Case 15 Konosuke Matsushita: Initiator of the “Consumer Revolution” Drives High Economic Growth

Abstract

This chapter introduces Konosuke Matsushita, president of Matsushita Electric (officially, Matsushita Electric Industrial Company, now Panasonic) and Initiator of the “Consumer Revolution” during the High Economic Growth period in the Showa era.

The Progression of the “Consumer Revolution”

As discussed in Overview 3, the trend that began in the 1920s—Japan’s economic growth rate exceeding that of the United States, the United Kingdom, and Germany—continued over a long period even with interruptions before, during, and after World War II. Not until the 1990s did the trend come to an end. The most important factor behind this prolonged period of relatively high growth was the development of a mass consumer society and increase in personal consumption.

The phenomenon of greater personal consumption driving economic growth was most widely observed from the mid-1950s to the early 1970s. During this high-growth period, Japan established a mass consumer society, linking mass production, mass distribution, and mass consumption.

The term “technological innovation” first appeared in the White Paper on Economy for FY1956 (Showa 31) along with the famous phrase “The postwar period is now over,” announcing the advent of the era of high economic growth.¹ Three years later, the White Paper on the National Lifestyle for FY1959 used the expression “consumer revolution” for the first time.² Three years after that, the book, “The Distribution Revolution,” by Japanese author Shuji Hayashi³ became a bestseller.

The White Paper on the National Lifestyle for FY1963, subtitled “Improvement in Consumer Life and its Levelling Trend,” summed up the changes that occurred in Japan from the mid-1950s to the early 1960s in terms of consumption, production, and distribution. It noted “increased consumption, levelling of consumer lifestyles = arrival of mass consumer society (qualitative change in food consumption, popularization of durable consumer goods etc.);” “technological innovation (emergence of new products, establishment of mass production systems);” and “changes in sales mechanisms (development of mass retailers, producers’ entry into the sales system).” The report concluded that these were all closely linked.⁴

The White Paper on the National Lifestyle for FY1959, in which the expression “consumer revolution” was first used, states:

While the level of consumption exceeded the prewar level by 25%, this does not mean that consumption of food, clothing, housing, and cultural consumption increased at the same rate. Not only was there a change in the composition of consumer expenditure owing to the increased income compared with the prewar period, but there was also a structural change that has been referred to as a consumer revolution, deriving from changes in people’s lifestyles and attitudes in the postwar period.⁵

Thus, “consumer revolution” meant structural changes in consumption, or qualitative enrichment, as distinguished from quantitative increase in consumption. What specific structural changes in consumption occurred in Japan after the mid-1950s? The White Paper on the National Lifestyle for FY1963 highlighted the following four points.⁶

• 1. Qualitative change in food consumption

• 2. Popularization of durable consumer goods

• 3. Changes in energy sources for utility consumption

• 4. Increase in active leisure consumption

The changes in energy sources meant rapid growth in consumption of electricity, gas, and oil. Increased fuel consumption was the result of popularization of durable goods -various home devices, gas appliances, oil heaters, motorcycles, and automobiles. Leisure consumption meant the growing popularity of travel and sports, made possible by “the spread of convenient consumer durables, the increase in liquid fuel consumption, the increase in instant foods, and the increased availability of factory-finished clothing such as sweaters that reduced the amount of housework.⁷” Thus point (4) is the outcome of points (1), (2) and (3). The structural changes in consumption that occurred in Japan after the mid-1950, called the “consumer revolution,” consisted of a qualitative change in food consumption (1), and the availability of durable consumer goods (2).

Home appliances were representative of durable consumer goods. From the mid-1950s, with the start of Japan’s rapid economic growth, home appliances proliferated in Japanese households. The White Paper on the National Lifestyle for FY1963 noted that the period from 1956 to 1960 saw the arrival of “the first phase of a durable consumer goods boom,” and that “furniture and fixtures outlays doubled during this four-year period, but about 70% of this increase was attributed to the growth of electrical appliances. The growth of television sales was especially rapid.⁸”

“Television” here refers to black-and-white television, widely available as its price declined. Kiyoshi Nakamura, who discussed the formation of the mass production and mass sales system of home appliances, explains this point:

The biggest obstacle to the expansion of the market for [black-and-white] television was, above all, its price. The path to cost reduction was paved by the domestic production of cathode-ray tubes in 1954 and was accelerated by the development of various key technologies associated with production costs and the rapid expansion of mass production. The 14-inch TV became mainstream after the revision of the excise tax in April 1954, rendering it advantageous in terms of the tax rate. The price dropped to 120,000 yen at the end of the same year, and after falling below 100,000 yen in 1955, models priced below 70,000 yen appeared by the end of 1957. By dropping to the level equivalent to two months’ pay of a middle-class salaried worker, the rate of ownership finally reached 10% in the following year, to be followed by the era of full popularization.⁹”

The rapid penetration of home appliances into ordinary households triggered by price cuts was also observed for other appliances. Popularization of home appliances began in earnest in the 1960s, with a “home appliance boom.” Black-and-white televisions, electric washing machines, electric refrigerators, electric kotatsu [table-style heaters], electric rice cookers, and electric vacuum cleaners led the way in the 1960s. Of these, the first three products were even called “three sacred treasures.”

Creation of Dedicated Distribution Networks by Home Appliance Manufacturers

The rapid development of household electrification in Japan during this period prompted a major structural change in the way home appliances reached consumers. This change was creation of a dedicated distribution network, or distribution keiretsu, by home appliance (consumer electronics) manufacturers. The phenomenon occurred not only on the wholesale level but also on the retail level, transforming the entire industry.

These dedicated distribution networks roughly followed this process¹⁰:

• 1. Between 1953 and 1955, the three major electric appliance companies—Toshiba, Hitachi, and Mitsubishi Electric—each established a sales company to oversee the wholesale stage (Toshiba Trading, Hitachi Home Appliance Sales, and Ryoden Corporation), setting up their own distribution networks.

• 2. In response to the moves by the three major electric appliance companies, home appliance manufacturers also began to create dedicated networks of wholesale distributors. Leading the way was Matsushita Electric, which introduced a sales company system in 1957 covering the entire country.

• 3. That year, Matsushita launched the “National Store Association” and began full-scale efforts to form distribution linkages not just at the wholesale level, but also at retail-level. This move spread to other home appliance manufacturers (Hitachi in 1957, Toshiba and Sharp in 1958, and Sanyo Electric in 1959 all introduced their own keiretsu retail systems).

• 4. By 1963 Matsushita Electric created a distribution network similar to the one shown in Fig. 1.

• 5. Subsequently, around 1964–1965, the operations of keiretsu-affiliated wholesalers and retailers deteriorated due to the economic recession. The decline prompted home appliance manufacturers to work on rebuilding their distribution networks, focusing on the development of sales companies and exclusive dealers (e.g., introduction of a territorial sales system), and to strengthen the competitiveness of keiretsu retailers.

• 6. As a result of a series of such rebuilding efforts, “by approximately 1970, the distribution channel for consumer electronics linking manufacturers, affiliated wholesalers, and affiliated retailers grew capable of functioning efficiently with a stable and continuous product supply system, enabling mass production.¹¹”

As is clear from the above discussion, Matsushita Electric (officially, Matsushita Electric Industrial Company, now Panasonic), led by Konosuke Matsushita, played a leading role in the creation of dedicated distribution networks among home appliance manufacturers during the high growth era.

Fig. 1

Distribution Mechanism of Matsushita Electric in 1963.

Note: Figures inside [] indicate the ratio to sales.

Source: The Institute of Economic Research, Osaka City University (1974). The reorganization process of wholesale distribution organizations for home electronics in Osaka

“Matsushita’s Way of Doing Business” as Practiced by the “God of Management”

Durable consumer goods, including home appliances and passenger cars, dubbed the “three sacred treasures” and “3C¹²”, added splendor to the era of high economic growth. During this time, Konosuke Matsushita¹³ was a representative manager among Japan’s consumer electronics manufacturers, and Soichiro Honda was representative of automobile manufacturers. Konosuke built Matsushita Electric, Japan’s largest home appliance manufacturer, and was called the “God of Management.” His accomplishments included establishing a mass production and mass sales system, introducing autonomous business divisions, and ensuring profitability.

In the “New Year’s Dreams” section of the 1956 special New Year’s issue of “Diamond” magazine, Konosuke stated, “I believe that the year thirty-one … will be the first year in which our country will truly achieve great development.” True to his words, Showa 31 (1956) became the inaugural year of Japan’s high economic growth era. The protagonist of high economic growth correctly foretold its beginning.

Konosuke and Matsushita Electric were able to play a leading role in Japan’s high economic growth because of their adherence to the “Matsushita’s way of doing business” i.e., “increasing sales of quality products at the lowest possible price.” In the October 2, 1956 issue of Diamond magazine, in an interview titled “Konosuke Matsushita – Success with High Quality and Low Price, ” Jyukichi Kono wrote:

“When a recession comes, business at my company picks up” – Mr. Matsushita’s words contradict the common belief. But there is a reason why it works that way … . National¹⁴ products are inexpensive. When a recession starts, home budgets become tight … . Everyone tries to buy the cheapest possible product, and that’s why they jump at National brand products. That’s why the company becomes so busy … . No matter how cheap the price may be, if the product is of poor quality, it is a failure. National products are inexpensive and yet their quality is excellent. That is why his company becomes busy with the arrival of a recession.

Lowering prices was the key element in the popularization of consumer durables that drove Japan’s rapid economic growth. Konosuke, the “god of management,” perfected the strategy of price cuts.

Konosuke Matsushita Before WWII

Matsushita was born in 1894 (Meiji 27) in Wasa Village (present-day Wakayama City), Kaiso County, Wakayama Prefecture. His father, a middle-class landowner, failed in the rice market trade and went bankrupt. After dropping out of elementary school in his fourth year, Matsushita went to Osaka to work as a live-in servant, and at the age of 16 he started working for Osaka Electric Light Co. “At the age of 15, he happened to see a streetcar running in Osaka City. Impressed by its convenience, he felt that the future would be the ‘age of electricity’. Reportedly, this inspired him to seek ‘work in the field of electricity’.¹⁵”

At the age of 22 in 1917 (Taisho 6) Matsushita left Osaka Electric Light Co. What “triggered his decision was his strong desire to introduce to the world his own improved version of a socket. His creativity and enthusiasm in work made him passionate about improving wiring fixtures and sockets. His prototype was completed painstakingly, but the boss did not approve it, and although Matsushita again proposed improvements, the product was not adopted. As he was confident about his creation, his disappointment was considerable and his anger deep.¹⁶”

Konosuke founded Matsushita Electric Housewares Manufacturing Works in 1918, introducing a series of practical products that incorporated many of his ideas. The first, the “Attachment Plug,” and his first utility model patent, the “2 Lighting Cluster,” were developed in response to the needs of customers at the time. Furthermore, the bullet-shaped, battery-powered lamp for bicycles, said to have laid the foundation for Matsushita’s future growth, was epoch-making as well as practical. Building upon this, the cubic lamp was developed for general household use, and was marketed under the National brand in the hope that it would become a must-have for people around the country.¹⁷

“Riding the wave of the post-World War I electrification boom,¹⁸” Matsushita Electric Housewares Manufacturing Works “entered the clothes iron, kotatsu [table-style heater], stove, and other fields in Showa 2 [1927] under the slogan ‘electro-thermal equipment that anyone can buy,’ and further expanded into radios in 1930 with the slogan ‘a radio that does not break down.’ … These were practical products for the masses in the era of electrification. This customer-oriented devotion to business underlay Konosuke’s dedication to what he called segmentation into specialty fields.¹⁹”

In 1932 (Showa 7), Konosuke gathered 200 of his approximately 1000 employees at the time at the Chuo Denki Club in Osaka and explained his “tap water philosophy”—“Our mission as industrialists is to provide goods inexpensively ‘like tap water’ through ‘relentless production’.” Konosuke’s impassioned speech inspired employees, and the entire venue was in an uproar.²⁰“ Thus, ”tap water philosophy,” the foundation of Konosuke’s management philosophy, was made public.

Putting “tap water philosophy” into practice, Matsushita Electric Housewares Manufacturing Works “focused on distributing quality products at affordable prices for the average household from early on.” On the other hand: “Regarding prices, ‘both unreasonably high profits and overly small profits are out of the proper course of business,’ Matsushita strove to ensure that his business partners secured appropriate profits.” He was convinced that “selling products at a price based on fair profit margins would not only stabilize the business of manufacturers and distributors but would also make it safer and easier for consumers to buy.” Thus, in July 1935, Matsushita began a campaign to sell products at a fair price based on the principle of co-existence and co-prosperity. The term, “just price” (seika), meant “appropriate price” (tekisei kakaku), and this wording was developed by Matsushita Electric Housewares Manufacturing Works’ to distinguish it from the widely used “established price” (teika). The company then implemented the “federation store system” in November 1935 to “promote the philosophy of co-existence and co-prosperity.²¹”

In 1933, Konosuke introduced a system of autonomous business divisions for Matsushita Electric Housewares Manufacturing Works, and in 1935 reorganized the company: “In December 1935, when the company was reorganized into Matsushita Electric Industrial Co. Ltd., it spun off different business divisions, coming to encompass nine subsidiaries such as radios, dry batteries/lamps, wiring equipment, and metal products, and went on to become one of the leading electric appliance manufacturers with a total of 4000 employees. During the war, the company worked on manufacturing military radios, wooden boats, and even airplanes. At the end of the war, it had more than 20,000 employees and about 60 factories.²²”

Konosuke Matsushita After WWII

The day after the war ended, Konosuke gathered executives in the auditorium of the Matsushita Electric head office, which had survived air raids, and “clearly stated his policy to return immediately to civilian industry.” Four days later, “On August 20 of Showa 20 [1945], he issued a memo titled, ‘Notification to all employees,’ encouraging them: ‘The basis of recovery is production. Let’s bring back our company’s traditional spirit and devote ourselves to the nation’s reconstruction and cultural revival²³‘.”

However, reviving production at Matsushita Electric was not easy. In 1946 the company was designated as a restricted company by the occupying Allied forces. Classified as a zaibatsu-affiliated company, it was subject to dissolution. Konosuke himself was also banned from holding public office.

However, “the [occupying Allied Powers’] ban on Konosuke’s holding public office was lifted the following year, in part due to a petition filed by representatives of the newly formed labor union of the company and of Matsushita Electric dealers. The zaibatsu designation [of Matsushita Electric by the Allied Powers] was also lifted in late 1949 as a result of persistent protests. At this time, the labor union unanimously resolved to oppose Konosuke’s inclusion in the list of figures subjected to the public office ban, and representatives carrying more than 10,000 petitions stayed in Tokyo for about ten days to lobby the GHQ [General Headquarters of the occupying Allied Powers] and the Japanese government.²⁴” The labor union’s taking the lead in lifting the public office expulsion measure was an unusual event for Japan in the immediate post war era when labor-management conflicts were intensifying. This support of management presented a contrasting picture to the situation at Toshiba where labor-management disputes grew increasingly serious, disrupting production. Good labor-management relations under Konosuke’s leadership enabled Matsushita Electric to restore production soon after the war.

In 1950, Matsushita declared the “reconstruction” of Matsushita Electric to domestic and overseas audiences. He toured the United States in 1951, and in 1952 formed a technical partnership with the Dutch manufacturer Phillips. This placed Matsushita at the forefront of the electrification boom that began in Japan around that time. He strongly emphasized rebuilding the sales system. As the “corporate history” posted on the Panasonic website (the company name was changed from Matsushita Electric Industrial to Panasonic in 2008) states:

Even before the 1950 declaration about reconstruction, the company already had begun to strengthen its sales, technical, and manufacturing capabilities to enable active business development in the future. In terms of sales, a sales company system was launched in some regions in 1950, while the following year the company pressed ahead with strengthening the sales staff department at its headquarters and opened more satellite sales offices. It actively promoted the establishment of sales companies across the country until around 1959.

In parallel, establishment of companies selling products on monthly installments began in 1951. Initially, these companies were only intended for radios, but later they began to handle other large-size products.

The reconstruction of dealership organization also began. In 1949, the federation store system was revived, and in some districts a fellowship “National Association” was formed by leading members of the federation, before it evolved to the “National Retail Store Association.²⁵”

Konosuke Matsushita (1965) holding the Atami Conference and exchanging views with attendees. (Provided by Jiji Press Photo)

The high growth rate of the Japanese economy began in the mid-1950s in tune with Matsushita Electric’s goal of “strengthening sales, technology, and manufacturing capabilities.” The company, which was preparing a system for mass production and mass sales of home appliances, was well positioned to lead the oncoming “consumer revolution” and high economic growth.

Konosuke commandeered Matsushita Electric, which continued to grow with the popularization of home appliances in Japan. Then in 1961, when the company’s business was on a steady track, he became chairman, and withdrew from the frontline.

The situation changed in the mid-1960s, however, when black-and-white TV, electric washing machines, and electric refrigerators became commonplace. “In the consumer electronics market, sales competition became fierce again, inventories grew, and the ability of the distribution keiretsu to control prices declined. In 1964, nearly 150 of the 170 Matsushita Electric dealers posted losses, and dissatisfaction toward Matsushita Electric grew.²⁶” At this low point, in July 1965, Konosuke invited dealers and sales company presidents across Japan to Atami and held a roundtable discussion. Kiyoshi Nakamura wrote about this gathering:

At this meeting, later known as the “Atami Conference,” Konosuke stood for a total of thirteen hours over a three-day period and listened to the voices of dissatisfaction. He reflected on the company’s shortcomings in light of its “co-existence and co-prosperity” philosophy and was finally reduced to tears. Reportedly, his reaction moved the audience and changed the venue’s tense atmosphere. Konosuke returned to the frontline of management as Acting General Manager of the Sales Headquarters and implemented a new sales system, establishing sales companies nationwide, a regional system of distributors and retailers, and a thorough enforcement of cash-based settlement. His passion, grabbing the hearts of the dealership owners, and his capacity to spearhead the reconstruction of the sales system, displayed his continuing ability, even at the age of 69.²⁷

After the Atami Conference, Matsushita Electric made a comeback and returned to a growth track. Once again, Matsushita’s leadership drew increasing praise, cementing his reputation as the “god of management.”

Looking back at Konosuke’s life, it was notable that he earnestly and directly appealed to his stakeholders, generated great enthusiasm, and transformed the situation, whether advocating the “tap water philosophy,” declaring the return to civilian industry immediately after the war, or calling for restructuring of the sales system at the “Atami Conference.” Hiroshi Ōmori, who wrote a brief biography of Matsushita, calls Konosuke an “introspective entrepreneur.²⁸” Similarly, Kiyoshi Nakamura‘s biography of Konosuke is subtitled “Introspection and Remarks.²⁹” Konosuke’s remarks reflecting his introspection, inspired many people outside the business world.

An example of Konosuke’s social endeavors was the establishment of two organizations: the PHP Institute (Peace and Happiness through Prosperity) and the Matsushita Institute of Government and Management (MIGM).

Hiroshi Ōmori described the establishment of the PHP Institute:

During the postwar social turmoil, facing a period of distress as a company and as an individual, Konosuke asked himself what he should do, not only as an entrepreneur but also as an individual human being and a member of society. After introspection, he put his ideas into action, like a businessman. The result was the establishment of the PHP Institute in November of Showa 21 [1946]. Konosuke says that he “was compelled” to launch PHP in the face of the social and economic turmoil immediately after war defeat. While gathering wisdom from all over the world, PHP aimed to study the meaning of human existence and examine how we can achieve true prosperity, peace, and happiness for everyone. Ultimately PHP would propose various measures for accomplishing prosperity.³⁰

The other social undertaking, MIGM, is a human resources training organization that Konosuke established in 1979 “spending 7 billion out of pocket to turn this into a foundation.” Many politicians and business leaders are MIGM graduates.

Konosuke Matsushita, who led Japan’s high economic growth as the initiator of the “consumer revolution,” retired as the chairman of Matsushita Electric in 1973. He passed away in 1989 (Heisei 1).