Grass-roots industry in the town of Sakaki: an alternative perspective of the Japanese post-war "miracle"

Copyright (C) 1992, 2004 by Christopher Romig Keener

Japan in the spotlight

Stereotypes of Japan, Inc.

Japan is very much in the forefront of Western media today. Japan has become an economic super-power, its GNP only second to the United States. Tokyo has become an important international metropolis attracting representatives of Western corporations and governments. The country of one hundred million people living on that small chain of islands south of Korea has amazed us with its potential to play the game of industrialism whose rules the West determined and until now dominated. What began as a curiosity in the 1960s and 1970s with the Japanese post-war economic "miracle" generated self-questioning during the 1980s and has led to an uncomfortable tension of out-right accusations and name calling in the 1990s. We are told that our own problems are largely due to the evil conspiracy of Japan's adversarial trade practices.[1]

Our notions of Japan are skewed through conflicting images of, on the one hand, traditional aesthetics and philosophies- the beauty of balance in temples and gardens of Kyoto, the sense of poise and refinement of geisha, and the austerity and straightforwardness of Zen- and, on the other hand, modern concentration of political and corporate power and wealth in Tokyo and Osaka. Japan has been stereotyped as a monolithic organization out to conquer the entire world; as early as the beginning of the 1980s, it was being referred to as "Japan, Inc." Countless works of social science and pop non-fiction have been written about centralized and hierarchical industrial networks, the relationship between government and industry, and the export orientation of a well-oiled machine with its own markets closed to the outside.

Beyond "Japan, Inc."

There are other sides we are not told about, other experiences about which we do not learn. Japan is not just a country of large corporations and life-time employment. In fact, the majority of the labor force works in small companies under less envious circumstances. Yet we hear little about the small companies and regional areas beyond the glittery lights of Tokyo and Osaka. In order to have a fuller understanding of the cause of Japan's post-war "miracle," of the conditions under which the Japanese live, and of the direction Japan may proceed in the coming century, we must examine other facets of its culture and society beyond those upon which we have almost exclusively focused.

It was a yearning for other explanations of Japan's "miracle" that led me from Tokyo with its Western creature comforts to the small town of Sakaki in the mountains hundreds of kilometers away. Sakaki captured my attention because of astoundingly high levels of economic performance (surpassing even those of much larger regional cities) as well as the strength of its independence of industry and ingenuity.[2] Certainly much of what has happened in the growth of industry in the town during the post-war era might be explained in terms of the programs of national government and business practices of large export-oriented urban corporations, but there are other explanations equally important which only become apparent by examining Sakaki's story in more detail. While the experience of Sakaki may not be representative of other towns all over the country, surely it offers some indication about life in regional areas, small enterprises, and their role in the post-war "miracle" as well as their challenges and fate in the future.

The basis of our understanding of Japan's industrial economy: a review of social science research

Early inter-firm studies: traditional vs. modern

In 1958 James Abegglen wrote the first major Western scholarly monograph of a Japanese factory. Abegglen's study and other early studies were interested in highlighting the special characteristics that Japanese economic organizations had adopted as opposed to their Western counterparts due to their very different pre-industrial cultural and historical background (Clark 1979; Cole 1971; Rohlen 1974). They documented the work, hiring, and promotion practices, the division of labor, special properties of inter-firm unions, and business relationships as well as the relationship of the firm to the society-at-large. Whereas Abegglen's first study initially attracted the attention of only organizational theory and other specialists, today's scholars[3] publishing on this topic enjoy front-page newspaper coverage and the attention of the world's most powerful politicians.[4]

Shift to organizational and institutional focus

Curiosity about how western economic organizations had become translated into a very different cultural setting gave way in the late 70s and early 80s to a stronger pragmatic interest in the practices of Japanese companies and the possibility of applying Japanese organizational practices in Western factories to improve efficiency and management practices perceived as lagging in the West. Ouchi's famous "theory Z" (1981) argued that the most successful large corporations in both the US and Japan have comprehensive "corporate cultures" which affect all aspects of their business. Abegglen and Stalk (1985) have advocated the adoption of aggressive long-range competitive strategies which have led to the success of Japanese corporations in capturing ever increasing proportions of market share. Dore (1987), Pascale and Athos (1981), and Vogel (1979) have advocated an examination of select aspects of Japanese enterprise and societal organization in order to correct problems in deteriorating systems in the West. These authors have made direct and indirect arguments about the urgency to adopt successful practices from the Japanese in order to remain competitive.

Government leadership and strong government-industry coordination

Perhaps the most dominant recent explanation for Japan's post-war economic "miracle" has been made by a group of scholars focusing on government stewardship of industry and close relationships between government and big business. Chief among these works is that of Chalmers Johnson's (1982) study of the role of the Ministry of International Trade and Industry (MITI). Johnson largely dismisses other explanations for Japan's development, among them many of the cultural and organizational explanations of other scholars. His message is about managed trade: essentially that Japan's post-war growth can be attributed to successful, thoughtful, and comprehensive long-range planning on the part of government ministries who provided incentives and maintained close ties with industry in order to promote their goals. Johnson's argument adheres well with the emic view of Japanese social scientists and corporate elite, the so-called nihonjinron[5] thesis, for example the notion of tate shakai (hierarchical society) described in Nakane's famous work (1970).

Other Western attention on the centers of Japanese power have not been so well received by Japanese. Most recently, the Dutch journalist, Wolferen (1989) has painted a more insidious picture of the collusion of government bureaucrats and industrial giants. Wolferen argues that such practices are extreme in comparison to government-industry relationships in the developed nations of Western Europe and North America. Wolferen's book has stoked a fire that began as embers of curiosity, was peaked by notions of competition, and finally most recently roars out of control as Western countries try to make the "unfairness" of Japanese industrial practices and strong centralized, hierarchical control of supply and demand the scapegoat for their own serious domestic ailments. This situation has given rise to the current climate: of Japan-bashing (nihon-tataki) or the Japanese equivalent, kenbei.[6] Valuable international relations are threatened to be severely curtailed as misunderstandings are compounded.

Keiretsu: the importance of strategic inter-firm relationships

One of the problems, I believe, is that we have a better understanding at this point of the characteristics of large-scale organizations and the networks that they control. A very serious group of scholars, including Michael Gerlach, James Lincoln, and Mark Fruin, have helped us to understand the special properties of Japan's keiretsu, or industrial networks (Fruin 1987; Gerlach 1987; Gerlach and Lincoln 1990) including the emphasis on long-term profit perspective and vaguely defined but long-lived inter-firm relationships. Regardless of the intent of the scholars to promote a deeper understanding of important aspects of Japan, this scholarship has led to a popular notion that Japanese industrial networks and markets are virtually impenetrable.

My view is that the best way to correct those misconceptions is to provide additional perspectives of experience within Japan's industrial networks. Much of the work to-date has focused on larger companies and the networks which radiate outward in a complex hierarchical fashion. Such research gives us a valuable overview of these relationships, but it is one largely colored through the eyes of Japan's giant trading companies. Therefore, these networks should also be explored from the perspective of small companies, that is to say from the bottom-up.

Studies on the small firm

There is a dearth of research on the experiences of small companies in Japan. The topic of keiretsu itself was not advanced until the mid-80s, so that earlier monographs, even of small and mid-size companies, do not offer the entire perspective needed today. Little has been published on small enterprises by Western scholars; Patrick and Rohlen (1987) provide one of the only offerings, an overdue survey of the topic. The topic of small enterprise, however, has received the attention of Japanese scholars. Since the proposal by economists that Japan had a two-tiered industrial structure of large companies and shitauke (subcontractors), Japanese economists and others have occasionally given treatment to the latter (Sato 1983). Tadao Kiyonari has published considerable macro studies of the trends and special situations of small companies (Kiyonari 1987, 1988a, 1988b).[7] The studies thus far give a good overview of some of the interesting issues in the experience of small businesses, but do not yet offer a detailed account of specific sites and companies.

Interest in regional industry

Kiyonari and others have taken considerable interest in small towns like Sakaki which have become little "miracles" themselves. Some of these scholars are continuing to do follow-up, diachronic research. A major aim of the Japanese research of this topic has been developing government policy to cope with problems experienced by small towns and small companies. Under MITI-led programs, a system of "technopoli" have been proposed throughout rural Japan, to promote hi-tech, small-scale industries (Tatsuno 1986). Local town governments have been active developing so-called machizukuri (town making) plans to promote industry and commerce.

Enriching an understanding of post-war industrial development through a long-term, holistic viewpoint

The research on the industrial development of Japan during the post-war period has only touched the surface. The perspectives explored are valid but represent only a small part of the phenomenon. Many other potentially valuable positions of analysis have not yet been pursued. In the large part, the research to-date has treated large-scale organizations from a top-down perspective. More examination of the situation of small enterprises, from a bottom-up perspective is needed. Studies of contemporary governmental and industrial organizations have tended to portray them frozen in time, or, at most, in terms of their post-war history, but a longer time perspective yields interesting insights into the meaning of modern events. Moreover, research to-date has tended only to examine political and economic aspects of large organizations and society; often seemingly unrelated phenomena can end up having a substantial role in the formation of these systems. We must delve further to examine issues like the social status of the participants of the industrialization process and the legacy of past systems of social organization. Furthermore, companies are generally considered to be rational capitalistic enterprises, but they are very much bound by social traditions and expectations which have a great effect on their behavior and that of their owners, management, and workers. It is these perspectives that I hope to reveal through the story of Sakaki. It is not my contention that the research that has preceded this study is invalid, but that it needs to be supplemented with other viewpoints.


Sakaki as a mecca of industry[8]

Sakaki has become a mecca for Japanese scholars, press, and bureaucrats from national and regional government seeking to discover the secrets of its dynamism. The heyday of this external attention upon the town was perhaps the early to mid-80s during which Sakaki doubled the value of its industrial output. What interested scholars and outsiders was how a small town of Sakaki's scale could produce a volume of industrial output. In 1986 Sakaki was the top ranked governmental autonomy (including all cities, towns and villages) of Nagano prefecture in terms of the percentage of population engaged in manufacturing work, income per capita, and gross per capita product.

The standard tour of Sakaki companies that is given to outsiders only brings the guest in direct contact with entrepreneurs and high-level managers. There is no opportunity to mix with the busy factory workers, either on or off the job. Of roughly 7,000 jobs in the town, 2,500 are filled by residents of surrounding areas, whereas nearly 2,000 Sakaki residents work out of town.

     per-capita               per-capita earned           per-capita gross    
  employment ratio                 income                     product         

rank town/city        %     rank town/city   income     rank town/city    gross 
==== ============= ====     ==== =========== ======     ==== ============ =====
   1 Sakaki (T)    41.7        1 Sakaki (T)     139        1 Sakaki (T)     884 
   2 Minowa (T)    27.2        2 Fujimi (T)      89        2 Fujimi (T)     496 
   3 Fujimi (T)    26.4        3 Okaya (C)       78        3 Suwa (C)       459 
   4 Okaya (C)     25.2        4 Minowa (T)      77        4 Minowa (T)     450 
   5 Miyota (T)    24.8        5 Shimosuwa (T)   73        5 Shiojiri (C)   436 
   6 Toyoshina (T) 22.4        6 Miyota (T)      73        6 Tobu (T)       436 
   7 Shimosuwa (T) 22.0        7 Suwa (C)        72        7 Toyoshina (C)  427 
   8 Tatsuno (T)   21.4        8 Tatsuno (T)     67        8 Miyota (T)     418 
   9 Maruko (T)    21.2        9 Toyoshina (T)   65        9 Komagane (C)   383 
  10 Suwa (C)      20.2       10 Maruko (T)      59       10 Tatsuno (T)    362 
     average       13.7          average         38          average        238 

  workers' average            gross product per            value added per    
       salary                      worker                      worker        

rank town/city   salary     rank town/city    gross     rank town/city    value 
==== =========== ======     ==== ============ =====     ==== ============ =====
   1 Suwa (C)       357        1 Shiojiri (C) 2,537        1 Suwa (C)     1,361 
   2 Omachi (T)     338        2 Toyono (T)   2,366        2 Tobu (T)     1,024 
   3 Fujimi (T)     338        3 Tobu (T)     2,351        3 Toyoshina (T)1,008 
   4 Sakaki (T)     336        4 Suwa (C)     2,270        4 Shiojiri (C)   917 
   5 Shimosuwa (T)  333        5 Saku (C)     2,239        5 Sakaki (T)     897 
   6 Tatsuno (T)    314        6 Ina (C)      2,214        6 Nagano (C)     843 
   7 Okaya (C)      309        7 Komagane (C) 2,201        7 Fujimi (T)     842 
   8 Shiojiri (C)   306        8 Sakaki (T)   2,112        8 Saku (C)       811 
   9 Ueda (C)       300        9 Nagano (C)   2,069        9 Matsumoto (C)  800 
  10 Miyota (T)     297       10 Toyoshina (T)1,909       10 Omachi (C)     794 
     average        280          average      1,739          average        703 

TABLE 1: Sakaki's ranking in selected 1986 prefectural industrial indicators.

Notes: (T) and (C) denote "town" and "city" respectively. All currency figures are in tens of thousands of yen. Average values are for all cities and towns in Nagano prefecture. Source: Town of Sakaki.

Reasons given for Sakaki's "miracle"

The story of Sakaki's industrialization is written in a chronicle and a rehearsed interpretation is offered to visitors from outside by the staff of the town government and Chamber of Commerce. Several elements are offered as key to Sakaki's industrial "miracle."

The first element said to have contributed to Sakaki's "miracle" is its proximity to Tokyo. In the present-day this means ease in shipping to Japan's most urban center, to which most of the industry in the northern half of the country is tied. Sakaki firms are very much tied to Tokyo for livelihood. In pre-modern day, it is said that the road to Tokyo gave Sakaki an early opportunity to exploit the latest information from the city.

The second element said to have contributed is the climate. While Sakaki like most of Japan has cold winters and hot humid summers, it enjoys lower-than-average precipitation, which has been a curse to rice agriculture, but has advantages to industry. Metal parts are said to be easier to handle, since they are less prone to rust due to low levels of precipitation. Low snowfall means ease and reliability of transportation.

The third factor contributing to the miracle is said to be a sort of Yankee ingenuity possessed by the people of Sakaki, and the entire mountainous region of which it is a part, referred to by its old name Shinshu. Poverty in farming is said to have created incentive for education and ingenuity. To this day, older people in Japan revere the quality and reputation of the Shinshu educational system, even though in recent years it has fallen in national test-score rankings to the very bottom. It is said that somehow out of poverty came great creativity and yearning, the kernel of the spirit of Sakaki enterprise.

Other aspects of the Sakaki "miracle"

Small independents and subcontractors

Local government officials like to explain that Sakaki is a kind of anomaly, in that its companies are independent, not dependent subcontractors of the large urban industrial groups. This is only a half truth. Certainly a solid core of Sakaki's companies are independent firms, relatively small organizations that sell their own brand products on domestic and international markets, but the majority of Sakaki companies are actually subcontractors. Some of these companies provide components to Sakaki's independents. Many of them have become directly tied to large urban industrial networks, the keiretsu networks (described by Gerlach and others).

Merchant vs. samurai mentality

One of the differences between small and large companies in Japan is the tradition that informs their organization and behavior. Whereas large firms are bureaucratic in their operation, small firms tend to be centered around the families by whom they were founded and follow merchant traditions of business. In large companies, the stereotypical employee that has been portrayed by scholars and in pop press is the salary man (Vogel 1973), the modern counterpart to the samurai of the feudal period. The salary man's career and advancement is determined by logical rules based on criteria like seniority; division of responsibility within the firm is decided by purely rational procedure. In the small company, positions of authority are reserved for family members and a strong division is made between family and non-family which is compensated for by a benevolence whereby family members are responsible for looking after those that work for them. Sakaki companies were very much informed by the merchant and not the bureaucratic traditions and his deeply influenced their development.

Flexible specialization

At least one American scholar has seen in a brief tour of Sakaki companies a clue to Japan's industrial development unaccounted for in the top-down theories of Johnson and others. Friedman (1988) has proposed that small Japanese factories have developed a strength and resiliency in their production techniques which is unequaled in Western firms of corresponding scale. Friedman's argument is that the small Japanese firms have developed flexible production systems by which they can manufacture relatively small numbers of a specific product over a short time period and re-tool their manufacturing capability for new products. On a continual basis, these firms are completely altering the products which they manufacturing. What Friedman is arguing is that this capability of smaller firms has allowed the large Japanese industrial groups to respond quickly to market trends and develop lines of products very short life-cycles.

Unplanned grassroots movement

Most of the works on Japanese industrial development by social scientists, even studies about other rural sites, have demonstrated the importance of government coordination of industry and top-down keiretsu control. Cusumano's study (1985) of Nissan and Toyota only serves to reinforce this analogy, so does the data that McDonald (1990) reports. McDonald's study is of a small town, Nakaniida, in northern Honshu in which local elite, taking advantage of incentives set up by national legislation, have brokered the attraction of subsidiaries of large urban companies into their town. These local government bureaucrats organized the tracts of land for industrial plants, assembled the corps of workers for them, and convinced outside companies to take advantage of substantial tax and other incentives.

Unlike Nakaniida, Sakaki's industrialization was not a story of top-down, pre-meditated and well-orchestrated planning. Certainly local industry did not develop in a vacuum; ultimately Sakaki companies profited greatly from national and local government support as well as from the business generated by external markets for their products, but much of the development occurred unplanned, and in a chaotic and uncoordinated progression.

Changing circumstances in Japan and Sakaki

Since its heyday in the 80s, Sakaki companies have faced increasingly difficult challenges to maintain competitive prices of finished products, levels of technology to assure future livelihood, and work conditions to attract workers. The heady days of the mid-80s are gone, several of the prominent companies of that era have gone bankrupt and the tour circuit for outsiders has dwindled to a hearty few. Not that the late 80s were times of crisis; the local and national economies continued to grow.

The high valuation of the yen

The Plaza Accord of 1985 was the single event that set the tone from the mid 80s. This accord was an agreement between the Group of Seven Leading Industrial Nations (G7) to allow the yen to float on the world market and achieve a value reflective of trends in international transfer of capital in recent decades. During the decade before the accord, the yen had fluctuated little, hovering around the figure of 250 yen to the Dollar which had become so commonplace it was typeset in the margins of guide books and dictionaries. The Japanese government had been stabilizing currency markets for years in order to keep its own currency low in value and thus the products of its industry competitively priced in world markets.

The Plaza Accord resulted in a kind of dam burst. Within a year of the agreement, the yen had increased in value 60%; within three years the buying power of the yen had nearly doubled. The relative price of raw materials, so vital to an island nation with few of its own, dropped because of the greater value of the yen. But the higher yen also meant that, should the prices of Japanese manufactured products not be adjusted down, they would suddenly become much more expensive on world markets. In order to maintain precious market shares large Japanese corporations aggressively down-priced their products on world markets and turned to their domestic component suppliers to look for ways of cutting the cost of manufacturing and rationalizing final assembly.

Companies throughout the nation achieved great strides at enhanced productivity during the late 80s. While initially hard hit by the urgency to reduce costs, parts suppliers ultimately benefited from increased order levels. The world economy was still expanding and Japanese corporations focused their energies on increasing market share even if it meant barely breaking even or losing money in the short run. At first, companies were able to reduce costs by automating operations further, in order to produce greater volumes with the same size of workforce. But as automation reached levels of economic feasibility, companies needed to increase their workforce to keep up with the demand and labor had become increasingly scarce.

Anxiety about the future of small business

The economy of the late 80s has recently been referred to as the "bubble economy," implying that it was expansion without any substance on which to fall back. When the bubble economy "popped" during the gulf war, the effects started to be felt all over Japan. In Sakaki, the effect of the current recession has been a sharp decline in orders. Current measures have included reducing the number of shifts or the amount of overtime required of workers, resulting in declining levels of take-home pay for nearly all laborers, but little displacement of individual workers so far.

There have not yet been any layoffs or bankruptcies in the town as a result of the present recession, but Sakaki companies are currently on a downward economic trend, the aspects of which are somewhat different in nature than ever before. Under pressure to produce higher quantity levels at lower cost and, consequently, with a leaner workforce, Sakaki independents, as well as subcontractors, have had little margin for engaging in activities not resulting in immediate short-term return. Many subcontractors have become increasingly reliant on their large urban clients to provide them with technologies for new products. Independents are increasingly finding it difficult to compete with the levels of technology available to large industrial groups.

Changing aspirations of youth

The labor market in Japan has been affected, not only by dwindling family size, but also by changing aspirations by Japanese youth regarding occupation and lifestyle. Older generations have been relatively complacent, accepting harsh working conditions as the only way to improve conditions for their offspring, but younger generations have been born in times of relative luxury. Today's youth do not know the hardships that their parents survived in the years during and immediately following the war, and they have been spoiled by their parents, whose first priority has been to shield them from such hardships so that they could devote their full attention to studies in order to transcend the harsh conditions of their parents' experience altogether.

Today's youth are not inclined toward factory work with its dirtiness, long hours, and poor rewards. Instead they would prefer to hold a desk job in a large corporation with relatively short hours and a high degree of employment security. Their parents will be proud and satisfied should they find employment at one of a number of "name brand" national corporations or even one of its similarly named subsidiaries.[9] Towns like Sakaki have few white-collar positions and these are only normally reserved for individuals who have demonstrated their loyalty to a firm through many years of employment.

Coinciding with the change in preferences regarding the workplace and work content, the young have increasingly tended to migrate toward the cities. The clear majority of white-collar jobs available in Japan are in Tokyo and Osaka. Young people tend to end up in the cities for post-secondary education, so it is an easier transition for them to seek employment in the cities than returning to their home towns. They would also prefer to use performance-based systems of recruitment in the cities which have no strings attached, than family connections in the countryside which might obligate them to living at home or other restrictions on their behavior.

The rift between the older and younger generations threatens the cultural reproductive capability of the town. Ideologies of sacrifice for their children and freedom from local power among the members of the older generation seem to have become employed in ideological forms of hegemonic power in the industrialization process. These ideologies may also have affected social scientists' views of Japan, suggesting that a re-analysis of the "miracle" is necessary.


[1] Robert B. Reich (1992) has surveyed the escalation of anti-Japan books culminating most recently in a novel by Michael Crichton, Rising Sun, in which fictional characters are set against the background of the growing trade friction.

[2] It had attracted the attention of Japanese scholars and press during the 1980s for very much the same reasons (Tokumaru 1987).

[3] Abegglen became a valued consultant to American corporations during his tenure at the Boston Consulting Group and today enjoys considerable attention in his own management consulting firm and as a professor of Sophia University, a prominent college in Tokyo.

[4] For a good review of the treatment of Japanese organizations through the last few decades, see Lincoln 1990.

[5] Literally, "the Japan thesis." This is the strong philosophy of Japanese "uniqueness" which motivates much native literature on Japanese society and has largely influenced the work of most Western social scientists. Recently Mouer and Sugimoto (1986) have addressed themselves to debunking the myths and separating ideology from reality.

[6] ken means hatred, bei signifies the US; the term is said to have derived from the work of a Japanese novelist, Yasuo Tanaka, after the gulf war, to describe a gut level contempt for bullying and unreasonable demands by the United States.

[7] He and others became interested in a well-publicized boom of so-called "venture" businesses in the early 1980s. These firms espoused a Western philosophy of independent capitalization based on the quality of one's visionary ideas for developing new product lines, as opposed to more traditional patterns of support from and linkage to larger companies in terms of capital and technology. See Sekido (1985) for a good example of the philosophy and business approach in one Sakaki firm, Soar, a popular destination of visitors in the mid-80s.

[8] Here I use the word "industry" in both its meanings to encompass not only the industrial development in the town but also the hard work and diligence of the workers, founders, and contemporary managers of Sakaki's factories.

[9] Many the subsidiary of a large corporation benefits from having the name of its parent company in its name. For example, a company like "Mitsubishi Computers Corporation" might be a 500 employee subsidiary of Mitsubishi Corporation, a mammoth trading company. It is presumed that the latter trading company owns a majority stake in the former, smaller company and would intercede on its behalf to preserve the Mitsubishi name should the smaller counterpart encounter business hardships. While I know of no such cases in Sakaki, I am familiar with several companies in Tokyo that changed their names to add the name of their parent in order to bolster recruiting efforts.

Grass-roots industry in the town of Sakaki: an alternative perspective of the Japanese post-war "miracle"

Copyright (C) 1992, 2004 by Christopher Romig Keener.

         CHAPTER 2
         CHAPTER 3
         CHAPTER 4
         CHAPTER 5