In the late 19th and early 20th centuries, Japan underwent significant changes as it transitioned from a feudal society to a modern industrial nation. This transformation was characterized by the interplay between private capital interests and the state’s nation-building goals. A closer examination of this period reveals the dynamics of capital flow and industrialization in Japan.
Private Capital in Trade and Government Loans
Big private capital in Japan showed a marked preference for involvement in trade, banking, and credit operations. This inclination was even more pronounced when it came to the secure and profitable realm of government loans. The behavior of these capitalists reflected a clear capitalist spirit—a drive to amass wealth without hesitation or reconsideration. Despite the state’s ambition to forge a strong nation, private capitalists were primarily focused on wealth accumulation.
Rural Capital and Industrial Stagnation
In rural Japan, capital showed little motivation to venture beyond the countryside. The lucrative nature of trade, the prevalence of usury, and particularly the exorbitant rent demands—which could claim nearly 60% of a tenant farmer’s crops—kept rural capital firmly entrenched in the agricultural sector. This situation contributed to a sluggish start for industrialization, with no immediate or dramatic uptake. Ships continued to be built overseas, and, until 1914, essential equipment for factories, mines, and railways was largely imported. Furthermore, up until the end of the 1870s, foreigners dominated over 90% of all trade within Japan.
Growth in Imports of Raw Materials and Exports of Finished Goods
Despite the slow start, there were signs of burgeoning industrial activity in Japan. From 1868 to 1897, a span of 30 years, imports of raw materials for Japanese factories surged fivefold. More strikingly, during the same period, exports of finished goods from Japan increased by over 20 times. These figures suggest that, although gradual, Japan was making strides towards establishing an industrial economy.
The Rise of Financial Oligarchy and State Privatization
The early stages of Japan’s modernization saw the growing influence of a financial oligarchy. The state played a significant role in this process by selling off its enterprises to private capitalists at exceptionally low prices. These transactions did not include military establishments, which remained under state control. Through such sales, the financial elite were able to consolidate their power and wealth, further entrenching the capitalist class within the fabric of Japanese society.
Questions for UPSC
1. How did the preference of private capital for trade and government loans over industrial investment affect the pace of industrialization in Japan?
2. In what ways did the high rent demands in rural Japan impact the movement of capital towards industrial sectors?
3. What role did the state play in the emergence of a financial oligarchy during Japan’s industrialization, and what were the long-term effects of this on the Japanese economy?