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Historical Development, From the Meiji Restoration to World War II

Meiji emperor, zaibatsu, modern industries, Meiji Restoration, modern machinery

In 1868 a group of disaffected feudal lords, court aristocrats, and samurai responded to the threat of foreign domination by overthrowing Japan’s military government and replacing it with a new imperial government under the Meiji emperor. The Meiji Restoration, as it came to be known, ended 250 years of self-isolation for Japan and introduced an era of rapid economic change. The country’s new rulers adopted the slogan “Rich Country, Strong Army.” They wanted Japan to become economically and militarily powerful so it could retain its independence. Yet Japan had no modern machinery, steel mills, steam engines, telegraphs, railroads, postal system, or newspapers. It had few natural resources aside from coal and silk. Nor did it have modern business institutions, such as banking and public corporations. Its main resource was a population that was highly literate for a preindustrial country. At that time, 43 percent of boys and 10 percent of girls had some schooling.

The country’s takeoff was explosive. From 1890 through 1938, Japan’s GDP grew 3.3 percent each year, far faster than the United States and the countries of Western Europe at a similar stage of development. Manufacturing grew especially rapidly, soaring from 8 percent of GDP in 1888 to 32 percent by 1938.

Before the Meiji Restoration, Japan had conducted almost no trade. After the restoration, Japan welcomed foreign advisers and sent missions to the United States, Germany, France, and Britain to learn the best techniques in economy and government. Between 1885 and 1900 foreign trade grew to 18 percent of GDP. Still, to avoid dependence, Japan restricted foreign investments and loans.

Initially, the government had to fill the vacuum in promoting industrialization because business was so weak. The government owned few industries, but from 1868 to 1900, government agencies supplied more than one-third of all financial capital and encouraged modern industries. By the turn of the century, business replaced government as the leading economic force. Topping the corporate pyramid were a dozen large corporate groups known as zaibatsu, which were headed by rich families such as Mitsui, Iwasaki (operating under the company name Mitsubishi), and Sumitomo.

The worldwide economic slump of the 1930s, combined with other factors, led Japan to increasingly centralize and militarize its economy. The government passed laws giving itself control over imports, power to direct private bank loans to priority industries and firms, and authority to promote heavy industries needed by the military, such as petroleum, machine tools, aircraft, iron and steel, and automobiles. Industries were organized into cartels (groups of business firms acting in concert to reduce economic competition in a particular market). Heavy industry rose from 35 percent of manufacturing in 1930 to 65 percent by 1940. The legacy of this period was a pattern of corporate organization and government-business relations that remains influential today.

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