learned from navy officers that Hiroshima had been destroyed by a fearful new weapon and that the Soviet Union had torn up its non-aggression pact with Japan. Though Ogata did not yet know that a second nuclear bomb had been dropped on Nagasaki, he realized the end of the war was close. The entry in his diary, six days before Japan’s unconditional surrender on 15 August, reads, ‘The arrival of a very tragic day of history seems imminent.’ It is hard to imagine now the psychological devastation. Japan’s dreams – if that’s what its fantasies of Asian domination can be called – were over. The emperor, previously distant, divine and unerring, came on the radio to announce the surrender. Villagers and city dwellers alike gathered around crackly radios, their heads bowed in disbelief. No one had heard the emperor’s voice before, let alone speaking such unimaginable words. Shintaro Ishihara, who grew up to become Tokyo governor, was twelve years old. ‘I thought his voice was high and sounded very feminine,’ he told me. ‘Like the shriek of a cat.’4

Japan lay in ruins, its ideology as well as its buildings reduced to rubble. Aerial photographs of Tokyo, Osaka, Nagoya, Hiroshima and Nagasaki in the days following surrender look strangely like those of the towns along the northeast coast after the 2011 tsunami. The street grid is visible, but most of the buildings have vanished. Only the odd industrial chimney or brick building sticks up from the rubble. Japan’s defeat was absolute. Four-fifths of its ships, a third of its industrial machinery, and nearly a quarter of its rolling stock, cars and trucks had been destroyed.5 Documentary footage from just after the surrender shows ragged children in wooden clogs picking through the debris.

My own father-in-law, Gene Aaroe, a member of the US coastguard in 1945, remembers landing at the northern port of Aomori shortly after the surrender. He had half expected to fight. After all, he had witnessed the planes of kamikaze pilots explode in flames as they attempted to sink the ships around him in the Battle of Okinawa. Like other Americans, he had heard stories of a fanatical race of emperor-worshippers who would never surrender and were prepared to fight to the last man, woman and child.6 Instead, he found a submissive and devastated nation. People in Aomori lined the streets with their pots, pans, kimonos and other possessions at their feet, items for sale to the conquering Americans. He bought a harakiri ritual suicide knife, which he still keeps in a cupboard in Seattle. Doubtless the few dollars he paid for it were exchanged for desperately needed food.

Two weeks after the emperor’s message, General Douglas MacArthur, Supreme Commander for the Allied Powers in Japan, landed at Atsugi aerodrome near Tokyo. Dressed in khaki army fatigues, he struck an imposing figure. His apparent nonchalance at becoming Japan’s potentate was emphasized by the enormous corncob pipe stuck jauntily between his teeth. A subsequent picture taken with the emperor shows a relaxed American towering over a slight and nervous Japanese man. Not long after, the emperor himself endured the unendurable: he told his people that stories of his divinity were misplaced.

• • •

For the first time in its history Japan was to be occupied by a foreign power. The Americans stayed less than seven years. It was to be one of the most extraordinary encounters of the twentieth century, a ‘sensual embrace’ of victor and vanquished in John Dower’s memorable phrase. Though MacArthur was a conservative, many of the officials around him were Roosevelt New Dealers, idealists who wanted to fashion a peaceful and democratic society from the broken shards of Japan’s failed modernization. Acting through the existing bureaucracy, they began to implement a series of far-reaching policies, including land and labour reform, the breakup of oligopolies, equal rights for women, an amnesty for leftwing political prisoners and the drafting of a new pacifist constitution. They also set about purging the government and armed forces of those associated with militarism, though MacArthur took the controversial decision to shield the emperor from prosecution and preserve him as a figure of national unity.

Among many thousands who came under initial suspicion was Ogata’s father, Taketora. Despite his liberal background, he had overseen the Asahi’s shift towards a more pro-government line and in 1944 was drafted into the cabinet to head the information bureau. After the war, he was briefly designated a war criminal and placed under house arrest. In March 1946 he was summoned by the prosecutors to give evidence to the Tokyo War Tribunal about the pre-war political situation. At the trial, seven men, including former prime minister Hideki Tojo, were sentenced to death. Sixteen more were given life sentences. Outside this show trial, Asia’s equivalent of Nuremberg, hundreds of lower-ranking officers were executed for atrocities. Ogata’s father was purged from public activities but subsequently cleared of war crimes. Still, Ogata remembers a shrine festival when a drunken man repeatedly pounded on the wooden wall of their house, calling out, ‘Taketora Ogata, you are a war criminal.’ It was, Ogata recalls, a miserable evening.

At the time, millions of Japanese were engaged in an urgent attempt to understand how their society could have gone so badly wrong. In the years immediately following the war, support for the socialist and communist parties surged, so much so that the American occupiers were frightened into clamping down on the forces they had let loose. In the so-called ‘reverse course’, which took hold in around 1948 as the contours of the Cold War began to freeze into shape, there was a crackdown on organized labour and on leftwing political leaders. As early as 1947, MacArthur had personally intervened to head off a threatened national strike. Eleanor Hadley, who had been given the job of breaking up the powerful zaibatsu business conglomerates, noted the hypocrisy. ‘They had been told to organize, that there was a right to strike,’ she said. ‘Then at the moment of their power they were cut off.’7 By 1949, the idea of a Red Purge against ‘troublemakers’ in the labour unions, media and private sector had become so prevalent that the phrase had migrated into Japanese where it was rendered reddo pa-ji.

Such was the intellectual turmoil, everything came under discussion. Ogata remembers a conference at his high-school campus to discuss the pros and cons of dropping Chinese characters and, instead, Romanizing written Japanese. One theory claimed that Japan had been held back because it took so long for children to master thousands of complex characters, leaving insufficient time to study modern science. Even in its defeat and humiliation, the impulse to escape its Asian inheritance and join the ranks of ‘civilized’ western nations had not been extinguished.

The means of achieving this had clearly changed. Japan was occupied and, from November 1946, had a constitution that renounced its right to wage war or to maintain a standing army, navy or air force. The colonial route to international status was blocked. That left the economic path. Ogata says that, even then, amid the ruins of war, he did not despair. ‘We were quite optimistic really,’ he recalls cheerfully, speaking more than sixty-five years after his tram ride through a flattened Tokyo. ‘Because, you see, there was no way to go down. The only way to survive meant going up.’

• • •

The world now takes Japan’s economic rise for granted. Its startling achievements from 1950 to 1973, when the economy was torpedoing along at an average growth rate of 10 per cent a year, loom much less large today than its more recent economic failures. The past two ‘lost decades’ – though they have not been quite as lost as some believe – have convinced many detractors that the nation’s supposed economic strengths were a chimera and that the true, hidebound Japan now stands before us. The country that some in the 1980s predicted would surpass the US as the world’s most powerful economy has instead fallen flat on its face. As a result, the once supposedly essential components of Japan’s economic rise – its particular corporate culture and its managed industrial policy – are sometimes derided as the very reasons for its twenty years in the wilderness. ‘The state of Japan is a scandal, an outrage, a reproach,’ wrote Paul Krugman, a Nobel prize winner in economics, in a series of papers about Japan’s post-bubble disease. Subsequently, when economic crisis and paralysis hit the US and Europe, Krugman changed his tune, citing Japan instead as a model of how to weather an economic storm.8 Even after twenty years of malaise, Japan still stands as the world’s most successful example of a catch-up economy. No other non-western nation, save city-states such as Singapore and Qatar, has achieved the standard of living the Japanese now take for granted.9

It is all too easy to forget just how unpromising Japan’s economic prospects looked in 1945. We forget too that Japan, understandably vilified in Asia for its wartime aggression, nevertheless became an inspiration for much of the region in the latter half of the twentieth century. Japan may not have been loved, but it had proved what should always have been obvious: non-whites were every bit as capable of achieving economic and technological success as Caucasians. That simple truth was not self-evident even in 1958 when Kenneth Galbraith began his book The Affluent Society by defining wealthy nations as those ‘in the comparatively small corner of the world populated by Europeans’.10 Japan’s implicit message proved an inspiration for technocrats and political leaders alike in Singapore, Taiwan, South Korea, Malaysia and Hong Kong, all of whom emulated its export-led development model. The image of flying geese, first dreamed up in the Japan of the 1930s, took hold, this time with an economic, rather than military, meaning. Japan was the lead goose and the nations of Southeast Asia its followers. Japan had proved to arrogant westerners and to self-doubting Asians alike that colour was no bar to development.

None of this was foreseeable in 1945, at least not to outsiders. Japan’s economy, built up since Meiji, was a smoking wreck. Its industrial misery was compounded by the failure of the harvest in the year of its defeat. Bad weather combined with lack of fertilizer and labour to produce a food shortfall of some 40 per cent. Grave of the Fireflies, an animated feature film produced four decades later, started gruesomely with the child protagonist dying of starvation in Ueno station, a fate that befell countless people in those early desperate months.11 Hungry Tokyoites clambered aboard trains leaving Ueno for the countryside, loaded with kimonos and other family heirlooms to swap for food. So crowded were the trains that people hung onto the outside of the carriages and railway staff put wooden slats across the windows to stop them cracking. Kazue Matsumaru, a farmer’s wife in a village near Tokyo, described the ravenous crowds that descended from the trains. ‘They’d buy anything. Even the leaves off the potato plants.’12 There was a good deal of stealing too. Much food made its way onto the swelling black market. In the cities, some young women earned money or received scarce items such as nylon stockings or canned food by sleeping with American GIs. ‘In the dark corners of certain downtown areas, prostitutes, called “panpan girls” in those days, emerged every evening to wait for American soldiers,’ Ogata recalls.

Such hardship notwithstanding, America’s first concern was not to boost Japan’s economy but to dismantle its wartime industrial complex.13 Japan had been one of the fastest-growing economies in the world since the 1880s when the Meiji leaders set out to modernize their country. From the 1930s, its industries had been marshalled for a war economy. The Americans were determined this would never happen again. Shipyards that had turned out warships were banned from building anything other than wooden fishing boats. The US originally planned to dismantle most of the factories left standing and pack the machinery off to Japan’s former enemies as war reparations. Those plans were gradually scaled back. The softening was initially out of sympathy for Japan’s desperate economic plight and concerns about social unrest. But, as the Cold War set in, Washington’s ideas shifted. It decided that its strategic needs were not best served by a Japan on its knees. Rather, it wanted a bulwark against communism. Yet, even when America started to think about how to build up Japan economically, the ‘image always remained of a fundamentally second-rate economy at best’. Only days before the outbreak of the Korean War, John Foster Dulles, special envoy of President Harry Truman, said Japan should concentrate on exporting items such as cocktail napkins.14

If the US saw Japan as a maker of trinkets, the nation’s bureaucrats had other ideas. Even before the war had ended, government officials had secretly planned for life after defeat. Saburo Okita, a post-war economic planner, sent out a notice at the start of August 1945 to arrange a meeting. ‘The idea was to discuss the future of the Japanese economy after the war,’ Okita said of his surreptitious plans. ‘But if we’d advertised a meeting with a title like that we would have been arrested by the military police.’ The gathering of experts took place in a burnt-out building on 16 August, the day after Japan surrendered. Okita remembered how desperate the situation seemed. ‘If you looked out of the windows, it looked like a scorched plain. Everybody was starving. But the committee discussing the future worked really hard. They thought, It’s bad now. But with a big effort, Japan will get back on her feet again, not by military means, but with new technology and economic power.’15

These early planners discussed various models for rebuilding Japan, with some arguing that it should concentrate on agriculture. The consensus that eventually emerged, however, was to employ the same methods that had been marshalled for all-out war to create powerful peacetime industries. From the early 1930s, Japan had shifted from light to heavy industrialization, emphasizing warships, bombs and chemicals over textiles and handicrafts. Fukoku kyohei – ‘rich country, strong army’ – had been the centrepiece of the Meiji project, an objective that slipped into militarism. Now that Japan was forbidden from fighting, it could concentrate solely on building a strong economy.

Washington was soon to regret writing the pacifist clause into Japan’s constitution. But in what became known as the Yoshida Doctrine – after Shigeru Yoshida, prime minister for much of the decade after the war – Japan used its lack of international obligations to its own advantage. Released from the burden of defence and protected by the US military, it was able to throw all its energies into economic development. Wealth creation was seen as an alternative way of generating national prestige. The link between pre- and post-war ambitions, and the means of achieving them, was sometimes explicit. Kiyoshi Tomizuka, a professor of engineering at Tokyo Imperial University, wrote in his diary in April 1945, ‘An army in uniform is not the only sort of army. Scientific technology and fighting spirit under a business suit will be our underground army.’16

For all these aspirations, by 1948, the economy had reached crisis point. Prices had risen a cumulative 1,200 per cent in the three years since the war. Labour conflict was rife. The Americans called for Joseph Dodge, a Detroit banker, who as ‘economic tsar’ oversaw a drastic plan to rein in government spending and fire public workers. Inflation was gradually contained, and the exchange rate massaged lower to stimulate exports. The Red Purge started and policies intended to break up conglomerates were quietly abandoned. Unemployment rose, consumption dropped and many companies went bankrupt. Depression beckoned. Then, in 1950, the Korean War came to the rescue. What remained of Japan’s industrial base cranked into action to supply the Americans with military equipment. Yoshida called it ‘a gift from the gods’. Long-idle factories hummed as the US, setting aside its scruples about Japan’s military complex, put in orders for barbed wire and munitions. Some factories went the other way, from pre-war military production to the manufacture of civilian goods. An aircraft factory in Osaka started making nails for houses. Makers of radio parts turned their thoughts to light bulbs. In due course, companies such as Nikon, which had ground lenses for gunsights, started producing cameras and binoculars.

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.

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 turmoil 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.

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Certainly there were further adversities to bend during Japan’s seemingly inexorable rise. Most serious was the oil shock of 1973 when oil prices quadrupled after Arab members of the Organization of the Petroleum Exporting Countries proclaimed an embargo in response to US help for Israel during the Yom Kippur War. Japan had only four days of reserves. Inflation rose to 30 per cent and consumption slumped. But Japan turned on a dime, both diplomatically and economically. Tokyo sent envoys to the Middle East, distancing itself from US policy and swearing loyalty to the Arab world. At home, workers, tamer than their western counterparts, were persuaded to moderate wage demands. Robots, another American technology, were rapidly adopted and companies strained to reduce their energy consumption as oil prices skyrocketed. MITI promoted ‘brain-power industries’, such as electronics and computers, over the energy-intensive heavy industries it had formerly favoured. A decade later, Japan had nearly halved its energy imports from 3 per cent of GDP to 1.6 per cent.35 The country emerged from the twin oil shocks of the 1970s – there was a second after the Iranian Revolution of 1979 – with greater energy efficiency and faster growth than any other advanced nation.

Yet, as well as enthusiasm for what was being created, there was concern for what was being lost. As early as 1953, cinematographer Yasujiro Ozu’s masterpiece Tokyo Story depicted a rapidly changing urban society in which the communitarian values of rural Japan were vanishing. Two elderly parents from a seaside town visit their children in Tokyo only to find that their offspring have become too self-absorbed to pay them much attention. Against a backdrop of cranes, cars and construction, the parents traipse between households much as King Lear is shuffled between his daughters’ castles. Some social commentators were highly critical of Japan’s ‘progress’, particularly as concern grew about the environmental destruction that accompanied breakneck urbanization. Speaking of the decade in the run-up to the Olympics, Minoru Morita, a leftwing commentator, said, ‘I felt we had created a monstrous society for ourselves. In the city our atmosphere was contaminated, our rivers were dirty, our seas were polluted and our natural environment was destroyed. As far as our people were concerned, they’d come to desire economic profit above all else. They had abandoned all the greater humanistic ideals. I thought it was an era of despair.’36 That was not a typical view. More common was the opinion of Masaya Ito, the press secretary of Ikeda, the prime minister who had initiated the income-doubling target. ‘How far could the economy go on growing?’ he asked. ‘It was like a magic teapot that just kept on pouring.’37

Japan’s growth had inevitably slowed a little in the 1970s, but by the 1980s its living standards had caught up with those of many western countries. The features of industrial Japan first described by Abegglen were widely recognized as important elements of its success. There were even suggestions that western companies would do well to emulate some aspects if they were to survive the Japanese onslaught. In 1979, Ezra Vogel, a US academic, produced a book, Japan as Number One, in which he laid out the country’s social and industrial strengths and suggested America needed to watch its back. The book presented a Japan that was organizationally, educationally and technologically equipped to take on the world. Although primarily intended to wake US policymakers from what Vogel considered their complacency, Japan as Number One was a bigger success in Japan than it was in America. It became, in fact, the all-time best-selling work of non-fiction by a western author. The reasons for that were not hard to fathom. Its very title appeared to be an affirmation of what Japan had so ardently sought for more than a hundred years since the Meiji Restoration, a Japan that could take on westerners at their own game – and win.

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The Japanese became swept up in their own hyperbole. As early as 1967, the year Japan’s economy overtook that of Britain, one professor of Kyoto University had relegated Europe to the status of a nice place for sightseeing. The following decade, books on ‘the British disease’ became popular. One writer defined it as a social disease that causes ‘a diminished will to work, overemphasis on rights and declining productivity’. Books on ‘the American disease’ inevitably followed. The US was said to be wasteful and inefficient, its companies devoted to short-termism. It was also deemed to lack a work ethic. Japanese engineers who visited foreign factories often expressed their amazement at overseas workers’ penchant for tea breaks and knocking-off early. American society was considered to have been corroded by violent crime, drugs and divorce.

In a 1983 government survey, one question revealed the long-held obsession of the Japanese state, the ‘shrill sense’ of inferiority and superiority that had driven its catch-up project for more than a century. ‘Compared to westerners,’ the pollsters asked, ‘do you think, in a word, that the Japanese are superior? Or do you think they are inferior?’ By the 1980s, in a word, 53 per cent of Japanese answered that they thought themselves superior against just 20 per cent who had so responded in 1953 when the same unpleasant question had been asked. In neither survey was there a box asking whether the question itself was objectionable.38

By the late 1980s, many in America were beginning to talk about Japan in terms of threat. Japan’s trade surpluses were swelling to unheard of proportions, its cars were displacing petrol-guzzling US models and its companies were snapping up trophy assets – an iconic building here, a Hollywood film studio there. A group of commentators, who collectively became known as ‘the revisionists’, had an explanation for Japan’s success. They built on the pioneering work of Abegglen to suggest that Japan represented an entirely new way of doing business. Unless the US dropped its laissez-faire approach and adopted some of the same ‘industrial’ and ‘strategic trade’ policies as Japan, they argued, it would continue to lose ground.

The revisionists included Chalmers Johnson, who had written about the state planning undertaken by MITI in 1982; James Fallows, who wrote Looking at the Sun; and Clyde Prestowitz, a former trade negotiator under Ronald Reagan whose frustrations at trying to open Japan’s semi-conductor, telecoms and medical markets confirmed his belief that Japan was playing a smarter game. His 1993 book was called Trading Places: How We Are Giving Our Future to Japan and How to Reclaim It. Prestowitz says he and others were far from the ‘Japan bashers’ sometimes alleged. ‘We were, in fact, admirers of the Japanese system and promoted the idea that in order to compete with it, the US would have to imitate it in important ways. Our frustration was not so much with the Japanese as with the US government.’ Orthodox US policymakers, he says, could not understand how Japan was beating America at its own game. ‘I tried to explain to the top officials of the Reagan administration that Japan was playing football while we were playing baseball.’39

A third book, less about trade and more about Japan’s political and social organization, also depicted a society unlike anything the west had encountered before. Karel van Wolferen’s The Enigma of Japanese Power presented a portrait of a country without central authority in which decisions were taken almost organically. From the perspective of orthodox free traders trying to negotiate with Japan, this meant by definition that the people on the other side of the negotiating table were powerless to affect change. Van Wolferen’s was a subtle take on the story. The more common version, a crude popularization of the revisionists, was of a sinister Japan Inc in which clever planners outsmarted competitors. Abegglen, who tried to portray Japan as having ‘a complex combination of cooperation and competition’, was always opposed to the notion of a government-directed machine. He told one journalist about a widely held notion that somewhere in the recesses of Japan’s bureaucracy was ‘a guy with a long beard and a big computer, and if we could find and shoot him, we’d solve the problem’.40 If van Wolferen’s thesis was correct, there was nobody to shoot.

Whatever the reasons for Japan’s success, the idea was taking hold, in the popular press at least, that it was on the verge of challenging America to become the world’s largest economy. Given that its population was half the size, that was a bold prediction, requiring that every Japanese on average become twice as wealthy as every American. In 1988, the well-known financier George Soros responded to a huge stock market slide in New York and London by predicting nothing less than ‘the transfer of economic and financial power from the United States to Japan’.41 Just at the time such notions were gaining credence, however, Japan was in the midst of its own grotesque financial bubble. When it burst, the idea of Japanese economic supremacy would be for ever discarded.