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From a national bank to the bank of Japan

Because the new Meiji government had inherited the foreign debts incurred by the former regime, it had to guarantee these debts, as new governments around the world had done. However, unless Japan's new government could successfully deal with the accumulation of inconvertible notes that it had issued during its revenue deficit, the resulting inflation would undermine its economic foundations. Therefore, the treatment of these notes became a political life-or-death question for Japan.

To study the problem, important figures were sent abroad. Ito Hirobumi, one of those sent overseas, found in the United States that "the national bank has the privilege of issuing notes and both functions of amortizing government notes and of financing," and he recommended adopting this system as a "measure of serving two ends."64

In the United States, there was a need for a policy to deal with the inflation caused by the Civil War and with the over-issue of wartime bonds (to maintain their price). The new Meiji government had the same problem. It was discovered that the US national banks could capitalize the bonds issued by the government. While the bank deposited bonds with the government and the government issued the bank notes, there arose a demand for bonds, which enabled their price to be maintained. Ito eagerly embraced this system.

Proponents of a central bank to be modeled after the Bank of England opposed Ito's plan of decentralizing the note-issuing system. The points at issue were note conversion or specie conversion and decentralized or centralized issuing. A compromise was made between the two, the government hopeful of realizing the two goals simultaneously, and a plan for a national bank system was adopted. A number of national banks were expected to be established, and a huge amount of inconvertible notes were to be collected to establish the system of specie conversion and to make the banks profitable.

Nevertheless, only four national banks were established. Why were the government's expectations disappointed? The reason that Yasuda, a famous financier, for example, was not interested in participating in establishing a national bank was due to the condition of being required to convert the notes immediately after their issue, which obviously would have greatly hindered business.

Until 1872 or 1873, there had been no difference between the gold specie and note, but because of the government's reckless issuance of notes, a premium of Y17.8 per Y1,000 of gold specie occurred in June 1875. With the increase of imports, an immense amount of gold specie flowed out, and for this reason, the Yokohama Second National Bank, for example, could not issue notes at all.

In 1876, because of a fear that the issuance of hereditary pension bonds would lower prices in the bond market, it became permissible to allocate pension bonds for banking capital (up to 80 per cent), and the rate of specie reserve was lowered (to 20 per cent). To summarize, the government changed its policy from one of establishing a conversion system to one of increasing the number of national banks, and thus increasing the supply of currency, which was expected to enable the government to raise funds for development.

As an immediate result, 153 banks were established, and the national banks, provided with many privileges, attained good results. For some time after that, businessman meant banker-until the 1920s, when the industrialists were added.

There is the story that, after studying the banking business in a foreign country, the son of a wealthy merchant proposed to his father that they open a bank, and the father warned that, because it was a risky business to keep others' gold and silver, a storage fee should be charged. The idea of paying interest was out of the question. This is a story from early Meiji, and represents the state of the time: there were funds (bonds), but no one knew anything about banking business practices. So the government had to begin with an introduction to banking business practices and the thinking behind them. In 1872, Allan Shand, a British banker, was invited to Japan to provide guidance in bank bookkeeping, and, as a result, British banking principles gained some currency.

But the banking system itself was American, and problems arose because of the differences between the two systems. Nevertheless, the British banking system, which had been established during the Industrial Revolution when Great Britain was the leader in international trade, was considered to be not easily transferable to Japan. Despite the problems, the mixed American-British banking system sufficed to meet the requirements of raising funds for the Meiji government's industrial promotion policy.

In spite of the government's efforts, inflation continued, and, in 1877, restrictive measures had to be imposed on the national banks. Since the gross capital amount was limited to Y40 million and the gross amount of notes to be issued was limited to Y34 million, the Kyoto 153rd National Bank, established at the end of 1879, was the last authorized national bank.

When the Bank of Japan was established in 1882 as a central bank, it monopolized the right to issue notes, and the decision was made to limit the period of operation for the national banks to 20 years from the time of the Bank's establishment. After that, any national bank could be reorganized as a private commercial bank, but it was compulsory for each bank to redeem all notes issued by the time of reorganization. From then on, the banks were under the pressure of rationalization.

Although the national banks had been provided privileges and protective measures, they were not active in the deposits business (because they had government deposits), and, because their loans were centred on specific enterprises (whose directors were also bank directors) that mortgaged land and buildings, the funds lacked liquidity. Further, such features of commercial banking as discount promissory notes and bills of lading were not present.

Often, the national banks could not meet fund demands, and it was a general practice for small or medium-sized banks to borrow money from a larger bank - and the larger bank from the Bank of Japan - to lend at a high rate of interest. These banks were, it could be said, merely brokerage earning banks. One banking professional commented, in fact, that the national banks had the appearance of incorporated usury.

The Bank of Japan was established by Matsukata Masayoshi. As he saw it, the establishment of finance (and the consolidation of inconvertible notes) and the idea of the establishment of a central bank were inseparable. While in charge of local administration in Kyushu immediately after the Meiji Restoration, he fully realized the damage an excessive issue of inconvertible notes could cause.

In 1878, Matsukata, then vice-minister of finance, visited Europe as the assistant general director for the international exhibition in France. He inspected the financial systems of different countries and was advised by the French minister of finance, Leon Say, of the need for a central bank system and for a convertible bank note system. He was advised not to model on the French system, which was very old and would have been difficult to transfer, but to follow the system used by the Belgian National Bank, which had been recently established and for which the experiences of several countries had been considered. Here again, Japan enjoyed the advantages of a late comer.

At the time of the establishment of the Bank of Japan, Matsukata reorganized the existing banks into a tripartite system of commercial banks, with the Bank of Japan as their centre, investment, and savings banks.

Although the Bank of Japan had begun as the core bank of the commercial banks, it became the central institution for industrial financing when, after the first modern economic recession hit Japan in 1890, it began discounting promissory notes, receiving the stocks of 15 sectors, including the railway, sea transportation, and insurance, as security.

In summary, the banking system formulated by Matsukata consisted of the following:

1. The Bank of Japan and city banks as commercial financing institutions
2. Investment banks as long-term financing institutions
3. Savings banks as savings institutions for the general public

Of the three, the investment banks were the development banks. Their purpose was "to finance the capital for the initiation of business, to promote the reclamation of agricultural land or assist in its geological improvement, and to promote such businesses as silk reeling and canal and port construction, receiving houses and land as mortgage."65 It is noteworthy that agricultural and industrial development were given an important place in this tri-partite system of banks.

This division of banks was modelled generally on the German mortgage bank and the French movables credit and immovables bank, but in many of its details, it was original. There was a tendency to view this arrangement as being too far ahead of its time, it being based more on future prospects than on an awareness of the economy of those days.

After twists and turns, however, the arrangement was realized. Clearly stating that "the promotion of industry is the aim, and the bank is the means for it" in the Japan Kangyo Bank Law promulgated in 1896, the investment bank began its business of stimulating industrial development. The Kangyo Bank of Tokyo was the central bank, and an agricultural and industrial bank was established in each prefecture. As stated in the Bank's charter, "when more than 20 farmers or industrialists wish to borrow money on joint responsibility, insofar as the applicants are credible, the loan is to be provided without mortgage on the basis of periodic repayment within five years." Thus, the Kangyo Bank was a long-term financing institution for the encouragement of industry, with immovables as mortgage.

In newly settled Hokkaido, where capital was in extremely short supply, the Hokkaido Takushoku Bank was established. As with the agricultural and industrial banks of other prefectures, it provided long-term loans with immovables as mortgage. Also, with agricultural products, stocks, and bonds as securities, it made loans, subscribed for bonds, and handled deposits and bills of lading. Before this bank was established, the demand for funds was so great and the local financial resources so poor that interest rates were as high as 20 to 30 per cent per month. Under these circumstances, the development effects of this bank were extremely significant.

When tenant issues came to the fore after World War I, neither the Kangyo Bank nor the agricultural and industrial banks would finance agriculture and farmers because of the profit-making characteristics of these banks. This gave rise to a national federation of agro-credit and development cooperatives (Chiba 1983). The circulation of funds among members may have been an ideal form of finance by the co-operative associations, but actually, financing by these organizations generated competition with other banking institutions, which led to a change in the character of the co-operatives. Their significance, however, should not be neglected.

In addition to the banks discussed in the preceding, there are a few others in need of mention. The Industrial Bank of Japan, for example, was founded in 1900 as the "central bank for industry" and its function was to introduce foreign capital, in accordance with the policy to limit direct investment of foreign capital (Asai 1983). In addition, this bank was soon playing the leading role in reinvesting foreign capital in the Japanese colonies.

The Yokohama Specie Bank (now Bank of Tokyo) was a special bank established to (1) promote direct exports in competition with foreign trading firms, (2) recover commercial rights through exchange, and (3) stabilize the market in gold and silver coins (Saito 1982).

Finally, there were the colonial banks in Korea and Taiwan (Namigata 1981).

Generally, in late-comer capitalist countries, certain social issues will arise earlier than as experienced in the advanced countries. One response by ordinary citizens to such issues was the formation of the mutual financing associations. The activities of the mutual financing companies, an advanced form of these associations, were important (Asajima 1983). The mutual financing companies grew to a rank equal to that of a commercial bank and secured for themselves a particular niche based on specific locations and areas of industry and business.

There were also pawnshops, which were highly popular with the common people as sources of funds. In addition, the role and significance of the postal savings system in Japan's development were extraordinarily great. Modeled on the British postal savings, the Japanese system has been operating since 1875, and is said to be unique for having been established as a savings institution for ordinary citizens by the government at an early stage. What is more important, however, in relation to development policies is that savings accumulated in the system were used for investment through the Savings Department of the Ministry of Finance. The government was able, on several occasions, to overcome a financial crisis with these savings.

In 1905, the per capita amount of savings was Y9.29 (an arithmetic average, which was equivalent to a half-month's wages for a male worker in the manufacturing industry), and depositors whose saved amount was less than Y3 made up 70 per cent of the total. (In terms of deposits per person, this was as small as one-twelfth what it was in Great Britain.) Nevertheless, the postal savings system held 30 per cent of the savings of ordinary citizens. One might add that farmers occupied an overwhelming majority of the depositors.

Because petty deposits are costly, the commercial banks were not interested in such deposits. The reason the postal savings system, which invested in public bonds and other equities at a low interest rate, could guarantee the same interest as other banking institutions was that the expenses were borne by the government's general accounts. In 1984, 110 years after the establishment of the savings system, the balance of its deposits amounted to Y89 trillion, and, if the postal savings system may be regarded as a banking institution, Japan's is the world's biggest. Now that the government's postal savings banks are, in terms of total holdings, on a par with the major commercial and trust banks, the opinion that the postal savings system has outlived its traditional function might be expected.

Shibuya (1981) states that the division of banks modeled on the advanced countries was not based on the distinction between banks for long-term loans and those for short-term loans. The division was made on the basis of types of industry, such as agriculture or commerce, and on location, such as home country or colonies; the commercial banks, which originally should have been short-term loan banks, have become institutional banks to supply long-term loans. Shibuya (1981) holds that a special Japanese-type structure can be observed in this.

Since World War II, although the Japanese financial system has undergone marked changes, its basic nature and structure have not changed. Now, however, faced with international financial problems and the great changes in the world situation as a whole, Japanese financial institutions and the system are being tested.

Before leaving this section, I should add that, although the Hokkaido Takushoku Bank played an important role in the development of the large island of Hokkaido, it was not included in our research. At the beginning, I considered conducting a study of the development of Hokkaido as an interdisciplinary area study. I thought that such an area study would be done better mainly by scholars and researchers living in Hokkaido. But, as it was too big a burden in terms of distance, time, and expense, the study was terminated during preliminary surveys. Now, however, I must say this was a serious omission: More than 70 per cent of the deposits now made in Hokkaido are not used there; they are invested in Honshu, the main island. It is clear that there are still problems of development in Japan.

15. General trading companies: Their role in technology transfer and industrialization

Origins and functions of general trading companies
Is the general trading company peculiar to Japan?

It may seem strange to readers from industrially advanced countries to find that general trading companies are included in the range of this project. The memory of what role they played in the Japanese experience in technology transfer, transformation, and development has faded. Perhaps this is one reason their inclusion appears curious. Nevertheless, few would deny the significance of general trading companies in the development of natural resources, imports for development, and exports of plant manufacturing systems. In fact, trading companies were the leading sector for technology transfer. They were an especially important intermediary for the importation of technology. This function has not changed, but it is easily overlooked because of the strong impression that the past 30 years of exporting technology has left.

A simple example is the cotton-spinning machine, which was in the vanguard of Japanese industrialization. The number of imported spinning machines was greatly increased in 1892, and at the time, Mitsui and Co., a general trading firm, acquired 80 per cent of its total imports from the British concern Platt Brothers. It is a remarkable example of discernment and capability for a company to select Platt Brothers, a first-rank manufacturer, in the days when Japan was under a great deal of outside pressure to abide by the needs and wishes of the Western powers.

Mitsui and Co. provided personnel with special technological knowledge and played an important role in collecting information and acting as an intermediary in the import of machines and equipment. It imported not only machines but also raw cotton from China for processing and eventual export as yarn. Later, it imported raw cotton from India and the United States to increase the competitive power of its cotton products. The company thus became known as the "organizer of industrialization."

The industrialist Kaneko Naokichi (1868-1944), aiming to establish industrially based trade transformed a small sugar importer, Suzuki Shoten, into a trading firm that was, for a time, comparable with Mitsui and Co.66 He played the role of "organizer of industrialization" more effectively than Mitsui. Kaneko, who possessed an eagerness to establish factories so strong that he was called "the chimney man," was a maverick, daring and successful, but responsible for some spectacular failures too, and now he attracts the interest mainly only of scholars of the history of management. Nevertheless, the companies Kaneko started have grown into the present-day Teijin, Kobe Steel, Ishikawajima Heavy Industries (IHI), Mitsui Toatsu, Mitsubishi Rayon, Nissan Chemical, Nihon Kayaku, and Dainippon Seito, well-known firms even outside Japan.67

The preceding discussion pertains to the Meiji and Taisho periods, the age of light industrialization. In the period of heavy and chemical industries, Mitsubishi Corporation became dominant. This company established, as direct subsidiary companies for the import of technology, Mitsubishi of Germany Corp. (1920) and Mitsubishi of France Corp. (1924). The following illustrates how important were the roles these two companies played in the importation of technology from the advanced countries and in the gathering of information.

These two subsidiary companies were crucial intermediaries between the Mitsubishi group in Japan and the various European companies. For example, by 1937, Mitsubishi Shipbuilding and Mitsubishi Heavy Industries had, between them, purchased about 30 patent rights and manufacturing licences; the arrangements and negotiations for these purchases had been undertaken by the two subsidiaries. Likewise, Mitsubishi Electric concluded a technology co-operation contract with Westinghouse, giving Mitsubishi the selling rights and allowing it to "develop the market." In the chemical industry, where the Mitsubishi group was weak, the European subsidiary companies purchased the manufacturing licences for electrolyte cells, gas generators, and calcinating furnaces from first-rate machine manufacturers. The same was true of iron manufacturing equipment, machine tools, aircraft, and weapons.

Although Mitsubishi's imported technology was exclusively intended for the formation of heavy and chemical industries for the Mitsubishi zaibatsu, "it provided, insofar as it did not compete with the group companies' interests, technology and information to military manufacturers and other group companies and developed a new market; in this way, it played the role of organizer for the development of the heavy and chemical industries in the Japanese economy."68 In the process of achieving heavy and chemical industrialization on a minimum or most-appropriate scale to meet national needs, the trading firm as an organizer, as a storehouse of detailed information and economic rationalism, was indispensable. No other organization could have fulfilled this role.

The general trading companies evolved in accordance with the development of Japanese industry and technology, undergoing changes in their role, activities, and priorities, and success as well as set-backs, and this will likely not change in the future. In sum, Mitsui and Co. was the pioneer in importing machines; Suzuki Shoten was a courageous forerunner in plant system imports; and Mitsubishi Corp. led the heavy and chemical industries.

Since Japan entered international trade as a late comer, such related businesses as marine transportation, insurance, and foreign exchange, which had been in the hands of foreigners, were underdeveloped. Under these circumstances, the general trading companies had accepted from the beginning as self-evident that "in terms of management concepts, the national interest (industrial autonomy) should be the determining factor, and in terms of management strategy, diversification should be the governing principle" (Katsura 1977).

Though the establishment and development of links among industrial sectors is an urgent issue in the developing countries, the subject of general trading companies was, we found, among the areas that attracted the biggest concern. It is well known that in the newly industrialized countries of both Asia and Latin America, the governments have carried out measures to promote general trading firms. In the United States, even, some members of Congress have drafted legislation to promote export trading companies.

The great number of Japanese general trading companies, their large volume of trade, and the lack of similar enterprises in the rest of the world have made them conspicuous.

Recent sales-volume reports of Mitsubishi Corp. puts it at number one among Japanese companies and among the top five companies in the world, including manufacturers. In July 1980, an American economics magazine ranked it second in sales volume to Royal Dutch Shell among the 125 companies whose headquarters are outside the United States.69 Even if US enterprises are included, only Exxon and General Motors surpass Mitsubishi.

The breakdown of Mitsubishi sales in 1980 was domestic transactions 43.6 per cent, foreign trade 56.4 per cent.70 Foreign trade can be further broken down into imports 32.8 per cent, exports 17.3 per cent, and transactions between foreign countries 6.3 per cent. The company reported a sales volume of US$46 billion and has 63 offices in Japan (the head office, 2 major branch offices, 19 minor branch offices, 29 local offices. 3 offices of resident representatives, and 9 special project sites) and 142 offices overseas (12 branches, 69 offices of resident representatives, and 28 local enterprises and their 33 branches).

In 1980, the firm had 9,682 employees (of which 3,710 were female). Including the 2,544 employees dispatched to other domestic companies in the Mitsubishi network and the 3,099 to companies overseas, the gross number of company employees amounted to 15,325. From these figures, the per captia annual sales amount was Y787 million (at the yen-dollar conversion rate for the same year).

Although there are annual fluctuations, Mitsubishi's biggest item is fuel (such as petroleum and LNG), which characteristically accounts for approximately 30 per cent of total transactions. Next to fuel are metals and machines, which occupy more than 20 per cent; food and animal feed, more than 10 per cent; then chemical products, textiles, and materials. less than 10 per cent. This composition of sales has continued unchanged for several years. The dependence on foreign trade has averaged around 60 per cent.

At Mitsui and Co., metals account for more than 25 per cent, petroleum and gas 20 per cent, machines less than 20 per cent, food about 15 per cent, chemical products more than 10 per cent, and textiles 4 to 5 per cent; the dependence on foreign trade has been about 60 per cent. A comparison of these two companies makes apparent the differences in sales areas. At Sumitomo Corporation, metals and machines account for 60 per cent, fuel more than 25 per cent, and construction about 10 per cent; the dependence on foreign trade is about 50 per cent. Despite such low dependence on foreign trade, Sumitomo's profitability is said to equal Mitsubishi's.71

As is clear from the above, each company has its own comparatively advantageous business sectors. This reflects the particular technological stock and potential of the companies affiliated with each of these trading firms. This is especially evident with Sumitomo Corporation, the number five trading firm, which entered the trading business as late as 1952. The reason it has established a footing so rapidly is that it has been strong in metals, machines, and construction, and it has a large network of production and processing of various materials created through the development of a complex of technology linkages based on the metal- and coal-mining industries, in which various technologies have been integrated and are active.

Since the mid-1960s, the trading firms have been actively recruiting new employees from among graduates mainly from university science and engineering departments. In one company, this type of employee totals more than 20 per cent of the 2,000-strong labour force. This tendency seems certain to continue.

Origins and functions of general trading companies

The general trading companies engage in foreign trade (export and import) and deal with every kind of good, from instant Chinese noodles to nuclear reactors, in staggering numbers of transactions. Today, nine major general trading companies operate in Japan, handling about 50 per cent of all exports and imports (47.4 per cent of exports, 58.6 per cent of imports).

The nine are Mitsubishi Corp.; Mitsui and Co.; C. Itoh; Marubeni; Sumitomo Corp.; Nissho-Iwai; Toyo Menka; Kanematsu-Gosho; and Nichimen Jitsugyo. Of these, Marubeni, C. Itoh, Nichimen Jitsugyo, Toyo Menka, and Gosho constituted the five big cotton-importing companies based in the Kansai area; they specialized in importing raw cotton and exporting cotton yarn and clothes before World War II. The heavy and chemical industries developed after the war, and as they had no experience in foreign trade, the trading companies have become the conduits for the export of heavy and chemical industrial products and the core around which groups of manufacturers have been organized. Nissho-Iwai was established by the merger of Nissho (formerly Nihon Shoji, which was affiliated with Suzuki Shoten) and Iwai Shoten (a trading firm specializing in iron and steel).

In a look back at the initial stage of industrialization, we find three lineages of trading firms:

1. Those that were incorporated into zaibatsu: Mitsui and Co., Mitsubishi Corp., Furukawa Shoji, Kuhara Shoji, and Daito Bussan (Nomura affiliated). Furukawa and Kuhara went bankrupt during the recession after World War I, and Daito was dissolved in 1920.

2. Those around which a zaibatsu was formed: Okura (Okura-gumi), Asano (Asano Shoten), Suzuki (Suzuki Shoten), Morimura (Morimura-gumi), and Iwai (Iwai Shoten).

3. Zaibatsu that had no general trading firm: Sumitomo and Yasuda.

Unlike Mitsui and Mitsubishi of group (1), which had their own financial institutions based on their metal and coal-mine operations, the companies in group (2) invested their profits in diverse undertakings, which resulted in the formation of zaibatsu, and in the process, the trading firms themselves were transformed into general trading firms (Morikawa 1976).

Nakagawa makes the following observations based on an internationally comparative examination of Japan's general trading companies.72 Keenly aware of the close interdependence among various industrial sectors, entrepreneurs in Meiji Japan had to make decisions from the perspective of the national economy, beyond the interests of private enterprise, and thus undertook widely organized entrepreneurial activities. The most representative were the general trading companies.

Although trading firms in Europe and the United States were specialized in transactions of specific goods in specific areas, the conditions in Japan were quite different. To compete with these strong enterprises controlling world trade, Japanese trading companies had to start as strong, large-scale enterprises from the beginning.

Secondly, foreign exchange, marine insurance and transportation were well developed in the advanced countries, but not in Japan. The underdevelopment of these auxiliary businesses for foreign trade was an impediment, and so Japanese trading companies had to undertake these responsibilities. To support such activities, the trading companies required a large volume of trade; however, at its initial stage of industrialization, Japan lacked commodities for foreign trade in such volume. The companies were thus compelled to deal in a great number of goods in small quantities to increase volume.

Thirdly, there was a close relationship between the formation of general trading companies and the formation of zaibatsu. Each zaibatsu made its trading company sell the products zaibatsu companies manufactured, which resulted in a transformation of trading houses into general trading companies. On the other hand, some general trading companies moved into the manufacturing industries or established subcontractors there to secure products for transaction, as a result of which the general trading firms grew into zaibatsu.73

Nakagawa's analysis has relevance for the problems of foreign trade that Japan, as a late comer, had to experience and that the newly industrialized countries now face.

The Japanese Society of Management History made the development of general trading companies the theme for its 1972 convention, which covered not only Mitsui and Co., traditionally the leading subject, but also other trading firms, such as Mitsubishi Corp., Suzuki Shoten, and Iwai Shoten. At this convention, an expert on foreign trade theory pointed out that, even though the old zaibatsu have revived as business groups since the war, each grouping of enterprises is now centred round a bank; the Fuyo (Fuji Bank) group, Sanwa group? and Daiichi Kangin group are examples.74 Where the trading firm, bank, and manufacturers belonging to the same group cooperate fully, the trading companies perform the functions of planning and overall co-ordination.

Moreover, in the process of establishing heavy industry and with growing internationalization, the general trading company diversified the range of commodities it handled. When development projects appeared, the trading company was able to integrate a variety of related goods and industrial sectors, acting as an organizer of industries. Related to this, the trading company has taken on the functions of developer of resources and of collector and analyser of information.

He pointed out further that, during the period of rapid economic growth, when the banks had abundant funds and were careful in their selection of companies for financing under the thriving demands for funds, the trading company, with its credit potential, created intercompany credits and played the role of buffer between the banks and manufacturers. (In this sense, its function is similar to that of the merchant banks in Great Britain.)75

Finally, with the ability to raise funds, the trading company increased credit between companies and expanded investment and financing to create a network of mainstay companies and make them its subsidiaries.

While these functions existed before the war, with the increase in the number of general trading companies since World War II, the functions of organizer and information gatherer have come to be more strongly and consciously applied by the trading companies.

At this meeting, Yamamura Kozo, of the University of Washington, Seattle, USA, approached the issue of general trading companies from the viewpoint of economic theory, and reasoned that they (1) decrease the risks caused by the fluctuation of demand in domestic and overseas transactions and by foreign exchange fluctuations; (2) make use of economies of scale; (3) raise the productivity of human and material resources and save the cost of distribution; and (4) enable the effective use of capital and the contribution to social savings.

Yamamura concluded that the realization of economies of scale in the multifunctional general trading companies had saved a huge amount of money and provided the trading companies with the ability to undertake big risks.76

Economic analyses of this kind can be persuasive. However, they do not treat the evils resulting from the growth of a trading company into a gigantic general trading company. Mitsubishi Corp., whose male staff used to be referred to as "Mitsubishi gentlemen," had the following incident take place. In 1980, Hokusho, a trading company that specialized in fish products, went bankrupt after buying herring roe at a very high price. Mitsubishi, which did business with this company, was severely criticized by the press for its alleged coercive role in the transaction. Though Mitsubishi explained the circumstances, the president admitted at a news conference in 1980 that, because Hokusho had laid too great an importance on its responsibility to supply the processors, 'the company digressed from the principle of market price and did not pay sufficient attention to the end users."

In the period of confusion caused by the oil crisis of 1973, the general trading companies were criticized for their land dealings, stock speculation, and cornering of foods that caused prices to sky-rocket. In 1976, the dirty business of the trading companies involved in the Lockheed scandal was revealed. These evils were evils of general trading firms that have become large and oligopolistic.

In 1974, the Fair Trade Commission, in charge of administering the Anti-Monopoly Act, published a survey report on general trading companies and proposed to establish measures to restrict unfair trading and holding of stocks in other companies. In the following year, a second report was published in which it was proposed to limit bank financing in large amounts. While the Japanese Trade Association, representing the general trading companies, attempted to justify existing trade practices. this new monitoring by the government represented an important turning point for the general trading companies.

During this time too, many analyses and studies were made of the general trading companies. It was determined that, unlike the banks and securities companies of the same tertiary industry, "there is no specific legislation controlling the general trading companies, and there is no such inspection of the general trading companies as that for the banks and securities companies for the protection of depositors and investors."77 The problem is one of protection of end users.

In the 1970s, the issue of the practices of the general trading firms came to include political and social dimensions. Before that, however, in the 1960s, many predicted a decline of the trading companies. An article by Misonoi Hitoshi was representative of this.78 By the 1960s, he explains, direct exports by manufacturers had developed, and in the domestic market there had arisen a demand to modernize distribution and thereby eliminate the intermediary profiteering. The development of transport and communications has lowered relatively the merit of the trading company's information-resource function. In addition, diversification of operation and further expansion by the trading companies has increased their expenses and lowered profits.

In the mid-1960s, bankruptcy and forced reorganization were widespread among general trading firms; and yet, despite these problems, there were voices insisting on the need for the trading companies in the light of their changed roles and function in the area of investment and financing in new industrial sectors. At the same time, there was strong criticism from the public in the mid-1970s.79

In the 1980s, there has been the opinion in several quarters that the general trading companies are playing a vital role in third world development.

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