The Yakuza’s Impact on the Japanese Economy

Eric Messersmith is a lecturer at the Institute for Asian Studies, Florida International University. He received his B.A. from the University of Miami, his MBA and Ph.D. from the University of Miami. Dr. Messersmith has long been interested in Japan and Japanese Culture. He lived in Kyoto for many years and was an assistant professor at Kinran College in Osaka. While in Japan he became educated about traditional Japanese culture. He is ordained as a practicing Tea Master of the Urasenke School in Kyoto. He holds the rank of 6th dan, jun hanshi in the martial art of Shorinji Kempo. Dr. Messersmith is a member of the Southeast U.S.-Japan Society, and a regular seminar contributor. He also serves as Executive Director of the Japan Cultural Foundation in Miami.

The following is excerpted from his dissertation Political Corruption in Japan: A Study of the Theory, Causes and Effects with Particular Reference to the Yakuza Factor in Banking Scandals and Prolonged Recession. The entire work can be read here: Political Corruption in Japan. 

“Is corruption more extensive in Japan than in other industrial societies? There is no real proof of this. The conclusion drawn here is that it is not the fact that corruption is more rampant in Japan but that the nature of that corruption has been altered to the point where it is no longer simply a nuisance for law enforcement but an actual detriment for the nation’s economy. In other words, even if the extent of corruption were less than other countries (and that is open to debate), it is the fact that criminal elements and corruption have infiltrated the very structure of Japanese governance that makes it so dangerous. There is no doubt, for example, that the American Mafia has extensive amounts of money in banks around the world. They also receive huge loans from banks to help finance their front businesses.

However, the failure of these businesses to re-pay the loans would not lead to the same economic consequences as they seem to have done in Japan. This is because of the way the Japanese government and economy are structured—and the fact that they are so intertwined, so much more than in other Western industrial countries. Another way of putting it is that Japan’s vaunted experiment where the government marched in lockstep with its banking institutions and industrial advances has resulted in creating a situation where the three elements cannot disengage without causing tremendous damage on all levels.

In a sense, what is being said here is that the Japanese economy is not an example of a true free market capitalist economy. Rather it is a strongly planned economy with some of the trappings of a free market system: while individual firms have been allowed to go under (for the good of the whole), entire industries are propped up by government decree.

The analogy of gears within the transmission of a vehicle is apt. If one gear is not working properly, the car grinds to a halt, despite the fact the rest of it is in perfect working order. As well, that one not-working gear can serve to destroy many of the other gears around it, potentially stripping them and leaving them useless as well. The question to be asked: which gear in the Japanese economy did not work and served to strip the others around it? This paper contends that the gear in question was the yakuza. Criminal elements managed to strip away the banking sector, the real estate sector, and the stock market. And no one dared question those criminal elements because they were either themselves also implicated or because they felt that attempting to do so would have called down the wrath of the yakuza upon them. At that point, the Japanese economy started to collapse because the government had to infuse billions into these industries as a way to prop them up. Instead, these non-working gears managed to strip the main gear itself—that of the Japanese economy.

Could this have happened in other Western industrial societies? Yes, but not quite as easily or with the ability to cause as much damage. The gear system for those economies is not as intermeshed as it is in Japan among the public and private sector. An attempt by criminal elements may have damaged a portion of the economy. But those defective gears would have quickly been discarded and replaced. In fact, we have seen an example of just that with the Enron and World Com scandals in the United States. Millions of dollars were lost; thousands lost their savings. But the economy did not collapse. To use another car analogy, the economy was able to shift gears in a relatively smooth way.

…the notion that all corruption and organized-crime involvement in a society can be eradicated amounts to wishful thinking. There are certain areas that will always remain under the shadows of organized crime and officials who feel they can break or at least bend the law. Instead, efforts might be better spent concentrating on extracting the yakuza from the policy-making areas of the Japanese banking system. This would involve breaking up the overly-cozy relationship between bankers, bureaucrats and bank supervisors. Once those links are broken, it would be harder for organized crime to create the bowling ball effect on knocking one over and consequently knocking everyone over. Another way to ease the pressure on the economy is to give business a rule of law that can be pursued in court. Because so many of the business transactions are done with a handshake and alack of a paper trail, this makes it easier for tendering systems and bids to be fixed, for example, and for the yakuza to muscle in. The implication seems to be that, if the businesspeople, bureaucrats and other government officials had fewer secrets and things were more in the open, the yakuza would not be able to dig their claws in as easily. The same is true if the justice system were more transparent.

Finally, if studies such as these do nothing more than raise people’s awareness of these issues, something will have been gained. In this case, not only are the questions asked and people made aware of them, but there is also a second level of awareness regarding the interviewees. Under the cloak of anonymity, these interviewees provide informed opinion of a kind that is usually very difficult to obtain otherwise.

Prevention

The study has left little doubt that there is some sort of organized crime involvement in the collapse of the Japanese economy at the beginning of the 1990s. …The researcher’s personal opinion on this subject is that a country cannot insure itself against this sort of thing—at least not indefinitely. In fact, it is the opinion of this researcher that organized crime and corruption to some extent are part of every government, or part of the political cost of doing business, in other words. The costs of trying to eradicate such things completely are prohibitive— and there is no guarantee that the desired results will follow. As pointed out by Pascha (1999): We have so far assumed that getting rid of an incident of corruption does indeed raise social benefits. Some economists have pointed out, however, that corruption may actually have some positive effects, namely when regulation in the economy is so rigid that economic dynamism is severely throttled. Corruption and bribery may then serve as “grease” for the economy.

There is also the opposite possibility to consider—the notion that capitalist free market societies are actually outgrowths of outlaw social systems and therefore corruption and organized crime must be a part of the system if it is to continue to work as advertised. This is essentially what Holmstrom & Smith (2000) argue, following Marx and his idea of “primitive acquisition,” when they claim that the type of “gangster capitalism and wholesale corruption in the former Soviet bloc and China should have been entirely predictable to anyone familiar with the historical origins of capitalism in Europe, the United States, and elsewhere”.

This researcher is not of this opinion. But perhaps what these researchers imply is that new capitalist economies need some sort of balance if they are to work properly. Free market systems need some regulation and rules, so as not to become jungle-like and unstable; they need structuring so they do not become free-for-alls rather than simply free. But they cannot be over-regulated or they will become moribund. Finding that balance is the key—and perhaps an issue that is more important than campaigns to eradicate the yakuza. In fact, it may be that the yakuza will simply vanish if there is no more profit in what they do (although there is a whole other side to the criminal enterprise—and that is satisfying the vices of people).