Edwards Deming and Historiography of Manufacturing in Japan
The immediate post-World War Two (WWII) period witnessed unprecedented economic recovery following the most devastating conflict in history. Besides, the era saw an impressive scale and strength of unmatched international cooperation. According to the World Economic Survey (2017), countries like Japan engaged in wartime price regulations and rationing to manage high inflationary pressures until around 1948. Takada (1999) emphasizes that Japan’s defeat in the war provided a fresh economic start for the Japanese who had lost everything they had built during the war years. America’s occupation of Japan marked a significant turning point because it was the trigger for the reform policies for reconstructing and recovering the devastated nation and ultimately establishing the opportunity for becoming the economic superpower. Some of the transformation programs included the breaking up of the zaibatsu, land reform, and the democratization of labor. The changes significantly impacted the democratizing and modernizing of the nation and its ability to grow (Takada, 1999). Industrial rebuilding represented Japan’s post-war recovery, with the aim of developing the nation’s manufacturing. Therefore, the arrival of Edward W. Deming to Japan in 1946 marked a crucial phase as the country was looking for ways to improve the quality of its manufactured goods (Petersen, 1987). Odaka (2001) claims that the reduction of inventories, elimination of product defects, and maintaining enduring and stable relationships with a single assembler are the peculiar characteristics of the Japanese machine factories. These features have a history in Deming’s statistical quality control, which marked the recovery of manufacturing in Japan after the war.
Background to Deming’s Quality Control Philosophy
Quality improvement was a common phenomenon in the United States (US) during the twentieth century periods of industrial production. According to Neave (1987), Dr. Deming represents a significant figure of the third Industrial Revolution wave, who self-described as a consultant in statistical studies. He is considered to be responsible for the dramatic turnaround in Japan’s industrial fortunes since the mid-1950 to date. Neave (1987) notes that Deming’s philosophy incorporates the widespread utilization of statistical methods and ideas across the organization with a management approach mostly entirely disparate with Western traditional and current practice. Deming’s first notable application of his philosophy was in 1939 after his invitation to the Bureau of the Census to be Head Mathematician and Advisor in Sampling (Neave, 1987). Hence, his influence and training in the application of sampling methods and statistical control resulted in up to a six-fold productivity increase in the 1940 Census (Neave, 1987). There were also cost-saving benefits amounting to hundreds of thousands of dollars and the much sooner publication of the census results than the usual period. Deming also participated in statistical quality control training of people involved in the war effort during American involvement in WWII. Importantly, his program enormously affected the quality and volume of production, especially in reducing scrap and rework. Nevertheless, the post-war markets absorbed anything the American manufacturers produced, without much care for the wartime emphasis on quality improvement. The short-term profit goal that favored sales overshadowed Deming’s contributions in the industry.
Consequently, the Japanese borrowing of American industrial technology ushered Deming into the Asian market that could still appreciate his methods and practice. Odaka (2001) observes that twentieth-century Japan borrowed significant US industrial technology, after advancing from its limited reliance on Edison’s light bulbs. However, with the arrival of Deming in 1946, the Japanese search for ways of quality improvement of their manufactured goods ended (Petersen, 1987). He first arrived in Japan, working as a sampling techniques advisor to the Supreme Command of the Allied Forces. Petersen (1987) argues that the state of the Japanese industry, following the end of WWII, was at a low web because all its resources had been exhaustively used to support the war effort. The Allied raids had also destroyed most of the primary production facilities, leaving a limited portion of the country’s industrial base for consumer goods production in a state of inefficiency and worn to a near-collapse state. Although the produced commodities were of poor quality, consumers purchased them because of the short supply and strong demand for items unavailable during the war (Petersen, 1987). Hence, the transition from wartime to the civilian environment brought with it many problems for Japan to overcome.
Thus, Deming’s footprints in Japanese manufacturing started with offering quality control training sessions while interacting with the statisticians in Japan. According to Petersen (1987), Deming introduced the philosophy of the critical manager’s role in quality control, which Japanese managers learned and put into practice. He considered the decline of Western industries as a product of western management’s failure to act responsibly. Deming noted that most top managers in the West only targeted to raise the quarterly dividend and maximize the company’s stock price (Petersen, 1987). Contrary to the self-defeating quick returns, whose long-turn effect erodes investment, Deming recommended that corporations should adopt methods for product and service improvement to decrease costs and increase the level of quality. Consequently, the producer would capture the market with better quality and a reduced price, which promoted business sustainability and continued employment for the workers (Peterson, 1987). Therefore, while implementing his philosophy in Japan, Deming noted the decline of the western industry as connected with numerous factors. They included the price tag governing materials and equipment purchase, the absence of methods to achieve goals, the lack of investment in knowledge, and the training and supervision failures (Petersen, 1987). Accordingly, Deming proposed the Fourteen Points as the response to the problems, which primarily represented adopting a management philosophy in Japan that was opposite from that of the Western world.
The Effect of the Zaibatsu Dissolution on Japanese Industry
Origin and Role of Zaibatsu
According to Grabowiecki (2006)), Japan underwent intensive modernization of its socio-economic and political systems in the second half of the 19th century, following the Meiji Restoration of 1868. The period witnessed reforms that marked a transition from the feudal system into a more open capitalistic economy and an enlightened monarchy. Therefore, the 1880 Decree Concerning Factories Sale transferred all corporations put into full operation into the hands of private investors (Grabowiecki, 2006). The efforts targeted to support the development of the home industry and capital, thereby representing mass privatization of all state-owned enterprises. Consequently, the wide-scale sales enabled the development of large zaibatsu conglomerates that partnered with the government to undertake numerous projects covering minerals like coal, copper, gold mines, ironworks, and a glass factory (Grabowiecki, 2006). Addicott (2017) describes the zaibatsu as the uniquely Japanese flavor business conglomerates, literally termed ‘financial clique,’ that emerged following the Meiji Restoration. The zaibatsu developed naturally from the expansion of the old money changing businesses and the decline of the Samurai class (Addicott, 2017). The reforms inspired the tradesmen to privatize the Japanese industry and contributed to the formation of a working capitalist economy by including the conglomerations in industrial and financial planning. Addicott (2017) notes that an example of the zaibatsu was the Mitsui Company, which was mandated to create a new currency and to form a national bank after the Restoration. Therefore, the formation of the new financial institutions marked the beginning of capital generation for the zaibatsu business empire expansion. The conglomerates borrowed significantly from the Western business firm, which the Japanese interpreted and adapted to create their own. In other words, the zaibatsu marked the era of industrialization in Japan after the Restoration. Hence, their expansion and domination reached a broad spectrum of enterprises. The entities were essential to the Japanese territorial and economic expansion ambitions, with state power significantly reliant on raw material access, military power projection ability, and profitable and numerous colonial accomplishments.
The Wartime Restructuring of the Zaibatsu
Grabowiecki (2006) argues that the 1923 Kanto earthquake and the Great Recession of the second half of the 20s significantly altered the liberal nature of the zaibatsu. For example, the new conditions caused financial inadequacies because of the bank bankruptcies, which in turn resulted in a more dominant role for the banking sector in the financial system. After the military coup in 1934, the Japanese period of democratic government ended. Subsequently, the incoming authoritarian regime brought with it an era of planned industrialization (Grabowiecki, 2006). The five-year plan of economic development extended state control over the industry from Manchuria to the whole of Japan, targeting increased production levels in selected lines of industry. The government became more involved in the provision of financial resources, technology, and raw materials for industrialization. Grabowiecki (2006) asserts that there was increased centralization in 1937, thus affecting labor wages, industrial production control, foreign trade, profit allocation, and investment level and structure. The wartime mobilization saw the rapid development of the zaibatsu that then engaged in developing heavy and chemical industries and the expansion of financing investment.
However, with the outbreak of the war, the State Planning Ministry implemented the New Economic System that transferred private corporations from profit-oriented entities into units focused on undertaking national objectives (Grabowiecki, 2006). Therefore, the reforms represented a total mobilization structure not limited only to state influence in the economy but covering all social relations entailing political compulsion. The government war mobilization efforts enforced considerable restrictions on owner right to capital and corporation management, thereby substituting market competition by planning and order systems matching the Soviet Gosplan model (Grabowiecki, 2006). It also limited the scope of economic freedom and competition, with conformity to the war-oriented economy and the directives of the military and administrative authorities. The family clans also lost their influence over the zaibatsu.
The Zaibatsu Dissolution
After the end of the war, the American occupation ushered in political, social, and economic reforms that included the dissolution of the zaibatsu family conglomerates. Grabowiecki (2006) considers the changes to have considerably altered the ownership structure by eliminating large private capital. The purpose of the dissolution was to create conditions for establishing competitive corporations in modern economic sectors. Hence, the free enterprise economy replaced the zaibatsu system, to some extent aligning with the American ideology and experience (Grabowiecki, 2006). The reforms also aimed to decentralize the economic program as a way of allowing the Japanese businesspeople the opportunity to participate in the modern sector of the economy. In other words, the zaibatsu dissolution removed the conditions of private collectivism that favored only a few families from engagement in the industry. Addicott (2017) emphasizes that the downfall of the zaibatsu was liked not only with the military nationalization of most holdings but also suffered severe damage by the conflict. The Supreme Commander for the Allied Powers (SCAP) comprising of Americans with the experiences of the Great Depression, Keynesian economists mostly targeted liberal fiscal and monetary programs. (Addicott, 2017). The policies were similar to those of President Roosevelt’s American New Deal and destroyed ten of fourteen zaibatsu conglomerates. Most of the entities were sold back to the public in 1948 to set up a Japanese middles class (Addicott, 2017). Flath (2014) emphasizes that the three measures directed at the large industrial firms in Japan constituted the expropriation of securities holdings, the purging of management personnel, and forced liquidation of tangible, substantial company assets.
Furthermore, the zaibatsu dissolution was based on the notion that the family-based, large industrial, and financial entities were an essential source of the Japanese military power. Therefore, the General Head Quarters (GHQ), also SCAP, regarded them as obstacles to the emergence of a democratic business society (Hamada & Kasuya, 1992). The GHQ liquidated the stockholding companies that represented the zaibatsu and deprived them of their role, which resulted in the dissolution of the two trading companies: Mitsui Bussan and Mitsubishi Shoji (Hamada & Kasuya, 1992). The enactment of the Antitrust Law in 1947 and the concurrent establishment of the Fair Trade Commission (FTC) broke up business power concentration. They accorded the industries more flexibility (Hamada & Muhensia, 1992). Consequently, new enterprises could compete more freely despite not belonging to any zaibatsu group. The purge of business leaders who had cooperated with the military government paved the way for young people to be promoted to top positions. Therefore, the Japanese industry could benefit from new management in conducting business activities with youthful vigor, intensity, and flexibility. Hamada and Muhensia (1992) observe that the zaibatsu morphed into the keiretsu following the San Francisco Peace Treaty of April 1952 as it revised the monopoly restrictions and countervailed the FTC’s power. The new establishments transformed business relations into much less hierarchic, increasingly democratic, and more functional contacts compared with the zaibatsu. Importantly, the keiretsu represented Japan’s second pillar for the rapid economic growth after the departure of the Allied occupation forces. The new organizations lasted for decades and became a part of the Japanese pursuit of global economic power to rival that of America, at the expense of focusing on other social goals. Importantly, an exceptionally educated population contributed significantly to the country’s economic development, even taking Japan to levels surpassing the US as a global leading commercial powerhouse (Hamada & Muhensia, 1992). Due to the fierce competition, the companies adopted new production or technological innovations and operated in a tariff-protected business environment that allowed fast growth. Overall, the entire journey from the zaibatsu to the keiretsu represents the Japanese industrial development and expansion into a modern nation.
Factors for Japan Economic Recovery after the War
The rapid growth of the Japanese economy from the 1950s to the early 1970s was a product of numerous factors. According to Takada (1999), one reason for the expansion was the people’s cumulative effort and hard work. For example, the Japanese possessed the unique characteristic and ability to emulate and enhance the learned skills and apply them to their systems. Takada (1999) illustrates their uniqueness in economic expansion by improving and making practical use of imported technologies and technological knowledge from foreign nations. Although Japan asserted the production of little technology, it was capable of creating low-cost mass production systems that combined numerous technologies adopted from abroad. The Japanese then translated imported technology into industrial-strength by integrating with local innovation (Takada, 1999). Japan’s industry successful improvement of the quality of the special steel used in automobiles illustrates the technological influence in one sector on the growth in many other industries. No wonder, the progress in the casing of parts led to the growth of the automobile sector into a competitor in the international market. In short, technological modifications and improvements stimulated industrial development on more productive ways to grow. Consequently, the Japanese economy could compete globally as a premier commercial power that could rival countries like the US.
Additionally, the Japanese economic recovery in the post-war period was a product of the efforts of policy-making authorities that sought to protect and sustain growth. Takada (1999) argues that the political system programs supported the Japanese people’s efforts, and included the Yoshida Doctrine. The policy aimed to set the nation’s immediate goals of economic reconstruction and development while letting the US army handle defense to save on military expenses (Takada, 1999). Consequently, Japan could focus all its monetary resources and strength solely on economic reconstruction. The Doctrine advocated for a pacifistic and non-militaristic Japanese role as the core of its modern diplomatic identity. Furthermore, Ikeda implemented the Income Doubling Plan in 1960, intending to double the Japanese workers’ revenue and set a high standard of living from 1961 to 1970 (Takada, 1999). The program achieved its goal by increasing the investment amounts by the central government to the private and public companies. Besides, the policy targeted the increase in the amount of foreign trade with other nations, thereby leading to heavy industrialization. The role of the Ministry of International Trade and Industry (MITI) also catalyzed the rapid expansion. According to Takada (1999), the Ministry encouraged and guided private business initiatives by giving them a critical advantage. The un-level playing field supported the industries the government identified as having prospects for long-term success. MITI’s focused growth was on the steel, chemicals, machinery, and shipbuilding industries because they had rapidly growing global markets, and their expansion would facilitate international market entry and quicker economic development (Takada, 1999). Hence, the Ministry’s guidance and technological distributions to specific businesses helped in the Japanese industrialization and contributed to growth.
Moreover, the zaibatsu dissolution represented a primary event for the changing business conditions in Japan, which enabled the flexibility of Japanese firms to undergo a change process. Takada (1999) notes that one of the transformations was the complete changing of managers and eliminating the owner-manager trend. Accordingly, hired professional executives conducted the firms, instead of the administrators who acquired their positions from inheritance. The new management model facilitated better working conditions within the organization and enabled domestic and international competition (Takada, 1999). The professional managers relied on aggressiveness, as opposed to soundness, in a changing environment with intensified business rivalry (Takada, 1999). Furthermore, the labor-management relations stabilized because the union took an active role, and the lifetime employment system became adopted. Therefore, the company unions displayed their loyalty in exchange for a favorable structure and eased employee management.
Conclusion
Japanese manufacturing was a part of the unprecedented post-war economic recovery emanating from price regulations and rationing for inflation management. Deming’s arrival in Japan represents a significant point for the country’s adoption of his quality improvement philosophy. The Japanese also borrowed American industrial technology, an aspect that introduced Deming and his quality control philosophy in the Asian country. Deming offered training sessions that emphasized the critical role of the manager in quality control. Additionally, the zaibatsu conglomerates represented a period of modernization of Japan into a capitalist economic system. However, at the end of the war, the zaibatsu was dissolved to enhance the competitiveness of Japanese corporations. The restructuring of the economy saw a significant rebound of Japan manufacturing due to numerous economic, administrative, and the cumulative efforts and hard work of the people. Fundamentally, the Japanese recovery from the war was linked with the importation of foreign technologies and adapting them to their local practices.
References
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