The Acting Secretary of State to the Secretary of the Army (Royall)


Dear Ken: You will remember that in our telephone conversation of Monday, November 24, I indicated there had been prepared in the State Department a memorandum which reviews the development of the Zaibatsu Program and evaluates the chief points which have been raised in recent discussions concerning the implementation of that Program. In the light of this memorandum, a copy of which is enclosed, I should like to suggest that it is not necessary or desirable at this time to undertake a complete revision of the basic policy involved in the Program. This is not to say, however, that the paper as now written cannot be improved. The State Department is in fact currently preparing a new draft of the paper (FEC 230) for the purpose of removing or changing any passages which may go beyond the real intent of the policy and which may thereby leave it open to justifiable public criticism. In so doing, I want to be sure that the fullest consideration is given to any criticisms you may have to the paper as it now stands. I should like to suggest, therefore, that as soon as convenient you send me in as detailed and specific form as possible, your objections to the Program together with any alterations you think should be made.

Sincerely yours,

[Robert A. Lovett]
[Page 320]

Memorandum Prepared in the Department of State


Dissolution of Excessive Concentrations of Economic Power in Japan (Zaibatsu Program)

The purpose of this memorandum is to outline briefly the steps taken to date in the Zaibatsu Program and the current position of the Department of State with respect to such Program.

The Zaibatsu Program originated with the President’s Policy Statement on Japan of August 29, 1945 and with the Joint Chiefs of Staff Post-Surrender Directive to SCAP96 in which he was directed to require the Japanese to dissolve large industrial and banking combines or other concentrations of private business control and to take other action to encourage a wide distribution of income and ownership of the means of production and trade. This policy has since been adopted by the Far Eastern Commission.97 The means for executing the program were developed two years ago by a combined State-Army Mission to Japan, and a policy paper embodying its report was approved by SCAP and SWNCC, and after being considered by Assistant Secretary Petersen and by General Hilldring. This paper is currently being considered by Far Eastern Commission. Implementation has been proceeding in Japan for the past two years on the basis of the original Joint Chiefs of Staff Directive and is now well advanced.

Essentially, the program seeks to establish a system of competitive enterprise in Japan with substantial diffusion of ownership and control. To this end, certain laws and ordinances have been passed and others are currently being considered. The major Zaibatsu holding companies have been liquidated. The securities held by such companies have been turned over to a Holding Company Liquidation Commission which is now in the process of disposing of the securities to Japanese buyers. An anti-trust law designed to prevent future development of excessive concentrations of economic power has also been passed. The Japanese Diet has before it an Ordinance which sets up the standards and procedures for dissolution of excessive concentrations of power not effected by the holding company liquidation, such as single corporations holding monopoly or near-monopoly positions in an industry and large corporations with many technologically [Page 321] unrelated lines. Japanese corporations likely to be affected by the Ordinance are now preparing reorganization plans. These measures necessarily place substantial administrative discretion in the hands of SCAP and the Japanese Government. Analogous laws in the U.S. and Canada are similarly constructed and the Department believes that no adequate program can be drafted without placing such discretion in the administrator.

Until recently there has been general agreement in the government on the Zaibatsu Program. Several weeks ago, however, the Department of the Army raised certain questions concerning the policy paper now before the Far Eastern Commission and the Ordinance now before the Japanese Diet, referred to above. By agreement between officials in the two Departments, a cable (Tab A)98 was sent to SCAP suggesting that the administrative powers given by the Ordinance to the liquidating agency be restricted in certain added respects. SCAP was also informed that the Far Eastern Commission policy paper was under review by the two Departments and was requested to delay adoption of the Ordinance. The Secretary of the Army followed this cable with a personal message from himself to General Mac Arthur (Tab B) also requesting delay on the Ordinance. General MacArthur replied (Tab C) that the procedures of the Ordinance are designed to accomplish most effectively the implementation of existing policy and detailed his reasons for giving the Japanese authorities, under his supervision, the maximum of direct responsibility in carrying out Allied decisions. Shortly thereafter a more up-to-date draft of the Ordinance became available in Washington and was found by working levels in both Departments to satisfy most of the questions which had been raised.

The exchanges of views between the Army and State Departments and between Washington and Tokyo have not answered, to the satisfaction of the Army Department, a number of questions which have been raised by the program. These questions seem to arise from a number of general apprehensions. The first of these is, apparently, that the program is “un-American”. The specific objection is thought to be the fact that the compensation to be paid to former Zaibatsu owners for their divested property is inadequate. It is inadequate and inevitably must be, for if full compensation were paid the former owners would retain the financial power to resume their former positions of economic domination. Certainly the objective of the program—the breaking of the identity of interest between monopolistic business and [Page 322] the totalitarian state by encouraging a system of free enterprise—is soundly American. As General MacArthur has pointed out, (Tab C), “this program, if successful in transforming a small number of monopolistic combines into numerous competing units and in bringing about widespread ownership of the instruments of production and trade, will erect a solid bulwark against the spread of ideologies or systems destructive of both free enterprise and political freedom under democratic capitalism.”

Another fear appears to be that the program has been or may be carried too far. The basic directives, however, contain no instructions to SCAP to take extreme action. Criticism of the Ordinance is apparently based on the fear that it might, however, be administered in too drastic manner. It seems doubtful that General MacArthur, who as Theater Commander is responsible for implementation, would permit this.

The third fear is that the Program may interfere with economic recovery. It is SCAP’s conclusion, with which the Department of State agrees, that Japanese recovery would on the contrary be seriously jeopardized by delay in carrying out the Program. As long as the divested securities of former Zaibatsu concerns remain in the hands of the Japanese Government, where they now are, opportunity for free enterprise is restricted and recovery is consequently hampered. A further important consideration is that delay would create uncertainty among Japanese businessmen and others as to whether we really intend to free them from the domination of the Zaibatsu, and whether they may now assume positions of responsibility in the Japanese economy without fear of reprisal at the hands of resurgent Zaibatsu interests. Finally, delay would prevent the reorganization of many technologically incongruous combines which, under their existing sprawling organization, cannot obtain intelligent guidance from this top management.

It has been suggested that, in view of these apprehensions, the Program be re-examined by prominent persons not now in government positions. A primary disadvantage of this proposal is that a review by prominent citizens could not possibly be kept secret, and the knowledge in Japan that the United States was uncertain about the program would greatly endanger its successful implementation. The Program’s success depends on encouraging Japanese businessmen to take independent measures towards Japanese recovery, and upon minimizing their fear of taking action inimical to Zaibatsu interests.

Since the program would inevitably have to be held up pending reexamination, the success of the program and economic recovery would [Page 323] both be imperiled in the interval. Also, the continued retention by the Japanese Government of the divested securities for any longer period than necessary would strengthen the groups in Japan and those countries of the Far Eastern Commission who prefer that ownership and control of enterprises remain permanently in the hands of the Japanese Government. General MacArthur has pointed out (Tab A) that “involved in the failure or success of the program is the choice between a system of free competitive enterprise which goes hand in hand with political freedom and a socialism of one kind or another under which political freedom is a myth”, and that “reopening the policy for discussion at this time might well result in altering not only procedural or policy matters but in sacrificing the essential objective.”

  1. See Political Reorientation of Japan, p. 423.
  2. June 19; for text, see Activities of the Far Eastern Commission, p. 49.
  3. Tabs A, B, and C, referred to in this paragraph, not attached to file copy of memorandum.