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Wednesday, March 30, 2016

A History Of Sumitomo, Environmental Pollution And Zaibatsu

Sumitomo (住友財閥)... no… this is not about a Japanese sumo wrestler, or a monk (if you are glancing at the icon above), rather it is about one of the three largest companies in Japan, along with Mitsui (三井財閥) and Mitsubishi (三菱財閥).

I was intrigued when I spotted a press-release citing Sumitomo (SHI) Demag having the best year in corporate history.

While I had no idea what Sumitomo was, I did know enough to realize the press release was about  Japanese company. 

The Sumitomo mentioned in the press release—Sumitomo (SHI) Demag—is actually one part of a larger organization, which I figure we should explore together to see if there's anything interesting going on… you know… down the proverbial rabbit hole.

To be honest, I don't read ahead… I read and write this stuff down so that hopefully I can be as surprised as you when we spot something interesting.

It doesn't always work out… I have 69 blogs that I started and then let drift (but haven't deleted) that failed to inspire me, who is inspired quite easily.

Sumitomo (SHI) Demag is an injection molding machinery manufacturer reports 11% sales rise to US $263-million in 2015.

I know… you are looking at this and going WTF? This isn't the usual pap we find on Japan—It's A Wonderful Rife. Tru dat. I mean, that's true.

I had to look up the company to see what they were, and noticed that they are headquartered in Germany.

Germany is not a tax haven… I don't think… at least not since the the war when Germany and Japan were buddies trying to divide up the free world. No, it is NOT too soon.

So… I decided to look deeper than the hatred caused by WWII, and discovered that Sumitomo is actually a very old Japanese company that began back in 1630AD before most of you were born.

It was founded by Sumitomo Masatomo (surname first), who was born in 1585AD, and died in 1652AD… that was pretty long-lived considering the average human lifespan just 100 years ago in the U.S. was 47. That icon in the image at the very top - that's him.

Nowadays, the Sumitomo Group says it maintains the traditions of the family and operates in line with the rules established by its founder old man Masatomo.

Here's an image of Sumitomo's Code of Conduct.

Back in the old days, Sumitomo made its money trading copper (and other goods).

Well, actually, Sumitomo Masatomo opened up and ran a book and medicine shop in Kyoto.

His brother-in-law Soga Riemon (surname first) was the one who owned Izumiya, a copper refining and coppersmith business in Kyoto. Sumitomo became involved in his brother-in-law's business, but it was still Soga who  developed the refining technique called "nanban-buki (western refining)", which can extrude silver from raw copper (obviously the silver has to present in the copper - this isn't alchemy)

Soga's oldest son, Sumitomo Tomomochi, became a family member of the House of Sumitomo after he married a daughter of Masatomo... he was actually adopted into the family, which is why Tomomochi has the last name of Sumitomo, rather than his original family surname of Soga.

The adult adoption principal is actually quite common in Japan - you can read an article I wrote about that HERE

Tomomochi helped extend the reach of the Sumitomo business intro Osaka, and 'sold' the nanban-buki technology to other copper smelting businesses, with Osaka becoming the place in Japan for copper smelting and refining. It also helped the company known now as Sumitomo/Izumiya to become known as the leader in that refining technique.

During the centuries long Edo-jidai (Edo-era) of 1603-1868AD, Japan was called one of the leading global copper producers... an interesting fact consider its borders were closed during this time to foreign contact... except for the Dutch and Portuguese, who were allowed minimal contact for trade... which probably involved Japan selling its copper, and taking in guns.

The company expanded its reach from just copper refining and trade to include textiles, sugar and medicines... which helped make it one of the most powerful companies in Osaka.

Strange as it may seem, the company was still not involved in copper mining, only doing so in 1691AD after it opened the Besshi Copper Mine (別子銅山 Besshi dōzan) in Niihama-shi (city of Niihama), Ehime-ken (Ehime Prefecture)—a mine that operated for 283 years and was considered to be the strength of Sumitomo's empire. 

From start to finish in 1973, the Besshi mine pulled out some 700,000 tons of copper, which helped Japan's trade and modernization, but more importantly helped build the Sumitomo zaibatsu.

Now things weren't always rosy for Sumitomo... after the Meji restoration of the Emperor to supreme power in 1868—and the company becoming involved in all the 'new' technologies of the Western world—operational costs and the fall of copper prices made the mine more or less unprofitable. We can assume that Sumitomo had over-extended itself trying to emulate western businesses across too many of its companies at the same time. The Government of Japan wanted all businesses to quickly learn from the western techniques in every industry.

During the Edo-era, Sumitomo was able to extract between 1,000 and 1,500 tons of copper out annually.

Between 1881 and 1888, the Beshi Mine used convict labor - to be honest, this was not an uncommon occurrence in Japan at the time. They stopped the practice after the government of Niihama-shi asked them to stop.

Anyone who has ever watched the classic movie Cool Hand Luke, will know that the U.S. practiced the same way well into the 20th century.

Personally, I don't have any issues with using convict labor - No, for private companies, but a big yes for State/Provincial/Prefecture needs - like road maintenance or digging subway tunnels. Maybe not the murderers, but... well... whatever, it worked before, could it not work again while saving governments a lot of money. Of course, the workers should get paid, and perhaps even be able to work off some of their time, not just as time served, but also from time worked.

Anyhow, despite the fact that Sumitomo experienced some financial difficulty in and around the 1868+ era, Hirose Saihei (surname first)—the mine's general manager—began to use the more modern Western mining techniques to increase copper output, effectively turning the mine's fortunes around. 

It was the company's willingness to embrace western advances with its own Japanese philosophies that helped Sumitomo expand its power base, becoming involved in forestry, coal mining, construction, machinery, chemicals, electric cable manufacturing, and metals.

Its old Edo-era money exchange business known as "Ryogae-gyo", was upgraded via Western business acumen to allow Sumitomo to become involved in warehousing, banking, insurance, growing the now modern conglomerate via mining/manufacturing and financing.

I watched an old episode of the U.K's Time Team just last week involving a copper mine from the Elizabethan era, that noted that the copper mine had despoiled a local water source back in the 1600s - complete with a print record of the official complaint noting it had also destroyed a large swathe of crops. (By the way, I had actually begun this particular blog mere hours before I watched that Time Team episode. Kismet.)

Meanwhile, back in Japan... in 1899, a landslide caused by the mining, and aided by the deforestation (trees and their roots help prevent landslides, I believe), over 500 people died... plus the copper smelter was nearly swept away, too.

Sumitomo built a new smelting operation nearby - but away from the mountains, but this time the new copper smelting facility was designed and constructed using the good ol Western techniques... problem is, it still gave off sulfur dioxide gas... something that was evident when it had the old site - but still occurred, of course... the gas problem was essentially hidden by its location in the mountains. 

The Besshi Mine’s cupriferous iron sulfide deposits contained about 40 percent sulfur. When heat was applied to this ore during smelting, sulfur dioxide was vented into the atmosphere.

Now, while the original mine site was merely responsible for massive deforestation (one needs materials to build a mine), the new site's sulfur dioxide emissions damaged local farm crops and caused nearby trees to die off. 

While the mine in the Time Team episode was forced to pay a huge penalty to the complainant, but kept going with its mining in the same manner as before, Sumitomo decided to change the way it did business.

Because of the tragedy that had befallen the original site in the mountains of Besshi on Shikoku Island, Sumitomo employee, Iba Teigo (surname first), the second Director General of Sumitomo  hired people to reforest that mountainous former site - evidence of which can still be seen today.

Well... Iba still had that new problem of the new copper facility emitting noxious fumes that were killing trees and valuable farmer crops... so after only three years of operation, the modern-Western-style copper smelting plant was re-located to Shisakajima, an uninhabited island located 20 kilometers (12.5 miles) offshore. Note that the copper was still being mined from the Besshi Mine.

Sumitomo okayed the move, even though it was expected to cost the business about one year's sale of copper to do so. It was still mining, but it had to pay other facilities to smelt for them.

Ahhh... but the best laid plans of mice and Iba, go often askew.

Being on an island 20 kilometers away from people, it was expected that the winds would disperse the gas and smoke from the smelter... something that was a concern in both the other two locations.

The Shisakajima copper smelter was completed in 1904... but as soon as operations started up, that darn old gas cloud drifted all the way back to the mainland... spreading its noxious fumes on an even wider part of the coastline than before. Epic fail.

To combat the smoke, Sumitomo decided to capture the waste fumes as it formed and convert it to sulfuric acid, which could be used to manufacture the fertilizer calcium super-phosphate, which could provide farmers with inexpensive crop fertilizer.

The thing is... calcium super-phosphate is a commodity... and on the stock market it was subject to violent fluctuations, and there was some major headscratching to see if Sumitomo wanted to enter this new line of business.

But it did... doing so because it needed to do something about the pollution issue. And... in September of 1913, Sumitomo Fertilizer Manufacturing began operation with nine employees—this was the origin of Sumitomo Chemical.

Now... for some reason, Sumitomo's website fails to make any mention of the 1920s-1945... when Japan began a military push, culminating in its near successful conquering of all of Asia, and then its subsequent fall from grace with a couple of atomic bombs destroying a pair of cities, the firebombing of Tokyo, and the loss of the second world war.

That loss mean that the Emperor had to renounce his godhood claim, which really demoralized the Japanese population that was still alive. As well... there was this whole war crimes tribunal, and the dissolution of zaibatsu.

Zaibatsu (財閥), mentioned three times now, is the Japanese term for 'Financial Giant' or 'financial clique'... and Sumitomo was definitely a financial giant involved in a financial clique.

Again, the Sumitomo corporate website pretty much glosses over any possible connection or participation of itself and WWII.

It's not like it helped created Zyklon B gas used to kill people in Nazi death camps like some German companies participated in, but Sumitomo did quite well during WWII.

It actually expanded from 40 companies owned to 135 companies during the war. Yes, war is hell, but it can also be damn profitable. You'll note that in an article I wrote about Donald Trump and Japan (HERE), I noted that countries often become involved in a war as a means to kickstart an economy. Death sells.

Anyhow... when the war ended... with rumblings about the Allies in the mood to dissolve Japan's zaibatsu, before it could happen, Sumitomo decided to:
  1. rationalize the overextended enterprises and stem the dispersal of human talent by giving each employee as much work as possible—and, to this end, plan new undertakings; 
  2. extend full relief to repatriated personnel and their families; and 
  3. prevent, wherever possible, the demise of Sumitomo enterprises by turning them to new objectives that would bring future prosperity to the people and the nation, thus entering into the trading business.
Waitaminute... Sumitomo keeps trying to avoid the subject of zaibatsu.

Every country has its own zaibatsu... a group of financial giants that help keep the wheels of that country's economy rolling. 

By definition, the zaibatsu were large family-controlled vertical monopolies consisting of a holding company on top, with a wholly-owned banking subsidiary providing finance, and several industrial subsidiaries dominating specific sectors of a market, either solely, or through a number of sub-subsidiary companies.

Right after WWII, Japan's Big Four zaibatsu were: Sumitomo, Mitsui, Mitsubishi, and Yasuda (安田財閥), with second-tier zaibatsu organizations consisting of: Asano (浅野財閥); Fujita (藤田財閥); Furukawa (古河財閥); Mori (森コンツェルン); Kawasaki (川崎財閥); Nakajima (中島飛行機); Nitchitsu (日窒コンツェルン); Nissan (日産コンツェルン); Nisso (日曹コンツェルン); Nomura (野村財閥); Okura (大倉財閥); Riken (理研コンツェルン); Shibusawa (渋沢財閥), and Suzuki shoten (鈴木商店).

The second-tier zaibatsu all pretty much arose after/during the Russian - Japanese war of  1904-1905, won by Japan earning it global recognition as a country to be reckoned with.

All of these companies were purported to have strong influence over Japanese national and foreign policies, for example, Mitsui had strong ties with the Imperial Japanese Army, while Mitsubishi had strong time to the Imperial Japanese Navy.

Before the start of WWII but while Japan was already attacking and holding parts of China, it was believed that the Big Four zaibatsu of Mitsubishi, Mitsui, Yasuda and Sumitomo had direct control of over 30 percent of Japan's mining, chemical, and metals industries, and almost 50 percent control of the machinery and equipment market, a significant part of the foreign commercial merchant fleet and 70 percent of the commercial stock exchange.

Even the regular Japanese were concerned. During the 1920s and 1930s when there was a massive recession and depression all over the world, these Big Four zaibatsu were still making money. Even though its population was leery of such a clique, the Allies in charge of organizing Japan at the war's conclusion were reluctant to rip it to shreds too badly but still wanted to end the monopolies they represented.

A total of 16 zaibatsu were targeted for complete dissolution, and 26 more for reorganization after dissolution.

Big Four's Yasuda bit the dust, while companies such as Asano, Furukawa, Nakajima, Nissan, Nomura, and Okura were targeted.

Their controlling families' assets were seized, holding companies eliminated, and interlocking directorships, essential to the old system of inter-company coordination, were outlawed.

Matsushita, while not a zaibatsu, was also targeted for a breakup, but was saved by a petition signed by 15,000 of its union workers and their families. The company later changed its name to Panasonic.

As for Sumitomo, its proactive response to the Allied dissolution of the zaibatsu helped, and it survived... though the companies it owned were broken up to become independent entities.

This is where things get tricky.

If you were to go to the Sumitomo Corporation website, you would see that it was founded in 1919... but how can that be?

As mentioned, everything originally belonging to the Sumitomo clan, was dissolved into smaller (but still huge) companies. The Sumitomo Corporation was one of those companies.

From what I can gather, the Sumitomo Clan was dissolved by GHQ & the Japanese government at the end of WWII.

But, dissolved or not, there are still many Japanese companies that use "Sumitomo" in their corporate names, but they are not, nor are they currently related.

So... despite its convoluted roots, the clan exists (but does not exist) via the Sumitomo Corporation.

Still... the rest of its companies exist as:
  • Mazda (automobiles, saved in 1975 when it got a huge bailout from the Sumitomo Mitsui Banking Corporation); 
  • Mitsui Sumitomo Insurance (insurance) - formed in 2001 from the merger of Mitsui Marine & Fire Insurance Co. and The Sumitomo Marine & Fire Insurance (founded in 1917, I think) ; 
  • NEC Corporation (electronics and electric products) - became an associate of Sumitomo in 1919; 
  • Nippon Sheet Glass Co. Ltd. (glass) - formed in 1918; 
  • Osaka Titanium Technologies Co. Ltd. (titanium products) - founded in 1952; 
  • Sumisho Computer Systems (information technology) - founded in 1968;
  • Sumitomo Bakelite Co., Ltd. (chemicals) - essentially formed in 1932;
  • Sumitomo Chemical (chemicals) - formed officially in 1934;
  • Sumitomo Corporation (integrated trading) - formed officially in 1919;
  • Sumitomo Electric Bordnetze (auto parts supplier);
  • Sumitomo Electric Industries, Ltd. (electronics and electric products);
  • Sumitomo Forestry Co. Ltd. (lumber and housing);
  • Sumitomo Heavy Industries (machinery, weaponry and shipbuilding);
  • Sumitomo Life (insurance)
  • Sumitomo Metal Industries (steel);
  • Sumitomo Metal Mining Co., Ltd. (non-ferrous metal); 
  • Sumitomo Mitsui Banking Corporation (finance) - founded 1996 with the merger of The Sakura Bank, Ltd. (founded 1876) and The Sumitomo Bank, Ltd. (founded in 1895);
  • Sumitomo Mitsui Construction Co., Ltd. (construction);
  • Sumitomo Mitsui Trust Holdings ( finance);
  • Sumitomo Osaka Cement (cement);
  • Sumitomo Precision Products (aeropace equipment).;
  • Sumitomo Realty & Development Co., Ltd. (real estate); 
  • Sumitomo Riko (rubber materials for vehicles, printers and constructions);
  • Sumitomo Rubber Industries (tires and other rubber products); 
  • The Sumitomo Warehouse Co., Ltd. (warehousing). 
Andrew Joseph

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