FEBRUARY 1904 - SEPTEMBER 1905

The Economic Effects of Japanese Militarism

Could Japan have industrialized so successfully without militarism? Though this is a question haunting students of Japanese history, perhaps it is the wrong question. The Meiji oligarchs set their sights on nothing less than achieving Great Power status for Japan, and this meant both economic and military development of the nation. Though many scholars have pointed out how this emphasis on military development often retarded economic growth, I argue in this paper that both were simply tools used to achieve the real political goals more readily.

This can be demonstrated through the examples of the two foreign wars fought during the Meiji Era, the First Sino-Japanese and Russo-Japanese Wars. When examined politically, both are examples of the international imperialist politics of the time period, simply the Meiji government playing the same dangerous military games as the Western powers. On the other hand, while the Sino-Japanese War was partially beneficial economically, the Russo-Japanese War was an economic disaster.

At the beginning of the Meiji Era, Japan was politically divided and economically far behind the Western nations whose international status it desired. Astute Meiji leaders quickly consolidated power-the last major opposition to the government was destroyed with the defeat of the Satsuma Rebellion in 1877. Additionally, as a latecomer to industrialization Japan had several models, enabling the country to plan more successfully and even direct growth in some ways.

Relieving the government of the economic burdens that had crippled and destroyed the Tokugawa, the stipends paid to samurai families and the lack of a national currency, was the crucial first step. Both were accomplished within five years of taking power in 1868. In 1871 the government replaced the annual stipends with lump-sum payments, and replaced the feudal domains with new administrative units, the Ken (Prefecture), to be governed from Tokyo. During the Tokugawa period, gold, silver, and feudal domain currencies were all common, and the income of the Tokugawa government had often been at the mercy of the gold-silver exchange rate. In 1872, after the abolition of the Han and their unique currencies, Tokyo first issued the Yen.

Obviously the government's actions up to this point and future plans had a considerable cost, which was not met easily by a new government without a large income. Though some small loans from the West were given to support the new regime, the most important source of revenue was a land tax. This tax made up almost 60% of revenue up until the 1890s, and continued to provide significant income to the end of the era, by which time industrialization was well underway.

During the Tokugawa Era, Japan had no postal service and the fastest form of travel was horseback or boat. In 1869, the Meiji government established a steamship line between Tokyo and Osaka, and in 1871 incorporated the postal and telegraph services. Loans abroad were available for development of railroad infrastructure; British loans, for example, financed the first rail line in Japan, between Tokyo and Yokohama. In education, the new and mostly young Meiji leaders undertook a massive cultural exchange program with the West. Thousands of Japanese were sent abroad on government scholarships, and Western teachers were hired by the government to teach a variety of subjects in the mandatory schools established in 1872.

With these prerequisites in place or being developed, the government then turned toward systematic industrialization on a nationwide scale. Due to the importance of silk clothing for people of certain status during the Tokugawa Era, Japan already had a large domestic silk industry. The international silk trade was growing and the Western equipment needed for automation was relatively inexpensive, so the government encouraged development through loans and importation of equipment resold to entrepreneurs through installments.

Tokyo's key but hardly central role in the silk industry is a sharp contrast to its involvement in some of the heavy industries that arose after their textile counterparts. Heavy industries, such as mining, iron smelting, or shipbuilding, required a much larger initial investment of capital. The government probably first became involved in heavy industries' because of the sector's strategic implications. The Meiji leaders were aware that over-dependence on Western suppliers that could easily lead to de facto colonization of their nation, especially in the area of military weapons.

Therefore the first government heavy industrial plants were military arsenals. As noted by Kozo Yamamura, however, the term 'arsenal' may be misleading since a large percentage of their work was done for the private sector. For example, the Yokosuka Naval Arsenal, created from an old Bakufu ironworks, "produced mining and other machinery as well as repaired twice as many foreign and privately-owned Japanese ships as navy ships." However, heavy industrial capacity remained very limited in most areas until well after the end of the Meiji Era.

In summary, on the eve of the First Sino-Japanese War, Japan's economy was at best a partially industrialized one. Literacy was high, communication and transportation were faster than ever, and a few light industries-notably silk and other textiles-provided the principle exports. In heavy manufacturing, however, Japan was not only far from being self-sufficient, but still had to import virtually all industrial materials such as processed steel or iron.

However, the government was ready to test its modernized military and so looked for ways to 'participate' in world affairs the same way as the Western imperialists. Korea, the most accessible foreign nation, was de facto independent but officially under the rule of the Manchu Dynasty of China. The conflict of Japanese and Chinese interests had led to the Treaty of Teintsin in April 1885, which stated that neither Japan nor China would introduce troops into Korea without prior written notice to the other power.

It is important to note that a treaty revision of 16 July 1894, which provided an end to British extraterritoriality rights in Japan in exchange for free access to the interior, gave Japanese leaders the prestige they felt was necessary to avoid Western reprisals. So, when later that year the Chinese violated the Treaty of Teintsin by sending troops at the request of the Korean government to repress the Tonghak rebellion, Japan had the required pretext for war.

Japan's modernized navy and army proved much more prepared for war than did the Chinese military. By the end of September, the Japanese Army had defeated elite Chinese troops and occupied Pyongyang and the Navy had expelled the Chinese fleet from the Yellow Sea. In October, Japan invaded the Liaotung Peninsula in Southern Manchuria, on a direct route from Korea to the Chinese capital, Peking. In about five more months, Japanese troops occupied Lushun (later Port Arthur) and Darien on the Liaotung as well as Weihaiwei in Shantung, threatening Peking.

The Chinese sued for peace on 20 March 1895, and an armistice was declared on 30 March. The Treaty of Shimonoseki, signed on 17 April, had several key economic provisions. China paid an indemnity of 360 million yen, which was mostly used to put the yen on the gold standard. Japan also leased the Liaotung Peninsula and acquired Formosa (Taiwan) as a colony. Formosa was an economic burden at first, but later provided markets and important goods such as sugar. Japan also received the same Most-Favored Nation trading status the Western powers enjoyed and the right to engage in manufacturing in specified parts of China's interior, both of which were economically beneficial to Japan and confirmation of the new status of the country.

At the conclusion of the treaty, it appeared that the Meiji leaders had accomplished their goal of Japanese equality with the Great Powers. Some, however, decided Japan had accomplished too much. A week after the treaty was signed, the Dreibund of Germany, France, and Russia demanded on threat of war that Japan give up its lease of the Liaotung Peninsula. Japan sought help from the other Western Powers, but both Britain and the United States remained silent, so on 4 May 1896 Japan accepted the demand. Less than two years later, Russia leased the peninsula.

According to E.H. Norman, a post-World War II scholar of modern Japan, this war and its results-the victory and humiliation under force-marked Japan's turning point toward imperialism. The beginning of Japanese imperialism was no more popular than Western imperialism with Japan's neighbors; in recently acquired Formosa, a rebellion forced the Japanese to station a considerable number of troops there and taught Japan the facts of colonial life.

The war also began a new economic period, lasting until the end of the Russo-Japanese War in 1905, which showed an improved overall economic position for the country. Though the cost of the war outweighed the growth benefits of industry and commerce for its duration, the resulting economic changes, which otherwise would not have taken place, more than compensated for the war's cost. This judgement applies only to the economic position of Japan; I make no attempt to address the merits of the foreign policy track to which the war's results also led.

Economics confirmed that it was not a time to revert to a more informed isolationism, but rather to grow and expand like the Western powers. The economics preached in the European universities attended by Japanese exchange students had expansion as its first commandment. The larger the economy, the richer the nation. The reason for economically incongruent expenditure for the armed forces during this period was that Meiji leaders saw economic prosperity as a means to political goals. Thus contribution to these goals also judged military spending.

It is interesting to note that the First Sino-Japanese War hardly strained the infant Japanese economy at all. The war cost in total about 200 million yen, compared to an average annual national budget of 80 million yen. The government saw no need to raise taxes, but instead covered most of the increased expenditure with domestic bonds. In their Lessons from Japanese Development, Allen Kelley and Jeffrey Williamson describe the effect of this on investment capital:

[During wartime] governments [such as Meiji] induce potential investors to increase the share of government debt in their portfolios rather than in private debt . . . From 1887 to 1893, the net government impact on capital formation as a share in GNP was 5.2 percent. The figure is 9.9 percent from 1906 to 1915. Compare these figures with that of the wartime as, 1894-1905:1.7 percent.

This retardation of private investment was the most serious of economic backlash of the war.

On the other hand, export growth was not effected by the war. This was mostly due to the low percentage of heavy industrial goods Japan was able to produce, and that neither China nor the military was a large consumer of silk and other textiles. Also, private industrial companies that had a great deal of trouble with foreign competition during peacetime received substantial government contracts for war-related work. The end of the war brought an end to these government contracts but also left them on a firmer footing.

However, these were not the most important economic results of the war. After the end of the war, Japan may not have been recognized as a Great Power, but by defeating China became unarguably the strongest non-Western country in East Asia. This additional international prestige had two results: increasing the availability of foreign loans and removing the treaty clauses that gave Western powers control over Japan's tariffs. Most of these provisions were removed in 1899, but Japan did not regain full tariff autonomy until 1911.

This new status combined with the expansionist goals of the Japanese government also meant that there would also be continued conflicts of interest with Russia, with which Japan was already competing in Korea. A successful war with Russia would take a much greater investment of military and economic resources, so the economic period from 1894 to 1905 was characterized by high military spending which, including both wars, amounted to about 40% of total government expenditure. This is compared to around 25% for preceding period. Economically, this massive increase in military spending was illogical. The country, at an early stage in development, desperately needed even the smallest amount of capital for investment. Politically, however, it was imperative if Japan was to be taken seriously as a world power.

After the Boxer Rebellion in 1900, it became clear that not only Japan had conflicts of interest with Russia. Russia had kept troops stationed in Manchuria well past the pacification, and used these 'peace-keepers' to influence local politics. Other Western nations became interested in using Japan to buffer Russian expansion, and it was with this in mind that the Anglo-Japanese Alliance was concluded on 30 January 1902. With a powerful ally's support, Japan began to demand the withdrawal of the Russian troops.

Russia continued to refuse, so eventually Japan withdrew its ambassador and, on 10 February 1904, declared war. After a decisive naval victory off Port Arthur on 13 April, Japan invaded Russian-occupied Manchuria by land. Port Arthur fell after a siege from June 1904-January 1905, and the Japanese advanced toward the regional capital, Mukden. The Battle of Mukden is considered by some to be the first 'modern' battle; over 400,000 Japanese and 350,000 Russian troops participated and there were more than 200,000 casualties. Finally, when Admiral Togo defeated the Russian Baltic Fleet at the Battle of the Tsushima Straits in May of 1905, both sides agreed to a peace mediated by President Theodore Roosevelt of the United States.

The peace conference took place in Portsmouth, New Hampshire, and the treaty was signed on 6 September 1905. Russia withdrew from Manchuria, recognized Korea as a Japanese sphere of influence, agreed to allow Japan to lease the Liaotung Peninsula and gave Japan control of the South Manchuria Railway in that area, ceded Sakhalin Island south of the 50th Parallel, and gave Japan certain fishing rights.

Though the top politicians had expected little in terms of material gain from this politically motivated war, the Japanese people felt betrayed by the treaty. The main parts of the treaty concerned things Japan already had in fact accomplished: getting Russian troops out of Manchuria, leasing the Liaotung, and controlling Korea in their sphere of influence. All they saw were half of an Arctic Island and some fishing rights for a war that had exhausted Japan financially and military.

 'Exhaustion' is certainly the correct term to use for the effect of the war on the Japanese economy. The Russo-Japanese War was far more expensive to fight than the First Sino-Japanese War had been, costing 1730 million yen compared to 200 million. Though the large financial markets in the British and French Empires had become available for the war effort, these same financial markets were careful in judging their beneficiary's ability to repay, and so as the war continued capital became harder to find.

The cost was due not only to the relative strengths of China and Russia, but also the changes in military technology that had taken place in those ten years. The Japanese, like most Western counterparts, stockpiled weapons and ammunition and estimated total production capacity in case of a war. However, the military miscalculated "the estimated need for shells and other supplies using examples of European wars fought during the second half of the nineteenth century, [and so] began to face critical shortages of shells by the fall of 1904." As the country was in the middle of a war, the only option was to expand military industrial production as quickly as possible, and at high cost. Although a military disaster was averted, an economic disaster was in the making.

Though the majority of the money spent during the war, about 80%, came from borrowing, taxes also increased dramatically. Business taxes were raised as much as 70% and the land tax doubled in urban sites and increased by about one-third in rural areas. Western observers were not blind to these economic warning signs. In an article published during the war, one economist remarked, "in contrast to the extraordinary ability the Japanese have displayed in naval and military matters, [they have] loans so large that they are out of all proportion to the producing ability of the people." However, perhaps partly due to the popularity of Japan's fight against Russia in the West, the Japanese were able borrow enough to finish the war without an economic collapse.

The Meiji Era after the Russo-Japanese War

Japan could not impose on Russia the same kind of one-sided economic treaties that had been imposed on China (and earlier, on Japan), and the war was not so conclusive as to demand indemnity. This meant the massive war debt necessitated keeping taxes at wartime levels, which stunted post-war growth, but at least the end of the war freed capital-investment resources.

 "Japanese colonialism differed in important respects from the colonialism of European powers," including a great deal of industrial development and investment.

Of course, the Russo-Japanese War also had some positive results. The emergency expansion of military production was probably more money than the industrial-production sector of the economy would have otherwise seen, enabling a great deal of machinery and skills to be transferred to companies which soon returned to producing civilian-use goods. Also, despite the increase in taxes, civilian hands found hefty war profits that went back into the economy.

Still we do not know for certain why Japan modernized so successfully, or specifically what actions were correct and which were mistakes. One of these actions, in a broad sense, was the Meiji emphasis on militarism, of which the First Sino-Japanese and Russo-Japanese Wars were the largest expressions.

The First Sino-Japanese War was the smaller and more beneficial of the two wars. It was beneficial not because of the war itself, which in fact had negative immediate economic effect, but because of the results of the war achieved through political means, namely the one-sided Treaty of Shimonoseki and subsequent treaty revisions with the Great Powers.

The Russo-Japanese War, as I believe even Meiji leaders might agree, was a mistake as it happened. It brought at best limited political victories domestically and internationally, and it nearly caused the infant Japanese economy to collapse. Of course, this could never have been predicted beforehand, and attempts at explanation now as always simply lead us to more questions.

Debates, perhaps irreconcilable, will continue on this subject; historians must arrange the facts without knowing whether the resulting picture is a completed puzzle or an optical illusion. Still, it is possible to examine parts of this picture in terms of other parts, and the parts that I have chosen are the economic effects of the Meiji foreign wars. I was not surprised to find an ambiguous answer.