The Mushroom at the End of the World: On the Possibility of Life in Capitalist Ruins (17 page)

Meiji-era traders associated themselves with industrial enterprises. Industry needed raw materials gained through trade; trade and industry flourished together. In the early twentieth century, the boom economy associated with World War I allowed large conglomerates to form, encompassing banking, mining, industry, and foreign trade.
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In contrast to twentieth-century U.S. corporate giants, these conglomerates, the
zaibatsu
, were coordinated by finance capital, not production: Banking and trading were central to their mission. From the first they were
involved with government business (Mitsui, for example, had provided the money to overthrow the shogunate);
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in the run-up to World War II, pressed by Japanese nationalists, the zaibatsu became increasingly entangled with imperial expansion. When Japan lost the war, the zaibatsu were the first targets of the U.S. occupation.
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The yen lost its value; the Japanese economy was in shambles.

In the first days of the occupation, it seemed that the United States was favoring smaller firms, and even the advancement of labor. Soon enough, however, the American occupiers arranged for the rehabilitation of once-disgraced nationalists and rebuilt the Japanese economy as a bulwark against communism. It was in this climate that associations of banks, industrial enterprises, and specialists in trade formed again, although less formally, as
keiretsu
“enterprise groups.”
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At the heart of most enterprise groups was a general trading company in partnership with a bank.
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The bank transferred money to the trading company, which, in turn, made smaller loans to its associated enterprises. The bank did not have to monitor these small loans, which the trading company used to facilitate the formation of supply chains. This model is well made to stretch across national borders. Trading companies advanced loans—or equipment, technical advice, or special marketing agreements—to their supply chain partners overseas. The trading company’s job was to translate goods procured in varied cultural and economic arrangements into inventory. It is hard not to see in this arrangement the roots of the current hegemony of global supply chains, with their associated form of salvage accumulation.
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I first learned about supply chains in studying logging in Indonesia, and this is a place to see how the Japanese supply-chain model works.
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During Japan’s building boom in the 1970s and 1980s, Japanese imported Indonesian trees to make plywood construction molds. But no Japanese cut down Indonesian trees. Japanese general trading companies offered loans, technical assistance, and trade agreements to firms from other countries, which cut logs to Japanese specifications. This arrangement had many advantages for Japanese traders. First, it avoided political risk. Japanese businessmen were aware of the political difficulties of Chinese Indonesians who, resented for their wealth and willingness to cooperate with the more ruthless policies of the Indonesian government, were targets in periodic riots. Japanese businessmen evaded
such difficulties for themselves by advancing money to Chinese Indonesians, who made the deals with Indonesian generals and took the risks. Second, the arrangement facilitated transnational mobility. Japanese traders had already deforested the Philippines and much of Malaysian Borneo by the time they got to Indonesia. Rather than adapting to a new country, the traders could merely bring in agents willing to work with them in each location. Indeed, Filipino and Malaysian loggers, financed by Japanese traders, were ready and able to go to work in cutting down Indonesian trees. Third, supply-chain arrangements facilitated Japanese trade standards while ignoring environmental consequences. Environmentalists looking for targets could find only a grab bag of varied companies, many Indonesian; no Japanese were in the forests. Fourth, supply-chain arrangements accommodated illegal logging as a layer of subcontracting, which harvested trees protected by environmental regulations. Illegal loggers sold their logs to the larger contractors, who passed them on to Japan. No one need be responsible. And—even after Indonesia started its own plywood businesses, in a supply-chain hierarchy modeled on Japanese trade—the wood was so cheap! The cost could be calculated without regard to the lives and livelihoods of loggers, trees, or forest residents.

Japanese trading companies made the logging of Southeast Asia possible. They were equally busy with other commodities and in other parts of the world.
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Let me return to the early post–World War II period when these arrangements were emerging to see how this system developed. Some of the first postwar supply chains from Japan made use of ties with Japan’s former colony, Korea. At this time, the United States was the world’s richest country and the best destination for every country’s wares, but it had imposed a strict quota on goods imported from Japan. Historian Robert Castley tells the story of how Japan helped build South Korea’s economy to avoid U.S. quotas.
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By transferring light industry to South Korea, Japanese traders could export more products freely to the United States. Yet Japanese direct investment was resented in Korea. Thus Japan adopted what Castley calls a “putting out” approach. “It involved merchants (or firms) supplying subcontractors with loans, credit, machinery and equipment to produce or finish goods, which would be sold in distant markets by the merchant.”
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Castley notes the power of traders and bankers in this strategy: “the Japanese
offered long-term contracts with overseas suppliers and frequently loans for the development of resources.”
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This form of expansion, he says, was a form of political as well as economic security in Japan.

The putting-out system transferred less profitable manufacturing sectors and older technologies to South Korea, clearing the way for Japanese businesses to upgrade. According to this model, which Japanese proponents later graced with the image of “flying geese,” Korean businesses would always be one cycle of innovation behind Japan.
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But all would be flying forward, in part because Koreans could then transfer their own outdated manufacturing sectors to the poorer countries of Southeast Asia, allowing Koreans to inherit new rounds of Japanese innovation. South Korean elites were happy to benefit from Japanese capital—some of it transferred as war reparations. The resulting business networks formed models for the transnational expansion of capital in Japan, including the work of the Japanese-controlled Asian Development Bank.

By the 1970s, many kinds of supply chains snaked in and out of Japan. General trading companies organized cross-continental supply chains for raw materials, becoming some of the richest companies in the world. Banks sponsored enterprises across Asia with links to Japan. Meanwhile, producers had organized their own supply chains, sometimes called “vertical keiretsu” in the English-language literature. Car companies, for example, subcontracted the development and manufacture of parts, saving costs. Mom-and-Pop suppliers made industrial components at home. Salvage accumulation and supply-chain subcontracting had grown together.

The combined result was so successful that U.S. businesses, and their government supporters, could feel the heat. The success of Japanese cars was particularly painful to American pundits who had become used to thinking of the U.S. economy in relation to its cars. The appearance of Japanese cars in the United States, and the related decline of Detroit’s car companies, sparked public awareness of Japan’s rising economic fortunes. Some business leaders jumped to learn from Japanese success, showing interest in “quality control” and “corporate culture.”
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Other business leaders sought U.S. reprisals against Japan. A wave of public fear emerged. One index was the 1982 murder of Chinese American Vincent Chin, mistaken for a Japanese by unemployed white autoworkers in Detroit.
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The threat posed by Japan unleashed a U.S. revolution. Reverse Black Ships overturned the U.S. order of things, but through U.S. efforts. Empowered by public fears of U.S. decline, a small group of activist stockholders and business school professors, who might otherwise have never gained a hearing, were allowed to dismantle American corporations.
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The activists of the 1980s “shareholders’ revolution” reacted to what they saw as the erosion of U.S. power. To regain it, they aimed to take back corporations for their owners, the stockholders, rather than leaving them in the hands of professional managers. They began to buy up corporations to strip them of assets and resell them. By the 1990s, the movement had won; the radical chic of “leveraged buyouts” became the mainstream investment strategy of “mergers and acquisitions.” As corporations rid themselves of all but their most profitable sectors, most of what had once been inside those corporations was contracted to distant suppliers. Supply chains, and thus commitment to their distinctive form of salvage accumulation, took off as the dominant form of capitalism in the United States. This worked so well for investors that by the turn of the century, U.S. business leaders had forgotten that this shift was part of a struggle for position and had recast it as the leading edge of an evolutionary process. They were busy cramming the world into this process, and had, indeed, made headway in enforcing an American version in Japan.
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To understand how Japan’s threat had faded requires going back a bit—and allowing money to emerge as a protagonist of the story. In the 1980s and 1990s, lots of things shifted because of confrontations between the dollar and the yen.

In 1949, the yen was pegged to the U.S. dollar as part of the Bretton Woods agreements. As the Japanese economy flourished, in part through nonreciprocated exports to the United States, the U.S. balance of payments with Japan suffered.
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From the U.S. perspective, the yen was “undervalued,” making Japanese goods cheap in the United States and U.S. exports to Japan too dear there. U.S. anxieties about the yen were one small part of the situation in 1971 that led to the U.S. abandonment of the gold standard. In 1973, the yen was allowed to float. Then in 1979, the U.S. raised interest rates, attracting investment in the dollar and keeping its value high. Because the Japanese economy continued to export to the United States, the Japanese government bought and sold
U.S. dollars to keep the price of the yen low. In the first half of the 1980s, capital flowed out of Japan, keeping the yen weak in relation to the dollar. By 1985, U.S. business leaders had panicked about this situation. In response, the U.S. engineered an international agreement, the Plaza Accord. The value of the dollar was lowered, and the yen rose. By 1988, the yen had doubled its value in relation to the dollar. Japanese consumers could buy almost everything abroad—including matsutake. National pride rose; this was the moment of
The Japan That Can Say No
.
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However, the situation made it difficult for Japanese companies to export their goods, which now were priced too high.

Japanese companies responded by sending more production abroad. So did their suppliers in South Korea, Taiwan, and Southeast Asia, also reeling from the change in currency values. Supply chains traveled everywhere. Here’s how two American sociologists describe the situation:

Faced with the sudden increase of the dollar value of their factor inputs, and eager to keep their prices low and thus maintain their contracts with American retailers, Asian businesses quickly began to diversify. Most of Taiwan’s light industries … moved to … mainland China, but also to Southeast Asia…. Large segments of Japanese export-oriented industries moved to Southeast Asia. In addition some firms, such as Toyota, Honda, and Sony, established portions of their business in North America. South Korean businesses also moved labor-intensive operations to Southeast Asia, as well as to other developing countries in Latin America and central Europe. In each place that they established their new businesses, low-price supplier networks began to form.
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The Japanese national economy went into shock—first with the “bubble economy” of inflated real estate and stock prices in the late 1980s, then the “lost decade” of recession in the 1990s, then the further financial crisis of 1997.
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But supply chains took off as never before: not just Japanese-sponsored chains but chains from all Japan’s supplier sites, which now had their own chains. Supply-chain capitalism became a presence around the world. But Japan was no longer in charge.

One company’s history sharply etches the change between Japanese and U.S. leadership of global supply chains: Nike, the trendsetting brand of athletic shoes. Nike began as a U.S. outpost of a Japanese distribution chain for athletic shoes. (Distribution is an element of many
Japanese supply chains.) Subject to the disciplines of the Japanese trading regime, Nike learned the supply-chain model. But Nike slowly began to transform it, American style. Instead of making value through trade as translation, Nike would use American advantages in advertising and branding. When Nike’s founders established their independence from their Japanese chain, they added style—in the form of the Nike “swoosh” and advertisements featuring black American sports heroes. Learning from their Japanese experience, however, it never occurred to them to manufacture shoes. “We don’t know the first thing about manufacturing. We are marketers and designers,” explained one Nike vice-president.
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Instead, they contracted with the proliferating supply networks developing across Asia, making good use of the post-1985 profusion of “low-price supplier networks” mentioned above. By the early twenty-first century, the company had contracts with more than nine hundred factories, and it had become a symbol of both the excitement and the terrors of supply-chain capitalism. To speak of Nike evokes the horrors of sweatshops, on the one hand, and the pleasures of designer brands, on the other. Nike has succeeded in making this contradiction seem particularly American. But Nike’s rise from a Japanese supply chain reminds us of the pervasive legacy of Japan.