From Smithian Growth toSchumpeterian Development: An Inquiry
into the Development of the Kiryu Weaving
District in the Early 20th Century Japan
Tomoko Hashino* and Keijiro Otsuka**
25 November, 2011
Abstract
This study finds that the process of evolutionary development of the Kiryu weaving
district in Japan from 1895 to 1930 can be divided into the two phases, i.e., Smithian
growth based on the inter-firm division of labor using hand looms and Schumpeteriandevelopment

based

on

factorysystem

using

power

looms.

Weaving

manufacturers-cum-contractors led Smithian growth by organizing sub-contracts with
out-weavers in rural villages among others, thereby contributing to the steady growth inproduction.

Newly emerged joint stock firms played a role of genuine entrepreneurs

by realizing significant scale economies and transforming the traditional weaving
district into a cluster of large modern factories.

Keywords: industrial district, Smithian growth, Schumpeterian development, weaving
industry, 20th century Japan__________________* Graduate School of Economics, Kobe University. Email: hashino@econ.kobe-u.ac.jp** National Graduate Institute for Policy Studies. Email: otsuka@grips.ac.jp

1. Introduction
Pioneering studies on industrial districts or clusters in business and economic
history by Piore and Sabel (1984) and Sabel and Zeitlin (1997) have contributed to clear
understanding of their important roles in the development of national economy inWestern countries.

The investigation of industrial districts per se was not new; theirstudies were new because they tried to explain major advantages of industrial districts
by using the concept of ‘externalities’ which Alfred Marshal introduced almost one
century ago (Marshall 1920).

In fact, by analyzing industrial districts through the lensof such externalities, the nature of competition and source of competitive advantage
have been more clearly identified (Porter 1998).
By reviewing the burgeoning literature on industrial districts or clusters inmany countries, regions, and industries, Zeitlin (2008) concludes his article byhighlighting three major remaining research questions; (1) the relationship between the
district and the wider world, (2) the changing morphology of the districts andrelationships among different sizes and types of firms within them, and (3) governanceand coordination mechanisms within the districts.

In the case of Japan, recent studies

on industrial districts focus mainly on the last point (Abe 1992, 1999; Fujita 1998;
Hashino and Kurosawa 2011; Tolliday and Yonemitsu 2007).

1

Above all, collective

institutions and organizations within the district played an important role in the
introduction and diffusion of new technologies, as they entailed technology spillovers
among firms and created the problem of inferior quality products, which damaged thereputation of the district (Sawai 1999; Hashino forthcoming).1
In contemporary developing world, cluster-based industrial development is
widely observed.

Sonobe and Otsuka (2006, 2011) primarily analyze the determinantsof the quality improvement of products and the possibility of exports from the clusters
in Asia and sub-Saharan Africa, which correspond to the first problem identified byZeitlin.

Nadvi (1999) and Shumitz (1995) discuss the governance and coordination

mechanism of the cluster, which lead to what they call collective efficiency in thecontext of South Asia and Latin America.
issue of Zeitlin.

Their studies squarely address the third

While the importance of industrial clusters for economic development

has been well analyzed by them, the historical or long-term perspectives are limited intheir studies.
The aim of this study is to explore how and why the different sizes and types offirms within the district appeared, grew and collapsed in the long-term development

1

Hashino (2007b, 2010) explores Zeitlin’s first and second points. The former study analyzes therelationship between small-scale firms within the district and large-scale ones located outside. The
latter study attempts to clarify how newly-developing weaving districts solved the problem ofinferior quality products, which reduced the districts’ reputation at the international markets.
2

process of Kiryu weaving district in the early 20th century.

Kiryu was one of the mostadvanced silk weaving districts in the Tokugawa period (1603-1868).

It was a pioneer

in export of silk products in the 1870s as well as the leading producer of traditional
Japanese kimono and obi for domestic markets.

In this study, we will demonstrate thatthree different types of players attempted to lead the growth of Kiryu.

The first is

relatively large firms established in the late 19th century which introduced the verticallyintegrated production system for mass production of export products.

The second isdomestic market-oriented weaving manufacturers-cum-contractors [WMCs henceforth],
who promoted division and specialization of labor with village-based out-weavers andother specialized small firms.

Putting-out system for weaving, dyeing, and preparatory

and finishing processes prospered in the early 20th century.

The third is joint stock

firms established in the early 1910s which adopted power looms and successfullysought the scale economies, thereby “destroying” the out-weaving system and“constructing” factory system.

Following Parker (1984) and Mokyr (1990) who study

the historical patterns of economic change in the Western world, we would like todemonstrate that Kiryu experienced Smithian growth based on the expanded division oflabor among a large number of firms, followed by Schumpeterian development leading
to the destruction of out-weaver systems and the creation of factory systems.

3

We alsoinquire into the causes of the success and failure of the three types of weaving firms.
The rest of the paper is organized as follows.

The next section describes an

overview of the development of Kiryu with indicators of changes in production, labor
force, structure of firms, and technology.

Section 3 examines the characteristic offirms with the employment of more than 10 workers from 1895 to 1918, whose
production record was collected by various statistical surveys.

Three hypotheses

regarding the dominant firms are presented through the comparison among
export-oriented large firms, WMCs, and newly emerged joint stock firms.

Section 4

presents the methodology of regression analysis and examines the results.

The last

section concludes by summarizing the main findings of the study and drawing
implications for future research.

2. An Overview of the Development of the Kiryu Weaving District
This section examines the production growth in Kiryu since the late 19th
century and investigates the changes in the extent of the inter-firm division of labor andthe adoption of power looms which are considered as the keys to the growth of Kiryu.
Through the observation of structural changes, we will identify the two distinct phasesof growth in Kiryu in the early 20th century.

4

2-1 Production growth in the early 20th century in Kiryu
Figure 1 illustrates the changes in real value of production, employment, andlabor productivity in Kiryu, using index (1895 = 100).

In the early 1900s, the realvalue of production shows upward trend: It was 3.5 million yen in 1904 but increased toroughly 10 million yen in 1907.
yen until 1914.

Since then, it had been stagnant at around 10 millions

In contrast, it experienced rapid growth around the boom period of theFirst World War from 1914 to 1919, which was 17 times increase during the mere
5-year period.

Even though it is well known that the 1920s was the era of repeatedrecessions or depressions in Japanese economy, surprisingly real value of production in
Kiryu was maintained subsequently at the level between around 60 to 70 millions yen
until 1929.
In Figure 1, solid and broken curves show the indices of the total number ofworkers and female workers, respectively.

Since the female workers account for 70 to

80 percent of labor force, the two curves look alike.

From the late 1890s to 1900s, thetotal number of workers decreased and dropped to around 7,000 in 1904.

It continues

to stagnate through the late 1900s but begins to increase toward the end of the 1910s.
It was around 9,000 in 1910 and rose to 13,500 in 1920.
than half in 1921 due to depression.

It suddenly dropped to lessIn the late 1920s, it finally began the recovery

5

process.

It can be confirmed that the total labor force increased faster than female

labor force in the 1910s, implying that male employment grew faster than female
employment.

It is also clear that the increase in production was not caused primarily

by the increased input of workers.
2-2 Smithian growth and Schumpeterian development
If we turn to the changes in labor productivity, it is apparent that it was
improvement of labor productivity that contributed to boosting the real value of
production.

More importantly, it can be recognized that there are three distinct phasesof increase in labor productivity; (1) gradual growth in the 1900s, (2) stagnation fromthe end of the 1900s to the mid-1910s, and (3) drastically rapid growth from themid-1910s to the mid-1920s.

Average annual growth rate in labor productivity was

0.92% from 1904 to 1915 and 9.95% from 1916 to 1927.
Figure 2 examines the changes in the number of out-weavers and otherproduction organizations including factories, cottages, and WMCs in Kiryu.2

The

number of out-weavers, who are primarily based in surrounding villages around Kiryu

2

The data in 1904 and 1905 are not available. Statistical Survey of Gunma Prefecture where Kiryu
was located defines four types of production organizations with two criteria, i.e. the numbers ofworkers and ownership of raw materials. Factory is defined as a workshop with more than ten
workers and cottage as one with less than ten workers. On the other hand, the defining
characteristics of the weaving manufacturer-cum-contractor is to put out raw materials toout-weavers. Out-weavers are those who are engaged in weaving for contractors. For details, see
Hashino (2007a, p. 34, footnote 2).
6

town, increased rapidly from the mid-1900s to the 1910s.
in 1906 but rose to 5,800 in 1914.

It was approximately 3,700

Note that the average number of workers perout-weaver workshop had been stable at about 1.5.

In contrast, the number of otherproduction organizations continued to stagnate at around 500 until it shows increasing
trend from the mid-1910s.

These observations clearly indicate the increase in thenumber of out-weavers per other production organization.

Indeed, it almost doubled

from 6.8 in 1906 to 11.6 in 1914.

This indicates the expansion of division of labor,

which was organized by WMCs.

This division of labor happened not only in weaving

process but also in many other processes carried out by specialized subcontractors(Hashino and Kurosawa 2011).3
Figure 3 illustrates the coordination activities of WMCs (left) and specialized
processes carried out by subcontractors (right) in Kiryu around 1910.
that many processes were carried out by specialized subcontractors.

It is apparent

It must be noted,

however, that WMCs were originally engaged in the whole production processes but
gradually out-sourced many processes, such as throwing, dying, designing, weaving,
and finishing.

For example, dyeing process was one of the key preparatory processes

3

Specialized subcontractors are generally small and located in Kiryu town. Whether their activities
were recorded in statistics is not known in earlier period. Responding to a significant increase in
the number of dyers, the prefectural government included the dyeing industry in its annual statisticalsurvey after 1915 (Hashino and Kurosawa 2011).
7

carried by WMCs in the earlier period.

Since the introduction of synthetic dyes in the

1880s, whose proper use required scientific knowledge, WMCs gave up dyeing andbegan to put out the process to specialized subcontractors, who have acquired suchknowledge.

Henceforth, division and specialization of labor were gradually andwidely diffused.

Such an evolutionary process can be termed as Smithian growth.4

It is extremely important to note that despite Smithian growth from the late
1900s to the mid-1910s indicated by the increasing number of out-weavers (Figure 2),neither total production nor employment increased significantly in this period (Figure 1).
As will be discussed in the next section, we attribute this puzzling observation to thefailure of large export-oriented firms and offsetting rise of WMCs in the early 20th
century.

The former aggressively mechanized since the late 19th century to create

added value for exported products through improved designs, textures, and luster, butfailed to expand the production (Hashino and Kurosawa 2011).
Undoubtedly the most important single innovation in Kiryu was theintroduction of power looms, whose dissemination can be traced by the changing
proportion of power looms in this period.

As is shown in Figure 4, the adoption of

4Interesting statistical data collected by Kiryu Trade Association for Weaving indicates how widely
outsourcing diffused in Kiryu. According to their report in 1900, there were 853 weaving
producers, 37 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 producers, and 6,725 out-weavers within the district (Hashino and Kurosawa
2011).
8

power looms in the Kiryu district as a whole (bold curve) started to increase from themid-1910s and grew rapidly toward the 1920s.

The average adoption rate was only

4.9% in 1915 but drastically increased to 84.1% in 1930.
Solid and broken curves in the same figure show the proportion of powerlooms in Kiryu city (former Kiryu town) and Yamada county (surrounding ruralvillages) within the Kiryu weaving district, respectively.

It is interesting to observethat the proportion of power looms in Kiryu city was much higher than that of Yamadacounty already in 1921.

Therefore, we can assume that the introduction of powerlooms in urban area proceeded at much faster rate than that in rural villages, probably
even in the 1910s.

New technology needed new production organizations, because theuse of power looms confers scale advantages.

Previous studies report that the

introduction of power loom was accompanied by the adoption of factory system inJapan (Hashino 2007a; Hunter 2003; Minami and Makino 1983; Saito and Abe 1988).
It is therefore likely that factories with power looms located in the center of the districtplayed an important role in promoting Schumpeterian development since the late 1910s
in Kiryu.

No less important might be the establishment of joint stock firms which

contributed to financing large investments in factory buildings and machineries.5

5Although we do not analyze in this study, firms which adopted power looms made a number of
improvements in the product designs in order to produce traditional products by power looms.
9

To sum up, it seems legitimate to call the first trend of output growth Smithian
growth and the second one Schumpeterian development.

Smithian growth is chiefly

caused by the increase in the division of labor which must have been created by
reduction in the transaction cost associated with the improved assignment of tasks andenforcement of property right and production responsibilities (Mokyr 1990).

On theother hand, Schumpeterian development is derived from the major increase inproduction efficiency by innovations.

Such innovations encompass new production

technology and organizational changes that enable innovative firms either production ofa given output with much smaller amount of resources or the production of much betteror large quantity of new products with the same resources, or both (Mokyr 1990).

3. Changing Characteristics of Sample Firms and Hypotheses
3-1 Characteristics of sample firms
Based on the above discussions, we attempt to investigate the behaviors of
weaving firms in Kiryu with the employment of more than 10 workers covered by
Statistical Survey of Gunma prefectural government and Factory Survey.6

6

These firms

The data source in 1915 and 1918 is Factory Survey, which was conducted by Gunma prefectural
government in order to report to the central government. Compared with Statistical Survey data
used for 1906 and 1910, individual data in 1915 and 1918 contain much more detailed information
about production of each firm.
10were termed factories.

Although there are four production organizations (i.e.,

out-weavers, factories with more than 10 workers, cottages with less than 10 workers,
and MWCs), it is possible that the increase in the number of workers converted thecottages and MWCs to factories.
Table 1 exhibits the average characteristics of weaving firms in selected years
from 1895 to 1918.

A glance establishes that the number of firms was only ten in thelate 19th century but tripled in the 1900s.

Furthermore, the number more than doubled

in the early 1910s and reached 88 in 1918.

Why did the number of firms with theemployment of more than 10 workers increase appreciably?

The average year of

establishment of firms indicates that the entry of new large firms was not necessarily the
major reason.

Recall that aside from out-weavers, there are three types of sample

weaving firms in Kiryu; (1) large firms which attempted ‘vertical integration’,7 (2)traditional firms including WMCs whose number of workers increased to more than 10,
and (3) newly-established joint stock firms which equipped power looms and adopted
factory system in the late 1910s.
Large firms with the employment of nearly 100 workers seem to have appeared7

In our study, vertical integration refers to the production system in which preparatory, weaving andfinishing processes are carried out within a firm. Some of them were typically out-sourced processes
in the case of WMCs as is shown in Figure 3. It is partly similar to that discussed by Jones (1987),
i.e., the backward integration system in British silk industry in the 1820s and 1830s, in which
throwing and weaving process were carried out internally.
11

in the late 19th century.

The average year of establishment was 1851 in 1895 and 1876

in 1899, respectively, which are much different.

In 1895, it seems that old firms were

dominant, even though there were a few newly-established firms which just started theiroperation.

Judging from the rising average year of establishment in 1899, it can beconsidered that newly-established firms became dominant.

The latter firms attempted

large-scale vertical integration with extraordinarily large western machines mainly for
preparatory and finishing processes.

These firms did not depend on the division oflabor with other small firms, unlike WMCs, which means that they did not enjoy
agglomeration economies arising from inter-firm transactions.

They used hand looms

except for Nihon Orimono Corporation, which tried to produce exportable products but
faced difficulties in operating large-scale factory (Kameda 2011).8
Interestingly, from 1899 to 1903 not only the average number of workers
sharply declined from 91.5 to 33.1 but also the average year of establishment changed
from 1876 to 1867.
the two years.

On the other hand, the number of firms became tripled between

Thus, it is clear that major players promoting the growth drasticallychanged in this period.

In other words, while the large-scale firms failed their business,relatively old WMCs became dominant in the 1900s.

8

The average number of workers

According to Kameda (2011), this company installed imported power looms.
12continued to decline to 23.2 in 1906 (see column of 1906b in Table 1, which excludes
Nihon Orimono Cooperaton, as it is outlier).

Female worker ratios in 1903 and 1906

were also lower than those in the 1890s, which strongly indicates that the relatively
large number of male workers who were engaged in preparatory processes and deliveryof yarns to out-weavers increased.

Loom/worker ratio was far less than unity in 1906,

which means that not all workers in the weaving firms were engaged in the weaving
process.

From the above discussions, it seems clear that some WMCs grew to be

medium-scale firms and promoted the growth of Kiryu by expanding division of labor.
It is likely that the stagnant production from the mid-1900s to the mid-1910s observedin Figure 1 was the result of the reduction in production by large firms and offsetting
increase in production by growing WMCs.
In the 1910s, new entries can be recognized from both increase in the numberof firms and the rise of the average year of establishment.

While the average numberof workers slightly increased compared with the 1900s, female worker ratio continued
to decline.

WMCs would have been still dominant in this period but newly enteringfirms gradually expanded their scale of operation.

From 1915 to 1918, the average

number of firms and the number of workers rapidly increased with concomitant rise in
the average year of establishment, which indicate increase in the number of13newly-established large firms.
reached 80%.

At the same time, the proportion of power loom

Such newly established large firms which appeared in the 1910s can beconsidered as the new major players which promoted Schumpeterian development.

Itis worth pointing out that with the advent of such firms, the average sale revenue perfirm increased six times from 1915 to 1918. Note that since the cost of putting-out
contracts and out-sourcing are not included in the sales revenue, it becomes larger as theextent of the division of labor is larger.
3-2 Comparison of Export-Oriented Firms with Other Firms
What kind of products did our sample firms produce?

Some of theirproducts were shipped for domestic markets but others were for export markets.
Organized by WMCs, traditional products for domestic market were produced byutilizing complicated and specialized division of labor within the district, as was
illustrated by Figure 3.

In contrast, the large firms established in the late 19th century

attempted to sell product at export markets without depending on any division of labor.
In order to compare the firms with different market orientations and locations,
Table 2 undertakes the comparison of export-oriented firms with other domestic
market-oriented firms in Kiryu town and outside in 1906, 1910, and 1915.9

9

Data

We estimate the export- and domestic market-orientation from the main product reported by thesurvey.
14source and sample size are the same as in Table 1.

The reason why we regard location

as important is that leading WMCs tended to be located in Kiryu town partly because
this is most convenient for them to organize putting-out contracts in various processes
and partly because access to railways and electricity was also favorable in town.
According to Table 2, however, other firms outside Kiryu town were likely to be WMCs,
because, although smaller, their sales revenue was not low in 1915, if we consider thesmaller number of employed workers.

The number of export-oriented firms increased

from 1906 to 1910 and then declined, whereas the number of other firms in both Kiryu
town and outside continued to increase and became dominant in 1915.

This suggeststhat the second players, large WMCs, supported Smithian growth.
In terms of the number of workers, export-oriented firms were largest in all
years but their employment size declined from 71.8 workers in 1906 to 45.4 workers in
1910.

Judging from the facts that the number of export-oriented firms doubled from1906 to 1910 and that average year of establishment in 1910 is 6 years younger thanthat in 1906, large firms disappeared and the newly established firms with more
moderate scale became dominant.
Female worker ratio tends to decline over time but it is much lower in otherfirms in Kiryu town.

The relatively large number of male workers was employed by15

other firms in Kiryu town because they are likely to be leading WMCs type firms, inwhich the relatively larger number of male workers played an important role in the
preparatory processes, delivery of raw materials, and collection of finished products.
Percent of firms using traditional water wheels was also high among other firms in
Kiryu town because they were used for preparatory processes (Hashino 2007c).

Onlysome export-oriented firms introduced motive-powers in 1906 and 1910, which wassteam engine.

In 1915, however, some of other firms in Kiryu town also equipped

powers, even though their adoption rate was lower than that of export-oriented firms.
This is likely because electric powers were supplied by the Watarase Water PowerElectricity Company, which was established in 1906 and started operation in 1908
(Kiryu Orimonoshi Hensankai 1940).

Prior to supply of electricity, export-oriented

firms had to equip motive-powers such as steam engines on their own account.

It mustbe also pointed out that the number of workers of the export-oriented firms far exceeded
the number of looms in 1906, which indicates that many workers were engaged in avariety of production activities other than weaving within the large factories.
Until the late 1900s, hand looms were used in almost all firms in Kiryu except fora few (Kiryu Orimonoshi Hensankai 1940).

It is therefore doubtful whether thelarge-scale export-oriented firms could enjoy scale advantage in the absence of large

16fixed inputs.

In fact, such large-scale firms disappeared and were replaced by smallerfirms with the employment of much less than 50 workers, which were likely to be
successful WMC-type firms whose advantage lay in the use of the division of labor with
out-weavers and other supporting firms.

Therefore, we advance the following

hypothesis:
Hypothesis 1: Although more than several large firms with the employment of
more than 50 workers and the use of hand looms were founded in the late 19th
century, they soon collapsed due, at least partly, to the lack of scale advantages. In
contrast, WMCs thrived based on the out-weaving system in the beginning of 20th
century in Kiryu.
3-3 Comparison of Newly Emerging Large Firms with Other Firms
Our sample firms in 1918 benefitted from the economic boom during the FirstWorld War (1915-1918).

Responding to the increasing demand for the products in

Kiryu, the number of large firms increased.

Wage rates also increased sharply in Japan,

surpassing the Lewisian turning point according to Fei and Ranis (1963).

In fact, in

local labor markets in the neighborhood of Kiryu, wage rates of female workers in
weaving, silk-reeling, and farming sharply increased in this period (Hashino 2007a).
Hence many weaving firms in Kiryu used power looms to save labor by using electricity.

17

Establishment of new factories and workshops as well as the installation of powerlooms would have required large investment funds, which seems to have led to theestablishment of joint stock firms, as will be shown shortly.
Table 3 analyzes the characteristics of 88 firms in 1918 from the perspective of
market orientation and location.

Joint stock firms were export-oriented andestablished around the war boom period.

They were particularly large with theemployment of more than 300 workers, which clearly indicates that they sought thescale advantages.

There are many differences between joint stock firms and otherfirms within the category of export-oriented firms.

Caution is needed in interpreting

number of looms because there were both hand and power looms.

In the case of joint

stock firms, female workers operated primarily power looms, whereas in otherexport-oriented firms female workers used both hand and power looms.

It must beemphasized that most joint stock firms were subcontractors for smaller weaving firms
and received fees of undertaking preparatory and finishing activities from other firms
within the districts.

Such behavior is consistent with the theory of the division of labor

formulated by Stigler (1951), which argues that one of the main sources of the divisionof labor is the different optimum scales of production in different sub-production
processes.

In this respect they are far different from the large export-oriented firms

18established a few decades earlier.

Based on the above discussion, therefore, we

postulate the following hypothesis regarding the large firms which emerged in the
mid-1910s.
Hypothesis 2: Several large joint stock firms founded in the mid-1910s were
Schumpeterian innovators, who transformed Kiryu weaving district by realizing
the scale advantages associated with the introduction of power looms, factory
production, and electricity.
Let us turn to the characteristics of domestic market-oriented firms.
Remarkable differences between 32 firms in Kiryu town and 15 others can be observedin female worker ratio, the number of looms, use of electricity, and holding of registeredtrademarks in the 1900s.

The formers were likely to be large WCMs employing

relatively many male workers without much internal production.

In the case of aleading WCM, called Goto Firm, about which Hashino (2007a) explores the relation
between adoption of new production organization and technology choice, increase inmale workers in the mid-1910s was associated with the expansion of out-weavers.

Itsstrategy was low volume production of a wide variety of products for domestic market
by enjoying the advantage of agglomeration economies.1010

In addition, holding of

For the flexibility of production, Nakabayashi (2007) also admits that putting-out system using
hand looms had advantage in Kiryu until the 1910s.
19registered trademarks in Meiji Era indicates that other firms in Kiryu town were old
leading firms11.

They also began the introduction of power looms, but percentage ofpower looms were the lowest among the four groups in Table 3.

For example, theintroduction of power looms in the above mentioned Goto Firm was delayed andoccurred from the late 1910s to 1920s.

This accompanied adoption of factory

production system and giving up of producing a wide variety of products unsuited formechanized mass production.

Therefore, we advance the following hypothesis

regarding WCMs:
Hypothesis 3: WCMs became laggards in the era of the Schumpeterian innovation.

4.

Econometric Analyses
In order to test the validity of the hypotheses postulated in previous section, in

this section we estimate the regression functions explaining the number of workers,
female worker ratio, the number of looms, loom/worker ratio, proportion of power loom,
sales revenue, and sales/worker ratio in 1906, 1910, 1915, and 1918.

Note that not all

the data of dependent variables are available in every year except in 1918.

Samplefirms are also different from year to year, so that the panel data analysis cannot be

11

According to Arai (year unknown), around 100 trademarks were registered by firms, which areconsidered mainly as WMCs, from the 1890s to the 1900s.
20

applied.

Thus, we estimated the regression functions separately in each year.

4-1. Specification of Regression Functions
Denoting the dependent variables mentioned above by Y, the estimated regressionfunction is specified as follows:

Yit = α0t + α1t(Edo period dummy)i + α2t(Operation years in Meiji era)it +α3t(Export firm dummy)it + α4t(Domestic firm dummy)it + α5t(Join stock
firm dummy)it + α6t(Power use dummy)it+ α7t(Wheel use dummy)it+
α8t(Trademark dummy)i+ εit ,where subscripts i and t refer to i-th firm and t-th year, respectively; αs are regression
parameters; and ε is an error term.

Edo period establishment dummy and the numberof operation years in the Meiji era for those firms established in the Meiji period areused to examine if the experience of weaving business affects the scale of operation andproductivity.

We use three mutually exclusive firm dummies, in which the base ofcomparison is domestic market-oriented firms in Kiryu town (most likely WMCs):“Export firm dummy” refers to export-oriented firms in 1906, 1910, and 1915 and toexport-oriented firms other than joint stock firms in 1918; “Domestic firm dummy”
means domestic market-oriented firms located outside Kiryu town;12 and “Join stock

12

Since there was only one such firm in 1906, it was combined with domestic market-oriented firms
in Kiryu town in the regression analysis.
21

firm dummy” was used only for 1918 regression because they were too few inprevious years.

The dummy for trademarks registered in 1897-1907 period, which wasused only in 1918 regression, is expected to capture the behavior of the leading
WMCs.13
Problematic as explanatory variables are export firm, domestic firm, and joint
stock firm dummies, and power use and water wheel use dummies, as they are likely to
be endogenous.

Due to the paucity of exogenous variables, however, we are forced touse them as explanatory variables.

To the extent that they are positively correlatedwith unobservable factors included in the error term, such as managerial abilities, theirestimated coefficients tend to be over-estimated.

Thus, we can hardly assert thecausality from the estimated coefficients of these variables.

What can be conjectured

is association or the correlation of the variables of our interest.

Another caveat is thatwhile we apply the ordinary least squares regression when depended variables arecontinuous, we apply the tobit estimation method when dependent variables aretruncated, such as the number of looms and loom/worker ratio, which include zeros.
Since export orientation is expected to be positively associated with the scaleof operation, particularly in early years, the coefficient of export firm dummy (α3) is

13

We use ‘trademarks registered by firms in the Meiji 30s (from the late 1890s to the mid-1900s)’
shown in Arai (year unknown).
22

expected to be positive and significant in 1906 but becomes insignificant or lesssignificant in the regression equations dealing with the scale of operation in later years,
if Hypothesis 1 is correct.

On the other hand, we expect the coefficient of joint stock

firm dummy (α5) to be positive and significant in the employment, the number of looms,
and revenue functions in 1918, if Hypothesis 2 is correct.

Finally we expect thecoefficients of all three firm dummies in the proportion of power loom function to bepositve, as WMCs were inactive in the introduction of power looms according toHypothesis 3.
4-2. Estimation Results
Table 4 shows the estimation results for 1906, 1910, and 1915. Several
important observations can be made.

First, neither coefficients of Edo period dummy

nor those of the operation years in the Meiji era are significant in any regression
equations.14
Table 5.

These coefficients are not significant, either, for 1918 to be shown in

These findings indicate that the mere production experience did not affect theperformance of weaving firms.

Second, export firm dummy is significant in all thefour regression functions in 1906, it becomes insignificant in the regression of thenumber of workers in 1910 and 1915, and its coefficient is negative and significant in

14

The results remain qualitatively unchanged, even if we excluded the operation years in the Meiji
era.
23

the sales per worker regression in 1915.

The last result strongly suggests that sales

revenue per worker was significantly larger for WMCs, because they use out-weavers
and other sub-contractor.

On the other hand, its impact on female worker ratio issignificantly positive in all three years, suggesting that female workers were employed
to operate large lots for producing export products.

Note that the magnitude of thecoefficients of export dummy in the regression of the number of workers are not so
different among 1906, 1910, and 1915, even though those in 1910 and 1915 are
insignificant, which indicates the larger variations of employment size in theexport-oriented firms in these latter two years.

Thus, it seems clear that theexport-oriented firms chose large-scale factory production system initially, while
employing relatively large number of female workers, but they failed to realize andmaintain scale advantages, as is reflected in its insignificant effect on labor employment
and sales revenue and even negative and significant effect on sales revenue per workers
in 1915. Such results are substantially different from the case of joint stock companies
to be examined from Table 5.
prospered in this period.

The other side of the same coin is that leading WMCs

These results are consistent with Hypothesis 1.

Third, power use dummy has significantly positive effects on the number ofworkers in all three years, the number of looms in 1906, and sales revenue in 1915.

24

Note that the source of the power was steam in 1906 and 1910, but it was almost
completely replaced by electricity in 1915 (see Table 2).

Also note that since only

large export-oriented firms used the steam power in 1906 and 1910, the combined
effects of export-orientation and the use of steam power were extremely large.

Thus, itappears that large export-oriented firms attempted to enjoy scale economies by adopting
the vertically integrated production system with the installation of large steam-power
generators.

Since the magnitudes of coefficients of power use dummy in the

regression of the numbers of workers are similar among the three years, it is doubtfulthat the replacement of steam by electricity brought about large changes in theemployment practice immediately.

Fourth, dummy for domestic market-oriented firms

outside Kiryu town is insignificant, which indicates that the behaviors of WMCs in
Kiryu town and outside were not substantially different in 1915.

Finally, it must be

pointed out that three of the coefficients of water wheel use dummy are positive andsignificant in 1906, suggesting that in the absence of electricity, water wheel was used
to expand the scale of operation and adopt the capital-intensive production method not
for weaving but for other production processes.
Table 5 exhibits the estimation results of regression functions in 1918.
Interestingly, joint stock firm dummy is positively correlated with the number of25

workers, number of looms, and sale revenue, as well as female worker ratio andworker-loom ratio.

Moreover, the coefficients in the regression functions for thenumber of workers, number of looms, and sales revenue are comparatively large, whichstrongly indicates that newly established large joint stock firms sought the scaleeconomies.

In fact, if we compare joint stock firms and other export-oriented firms

shown in Table 3, revenue of the former, on average, exceeded the latte by 16 times,
whereas the number of workers is 12.5 times and the number of hand-loom equivalentlooms 13.4 times,15 indicating the strong scale advantages of the former over thelatter.16 These results support Hypothesis 2.
Somewhat unexpectedly, the effect of joint stock firm on the power loom ratio
is insignificant.

This is because all the joint stock firms used powers and, hence, theiruse of power looms is captured by the power use dummy. Although the difference is notstatistically significant, it is noteworthy that coefficient of joint stock firm dummy issmaller that that of non-joint stock firm dummy in the loom/worker ratio regression.
This is likely because joint stock firms served as sub-contractors for other firms bycarrying out preparatory and finishing processes, which did not use looms.

15

This may

According to Hashino (2007c), price of power loom was around 300 yen, whereas that of handloom was 2 yen to 5 yen. Thus, the price ratio was 60 to 150.
16
Note that these firms did not contract out sub-processes, so that the revenue was generated byown production activities.
26

result in the negative and larger coefficient of joint stock firm dummy in the sales per
worker regression.

This negative coefficient as well as the negative and significant

coefficient of non-joint stock export-oriented firm dummy in the sales per worker
regression indicates that WMCs in Kiryu town achieved significantly large sales
revenue per own worker due to the outsourcing to out-weavers and specialized
subcontractors.
The effects of non-joint stock firm dummy are similar to those of joint stock
firms except for the size effects on the number of workers and looms, and sales revenue.
Moreover, the magnitudes of its coefficients in the female worker ratio, loom/worker
ratio, and sales per worker regressions in Table 5 are similar to those in Table 4. It
appears that non-joint stock firms are not significantly different from theexport-oriented firms analyzed in Table 4.
The results examined so far imply that WMCs employed smaller number ofworkers, used fewer looms, particularly power looms (Table 3), and lower sales revenue
than joint stock firms but attained much higher revenue per worker due to thesubcontracts with out-weavers and other specialized sub-contractors. WMCs in Kiryu
town, however, were different from domestic market-oriented firms outside Kiryu town:
WMCs in Kiryu town employed relatively more labor and less power loom (Table 5).

27This is consistent with Hypothesis 3 that WMCs were less active in the introduction of
power looms, mostly likely because of their established and at least formerly successful
subcontract-based production systems
As may be expected, power use dummy is particularly significant in the powerloom ratio function. As Minami (1977) emphasizes, the electrification promoted the useof motor-driven machines in Japan, which led to rapid decentralized industrialization in
the early 20th century Japan.
Although this study does not analyze the development of this weaving districtin the subsequent periods, it is known that WMCs actually followed the factory
production system introduced by the joint stock firms and used power looms, whichmeant the demise of the out-weaving systems in favor of factory systems in thisweaving district (Hashino 2007a).

5. Conclusion
In this study, we focused on the performances of three types of firms
which contributed to the weaving production in Kiryu in the early 20th
century.

Changing phases of production were characterized by the concepts

of Smithian growth and Schumpeterian development.

28

Expansion andsophistication of division of labor supported Smithian growth, in whichdomestic market-oriented WMCs played a major role.

Introduction of

power looms and factory system were the major drivers of Schumpeteriandevelopment, which was promoted by large, export-oriented joint-stock firms.
Three hypotheses regarding the performance of the three types of firms were
tested by regression analyses, which reveal strategies of WMCs to utilize
sub-contracts, the pursuit of scale economies by export-oriented firms, andthe importance of electricity to facilitate successful adoption of power-looms
and factory systems. Although the rise of wage rates in the 1910s would
have affected the introduction of power looms and relative advantage offactory systems, our study cannot identify its effect due to the cross-section
nature of our data sets.
We would like to conclude this study by identifying two major
remaining issues for further research.
importance of Smithian growth.
industrial

clusters were

widelyThe first one is concerned with the

Of course, division of labor in various
observed in developing economies,

particularly in the early stage of cluster development (Sonobe and Otsuka
2006, 2011), but its role has not been highlighted. In the case of Kiryu,

29

WMCs are worthy of being called entrepreneurs promoting Smithian growthby organizing specialized production systems.

Historically, they were

engaged not only in manufacturing but also in marketing, designing, quality
control, and making trial samples (Uchida 2002).

In other words, WMCs

played the role of traders, who are essential for linking producers withmarkets. Although they were not so keen about breakthroughs, theyeffectively utilized existing resources in local community, e.g., cheap rurallabor, based on mutual trust (Hayami and Godo 2005).

When the trust wasinsufficient in mobilizing collective action, support of local trade association
or local government became crucial for strengthening agglomeration
economies (Hashino and Kurosawa 2011).

It seems worth exploring theextent to which Smithian growth lays foundation for the development ofindustrial districts in its early stage of the development
Another issue is to explore how Schumpeterian development emerges
or what types of entrepreneurs play a role of Schumpeterian innovators.
Three types of innovations were observed in our study site; process
innovation (e.g., introduction of power looms), product innovation (e.g.,
introduction of new products for export), and organizational innovation (e.g.,30

introduction of factory systems).

Establishment of joint stock firms andutilization of division of labor also fall under the organizational innovation.
Since the introduction of power looms and suitable products for mechanizedproduction, the adoption of factory systems, and the emergence of joint stock
firms are so closely interrelated with each other that they took place
simultaneously.

Thus, successful innovations seem to require managerial

capacity to carry out a variety of component innovations.

What type ofhuman capital is needed for such innovations must be clarified throughfurther historical research and research on the contemporary development ofindustrial clusters in developing countries.

31

Acknowledgement
Earlier version of this paper was presented at Zushi Conference at University of Tokyo,
29th January, 2011.

We would like to thank Professors Tetsuji Okazaki, Yasuyuki

Sawada, Minoru Sawai, and Tetsushi Sonobe for their valuable comments forstimulating our study.

First author wishes to thank Professor Janet Hunter and othercolleagues in Department of Economic History, London School of Economics andPolitical Science, for welcoming her as a visiting fellow in 2011.

This research was

supported by Rokkodai Koenkai at Kobe University, Grant-in-Aid for Scientific
Research (A) 23243022, and (A) 23243055.

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37

Figure 1. Changes in real value of production, employment, and labor productivity in Kiryu,
1895-1930 in semi-log scale (Index, 1895=100)
10000.0

1000.0

100.0

10.0

18
95
18
96
18
97
18
98
18
99
19
00
19
01
19
02
19
03
19
04
19
05
19
06
19
07
19
08
19
09
19
10
19
11
19
12
19
13
19
14
19
15
19
16
19
17
19
18
19
19
19
20
19
21
19
22
19
23
19
24
19
25
19
26
19
27
19
28
19
29
19
30

1.0

year
production

total workers

female workers

labor productivity

Source: History of Weaving Industry in Gunma Prefecture [Gunmaken Orimono Enkaku Chosasho] (1895-1901); Statistical Survey of Gunma Prefecture[Gunmaken Tokeisho] (after 1902).
Note: For realized value, we used price index for textile products in Ohkawa, K. et al. Estimates of Long-term Economic Statistics on Japan since 1868
(LTES) : Price (Tokyo: Toyo Keizai Shiposha), p.192.
38

Figure 2. Changes in the number of out-weavers and other production organizations
in Kiryu, 1901-20
6000

5000

number

4000

3000

2000

1000

19
20

19
19

19
18

19
17

19
16

19
15

19
14

19
13

19
12

19
11

19
10

19
09

19
08

19
07

19
06

19
05

19
04

19
03

19
02

19
01

0

year
out-weavers

factories, cottages, and WMCs

Source: Yearbook of Promoting Industry in Gunma Prefecture [Gunmaken Kangyo Nenpo] (1901-02); Statistical Survey of Gunma Prefecture (1906-20).
Note: No data is available in 1903 and 1904.

39

Figure 3. Process of producing silk fabric (left) and specialization organizing by WMCs (right) in Kiryu around 1910

sericulture farmer
raw silk merchantmaterials

Weaving
producersilk reeler
silk thrower
thrown silk merchant

throwing

dyestuff merchantscouring,
dyeingdyer
starchingsizing&warpingdesigner

windingdesignpattern card producer<preparation finished>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: Hashino and Kurosawa 2011. Original figure
was in Weavings in Eastern Japan [Kanto no Kigyo],(p.14), but we arranged it for simplification.

: putting-out relationship: material flows

40

Figure 4. Changes in the proportion of power looms in Kiryu, 1906-1930
100
90
80
70

%

60
50
40
30
20
10

19
06
19
07
19
08
19
09
19
10
19
11
19
12
19
13
19
14
19
15
19
16
19
17
19
18
19
19
19
20
19
21
19
22
19
23
19
24
19
25
19
26
19
27
19
28
19
29
19
30

0

year
Kiryu City

Kiryu District

Source: Statistical Survey of Gunma Prefecture, various years.
41

Yamada County

Table 1. Average Characteristics of Weaving Firms with the Employment of More Than 10 Workers in Selected Years from 1895 to 1918
1895

1899

1903

1906a

1906b

1910

1915

1918

10

10

31

28

27

68

64

88

1851

1876

1867

1869

1868

1879

1876

1881

98.5

91.5

33.1

47.2

23.2

29.5

28.4

39.2

Female worker ratio (%)

81.2

84.5

77.4

77.5

77.3

69.7

68.3

68.6

No. of looms

--e

--

--

17.5

12.5

--

--

26.5f

Loom/worker ratio

--

--

--

.46

.47

--

--

.24

Sales revenue (1,000 yen)

--

--

--

--

--

--

52.3

358.3

Sales revenue per worker

--

--

--

--

--

--

1.8

9.1

No. of firmscYear of establishment
No. of workers

d(1,000 yen)a.

Sample size of the original data is 28, including one large firm whose number of workers is 697.

b. Computed while excluding a large firm with 697 workersc.

Computed while excluding those firms whose establishment years were unknown: two firms were excluded in 1903, 1915, and 1918; three firms in
1895; four firms in 1906; and five firms in 1910. The excluded firms are likely to be very old.

d. Ratio of the number of female workers to the total number of workers.
e.

Not available.

f.

The proportion of power loom is 78.4%.

Source: Yearbook of Promoting Industry in Gunma Prefecture (1895,1899, and 1903), Statistical Survey of Gunnma Prefecture (1906 and 1910), andFactory Surveys [Kojo Tokeisho] (individual data, 1915 and 1918).

42

Table 2. Comparison of Export-Oriented Firms with Other Firms in Kiryu Town and Outside in 1906, 1910, and 1915

NumberAverage

NumberFemaleNumber

Sales

Percent ofPercent ofof firms

year ofof

workerofrevenueuse ofuse ofestabli-workers

ratio

hand

(1,000yen)

steam

water

powersd

wheelsshment

looms

1906:
Export-oriented firms

16

1889a

71.8

83.1

26.9

-e

12.5

25.0

Others in Kiryu town

11

1874

14.5

67.9

4.6

-

0.0

54.5

Others outside

1

1600

15.0

86.7

9.0

-

0.0

0.0

Export-oriented firms

31

1895b

45.4

78.4

-

-

12.9

22.6

Others in Kiryu town

24

1881

17.0

63,0

-

-

0.0

41.7

13

1873b

15.2

70.0

-

-

0.0

0.0

Export-oriented firms

19

1893c

48.5

73.6

-

64.9

68.4

21.1

Others in Kiryu town

34

1890c

20.8

66.1

-

47.8

41.2

50.0

Others outside

11

1887c

15.5

72.0

-

39.1

0.0

27.2

1910:

Others outside
1915:

a.

Four firms each whose establishment years were unknown were excluded.

b. Five firms each whose establishment years were unknown were excluded.
c.

Two firms each whose establishment years were unknown were excluded.

d. Figures in 1915 show the percent of use of electricity.
e.

Not available.

Source: Statistical Survey of Gunnma Prefecture (1906 and 1910) and Factory Survey (1915).
43

Table 3. Comparison of Joint Stock Firms, Export-Oriented Firms, and Other Firms in Kiryu Town and Outside in 1918
Number of

Average

Number of

FemaleNumber

Percent of

Sales

Percent ofPercent of

firms

year ofworkers

Workerof looms

powerrevenueuse ofholding ofc(1,000electricity

trade-

establish-

ratio

looms

ment

yen)

mark inMeiji era

Export-oriented firms:

41

Joint stock firms

5

1914

316.0

78.2

193.2

73.6

816.2

80.0

0.0

Others

36

1891a

25.2

84.1

19.8

53.3

50.4

75.0

2.8

Other firms:

47
32

1887

21.2

62.0

12.4

32.9

85.4

62.5

34.5

15

1891b

19.3

73.0

17.6

39.1

74.3

33.3

6.7

In Kiryu town
Othersa.

Two firms whose establishment years were unknown were excluded.

b. Three firms whose establishment years were unknown were excludes.
c.

In the case of firms which do not own any loom, we assume that percent of power looms is zero. There are 1 such firm among
export-oriented non-joint stock firms, 13 among other firms in Kiryu town, and 2 among the last category.

Source:Factory Survey (1918).

44

Table 4. Estimation Results of Regression Functions Explaining the Number of Workers, Female Worker Ratio, and Other Performance Indicators at the
Firm Level in 1906, 1910, and 1915a
1906

1910

No.

Female

No.

Loom/

No.

FemaleNo.

Female

Sales

Sales

of

workerofworkerof workersb

workerofworker ratiob,

revenueb, e

per

b

b, c

d

d

ratio

workersc-23.90.04-11.34-.04-18.41

312.89(-0.02)(-1.21)(.49)(-.60)(-.46)(-.54)

(.66)

.06

.00

-.74

.00

-.23

.00

-.54

9.25

(.29)

(1.45)(1.68)(-1.18)(.84)(-.48)(.08)(-.20)(.75)

16.17**.153*

19.65**

.38*

17.49

.29**

23.70

.22**

11.27

-1326.00**(2.28)(2.30)(3.59)(3.88)(.96)(4.71)(1.71)(3.75)(.45)(-3.81)

9.59

.03

5.18

.08

10.37

345.48

(.45)

(.40)

(.28)

(1.05)

(.32)

(.76)

workers

ratio

looms

ratio

-5.18

.12

-3.00

-.00

(-0.62)(1.52)(-0.50).05.00

Meiji era(.75)

Export dummy

Edo period dummy

Operation

years
g

in

Domestic outside dummyPower use dummy

1915

b, c

b

workerb, f

41.44**

0.06

29.28**.1030.48*

-.10

24.58

.01

52.74*

658.93*(3.54)(.06)(3.45)(.64)(1.94)(-1.56)(1.71)(.17)(2.04)(1.83)

13.89*.06

14.61**

.24*

2.62

-.00

1.99

-.08

7.41

35.55

(2.19)(.18)(2.99)(2.70)(.16)(-.07)(.14)(-1.39)

(.02)

(.10)

Intercept

5.51

.66

-9.00

.09

26.41

.55

14.99

.64

33.31

1986.18

R2

.540

.378

.166

.302

.148

.278

.110

.265

68

68

64

64

64

64

Wheel use dummy

Log-likelihood ratio

Sample size

27

27

-89.48

.071

27

27

45

a.

Numbers in parentheses are t-statistics. ** and * indicate significance at 1% and 5% level, respectively, according to one-tailed test.

b. OLS regression.
c.

Ratio of the number of female workers to the total number of workers.

d. Tobit regression.
e.

Unit is 1,000 yen.

f.

Unit is yen.

g. Operation years of firms established after the Meiji Restoration in 1867.

46

Table 5. Estimation Results of Regression Functions Explaining the Number of Workers, Female Worker Ratio,
and Other Performance Indicators at the Firm Level in 1918a

Number ofworkersb

Female worker

Number of

b,c

ratio

looms

Power loomdd,eLoom/worker
d

Sales

ratio

ratio

revenue

Sales perb, eworkerb, f

Edo period

5.48

-.02

4.91

.09

.01

12.80

-643.32

dummy

(.17)

(-.37)

(.22)

(.41)

(.07)

(.13)

(-.77)

Operation years in

.52

-.00

.51

.01

.00

1.72

-18.49Meiji erag(.67)(-.18)(.97)(1.68)

(.61)

(.73)

(-.94)

Joint stock295.57**.19*

192.86**

.40

.38**

737.00**-3258.42**

dummy(6.26)(2.10)(6.12)(1.49)(2.48)(5.16)(-2.71)

Non-joint stock

-.69

.26**

21.14

.16

.43**

-23.08-2190.37**

export dummy(-.03)(5.62)(1.23)(.99)(5.21)(-.31)(-3.52)

Domestic-oriented

5.02

.16**

25.12

.63**

.17

12.22

-662.58

dummy

(.16)

(2.70)(1.17)(2.54)(1.69)(.13)(-.85)

Power use

14.16

.15**

32.47*

1.59**

-.12

38.06

-986.49

dummy

(.60)

(3.34)(1.99)(6.04)(-1.51)(.54)(-1.65)Wheel use

-16.57

.06

8.02

-.445

.25**

-62.92-1448.19*

dummy(-.60)(1.14)(0.42)(-1.91)(2.73)(-.76)(-2.07)

Trademark

-7.70

-.08

-20.55-.35-.07-13.901179.26

dummy(-.24)(-1.26)(-.89)(-1.42)(-.61)(-.14)(1.42)

Intercept

0.23

.54

35.78

-1.20

-0.2

46.85

6254.28

R2

.394

.455

.313

.257

Log-likelihood-405.64-48.36ratio
47-22.71

a. Numbers in parentheses are t-statistics. ** and * indicate significance at 1% and 5% level, respectively, according to one-tailed test.
Sample size is 88.
b. OLS regression.
c. Ratio of the number of female workers to the total number of workers.
d. Tobit regression.
e. Ratio of the number of power loom to the total number of looms including hand looms.
f.

Unit is 1,000 yen.

g. Unit is yen.
h. Operation years of firms established after the Meiji Restoration in 1867.

48