Michael Moore's latest movie (Capitalism: a love story) is a scathing condemnation of the ugly side of capitalism. One of its premises is that over the past decade or so, the activities of the financial sector in the US had become increasingly damaging to the economy, individual shareholders and customers, and the general public. The hunt for profit at all costs has replaced prudent policies.

Theatrical release poster

Except among broad swathes of the US and European banking sector itself, there seems to be widespread consensus on the more specific causes of the financial meltdown in 2008 and the ongoing economic crisis triggered by it: excessive risk taking by financial "experts" through structuring, trading and speculation in high-risk instruments such as hedge funds, arcane "derivatives" and packaged, sub-prime mortgages, whose low quality was in turn largely the result of unscrupulous marketing among unsophisticated borrowers. The public's (and Michael Moore's) ire has been intensified by the ongoing practice, among Wall Street financial firms and its overseas clones, of awarding lucrative bonuses to the inventors and traders of these complicated financial products, without proper regard for the underlying risks.

Before considering to what extent Moore's indictment applies to Japan's brand of capitalism - if indeed at all - let us look briefly at some of the factors that made Wall Street and its overseas clones abandon their more cautious ways of the past.

In my view - not mentioned by Moore - the main event that brought about the change in behavior was the repeal, in 1999, of the Banking Act of 1933 (aka Glass-Steagall Act), which had been enacted in the wake of the great stock market crash of 1929. The new law prohibited financial institutions to engage in both consumer banking (deposit and loan business) and investment banking (trade and investment in stocks and other securities). This separation had become necessary because of rampant market speculation by US banks during the 1920s, ignoring their responsibilities as guardians of people's money. The repeal in 1999 - passed by a narrow Republican majority - has led to a gradual resumption by the large banks of the kind of activities which the Act had expressly forbidden.

During my years as a (commercial/corporate) banker in New York (1981-1988), Glass-Steagall was still in force. Commercial banks with their conservative deposit and loan business were considered "dull" compared to the investment banks, where the clever boys worked. Dull but safe. True, some of the larger commercial banks themselves were getting active in riskier, more lucrative lending - such as loans to developing countries and marginal oil exploration - but it wasn't until the repeal of Glass-Steagall that they could join the Wall Street brigade.

The Obama administration now seems determined to curtail the banks' freedom once again, partly by re-introducing the prohibition of combined commercial/investment banking.

Greeting card © Björkman Bros.

European banks have always been allowed to engage in both consumer and investment banking and until recent times - when the wild Wall Street bulls penetrated London and other financial centers - had been relatively conservative in their risk management. This difference in business ethics may perhaps be traced back to the early days of banking. While European banks, led by aristocratic or bourgeois families, generally concentrated on trade financing and wealth management, unregulated US state banks set up by unscrupulous operators gambled on high-risk projects like gold digging or even made their fortune by issuing fake currency or closing shop after gathering large amounts of deposits. (The Madoff scam is a modern equivalent). But many European banks, too, got into trouble in 2008/2009 partly because of their heavy investments in sub-prime US mortgages and other Wall Street products, abandoning their previous cautious standards.

What about Japanese banks? It seems that initially they emerged relatively unscathed by the financial meltdown. In a September 19 2008 article, The New York Times wrote that in Japan the crisis had caused "just a ripple." The banks had stayed out of the sub-prime and derivatives market, perhaps because they were still licking their wounds from the bursting of their own 1980s bubble, and maybe, too, because - like me and many people far more savvy than me - they didn't understand these new-fangled products. This is not to say that Japan's banks have been unaffected by the recession that followed the near-collapse of Wall Street. The resulting recession in the US and Europe led to a massive decline in export sales, in turn triggering a domestic recession, with the inevitable shrinkage of domestic demand. This has caused grave problems for the Japanese banking industry as well, though no major bailout or collapse on the scale of Lehman Brothers has occurred.

But Moore's film is not only about the sins of Wall Street. It also castigates the woeful lack of consideration for customers and workers in US industry in general, an attitude often justified by the "free market" mantra and the deep-seated belief that a company's main task is to maximize shareholder value. In Japan and Europe, working conditions until recently were far more protective of employees' rights than they ever were in the US. Since the end of WW2, West-European countries have often been ruled by Social Democratic parties or alliances, which instilled concepts of workers' rights and responsible capitalism.

Not the Wall Street Bull: the Japanese Bull is well-protected (painting by Hans Brinckmann)

In Japan it was probably more the tradition of paternalism and wa (harmony) that benefited the workers rather than socialist ideology. In a sense, Japan's business world had for decades already practiced what in the 1980s in the US became known as the "stakeholder approach" to business ethics. First formulated by R. Edward Freeman in 1984, it emphasizes a corporation's responsibility not merely to its shareholders but to society and employees and other interested parties. It was clearly developed as a moral alternative to a pure profit-motivated system, but it has not attracted a wide following among US business leaders.

A survey of executive attitudes toward stakeholder capitalism conducted by the Japanese Ministry of Finance and quoted in 2009 by http://ebbf.org revealed an interesting contrast between France, Japan and the United States.

The date of the survey is not given, but it was probably conducted in 2000. In any case, it illustrates Japan's effective embracing of a concept that became known in the West as the stakeholder principle, but which has roots in Japanese society going back many centuries.

The danger is that successive economic crises and the pressures of globalized markets will erode this philosophy and make Japanese corporations less sensitive to the interests of their employees and other stakeholders. Already the aftermath of the bursting of the 1980s bubble has resulted in widespread corporate restructuring in Japan, involving massive layoffs, the virtual ending of implied life-long employment guarantees, and the burgeoning use of contract workers to meet staffing needs. One consequence of this shift in labor practices is a decline in 'hope for the future' among young Japanese.

Yet it would go too far to predict an accelerated trend toward more Western-like management in Japan. On the contrary, my personal view is rather the opposite: a renewed confidence among Japanese leaders in their home-grown system, coupled with a growing realization in the US and Europe that the stakeholder concept offers a better basis for long-term social-economic-financial stability than the laissez-faire policies of the past. Meanwhile, as President Obama warned, if the bankers "don't get it" then they will have to be forced by law.

With his movie, Michael Moore has presented a "populist" but nevertheless persuasive argument that greed is bad, and that the capitalist profit-motive must be balanced by social considerations.