Gapponism - Ethical Capitalism

Japan Series

A fellow impact investor and venture capitalist recently introduced me to Eiichi Shibusawa. She has been practicing his approach to investments and portfolio management daily. Eiichi changed the way I look at capitalism. As a reluctant capitalist, I have been looking for answers for a while, which made me shift away from the American form of capitalism to the Nordic and Japanese ways.

“At many shareholder-owned US firms, specialist managers can- not take their eyes off the singular pursuit of short-term profits, and are unable to adopt a long-term perspective because their overarching imperative is to increase their company's share price. Compelled to make dividend-focused appropriations of earnings, they have little incentive to use internal reserves for future investment.” -
Book - Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective

One thing I found comfortable in the Japanese and Nordic way is looking at things from a long-term perspective and building things in harmony with society and nature. And no, it is not perfect, far from perfection, but reading Eiichi is an enlightening experience as a guy from the 19th century thought and wrote about stakeholder capitalism when most people in our century don’t know or can wrap their heads around it.

“To rebuild Japanese management, it will be critical to develop a growth strategy …. to ensure that, over the medium to long term, shareholders' interests (higher share prices) and employees' interests (enhancements to working conditions) are aligned.”
Eiichi Shibusawa on Stakeholder Capitalism, Book - Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective

Eiichi Shibusawa's thoughts on stakeholder capitalism were ahead of their time. He blended the principles of Confucian ethics with modern economic practices. He believed that businesses should not exist solely for the benefit of shareholders but should serve a broader purpose that includes the well-being of all stakeholders—employees, customers, society, and the environment. In a way, he was a big proponent of keeping interest in society over self-interest, and these principles are deeply rooted in Confucian values of fairness, integrity, and responsibility to the community. For Eiichi, the idea of profit wasn’t separate from social responsibility. In his philosophy, businesses were a means to promote financial success, social harmony, and moral progress. He argued that a corporation’s role extended beyond generating wealth for a select few to improving its workers' lives and contributing to society's greater good. When I read Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective, I realized he was an impact investing practitioner.

Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective

Eiichi Shibusawa was a prominent Japanese industrialist and economist of the late 19th and early 20th centuries. Gapponism (合本主義) is a business philosophy introduced by Eiichi. The term "gappon" can be loosely translated as "joint capital" or "cooperative enterprise," reflecting a system where stakeholders pool resources—both financial and intellectual—to create businesses that benefit society as a whole.

He was a prolific writer and thinker who left a remarkable legacy of over 500 books, essays, and publications. While he directly authored many of these works, a significant portion comes from compilations of his speeches, essays, and reflections carefully edited by others. His writings span various topics, from economics and ethics to history and practical advice for aspiring entrepreneurs.

What stands out most about Eiichi’s works is their deeply personal feelings. It is as if he is speaking directly to you about the values and principles that guided his life. Whether he discusses the balance between morality and business in The Analects and the Abacus or shares insights from his experiences as Japan underwent rapid modernization, his words carry a timeless wisdom that still resonates today.

Many ethical capitalists have been deeply influenced by spiritual or religious values, shaping their approach to business and responsibility. Unlike the views put forth by figures like Adam Smith, Ted Levitt, and Milton Friedman—who argued that self-interest and profit maximization would inherently lead to societal benefit—these individuals believed that business should align with higher moral principles. For them, spirituality was not separate from their professional lives but an integral part of how they viewed their role in society. They rejected the idea of disregarding ethical concerns for the sake of profit. Instead, they embraced a more holistic view of business, where success was measured financially and by its positive impact on people and the world around them. Eiichi was also among them, he was deeply influenced by confucianism.

“There were strong religious beliefs behind many of these figures: the Rockefellers were Baptists, the Guggenheims Jewish, and Hilton a fervent Roman Catholic. Bill Gates, Warren Buffet, George Kaiser, and the Walton family are among the American business leaders who have continued this distinctive tradition until the present day. A key insight of Zunz is that American philanthropy from Carnegie onward evolved from helping the poor to an investment in shaping the future. "Individual Americans return to society some monetary gain," he writes, "with the motivation that it might benefit them in the long run."
Book - Ethical Capitalism: Shibusawa Eiichi and Business Leadership in Global Perspective

Discussions about business's broader responsibilities beyond profit-making have been ongoing in Japan, the United States, Europe, and other regions. However, they only recently gained widespread attention. In the following pages, I argue that four key factors have fueled this conversation: spirituality, self-interest, concerns over government intervention, and the belief that governments are unable to address significant social challenges effectively.

Another important lesson I learned about morality & economic argument from Eiichi. He persuaded others that creating a prosperous society would stabilize people's lives and help them practice morality. Without economic equality, we can’t have morality in society, which is why I was wondering about India & Indonesia, where I have lived - why morality is lost.

I want to leave you with a powerful thought about Eiichi from the book I mentioned in this article: the global role of the community should not be restricted to one nation-state. The world should be a single community.

“Businesspeople represent private citizens and act for the benefit of the nation. At the center of the nation is its people, who need to think of the whole world becoming a community instead of confining themselves to the narrow perspective of caring only about their own country.”

I hope you enjoy reading my articles; please share your thoughts in the comments or email me at sagar@firstfollowers.co.

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Mail me at » sagar@firstfollowers.co

Note: These are my personal opinion.