Following the occupation, one of Japan's earliest priorities was regrouping the dismembered zaibatsu--the large industrial and financial "cliques" formed during the Meiji era and coordinated by their top holding companies (a device that was banned during the occupation and remains illegal).  The successors to the prewar zaibatsu are the keiretsu, which are usually coordinated by a trading company or bank, but may also be coordinated by presidents' clubs, interlocking directorates, and cross-shareholding arrangements.  The major keiretsu include Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai Ichi Kangyo, and Sanwa.  In their international power, they far transcend the prewar zaibatsu, especially in terms of their global financial and trading company capabilities.  Among their incentives for collaboration with the government is the fact that they implement, and profit from, Japan's policies as the world's leading provider of foreign aid.

Many of Japan's instruments for market domination are applied collusively within the oligopoly structure of its keiretsu networks.  Their enormous competence may be defined in terms of their scale, their diversity, their privileged access to capital, their management and organizational capabilities, and their information sources.  Strategically, the keiretsu take cognizance of the fact that, for purposes of control, dominance in distribution and finance is often more important than domination at the manufacturing level.  This is why keiretsu themselves are usually coordinated by either a trading company or a bank.  Japanese trading companies perform the coordinating function with the help of exclusive information "channels" and global communications facilities that rival those of the Pentagon.  In their collective mode of operation, the keiretsu share the risk of major projects as well as the profits.

Another institution, the sogo shosha, or general trading company, has recently ventured from its traditional functions of information gathering and brokering into new fields, including manufacturing, development projects, and managerial and consulting services.  As the eyes, ears, and arms of the Japanese government, the sogo shosha and the financial institutions of the keiretsu bestride every one of the world's rising regional blocs.

Another step toward economic concentration came in the early 1960s when the government promoted a flood of mergers based on the rationale of achieving economies of scale, reducing "excessive competition," and generating business power equivalent to that of giant American firms.  From the point of view of industrial policy, it was argued that maintaining free competition in the domestic economy would handicap Japanese exporters in foreign markets where free competition did not prevail.  Likewise, in cooperation with MITI, the policy of the Ministry of Finance was to create fewer, bigger, and stronger banks to meet foreign competition at home and abroad.  Deregulation in banking was regarded as a license for the largest banks to squeeze and swallow their minor rivals.  As a result, Japanese banks participated prominently in the merger and acquisition movement in Europe and America in the 1980s.

An Adversarial Strategy

In a strategic context, Japan's international industrial policy forms a natural counterpart to its policy of unbalanced growth in the domestic economy.  Ever since World War II, the Japanese government has promoted the construction of industrial plants at the expense of infrastructures or higher living standards.  The resulting economic imbalance stimulated savings and commercial investment which, in turn, gave rise to export-oriented output.  This has been the dynamic core of Japan's economic "miracle."  In accordance with the transformation of Japan's industrial structure, the surpluses generated by these policies are now being invested abroad.

Japan's enormous trade surpluses, which far exceed those of OPEC in its most opulent years, have been bitterly resented by the United States and other nations as having been gained partly by unfair methods.  Today Japan's headquarters strategy is to recycle its surpluses in the form of foreign investments and foreign aid, both of which increase its control of world economic networks and its policy influence in advanced and developing nations.

Japan's current account surplus has been achieved by free market as well as by oligopolistic or anti-market means.  The Japanese have been extremely efficient in identifying market opportunities, especially for products with rapid growth and high volume potential.  They realize these potentialities partly by excellent management, research and development, quality control, inventory control, and other well-known instruments of Japanese competitive power.  Partly, however, and to an increasing extent, Japan's oligopolistic business community wages economic warfare both by adversarial trade and adversarial investment, and it does so with the aid of the Japanese government.  If "Japan, Disincorporated" describes Japan during the phase of partial economic liberalization under American pressure in the 1970s and 1980s, then "Japan, Reincorporated" may symbolize the emergence of Japan in the 1990s as a headquarters nation.

Whether "Fortress Europe," "Fortress America," or any other discriminatory bloc is formed, Japanese institutions will be found within every one of them.  Thus in its headquarters strategy Japan is prepared to play the global game either in a regionalized or in a wholly multilateral world economy.  Japan can already be seen as an insider in the proposed U.S.-Canada-Mexico free trade arrangement--Japanese producers, for example, are expanding their operations in Mexico to produce goods for sale in the United States and also parts for Japanese car and electronics companies.  Of course, American firms are likewise represented by their own establishments abroad.  These, however, are not supported by government policy and the United States does not sponsor government cartels for the benefit of exporters.  (SEMATECH, a projected high-tech research consortium to be sponsored by the U.S. government, is an example of an abortive American effort to imitate the Japanese.)

The Japanese government guides Japanese firms in choosing foreign direct investment locations and helps them establish their businesses abroad.  For the guidance of prospective Japanese investors in America, information is collected by the Japan External Trade Organization (JETRO).  JETRO keeps track of the location of Japanese investment in the various states, the nature of investment, and the extent of available subsidies.  The government discourages the "overpresence" of Japanese investment in particular localities.  The Japan Export-Import Bank collects information about the intentions of various state governments.  The bank is now authorized to extend loans for large projects abroad at either the government or private company level.  In Europe, information is comprehensively collected by Japanese trading companies, Japanese international banks and securities houses, and Japanese government agencies that maintain representative offices abroad.

At the private level, major Japanese firms set up listening posts and representative offices in Europe.  Many of these do no business but merely collect information.  For example, the Chubu Electric Power Company of Nagoya, which sells no electricity in Europe, has a representative office in London.  At the government level, the Japanese Ministry of Finance, the Japan Export-Import Bank, and other official agencies have offices in Europe whose function, according to a Ministry of Finance official in London, is to "keep a close watch on developments."  The trading companies are well established in every major European center.  Mitsui, for example, has 50 subsidiaries in the EC region.  (In future, most trading company activity in Europe will be in foreign direct investment rather than in trading.)  In Tokyo, the Japanese government coordinates Japan's entry into Europe.  Guidance and advice are provided by the Economic Planning Agency, MITI (which is creating a pan-European division), the Export-Import Bank, and others.  Besides major firms, small- and medium-sized firms are also assisted in choosing foreign investment locations and in making contacts, and sometimes these smaller firms serve as guinea pigs for large patron firms.

The oil crises of the 1970s strengthened Japan's resolve to control its own sources of essential imports by means of foreign direct investment and foreign loans.  MITI utilized the rise in the price of oil to promote one of the main goals of its industrial policy, namely the transformation of Japan's economic structure in favor of high technology industries that require fewer inputs of imported raw materials.  Adversity was thus used to work in favor of Japan rather than against it.  The domestic transformation was collateral to Japan's international strategy of expatriating its declining low- and medium-technology industries.  This strategy was further abetted by the world trend toward regionalism and protectionism which has likewise promoted the expatriation of declining industries. 

For example, Japan seeks to phase out its export surplus in trade with the United States before the latter adopts rules for "reciprocity."  For similar reasons Japan is rushing into Europe.  First, Japan seeks to establish insider positions before the European Community's "transitional period" begins--a period in which outsiders will be restricted while economic concentration and economies of scale are being pursued and market shares assigned.  Second, Japan seeks an insider position in Europe in order to reduce dependence on America as its principal export market.  Indeed, Japan aims to export to America from Europe, as well as to Europe from America, thus reducing its own surpluses and shifting the locus of trade friction elsewhere.  This is part of Japan's strategy for indirect, as opposed to direct, confrontation with the United States and Europe.

Third, Japan's race against time in Europe is conditioned by its rivalry as well as collaboration with Germany, which may transcend its bilateral rivalry with the United States.  By the mid-1980s Japanese firms--which normally prefer to design plants according to their own specifications and corporate culture--were displaying their pragmatism by performing mergers and acquisitions and arranging joint ventures with partners in Europe.  The joint venture between Mitsubishi and Daimler-Benz proposed in 1990 is an example.  By January 1989, according to JETRO, there were 411 Japanese companies operating in Europe, about triple the number in 1984.  During 1989, Japanese firms performed 114 mergers and acquisitions in the EC, an increase of 81 percent over the preceding year.  This rush into European investment contrasts dramatically with Japan's traditional procedure of step-by-step and case-by-case deliberation in major policy decisions, and is further evidence, if it were needed, that organized change in policy direction is indeed possible in Japan.