Weekend Reading: Robert Allen on Japan

Weekend Reading: On Japan: Robert Allen** (2013) Global Economic History: A Very Short Introduction (Very Short Introductions) (Oxford: Oxford University Press: ) https://books.google.com/books?isbn=0199596654: On Japan: "Japan is a particularly interesting case, for it was the first Asian country to catch up with the West...

...Japanese history is divided into four periods: Tokugawa (1603–1868), when the country was governed by Tokugawa shoguns; Meiji (1868–1905), when power was returned to the Emperor Meiji and economic modernization began; Imperial (1905–40), when heavy industries were founded; and, finally, the Era of High Speed Growth (1950–90), when Japan caught up with the rich countries of the West.

The roots of Japan’s success lie in the Tokugawa period, although the country had many institutions that were inimical to economic growth. Society was divided into castes–samurai, peasants, artisans, and merchants–and the polity into several hundred domains ruled by lords called daimyo. Domains could be confiscated, and this created insecurity of property at the highest social level–rather like Elizabethan England. Draconian restrictions were imposed on international trade and contacts. Inbound ships were only allowed from China, Korea, and the Netherlands, and the Dutch were restricted to a tiny settlement in Nagasaki.

Technology advanced in the Tokugawa period, but the character of the improvements was the reverse of Britain’s. Since wages were low in East Asia, the Japanese invented technology that increased the employment of labour in order to raise the productivity of land, capital, and materials. Labour, for instance, was deployed constructing irrigation systems to raise crop yields. New varieties of rice such as akamai were planted, and water control allowed a second crop such as wheat, cotton, sugar cane, mulberry, or rapeseed to be grown. Farmers worked more hours per hectare and used less capital, as hoes were substituted for ploughs and draft animals. Productivity in manufacturing processes was also improved. Domains tried to attract industries and supported research to raise their productivity since more production led to more tax revenue.

In the case of silk, early experiments to use machinery along English lines (for example, employing gear and belt systems inspired by clocks and automatons) were abandoned since they were not economic. Instead, experiments were directed at improving the productivity of silk worms. Selective breeding and temperature control cut maturation time and boosted silk per cocoon by one-quarter.

In mining, mechanical systems of drainage were known but not used; instead, armies of workers did the work. Likewise, much labour was expended to extract the maximum amount of metal from ores. The exception that proves the rule was sake. Capital-intensive, water-powered factories were installed but only because the government restricted production by limiting the time during which breweries could operate. That restriction led to high-volume plant design.

Tokugawa development produced uneven prosperity. The population and rice crop both grew in the 17th century, but the wages of labourers stayed at ‘bare-bones’ subsistence. The average person consumed about 1,800 calories per day in the late Tokugawa and early Meiji periods. Most calories and protein came from rice, potatoes, and beans rather than meat or fish. The correlate was that people were short: men averaged 157 cm and women 146 cm.

Many people, nonetheless, enjoyed a more affluent lifestyle. About 15% of the population lived in cities; Edo (modern-day Tokyo), with a population of one million, Osaka, and Kyoto (each 400,000) were amongst the largest cities in the world. Life expectancy was increasing. Leisure grew as peasants took ‘recreation days’ and travelled around the country. School attendance was very high for an agrarian society. In 1868, 43% of boys and 10% of girls attended school, where they learned reading and arithmetic.

More than half of adult men were literate. Reading for instruction and pleasure was widespread. Books were too expensive for most people to buy, but they could be rented from shops. In 1808, there were 656 rental bookshops in Edo, supplying about 100,000 households (roughly half the population) with books. The high level of education was probably due to the commercialization of the Japanese economy, and it underlay later growth.

Tokugawa Japan achieved an impressive level of engineering and administrative competence that was apparent in the establishment of the first iron foundry in Nagasaki. Military necessity was the impetus. In 1808, HMS Phaeton entered the city’s port to attack Dutch shipping. Phaeton threatened to bombard the harbour unless provisions were provided. The Japanese had no iron cannon to defend themselves since they had no furnaces to cast them. Nabeshima Naomasa, who became the lord ruling Nagasaki and who was an enthusiast for Western science, established a team to create a cannon foundry. The group included savants and craftsmen skilled in iron. They translated a Dutch book describing a foundry in Leyden and replicated it. In 1850, they succeeded in building a reverberatory furnace, and three years later were casting cannon. In 1854, the Nagasaki group imported state-of-the-art, breech-loading Armstrong guns from Britain and manufactured copies. By 1868, Japan had eleven furnaces casting iron.

The Meiji Restoration: In 1839, the British attacked China to force the country to allow the importation of opium, which was one of the East India Company’s most lucrative products. Narco-imperialism triumphed with China’s defeat in 1842. Would Japan be next? The answer seemed to be ‘yes’ when the US Commodore Perry arrived with four warships in 1853 and demanded that Japan end its restrictions on foreign trade. Without a modern navy, Japan felt it had to agree and signed treaties with the USA, Britain, France, and Russia. An adequate military was urgent. The Tokugawa shogun took some steps to improve Japanese security, but many regarded this as too little, too late. In 1867, the Emperor Meiji ascended the thrown. Modernizers effected a virtual coup d’état, and the last Tokugawa shogun relinquished his powers. The slogan of the modernizers was ‘rich country, strong army’.

The new regime undertook sweeping reforms. All of the feudal domains were ‘surrendered’ to the Emperor, and the 1.9 million samurai were paid off with government bonds. The four orders of society were abolished, so anyone could take any job. The peasants were confirmed in the ownership of their land and modern property rights were created. Feudal payments were replaced by a land tax to the national government. This provided most state income in the 1870s. In 1873, universal conscription was introduced and a Western-style army created. This further eroded the privileges of the samurai, who had previously been the only people allowed to bear arms. In 1890, a written constitution that created a constitutional monarch on the Prussian model was adopted.

The radical spirit of Meiji Japan is shown by a simple problem–-the measurement of time. The traditional Japanese clock divided the interval from sunrise to sunset into six hours and from sunset to sunrise into another six hours. The day hour and the night hour, therefore, differed in duration, and, moreover, the length of each varied over the course of the year. Tokugawa clockmakers experimented with ingenious modifications of Western mechanical clocks to reproduce these hours. In 1873, the first Japanese railway was completed, and the Meiji government faced the problem of publishing a timetable. Rather than a complicated schedule with departure and arrival times varying over the year, the state instead abolished traditional Japanese time and replaced it with the Western 24-hour clock. Modern transportation required modern time.

Meiji economic development: The Meiji government would have liked to develop the country with the standard model that had been successful in Western Europe and North America, but they could easily introduce only two of its four components. The first was the creation of a national market by abolishing the tariffs between domains and building a railway network.

The second was universal education. In 1872, elementary schooling was made compulsory, and, by 1900, 90% of the school-age children were enrolled. Secondary schools and universities were founded but were limited and highly competitive. Thousands of Japanese were sent abroad to study. As a result, education progressed much earlier in Japan than in other poor countries. Table 6 contrasts Japan with Indonesia, a country whose experience is representative of most of Asia and Africa. In Japan, a high proportion of the population (10.8%) was in school by the late 19th century, and modern levels of participation (19.7%) were reached by the Second World War. Indonesia, by contrast, lagged several generations behind Japan. Mass education was an important reason for Japan’s success in adopting modern technology.

The other components of the development model–investment banks and a protective tariff–were harder to implement. Tokugawa Japan had nothing like modern banks. The Meiji state chartered banks from the outset, but the system was chaotic. It took 50 years for Japan to develop a banking system along German lines. Early in the Meiji period, the state filled the gap by acting as the venture capitalist.

It was impossible for Japan to use tariffs to promote industrial development because the maximum tariff rate was capped at 5% by a treaty forced on Japan by the Western powers in 1866.

Instead, the state intervened directly in the economy through ‘targeted industrial policy’. The most important actors were the Ministries of the Interior and Industry, which were charged with importing modern technology. The Ministry of Industry established Japan’s railway and telegraph systems in the 1870s and 1880s. Foreign technicians initially guided the project, but a school to train Japanese engineers was established in Osaka, and the foreigners were dispensed with as quickly as possible. One reason the Japanese managed the projects was to ensure that procurement policy promoted Japanese industry. Japanese potters, for instance, received contracts to make insulators for telegraph lines, and, in that way, an industrial ceramics industry was created.

In the 1870s and 1880s, both ministries operated on the assumption that Japanese business would not introduce modern technology at the required pace, so that the state had to be the entrepreneur. State-owned mines and factories were established using advanced imported machinery, but most were commercial failures. The Tomioka silk-reeling factory, for instance, was built in 1872 with French machinery and steam power but always lost money. In the 1880s, the Japanese government sold most of its industrial establishments and relied on business to make management decisions within the framework established by the state. Japanese business solved the problem of importing technology by re-engineering it to make it appropriate for Japanese conditions.

Japan faced a problem that has only become worse with time: modern technology was embodied in machinery and plant specifications that were designed for Western firms facing Western conditions. By the late 19th century, wages were much higher in the West than they were in Japan, so Western designs used much capital and raw materials to economize on labour. This configuration was inappropriate for Japan and resulted in high costs.

Some countries limped along with inappropriate technology, but the Japanese response was far more creative: they redesigned Western technology to make it cost-effective in their low-wage economy. Silk-reeling was an early example. At the same time that the Tomioka mill was losing money, the Ono merchant family in Tsukiji established a mill that also used European-inspired machinery. In this case, however, the machines were made of wood rather than metal and the power came from men turning cranks rather than a steam engine. The modification of Western technology along these lines became common in Japan as the ‘Suwa method’. This was an appropriate technology for Japan in that it used less expensive capital and more cheap labour.

It was the same story with cotton. The early attempts to spin with mules were not successful. Much more successful was the garabô (rattling spindle) invented by Gaun Tokimune. The garabô could be produced cheaply by local carpenters (so it saved capital) and produced yarn similar to that produced hand wheels with which it was competing. The garabô was not a high-level Meiji project, but it was supported by the Association for Developing Production run by Gaun’s local prefecture.

The contrast with India is telling. The cotton-spinning industry that grew rapidly in Bombay in the 1870s used English mules, and the mills were operated in the same manner as in Britain. No systematic attempts were made to reduce capital in the Indian industry. Such efforts were made in Japan, however. An elementary step was to operate the mills with two eleven-hour shifts per day rather than one, which was normal in Britain and India. This cut capital per hour worked in half. From the 1890s onwards, high-speed ring spindles were installed instead of mules. These changes in technique all increased employment relative to capital and cut costs. By the 20th century, Japan was the world’s low-cost spinner of cotton and was out-competing the Indians and Chinese as well as the British.

Development of appropriate technology extended to agriculture. The Japanese experimented with US farm machinery in the 1870s, but it was unsuccessful because it used too much capital. More successful were efforts to increase the productivity of land, even if that required the use of more labour. In 1877, shinriki rice was developed near Osaka. It gave high yields if it was fertilized and if the paddy was thoroughly tilled. Veteran farmers’ organizations were enlisted by the Ministry of Agriculture to spread this culture to the rest of the country. Agricultural output grew steadily in Meiji Japan and made an important contribution to the growth of the economy – once invention focused on increasing the productivity of land, the scarce and expensive factor of production.

The Imperial period, 1905–40: While Japanese society was overhauled in the Meiji period, change in the economic structure was slow. The leading industries were traditional–tea, silk, and cotton. Exports of these products paid for imported machinery and raw materials. Industrial growth accelerated between 1905 and 1940, and its character changed. The share of manufacturing leapt from 20% of GDP in 1910 to 35% in 1938. The metallurgical, engineering, and chemical industries that dominated post-war Japanese growth were founded in this period, as were the famous firms that produce these products.

These advances coincided with the full implementation of the standard development model. Japan recovered control over its tariffs in 1894 and 1911, and they were immediately raised to protect industry. By the 1920s, the banking system had matured to the point that it could finance industrial development. In addition, Japan retained its system of targeted industrial policy. The combination of policy instruments proved particularly potent for promoting heavy industry.

The first step was taken in 1905 when the Yawata Steel Works were established for strategic reasons. The plant was state-owned and required subsidies for years before becoming profitable. The First World War gave a boost to Japanese business since European imports were cut off. After the war, the military undertook research in conjunction with private companies, and promoted key industries like automobiles, trucks, and aircraft with procurement contracts. Large-scale firms, along with banks that financed them, were owned by holding companies. These zaibatsu coordinated production and channelled investment to industry. While the zaibatsu aimed to deal with the shortage of capital in Japan by increasing the rates of savings and investment, management also responded to the factor prices it faced by inventing appropriate technology. American firms operating in a high-wage environment invented highly mechanized, assembly-line production systems that economized on labour. Japanese firms, in contrast, economized on raw materials and capital. One of Japan’s most famous products was the Mitsubishi Zero fighter. Its maximum speed of 500 kilometres per hour at 4,000 metres was not achieved by increasing the power of its engine but instead by reducing its weight.

One expedient developed in the 1930s was ‘just in time’ production. Rather than producing components for inventories that required capital to finance, Japanese businesses produced components only as they were needed. ‘Just in time’ production is a technique that has proved to be so productive that it is now used in settings where capital is cheap as well as where it is dear.

Unlike Tsarist Russia or Mexico, foreign investment was a comparatively unimportant channel for importing Western technology. Instead, Japanese firms established their own R&D departments to copy it and re-engineer it to suit Japanese conditions. Business was supported by the state. When it proved impossible to import electrical turbines from Germany in 1914, Hitachi was awarded a contract for a 10,000-horsepower turbine for a hydro-electric project. Since the largest turbine Hitachi had previously built was 100-horsepower, there was much to learn, and the experience strengthened the firm’s engineering capabilities.

Japan’s application of the standard development model was a mixed success. On the one hand, an urban society with advanced industries was created. Per capita GDP increased from $737 in 1870 to $2,874 in 1940. Given the stagnation that gripped most of the Third World, these achievements were impressive. On the other hand, the rate of growth in per capita income (2.0% per year) was modest and not much above the US rate of 1.5%. If these rates had continued after 1950, it would have taken Japan 327 years to catch up to the USA. That was not fast enough. The slow growth of the economy was reflected in weaknesses in the labour market, as in Russia and Mexico. The large-scale firms paid high wages...