Between 1639 and 1858 Japan was largely isolated from the outside world. Trade was prohibited except for two Dutch ships a year at Nagasaki. Chinese traders were allowed at Nagasaki as well. In 1858 Commodore Perry forced the Shogun government to allow trade. It is important to recognize that Perry was not forcing the Japanese merchants to trade, he was forcing the Shogun to stop preventing trade.

The story of the origin of the shogunate is told elsewhere.

The Shogun lost face as a result of his inability to enforce his will and there arose sentiment for deposing the Shogun. Nationalists felt the Shogun had desecrated the sacred soil of Japan by allowing foreigners to come ashore freely. Some fanatics, called Shi-Shi, carried out assassinations of foreigners. The foreign fleets retaliated by bombarding the strongholds of the Shi-Shi. The nationalists came to the conclusion that the Shogun had to be deposed. The expedious way to depose the Shogun was to call for the restoration of the Emperor as the head of state. The leaders of the rebellion did restore the Emperor Meiji to a place of prominance but these leaders themselves ruled in the name of the Emperor.

Emperor Meiji
at Age 27

They were a remarkably able group and they carried out an economic and social revolution. This revolution is sometimes called the Meiji Restoration but most call it the Meiji Revolution. The period that followed is called the Meiji Era.

Ito Hirobumi

Matsukata Masayoshi

Kido Takayoshi

Itagaki Taisuke

Yamagata Aritomo

Mori Arinori

Okubo Toshimichi

Yamaguchi Naoyoshi

The Meiji Program of Economic Development

The Meiji Era leaders sought economic development as a concomidant of strengthening Japan, but circumstances allowed them very little policy choice. The first problem to be solved was financing the national government budget. In 1871 the national government in Tokyo assumed the debts of the domains which accepted its rule. The national government also assumed responsibility for the stipends paid to the samurai. The samurai class lost its source of livelihood in the land reforms and the creation of the conscription army of commoners. Although the revolution was called a restoration of the Emperor, what it was more fundamentally was an overthrow of the seven hundred-year rule by the warrior class of samurai. The samurai warriors accepted their displacement in return for a stipend. The aggregate magnitude of the samurai stipend was enourmous and requried one third of the revenue of the national government. Under this burden the national government substituted fixed interest bonds for the stipends. Later, with the excessiv creation of money, prices went up and the real value of the samurai's bonds declined. The inflation benefited the farmers whose land tax was at fixed monetary levels. They gained at the expense of the samurai and the city dwellers. Samurai rebellions in such places as Satsuma led to the creation of money to finance the suppression of these rebellions, which in turn led to inflation and a decline in the real income of the samurai and more dissatisfaction among the samurai.

Matsukata Masaoyoshi
Minister of Finance

Matsukata Masayoshi of Satsuma was the Minister of Finance over a ten year period. He sought to protect Japanese industry from foreign competition, but was restricted by the unequal treaties. The unavailability of standard protectionist devices probably benefited Japan in the long run. Had Japan been able to fully shield its infant import-substitution industries from foreign competition Japan would likely not have developed its export industries.

The national government tried at first to create government industry to produce particular products or services. The lack of funds forced the government to turn these industries over to private business which in return for special privileges would accomodate the government's goals. This was the origin of the zaibatsu system. An example of this is the rise of Mitsubishi. A semi-government shipping company was reluctant to to send its ships into military zones to provide troop transport. Mitsubishi provided troop transport for the national government's military expeditions and in return received the ships from the bankrupt semi-government shipping line. Mitsubishi was granted special privileges which enabled it to prosper and grow.

The national government created some programs, such as public education, by declaring that it must be done and leaving it to the villages to finance and arrange for its provision.

Matsukata was aided in his rise to the office of the Minister of Finance by Okubo Toshimichi.

Okubo Toshimichi

While some samurai leaders expressed their dissatisfaction with the situation by rebellion others such as Itagaki petitioned for representative government.

Itagaki Taisuke

It was not easy for Japanese businesses to find markets where they could compete successfully against European and American firms. In many cases Japanese businesses captured markets simply by selling at a loss. This strategy could not prevail without some source of financial subsidy. One industry in which Japanese businesses did compete successfully at a profit was the silk industry. At just about the time that Japanese silk producers wanted to enter the international market for silk there had been a failure of the silk industry in Italy. The failure of the Italian supply of silk resulted in higher prices for silk that was ususally the case and this higher price enabled the Japanese silk producers to make a profit. The available statistics for the Meiji period do document the success.

With industrialization came the demand for coal. There was dramatic rise in production, as shown in the table below.

Two of the things the coal was needed for were steamships and railroads. The growth of these sectors is shown below.

The Meiji Era policy of using private businesses to promote government policy objectives proved successful. When Park Chung Hee of South Korea wanted to industrialize South Korea he created the system of Chaebol, the goverment-sponsored firms such as Hyundai, Samsun, Lucky Goldstar, Daewoo, etc. This program was modeled on the Japanese Meiji Era experience. It was not surprising that Park used the Japanese model. He himself had become an officer in the Japanese Army complete with a Japanese name while Korea was under Japanese control. Park served in Manchukuo during World War II and was highly impressed with the logistics and planning operations of the Japanese Army.