Confucian capitalism shibusawa eiichi, business ethics, and economic development in meiji japan

Confucian Capitalism Shibusawa Eiichi, Business Ethics, and Economic Development in Meiji Japan... In the 150th year since the Meiji Restoration, it seems especially priate to revisit th

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Confucian Capitalism

Shibusawa Eiichi, Business Ethics, and Economic Development in Meiji Japan

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Linfield College

McMinnville, OR, USA

For Wendy

In the 150th year since the Meiji Restoration, it seems especially priate to revisit the ideas of Shibusawa Eiichi, whom many have called the “father of Japanese capitalism.” His life story and his call for a “unity

appro-of morality and economy,” which I have called Confucian capitalism, encompassed many of the ideals and contradictions of the Meiji Restoration itself

My own perspective on the Meiji Restoration has evolved significantly

in the last 30 years When I first started to study Japanese history in the mid-1980s, the Bubble Economy was cresting and accounts of Japan’s rise as an economic superpower were classic success stories Through hard work, institutional innovation, and some measure of good fortune with favorable economic conditions in the Cold War, Japan had emerged from its catastrophic defeat in the Second World War to become the world’s second largest economy As an undergraduate, I became fascinated with the Meiji Restoration and the story of Japan’s first industrial revolution,

in which, as was often said, the Japanese people turned their country from an isolated agricultural society into an industrial power in less than

a generation

With the bursting bubble in the 1990s and deeper study in graduate school, many of the Meiji Restoration’s contradictions and problems

became apparent My doctoral dissertation, which became the Origins of

Japanese Wealth and Power: Reconciling Confucianism and Capitalism,

Preface

viii Preface

1830–1885, explored the evolving economic thought of several leaders in

the Meiji government This book argued that these leaders essentially accepted market capitalism as the means to achieve national objectives defined primarily in terms of military security Accepting the market meant overcoming the Confucian moral bias that the samurai class had against the merchant class and commercial profits

To explore this theme from the perspective of the private sector, I have focused in this book on the financier and industrialist Shibusawa Eiichi

I was drawn to Shibusawa because he was among the most prolific and successful entrepreneurs in modern industry during the Meiji era who

championed the Analects of Confucius as his moral guide When many

leaders in modern intellectual and business world were looking to the West for inspiration, Shibusawa continued to insist on Confucianism as

a foundation for business ethics

The topic of business ethics is often a cause for skepticism for good reason Competitive pressures can drive out of business those leaders who incur additional costs when trying to move beyond legal compliance in providing benefits to employees and the wider community It is hard to believe that people will engage in one set of behaviors when the capitalist system rewards another set In Shibusawa’s case, I think the answer lies in the nature of his business As a capitalist promoter who assembled inves-tors for a large number of new ventures, his business success depended upon trust His Confucian capitalism provided a vision that united a network of investors who worked with Shibusawa in a long series of transactions By creating and maintaining this network on the basis of shared ethical commitments, Shibusawa contributed greatly to Japan’s Meiji economic development in the late nineteenth and early twentieth centuries

Presently, after decades of slow growth and a series of government and corporate scandals, there are renewed calls for political and economic reform The close government-business ties that characterize the “devel-opmental state” or “Japan, Inc.” and that were effective when Japan was importing and adapting technology from other parts of the world now stand in the way of innovation and growth Shibusawa Eiichi today can

be seen as a contradictory symbol On one hand, he was the “father of Japanese capitalism” and Japan’s first “salaryman” professional manager

who helped build a system that now needs to be dismantled On the other, he was a Confucian capitalist for whom economic success was sim-ply the means to ethical and humanistic ends.

Note that Japanese, Chinese, and Korean names have generally been given in the customary order of family name first Macrons on long Japanese vowels have not been used in the main text, but keywords have been given with macrons and kanji characters in the glossary

McMinnville, OR, USA John H. Sagers

Discussions  and conference panels with fellow scholars of Japanese economic and business history have been most helpful Thanks to Steven Bryan, Simon Bytheway, Martha Chaiklin, Jeffer Daykin, Steven Ericson, Kaitlin Ferber, Janet Hunter, Kikkawa Takeo, Kim Myungsoo, Mark Metzler, Kenneth Pyle, Shimada Masakazu, Richard Smethurst, Tanaka Kazuhiro, Tao Demin, Peter Von Staden, David Wittner, and Yu Chen for helping to shape my thinking.

Acknowledgments

At Linfield College, funding from the Dean’s Office and International Programs Office helped with conference travel and research in Japan The Student-Faculty Collaborative Research Grant allowed Sydney Owen to provide valuable research assistance The Marvin and Laurie Henberg Award for International Studies also provided generous financial support Special thanks to Nobuko Okura for Japanese language and translation assistance and to Wendy Sagers for reading multiple drafts of the manu-script. Thanks also to History Department and Japan Studies colleagues Peter Buckingham, Sharon Bailey Glasco, Jeff Glasco, Masayuki Itomitsu, Chris Keaveney, Tom Mertes, Steven Rutledge, Scott Smith, and Lissa Wadewitz for their kind encouragement.

At Palgrave Macmillan, thanks to Kent Deng, editor of this series, and two anonymous reviewers for their helpful comments and suggestions Thanks also to Laura Pacey,  Clara Heathcock, and Mahalakshmi Mariappan for their kind and patient editorial assistance

I am especially grateful to my spouse Wendy and sons Robert and Thomas for their love and support Without them, none of this would have been possible

5 Competing Priorities of Infrastructure Investment

and Military Expansion in Late Meiji Japan 119

6 Business Leaders as Civilian Diplomats in Early

Contents

7 Confucian Capitalism and the Search for Economic

Prosperity and Social Harmony in Early

8 Purposeful Preservation of Shibusawa Eiichi’s Legacy 217

Fig 2.1 House in Chiaraijima where Shibusawa Eiichi was born (Photo

Courtesy of the Shibusawa Eiichi Memorial Foundation) 21 Fig 2.2 Tokugawa Akitake and mission to Paris International Exposition

Shibusawa is first on the left in the back row (Photo courtesy of the Shibusawa Eiichi Memorial Foundation) 44

Fig 3.1 Shibusawa’s “Rules for Establishing Organizations (Rikkai

Ryakusoku)” recommendation to the Finance Ministry (Photo

courtesy of the Shibusawa Eiichi Memorial Museum) 59 Fig 3.2 Dai-Ichi Bank building (Photo courtesy of the Shibusawa

Eiichi Memorial Museum) 70 Fig 3.3 Tokyo Stock Exchange (Photo courtesy of the Shibusawa

Eiichi Memorial Museum) 73 Fig 4.1 Shibusawa’s first wife Chiyo (Photo courtesy of the Shibusawa

Eiichi Memorial Museum) 91

Fig 4.2 Dragon Gate Society (Ryumonsha) meeting 1891 (Photo

cour-tesy of the Shibusawa Eiichi Memorial Museum) 111 Fig 5.1 Shibusawa’s mansion in Kabuto-cho financial district of Tokyo

(Photo courtesy of the Shibusawa Eiichi Memorial Museum) 124 Fig 5.2 Osaka Spinning Company (Photo courtesy of the Shibusawa

Eiichi Memorial Museum) 139

List of Figures

Fig 6.1 Commercial mission to the United States in 1909 (Photo

courtesy of the Shibusawa Eiichi Memorial Museum) 172

Fig 7.1 Koyama Shotaro’s painting the Analects and the Abacus (Photo

courtesy of the Shibusawa Eiichi Memorial Museum) 188 Fig 7.2 Shibusawa Eiichi and Kaneko in front of Seien Library at their

Asukayama estate 1926 (Photo courtesy of the Shibusawa Eiichi Memorial Museum) 195 Fig 7.3 Shibusawa visits a hospital room at the Yoikuin orphanage and

hospital (Photo courtesy of the Shibusawa Eiichi Memorial Museum) 207 Fig 8.1 Four generations: Shibusawa Eiichi, son Tokuji, grandson

Keizo, and great-grandson Masahide (Photo courtesy of the Shibusawa Eiichi Memorial Museum) 224

Introduction: Shibusawa Eiichi

and the Idea of Confucian Capitalism

With the life story of Japan’s most prominent business leader as a tive focal point, this book explores the challenges of importing, from Europe and America, modern business enterprises to Japan, where the pursuit of profit was considered beneath the dignity of samurai gentle-men Financier Shibusawa Eiichi (1840–1931) worked strenuously to enhance the prestige of commerce and industry by establishing many joint-stock companies and contributing to educational and philanthropic organizations He also gave countless speeches emphasizing that business careers, which promoted the welfare of the nation, were indeed consis-tent with older Confucian values of loyalty and public service Throughout his career, Shibusawa promoted a vision of capitalism where shareholders and managers were legitimate in their pursuit of private profit in the marketplace only to the extent that their enterprises benefited the nation.Living ninety-one years, Shibusawa was first an activist against the Tokugawa shogun’s government When the futility of attacking foreign settlements and the shogun’s forces became apparent, Shibusawa switched sides and became an official hoping to reform the government from within

narra-He then became an adviser to the shogun’s brother on his journey to Europe for the 1867 Paris International Exposition In Europe, Shibusawa became

convinced of the importance of entrepreneurship and the ability to pool capital through joint-stock companies in stimulating a nation’s economic development With this in mind, Shibusawa returned to Japan on a per-sonal mission to elevate the formerly low status of merchants in Japanese society and encourage talented young people to consider careers in busi-ness Serving in the new Meiji government’s Ministry of Finance, Shibusawa worked on land tax reform and presented a proposal for orga-nizing joint-stock companies Leaving government, he became the head

of the First National or Dai-Ichi Bank, a post he held until the early twentieth century Active in the Tokyo Chamber of Commerce and a number of philanthropic institutions, he helped establish the public-minded civilian business leader as a new archetype in Japanese society An analysis of his life and work highlights many of the challenges and con-flicting objectives that business and government leaders faced in import-ing capitalist institutions to Japan

Shibusawa has long been held up as a model of both highly successful entrepreneurship and ethical business management As a capitalist orga-nizer credited with helping to establish nearly 500 new enterprises, he has few rivals in Japanese business history He was particularly adept in assembling teams of talented managers and lining up investors to found corporations that he believed necessary to Japan’s developing economy

He was also relentless in arguing that his businesses must profit not only

shareholders but also the nation as a whole Citing the Analects of

Confucius as his moral guide, Shibusawa maintained a reputation for

ethical leadership that inspired trust and encouraged investment in his enterprises Although Shibusawa would argue that one should behave ethically no matter what the consequences in the marketplace, it is clear that his promotion of what he called the “unity of morality and econ-omy” did not hurt his business success (Fig. 1.1)

The relationship between ethics and business has been long debated and the legitimacy of the profit motive has been questioned in many religious and philosophical traditions With corporate scandals and cases

of political influence-peddling perennial features in the daily news, ple worldwide are demanding that business and government leaders be held more accountable and that ethical education be strengthened to give the next generation of leaders a greater sense of their duty and

responsibility to the public Yet, few can agree on what exactly tutes a business’s “corporate social responsibility” or CSR Some argue that a firm’s main responsibility is to use resources efficiently to earn profits for shareholders while operating within legally defined limits Others suggest that businesses have a responsibility to go beyond simple legal compliance, and should contribute resources and be proactive in improving working conditions for employees, reducing  the impact of business activities on the natural environment, and considering  the wider social implications of business decisions

consti-The project, therefore, is not only of importance to the scholarly field

of Japanese history It also seeks to contribute to today’s international debate on the extent to which capitalist enterprises have a responsibility

to serve and benefit the societies in which they do business The book argues that attention to ethical issues in the education and training of future business leaders is essential in establishing appropriate limits on

Fig 1.1 Shibusawa Eiichi

Introduction: Shibusawa Eiichi and the Idea of Confucian…

the pursuit of profit, but recognizes that education and moral suasion require additional support Self-regulating business associations and gov-ernment institutions are also necessary to establish and enforce rules, which further encourage business leaders to make decisions consistent with the public interest Shibusawa’s story demonstrates that business, government, trade associations, and educational institutions all have valuable roles to play in establishing a political economy that is both pro-ductive and humane.

Global Concern for Business Ethics

and Corporate Social Responsibility

Capitalism has had a turbulent history and following the worldwide financial crisis of 2008, there have been renewed calls for greater atten-tion to business ethics and CSR. Put simply, movements for business eth-ics and CSR argue that business should have some priorities other than maximizing short-term profits for shareholders These priorities may include providing services to improve the surrounding communities, investing in technologies that reduce resource use or pollution or contrib-uting to social welfare organizations They may also include adhering to ethical norms of an industry that go beyond compliance with legal requirements Arguments in favor of business ethics and social responsi-bility usually fall into two categories

Most commonly, proponents of CSR argue that ethical behavior is good for business and contributes to the long-term sustainability and viability of an enterprise by generating goodwill among various stake-holders For example, Carly Fiorina, CEO of Hewlett-Packard said, in November 2003,

I honestly believe that the winning companies of this century will be those who prove with their actions that they can be profitable and increase social value – companies that both do well and do good…Increasingly, shareowners, customers, part- ners, and employees are going to vote with their

feet – rewarding those companies that fuel social change through business This is simply the new reality of business – o ne that we should and must embrace (Kotler and Lee 2005 , 6–7)

This perspective is relatively easy to deploy in an organization because initial costs of more ethical or sustainable practices can be justified in terms of future benefits

Another line of argument calls for ethical behavior because it is simply the right thing to do, based on religious and moral beliefs Even if there

is no future benefit to the organization’s bottom line, ethical and able practices should still be followed because they are good in their own right Religious organizations generally advocate ethical principles based

sustain-on a deity’s moral law as revealed in sacred texts This moral law ages justice in economic activity and prohibits deceit and exploitation of weaker parties Property in many religious traditions is considered a gift from God and human beings are required to act as good stewards of the goods with which they have been entrusted

encour-Secular arguments can also be made in terms of serving the general needs of society Stanley Bergmann, CEO of Henry Schein Inc., argues,Our task, in concert with government, academia, NGOs and civic society, is to work together to underpin the capitalist model with a strong eth- ical base We must infuse the public dialogue with the understanding that self-interest and the interest of society are integrally inter- twined It is as simple as this: The success of businesses dep ends on a healthy, thriving soci- ety (Bergman 2014 )

In this formulation, there are benefits to the firm for ethical behavior, but there are more indirect benefits that come from upholding ethical principles and sustaining the community and environment in which one does business

Whether justified in terms of long-run sustainability or religious and moral principles, following ethical business practices can be difficult in

Introduction: Shibusawa Eiichi and the Idea of Confucian…

competitive markets Business ethics, therefore, runs into the serious problem of how to encourage practices that may benefit employees, the environment, and wider society when the marketplace rewards produc-ing goods and services at minimum cost Managers in competitive envi-ronments sometimes have extreme incentives to cut costs and even falsify reports to maximize profits for shareholders How to overcome the pres-sure for short-run profits and motivate managers to work for not only the good of their firms and their own careers but also the benefit of wider society is the principal challenge for leaders who would like to develop a more ethical form of capitalism.

Although Japanese corporations have long had their own set of agement principles, Western-style CSR is a relatively new topic of debate With globalization, there has been a backlash against the costs to natural environments and human societies Faced with political opposition and threats of increased regulation, many multi-national companies have worked on reforming their business practices to be a more beneficial pres-ence in the communities where they do business Since 2003, Japanese companies have been developing CSR initiatives and seeking to comply with international norms on environmental impact and socially respon-sible investments David Vogel has outlined several approaches that Japanese firms can use to manage their CSR programs First, there are firms that see CSR as a defensive mechanism of insuring against risks to the company’s reputation by addressing issues for which similar firms have been criticized in the past Furthermore, firms have examined their environmental impact and have made changes in suppliers and produc-tion processes accordingly Finally, firms can also look for ways to con-tribute to solving basic problems in the societies in which they operate Vogel concludes that there are positive benefits for CSR programs in enhanced reputation, happier employees, and customer loyalty However,

man-he also notes that companies actively pursuing CSR do not perform matically better in the marketplace than companies that do not have CSR agendas The modest effect of CSR on business results can be a limiting factor and initiatives that are most likely to succeed are those that have both moral and economic rationales (Vogel 2014) Faced with competi-tive pressure, firms cannot afford to invest much in CSR initiatives if there

dra-is not also an economic benefit Shibusawa long ago believed that moral

considerations were top priority, but he also recognized that business leaders were not religious ascetics and that new enterprises needed to become economically viable to survive

With the growth of interest in CSR as a way of negotiating between the sometimes-competing demands between profit maximization and wider ethical concerns, scholars in Japan and abroad have taken a renewed interest in Shibusawa Eiichi’s life and thought as a historical example of combining moral leadership and successful economic entrepreneurship

In the initial stages of Japan’s economic development in the late- nineteenth century, before there were adequate institutions to enforce contracts and property rights, business leaders like Shibusawa formed networks of managers, sponsors in government, technicians, and inves-tors to reduce the risk and costs associated with economic transactions In economies with more mature institutional enforcement, these personal ties have become less essential, as contracts facilitate transactions between parties who do not know each other Nevertheless, a reputation for ethi-cal behavior remains important as companies face increased regulation and public backlash whenever fraud or mismanagement is exposed Shibusawa’s career is of interest as a historical example of pioneering efforts in establishing a reputation for ethical leadership

Virtue Versus Compliance in the East Asian

Tradition

Shibusawa Eiichi regularly cited the Analects of Confucius as the primary inspiration for his moral vision As we will see, his focus on the Analects

was his way of distilling a long and complex philosophical tradition into

a few key principles One of the most important of these principles was that cultivating virtue among the people through education was more effective than extensive legal regulation in creating a humane society Like advocates of business ethics and CSR today, Shibusawa believed that leaders had an ethical responsibility to care for more than just pursuing their own interests within formally defined legal limits

This line of reasoning had a long history in the East Asian tradition beginning with Chinese philosophers who thought deeply about human

Introduction: Shibusawa Eiichi and the Idea of Confucian…

nature and how to best organize and regulate society During the Spring and Autumn and Warring States periods (from the sixth century to

221 BCE) in ancient China, Confucian and Legalist scholars debated the question of how to recruit and motivate honorable officials Insights from these debates can be illuminating for us today, especially on whether to rely on the moral compasses of individual managers or to enact a more stringent system of legal regulations to foster business behavior more in line with positive social outcomes

As the name “Warring States” implies, territorial states of increasing size battled with one another for supremacy during centuries of civil war

in China from 479 to 221 BCE. Philosophers offered advice to the kings

of these territories on how to best strengthen their states, govern their people, and mobilize resources for war

Confucius believed that rulers could instill virtue in the people by lowing the moral principles of the legendary ancient sage kings and enacting rituals to teach these principles in daily life As he said, “Lead them by means of government policies and regulate them through pun-ishments, and the people will be evasive and have no sense of shame Lead them by means of virtue and regulate them through ritual and they will have a sense of shame and moreover have standards” (Ebrey 1993, 21) This was a form of virtue ethics in which the cultivation of moral character through education and practice was the most important avenue

fol-to moral and just leadership

It is important to note here that while Confucius believed in Heaven

as a moral force, he was concerned more with how human beings could work out the moral principles themselves rather than relying on divine assistance In his study of Chinese philosophy, Wing-tsit Chan found humanism to be the most important fundamental characteristic of Chinese thought This was “not the humanism that denies or slights a Supreme Power, but one that professes the unity of man and Heaven” (Chan 1963, 3) Having overthrown the Shang in the eleventh century BCE, the Zhou dynasty justified itself in terms of Heaven’s Mandate, which the Shang had lost by neglecting their duty to rule properly The Zhou, by contrast, deserved to receive Heaven’s blessing because of their virtue Where the Shang had worshiped the deity Di, the Zhou revered a less personal Heaven which acted not as a capricious god, but rather as an

impartial moral force (Chan 1963, 4) Confucius took this a step further

by refraining from discussing spiritual beings and focusing on how to promote virtuous human action Heaven had a will, but it left the regula-tion of human affairs to moral example (Chan 1963, 14–15)

However, other philosophers were skeptical of the notion that ing virtue alone was sufficient to get leaders to act in the public interest Legalist thinkers in the fourth and third centuries BCE like Lord Shang and Han Feizi, who focused more on institutional incentives did not share the Confucian belief in leading by moral example and argued that officials were self-serving and needed legal regulation through rewards and strict punishments to align their interests with the ruler’s As Han Feizi wrote:The sage’s method of governing is as follows He scrutinizes the laws and prohibitions, and once they are made clear, his officials are orderly He defines the rewards and punishments, and when they are fair, the people can be employed by the officials When the officials are orderly and the people are employed, the state will get rich and from that, the army will be strong Then it will be possible to succeed in establishing hegemony over other states (Ebrey 1993 , 35)

cultivat-The state of Qin followed Legalist prescriptions and developed a war machine capable of conquering the other states and unifying China in

221 BCE, but at a terrible cost So harsh were the Qin policies that the dynasty did not survive long after its founder’s death The Han dynasty, founded in 206 BCE, maintained many of the bureaucratic structures of the Qin, but patronized Confucian scholarship to put a more humane face on the regime and gained sufficient cooperation from elites to sur-vive several centuries With the Han dynasty, strong institutions were blended with a Confucian concern about ethical training through study-ing the wisdom contained in classical literature

Among Confucian scholars, the role of commerce in a virtuous society had long been problematic Confucius said that the person of noble char-acter understands integrity where the petty person knows about profit Confucian philosopher, Mencius later added that when a ruler discusses benefits of a policy rather than its moral rightness, it will not be long before all of his officials will begin seeking their own benefit rather than

Introduction: Shibusawa Eiichi and the Idea of Confucian…

what is right When the Han dynasty officials levied taxes and profited from official monopolies on salt, iron, and other commodities to pay for frontier fortifications in the north, Confucian scholars protested They argued that for the government to engage in commerce, it set a bad exam-ple for the people who should focus on agriculture rather than how they can make money through trade (Ebrey 1993, 18, 22, 61).

While there was likely a significant gap between the ideals expressed by officials and how people in China, Korea, and Japan conducted economic activity and organized their lives, Confucian tradition did shape how states both made and legitimated economic policy In cases like the Han debate on official monopolies, policies to develop commerce and indus-try had to be put in terms of contributing to strengthening the state and protecting the people The profit motive alone was an insufficient ratio-nale in official discourse

The Contested Relationship

Between Confucianism and Capitalism

Whether Confucianism has helped or hindered economic development

in East Asia has been the topic of much debate In developing his thesis

on Protestantism and the spirit of capitalism, Max Weber compared the trajectories of economic and social development in Europe and China and argued that Confucianism and bureaucratic officials had hindered the development of capitalism in China while Protestantism had encour-aged it in Europe Although Weber saw Confucianism as a rationalizing force and noted other conditions that were positive for capitalism’s devel-opment, competing for government positions was the primary focus of the Chinese elite and took away from entrepreneurial initiative (Molloy

1980, 383)

Indeed, for intellectuals in modernization movements in China and Japan during the late nineteenth and early twentieth centuries, Confucianism was a symbol of old traditions that needed to be elimi-nated if the countries of East Asia were to avoid colonial domination and become respected powers in the world The 1868 Meiji Charter Oath in Japan discussed abandoning the evil customs of the past and seeking

knowledge from throughout the world to strengthen “the foundations of imperial rule” (Lu 1997, 308) In a 1918 essay on the submission of women to men in traditional China, writer Lu Xun attacked men’s use of Confucian morality to dominate women and a double standard that enforced chastity for women but not for men He concluded by saying,

“…we must swear to get rid of meaningless suffering which blights our lives We must do away with all the stupidity and tyranny which create and relish the sufferings of others We must also swear to see to it that all mankind knows true happiness” (Cheng et al 1999, 238) In this pas-sage, Lu equated the implementation of Confucian doctrines in the clas-sical five relationships with tyranny and abuse For reformers like Lu, claims of Confucian moral virtue were little more than whitewash that masked a rotting society based on hypocritical arrogance and obsequious subservience Clearly, for late nineteenth- and early twentieth-century reformers in East Asia, Confucianism was often seen as a liability that would have to be swept away in a thorough cultural revolution if Asian countries were to have any hope in developing modern science, technol-ogy, and economic institutions to defend their independence

In contrast to these sentiments, other reformers in both China and Japan believed that Confucianism would remain the moral foundation of society while Western science and technology would serve as the means with which to protect that foundation The Self-Strengthening Movement

in China and early industrialization efforts in Japan looked for ways to blend Confucianism and modern enterprises Shibusawa Eiichi’s think-ing about how to operate capitalist joint-stock companies for Confucian ethical ends grew out of these reform attempts

Confucianism’s emphasis on orderly relationships and respect for authority has long been attractive to government elites seeking to quell opposition However, since authority in Confucianism is contingent on morally upright leadership, the philosophy is also encouraging to reform-ers seeking to end corruption and abuses of power Scholars are also quick to point out, however, that what we call “Confucianism” is a long and diverse philosophical tradition and we need to be careful not to oversimplify to the point of caricature As Peter Perdue cautioned, for example, “There is no simple direct link from ‘filial piety’ as a Confucian value to a family-centered firm Mediation matters In between values

Introduction: Shibusawa Eiichi and the Idea of Confucian…

and behaviors are institutional contexts, and individual decisions within those contexts” (Perdue 1999, 26) It is important, therefore, to trace the connections between thought and behavior and recognize that just because leaders like Shibusawa Eiichi refer to Confucian values and prin-ciples in their speeches, it does not necessarily mean that those values are their only explanation for their actions.

As capitalism and modern individualism developed after the Meiji Restoration in Japan, conservatives in Japan looked to Confucianism to

reinforce loyalty to the state Shibusawa Eiichi had long cited the Analects

as his moral guide Where he had been out of step with more radical reformers in the 1870s’ Civilization and Enlightenment movement, he found a more receptive audience in the 1890s and early 1900s

After the Second World War, however, the relationship between Confucianism and capitalism was cast in a much more positive light With the threat posed by Communism in the Cold War, conservatives again found Confucianism useful for social stability In Japan after 1960, workers in large corporations were expected to be loyal to the company and, in return, they could expect job security and seniority promotions With high rates of economic growth in Japan, China, South Korea, Hong Kong, Singapore, and Taiwan, the role of Confucianism in East Asian capitalism has been re-evaluated since the 1960s

Scholar Christian Jochim has also pointed out that many elements from various Chinese religious traditions are lumped together as “Confucianism” when trying to explain social and cultural contributions to economic development (Jochim 1992,  135) In contrast to Weber and the May Fourth intellectuals who viewed Confucianism and traditional Chinese culture as an obstacle to economic growth, Chinese and Western scholars

in the late 1970s and early 1980s began to talk about a set of Confucian” or “vulgar Confucian” values that spread to East Asian societ-ies that facilitated the growth of modern industrial capitalism (Jochim

“post-1992, 138) Jochim explains that Chinese scholars like Hou Jiaju had argued since the 1960s that Confucian economic thought not only pro-moted “diligence and thrift, tendency to save, respect for work, honesty, and harmony,” but also contained elements of “liberal economic thought, stressing free competition, self-interest, private property, and specific eco-nomic planning strategies” (Jochim 1992, 141) It is important to

remember that Confucianism can mean different things to different observers and has been seen as both supportive and stifling of modern economic growth

In 1991, a conference of scholars met to discuss the role of the Confucian traditions in East Asian modernity In the introduction to the resulting volume of essays, Tu Wei-ming wrote to refute Weber’s notion

of Confucianism as inhospitable to capitalism, “it has been shown that the Confucian ethic is not only compatible with the capitalist spirit but may have actually helped East Asia to develop a different form of modern industrial capitalism” (Tu 1996, 10)

As an attractive thesis that blends traditional values and modern nomic success, Confucian capitalism has in many ways become a mythic story This was precisely the point Souchou Yao made in the 2002 book

eco-Confucian Capitalism: Discourse, Practice, and the Myth of Chinese Enterprise Yao argued that the notion of Confucian capitalism was a

mythical rendering of Chinese economic development that belied the fact that there was great variation of Chinese entrepreneurial enterprises

in terms of size, scope, and organization Ultimately, Yao found that much of Confucian capitalism was mythic and depended on people’s faith in the idea or it has little effect on how companies are actually managed

As an ideological project, Confucian capitalism

is a subject of enthralling power To understand something of this power is to remember the con- trasting objectives it aims to serve: the need of Euro-American capitalism to find a way out of its doldrums, the agenda of East Asian states to pro- mote a new model of capitalist development, and the pursuit of identity by loca l and transla- tional ethnic Chinese elites (Yao 2002 , 166)

Confucian capitalism then is useful to conservatives who seek to import capitalist economic development while, at the same time, keeping existing elites in power

More recently, Yu Dan’s book on Confucianism became a sensation in China Daniel Bell suggested that the book achieved such widespread

Introduction: Shibusawa Eiichi and the Idea of Confucian…

appeal for several reasons First, it counters Weber’s long-standing idea that Chinese culture and modern economic development are incompat-ible Second, it questions the insatiable drive for more and more goods that create unsustainable levels of competition and anxiety Third, it opposes the rampant individualism and self-centeredness of modern soci-ety If people focus on their personal inner happiness, the whole world will also benefit (Bell 2008, 163–165) Yu Dan has been criticized on the scholarship behind the book as well as her “Daoist-inspired effort to depoliticize Confucianism” (Bell 2008, 170) By focusing on personal happiness, the Confucian moral obligation to be a social critic is under-mined Bell concluded, “In actual fact, her account is complacent, con-servative, and supportive of the status quo Confucius must be turning in his grave” (Bell 2008,174) Confucianism has been useful to Chinese political elites in strengthening respect for authority, but there is also the possibility that Confucian moral principles of reciprocity can become grounds for criticizing the state if it abandons its duty to promote the welfare of the people.

If the Confucian heritage in China is problematic, it is even more so in Japan where Confucianism was one of several schools of thought Although Japan was open to Chinese influence at various times in its his-tory, Confucianism did not enjoy the privileged position it had in China and Korea where mastery of the Confucian Classics was tied to political appointments through systems of examinations When looking at Shibusawa Eiichi’s life and thought, we see that the term “Confucianism” became a sort of shorthand for values that, on closer inspections, can be traced to a variety of sources In addition to the Confucian Classics,

Shibusawa derived his ideas from  Japan’s bushido  warrior code and

the Mito School’s reverence for the emperor He recognized Heaven as a moral force but found religious devotion to deities and spirits to be irra-tional Confucian morality to Shibusawa generally consisted of service to the nation and humanistic concern for public welfare

Confucian capitalism, therefore, is a contested thesis Confucianism itself is ambiguous and different scholars mean different things by the term Moreover, Confucianism has coexisted for millennia alongside Taoism, Buddhism, and local folk religions to the point that separating

what ideas belong to which thought system becomes impossible Confucianism’s relationship to modern economic development is even more problematic For years, scholars considered Confucian thought to

be antithetical and an obstruction to profit-seeking With the post- Second World War economic success of Japan, South Korea, Taiwan, Hong Kong, and Singapore, Confucian culture became associated with economic development

Confucian capitalism is an ideological construct that has both positive and negative characteristics On the positive side, it calls on economic actors to conduct themselves in socially constructive ways to advance public welfare For Confucian capitalists, government, business, and labor all have their respective roles to play in promoting prosperity for the people and strengthening the state so it can rule over a morally just soci-ety Morality for Confucian capitalists is generally defined in rational and humanistic terms as Heaven favors leaders who look out for the good of the people

On the other hand, critics of Confucian capitalism rightly point out some of its negative features Although Confucians talk about a hierarchy

of merit, Confucian societies can be authoritarian and rigid in practice Close relations between government bureaucrats and business elites can prevent new competitors from entering markets “Harmony” between management and labor often means concessions from labor, and govern-ment power is often used against emerging labor movements In this light,

“Confucian capitalism” can be another name for “crony capitalism.”

In the early stages of industrialization, crony capitalism may help to solve information asymmetry problems before functioning capital mar-kets develop In the event that close relationships between government and economic elites develop, an agenda based on Confucian ethics can be

a positive force to encourage elites to engage in pro-social behaviors rather than using their power and influence for personal ends Once an econ-omy has matured, as in the case of Japan, it then becomes necessary to dismantle close relationships between business and government leaders and allow markets to function more freely As this occurs, the emphasis

of Confucian capitalism needs to change from social harmony to istic concern for building a society in which individuals can flourish

Introduction: Shibusawa Eiichi and the Idea of Confucian…

Shibusawa Eiichi’s Vision of Confucian

Capitalism

Shibusawa Eiichi’s vision of Confucian capitalism was fairly ward He said he followed Confucius’s advice to never do to others what

straightfor-he would not want done to himself He also justified his business decisions

in terms of public service In his analysis of Shibusawa’s thought, historian

Masato Kimura defined the word Shibusawa used for “capitalism”

gap-ponshugi as “the idea of advancing enterprises by assembling the most

appropriate human and capital resources with the purpose and objective

of pursuing the public interest” (Kimura 2017, 129–130) In later life, Shibusawa would advocate for what he called the “unity of morality and

economy” symbolized by the union of the Confucian Analects and the

abacus, which merchants traditionally used to keep their accounts

Japanese accounts of Shibusawa’s life and thought often cite ment scholar Peter Drucker’s assessment of Shibusawa’s importance in modern Japan Drucker was interested in the rise of the modern corpora-tion in different cultural contexts and he established a vigorous following

manage-in Japan In a survey of history of professional management, Drucker wrote in his 1973 book:

In Japan, Eiichi Shibusawa (1840–1931), the Meiji statesman turned business leader, in the seven- ties and eighties first raised fundamental ques- tions regarding the relationship between business enterprise and national purpose, and between business leaders and individual ethics He tack- led management education systematically Shibusawa envisioned the professional manager first The rise of Japan in this century to eco- nomic leadership is large ly founded on Shibusawa’s thought and work (Drucker 1985 , 23)

For Drucker, Shibusawa was a pioneering leader not only in business management but also in navigating the role of business in politics and society

or what they thought that mattered in the real world Rather, it was the prospect of profit that often motivated people to action Shibusawa rec-ognized that profit was important to motivate people in commercial ven-tures, but he believed that it could not be the only motivation Consequently, he advocated careful consideration of how a venture would both profit individual investors and contribute to the development of the country By working for the good of the country, Shibusawa hoped that the status and influence of business leaders would increase in Japanese society (Shimada 2014, 4–5).

Shibusawa recognized that it was difficult to create new cultural ties overnight It was much more effective to remind people of longstand-ing values and enlist these values in service of new purposes than it is to make a sharp break with the past Shibusawa Eiichi spoke the ethical language of his audience and he understood the importance of creating networks of trust and used his personal story repeatedly to draw people into his projects To do this, he reformulated what he learned from the Confucian classics as a youth into an ideology of national progress to replace status by birthright with status earned through virtue, talent, and meaningful contributions to national welfare

priori-References

Bell, Daniel 2008 China’s New Confucianism: Politics and Everyday Life in a

Changing Society Princeton: Princeton University Press.

Bergman, Stanley 2014 Ethical Capitalism? It’s Worth a Try Huffington Post,

March 27 capitalism-its-wo_b_4666325.html

Introduction: Shibusawa Eiichi and the Idea of Confucian…

Chan, Wing-Tsit 1963 A Source Book in Chinese Philosophy Princeton:

Princeton University Press.

Cheng, Pei-kai, Michael Letstz, and Jonathan Spence, eds 1999 The Search for

Modern China: A Documentary Collection 1st ed New York: Norton.

Drucker, Peter Ferdinand 1985 Management: Tasks, Responsibilities, Practices

New York: Harper & Row.

Ebrey, Patricia 1993 Chinese Civilization: A Sourcebook 2nd ed and expanded

New York: Free Press.

Jochim, Christian 1992 Confucius and Capitalism: Views of Confucianism

in Works on Confucian Ethics and Economic Development Journal of

Chinese Religions 20 (1): 135–171. 

Kimura, Masato 2017 Shibusawa Eiichi’s View of Business Morality In Ethical

Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective, ed

Patrick Fridenson and Kikkawa Takeo Toronto: University of Toronto Press.

Kotler, Philip, and Nancy Lee 2005 Corporate Social Responsibility: Doing the

Most Good for Your Company and Your Cause Hoboken: Wiley.

Lu, David 1997 Japan: A Documentary History Vol 2 Armonk: M.E. Sharpe.

Molloy, Stephen 1980 Max Weber and the Religions of China: Any Way Out

of the Maze? The British Journal of Sociology 31 (3): 377–400 https://doi org/10.2307/589372

Perdue, Peter C 1999 China in the Early Modern World: Short Cuts, Myths,

and Realities Education About Asia 4 (1): 21–26.

Shimada, Masakazu 2014 Shibusawa Eiichi No Messeji Tokyo: Iwanami.

Tu, Weiming, ed 1996 Confucian Traditions in East Asian Modernity: Moral

Education and Economic Culture in Japan and the Four Mini-Dragons

Cambridge, MA: Harvard University Press.

Vogel, David 2014 Corporate Social Responsibility: Potential and Challenges

CSR White Paper Tokyo: Tokyo Foundation http://www.tokyofoundation org/en/articles/2014/csr-potential-and-challenges

Yao, Souchou 2002 Confucian Capitalism: Discourse, Practice and the Myth of

Chinese Enterprise London: Routledge Curzon.

Economic Change and Intellectual

Innovation in Tokugawa Japan

Shibusawa Eiichi’s vision of Confucian capitalism originated in the late Tokugawa-era (1603–1868) attempts by intellectuals to come to terms with economic change that overturned the older social order The samu-rai class depended on stipends that failed to keep up with increases in the cost of living As samurai fortunes declined, many commoners benefited from new commercial opportunities that economic growth created Governments at both the shogunate and domain levels attempted a series

of reforms to force people back into their designated social status ries, but these attempts generally failed To find new solutions, thinkers began to reinterpret Confucian, Shinto, and Buddhist doctrines While it may be an exaggeration to call these developments a spirit of Japanese capitalism to be compared with Max Weber’s famous Protestant ethic, farmers and merchants did begin to argue that the samurai were not the only virtuous members of society Commoners could also lead virtuous lives when they engaged in commerce that contributed to the realm’s prosperity

catego-The Tokugawa political economy was designed primarily for stability and order After a long period of civil war, the Tokugawa family prevailed over their rivals and established a central regime that carefully controlled

the activities of feudal lords known as daimyo to prevent rivals from

challenging Tokugawa power The Tokugawa family controlled the

cen-tral government of the shogun while the daimyo controlled their own

local domains In addition to Shinto and Buddhism, Tokugawa Ieysasu, who founded the Tokugawa Shogunate, and his descendants patronized Confucian scholarship to further support the political and social order The orthodox Confucian outlook held that farmers should be primarily engaged in subsistence agriculture with additional goods produced for the lord’s needs In spite of controls on commercial activity, domains discovered as early as the seventeenth century that they could improve their financial positions by encouraging their people to produce goods for the growing national market Domain monopolies on regional spe-cialty products emerged and government officials worked with merchants

to exploit commercial opportunities in such goods as silk, paper, lacquer ware, indigo, and ginseng As industries spread to the countryside, domain officials tried to control and profit from them With taxes focused

on agriculture, there were additional incentives for farmers to engage in cottage industries producing other products Shibusawa’s village was a good example of this pattern where the cultivation of cash crops like indigo was encouraged for the lord’s benefit while the private pursuit of profit was considered vulgar in official discourse

Shibusawa Eiichi was born on February 13, 1840 in Musashi Province, Hanzawa District, Chiaraijima Village, in what is now Fukaya-city in Saitama Prefecture His father was Yoshimasa and his mother was Ei His family’s income was based primarily on the production and sale of indigo Through the indigo trade, Shibusawa would develop commercial skills that would serve him well in his later career The region was relatively wealthy and villagers were accustomed to financial transactions of saving and lending money The Shibusawa clan consisted of around ten house-holds His father had been adopted into the main Shibusawa branch He was the third son of one of the wealthiest families in the area His family

of origin had aspirations of rising to samurai status, so they educated their sons in the classics and martial arts Eiichi’s own father was very strict in his insistence that he study the classics (Shimada 2017, 5; Tsuchiya

1989, 7–11)

Coming of age in the last years of the Tokugawa Shogunate, Shibusawa learned basic business skills helping his father manage the family’s farm

and indigo-processing enterprise Prizing education and having the means to support it, Shibusawa’s father had Eiichi schooled in the Confucian classics from an early age This education would allow Shibusawa to interact with the higher-ranking samurai class and move easily in elite circles in later life Like many young men of his genera-tion, Shibusawa was extremely ambitious and soon grew tired of farm life and joined a revolutionary movement to overthrow the Tokugawa Shogunate and expel Westerners from Japan Later abandoning this strategy, Shibusawa went with other zealots to Kyoto and became an attendant to the last shogun Tokugawa Yoshinobu He rose quickly in the Tokugawa ranks and was sent to France in 1867 for the Paris International Exposition There he became convinced of the need to develop Japan’s commercial power Returning to Japan after the Meiji Restoration of 1868, Shibusawa followed Yoshinobu into retirement in Shizuoka prefecture There he established a commercial cooperative to give former samurai officials new occupations in business and commerce (Fig. 2.1)

Fig 2.1 House in Chiaraijima where Shibusawa Eiichi was born (Photo Courtesy

of the Shibusawa Eiichi Memorial Foundation)

Economic Change and Intellectual Innovation in Tokugawa Japan

As we will see, farm families like Shibusawa’s took advantage of new commercial opportunities as urban monopolies broke down and local producers increasingly traded directly with buyers With new wealth came ambition for social advancement, and farmers as well as mer-chants pursued education in the Confucian classics and interpreted Confucian doctrines to find virtue in any occupation that was making

a positive contribution to serving one’s lord and bringing prosperity to the people

Changing Economic Conditions

and Entrepreneurial Initiative

In describing capitalism as a “relentless revolution,” Joyce Appleby asked a key question regarding early capitalist development: “How did entrepreneurs get out of the straitjacket of custom and acquire the force and respect that enabled them to transform, rather than con-form to, the dictates of their society?” (Appleby 2010, 7) For Shibusawa, the answer was to interpret Confucianism in such a way that he could simultaneously remain true to old values and pursue new commercial opportunities He also established connections with powerful patrons throughout his career and maintained those rela-tionships by proving himself both highly competent and trustworthy

He quickly rose in prominence because he had the social background that allowed him to understand a ruler’s economic problems and the education to propose solutions to those problems in terms acceptable

to traditional elites In the Tokugawa to Meiji transition, this meant justifying promoting new economic activity with Confucian ideals of bringing security to the realm and prosperity to the people through moral leadership

Shibusawa Eiichi’s thought and practice developed in his youth during the 1840s and 1850s, a period of profound change in Japan’s agricultural and commercial economy For years, older commercial centers around

Osaka and Kyoto had faced increasing competition from other regions and officially licensed trade was increasingly circumvented by intrare-gional producers These changes gave enterprising families like Shibusawa’s new commercial opportunities As we will see, these new economic opportunities created ideological tensions with the Tokugawa regime’s official Confucian philosophy Over time, intellectuals would emphasize the ruler’s Confucian duty to be benevolent and bring prosperity to the realm Although the samurai warrior elite resided at the top of the status hierarchy theoretically because of their devotion to selfless service, com-moners in the peasant and merchant classes argued that they, too, exhib-ited virtue by contributing to the prosperity of the people

The Japanese economy grew in fundamental ways from the late teenth to early nineteenth centuries First, demand for goods in Kyoto and Osaka led to the growth of agriculture and industry in the surround-ing Kinai region to grow rapidly As wages increased in the Kinai, there were increased incentives to take production to other areas of Japan where wages were lower, so new market connections and trade networks grew

eigh-As larger markets developed, production of handicrafts, textiles, paper, and other products also increased especially in the 1830s and 1840s This process was accelerated with the inflation that occured after authorities debased the currency in 1818 (Shimbo and Saito 2003, 341)

Government attempts in the eighteenth century to control economic change through currency manipulation and enforcement of official monopolies had occasional success, but generally failed to stop the growth

of commercial markets Currency during the Tokugawa era was issued both by the shogunate for nationwide use and by domains for local use After several failed reminting attempts, shogun Tokugawa Yoshimune’s

1736 minting provided a stable currency for many years to come This was part of shogunate official Tanuma Okitsugu’s policy goals of creating

a single national market with a standard currency and collecting tax not only on rice production but also on goods sold through a system of licensed guilds However, Tanuma’s attempts to boost revenue through trade association fees and interest on loans made with treasury funds failed to solve the shogun’s financial problems and regional markets con-tinued to grow (Shimbo and Saito 2003, 348–349)

Economic Change and Intellectual Innovation in Tokugawa Japan

Matsudaira Sadabobu’s retrenchment policies briefly curbed spending

at the end of the eighteenth century, but shogun spending increased idly thereafter Failing to find other sources of revenue, the shogunate attempted to profit from reminting the currency in 1818 and again from

rap-1828 to 1832 The shogun’s finances improved temporarily from debasement and the resulting inflation had far-reaching effects on the economy, especially in rural areas With changes in the shogun’s currency policies in the early nineteenth century, domains issued their own notes, generally based on silver, which were used in local transactions With the growth of the rural economy, smaller denominations of currency were needed and the domains issued penny notes to meet this need (Shimbo and Saito 2003, 350–354)

Matsudaira became Senior Councilor in 1787 In 1788, after a great fire, Matsudaira traveled around the Kyoto and Osaka area to survey the damage There he invited the Neo-Confucian scholar, Nakai Chikuzan to submit an opinion on government Nakai drew inspiration from Zhu Xi, one of the most influential Chinese Confucian philosophers, who advo-cated a reduction in the number of government officials managing public granaries by building local granaries and letting the people manage them

at the local level Matsudaira’s policies of enlisting local leaders in Osaka and Edo to manage public funds emerged from these ideas This eventu-ally became the Seventy Percent System where twenty percent of admin-istrative savings was returned to the farmers, ten percent went to unmet public needs, and seventy percent became locally managed mutual aid funds for poor relief and other needs (Otani 2011, 61–63)

Shibusawa would later cite Matsudaira Sadanobu’s Edo era social fare policies as an important influence on his thinking about economic morality In several speeches, Shibsuawa held Matsudaira up as an exam-ple of an official who actually took his responsibility to care for the poor seriously (Otani 2011, 61–63) Matsudaira Sadanobu as a supporter of both Confucianism and poor relief clearly resonated with Shibusawa In contrast to other officials who Shibusawa believed lived in luxury at the expense of those who barely had enough to live, Matsudaira was someone who drew inspiration from scholars of Confucius, while at the same time, finding practical ways to address contemporary problems Moreover, Matsudaira’s approach of delegating more responsibility for alleviating

social problems to private-sector elites also resonated with Shibusawa’s personal experience and sense that local farmers and merchants had a bet-ter sense of economic problems and their solutions than did government officials

Attempts to control prices in Edo and Osaka failed as budget deficits and large currency issue aggravated price inflation Rice prices rose par-ticularly dramatically after bad harvests in 1836 and prices for other goods remained high thereafter The shogunate attempted to control the situation with austerity measures and sumptuary laws prohibiting peas-ants from leaving agriculture Shogunate senior councilor Mizuno Tadakuni’s Tenpo Reforms were announced in 1841 which exhorted peasants to refrain from secondary occupations and resume their proper focus on agriculture Officials believed that peasant morality had eroded

as people were enticed by luxuries and fine clothing above their station and exhorted them to renounce these in favor of frugality and hard work Meanwhile, urban consumption was curtailed by cutting government expenditures upon which merchants depended and banning luxuries and entertainment (Crawcour 1997, 24–27)

Councilor Mizuno also disbanded the chartered trade associations and restricted domain monopolies In the 1850s, the shogun’s government tried to reinstate the domain monopolies, but by then it was too late Osaka’s merchant control over the circulation of goods declined, leaving greater opportunities for producers and merchants in the countryside Regional and inter-regional trade continued and expanded as a result In the early eighteenth century, most goods for the Edo market were pro-duced in the region around Kyoto and Osaka and passed through Osaka’s merchant houses Over time, domains were increasingly bypassing Osaka markets and producing goods for inter-regional trade networks (Shimbo and Saito 2003, 360–361)

The Tenpo era deflation in the 1840s was devastating to villages ducing goods for market With their products no longer profitable, many peasants became unemployed and drifted into the cities Shogunate and domain officials tried to force them back to their villages and organizers like Ninomiya Sontoku were trying to create local village cooperatives to encourage peasants to work for the good of their local communities Meanwhile, Mizuno tried to implement a program of controlling

Economic Change and Intellectual Innovation in Tokugawa Japan