The Fable of the Keiretsu

Abstract

Central to so many accounts of post-war Japan, the corporate groups have never had economic substance. Conceived by Marxists committed to locating domination by monopoly capital, they found an early audience among western scholars searching for evidence of culture-specific group behavior in Japan. By the 1990s, they had moved into mainstream economic studies, and appeared in virtually all econometric regressions of Japanese industrial or corporate structure. Yet the began as a figment of the academic imagination, and they remain that today. The most commonly used roster first groups large financial institutions by their pre-war antecedents. It then assigns firms to a group if the sum of its loans from those institutions exceeds the amount it borrows from the next largest lender. Other rosters start by asking whether firm presidents meet occasionally with other presidents for lunch. Regardless of the definition used, cross-shareholdings were trivial even during the years when ties were supposedly strongest, and membership has only badly proxied for main bank ties. Econometric studies basing keiretsu dummies on these rosters have produced predictably haphazard results: some are a function of misspecified equations, while others depend on outlying data points and some are specific to one roster but not others. The only reliably robust results are the artifacts of the sample biases created by the definitions themselves.