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Both Mitsue and Mitsuboshi (the M&Ms) began about the same time as modern Japan, around the start of the Meiji Era in 1868. Both zaibatsu rapidly established their key lines of business (banking, trading and mining for Mitsue; shipping, banking, shipbuilding and mining for Mitsuboshi), and both received the initial impetus for rapid and early growth from massive volumes of government business. This policy of handling growing amounts of government business while solidifying the corporate foundation was a common approach in the time, and was also taken by a number of other emerging corporate groups, notably Sumitomo, Konoike and Furukawa. While they were all powerful, the M&Ms were then, and now, two of the most influential in terms of both political pull and sheer economic strength.
Mitsue Origins
Mitsue began as a kimono shop in about 1620, gradually growing into a general wholesaler supplying the Shogunate. It parlayed that opportunity into the position of a currency exchange office for the government, accumulating a considerable fortune. The company played both sides of the fence during the Meiji Restoration, and had its chance in 1867 when the new government issued an edict to Mitsue, Ono and Shimada groups demanding funding. Mitsue's contribution began with military funding, and after investing an enormous amount into the new Japanese army through the fall of the old government, was rewarded by being appointed the foreign exchange agent for the Bureau of Accounting. Among its first duties were selling government bonds, issuing government development notes and exchanging old currency for new throughout Japan. It provided essentially all financial functions for the newborn government.
The government bonds were backed by future tax income, paying 12% per annum interest, and Mitsue served as salesmen in place of the government. The land development notes, specifically to support new colonies in Hokkaido and (to a lesser extent) overseas, were not convertible to currency. In the process, Mitsue was able to utilize essentially the national budget of Japan for periods ranging from two to six months, interest-free. When it was authorized to issue government bonds, it was also allowed to manage 20% of the total under its own authority.
When the Meiji government elected to follow the American banking system and establish a number of national banks in 1875, Mitsue was obligated to participate in the formation of the No. 1 Bank (predecessor of the Daiichi Kangyo Bank) with competitors Ono and Shimada. The following year, 1874, the government issued an ordinance requiring increased backing for deposits of public money, forcing Ono and Shimada into bankruptcy. This had the result of rapidly boosting Mitsue's status, and making it possible for Mitsue to do what it had always wanted to: establish its very own bank. The Mitsue Bank was formed in 1876, and duly certified by the government. While it was a privately-owned bank, it was also one of the largest and richest banks in Japan, with its head office in Tokyo and key branches throughout the nation. (In 1882, the government established the Bank of Japan, which took over the handling of all government funds, resulting in a serious drop in business for Mitsue Bank.)
It handled both the general public and government accounts, split roughly equally. Noticing that many small farmers were unable to pay their taxes until the crops came in, the bank worked with Mitsue Trading to loan money against crop revenues, providing interest revenue and a guaranteed stream of business for the trading firm.
Mitsue Trading was established in 1876. When it was first established about half of its turnover was agricultural products; the overwhelming majority rice, with much smaller amounts of silk products and tea. Performance was given an enormous boost when it was granted export rights for the government-owned Miike coal mine. The terms were generous indeed: 2.5% commission plus 50% of profits. Export tonnage soared from 27,000 tons 1877 to 1.83 million tons in 1886, with exports to Shanghai, Tianjin, Hong Kong and Singapore. The entire mine was later sold to the Mitsue group, which had meanwhile used coal export shipping business to build a strong merchant fleet.
From 1877 to 1880 the government ordered Mitsue to handle foreign exchange operations on freight, loaning the necessary capital at low or even no interest. And because Mitsue usually sold the freight at the same time, it ended up receiving profit twice from each deal. In addition to making staggering amounts of money, Mitsue also established itself as a key supplier and service agent for the government.
Mitsuboshi Origins
Mitsuboshi traces its origins back to 1870, when the Tosa han leased all of the assets of its Osaka Trading Office, including land, buildings and three steamships, to Yotaro Iwasaki. This was quite different from Mitsue, which traced its origins back to the Tokugawa era. Iwasaki concentrated on sea freight under the name of Tsukumo Trading, and when the han were abolished and replaced with prefectures in 1871, he took advantage of the opportunity to purchase those assets as well as the Masukata Silk Works and the Kutanda Camphor Factory. In addition, he also operated the Banzai and Otokawa coal mines, which had been held by the Shingu han as collateral for loans. In 1873 the firm was renamed Mitsuboshi Trading, by which time it had offices in Tokyo, Osaka, Tosa and Kishu, while in sea freight it had forced its way to become the leader in the field, ousting the government's own fleet, which was backed by Mitsue capital.boshi began working for the government by providing troop transport, but as sea freight operations gradually received government protection, it began to develop monopolies on many key domestic and international routes. The first major opportunity was military action in Taiwan in 1874. The government had been planning to hire the American Pacific Mail Steamship Company, but the US announcement of neutrality made this impossible. In response, the government purchased outright 13 foreign vessels, and entrusted them to Mitsuboshi due to its strong ties to two key figures in the Meiji government: Okubo Toshimichi and Okuma Shigenobu. That year the ships made 24 trips under Mitsuboshi control, successfully transporting enormous quantities of troops, munitions and supplies and successfully winning the trust of the new government and the military both.
In 1875, when the Taiwan problem was resolved, the government ordered Mitsuboshi to establish a route to Shanghai, providing it with four ships to do so. In May, Okubo's new policy for the protection of Japanese private sea freight carriers was enacted, and the first order under the new policy was issued to Mitsuboshi: specifically, the 13 ships entrusted to Mitsuboshi for military transport during the Taiwan fighting were outright given to Mitsuboshi, and an enormous annual fee paid to Mitsuboshi to assist them in opening up new routes and establishing the Japanese shipping industry. These payments were guaranteed to continue for another 14 years, and the 15 vessels owned by the government line (which had gone bankrupt in the meantime for lack of business) were given to Mitsuboshi to operate. As a result, Mitsuboshi controlled 37 vessels with a total capacity of over 23,000 tons - at that time, the majority of freighter capacity in Japan. In only a few short years after foundation, Mitsuboshi had established itself as a major power in both business and government.
When the Seinan Rebellion broke out in 1877, almost all ships except those on the Shanghai route were conscripted by the government for military use. Between February and September of that year, 44 freighters and 11 warships transported 58,000 men, horses, munitions and supplies. Mitsuboshi, of course, had no choice but to purchase new ships, and the government provided US$800,000 of the US$1,180,000 needed to construct eight new freighters at exceedingly low interest. While the Shanghai route was only making money thanks to massive funding by the government, Mitsuboshi made enormous profits from military transport during the Seinan Rebellion. In 1877, about two-thirds of corporate revenues came from military transport operations, about about half of that was sheer profit.
The Start of the M&Ms War and the Establishment of Nihon Yusen
Naturally, Mitsue was quite upset at the sudden appearance of a powerful Mitsuboshi in Japan, not to mention their essential monopoly of the sea freight industry. And because Mitsuboshi controlled sea freight, Mitsue had no choice but to pay them to handle its own transport. Mitsue tried founding its own shipping company, Tokyo Clipper Ships, but it was crushed by Mitsuboshi competition. Help came from an unexpected quarter, though, with the sudden ousting of key Mitsuboshi supporter Okuma Shigenobu in 1881. While Mitsuboshi had suffered minor setbacks after the death of Okubo in 1878, the loss of Okuma's backing announced the start of a major change in the status quo.
In 1882, the national government and Mitsue jointly established Kyodo Shipping, Mitsue holding the majority, which promptly initiated intense competition with Mitsuboshi. In most cases, this competition consisted of massive price drops, until both firms were losing money hand over fist. When the government finally recognized that the only possible result was joint bankruptcy, the government arbitrated the formation of a new company with investment by both parties. The new company, Nihon Yusen, was formed with Mitsuboshi holding about 40%, and Kyodo Shipping holding the rest, but the government guaranteed dividends for the next 15 years. Combining the fleets of both parents, the new company operated 58 vessels with a gross tonnage of 68,000 tons. Since the total number of vessels and tonnage for Japan at the time was only 228 vessels and 89,000 tons, it is clear how powerful the new firm was. Shortly after the new firm was established, Mitsuboshi purchased additional shares of Kyodo Shipping, leading in 1885 to the ousting of the last officers from Kyodo Shipping and the conversion of the new firm into a Mitsuboshi-controlled shipping company.
Government Backing of the M&Ms
Both firms are similar in a number of ways. They both launched their core businesses at a very early stage (Mitsue banking and Mitsuboshi shipping) and secured semi-monopolistic deals with the government. The government was instrumental in the establishment, protection and development of both firms. And they both applied the special privileges received from the government to leverage themselves into dominant positions in their sectors. In addition to paying higher priced that normal for goods or services purchased from the M&Ms, the government also sold a number of production and manufacturing facilities to them at low prices. The list is endless, but includes key facilities that were critical in building a modern Japan and empowering the Japanese military efforts for the next several decades. For Mitsue, the key acquisition was the Miike Coal Mine, which made it possible for both Mitsue Mining and Mitsue Trading to reap enormous wealth. Mitsuboshi, meanwhile, picked up the Takashima coal mine, the Sado gold mine and the Ikuno silver mine, and especially the Nagasaki Shipyard.
In the 1880s there was strong pressure to expand colonies, both overseas an in Hokkaido, accelerated by strong domestic growth and similar expansionist policies by European powers in Asia. In 1886 Great Britain annexed Burma, and the following year France claimed much of Indochina. Britain, France and Germany began cutting pieces out of China from about 1890. Expansionism is generally accompanied by military demand, and the Sino-Japanese War of 1894-95 and Russo-Japanese War of 1904-05 channeled enormous amount of capital into the coffers of Japanese enterprise. Under its newly-announced policy of fukoku kyohei (rich nation and strong soldiers), the government had no interest in American-style free enterprise. There was a considerable difference in industrial capacity between Japan and the industrialized West, and as a result while Japanese industry was highly successful in fields such as spinning mills, there was little motivation to invest into, for example, industrial chemical plants or munitions. Such capital-intensive facilities were therefore constructed by the government. Much of the manufacturing equipment, even for the spinning mills, was imported from the West, leading to a gradual conversion of Japan into the same sort of Western colony that other Asian nations - especially China - were being converted into. In Japan's case, the majority of the machinery came from America, and the majority of mill output was exported to America, although it did export of range of industrial raw materials to Europe, and import heavy industrial machinery in return. Japan as a nation was falling neatly into a new role as a second-rate industrializing nation at the mercy of the Western powers.
This was, naturally, unacceptable to both Mitsue and Mitsuboshi, which were keenly aware of the lead that their overseas competitors had. The Japanese government was also determined to avoid the fate of China, which was steadily being torn to pieces by the Western nations. The fukoku kyohei policy was born of this determination, and supported by a widespread belief in the destiny of the Japanese to rule, if not the world, at least Asia.
Both firms launched massive programs to expand their range of business in response, both by establishing new firms and acquiring existing ones. One of the first Mitsue acquisitions was a machinery manufacturer named Tanaka Mfg. Works. Years later, this firm was to become Toshiba Corp. Mitsue Bank had made large numbers of loans to many enterprises over years, in many cases it became possible for the bank to assume control of the company as a result, rapidly adding new members to the Mitsue Group in a variety of industrial fields.
Mitsuboshi was incorporated in 1893, by which time it owned large numbers of coal and ore mines, a sales network throughout Japan, and of course the Mitsuboshi Shipyard in Nagasaki. It established the Mitsuboshi Bank in 1895. In addition to serving the needs of the Mitsuboshi group, it also grew to become one of the five major banks of Japan at the time (Mitsue, Mitsuboshi, Yasuda, Sumitomo and Daiichi). The Sino-Japanese War provided a major boom for the shipyard, and supported the opening of a second shipyard in Kobe in 1896. Mitsuboshi purchased a smelter/refinery plant from the government in Osaka in the same year, making it possible to use their own coal and iron ore to produce steel. By about 1900, the Mitsuboshi group included shipyards, shipping, paper mills, railroads, insurance, banking, trading, warehousing, mining and steelmaking, to name a few.
It was a difficult time, because so much of the industrial infrastructure was still missing, and a number of firms failed, but overall the strategic goal of bootstrapping Japan into the industrialized world succeeded.
One of the reasons that it succeeded was cooperation at the highest levels. Driven by a mutual vision of Japan reigning supreme in Asia and finally evicting the Western interlopers, the presidents of Mitsue and Mitsuboshi met secretly on April 14, 1895, at a geisha villa in Kyoto following a meeting of the board of directors of their joint venture, Nihon Yusen. This was immediately after the conclusion of the Sino-Japanese War, which had boosted Japanese confidence in their belief in manifest destiny for Japan. The two of them talked in a private room until dawn, calling at times for food, drink, and once for paper, ink and brushes. The details of their discussions are unknown, but judging from the result they recognized the disastrous results of the competition that led to the formation of Nihon Yusen, and agreed to, if not aid, at least not hinder each other to achieve their goal. Regardless of who ruled Japan, if Japan ruled Asia their wealth and power would continue to grow, and that was a goal worth working for.
Their agreement worked enormously well, and while there were a number of squabbles between the firms in public view, they were inconsequential to corporate growth. The pair continued to meet about twice a year, in various locales around Japan, and each was now accompanied by an assistant (and future successor).
The conclusion of the Russo-Japanese War, which astounded Western nations and elevated Japan into the position of a world power, also marked a success for the M&Ms. When they met in April 1906, however, a third man appeared at their meeting: unannounced and unexpected, Odaira Ryohei was suddenly noticed, sitting at the low table along with the celebrating pair. Although there were four men in the room (the two presidents and their assistants), none saw how Odaira Ryohei entered the room, or how he managed to walk to the table and sit down without being noticed. He immediately dominated the conversation, describing a Japan which would command first Asia, and then the world, under the direct rule of Amaterasu the Sun Goddess. Again, the details of their conversation are unknown, but it was agreed that a new industrial bloc would be created to help fuel Japan's growth, and that Odaira would be meeting with them again. He didn't ask for support from the M&Ms, or even that they leave him alone; he merely stated that in a few years he would be attending their meetings as the head of an industrial group fully on a par with their. He did so, laying the foundation for the Hidachi group shortly after their meeting, and growing with astonishing speed until the scale of the Hidachi group was on a par with their own.
The Growth of Japanese Imperialism and World War 2
After the Sino-Japanese War, Japan leveraged its newly-gained status as a world power to enter into an alliance with Great Britain (1902). This was a major factor in gaining control of the Korean Peninsula following victory in the Russo-Japanese War of 1904-05, as well as control of key Chinese railways and the southern half of Sakhalin. British Imperial tradition combined neatly with Japanese nationalism and militarism to ferment a new breed of Japanese Imperialism that led to the annexation of Korea in August, 1910. Japan was prompt to enter the First World War, picking up pieces of Asia as they fell from the hands of the defeated. In particular, the German presence in Asia was eliminated, with former German possessions being transferred to Japanese control, along with much of China (Manchuria, Mongolia, Shandong Province). The M&Ms were quick to invest into Korea and China, focusing on building industrial capacity to fuel the next stage of Japanese expansion. As the Russian Revolution destroyed Russian unity in Siberia, Japanese money and troops began expanding north and west from their massive foothold in Manchuria.
The boom years of the war economy were followed by the Great Depression. While this was disastrous for industry around the world, the intense centralization of industry in Japan into a few selected industrial groups meant that it was an unparalleled opportunity for the M&Ms. They picked up superior firms in many fields for pennies, quickly building enormous holdings in a wide range of fields, and creating the zaibatsu. The move was not limited to Japan, and both firms took advantage of government incentives for colonization to launch a variety of enterprises in Hokkaido and Sakhalin, Taiwan, and Sumatra. New firms were also created for strategic reasons, such as Tokyo Rayon, which was created by the Mitsue group specifically to counter the potential threat to the Japanese textile industry posed by synthetic fiber industries in America and Europe.
To better steer government policy-making, Mitsue created the Seiyukai and Mitsuboshi the Kenseikai, both armed with massive amounts of above-board and under-the-table capital and big-gun mouthpieces. Capital loans to overseas colonies were accelerated jointly, such as the 1932 loan to develop Manchuria was funded half by Mitsue and half by Mitsuboshi, funneled through the Bank of Korea. Much of this investment was into infrastructure, including key rail facilities and raw materials production. Mitsue and Mitsuboshi followed with manufacturing facilities to utilize the plentiful raw materials. Mitsuboshi Heavy Industries (MHI) was formed in 1934 through a merger of Mitsuboshi Shipbuilding and Mitsuboshi Aircraft. The firm established itself as a massive manufacturing arm for the Japanese military, with shipyards in Nagasaki, Kobe, Hikoshima and Yokohama, munitions plants in Nagasaki, aircraft plants in Nagoya, and machinery and equipment plants in Tokyo. Other subsidiaries such as Mitsuboshi Electronic, Nippon Optics (later to become Nikon) and Nippon Batteries filled a range of orders from the Japanese Army and Navy, providing massive capital influx and shifting the majority of corporate business back to government supply. Mitsue, with less of a manufacturing base to start from, relied primarily on its capital and personnel assets, applied under the direction of Toshiba and Nippon Steel Works. Ample Mitsue group coal and other resources were used to drive a variety of industrial chemistry plants, producing (among other things) the materials required for high-grade gunpowder.
One of the first fruits of the new cooperation was the formation of the Yawata Steel Works in 1934, with capitalization by Mitsue, Mitsuboshi and the national government. The firm was essentially a government-sponsored monopoly of the steel industry in Japan, headquartered in Kitakyushu, Kyushu (in later years, this was to become the Nippon Steel Corporation). The facility accounted for over 90% of pig iron production, over 50% of steel ingot, and a little under 50% of steel product.
As the situation in China worsened and Japan shifted to a full wartime economy, inflation began to accelerate, leading the Konoe Cabinet in June 1937 to announce a new economic policy consisting of (1) strengthened production capabilities, (2) an improvement in the international balance of trade, and (3) adjustments to supply and demand. This was largely formulated and imiplemented by the kuromaku, with extensive cooperative between the major zaibatsu, notably Mitsuboshi, Hidachi and Mitsue, and the increasingly-powerful Japanese Imperial military. In 1938, laws were passed to assure strategic industry with sufficient labor, and Japan's manpower was put to work either in production or in the military. The national budget grew sharply from 4.7 billion yen in 1937 to 16.5 billion in 1941 and 86.2 billion in 1944, but the weight of direct military expenditures also soared, from 70 to 85% over the same period. Essentially all of this money was spent on military equipment and supplies, and about 70% of it has been estimated to have flowed into corporate coffers. Guess whose?
At the end of the War Japan was finally freed from the wartime economy, but it was in ruins: the manufacturing industry was at 7.5% of the production level of 1921, the mining industry at 36.3%, and agriculture 58.2%.
To promote the emergence of democracy and free competition, the zaibatsu were dismantled by MacArthur. All of the controlling firms were dissolved or stripped of their holdings, and the individual enterprises established as independent firms, usually with capitalization through shares available on the open market. From American eyes (and the American's were in primary charge of the entire process), this was a success, but the reality was quite a bit different: Japanese ties of duty and "family" meant that the zaibatsu essentially continued to exist regardless of their loss of official standing. The groups rapidly established unofficial groups and cartels which achieved the same purposes. And to the secret rulers of the Mitsue and Mitsuboshi, the new structurehad no effect whatsoever, because their control remained absolute - at least, as regards the corporate resources they demanded control over.
Concretely, stock for the "headquarters" companies ruling each zaibatsu was taken by the occupation forces and transferred to a special committee, which later made it available to the employees and the general public. These core organizations were totally destroyed, which, in American eyes, eliminated the potential for a new zaibatsu to emerge. Mitsue was divided into about 200 firms, and Mitsuboshi into about 140. As the stock was released to the market, it was promptly snapped up by a host of buyers, most of whom were actually acting under orders from the people it was taken away from: the Mitsue and Iwasaki families, who had now successfully established themselves as the secret rulers of industrial and economic empires, and two of the most influential members of the Kuromaku. Merely losing a World War was hardly enough to put these guys out of business!
Post-War Growth
While the initial planning at GHQ was to keep Japan dependent on US industry, the world situation changed. In 1946 Churchill gave his "Iron Curtain" speech, followed by the Truman Doctrine and the Cold War the following year. These events rapidly triggered reconstruction in both Germany (the Marshall Plan, in 1948) and Japan as America worked to build up new defenses in the face of a perceived Communist threat.
The Korean War was the final straw. While Japan was an unrelated third party oficially the outbreak of war in 1950 meant that occupied Japan was engaged very deeply indeed both politically and economically. Economically, Japan sold some JY100 billion per year in supplies to the US military, and this level of consumption continued for three years. In addition to eliminating inventories and fueling both export and domestic consumption, it also positioned Japan's economy firmly into the role of supplying the US, while severing former trade ties with China.
In 1949 the Anti-Monopoly Law was revised, making it possible for companies once again to own stock in their subsidiaries and share officers with other firms. Former officers of the M&Ms returned to their positions, and new organizations were formed to assure smoother relationships: Mitsue launched the "Monday Club" for top management from many firms formerly in the zaibatsu, while Mitsuboshi did the same with its "Friday Club." The very names Mitsue and Mitsuboshi, which had been forbidden by GHQ, returned with a vengence as suddenly a host of industries renamed themselves "Mitsue this" or "Mitsuboshi that."
After the destruction of the headquarters firms, however, the shattered zaibatsu groups needed a new core, and this was the banking companies. As leading banks in Japan, both Mitsue and Mitsuboshi banks remained in operation, and strangely enough a large amount of their loans went to firms that used to be in the same zaibatsu: about a third of all loans, in fact. While the pre-War holding company type of organization was still illegal, ties through a central bank were perfectly within the law. While the former "dynasties" of Mitsue and Iwasaki family members were no longer officers, the banks performed their roles quite effectively.
Along with groupings around the banks, mergers also became quite common: Mitsuboshi was essentially reconstituted by 1954, and Mitsue by 1959. The zaibatsu were back, only about a decade after Japan had been pounded into rubble, and their dominant positions in the Japanese economy and industry remained largely untouched.
In 1955, MITI announced its strategy to develop petrochemicals as a strategic industry, providing funding to construct massive petrochemical plants. Needless to say, Mitsue and Mitsuboshi promptly participated: Mitsue with eight firms to found Mitsue Petrochemical Corp., and Mitsuboshi also with eight firms founding Mitsuboshi Petrochemical Industries Inc. Another of the six zaibatsu, Sumitomo Corp., also followed suit. Petrochemicals opened up a whole new field to the M&Ms, including a vast and growing host of derivatives, plastics, and eventually synthetics and organics of all kinds. In addition, it meant front-line entry into the growing energy market, starting with conventional activities such as prospecting, drilling and operating oil and gas fields (Mitsuboshi, for example, effectively created the nation of Brunei Darussalam and continues to provide essentially all of its income from vast offshore gas fields), and extending into nuclear power generation and aerospace.
As the Japanese economy hit the boom years of the 1960s, Mitsue and Mitsuboshi both showed phenomenal growth, not only vastly expanding their range of business activities, but also expanding their depth in each sector. Subsidiaries, affiliates and partners sprang up around the world, and the sheer scope of their activities coupled with the vast amounts of capital at their disposal made it possible to develop new businesses and activities in a mushrooming spiral.
The Modern Era
Mitsue has established its corporate headquarters in Otemachi, Chiyoda-ku, the heart of the Tokyo business district. While this is nominally the home of their trading arm, one entire floor of the building is reserved for the use of the "soudanyaku" (counselor) and his personal staff. This Counselor (Imura Koujin; 井邑晧人), who has served in a number of roles in many Mitsue group firms, is in fact in overall charge of the entire conglomerate.
Mitsuboshi has adopted a different solution, because more of its group firms are themselves global in scale. The headquarters of the Mitsuboshi group, while few employees are aware of it, is actually located in Kyoto, in a spacious villa on the flank of Mt. Hie north of the city. Surrounded by an extensive forest and even more extensive (but well-hidden) defenses, the supreme ruler of the Mitsuboshi Empire, Utano Ikichi (歌野亥吉), issues his commands through a network of state-of-the-art communications systems.