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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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