Reality 5: Unique capital structure.
The principal stockholders of Japanese companies are normally other companies. Individuals hold less than 10% of the stock in 97% of the companies listed on the first section of the Tokyo Stock Exchange, which includes the 1,005 largest publicly traded companies in Japan.4 Suppliers and customers are apt to be more interested in having the company in which they own stock produce a high level of output at a low price than in maximizing its operating profits by producing a lower output at a higher price. Those suppliers and customers, in other words, generally prefer to maximize the operating profits of their own businesses rather than the operating profits of the company in which they own stock.
Similarly, a bank owning stock in one of its customers may prefer to see the customer expand by buying more equipment and increasing its bank debt, rather than by hiring more workers, even if the latter course would be more profitable for the company. The bank, in this case, is primarily interested in its own operating profits.
It seems plausible that in many markets these patterns of interlocking directorships improve the allocation of resources. In some respects companies with interlocking directorships can mimic the resource allocation decisions of vertically integrated companies. In markets not perfectly competitive, vertically integrated companies, by using the true cost of resources rather than market prices to make production decisions, are often more efficient than their competitors.