Presented at Cairo University(25Nov2008)

Economic Development of Japan

Farmers

RickshaKenichi Ohno (GRIPS））
Osaka Spinning CompanyTopics• Overview—Japanese history as cumulativeevolution• Meiji Revolution (late 19th century)—
unique transition from feudal class society
to modernization--Private dynamism--Effective policies--Industrial human resource

1Presented at Cairo University(25Nov2008)

Japanese History as
Cumulative Evolution--A Very Unique Latecomer
History of peripheral society should be analyzed asinteraction between internal and external forces.
Japan absorbed Western technology and systems
selectively and under its own initiative.
Japanese society changed greatly but did not lose its
own identity.
Umesao Theory—Japanese history was cumulativeand evolutionary thanks to the right distance fromdominant civilization (i.e., China).

Dr. Tadao Umesao’s View of the World
Eurasian Continent

RussiaThe

WesternMeditterraEurope(UK)nean andIslamicStates

Dry Area China Japan

India

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Presented at Cairo University(25Nov2008)

History: Evolution vs. Repetition
High technology& civil society
Industrial
revolution
Rise of commerce &merchant classFeudalism
Fights among
local powers

External stimuli

Centralizeddynasty
1eo-patrimonialstate?

Dynasty A Dynasty B Dynasty C Dynasty D Colonialism

X

X

X

X

X

Destruction

I. Emperor’s Rule

II. Samurai’s Rule
1603

X

III. Modern-ization

IV. Postwar

1867
Rapid
recoveryandgrowth

1ARA
Centraliz
ation

MEIJI
EDO

HEIA1
× 645
Clanfights

Taika
Reform1obles,Decentralization

KAMAKURA
MUROMACHI
SE1GOKU

Hunting &gathering

Internalwars,
dynamic& fluidsociety

Tokugawa
Shogunate
Peace,
isolation,conserva
tive classsociety

xxxx

xxxx

Chinese culture &Rice
Buddhism political system

WEST: guns &Christianity

Westerniz
ation,
industrialization,
militarilization

WARxxx
WEST!!!

US occupation
1945-523

Presented at Cairo University(25Nov2008)

Integration Viewed from Outside

WTO, WB, IMF, FTAs, G8, USA…

Existing World System
Democracy, market economy, industry,technology, life style …

Dynamism for change (+)

Latecomer country

Integration risks (-)

Integration Viewed from Inside
Imported fromoutside by:“Translative adaptation”（Prof. Keiji Maegawa, Tsukuba Univ.)

Foreign
Systems

Invasion
Migration
Trade and FDI
ODAInt’l organizations

Conflicts andadjustments
Government
must manage

Base SocietyInternal systemic evolution4Presented at Cairo University(25Nov2008)

Evolution of Japanese SocietyInteraction between Internal and External Forces

Foreignsystems

Base society

Meiji Revolution
Period of internalization& stability

WW2 defeat &US occupation
20c

Period of adjustment& rapid change

Chinese culture& political system
7-9c
Buddhism
6c
Rice cultivation
3c BC

Guns &Christianity
16c

Westernpowers 19c

Possibility of failed adjustment:social instability, economic crisis,
foreign dominance, etc.

Japan’s Multi-layered Identity

先史時代の日本
Pre-historic
Japan

Rice cultivation
Buddhism, China
Heian & Samurai
CultureGuns & Christianity
Edo Culture
Western influence

1ote: Colored areas indicate
external impacts

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Presented at Cairo University(25Nov2008)

K. Marx: Historical Materialism• History proceeds inevitably through material conflicts
and class struggle• Production force and production relation: rise in theformer creates friction with the latter, which leads todialectic solution.
Superstructure(politics, culture,science, ideology, etc)

Socialism!

PF ↔ PR

Infrastructure

Capitalism(economy)

Feudalism
Slavery
Primitivesociety

Das Kapital,
3 volumes, 1867-94

J. Schumpeter: Rise & Fall of Capitalism• Capitalism is driven by entrepreneurs who perform
innovations• The success of capitalism produces new problems,
attitudes and mechanisms that lead to its downfall

Capitalism!
Entrepreneurs
with newcombinations

Dynamism
driven bycreative
destruction

Mature technology,
equity over growth,bureaucracy, large
public sector, etc.

Bankers who
supply credit

Theory of Economic
Development, 1912

“Socialism”(welfare state)

Capitalism, Socialism,
Democracy, 19426

Presented at Cairo University(25Nov2008)

Soseki 1atsume’s Lecture“Development of Modern Japan” (1911)“Development in the West is endogenous, while Japan’s
development is exogenous.”“Western societies are evolving naturally but Japan after theMeiji Restoration and foreign contact is quite different…
after two centuries of isolation, we opened up andencountered Western civilization. It was a big shock wenever experienced before.”“Western tides dominate our development. Since we are notWesterners, every time a new wave arrives from the West we
feel uneasy like a person living in someone else’s house.”[However, compared with other countries, Japan achieved
Westernization more successfully without losing identity.]

How about Egypt?
Egypt has a very long history but it suffered repeatedlyfrom invasion and colonialism. Cumulative evolution
did not occur.
By the standards of East Asia, private dynamism is
weak and industrial policies are not very effective.
Dependency on aid and locational resources (tourism,oil and gas, Suez Canal).
Internal value creation based on skill and knowledge
remains relatively low—Middle Income Trap?

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Presented at Cairo University(25Nov2008)

Different Speeds of Catching Up
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%JapanTaiwan

80%

S. Korea
Malaysia

60%

ThailandIndonesia

40%

Philippines
Vietnam

20%

Egypt

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: A Millennium Perspective, OECD Development Centre, 2001;
the Central Bank of the Republic of China; and IMF International Financial Statistics (for updating 1998-2006).

Meiji Revolution
From Feudalism to Westernization,
Modernization, and Industrialization

When Japan began integration in the mid 19th century,it already had sufficient adaptive power.
Meiji Revolution was achieved by former samurais
through continuous policy competition, not top-downdecision making.
Strong private dynamism was supplemented byappropriate government policies.
Meiji society produced many dynamic political andbusiness leaders.

8Presented at Cairo University(25Nov2008)

Edo Period (1603-1867)
Pre-conditions for Industrial Take-off•
•
•
•
•
•
•

Political unity and stability
Agricultural development
Development of transportation and nationally unified markets
Rise of commerce, finance and wealthy merchant class
Rise of pre-modern manufacturing
Industrial promotion by local governments
High level of education
Samurai police and merchants
City girls

Han lord in his castle

Cultivated Land and Land Productivity
Koku/cho

Million cho (=ha)
820

Output/land (left scale)
156

1045

Farmland (right scale)

01600

1650

1700

1750

1800

1850

Edo Period(1603-1867)

20
1872

Division of Japan into
Bakufu and Han Territories
Bakufu’s direct
direct rule
rule
Bakufu’s
Tokugawa relatives
relatives && original
original retainers
retainers
Tokugawa
Other daimyos
daimyos
OtherClassSociety

Numbers
Numbersshow
showsizesizeofofhanhan(x10,000(x10,000koku)
koku)

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Presented at Cairo University(25Nov2008)

Meiji Revolution
17c- Edo Period (feudalism, class society, international isolation)
1853 Forced opening by US Navy (Perry’s Black Ships)1858 Signing of commercial treaties with West1858-1881 Transition period--Han samurais topple Edo Bakufu (1868)--Feudal system removed, strong central gov’t installed (1871)--Political fight continues over policy priority—political reform(constitution & parliament), industrialization, military expansion
1881-1890s Implementation period--Industrial Revolution (private companies emerge strongly,
cotton industry achieves import substitution)--Constitution and parliament established (1889-90)--Victory over China (Japan-China War 1894-95)

Late Edo & Meiji Socio-political Conditions
Cumulative socio-economic evolution
under political stability (Umesao Theory)

Bakufu: loss ofpolitical legitimacy
Military, diplomatic &economic fiasco under Westernpressure

National unity& nationalism

Rise of rich &
intellectuals

Socio-economy
vs. old system

Politicalcompetition

Avoidanceof civil war &colonization

Demand forknowledge &participation

Contradiction &need for new
policy regime

Possibility of
new leader
and social order

Balance between fierce political competition (dynamism)
and ultimate national unity (stability)

10Presented at Cairo University(25Nov2008)

Meiji Revolution Leaders
In the field of politics and policy making, in order of birth year
Nakane Sekko
Yokoi Shonan
Nabeshima Naomasa
Shimazu Hisamitsu
Okubo Tadahiro
Katsu Kaishu
Iwakura Tomomi
Yamauchi Yodo
Saigo Takamori
Soejima Taneomi
Matsudaira Shungaku
Yuri Kosei
Okubo Toshimichi
Oki Takato
Kido Takayoshi
Fukuzawa Yukichi

HSHS
HL
HLBSBSNHLHSHSHLHSHSHS
HSHS

Eto Shimpei
Inoue Kaoru
Fukuoka Takachika
Matsukata Masayoshi
Sakamoto Ryoma
Komatsu Tatewaki
Godai Tomoatsu
Itagaki Taisuke
Sanjo SanetomiOkuma Shigenobu
Yamagata Aritomo
Goto Shojiro
Komuro Shinobu
Kuroda Kiyotaka
Ito Hirobumi
Mutsu Munemitsu

HSHS
HSHS
HSHS
HSHS
N
HSHSHSM
HSHS
HS

Furusawa Urou
Yano Fumio
Katsuda Magoya

HLHSBSN
M

HS
HS
HS

Han lord (4)Han samurai (26)Bakufu samurai (2)Noble man (2)Merchant (1)Note: Bakufu is the central
military government in Edo
period. Han is the local
political unit in Edo feudalism.

Cumulative history, Edo achievements,
national unity and nationalism

Japan’s economic growth was driven mainly by privatedynamism (supported by appropriate policy)
Private-sector dynamismand entrepreneurship(primary force)

Policy support(supplementary)

Rapidindustrialization
especially in
Meiji period &post WW2 period
Policy was generally
successful despite criticisms:--Power monopoly by a small
group of politicians--Privatization scandal, 1881--Excessively pro-West--Unfair by today’s standard

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Presented at Cairo University(25Nov2008)

Rich Merchants from Edo Period (Gosho)
Mitsui Family

Sumitomo Family-17c From Matsuzaka-Kimono trade & money exchange inEdo, Kyoto, Osaka – huge success-16c Adopt Western copper refining,copper trade (Kyoto)-17c Move to Osaka-Besshi Copper Mine (under Bakufu’scommission)<Transition to Meiji>Manager: Rizaemon Minomura-Cope with bakufu policy
to protect Mitsui business-Support and work withnew government-Internal reform:
from gosho to zaibatsu-1876 Establish Mitsui Bank & Mitsui
Trading Company<Transition to Meiji>Manager: Saihei Hirose-Avoiding gov’t confiscation-Introducing Western mining
technology to renovate Besshi-Business diversification

Konoike Family-Sake making, trading, loans todaimyo-No serious internal reform in Meiji-Failed to form zaibatsu (Sanwa Bank)

Yataro Iwasaki (1835-85)

Mitsubishi• Seisho from Tosa, founder of Mitsubishi Zaibatsu• Shipping company--grew fast with government
support (receiving gov’t ships, contract for military transport)• Established Nippon Yusen (NYK Line), fierce battle with
Kyodo Unyu (anti-Mitsubushi company), 1883-85• Expanded business into many areas: trade, banking, mining,coal, shipbuilding (later, more)
Mechanical factory in Nagasaki, ca 1885
Bakufu’s Steel Mill in Nagasaki, transferred to Mitsubishi in 1884

12Presented at Cairo University(25Nov2008)

Eiichi Shibusawa (1840-1935)
From Saitama

Tomoatsu Godai (1836-1885)
From Satsuma

Super business promoters -- but they did not form zaibatsu-First, anti-bakufu fighter-Next, assistant to last shogun-Works vigorously for MOF-Studies and builds human
network in Nagasaki-Visits UK; realizes need toindustrialize, writes report-In Osaka, helps to create
copper co., railroad, shippingco., rice & stock exchanges,
cham. of commerce, university,
test centers, trading center, etc-SOE privatization scandal(invited by Meiji Government)-Governor of First “National”
Bank”-Company builder and businesscoordinator, helping to create
500 new companies-Social contributions

Rise and Fall of Merchants and Enterprises
Q: Who were the main drivers of Meiji industrialization?
A: All types of entrepreneurs including Edo gosho, Yokohama
merchants, Meiji zaibatsu, and company boom millionaires.
Persons

250
Millionaires of Edo period

New millionaires in company
boom period

200
New millionaires of Late Edo150► Japan’s industrial
revolution: from1880s to 1900s

New millionairesin early Meiji

1005001849

186418751888► Survival gamewas severe: manyentries, many exits

1902

Source: Computed from Miyamoto (1999）, p.53. Each line shows how many of
the new millionaires emerging each period survived in later periods.

► Japan-China War,Japan-Russia War
also accelerated
industrialization

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Presented at Cairo University(25Nov2008)

Iwakura Mission (Dec.1871-Sep.1873)--Hastily organized after abolishing feudal system--Half the cabinet - Iwakura (leader), Okubo, Ito, Kido, Yamaguchi,
and other officials (46); attendants (12), students (49); total
107 members
Purpose 1: Start renegotiating unequal treaties (failed)Purpose 2: Inspect Western systems and technology<Lessons>(1) Strong state role is crucial for industrialization (Okubo)(2) Western style constitution is necessary (Kido)

Toshimichi Okubo(1830-1878)

Top Official Implementing Industrial Policy• Participated in Iwakura Mission (1871-73)
to observe Western technology & systems• Became top-down promoter of technology importand industrialization• Minister of Finance; Minister of Internal Affairs• Policy measures:--Supporting businesses (Iwasaki, Godai) to promoteindustries and import substitution (marine transport,mining, shipbuilding, etc)--Establishment of SOEs and research centers--Domestic industry exhibitions--Establish modern state bureaucracy, police and local
governments

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Presented at Cairo University(25Nov2008)

Okubo’s Back-to-Office Report after Iwakura
Mission, 1874
“The strength of a country depends on the prosperity of its people
which, in turn, is based on the level of output. To increase output,
industrialization is essential. However, no country has ever
initiated the process of industrialization without official guidanceand promotion.”Okubo’s Statement c.1875“In overcoming low output and trade deficits, the government
must introduce policy measures to establish economic foundations,stimulate private businesses, and promote trade. If this state role isdenied, it will take too much time for the general public to expand
business and the nation will fall into stagnation. This is the mostimportant policy in our current circumstance, even if it is against
the orthodox theory of political economy.”

Technology Transfer
1. Foreign advisors (public and private sector)—salary too high
2. Engineering education (studying abroad, Institute ofTechnology; technical high schools)
3. Copy production, reverse engineering, technical cooperationagreements (esp. automobiles, electrical machinery); sogo shosha(trading companies) often intermediated such cooperation
Technical Experts

Private-sector experts, 1910
Mining513 (18.0%)
Textile300 (10.6%)
Shipbuilding 250 (8.8%)
Power & gas 231 (8.1%)
Trading
186 (6.5%)
Railroad
149 (5.2%)
Food
149 (5.2%)
TOTAL
2,843 (100%)(Graduates of Technical Univs. & High Schools)

16000
14000
12000

Private sector
Public sector

10000
8000
6000
4000
2000
01880

1890

1900

1910

1920

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Studying Abroad (Early Engineers)• First students: bakufu sent 7 students to Netherlands
in 1862 (naval training)• By 1880s, 80 Japanese studied engineering abroad(shipbuilding, mechanical, civil engineering, mining& metallurgy, military, chemistry)• Study destination: UK (28), US (20), France (14),Germany (9), Netherlands (8)• They received top-class education and could easily
replace foreigners after coming back• They mostly worked in government (no privateindustries existed at first)—Ministry of Interior, MOF,Army, Navy, Ministry of Industry

Kobu Daigakko(Institute of Technology)• 1871 Koburyo of Ministry of Industry; 1877 Renamed
to Kobu Daigakko; 1886 Merged with Tokyo Imperial
University (under Ministry of Education)• First Principal: Prof. Henry Dyer (UK)• Theory and practice--preparatory course (2 years),
specialized studies (2 years), internship (2 years)• 8 courses: civil engineering, mechanical engineering,shipbuilding, telecommunication, chemistry,architecture, metallurgy, mining (classes in English)• Educating top-class engineers (import substitution)

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Presented at Cairo University(25Nov2008)

Monozukuri (Manufacturing) Spirit• Monozukuri means “making things” in indigenous Japanese.
• It describes sincere attitude toward production with pride,skill and dedication. It is a way of pursuing innovation andperfection, disregarding short-term profit.
• Many of Japan’s excellent manufacturing firms were foundedby engineers full of monozukuri spirit.

Sakichi Toyota
1867-1930

Konosuke Matsushita
1894-1989

Soichiro Honda
1906-1991

Akio Morita(Sony’s co-founder)
1921-1999• Japan’s monozukuri tradition shapes both businessattitude and policy orientation (Edo, Meiji, now).
• Long-term relationship and skill & knowledge building
within individual companies and among production
partners (e.g. assemblers-suppliers).
• Strong demand for 5S, QCD (quality-cost-delivery),kaizen, just-in-time system, quality control, and otherefforts for constant improvement.

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Presented at Cairo University(25Nov2008)

Summary of Meiji Lessons• Development is a political process as well as aneconomic process. The appropriateness of politics is akey factor for successful development.
• Human factor—dynamic leaders in government andbusiness are crucial; adopting laws and institutions are
not enough (a new imported car with no driver).
• Strong and effective state initiative is needed forlatecomer industrialization—whether 19th, 20th, or
21th century. Washington consensus policies(liberalization, privatization, integration, etc) can takea country only up to lower middle income.

Different Speeds of Catching Up
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
100%

Japan
Taiwan80%

S. Korea
Malaysia

60%

ThailandIndonesia

40%

Philippines
Vietnam

20%

Egypt

2005

2000

1995

1990

1985

1980

1975

1970

1965

1960

1955

1950

0%

Sources: Angus Maddison, The World Economy: A Millennium Perspective, OECD Development Centre, 2001;
the Central Bank of the Republic of China; and IMF International Financial Statistics (for updating 1998-2006).

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