894.602/8–2549
The Acting Political Adviser in Japan (Sebald) to the Secretary of State
No. 576
[Received September 3.]
Sir: I have the honor to refer to the Department’s airgram instruction no. 119 of July 20, 19491 requesting information on industrial reorganization pursuant to the provisions of the Law for Removal of Excessive Concentrations of Economic Power (Law no. 207 of 1947), and to this Mission’s despatches no. 344 of May 26, 1949, “Testimony of Mr. Walter Hutchinson before Far Eastern Commission;” no. 423 of June 30, 1949, “Request of Chinese Member, Allied Council for Japan, for Information Regarding Reorganization of Tokyo Shibaura Electric Company;” and no. 533 of August 6, 1949, “SCAP Press Release Announcing Completion of Work of Deconcentration Board.”2
The economic deconcentration program, as was noted in the press release forwarded with this Mission’s despatch no. 533, is entering its final stages insofar as proposed or final reorganization orders, or releases from designation, have been transmitted to all except 11 of the 325 companies originally designated under the Deconcentration Law. It would be inaccurate to conclude, however, as has the Japanese press, that the deconcentration program is ended. Of the companies ordered to reorganize into successors, only one, the Oji Paper Manufacturing Company, has completed its reorganization, and even in that case, the successor companies continue to occupy office space in the [Page 841] same building and to maintain close liaison. Moreover, the important cases of the Japan Express Company (Nippon Tsuun K.K.), the Japan Power Generation and Transmission Company (Nippon Hassoden K.K.), and the nine regional power distribution (haiden) companies remain to be acted upon.
This Mission’s despatch no. 423 forwarded a copy of a letter from this Office in its capacity as Diplomatic Section, General Headquarters, SCAP, to the Chinese Member of the Allied Council for Japan, which letter outlined the status of the deconcentration program as of June 17, 1949. In the meantime, action has been taken in all except the 11 eases noted above. The latter cases will require special action on the part of the Japanese Government, which action may be expected sometime this autumn.
Of the 325 companies originally designated, 297 have been released from designation, while 11 have received final orders for reorganization, stock disposal, or the liquidation of certain assets, and 6 have received similar proposed orders. Eleven of the proposed and final orders may be considered as requiring reorganization (though, as will be seen, the classification is open to dispute); assuming that reorganization orders will also go to the Japan Express Company and to the power generating and distributing companies, and treating the 10 power companies as one case (they were so treated for purposes of the compilation noted by the Department in this Mission’s despatch no. 344), a total of 13 reorganizations will result from the deconcentration program.
Summary of Action Taken
The following companies have received final orders from the Holding Company Liquidation Commission:
[Here follows list of 11 companies, followed by 6 others receiving proposed orders.]
Financial Institutions
Regarding the Department’s request for information on the status of the “large banks originally designated under the deconcentration law,” it should be noted that no financial institutions were so designated. It is understood that at least five banks (Mitsui, Mitsubishi, Sumitomo, Yasuda, and Sanwa) were being considered for designation when the Deconcentration Review Board arrived in Tokyo. On July 30, 1948, shortly after the Board’s arrival, however, it was announced that the dissolution of the Zaibatsu holding company structure and the enactment of the Anti-Monopoly Law had removed any necessity for reorganizing banks or insurance companies. It is known that the Anti-Trust and Cartels Division, Economic and Scientific Section, General Headquarters, was strongly opposed to the announcement, and it was therefore, in all likelihood, as a face-saving device that the financial [Page 842] institutions were remanded to the Pair Trade Commission for surveillance and possible further action. The banks have changed their names and the insurance companies have been reorganized into mutual companies, but no further action is contemplated, so far as this Mission is aware.
General Results of the Program
It cannot be said that the Deconcentration Program has been either a disruptive force, or a strong force making for “industrial democracy.” Certain notorious one-company industries, notably paper, brewing, and iron and steel smelting and manufacturing, will of course be reformed, but the electric manufacturing industry, which has been dominated by three companies, is almost untouched, while the orders transmitted to the Mitsui, Mitsubishi, and Seika Mining companies do nothing to break up concentrated holdings in specific mining fields, notably coal. (Major General W. F. Marquat, Chief of the Economic and Scientific Section, General Headquarters, has let it be known that he suspects the Japanese coal mining companies of being the seat of a rising new Zaibatsu system.) Moreover, the large banks and insurance companies through which the pre-war family companies exercised a large measure of their control have not been touched, and the Deconcentration Review Board has frowned on orders aimed at preventing them from buying back into erstwhile Zaibatsu holding company subsidiaries.
Activities of the Deconcentration Review Board
The Deconcentration Review Board has undoubtedly killed a large number of reorganizations contemplated by the Anti-Trust and Cartels Section; that fact, depending upon one’s basic assumptions and predispositions, may be considered cause for praise or for blame. It is noteworthy, however, that the Board has failed to act according to any consistent philosophy or plan. It has released some companies, such as Mitsubishi Electric, from designation, while finding lesser competitors, such as the Hitachi Engineering Works, to be excessive concentrations. It has occasionally rendered itself open to the suspicion that it is acting on behalf of special interests to promote industrial rationalization, and it has frequently and unblushingly violated its own four principles, which were announced with considerable flourish on September 11, 1948.
The first principle requires a prima facie case of restraint of competition before a company may be found an excessive concentration; several of its orders (see, for instance, the Hitachi order as discussed below) can be justified only on the basis of potential restraint of trade, or the capacity to restrain trade (Mr. Walter Hutchinson of the Board has stated that he knows of no way to determine such capacity). The [Page 843] second principle states that possession of non-related lines of business activity is not to be considered sufficient evidence that the company is an excessive concentration; the Board has on occasion handed down orders which appear to be aimed at diversity of operations rather than at predominance in any one field (see the case of the Daiken Industrial Company below). It would be difficult to show that the third principle, namely, that a voluntary plan need not be considered authority for a final order, has or has not been observed, but it may be noted that certain doubtful cases, notably that of the Tokyo Shibaura Electric Company, have been criticized for slavish adherence to the company’s voluntary rationalization plan. The fourth principle, finally, requires that the action taken under Law 207 should be directly related to the facts upon which the company was determined to be an excessive concentration; as will be seen in the case of the Japan Dynamite Company below, however, orders handed down by the Holding Company Liquidation Commission have on occasion seemed to have little relevance to the basic finding of facts in the case.
Summaries of Cases Upon Which Action Has Been Taken or May Be Expected
[Here follows discussion of 16 companies where action was taken, followed by three paragraphs on cases where no action was taken.]
Conclusion
The scope and effectiveness of the deconcentration program, as summarized above, are not impressive. It should be pointed out, however, that this survey has limited itself to the administration of Law no. 207 of 1947, and that other aspects of SCAP’s anti-trust policy, such as the dissolution of the holding companies, will be made the subject of a separate report. Moreover, a number of companies have, since release from designation under the Deconcentration Law, reorganized themselves along the lines originally proposed by the Anti-Trust and Cartels Section. The Kobe Steel Company, for instance, has broken into three successors, and the Nissan Chemical Company into two.
Misgivings about the total effectiveness of the anti-trust program cannot be escaped, however. The revised Anti-Monopoly Law (Law no. 54 of 1947: see this Mission’s despatch no. 379 of June 13, 19493) contains almost no guarantee, except the not-too-keen surveillance of the Fair Trade Commission, against the reestablishment of horizontal combines, While the overweening power of the large banks and insurance companies continues to harass small enterprises, which have been notably unsuccessful in obtaining credit during recent months.
[Page 844]With the completion of the deconcentration program, this Mission will expect to report more fully on other facets of SCAP’s anti-trust policy.
Respectfully yours,