In the first half of Part I, we turn our attention to the Edo period.

Innovation often takes place in a corporate setting. In Japan, companies in the modern sense were not established until the Meiji period [1868–1912]. However, the earlier Edo period was important to the history of innovation in Japan, with, a growing number of scholars re-evaluating the Edo period in recent years as one characterized by novel developments leading up to the modern era. This revisionist view considers the Edo period to have experienced several notable innovations.

One key development were the advances in the market economy. The Edo period had two types of markets: the intra-Han market within feudal domains and the inter-Han market across feudal domains that covered the entire country. In the intra-Han market, commercial transactions were conducted between those living in urban centers near the castle (samurai, artisans, and merchants) on the one hand and farmers living in rural villages on the other. The size of the intra-Han market was considerably larger than a comparable market under a typical European feudal domain where a feudal lord and his subjects (mostly farmers) lived in the same geographical area. Moreover, surplus rice in each feudal domain was shipped to Osaka by sea for trading, and revenues were used to purchase goods not available locally (such as weapons, fertilizers, clothing, etc.), contributing to commercial activity at the national level.

Active trading across markets brought about rapid economic growth, particularly notable in the early Edo period (that began in 1603), or from the seventeenth century through the early eighteenth century. The following is a detailed depiction by the economic historian Matao Miyamoto:

It is estimated that the national population increased from 12 million to 31.28 million between 1600 and 1720. The national population stood at 5.5 million around 750 AD, so it only grew about two-fold in eight-and-a-half centuries leading to 1600. By comparison, we can see that the population grew rapidly from 1600 to 1720 […] This increase in population means that there was an increase in food production to support this. Between the Sengoku period [1467-1615] and the 17th century, there was unprecedented growth in farmland cultivation. The cultivated area increased from an estimated 2.07 million chobu [1 chobu is roughly 1 hectare] around 1600 to 2.93 million chobu by around 1720. This was not just a quantitative increase but an increase in fertile rice fields ideally located downstream of large rivers, ensuring stable irrigation. The high-yielding variety of rice (akamai) introduced at that time also contributed to increased food production. Double cropping, the use of fertilizer, and innovation in farm tools, such as the Bichu hoe, also helped. In addition, farmers who had been effectively enslaved under a traditional family-run business model moved to newly available plots to gain greater independence, leading to stronger incentives to increase productionFootnote 1.

Thus, the early Edo period, from the seventeenth century to the beginning of the eighteenth century, was a period of unprecedented economic growth in Japanese history.

Another feature of “novel developments” in the Edo period was the emergence of entrepreneurial families who achieved rapid success with innovative business models in the growing market economy. The Konoike family diversified its business from the production and sale of sake to shipping and financial services. The Sumitomo family carried out investment with a long-term vision and successfully managed the Besshi Copper Mine (a mine directly controlled by the Edo Shogunate). The Mitsui family introduced innovations that transformed the Japanese retail industry, before expanding into the financial industry. These “three major merchant families” are representative of such players. Of these, the Sumitomo and Mitsui families subsequently grew into zaibatsu and formed large business groups that would lead Japan into the modern era.

The “three major merchant families” established their roots during the period of economic growth in the early Edo period. Although the pace of economic growth slowed from the mid-eighteenth century onward, active market trading spread across Japan bringing business opportunities. The Nakai family, one of the famed Omi Merchants, was an entrepreneurial family that seized such opportunities.

In the first half of Part I, we will focus on three founders of innovative business practices during the Edo period: (1) Zen’emon Konoike of the Konoike family; (2) Takatoshi Mitsui of the Mitsui family; and (3) Genzaemon Nakai of the Nakai family. Their business innovations might not necessarily be considered particularly radical from a global perspective, but it should not be forgotten that Japan was isolated from the rest of the world through Sakoku, the national isolation system completed in 1641 (Kan’ei 18). For these entrepreneurs, Japan represented the “world,” and their innovations in Japan were comparable to those in the rest of the world. In this sense, they can be regarded as breakthrough innovators.