JAPANESE
CAPITALISM:
State, Society and Development
Overview: Significance and Historical
Stages
• Japan is a very important source for studying the path to capitalism
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for the following reasons:
1. It is the first non-Western nation to develop an economy that could
compete with Western nations.
2. It provides us with a unique form of capitalism that is different in
structure and organization from many of its Western competitors,
especially up until the early 1990s.
Our analysis of the Japanese path to capitalism will follow a
recognized historical structure.
1. Edo/Tokugawa Period(1603-1868). This is the period that saw
Japan become an isolated nation with the intent of avoiding the
dangerous influences of the outside world.
2. Meiji Restoration(1868-1945). This is the period of Westernization
and the development of an industrial and modern economy in Japan.
3. Post-war(1946-Present). This is the period known as the Japanese
“economic miracle.” In this period, Japan grew to become the second
largest economy in the world and a global leader in export-led growth
as well as a culturally specific form of capitalism.
Edo/Tokugawa Era
• This period is also known as the Nanban Trade Period.
• The capital of Japan was the imperial city of Edo. This was where the Emperor
resided.
• Bakufu or Shogun System: This was a feudal form of government in which the
Emperor had very little real power. Most of the political, social and economic
power was in the hands of a military leader known as the Shogun. He exercised
power through the auspices of the Emperor’s legitimacy. As a feudal system,
economic power was held in the hands of the military elite such as the samurai as
well as wealthy landowners. Commercial interests were not seen as important or
significant and the peasantry lived in perpetual poverty. The economy was
essentially based on the value, trading and control of rice.
• There was a very limited amount of trade with the West. Tokugawa was
concerned with controlling and eradicating the influence of Christianity, which was
growing steadily from missionary work. This effectively cut Japan off from the
outside world(sakoku). The only Western power that was allowed to maintain a
trading post were the Dutch in the town of Dejima. While being isolated from the
outside world, the Japanese still cultivated a knowledge and study of Western
sciences and techniques (Rangaku).
• The Japanese were able to use this rangaku to learn about Western weaponry,
such as muskets, and to use them to form powerful military systems that would be
able to withstand foreign attack.
Meiji Restoration
• This isolationist policy survived in Japan for over two hundred years.
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However by the middle of the 19th century, new outside dangers
threatened Japan.
Greater Western reach and powerful technology: The invention of steam
power, the use of steel and more efficient weapons made the European
powers much more of a threat than they had been previously.
The Scramble for China: The great empire of the Qing was under
consistent attack from Western powers. Western nations such as Britain
were opening up the formerly closed Chinese Empire to foreign trade.
These agreements clearly placed China into a semi-colonial status.
The Opium Wars(1839-1860).
This Chinese struggle with the West was very frightening as well as
instructive to the Japanese. They eventually learned that isolation would
not succeed and that the only way to remain independent was to adopt
Western science, technology and bureaucracy.
Convention of Kanagawa(1854): This was the first treaty between the
United States and Japan and was signed under the threat of force. It
opened the ports of Shimoda and Hakodate to American vessels. The
threat of force was made real by Admiral Perry’s shelling of Edo.
Continued
• These events led to an overall reaction, on the part of societal elites, to the
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Bakufu. There were many who did not want to see Japan end up as China; they
therefore overthrew the Tokugawa shogunate and replaced it with a modern state
system under the auspices of the Emperor. They argued that they were restoring
the authority of the Emperor.
The slogan of the new regime was “Rich State and Strong Army Policy.”
The new leaders invested in a new Western-based education system for all young
people and sent thousands of Japanese to study in the West as well as hiring
many Westerners to teach modern science, mathematics, technology and foreign
languages.
The government invested in railroads, improved roads and initiated a wide
ranging land reform. All of this was designed to promote industrialization and
wider business interests.
The government was also involved in building factories and shipyards that were
sold to entrepreneurs at a fraction of their cost and/or value.
The Japanese government wanted to combine economic industrialization with a
strong investment in the army.
Colonization and imperialism: the nation embarked on a colonizing mission that
saw the country expand into China, Korea and other parts of Asia. This process
also led to an almost inevitable confrontation with other powers. Imperial
expansion was seen as a way stabilizing the economy and insuring growth.
The Post-War Era
• After its defeat in World War Two, Japan seemed to be in
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a position of total economic collapse. However, a quick
recovery ensued.
The reasons for this are partially based on the following:
1) American economic and political investments.
2) The Korean War.
3) Government Policy.
4) Post-war economic boom.
The economic system adopted after the war was based
on promoting an export-led growth.
Unique Japanese Features
• According to Tsuru, Japan had some unique features to its
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economic system:
1. The so-called “one-set” oriented behavior of major business
groups.
2. Paternalistic administrative guidance by the Ministry of
International Trade and Industry (MITI).
3. Anticipatory public investment in creating factory sites by
reclamation.
4. Various special tax-relief measures favorable to private
industries.
5. The low interest-rate policy.
6. Deliberate temporarization of the trade and capital-inflow
liberalization.
7. Specific subsidy measures as regards the use of water and
electricity for industrial purposes (Tsuru, 87).
Administrative Guidance
• The term “administrative guidance” refers to a method, not a policy. It is
a method widely used by the Japanese government to support or
reinforce many sorts of policies, both microeconomic and
macroeconomic.
• Essentially, administrative guidance involves the use of influence,
advice, and persuasion to cause firms or individuals to behave in
particular ways that the government believes are desirable. The
persuasion of course is exerted and the advice given by public officials
who may have the power to provide—or withhold—loans, grants, foreign
exchange, approval or cartel arrangements, and other desirable (or
undesirable) outcomes both and over the indefinite future…the
Japanese tradition of private acceptance of government leadership and
the wide-spread recognition that government officials have knowledge,
experience, and information superior to that available to the ordinary
firm, as well as the sharing of values, beliefs, and political preferences
by government officials and business leaders, all contribute to the
success of the method (Ackley and Ishi: In: Tsuru, 96-7).
Cultural Features of Japanese Capitalism
• Nemawashi (consensus building): this is an informal process of
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quietly laying the foundation for some proposed change or
project, by talking to people concerned, gathering support and
allowing feedback.
Kaizen (improvement): this is a philosophy that focuses on
continuous improvement throughout all aspects of life. This
focuses on continually improving all functions of a business,
from manufacturing to management and from the CEO to the
assembly line workers.
Lean Manufacturing.
Lifetime Employment (shushin koyo).
Keiretsu: this is a set of companies with interlocking business
relationships and shareholdings.
Karoshi: death from overwork.
Japanese Recession and the changing economy.