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7.2 A Brief History of Management Philosophy in Japan

The modernization of Japan, during the Meiji Restoration, began in 1968. Modern capitalist corporations began to appear afterward, but Japan had had a long premodern history of manufacturing, commerce, and trade. Japan's (and possibly the world's) oldest company is Kongō Gumi in Osaka, established in 578 and still operating today as a company that constructs Buddhist buildings. Ikenobō-Kadōkai, a flower arrangement school in Kyoto, was established in 587. According to Teikoku Databank of Japan, there are 39 Japanese companies with over 500 years of history, most of which are ryokan (inns), or companies that make Buddhist alter fittings, soy sauce, rice wine, or confectionaries. In 2010, there were about 22,000 old shops in Japan. According to Toshio Goto, who studies Japanese family businesses with long histories, there were 3,113 Japanese shops with over 200 years of history in April 2008: Germany had 1,563 such shops, France 331, and England 315 (Nihon Keizai Shinbunsha 2010: 6).

Many of these old shops were following management philosophies or family precepts as early as the seventeenth century, during the Edo era. These precepts, created by the owners of the family shops, were initially cautions and admonishments about business practices directed primarily at the owner's family and his employees, rather than at outsiders such as customers or the general public. The Mitsui Group, one of Japan's three major zaibatsu, has had family precepts for over 300 years; these are believed to be among the world's oldest family business philosophies.

Interestingly, Japanese shops probably began using precepts as early as the Edo era because of the Tokugawa Shogunate's policy against extravagant lifestyles. The Tokugawa Shogunate brought peace in the early seventeenth century after centuries of civil war. In the peaceful environment of the Edo era, commerce and trade flourished rapidly. Some of the era's most successful merchants and traders operating in the commercial city of Osaka and the capital city of Edo, such as Yodoya and Kinokuniya, became very rich; some lent large funds to samurai lords experiencing serious financial difficulties. The merchants became increasingly prominent for their lavish lifestyles, surpassing all other classes of people, including the ruling samurai class. Yodoya and Kinokuniya both declined quickly and dramatically in the early eighteenth century, however, due to property forfeiture and the violation of the law of thrift in the former case and business failure in the latter case.

After such episodes, merchants became increasingly aware that self-control and sound business practices were key to the survival of their family shops. They found that writing down their family precepts, as many samurai families had done for selfdiscipline even before the Edo era, was becoming necessary.

Adachi (1974, Chap. 2) studied over 1,000 precepts of old family shops in Kyoto and found that many refer to such values as “succession of family name,” “worship of ancestors,” “filial piety,” “health,” “honesty,” “diligence,” “patience,” “being contented,” “knowing one's place,” “frugality,” “compliance,” “prudence,” “secret charity,” “trust,” and “business talent.” These terms espouse the values of morality and hard work in business, harmonious relationships among co-workers, dedication to parents and shop masters, and compliance with social rules and laws. It was believed that these expressions of wisdom and moral knowledge perpetuated the prosperity of the family and the shops.

A sociologist, Bellah (1957) paid close attention to bushidō established in the Edo era as a powerful set of values that spread throughout all classes of people, from samurai to merchants and even to farmers. Bellah claimed that, among the three sets of values constituting Edo society—political, economic, and cultural— political values were dominant. Political values mandated dedication to one's master or organization and were closely associated with bushidō, understood according to a peculiar interpretation of Confucianism, Buddhism, and Shintoism. Thus, Bellah considered bushido “the religion of Japan.”

Political values also required contempt for economic and aesthetic values, which were thought to be driven by personal desires and values. They were considered valuable only when they served something other than self-satisfaction. Therefore, the merchant class, which was thought to seek economic value exclusively, occupied the lowest position in the Edo era's caste system.

To counter this attitude, merchants sought to rationalize their behavior and raise their status. One of the most widely accepted of these rationalizations was sekimon shingaku, an ethical school developed by Ishida Baigan (1685–1744) and his successors. He claimed that profits made through ethically correct commercial means were just like the remuneration that the samurai received for their service to their lord and that profits were not shameful as long as they were ethically made. The sekimon shingaku thus became very popular not only among merchants but also among the general public, even after the Meiji Restoration.

What is most important in Bellah's analysis of the dominant Japanese values formed in the Edo era is its identification of a consistent inclination toward political values—and their dedication to the “lofty” or ambitious other than economic ones— even well into the twentieth century. In the Edo period, the lofty ideals for the samurai involved the lord and his family, or ie. For merchants, the ideals involved their master and the family shops, as well as ie. For farmers also, the ie of the family was more important than the individual. By working hard ethically, one could contribute to the perpetuity and development of the family, or ie, whether for samurai, merchants, or farmers. Mito (1991) claims that the concept of ie in the Edo era and even after the modernization of Japan should be understood to mean more than just blood relationship: more importantly, it refers to an economic community, than which even blood relationship was less important. This is why adoption and adoptive marriages were widely practiced in Japan.

After the Meiji era began in 1868, the new government pursued an industrial development policy to maintain Japan's independence amid the pressures exerted by the great Western powers. Modern industry flourished, and even some among the former samurai class became industrialists and traders. In the new era, engaging in commerce was no longer disgraceful for the samurai. However, economic development through modern industry was still not considered as valuable as retaining and developing the national polity.

Even after the birth of modern Japan, seeking money for its own sake was not valued as such; the ambition's worth depended on its contribution to the new nation. In the Edo era, the objects of dedication were the lord, ie, and the household or family. These were replaced by the nation, while the status of commerce or profit seeking remained basically unchanged.

Eiichi Shibusawa (1940–1931), known as the “father of Japanese capitalism,” established more than 500 companies in his lifetime, many of which are still operating. He represents the typical industrialist of his time. For him, developing industry by employing Western technology and techniques was done to benefit the nation, but not for himself. Believing that business ethics was very important to successful management, he drew ideas from Confucian thoughts. Later in life, Shibusawa wrote a book, The Analects of Confucius and Abacus (Shibusawa (2008)), expounding his belief that ethics and economics went together without contradiction.

Another industrialist active in the late nineteenth and early twentieth centuries is also noteworthy in this respect, although much less known. His name is Tsurukichi Hatano (1858–1918), the founder of Gunze corporation. Hatano, a local farmer's son born in rural northern Kyoto, started a silk manufacturing company in his home district in 1896 with no government assistance. He developed the company into one of the largest leading silk manufacturers in Japan by exporting quality silk to the West. Since silk was the main source of Japan's income from foreign currency, Gunze made an enormous contribution to pre-war Japan (Imori et al. 1976).

Hatano's initial intention was to develop the poor local region, which had no conventional industry other than agriculture. The name he gave his company is noteworthy; Gunze is still an unusual name. It literally means “county policy” or “how a county should be” (gun, or county, is part of a prefecture or state, and ze means “policy”). Gunze was established as a private company, with no connection to any political or administrative body. Its unique name represents Hatano's philosophy that, when each county develops, its prefecture or state also prospers and that, when all the prefectures develop, the whole nation flourishes. This idea was not original to Hatano, but came from a high-ranking government official whom Hatano happened to hear speaking long before he started his business. Hatano was a Christian and had studied Western science and mathematics. The name he gave his company implies that even a rational industrialist, like him, saw himself as a contributor to the nation, not just a manager of a private company.

Thus, random glance at the management philosophies of Japanese corporations operating from the Meiji era to the beginning of World War II shows that dedication to the nation was an integral part of their nature. Yoshino (1968: 61) argues the following:

In summary, the prevailing entrepreneurial ideology of the early Meiji years was a strange but tremendously effective fusion of the intense enlightened nationalism, Confucian morality, and an abiding partiality to Western Liberalism, rationalism, and technology. It drew heavily on traditional samurai ideology with its emphasis on morality and duty.

Along with the dominant management value—dedication to the nation—that obtained after the Meiji Restoration, paternalism, or familism, was another major pillar of Japanese management philosophy. Paternalism is the idea that the whole company is a family, in which employees are treated with clemency, as if they were family members. The emergence of paternalistic management was associated with the negative outcome of the rapid industrialization after the Meiji Restoration. Even during the Meiji era, workers' environments were far from satisfactory; they featured dirty workplaces, low wages, long working hours, and child labor, while owners, employers, and shareholders became rich. As working class dissatisfaction grew, Western communism and socialism made sense to many workers, causing social unrest in many areas of Japan. Japan's industrialists and government realized that this situation threatened a “weakening of the traditional authoritarian social structure that the early Meiji leaders had so painstakingly built” (see Yoshino 1968: 65–84).

The most effective solution to this problem was seen as paternalistic management. Corporate paternalism no doubt made sense to many uneducated workers because many came from poor peasant families in rural areas, where traditional paternalism was part of their culture. Despite the rise of paternalistic management, however, some socialists still advocated for radical improvements in working conditions.

After World War II, Japan had to start from scratch. Special procurements during the Korean War (1950–1953) helped Japan recover dramatically, which was followed by two decades of rapid growth. However, during this time, serious social and health problems caused by corporate behavior emerged, such as a wide variety of environmental pollution and food poisoning incidents as well as the 1955 arsenic milk powder case involving Morinaga Milk Industry Co. These serious problems made industrialists aware of the importance of corporate social responsibility. As I will show in the next section, from the late 1950s, industrialists themselves accepted the need to have a management philosophy, not only to lead the company to success but also to make themselves and all employees aware that the company had a responsibility to society as a whole.

Of great importance is the difference in the management philosophies of the post-war and pre-war periods: many post-war companies espoused the idea that the meaning of their existence was making a “contribution to the society” rather than making a “contribution to the nation,” the pre-war ideal. By “society,” they meant the general public or the growing body of consumers. Obviously, pre-war industrialists were conscious of the general public, but the nation was a more powerful concept than that of the general public. In the post-war period, “society” referred to the general public, and the concept of “the nation” was pushed aside.

Leading industrialist, Konosuke Matsushita (1894–1989), founder of Panasonic Corporation, is important in this context. Nakagawa, historian of corporate management, says that Konosuke Matsushita was one of the first pathfinders of modern management philosophy (1970: 28–29). He was already keenly aware of the importance of management philosophy in the pre-war period. Besides, I also believe it is important to note that he was probably the first person to claim (in 1932) that the mission of the industrialists was to save the poor and make the general public richer by employing them and providing low-cost, high-quality products (see Matsushita's autobiography 1986). This idea became widely known as the “tap water philosophy” because water is cheap and easily available to everybody in Japan. Konosuke Matsushita paid attention to the poor and the general public, but not via the inclusive notion of “the nation,” although the need to contribute to the nation had been part of his management philosophy since 1929 when he issued his first mission statement.

Another important management policy in post-era Japan, paternalism, understands the company as a family or community that is expected to enjoy a long life. Though also drawn from the pre-war Japan, this policy was expressed more systematically in the post-war era. As Abbeglen (1958) showed, the Japanese management style was characterized by three management pillars, seniority (length of service), lifetime employment, and in-house union. Although the management style has been subject to significant change (especially after 1990s) due to the nation's long-lasting recession, its basics are still widely observed in the twenty-first century; thus, a company in Japan is still regarded as a community, if not as much as a family.

Each company expresses its management philosophy uniquely, but they all shared the ideal of “contribution to society,” which appears as the dominant concept in modern mission statements. However, the “society” concept, a very general term, now tends to be subdivided into smaller categories, such as contributing to a “solution to global environmental problems,” “improvement of energy problems,” “disaster prevention,” or “bringing hope for handicapped people.”

One characteristic of Japanese philosophy that should not be overlooked is the need for a “contribution” or “dedication” to something other than economic ambition. In the Edo era, this was the ie (of a family shop); from the Meiji era to the war, it was the nation; in post-war era, it is society, comprising the unknown general public. Of course, all management philosophies contain admonitions and wisdom about making the business a success. However, seeking something beyond mere business has always been an integral part of management philosophy in Japan.

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