Prepared by the researcher : Dr. Habib Al Badawi – Lebanese University – Faculty of Letters and Human Sciences (B.I) – History Department.
Democratic Arab Center
Journal of Afro-Asian Studies : Thirteenth Issue – May 2022
A Periodical International Journal published by the “Democratic Arab Center” Germany – Berlin.
:To download the pdf version of the research papers, please visit the following link
After one and a half century of the Japanese Modernization entitled Meiji Ishin (Meiji Restoration) we are still studying, learning, and analyzing every aspect of that extraordinary Asian success in our noble national quest for the hopeful Arab renaissance. The Japanese insightful leadership seized the opportunity to develop many of Tokugawa institutions and had the unique experience of shaping a modern nation-state through the cautious selection of the best characteristics of Western: government, society and economy.
Economic growth depends on an advanced industry. This study entitled: Birth of the Zaibatsu: Meiji Industrial Modernization, will try to explore that Eastern pioneering initiative by foxing on one factor which is linked to the economy, hoping to shade the way to reveal the essential role of those large capitalist enterprises, which was managed and directed by the elite Samurai families, in the success of the first Asian – Japanese miracle.
The Meiji administration tried at first to create a national industry to produce particular goods or services. The lack of funds forced the Japanese authorities to turn these industries over to a loyal private business sector that in return for extraordinary privileges would accommodate the government’s objectives. This was the origin of the Zaibatsu.
The four main Zaibatsu were Mitsui, Mitsubishi, Sumitomo, and Yasuda, but there were many smaller concerns as well. While those monopolies holding companies directed the enterprise complexes in a pyramid fashion, stockholding relations cemented together with the companies within Zaibatsu complexes. The stock of members was seldom sold by other members to third parties. Beneath this structure of Cross Holding of Stocks, Zaibatsu drove the finance, heavy industry and shipping sectors that manufactured the heart of Japan’s economy.
During the imperial expansion, the Zaibatsu economic power inundated the sectors of finance, trading and many major large–scale industries. From 1914 to 1929, three Zaibatsu (Mitsui, Mitsubishi and Sumitomo) controlled 28% of the total resources of the top 100 Japanese institutions. Indeed, as of 1945, the same complexes possessed 22.9% of the total resources of all Japanese stock companies.
After the end of World War II, the Allied occupation authorities ordered the Zaibatsu dissolved. Stock possessed by the parent companies was put up for sale, and individual companies of the Zaibatsu realms were freed from the control of mother-companies.
After discussing the conditions that led to the rise and fall of those giant family enterprises, then analyzing the different circumstances that made the outcome, we hope to provide answers that highlight the reasons for the success of the Japanese Industrial Modernization to learn from, in our national hope for a better future.
The Meiji Economic Renaissance
By the end of the Tokugawa period the Japanese economy was rudimentary and relied on agriculture, textile manufactures, fishing, and pearl hunting, while foreign trade was tied by unfair agreements with Western countries. The lack of funds forced the new Japanese authorities to turn these industries over to a loyal private business sector that in return for extraordinary benefits would oblige the government’s objectives. As a result, the Meiji government sold those small industries (which the Shogunate had spent years developing) to the highest bidder, permitting numerous motivated tradesmen descended from the Samurai class to engage in the privatization of the economy.
The Japanese master plan was based on:
- Sustain of Japanese specialists through study and training abroad, at engineering schools and universities, and on-site at state-owned factories.
- Investment in munitions plants, railways, mining, shipbuilding, and agriculture.
- Transfer of state-owned enterprises to the private sector.
- Foundation of indigenous Zaibatsu by assisting Seisho and the easing out of foreign interests.
- Encouraging invention and domestic production through industrial expositions.
Since the beginning of the Meiji-tennō rule in 1868, under the slogan fukoku kyohei, there was a shift towards the development and modernization of the economy by creating the Zaibatsu, which was a natural result of both the decline of the old money changing businesses and the end of the classic warrior’s domination.
Meiji seifu steadily developed various components of infrastructure for national development. A nation-wide postal/telegram network was established, and a series of civil engineering works were started to expand land transport and water supply networks. Within the late 1890s, national railway construction was started, and in 1870 the Ministry of Engineering was created to manage these infrastructure development programs.
Starting from the first year of the Meiji reign in 1868, the public schemes published to revive the rural native economy became known as the General Plans for Commerce and Industry, with the following economic developments taking place:
A/ Creating a Modern Financial Sector
The monetary reform was of the most important pillars of the economic boom during this era. At the beginning of the Meiji era, the rice was the unit of measurement and was used for exchanges in rural areas, while in the main cities various coins were used. These differences in money and standards of wealth measurement guaranteed that rice became the standard by which wealth was measured and power maintained, and it was the key to the Japanese economy.
Tokugawa coinage fell apart following the reopening of Japan to the West in 1854, under the threat of Commodore Perry Kurofune as the silver-gold rates gave huge opportunities for arbitrage to foreigners, leading to the loss of large quantities of gold to exportation. Foreign arbitrage led to a massive outflow of gold, as gold exchanged for silver in Japan with a 1:5 ratio, while that ratio was 1:15 abroad. Amid the Bakumatsu period in 1859, Mexican dollars were even given official currency in Japan, by coining them with marks in Japanese and officializing their exchange rate of three Bu. They were called Aratame Sanbu Sadame.
In 1871, the Japanese authorities decided to apply the decimal system. They also named the main national currency the Yen. Invisible infrastructures were also arranged. A patent regulation was issued in 1885, and a unified metric system was introduced in 1891. Nevertheless, the financial breakthrough occurred in 1897 when the Gold Standard was approved and started resembling other developed nations at that time.
Japanese banks had been established in 1872, according to the American system under the code of “National Bank Act”. Finally, the Central Bank of Japan was founded in the year 1882, inspired by the Belgian model after a period of unanticipated consequences was ended in Meiji 15 (October 10, 1882), under the Bank of Japan Act 1882 (June 27, 1882).
B/ Development of the Traditional Economy
The traditional economy of the nineteenth century Japan consisted of agriculture, fishing, and textile manufacturing. Modernization of the economy resulted from importing the best and most fruitful seeds, as well as using electric power and fuel engines installed on fishing vessels, in addition to operating small laboratories in the inherited manner and using imported machines, which increased the productivity of cotton and silk textiles.
|Raw Silk Production and Export from Japan 1868 to 1913|
|Production annual average (tons)||Exports annual average (tons)|
Agriculture confronted new changes during the latter modernization effort. The enlightened thinking encouraged during this period permitted farmers to own the land they worked on. Peasants were allowed to move freely and sell their products anywhere within their prefectures. With this change came a 3% land tax imposed on the farmers.
In the Bakumatsu era, taxes were paid in crops such as rice, but now were paid in Yen. Taxes were calculated as a proportion of the cash value of the land instead of the actual crop yield. The landowner, affirmed by the issuance of land bonds, was obligated for the taxes instead of the farmer. The land tax caused numerous riots. To resolve this, the tax was lowered to 2.5% instead of 3%. Many farmers had their land confiscated due to their inability to pay taxes.
By the end of the Meiji Period, 67% of peasant families were forced to tenancy. Agriculture was dominated by a tenant farming system. Families were regularly driven to pay over half their crops as a lease. In an attempt to pay taxes, relatives were strongly influenced to send their wives and daughters to textile mills. Many families had a difficult time making ends meet; to make additional cash, daughters were forced into prostitution.
Circumstances went downhill when the deflationary government introduced a new fiscal policy in 1881-1885. This policy economically lacked rice prices which led to bankruptcies and rural uprisings against the government. The first agriculture cooperatives were established in the 1900s. These served in rural areas as credit unions and purchasing cooperatives. The government was involved in these changes as they created the taxes. Farmers were included since they were directly affected by the changes. Many riots broke out which lead to the reduction of taxes. The adjustments started in 1873 and continued until 1900. These changes mostly affected the Hokkaido, Honshu, Shikoku, and Kyushu areas where most of the farming took place. The land tax was presented to pay for urban development. The changes affected numerous farmers as they had to give up their land giving Japan more value for the farmland. Those enhancements in agriculture were both positive and negative.
In textiles, which had been the pillar industry in Japan, although the government’s activities were limited mainly to technological support for quality improvement and control, the operations of government turning factories had a substantial demonstration effect on private activity in the sector. The sector invigorated the adoption of modern technology with some adjustments to fit the Japanese environment.
With the divestiture of government-run factories, the Ministry of Engineering was nullified in 1890. The Ministry of Interior performed general supportive functions for the industry until 1890, and the then-formed Ministry of Agriculture and Commerce took over the role afterward.
The latter steps of development accelerated the traditional economy, but this vast development later receded because the state interest shifted to the heavy industries in favor of the military. The state also took a series of inhumane economic measures to force numerous farmers to leave their land and villages to join the productive sectors, administrative or military. This agrarian reform was too arbitrary, and the imposing of large taxes on land and agricultural production together caused an exodus from the countryside to the cities.
C/ Promoting International Trade Regime
After more than two hundred years of isolation from international trade, Japan re-appeared in the international trade arena through the almost peaceful conclusion of a trade treaty with the United States in 1858. Similar treaties with other trading powers followed in successive years. As a result of these treaties, Yokohama, Kobe and a few more ports were opened.
Up until around 1900, industrial development took place under an almost neutral trade regime. This was not fundamentally desired by the Japanese government. It was not permitted to have independent authority over the formulation of tariffs until 1899. Until that year, tariff rates, which had been bound by an international treaty, were 5% or less. Export was also burdened to a similar extent. Quantitative restrictions played no role until 1931.
The growth of ocean fleets played an important role within the expansion of trade. The total tonnage of Japanese ocean fleets was 23,000 in 1872. It jumped to 3.05 million by the end of the Meiji era in 1912.
|The Size of the Japanese Merchant Fleet in Various Years from 1873 to 1913|
|Year||Number of Steamships|
Japan’s industry was drastically transformed, creating an effective militarized economy. Some reforms included new railroads to join all four major islands, shipping lines, telegraph and telephone systems, and deep-water harbors to allow bigger ships. Besides, 53 consumer products were created. Examples include munitions, gunpowder, silk and textile, glass, chemical plants, iron smelters, and spinning mills.
The government was involved in these changes as it funded and owned many industries. But after several years, most government-owned factories were handed over to private businesses. This happened to help jump-start capitalism.
Before the Restoration, a few foreign trading companies had some stakes in the mining sectors. These foreign stakes were obtained back by the new government. Foreign firms resumed direct investment in Japan only after 1899. Most foreign investments were joint ventures, and mostly in technology-intensive sectors such as electrical machinery and automobiles, established through the initiatives of Japanese enterprises that encountered a high demand from foreign enterprises for equity participation in exchanges of technology, hardware, and equipment.
D/ Birth of the Zaibatsu Monopolies
The Zaibatsu were formed from the Meiji government’s policies of state entrepreneurialism, which characterized the modernization of the economy amid that era. To understand the significance of Zaibatsu, one must consider that at the onset of the Meiji era agriculture comprised 70% of Japan’s national production, and approximately three-quarters of Japanese worked in farming-related employments.
The Meiji government’s main plan was to carry out a major industrial renaissance that contributed to military modernization. Economic planning for this started by supporting infrastructure and the amplification of the railway networks. The first railway line was opened between the cities of Yokohama and Tokyo in the year 1872, and government control on all construction continued until the year 1877. Private institutions then built the Tokaido line between the cities of Tokyo and Kobe. Economic encouragement was based on the same principle–an initiative of the state at the beginning followed by private sector investment.
|Railroad Mileage in Japan in Various Years from 1873 to 1913|
Japanese industry also adopted a system of sending Japanese missions to take advantage of Western science, and at the same time appointed Western experts in Japanese factories to benefit from their expertise. This was followed by the Japanese state implementing several large economic projects in heavy industry, in other words, the industries that the private sector aimed to build-up through self-funds and which required buying Western equipment administered by Western technology.
It must be noted that most factories were sold to the private sector during the 1880s, with several exceptions in military production facilities, because of the fiscal crisis that resulted from civil wars in Japan. As this divestiture was associated with the transfer of technological resources from the public sector to the private sector, it offered private business opportunities to transform commercial capital into industrial capital and helped to form the Zaibatsu bunches as a result.
Japan has been at the forefront of countries that have adopted privatization and did this through the sale of public enterprises to private sector companies, which in turn led to the occurrence of a group of large companies, consisting of private conglomerates called Zaibatsu. This term is an abbreviation of the Japanese words referring to the great economic blocs and includes companies and large organizations in all areas such as railways, mines, the shipbuilding industry, the textile industry, banks, insurance companies, etc. Unlike modern shares, stocks served to divide ownership of the issuing companies rather than to raise capital, and so bank loans and bonds became the essential impetus for financing the growth of Japan’s private sector.
Companies and organizations consist of two types:
- Mitsubishi (三菱財閥)
- Mitsui (三井財閥)
- Sumitomo Group (住友財閥)
- Yasuda (安田財閥)
B/ Zaibatsu “second-tier”, consisting of:
- Taiheiyo Cement/Asano (浅野財閥)
- Fujita (company)/Fujita (藤田財閥)
- Fuji Electric/Furukawa (古河財閥)
- Showa Denko/Mori (森コンツェルン)
- Kawasaki Heavy Industries, Ltd. (川崎財閥)
- Nakajima Aircraft Company (中島飛行機)
- Chisso/Nitchitsu (日窒コンツェルン)
- Nissan Group (日産コンツェルン)
- Nippon Soda Co./Nisso (日曹コンツェルン)
- Nomura Group (野村財閥)
- Taisei Corp.Okura (大倉財閥)
- Riken (理研コンツェルン)
- Shibusawa Eiichi (渋沢財閥) 
These private parties and enterprises crystallized over time into large, integrated complexes controlled by the government bureaucrats into areas of development craved for the reformation of Japan. To secure compliance, the government provided inducements such as exclusive licenses, capital funding, and other privileges. Although Japan severely needed foreign technology know-how and capital, the government adopted a policy of shutting out foreign entrepreneurs with few exceptions in favor of domestic development.
E/ Zaibatsu Effect: Increasing Exports and Boosting Trade with the new Colonies
The Zaibatsu goals focused on a central point; to convert Japan into a rich country, with a very modern army that has cohesion and discipline, and to deal with advanced Western countries as equals. From this point onward the Japanese imperialism trend began in line with its counterpart, Western colonialism.
By the end of the Sino-Japan war, and with the Taiwan Island colonized in 1895, Japan encouraged the cultivation of sugar canes for domestic consumption from 1901 to 1910, during which most of Taiwan’s land was devoted to sugar cane production.
As for Korea, where there was a small amount of iron ore, the major natural wealth was agricultural land and its products, especially rice, and the Japanese colonizers encouraged this type of agriculture.
Despite the economic domination of these colonies, the volume of trade exchange remained insignificant. For example, the volume of imports from the colonies for total commerce with other countries increased from 1.7 percent in the period 1894-1903 to 6.9 percent in the period from 1904-1914, and then export to the colonies increased from 2.7 percent in 1894-1903 to 7.8 percent during 1904-1914.
After the Russo-Japanese War, several “second-tier” Zaibatsu also emerged, mostly as a result of business conglomerations. A few more popular second-tier Zaibatsu included the Okura, Furukawa, Nakajima Aircraft Company, and Nissan groups, among a few others. The Zaibatsu grew most rapidly during World War I with Japan’s limited involvement in the war giving it industrial and commercial advantages.
The Japanese government was also committed to settling over five million Japanese citizens in the puppet state of Manchukuo, set up to administer what was once Manchuria , and had already decided to establish modern farms and factories there to further fuel their massive war machine for a thrust into China. The demand for war material was so great that the Japanese government awarded dozens of profitable contracts to the Big Four as well as the new, “second-tier” Zaibatsu.
This rapid expansion would in the long run help to unseat the families in control of the Zaibatsu from direct oversight and ownership of the companies which bore their names. The private owners of these companies realized that they could raise twice as much capital and still maintain direct control over their business ventures by allowing 49 percent of the shares of their principal holding company to be sold publicly, which would prop up the cost of their shares as well as supply income from which they could fund still more business enterprises.
For each of these new enterprises, up to 49 percent of shares could be sold, significantly expanding the capital beneath the command of the Zaibatsu whereas still permitting direct control of each of their auxiliaries. At the same time, the families themselves and their tremendous fortunes were protected from any legal action or financial loss in any of their subsidiaries; each one was independently consolidated and had its own distinct group of shareholders.
We conclude that Japan’s economic policy left negative effects on Japanese society; particularly because of the Meiji government’s focus on the heavy industries, which aimed to militarize modernization to counter the Western powers. The industrial concentration had been focused near cities and disregarded the countryside, which led to labor migration from the countryside to the city. As the new industries only rarely reached capital surplus that allowed them to absorb the constant surplus of labor, the wages in the city tended to be low-level to low wages, and so workers’ conditions did not comply with the labor law.
Major mistakes in the application of the agrarian reform pushed the farmworkers to emigrate towards the cities without any hope to find jobs there, putting the Japanese countryside in a situation of permanent tension. By increasing the tax burdens through the introduction of the land tax and indirect taxes, which was also accompanied by a recession of agricultural production, the poverty situation in villages worsened, ultimately leading to the commencement of the Social Questions.
During the industrial boom that accompanied the Sino-Japanese war, factory workers had gone on strike demanding better working conditions and higher wages in several parts of the country, and only in the year 1897 were more than 40 industrial actions taken. The conditions continued to worsen in the factories and then an outbreak of war with Russia took place in 1904. The unrest during the years 1906 and 1907 was the most violent since the beginning of the industrial era in Japan, and it clearly pointed to the proclivities of workers to the revolution because of the pressures that they were confronted with. Soon after, the workers’ movement transformed into a political movement, and the Japan Socialist Party was created in 1906, which was banned in next year.
The Zaibatsu most rapid growth occurred particularly during World War I, when Japan’s limited engagement in the war gave it incredible industrial and commercial advantages, then boosted on during World War II when the Japanese Wartime Empire Dai Nippon Teikoku adopted her colonial slogan Promote Industry Shokusan Kōgyō in the declared Greater East Asia Co-Prosperity Sphere Dai Tōa Kyōeiken.
Stages of Formation of the Japanese Empire
The Japanese ambitious encounter was ended by Hiroshima and Nagasaki crimes against humanity, followed by the American occupation of Japan itself.
In 1946, the Allied occupation authorities represented by Supreme Commander for the Allied Powers (SCAP) ordered the Zaibatsu dissolved, abolished, and banned. Stock possessed by the parent companies was put up for sale, and individual companies of the Zaibatsu empires were freed from the control of parent companies. The administration of the individual companies, however, was not drastically changed, and to some extent, the coordination and control of the previous organization remained. After the signing of the Treaty of San Francisco San-Furanshisuko kōwa-Jōyaku, many companies began associating into what became known as enterprise groups Kigyō Shūdan. Those created with companies that were formerly part of the big Zaibatsu Mitsubishi group, Mitsui group, and Sumitomo group were organized around leading companies or major banks. The cooperative nature of these groups became a major factor in Japan’s tremendous postwar economic miracle which was planned and organized by the Ministry of International Trade and Industry Tsūshō-sangyō-shō.
Finally, inspired by the Japanese model in Meiji Ishin, the most important characteristic of the modern spirit is rationalism, and it has been said that the nation is people who want to be a nation, and who submit to the authority and participation in government institutions was not the founding of the Nation Kokumin, This situation was just citizens Shinmin of the State Kokka. So even people become a nation, they must want to belong to a common community and participate in building institutions established by a cohesive society that shares mutual national hopes and dreams.
 Tokugawa Shogunate 徳川幕府, (1603–1867), the final period of traditional Japan, a time of internal peace, political stability, and economic growth under the shogunate, which is a kind if military dictatorship. The shogun role achieved hegemony over the entire country by balancing the power of potentially hostile domains tozama with strategically placed allies fudai and collateral houses shimpan. The resulting system of semi-autonomous domains directed by the central authority of the Tokugawa Shogunate lasted for more than 250 years.
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 Influential businessmen
 Reigning from February 3, 1867 until Emperor Meiji death on July 30, 1912.
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 Enriching the country, strengthening the army.
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 Literally translation from Britannica: “Wealthy Clique.”
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 Black Ships 黒船.
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 幕末 bakumatsu, a compound word, translatable as “the end” or matsu of the military government or baku, which abbreviates bakufu, in turn literally meaning “tent-government”.
 改三分定, “Fixed to the value of three bu“.
 Decimalization is the conversion of a measurement system to units related by powers of 10, replacing traditional units that are related in other ways, such as those formed by successive doubling or halving, or by more arbitrary conversion factors.
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Yen (Japanese: 円 Hepburn: en, symbol: ¥; code: JPY; also abbreviated as JP¥)
 The Central Institute for Weights and Measures was established as early as 1870.
 A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. Three types can be distinguished: specie, bullion, and exchange.
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 Brought the central government into dynamic supervision of commercial banks. It established the Office of the Comptroller of the Currency with the responsibility of chartering, examining, and supervising all local banks.
 The Bank of Japan 日本銀行 Nippon Ginkō, BOJ, JASDAQ: 8301
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 Matsukata Deflation: Tax Reform of 1873–1881. Under the new system:
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- tax rates were fixed at 3% of the value of estates and an estate holder was obliged to pay those taxes.
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 Textiles accounted for 30% of industrial production and 60% of industrial exports.
 Technologies employed by the Government operated factories tended to be too capital intensive for private entrepreneurs who embraced less capital-intensive technologies.
 It was just sixteen years after the Treaty of Nanking, which was imposed on China by the colonial powers because of the Opium War (1840-1842).
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 Toshiba-General Electric for electric valves, Furukawa-Siemens for copper cables, were two examples of these joint ventures.
 Financial Clique 財閥 (literally)
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 Yondai Zaibatsu 四大財閥
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 Treaty of Peace with Japan 日本国との平和条約
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 The Meiji Restoration 明治維新
 National Alliance 国民同盟.
 People 市民.
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