JPRI Critique Vol. VII No. 9 (October 2000)
The Origins of Japan's Economic Philosophy
by John Sagers

The United States Trade Representative's "2000 National Trade Estimate Report on Foreign Trade Barriers" contains a passage, which by now is a familiar refrain:

Japanese regulators view their role not simply as neutral arbiters of a legal rule-based system, but as active players in guiding the respective industries under their purview. The close government-industry relationship in Japan often works to the disadvantage of foreign firms trying to enter or participate in the Japanese market because the relationship favors domestic firms. (U.S. Trade Representatiubo Toshimichi (1830-1878), one of the Meiji state's chief architects.

> The Meiji Restoration of 1868 toppled the Tokugawa Shogunate largely because the shogun's officials failed to solve the crisis that foreign trade created. Capitulating to American and European gunboat diplomacy, the shogunate signed a series of treaties with the Western powers in the 1850s allowing foreigners to reside in treaty ports and giving up Japan's right as a sovereign nation to set its own tariffs. The young samurai who came to power in the name of the Meiji Emperor dedicated themselves to renegotiating these treaties and regaining control of Japan's economy and international trade. The primary purpose of Japan's modern institutions whimichi (1830-1878), oThe Meiji Restoration of 1868 toppled the Tokugawa Shogunate largely because the shogun's officials failed to solve the crisis that foreign trade created. Capitulating to American and European gunboat diplomacy, the shogunate signed a series of treaties with the Western powers in the 1850s allowing foreigners to reside in treaty ports and giving up Japan's right as a sovereign nation to set its own tariffs. The young samurai who came to power in the name of the Meiji Emperor dedicated themselves to renegotiating these treaties and regaining control of Japan's economy and international trade. The primary purpose of Japan's modern institutions was, from the very beginning, the promotion of Japan's economic interests.ne of the Meiji state's chief architects.

> The Meiji Restoration of 1868 toppled the Tokugawa Shogunate largely because the shogun's officials failed to solve the crisis that foreign trade created. Capitulating to American and European gunboat diplomacy, the shogunate signed a series of treaties with the Western powers in the 1850s allowing foreigners to reside in treaty ports and giving up Japan's right as a sovereign nation to set its own tariffs. The young samurai who came to power in the name of the Meiji Emperor dedicated themselves to renegotiating these treaties and regaining control of Japan's economy and international trade. The primary purpose of Japan's modern institutions was, from the very beginning, the promotion of Japan's economic interests. font size="2"> Okubo was a middle ranking samurai from the domain of Satsuma (present day Kag-- through the Ryukyu Islands. To execute his plans to build up Satsuma's economic and military potential, Shimazu promoted a number of talented young samurai like Okubo beyond what their hereditary ranks would have warranted. From early in his career, Okubo understood the importance of economic factors in international rivalries. reverberatory furnace to produce steel and experimented in such diverse fields as photography, glassmaking, medicines, steam engines, and ship-building. To pay for these expensive enterprises, Satsuma's samurai bureaucracy exploited the domain's monopoly of sugar in the Japanese domestic market. Satsuma also profited from trade with the outside world conducted-- in violation of Tokugawa restrictions >

From 1871 to 1873, the new Meiji government's top officials toured America and Europe to discuss the possibility of treaty revision and to explore the sources of Western economic and military power. Although their efforts for treaty revision failed, the Japanese delegates were able to study Western technology and institutions in detail. Okubo Toshimichi, by then one of the most powerful men in the Meiji government, wrote: "Courts, prisons, schools, trading firms, factories, and shipyards, iron foundries, sugar refineries, paper plants, wool and cotton spinning and weaving, silver, cutlery, and glass plants, and salt mines, . . . there is nowhere we haven't gone" (Quoted in Kenneth Pyle, Making of Modern Japan, D. C. Heath, 1996, p. 85).

Shortly after his return to Japan, Okubo articulated the government leaders' view of economic development. His "Memorandum on the Promotion of Production and Encouragement of Industry" is a fascinating outline of the modern Japanese state's founding principles.

First, Okubo recognized the importance of private initiative in economic activity:

A country's strength is dependent upon its people's prosperity. The people's prosperity is related to the abundance of production. And the abundance of production, of course, originates in the people's hard work in their enterprises (Okubo Toshimichi, "Shokusan kogyo ni kansuru kengisho," in Nakamura Masanori and Ishii Kanji, eds., Keizai koso: Nihon kindai shiso taikei, Iwanami, 1988, pp. 16-18. Translations by the author).
From Okubo's perspective, economic prosperity was intimately tied to national power. The Meiji government's goal was to enrich the Japanese people by helping them to produce as much as possible. The state was committed to the people's prosperity in enterprise, but within the context of serving the national interest as defined by government bureaucrats, not foreign economic theories.

Okubo made this point even more clearly in the next phrase of his memorandum:

However, if we explore the source of this hard work, it is none other than the energy with which government officials promote it.
Without government assistance, Okubo frankly argued, the people did not know what to do. This betrayed a rather dim view of the free market's ability to achieve the government's goal of rapid industrialization. The government would have to intervene:
It is therefore the duty of state officials, wholeheartedly and skillfully on the basis of actual conditions, to encourage industry and increase production and thus secure the foundation of wealth and strength without delay.
The main point of this statement is clear enough. The government had a moral obligation to intervene in the economy to promote Japan's economic and military position in the world order. What is a little less plain is how they planned to do this. Okubo gives us a clue in the phrase, "on the basis of actual conditions." Meiji officials often used this wording to counter the liberal economists' theoretical arguments. Book learning and theories were insufficient. The government would have to work closely with the Japanese private sector to solve real world problems.

Okubo elaborated on this point as follows:

First of all, those responsible for the nation's subjects must take great care to determine the way, appropriate to the country's ways and customs and taking into account the people's temperament and knowledge, to conduct all affairs, from the [handling of] profits of industrial production to the operation of vessels used in land and maritime transport, that may be involved in the urgent task of protecting the people.
An economic plan, according to Okubo, had to take into account Japan's particular historic and cultural circumstances. Japan was unique and could not be governed according to economic doctrines derived in other countries. It was up to the government's bureaucrats and not some universal set of economic doctrines to determine what would best serve Japan's interests. The Japanese people needed to be protected from the outside world and only the government could do that.

To illustrate his point, Okubo drew an example from English history. In the 1870s, England was the premier maritime and industrial power in the world. After Adam Smith published his Wealth of Nations in 1776, many British economists and policy makers advocated low tariffs and free trade across national boundaries. The free trade treaty England forced upon China after the Opium War in the 1840s became the model for Western relations with East Asia. As a small island country that had grown into a world leader, Okubo believed, England provided an ideal model for Japan to emulate.

For guidance, however, Okubo looked not to contemporary England's laissez faire policies. Rather, he drew inspiration from England's mercantilist past:

To give an example, consider a small country like England. The land of this island benefits from convenient harbors and is rich in minerals. England's government officials have built upon this natural advantage and have raised [their nation] to a magnificent level and fulfilled their enormous duty. Those government ministers, applying their minds together at this point in history, reaped the profits from world shipping. Wishing to greatly expand domestic industries, they long ago resolutely established the special Navigation Acts.
In this passage, Okubo argued that England had become the premier maritime power because the Navigation Acts had prohibited the import of foreign goods unless they were aboard English ships. This shrewd government policy served the dual purpose of promoting English shipping and protecting the domestic market from foreign competition. Intervening in a particular point in history, the English government had built upon the country's natural advantages and become the world's leading industrial power. From the beginning, the Japanese government planned to do the same thing.

Meiji officials such as Okubo Toshimichi had a keen sense of historical development. As times changed, different rules applied. They often spoke of reading the "trend of the times" and adjusting their policies accordingly. Even at the beginning, men like Okubo did not expect Japan's protective policies to last forever. From the English example, Okubo realized that free trade could also serve a nation's interests in certain circumstances:

Since [the time of the Navigation Acts], England's industrial level has grown rapidly and has attained great prosperity with domestic production supplying the peoples needs with excess [to trade]. Only at this point were restrictions abolished and free trade allowed. This is the source of England's wealth and power today.
Even in 1874, Okubo expected that free trade would one day be in Japan's interest. This had nothing to do with liberal doctrines of the mutual gains from trade. Rather, it was obvious that when a country's industry possessed competitive superiority, free trade policies would become advantageous.

Okubo was unimpressed with theoretical arguments and pointed out the hypocrisy of the Western powers calling for free trade in Japan:

Most other foreign governments have protected their people and encouraged their industries in a similar fashion. Of course with difference in time, climate, and customs between East and West, we should not strictly follow England's actions. However, it would be a glorious achievement to build upon our natural advantages to expand wealth and strengthen the foundation of the nation.
Okubo called for the Japanese government to chart its own course toward wealth and power while profiting from the English example. It could not completely ignore the market, but would have to build upon Japan's comparative economic strengths. Yet the government's overriding goal was always the strength of the state, not the maintenance of market competition. From its creation, Japan's modern state has remained resolutely nationalist in its economic policies and goals.

The United States Trade Representative's 2000 Report complains that the Japanese government bureaucracy favors domestic firms at the expense of foreign competitors. In light of Okubo Toshimichi's 1874 document, one should not be surprised. Yet, Japanese government officials have also historically shown a remarkable ability to change direction when it was in their interest to do so. It is therefore not enough to appeal to the principles of fair play in this matter. Japan's trading partners must demand reciprocal access to markets and establish a means of monitoring and enforcing agreements. Only then will government bureaucrats begin to see that the "trend of the times" favors liberalization.

JOHN SAGERS is a Ph.D. candidate in the History Department at the University of Washington in Seattle. His dissertation traces the intellectual history of Japanese economic policy from the 1830s to the 1880s.


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