Factors That Contributed to Japan's Industrialization During the Meije Period - Coursework Example

Factors That Contributed To Japan's Industrialization During The Meije Period. Introduction Meiji period 1868-1912 marked the restoration of Meiji, the emperor of Japan to return to rule his country immediately after the end of the feudal Tokugawa ruling. The term Meiji literally meant “enlightened”. Until the beginning of Meiji restoration, Japan had been under coerced trade with Western countries because of superior military powers. With the coming back to the power Meiji empire, the new Meiji state vowed to catch up with Western powers both economically and militarily. Thus, the Meijian era witnessed major economic reforms in Japan’s economy (Brown, 2005) Japan’s economy increased three times in size during 1880 and 1913 under the theme of “rich country and strong military” During this period, Japan won the war against China in 1896 and Russia in 1906. While investments in roads, railways, harbours and communication increased by ten percent every year, Japan’s out put increased five times. Central bank was started in 1882. Gold standard was adopted in 1897. Japan stopped entertaining extra territorial rights to foreign nationals by 1899 and by 1911, it regained full tariff autonomy by 1911 (Tang, 2009).The factors that led to industrialisation of Japan during the Meiji era are discussed below. Background The feudalistic Japan in the middle of nineteenth century had been characterised as Confucian hierarchical social structure in which merchants were at the lowest rung. Japan had been in isolation from the rest of the word from 1639 to 1858. No trade was permitted except for two Dutch ships in a year along with Chinese ships at Nagasaki. By 1858, the U.S. envoy Commodore Perry managed to make the then ruler Shogun to allow trade. Rather he was made to stop preventing the trade by merchants and trade was not forced upon merchants. With this development, Shogun became unpopular since nationalists accused him desecrating the Japanese soil by allowing the foreigners into the country. Thus, the rebellion against him enabled the emperor Meiji of Japan to return to power. The emperor Meiji was just fifteen years old and hence the rebels ruled in the name of emperor. As they were able groups, they could carry out economic and social revolution which came to be known as Meiji restoration or Meiji revolution. In 1871, national government in Tokyo undertook all the debts of the domains that surrendered to the Meiji rule. It also granted stipends to the Samurai which warrior-class had ruled the country for over seven hundred years. Since the burden of pensions to Samurai amounting to one third of the government’s revenue became unbearable, fixed interest bonds were issued to Samurai in lieu of stipends. However the value of the bonds came down sharply due to excessive creation of money with the resultant inflation. But this helped farmers who earned more because of their land tax being at the fixed monetary levels (Watkins, n.d). Proto-industrialisation and factors for industrialisation The “three wells” that enabled economic development of Japan during the Meiji period were 1) Commercialisation of the economy, 2) technological innovations and 3) social and political environment. Toby (1991) insists that Japan could achieve proto-industrialisation during the eighteenth and the early nineteenth century by rapid growth of rural industry which was quite organised and market oriented. The rural economy was stimulated by the inter-bank wholesale credit to peasant money lenders at lower rates and they in turn provided capital to the farmers. New bankers also emerged and offered credit by borrowing from others. Thus, the commercialisation resulted in increased demand for credit and the period of 1820-1840 even before Meijii had been characterised by the efficient money supply system. The whole scenario represented establishment of new, small, local enterprises in the rural areas at the expense of town areas. Economic decentralisation and transfer of commercial initiative also led to commercialisation during Tokugawa economy which had been marked by three economic waves. The third one between 1789 and1843 called “Bunka-Bunsei long wave” was responsible for the economic expansion during the early nineteenth century. This period also witnessed emergence of rural industries including cotton, regional commerce and domain monopolies (Metzler, 1994). Meiji economic policy Meiji rule introduced land tax reform as a major development its economic policy. The tax rate was 3 percent and later 2.5 percent in 1876. The tax was based on the land value which was estimated on the basis of its productivity. Central government collected tax in cash. Land ownership was granted by the tax reform which was an incentive to boost productivity. The sale of land was also made unrestricted in 1872. The tax rate which was “fixed”, enabled farmers to boost their production by more capital investment. As said earlier, farmers were benefited by increased price for rice during 1877-1881 and 1890-1898 which lessened their tax burden. The fall in rice price in 1882-1888 was an advantage for the government. Thus, land tax reform enabled the government to fund their projects and infrastructure in the long run (Agow, 2005). The Meiji government felt that development of modern sectors first depended on the development of agriculture and traditional industries. Maeda Masana developed a program called Kogyo Iken for economic development. It spelt out three criteria of selecting strategic products for promotion, their suitability in local conditions and creation of capacity to use capital intensive methods. Kogyo Ken enabled economic growth in late 1880s evidenced by three percent increase in annual output of agricultural products for ten years and also expanded the government’s revenue base for promotion of industries during 1890s. Leading personalities like Masana and Matsukta were responsible for formulating the fiscal and economic policy based on their domain experience (Agow, 2005) Exports was established to stimulate exports by supporting shipping and trading companies. NYK in shipping and Mitsui Bussan in trading marked development of public and private initiatives in development of key service sector for trade promotion. This led to the industrialisation during Meiji period and for subsequent periods. The government used subsidy to promote commerce. Since merchants hesitated to engage in foreign trade by risking their money, government assumed the role of entrepreneur and started establishing pilot enterprises by creation of Ministry of industry in 1870 ( Hirschmer, Yui, 1975). Mitsubishi was started as shipping company in the year 1866 but it awaited private initiative and capital for further action. Government granted subsidies and government contracts to Mitsubishi and also expected equal; support to the government from private sector. Government in fact selected Mitsubishi instead of its own YJK company for shipping contracts since Mitsubishi was considered as a reliable company at that time. It even dropped the idea of starting government owned shipping company and relied on Mitsubishi (Agow, 2005). Industrialisation was not a top-down process starting from the government initiative trickling down to private initiatives but it should come from below. The conditions for industrialisation were ripe then because of presence of nation wide market and already emerged regional economies. Local merchants formed distribution networks on which foreign merchants depended for market access. The local merchants served as non tariff barriers and earned sizeable profits by dealing with foreign merchants who were denied local entry and invested their earnings in the new industries. In fact, there was a port system which prevented foreigners to gain entry into local markets. Although the port system was abolished, business methods giving primacy to local traders never changed (Sugiyama, 1988). The government found that development from below was not adequate to set the development process in motion. As such during the early Mejiji period, major bottle necks faced by the government were 1) Lack of contemporary knowledge on the part of the government in respect of shipping, banking and insurance. 2) Absence of institutional infrastructure to develop skills in these areas. 3) The unequal (Ansei) treaties which prevented protection of infant industries. While the Foreign ministry wanted laissez-faire policy, the Ministry of Finance wanted protectionist and interventionist policy (Howe, 1996) The financial sector reforms led to establishment banks for promotion of foreign trade. But the interest rate of 14 % which increased from 10 % was found to be high and there was need for silver money and inflation was rising. Yokohama Specie Bank was started in 1880 for bringing silver money into circulation. In 1881, when Matsukata became the Finance Minster deflationary policies were pursued by raising taxes on commodities and government expenditure was reduced by sale of its own enterprises and the revenue so generated was used to redeem in convertible paper currency. Bank of Japan came into being in 1882. Postal savings was started to siphon of small savings. Through these measures, inflation was contained. (Agow, 2005). While attempt was made during 1867-1875 to set up enterprises, in 1875-1876 it was felt there should be a strong private sector as felt by Okubo Toshimichi and Okuma. Meada Masana who was the treasury official proposed to Okuma that there should be export expansion. All these culminated into establishment of a vibrant private sector. Government was directly involved in tea, silk, and other export oriented sectors. This led to the governmental support for establishment of transport, physical and services infrastructure also. For example, in the railways, there was a combination of private investment with and without subsidy and exporters were eligible for preferential rates. Shipping industry was another preferred export oriented industry (Howe, 1996). In 1874, Okubo Toshimichi insisted on the active participation of the government in the industrialisation of any country and gave industrial policy proposals to the government which proved to have a lasting effect on industrialisation. He quoted that no country had achieved economic development through industrialisation without the active role of the government (Iwata, 1963). As a result Nippon Yusen Kaisha (NYK) came into being. Rather than fully owned public enterprises, private enterprises with governmental support proved to be efficient. Thus, YJK, a government sponsored shipping company could never take off. Okubo was in favour of dominance of a single firm as he thought that competition was wasteful. Because of YJK’s failure, Government opted to encourage Mitsubishi in the business. That was the only feasible option at the rime. He also favoured grant of freight subsidies in order to help shipping industry meet excessive freight rates (Wray, 1984). But Mitsubishi’s prominence was challenged by small ship-owners backed by Mitsui and as a result after the period (1881) of its supporters in the Government such as Okuma, a government sponsored rival company KUK was started with Mitsui a one of the shareholders. Later both merged to form NYK already mentioned above. But, later on both Mitusi and Mitsubishi withdrew from NYK resulting in NYK having Government as the largest stock holder. NYK also had to seek subsidies from the government especially during the period from 1885 to 1892 (Wray, 1982). As Wray points out government wanted to have hold on only strategically important enterprises such as defence. It had no desire to control non-strategic companies which were not as important as defence. Thus. the government came forward to privatise many such non strategic industries such as mines and factories in the mid-1880s. Mitsui which was a family company even before the Meiji period, started attracting talents from outside the family during the Meiji period. Thus manager Rizaemon Minomura from outside the family started Mitsui bank in 1876 to undertake the group’s existing money changing operations. Mitsui Bussan was set up in 1876 as a trading company taking over the operations of its domestic trading and that of Shenshu Kaisha belonging to one of the Meiji leaders. Mitsui family actually proved to be the link between old rulers and the Meiji period. Lack of direct government subsidies had its negative impact on Mitusi business. Mitsui bank was about to fail to prevent which Nakamigava, an influential group’s man was asked to be appointed as the Vice President of the Bank as he had the experience of managing Sanyo Railways. In a bid to extricate Mitsui business from bankruptcy, the new vice president divested Mitusi family from the management and helped settle bad loans of Mitsui bank and made Mitsui invest in the modern industries. After his death, Mitsui family regained control of the management and stopped expanding any more (Agow, 2005). Meiji government which wanted to promote foreign trade for earning foreign currency, started exporting rice which was produced by Mitsui Bussan. The rice was exported to Europe on 2.5 percent commission. Mitsui made entry into London market and started importing machinery from England. Coal also was exported through governmental support. With measures like these, Japan’s exports increased three times by 1890. Mitusi later withdrew form coal and rice business with government tie-up and started concentrating on third country transactions (Agow, 2005). Meiji’s success is attributed to link between the traditional economy and modern industries through institutional framework. The moment started to expel the foreigners actually resulted in the industrialisation of Japan since Meiji believed defence power depended on economic strength. And Mitsui’s role in industrialisation of the country was enormous. The Mitsui’s example has been followed in many Asian countries like South Korea, Taiwan etc. (Agow, 2005) Brown (2005) states that Meiji era was characterised by application of modern scientific thought and technology to the industry as mentioned by Kelly and Williamson(1974) The political revolution which led to industrial reform, increased role of the state, infrastructural development and application of western technology were actually responsible for the industrialisation of Japan during the Meiji period. As stated by Howe, three spheres were involved in national technology policy. First, education, research and development, second, defence and national security, third commercial sector with State involvement. Meiji’s policy on technology was strategy and commercial. While strategy stemmed from the need for defence, commercial was compelled by economic priorities. State intervention into commercial sector proved to be catalytic in the industrialisation. Meiji adopted the policy of import substitution called kokusanka. This was doe through application of western technology and knowhow. Human capital also was sought to be improved as part of the infrastructural development. Meiji economic policy was mainly political and technology and innovation was only secondary. By 1907, Japan’s technical workforce increased to 150,000 which was responsible for betterment of technological capabilities of Japanese industry. Between 1907 and 1910, some 250,000 workers left military arsenals to move into the private industrial sector to full fill the demand for labour from the newly started industries. The link between public military production and private industrialisation did not come as a result of state economic policy but due to transfer of factors of production between the two. Brown concludes that a comparison between the contributions of Tokugawa Japan and Meiji period shows that economic capabilities of the latter were less impressive. Actually, Meiji capitalised on Tokugawa since Meiji was only for restoration of emperor’s rule outlawing Samurai. Public involvement during Meiji period in respect of technological diffusion was less significant. Commercial sector was not a priority during the Meiji period since Meiji regime was mainly concerned with military considerations which overlooked economic priorities (Brown, 2005) In nutshell, the Meiji period just before the start of World War 1 gained economic growth witnessed series of reforms mainly as a protection against foreign threats. The reforms indirectly contributed to economic growth as well. Actually, Japan had reached take off stage at the time Meiji took over. The factors inherited from Tokugawa period by the Meiji era were: 1) Terakoya, the temple school for Samurai and Hanko for non-Samurai, the educational systems had already achieved high educational levels for a significant size of the population. 2) Merchants had already accumulated wealth which proved to be a source of capital for Meiji government immediately after Tokugawa period when money-based economy emerged. 3) Agriculture adopted high technology with new varieties of plants and seeds, chemical fertilisers and western farming techniques that resulted in boost in agriculture production. 4) Reopening of Japan for western technology and 5) Development of infrastructure. For example “Sankinkotai” system paved way for development of transport system. Some of the policies of Meiji government that facilitated industrialisation of Japan were : 1) With the abolition of “shinokosho” and “sekisho” systems, population mobility took place with the resultant mobility of labour. 2) Education was made compulsory that made the labour force literate essential for economic growth. 3) Foreign technology was introduced and diffused. 4) Industrial policy provided for subsidies for key industries and technicians were sent abroad to gain experience and know-how. 5) Fiscal reform provided for land tax that boosted the Government’s revenue to be used for investment. 6) The infrastructural development saw mergence of telegraph, postal and railroad systems that aided spreading of technology. The three factors of labour, capital and technology had been partly inherited from Tokugawa period and were enhanced under the influence of Meiji government’s policies. Labour directly contributes to the growth gross domestic product. Labour as a factor of production consists of both physical and mental effort that formed human resources which Japan utilised to achieve economic growth in the pre-war period. Population was 18 million at the beginning of Meiji era and it increased to 32 million during the era representing an annual growth of 5%. The drastic increase in population led to growth in the GDP. Quality of labour force also improved gradually. Temple schooling during Edo period in towns and villages had already achieved literacy for 43 % of the male population and 10 % of the female population. With the coming of Meiji period, workers were enabled to capture new information and adopt to the changing situations in terms of economy and technology. Prior to Meiji era, there were four classes of population in the society known as Samurai, peasants, artesian and merchants. The division was rigid and not interchangeable known as Shinokosho class system. This was abolished thus resulting in labour mobility. Secondly, capital movement restrictions were removed. Thus merchants who had been required to join guilds in an effort to avoid competition, were liberated thus it enabled every one to start any enterprise he wanted. The class abolition helped all people to engage in economic activities (Japan Forum). Conclusion Myamura (2010) states that Meiji effectively got rid of Tokugawa Japan characterised by caste system, bakuhan system and sakoku system etc. People were liberated to engage themselves in any activity they liked. Internal and import duties were withdrawn enabling free movement of goods, persons and regional specialisation. Discontinuance of sakoku facilitated international trade. Land tax reform, property rights created national markets. Last but not the least, Meiji restoration had late entrant advantage by directly applying western technology that was current through import substitution and this saved them considerable time of catching up unlike in many other countries which were more protectionist and shied away from the foreign capital and influence. Overall, it is mixture of both economic priorities and military aspirations that helped Meiji consolidate the industrialisation of Japan. It cannot be denied its predecessors had any role in the Japanese industrialisation. Meiji era was period of consolidation from the backwardness of the past characterised by conservative outlook and caste ridden society. References Agow Avram (2005) Meiji Japan, 1968-1911: Government’s role in economic growth and the rise of Mitusi Zaibastu. World Review 2005 < http://www.mediatimesreview.com/february05/meiji.php> accessed 5 Jan 2011. Brown, Alexander David, (2005) Meiji Japan: A Unique Technological Experience? 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Wray, William D. 1984. Mitsubishi and the N.Y.K., 1870-1914: Business Strategy in the Japanese Shipping Industry, Harvard University Press in Agow Avram (2005) Meiji Japan, 1968-1911: Government’s role in economic growth and the rise of Mitusi Zaibastu. World Review 2005 < http://www.mediatimesreview.com/february05/meiji.php> accessed 5 Jan 2011. Read More