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Two of Japan’s four largest business organizations, Keidanren (Federation of Economic Organizations) and Nikkeiren (Federation of Employers Associations), have decided to merge by May 2002. A task force will be working out details by the end of the year, including the proposed name and articles of association of the combined organization.

The planned merger is of great significance to the future of corporate activity in this country. The issue at stake is whether a consolidation of major business lobbies, which are known collectively as “zaikai,” will help to streamline industry associations, sever cozy ties with government and bureaucracy, and encourage freer and more independent activity.

Zaikai now consists of four major groups — Keidanren, Nikkeiren, Keizai Doyukai (Japanese Association of Corporate Executives) and Nissho (Japan Chamber of Commerce and Industry). Keidanren, the zaikai leader, is concerned mainly with administrative, economic and fiscal issues as well as questions involving the world economy. Nikkeiren, which speaks for big-business employers, deals with employment issues, such as those affecting wages and jobs. Doyukai is a free-wheeling forum of corporate executives, including small-business and foreign managers. Nissho works for small businesses through regional chambers of commerce.

In recent years, zaikai members’ status as corporate opinion leaders has declined sharply. This is thought to be the major reason for the planned merger between Keidanren and Nikkeiren. The purpose of their marriage, therefore, should be to address their common concerns, such as social security (corporate pensions, medical costs), employment and the environment. They will also streamline their activities by avoiding duplication in research and advisory activities, including those related to information technology and structural reform.

Leaders of the two organizations say the merger is designed to create a “powerful, integrated economic organization” and thereby exert greater influence on government policymaking. The integration, however, should lead to the establishment of a more transparent government-business relationship and to the bold reform of Japan’s regulated economy. The merger will be a failure if it creates only a more powerful interest group, a mammoth lobby aimed at promoting business interests at the expense of consumer interests.

It will be a success if it results in breaking the business community’s bad habits, such as the lockstep mentality, the tendency toward collusion and the dependence on government and bureaucracy. The Keidanren-Nikkeiren combination should aim at demolishing the so-called iron triangle of government, bureaucracy and business.

Deregulation is the key. To prevent official intervention in corporate activity and minimize administrative guidance and supervision it is essential to create a “small government.” Zaikai can help to create it by downsizing itself. Zaikai consolidation should lead to the streamlining of industry associations and to the development of self-reliant corporate groups that do not look to the government for help in hard times.

Zaikai form the top of a vast pyramid of industry associations. Therefore, the consolidation of these groups is an essential condition for successful zaikai integration. The steel industry, for instance, is represented by the Federation of Electric Power Companies (Denjiren). Banks belong to the Federation of Bankers Associations of Japan (Zenginren). Keidanren and Nikkeiren embrace nearly 200 such industry groups.

Each of these groups is partly staffed by employees farmed out by member companies. These employees, many of them in charge of planning, return to their companies after several years. Many of the groups also serve as havens for retired bureaucrats, who deal with their former government offices as “representatives” of the industries they work for.

Of course, times have changed. Few companies are now in a position to send quality staff to their industry associations. Government-business ties, meanwhile, have visibly weakened, if not disappeared. Once banks had “point men” posted at the Finance Ministry on a full-time basis, who almost routinely wined and dined ministry officials to gather tips from them or to bend ministry regulations. Now, however, banks — and other private companies generally — have little to gain from such intimate association with bureaucrats.

It is also true that collusive and lockstep tendencies in the corporate sector have declined, but not disappeared; they could even revive in better times. The coming merger between Keidanren and Nikkeiren should provide a golden opportunity to kick these bad habits once and for all.

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