Japanese Industrialization

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Meiji Economic Reforms

The Meiji Restoration refers to the restoration of the monarchy whereby on 3rd January 1868 the
Emperor Meiji was restored to the Japanese throne by the insurgent Samurai of the Tozama feudal
domains of Satsuma, Choshu, Tosa and Hizen, overthrew the Tokugawa Shogunate (military
government) which had ruled Japan for 2.5 centuries. Andrew Gordon states, that within a decade,
the new government brought about a revolutionary turn around in the economy, society, polity
and culture and set in motion the transformation of Japan from a feudal state to a modern
industrialized, capitalist nation.

The Meiji government inherited a country in a deplorable condition.

1. Hugh Borton says Japan was a fragmented feudal county, the treasury was empty, there
was no standard currency, peasantry was excessively taxed and government excesses were
the rule of the day; there was no unified army, daimyos maintained their own troops, and
there was no navy to defend it against external threat.
2. From Tokugawa times as early as 1739 Japan faced mounting pressure from Britain,
America, Russia, Netherlands, and France for greater trading rights.
3. After a period of initial resistance, fearing a fate similar to that of China during the Opium
wars, the bakufu signed trade treaties with the European nations one by one. These
“unequal treaties” signed under the threat of gun-boat diplomacy as in China, exposed
Japan’s military weakness and made it economically subservient to Western powers,
which were granted tariff autonomy and extraterritoriality.

Andrew Gordon says that foreign pressure and the bakufu’s soft response ultimately weakened the
bakufu and strengthened the emerging national consensus, especially amongst the Tozama lords,
who spearheaded the Meiji Restoration. In such a situation, the new government’s most pressing
task was to strengthening Japan economically. While examining the agrarian and industrialization
policies of Meiji Japan, most historians often tend to obscure the contribution of agrarian reforms
towards industrialization of Japan. However the agrarian settlement was integral to the economic
modernization of Japan.

AGRARIAN REFORMS:

ABOLITION OF DOMAINS:

 Prior to the Meiji period, Japan was a feudal economy, with agriculture at its centre. The
Meiji government in 1868 began by abolishing the domains of the daimyo. Over a period of
three years, leaders of the new provisional government convinced the daimyo to surrender
their lands, laying the foundation for the agrarian and political unification of Japan.
 By 1870 this process was complete and all daimyo were appointed Governors, of their
former domains, still retaining effective control.
 In August 1871, the Emperor formally abolished all the domains, which were consolidated
into 72 prefectures, headed by centrally appointed governors. The power to collect land
tax was transferred from the daimyo to the governors.
 A financial settlement was made granting the daimyo a yearly salary, equivalent to about
10% of their former annual tax collection, according to Andrew Gordon. The government
inherited the daimyo’s liability towards the Samurai, paying them a pension too. This was a
beneficial settlement for the daimyos as the government underwrote their previous debts
and took on their former liabilities. They also supported the Samurai who were now paid a
pension by the government.
 This policy of paying a pension to the daimyo and the samurai, proved a financial burden
for the new government as in 1871 out of 42.5 million government expenditure, 15 million
went towards paying Samurai stipends alone. Thus in 1873 government announced that
stipends would be taxed and gave the samurai the option of commuting their stipends into
government bonds at 5-7% interest, thus providing some relief to the government.
 Yet, the government still had to pay interest on the bonds, thus by 1876 it imposed forced
commutation of all feudal pensions to bonds. This served the purpose of securing funds for
industrialisation and militarisation while simultaneously guaranteeing the support of the
politically disaffected classes for the Meiji regime. However it proved far more detrimental
to the samurai as the daimyo had larger incomes to begin with and many of them saw a 10-
75% drop in income due in part to fiscal mismanagement.

SOCIAL CHANGES:

Accompanying this there were changes in the social structure which the government initiated.
Keeping with the abolition of feudalism, in 1869 the government reduced the numerous samurai
ranks to two – upper samurai (shizoku) and lower samurai. In 1872 majority of lower samurai were
reclassified as commoners or heimin, still receiving their stipends. In 1876 they were stripped of
their traditional privilege to bear swords. By 1870 non-samurai classes were classified as
commoners. Other changes in the social order constituted, removal of restrictions on travel, dress
and hairstyle.

The peasantry under the Tokugawa regime was subject to a high tax burden imposed by the lord
who was usually indebted to the wealthier trader and artisanal classes. The peasantry was subject
to restrictions on moving out of their domains and selling or dividing their lands. The new system
abolished restrictions on movement as well as private ownership/sale of land. These changes were
favourable for the rise of capitalism. The government also ended legal discrimination against
hereditary outcaste groups such as eta and hinin. This fluid social order benefitted the educated
and moneyed classes specially the landowners, moneylenders, and rural elites. Some educated
samurai also fared well but the landless peasantry however continued to live in dire poverty, later
forming the labour for industrialization.

LAND TAX REFORM (1873)

 The most important measure in the agrarian sector introduced by the Minister of Finance,
Okubo Toshimichi, was the private ownership of land through the Land tax reform of 1873.
According to Kozaburo Kato the land confiscated by the new government amounted to 1/3 rd
of Japan’s total tax assessment.
 The government met its early expenditure, especially payment of stipends by – (i) issuing
paper currency and (ii) by collecting land taxes under the old tax system. Under the old land
tax system, land was valued in terms of rice production, but with the introduction of the
private ownership of land, land value needed to be calculated in monetary terms, and tax
collected in cash.
 The new government hesitated to introduce a new cadastral survey to determine land
value as it would invite peasant resistance.
 Kohei Kanda, a scholar solved this problem- he recommended the sale of arable land in
perpetuity through the issuance of chiken or title deeds, by local government officials, which
would bear the location, type, owner and price of land. Land price was fixed by the
government as Okubo devised a formula to set the value of land. It was determined that the
value of the crop was equal to 6% of the value of the land. Thus the value of land was 16
and 2/3rd times the value of the crop. The government could tax the land value noted in
chiken, without a survey of arable land.
 Thus the 1873 Land Tax Reform included the following provisions:
1. Complete abolition of the old taxation system
2. Implementation of land price survey with chiken issued to all owners,
3. The national tax was fixed at 3% of the land price or half the value of the crop
(keeping in mind the Tokugawa average tax rate, i.e. 50%) and additional local taxes
were not to be more than 1/3rd of the national tax.
4. Land values were also set for privately owned residential lands, forests, grasslands
and wetlands, only if proof of a cash purchase could be produced thus many lands
lapsed to the government, when proof couldn’t be produced specially forests .

The tax reform was completed by 1881 with 120 million chiken issued. The impact of the land tax
reform can be seen in the close match between the estimated tax and the actual tax collected in
contrast to the Shogunate period. In 1881 Kozaburo Kato says the land tax was estimated at
51.22million yen, and the actual revenue collected was 48.72 million which almost matched the
estimated amount of 3%. There most important impact of the land tax reform and social change
was that private property rights and a unified tax system were established which was essential for
capitalist development of the economy.

LINK BETWEEN AGRICULTURE AND INDUSTRIALIZATION:

 The agrarian measures initiated by the Meijis were intrinsically linked to the process of
industrialization, which converted Japan into a formidable economic and military power by
the early 1900s.
 Irving I. Kramer points out that Japan followed a dual approach to economic stabilization-
one of land reform accompanied by industrial development.
 The Meiji government needed to raise capital to fund the industrialization and technological
modernization of Japan. However, it did not want to rely on foreign loans nor could it raise
capital from the trade sector as trade tariffs were fixed by foreign powers according to the
“unequal treaties”. Thus the Meijis were left with no option but to raise capital internally
for industrialization, majority of which came from the agrarian sector.
 Andrew Gordon points out that the agrarian sector fuelled industrialization in many ways.
1. It was a critical source of capital as land tax constituted 80% of the government’s
income in the 1870s and early 1880s. This figure slowly fell to 60% by the 1890s, as
consumer goods) began to be taxed.
2. Secondly this sector provided labour for industrialization. The rise in the population
of Japan from the 1880s was accompanied by a shift of the rural population to towns
to work in industry. Gordon points out that in this process teenage girls of farm
families were an important source of labour. At the end of the Meiji period, out or
8,00,000 factory workers, 4,75,000 were employed in textile mills and 4/5 were
women workers, as they were cheaper to employ than men.
3. Thirdly as Japan’s population grew from 35million to 45 million between 1880-and
early 1900s, it was the agrarian sector which supported this growth, with a 1-3%
increase in productivity due to addition of new crops, seeds and fertilizer. This
helped conserve valuable foreign exchange till 1920s as Japan met its domestic
food needs.
4. Fourthly Irving I. Kramer says that the conversion of daimyo and samurai to
pensioners was another vital link between industry and agriculture. The daimyo
and samurai accumulated wealth from pensions the government paid them and
invested that into industry. The government first developed industry and later sold
it to privateers. Initially it sold non- military industries. Thus the government aided in
this shift from agriculture to industry, thereby, creating businessmen and financiers.
5. The agrarian sector also earned large amounts of foreign exchange by exporting
tea, cotton and silk products. W.G. Beasley states that there was growing demand
for Japanese silk, especially in USA as well as in Europe (which was hit by silk blight
in 1868) in the 1870/80s. Silk accounted for 30% of exports in 1880 and continued
as a main item of export till the 1930s. Andrew Gordon holds that silk accounted for
42% of Japanese revenue from exports. Cotton exports were negligible in 1880 by
1910 they accounted for 14% of exports. Tea accounted for 26% of exports in 1880
but was down to a mere 3% in 1910. Andrew Gordon points out that the third
highest source of foreign exchange, came from foreign exchange that emigrant
labour sent back home to their families, from Hawaii, California or Latin America.
 In conclusion it can be said that the agrarian reforms introduced by the Meijis changed a
feudal economy into a modern capitalist economy, in a very short span. The government
played a major role in aiding this change, as it introduced reforms, established agricultural
colleges e.g. at Saporro (1875), experimental farms, a national agricultural society (1881),
and provided seeds and fertilizers, to help small farmer families increase production.
Though the area of arable land only increased by13% between 1880 and 1900 the yield per
hectare rose by 30% according to W.G.Beasley. Capital for industrialization was raised
without major consolidation of land holdings as in Europe.
 Thus changes in the agrarian settlement were intrinsically linked to industrialization, raising
the initial capital for this and finally to achieving the ultimate Meiji aim of building a, “rich
country, strong army” or fukoku kyohei.
Meiji Industrialization
Various historians such as W.G. Beasley and T.C. Smith state that in the late Tokugawa period
certain attributes necessary for economic growth emerged. These were-a money economy, a good
distribution system covering both rural and urban areas, some expertise in finance, knowledge of
Western science among the ruling class and small capital accumulation amongst leading families
such as Ono and Mitsui as well as commoners. W.G.Beasley says that the ‘unequal treaties’,
spurred the Meiji industrialization as they forced Japan into the world economy, exposed it to new
technology and stimulated centralization and economic growth to defend Japan against the threat of
colonialism.

PHASE I:

The Industrialization of Japan has been divided into two broad phases by W.G. Beasley- (i) Phase I-
1860-1885 and (ii) PhaseII-1885-1930. The Meiji government started the industrialization
process by concentrating on, what E.H. Norman refers to as, ‘strategic industries’. Thus the
government began by developing three main sectors-Communication and Transport, Defence and
Mining, while instituting agrarian reforms mentioned afore simultaneously.

In the sphere of Communication and Transport, the government established a postal service with
3000 offices within three years. It established telegraph lines in 1869, laying the first line between
Tokyo and Osaka hiring English technicians. The telegraph was purely government owned for
security reasons, which benefitted them in war time. The Railways sector was initially entirely
government owned, though by the end of the century 2/3rds of it was privatized. The first line
connected Tokyo and Yokohama by 1872. Railways were a strategic industry as it connected Tokyo,
Osaka and Kyoto and deep water ports of Kobe (1877) and Yokohama, which was important for
defence and trade. Andrew Gordon says railways impacted society as it radically altered their notion
of time, distance and social behaviour.

Shipping services were also developed the government controlling, internal and overseas trade. In
1873 Iwasaki Yataro founded a leading shipping firm-Mitsubishi, with a few ships acquired from the
dissolution of his domain Tosa, he later added government subsidised military transports to his fleet
operating this as far as Vladivostok. In 1885 the government forced him to merge his firm with a
shipping rival the NYK (Nippon Yusen Kaisha), and granted them 8% dividends for 15 years.
Mitsubishi was to be one of the most influential industrial houses of Japan`, initially aided by
government contracts and subsidies, it would later be part of the ‘Zaibatsu’.

In the defence sector Hugh Borton points out that the government confiscated former Tokugawa
military industries and nationalized them. In 1868 it took over the Nagasaki shipyard and foundry
which it sold to Mitsubishi in phase II. The Yosuka shipyard and foundry, was retained till 1945. The
government also inherited arsenals, one at Osaka, where it employed foreigners, and built up
weapons.

In the mining sector, important for growth of heavy industries and railways, the government took
over the Takashima coal mine, which was developed earlier by B. Glover and Co. In this sector it
allowed greater privatization and employed many European miners, geologists and engineers.
Other mines that were important were Ikuno silver mine (1868), Sado gold mine (1869) and the
Kozaka silver mine (1869). Hugh Borton points out that the government set up the Ministry of
Industry in 1870, under which industrial school were set up and subsidies and finance arranged.

The government also developed cotton textile, silk and the tea industries. These industries were
very important as these commodities earned good foreign exchange later coal was also added to
this list. W.G. Beasley says that tariff regulation by foreign powers, left Japan with no choice but to
mechanize and improve the quality of its silk and tea. Thus regulations regarding silk reeling were
introduced (1873) the government financed silk filatures at Marbashi and Tamioka to introduce
Japanese entrepreneurs to western manufacturing methods. Students were sent abroad to study
sericulture in Europe. The benefits of this paid off as raw silk production increased by 60% and
exports by 100% between 1868 and 1883. Beasley also points out that the government set up
machine manufacture to reduce its dependence on foreign import of machinery. Thus a machine
factory was established in 1871, steam powered factories to produce cement in 1875, glass in1876
and white brick factory in 1878.

Important banking reforms were introduced, since a financial crisis hit Japan in 1881, due to high
government expenditure incurred in order to suppress the Satsuma rebellion (1877). Bonds had to
be issued in lieu of samurai pensions (1876) all of which resulted in high inflation. Thus Finance
minister Matsukata Masayoshi initiated the Matsukata Reforms to deal with this situation. He cut
back government expenditure, introduced new taxes on cigarettes and sake, thus achieving a
budget surplus which he used to stabilize the currency. He also set up centralized fiscal control, as
the Bank of Japan (1877) was meant to regulate banking and national currency. He reorganized the
Yokohama Specie Bank to control foreign exchange and introduced post office saving schemes.
These reforms resulted in a major deflation, causing bankruptcies and a large amount of rural
distress, however they left Japan with a strong industrial base for future industrial growth.

PHASE II-

Phase II- The second phase of industrial growth began in 1885 and was associated with
privatization of some industries, the establishment of new ones and the rise of the ‘Zaibatsu’.
W.G. Beasley points out that this phase saw investment of private capital in the domestic textile
industry. This far the textile industry had required a small initial investment; it could be carried out
in small workshops and used Japanese farm labour and simple technology. Increasing demand for
silk exports, especially in U.S.A., led entrepreneurs to mechanize. He says in 1893 there were only
3200 reeling factories which usually employed 10 people, yet by 1929 mechanization led to
increased production by few filatures. Beasley says the cotton industry was also privatized now as
the Osaka Cotton Spinning Company was established in 1882 by Shibusawa Ei’ichi, who introduced
Western technology. As he was able to pay 18% dividend others followed his path and between
1886 and 1890 the yarn output in cotton increased seven fold. Beasley says this led to a temporary
over production crisis but soon things stabilised as 1895 victory of Japan over China in the Sino-
Japanese war led to china and Korea opening up as new markets.

The period post 1900 saw the development of the heavy industries sector. Beasley says between
1910-14 volume of output of the following industries increased- metal and machinery, chemical
and ceramic and electricity and gas. In this period the Yawata Iron and Steel Works were set up in
1901. By 1914 the output of iron and steel could meet half and one third of the requirement of local
industry respectively.

There was also an increase in coal and metal mining, with mineral output increasing by 700%
between 1876 and 1896. The coal fields of Kyushu and Hokkaido were important in this period as
they provided fuel to heavy industry. Mitsui emerged with major mining interest and mines raised
output from 1million ton in 1885 to 21 million in 1914 and 34 million by 1929. Increase in industrial
production led Japan to import coal. The railways now largely privatized, continued to grow, and
covered 1000miles by the 1880s, lowering transport costs of raw material. The ‘Big Five’ or five
major companies Nippon, Sanyo, Kyushu, Kansai and Hokkaido now controlled rail expansion.

This period also witnessed the emergence of the Zaibatsu or an industrial cliques. The ‘zaibatsu’
comprised large family enterprises that monopolized industrial sectors, with government help.
These were merchant families such as Mitsubishi and Sumitomo, from the pre-Meiji period who
extended credit to the Tokugawas and later shifted allegiance to the Meiji. All these companies had
diverse interests in banking, shipbuilding etc. These companies exploited the role of the government
in the industrial sector, and got large concessions from the government when it sold off enterprises
in 1882. For example Ito Hirobumi allowed Mitsui to mine from state owned Miike mine at a cost
price and sell coal for a profit. Mitsui profited from this as it sold coal to foreign steamer and thus
established links with foreigners as far as London. Mitsui also founded a cotton firm, paper pulp
factory and engineering concern, thus diversifying.

The zaibatsu survived industrialization well as they brought in professional management, just
controlling finances themselves. Alexander Gerschenkron says that the relative lateness of
Japanese industrialization and the pressure to catch up with the west led to the rise of the
Zaibatsu. Andrew Gordon says they rose due to many factors such as government’s support of
these firms, inexpensive labour in the 19th century, and due to the entrepreneurial atmosphere.

The industrialization of Japan had a profound impact on society not only did it lead to the
emergence of industrial magnates, but also the emergence of a working class. Andrew Gordon
points out that women workers comprised 4/5th of workers in the textile industry, faced great
hardship, being young and from rural backgrounds, they were paid half the wages of male workers,
exposed to poor work conditions and sexual harassment. Male workers worked in the heavy
industries. By the 1890s they formed unions to protest their poor working conditions and were
often job hopping. The State amongst all this tried to create worker pride, for building kukoku
kyohei –or a “strong army rich country”. Thus in conclusion the industrialization of Japan was
initially sparked off by the government and was dependent on the agrarian sector, but by 1900s
private industry injected much dynamism, and helped create a secure industrialized nation a
match for the great Western world power by the World Wars.

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