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Prof. Y. Sano School of Economics Introduction to Japanese Business History of Japanese Economic Development December 12 th / 19 th 2013 1.

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Presentation on theme: "Prof. Y. Sano School of Economics Introduction to Japanese Business History of Japanese Economic Development December 12 th / 19 th 2013 1."— Presentation transcript:

1 Prof. Y. Sano School of Economics Introduction to Japanese Business History of Japanese Economic Development December 12 th / 19 th

2 Scene of Echigoya in Edo, 18 th Century Main Business Area “Nihonbashi, Edo” in 18 th century 2

3 Kushan Empire Uighur G ö k t ü r k s Rice “Trade” in 6th Century (flow of culture and civilization) Two Most Important Cultural Flows – Buddhism and Rice Theravāda Buddhism Mahāyāna Buddhism 3

4 Kushan Empire Uighur G ö k t ü r k s Rice “Trade” in 6th Century (flow of culture and civilization) Two Most Important Cultural Flows – Buddhism and Rice Theravāda Buddhism Mahāyāna Buddhism 4

5 Historic Topics 7 th c.Buddhism, other Asian civilization emigrated through China / Korea 630 Prince Shotoku established Emperor’s ruling system 1192 First samurai government 2800 BC Rice cultivation 5

6 Historic Topics Defeat of Mongolian invasion (Kamikaze)Defeat of Mongolian invasion (Kamikaze) 1543 Portuguese introduced firearm “matchlock” (Tanegashima)“matchlock” (Tanegashima) 1549 Francisco de Xavier of Jesuits brought Christianity to Japan circa 1550 Oda Nobunaga and other local feudal lords initiated deregulated “free market” (Rakuichi, Rakuza 楽市、 楽座) 6

7 Historic Topics 1600 Battle of Sekigahara 1575 Battle of Nagashino Gun-armed Oda-Tokugawa allies defeated Takeda cavalry. 7

8 WesternEastern Eastern (Tokugawa) Allies won and opened Tokugawa Shogun Government. Pre- modern Edo Era enjoyed 260 year isolation. Battle of Sekigahara in 1600 (Tokugawa’s pre-modern Edo Era) 8

9 1603 Tokugawa Shogun Government Basis for robust feudal government system Historic Topics 17 th ~ 19 th c Edo Era “260 years of self-imposed isolation” (pre-modern Japan) Period of unique Japanese culture development 9

10 Edo (Tokyo) Osaka Edo – Osaka 550 km (344 miles) Hikyaku “Flying Legs” takes 7 days It may take longer, and dangerous 10 New type of business – Bill of Exchange

11 Edo (Tokyo) Exchange House Osaka Suppose Buyer in Edo pay to Seller in Osaka Buyer in Edo asks Exchange House to Issue Bill of Exchange Buyer send B/E to Seller in Osaka which orders Customer to pay to Seller Customer Customer counterbalances its account with Exchange House No need to send money for a long distance reducing risk of loss. Functions of B/E has been established in 18 th c. 11 New type of business

12 1693 Dōjima Rice Exchange New type of business – Forward Rice Exchange Center of Japan‘s system of ice brokers (fudasashi 札差) Forerunners to banking system. Established in 1697 Rice brokers and moneychangers (ryōgaeshō 両替商 ) gathered their shops and warehouses in the Dōjima. Samurais including daimyo (feudal lords) paid in rice Rice brokers, moneychangers played crucial profitable role Economy shifted from rice to coin, paper money by Dōjima merchants Osaka merchants developed monopoly on rice trade Osaka, and Kinai. Samurai panicked over the exchange rate into coin, speculators and conspiracies kept stores of rice in warehouses 1733 starvation widespread. Riots uchikowashi ( 打壊し ) happened 1735 Shogunate set price floor in Edo and Osaka Tokugawa Yoshimune (8 th Shogun) made attempts at reforms, known as Kome Shōgun (the Rice Shogun). Solved rice economy 1773 the Shogunate re-established the Rice Exchange Large proportion of the nation's monetary transactions handled through Dōjima managing deposits, withdrawals, loans, and tax payments. 12

13 Social stability promoted rice production growth – 1700 Farmland → 150% Population 12 mil → 31 mil 1700 – 1850 Farmland expansion ended. Population stayed at 30 mil. Rice production kept rising by technical development (fertilizers, equipment etc.) Development of cash crops (cotton, tea, rapeseed, silk) Phase-1Phase-2 Rise of proto-industries million Rice and Population in Edo Era 13

14 US 4 Black Steamships Opens the door of Japan (1853) 1858 Treaty of Amity and Commerce Opened door for to foreign trade Unequal treaty > No jurisdiction over foreigners > No right on duty control (fixed to 5%) > No government control over trade > No control over money exchange rate (caused big outflow of Japanese gold) 14

15 Silk : top export item (60-85%) Cotton : top import item (35-50%) Machine spinning cotton thread overwhelmed Japanese hand spinning thread One sided export / import might have caused Japanese mono- culture economy →potential economical colonization Tokugawa government relied on foreign finance. Trade imbalance caused heavy inflation. →Cause of final collapse of Tokugawa government Influence of International Trade at the end of Tokugawa Government 15

16 – From landlord’s economy (by rice) to capitalism economy (by money) Meiji Restoration in

17 1868 Meiji restoration 1876 Mitsui & Co. Ltd. Established 1877 Seinan War 1880 Industrialization began Sino-Japanese war Russo-Japanese war 1923 Great Kanto (Tokyo) Earthquake Showa depression WW2 (Pacific War) Topics in History Meiji Restoration to the 2 nd World War 17

18 Old Edo New Tokyo Edo renamed to Tokyo (Eastern Kyoto). 京都 → 東京 High street changed from wooden to stony. Meiji Restoration 1868 Change of City 18

19 Edo girl Meiji Ladies Now Ladies have always been forerunners for change Ladies keep changing dynamically though Meiji Restoration 1868 Change of Ladies 19

20 Old Edo New Tokyo 1602 Mitsui Takatoshi (三井高俊) started Liquor Shop “Echigo-ya” ( 越後殿の酒屋=越後屋) Start of Mitsui 1673 Mitsui Takatoshi (三井高利) started Cloth Shop “Echigo-ya” which later became Mitsukoshi (三越) 18 th c “Echigo-ya” expanded its business to Exchange House which later became Mitsui Bank (三井銀行) 20

21 Old Edo New Tokyo 1870 Iwasaki Yataro (岩崎弥太郎) took over “Tsukumo Shookai” ( 九十九商会 ) then changed to “Mitsubishi Shookai” ( 三菱商会 ) Start of Mitsubishi 1877 Made big fortune on Seinan War (西南戦争) 1885Iwasaki Yanosuke (岩崎弥之助) took over 20 th cExpanded business to shipbuilding, banking, coal mining, real estate, brewing, electric etc 21

22 HJMS Mikasa by Vickers Platt Brothers’ spinning machine a) Military enhancement - Renewal of war equipment - Massive mobilization of soldiers b) Industrial modernization - National factories (Light industries) - Railway construction - Communication system - Banking systems - Coal mine development - Agricultural development → Huge money and resources needed Meiji Government’s Priority Development Policy 22

23 Foreign traders dominated trade functions - export / import - shipping - trade financing - marine insurance Japanese trading knowledge were lacking. - foreign market information - materials / technology sourcing - financing knowledge - international product knowledge - capital strength to run various business at once Urgency of enhancing Japanese trading initiative 23

24 Mitsui’s first HO 1876 Mitsui & Co., Ltd. founded as the first Sogoshosha (General Trading House) President : Takashi Masuda Employees :16 (now 39,864 consolidated) Mitsui family : No equity Credit support only Business style : Commission agency Export : raw silk, coal, rice, cotton fabric Import : raw cotton, spinning machines, railway machines and rails. Domestic : tax rice Birth of Trading Company (Sogoshosha) 24

25 RebelsGovernment Lost Won 70,00030,000 Seinan War (Last Samurai’s War) 25

26 Meiji government took over Tokugawa liabilities including the salaries to samurais without jobs. → over 30% of the government expenditure Cause of Seinan War → Samurai angry!! → Rebellions Meiji government reformed tax from rice to money. → detached samurai from feudalistic land ownership Meiji government abolished the social classes and removed samurai’s privileged social status, which caused them financial difficulties and future instability. 26

27 Why did samurai lose the war against conscripts from non samurai classes? - Modern equipment - Fire power superiority - Advanced communication system (including literacy) →War was no longer the art of personal skill of Swards. Lessons from Seinan War The lessons from the war - Meiji government believed in the Western civilization. → needs of industrial modernization - Government noticed the value of communication skill. → needs of educational system modernization Key words : Military, Industrialization, Education 27

28 Consequence of Seinan War First railway Miike mine Tomioka silk mill Huge war expenditure - War expenditure ate almost total tax revenue. - Disorganized money supply caused terrible inflation. → Government could not proceed industrial modernization. ・ Government went for privatization of government assets - Railways (Nippon, Sanyo, Kyushu, Kansai, Hokutan etc.) - Government factories (silk mill, spinning firm, shipyard, beer etc.) - Government mines (Miike, Takashima, Sado, Ikuno etc.) - Banking sector (Daiichi etc.) - Real estate (Hokkaido development bureau etc.) Tax increase and extreme deflation policy - Tax reformed : from rice (Edo Era) to money (Meiji Era) - Peasant exhausted. → mass of flow to cities caused cheap labors. => Massive industrialization by private sectors. 28

29 Growth of light industry (cotton: top priority for money save) Russo- Japanese war Sino- Japanese war In 1883, Osaka Spinning Co was equipped with spindles and run by steam engine in the city. With low labor costs, Japanese cotton thread became competitive for export by Osaka Spinning Co Early local spinning mills were too small with only 2000 spindles and run by water wheel. 29

30 New Ring spinning machines employed at early stage. (The machine for young girls to work with.) Young girl labors were massively supplied from agricultural sector at cheap costs. (Girl labors lived in a dormitory for 2 shift work.) Used various imported cotton for best mix (mainly Indian and American). Rise of Japanese merchant fleet. Government support on financing and tax. Growth of light industry (cotton: top priority for money save) 30

31 Growth of light industry (raw silk : top earning item) Raw silk was top earning item (particularly from US) until WW2 Year ProductionExport Share in US market Productionby machineExportTo US tons% % 18781, , , , , , , , , , ,

32 Growth of heavy industry (Coal, the blood of industry) Japanese major coal mines were located in Kyushu island. Mass development was made by Zaibatsu. (Mitsui, Mitsubishi, Sumitomo, Furukawa etc.) Coal was the blood of Japan’s industrial development. YearProductionExport (1,000 t/y) ,4892, ,6812,816 Statue of miner 32

33 Growth of heavy industry (rise of Japanese technology) Yahata steel mill (1901) HJMS Yamato (1940) Zero fighter plane (1939) Japanese heavy industry relied heavily on military demand. This encouraged development of own unique technologies. 33

34 WW1, Earthquake, Financial Crisis then War Tone Economy WW1, WW1 lead Japan to booming but bubble economy collapsed after the war WW1 de-stabilized gold standard and exchange rate volatility widened WW1 turned Japan from debtor country to creditor country Kanto earthquake in 1923 Earthquake devastated Tokyo, Yokohama with more than 140 k death toll Damage was over 3 times of Japan’s budget. Bank system got impact Financial crisis in 1927 Unsettled earthquake bills caused banking crisis Over 2000 banks in 1919 fell into 625 banks in 1932 but BOJ did not help Great depression, Wall Street crash in 1929 devastated Japanese economy Social instability rose Fascism and aggression for new market Marching to War Economy,

35 Post War Economic Recovery Tokyo 1945 Tokyo

36 Historical Topics after WW China (PRC) Cold war 1950 Korean war nd Middle East war (Suez War) 1960’s Vietnam war rd Middle East War th Middle East War 1979 Iranian revolution 1981 Iran Iraqi War 1985 (Plaza accord) 1991 Gulf war 2003 Iraqi war 1947 Dissolution of Zaibatsu by GHQ order 1950 Korean war booming 1952 Release from Allied rule Post-war booming 1964 Tokyo Olympic 1970 Osaka Expo st Oil shock Post war boom ended Bubble economy Lost 10 years 2011 Tohoku Great Earthquake JapanAsia 36

37 WW2 damage on industry Korean War WW2 War to China 37

38 GHQ Orders “Entire demilitarization of Japan” MacArthur Indirect ruling through new Japanese government New constitution => democratization Purging pre-war leaders (political, economical) Strict anti monopoly law Dissolution of Zaibatsu Farmland reform(70%:from big landlords to peasants) Trade union authorized New educational system launched War compensation to Asian countries Pre-war economic order was destroyed. 38

39 Desperate Post War Economy War time stocks quickly exhausted Coal production down seriously (from 50 mil t/y down to 10 mil t/y) Extremely unbalanced goods and money (over money supply generated huge demand.) Another inflation Hyper inflation Immediate Production Needed Priority production system “Reconstruction Fund” 39

40 Priority production system Steel mills Coal mines OIL GHQ Steel Production 30 mil t/y Other industries Special rations Steel products priority share Coals Priority goal J. Gvt MITI OK Request Special supply Steel products smaller share priority share Reconstruction fund 40

41 1948 “Dodge Line” deflation policy Yen/US$ rate fixed at Yen 360/$ (till 1971) 1949 Depression by deflation. Japanese starving Korean War 1950 Sudden war demand by US Dollar No direct involvement in the war 1954 Industry caught up pre-war level Hard Deflation Policy and Korean War 41

42 Demilitarization destroyed war industry > Japan freed from military expenditure (security on small cost of US-Japan Security Treaty) > War industries reformed to heavy chemical industries (Asian textile industries replaces Japanese superiority) > War engineers moved to electronics, motor car industry. + MITI’s leadership to industrial innovation > Projected ship demand to survive shipbuilding yards > Government’s financial institutions to grow industrial competitiveness > Protection of industries against foreign intrusion > Privatization of power utilities (9 regional companies) > Massive and continuous infrastructure construction Fruit of demilitarization policy and MITI’s initiatives 42

43 Large private investment > Heavy war damage -> Chance of facility renewal > War based demand -> Consumers demand Massive consumers demand > Higher income distribution to labors and farmers. > High saving trend. Energy change from Coal to Oil > Cheap energy source for easier handling Bank’s Keiretsu formation > Major bank as leading equity / investment supporter Innovation trilogy > Renewal of heavy industries (improvement) > Motor car and electric home appliances (catching up US) > Petrochemical and electronics (brand new industries) Elements of post-war economic drive 43

44 Pre-WW2 entrepreneurs (typical)Post-WW2 entrepreneurs (typical) Toyota (motor car)Panasonic (electronics) Bridgestone tire (tyre)Mazda (motor car) Kuraray (textile)Honda (motor car) Ajinomoto (food)Sony (electronics) Nakano vinegar (food)Yammar Diesel (machinery) Kikkoman soy source (food)Idemitsu (oil) Shinetsu chemical (chemical)Kajima (construction) Matsuzakaya department (retail)Obayashi (construction) Santory (food) Takeda pharmaceutical Maruha fishery (food) Kagome ketchup (food) Lion soap (sanitary) Leading entrepreneurs 44

45 Million Yen, at 1990 value Mean personal income = Nominal personal income / GNP deflator Price is re-evaluated on the level of 1990 Until WW2, mean personal income was along with CPI. After WW2, increase of mean personal income was far more than CPI WW2 Post War Recovery (Growth of mean personal income) 45

46 Original (in 7C) (The symbols of imperial legitimacy) New (in 20C) (The symbols of modern life) Valour Wisdom Benevolence Anyway rich Three sacred imperial treasures (symbol of consumers’ dream) 46

47 Refrigerator Washing M/C Vacuum cleaner Color TV Car AC Elect oven PC Mobilephone Digi Cam DVD player recorder Post war booming Spread of electric home appliances (spread of happiness?) Ratio of household spread of electric appliances 47

48 Ratio Japan vs. World Japan World Ratio GDP per capita (US$) Angus Madison HP (http://www.ggdc.net/maddison/)http://www.ggdc.net/maddison/ GDP per capita Japan vs. World Japan’s GDP per capita has been on world average until WW1 time. Rapid growth after WW1 was heavily hit in WW2 but then sharply developed its productivity to What was the incentive behind? Per capita GDP (US&) 48

49 USAJapanUKChina Global market shares of typical countries 49

50 Symbol of success (Tokyo Olympic, Osaka EXPO) 50

51 4 th Middle East War caused OAPEC’s new oil strategy High energy price pushed up costs of production and services => High rate of economic booming ended Japan’s quick earlier recovery by export > High performance and reliable products >Strong marketing (product variety, after sales services) >Low profit margin, low wages >Relatively cheap Yen rate >“Our company” culture (Life time employment, in-house social security, in-house promotion till CEO) >Japanese QC/OJT theory : Kanban system etc. Oil Shock 1973 and Recovery of Japan 51

52 Economic development rate Oil Shock 1973 and stable development Source: Prime Minister Office: Yearly GDP Growth 52

53 Major city land price index and Nikkei stock index Major city land price index Nikkei index Plaza accord Bubble Collapsed Bubble Economy in late 1980’s 53

54 Rapid industrial development caused environmental pollution. It caused heavy damage on living environment and big social conflicts. > Air pollution (Yokkaichi asthma) > Water pollution (Minamata diseases) > Soil pollution(Itai-itai diseases) > Noise > Vibration Bitter pay for development 54

55 1967 Pollution prevention law 1970 Intensive debate in the parliament 1993 Environment protection law > After number of casualties and damages left behind tragedies, strict control was imposed and environmental protection technologies were developed. ⇒ Now Japan has most advanced technologies. Ashio copper mine Bitter pay for development (Environmental Pullution) 55

56 (k) (m) years BC 2006 peak Kamakura Gvt Imperial rule Tokugawa Shogun Gvt Meiji rest. WW 2 AD Over 65 year old age rate Pre history era Reference : Up to Meiji Restoration : from “Japanese History from population” Hiroshi Kito (2000) Population in 1920, 1950, 1975,2000 : from Census results 2030,2050,2075,2100 : estimates by National Laboratory of Social Security and Demographic Issues Temperature down by 2 ℃ Battle of Sekigahara Demographic challenge Long term demographic change 56

57 Great Tohoku Earthquake What will be Japan’s future? 57

58 Thank you for your attention For further contact: 58


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