Japan's Success

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14. Chapter 14



Finance, Trade, and Internal Communications

The sagacious men who from the dry bones of a currency which had survived from mediaeval days succeeded in creating a sound currency system are typical of the class to whom the destinies of modern Japan have been entrusted. It was an extraordinary achievement, and the wonder of it was increased by the fact that those responsible for this reform lacked the business training and banking knowledge which it might have been imagined were essential to the task. Nor was the handicap made lighter by the repugnance with which association with commercial matters was regarded by the men to whom was assigned the charge of the financial reform movement.

It is worth while to recall the conditions with which the reform party had to grapple. For a period of two hundred and fifty years the system established in the sixth year of Keicho had persisted. Banks, as the word is understood to-day, were non-existent in pre-Meiji times. The attempt to place currency affairs on a sound basis was, in plain words, the evolution of order out of chaos ; and if what happened between 1871 and the closing years of the nineteenth century looks a little like kaleidoscopic finance, that must be attributed, first, to the lack of expert knowledge in those responsible for the measures taken, and secondly, to the courage with which mistakes were recognized and efforts made to retrieve them.

To the gold monometallism of the early 70's succeeded the gold and silver bimetallism of 1878, followed in turn by a system of inconvertible paper-money, afterwards redeemed in silver, the final phase being the establishment in the year 1897 of a gold standard. The latter achievement was not an easy one, but it was necessary in the national interest that the silver regime should be terminated. The effect on foreign trade of the want of stable standards of value was debasing commerce to the level of mere monetary speculation. What stood in the way of the adoption of a gold standard was the difficulty of accumulating the necessary gold reserve. An arrangement by which the Chinese War indemnity was paid in pounds sterling instead of Kuping taels saved the situation, and the Bill creating the gold standard, which obtained approval in the early months of 1897, became operative in the autumn of that year. The old lyen standard silver coin remained in circulation as legal tender until the year 1908. The loss on the calling in, itself a comparatively small percentage, was fully covered by the manufacturing profit of the mint.

The change in methods of taxation resembled the reform in the currency system, in that it went through many phases. It was evident to the leaders of the Restoration that a system was necessary by which taxation should be rendered uniform throughout the country. A reduction of the land and other direct taxes prefaced the introduction of indirect taxation. The first result was a marked development of agricultural enterprise, and further reforms in the land tax, basing the assessment on the value of the produce, were made. The wars in which Japan subsequently became engaged led to the imposition of many new taxes, but industrial development had more than kept pace with the growth in the financial burden which had to be borne.

Income tax was first levied in the early 80's, and was accompanied by indirect imports on soy and tobacco, and an increased tax on sake, the last tax augmenting the revenue to an extent which justified a fresh reduction of the land tax. The war with Russia led to the introduction of the Extraordinary Special Tax law, and the creation of the tobacco manufacturing monopoly.

The needs of the European War have so far been met without the necessity of floating loans, or making any increase in taxation. The principal sources of revenue from taxation are the liquor, land, income, and business taxes ; indeed, outside these four items, the revenue from taxation, with the exception of the consumption tax on textiles, is insignificant.

The early history of the National Debt is bound up with railway construction and the capitalization of hereditary pensions. The Industrial Works loan issued in 1877 deserves mention as being the first domestic loan. Japan showed great restraint in her resort to foreign loaHs. After the issues on the London market in 1870 and 1877, representing a total of under 3 millions sterling, a period of twenty four years elapsed before further indebtedness was incurred abroad. Since that time considerable recourse has been had to foreign markets for loan issues. The war of 1904-5 forced Japan into debt abroad to the extent of 1,100 million yen, most of which was expended within two years, yet the financial credit gained by scrupulous attention to the service of the various loans was not affected even by theselarge borrowings.

The redemption scheme carried out in 1906, by which low-interest loans replaced earlier issues made at higher rates, put much of' the foreign indebtedness on a 4 per cent basis, and gave testimony to the wisdom and thrift which had governed Japanese financial dealings.

In the establishment of national banks, American practice was mainly adopted. At first these banks possessed powers of note issue, but when the Bank of Japan was formed in the year 1882, note issue was vested solely in the new institution, and most of the national banks assumed a private form. No restrictions on the formation of such banks was made'until he year 1893, when their number had become so large as to make government control desirable. It was at the same time laid down that savings banks must be joint-stock companies, and that the directors of such institutions must bear unlimited liability.

Of far greater importance than the ordinary and savings banks are the financial institutions created by special law and with special objects. These include the Bank of Japan, the central bank of the country; the Yokohama Specie Bank, created to act as financial sponsor for those engaged in foreign trade, and possessing branches all over the world ; the Hypothec Bank, associated vwth the development of the agricultural, manufacturing, and marine products industries ; and the Industrial Bank of Japan, created with the special purpose of facilitating industrial enterprise. An interesting recent development is the closer financial connexion through this bank between France and Japan. These institutions are all under government protection and control.

The one defect of the existing banking system is the lack of an adequate institution to afford financial facilities to people of the lower and poorer class. Pawnbrokers, it is regrettable to say, flourish in Japan.

There are some who believe that the government has gone too far in throwing safeguards around the financial institutions, thus displacing private capital by the absorption into governmentally protected concerns of the safest risks, leaving the inferior ones to private capitalists. There is some truth in this charge, but on the other hand the government has been determined to establish the credit of Japan, especially with the foreign investor. Many appeals to capitalists abroad have been made through such institutions as the Industrial Bank, and it is claimed that "under existing conditions foreign investments are as safe in Japan as they are in any country. The legal status of foreigners is practically the same as that of natives.

On the general question it has been shown that the currency system is sound and that the finances of the country have been admirably managed. The financial position has improved since the outbreak of war owing to the rapid growth of the export trade, and the government has taken the opportunity provided by the continued accumulation of gold abroad, and the abundance of cheap money available to float a domestic loan, the proceeds of which are being utilized for the conversion of foreign obligations.

The distribution of industry upon which the commerce of Japan is based has remained substantially the same for many years. A great focus of the manufacturing activities of the Empire is the district around the Bay of Osaka, and from this area the great city at the head of the Inland Sea is able to draw its supply of cheap labour. Within a hundred miles, north and south, Osaka and the great commercial port of Kobe have a population of over 16,000,000, and within this radius, with the exception of Tokyo and Yokohama, lie all the large cities of Japan. Across the bay is the island of Shikoku with 3,000,000 more people. Here is a tributary population greater than that around London, which in comparison makes New York and its environments appear to be only normally populated. From this centre of industrial energy Japan has a splendid outlet through the Inland Sea to maintain and increase her hold on foreign trade.

The Japanese of to-day are ambitious to be the controlling industrial and commercial, as well as the commanding political, nation of the Far East. They are hopeful of becoming a great maritime and commercial power - the Great Britain of the Pacific - and recent events have gone far to encourage this hope.

The alliance with Great Britain and the conclusion of commercial treaties with other important Powers set commercial Japan on her feet, and the progress made in foreign trade has over a series of years been quite satisfactory. Thirty years ago the total value was the insignificant figure of 6f millions sterling ; to-day, when the total values are well over the round hundred millions which used to be the goal of the prophets, it is difficult to set limits to the process of expansion. Until the year 1913, with the one exception of 1910, the annual balance of trade was against Japan. This tendency, which was redressed before the war, was naturally assisted by the trading conditions which followed the outbreak of hostilities, and there was a large balance of exports over imports for the year 1915.

The distribution of the trade varies, but disregarding the currents created by the World War, the changes which have taken place are such as might have been predicted by an intelligent observer. Trade with the Far East increases at a greater rate than that with Europe and America, and is increasing at the expense of Great Britain and other competitors. Exports are increasing at a more rapid rate than imports, and the United States is Japan's best customer, China ranking next, and British possessions occupying third place. Great Britain and her Overseas Dominions dominate the import trade, supplying nearly one-half of Japan's purchases from abroad. Although during recent years the export trade with Germany and Italy has shown a marked increase, competition is too strong for Japan at present to make much headway under normal conditions in the European markets. The advances made have been mainly in the markets of Asia and America. An analysis of the figures shows that nearly half the foreign trade of Japan has been with Asia, Australia, Egypt, and Hawaii. In this respect history is likely to be repeated. One of the results of the European War has been the considerable increase in Japan's trade with China, India, and Australasia, in addition to large orders for war materials from the Allies.

At the same time it cannot be overlooked that the United States remains the best customer of Japan, and, where price is not a bar to reciprocal trading, there is a natural tendency for orders to flow into the American market. Of the effect of new commercial treaties arising out of the war, nothing can now be predicted, except that they should promote closer relations with the allied nations, and may for a time at least divert trade currents out of their natural channels. A feature of the situation which should be put on record is the considerable extent to which the Japanese control their own trade and commerce both in the export and import branches, and it is a subject of congratulation that the German element is not so largely represented in merchant circles as in other countries.

Behind the trade ambitions of the Japanese is the mercantile marine, a potent and growing force in unlocking the doors of overseas markets. Like the British, the Japanese have the maritime instinct, and the efficiency of their seamanship is recognized by all who care to probe beneath the surface. While in the year 1871 the tonnage of the Japanese mercantile marine was less than 20,000, nearly one hundred times that tonnage now flies the Japan merchant flag. The Empire has aimed at securing the supremacy of her own flag in her own seas, and her ships traverse all the great ocean highways. Twenty years ago Japan carried only onefifth of her imports and one-seventh of her exports in her own ships ; she wUl carry half her trade in Japanese bottoms in the near future.

The modern era was initiated in the year 1885 by the formation of the Japan Mail Steamship Company, which finally, on a tonnage comparison, ranked higher than the Cunard Line. Expansion has been stimulated by the payment of subsidies on shipbuilding and on shipping, and the Far Eastern services have been supplemented by services to Europe and to America, North and South. The largest and fastest boats are those running to San Francisco, and they compare favourably with any ships afloat save the mammoth liners which in normal times maintain communication between European and North American ports. Since the war the shipping business of Japan has made great strides. Her mercantile marine has become a factor in the world's markets, and Japanese ships are seeking cargo in all parts of the world. To-day very large additions to the merchant fleet of Japan are projected ; the programme suggests its reinforcement at no distant date by another 500,000 tons. The depletion of the world's shipping by the ravages of war is the opportunity of this ambitious aspirant for a leading place in the shipping industry, and through that to a fresh extension of her foreign commerce.

It should not be overlooked that no country, except perhaps the United States, will receive more benefit from the opening of the Panama Canal than Japan, and hopes have been kindled that traffic through the new waterway may, like that on the European, North and South American, and Australian open sea routes, be encouraged by a subsidy. The way is clearly pointed to a period of rapid expansion in trade and shipping. The present opportunity is unique, and Japan may be trusted not to fritter away the chance of a generation by incapacity or neglect.

Down to the end of the Tokugawa period the internal communications of Japan were of an extremely primitive character, and the policy which the Shogunate maintained, as we have shown, for more than two centuries of isolating the country from foreign influences found a counterpart in the restrictions, artificial as well as natural, which prevented the people from moving freely about their own land. There were indeed three great highways, one of which, the Tokaido, connecting Kyoto and Osaka with Tokyo, was of great antiquity ; but even these were interrupted by rivers which, in the absence of bridges, travellers had to cross in ferry-boats or even on the backs of porters. Such wheeled vehicles as existed were only for persons of exalted rank,, and ordinary people who were unwilling or unable to use their own legs had to fall back on pack-horses or the kago, a kind of very uncomfortable palanquin. Japanese ingenuity about 1870 effected some improvement by the invention of the jinrikisha, a two-wheeled vehicle, which one or two men can draw at remarkable speed over considerable distances, but the usefulness of this, device was evidently limited by the lack of a good road system. However, elaborate measures were taken in 1875 for the construction and maintenance of roads at the expense partly of the government and partly of the local authorities.

But even before the fall of the Shogunate certain farseeing statesmen had realized the need for the introduction of railways if the internal transport of the country was to be put on a sound footing. An object-lesson of the advantages they would bestow was given in 1869, when the rice which was abundant in some districts could not be used to relieve the famine which prevailed in other parts because there was no way of transporting it by land. Sir Harry Parkes, the British representative at Tokyo, made effective use of this incident as an argument to rouse the government to action, and finally it was decided to raise the necessary money by means of a loan in England and to make a start with the aid of English engineers. The first line to be taken in hand was one eighteen miles long, between Tokyo and Yokohama, and this was quickly followed by a second, twenty miles in length, between Osaka and Kobe. The former was completed in the autumn of 1872, and its formal opening by the Emperor put an end to the opposition to railways which had been offered in some quarters. The Osaka-Kobe line was opened in 1874, and that from Osaka to Kyoto three years later, so that in eight years about seventy-one miles of line were constructed. The next section to be undertaken, that between Kyoto and Otsu, was remarkable for the fact that it was built entirely by Japanese labour, the assistance of foreign engineers being utilized only as regards the plans for the tunnels and bridges.

So far all railway construction had been carried out by the State at its own expense, but about 1880, when difficulties of finance began to obtrude themselves, the plan was conceived by Prince Iwakura of persuading the nobles, who had been given State loan bonds in commutation of the revenues they formerly enjoyed from their fiefs, to apply a portion of their capital to the construction of railways. The outcome was the formation of the Nippon Railway Company, the first private railway company in Japan, in which the nobles held shares. This company was authorized to build a line from Tokyo to Aomori in the north of the main island, but it found itself unable to tackle the actual work of construction, which in consequence was undertaken by the Railway Board, under Viscount Masaru Inouye, and completed in 1891. About 1884 another private company, the Sanyo, was organized to build a railway to Shimonoseki in the extreme south-west, and thus, with a central section built by the State between Tokyo and Kobe, a trunk line, 1,153 miles long, was completed for the whole length of the main island.

Private enterprise, at first rather shy, gradually became bolder, and in course of time the mileage in the hands of companies far outstripped that possessed by the State. The multiplication of these companies was one of the reasons that decided the Diet to adopt a policy of nationalization in 1906. At that period out of a total of 4,746 miles of line the State owned only 1,470 miles, and the remainder was shared among thirty-six companies, which thus possessed an average length of ninety-one miles each, though in fact a large proportion of them were much smaller concerns than these figures would indicate. With such a division of interests, efficient and co-ordinated working was impossible. And the government, preferring State ownership to the policy of consolidation that was adopted in Great Britain, decided to buy up seventeen of the principal lines. On the date of purchase these had an aggregate mileage of 2,823 miles, and the purchase money, amounting to some £49,000,000, was completely paid by July 1909, the former owners receiving 5 per cent, bonds repayable out of the profits of the lines. In the financial year 1908-9 the 4,512 miles owned by the State cost in working expenses (the yen being taken as worth zs.) about £4,400,000, and in interest and other charges about £180,000, and the net profit was £3,500,000. In the following year, when the mileage was somewhat greater and the working expenses a little less, the interest charges had apparently risen to £3,000,000, and the profits dwindled to £1,000,000. The difference, however, is mainly accounted for by the fact that in 1909 a railway special account, independent of the general account, was established for the capital, revenue, and expenditure of the Imperial railways, and to this the interest on loans raised for railway purposes was charged in 1909-10 and subsequent years, whereas previously it had not been shown as being paid out of the railway receipts. In March 1916 the government lines had a length of 5,758 miles, an increase of 1,387 miles since nationalization, and in the Budget estimates for 1916-17 the income was put down as £13,100,000 and the disbursements, including £3,900,000 for interest, at £11,400,000, the profit thus being £1,700,000. In addition to its lines in Japan proper the State has a predominant interest in the South Manchuria railway, which has a length of 697 miles, and under Baron Goto's light railways legislation, which came into force in 191 1, it grants assistance to the construction by private enterprise of subsidiary lines to feed the main lines and open up fresh country where the building of ordinary lines would not be justified. In March 1916 over 1,400 miles of these light railways, some of which are 2 ft. or 2 ft. 6 in. wide, though one at least is of the fuU standard European gauge, were in operation, and about half as many miles were under construction. There were also eight lines, of the normal Japanese gauge, owned by private companies, with a total length of 272 miles.

Electric tramways, often worked by hydro-electric power, have come into great favour of recent years, and at. The end of the year 1914-15 there were seventy-one such undertakings, with 822 miles open to traffic. Most of them were private companies, which in a number of cases also supply electricity for lighting and power, but 123 miles were owned by the municipalities of Tokyo, Osaka, and Kyoto.

The railways of Japan - on mistaken grounds of economy, as the event has proved - were originally constructed on the 3 ft. 6 in.gauge, but for many years their conversion to the standard 4 ft. 8-J in. gauge has been advocated. It is estimated that the outside cost for all the railways of the main island (the South Manchuria Railway is already of standard gauge) would be 89,000,000, or for the trunk line between Tokyo and Shimonoseki alone 29,000,000, while the annual saving in working expenses would be over £300,000 for the latter line, or 500,000 for the whole island. On the other hand, it is computed that, were the narrow gauge retained, the demands of the ever-increasing traffic would entail the expenditure within the next twentyfive years of £28,000,000 on the trunk line and of £37,000,000 on the rest of the lines. Hence the government appears to be faced with the necessity for a heavy outlay, the amount of which will not be very seriously affected whichever course is ultimately adopted. A commission was appointed in the early part of 19 16 to decide the question.

Although in the early days of the Shogunate a number of merchants had banded themselves together to establish a courier system for the transmission of letters and parcels between Kyoto, Osaka, and Tokyo, a postal service, as understood in Europe, was not introduced until after the fall of the Tokugawa. A beginning was made in 1868 between Tokyo and Kyoto, and in 1873 the government assumed a monopoly of the carriage of letters, and established uniform charges, irrespective of distance. Four years later Japan joined the Postal Union, and the post offices which Great Britain and other countries maintained in her chief cities were all withdrawn by 1880. The extent to which the organization has developed may be judged from the fact that there are now more than 7,000 post offices scattered all over the country. In Tokyo there are twelve deliveries daily, and even in the third-class offices of the villages the normal number is three:

In the seventeenth century the Japanese had a system of signalling by flags by which the price of rice was telegraphed from Osaka to various outlying towns, but it was not till 1854 that were introduced to the electric telegraph by Commodore Perry. Regulations for the telegraph service were first issued in 1872, and the postal and telegraph offices were combined in 1886. At present there are nearly 5,000 telegraph offices open to the public, and over 100,000 miles of telegraph wires. There are nine wireless stations on shore, exclusive of the naval station at Funabashi, which can be used by private persons for communication with Hawaii and one or two other places.

Though introduced for official purposes in 1877, the telephone did not become available to the public till 1890, when a service was started in Tokyo and Yokohama, to be followed seven years later by one between Tokyo and Osaka. At first it met with a lukewarm reception, but afterwards there was such a change in public feeling that the authorities could not cope with the demand, and it became a lucrative business for those who had been lucky enough to secure the right to a service to sell their privilege to others who were prepared to pay more for it. There are now well over 200,000 subscribers, and about a quarter of a million miles of wire are employed. A considerable number of ' automatic ' telephones are installed.