Beyond Marshallian Agglomeration Economies: The Roles of
the Local Trade Association in a Meiji Japan
Weaving District (1868–1912)

Tomoko Hashino * and Takafumi Kurosawa†

August 2011

Abstract
Recent studies have shown that economic development based on industrial
districts or clusters is common not only in the Western nations but also among
many developing countries, as Marshall might have anticipated. Similarly, inthe development process of modern Japan, many industrial districts developed invarious industries.

Interestingly, they were much more organized andinstitutionalized than Marshall described. This article demonstrates that local
trade associations had an important role in enhancing Marshallian externalities
by facilitating joint actions for the supply of public goods, such as the creation of“local district brands” and provision of technological and market information. In
this article, we consider the case of Kiryu, which was one of the oldest andbest-known silk weaving districts in modern Japan.

Keywords: industrial district, industrial cluster, weaving industry, local tradeassociation, joint action, modern Japan

Graduate School of Economics, Kobe University/ Department of History, George
Washington University. hashino@econ.kobe-u.ac.jp† Graduate School of Economics, Kyoto University. Kurosawa.T@ky2.ecs.kyoto-u.ac.jp*

11. Introduction
Many studies have attempted to explore why small enterprises under
decentralized production systems have not only survived but also prospered inmany industrial districts. As is well known, Alfred Marshall identifies threeadvantages of industrial districts, which consist of small enterprises in a small
region: information spillover, specialization and division of labor among
enterprises, and the development of a skilled labor market. 1

According to

Tetsushi Sonobe and Keijiro Otsuka, these agglomeration economies are present
in contemporary developing economies. 2

However, there seems to be no

guarantee that such advantages, called agglomeration economies, were generated
spontaneously and maintained automatically.

Indeed, historical research inEurope focuses on the role of diverse production organizations in supporting theindustrial districts. 3 As Francesca Carnevali points out, the trust and cooperationneeded for market transactions are maintained by trade associations. 4

In Japan,local producers in industrial districts have made many efforts to internalize
Marshallian externalities through local trade associations [dogyo kumiai]. Suchefforts have been conducive to sustaining the competitive advantages ofindustrial districts in this country.5
It is interesting to note that this concept of internalizing externalities isclosely related to what Hubert Schmitz calls “collective efficiency.” This statearises from “external economies” and “joint action,” with Schmitz regarding theformer as related to “passive” and the latter as related to “active” collective
efficiency. 6

Schmitz refers to the local trade association as one of the central

institutions that facilitates joint action, as verified by the findings of manystudies in contemporary developing economies. 7

In Emilia-Romagna, as

Sebastiano Brusco describes, the establishment of associations made it possible2

for small entrepreneurs to overcome their lack of knowledge about commerce andtheir weak bargaining power in obtaining raw materials and credit.

More

important, associations covering entire regions also established technicalconsultancy offices, consortia for marketing, and co-operatives, all of which
provide guarantees for bank loans at the lowest possible rate of interest.8
In this article, we aim to show that the activities of local tradeassociations enhanced and supported Marshallian agglomeration economies forthe sustainable growth of industrial districts in Meiji Japan (1868–1912). 9We

examine the important functions of the local trade associations in the weaving
districts, which are beyond the scope of Marshallian agglomeration economies.
In short, joint action helped in supplying public goods; that is, local tradeassociations functioned not only as a providers of technical and market
information but also as quality control institutions in order to build thereputation of the local brand name. The development process of Kiryu, which
was one of the most advanced silk weaving districts in modern Japan, serves as
the best example to demonstrate joint action since Kiryu achieved sustained
growth with a wide lineup of products for the domestic market and became apioneer in exporting Habutae, or plain silk fabric. The district’s success required
continuous

improvementofproduction

methods

andproducts

while

simultaneously creating and maintaining its reputation as a high-quality
producer. 10

Without establishing a local trade association, Kiryu could not havemaintained its position as the most popular silk weaving district in Japan. Moreinterestingly, while Kiryu’s growth was based on developing a putting-out systemwith a large number of small enterprises, local producers also jointly establishedlarge factories, with some financial support from the central government, in order
to benefit from economies of scale in the throwing, dyeing, and finishing processes.

3

The operation of this industry serves as an example of the joint action thatMarshall envisaged as necessary for realizing the division of labor.
In the second section of this article, we provide an overview of the silk
weaving industry development in Meiji Japan and explain how important it is to
explore the case of Kiryu. We will also review increases in the number of local
trade associations and in the development of a supporting legal system. At thesame time, we investigate how the government of Gunma prefecture, where
Kiryu is located, developed a legal system to support the local trade association.
The third section explores to what extent the trade association maintained andenhanced the conventional Marshallian agglomeration economies and the extent
to which the joint establishment of large firms contributed to the development offlexible specialization while enabling scale economies.

The fourth section

examines how actively local public goods were supplied by the association. The
final section provides conclusions and implications drawn from comparative
historical views.

2. The Development of Silk Weaving Industry in Meiji Japan
2.1. An overview
Table 1 shows the changes in the real value of production in major silk
weaving prefectures in 1895, 1900, 1905, and 1910.

Although fluctuating,production values increased in many prefectures. In addition, particularly rapid
growth occurred in the prefectures that produced Habutae for export. 11

In 1895,

the production values were noticeably high in Kyoto (Nishijin-district), Gunma(Kiryu and Isesaki-districts), and Fukui.

While Kyoto and Gunma weretraditional weaving districts, Fukui was newly developing. Fukui’s production

4

grew rapidly, and at the turn of the century, Fukui’s ranking became 2nd,
exceeding that of Kyoto in 1905.

< Table 1 here>

Silk weaving districts can be roughly divided into two groups, as shown in
Figure 1: domestic-market-oriented districts and export-oriented districts.
Districts like Tsuruoka, Kawamata, and Fukui, which appear as striped circles on
the map, were typical Habutae export-oriented, newly growing districts. Other
districts produced mainly kimono or obi-sash for domestic markets. Distinctly
rapid growth occurred in the export-oriented districts (see the growth rate shownin the last column of Table 1). More interesting, these two groups maintained
quite

different

organizationsofproduction

withinthedistrict.

Domestic-market-oriented silk weaving districts are more directly relevant toMarshallian agglomeration economies since they need more complicatedprocesses for production, based on division of labor, than export-oriented districtsdo.

The variety of products in the domestic market-oriented districts was

generally far wider than that of Habutae export-oriented districts, in whichsemi-finished material for piece dyeing was produced. In other words, producers
in these districts tried to facilitate the division of labor in various ways within the
district.

<Figure 1 here>

Kiryu was one of the best-known districts whose production was intended
for domestic market. Figure 2 shows Kiryu’s long-term trend in the value of5

production since 1878. From the end of the 1870s to the middle of the 1880s, itsvalue of production sharply declined.

This is partly because of economic

recession and partly because of the inferior quality problem that will be discussed
later. After the late 1880s, the district experienced rapid recovery and growth
until the end of the 1890s. We hypothesize that we can link the trends shown in
Figure 2 with changes in the structure of production and institutions in the Kiryu
district: establishment of a local trade association and development of thedivision of labor, such as a putting-out system.12<Figure 2 here>

A historical review of the Tokugawa Period (1603–1867) will help inunderstanding not only the whole process of the development of the silk weaving
industry in Japan but also local producers’ movements to reorganize theinstitutional structure of the weaving district after the Meiji Restoration. At the
beginning of the Tokugawa Period, silk fabrics were exclusively luxurious because
only a few privileged people were allowed to wear them—for example, emperors,
samurai, court nobles, and Buddhist priests. Thus, Nishijin in Kyoto had been
the most important silk weaving district since the end of the medieval period
because Kyoto had been the center of politics, religion, and culture, surroundedby the most advanced commercial and industrial areas in Japan. In fact, after
the center of politics was moved to Edo (now Tokyo) in the early 17th century, theprivilege of importing raw silk from China was granted only for producers in
Nishijin because their customers were noble people.
With the economic development in the middle of the Tokugawa Period,
wealthy merchants and rich people began to wear silk fabrics.

6

Hence, silk

weaving districts prospered in the countryside, especially in eastern Japan—that
is, Kiryu, Ashikaga, Yonezawa, and Hachioji, as shown in Table 1. Kiryu had along history of silk weaving from ancient times, but it rapidly grew after thetechnology of yarn-dyed fabrics and looms was transferred from Nishijin in the
mid-17th century. 13

As a result, fabric markets developed not only in western

but also in eastern Japan. After the opening of the ports in the mid-19th century
and as soon as the silk products began to be imported from the West, theJapanese people became absolutely fascinated with their vivid colors, designs,
and textures. Many weaving districts—especially those close to Edo, which was
one of the large markets, and to Yokohama, a major port—tried to launch
substitutions for imports by using imported dyestuffs, imitating their designs,
and introducing thin, machine-made cotton yarns as weft.

Above all, Edobecame a mature market and the center of fashion as weaving districts developedin nearby areas—namely Kiryu, Ashikaga, and Hachioji.14
After the Meiji Restoration in 1868, further major changes came to theindustry.

Traditional guilds were dissolved due to a new policy advocating

freedom of trade; and, as a result, the number of new entrants increased in theindustry. Thus, an increasingly large quantity of products of unknown quality
rapidly flooded the market. This development caused market disorder so that
production declined in the early 1880s (see Figure 2). Producers and traders in
the traditional industrial districts were trying to organize institutions to substitutefor the traditional guilds in order to regain their reputations. 15

In the next

section, we will again discuss their trial-and-error process of building local tradeassociations as new organizations to provide solutions for the above problems.
In spite of the confusion and disorder in the market, the weaving industry
became increasingly more prosperous with the introduction of Western7

technologies. The use of jacquard manufacturing mechanisms with the additionof machines for the finishing process—for example, calendars—significantly
improved design, textures, and luster. The introduction of synthetic dyestuffs not
only reduced cost but also made it possible to produce yarns and fabrics with more
vivid colors. Since synthetic dyestuffs were originally used for Western textiles,
the application of this new technology to traditional products resulted in a
deterioration in the quality of products in the weaving industry, even though theoriginal intention was to manufacture products that could compete with Western
products in the domestic market. Even so, the new technology gradually madeJapanese products more fashionable. Consequently, for many weaving districts,
design and fashion were the most important factors for competition with other
districts. 16

Thus, how to assimilate new foreign technology and improve theproducts became crucial for every district.
After international trade was liberalized in the mid-19th century, export
markets were also opened to silk fabrics. Japan’s silk export, including both raw
silk and silk fabrics, grew rapidly. Kiryu, which had been engaged in producing
traditional goods for the domestic market, became the first exporter of Habutae
silk fabric since 1877, which was a new product. In the 1880s, the principal silk
product for export shifted very quickly from handkerchiefs to Habutae.

Asshown in Table 1, Habutae export grew rapidly with the launching of production
in Fukui, a newly leading district of Habutae export.

2.2. Establishment of the legal system for a local trade association
Due to the freedom of trade that led to the demise of the Japanese guild[kabu nakama] after the Meiji Restoration, new entrants in many industries
caused rapid increases in production and distribution, especially in traditional

8

ones that used simple technologies. Tetsuji Okazaki defines kabu nakama as “agroup composed of members who have kabu,” 17 or a business license granted by
the public authorities. Therefore, the demise of kabu nakama encouraged newentrants to engage in merciless competition by new entrants under the freedom of
trade principle. However, extreme confusion, fraud, and cheating in trade also
followed, thereby resulting in an inferior quality problem.

Such undesirable

tendencies appeared in both domestic and export markets. As a result, many
districts gained a bad reputation.
To solve this problem, local trade associations were organized, not as arevival of kabu nakama but as the new center of joint action for the survival ofindustrial districts. Prior to developing legal systems for local trade associations,
local producers voluntarily established such collective organizations in theirindustrial districts in order to compete with other districts, to establish efficient
production organization by small producers, to restore their reputations, and tobuild successful local brands.

However, this approach proved unsustainablebecause they had no legal basis for imposing sanctions.18

In the case of theweaving industry, the spread of inferior-quality fabrics became a nationwide
problem. 19
The Ministry of Agriculture and Commerce, which regarded the principleof freedom of trade as important, maintained a cautious stance regarding therevival of kabu nakama.

Producers and merchants, however, had a strong

desire to reestablish collective organizations, and the Meiji government wished topromote export industries.

Therefore, the Ministry of Agriculture andCommerce enacted the Rules of Trade Association [Dogyo Kumiai Junsoku] in
1884. Although this rule was not compulsory, it was important for local tradeassociations established by merchants and producers to fall in the jurisdiction of9the Ministry of Agriculture and Commerce. Since the Ministry of Agriculture
and Commerce did not know the details of problems that each trade association
faced, it introduced the permission system in 1891, in which prefectural
governments prepared the plans for the regulatory rules of local tradeassociations that produced important commodities and submitted them to the
Ministry for approval. Consequently, by 1896, the Ministry had approved therules for 78 local trade associations in 18 traditional industries.20

Such cases

increased to about 700 in 1909 and to 1029 in 1915, of which the weaving tradeassociations numbered 134. 21

In 1900, the Law of Local Trade Associations

Producing Important Commodities [Juyo Bussan Dogyo Kumiai Ho] was enacted.
This law was important because all the producers and merchants in the same
district had to be members under this law.
Let us review the impacts of the legal system by examining the case in
Kiryu as an example. 22

After the Meiji Restoration, new entrants produced

inferior quality goods by using newly imported dyestuffs. This resulted in thedestruction of reputation, not only for new entrants but also for the whole Kiryu
district.

In 1875, weavers in Kiryu, who were feeling the crisis, in vain

requested the local government to make regulatory rules. A retail shop of silk
products in Tokyo put up a big sign over its door: “We do not deal in the productsof Kiryu.” Driven by a shared sense of crisis, 171 local producers and traders in
Kiryu established the Kiryu Company [Kiryu Gaisha 23 ] in 1878 for collective
quality control, which was one origin of the local trade association in Kiryu.
They started making serious efforts to recover their reputation in the market bycreating quality certification labels.
known to be quite active.

Such private initiatives in Kiryu were

Similar companies were established in other silk

weaving districts not voluntarily, unlike Kiryu, but based on suggestions by local

10

governors.
In 1882, the Kiryu Company changed its name to the Kiryu Commodity
Company [Kiryu Bussan Gaisha] and expanded its membership.

Some

members, however, refused intervention from this collective organization,
arguing that such an organization violated the principle of freedom of trade.
Finally, the Kiryu Commodity Company collapsed in 1890 due to conflicts ofinterests among its members.

Thus, Kiryu district again faced a criticalsituation regarding the quality control of its products. In 1892, local producers
organized the Kiryu Commerce and Industry Association [Kiryu Shokogyo

Kumiai] under the Rules for Trade Associations by the Ministry of Agriculture
and Commerce (enacted in 1884) and set up rules for inspecting products in both
export and domestic markets in order to eliminate low-quality products and to
recover their reputation.

Furthermore, in 1894, the Gunma prefectural

government enacted the Rule of the Local Trade Association for Weaving in
Gunma Prefecture [Gunmaken Orimono Dogyo Kumiai Kisoku], which required
producers in diverse activities in the district to become compulsory members.24
Thus, merchants dealing with raw materials, like dyestuffs and yarns; producers
engaged in a preparation process; and reed producers, who had not been
members previously, became the association’s members.

In 1898, the Kiryu

Trade Association for Commodities [Kiryu Bussan Dogyo Kumiai] was subject to
the Local Trade Association Law for Important Export Goods, which was enacted
by the Ministry of Agriculture and Commerce in 1897.

Weaving-related

producers who engaged in scouring, rolling, and dyeing were also required to
become members. In 1905, the Kiryu Trade Association for Commodities was
reorganized into the Kiryu Trade Association for Weaving [Kiryu Orimono Dogyo

Kumiai: KTAW henceforth] under the Law of Local Trade Associations Producing

11

Important Commodities. Changing the name from “Commodity” to “Weaving”
was an advertizing strategy because the former did not signify the activities of
the association. 25

The articles of partnership in the association were alsochanged, excluding dyers, dyestuff merchants, and cotton yarn merchants fromthe membership, none of whom were directly related to silk production. In otherwords, this change encouraged limited membership within a district andstrengthened the leading role of weaving producers or merchant manufacturers
in the association. In all likelihood, such a development of legal systems by
central and local governments strengthened the function of local tradeassociations. In the next section, we will explore how division of labor in Kiryu
was facilitated by the trade associations.

3. Development of the Division of Labor in Kiryu
In this section, we will focus on the specialization and division of labor
among

enterprises

thatconstituted

the

three

sourcesofMarshallian

agglomeration economies because this topic is highly relevant to the roles of local
trade associations.

It must be also pointed out that the extent of thedevelopment of a skilled labor market and the number of information spillovers
are not measurable. In fact, the development of a putting-out system with anincreasing number of out-weavers brought about increases in the value of
production in the late 19th century, as shown in Figure 2. Specialization also
advanced, especially in dyeing, twisting, and finishing processes, which are
subject to economies of scale.

3.1. Putting-out system development in Kiryu

12In the putting-out system of the weaving process in Kiryu, weaving
producers or manufacturers put out yarns as raw materials to out-weavers, whousually worked in their homes in rural villages. The producers usually pre-dyed
the distributed yarns and completed other preparation processes, such as
warping and winding. Weaving producers or manufacturers visited out-weavers
to distribute yarns, to pick up fabrics later, and to pay them a processing fee.
Originally, the wives and daughters of farmers became out-weavers primarily in aslack agricultural season. The prefectural government made good reports on thedevelopment of the putting-out system after the 1880s. However, unfortunately,
no statistical data are available until the turn of the century. According to thedata surveyed from the prefectural government, the number of weaving
manufacturers was 724 in 1901 and 468 in 1904, and the number of out-weavers
was 3796 and 2751, respectively. 26

The average number of out-weavers per

putter for four years was 5.5. However, as shown in Figure 3, its increasing
trend is apparent toward the early 1910s.
There is an interesting survey by Nishijin producers on other weaving
districts including Kiryu, titled “Weavings in Eastern Japan” (1914). The aim of
this survey is clearly identified: “to determine why new weaving districts such as
Kiryu, Ashikaga, Isesaki, and Hachioji experienced rapid growth.” 27

Nishijin

was proud of its position—namely, as the leading, the most traditional, and thebest-quality silk weaving district in Japan. However, Nishijin producers werefeeling considerable pressure from the growth of “the developing districts.”
According to this survey, collective cohesion was particularly strong in theeastern weaving districts, and the number of full-time out-weavers who had
sufficient skills was increasing in Kiryu because putters increasingly focused onhigh-quality products. In the early 1910s, the number of out-weavers per putter

13was at least between 20 and 30, which was much higher than the number in
Nishijin, and it climbed to 400 to 500 during the peak season. 28

These numbers

are much larger than the prefectural government reported, presumably because
the Nishijin producers visited large putters.

Statistical data from the local

government shows an increasing trend in the number of out-weavers until the
mid-1910s. 29

As shown in Figure 2, it is likely that the development of theputting-out system brought about increasing production.
The conventional historical consensus has been that the putting-out
system as a way of organizing production was destined for demise and that thefactory system would take its place. When the number of factories increased
from the late 1910s, accompanying the introduction of power-looms, out-weavers
dropped dramatically in the 1920s in Kiryu. 30

However, recent studies argue

that this development relates not to the transition from one organization to theother but, rather, to the choice between organizations.31

It is true that, when the

production of high-quality figured fabrics was dominant in Kiryu, weaving
producers chose manufacture or factory production. However, their choice was
not because a centralized production system could realize higher productivity, but
because the producers were trying to prevent imitation of their important designs
by out-weavers.

Therefore, they relied on out-weavers only for producing

ordinary fabrics without special designs and color combinations.

In fact,

weaving producers in Kiryu used the putting-out system when the market
demand for relatively simple products increased in the 1880s.32<Figure 3 here>143.2. Specialization and sub-contracting in Kiryu
Within the Kiryu district, not only the putting-out system for the weaving
process but also the specialization of other processes developed. According to thearticles of partnership for the Kiryu Trade Association for Weaving (1905), theassociation membership was diverse, including weaving producers, 33 fabricmerchants, scouring producers, silk-yarn merchants, dyers, dyestuff merchants,
and cotton-yarn merchants. Besides the above members, there were a lot of
miscellaneous producers and traders in Kiryu, who specialized in particular
processes that were needed for producing silk fabrics.

Figure 4 shows theactivities of weaving producers (merchant-manufacturers) (left) and thespecialized processes carried out by subcontractors (right) in Kiryu around 1910.
Many processes were carried out by specialized subcontractors, in which weaving
producers had an organizational role.

Weaving producers had originallyengaged in the whole production process, from preparation to weaving, except forfinishing.

However, as is shown by the double-headed arrows in the figure,many processes became outsourced, such as throwing, dyeing, design, weaving,
and finishing. Earlier, weaving producers had carried out the dyeing process as
one of the preparation processes until synthetic dyestuffs, which needed scientificknowledge, were introduced. Responding to a significant increase in the numberof dyers, the prefectural government included the dyeing industry in its annual
statistical survey after 1915.34<Figure 4 here>

The statistical data collected by KTAW show how dense theagglomeration was in Kiryu. 35 In 1900, there were 853 weaving producers, 3715

fabric merchants, 16 scouring and finishing producers, 62 raw silk merchants, 18
dyers, 14 dyestuff merchants, 6 cotton-yarn merchants, 12 designers for jacquard
machines, 25 reed producers, 115 warping [hata-goshirae] producers, and 6725
out-weavers.36

It is clear from these data that many of the processes formerly

carried out by weaving producers, such as design, dyeing, and warping, had
shifted to outsourcing.

3.3 Development of specialization by joint facilities
It is important to note that specialization, as described above, further
developed through the establishment of large-scale joint facilities.

This isconsistent with the theory of the division of labor by George Stigler, who argues
that as the size of the market expands, the specialization of firms in specificprocesses increases.37

The joint facilities were established with support fromthe central government, but critically important also was the enthusiasm andcommitment from the leading members of KTAW. 38

Previously, each weaving

producer had individually outsourced many processes, as is shown in Figure 4.
However, the large-scale operation of throwing, dyeing, and finishing processes,
when carried out with advanced machineries, became more efficient and could
enjoy scale economies. 39

The purchase of such machineries, however, required

investment funds that individual producers could not afford to finance.

By

jointly establishing new facilities, small weaving producers gained flexible
specialization. Let us examine the case of two large-scale firms in Kiryu closely.
In 1902, the central government implemented a policy to promote anddevelop the silk weaving industry by leasing advanced machines. In order toqualify for leasing a machine from the government, local producers andmerchants had to establish a joint-stock company in the district.

16

Therefore,leading members of KTAW discussed and attempted to establish a joint-stockcompany[Kiryu Nenshi Gaisha] with modern throwing machines in

1902—namely, the Kiryu Throwing Company.

Kiryu became one of the six

selected districts for this policy, and the company was then the largest throwing
company in Japan. In this company, there were 10 throwing machines made inFrance and leased by the Ministry of Agriculture and Commerce, and 12 otheradvanced machines owned by the company.

In 1906, there were 12 maleworkers and 126 female workers in the company with 2 steam engines (40 HP).
It grew rapidly, employing as many as 19 male workers and 180 female workers,
and was equipped with 3 steam engines (110 HP) in 1910. 40

The product—that

is, thrown silk yarn—was sold not only within Kiryu district but also in other
districts. In 1910, this company became the first exporter of thrown silk yarn inJapan. 41
Ryomo Preparation and Finishing Co. Ltd [Ryomo Seishoku Kabushiki

Gaisha], established in 1907, was also important for the development ofspecialization in Kiryu. Establishment of this company was also supported by
the industrial promotion policy of the central government to improve thefinishing process for export fabrics. In those days, many defects in exported
fabrics were reported by the Japanese consular in the West. One of the causes
for serious defects was an inappropriate finishing process. 42

To recover the

reputation of its exports, the central government decided to support theestablishment of a finishing company either in Kiryu or in neighboring Ashikaga(a silk and cotton weaving district). The average share of export of silk fabric in
Kiryu climbed to around 30% in 1900. 43

There were, however, only a few

factories equipped with Western-style finishing in Kiryu, so producers andmerchants felt that they needed more. Therefore, the leaders of KTAW launched17

a big campaign to build the needed company in Kiryu. Fortunately, Kiryu waschosen and Ryomo Preparation and Finishing Co., Ltd., was established, with 14
advanced finishing machines leased from the Ministry of Agriculture andCommerce, and began operations in 1908.

In the beginning, it engaged indyeing and finishing for export fabrics and later started production of silk fabrics.
Though there were only 60 male workers and 30 female workers with one steam
engine (28 HP) in 1908, it grew rapidly and employed 112 male workers and 114
female workers in 1910. 44

In this company, various processes were mechanized,

including dyeing, scouring, calendaring, and lustering.
In sum, both companies discussed above were much different from otherpreparation or finishing factories regarding technology and scale. For example,
in 1904, there were only four factories (more than 10 workers) for preparation orfinishing in Kiryu, all of them smaller than these two. 45

However, the number offinishing, dyeing, and scouring companies that were members of KTAW grew
rapidly after the establishment of these two companies: there were 18 in 1906, 24
in 1910, and 83 in 1920. 46

It is likely that former workers from these large

companies quit their jobs to become independent as owners of small companies.
While the central government partially supported the establishment of thesefactories, it is clear that private initiatives by KTAW and the development oforganized specialization by weaving producers played an important role inpromoting such factories.

4. Local Trade Association as a Supplier of Public Goods
According to a study by Takanori Matsumoto, which summarizes thecommon features of local trade associations in modern Japan, the associations

18

had six functions; product inspection, marketing research, public awareness,advertisement, infrastructure building, and joint projects. 47

While the functionsof local trade associations were varied, it is clear that these functions were closely
related to the supply of public goods. In the case of Kiryu, we should note thatthe local trade association had a role in introducing new technology andknowledge from the West, such as synthetic dyestuffs, and in creating andmaintaining Kiryu-brand by quality control.

Obviously, the association

performed many tasks, such as collecting samples of foreign products formembers, carrying out statistical surveys in the district, sending members
abroad for field research, promoting market expansion, protecting property rights
for design, and encouraging out-weavers and workers by means of incentives.48
In what follows, we explore joint action by local trade associations in depth.

4.1. Introduction of new technology from the WestIn the early Meiji Period, Kiryu was well known as the advanced districtin which local producers aggressively introduced new Western machines—for
example, Western looms, such as the flying shuttle, jacquard, and finishing rollmachines. This district played an important role in diffusing new technologies
and knowledge to other districts in Japan. In other words, it was a conduit of
new technologies and knowledge from the Western countries. 49

Synthetic

dyestuff was one of the new technologies that required a knowledge of chemistry.
As Tomoko Hashino points out, while many weaving districts aggressively
introduced synthetic dyestuffs in the early Meiji Period, inferior quality in fabrics,
caused by inappropriate ways of dyeing, became a nationwide problem. One of
the reasons was lack of scientific knowledge of dyeing methods.50
Though some producers tried to learn chemical dyeing methods

19individually, they generally failed to master it. This problem was so serious in
Kiryu that, in 1876, the prefectural government sent a lecturer on chemicaldyeing methods to Kiryu for seventy or eighty local producers. 51

Kiryu Company,

formerly KTAW, sent several young students to a prefectural medical school tostudy chemistry in 1878.

After graduation in 1880, they started diffusing

improved dyeing methods for using synthetic dyestuffs. However, an institute ofdyeing built by Kiryu Commerce and Industry Association succeeded in widely
promoting diffusion of better chemical dyeing methods in the Kiryu district. The
Kiryu Institute of Dyeing invited Mr. Jiro Yamaoka, an engineering official in the
Ministry of Agriculture and Commerce who had once learned chemistry in theWest, to teach at the institute. From 1884 to 1886, Yamaoka taught improved
practices as well as the theory of chemical dyeing to local producers in Kiryu. In
1896, this institute became Kiryu Town’s Textile School [Choritsu Kiryu Orimono

Gakko]. It is obvious that the local trade association was a conduit for new
technology and knowledge, which was critically important for the supply of local
public goods.52

4.2. Creating Kiryu-Brand by collective quality control
Carrying out collective quality control and introducing new technology
and knowledge were important functions of the local trade association as asupplier of public goods.

In general, local trade associations organized byproducers made strict rules for production quality throughout Japan.

Forexamples, with regard to fabrics and papers, local trade associations set rules for
dimensions (width, length, and weight) and for materials used in their products.
In order to maintain a standard quality for products, they also had to set rules formethods of inspection and grades quality certification. 53

20

As explained earlier,when the Kiryu Trade Association for Commodities was reorganized into KTAW,
it amended the articles of partnership, clearly defining the rights and obligationsof members, inspection methods, and quality standards for the members.
Referring to the above articles of KTAW, we would like to show how inspections
were carried out to keep a high quality of products and to obtain trust for their
quality certification labels from the market. 54
KTAW set rules for issuing six types of quality certificate labels according
to products: that is, fabrics for the export market, silk fabrics for the domestic
market, mixed (silk and cotton) woven fabrics for the domestic market, cotton
fabrics for the domestic market, woolen fabrics and linen fabrics, and thrown silkfor materials. Different colors of labels indicated the grades. For example, infabrics for export market, five grades carried gold, silver, red, green, or purple
labels. Labels for silk and cotton fabrics for domestic market had three grades,
and inspectors seem to have been more careful when inspecting export products
than those for domestic markets. 55

As shown in Figure 4, all fabrics were

subject to inspection before fabric merchants could buy them.

A quality

certificate label was attached to the inspected fabric, which weaving producers
needed when they sold their fabrics to merchants. Besides, weaving producers
had to place their own stamps on the certificate label. Another article statesthat KTAW required producers and merchants to be honest about their materials
and production methods in order to maintain trust for Kiryu-brand in the market.
Producers had to note the raw materials, weight, and dimensions of the fabric on
their products with precision. False declarations concerning the above items
and the trading of defective goods, even due to negligence, were strictly
prohibited.
The rules were both explicit and detailed regarding the required21

inspection methods for both fabrics and thrown silk as material. The checklist
for fabrics included the following six items: (i) producer’s stamp or dealer’s name,(ii) width, length, and weight, (iii) no false declarations of raw materials, (iv) nocheating, such as using minerals for fabrics, (v) weft yarns with uniform quality,and (vi) appropriate quality certificate label with producer’s stamp. A similar
checklist existed for thrown silk as materials.
Until the Ministry of Commerce and Industry started inspection of fabrics
for the export market in 1928, 56 KTAW played a critical role in the quality control
of products for the export market.

Before inspection, fabrics for the export

market required scouring, and the members of KTAW had to carry out thefinishing process. If inspectors determined that the fabric needed to be scoured
again, producers could not refuse to do so.

KTAW even had a right to cut

merchandise for inspection. For the sale of export goods, producers needed not
only a quality certificate label but also an inspection certificate with a stamp fromthe inspection clerk who worked for KTAW.

In the case of fabrics for thedomestic market, the inspection clerk set the seal on the quality certificate label.
In sum, it is clear that inspectors carried out their work more carefully on fabrics
for the export market than on those for the domestic market.
Even as members’ fabrics underwent a strict inspection, the Kiryu Trade
Association of Weaving had clear strategies for exploring new businesses. The
association followed two strategies for expanding the market during the Meiji
Period. 57

The first was to display fabrics in many exhibitions. KTAW joined 54

temporary exhibitions, including international and domestic expositions,competitive exhibitions, and shows at a famous hotel in Tokyo from 1893 to
1914. 58

They not only used temporary exhibitions but also set up a permanent

showroom in the KTAW building. The purpose of this permanent showroom was22

to display the many kinds of fabrics made in Kiryu, namely samples ofKiryu-brand. In addition, the association collected samples there from otherweaving districts in Japan and abroad for producers’ convenience. Since KTAW
protected one-year property rights for good designs or color combinations, which
was valuable for improving the Kiryu-brand, it must have encouraged productinnovations.
The second strategy included releasing a few publications—a monthly
magazine from 1894 to 1910 and a small booklet for introducing Kiryu-brand in1903 and 1908—along with displaying some sophisticated fabrics at a terminal
station in Tokyo for advertising the Kiryu-brand.

Even though the monthly

magazines were not published every year, they offered members valuable
information on domestic and export markets, market conditions in Kiryu, and theout-weavers’ reputations for the purpose of multiple punishment. 59

As a main

advertiser, KTAW supported the monthly magazine Kakiage Times, published by
the Kakiage Company [Kakiage Shoten], one of the leading fabric merchants in
Kiryu. 60

With this magazine, the company aimed to advertise Kiryu-brand tothe market, improve the quality of products, and introduce new knowledge andtechnologies for entrepreneurs and merchants in Kiryu.
In sum, KTAW’s quality control measures contributed to creating andpromoting the Kiryu-brand. The KTAW-issued quality certificate labels were
the source of the market’s trust in the Kiryu-brand. Issuance of the quality
certificate, which obliged honest declaration of quality by producers, must have
reduced information asymmetry. We can find some similarities between the caseof Kiryu, explored here and in the well-organized employers’ trade association in
the Lyon silk industry, which was established in the 1860s and which Pierre
Vernus fully examines. According to Vernus’ research, trade associations in the23

Lyon silk industry offered not only commercial information to members for
reducing information asymmetries, but also provided legal and fiscal advice.
Besides, trade associations contributed to the collective promotion of Lyon silk
wares by implementing quality control, regulating putting-out relations, anddeveloping crapes manufacturing. 61

As a provider of public goods, both

associations contributed to the development of industrial districts.62

5. Conclusion
In this article, we have focused on the role of trade associations, which
maintained and enhanced Marshallian agglomeration economies by facilitating
the division and specialization of labor and organizing collective action.

Wedemonstrated that the growth in the real value of production in the Kiryu silk
weaving district after the mid-Meiji Period occurred because the enterprises
developed division of labor, particularly in the putting-out system and also
through specialization of other processes. The weaving producers themselves
outsourced and organized various processes, such as scouring, dyeing, throwing
yarns, weaving, and finishing ones. Initiatives of KTAW, as well as financial
support from the central government, also promoted specialization by joint
facilities—that is, large two companies that enjoyed scale economies. While thefunctions of KTAW were diverse, we can interpret it as the supplier of public
goods. Collective quality control by strict rules enabled the association to createand sustain the Kiryu-brand, and advertisement activities also contributed tomarket expansion in various ways.

With great effort, the Kiryu Trade

Association also introduced new production knowledge and technology.

Thediffusion of appropriate dyeing methods throughout the whole district, using24synthetic dyestuff, was critical for improving the quality of fabrics in Kiryu.
Finally, the Kiryu Trade Association created a mechanism for information
dissemination regarding production knowledge and technology
The historical experience in Kiryu has a broader implication forstagnating industrial districts in contemporary developing economies that fail to
introduce new production knowledge from abroad, as Tetsushi Sonobe and Keijiro
Otsuka have explained. 63

As we have shown, it was difficult for individual

entrepreneurs—for example, producers and merchants—to acquire advanced
knowledge, especially from developed countries.

The awareness of suchknowledge as public goods made entrepreneurs in industrial districts act together.
To be successful, entrepreneurs should not concentrate on narrow interests or
private advantage alone but should make an effort to build mutually beneficial
collective organizations.

Of course, the history of local trade associations isreplete with conflicts of interests and trial-and-error processes, including thedevelopment of the legal system.

However, it is critically important for thedevelopment of industrial districts/clusters that the industry create a collective
mechanism, such as a local trade association, that provides new knowledge, keeps
quality of products, and promotes local brand name, which are all relevant public
goods.

Viewedfromahistoricalperspective,

stagnant

individual

districts/clusters in developing countries will not be able to grow, unless they
organize effective collective actions for the benefit of the industry as a whole.

25

Acknowledgement
The authors are grateful for the helpful comments and suggestions received from
Professor Minoru Sawai, Benedita Camera, Steven Tolliday, and Keijiro Otsuka.
One of the authors wishes to thank Professor William Becker, Department ofHistory, George Washington University, for welcoming her as a visiting scholarfrom 2011 to 2012. Staff members of the Global Resource Center in the Gelman
University of GWU were also helpful in completing this article. This research
was partially supported by Grant-in-Aid for Scientific Research, (A) 22243022
and (A) 23243055.

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1

Marshall, Principles of Economics.

2

Sonobe and Otsuka, An East Asian Model, A Comparative Study of Asia and Africa.

3

Sabel and Zeitlen, World of Possibilities.

4

Carnevali, “Crooks, Thieves, and Receivers.”

5

Hashino, Keizai Hhatten.

6

Schmitz, “Collective Efficiency,” 536.

7

Nadvi, “The Cutting Edge”; Schmitz, “Small Shoemakers.”

8

Brusco, “The Emilian Model,” 173.

9

Jonathan Zeitlin appropriately points out that a more important question for researchers

on industrial districts concerns their reproduction and sustainability. Zeitlin, “Industrial

30

Districts,” 225.
10

Hashino, Keizai Hatten, 170. For a brief history of Kiryu, see Hashino, “The Rise of thePower-loom Factory,” in Production Organization, ed. Okazaki, 14–38. The rapid growth of

Habutae export is described in Hashino, “The Importance of Consular Reports,” 486–501.
11

Habutae is a kind of silk fabric needed for the export market; it is very light, plain, even,and uniform. For Habutae export and related issues, see Hashino, “The Importance ofConsular.”
12

At the turn of the century, Kiryu’s production declined again and then showed anincreasing trend after 1904. We believe that such changes can be attributed to a temporary
slump due to the economy-wide crisis around 1900.
13

Kiryu orimonoshi hensankai, Kiryu Orimonoshi 1, 242.

14

Tamura, Fasshon no Shakaikeizaishi.

15

Suzuki et al., MBA, 67.

16

Hashino, “Historical Process.”

17

Okazaki, “Merchant Coalition,” 188.

18

Suzuki et al., MBA, 67; Abe and Nakamura, “Nihon,” 20–21.

19

Hashino, “Historical Process,” 9.

20

Suzuki et al., MBA, 67–68. For further information on the development process of legal

systems for local trade associations, see Abe, “The Development.”21

Suzuki et al., MBA, 68.

22

Gunmaken, Orimono, 9–13, 79. Their detailed activities will be explained in the 4th

section.
23

The first law to regulate the use of the word company in general was enacted in 1893.

Before its enactment, a wide variety of “new” types of economic entities used the wordcompany.
24

In 1891, the Minister of Agriculture and Commerce informed the governors that they could31enact rules for local trade associations, if needed, to protect and promote the development ofindustry and commerce in the prefecture. In that case, governors were allowed to enact therules instead of adhering to the Dogyo Kumiai Junsoku [Rules for Trade Association] that the
Ministry of Agriculture and Commerce had enacted in 1884.
25

Kiryu orimonoshi hensankai, Kiryu Orimonoshi 3, 58.

26

Gunmaken, Orimono, 94, 96.

27

Nishijin shinkokai, Kanto, 1.

28

Nishijin shinkokai, Kanto, 5.

29Hashino, Keizai Hatten, 20.

30

Hashino, Keizai Hatten, 20.

31

Hashino, Keizai Hatten, chapter 1. The literature survey by Okazaki and Nakabayashi isvaluable for understanding how researchers challenged the “mode of production” for the last
four decades, was according to a traditional view of Karl Marx. See Okazaki and
Nakabayashi, “History of Production Organizations,” 4–6. In the case of the embroidery
industry in the eastern part of Switzerland, decline in embroidery machine prices at the endof the 19th century brought about an “inverse” transition from a factory system to theputting-out system based on out-workers in the villages. See Kurosawa, Kindai suisu keizei

no keisei, 330–332.
32

Gunmaken, Gunmaken Orimono, 60–61.

33“Weaving producers” means independent weavers, including putters. Out-weavers were

excluded from membership in KTAW.
34

Suzuki et al., MBA, 57.

35

Gunmaken, Orimono, 95–96.

36

In this survey, the number of out-weavers is quite different from the figure in Statistics ofGunma Prefecture (1901).
37

Stigler, “The Division of Labor.”

32

38

Nishijin Shinkokai, Kanto, 18–19.

39

Nishijin Shinkokai, Kanto, 18–19.

40

Statistical Survey of Gunma Prefecture in 1906, 144; in 1910, 163.

41

Kiryu orimonoshi hesankai, Kiryu Orimonoshi 3, 254.

42

For information on the problem and the response by the prefectural government, see

Hashino, “The Importance of Consular Report.”
43

Hashino, “From Putting-out to Factory System,” Figure 2–11.

44

Statistical Survey in Gunma Prefecture in 1908, 142; in 1910, 162.

45

Statistical Survey in Gunma Prefecture in 1904, 213. According to this survey, the four

factories are as follows; throwing factory (14 workers), dyeing-scouring factory (22 workers),
finishing factory (10 workers), and scouring-finishing factory (27).
46

Kiryu Orimonoshi Hensankai, Kiryu Orimonoshi 3, 130.

47

Matsumoto, “Ryotaisenki Nihon.”48

Kiryu Orimonoshi Hensanka, Kiryu Orimonoshi 3, 60–61.

49

Hashino, Keizai Hatten, 170.

50

Hashino, Keizai Hatten, 10.

51

Gunmaken, Kiryu Orimono, 35.

52

In the 1880s, local trade associations established 10 institutes of dyeing. Many of them

became prefectural textile and dyeing schools when the Ministry of Education developed thelaw of the educational system in the 1890s. (Hashino, “The importance of consular”).
53

Yasuoka, “Meijiki dogyokumiai,” 70–71.

54

Kiryu Orimonoshi Hensankai, Kiryu Oriomonoshi 3, 58–90.

55

Inspections for fabrics for the export market became stricter in 1907 because inspection

methods were neither appropriate nor sufficient. Kiryu Orimonoshi Hensankai, Kiryu

Orimonoshi 3, 427.
56

The Ministry of Agriculture and Commerce was divided into the Ministry of Commerce33and Industry, and the Ministry of Agriculture and Forestry in 1925.
57

Kiryu Orimonoshi Hensankai, Kiryu orimonoshi 3, 187–210.

58

Kiryu Orimonoshi Hensankai, Kiryu orimonoshi 3, 537–540.

59

Nakabayashi, “Flexibility and diversity,” 151–159.

60

It is known that the Kakiage Company also held the central position in the local financial

system, by issuing promissory notes, which weaving producers used widely as a means of
payment to raw silk merchants. Those bills were discounted by local banks. See Ishii,“Kigyo kinyu no keisei,” 274. The relationship between the local production system and theregionally organized banking system requires further research from the view of industrial
clustering.
61

Vernus, “Regulating the activity.”

62

Local trade associations have not always contributed to the development of industrial

districts. In fact, Benedita Camera shows a typical example in the case of the embroidery
industry in Madeira where their production, based on the putting-out system, was mainly for
the US market, and manufacturers-exporters established a compulsory ‘guild’ in 1935.
Contrary to expectations, the state-backed guild promoted the collective regional brand byprohibiting imitation rather than promoting innovation. Camera, “The Institutional Control
of Innovation.” Steven Tolliday and Yasushi Yonemitsu also investigate a similar case in the
Arita pottery district in Japan, in which the Marshallian industrial atmosphere was not
dominant. Rather, a pragmatic atmosphere was so dominant in Arita that encompassing
collective institutions have not been nurtured. See Tolliday and Yonemitsu, “Microfirms andIndustrial Districts,” 65.
63

Sonobe and Otsuka, A Comparative Study.

34

Figure 1. Silk Weaving in Japan, around 1910
New Districts:
Production of piece dyeing plains
・Emerging districts expanded after 1880
・Export market- and mass production-oriented
・Early introduction of power loom and factory system

Kiryu

Kanto-Area

Kyoto
Traditional Districts: production of yarn-dyed fabrics
・Domestic market-oriented・Highly value-added product・Dominance of putting-out system and handloom (-mid 1920s)

Source: Hashino & Kurosawa’s presentation slide at EBHA in Milan in 2009.

Figure 2: Value of production in Kiryu, 1878-1915

1000 yen
14000

12000

10000

8000

6000

4000

2000

Source: Report on History of Weaving Industry inGunma Prefecture [Gunmaken Orimonogyo Enkaku
Chosasho] (from 1878 to 1901); Statistics of Gunma
Prefecture [Gunmaken Tokeisho] (after 1902).
Note: Figures from 1886 to 90 were estimated. For
realized values, we used price index for textile products(1934-1936=100) in Estimates of Long-term Economic
Statistics
of Japan since 1868: Price, 192.

1915

1914

1913

1912

1911

1910

1909

1908

1907

1906

1905

1904

1903

1902

1901

1900

1899

1898

1897

1896

1895

1894

1893

1892

1891

1890

1889

1888

1887

1886

1885

1884

1883

1882

1881

1880

1879

1878

0

Figure 3: Number of Weavers by types in Kiryu, 1906-1920
7000

6000

5000

Number of out-weavers

4000
Source: Statistics of Gunma
Prefecture [Gunmaken
Tokeisho](every year)

3000

2000
Number of factories, cottage industries, and weaving manufacturs
1000

01906 1907 1908 1909 1910 1911 1912 1913 1914 1915 1916 1917 1918 1919 1920

Figure 4: Process of producing silk fabric (left) and specialization organizing by weaving producer(right) in Kiryu
around 1910
sericulture farmer
silk reeler
raw silk merchantmaterials

Weaving
producersilk thrower
thrown silk merchant

throwing

dyestuff merchantscouring,
dyeingdyer
starchingsizing&w
arpingwindingdesign<preparation finished>designerpattern card producer

weavingfabricloom supplier

final productout‐weaver

Inspection by Kiryu Trade
Association for weaving

Inspection for export by
local government( central gov. since 1928)

local merchantlocal merchantwholesaler

Trading company

domestic market

export market

finisher
Note: Original figure was in Weavings in Eastern Japan[Kanto no Kigyo], (p.14), but we arranged it for
simplification.

: putting‐out relationship: material flows

Table 1 Real Value of Major Silk-Weaving Prefectures (1000yen)1
Prefecture
Yamagata
Fukushima
Tochigi
Gunma
SaitamaTokyo
Yamanashi
Niigata
Ishikawa
Fukui
Gifu
Shiga
Kyoto
Fukuoka

Main District 3
Yonezawa, Tsuruoka

Kawamata
Ashikaga
Kiryu, Isesaki
Chichibu
Hachioji
Gunnai
TochioKanazawa
Fukui
Gifu
Tango
Nishijin
Hakata

1895
876
880
2499
5783
892
2613
1162
862
1264
4849
700
733
9290
419

1900
2412
2703
1522
8525
3160
2356
4419
2641
4318
10777
2144
1243
21413
810

1905
1810
4869
875
6532
2113
2363
2451
2704
8319
15890
1223
1163
11642
672

year
1910 growth rate (%)2
5368
12.8
5370
12.8
1155
-5.0
9672
3.4
4549
11.4
6783
6.5
4264
9.0
6575
14.5
11803
16.0
22071
10.6
3231
10.7
1524
5.0
19524
5.0
763
4.0

Notes:
1. All figures are deflated by price index for textile products (1934-36=100) in Estimate of Long-term Economic
Statistics of Japan since 1868: Price , 192-93.
2. Annnual average growthrate from 1895 to 1910.
3. Districts in Italic are exporters of Habutae .
Source: Hashino 2007, Table 1-4, 41.