The “Analects” and the Abacus: The Contemporary Relevance of Shibusawa Eiichi’s Business Philosophy

Tanaka Kazuhiro [Profile]

[2017.01.05] Read in: 日本語 | ESPAÑOL |

Shibusawa Eiichi, the “father of Japanese capitalism,” saw morality as an essential part of economic activity and stressed pursuit of the public interest. His ideas are attracting renewed attention in a time of concern over excesses in global capitalism.

The Analects and the Abacus Are “Inseparable”

Shibusawa Eichi (1840–1931) has been termed the “father of Japanese capitalism.” Over the course of his working life he founded and built up over 500 banks and business corporations, including the First National Bank (Dai-Ichi Kokuritsu Ginkō, now Mizuho Bank). His remarkable accomplishments were based on his solid conviction that morality and economic activity are compatible—the doctrine of the inseparability of morality and economy. (In this article I will use “economy” as a synonym for both economic activity and private profit.)

Shibusawa found the basis for this conviction in the Confucianism that he espoused, particularly the Analects of Confucius. Paraphrasing morality as the Analects and economy as the abacus, he often used the expression “the Analects and the abacus are inseparable.” Moral behavior is an essential element of economic activity. And economic activity is an essential element of moral behavior. Morality and economy are indeed two sides of the same coin. This is the logic of Shibusawa’s doctrine.

Morality is of two types: passive and active. Passive morality refers to not doing what one should not do; active morality refers to doing what one should do. Shibusawa’s message was that passive morality is essential for economy and that economy is essential for active morality.

Shibusawa’s doctrine of the inseparability of morality and economy has come up for reconsideration in Japan since around the time of the 2008 global financial collapse, and his ideas have also been receiving attention internationally. This may be attributed to the popular distrust and sense of crisis that have emerged with respect to global capitalism and the market economy, which tend to go overboard in the pursuit of private profits.

No Economy Without Morality

The passive morality that Shibusawa considered essential for the smooth conduct of economic activity and the ongoing earning of profits may be summed up in two points: (1) One must not act dishonestly; (2) One should not place one’s own profits first.

In Japan, and perhaps everywhere, people are apt to suggest that it is hard to make money from a business if one is unbendingly honest. But Shibusawa insisted that trust is the most fundamental requirement for a businessman and declared with certainty that it is possible to do business without lying. He cited his own experience as evidence that honesty is essential for economy. While conceding that it might be possible to make money from shady dealings, he warned that such profits could never be sustained.

While granting that dishonest behavior must be avoided, many people may take exception to the idea of not placing one’s own profits first. In the market economy, it is commonly accepted that one may pursue one’s private profits as long as one follows the rules. But Shibusawa thought differently: If everybody does business putting their own profits first, they will be vying to grab each other’s profits, with the result that they will all fail, and the economy will not function. Only if people place the profits of others first can economic activities proceed smoothly.

Some may counter that people who take such a naive approach to doing business will see their profits snatched away by selfish competitors. But Shibusawa referred to Confucius’s saying in the Analects: “Authoritative persons establish others [first] in seeking to establish themselves and promote others [first] in seeking to get there themselves”;(*1) in line with this, he believed that placing the profits of others first was the true way of achieving sustained profits for oneself in due order. Shibusawa condemned selfishness in business, but he did not condemn the pursuit of profits per se.

No Morality Without Economy

Shibusawa noted the importance of passive morality, but he was equally, or even more devoted to active morality, asserting that people’s lives should be freed from economic worries and made more affluent. This moral philosophy also came from the Analects:

Asked by a disciple, “Suppose the case of a man extensively conferring benefits on the people and able to assist all, what would you say of him? Might he be called perfectly virtuous?” Confucius replied, “Why speak only of virtue in connection with him? Must he not have the qualities of a sage?”(*2)

Both in Confucius’s day and in Shibusawa’s late-nineteenth-century Japan, bringing affluence to the people was generally seen as the responsibility of the government. Shibusawa challenged this consensus. He believed that those in the private sector should become the central actors in this connection, delivering affluence through their economic activities. His basic stance was that in order for the state to flourish, the nation must be made prosperous, and that national prosperity depended on scientific advances and commercial and industrial activities.

Shibusawa’s idea that there can be “no morality without economy” meant that, in his thinking, it is not possible to promote the public interest and thereby practice active morality unless economic activity is invigorated. It was this thinking that provided the drive for his founding and nurturing of 500 enterprises over the course of his life.

“No morality without economy” had a second meaning: Shibusawa believed that in order to have vigorous economic activity in pursuit of the public interest, it is essential for the enterprises and individuals involved to be able to expect profits for themselves. It is only with this expectation that they can energetically and persistently undertake the ultimate form of moral behavior, namely, promotion of the public interest. In this sense as well, Shibusawa thought that there could be “no morality (pursuit of the public interest) without economy (earning of private profits).”

Public Interest First, Private Profits Second

Corporate chief executives and others sometimes engage in improper behavior in order to increase the firm’s profits and thereby end up causing it to go under. In some cases this has a serious impact on the economy as a whole. The world has seen this happen repeatedly over the past 20 years or so. We need to hearken back to Shibusawa’s counsel: Honesty leads surely to profits—and it is profits earned this way that will be sustained. These are not the words of a simple moralizer. They are the philosophy propounded on the basis of the personal record of a businessman and executive who created and developed hundreds of enterprises and laid the foundations for Japan’s modern industry and economy.

Of course, the need to conduct economic activities in keeping with the relevant rules should be evident without referring to Shibusawa’s teachings. Adam Smith, who set forth the principles of the free market, also called for fair play and considered refraining from dishonesty a prerequisite for economic activity. Taking this as a given, he asserted that if individuals concentrated on their own profits, an “invisible hand” would operate to bring order and prosperity to society as a whole. He saw no need for individuals to deliberately promote the public interest—and in fact thought that it was better for society if they did not do so. It is fair to say that this is also the current consensus regarding the market economy.

Shibusawa thought otherwise. People conducting economic activities, he believed, also have the responsibility of practicing active morality. They should conduct their business affairs with a view to promoting the public interest by bringing wealth and happiness to others. If society as a whole is affluent, people can become affluent too. In the order of progression envisaged by Shibusawa, promotion of the public interest comes first, and the earning of private profits follows.

Shibusawa’s order of progression is the opposite of Smith’s. According to Smith’s view, the pursuit of private profits is the way to promote the public interest, with the invisible hand serving as the key to the process. Unfortunately, however, the invisible hand is not functioning adequately in today’s market economy. We confront problems like poverty, income disparities, and environmental destruction, and people are having a hard time finding ways of solving or alleviating them.

Various circumstances are probably contributing to the failure of the invisible hand to work as it should, but I believe that one factor is the absence of an ethic that imposes active responsibility to pursue the public interest before private profits. Shibusawa’s philosophy of stressing the pursuit of the public interest through business can serve as a bright beacon for the global economy of the future.

I should hasten to add here that Shibusawa’s doctrine of the inseparability of morality and economy does not call for asceticism in pursuit of the public interest. It is fine for those who are promoting the public interest to earn private profits as they do so, provided that they are not earned through improper means or selfish impositions on others. This is because such profits provide the impetus for people’s efforts to promote the public interest.

So I believe “public interest first, private profits second” appropriately expresses the essence of Shibusawa’s doctrine. Saying that private profits are second does not mean that such profits are of low priority and should be belittled. Rather, it means that they are of comparable importance to the public interest, but that they are to be sought secondarily as a fruit of advancement of the public interest.

“Public interest first, private profits second” is a philosophy that can serve as a pointer for consideration of how to orient capitalism and promote the development of emerging economies in the years to come. And Shibusawa’s precept that the Analects and the abacus are inseparable can contribute to making today’s world better.

(Originally published in Japanese on December 9, 2016. Banner photo: A statue of Shibusawa Eiichi at Tokiwabashi Park in Ōtemachi, Tokyo, facing the Bank of Japan.Photograph by Hashino Yukinori of Nippon.com)

(*1) ^ Analects, 6-30, translation by Roger T. Ames and Henry Rosemont, Jr.  Words in brackets [ ] have been added by this author.

(*2) ^ Analects, 6-30, translation by James Legge.

  • [2017.01.05]

Professor, Hitotsubashi University Graduate School of Commerce and Management. Research fields: philosophy of management, corporate government. Graduated from Hitotsubashi University’s Faculty of Commerce. After working for the Industrial Bank of Japan, returned to Hitotsubashi, where he earned his PhD in commerce. Served as an assistant professor at the Graduate School of Business Administration, Kobe University, and associate professor at Hitotsubashi’s Graduate School of Commerce and Management, where he assumed his current position in 2010. His published works include “Ryōshin” kara kigyō tōchi o kangaeru (Considering “Conscience” in Corporate Governance).

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