General Requirements for Latecomer Nations’ Industrialization

Japan’s rapid industrialization process from the Meiji period onward can be regarded as a typical example of latecomer industrialization in world history. As Alexander Gerschenkron has argued, such latecomer countries’ achievement may have been relatively rapid through the use of borrowed technology and capital already accumulated by developed countries. but the lack of capital, markets, skilled labor, technicians, and entrepreneurship necessitate coordination between the government and banks, as well as certain ideologies.Footnote 1 In Japan specifically, the government, financial institutions, trading companies, shipping companies, and others played an important role in the process of industrialization, as did the ideology of “business management nationalism.”Footnote 2

The emergence of numerous government-owned factories and mines in the period immediately after the Meiji Restoration as part of the “industrial development policy,” and the implementation of a series of industrial promotion policies through “Sino-Japanese Postwar Management” and “Russo-Japanese Postwar Management,” are evidence that the government played a major role in Japan’s industrialization. However, the government’s role should not be overemphasized. Many of the government-run factories and mines failed to flourish, their full development commencing only after they were sold off to the private sector,Footnote 3 starting in 1880 (Meiji 13), and reconstituted as private companies. The shipping, shipbuilding, and steel industries that were the target of the “Sino-Japanese Postwar Management” and “Russo-Japanese Postwar Management” programs, thrived in the private sector even as they received political support. For example, the opening of the government-run Yawata Steel Works in 1901 was followed by the establishment of Sumitomo Steel Casting in 1901; the start of flat furnace steelmaking at Kamaishi Iron Works in 1903; the establishment of Kobe Steel Works in 1905; the construction of a steel forging plant at Kawasaki Dockyard in 1906; the establishment of Nippon Steel Works in 1907; and other active developments in private steel manufacturing.

Thus, Japan’s industrialization process was not necessarily government-led, but rather progressed in a mutually complementary manner between the government and the private sector. Referring to Gerschenkron’s argument, Keiichiro Nakagawa emphasizes the important role played by trade-related “organized entrepreneurial activities” in Japan’s industrialization process.Footnote 4 In order for the cotton and silk industries to become internationally competitive, trading companies,Footnote 5 shipping companies, banks, and marine insurance companies made significant contributions, serving as “the infrastructure of modern industry.”Footnote 6 Gershenkron’s and Nakagawa’s arguments relate to the prerequisites for industrialization that are applicable not only to Japan but also to other late starter nations in general. However, discussions on Japan’s industrialization should go beyond identifying prerequisites for industrialization in late developers, as Japan was the first country outside of Europe and the United States to achieve industrialization.

Unique Conditions That Made Japan the First Case of Successful Industrialization Among Latecomer Nations

What were the unique conditions that enabled Japan to achieve industrialization ahead of other late developers? As just noted, Japan’s achievement can be explained by the fact that “economic development was not necessarily government-led; instead, government and private enterprises complemented each other.”

How, then, did Japan’s private sector manage to be more active than those in other less developed countries? By effectively utilizing scarce resources such as human and financial capital. To summarize:

  1. 1.

    In terms of human capital, owner-managers enabled salaried managers to play an active role, with educational support of investor-managers.

  2. 2.

    In terms of financial capital, salaried managers used owner-managers’ financial resources to pursue industrialization, along with investor-managers mobilizing funds from the public at an early stage among the public through joint-stock companies.

Interplay Among the Three Types of Managers

The case studies in the second half of Part I illustrate that as the scale of business grew, and diversification progressed, owner-managers could no longer carry out business management on their own and needed the assistance of salaried managers. A typical example: the active appointment of salaried managers by Yataro and Yanosuke Iwasaki, who formed the Mitsubishi zaibatsu, becoming active promoters of industrialization. Moreover, some owner-managers (e.g., Soichiro Asano and Ichibei Furukawa) without sufficient fund-raising capacity established joint stock companies or used bank loans at an early stage, relying on investor-managers such as Eiichi Shibusawa, the president of Dai-Ichi Bank. The latter also educated businessmen and helped establish and develop many institutions of higher learning. For instance, graduates of Tokyo Higher Commercial School joined many large corporations, including Mitsui & Co., thriving as salaried managers.

In addition, owner-managers sometimes complemented their lack of management resources through mutual alliances such as that between Zenjiro Yasuda, who formed a financial zaibatsu, and Soichiro Asano, who built an industrial zaibatsu.

In sum, by working together in several ways the three types of businessmen—owner-managers, salaried managers, and investor-managers—demonstrably pushed Japan’s industrialization process forward.

Early Take-Off as the Outcome of Breakthrough Innovations

The first of the three questions presented in the Introduction was: “How did the Japanese economy manage to take off so early and establish a trajectory of growth?” In the closing of Part I, which covers the Edo period to the post Russo-Japanese War period, the answer emerges: “Japan’s early take-off was the outcome of breakthrough innovations.”

As seen earlier, Zen’emon Konoike, Takatoshi Mitsui, and Genzaemon Nakai developed innovative business models during the Edo period. Though their business innovations might not necessarily be considered breakthrough innovations when evaluated from a global perspective, given that Japan was cut off at the time from the rest of the world by its isolationist policy, Japanese innovation can be considered sui generis. Thus, it is fair to say that these leaders were among the world’s first breakthrough innovators.

Their success, in turn, highlighted the “novelties” of the Edo period—a feudal society with a well-developed market economy whose pre-industrial “novelties” served as an important prerequisite for the Japanese economy’s early takeoff, a period represented by six innovative businessmen: Hikojiro Nakamigawa, a salaried manager; Yataro Iwasaki, Yanosuke Iwasaki, Zenjiro Yasuda, and Soichiro Asano, owner-managers; and Eiichi Shibusawa, an investor-manager—all active from the late Edo period to the post-Russo-Japanese War period.

True, many of their aforementioned business innovations cannot be called “world’s firsts,” but rather were incremental innovations. However, the unique system of their mutually facilitative collaboration became the driving force turning Japan into the first industrialized nation outside of Europe and the United States. In this sense, the entrepreneurs discussed in the latter half of Part I can be regarded as the embodiment of breakthrough innovations of historical, global significance, contributing to the world’s “first latecomer industrialization”—truly an “Era of Breakthrough Innovations.”

With the individual breakthrough innovations of the Edo period as a prerequisite, the comprehensive breakthrough innovations of the period from the opening of ports at the end of the Edo period to the end of the Russo-Japanese War directly triggered the first industrialization in Japan among the least developed countries. This is why we called the period of Part I the “Era of Breakthrough Innovation”.