Wednesday, December 28, 2016

Industrial Policy in Meiji Japan

To follow up on my last post, the author of this blog points out that Japan from the mid-19th century to 1911 had no tariff autonomy but managed to lay the foundation of an industrial take-off from 1880 to 1920.

This is true. Japan’s industrial development is an interesting subject. Japan’s rapid period of industrial take-off came after 1911, when its industrial production in mining, manufacturing, and chemical industries soared, and its GNP doubled from 1910 to 1930 (Sorensen 2002: 92). I repost below one of my old posts on this subject.

The foundation and early development of the industrial revolution in Meiji era Japan (1868–1912) in the 19th century actually involved significant state intervention (Noland and Pack 2003: 23).

From 1859 and 1869, Japan had been subjected to a number of unequal treaties forcing a liberal trade policy on it, in which tariffs had to be kept below 5%.

These treaties that opened up Japan were imposed by the threat of force by Europeans, such as the expedition of Matthew Calbraith Perry (1794–1858) in 1854, leading to the Convention of Kanagawa (March 31, 1854). A number of other treaties followed:
(1) Anglo-Japanese Friendship Treaty, signed October 14, 1854 in Nagasaki.

(2) Ansei Treaties or the Ansei Five-Power Treaties, signed in 1858.

(3) Treaty of Amity and Commerce or the Harris Treaty between the US and Japan, signed on July 29, 1858.

(4) Treaty of Amity and Commerce between France and Japan followed on October 9, 1858.

(5) The Anglo-Japanese Treaty of Amity and Commerce, signed on August 26, 1858.
One of the most important terms of some of these treaties was to impose low import-export duties, even subject to international control, which went as low as 5% in the 1860s.

The Japanese opposition to the “Unequal Treaties” (as they were called) was a major reason for the Meiji revolution in 1868 that overthrew the Shogun.

What was the result of the treaties imposed on Japan? The answer is as follows:
“… immediately after 1859, a flood of imports, unchecked by tariffs, soon devastated the domestic economy. Japan immediately faced a balance-of-payments problem because it depended heavily on imports of raw materials and capital goods indispensable for early industrialization. While the price of rice soared, the outflow of gold that followed was aggravated by the silver standard which Japan adopted, because the price of silver steadily fell vis-à-vis gold throughout the second half of the nineteenth century. Naturally, trade revision was a continuing issue in the early Meiji years.” (Sohn 2005: 22).
Because their hands were tied by treaties forcing a low tariff policy, the Meiji rulers sought to develop Japan’s economy by other means: what we would now call state industrial policy.

One of the architects of this industrial policy was Okubo Toshimichi (Beasley 2000: 103–104), who was head of the Home Ministry (内務省 Naimu-shō), a government department under the Meiji government founded in 1873 that was responsible for economic development, until various aspects of that policy were transferred to separate departments, such as the Department of Agriculture and Commerce (created in 1881), the Railroad Ministry (created in 1890), and the Communications Ministry (1892).

Okubo Toshimichi had visited Europe and Germany as part of a large Japanese delegation from 1871–1873 (Lee 2008: 513), and it is thought he was exposed to the ideas of the German Historical School. In particular, Okubo Toshimichi noted that Britain had pursued a period of protectionist mercantilism before adopting free trade, and urged the Japanese government to do the same (Lee 2008: 514).

As early as 1870, Wakayama Norikazu, an official in the Ministry of Finance, urged protectionism for Japan (Lee 2008: 512), and summarised the views of the American protectionist Henry Charles Carey (1793–1879), who was a follower of Alexander Hamilton’s protectionism. It seems too that the works of Henry Charles Carey and Friedrich List also became well known in Japan by the 1880s (Lee 2008: 512).

One of the first concerns of the Meiji state was to boost exports to stop the outflow of gold. To this end, the Meiji government increased production of tea and silk, by introducing domestic manufacturers to Western technology (Beasley 2000: 104). Shipping services also received government subsidies and patronage (Beasley 2000: 104).

The government also abolished the various currencies of the feudal lords, and by the New Currency Act (1871) created the yen as a national currency. A national central bank was created in 1882, with a monopoly on controlling the money supply in 1884.

The Meiji government also promoted industry and economic development in the following ways:
(1) The government created and built the fundamental public infrastructure in Japan underlying the modern economy: the postal service, railroads and telegraph (Flath 2005: 190). The postal service and the foundations of the railway system were the creation of the state (Beasley 2000: 104).

(2) The Meiji rulers had created industries in the most important areas of industry in that era: iron foundries, arsenals, and some shipbuilding. By 1880, government enterprises included 3 shipyards, 5 munitions works, 10 mines, and 52 factories (Flath 2005: 190). Modern cotton spinning mills were set up by the government in 1881 when the state acquired the latest English technology (Norman 2000: 129).

(3) The government initiated the development of chemical, glass and cement industries, which were then sold off to the private sector when they became profitable (Norman 2000: 127). With this privatisation program after 1882, Japan’s economic development came to have a larger role for private enterprise.

(4) The government used subsidies to other key industries. An important sector, as seen above, was marine transportation and shipbuilding, which received 75% of all subsidies from 1897 to 1913 (Flath 2005: 192). When tariff autonomy was attained again in 1911, Japan raised tariffs on foreign ships from 5% to 15% (Flath 2005: 192). To obtain revenue the government had introduced an agriculture tax in the Land Tax Reform of 1873, and in fact Japan’s state-directed economic development did not depend on foreign capital to a great extent in the Meiji era.

(5) The government created three state-controlled banks by the end of 19th century to direct credit to industrial development (Flath 2005: 192). Between 1885 and 1915 government spending accounted for 35% of capital investment, mainly in the crucial areas of steel, ships and railways (Flath 2005: 192). Throughout the late 19th century, outside agriculture, government provided about 50% of capital investment in Japan (Nafziger 1995: 63).
Although the evidence shows an important role for private enterprise from the 1880s, this was directed and supported by government policy, exactly the same as in Japan’s post-1945 industrial policy.

In short, these Meiji industrial policies set the foundation for Japan’s take-off after 1911.

And the upshot of all this is that a nation can pursue a successful but non-tariff infant industry protectionism, and instances where nations have industrialised by “free trade” seem to be fairly rare.

Beasley, W. G. 2000. The Rise of Modern Japan (3rd rev. edn.), Weidenfeld & Nicolson, London.

Flath, David. 2005. The Japanese Economy (2nd edn.), Oxford University Press, Oxford.

Lee, Yong Wook. 2008. “The Japanese Challenge to Neoliberalism: Who and What is ‘Normal’ in the History of the World Economy?,” Review of International Political Economy 15.4: 506–534.

Nafziger, E. Wayne. 1995. Learning from the Japanese: Japan’s Pre-War Development and the Third World, M. E. Sharpe, New York.

Noland, M. and H. Pack. 2003. Industrial Policy in an Era of Globalization: Lessons from Asia, Institute for International Economics, Washington, D.C.

Norman, E. Herbert. 2000. Japan’s Emergence as a Modern State: Political and Economic Problems of the Meiji Period (ed. L. T. Woods), UBC Press, Vancouver.

Miles Fletcher, W. 1996. “The Japan Spinners Association: Creating Industrial Policy in Meiji Japan,” Journal of Japanese Studies 22.1: 49–75.

Sohn, Yul. 2005. Japanese Industrial Governance: Protectionism and the Licencing State, RoutledgeCurzon, London.

Sorensen, A. 2002. The Making of Urban Japan: Cities and Planning from Edo to the Twenty-First Century, Routledge, London and New York.

Wilds, Kevin Mark. 2003. Meiji Industrial Development: A Case Study, Dissert. California State University, Fresno.

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1 comment:

  1. Are you familiar by any chance with the works of Chalmers Johnson?

    MITI and the Japanese Miracle: The Growth of Industrial Policy, 1925-1975 by Chalmers Johnson is an extremely important book written in the early 1980s in the peak of Japan's rise.

    Towards the end of his life, he critiqued the US foreign policy. Most notably is Chalmers Johnson's book, the Sorrows of Empire.