Congress Looks at Japan's Keiretsu
KEIRETSU. An innocuous Japanese word meaning ``system'' or ``species'' has become the latest catchword in the United States-Japan trade dispute. Last month, US delegates to trade talks in Tokyo lashed out at keiretsu dealings as a symbol of Japan's closed market. The Federal Trade Commission and the Justice Department are looking into antitrust implications of keiretsu behavior, and Congress is expected to hold hearings on the subject early in July.
A study by Brookings Institution economist Robert Lawrence, to be published this month, provides statistical support for the US view that keiretsu - loosely defined as conglomerates - inhibit imports and show the continued closedness of the Japanese market. Mr. Lawrence is regarded as a meticulous quantitative economist, and his findings buttress the US demand for greater transparency in keiretsu behavior and for tougher antitrust action against them.
Economists usually divide keiretsu into two types - horizontal and vertical. The first are well-known groups like Mitsubishi or Sumitomo, centered around a bank and a trading company and with several manufacturing and service companies among its members. Leading keiretsu are descended from prewar zaibatsu, disbanded by the American occupation after World War II. Member companies hold each other's shares and their presidents meet monthly.
The second are manufacturers in a particular field - a Toyota or a Sony, around whom cluster a host of suppliers and distributors. They have been the leaders of Japan's manufacturing prowess and export performance.
Explaining his findings in a recent interview here, Lawrence said that in industries where Keiretsu, whether horizontal or vertical, have large market shares, for every percentage increase in the keiretsu share, he found a 0.6 percent reduction in imports. Without this inhibiting effect, he said, in 1985 the industries he surveyed would have imported $58.8 billion worth of products instead of the $23 billion that they actually did.
Germany and Japan are both large exporters, Lawrence said. But American criticism of Germany has been muted because Germany is also a large importer of some of the very products it exports. Germany is as big an exporter of chemicals as Japan is of cars.
In 1988 German exports of chemicals came to $48 billion, while Japanese car exports were $45 billion. That same year Germany imported $25 billion of chemicals, while Japan imported only $3 billion of cars.
``Germany has hostages in this country. Japan has none,'' Lawrence said. He meant that for every company hurt by German chemical exports to the US, some others would be benefiting from American exports to Germany. But no American carmaker is going to oppose trade protectionism on the grounds that his exports to Tokyo would suffer.
Lawrence does not believe that keiretsu are the cause of Japan's closed market, but that they are a symptom. He and other economists acknowledge that Japanese manufactured imports have risen substantially during the past five years. But the keiretsu proportion of such imports has remained almost the same. Other things being equal, keiretsu still import less than non-keiretsu companies, Lawrence says.
Why do keiretsu behave in this way? Lawrence says there are two theories. First, it is a conspiracy. Keiretsu consciously buy from their member companies and exclude outsiders. Many Americans hold this view.
Second, it is innocent. This viewpoint holds that keiretsu are not deliberately throwing their business to member companies, but genuinely prefer keiretsu products, because of familiarity, taste, or ease of supply. Such preferences are more difficult to police, and there may be many gradations, as, for instance, with American companies' records on hiring blacks.
In the case of vertical keiretsu, the ``just-in-time'' system made famous by Toyota requires local suppliers who enable assembly plants to keep inventories lean. Some American companies, notably General Motors Corporation and TRW Inc., have managed to become significant parts suppliers to Japanese carmakers. But smaller firms have had a much more difficult time.
US policymakers also face a dilemma over keiretsu ``transplant'' operations in this country. When a Honda or a Nissan comes to the US, many of its own keiretsu suppliers soon follow, thus depriving American firms of profits and employment opportunities.
On the other hand, companies like Honda say that many would-be American suppliers do not meet their rigorous quality standards. One recent copier transplant, Canon, has even created its own brand new parts-making company in Virginia as a model for prospective American suppliers.
Lawrence thinks that the essential criterion is behavior. If a Honda or a Canon proves itself an exemplary corporate citizen and helps to upgrade American skills and competitiveness, it should be welcomed. Do some others consciously discriminate against American suppliers? These should be tackled from an antitrust viewpoint, he says.
Keiretsu are a complex and emotion-rousing phenomenon, rooted in history and society. But the criticism from outsiders is not falling on totally deaf ears. An editorial in the leading Japanese newspaper Asahi asks: ``Is it enough merely to change laws and systems, as the United States demands? Do we not need to change company behavior? Any investigation must go back to the basics.''