Eiichi Shibusawa: The Early Years
Shibusawa was born on March 16, 1840 on a farm of the Saitama prefecture near Tokyo. But he was not brought up by a family of peasants but rather by very wealthy farmers, who were also engaged in the business of processing and trading indigo products, needed to dye textiles, and silk raising.
Early education Shibusawa was given by his father, who taught him how to read and write. Shibusawa himself, on the other hand, was already at early age engaged in the family business. He was responsible for negotiating business terms with indigo growers and weavers. Later on he studied the Confucian classics and the history of Japan under Odaka Junchu, a scholar who was also his cousin.
Kanson Minpi: Revering Officials And Despising The People
Because of his business activities for his father, every now and than Shibusawa would come into contact with Tokugawa Officials (Samurais), whom he despised because of their arrogance and their attitude of “revering officials and despising the people” (jap: kanson minpi)
During Shibusawa's childhood and youth Japan was still a strictly hierarchical and regulated society in which civil society had to show obeisance to their social superiors.
“For officials and the people to become of one accord to enrich the nation, the custom of revering officials and despising the people must be destroyed. This must be done to bring about a new era.” (Eichi Shibusawa)Throughout Shibusawa's life he bemoaned that the "kanson minpi" attitude of Tokugawa officials conferred unearned status to them, promoted government abuse of power and was the main culprit of stifled private initiative. To him it was a serious hindrance to the development of Japan’s national wealth and power and had to be overcome.
When Commodore Matthew Perry forced an unpopular treaty on the Tokugawa shogun's government to open its ports for foreign trade, self-proclaimed “men of high purpose” (shishi) started to attack foreign settlements and Japanese government officials responsible for allowing foreigners to reside in Japan. Shibusawa left home at age 23 with the intention to joining a plot to attack foreigners in the treaty port at Yokohama. But soon he changed his mind and moved to Kyoto, by than a centre of revolutionary discontent.
Shibusawa's Years With The Tokugawa Hitotsubashi Family
His ambition and his thorough business knowledge must have impressed the right people. Because shortly after his arrival in Kyoto he started to work for Tokugawa Hitotsubashi Yoshinobu, who was in line for the position of shogun.
At the beginning Shibusawa dedicated his time strengthening the household finances of the Hitotsubashi family, a job he accomplished fabulously well. So well that Shibuswawa himself would become a member of the central government when Yoshinobu assumed the office of the shogun.
It is quite of an irony that Shibusawa's career started as an Tokugawa official, a position he despised so much in his youth. But at least it was his ability, and not an unearned status, what would make him a member of the staff of Tokugawa Yoshinobu, who also granted him samurai status later on.
In 1867 Shibusawa accompanied the shogun's younger brother, Tokugawa Akitake, to the Paris Exposition. He stayed in Europe for nearly a year in order to study modern economics. He was impressed by the high status that merchants and industrial leaders enjoyed in European societies, because it stood in sharp contrast to the disdain that Tokugawa officials had for merchants and business people.
"It occurred to me that the Tokugawa system of government was not good. In my view, it was only right that a person have full possession of his property and be judged on the basis of his intelligence and ability in dealing with his fellowmen" (Eichi Shibusawa)His conviction of earlier years once again became vindicated and he became even more convinced that Japan had to change its attitude toward commerce if the country want to become wealthy and strong.
Shibusawa And The Meji Restauration
The new era was closer than Shibusawa had imagined. On his return home to Japan in 1868, he discovered that the shogunate had been overthrown. It was replaced by an imperial government under the emperor Meiji (Meji Restoration). Shibusawa immediately joined the newly established Ministry of Finance and helped reform the land tax and banking systems.
But already in 1873, he left government for good in a factional dispute, in order to take a position that suited him much better. Instead of being a government official he would become the first president of the First national Bank, (Dai Ichi Kokuritsu Ginkō now Mizuho), which he helped to establish when he worked for the Ministry of Finance.
Assuming Presidency of The Daiichi Bank: An Entrepreneur In The Making
The Dai Ichi Bank was the first Japanese bank based on joint stock ownership (Gapponshūgi capitalism), with the power to issue its own bank notes. It was Shibusawa's position at the First National Bank through which he would found hundreds of joint stock corporations in Japan. That very same year Shibusawa became president he founded the Ōji Paper Manufacturing Company.
In the following years Shibusawa went on a founding spree. He would incorporate banks, insurance companies, railroads, textile mills, shipping companies, fisheries, printing companies, steel plants, gas and electric industries, oil and mining concerns, and numerous other enterprises. Especially for companies with a strong public- utility character, that required vast amounts of capital, Shibusawa would use the joint- stock company structure. The great majority of these companies are still in existence today and quoted companies on the Tokyo Stock Exchange, which by the way was also founded by Shibusawa.
But he was not only considering the joint- stock company structure as an appropriate legal form for his investments. For high-risk high-return ventures he would set up limited partnerships. Small individual businesses would be established as an ordinary partnership. By combining these with anonymous partnerships, he was able to limit the risks borne by individual investors. Thus, Shibusawa was very flexible concerning the legal form of its ventures and made it dependent on the scale and goals of the specific enterprise.
Maybe his biggest coups was the foundation of the, by the time famous, Ōsaka Spinning Company 10 years after assuming presidency of the First National Bank. An enterprise larger and more efficient than any other of its kind during that time. It is said that it was the Osaka and Spinning plant that finally established Shibusawa’s dominance over Japanese industrial life. Latest by than it became clear to everyone in Japan that Shibusawa basically was a dominant player in almost every enterprise associated with the country’s industrial development during that period.
Gapponshūgi Capitalism Vs. Zaibatsus
Shibusawa was a firm believer in Gapponshūgi capitalism. Its main characteristic was the open joint ownership among multiple shareholders and the democratic election of a competent board of directors. Shibusawa believed that a properly elected board of directors, like representatives in a republican form of government, would be more likely than an autocratic company president to make rational business decisions compatible with both public and private interests.
The gapponshūgi capitalism was a marked contrast to both the Tokugawa-era merchant house, and the huge Zaibatsu family-owned industrial conglomerates (Mitsui, Mitsubishi and Sumitomo) that became major forces in the Japanese economy during the Meiji period. The Zaibatsu conglomerates represented a closed and opaque system of ownership and governance. The founding families retained the ownership of shares of the company, rather than offering them to the public. The management of the Zaibatsu was mainly entrusted to graduate staff under clearly designated leadership. They were enterprises only managed to maximize the fortunes and survival of individual families.
Shibusawa, on the other hand, created entirely different companies. In contrast of a Zaibatsu Network, which was often woven around a main bank, Non-Zaibatsu firms, like those founded by Shibusawa, had to find their own sources of finance and managerial talent. Shibusawa's companies therefore mainly obtained their funding from wealthy members of the nobility and from merchants and landlords. Just like today, such kind of investors tended to be interested in shorter -term profits. Therefore, Shibusawa needed to fill the top management posts with investor oriented managers that would try to persuade the minority shareholders of the importance of securing stable profits on the longer- term.
Shibusawa himself often held a substantial amount of equity in the founded companies. It is said that the vast majority of Shibusawa's own income came from dividends and only a small fraction was derived from fees for the directorships that he held in various companies he founded. In order to raise funds for new investment Shibusawa had repeatedly to sell shares of companies he founded. Thereby he cleverly combined dealings on the stock exchange with dealings on the outside spot market, and even with companies of which he was a director. Thus, he would invest substantial amount himself in the enterprises he founded and then actively sell off shares when the conditions were somewhat advantageous.
The last aspect is vital in order to understand Shibusawa's motivation. Despite being the founder of hundreds of corporations, he refused to maintain a controlling stake in any of these corporations. Effectively preventing himself from forming a Zaibatsu. This makes clear that, rather than strengthening his control over the companies that he had established, he gave priority to raising capital in order to establish new companies What would later become known as the Shibusawa Zaibatsu, was unfortunately a misnomer. It was rather a holding company that looked after his and his family estate.
Shibusawa's Role In Founded Companies
As a financier, Shibusawa was in the business of capital allocation. Assessing the risk of a venture and guaranteeing a decent rate of return for investors. Capital scarcity was acute during Japan's Meji era and the business education and skills of many would-be business owners was limited at best. This combination created a particular need for Shibusawa's financial knowledge.
In the literature it is argued that prominent directors like Shibusawa were important in helping new companies accumulate capital. These directors monitored performance and certified credibility to potential outside shareholders. In most cases Shibusawa invested a substantial amount of family money. This encouraged other investors to follow suit. Fraud was a real risk for investors during that time. The involvement of famous directors like Shibusawa, with an own stake in the enterprise, was valuable in overcoming potential investor's fear of fraud.
Even where Shibusawa was not a director the personal involvement with companies after the establishment of corporations was deep and various. He played a vital role in important decisions concerning the overall long-term strategic concept. Especially when one of the companies founded by Shibusawa faced over- extension, or management mistakes, it was him who often undertook bold restructuring measures, including the consolidation within such a company, or the merger of two or more companies.
Especially before and after shareholders' meetings Shibusawa was kept busy. He had to attend a variety of meeting, both within the company and outside, trying to settle disputes which often arose because opposing interests between outside shareholders and management.
After mergers Shibusawa was often acting as an arbitrator or intermediary. Since mergers caused profound changes in the composition of shareholdings disputes about appointments of management were inevitable. Often the selection of a new management team would be left entirely into Shibusawa's hands, as he was regarded as an outstanding judge that took into account both the interests of shareholders and the need for stable management. If conflict arose within the management team of a company, again it was Shibusawa who would be given the task of selecting the manager who would sort matters out.
Shibusawa: Business and Moral
To counter the common view that private enterprise was selfish, Shibusawa argued that it is the “unity of morality and economy” that creates a positive image of the modern Japanese business leader.
The importance of morality in the sphere of business was a recurring theme that he drew from Confucius. Shibusawa constantly encouraged his audience to consider the greater good when conducting their business.
"The noble person knows about integrity. The petty person only knows about profit." (Confucius)Shibusawa interpreted the quote by Confucius to mean that the person of noble character considers the benefit of all. The petty people, on the other hand, think only of themselves.
Repeatedly, he would give the example of his own experience as head of the Dai Ichi Bank. He was a firm believer of the importance of railroads for the nation's future and the Dai Ichi Bank facilitated the sale of railway bonds. When the railways were nationalized speculation in these bonds was rampant. Not few people made a fortune speculating on price fluctuations in a short time span. But Shibusawa did not participate in the speculative frenzy, because he believed the short run profit came at the expense of long-term trust and reputation.
Over and over again Shibusawa argued that moral principles had indeed guided his own business activities at all times. When establishing enterprises, he said he did not really consider profit. Rather the reasoning to himself was: "This enterprise is essential", or "This enterprise must succeed." He goes on to note: "When thinking of enterprises, I never considered whether it would profit me personally, but rather thought of whether it advanced everyone's interests."
Shibusawa During Times of Japan's Military Expansion
Although Shibusawa was moralistic about business ethics he was less so when it cam to the military expansion during the Meji Era. Shibusawa Eiichi personally, and the Dai Ichi Bank, supported the Japanese economic and military expansion in East Asia in an active manner and profited handsomely from it. In 1878 the Dai Ichi bank was the first Japanese bank to open an overseas branch in Pusan. Later on it would become the acting central bank in Korea and the sole issuer of the Korean currency until it was replaced by the colonial Bank of Korea.
From these actions it becomes clear that Shibusawa Eiichi did not necessarily oppose Japanese economic expansion in Asia, nor Japan's wars of territorial acquisition on moral grounds. Rather did he support the Japanese foreign policy as a business leader. He believed that it would open new markets to Japanese goods and minimize foreign threats. Nevertheless, was he worried that the Japanese state was overextending and expanding too aggressively. He feared that the civilian economy would be suffering neglect and entrepreneurship would be severely dampened..
For example was Shibusawa an outspoken critic of the government move to nationalize Japan's railroads. "Civilian firms", he said, "should be left to civilian managers who must continually improve their products and services to remain competitive. Government operation of the railroads, would serve military rather than civiliantransportation needs." He went on to note that: “We certainly need an economically oriented nationalization rather than a military oriented nationalization.”
Shibusawa: Non Profit Activities
Shibusawas activities were not confined to companies and investments. He was also engaged in establishing organizations including the Japan Red Cross, hospitals, schools and universities (including the first women's university).
Shibusawa also was engaged in the founding of the Tokyo Chamber of Commerce in 1878. The intention was to elevate the status of commercial activity within Japan and to promote trust among business leaders and investors. The Tokyo Chamber of Commerce was pivotal for Shibusawa to promote business activity and his vision of a commercial Japan, both at home and abroad.
Especially the promotion of commercial education was a matter of personal importance for Shibusawa. In 1875 the School for Business Training was established. In 1889, the school became a government school under the Ministry of Education. At a dinner organized by alumni in his honor, Shibusawa remarked that: " If we look into the matter of commercial education we find that it has not come up to par with other branches of education. As I am a man of no systematic education, I cannot enter into a scholastic discussion of the question. But I have repeatedly spoken in the past in regard to the necessity of elevating our school of commerce to the rank of a University (...)"
The government did just that and in 1920 the school became the Tokyo College of Commerce, which would be later known as the Hitotsubashi University. By supporting the Tokyo Commercial School and other institutions, like the Tokyo Chamber of Commerce, Shibusawa was actively engaged in providing needed technical training and in elevating the educational level and status of business managers
“Learning is not for oneself. Cultivate character and then act. Real learning, or jitsugaku, is applied learning." (Eichi Shibusawa)From 1923 to 1925, Shibusawa gave a series of lectures on the Analects of Confucius. Those lectures would become another key source in understanding his views on morality and economy.
After Shibusawa's retirement from Dai Ichi Bank and most of the other formal positions as a director in 1916, Shibusawa became more and more involved with the Ryūmonsha study group. It was a study group which Shibusawa's followers had formed in 1885 to discuss the adaptation of Western business practices to the Japanese economy.
Shibusawa was an outstanding character and businessman. He dedicated his life to raise the status of business in Japan and demonstrate how people might pool their resources and use the joint-stock system of corporate ownership as an engine of progress for the country as a whole.
It is high time that the Japanese elite recognizes that vibrant market economies do not simply arise out of laws and policies. They need to realize that the true heroes in a market economy are entrepreneurs of strong character, like Eichi Shibusawa. He was a representative of the innovative entrepreneur who possessed "animal spirit".
Unfortunately, "animal spirit" is a trade that is very much missing in Japan's business community as of today. What Japan needs right now are more Shibusawas. It needs to produce such heroes continuously for the country to prosper. Therefore, the Japnese elite should focus on equipping the Japanese society with mechanisms and an environment that encourages and support the entreprepreneurial spirit.
John Sagers; Shibusawa Eiichi's Ideological Entrepreneurship; Linfield College
John Sagers; Shibusawa Eiichi, Dai Ichi Bank, and the Spirit of Japanese Capitalism, 1860-1930; The Journal of Japanese Business and Company History; Vol (3), No.1 (2014)
Masakazu SHIMADA; The Entrepreneurial Activities of Eiichi Shibusawa the Creation of a Joint Stock Company System - in the Prewar Period and the Role of the Investor-Executive-; Japanese Research in Business History 2008
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