Four Pyramids of Power

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Four Pyramids of Power

• The Economic and Political Structure of
  Contemporary Japan

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The Standard Three Pyramids
Govt Bureaucracy
Elected Politicians
Big Business
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And the Hidden Fourth Pyramid
Organized Crime
Big Business
Govt Bureaucracy
Elected Politicians
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We Will Examine

• What each pyramid does in the society
• The internal organization of each pyramid
• Why each pyramid has power and gives prestige
• How each pyramid is connected to the others
• How people get into a pyramid and rise within it

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Big Business The First Pyramid
Organized Crime
Big Business
Govt Bureaucracy
Elected Politicians
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The Prewar Zaibatsu System
Family Holding Company
House Bank
Trading Company
Machine Tools
Shipbuilding Company
Light Industry
Chemicals
Heavy Industry
Consumer Goods
Mining Company
Oil Refining
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How the Zaibatsu System Worked

• Each Zaibatsu had a complete set of companies
• The five Zaibatsu competed in every market
• Together they controlled the market
• They gained power as military grew in 1930s
• Later became target of Occupation reforms

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Zaibatsu Broken Up in Postwar Era
House Bank
Trading Company
Oil Refining
Shipbuilding Company
Light Industry
Chemicals
Machine Tools
Heavy Industry
Consumer Goods
Mining Company
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Postwar Reforms

• Family holding companies abolished
• Individual firms separated, divided
• Smaller companies gained foothold in market
• Over time, firms again began to coalesce
• Centered around major banks with prior ties

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They Formed Horizontal Keiretsu
Major Bank
Insurance
Trading Company
Heavy Industry
Light Industry
Chemicals
Consumer Goods
Oil Refining
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How Horizontal Keiretsu Work

• Presidents of keiretsu firms meet regularly
• No hierarchy or central authority
• Firms hold part of each others stock
• Serve as directors for each others firms
  (interlocking directorates)
• Borrow from the same main bank
• Purchase from group companies at good rates
• Cooperate to protect a troubled firm

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Large Companies Also HaveVertical Keiretsu
Relationships
Major Company
Subsidiary A
Subsidiary B
Subsidiary C
Supplier D
Supplier E
Supplier F
Supplier G
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Large Companies Provide for Regular Employees

• Long-term security or lifetime employment
• Seniority-based wage system
• Bonus system linked to companys success
• Unionization in a company union
• Internal promotion system and in-house training
• Full fringe benefits and pension
• Opportunities for post-retirement employment

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Compensation for Regular Employees
Monthly Salary Includes
Special Allowances
Allowances for Family, Housing
Seniority Payment for Years of Service
Base Wage for Broad Category of Workers
PLUS
Semi-Annual Bonus
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Basic Structure of a Single Company
Officers Directors
White-Collar and Managerial Workers
Blue Collar Workers
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Companies Promote From Within
Officers Directors
White-Collar and Managerial Workers
Foremen, Supervisors
Blue Collar Workers
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How Can They Do It?

• Permanent labor force
• restricts companys capacity to adjust to
  economic fluctuations
• restricts companys ability to hire workers with
  specific skills
• obligates company to pay higher wages to older
  workers

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Permanent Workers As An Elite

• Actually a relatively small elite
• That status makes their jobs more competitive and
  desirable in the society
• Their privileges are protected by a complex
  system that shifts costs to others

Where are the burdens shifted?
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Use of Women As Short-Term Workers
Officers Directors
White-Collar and Managerial Workers
Young, single women (OLs)
Blue Collar Workers
Means Fewer Permanent Male Managers
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Young, Female OLs

• Regular employees, but not on promotion track
• Must choose their track when hired
• Company expects them to quit after they marry and
  become pregnant
• Cant legally be fired, but pressured to leave
• Low seniority means low cost to company
• Now staying longer, not leaving as expected

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Use of Contract Blue-Collar Workers
Officers Directors
Union Membership
White-Collar and Managerial Workers
Young, single women (OLs)
Contract Workers
Contract Workers
Blue Collar Workers
Provides Short-Term Labor Flexibility
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Contract Blue-Collar Workers

• Hired for 2-6 month contracts at the going rate
• May be seasonal workers
• Or just people without permanent employment
• Provide labor flexibility without long-term cost
• No benefits, no job security
• Can be terminated at end of contract easily
• Key is lack of union protection and benefits

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Western Model of Skill or Industry Unions
White-Collar and Managerial Workers
Union Membership
Union Leadership
Foremen
Blue Collar Workers
(One industry union may cover many firms,
but some skilled trades may be in separate unions)
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How Enterprise Unions Work

• Only regular employees belong to union
• Not segmented by craft skills or job category
• Not Contract workers doing the same jobs
• Union leadership drawn from top levels
• Union includes workers up to lower management
• Tied to management by promotion opportunities
• Interests coincide, so bargaining position weak

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White-Collar and Managerial Workers
Union Leadership
Union Membership
Young, single women (OLs)
Contract Workers
Contract Workers
Regular Blue Collar Workers
Temporary Workers contracted through Temp Agency
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Subcontracting Work for Flexibility
Major Company
Subsidiary A
Subsidiary B
Subsidiary C
Supplier D
Supplier E
Supplier F
Supplier G
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The Subcontracting System

• Can adjust subcontracts to meet current needs
• Just-in-time production system shifts costs
• Subcontractors are independent small businesses
• Subcontractors employees do not share benefits
• Economic dependence of subcontractors varies
• Capital and personnel may flow downward

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Promotions and Post-Retirement Jobs
Major Company
Subsidiary A
Subsidiary B
Subsidiary C
Supplier D
Supplier E
Supplier F
Supplier G
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K
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Major Company Sometimes Bankrolls SubContractors
Cuts Pencil Blanks
Splits Pencil Blanks
Stuffs Leads
Main Tombow Pencil Company
Packs Pencils in Boxes
Puts Erasers On
Paints Pencils
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Capital and Personnel Transfers

• Large companies
• transfer employees temporarily or after
  retirement
• May provide capital and old equipment to a
  retiree
• Provide stable work for small companies

• Smaller Companies
• Some promotion slots filled by people from parent
  company
• Small company may also get talent it couldnt buy
• In crisis, large company may dictate terms to
  borrow capital from its subcontractors

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Large and Small Companies Interdependent

• Large companies keep regular workforce small
• Protect their wages, job security, and benefits
• Women, contract employees, and smaller
  subsidiaries and subcontracting firms absorb risk
• They get less pay, security, and benefits
• Small companies depend on ties to large firms
• They absorb trained workers from large firms

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What is Happening Now?

• Decade of recession and cutbacks
• Permanent employment system breaking up
• less hiring for permanent positions
• breaking of implied contract with older workers
• More contract work and job instability
• increased outsourcing to temporary firms
• more young people without permanent employment
• more post-retirement people working to survive

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Demographic Impact on Labor

• Demographic factors
• Low birthrate produces fewer young workers
• Longer lifespans and aging population
• High education levels and lifestyle expectations
• Consequences for labor force
• Smaller labor force supporting retired workers
• Lack of workers decreases growth potential
• But companies fear cost of longterm labor

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Potential Solutions, New Issues

• Expanding parameters of labor force
• moving production overseas
• importing foreign workers (reluctantly)
• expanding (some) opportunities for women
• temporary workers from outsourcing firms
• Rejection of old labor bargain
• employers reducing long-term commitments
• young people rejecting corporate demands
• alternative employment unstable
• neither side prepared for more flexible system
• Rengo (union federation) may support changes