In the earlier days of its development, Japan was not able to use trade protection, as the series of ‘unequal treaties’ that it was forced to sign in 1858 barred it from having tariff rates over five per cent. For example, as we can see in table 2.1, the average rate of tariff on manufactured products in Japan in 1875 was five per cent at a time when the USA, despite having a much smaller technological gap with Britain, boasted an average industrial tariff rate up to 50 per cent. The Japanese government therefore had to use other means to encourage industrialization until it recovered tariff autonomy, which did not happen until 1911.
To begin with, in a manner similar to that of the Prussian state in the early nineteenth century in the absence of private sector entrepreneurial initiatives (see section 2.2.3 above), the Japanese state established state-owned model factories (or ‘pilot plants’) in a number of industries – notably in shipbuilding, mining, textiles (cotton, wool and silk), and military industries.[176] Although most of these were soon sold off to the private sector at discounted prices, this did not mean the end of state involvement in the industry. In the 1870s and 1880s, for instance, most state shipyards were privatized, but were still given large subsidies even after privatization. Together with the related merchant marine industry, the shipbuilding industry claimed between 50 and 90 per cent of all state subsidies before 1924. The first modern steel mill (the State Yawata Iron Works) was also established by the government in 1901.[177]
State involvement in large-scale projects, however, did not stop with model factories but extended to infrastructural development. The Meiji state built the country’s first rail line in 1881. It had to provide massive concessions to private investors to interest them in railways[178] and throughout the 1880s and the 1890s subsidized the private sector rail companies; indeed, in the 1880s 36 per cent of all state subsidies went to railways. In 1906, the major trunk lines were nationalized. The Japanese government also started building telegraph infrastructure in 1869, and by 1880 all major cities were linked in this way.[179]
How do we evaluate the role of state-owned enterprises in industry and infrastructure in early modern Japan? Many commentators are not very positive about them, given that they were mostly· unprofitable.[180] However, other scholars see more positive aspects. For example, in his classic study, Thomas Smith sums up his verdict on the role of Japanese state-owned enterprises in the early Meiji period in the following way:
What did government enterprise accomplish between 1686 and 1880? Quantitatively, not much: a score or so of modern factories, a few mines, a telegraph system, less than a hundred miles of railway. On the other hand, new and difficult ground had been broken: managers and engineers had been developed, a small but growing industrial labour force trained, new markets found; perhaps most important, going enterprises had been developed to serve as a base for further industrial growth.[181]
In addition, the Japanese government implemented policies intended to facilitate the transfer of advanced foreign technologies and institutions. For example, it hired many foreign technical advisers; their number peaked at 527 in 1875[182] but fell quickly to 155 by 1885, suggesting a rapid absorption of knowledge on the part of the Japanese. The Ministry of Education was established in 1871; by the turn of the century it claimed a 100 per cent literary ratio.[183]
Moreover, the Meiji state tried to import and adapt from the more advanced countries those institutions that it regarded as necessary for industrial development. It is not easy to ascribe exactly the ‘templates’ for different Japanese institutions of the time to particular foreign countries, but it is clear that what emerged initially was an institutional patchwork.[184] The criminal law was influenced by the French law, while the commercial and civil laws were largely German, with some British elements. The army was built in the German mould (with some French influence), and the navy in the British. The central bank was modelled on the Belgian one, and the overall banking system on the American. The universities were American, and the schools initially American but quickly changed to the French and German models, and so on.
Needless to say, it took time for these institutions take root. However, the speed with which the Japanese assimilated and adapted them is regarded by historians as remarkable. Various institutional innovations, such as lifetime employment and durable subcontracting networks, which emerged during the postwar period, also deserve attention.
Following the ending of the unequal treaties in 1911, the post-Meiji Japanese state started introducing a range of tariff reforms intended to protect infant industries, to make imported raw materials more affordable and to control luxury consumer goods.[185] Once again, we can see great similarities between these policies and those previously used by other countries during their developmental periods.
As we can see in table 2.1, by 1913 Japan had become one of the more protectionist countries, although it was still less protective of its manufacturing industries than the USA. In 1926, tariffs were raised for some new industries, such as woollen textiles. Despite this, tariff was ‘never more than a secondary weapon in the armoury of economic policy’,[186] although some key industries were indeed heavily protected (e.g, iron and steel, sugar, copper, dye-stuffs, and woollen textiles). Here we can find some parallel between Japan after 1911, on the one hand, and Germany and Sweden in the late nineteenth and early twentieth centuries, on the other hand. All of them used ‘focused’ tariff protection, whereby the overall tariff regime remained moderately protective but strong protection was accorded to some key industries, rather than the ‘blanket’ protection used by countries such as the USA, Russia and Spain at the time.
During the 1920s, under strong German influence, Japan began to encourage the rationalization of key industries by sanctioning cartel arrangements and encouraging mergers, which were aimed at restraining ‘wasteful competition’, achieving scale economies, standardization and the introduction of scientific management.[187] These efforts were intensified, and government control over cartels was strengthened, in the 1930s in response to the world economic crisis following the Great Depression and the war efforts, especially with the enactment of the 1931 Important Industries Control Law. Thus the basic pattern of postwar industrial policy was established.[188] As in many other NDCs, Japan’s military build-up during the 1930s is believed to have contributed to the development of heavy industries (although with an ultimately disastrous political outcome) by stimulating demand and creating technological spillover.[189]
Despite all these developmental efforts, during the first half of the twentieth century, Japan was not on the whole the economic superstar that it became after the Second World War. According to the authoritative study by Maddison, Japan’s per capita income growth rate was only one per cent per annum between 1900 and 1950. This was somewhat below the average for the 16 largest now-OECD economies that he studied, which was 1.3 per cent per annum,[190] although it must be noted that part of this rather poor performance was due to the dramatic ,collapse in output following Japan’s defeat in the Second World War.[191]
178
‘So cautious were private investors that capital was raised in 1881 for the first private railway, between Tokyo and Aomori, only after the government promised to build the line for the owners with engineers from the Department of Industry, to make the land owned by the company tax-free, and to guarantee the company a net return of 8 percent per annum for ten years on the line between Tokyo and Sendai and for fifteen years on the line from Sendai to Aomori’ (Smith, 1955, p. 43).
182
Of these, 205 were technical advisers, 144 teachers, 69 managers and administrators and 36 skilled workmen (Allen 1981, p. 34).
190
Maddison 1989. The 16 countries are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, the Netherlands, Norway, Sweden, Switzerland, the UK and the USA.
191
Japanese GDP (not per capita) in 1945 is estimated to have fallen to 48 per cent of the peak reached in 1943. This was, however, somewhat less dramatic than what Germany experienced, where 1946 GDP was only 40 per cent of the peak reached in 1944 or Austria, where the 1945 GDP was only 41 per cent of the peaks reached in 1941 and 1944. See Maddison 1989, pp. 120-1, table B-2).