What were the economic reforms of the Meiji state?

What was the role of zaibatsu in the

economic rise of Japan?
The Tokugawa Shogunate collapsed in 1868 and with it commenced the Meiji era which
lasted until 1912.
In its early years, the Meiji government faced a number of pressing problems such as to
cope with the Western threat and retain its independence after being forcefully opened, to
legitimize the new leadership which was by no means secure, to accommodate the
growing pressure from below, to overcome its economic difficulties and to put itself on
the path to development.
Thus, it became necessary for Meiji Japan to revolutionize the agrarian economy and
transform the nation into an industrial society if the policy to enrich and strengthen the
nation was to be realized. This led the Meiji government to introduce a number of
economic reforms. The government also saw it as an essential step in dealing with
external pressures since revision of the unequal treaties, the key to Japans independence,
was impossible without domestic economic reform.
In accordance with its policy of removing feudal restrictions, the Meiji government lifted
the ban on the export of rice in 1871. In the same year, it also removed the customary
restrictions on land utilization and legalized capitalist relations of production, changes
welcomed by most farmers. Private ownership of land, established by the issuance of title
deeds, was recognized and in 1872 the right to buy and sell land was finally granted.
With the abolition of feudalism, the government issued a decree in 1871 formally
abolishing the han and replacing them with prefectural units headed by governors sent
from the centre. A number of han welcomed this decision because of their severe internal
weaknesses and financial troubles. The daimyo were allowed to retain an income that was
equivalent to one-tenth the income of their former han and the central government
assumed the debts that had been incurred by the han. The abolition of the han facilitated
internal trade and led to the emergence of a national market for industrial and commercial
expansion.
However, stipends and domain debts were a considerable drain on the treasury which
eventually led the government to commute the pensions of the former daimyo and
samurai in 1876. The lump sum payments to the daimyo and samurai formed a source of
capital for investments in new industries.
Despite the drain, there were few sources of additional revenue that the government was
willing to tap. It rejected borrowing abroad because of the obvious perils to national
security in case of subsequent default, and it taxed commerce and industry as lightly as
possible in order to speed capital formation. Besides, the commercial treaties forced on
Japan by the West had fixed tariffs at uniform low rates that limited the revenue from
foreign trade.

The major linchpin of the economic changes brought about by the Meiji government was
the Land Tax Reform in 1873. The Land Tax Reform was a necessary step in easing
internal financial pressure, since the Meiji government's revenue depended largely on
agricultural taxation, and in overhauling the system of landholding and taxation.
The Tokugawa land tax had been based on estimates of productivity measured in output
of rice, and rates of taxation varied from one place to another. However, the Meiji land
tax was set at a uniform 3 percent of the monetary value of each piece of land as
determined by a complex formula that included estimates of land fertility, commodity
prices, fixed production costs, and reasonable rates of return. The tax was paid in cash
directly to the state by each owner. It was a fixed tax and initially there was no provision
for tax reduction in the event of natural calamities. In return, taxpayers were given title
deeds that conferred full rights of ownership. No attempt was made to regulate landlordtenant relations. Landlords were responsible for paying the yearly tax, after which they
were free to charge whatever rents the market would bear.
The 1873 revision of the land tax altered every feature of the old tax system which
resulted in ninety-nine rural protests between 1874 and 1881. The most frequent
complaint was not the tax rate itself but the way that the tax officials determined land
values and interim taxes. Often villages disputed the prices used to calculate the cash
value of crops and to commute taxes previously collected in kind, for the lower the price,
the lower the assessment. Because rice prices fluctuated from year to year and from one
district to the other, some villagers were likely to feel unfairly treated, especially if local
soil, climate, and market conditions lowered the price of their crop.
One of the major protests occurred in the Naka district of Wakayama Prefecture in 1876.
Initially, the villages disputed only the assessment of interim taxes, but they soon
broadened their demands to include land values. They insisted that the rice price was too
high and cited of more favourable treatment afforded by other tax commissions.
Increasing agitation forced the governor to authorize a 5 percent reduction in the official
price, about half of what had been demanded by the protestors. Their subsequent demand
prices being determined on a case-to-case basis according to the conditions in each
district was not accepted and the protest was brutally suppressed.
Another major protest occurred in Tottori, where a number of villages rejected the new
tax assessments. By 1876, 112 villages in the prefecture were protesting against the tax
assessment. However, opposition collapsed when the local tax commission invoked a
recently adopted amendment to the land law that authorized on-site assessments as a last
resort. The commission appointed a committee of local notables to investigate conditions
in the villages that had been at the forefront of the protest. The investigation revealed that
conditions in the villages did not warrant special consideration. Soon after, most of the
villages abandoned the protest.
In 1876 samurai revolts erupted in south western Japan because of which the government
adopted a more conciliatory policy toward the farmers. In 1877, the land tax was lowered

from 3 percent of the market value to 2.5 percent, a reduction of 17 percent in the yearly
tax. Later in the year, the law was further amended to permit reductions when crop loss
due to natural disasters exceeded 50 percent. Finally, farmers in villages faraway from
marketing centres were allowed to pay part of their tax in produce.
The adoption of these measures was followed by a decline in protests, but it did not
eliminate all resistance. A dispute occurred over revised assessment in 1878 in Ishikawa
Prefecture, where twenty-eight villages, led by a group of wealthy local notables, had
risen in protest. The protestors sought outside support and made contact with the
Risshisha, a liberal political society headed by Itagaki that was campaigning for an
elected national assembly. It sent an official Sugita to help the protestors. Experienced in
legal matters, Sugita filed various suits on behalf of the villagers, and the linking of the
two movements alarmed the government.
The dispute was finally settled in Tokyo and the Finance Minister ordered that the entire
tax process be redone, starting with new surveys. The result was not a complete victory
for landowners, for although the new assessments were substantially lower, the
administrative costs charged to the villages amounted to more than twenty times the
yearly savings in the land tax.
The principal result of the land tax was to equalize and rationalize tax assessments
according to market values. It helped in eliminating arbitrary principles existing in the
Tokugawa taxation policy. Land tax being equally levied was basically an effort made by
the Meiji government to give relief to the majority of landholders but not all classes of
landholders benefited equally.
The revised land tax system worked to the advantage of large farmers, especially
landlords. The corporate features of the Tokugawa land tax was eliminated, as was
payment in kind, and both these changes gave capitalist farmers greater access to the
market. Taxpayers were also given full rights of ownership, even to the mortgaged land
and paddy fields that tenants had brought into cultivation, and conditions of tenure no
longer conferred customary right to permanent tenancy. It also made landlords legally
free to sell land and renegotiate rents.
The Meiji land tax posed special problems to the poor. Since the land tax had to be paid
in cash, it resulted in producers dependence on the market and increased the risk of
bankruptcy. However, the feature of the land tax that caused the greatest hardship to poor
farmers the fact that taxes were held constant proved highly profitable to those
farmers who, through investment and technological innovation, boosted output and
income, for taxes were not tied to profits. The only favourable aspect of the land tax
revisions as far as the peasants were concerned was the elimination of community
responsibility for taxes.
The government also actively propagated Western knowledge and introduced compulsory
public education. It encouraged the development of new industries by building and

operating key enterprises, constructing model plants, and granting government subsidies
to private entrepreneurs.
The government took initiative in constructing modern transportation and communication
systems, which were essential for the modernization of the economy. The first railroad
line, the Tokyo-Yohohama Railway, was opened up in 1872. In 1869 the telegraph line
between Tokyo and Yohohama was completed, and in 1871 a postal system linking Tokyo
and Osaka was introduced. In shipping, the government gave its support to the Mitsubishi
Company so as to enable it to compete with foreign companies. Shipyards, arsenals,
foundries, machine shops, and technical schools were established and operated with
foreign technical advisors.
In the realm of industrial development, the government established the first modern silk
filature in 1870. Cotton spinning mills were built or reequipped with modern imported
machinery. Experimental factories were built for the production of cement, tile, sugar,
beer, glass, chemicals, woolen fabrics, etc. Using foreign technicians, the government
also played a role in developing the mining industry, particularly copper, coal, and
precious metals. In order to foster and stimulate interest in industrial development it also
staged an industrial exposition in 1877. It placed great stress on agricultural
improvement, and also sought to encourage animal husbandry by establishing
experimental stations.
The government also brought about critical reforms in the fiscal realm. The government
issued nonconvertible paper notes and borrowed from big merchant houses to offset the
imbalance of its precarious financial position when it came to power in 1868. In 1872 it
authorized the establishment of national banks and retired nonconvertible notes.
In 1885, Matsukata reformed the banking system by establishing the Bank of Japan,
which replaced the national banks as the bank of issue. This drastically improved the
financial position of the government and gave the country a modern currency system and
an effective budget structure. Japan was thus finally ready to enter the stage of modern
economic growth.
Although Matsukata deserves credit for his achievements, his taxation and deflationary
policies had serious adverse effects on the farmers and created severe hardships that
ultimately led to agrarian riots.
Despite the opposition, the economic reforms introduced by the Meiji government put
Japan on the path to modernization and enabled it to rise to the status of a world power.
One of the distinctive features of the Japanese economy by the 1920s was the
extraordinary concentration of wealth and economic power in the hands of a few giant
concerns and the families that owned them. A small group of business leaders gained
control over a large proportion of Japans new industrial economy, just before
industrialization started to pay off.

In the industrial upsurge of World War I, those industrialists who already had a head start
expanded enormously, and during the decade of economic uncertainties that followed the
war they fastened their hold on the economy even more firmly. At least half of Japans
banks were eliminated during this period, leaving the financial power needed for largescale industrial expansion concentrated in the hands of a few giant institutions. The
leading financial and industrial groups had from the start cooperated closely with the
government and had benefited greatly from its patronage, but now a greater equalization
of roles began to take place. Businessmen continued to work within a framework of
government fiscal policy, to depend on the government for foreign exchange, to require
the cooperation of the various ministries, and to profit from government for their capital
requirements. On the contrary, the government came to depend on them for aid in floating
bonds issues. And while continuing as instruments of government policy, big business, by
its ties within the bureaucracy and by its financial influence on the political parties, came
to have a growing voice in the formation of policy as well. The term zaibatsu, or
financial clique, came into common use at this time for these business giants.
The top four companies which constituted the zaibatsu group were Mitsui, Mitsubishi,
Sumitomo, and Yasuda. Other giants Shibusawa, Asano, Furukawa, Kuhara, Kawasaki,
were also a part of zaibatsu.
The zaibatsu firms concentrated almost completely on the newer and more rapidly
growing sectors of the economy, but few of them even established the degree of partial
monopoly that was becoming characteristic of the new industries in the United States and
other Western countries at the turn of the century. Instead they commonly established
conditions of oligopoly, that is, the control of the market in some product by a relatively
small group of sellers. Often such producers joined in voluntary associations to regulate
the quality of their common product and to curb undue competition within the domestic
market.
A typical zaibatsu firm usually spread over a variety of fields, thus constituting a
combination of business enterprises rather than a single great company. Such a
combination expanded horizontally through a variety of manufacturing or mining
industries and also vertically through the different stages of activity concerned with a
single product. Such combines grew to enormous size during the 1920s and 1930s. Mitsui
and Mitsubishi were at that time probably the two largest private economic empires in the
world.
There has been a heated debate over the economic efficiency of the zaibatsu system as it
had developed by the 1920s. Some economists argue that the system was very efficient.
However, there are others who have criticized the zaibatsu system for its tendency
towards monopoly, which normally produces economic stagnation. While the combines
were usually engaged in keen competition with one another, the smallness of their
number and the weakness of the laws permitted collusive arrangements which at times
probably raised prices and increased profits beyond levels that would have prevailed in a
more fully competitive system.

However, such tendencies never went very far. Foreign raw materials and markets in the
zaibatsu enterprises helped keep their prices highly competitive. It was not until the
1930s and under pressure from the government, rather than from the zaibatsu themselves,
did the Japanese economy begin to suffer from the restrictions of excessive cartelization.
On the other hand, the very size and breadth of interests of the zaibatsu combines
permitted them to venture into new and costly fields or develop large-scale enterprises,
which might otherwise have gone undeveloped or been left to less efficient government
management. Moreover, their great size and divergent interests permitted a high degree of
economic integration.
The concentration of a large proportion of Japans wealth in the hands of the zaibatsu
families was also probably a net economic gain. The zaibatsu families, being few in
number, could not possibly consume all their vast income. As a result, the bulk of profits
from the combines were reinvested in their expansion, a fact which helps to explain
Japans phenomenal economic growth during this period. Thus, the whole economic
history of Japan down to World War II proves that the zaibatsu system must have worked
with considerable economic efficiency and it undoubtedly played a significant role in the
economic rise of Japan.
Bibliography
Mikiso Hane Modern Japan
Class Notes

By
Sufia Khan
Roll No. 1147