Development of Japanese Economy

Report
Introduction to Japanese Business
History of Japanese Economic Development
December 12th / 19th 2013
Prof. Y. Sano
School of Economics
1
Main Business Area “Nihonbashi, Edo” in 18th century
Scene of Echigoya in Edo, 18th Century
2
“Trade” in 6th Century (flow of culture and civilization)
Mahāyāna Buddhism
Uighur
Kushan
Empire
Rice
Theravāda Buddhism
Two Most Important Cultural Flows – Buddhism and Rice
3
“Trade” in 6th Century (flow of culture and civilization)
Mahāyāna Buddhism
Uighur
Kushan
Empire
Rice
Theravāda Buddhism
Two Most Important Cultural Flows – Buddhism and Rice
4
Historic Topics
2800 BC Rice cultivation
7th c. Buddhism, other Asian civilization emigrated through China / Korea
630 Prince Shotoku established Emperor’s ruling system
1192 First samurai government
5
Historic Topics
1274
1543
1281
Defeat of Mongolian invasion (Kamikaze)
Portuguese introduced firearm “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
Historic Topics
1575
1600
Battle of Nagashino
Gun-armed Oda-Tokugawa allies defeated Takeda cavalry.
Battle of Sekigahara
7
Battle of Sekigahara in 1600 (Tokugawa’s pre-modern Edo Era)
Western
Eastern
Eastern (Tokugawa) Allies won and opened Tokugawa Shogun Government. Premodern Edo Era enjoyed 260 year isolation.
8
Historic Topics
1603
Tokugawa Shogun Government
Basis for robust feudal government system
17th~19th c Edo Era “260 years of self-imposed isolation” (pre-modern Japan)
Period of unique Japanese culture development
9
New type of business – Bill of Exchange
Edo – Osaka 550 km (344 miles)
Hikyaku “Flying Legs” takes 7 days
It may take longer, and dangerous
Edo
(Tokyo)
Osaka
10
New type of business
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 counterbalances its account with
Exchange House
Customer
Osaka
Edo
(Tokyo)
Exchange
House
No need to send money for a long distance reducing risk
of loss. Functions of B/E has been established in 18th c.
11
New type of business – Forward Rice Exchange
1693
Dōjima 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 (8th 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
Rice and Population in Edo Era
Social stability promoted
rice production growth.
1600 – 1700 <Phase-1>
• Farmland → 150%
• Population 12 mil → 31 mil
1700 – 1850 <Phase-2>
• Farmland expansion ended.
• Population stayed at 30 mil.
• Rice production kept rising by
technical development
(fertilizers, equipment etc.)
million
Phase-1
Phase-2
• Development of cash crops
(cotton, tea, rapeseed, silk)
Rise of proto-industries
13
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
Influence of International Trade at the end of Tokugawa Government
•
•
Silk :
Cotton :
•
Machine spinning cotton thread overwhelmed Japanese hand
spinning thread
top export item (60-85%)
top import item (35-50%)
One sided export / import might have caused Japanese monoculture economy
→potential economical colonization
•
Tokugawa government relied on foreign finance.
•
Trade imbalance caused heavy inflation.
→Cause of final collapse of Tokugawa government
15
Meiji Restoration in 1868
1853
1867
1868 – 69
From landlord’s economy (by rice)
to capitalism economy (by money)
16
Topics in History
Meiji Restoration to the 2nd World War
1868
Meiji restoration
1876
Mitsui & Co. Ltd. Established
1877
Seinan War
1880
Industrialization began
1894-95 Sino-Japanese war
1904-05 Russo-Japanese war
1923
Great Kanto (Tokyo) Earthquake
1927-32 Showa depression
1941-45 WW2 (Pacific War)
17
Meiji Restoration 1868
Change of City
Edo renamed to Tokyo (Eastern Kyoto). 京都→東京
High street changed from wooden to stony.
New Tokyo
Old Edo
18
Meiji Restoration 1868
Change of Ladies
Edo girl
Ladies have
always been
forerunners
for change
Ladies keep changing
dynamically though
Meiji Ladies
Now
19
Start of Mitsui
1602
Mitsui Takatoshi (三井高俊)started Liquor Shop
“Echigo-ya” (越後殿の酒屋=越後屋)
1673
Mitsui Takatoshi (三井高利)started Cloth Shop
“Echigo-ya” which later became Mitsukoshi (三越)
18th c
“Echigo-ya” expanded its business to Exchange
House which later became Mitsui Bank (三井銀行)
New Tokyo
Old Edo
20
Start of Mitsubishi
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)
1877
Made big fortune on Seinan War (西南戦争)
1885
Iwasaki Yanosuke (岩崎弥之助) took over
20th c
Expanded business to shipbuilding, banking,
coal mining, real estate, brewing, electric etc
New Tokyo
Old Edo
21
Meiji Government’s Priority Development Policy
a) Military enhancement
- Renewal of war equipment
- Massive mobilization of soldiers
b) Industrial modernization
- National factories (Light industries)
- Railway construction
HJMS Mikasa
by Vickers
- Communication
system
- Banking systems
- Coal mine development
- Agricultural development
→ Huge money and resources needed
Platt Brothers’ spinning machine
22
Urgency of enhancing Japanese trading initiative
• 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
23
Birth of Trading Company (Sogoshosha)
1876 Mitsui & Co., Ltd. founded
as the first Sogoshosha (General Trading House)
President :
Employees :
Mitsui family :
Takashi Masuda
16 (now 39,864 consolidated)
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
Mitsui’s first HO
24
Seinan War (Last Samurai’s War)
Rebels
30,000
Lost
Won
Government
70,000
25
Cause of Seinan War
• Meiji government took over Tokugawa liabilities including the
salaries to samurais without jobs.
→ over 30% of the government expenditure
• 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.
→ Samurai angry!!
→
Rebellions
26
Lessons from Seinan War
• 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.
• 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
Consequence of Seinan War
• Huge war expenditure
- War expenditure ate almost total tax revenue.
- Disorganized money supply caused terrible inflation.
→ Government could not proceed industrial modernization.
• Tax increase and extreme deflation policy
- Tax reformed : from rice (Edo Era) to money (Meiji Era)
- Peasant exhausted. → Miike mine
mass of flow to cities caused cheap labors.
=> Massive industrialization by private sectors.
First railway
・ 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.)
Tomioka silk mill
28
Growth of light industry (cotton: top priority for money save)
In 1883, Osaka Spinning Co was
equipped with 15000 spindles and
run by steam engine in the city. With
low labor costs, Japanese cotton
thread became competitive for
export by 1895.
Osaka Spinning Co
Early local spinning mills
were too small with only
2000 spindles and run by
water wheel.
SinoJapanese
war
RussoJapanese
war
29
Growth of light industry (cotton: top priority for money save)
•
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.
30
Growth of light industry (raw silk : top earning item)
Production
Export
Share in US
market
Year
Production
by machine
Export
To US
tons
%
tons
%
%
1878
1,360
0.0
871
17.4
0.0
1890
3,255
42.5
1,266
66.0
52.0
1895
6,012
56.4
3,486
57.6
49.4
1890
6,584
56.4
2,779
57.1
51.0
1895
6,897
65.6
4,345
74.6
51.3
1910
11,230
74.7
8,802
70.2
62.0
Raw silk was top earning item (particularly from US) until WW2
31
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.
Year
Production
Export
(1,000 t/y)
(1,000t/y)
1875
567
51
1880
882
132
1990
6,489
2,438
1910
Statue of miner
15,681
2,816
32
Growth of heavy industry (rise of Japanese technology)
HJMS Yamato
(1940)
Yahata steel mill (1901)
Japanese heavy industry relied
heavily on military demand. This
encouraged development of own
unique technologies.
Zero fighter plane (1939)
33
WW1, Earthquake, Financial Crisis then War Tone Economy
• WW1, 1914-1918
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, 1930-1932
Wall Street crash in 1929 devastated Japanese economy
Social instability rose Fascism and aggression for new market
• Marching to War Economy, 1937-1945
34
Post War Economic Recovery
Tokyo 1945
Tokyo 1990
35
Historical Topics after WW2
Japan
1947 Dissolution of Zaibatsu by GHQ
order
1950 Korean war booming
1952 Release from Allied rule
1955-73 Post-war booming
1964 Tokyo Olympic
1970 Osaka Expo
1973 1st Oil shock
Post war boom ended
1985-91 Bubble economy
1991-2001 Lost 10 years
2011 Tohoku Great Earthquake
Asia
1949 China (PRC)
Cold war
1950 Korean war
1956 2nd Middle East war (Suez War)
1960’s Vietnam war
1967 3rd Middle East War
1973 4th Middle East War
1979 Iranian revolution
1981 Iran Iraqi War
1985 (Plaza accord)
1991 Gulf war
2003 Iraqi war
36
WW2 damage on industry
War to China
WW2
Korean War
37
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
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.)
Hyper inflation
Immediate Production Needed
Priority production system
“Reconstruction Fund”
Another inflation
39
Priority production system
Special supply
OIL
OK
Request
Priority goal
Steel products
priority share
Steel
Production
30 mil t/y
Steel mills
Steel products
smaller share
priority
share
Coals
Other
industries
GHQ
J. Gvt MITI
Coal mines
Reconstruction
fund
Special rations
40
Hard Deflation Policy and Korean War
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
41
Fruit of demilitarization policy and MITI’s initiatives
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
42
Elements of post-war economic drive
Large private investment
> Heavy war damage
> War based demand
->
->
Chance of facility renewal
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)
43
Leading entrepreneurs
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)
44
Post War Recovery (Growth of mean personal income)
Million Yen, at 1990 value
3.5
3.0
2.5
2.0
1.5
1.0
0.5
WW2
• 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
45
Three sacred imperial treasures (symbol of consumers’ dream)
Original (in 7C)
(The symbols of
imperial legitimacy)
New (in 20C)
(The symbols of
modern life)
Wisdom
Valour
Benevolence
Anyway rich
46
Spread of electric home appliances (spread of happiness?)
Ratio of household spread of electric appliances
Refrigerator
Color TV
Washing M/C
Mobilephone
Vacuum cleaner
Car
PC
Digi Cam
AC
Elect oven
DVD player
recorder
Post war booming
47
GDP per capita Japan vs. World
Ratio Japan vs. World
Japan
Ratio
Per capita GDP (US&)
•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 1990.
•What was the incentive behind?
World
Angus Madison HP (http://www.ggdc.net/maddison/)
48
Global market shares of typical countries
USA
Japan
UK
China
49
Symbol of success (Tokyo Olympic, Osaka EXPO)
1964
1970
50
Oil Shock 1973 and Recovery of Japan
• 4th 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.
51
Oil Shock 1973 and stable development
Economic development rate
1985
1991
1974
Source: Prime Minister Office: Yearly GDP Growth
52
Bubble Economy in late 1980’s
Major city land price index and Nikkei stock index
Bubble
Collapsed
Nikkei index
Plaza
accord
Major city land price index
53
Bitter pay for development
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
54
Bitter pay for development (Environmental Pullution)
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
55
Demographic challenge
Long term demographic change
(k)
1400
(m)
140
Pre history era
2006 peak
126.9
120
1200
115.2
111.9
100
1000
20
110
20
160
80
1000 years BC
0.6
4.5
5.5 6.4
Temperature down by 2℃
Reference :
Up to Meiji Restoration : from “Japanese History from
population” Hiroshi Kito (2000)
12.3
68.2
56.0
33.3
31.3
6.8
47.7
Meiji rest.
260
200
Kamakura Gvt
Imperial rule
40
400
83.9
WW 2
60
Battle of Sekigahara
590
600
Tokugawa Shogun Gvt
80
800
95.2
AD
Over 65 year old
age rate
Population in 1920, 1950, 1975,2000 : from Census
results
2030,2050,2075,2100 : estimates by National Laboratory
of Social Security and Demographic Issues
AD
56
What will be Japan’s future?
Great Tohoku Earthquake
57
Thank you for your attention
For further contact:
[email protected]
58

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