One of the distinctive features of the Japanese economy by the 1920s was the

extraordinary concentration of wealth and economic power in the hands of a few giants
concerns and the families that owned them.
A small group of business leaders gained control over a large proportion of Japans new
industrial economy, just before industrialization started to pay off.
The business giants that had established themselves in the late 19 th century grew faster
than the economy as a whole and by the 1920s controlled a major part of the nations
wealth and a much larger share of its economic power.
In the industrial upsurge of World War I, those industrialists who already had a head start
expanded enormously, and during the decade of economic uncertainties that followed the
war they fastened their hold on the economy even more firmly. At least half of Japans
banks were eliminated during this period, leaving the financial power needed for largescale industrial expansion concentrated in the hands of a few giant institutions. The
leading financial and industrial groups had from the start cooperated closely with the
government and had benefited greatly from its patronage, but now a greater equalization
of roles began to take place. Businessmen continued to work within a framework of
government fiscal policy, to depend on the government for foreign exchange, to require
the cooperation of the various ministries, and to profit from government for their capital
requirements. On the contrary, the government came to depend on them for aid in floating
bonds issues. And while continuing as instruments of government policy, big business, by
its ties within the bureaucracy and by its financial influence on the political parties, came
to have a growing voice in the formation of policy as well. The term zaibatsu, or
financial clique, came into common use at this time for these business giants.
The top four companies which constituted the zaibatsu group were Mitsui, Mitsubishi,
Sumitomo, and Yasuda. Other giants Shibusawa, Asano, Furukawa, Kuhara, Kawasaki,
were also a part of zaibatsu.
The zaibatsu firms concentrated almost completely on the newer and more rapidly
growing sectors of the economy, but few of them even established the degree of partial
monopoly that was becoming characteristic of the new industries in the United States and
other Western countries at the turn of the century. Instead they commonly established
conditions of oligopoly, that is, the control of the market in some product by a relatively
small group of sellers. Two zaibatsu firms, or as many as five or six, usually controlled
half or more of some product or service, thus jointly dominating that particular economic
field. Often such producers joined in voluntary associations to regulate the quality of their
common product. Such associations also acted to curb undue competition within the
domestic market. This sort of semi-competitive oligopoly, rather than monopoly, was an
interesting parallel in Japanese economic life to the pattern of oligarchic rule, rather than
dictatorship, that dominated politics.
The greatest difference between a typical zaibatsu firm and a typical Western corporation
was that the former, instead of concentrating in one type of venture, usually spread over a

variety of fields, constituting thus a combination of business enterprises rather than a

single great company. Such a combination expanded horizontally through a variety of
manufacturing or mining industries and also vertically through the different stages of
activity concerned with a single product.
Such combines grew to enormous size during the 1920s and 1930s. Mitsui and Mitsubishi
were at that time probably the two largest private economic empires in the world.
There has been a heated debate over the economic efficiency of the zaibatsu system as it
had developed by the 1920s. Some economists argue that the system was very efficient.
However, there are others who have criticized the zaibatsu system for its tendency toward
monopoly, which normally produces economic stagnation. While the combines were
usually engaged in keen competition with one another, the smallness of their number and
the weakness of the laws permitted collusive arrangements which at times probably
raised prices and increased profits beyond levels that would have prevailed in a more
fully competitive system.
However, such tendencies never went very far. Foreign raw materials and markets in the
zaibatsu enterprises helped keep their prices highly competitive. It was not until the
1930s and under pressure from the government, rather than from the zaibatsu themselves,
did the Japanese economy begin to suffer from the restrictions of excessive cartelization.
On the other hand, the very size and breadth of interests of the zaibatsu combines
permitted them to venture into new and costly fields or develop large-scale enterprises,
which might otherwise have gone undeveloped or been left to less efficient government
management. The profits from established enterprises could be effectively used by the
combines as risk capital to pioneer new fields. Moreover, their great size and ramified
interests permitted an unusually high degree of economic integration, which in other
countries has normally been achieved only through government regulation.
The concentration of a large proportion of Japans wealth in the hands of the zaibatsu
families was also probably a net economic gain. The zaibatsu families, being few in
number, could not possibly consume all their vast income. As a result, the bulk of profits
from the combines were reinvested in their expansion, a fact which helps to explain
Japans phenomenal economic growth during this period. The whole economic history of
Japan down to World War II proves that the zaibatsu system must have worked with
considerable economic efficiency.
[The zaibatsu system also had social and political consequences. The zaibatsu system was
in many ways undemocratic. They were marked by hierarchy, authority, and personal
loyalties. However, ability, efficiency and education were significant within their
bureaucratic framework. Some have also criticized the heavy concentration of wealth in
the hands of the zaibatsu families as an obstacle to the development of a strong middle
class. However, it can be argued that the rapid economic growth, which the zaibatsu
system promoted, did more to strengthen the middle class than economic concentration
did to weaken it.

In the political sphere the effects of zaibatsu concentration of wealth were certainly bad.
The fact that the actual influence of big business on Japanese government was much
greater than in the Western democracies is doubtful. However, the financial power of the
zaibatsu completely outweighed that of rural landlords and small business interests.]
Thus the zaibatsu undoubtedly played a significant role in the economic rise of Japan.