Assignment on

The History of Development

Submitted to

Lecturer : Md. Zobayer Bin Amir

Department of Economics

Submitted by

Name : Shajia Islam Irin

Session No. : 2010-11 to 2011-12
Roll No. : 100401075
Reg. No. : 023740
Introduction
On January 3, 1868, the Japanese emperor came back into leadership. Led by a teenager
named Mutsuhito, the Meiji Restoration took its place in Japanese history. The main
policy of the restoration was to enrich the nation and strengthen the military. The
following are the stages of the restoration:

Economic Development: In the 1880s, the government began selling its industries to
private owners. Companies well known today were some of the merchants who took
over, Sumitomo and Mitsui being two of them. Mitsubishi started during this time too. It
was during this time that businesses such as these grew very rich and very large - soon
known as Zaibatsu.

Most Zaibatsu were family groups who owned, operated and created other ventures
within their original company. Examples of these are insurance, banking, international
trade, manufacturing, and real estate. Although the Zaibatsu worked with the government
to enrich the nation, they became very wealthy by enriching themselves too.

Military Development: Stage two of the Meiji restoration was to develop a powerful
military force. Within 20 years of power, they had created the best military force in East
Asia.

Political Development: Japan's first constitution was introduced which outlined laws and
regulations for citizens in Japan. Emperor became head of government with a cabinet of
ministers and a legislature with two houses.

Social Reform: People were now allowed to choose their own desired occupations. Men
became head of the household which limited women's rights more so than in the
Tokugawa Period. The family became the basic unit of society.

Educational Development: Finally, the government introduced a strong system in the

public education field. Most schools were free which allowed people progress in society.
This complimented the economic development, which assisted in its success. A strong
focus was placed on national pride in schools.
The Meiji Restoration (1868 - 1912)
In 1868 the Tokugawa shôgun ("great general"), who ruled Japan in the feudal period,
lost his power and the emperor was restored to the supreme position. The emperor took
the name Meiji ("enlightened rule") as his reign name; this event was known as the Meiji
Restoration.

The Reign of the Meiji Emperor

When the Meiji emperor was restored as head of Japan in 1868, the nation was a
militarily weak country, was primarily agricultural, and had little technological
development. It was controlled by hundreds of semi-independent feudal lords. The
Western powers — Europe and the United States — had forced Japan to sign treaties that
limited its control over its own foreign trade and required that crimes concerning
foreigners in Japan be tried not in Japanese but in Western courts. When the Meiji period
ended, with the death of the emperor in 1912, Japan had

 a highly centralized, bureaucratic government;

 a constitution establishing an elected parliament;
 a well-developed transport and communication system;
 a highly educated population free of feudal class restrictions;
 an established and rapidly growing industrial sector based on the latest technology;
and
 a powerful army and navy.

Japan had regained complete control of its foreign trade and legal system, and, by
fighting and winning two wars (one of them against a major European power, Russia), it
had established full independence and equality in international affairs. In a little more
than a generation, Japan had exceeded its goals, and in the process had changed its whole
society. Japan's success in modernization has created great interest in why and how it was
able to adopt Western political, social, and economic institutions in so short a time.

One answer is found in the Meiji Restoration itself. This political revolution "restored"
the emperor to power, but he did not rule directly. He was expected to accept the advice
of the group that had overthrown the shôgun, and it was from this group that a small
number of ambitious, able, and patriotic young men from the lower ranks of the samurai
emerged to take control and establish the new political system. At first, their only
strength was that the emperor accepted their advice and several powerful feudal domains
provided military support. They moved quickly, however, to build their own military and
economic control. By July 1869 the feudal lords had been requested to give up their
domains, and in 1871 these domains were abolished and transformed into prefectures of a
unified central state.

The feudal lords and the samurai class were offered a yearly stipend, which was later
changed to a one-time payment in government bonds. The samurai lost their class
privileges, when the government declared all classes to be equal. By 1876 the
government banned the wearing of the samurai's swords; the former samurai cut off their
top knots in favor of Western-style haircuts and took up jobs in business and the
professions.

The armies of each domain were disbanded, and a national army based on universal
conscription was created in 1872, requiring three years' military service from all men,
samurai and commoner alike. A national land tax system was established that required
payment in money instead of rice, which allowed the government to stabilize the national
budget. This gave the government money to spend to build up the strength of the nation.

Resistance and Rebellion Defeated

Although these changes were made in the name of the emperor and national defense, the
loss of privileges brought some resentment and rebellion. When the top leadership left to
travel in Europe and the United States to study Western ways in 1872, conservative
groups argued that Japan should reply to Korean's refusal to revise a centuries old treaty
with an invasion. This would help patriotic samurai to regain their importance. But the
new leaders quickly returned from Europe and reestablished their control, arguing that
Japan should concentrate on its own modernization and not engage in such foreign
adventures.

For the next twenty years, in the 1870s and 1880s, the top priority remained domestic
reform aimed at changing Japan's social and economic institutions along the lines of the
model provided by the powerful Western nations. The final blow to conservative samurai
came in the 1877 Satsuma rebellion, when the government's newly drafted army, trained
in European infantry techniques and armed with modern Western guns, defeated the last
resistance of the traditional samurai warriors. With the exception of these few samurai
outbreaks, Japan's domestic transformation proceeded with remarkable speed, energy,
and the cooperation of the people. This phenomenon is one of the major characteristics of
Japan's modern history.

Ideology

In an effort to unite the Japanese nation in response to the Western challenge, the Meiji
leaders created a civic ideology centered around the emperor. Although the emperor
wielded no political power, he had long been viewed as a symbol of Japanese culture and
historical continuity. He was the head of the Shintô religion, Japan's native religion.
Among other beliefs, Shintô holds that the emperor is descended from the sun goddess
and the gods who created Japan and therefore is semidivine. Westerners of that time
knew him primarily as a ceremonial figure. The Meiji reformers brought the emperor and
Shintô to national prominence, replacing Buddhism as the national religion, for political
and ideological reasons. By associating Shintô with the imperial line, which reached back
into legendary times, Japan had not only the oldest ruling house in the world, but a
powerful symbol of age-old national unity.

The people seldom saw the emperor, yet they were to carry out his orders without
question, in honor to him and to the unity of the Japanese people, which he represented.
In fact, the emperor did not rule. It was his "advisers," the small group of men who
exercised political control, that devised and carried out the reform program in the name
of the emperor.

Social and Economic Changes

The abolition of feudalism made possible tremendous social and political changes.
Millions of people were suddenly free to choose their occupation and move about without
restrictions. By providing a new environment of political and financial security, the
government made possible investment in new industries and technologies.

The government led the way in this, building railway and shipping lines, telegraph and
telephone systems, three shipyards, ten mines, five munitions works, and fifty-three
consumer industries (making sugar, glass, textiles, cement, chemicals, and other
important products). This was very expensive, however, and strained government
finances, so in 1880 the government decided to sell most of these industries to private
investors, thereafter encouraging such activity through subsidies and other incentives.
Some of the samurai and merchants who built these industries established major
corporate conglomerates called zaibatsu, which controlled much of Japan's modern
industrial sector.

The government also introduced a national educational system and a constitution,

creating an elected parliament called the Diet. They did this to provide a good
environment for national growth, win the respect of the Westerners, and build support for
the modern state. In the Tokugawa period, popular education had spread rapidly, and in
1872 the government established a national system to educate the entire population. By
the end of the Meiji period, almost everyone attended the free public schools for at least
six years. The government closely controlled the schools, making sure that in addition to
skills like mathematics and reading, all students studied "moral training," which stressed
the importance of their duty to the emperor, the country and their families.

The 1889 constitution was "given" to the people by the emperor, and only he (or his
advisers) could change it. A parliament was elected beginning in 1890, but only the
wealthiest one percent of the population could vote in elections. In 1925 this was changed
to allow all men (but not yet women) to vote.

To win the recognition of the Western powers and convince them to change the unequal
treaties the Japanese had been forced to sign in the 1850s, Japan changed its entire legal
system, adopting a new criminal and civil code modeled after those of France and
Germany. The Western nations finally agreed to revise the treaties in 1894,
acknowledging Japan as an equal in principle, although not in international power.

The Meiji Program of Economic Development

The Meiji Era leaders sought economic development as a concomidant of strengthening
Japan, but circumstances allowed them very little policy choice. The first problem to be
solved was financing the national government budget. In 1871 the national government in
Tokyo assumed the debts of the domains, which accepted its rule. The national
government also assumed responsibility for the stipends paid to the samurai. The samurai
class lost its source of livelihood in the land reforms and the creation of the conscription
army of commoners. Although the revolution was called a restoration of the Emperor,
what it was more fundamentally was an overthrow of the seven hundred-year rule by the
warrior class of samurai. The samurai warriors accepted their displacement in return for a
stipend. The aggregate magnitude of the samurai stipend was enourmous and requried
one third of the revenue of the national government. Under this burden the national
government substituted fixed interest bonds for the stipends. Later, with the excessiv
creation of money, prices went up and the real value of the samurai's bonds declined. The
inflation benefited the farmers whose land tax was at fixed monetary levels. They gained
at the expense of the samurai and the city dwellers. Samurai rebellions in such places as
Satsuma led to the creation of money to finance the suppression of these rebellions,
which in turn led to inflation and a decline in the real income of the samurai and more
dissatisfaction among the samurai.

Matsukata Masayoshi of Satsuma was the Minister of Finance over a ten year period. He
sought to protect Japanese industry from foreign competition, but was restricted by the
unequal treaties. The unavailability of standard protectionist devices probably benefited
Japan in the long run. Had Japan been able to fully shield its infant import-substitution
industries from foreign competition Japan would likely not have developed its export
industries.

The national government tried at first to create government industry to produce particular
products or services. The lack of funds forced the government to turn these industries
over to private business, which in return for special privileges would accomodate the
government's goals. This was the origin of the zaibatsu system. An example of this is the
rise of Mitsubishi. A semi-government shipping company was reluctant to to send its
ships into military zones to provide troop transport. Mitsubishi provided troop transport
for the national government's military expeditions and in return received the ships from
the bankrupt semi-government shipping line. Mitsubishi was granted special privileges
which enabled it to prosper and grow.

The national government created some programs, such as public education, by declaring
that it must be done and leaving it to the villages to finance and arrange for its provision.
Matsukata was aided in his rise to the office of the Minister of Finance by Okubo
Toshimichi. Okubo was assassinated in 1878. While some samurai leaders expressed
their dissatisfaction with the situation by rebellion others such as Itagaki petitioned for
representative government.

It was not easy for Japanese businesses to find markets where they could compete
successfully against European and American firms. In many cases Japanese businesses
captured markets simply by selling at a loss. This strategy could not prevail without some
source of financial subsidy. One industry in which Japanese businesses did compete
successfully at a profit was the silk industry. At just about the time that Japanese silk
producers wanted to enter the international market for silk there had been a failure of the
silk industry in Italy. The failure of the Italian supply of silk resulted in higher prices for
silk that was ususally the case and this higher price enabled the Japanese silk producers to
make a profit. The available statistics for the Meiji period do document the success.

With industrialization came the demand for coal. There was dramatic rise in production,
as shown in the table below.

Raw Silk Production and Export from Japan 1868 to 1913

Production annual Exports annual average
Period
average (tons) (tons)
1868-1872 1026 646
1883 1687 1347
1889-1893 4098 2444
1899-1903 7103 4098
1899-1903 7103 4098
1909-1913 12460 9462
 Coal Production in Japan in Various Years from 1875 to 1913
Year Coal Production (metric tons)
1875 600,000
1885 1,200,000
1895 5,000,000
1905 13,000,000
1913 21,300,000

Two of the things the coal was needed for were steamships and railroads. The growth of
these sectors is shown below.

The Size of the Japanese Merchant Fleet in Various Years from 1873 to 1913
Year Number of Steamships
1873 26
1894 169
1904 797
1913 1514

Railroad Mileage in Japan in Various Years from 1873 to 1913

Track
Year
(miles)
1872 18
1883 240
1887 640
1894 2100
1904 4700
1914 7100

The Meiji Era policy of using private businesses to promote government policy
objectives proved successful. When Park Chung Hee of South Korea wanted to
industrialize South Korea he created the system of Chaebol, the goverment-sponsored
firms such as Hyundai, Samsun, Lucky Goldstar, Daewoo, etc. This program was
modeled on the Japanese Meiji Era experience. It was not surprising that Park used the
Japanese model. He himself had become an officer in the Japanese Army complete with a
Japanese name while Korea was under Japanese control. Park served in Manchukuo
during World War II and was highly impressed with the logistics and planning operations
of the Japanese Army.

Agricultural Development of Japan

Agriculture, forestry, and fishing form the primary sector of industry of the Japanese
economy, together with the Japanese mining industry, but together they account for only
1.3% of gross national product. Only 20% of Japan's land is suitable for cultivation, and
the agricultural economy is highly subsidized and protected.

Agriculture, forestry, and fishing dominated the Japanese economy until the 1940s, but
thereafter declined into relative unimportance (see Agriculture in the Empire of Japan). In
the late 19th century (Meiji period), these sectors had accounted for more than 80% of
employment. Employment in agriculture declined in the prewar period, but the sector was
still the largest employer (about 50% of the work force) by the end of World War II. It
was further declined to 23.5% in 1965, 11.9% in 1977, and to 7.2% in 1988. The
importance of agriculture in the national economy later continued its rapid decline, with
the share of net agricultural production in GNP finally reduced between 1975 and 1989
from 4.1% to 3% In the late 1980s, 85.5% of Japan's farmers were also engaged in
occupations outside of farming, and most of these part-time farmers earned most of their
income from nonfarming activities.

Japan's economic boom that began in the 1950s left farmers far behind in both income
and agricultural technology. They were attracted to the government's food control policy
under which high rice prices were guaranteed and farmers were encouraged to increase
the output of any crops of their own choice. Farmers became mass producers of rice, even
turning their own vegetable gardens into rice fields. Their output swelled to over 14
million metric tons in the late 1960s, a direct result of greater cultivated area and
increased yield per unit area, owing to improved cultivation techniques.

Three types of farm households developed: those engaging exclusively in agriculture

(14.5% of the 4.2 million farm households in 1988, down from 21.5% in 1965); those
deriving more than half their income from the farm (14.2% down from 36.7% in 1965);
and those mainly engaged in jobs other than farming (71.3% up from 41.8% in 1965). As
more and more farm families turned to nonfarming activities, the farm population
declined (down from 4.9 million in 1975 to 4.8 million in 1988). The rate of decrease
slowed in the late 1970s and 1980s, but the average age of farmers rose to 51 years by
1980, twelve years older than the average industrial employee.

Land shortage
The most striking feature of Japanese agriculture is the shortage of farmland. The 49,000
square kilometres (19,000 sq mi) under cultivation constituted just 13.2% of the total land
area in 1988. However, the land is intensively cultivated. Rice paddies occupy most of
the countryside, whether on the alluvial plains, the terraced slopes, or wetlands and
coastal bays. Non-paddy farmland share the terraces and lower slopes and are planted
with wheat and barley in the autumn and with sweet potatoes, vegetables, and dry rice in
the summer. Intercropping is common: such crops are alternated with beans and peas.

Japanese agriculture has been characterized as a "sick" sector because it must contend
with a variety of constraints, such as the rapidly diminishing availability of arable land
and falling agricultural incomes. The problem of surplus rice was further aggravated by
extensive changes in the diets of many Japanese in the 1970s and 1980s. Even a major
rice crop failure did not reduce the accumulated stocks by more than 25% of the reserve.
In 1990, Japan was 67% self-sufficient in agricultural products and provided for around
30% of its cereal and fodder needs.

Livestock

Livestock raising is a minor activity. Demand for beef rose in the 1900s, and farmers
often shifted from dairy farming to production of high-quality (and high-cost) beef, such
as Kobe beef. Throughout the 1980s, domestic beef production met over 2% of demand.
In 1991, as a result of heavy pressure from the United States, Japan ended import quotas
on potatoes as well as citrus fruit. Milk cows are numerous in Hokkaido, where 25% of
farmers run dairies, but milk cows are also raised in Iwate, in Tōhoku, and near Tōkyō
and Kōbe. Beef cattle are mostly concentrated in western Honshū, and on Kyūshū. Hogs,
the oldest domesticated animals raised for food, are found everywhere. Pork is the most
popular meat.

Most of the imported beef comes from Australia, since beef from the USA and Canada
was banned after the first cases of BSE in those countries. Those bans were lifted in
2006.

Forestry
The nation's forest resources, although abundant, have not been well developed to sustain
a large lumber industry. Of the 245,000 km² of forests, 198.000 km² are classified as
active forests. Most often forestry is a part-time activity for farmers or small companies.
About a third of all forests are owned by the government. Production is highest in
Hokkaido and in Aomori, Iwate, Akita, Fukushima, Gifu, Miyazaki, and Kagoshima
prefectures. Nearly 33.5 million cubic meters of roundwood were produced in 1986, of
which 98% was destined for industrial uses.

Fisheries
Japan ranked second in the world behind China in tonnage of fish caught—11.9 million
tons in 1989, down slightly from 11.1 million metric tons in 1980 [citation needed]. After
the 1973 energy crisis, deep-sea fishing in Japan declined, with the annual catch in the
1980s averaging 2 million tons. Offshore fisheries accounted for an average of 50% of
the nation's total fish catches in the late 1980s although they experienced repeated ups
and downs during that period. Coastal fisheries had smaller catches than northern sea
fisheries in 1986 and 1987. As a whole, Japan's fish catches registered a slower growth in
the late 1980s. By contrast, Japan's import of marine products increased greatly in the
1980s, and was nearly 2 million tons in 1989.

The Japanese fishing industry, both domestic and overseas, has long been centered on the
Tsukiji fish market, in Tokyo, which is one of the world's largest wholesale markets for
fresh, frozen, and processed seafood.

Japan also has greatly advanced the techniques of aquaculture or sea farming. In this
system, artificial insemination and hatching techniques are used to breed fish and
shellfish, which are then released into rivers or seas. These fish and shellfish are caught
after they grow bigger. Salmon is raised this way.

Japan has more than 2,000 fishing ports, including Nagasaki, in southwest Kyūshū;
Otaru, Kushiro, and Abashiri in Hokkaidō. Major fishing ports on the Pacific coast of
Honshū include, Hachinohe, Kesennuma, and Ishinomaki along the Sanriku coast, as well
as Choshi, Yaizu, Shimizu, and Misaki to the east and south of Tokyo.

Japan is also one of the world's few whaling nations. As a member of the International
Whaling Commission, the government pledged that its fleets would restrict their catch to
international quotas, but it attracted international opprobrium for its failure to sign an
agreement placing a moratorium on catching sperm whales. Currently Japan conducts
"research whaling" for minke whales in the oceans surrounding Antarctica.

Meiji Development of Technology

Howe states that national technology policy operates within three spheres (1999).
Firstly, education, research and development. Secondly; defence and national security.
Thirdly, commercial sectors where public involvement is needed because private
investment is inadequate. An important clarification however must be made when
analysing Japanese technological diffusion. Meiji government technology policy must be
divided into ‘strategic’ and ‘commercial’ elements. Howe believes that the former was
born out of the need for national defence and clearly separated from the latter that was
governed by economic priorities. In the strategic realm the state intervened directly while
in the commercial realm, the government provided infrastructure and assisted companies
in order that they could “survive the lengthy learning process needed to make
technologies competitive” (Howe 1999: 246).

The Meiji government instigated a policy of import substitution known as

kokusanka, literally meaning ‘converting to domestic production.’ This was to be
achieved through the acquisition of Western technologies and expertise. These
acquisitions would inevitably lead to technological diversification in industry with a view
to creating export competitiveness. In addition, to achieve increased technological
absorption into the economy, the government needed to improve the basic infrastructure
of human capital and create an inseparable bond between the public and private sectors.
This bond would become the long-term tradition of the Japanese economic experience
following the Meiji Restoration.

The above information seems to indicate a strong vibrant government actively

engaged in the economy. However in reality the truth was much more complex. Choi
points out that while the Meiji government was actively involved in the economy,
quantitatively this involvement was not particularly significant (Choi). Government
expenditure (excluding transfer payments) is estimated at only 8.4% of GNP between
1878 and 1882, 15% between 1898 and 1902, and 17.6% between 1908 and 1912. With
the obvious exceptions of the Chinese and Russian conflicts, the Meiji government’s
current and capital expenditures (including military spending) lay between 7-11% of
gross national expenditure (Crawcour 1997). This is particularly low if one follows the
hypothesis that public spending financed the technological innovation/industrialisation of
the Meiji period.

The capital investment that the Meiji administration engaged in was also not
universally successful. As we see the Meiji government failed to build and operate two
large blast furnaces at Kamaishi despite a 2.5 million yen investment beginning in 1874
plus technical advice from British specialists (Yamamura 1977). In the 1880s, the
government began to sell off its mines and factories to private entrepreneurs.
Significantly it did not sell its munitions works which suggests that state’s interest in
industrialisation ended with the production of military equipment. Tipton states that the
sale of mines and factories by the state for relatively low prices reflects the privileged
position of the purchasers and the factories’ inherent lack of commercial success (1981). I
would argue that this is not the whole truth – the Meiji administration sold the factories
off cheaply because it was principally concerned with military production and not
industrialisation per sector.

The specific economic policies of the Meiji government reinforce the hypothesis
that public investment was primarily focused in the military sector to M EIJI JAPAN: A
UNIQUE TECHNOLOGICAL EXPERIENCE? The detriment of the private.
 In the inflationary period during the 1870s landowners used their extra incomes to
invest in rural industries, especially those producing western consumer goods. While this
is in keeping with the government’s policy of ‘kokusanka’ or import-substitution the very
same government denounced them, saying “The manufacture of these contributed but
little to national power” (Tipton 1981: 143). The Meiji government responded to the
inflationary period by adopting a policy of deflation advocated by Matsukata Masayoshi
(Finance Minister from 1881). This deflation redirected investment from rural consumer
goods (that were import-substituting) towards public military spending that led to
increased importing. From the late 1870s to the early 1880s military expenditure
increased by 50% indicating the pre-eminence of the ‘strategic’ realm of Meiji economic
policy.
The inherent current running through Meiji economic policy is this; technological
innovation and industrialisation had little to do with the creation of economic priorities.
Meiji economic policy was almost purely political. Howe somewhat reinforces this
assertion (1999). He states that while the metallurgical, mechanical and electrical
engineering skills required for the strategic realm spilled into the commercial, much of
the benefit of this, did not materialise until the 1920s and 1930s and some not until after
World War II, indicating a lack of political force in insuring technological diffusion into
the commercial economy. The above leads one to conclude that the division of strategic
and commercial realms in technology policy was more than a simple administrative
allocation.

Nakamura argues that the Meiji Restoration signalled the transferral of income from a
high-consuming ruling class; the samurai (warriors) and daimyo (nobility) to a new group
of lower-consuming landowners. This was achieved through a lower Meiji land tax that
was accented by a high inflation rate that eroded their tax burdens. Subsequently there
was a greater income distribution among a class of Japanese society that had a larger
MPS.

Through this, we can move away from the hypothesis that Meiji technological innovation
and subsequent industrialisation was a direct representation of state intervention in the
economy. Instead, we see the more organic development of industrialisation within
Japan, challenging the more traditional viewpoint of intense public-private cooperation in
the economy that is certainly a feature of the Japanese economy today.

Japanese Industrial Development

The Meiji Restoration: The Dawn of Industrialization

The Reform paved the way for Industrialization

The Meiji Restoration in 1867 was one of the turning points in the history of Japan. The
Restoration deprived feudal lords of their political powers, paved the way for industrial
development under capitalist rules, and triggered the integration process of the previously
isolated Japanese economy into international trade networks.
The newly created Meiji Government, led by young and passionate ex-lower- samurai-
class officials, laid down wide range of reforms in a fairly intensive manner. The reforms
included, The Abolition of the Feudal Class System created higher mobility in society in
general. Especially important in the context of industrialization, it released millions of
unproductive samurai for business, official and other productive occupations. It also
mobilized farmers to work in newly emerged factories and services, mostly located in
metropolitan or urban areas. In principle, everybody was free to choose his/her
occupation.

The Abolition of the Feudal Trade Restrictions helped to create a truely "national"
market and stimulated entrepreneur-ship among people.

Land Tax Reform and the introduction of a new national currency, the yen: the former
created a nation-wide tax system and assured the new government's revenue, and both
accelerated the nation-wide circulation of money.

Infrastructure Development
Together with these reforms, the Government gradually developed various elements of an
infrastructure for national development. A Nation-wide postal/telegram network was
established, and a series of civil engineering works was started to expand land transport
and water supply networks. In the late 1890's, national railway construction was started.
In 1870 the Ministry of Engineering was created to manage these infrastructure
development programs.

Invisible infrastructures were also arranged. A patent regulation was issued in 1885, and
a unified metric system was introduced in 1891.

Government Industrial Investment and Its Divestiture

Although extensive small-scale manual production already existed in traditional
industries such as textiles, metal working and wood processing before the Restoration,
the Meiji Government took initiatives towards industrialization by investing directly in
some strategic sectors of manufacturing with the slogan "Shokusan Kogyo"6. The
Ministry of Engineering was in charge of these investments. It established government-
owned factories in several sectors such as shipbuilding, steel, paper, chemicals and
modernized fiber spinning, to demonstrate modern technology imported from abroad.

It must be noted that most factories were sold to the private sector during the 1880s, with
several exceptions in military production facilities, because of the fiscal crisis that
resulted from civil wars in Japan. As this divestiture was associated with the transfer of
technological resources from the public sector to the private sector, it offered private
business opportunities to transform commercial capital into industrial capital, and helped
to form the Zaibatsu groups as a result.
In textiles, which had been the mainstay industry in Japan until World War II 7, although
the government's activities were limited mainly to technological support for quality
improvement and control, the operations of government spinning factories had a
substantial demonstration effect on private activity in the sector. It stimulated the
adoption of modern technology with some modifications to fit the Japanese environment.

With the divestiture of government-run factories, the Ministry of Engineering was

abolished in 1890. The Ministry of the Interior performed general supportive functions
for industry until 1890, and the then-formed Ministry of Agriculture and Commerce took
over the role afterwards.

Foreign Experts and the Education System

During the first few decades after the Restoration, the government invited thousands of
foreign educators, engineers and other experts to provide assistance in managing the
government-led civil works, and in running government-owned factories and educational
institutions1. The Ministry of Engineering allocated about 42% of its total budget to
salaries for foreign experts from 1870 to 1885. This shows the strong eagerness of the
new government to obtain western invented modern technologies. But on the other hand,
the cost to the national budget of these high salaries forced the eventual substitution of
Japanese nationals for foreign experts. This had almost been achieved by 1890s.

The government started compulsory education in 1872. Modern-style school facilities

were constructed and newly trained teachers were sent to all corners of the country. The
enrolment rate had reached almost 50% in 1890 and more than 80% in 1900. The
Ministry of Engineering established schools for engineering, telecommunications, iron
and steel making, and handicrafts. The government sent a number of young talents
overseas for study.

All the engineers and technicians educated through these programs worked in
government-owned factories and in educational and training institutions, gradually
replacing foreign experts.

Later most industrial training schools were transferred to the Ministry of Education. The
focus of education shifted to more general and higher-level disciplines. The investment in
technological resources, including in the educational system, was heavily oriented to
practical engineering. University education also put emphasis on engineering rather than
on science. Government research institutions were oriented to providing technical

1
services for enterprises as well. This emphasis on engineering was a natural choice for a
latecomer to industrialization and was maintained after the Second World War.

The International Trade Regime

After more than two hundred years of isolation from international trade, Japan re-
appeared in international trade arena, through the almost peaceful conclusion of a trade
treaty with the United States in 18582. Similar treaties with other trading powers followed
it in successive years. As a result of these treaties, Yokohama, Kobe and a few more ports
were opened.

Up until around 1900, industrial development took place under an almost neutral trade
regime. This was not necessarily desired by the Japanese government. It was not allowed
to have independent authority over the formulation of tariffs until 1899. Until that year,
tariff rates, which had been bound by an international treaty, were 5% or less. Export was
also taxed to a similar extent. Quantitative restrictions played no role until 1931.

The growth of ocean fleets played an important role in the expansion of trade. The total
tonnage of Japanese ocean fleets was 23,000 in 1872. It jumped to 3.05 million in 1920
and increased to 6.4 million in 1941, which was the third largest in the world only after
the UK and US.

Foreign Direct Investment

Before the Restoration, a few foreign trading companies had some stakes in mining
sectors3. These foreign stakes were purchased back by the new government. Foreign
firms resumed direct investment in Japan only after 1899. Most foreign investments were
joint ventures, and mostly in technology-intensive sectors such as electrical machinery
and automobiles, established through the initiatives of Japanese enterprises that
encountered demand from foreign enterprises for equity participation in exchanges of
technology and equipment.

History of Zaibatsu
The term zaibatsu was used in the 19th century to refer to large familycentury family-
controlled banking and industrial combines in Japan.
Currently, it is not used natively by Japanese speakers for anything other than historical
discussions in reference to Edohistorical Edo--and Meijiand Meiji--era zaibatsu.
The control of various large corporations by single capitalist families through
stockholding companies is known as Zaibatsu.
Before World War II, the big four wereBefore were……
MitsuiMitsui
Mitsubishi
2

3
Sumitomo
Yasuda

The Mitsui Group

Initially founded in the Edo period in 1673, when TakatoshiTakatoshiMitsui opened a

fabric and Mitsui drapery store in NihonbashiNihonbashi, Tokyo. ,
The store called Echigoya grew, prospered, and developed in to what is now probably
JapanJapan’’s most prestigious store, the Mitsukoshi Department store.
Initially founded in the Edo period in 1673, when TakatoshiTakatoshiMitsui opened a
fabric and Mitsui drapery store in NihonbashiNihonbashi, Tokyo. ,
The store called Echigoya grew, prospered, and developed in to what is now probably
JapanJapan’’s most prestigious store, the Mitsukoshi Department store.

The Sumitomo Group

Long history commencing in 1691 when Osaka copper trader Izumiya opened a copper
mine in Bessi in Iyo, now Ehime Prefecture in Shikoku IslandPrefecture Island

Expanded its business into copper refining, processing, and vending and finally
transformed itself into a Zaibatsu before the start of the World War II.

Economic Domination
The Zaibatsu grew to dominate the Japanese economy and as they were incriminated in
Japanincriminated Japan’’s war effort, the GHQ (General Head Quarters) of the Allied
Powers in Japan dissolved them during the occupation of Japan in 1945, declaring that
the Zaibatsu were a hotbed of militarism.

Formation of Industrial Groups

Industrial groups with no connection to former Zaibatsu were also formed around banks.
These groups included those that surrounded the former Daiichi Kangyo Bank, Sanwa
Bank, and Fuji Bank. Companies within these groups also tended to cooperate on the
business front and have been an important factor in JapanJapan’’s rapid economic
development since the war.

Industrial Groups expand their Keiretsu (series or subsidiary)

By acquiring shares in, or dispatching directors, to companies.
Cross shareholdings and the Keiretsu structure of companies trading within their group
have been cited by the United States as one of the signs of the closed state of Japanstate
Japan’’s markets to foreign businesses.

Reorganization of financial markets.

Daiichi Kangyo Bank, Fuji Bank, and the Industrial Bank of Japan merged and became
the Mizuho financial group.
Sakura Bank, which was formerly Mitsui Bank, and Sumitomo Bank, also merged, and
subsequently the Mitsubishi Tokyo Financial Group merged with UFJ Holdings, which
was formerly Sanwa Bank and Tokai Bank, thereby creating a new realignment of
Japancreating Japan’’s industrial groups and Keiretsu.

Mitsui Group
-Toyota
-Toshiba
-Fuji Film HD
-Sapporo Beer
-Suntory
-Mitsukoshi
-Mitsui & Co., Ltd.
-Mitsui Fudosan Company, Limited

Mitsubishi Group
-Nippon Yusen Kabushiki Kaisha
-Kirin Brewery Company, Limited
-Mitsubishi Corporation
-The Bank of Tokyo Tokyo-Mitsubishi UFJ, Ltd
-Mitsubishi UFJ Securities Co., Ltd.
-Nikon Corporation
-Mitsubishi Motors Corporation
-Mitsubishi Chemical Corporation

Sumitomo Group
-Sumitomo Corporation
-Sumitomo Chemical Company, Limited
-Asahi Breweries, Ltd
-ITOCHU Corporation
-Sumitomo Mitsui Banking Corporation
-Sumitomo Life Insurance Company
-The Japan Research Institute, Limited
-Sumitomo Realty & Development Co., Ltd

Modern Modern-day Influence

Today, the influence of the zaibatsu can still be seen in the form of financial groups,
institutions, and larger companies whose origins reach back to the original zaibatsu, often
sharing the same original family names
However, some argue that the "old mechanisms of financial and administrative control"
that zaibatsu once enjoyed have been destroyed.
Modern Modern-day Influence cont’d
Despite the absence of an actualized sweeping change to the existence of large industrial
conglomerates in Japan, the zaibatsu'szaibatsu'sprevious vertically integrated previous
chain of command, ending with a single family, has now widely been displaced by the
horizohorizontal relationships of ntal associatioassociation and coordination
characteristic of keiratsukeiratsu.

Conclusion

The most important feature of the Meiji period was Japan's struggle for recognition of its
considerable achievement and for equality with Western nations. Japan was highly
successful in organizing an agriculture, industrial, capitalist state on Western models. But
when Japan also began to apply the lessons it learned from European imperialism, the
West reacted negatively. In a sense Japan's chief handicap was that it entered into the
Western dominated world order at a late stage. Colonialism and the racist ideology that
accompanied it, were too entrenched in Western countries to allow an "upstart," nonwhite
nation to enter the race for natural resources and markets as an equal. Many of the
misunderstandings between the West and Japan stemmed from Japan's sense of alienation
from the West, which seemed to use a different standard in dealing with European
nations than it did with a rising Asian power like Japan.

Reference

1. afe.easia.columbia.edu/special/japan_1750_meiji.htm
2. en.wikipedia.org/wiki/Agriculture,_forestry,_and_fishing_in_Japan
3. www.uniquejapantours.com › Japan Travel Guide › History
4. www.grips.ac.jp/forum-e/pdf_e01/eastasia/ch5.pdf
5. are.berkeley.edu/~sberto/Zaibatsu.pdf