JULY/AUGUST 1990 - VOLUME 11 - NUMBERS 7 & 8
G U E S T C O L U M N
Pickens vs. Japan, Inc.
by T. Boone Pickens
This is the first of an occasional Multinational Monitor guest column on controversial topics. Americans have acquired a taste for many Japanese products, but the Japanese cartel system that has engineered Japan's economic growth is one thing we should never accept. One year ago I had no idea what a "keiretsu" (a Japanese cartel) was. Through my experience as the largest shareholder in a Japanese auto parts manufacturer, I have become all too familiar with keiretsu, and the threat it represents to consumers and free trade throughout the world.
My investment company, Boone Co., had the rare opportunity to purchase 26 percent of a Japanese company, Koito, and given the prosperity of Japan, it seemed like an investment with great potential. I have just returned from my second Koito shareholders meeting in Tokyo, and what I've learned from that experience and my 18 month involvement with corporate Japan is shocking.
Koito is part of the Toyota keiretsu. Toyota, owning 19 percent of Koito, manipulates the company through many former Toyota employees who now sit in executive positions or on one of Toyota's three board seats at Koito. Toyota is also Koito's largest customer, buying more than 50 percent of the headlights the company produces. The way Toyota exerts influence on Koito, blocking my participation in the company, is a classic example of Japan's keiretsu.
keiretsu is the latest evolution of Japan's economic system. Today's keiretsu exploit laborers, markets, capital and the free market system to entrench a few powerful elites at the top of Japan's industrial empire, and fuels Japan's continued growth.
Keiretsu is not nearly as blatant as the feudal systems of the past. Indeed, the real threat of keiretsu may be in its subtlety. Names like Toyota, Nissan, Sony, Mitsubishi and others, merely brand names to consumers around the world, are actually keiretsu-bosses which control Japan.
Through a system of cross-ownership and forced reliance on the keiretsu for large production orders, each of the keiretsu member companies develops an unbreakable dependency on the keiretsu. Any resistance to the wishes of the keiretsu superior could result in a supplier being thrown out of the keiretsu, thus ruining the supplier's business.
There are some Japan-apologists who claim that keiretsu is a major part of Japanese culture and the rest of the world should just accept it. This culture-base rhetoric is a sham. A keiretsu is a cartel, and a cartel is a cartel is a cartel. Any economic system that benefits a few at the expense of many is wrong and will ultimately fail.
More than 100 years ago, the U.S. economy rejected control of cartels, and for good reason. Consumers, small businesses, innovation and entrepreneurship all suffer when ultimate control of the marketplace is vested in too few hands. At the very time when U.S. principles of democracy and equality are sweeping the globe, we can't afford to lose sight of the economic foundation which has afforded us those freedoms.
As we enter a new era of global trade, we have two alternatives: continue pressing our case in the international arena that free trade and fair competition is the best way for all nations to continue prospering; or, alternatively, change our laws to allow cartels to form in this country to compete with Japan's keiretsus.
Taking a step backward, as the latter suggests, is not the choice any nation interested in the future should make. Our trusts were outlawed by tough anti-trust laws and since then, the U.S. free market economy has led the world in productivity and maintained the highest living standard in the world. Now is not the time to lose sight of our own economic achievements.
In the past 30 years, the Japanese economy has been the miracle of the world, and in that time its cartels have become world powers in their own right. They have created a great deal of wealth, but only a few elites at the top have benefitted at the expense of workers and consumers.
The cost of living in Tokyo is as much as 60 percent more than in New York. The standard of living for Japanese workers is inferior to that of their U.S. counterparts, and, increasingly, reports of deaths from overwork and exhaustion are leaking out of Japan, much like the sweatshop stories of the United States' own cartels earlier in this century. This also increases skepticism about Japan's supposed superior, and culturally-driven, work ethic.
European and North American technology and labor is not inferior, it simply competes on a more equitable footing with the rest of the world, and chooses not to exploit laborers.
If Japan, and not just its cartels, is to become a true global power, it will have to limit the power of its cartels and compete fairly in the world. Upgrading the living standard of its people is a good place to start. By keeping out foreign competition, forcing high prices on consumers and limiting full benefits of labor to workers, Japan's cartels are restricting Japan's power in the world.
Some Japanese business people and politicians are saying that Japan can afford to say no to the rest of the world. But truthfully, Japan can only stand up to the rest of the world when it has said no to its cartels.
The Japanese people know the truth about keiretsu; through the last year I have received hundreds of letters of support.
Most poignant for me was the appearance of a Japanese auto executive before a Congressional committee. Because his keiretsu-boss would destroy his company if his identity were revealed, this courageous businessman flew to Washington, D.C. and testified anonymously before Congress. Protected behind a screen, he asked Congress to help Japan say no to the cartels.
As I watched this, I thought about how this man had lived his life, building a company, supplying a good product and employing hundreds of people. Yet even in his success, he saw the deficiencies of a system that would allow his company only so much success. He told of how he was forced to cut prices, how his keiretsu supporters constantly threatened to cut him off and ruin his business if he didn't comply with their demands.
In what should be the pinnacle of his career, this man, under maximum security, made his way to a foreign capital asking for help, because, he said, in Japan his requests would fall on deaf ears.
Other Japanese people have written expressing their support for our cause as well. Many of the letters support the witness's claim that change in Japan will only come as a result of external pressure. There is a realization by many of those who wrote that this may be the last, best hope to break up the keiretsu system.
As Americans become more aware of what keiretsu is, the disparity in our trading relationship becomes clearer. Demands on the Bush administration and Congress to put more pressure on Japan to break up the keiretsu system have increased as people realize the United States can compete, but that the cartel system in Japan makes it impossible to compete fairly.
The growing awareness and concern about keiretsu has led to investigations launched by the Federal Trade Commission, the Commerce Department and the Justice Department. Each of these investigations stresses the antitrust implications of keiretsu as it affects U.S. ventures in Japan, as well as the threat of keiretsu in the United States.
These are unprecedented investigations into the use of laws stretching beyond one country's borders to protect citizens doing business with another country. The support for the investigations has been broad. Additionally the Koito affair has been discussed by President Bush and Prime Minister Kaifu, as well as during the Structural Impediment Initiative (SII) negotiations (designed to alter trade structures to eliminate the U.S. trade deficit with Japan).
This is what Koito has wrought during the past 16 months. Koito has spent, according to spokesmen, over $1.5 million fighting us--money that could have been distributed to its shareholders. In its efforts to protect Toyota, Koito has become the focus of major international legal investigations, Congressional legislation and of business people around the world interested in free trade.
The Japanese government has assured U.S. negotiators that it will open up the keiretsu system. These pledges made during the recently completed SII talks show the good intentions of the Japanese government. The ability to translate those good intentions into action remains to be seen.
Koito is where those promises can be tested with cold reality. The way to judge Japan's sincerity is for Koito to put me on the board of directors for one year. Let us build a relationship based on trust and the mutual interest of the company's success.
I went to Japan as a shareholder interested in doing business. I was up-front with my intentions toward Koito; I invested in the company for the long-term. My interests then were purely business related--I saw an opportunity to share in the management and growth of a Japanese auto parts manufacturer during a period of unprecedented growth in Japan's auto industry.
The events of the past year have convinced me that Koito's battle against me is much more than a business transaction. It has become an example of the frustrations building inside Japan, as well as with Japan's trading partners, concerning the unfair practices of keiretsu.
This is about the long-term--the future of trade relations between Japan and the United States, about the future of the Japanese shareholder, consumer and working family. This is about the future growth of the world's economy due to expanded free trade.
T. Boone Pickens is the General Partner of the Mesa Limited Partnership.