● Early Japanese industrialisation and capitalism grew under the shelter of state protection and

subsidy. Comment. (specifically industrialization)

● Discuss the nature of industrialization in japan. What was the role of the state in this phase of
economic development?

INTRODUCTION :
Since the Restoration, Japanese industry has undergone a significant transformation in both its
nature and pace of development. Japan's adoption of a Free Trade policy was not a deliberate
choice but rather a result of treaty obligations with Western nations. This transition marked a
departure from traditional practices, leading to a sudden acceleration in industrial growth.

The industrial revolution in Japan was not only driven by external forces, such as treaty
obligations with Western nations, but also by internal needs arising from the country's sudden
shift in circumstances. These needs included modernizing the national army and navy, adopting
European military equipment and attire, and embracing European customs and technologies
across various aspects of society. This internal push for modernization led to a widespread
adoption of European styles and practices throughout Japan, reflecting a general craze for
everything European.
The opening of Japan to the West led to a sudden and significant increase in demand for
European goods, both necessities and luxuries. This resulted in a profound transformation of the
nation's industry as it shifted to meet these new demands. Previously, Japan had a well-organized
system of self-supply and a highly specialized division of labor in various occupations, such as
sword-making and the production of ceremonial items. However, with the influx of European
goods, many traditional industries faced decline as skilled workers were displaced and thousands
were left unemployed.

The most significant early contribution of the Meiji state was setting economic growth and
industrial strength as national goals. This decision stemmed from the realist school of thought in
the late Tokugawa Period, which advocated for government-led industrial and commercial
development to address economic issues and enhance national strength. By 1868, the new Meiji
leaders effectively implemented this policy, which had already gained support in the final years
of the Tokugawa Period.

HISTORIOGRAPHICAL DEBATE ON INDUSTRIAL REVOLUTION:

The industrial revolution in Japan during the late 19th century is viewed from two perspectives:
gradual development and historical prerequisites, aligning with Rostovian theories, and abrupt
changes during the Meiji era, unbalanced development, and strategic socioeconomic
transformations. Development economists argue that Japan's rapid growth post-Meiji Restoration
is best understood through efficient capital utilization rather than high investment levels.
Benjamin Higgins cites Japan as a prime example of spectacular development success,
transforming from an underdeveloped nation in 1868 to a thriving economy through efficient
capital-output ratios. Early articles like Nelson's in 1956 illustrate the discontinuous nature of
Japan's industrial revolution.

In 1968, John Whitney Hall presented a "New Look" at Tokugawa history, challenging the
earlier views of Japan as feudal, isolated, and reactionary. He suggested that the period's political
and institutional dynamics could be viewed positively and identified Smith's work on agriculture
and Dore's work on education as significant in understanding Japan's modern development. Hall
acknowledged that Japanese historians often compared the Tokugawa period to Europe, and
emphasized that Western scholars' work did not rewrite Japanese history or create a new
interpretative school. He emphasized the plurality of approaches and skepticism towards
simplistic historical models.

The economic and social changes in Japan set the stage for modern economic growth, facilitated
by improvements in education and literacy. Contrary to the notion of Japan's development as
"miraculous," Kelley and Williamson's rigorous analysis, offers a detailed account of Japan's
economic transformation from the 1880s to 1914. Utilizing a general equilibrium model and
counterfactual scenarios, they aim to rewrite the economic history of the Meiji era.

Kelley and Williamson's model of the Meiji economy compares predicted performance with
actual economic history, using parameters reflective of the period. Unlike Fei and Ranis, they
highlight how technical change, not labor-surplus conditions, influenced low wages and enabled
capital-intensive developments. They also conclude that agriculture performed well despite
constraints like limited land and declining labor force, thanks to intermediate inputs of capital
and technology, literacy, health, improved traditional technology, and social capital from the
Tokugawa era.

Kelley and Williamson's analysis of the Meiji Restoration period in Japan's economic history is
criticized for several reasons. Firstly, their use of neo-classical model parameters and assumption
of constant returns to scale undermines their engagement with historical evidence. Secondly,
starting their analysis in 1887 instead of 1868 reduces growth rates, making the Meiji period
seem less exceptional. This choice seems driven by data availability rather than historical
significance. Additionally, their reliance on an urban-rural dichotomy overlooks the dynamic role
of by-employments, an important aspect of the Tokugawa and early Meiji periods, thus
diminishing the historical understanding of the era.

The Meiji period in Japan's industrial development was marked by discontinuity, characterized
by a transformation in production and reliance on external influences. The technological
advancements during this period were not compatible with Tokugawa science, but their spread
was facilitated by the dynamism of the late-Tokugawa and early-Meiji periods. This
discontinuity can be attributed to underlying social characteristics rather than modernizing or
preconditioning forces.

Yuasa highlights the substantial foreign contribution to Japan's technological and industrial
progress during the Meiji Restoration. Pre-Meiji Japan relied on outdated science and
technology, but Perry's arrival initiated technical innovations in shipping by lifting bans on large
ships. Western machinery and factory methods were introduced by 1855, leading to rapid
industrial advancements. English engineers built the first steam-powered spinning plant in 1867,
while Dutch and French technicians helped establish iron foundries and machine factories.
European expertise also drove the construction of railways, telegraph systems, and civil
engineering projects. The silk manufacturing industry, a vital export, benefited from Swedish and
French engineering, while the chemical industry saw significant foreign influence, transforming
traditional manufacturing sectors like porcelain and brewing.

The State of the Economy in 1868 :

In 1868, Japan appeared to have a relatively backward economy, with 80% of the gainfully
occupied population engaged in farming and widespread poverty. However, this was not an
ordinary backward economy as during the Tokugawa Period, agriculture was integrated into a
well-developed system of national markets, encouraging specialization and productivity. Many
farm families engaged in part-time non-agricultural occupations, leading to the development of
cottage industries such as brewing, ceramics, paper, food processing, mining, metals, and
woodworking. This led to the widespread use of commercial and handicraft skills among
Japanese farm families. The growth of cottage industries reflected the rise and spread of attitudes
conducive to economic change and development. The greatest resource the Japanese economy
had as it began its period of growth was a well-educated, economically motivated, and highly
disciplined population. The growth of traditional manufactures during the late Tokugawa period
had tutored this population in specific skills, attitudes, and commercial practices, making them
highly responsive to further economic development.

-While W.E. Griffis viewed Fukui as poor compared to American towns; other Westerners,
familiar with broader Asia, noted Japan's general well-being. Townsend Harris, America's first
diplomat in Japan, described the people of Kawasaki and Edo as well-fed, well-clad, and free of
visible wealth or poverty. English diplomat Sir Rutherford Alcock, in 1859, observed widespread
sufficiency, well-maintained homes, and well-clothed people, contrasting sharply with China. He
remarked on the apparent lack of starvation or luxury, noting that Europe's peasantry couldn't
match Japan's happier, better-fed populace.

-Sydney Crawcour, an economic historian, described Japan's 1860s economy as reasonably

productive for a traditional economy, but its unique potential and responsiveness to economic
changes set it apart.
Exposure to foreign technology and markets allowed Japan's industrialization. During the Meiji
Period, agricultural output and traditional industry production led to capital accumulation, which
could be transferred to the modern sector through land tax. This growth also provided exports,
foreign exchange for buying raw materials abroad, and satisfied the growing population's
demands.Traditional skills, resources, and products formed the foundation of a modern industrial
society.

Whether Tokugawa Japan's development could have led to industrial growth without foreign
influence is speculative. Japan didn't need to invent new technologies like the steam engine.
Instead, strong public and private sector leadership was essential to mobilize resources and
import technology, ensuring Japan's progress in the mid-nineteenth century.

SCHOOLS OF THOUGHT:
Two schools of thought regarding the main driving force behind industrialization exist: the
"growth-from-above" and "growth-from-below" schools.

- The growth-from-above school posits that government measures and a small group of
industrialists provided the main incentive for industrialization. Alexander Gerschenkron
argued that the more backward the economy, the more reliance on the state rather than
private enterprise. Adherents/ followers of this school highlight government measures
such as establishing national banks, importing technicians, investing in industries, and
building model factories.These actions, like constructing modern cotton mills and
purchasing British spinning machinery in the early Meiji Period, served as examples for
private enterprise. Once private inertia was overcome, these "model plants" were sold to
private industry at low prices and on easy terms. Smith argues that without government
help, private capital would have been less successful in developing machine cotton
spinning.
- The growth-from-above school argues that the motivation for industrialization in Japan
was primarily due to the patriotism and samurai spirit of Meiji leaders and their
associated entrepreneurs. They argue that the traditional merchant class of the Tokugawa
Period was lacking in opportunism, innovation, and risk-taking qualities typical of
modern entrepreneurship. Instead, they believe that motivation came from the
nationalistic or community-centered spirit of the old samurai class, who possessed a
selfless dedication to the nation, leading them to work for a wealthy, powerful country.
The development of capitalism in Japan was influenced by samurai bureaucrats and
business leaders, leading to the rapid transition to industrial society. The unique cultural
tradition of samurai leadership, inspired by the spirit of bushido, fueled Japan's
industrialization. This led to the investment of commutation bonds in new national banks,
fueling Japan's industrialization. The growth-from-above schools stress the unique
 motivation behind Japanese industrialization, which was an "irrational, non-capitalist,
dynamic and romantic approach of the pioneering entrepreneurs."

- The "growth-from-below" school argues that the traditional view overemphasizes the
government's and large enterprises' contributions to Japan's industrialization. Instead, it
highlights the role of smaller rural and urban entrepreneurs who used labor-intensive
methods and simple technological improvements, driven by profit opportunities and
relatively independent of the government. Critics note that government-run model
factories were unprofitable until privatized in the early 1880s, suggesting private
enterprise could successfully develop modern industries. They also downplay the
samurai's role in banking, arguing their investment in samurai bonds was passive. In
contrast, the heimin (commoner) class actively participated in founding new banks,
providing capital and entrepreneurial energy.

- Adherents of the growth-from-below school emphasize the profit motive over the
patriotism of the samurai class. They highlight Meiji entrepreneurs like Iwasaki Yatarō
and Yasuda Zenjiro, founders of major industrial combines, as examples of ruthless,
competitive profit-maximizers akin/ similar to Carnegie, Vanderbilt, and Rockefeller.
This perspective underscores the significant role of the commoner class in driving
industrialization through a focus on profit.

- Meiji entrepreneurs emerged from the gono, the wealthy peasant class in villages,
influenced by their families' leadership tradition, capital accumulation through
investment in rural enterprises, and the qualities of initiative, self-reliance, and
risk-taking that traditional city merchants had lost. The gono were both ambitious and
frustrated by their position in the Tokugawa class structure, as they shared attributes of
the samurai class but were not treated as bona fide samurai. This frustration led them to
strive to be better than their fathers and to rise in the world. The wealthy peasantry placed
a high value on education and hard work, which contributed to the emergence of young
landlords' sons in the business elite. The experience of rural life and education
contributed to the rise of young landlords' sons in the business elite.
“Shibusawa Eiichi” exemplifies the rise of Meiji entrepreneurs from peasant origins. His
father, a village headman and entrepreneur, invested in village industries. Shibusawa
received a samurai education and, through a friend's help, joined the Tokugawa family's
service, traveling to France in 1867. Upon returning, he joined the new Ministry of
Finance but left in 1872 to enter banking, eventually becoming president of the First
National Bank. His banking expertise led to involvement with over 500 industrial
enterprises. Notably, in 1880, he directed the profitable Osaka spinning mill, which
became a model for Japan's textile industry.
The debate between two schools of thought has been resolved, indicating that the government
played a crucial role in fostering growth through a unified national administration, human
resource mobilization, and effective fiscal policy. The government also utilized administrative
guidance through guarantees, subsidies, and bank funds to encourage economic growth.
Meanwhile, a new generation of private sector men with ambition, inventiveness, and
opportunism contributed significantly to the expansion of commerce and industry during this
period.

1887-1938: Infrastructure and Manufacturing Expand:

- After the Tokugawa government collapsed in 1868, the new Meiji government adopted
the policies of fukoku kyohei (wealthy country/strong military) and worked to
renegotiate treaties with Western powers. The government developed infrastructure to
support industrialization and built a modern navy and army to deter Western
encroachment. This military strength helped establish a protective buffer zone in
Northeast Asia, laying the foundation for Japan's emerging empire in Asia and the
Pacific.

- The abolition of feudal fiefs under Tokugawa rule and their consolidation into politically
weak prefectures by the strong national government accelerated the spread of advanced
agricultural techniques. Nationwide dissemination of seed varieties from the Southwest
fiefs improved agricultural productivity, particularly in the Northeast. This period also
witnessed the expansion of agriculture using traditional Japanese methods and the
adoption of Western technology in manufacturing.

- The concentration of industrial production in Osaka and the Tokaido belt led to
significant geographic scale economies, reducing costs for energy, raw materials, and
access to global markets for enterprises in major harbor cities. Electrification between
1904 and 1911, driven by intercity electrical railroads, further enhanced economies of
scale in the industrial belt facing the Pacific. In the 1920s, the consolidation of two large
hydroelectric power grids, one serving Tokyo/Yokohama and the other Osaka/Kobe,
solidified the Tokaido belt's comparative advantage in factory production. Additionally,
the Tokaido metropolises pioneered the widening and paving of roads to accommodate
buses and trucks, reinforcing their per capita infrastructure advantage.

- In the late nineteenth century, organizational scale economies became increasingly

important alongside geographic scale economies. This was exemplified by the formation
of zaibatsu, which evolved into diversified industrial combines interconnected through
central holding companies. By the 1910s, zaibatsu had expanded into diverse sectors such
as banking, insurance, trading, mining, textiles, iron and steel, and machinery
manufacturing. Profits from established industries were channeled into new ventures like
 electrical machinery manufacturing, generating scale economies in finance, trade, and
manufacturing. The zaibatsu structure significantly reduced information-gathering and
transactions costs while efficiently utilizing managerial and entrepreneurial talent.

- Electrification revolutionized manufacturing during the 1920s, particularly in electrical

machinery production. Unlike the steam era, which required large central steam engines
to power multiple machines simultaneously, electrification introduced the "unit drive"
system. This system allowed each machine to be powered independently, enabling
mechanization to spread rapidly even to small enterprises.

- The drive into heavy industries such as chemicals, iron and steel, and machinery led to a
surge in demand for skilled labor capable of adapting to rapid technological changes.
Large firms in these industries began offering premium wages and job security to attract
and retain skilled workers. This led to the emergence of a dualistic economy during the
1910s, where small firms, light industry, and agriculture offered relatively low wages
compared to large enterprises in heavy industries. These large firms provided favorable
remuneration and paternalistic benefits like company housing and welfare programs,
creating an income gap between urban industrial centers and rural areas, with
significantly higher income per capita in industrial hubs like the Tokaido region.

The emergence of economic dualism was exacerbated by a slowdown in technological progress

in agriculture, which had previously benefited from the diffusion of best practice Tokugawa rice
cultivation techniques. Landlords, who had previously promoted these techniques, shifted their
focus to industrial activities, neglecting rural affairs. Tenants, who held around 45% of cultivable
rice paddy land, felt disregarded by national authorities prioritizing agricultural production for
the industrial belt. Japan's acquisition of Taiwan in 1895 and Korea in 1910 further strained
rural-urban relations, leading to tenant unrest and violence. Landlord-tenant disputes escalated
in the early 1920s and continued politically throughout the 1930s, with calls for land reform
consistently rejected by a Diet dominated by landlords.

- Japan's imperial/military expansion was fueled by the geopolitical and trade instability
of the late 1920s and early 1930s. The decline of the United Kingdom as an economic
power disrupted the gold standard regime tied to the British pound. While the United
States emerged as a potential leader in promoting global trade, its history of high tariffs
and isolationism hindered its role. Meanwhile, Germany and the Soviet Union rose as
industrial and military powers, challenging the liberal democracy championed by the UK
and US. In this context, Japan aggressively pursued military dominance in East Asia and
the Pacific, leading to conflicts with the United States and United Kingdom in the Asian
and Pacific theaters during the global warfare of 1939.
ROLE OF GOVERNMENT/ STATE IN ECONOMIC DEVELOPMENT:
W.G. Beasley discusses the various measures undertaken by the Japanese government to lay the
foundations for industrialization. He highlights the unifying role of education as fundamental to
economic development. While foreign trade continued, it was regulated to prioritize home
industries. Modernization began with agricultural reforms initiated by the government, often
with more enthusiasm than understanding. Agriculture was commercialized on a large scale, and
colleges of agriculture were established. The government also supported businesses, particularly
the powerful family-owned zaibatsu. Additionally, the abolition of feudalism dismantled local
separatism, leading to a mobile labor force and the creation of a national market.

Some significant measures taken by the Japanese government to establish the foundations for
industrialization:-
1. Firstly, the new leadership unified Japan's administration by removing restrictions that
had hindered travel and commerce during the Tokugawa Period. They abolished the old
passport and barrier system, allowing free travel and residence choice. They also
strengthened the central government by eliminating domains and creating a national
army. Feudal constraints on the internal market were lifted, removing restrictions on
commodity prices and market operations. Additionally, barriers to foreign trade were
withdrawn, permitting the export of previously restricted goods like rice, wheat, copper,
and raw silk.
2. Second, the new government reformed the class structure as part of the Meiji Restoration,
abolishing the privileges of the samurai class. The daimyo, who had become largely
powerless and financially strained by the late Tokugawa Period. Many domains were in
financial straits, making their position difficult. Initially, many daimyo were made
governors of newly established prefectures, which eased resistance. They were also given
government bonds and titles in the new nobility, allowing them to continue to live with
considerable means and prestige.
The new government in Japan quickly addressed the issue of samurai stipends and
privileges after the domains were abolished. Despite reduced rates, stipends constituted
25 to 100 percent of ordinary revenue between 1872 and 1876. The government had to
support a hereditary elite due to competing demands for western-style reforms. In 1876,
the government commuted samurai stipends into interest-bearing bonds, reducing the
government's fiscal obligations. The old samurai elite was also removed, with everyone
making equal treatment before the law, having the right to a family name, and allowing
former samurai members to enter any trade they wished. The practice of sword-bearing,
the samurai's social prestige badge, was also ended.

3. The government's most significant institutional reform during the Meiji period was the
land tax reform. Agriculture was the primary source of national revenue, and modern
economic growth required substantial income from land tax. To modernize the tax
 determination and collection, the government had to modernize the method of collecting
land tax, which had been used in kind during the Tokugawa Period. This method was
unwieldy and made it difficult to plan government expenditures in advance, as it was
based on the amount of the annual harvest. Therefore, modernizing the land tax system
was crucial for the Meiji period.

Kenneth Pyle notes that, between 1870 and 1873 a series of reforms were implemented;- Land
tax payments in kind were replaced with a uniform money payment.The sale and disposal of land
were legalized, formalizing a long-standing practice. Landowners were made responsible for
payment of the land tax and land titles were issued to them.The reforms also eliminated annual
fluctuations in tax revenue based on harvest state, establishing a standard tax that was paid
regularly in cash, providing the government with a known revenue amount.

4. The Japanese government played a crucial role in promoting economic growth by

establishing infrastructure in communications, public utilities, and financial services. By
1880, they had successfully connected major cities via telegraph. Railway construction,
which was more costly and technically challenging, progressed less rapidly.A rail line
was built in 1872 linking Tokyo to Yokohama, Kobe, and Osaka. Technical expertise in
railway construction, operation, and management was acquired during these early years,
leading to accelerated railway building. By the early 1900s, nearly 5,000 miles of railroad
had been laid, further facilitating economic development and connectivity across Japan.

5. The Meiji government's reforms in currency and banking were crucial for future
economic development. The Tokugawa economy was characterized by a chaotic mix of
coin and paper money. The adoption of a standardized currency was one of the first
achievements. The National Bank Act in 1872 initiated a modern banking system, leading
to the establishment of over 150 banks. These banks relied heavily on capital from
samurai commutation bonds. By the 1890s, Japan had a nationally integrated interest rate
structure. The Tokugawa Period's sophisticated techniques greatly facilitated the
development of modern institutions, with merchants familiar with deposits, advances, bill
discounting, and exchange transactions.
Inflation threatened the government's efforts for modern economic growth. Matsukata
Masayoshi, appointed as finance minister in 1881, was shrewd and astute, implementing
a tight money and austerity policy that led to the most severe deflation in Japanese
economic history.