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World Review
 february 2005

MEIJI JAPAN, 1868-1911:

GOVERNMENT’S ROLE IN ECONOMIC GROWTH AND THE RISE OF MITSUI ZAIBATSU

Avram Agov


“A great peace is at hand. The shogun rules firmly with justice in Edo. No more shall we live by the sword. I have seen that great profit can be made honorably… The Mitsuis must get money. We can get money only by entering the field of trade. As a commoner, I shall brew sake and soy sauce, and we shall prosper.”

Sokubei Mitsui, 1616, Family chronicles



It was when Takayasu Mitsui suffered defeat in Omi province at the hands of Oda Nobunaga, one of the great unifiers of Japan, that the Mitsui family realized its strength did not lie with the sword. Takayasu moved with his family to Isem province after barely escaping death (he was spared by Nobunaga). His son, Sokubei Mitsui, started what has become one of the legends of Japan’s business history. Upon discarding his two swords and announcing to his family that he would become a commoner, Sokubei said: “A great peace is at hand. The shogun rules firmly with justice in Edo. No more shall we live by the sword. I have seen that great profit can be made honorably. The Mitsuis must get money. We can get money only by entering the field of trade. As a commoner, I shall brew sake and soy sauce, and we shall prosper.” (Russell, 1939: 68; Roberts, 1973: 12)

History is saturated with legend. One such legend concerning the Mitsui is the family’s descent from the Fujiwaras, and the Fujiwaras, who, in turn, claimed descent from the gods that created Japan. Sokubei’s pronouncement, however, is almost prophetic. He knew little about business, but he changed profoundly the course of his family. His son, Hachirobei, is credited with the founding of the Mitsui House; he moved to Edo from the family’s hometown, Matsusaka, and opened a dry goods store. By 1911, the end of Meiji period, Mitsui trading constituted 24.5 percent of Japan’s total exports and 21.4 percent of its imports. (Yonekura, 1985: 86) When there is failure in business or economic development, scholars usually ask the question, ”What went wrong?” In this case, we might ask, “What went right?” More specifically, the purpose of this essay is to outline some characteristics of Meiji economic growth. Why Mitsui? And what is the secret of the “three wells,” the meaning attached to the Chinese characters that make up the name “Mitsui?”

Introduction

The shock waves that rocked East Asia in the second half of the nineteenth century impacted profoundly the development of the region. The Opium War in China in 1842 and the arrival of the four “black ships” (they were iron clad) of Commodore Perry to Japan at Edo Bay in 1853 provoked responses from China and Japan which affected their development and ultimately determined their international role in the following century. The encounter with the West triggered a process, which some scholars define as the “modernization” of Asia. Apart from the fact that the term “modernization” is itself problematic, such a reading fails to address the complex interaction between East and West. The resilience and longevity of the traditional system in China and Korea buckled and collapsed under the weight of foreign threats and internal weakness.

Instead of a “high-level equilibrium trap,” (Mark Elvin), we might define late imperial China’s problem as a “longevity trap,” for China developed a political economy for its agrarian empire, which lasted for thousands of years. However, institutions developed before the nineteenth century, were not compatible with industrial growth. The Qing government attempted reforms but they were too late and too limited in scope. Also, the bankruptcy of the state compounded by indemnities imposed by foreign powers and expenditures to quell rebellions compromised reform efforts from the very start. The court’s intrigues as well as the reduced legitimacy of Qing dynasty accelerated disintegration, thus fueling local resistance to the center and further undermined reform efforts. Reforms lacked an indigenous social force to ignite reform movements and ultimately establish new government, and thus were doomed.

Similarly, stability and longevity was an asset for Choson Korea, one of the longest ruling dynasties in world history surviving for five centuries within the Sino-centric Confucian world. But when this world started to crumble under the stress of internal and external threat, the Choson dynasty was unable to change namely because it realized the necessity of reforms too late and did too little in the face of foreign threats, declining legitimacy and depleting financial recourses. Korea lacked a social force capable of igniting a political revolution necessary to create a new institutional framework for economic growth. By contrast, the Meiji Restoration in Japan was in fact a reform movement which started from Choshu-Satsuma alliance against the Tokugawa Shogunate. Reforms did not start to take hold on the national level (there were reforms on domain level before the Restoration) until this new local alliance took over central power and established new structures and institutions sufficient to generate economic development. Political revolution, therefore, precipitated the industrial revolution in Asia.

This essay will focus on the factors that determined industrial growth in Meiji Japan (1868-1911) in view of government policy, which creates socioeconomic conditions for successful enterprises. Since enterprises are an indicator for economic growth, a closer look at the relation between government policy and the development of enterprises will allow us to address broader issue of Japan’s successful industrialization. Of the businesses constituting the Big Four – those which emerged in the form of conglomerates or zaibatsu, namely Mitsubishi, Mitsui, Sumitomo, and Yasuda, I will focus on Mitsui as probably the most successful business both in the past and in the present.

Mitsui’s rise is even more striking in that Mitsui claims a history spanning three centuries in which it witnessed the large-scale transformation of Japanese society and Japan’s role in the world. It is a remarkable story given not only the present status of the group as a leading Japanese conglomerate but also the changes both the group and the country have experienced. First, the Meiji Restoration changed society dramatically; Dan Takuma, the head executive of Mitsui, was assassinated in the early 1930s amidst violent anti-zaibatsu ferment; then the monopoly of prewar zaibatsu was abolished by the General Headquarters of the Supreme Commander of the Allied Forces in the wake of the Second World War. The Mitsui Zaibatsu was dissolved into 200 separate companies in 1947. How did the Mitsui Zaibatsu (later Keiretsu) manage to grow to such astonishing proportions? Put succinctly, the answer is that during long history Mitsui managed to make changes quickly and efficiently in order to adjust to the changing environment. This of course involved a complex of factors that contributed to the rise of Mitsui.

In this essay I will choose only one fragment of this long story, namely the Meiji Restoration, to outline the reasons for the success not only of Mitsui, but also of Japan’s. Of the companies comprising Mitsui Zaibatsu during Meiji Japan, I have chosen Mitsui Bussan (trading). Trading, I would suggest, played a decisive role in both the rise of Mitsui and the process of Japan’s economic development. Here I will apply the thesis that commercial capitalism precipitated industrial capitalism. During the Meiji period, trade brought together traditional and modern industries. International trade brought Japan’s economy into the regional and global economy. Trade also provided vital infrastructure which acted as a mechanism for accumulation of resources from the invigorated traditional sector of the economy to promote the modern sector. In the end, trade was a means to accumulate capital within various companies, allowing expansion through investment in new businesses.

In addition, perhaps a greater understanding of the success of Mitsui can answer the question of why Japan was successful in its industrialization efforts. The ability to bridge the past and present was a key factor in the rise of Japan as industrial power. There are many factors that determine the success of a company: corporate strategy, culture, socioeconomic environment, government policies, external factors, etc. Of these, I will pay more attention to the government’s central role in the rise and domination of Japanese enterprises. The key to understanding Japan’s economy is analysis of the link between economic history (factors for growth of the economy on the whole, related government policy, etc.) and business history (analysis of firms). Furthermore, the government’s role is seen as critical prerequisite for successful industrialization. Adequate government policy separates Japan from other Asian countries like China and Korea in the context of the modernization efforts of the late nineteenth century.

However, this created misconceptions about the role of government in the industrialization process. The vigorous industrialization of the 1930s and the Japanese “miracle” of the post-Second World War era further enhanced these misconceptions. Although there is some truth to it, we need to “demythologize” the Japanese political economy in terms of the role of the state. In particular, I would suggest that during the Meiji period, the government was not interventionist (MITI, the all-mighty Ministry of International Trade and Industry, came into existence much later). The Meiji government helped industries by staying out of their way. It promoted certain projects and used various fiscal tools to encourage development, but mostly it responded to socioeconomic and political conditions, including the international situation, which prompted the government to initiate industrialization programs. The long process of accumulation and steady and stable development was an essential factor in Japan’s successful industrialization.

What went right in Meiji period?

The revolution

Let us begin by defining what was “wrong” with the Tokugawa Shogunate. Conrad Totman describes the crux of the problem as a “systemic crisis.” When “society’s key values and key institutions are inadequate to the problems that beset it, [systemic crisis] may arise from a cumulative change within society.” (Totman, 1980) The opening of treaty ports in 1859 and the insurgency of large domains such as Choshu, Satsuma, and Tosa created a crisis. Imperialist intrusions, daimyo coalitions, and Bakufu (government) weakness precipitated the fall of the shogunate system. The Tokugawa house ceased to be a national polity from 1866, when it suffered its first defeat at the hands of Choshu. It became a regional one, comprising Edo and the surrounding area. The dislocations stemming from foreign-precipitated political crises led to public discontent and violence. New economic activities created more opportunities for commoners to participate in the political process and declining legitimacy of the Bakufu sealed the fate of the Tokugawa shogunate. Ironically, toward 1867, there was tentative consensus as to what reforms Japan should take in order to meet the internal and external challenges of the time. The Keio reforms of 1867 basically laid the foundation of what Meiji leaders were to accomplish afterwards, beginning with administrative reform. The main question, therefore, was who could carry out the reforms. The Bakufu hang by a thread destined to fall.

The Tokugawa house even accepted Tosa proposals, which called for restoration of Imperial authority and rule by daimyo coalition. The Bakufu was split, and Sastsuma refused to cooperate, while Choshu prepared a military assault on Osaka. Nothing could stop the tide of change from that point, and the fact that the Tokugawa house declined to resist, even ordering its forces in Edo not to fight those of the daimyo, is an indication of the swiftness of the change. The Bakufu was swept aside almost overnight partially because it was willing to reform too and realized that it did not stand a chance against the coalition of powerful daimyo (something like a “velvet revolution”).

The most serious problem facing the Bakufu, however, was the lack of political and social support from domains. Social and political mobilization is essential for successful reformation of society. The Bakufu lacked the crucial tools – financial, institutional, and ideological, to implement radical reforms and mobilize resources, despite that fact that there existed a vague understanding of what needed to be done. A new social force was necessary to replace the Tokugawa regime in order to build new legitimacy and social support. The Tokugawa system of almost full reliance on daimyo both for financial and military resources, imploded when the daimyo along with dispossessed samurai and reformist intellectuals recognized the source of Japan’s problems to be the Bakafu system itself. The decentralizing process that had begun in the first half of the nineteenth century (which increased power of large domains) eroded the foundations of the Bakufu system in the 1860s. The crisis created by foreign intrusions accelerated the process of disintegration. Probably the relative ease of the political change precipitated the success of the revolution. A civil war could have derailed reform efforts.

Totman’s definition of “systemic crisis” explains the root of the problems facing the Bakufu. The Meiji Restoration was a political revolution indeed. However, analysis of values and the development of the economy show that there was considerable continuity between the Tokugawa and Meiji (named after the restored Emperor) periods. The major change was the establishment of an adequate institutional base for a different direction of development, which relied heavily on the traditional system and values in order to build the needed consensus in society. Also, the changes took place over a longer period of time. Regarding industrialization decades after 1868 the traditional economy in fact prospered (including sake brewing…) alongside the slowly emerging modern sector. The latter would not be possible without the new institutional framework and the thriving traditional sector.

What went right in Meiji Restoration?: The answer is both “little went right” and “everything went right.” Little went right because the Meiji government was faced with unique circumstances and did not know how to navigate the country to economic prosperity. It had only some reformist ideas influenced by the West and the sense of crisis. The actions of the government were responsive to unique circumstances and led to series of mistakes and miscalculations. However, it learned from mistakes and more importantly – it had power and new legitimacy which could be used for mobilization of society in reform efforts. The Meiji elite was a great student. In the end, the Meiji government set a new course of development and unleashed new creative forces leading to the industrialization. In this sense, everything went right. In other words, the simple answer to the question about what went right in the Meiji Restoration is the successful building of the nation-state with a new institutional framework, which changed the course of development.

Nevertheless, the Meiji Restoration did not create a new modern economy by virtue of the political revolution which toppled the Tokugawa Shogunate. The Meiji Restoration changed the social and political environment such that they were conducive to economic growth. Industrialization was led by the new group of industrialists whose goals complemented economic expansion and investment. It was begun with the help of the peasants who paid their newly-established uniform land tax of 3 percent of the assessed value of the land. This gave the industrialists the breathing space necessary to increase per-capita output. Some landlords assisted in industrialization as well. They decided to invest their wealth (which increased due to solidified property rights and the acquisition of new lands and increased tax revenue) in infrastructure and new industries.

The industrialization was driven by merchants who brought the commodities of the traditional economy – silk, tea, soy bean, sake, etc. – to local markets and to ports to be exported. It was organized by trading companies, which linked the traditional economy with world markets and thus contributed to the accumulation of capital needed for infrastructure and modern industries. The Meiji leaders were instrumental in starting the industrialization process. For them, industrialization was national priority, and they turned all actions of government to this goal, in areas of education, the legal system, property rights, commerce, finance, and infrastructure. But by far the most critical of the government’s contributions was the successful setting of the conditions for directing savings from the traditional economy into development of new industries. Securing financial and socioeconomic conditions plus reducing the risks for those who entered the modern sector constituted the core of the Meiji economic reform.

Until recently, there has existed the misperception of Tokugawa period as an era of economic and technological backwardness, or in other words as a “Dark Age” of isolation and stagnation. In order to comprehend the Meiji Restoration in terms of change in socioeconomic conditions, it is important to look at the legacy of Tokugawa economy. The Restoration was not a breaking point. Rather, it constituted continuation within the different setting provided by the Meiji Restoration. This new environment allowed the economy to accelerate pace gradually such that wealth was accumulated for successful industrialization. I will briefly review some studies of the transition from Tokugawa to Meiji which will provide a panoramic picture of nineteenth-century economic trends in Japan. Outlining these trends will in turn help to understand the changes occurring in the Meiji era. I will also discuss various interpretations of the factors contributing to the success of the Meiji Restoration. Some parallels with China will underscore the significance of efficient government institutions and political environment to secure industrial growth.

Proto-industrialization and factors for industrialization

There are three major sets of conditions usually associated with successful industrialization: 1) commercialization of the economy; 2) technological innovations, and 3) social and political environment. These conditions represented the “three wells,” which provided resources necessary for successful economic development during Meiji period.

Various studies show that the nineteenth-century Tokugawa economy witnessed increasing commercialization and expansion of rural industries. Ronald Toby, for example, asserts that Japan achieved proto-industrialization in the eighteenth and early nineteenth century, which was marked by the rapid growth of traditionally organized but market-oriented principally rural industry. The invigoration of the rural economy was aided by the development of a network of inter-bank wholesale credit to local borrowers (“middling peasants”) through lower rates and access to capital. The capital was provided by peasant moneylenders (relying on their own savings and income) and newly emerged bankers who borrowed from others to lend. This commercialization led to increased demand for credit and improved efficiency of the money supply in the period of 1820-1840, which was also facilitated by official recoinage and increased Bakufu spending. As a result, new, small, local enterprises were established, leading to a general revival of the rural areas at the expense of the town areas. (Toby, 1991: 483-512)

Mark Metzler also mentions economic decentralization and the transfer of commercial initiative to domains in the first half of the nineteenth century as a factor. He defines three economic waves which marked the Tokugawa economy. The third one, the “Bunka-Bunsei long wave” (1789-1843), includes economic expansion in the first two decades of the nineteenth century. It was characterized by the development of rural industries (including cotton), regional commerce, and rise of domain monopolies. (Metzler, 1994: 57-119)

Tessa Moriss-Suzuki examines the technological development in Japan for several centuries and determines that fifty of sixty-four regions in the Tokugawa period generated between 20 to 40 percent of their wealth from manufacturing (soy bean, sake, silk, paper, pottery, cotton cloth). Probably the most advantageous legacy of the Tokugawa period in terms of technology and education was the skilled and specialized work force spread throughout regional communities, their influence on innovative ideas, the mercantilist competition between regions, and the spread of paper technology undermined the traditional technological secrecy of the guilds. However, Morris-Suzuki points also to the limits of the system, which put breaks on the innovation (for example the political authorities tried to control the growth of sake-brewing and silk-reeling). (Moriss-Suzuki, 1994)

Luke Roberts focuses his analysis on Tosa domain, one of the pioneering domains in regional economic development and a driving force in the move for political change in the Bakufu. His argument about the emergence of Kokueiki (prosperity of the country, meaning initially the prosperity of the domain) in Tosa as a sign of modern nationalism is disputable but deserves attention, because it points to the significance of the development of the domains and their strengthening on the eve of Meiji Restoration. One of the key elements of modernization, construction of a nation-state, can be found in the domain experience in the nineteenth century due to the emerging state identity of domains in terms of the relation between lord and peasants (paying taxes, etc.). Luke Roberts argues that the Domain-Bakufu conflict increased from the late eighteenth century because domains became less devoted to the economy of service (to the Bakufu) and increasingly committed to the interests of their own economies. (Luke Roberts, 1998)

All major characteristics of the Tokugawa economy plus increased regional autonomy described above in general terms were also present in Qing China in the first half of the nineteenth century. Moreover, in some areas like foreign trade, rural commercialization, and technological development, China was ahead of Japan. China was not “opened” to the West in terms of foreign trade, for example. China went through a time of impressive technological innovations which produced the compass (used in the ninth century – one or two centuries before the Arabs and Europeans did), gunpowder, and printing, just to name a few. Sung China used paper money as early as eleventh century. China was an active participant in regional and global trade in the beginning of the sixteenth century; in the nineteenth century, she became a major world supplier of such “luxury” commodities as silk, tea, and sugar. The role of government made a big difference in the divergent economic developments of China and Japan in the second half of nineteenth century.

Two case studies of dominant Chinese products underscore the critical role social organization and political environment played in successful industrialization. Sucheta Mazumdar studies Chinese sugar industry in south China, including Taiwan, which allows valuable comparisons. The comparison between Guangdong and Taiwan (which became a Japanese colony in 1895) is a clear indication of the importance of social organization and policies set forth by the government in industrial development. “It is clear that small-scale cultivation [80 percent of supply continued to be grown by small individual farmers, plantations accounting to the rest] per se was not inimical to centralized manufacture… The success of the Taiwan sugar industry under the Japanese was a reflection of the fundamental transformation that had occurred in the relations of production, which now directly linked the cultivator and the industrialist.” (Mazumdar, 1998: 382)

Lillian Li’s study of silk trade is along similar lines. Li concludes that China’s failure to modernize was not caused by technological deficiency, but by commercial practices and institutional arrangements, which did not provide enough incentives for growth despite the increased world demand. As a result, Japan took over the traditional Chinese silk industry in the early twentieth century. The main reason for such a development, according to Li, was the continued strength of Japan’s rural sector and its integration with the industrialized sector (Li, 1981: 203) Furthermore, in order to minimize risk peasant households limited their output of silk. The preoccupation with immediate profits also hindered growth.

“Modernization in Japan meant the reduction of those risks, natural and commercial, which were to characterize the silk manufacture. It meant producing not just better silk, but consistently better silk.” (Li, 1981: 36)

The social and political environment was crucial factor in China’s failure and Japan’s success in the late nineteenth century economic growth. A closer examination of Meiji reforms is needed in order to gauge the extent of the government’s role in industrialization.

Meiji economic policy

The land tax reform of 1873 was the first major step of Meiji economic policy. The tax was based on 3 percent (after 1876 – 2.5 percent) of the estimated value of the land based on its productivity. The taxes were collected in cash by the central government. The reform allowed all farmers to own their land, which was another incentive to increase productivity of the land. As a preparation of the reform, the government permitted unrestricted sale of land in 1872. The fixed tax rate also stimulated the farmers to improve productivity through capital investment. The rise of rice prices (1877-1881, 1890-1898) further benefited the farmers due to the decline of the real tax burden (overall decline during the Meiji years). (Yamamura, 1986) Similarly, the rice price decline in the period of 1882-1888 benefited the government. More importantly, in the longer run, the land tax reform helped the government to finance its projects in industries and infrastructure.

The Meiji government realized the significance of promotion of agriculture and traditional industries as a condition for development of modern sectors. In 1884, Maeda Masana formulated Kogyo Iken – a comprehensive study of the economy and program for development. Three criteria were set for choosing strategic products for promotion – practicability, suitability to local conditions, and capacity to use capital-incentive methods. Kogyo Iken is credited to the economic growth in the second half of the 1880s. Agricultural annual output increased by 3 percent for period of ten years (the designated period of the program) and widened the revenue base of the government to promote industries in the 1890s. This program constitutes one of the vital continuities with the economic development of domains in the pre-Restoration era. Leading figures in the Meiji government like Masana and Matsukata, who formulated the fiscal and economic policy drew on their experience in the domains.

The next important step, of the government to expand the economy is promotion of export by supporting shipping and trading companies. In this regard, NYK (shipping) and Mitsui Bussan (trading) stand out as a successful combination of public and private efforts in developing key service sector which facilitated the trade expansion of Japan and its integration into the global economy. This in turn was a key factor for the successful industrialization during Meiji period and beyond.

One of the tools used by government to promote businesses was subsidy. Government’s support to seisho (merchants by the grace of political connections), for example, laid the foundations of zaibatsu. Given the lack of tariff protection, purchasing power of small markets, and the technological gap with the West, the Meiji government supported the creation of large-scale enterprises with monopolistic positions. The issue of the government’s role in creating zaibatsu needs further study. I will return to this issue when examining the rise of Mitsui.

The Meiji leaders relied on private enterprise to achieve overall modernization. However, “merchants were unwilling to engage in foreign trade, and much less were they ready to sink capital into risky untried industrial projects. Thus in spite of narrow fiscal constraints, the government started to act as entrepreneur, following the precedents of the progressive han and the bakufu before the Restoration.” (Hirschmeier, Yui, 1975: 86) In 1870, the Ministry of Industry was established with the purpose of building pilot enterprises.

William Wray’s comprehensive study of shipping industry shows that Mitsubishi emerged from Tosa domain’s agency (Kaiseikan established in1866 as a multifunctional enterprise in trade and services), but it did not take off until private initiative and capital were put into action. The government played an instrumental role in the rise of Mitsubishi through subsidies and government contracts, but by the same token, the government needed the cooperation of private business no less than private business needed government’s support. In fact, the case of Taiwan expedition (1874) serves as an example, because the government chose Mitsubishi against government-sponsored YJK as the more reliable shipping company at the time. The government aborted its efforts to establish government-owned company and concentrated its aid on a single enterprise in the face of Mitsubishi.

Shinya Sugiyama argues that industrialization was not a top-down process of an interventionist government. “I consider the government to have been organizer of the whole domestic economy, integrating the industrialization process, but stress that it relied very much on previous and continuing development ‘from below.’” (Sugiyama, 1988: 12) He implies that conditions for industrialization were ripe because of the well-developed nationwide market and the number of regional economies. Distribution networks in Japan served as non-tariff barriers because foreign merchants were dependent on local merchants (the treaty-port system prevented foreigners from extending the trade activity beyond the ports), who managed to accumulate sizable profits and invest in new industries. Even the abolition of the port system in 1899 did not change the business methods considerably. (Sugiyama, 1988: 215-216)

However, as studies on China’s economy have shown, the distribution sector was relatively well-developed in Qing China as well and interregional trade stimulated commercialization. Furthermore, foreign merchants were also at the mercy of Chinese merchants and compradors not only in the interior, but also in the port areas. The unequal treaties with the West generated a protectionist mentality. It appears that the development “from below” was also not sufficient to unleash the industrialization process. Thus, we again arrive at the government’s role in the creation of the socioeconomic conditions for necessary economic development. But what is this role?

Christopher Howe outlines a more important role for the government during the Meiji period. The author describes three major problems facing the early Meiji government: 1) Japanese ignorance of contemporary technology and of specific skills in shipping, insurance and finance; 2) the absence of institutions with which to acquire and deploy these skills, and 3) the Ansei (unequal) treaties (the tariff conditions precluded protection of infant industries and had implications for domestic fiscal and commercial policies). The Foreign Ministry advocated a laissez-faire approach, while the Ministry of Finance supported a more interventionist and protectionist approach.

Probably the most important part of the Meiji policy to encourage private business was reform of the financial sector. It established banks for the purpose of fostering foreign trade. But the interest rate was high (increased to 14 percent from 10 percent) and there was increasing scarcity of silver money and rising inflation. Yokohama Specie Bank was set up in 1880 to bring silver money into circulation. After Matsukata became Minister of Finance in 1881, he began deflationary policies (taxes on commodities were raised; government expenditure was reduced through sale of its enterprises; additional revenue was used to redeem inconvertible paper money). The Bank of Japan was established in 1882. The Postal Savings System was used as tool for siphoning small savings and making them available. By 1885 inflation was overcome. “The modern banking sector succeeded thus in channeling capital into the modern economy, notably, also, from the growing wealth of the landlords and the exporters of tea and raw silk, as well as of course that of the still wealthy merchant houses.” (Hirschmeier, Yui, 1975: 91)

In the period of 1867-1875, the government attempted to establish enterprises and transfer technology. Then in 1875-1876, Okubo Toshimichi and Okuma Shienobu began to emphasize the need of strong private sector. In 1880, Maeda Masana, then a treasury official, presented Okuma with proposals for export expansion. The thrust of these proposals was the creation of an efficient private productive sector. “Thus in place of reliance on direct action to develop industry and promote exports, the government was now to implement its objectives by fostering private output and by promoting service business in the form of a tightly controlled private financial sector and a government-sponsored oligopoly of trading houses… We have already seen the government’s direct involvement in the tea, silk, and other export sectors. Indirectly it also supported exports by investing in transportation and in physical and services infrastructure. In the railway industry it not only directed and supported development through a mixture of private and subsidized private investment, but insisted on preferential rates for exporters. Shipping was another pivotal export-oriented policy.” (Howe, 1996: 103-108)

Okubo Toshimichi believed in a considerable government role in the revitalization of the economy. His thinking had a lasting effect on the course of industrialization. In 1874 he made proposals to the government regarding industrial policy. Okubo stated in his proposals: “Generally speaking, a country’s strength is dependent upon the prosperity of its people. The prosperity of people in turn depends upon their productive capacity. And although the amount of production is determined in a large measure by the diligence of the people engaged in manufacturing industries, a deeper probe in the ultimate determinant reveals no instance when a country’s productive power was increased without the patronage and the encouragement of the government and its officials.” (In Iwata, 1963: 236) Okubo believed that trade could stimulate domestic industries, referring to England’s mercantilistic policy. The purpose of the British Navigation Act, for instance, was to build up a merchant marine, to train sailors, and to prevent the unlimited importation of foreign goods. After having attained its goal, England then reverted to free trade. (Iwata, 1963: 238) Thus Okubo stressed the importance of shipping and trade as well as protectionist government policy.

Nippon Yusen Kaisha (NYK) is a good example of this promotion policy. In 1885, the government settled on support of one key private company. The failure of government-sponsored ventures such as YJK was a clear indication of the limits of government policy to develop the shipping industry. As soon as government support ended, YJK was liquidated. Okubo favored the dominance of a single firm, partly because he considered competition wasteful but also because of YJK’s failure, and the government turned to Mitsubishi as the only viable option in the shipping business at the time. Okubo also favored subsidies to sustain high freight rates. “He reasoned that excessive competition was driving rates down and preventing the emergence of a strong, internationally competitive shipping firm.” (Wray, 1984: 82-83, 503)

Mitsubishi was challenged by small ship-owners, supported by Mitsui. Government supporters of Mitsubishi like Okuma resigned in 1881, which led to the creation of a government-sponsored rival KUK, but ultimately Mitsubishi and KUK (Mitsui also had a share) merged into N.Y.K. in 1885 in attempt to consolidate shipping business. Mitsui retreated gradually from N.Y.K., as did Mitsubishi through selling stocks of the company, so that by the 1890s, the government became the largest stockholder of the company. N.Y.K. was also dependent heavily on government subsidies, particularly between 1885 and 1892. (Wray, 1984: 126) The ambiguity of N.Y.K as a company reflected government policy as well. William Wray points out that “the 1880s saw a significant bifurcation in the strategic and financial purposes of the government’s control over industry. It sought to control what was strategic (especially in a military sense) even if it was expensive; but it was willing to sell nonstrategic industries [sale of mines and factories to private concerns in the mid-1880s].” (Wray, 1984: 487) This period represents a turning point in the evolution of the zaibatsu.

Thus we reach the interplay between economy and business and, accordingly, government policy and private firms. Let us look at Mitsui Zaibatsu as one example of this interaction. By examining its rise and the factors that contributed to its development and success, it is possible to gain a better understanding of the problems and also the favorable factors for economic development in Meiji Japan. Also, the history of Mitsui will cast light on the critical issue of the link between the Tokugawa and Meiji economies in terms of the relation between change and continuity.

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Avram Agov is born in 1964 in Dolna Oryahovitza. He graduated Sofia University "St Kliment Ohridski" in 1988 with a BA degree of philosophy and history as a second major. After one-year specialization at Columbia University, New York, in East Asian Studies (1991-1992), he obtained an AM degree at Harvard University in 1994 - interdisciplinary program of East Asian Studies with focus on Korea. Avram Agov graduated Korean Language Institute at Yonsei University, Seoul, in 1996. He worked at Samsung Electronics from 1996 to 2002. The city council of Seoul gave him the award of "honorary citizen of Seoul" in 2001. Currently he is a Ph.D. candidate at the University of British Columbia in Vancouver, where he studies business and economic history of East Asia. He is also a teaching assistant in a 20th century world history course. His first book - "The Land of the Morning Calm: A Tale about South Korea," was published in 2004 in Bulgaria.