The Edo Period:
Pre-conditions for Industrialization

Yomei Gate, Toshogu Shrine in Nikko

Chapter 2

1. The Edo period: 1603-1867
From the late 12th century through the 17th century, Japan was ruledby samurais (military leaders) but its politics remained unstable. Internal wars
and power shifts were very frequent, especially during the late 15th century to
the end of the 16th century, which was called the Sengoku (warring) period.
Finally, Ieyasu Tokugawa unified the country after the decisive Battleof Sekigahara (located between Nagoya and Kyoto, and visible today from the
Shinkansen) in 1600 and the attacks on Osaka Castle in 1615 where the rival
Toyotomi family perished. Ieyasu established a new government in Edo andbecame the first shogun of the Edo Bakufu in 1603. Edo, a sleepy little town
until then, was transformed into a huge political city by aggressive public works
projects including land reclamation and artificial canals and water supplies. The
Tokugawa family ruled the country for the next 264 years (15 shoguns in all).
Ieyasu Tokugawa was deified and is still worshiped in Nikko Toshogu Shrine.
A particularly important development during the Sengoku and early
Edo period was the removal of various middle-layer organizations such as Buddhist temples and sects, manorial owners and resident landlords which had
existed since the ancient times and through the middle ages. Power decentralization and indirect rule were now replaced by direct and unified rule by the
newly emerged daimyo (warlord) in each region. This was achieved by a number of policies and actions taken by Sengoku daimyos, especially Nobunaga
Oda and Hideyoshi Toyotomi, the two most powerful military leaders before
Ieyasu finally took power. Their policies included the military conquests of
opponents, the liberalization of commerce, the prohibition of inter-regional custom duties, official land survey and registration (kenchi), the confiscation of allarms from non-samurai population (katanagari), the construction of a castle
town in every region, the residential requirement of all samurais in castle towns,
the relocation of markets to castle towns, and so on. From this time onward,
samurais and farmers were strictly separated in profession and residence. Samurais who no longer protected their land became salaried urban officials.
Daimyos began to rule land, farmers and samurai retainers directly. This movement which was started in the Sengoku period was continued and completed by
the Edo government.

22

The Edo Period: Pre-conditions for Industrialization

Table 2-1 Some Basic Terms of the Edo Period
Edo

DaimyoShogunBakufuHan

The old name for Tokyo. Edo literally means the mouth of bay. Incidentally, Tokyo means eastern capital (the western, or the traditional, capital
is Kyoto).
Regional samurai ruler. During the Edo period, it meant the head samuraiof a local government (han).
Originally, the supreme commander of a dispatched army. But it usuallymeans the head of a central military government.
Residence of a military ruler. Later it meant the central government established by a military leader.
A local government (like province or prefecture) in the Edo period.

We start the story of Japan’s economic development from the Edo
period because the pre-conditions for later industrialization and modernization
were created internally during this period. Let us list these pre-conditions at theoutset:(1) Political unity and stability(2) Agricultural development in terms of both area and productivity(3) The development of transportation and the emergence of nationallyunified markets(4) The rise of commerce, finance and the wealthy merchant class(5) The rise of pre-modern manufacturing (food processing, handicraft,etc.)(6) Industrial promotion by local governments (sometimes successful but
not always)(7) High level of education
These are the features of the Edo period which are commonly cited bymany researchers. The remainder of this chapter examines them in detail. Notethat these conditions are not met by some countries even today. We may evensay that developing and transition countries equipped with all these conditions
are relatively rare.

2. Features of the bakufu-han system
The Edo society can be characterized as follows.
(1) It was a class society. The ruling class was the samurai (military23

Chapter 2

men who were permitted to carry a sword). The ruled included farmers (rankedno.2), craftsmen (no.3), and merchants (no.4). These four classes were called
Shi-Nou-Kou-Shou (from top to bottom)1. There was a big gap between thesamurai class and other classes. Farmers were officially placed no.2 because
they paid the rice tax, but they were not particularly respected. Below all ofthese classes, there were also outcasts (eta and hinin—see QAs at the end of thebook).
(2) Politically, it was a centralized system. The bakufu (central government) had absolute political power over the fate of hans (local governments)
and could even remove or abolish them. The shogun gave daimyos the land torule. In return, daimyos pledged loyalty to shogun2. Any sign of disobedience
was met with the sternest punishment including seppuku (ritual suicide) and thetermination of the family.
(3) Economically, it was more decentralized. The bakufu was notvery capable of (or interested in) conducting consistent economic policies. Its
policies were often unstable and myopic. On the other hand, each han could
decide its internal policies including administration, taxation, education, industrial promotion, issuing paper money, and other economic regulations as long as
it was not explicitly prohibited by the bakufu.
(4) The bakufu imposed the following expenses on hans.
(i) sankin kotai, the bi-annual commuting of the han lord between home andEdo: every daimyo was asked to live in Edo in every other year and in his
han the rest of the time. This cost a huge sum of money in travel and residence since a large number of retainers also moved with the daimyo annually;

Historically, Vietnam also had the distinction of Si-Nong-Cong-Thuong (the Chinese characters
are the same, only the pronunciation is different). The idea originally came from Confucius in
ancient China, but the top ranking “si” in Vietnam meant scholars, not fighting men. Moreover,in China and Vietnam, the four-way classification merely indicated what type of people wererespectable in society and had no political implications. The Edo government turned this idea
into an ideology that legitimized a class society with samurai on top.
2
Because of this relationship, the Edo period is sometimes characterized as feudalism. Many people (especially those in the Meiji period) also commonly recalled the Edo system as “feudal”
with negative connotation. However, we prefer not to use this term in order to avoid ambiguity
and unnecessary debate.
1

24

The Edo Period: Pre-conditions for Industrialization(ii) the irregular assignment of public works such as building and repairing
castles, moats, roads, reservoirs, canals, waterworks, etc;(iii) other ad hoc and arbitrary taxes and charges, for example, for celebrating
the birth of a son in the shogun family. Imposition of these expenses onhans had the effect of weakening the financial capability of hans. Many
hans sank deeply into debt and building up military forces to rebel against
the bakufu became almost impossible.

3. Agriculture
The Edo society was agrarian, particularly at the beginning, with
about 90% of the population being peasants although this ratio subsequently
declined a little. The basic unit of production was the small family. Previously,
one farming household often contained dozens of people with many families
and their servants. But a series of official land surveys and registration (kenchi)
conducted before and after the beginning of the Edo period dismantled the big
family system into small farming units, with each family guaranteed (andobliged to cultivate) its portion of the farmland.
According to the law, peasants had no right to move and were tied to
the land as a labor force and a tax base. But in reality, some farmers moved to
new land, sometimes to avoid a high tax burden or unreasonable policies andsometimes to simply improve their life. Later, as rural income rose, many wellto-do farmers enjoyed village festivals as well as trips to Ise Shrine and otherreligious sites (officially for worship, but actually for fun).
Villages were well organized and permitted autonomy as long as they
paid rice taxes as stipulated by the central or local government3. The rice tax
was levied on villages, not on individual farmers. Village leaders, who were
often themselves farmers, allocated the rice tax burden among villagers. In thissense, village leaders played the role of the lowest-level tax administration.
Thanks to them, the bakufu and hans could raise tax revenues with little admin-

3Each han separately decided the rice tax rate and the way to collect it. Similarly, the bakufu
levied rice taxes from the areas directly ruled by it. Rice tax revenue thus belonged to each collecting government.

25

Chapter 2

istrative cost. Keiichi Tanaka (2000), an Edo historian, argues that farmers werevery dynamic and independent, and they often rejected bakufu officials andtheir policies which were considered inconsistent or unreasonable. Tanaka
believes that the bakufu government generally had no long-term policy vision;
most of its laws and regulations were ad hoc responses to ongoing historicalchanges which could not be stopped.
There were two ways to determine the rice tax obligation. The firstwas the kemi (inspection) system where an official inspector visited the village
to check the actual rice yield every year. Naturally, village leaders treated theofficial with a lot of delicacies and gifts. Some officials only had drinking parties without actually going to the fields. The bribed official happily understatedthe crop yield, often substantially, greatly relieving the tax burden of the villagers. According to historian Shinzaburo Oishi (1977), this type of corruption
was the main reason for the chronic revenue shortage of the governments at alllevels. On the other hand, if the visiting official was arbitrary and uncooperative, he might inflate the tax obligation to the chagrin of the farmers.
The second method was the jomen (fixed amount) system, whereby
the rice tax was unchanged for consecutive three or five years based on the
average yield of the past years. Under this system, the government could securea stable tax revenue while minimizing the inspection cost. Farmers faced a riskin the case of a crop failure, but the incentive to produce more was also greater
if they worked harder, since additional output was all theirs. According to Tanaka (2000), farmers often preferred the jomen system because they did not want
to deal with corrupt officials every year.
During the Edo period, the agricultural sector grew in two phases:
quantitative expansion first, then qualitative intensification.
From the mid-15th century to the late 17th century, which includes
the previous Sengoku (warring) period and the early Edo period, there was anenormous expansion of farmland (especially rice paddies). Earlier, rice was produced in narrow valleys where mountains ended and plains began, because thiswas the only place where constant water supply was available. But during thisperiod, large-scale water management projects were carried out all over Japanby daimyos and influential farmers to control floods and use rivers for irrigation. As a result, land under cultivation expanded dramatically. The plains,

26

The Edo Period: Pre-conditions for Industrialization

Figure 2-1 Population and Rice Production(1600=100)
300
Population
250
Rice production

200
150

Arable land

100
50
1600

1650

1700

1750

1800

1850

Source: Hayami and Miyamoto, eds, 1988, p.44.

which had hitherto been uninhabitable marshlands, were turned into productive
paddy fields. The population increased rapidly in a way rarely seen in a premodern society. Shinzaburo Oishi calls this “The Great Age of Opening
Fields.”By the late 17th century, land expansion came to a halt. The rapid
growth of farmland in the previous period also brought some negative effects,
including labor shortage, deforestation, and frequent occurrence of floods. From
this period onward up to today, Japanese agriculture has emphasized intensive
cultivation with large inputs of labor and technology rather than the quantitative
expansion of arable land.
From the 18th century onward, the area of cultivation and population
remained relatively stable, but rice output continued to grow thanks to increased
productivity. Contributing factors included double cropping, new species ofrice, fertilizer (dried fish was especially popular), and the introduction of new
farming tools. Many guidebooks were published to teach farmers how to produce crops more effectively. Yasusada Miyazaki’s Nogyo Zensho (Encyclopedia of Agriculture) in eleven volumes, published in 1697 and reprinted manytimes subsequently, was one of them.
At the beginning of the Edo period (17th century), peasants produced
mainly for family consumption. They ate what they produced and their living

27

Chapter 2

standards were at subsistence levels. However, from the middle Edo period,
productivity rose and agricultural surplus was created. Peasants began to sell
their rice and other crops to the market which was often nationally integrated.
Cash crops increased and commercial agriculture began.
Officially, all farmers were supposed to belong to (be tied to) the
assigned land. But by the 19th century as landless farmers increased, theincome gap among farmers widened. Large landowners who hired tenant farmers to cultivate their land began to emerge.
Farmers’ uprisings frequently occurred, especially at the time offamine and toward the end of the Edo period. Rebellious farmers were unhappy
with taxes, inflation, famine, corrupt officials, or government policies.

4. Budget and money
The bakufu’s revenue sources included the following:
Rice tax from the land ruled directly by the bakufu (areas not distributed
to other daimyos)
Monopoly on mining, foreign trade and minting money
Direct control on major cities (Edo, Kyoto, Osaka, Nagasaki, Sakai, etc.)
Financial contributions from merchants in exchange for monopoly andcartel rights
In addition, as noted above, the bakufu freely ordered hans to various
public works, eliminating the need to have its own public investment budget.
On the other hand, the han’s revenue consisted of the rice tax from its territory
and the revenues from promoting local industries (if it is successful).
The entire fiscal system was based on the rice tax. The fiscal unit ofaccount was the “koku” (about 180 liters of rice). The han’s economic size wasmeasured in koku and samurai’s salaries were also paid in rice (but of course
they had to be cashed before buying things). Rice was actually collected fromeach village and transported to the major rice markets, then redistributed to therest of the country. Osaka was by far the most important national rice market.
This rice-based economic system had the following consequences:(1) Since rice had to be physically shipped across regions, this tax system
required a nationally unified transportation and distribution mecha-

28

The Edo Period: Pre-conditions for Industrialization

Figure 2-2 General Price Levels(1840 to 44=100)

400
300
200
180
160
140
120
100
90
80
70
60
50
1720 30

price index measured by gold

price index measured by silver
40

50

60

70

80 90 1800 10

20

30

40

50

60 年

Source: Shimbo and Saito, eds, 1989, p.71.
Note: The general price index in Kyoto and Osaka, five-year moving average.

nism. Private merchants provided the required services but the bakufu
and han governments often regulated and supported them. As landtransportation (by horse) was very costly and inefficient, water transportation on the sea, river and lake was mainly used.
(2) The center of economic activity gradually shifted from subsistence
farming to commercial agriculture and handicraft industries. But the
government's tax base basically remained on rice. There were occasional attempts to levy on commerce but this did not become a reliable
tax base. As time went by, the bakufu and han governments faced fiscal crises while farmers and merchants enjoyed increasing income andwealth.
(3) Faced with chronic fiscal deficits, the bakufu resorted to the following
measures: monetary debasement (similar to printing money, whichleads to inflation), spending cuts, tax increases, price controls andadministrative reforms. Some commercial policies were tried in certain
periods, including granting certain merchants with the exclusive rightto market a product (i.e. monopoly) in exchange for financial contribution to the government. However, these measures cannot be considereda set of consistent policies supported by a long-term vision.
Money consisted of both gold and silver. Gold was popular in Edo

29

Chapter 2

A scene from Tokaido “Highway” (photograph by Felice Beato)(Eastern Japan) and silver was mainly used in Osaka (Western Japan). Copper
coins were also used for small transactions. Hans were also allowed to issue
local paper money. Inflation rose at the time of famine and accelerated towards
the end of the Edo period, especially after international trade was resumed.

5. Transportation and commerce
The bakufu designated five official highways and opened major sealanes. But private inns, restaurants, shippers, baggage carriers, etc. provided
necessary services. As part of non-tax obligation, farming villages near the
highway were required to provide horses at the time of heavy travel needs.
Sankin kotai (daimyos’ bi-annual commuting between Edo and their hans) further stimulated the development of the road system. At the same time, out ofmilitary concern, the bakufu did not permit the free movement of people andmerchandise. At strategic points, sekisho (passport controls) were created.
Some rivers were intentionally left without bridges, to block the march of apotential enemy to Edo. Hans were not allowed to build military ships or maintain navies.
As noted above, from the beginning, the Edo tax system presupposeda nationally unified rice market. The development of cash crops and handicrafts
also expanded nationwide commerce. Osaka was the commercial center with a30

The Edo Period: Pre-conditions for Industrialization

Figure 2-3 Inter-regional Economic Linkage in the Late Edo Period
LocalmarketHan

Local
marketLocal
marketHan

Greater Edo Economic Area
Osaka
(Central market)

Han

Edo
(Central market)

Han

Han

Local
marketGreater Osaka
Handicraft andManufacturing Area

LocalmarketHan
Flow of agricultural
products including riceLocalmarketFlow of handicraft andmanufactured products

Flow of bakufu’s money

Source: Miyamoto and Uemura, 1988, p.285.

large number of wealthy merchants and money lenders, while Edo was thepolitical center as well as a large city with consumers. Naturally, the sea lane
between the two cities was well-developed. In Osaka, even the futures market
in rice was established. This is said to be the first futures market in the world.
The bakufu’s policy towards commerce and industry was variable andinconsistent. Sometimes the central government tried to control and tax private
businesses, while at other times a free economy was encouraged. Cartels weresometimes imposed and other times prohibited. Economic historians still debate
whether the Edo economy was more dynamic under the free market policy orunder the pro-cartel policy. According to Matao Miyamoto and others (1995),
the sound development of the market economy depends on a number of institutions and customs such as the bill of exchange and credit provision to facilitatetransaction. From this perspective, the authors defend the cartels in the Edo
period as a private mechanism to generate such services. From the viewpoint ofhistorical institutional analysis4, Tetsuji Okazaki (1999) also tries to show that31

Chapter 2

estimated GDP grew faster during the time when cartels were permitted thanwhen they were banned. He argues that trade cartels were a positive factor forthe development of the Edo economy rather than an impediment. However, theavailable data and his regressions may be too crude to draw a strong conclusion.
Toward the end of the Edo period, many hans and local cities reached
a relatively high level of economic development. As a result, direct trading
among them without the intervention of Osaka merchants began. The center of
economic activity gradually shifted eastward, from Kansai (Osaka, Kyoto) to
Edo and Eastern Japan. In addition to rice, a large number of products weretraded in nationally integrated markets.

6. Industry
As agriculture and commerce grew, pre-modern manufacturing suchas handicrafts and food processing also began to develop. Each region createdspecialized products which were marketed all over Japan. For example, tea,
tobacco, wax, indigo, salt, knives, sword, pottery, lacquer ware, silk, cotton, soysauce, sake, paper, stone cutting, medicine, and chemicals were traded widely.
In order to enrich the local population and increase the tax revenue, many hanspromoted local industries, and some even succeeded (Nishikawa and Amano,1989). Here are some examples:
Tokushima han (indigo): Farmers produced indigo along the Yoshino Riverand their output gradually grew. But indigo distribution was monopolized by Osaka merchants who imposed high interests on loans. In orderto protect local farmers and encourage local merchants, the han government created an indigo exchange and provided financial and distribution
services. The bakufu objected to this move, prohibiting official bodies toengage in such activity. In reality, the bakufu wanted to protect Osaka
merchants who contributed financially to its coffer. In response, the han
privatized the indigo exchange and other services.
432

According to Okazaki, historical institutional analysis is “a research program that conducts theoretical and empirical analyses on important problems in economic history such as the role, thereason of existence, and the mechanism of emergence and transition of institutions by the application of game theory.” (Okazaki, 1999, pp.5-6)

The Edo Period: Pre-conditions for Industrialization

Takamatsu han (sugar): The Takamatsu government issued han’s paper
money to promote various industries but its attempts generally failed,
and its money depreciated. After many such failures, the han finally succeeded in pilot production of sugar from sugar beets and commercializing the technology. As sugar production greatly increased, the han
encouraged inter-han trade to expand the market. But again, the bakufu
intervened to discourage such trade not brokered by Osaka merchants.
Satsuma han (military technology): This han in southern Kyushu imported
new technology from the West and produced blast furnace, cannons andwestern ships. It was also engaged in illegal trade with Ryukyu (Okinawa), which was very profitable. By increasing wealth and militarycapability, Satsuma han later played the key role in toppling the bakufu
government and establishing the Meiji government.
These are just a few examples. Many other hans were engaged inindustrial promotion including Choshu han (paper, wax), Yonezawa han (safflower and lacquer), Akita han (silk and silk dress), Hizen han (pottery, coal),
Higo han (lumber, silk), and so on. But we should not forget that there werealso other hans which were less successful and fell deeply in debt. They borrowed a large amount of money from private merchants but never repaid.

7. Education
The popularity of education in the Edo period is often cited as thecause of fast industrialization in the later periods. Education in the Edo period
ranged from the recondite study of ancient Chinese philosophy and literature at
public schools to children's basic education at private schools. Education fever
was not just in such large cities as Edo, Osaka and Kyoto but also a nationwide
phenomenon. Here, the four main types of learning institutions are introduced.
(1) Bakufu schools—The bakufu schools mainly taught Confucianism, anancient Chinese philosophy started by Confucius in the 6th to 5th century BC. It emphasized social order, proper rituals, the way of goodpolitical leadership, and respect for the elderly and superiors. The Edo
government vigorously promoted Confucianism as an ideology tolegitimize and maintain the class society. Seika Fujiwara, Razan

33

Chapter 2

Table 2-2 Examples of Private Professional Schools (Late Edo Period)
School & location

Teacher & year of
establishment

Main teaching

Prominent students

Shinsaku Takasugi (anti-bakufu fighter)
Social and political Genzui Kusaka (anti-bakufu fighter)philosophy
Hirobumi Ito (prime minister)Aritomo Yamagata (prime minister)
Yukichi Fukuzawa (founder of Keio Univ.)
Dutch language & Masujiro Omura (military reformer)
Koin Ogata
Teki Juku
Western medicine Sanai Hashimoto (Western studies)
1838(Osaka)Keisuke Otori (bakufu & Meiji statesman)Philipp F. B. von SieChoei Takano (Western studies)
Narutaki Juku
Western medicine Genboku Ito (medical doctor)
bolt (German)(Nagasaki)
1824
Keisuke Ito (medical doctor and botanist)
Tanso Hirose
KangienConfucianism & an- Choei Takano (Western studies)
cient Chinese literature Masujiro Omura (military reformer)(Hita, Bungo Han) 1817
Shokason Juku
(Hagi, Choshu
Han)

Shoin Yoshida
1855 (until 1857)

Hayashi and Hakuseki Arai were the leading bakufu scholars. Students
had to memorize and interpret ancient Chinese books. How to modify
this foreign doctrine to fit the Japanese reality was one of the important theoretical questions. There were also bakufu schools for theEuropean language (Dutch) and technology (medicine, navigation,
military technology, etc).
(2) Han schools—Hans also established schools to educate their young
samurais. The curriculums were basically the same as those of bakufu
schools, with Confucianism at the center of learning. Toward the endof the Edo period, han schools were expanded to emphasize practicalskills such as military training and foreign language. Some evenaccepted non-samurai students. Many han schools were transformed
into education institutions in the Meiji period which followed.
(3) Private professional schools—Eminent scholars often set up their own
private schools and recruited students. Depending on the instructor,
various subjects were taught: Confucianism, “national studies”(research on ancient Japanese literature which later led to nationalism
and an anti-foreigner movement), Western languages (Dutch, later also
English), medicine, science, technology, and so on. These schools
accepted both samurai and non-samurai students. In the late Edo period, they often attracted talented and passionate young people with the34

The Edo Period: Pre-conditions for Industrialization

desire to contribute to the country. Their eyes were opened to theinternational situation and Japan’s precarious position in it. A large
number of national leaders in the late Edo period and the early Meiji
period came from such professional schools.
(4) Terakoya (private primary schools)—These schools were run by local
teachers to teach the 3Rs (reading, writing, and arithmetic whichmeant abacus) to small children. Initially, terakoya was typically acharity organization but later evolved into a profit-seeking entity
charging tuition fees. Normally one teacher taught a few dozen children who received individual assignments. There was no regulation onschooling age, but most children entered terakoya at the age of sevenor eight and stayed until the age of twelve or thirteen. As the public
realized the importance of studying letters and arithmetic, a large number of terakoya were established from urban to rural areas contributing
to the high literacy rate among the general population.

35

Chapter 2

Proto-industrialization and population dynamics
Economic historians have noted that certain areas of Europe, such as Flanders in
Belgium and Lancashire in England, were “industrialized” in the 17th and 18th centuries even before the Industrial Revolution took off in the United Kingdom. This
industrialization was characterized by rural, family-based production of textiles andgarments without modern machinery and was often brokered by urban merchants.
The concept of proto-industrialization was proposed to explain why this happened, and why it was observed in certain areas only (proto means primitive or early).
The proponents have advanced a hypothesis to explain rural industrialization from theunique interaction among agriculture, population and commerce. Population growth isoften regarded as given in economic modeling. But in the hypothesis of proto-industrialization, population dynamics is a crucial endogenous element. F.F. Mendels and
P. Deyon, who proposed this idea, define proto-industrialization as a phenomenon satisfying the following three conditions:･ It is a manufacturing activity for market sales, not for home consumption.
･ It is undertaken by peasants in a rural area where soil is poor and plots are small.
･ It is located near an area of commercial agriculture with large farm size andhigh productivity.
Proto-industrialization begins as a side job in villages where agricultural productivity is low. They can sell cloth and garments to nearby rich villages where agricultural productivity is high. It is a sort of specialization (division of labor) within a relatively small geographical area: villages with fertile soil produce farm products andvillages with poor soil produce manufactured goods, and they exchange output witheach other. They sometimes also sell their products to larger markets.
Furthermore, the hypothesis of proto-industrialization assumes certain demographic dynamics in the following sequence:(1) For some reason, villages with poor soil face a population increase, leading tofood shortages.
(2) Poor peasants engage in the production of garments for sale to relieve thepopulation pressure.
(3) This increases their income, which prompts them to get married sooner andhave more children.

36

The Edo Period: Pre-conditions for Industrialization(4) Population growth continues to keep the peasants just as poor as before, eventhough they are more “industrialized.”(5) The supply of cheap labor is thus increased, and rich farming villages andurban merchants continue to accumulate wealth. (This widening income gap
may possibly generate capitalists and landless farmers leading to industrialization under full-fledged capitalism in the Marxian sense. However, this historical linkage is not convincingly proven empirically.)
According to Osamu Saito (1985) of Hitotsubashi University, the Japanese data in
the Edo period does not support the hypothesis of proto-industrialization. There is noevidence of systematic population increase in the areas where peasants engaged in
pre-modern manufacturing. On the contrary, it is said that farmers practiced birth control, sometimes even killing new-born babies, to manage the population pressure.
Proto-industrialization seems to assume a rather peculiar population dynamics
which may be applicable to certain European regions in certain periods, but not in therest of the world or other times. However, the idea of population growth responding
to the process of early industrialization is an interesting one.

37

Meiji (1) :Key Goals of the New Government

Two of the remaining odaiba, the bakufu’s fortified square-shaped islets, are visible.

Chapter 3

1. The opening of ports and the fall of the bakufu
From 1639, the bakufu government banned any foreign contact
except in a very limited way at Nagasaki’s Dejima (tiny artificial island) understrict official control. In other words, the bakufu monopolized foreign trade.
Korea and Ryukyu (Okinawa) had diplomatic relations with Japan while Chinese and Dutch merchants were allowed to trade with Japan. All other transactions were strictly prohibited. No Japanese were allowed to go abroad or comehome from abroad. Under this isolation policy, the only channel for absorbing
Western knowledge, mainly medical and scientific information, was throughDutch books and products.
But from the end of the 18th century, foreign ships began to approach
Japan with an intention to trade. The Russians and the British were particularly
eager but the bakufu refused to talk to them. Meanwhile, the news of the Opium
War (1840-42), in which Britain defeated China, took possession of Hong Kongand forced China to open its ports, was a big shock to the bakufu.
Finally, four American military ships (“Black Ships”) led by Commodore Matthew C. Perry entered Edo Bay in 1853. The bakufu was forewarned about their coming but did nothing to counter it. This was a wellplanned mission for which the negotiating strategy with Japan had been carefully designed. Perry was convinced that the show of force, not peaceful diplomacy, was most effective with the Japanese. Firing powerful cannons, Perrydemanded a “friendship” treaty which allowed American ships to use Japanese
ports. The Americans left, saying that they would return to hear the answer the
next year1. All of Japan was thrown into chaos and a fierce debate began as towhether Japan should open its ports or repel foreigners. When Perry and his
troops returned to Edo Bay the next year, the bakufu agreed to sign the friendship treaty with the United States and opened Shimoda and Hakodate for foreign ships. Similar treaties were also concluded with the Europeans.

140

When the American black ships left, the bakufu ordered the Administrator of Izu to quickly
build odaiba, several fortified islets, off the coast of Shinagawa. Today, the two remaining odaiba can be seen from the Yurikamome train near Rainbow Bridge. Apparently, these tiny forts
were not enough to stop the Americans.

Meiji (1) : Key Goals of the New Government

In 1858, the bakufu government asked for an imperial permission tosign comprehensive commercial treaties with the major powers but it was notgranted. However, the bakufu signed them anyway without imperial permission. Politically it would have been more advisable to first hear the views ofvarious domestic groups, especially influential daimyos, before signing thesetreaties but the bakufu did not do that. Naturally, the bakufu’s unilateral action
was severely criticized. Naosuke Ii (bakufu high official, something like Prime
Minister) responded by arresting and executing the political opponents. However, Ii was assassinated one year later, in 1859, by samurais infuriated by the
bakufu’s oppressive policy.
With the conclusion of the friendship and commercial treaties, foreign
diplomats and merchants began to settle in Japan. However, they were permitted to live only in designated foreign settlements and travel only in their vicinities. Free contact with the Japanese public was prohibited. The largest foreign
settlement was Yokohama, a city newly created for this purpose.
The opening of Japanese ports led to significant social and economicchanges.
(i) Foreigners brought new ideas, technology, industry and systems, andthe Japanese began to absorb them very rapidly. But they were also
afraid of the superior military power of the West.
(ii) Silk and tea suddenly found huge overseas markets. The rising output
and soaring prices of these commodities enriched farmers who produced them2.
(iii) Enriched farmers began to buy clothes made in England instead ofwearing homemade or secondhand clothes.
(iv) A new merchant class, called the Yokohama merchants, emerged tolink domestic producers and markets with foreign merchants. As noted2

Some development economists regard international integration and free trade as the engines ofgrowth. However, in reality, a sudden opening of developing economies often leads to enterprise bankruptcies, de-industrialization, rural impoverishment and the widening income gap.
The Least Developed Countries Report of the UNCTAD (2004) states that a consistent domestic
development strategy is the prerequisite for poverty reduction without which export promotion
alone will not have desired effects. In this context, the Japanese experience in which the exportsof silk and tea enormously enriched the farmers in the late Edo “port-opening” period isextremely interesting (chapter 5).

41

Chapter 3

above, foreigners were not permitted to travel outside the foreign
settlement.
(v) As inflation surged, samurais and the urban population were impoverished. The entire price structure was transformed after the opening ofports. Old industries and merchants declined and new ones emerged.
The commercial treaties which the bakufu signed with the West were
unequal treaties in the sense that (i) Japan had no right to decide tariffs; and (ii)the Japanese court could not judge foreign criminals in Japan. After a while,
Japanese import tariffs were set uniformly at about 5 percent (this situation continued until 1899 when the tariff rights were partially restored). Inability toindict foreign criminals was considered to be great national humiliation. The
opposition blamed the bakufu for signing defective treaties. They also criticized
the bakufu for economic turmoil, including inflation, and yielding to foreignpressure without national consensus or imperial permission.
After the opening of ports, severe political fights ensued for about fifteen years. The details are too complicated to describe here, but events unfolded
over the following three key issues:(i)Open door policy versus anti-foreigner nationalism(ii) Upholding the emperor versus supporting the bakufu(iii) Fighting for political control among strong hans (especially Satsuma
and Choshu)
Anti-foreigner nationalism was very strong at first, but people gradually realized the impossibility of repelling the foreigners by force; the West was
too modern and powerful. The political fight finally centered on who would
remove the bakufu and establish a new government. In a series of relatively
minor battles (one of the fiercest was fought where Ueno Park now stands), thebakufu forces were defeated and the new Meiji government was established in
1868. The emperor moved from Kyoto to Edo, which was renamed Tokyo(meaning eastern capital).

2. The Meiji government and its goals
The Meiji government was established and run by young samurais
from strong hans in Western Japan (especially Satsuma, Choshu, Tosa, and42

Meiji (1) : Key Goals of the New Government

Hizen) and a few influential noblemen. The emperor was elevated to the headof state for legitimacy and as a unifying symbol of the new regime. The Meiji
government had a very clear and determined policy objective: rapid Westernization and modernization of Japan. At first, the biggest external challenge wasto avoid being colonized by the West. But this fear subsided in the early Meiji
period as Japan began to aggressively absorb Western systems and technology
while retaining national unity and identity. For the rest of Meiji and beyond, thetop national priority was to catch up with the West in every aspect of civilization, i.e., to become a “first-class nation” as quickly as possible.
After a “long, peaceful sleep” (international isolation), Japan suddenly discovered that Europeans and Americans were greatly advanced in technology and industry while Japan was a backward agricultural country. This was a
big shock to Japan. The acute recognition of backwardness and shattered pride
was the psychological driving force behind Japan’s industrialization during the
Meiji period.
The national slogan was fukoku kyohei which means “rich country,
strong army.” In order to modernize Japan, the Meiji government had threegoals:
Industrialization (economic modernization)
Introducing a national constitution and parliament (political modernization)
External expansion (military modernization)
These were shared goals among all politicians, officials and even people. While there were many political struggles among Meiji leaders, they fought
over the method of and prioritization in achieving these goals. For example, apolitician might oppose his rival who advocated the invasion of Korea, butwhen the rival was ousted, the same politician might send troops to Taiwan(this actually happened in 1873-74). Similar flip-flop of positions was observed
over many other political and economic issues.
The biggest headache for the Meiji government in its early years was
the resistance from conservatists who disliked radical reforms. The previous
samurai class, now deprived of their rice salary and the privilege of carrying
swords, were particularly unhappy with the new government which was established, ironically, by young samurais. But step by step, the new government

43

Chapter 3

succeeded in reducing their influence and consolidating power. It abolished thesamurai class and offered them government bonds as a compensation whose
value rapidly depreciated under inflation. Local autonomy under the han system
was replaced by a centralized government and prefectures whose governors
were appointed by Tokyo. A new land tax at the initial rate of 3 percent of theland value replaced the old rice tax which was levied on annual yield.
In 1871-73, a high-level official delegation called the Iwakura Mission, which included about half the cabinet ministers, was sent to the US andEurope for nearly two years. As it departed from Yokohama, the mission members counted 107 including the students dispatched abroad. Its purposes were to(i) conduct preliminary negotiations for revising the unequal treaties; and (ii)study Western technology and systems. They failed in the first objective
because the West would not treat Japan equally as long as its institutions
remained highly “backward.” But the mission succeeded in gaining insights intheir second objective. The mission was warmly welcomed wherever they went.

3. Industrialization
Among the members of the Iwakura Mission, Toshimichi Okubo wasparticularly impressed with Western technology. Returning to Japan, Okubo
vigorously promoted industrialization as the Minister of Finance (later, as the
Minister of the Interior). His policies included hiring foreign advisors, the hosting of domestic industrial fairs, and the construction of roads, railroads andagricultural research centers. Many state-owned model factories were established in military production, silk spinning, shipbuilding and mining (mostmines were rehabilitated mines from the Edo period). New systems, such as
metric weights and measures, the Western calendar, a new monetary system,banking, and joint stock companies, were introduced. Okubo was assassinatedin 1878 but his supporters, especially Kiyotaka Kuroda and Shigenobu Okuma,
continued his policies.
Most state-owned enterprises (SOEs) were commercially unsuccessful, but they had strong demonstration effects on emerging Japanese entrepreneurs. These factories also trained a large number of Japanese engineers wholater worked in or established other factories. Subsequently, these SOEs were44

Meiji (1) : Key Goals of the New Government

The Iwakura Mission in San Francisco. Tomomi Iwakura (mission chief, in Japanese
dress) sits in center. Others are in Western clothes. Okubo is sitting on the right.

privatized except those producing military goods. They were sold “cheaply” toinfluential businessmen such as Tomoatsu Godai (see below), and this caused apolitical scandal in 1881. However, many of the previously loss-making SOEs
were restored to profitability through restructuring and new investment by the
new owners. It may be unfair to criticize these businessmen for stealing state
assets.
The government sometimes confused businesses with inconsistentpolicies. But more often, it strongly supported the emerging private sector toestablish domestic industries and drive out foreign rivals. This policy was calledyunyu boatsu (import substitution). With official assistance, big business groups
started to form. Politically well-connected businessmen were called seisho andtheir business groups were called zaibatsu. Some of them, for example Sumitomo and Mitsui, date back to the Edo period, but many others such as Mitsubishi, Furukawa, Yasuda, and Asano emerged during the Meiji period. Some
big names included the following:
Yataro Iwasaki

He was a businessman from Tosa who started a maritime

transportation company. Okubo’s government gave him support andmonopoly so that he could drive out foreign shippers. Iwasaki made a huge
profit with an exclusive contract with the government to provide military45

Chapter 3

Tomoatsu Godai was aseisho in Western Japan

Yataro Iwasaki, the founderof Mitsubishi Grouptransport to Taiwan in 1874. Iwasaki was the founder of the Mitsubishi
Zaibatsu whose business empire expanded to include coal mining, shipbuilding and, later, virtually everything.
Eiichi Shibusawa

Born in Saitama, first he was a bakufu retainer serving

the last shogun, then an energetic official of the finance ministry of the new
government, and finally a super coordinator of Japanese industries. Shibusawa helped to establish hundreds of joint stock companies such as Imperial
Hotel, Nippon Usen, Nippon Steel, Bank of Tokyo, Osaka Spinning andSapporo Beer, and economic and cultural institutions such as the Tokyo
Chamber of Commerce, Imperial Theater, Japan Women’s University andCentral Charity Association. However, unlike Iwasaki, he did not form his
own zaibatsu.
Tomoatsu Godai

Godai was a business coordinator from Satsuma. Like

Shibusawa, he also contributed to the creation of many companies and business organizations in Osaka.
Mitsui Zaibatsu

The Mitsui was a big merchant family in the Edo period.

Its original business was trade in kimono (Japanese dress) and moneychanging. In Meiji, the Mitsui family gained the status of a treasury depositary of the central government, which was very profitable, and succeeded ininternal organizational reform. Banking, coal mining and trading (“Mitsui46

Meiji (1) : Key Goals of the New Government

Figure 3-1 Survival of Millionaires in the Late Edo and Meiji Period(Persons)
250
Millionaires of Edo period
200

New millionaires in company
boom period

New millionaires of Late Edo
New millionaires inearly Meiji

150
100
50
0
1849

1864

1875

1888

1902

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

Bussan”) became the main business areas.
Sumitomo Zaibatsu

The Sumitomo group operated Besshi Copper Minein Shikoku (Western Japan) during the Edo period. The old copper mine
was modernized in Meiji. The business expanded to include coal mines,banking, electrical cables, fertilizer, etc.
Thus, the Meiji period saw the births of many business groups andenterprises which survived and prospered into the current period. At the sametime, and somewhat contradictorily, the ups and downs of enterprises were
extremely volatile from the late Edo to Meiji period. Economic shocks such as
the beginning of international trade, demand shifts, foreign institutions andtechnology, and the great transformation of relative prices led to the replacement of old enterprises with new. Even influential merchants and large producers in the past failed to survive these shocks unless they could undertake boldreforms or build linkage with the emerging merchant class.
Figure 3-1 depicts the attrition of millionaires calculated from thenational data in Miyamoto (1999). It is clear that the new rich of the late Edo toearly Meiji period declined very quickly. The speed of disappearance seems
even faster for the millionaires which emerged in the later periods. Among the
231 millionaires in the Edo period, only 20 survived into the late Meiji period.

47

Chapter 3This proves, at least in terms of the number of rich families, that the main driving force of Meiji industrialization was not the rich merchants from the Edo
period.

4. The Constitution and Parliamentary
Government
Politically, the establishment of a Western style parliament and constitution was a nationally-shared goal. This was considered absolutely necessary
in order for Japan to be treated equally by the West. But different opinions over
the timing and contents of the proposed constitution caused a lot of political turmoil.
With respect to timing, from 1873 onward, many political groups outside the government demanded a constitution as soon as possible. Political
oppositions, intellectuals, and rich farmers joined this Freedom and People’s
Rights Movement, which spread to the entire nation. The government cracked
down on this movement and the advocates of an early constitution also at times
turned violent. Meanwhile, the majority of the top government officials wanted
to go slow. They thought that the Japanese people were only “semi-developed”
and that careful preparations were necessary.
As to contents of the constitution, an acute debate arose on the choice
between a more advanced British-style democracy and parliamentary system
and a less democratic German-style constitutional monarchy. Many intellectuals and progressive politicians favored the British system, but conservatists in
the government preferred the German model. The latter feared that if too much
freedom was allowed when people’s political views remain primitive, violence
and instability would result. They pointed to the violence that occurred in theaftermath of the French Revolution as a thing to be avoided at all cost.
In this regard, the difference of opinion between Toshimichi Okubo
and Yukichi Fukuzawa is worth attention. After coming home from the official
mission to America and Europe, Finance Minister Okubo submitted the Proposal on Constitutional Politics to the government in 1873 whose key arguments
can be summarized as follows:
Democracy and monarchy each has merits and demerits. Ideally, there is no48

Meiji (1) : Key Goals of the New Government

doubt that democracy is far superior. But the actual working of democracy
often falls into party politics, and even the tyranny of majority over minority
in the worst case. On the other hand, monarchy functions well if the people
are unenlightened and the monarch is excellent, but the citizens will suffer
enormously if corrupt officials pursue their personal interests under a cruelruler. In comparison with Britain, Japan still remains semi-developed andcannot rid itself of feudal customs. Monarchy is a thing of the past, but we are
not yet ready for democracy. Moreover, the central government must havestrong authority for the time being to carry out bold reforms. Thus, the mostpractical system Japan can now adopt is a constitutional government based on
gradualism that matches the speed of social change. This means constitutionalmonarchy.

By contrast, prominent educator Fukuzawa argued basically as follows in his Outline of the Theory of Civilization (1875): Countries can be classified into civilized, semi-developed and barbaric, and Japan belongs to the second group. Democracy and monarchy each has merits and demerits. The highest priority for Japan at present is to avoid being colonized by Western powers
and remain independent [up to here, his views are the same as Okubo’s andhardly unique]. To achieve this great objective, Fukuzawa urges Japan to throw
away past traditions and customs and vigorously introduce Western civilization.
There are two aspects, physical and spiritual, to civilization. Physical is easy tocopy while spiritual is difficult to internalize. In adopting these, Fukuzawa proposes to “pursue the difficult first and the easy later; by first reforming people’smind, then change politics and laws, and finally introduce tangible objects.”
In other words, Okubo’s strategy is to design new policies and institutions by taking people’s backward spirituality as given, while Fukuzawa wants
to transform the spiritual structure of the nation as a matter of priority. The contrast between the pragmatism of Okubo, the high official, and the idealism of
Fukuzawa, the enlightenment thinker, is remarkable. Their debate is far fromoutdated today since it contains a fundamental question about the sequencingof economic development versus political modernization (democratization) inlatecomer countries.
Under mounting popular pressure, Emperor Meiji declared in 1881that a parliamentary government would be established within 10 years. To study
and prepare the contents of the proposed constitution, Minister Hirobumi Ito49

Chapter 3

went to Europe for more than a year to consult German and British legal
experts. After returning to Japan, his team drafted a constitution based on theGerman model while partially incorporating foreign advisors’ opinions such as
K.F.H. Roesler’s. The final draft was submitted to the Privy Council, an organ
newly created to study this draft, and debated in detail in closed sessions. The
Meiji Constitution was promulgated in 1889 and, after an election, the firstimperial parliament was convened in 1890. Japan became the first non-Westerncountry with a functioning constitution (among the non-Western countries,
Turkey also had a constitution but it was shortly suspended).

5. Foreign policy
The most important diplomatic goal in Meiji was to revise theunequal treaties with the West which lacked tariff rights and the right to judge
foreign criminals. This was needed to regain national pride and join the ranks of
the “first-class countries.” But to succeed, westernization of Japanese society
was considered necessary. To show that Japan was westernized, the government
even built Rokumeikan, a state-run ballroom, and invited foreign diplomats andbusiness people for evening balls3. This “excessive westernization” was criticized by nationalists and political opposition groups. Nevertheless, over time as
Japanese modernization and industrialization proceeded in substance, treaty
renegotiation became possible and the revision was accomplished. Tariff rights
were partially regained in 1899 and completely restored in 1911. The court
rights were regained in steps during 1894-99.
Another feature of Meiji diplomacy is expansionism. To protect political independence and national interests against Western intervention, it wasconsidered necessary to construct a zone of influence around Japan. The government was eager to “open up” Korea, which was maintaining its closed-door
policy, as Japan did previously, and conclude an unequal treaty in Japan’sfavor, just like the West did to Japan before. Naturally, Korea resisted. In 1873,
350This western style ballroom was located in Hibiya, near where the Imperial Hotel now stands.
Since foreign diplomats and business people lived mainly in Yokohama, the government evenprepared a special late-night train from Shimbashi to Yokohama to bring them home after theball.

Meiji (1) : Key Goals of the New Government

military invasion of Korea was proposed but rejected within the Japanese government. In the following year, the government sent troops to Taiwan over anincident in which Okinawa fishermen were killed by the Taiwanese. These
external expeditions were often planned to deflect the anger of former samurais
who were deprived of rice salary and the privilege of carrying a sword.
In the 1880s Japan became more aggressive in its attempt to place
Korea under its influence. Japan’s rival was China (Qing Dynasty) which considered Korea as its protectorate. Japan started to intervene in Korea’s internal
politics and stage military provocation. This eventually led to the Japan-China
War of 1894-95.

51

Chapter 3

Soseki Natsume’s lecture
Soseki Natsume (1867-1916) was and is the most popular novelist in Japan. His
life largely coincided with the Meiji period. He was an expert in both English andancient Chinese literature. His early novels were comical (“I am a Cat,” “Bocchan”)
and sometimes romantic (“Sanshiro”) or pedantic (“Kusamakura”). But his later novels exposed a dark side of modernized Japan, especially individuals who struggle
under human limitations in modernized life without success (“Sorekara,” “Mon”).
Desperate love triangles were his favorite theme.
In his famous lecture, “Development of Modern Japan” (1911), Soseki warned his
fellow Japanese against newly emerging complacency. In late Meiji when this lecture
was delivered, Japan already had a parliamentary government and had recently won a
victory over Russia, and industrialization was proceeding rapidly. But Soseki said thatJapan’s modernization was superficial.
Since Japan opened its ports to foreigners, Western impact transformed Japan
completely. But all these influences originated in the West, and Japan only copied
them passively without really digesting and internalizing them. The arrival of Western
waves was too fast for the Japanese to make them their own. Forced absorption of foreign ideas and systems would make the Japanese nervous and unhappy, but there wasno good solution to this problem. This was the essence of Soseki’s message whose
excerpts are quoted below. Soseki touched on the fundamental dilemma of Japanese
identity which remains unsolved even today. In the 21st century, Japan is sometimes
ill at ease in the company of the advanced Western nations, while unable to build true
trust and friendship with its Asian neighbors.

“Development in the West is endogenous, while Japan’s development is exogenous. Here, endogenous means emerging naturally from within, like a bud blooms
into a flower in an outward motion, and exogenous means being forced to take acertain form because of external influences...”“Western societies are evolving naturally but Japan after the Meiji Restorationand foreign contact is quite different. Of course, every country is influenced by its
neighbors, and Japan was no exception. In certain periods, Korea and China were52

Meiji (1) : Key Goals of the New Government

models for us. But overall, throughout history, Japan was developing more or lessendogenously. Then suddenly, after two centuries of isolation, we opened up andencountered Western civilization. It was a big shock we never experienced before.
Since then, the Japanese society began to evolve in a different direction. The shock
was so severe that we were forced to change directions...”“Western tides dominate our development. Since we are not Westerners, every
time a new wave arrives from the West we feel uneasy like a person living insomeone else’s house. Even before we can grasp the nature of the previous wave, a
new wave arrives. It is as if too many dishes are brought in and soon removed
before we can start to eat. In such circumstances, people will inevitably become
empty, frustrated, and worried.”(Source: Yukio Miyoshi, ed, Soseki’s Writings on Civilization, Iwanami Bunko,
1986)

53

Meiji (2):Importing and Absorbing Technology

The first steam locomotive made in Japan

Chapter 4

1. The preview of Meiji industrialization
At the outset let us list the three salient features of Meiji industrialization:
Very strong private sector initiative supported by appropriate official assistance
Successful import substitution in the cotton industry
Parallel development of the modern sector and the indigenous sector
These will be discussed more fully in this and the following chapters.
As noted in the previous chapter, one of the principal policy objectives of the Meiji government was rapid industrialization. While the official
policies of introducing western institutions, building infrastructure, hiring foreign advisors, education and training, establishing SOEs and research centers,organizing trade fairs, assisting zaibatsu and so on were all important, it should
be stressed that private sector dynamism was even more essential. At the top of
the private sector, such powerful business men as Shibusawa, Iwasaki andGodai provided leadership, and large zaibatsu began to form. At the grass-roots
level, new and old merchants, skilled engineers, proud craftsmen and rich farmers all over the country became the driving force of broad-based technicalabsorption. Without this private sector capability, even good policies would
have failed to produce results.
It should be remembered that many contributing factors to industrialization were inherited from the previous Edo period. They included nationallyunified markets, transportation and distribution networks, a strong merchant tradition, the development of financial services, a well-educated population, and ahistory of industrial promotion by local governments.
The cotton industry was one of the leading industries of the world in
the 19th century. At first, British products dominated the global market. In
Asia, India was the main producer. But Japan absorbed textile technology very
rapidly and effectively. After the opening of ports, Japan first imported British
cotton clothes. Later, it imported cotton yarns and wove clothes for the domestic market. By around 1900, Japan began to export cotton yarns while importing
raw cotton. In the early 20th century, Japan became a major exporter of cotton
clothes. Since today’s dominant view in development economics discredits

56

Meiji (2): Importing and Absorbing Technology

import substitution as a failed policy, Japan’s brilliant success as a latecomer
more than a century ago is all the more striking.
However, the introduction of modern Western technology did notnecessarily drive out traditional technology from the Edo period. In the cotton
industry as well as in other industries, traditional production methods existed
side-by-side with modern machines and factories. Sometimes the two sectors
produced differentiated products for different markets. At other times they werevertically related with one sector producing inputs for the other. New technology influenced traditional methods, but local requirements also modified imported technology.
By the end of Meiji (1912), which was shortly before the outbreak of
WW1, Japan was successfully industrialized in light industries, especially textiles. But heavy and machinery industries were still embryonic. The vigorous
development of these industries started later, during and after WW1.

2. The macroeconomy and the industrial revolution
in light industries
The Japanese economy underwent several stages after the opening ofports in the late Edo period. Let us briefly review this process.
(1) Initial impact of foreign trade (1850s-): foreign technology and products flowed in and shifts in relative prices and industrial structure
occurred. Inflation was high.
(2) Monetary confusion and inflation (late 1870s): inflation accelerated
due to the printing of paper money to finance a civil war initiated by
Takamori Saigo’s uprising in Kyushu in 1877. As the prices of rice andother agricultural products rose, farmers and landlords got rich while
former samurais were generally impoverished.
(3) Matsukata Deflation (early 1880s): Finance Minister Masayoshi
Matsukata adopted a deflationary policy to end inflation and introduce
a modern monetary system. This included the establishment of the
Bank of Japan as a central bank in 1882. Rural income declined and thenumber of landless farmers increased1.
(4) First “company boom” (late 1880s): After inflation subsided and mod-57

Chapter 4

ern banking was installed, there was a rush to establish joint stock companies in the private sector. Exchange rate depreciation, easy money
and low interest rates also encouraged their emergence.
(5) Continued waves of company booms (1890s-1910s): A great number of
additional joint stock companies were established in the late 1890s, late
1900s and during WW1 interrupted by occasional recessions. At first,
these were concentrated in the textiles and railroad industries. Later,company creation spread to all sectors.
(6) Two wars (Japan-China 1894-95; Japan-Russia 1904-05): After eachwar, fiscal activism was adopted. Public investment was undertaken tobuild, for example, railroads and the national telephone network.
Military spending was kept up even during peacetime. Economic management of Taiwan, a colony acquired in 1895, also began throughinstitution-building and public investment. Local governments issued
foreign-currency denominated bonds in order to invest in infrastructure
for water supply, roads, education, and so on. As a result, the size ofgeneral government (the sum of central and local governments)
expanded and the balance of payments deficit widened. Gold reserves(i.e. international reserves) were gradually lost, and the estimated debtto-GDP ratio rose to about 40 percent. Roughly half of the public debt
was denominated in foreign currency.
From the late Meiji period onward, the government of Seiyukai promoted fiscal activism. Seiyukai (full name: Rikken Seiyukai) was a politicalparty established in 1900 with Hirobumi Ito, drafter of the Meiji Constitution
and the first Prime Minister, as the party leader. Seiyukai’s main support basewas rich farmers and landowners who desired active public investment in rural
areas. But fiscal overspending led to mounting balance-of-payments pressure.
Macroeconomic belt-tightening was felt necessary.
In reality, this macroeconomic crisis was suddenly overcome by theoutbreak of WW1 rather than orthodox fiscal austerity. As the European powers
1

58

Using an old-fashioned language, we may say that Matsukata Deflation created the basis ofJapan’s coming capitalism and industrial revolution by bringing out the proletariat classdetached from production capital and establishing the modern banking system which is the bastion of financial capital.

Meiji (2): Importing and Absorbing Technology

Figure 4-1 Development of the Cotton Industry(In million pounds)
700
600
500
400
Production

300
200
Export100
0Import

1880

85

90

95

1900

05

10

14

Source: The National Statistics of Meiji and Taisho, Toyo Keizai Shimposha, 1975.

were engaged in military confrontation, they stopped exporting to the rest of theworld. Suppressed world demand was directed to Japanese products, allowing
the Japanese economy to enjoy an enormous export-led boom. But this occurredin the following Taisho period which will be discussed more fully in chapter 7.
No reliable GDP statistics exist for this period, but we have someestimates. According to them, output was very bumpy and the average growthrate was 2 to 3 percent. By today’s standards, this is not a particularly highgrowth rate for a developing country although there may be a serious problemof data quality. As for the employment structure, the share of agricultural
employment was dominant, at about 70 percent in the early Meiji period, but it
gradually declined.

3. Developments in international trade
Regarding trade structure, silk—silk yarn rather than finished silk
products—dominated Japan’s exports followed by tea, cereals, seafood, minerals and coal. Clearly, Meiji Japan was a primary commodity exporter. Raw silkremained the top Japanese export not just during the Meiji period but in theentire pre-WW2 period. The largest importer of Japanese silk and tea was the59Chapter 4

Figure 4-2 Trade Structure<Early Meiji><Late Meiji>

Europe, US

Europe, US

Silk, tea &other primarycommodities

Finished textile
products,
machinerySilk, tea &other primarycommodities

Machinery,
US cotton

Japan
Japan
Indian cotton

Cotton yarn &cloth, lightindustry goods

China, Korea,
India

United States. Stockings made from Japanese silk were very popular among
American ladies.
It should be noted that the US protected its silk weaving industry withtariff rates of 45 to 50 percent, but the industry needed silk yarn as an input.
The American attempt to increase domestic silk yarn production failed, so the
US was compelled to continue to import Japanese yarn. Generally speaking, asa young developing country the US maintained high import protection throughout the 19th century (see the box at the end of this chapter).
On the import side, dramatic shifts occurred as the cotton industry
succeeded in import substitution as discussed above. Initially, finished products(clothes) were imported. Later, imports shifted to intermediate inputs (cottonyarn) and then to raw materials (raw cotton). In Figure 4-1, we can see a clear
product cycle of this industry moving from import to domestic production andfinally to export. Domestic production shifted from spinning to weaving as well
as from low to high quality products. At first, Britain was the main exporter offinished textile products and machinery to Japan. But over time, Japan effectively increased competitiveness against British textile products and drove them60187680

1886901896001906100187375

187680188690189600190610

Other Asia
India

40
China

US

60

20

80

Europe

80

0

20

40

60

(％)
100

Exports by Country

0

20

Other

(％)
100

0

Materials
Food

20
186870187375188690189600187680188690189600

Imports by Country

187680190610190610China

Other Asia
India

US

Europe

Other

Food

Materials

Intermediate

60
40

Manufactures

80

Other

Manufactures

Imports by Product

(％)
100

Other

Intermediate

186870

Exports by Product

40

60

80

(％)
100

Figure 4-3 Structure of Export and Import

Meiji (2): Importing and Absorbing Technology

61

Chapter 4

out of the Asian market.
In early Meiji, Japan's trade pattern was a “vertical” one typical of adeveloping country. It exported silk and other primary commodities to Europe
and America and imported finished textile goods and machinery from them. Bylate Meiji, Japan developed a more complex trade pattern. Against Europe andthe US, trade remained basically vertical. But with the rest of Asia, which
included China, Korea and India, Japan began to export light industry goods
such as cotton yarn, cotton clothes, matches, umbrellas, clocks, lamps, glass
products, knitwear, and so on, and import materials needed to produce them,especially Indian raw cotton which was short-fiber cotton. Japan also imported
US cotton which was long-fiber cotton. Due to the emergence of Japan’s cotton
industry, India was driven out of the position of an exporter of cotton products
into an exporter of raw cotton.
As the export of cotton yarn and the import of raw cotton both rose,
the government abolished the cotton yarn export tax in 1894 and the cotton
import tariff in 1896. This benefited modern cotton factories which used Indian
cotton as inputs, but hurt traditional producers who spun domestically produced
cotton. In order to establish a monopolistic position in importing Indian cotton,
Japanese textile companies formed a cartel and used only Nippon Yusen (a Mitsubishi-group shipping company) and Menka (cotton) Shosha as the sole carrier
and distributor of Indian cotton to Japan. This secured a stable supply of Indian
cotton at low prices for Japanese textile companies.

4. How Western technology was transferredWestern technology was imported and internalized in three distinct ways.
(1) Hiring of foreign advisors: In early Meiji, new factories and infrastructure were constructed and operated with a significant assistance fromforeign engineers and managers. In the late 19th century, there weremany unemployed British railroad engineers since the British railroad
system had been more or less completed. They often traveled abroad insearch of jobs. The salaries of foreign advisors were very high andsometimes even higher than that of the Prime Minister. This became a62

Meiji (2): Importing and Absorbing Technology

Figure 4-4 Foreigners Employed by the Meiji Government(Persons)
600
500

Factory Workers
Administrators
Engineers
Academics

400
300
200
100
0

1875

1879

1883

1887

1891

1895

Source: Kajima Institute Publishing, Hired Foreign Workers, 1968.
Note: Numbers exclude private-sector employment.

Table 4-1 A Salary Comparison: Foreign Advisors and Prime Minister
PersonPosition

MonthlysalaryMr. Cargill(British)

Advisor to the Railroad Department, Ministry ofIndustry

2,000 yen

Mr. Kindle(British)

Advisor to the National Mint, Ministry of Finance

1,045 yen

Mr. Morrell(British)

Advisor to the Railroad Department, Ministry ofIndustry

850 yenMr. Kiplon(American)

Advisor on the development of Hokkaido

833 yenTomomiIwakuraUdaijin (equivalent to Prime Minister); chief of
Iwakura Mission to US and Europe

600 yenSource: S. Sakamoto and T. Fukuda, eds, Shinsen Nihonshi Zuhyo (New
Selection of Diagrams in Japanese History), Daiichi Gakushusha, 1998.

great financial burden on the government. For example, the salaries offoreign engineers accounted for 34 percent of the current budget of the
Ministry of Industry in 1874. Figure 4-4 indicates the number of foreigners employed by the central and local governments. Their number—especially the number of engineers—declined significantly
toward the end of Meiji. From the mid Meiji onward, foreign teachers,

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Chapter 4

including language teachers, hired by private organizations (not shownhere) became the dominant form of foreign employment.
Different technological transfer schemes were adopted depending on
the project type, including turn-key contracts, management contracts,
and technical advice. However, unlike today’s developing countries,
there was virtually no foreign direct investment (FDI) in the Meiji period regardless of whether they were 100 percent foreign-invested orjointly managed by foreign and local partners. Since contracts that the
government signed were project-specific and had fixed terms, foreigners returned home when the contract expired. The government tookutmost care to avoid important national projects, such as mines, railroads and shipyards, falling into foreign hands. Japan was even afraidof borrowing from foreigners, especially in early Meiji.
(2) Training Japanese engineers: Since foreign advisors were too expensive, the government vigorously promoted “import substitution” by
Japanese engineers. Excellent students were nominated by the government to go abroad to absorb latest ideas and technology at the first-rate
universities in Europe and America with financial support from theJapanese government (however, the amount of scholarship was notvery large). Domestically, Kobu Daigakko (Institute of Technology)
was established as the highest academic institute for absorbing technology in 1877, where foreign professors taught in English and German.
This institute was originally located where the Ministry of Finance now
stands in Kasumigaseki, Tokyo, but it was later merged into the Faculty of Engineering of Tokyo University. In addition, technical highschools were created all over the country to produce a large number of
mid-level engineers. This no doubt greatly increased the technicalabsorptive capacity of the country. However, according to Konosuke
Odaka (2000—see below), traditional craftsmen were more influential
on the factory floor than newly trained engineers during much of Meiji.
(3) Copying, licensing, technical cooperation: Graduates from Kobu
Daigakko played an instrumental role in selecting and importing newtechnology. In economic ministries and private firms, they took initiative in collecting information, purchasing machines, and adjusting64

Meiji (2): Importing and Absorbing Technology

them to Japanese requirements. Many US and European machines were
copy-produced by reverse engineering (however, this is illegal today
under WTO and TRIPS rules). Trading companies, such as Mitsui Corporation and Takada Shokai, provided customers with product information and technical assistance. Later, in the early 20th century, a numberof automobile and electrical machinery companies signed licensing
agreements and technical cooperation contracts with Western firms.
However, in such cooperation the Japanese partners quickly absorbed
new technology and often dissolved the relationship with the Western
partner shortly after.
Japan is said to be a country of monozukuri (manufacturing things). In
many European countries including Britain, engineers who worked in oily factories did not have high status compared with managers, lawyers and accountants who worked in clean offices. But in Japan, university graduates loved tobuild, adjust and repair machines and manage factories. They had no problem
with working side by side with machine operators. This was true in Meiji aswell as until recent past. Best students chose engineering, rather than law or
economics, as their field of specialization. However, this monozukuri tradition
may be eroding in today’s Japan.

5. Hybrid technology
Professor Konosuke Odaka (1990) of Hosei University argues that
Meiji industrialization was achieved by combining existing traditional technology and imported Western technology in an appropriate manner. He calls this“hybrid technology.” Although Western technology was far superior to Edotechnology, the former did not completely replace the latter. This can be considered as one example of the “translative adaptation” introduced in chapter 1.
According to Professor Odaka, different types of industrial evolution
can be identified. In the Figure 4-5 below, intermediate points such as I* andM* can be called hybrid technology2 (M stands for “modern,” I stands for
2

Takafusa Nakamura (1997), Professor Emeritus at Tokyo University, proposes the concept of
new indigenous industry, which is an indigenous industry modified by Western technology.
This corresponds to I I* in Professor Odaka’s terminology.

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Chapter 4

Figure 4-5

Technology and Factory Size

Technology

Factory size
Small

Large

IndigenousI

I*

ModernM*

M

Source: Odaka, 1990, p.336.
Note: * indicates hybrid status.

“indigenous” and the asterisk means modified).
M

M

For a completely new technology, the Western model
must be imported as a whole; there was no corresponding
traditional technology (e.g. railroads, telephone system,
electrification)

I

I*

M

Indigenous technology was first adjusted and expanded.
Later, there was a switch to a new Western method (e.g.
shipbuilding, sake making)

I

M*

M

Indigenous technology was first replaced by Western technology but at a small scale that fitted Japanese reality.
Later, the size was expanded (e.g. printing, machinery)In addition, indigenous and modern technology often co-existed
because they played complementary roles in vertical industrial linkage, namely,
one industry producing the input to the other, or because their markets were differentiated, for instance, modern plants producing for export while traditional
ones serving the domestic market. As Figures 4-6 and 4-7 illustrate, despite thesteady growth of modern industries from Meiji to early Showa measured byoutput, it was not the largest part of the Japanese economy as far as employment was concerned. The largest absorber of labor force still was the primaryindustry whose share, however, was gradually declining. The share of employment of indigenous manufacturing and service remained relatively stable atslightly over 30 percent.

66

Meiji (2): Importing and Absorbing Technology

Figure 4-6 Manufacturing Output in Pre-war Japan(%)
100

Indigenous
industries

80
60
40
Modernindustries

20

1935-40

1930-35

1925-30

1920-25

1915-20

1910-151905-10

1900-05

1895-00

1890-95

1885-900

Source: Matsumoto and Okuda, 1997.

Figure 4-7 Employment Structure of Prewar Japan(%)
100
Indigenous(trade & service)

80

Indigenous(manufacturing)60
Modern industries
40
Agriculture, forestry,
fishery20

1930-35

1925-30

1920-25

1915-20

1910-151905-10

1900-05

1895-00

1890-95

1885-900

Source: Matsumoto and Okuda, 1997.

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Chapter 4

Meiroku Zasshi
Mei is the first syllable of Meiji. Roku means six. Zasshi means journal. Meiroku
Zasshi (Journal of the Sixth Year of Meiji) was a series of publications by
Meirokusha (Society of the Sixth Year of Meiji) in 1874 and 1875. Meirokusha, inturn, was a free discussion forum founded in 1873 by Arinori Mori, who later became
the first education minister. Meiroku Zasshi was a collection of relatively short essays
covering a wide variety of issues, such as lessons from Western history, proposals forreforming the Japanese language, religious questions, social policy, and economics.
At the outset of each issue, the following message was printed in archaic Japanese:
Recently, we friends gathered to discuss social issues and foreign situations in order todeepen our knowledge and enjoy high spirits. As meeting records have accumulated, we
have decided to publish and share them with our colleagues at large. While it is only asmall booklet, we would be happy if it helps to improve the knowledge of the Japanesepeople.

As an example, here is the summary translation of “The Argument Against Tariff
Protection” by Mamichi Tsuda (1829-1903), a scholar in Western studies. This article
was published in the fifth volume of Meiroku Zasshi on April 15, 1874.
Our trade deficits were 8 and 7 million yen in 1872 and 1873, respectively. In addition,
we pay 2 million yen annually as salary for foreign advisors and teachers. This meansthat gold and sliver flow out of Japan at the rate of roughly 100 million yen every
decade. Our international reserves may be exhausted in one or two decades.
Pessimists say, “If we lose precious metals like this, how can Japan survive? We muststop this outflow. Europe used tariff protection in the past. The US is still practicing it.
We must also adopt this policy.”
I disagree with this idea. European economists state clearly that protection is the worst
policy which harms the nation’s welfare. The US is still resorting to tariff protection
because American industries are less developed than European, with higher cost. Therefore, Americans levy high tariffs on imported goods to promote domestic industries.
But the development level of Japanese industries is far below that of American. Needless to say, comparison with Europeans is out of question. It is like a small baby trying

68Meiji (2): Importing and Absorbing Technology

to compete with a giant. That is why we have to pay 2 million yen for foreign teachers.
Evidently, copying American policy is not suitable for Japan. More specifically, there
are several reasons why tariff protection is undesirable.
First, commercial treaties with the West prohibit raising our tariffs.
Second, there is a huge gap in technology between Japan and Europe. For example, theprice of domestic steel is higher than imported steel even after paying the transportation
cost. Protection is not enough to narrow this gap.
Third, Japanese people now like to consume a wide variety of imported products such as
food, clothes, household goods, and so on, for which domestic supply is nonexistent.
For many goods, no Japanese factories can produce them.
Fourth, under the policy of rapid Westernization, a large amount of imports is hardly
avoidable.
Fifth, Japan is a student learning Western knowledge and technology. To study more
and faster, we need to pay high tuition.
Some say, “If we do nothing, we will lose all international reserves soon.” But don’t
worry. The trade balance may be in surplus or in deficit in the short run, but there will
be no great imbalance on average. The movement is natural and cyclical. When we first
opened our ports, we had trade surpluses for a few years. Then, imports exceededexports for the next three to four years. It is certain that we will have surpluses again in
the near future. The natural balance is always maintained, and this is the condition underwhich technology and civilization should progress.

Meiroku Zasshi was Japan’s first modern scholarly journal which greatly stimulated policy debate among intellectuals. However, the journal was terminated by thegovernment order under the tightened speech control in November 1875. Its publication lasted only one and half years.

69