Where Small Companies Are Important

Big business may dominate Japan's image abroad, but 91% of Japanese private employees work in firms employing fewer than 500 workers.

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In the 1950s, American economists considered it a sign of Japan's underdevelopment that small business provided most of the nation's jobs. They expected small business's share to decline as it had during America's and England's economic growth, and at first they were right. In the 1950s, when the average Japanese earned perhaps $60 a month, big business grew faster than small.

But most sectors of Japanese society care deeply about small business and have a stake in seeing it thrive. Even in 1963 -- the year small business employed its lowest percentage of the nation's workers -- 70% of Japanese private employees worked in places with fewer than 100 workers. And from then on small business's share first stabilized and then rose, so that today 76% work in places employing fewer than 100 and 91% work in places employing fewer than 500. Small businesses have always paid lower wages than big ones, but as Japan's wage rates soared, the smaller companies raised salaries faster than Japan's well-known big companies.

Largely because the nation's vigorous small businesses are willing and able to hire almost anyone, slums are hard to find in Japan. Sanya, Tokyo's worst neighborhood, closely resembles the rest of the city. A few drunks stand around in tiny bars at hours when respectable Japanese are at work in their offices, but Sanya contains nothing like the depressed areas of American cities.

Poor people do, of course, exist. The Reverend Iwao Masu, a Baptist minister, works with derelicts in the worst neighborhood in the city of Yokohama, Kotobukicho. Masu explains that some Japanese can't -- or won't -- tolerate a boss's orders all the time. Many become day laborers on Yokohama's docks, then decline into alcoholism. But their numbers are few by U.S. standards -- the poor Masu serves live in an area only two blocks square in a city with a population of 2.7 million.

Masu says most of his clients, like most of the people he met in a brief stint as a missionary in Jersey City, N.J., don't want a steady job. But when a day laborer does get up the courage to look for a permanent employer, Masu can easily find cleaning companies, moving companies, and tiny factories that will employ workers for up to $870 a month. (All prices are expressed in dollars, assuming 230 yen/dollar.) Masu's colleagues in Jersey City could find no comparable jobs for the poor there.

In the last 20 years, Japan's unemployment rate has never averaged more than 2.2% and its gross national product doubled between 1965 and 1972. Without its concern for small business, it's hard to imagine how postwar Japan could have pulled virtually all her people out of poverty and put them to work so efficiently.

Many Japanese care about small business because they know they are excluded from big business. Because of the beg companies' lifetime employment system, Japanese who fail to enter the big firms when they leave school have little hope of ever doing so. Big Japanese companies subcontract aggressively to smaller firms; the subcontractors' lower wages save them money, and the big companies can always reduce the amount of subcontracted work to preserve regular employees' lifetime jobs during recessions. But the big companies almost never offer regular jobs to workers from small firms. Most Japanese adults don't expect to gain greatly from economic growth unless the small businesses where they work grow significantly with the rest of the economy.

Thus regulations that make life hard for small businessmen face instant attack from conservatives and Communists alike. America's confusing building codes and zoning rules, for example, amaze the Japanese. "In Japan if we have a plan, the contractor will immediately quote the approximate cost," says Katsumi Ota, a Mitsubishi Corp. official who helped establish the Dosanko noodle shop chain on the East Coast of the United States. "But here it's impossible to say the cost until we have every drawing, and we show them to the licensed plumber, and he says, 'No, this is no good; this has to be standard, and this should be heavy-duty."

Ota says 99% of Dosanko's stores in Japan are tiny mom-and-pop franchises in hole-in-the-wall shops. But he's found that mom-and-pop stores can't cover American-style overhead, so he's concentrating on large company-owned stores in high-volume locations.

Gentle regulation benefits tiny manufacturers even more than it benefits noodle shops. In Japan the share of manufacturing workers who work in shops employing fewer than 10 people is nearly seven times what it is in the United States (16.5% vs. 2.5%). These tiny workplaces turn up in almost all Japanese neighborhoods. In some upper-middle-class Tokyo co-ops, the "bum-bum-bum-bum-BUMP" of machinery in metal-products shops next door is clearly audible.

Still, the government doesn't exempt small business from regulation. A labor ministry official says his safety inspectors spend almost all their time at small companies. But Japanese bureaucrats care about performing their duties without disrupting business, and they have the brains and experience to do it. Since samurai times the bureaucracy has attracted the nation's best men. Because Japan's paramount goal for more than a century has been to catch up with the West, bureaucrats have learned to work harmoniously with businessmen. And the lifetime employment system functions superbly in agencies like the labor ministry -- bright young men know they face censure if their actions cause problems years later.

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