The Transformation of the World (144 page)

Similarly, Confucianism—a multifaceted term—and its ostensible hostility to lucre have repeatedly been seen as the barrier to “normal” economic development in the nineteenth century and before. But since the spectacular economic successes of “Sinic” Taiwan, Singapore, and the People's Republic of China (and of societies in Japan and South Korea inspired by Confucianism in their own way), the old arguments have been quietly turned on their head and Confucianism itself has come to be regarded as the cultural underpinning of a distinctive East Asian capitalism. That such theories can explain success and failure alike appears rather suspicious. Today many historians avoid asking why countries such as India or China did
not
develop in accordance with a model that they really “should” have followed. This leaves the task of carefully describing each special path.
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Japan: Industrialization as a National Project

Whereas it has been discussed since Max Weber's times why India and China, despite many favorable conditions, did not take a “normal” path of economic development, the puzzle in the case of Japan has been why things worked out so smoothly.
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By the middle of the nineteenth century Japanese society was highly urban and commercial; there were strong tendencies toward a unified national market, and the country's boundaries were clearly defined by its island position. Peace prevailed internally, and costly defenses against the outside
world were unnecessary. Administration was unusually good right down to the local level. People had experience with managing limited natural resources. The cultural level of the population, as seen in the estimated percentage of those able to read and write, was unusually high, not only by Asian standards. Japan thus had excellent conditions in which to adopt new technologies and new ways of organizing production.

Nevertheless, it would be superficial to see here only an objective logic of industrial progress serenely unfolding. It is not so clear that the conditions in Japan were decisively better than in certain parts of China or India. The key difference was the political project behind Japanese industrialization knitting together the state and private enterprise. The fall of the Tokugawa shogunate in November 1867 and the establishment of the Meiji regime two months later were less the result of changes in society and economy than a reaction to the sudden confrontation with the West. Japan's industrialization then got under way as part of a broader policy of national renewal, the most thorough and ambitious of its kind in the nineteenth century, though without a fully worked-out strategic plan. Close study of the Western powers had taught the Japanese elite that the development of industry would be central to the nation's future strength. As in China, therefore, but with central coordination and under much less foreign pressure, it was the government that launched the first industrial projects and supplied the foreign currency required for the purchase of industrial equipment.

Capital from outside the country played no significant role at this stage. At a time when Tsarist Russia was raising sizable loans in French and other European finance markets, and when the Ottoman Empire and China were being forced to borrow on unfavorable terms, Japan avoided any dependence on overseas creditors so long as it was economically vulnerable and had its sovereignty limited by the unequal treaties—that is, until well into the 1890s. Capital could be mobilized domestically, and there was a political will to invest it productively. Without any European influence (and, it would appear, uniquely in the non-European world), Tokugawa Japan had already introduced the practice of interbank lending, which would later greatly assist the funding of development projects. It did not take long after 1879 for a modern banking system to take shape, which was, like general financial and economic policy in the early industrialization period, largely the work of Matsukata Masayoshi, the son of a destitute samurai, who became a long-serving finance minister and one of the great economic wizards of the age.
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The fiscal policy of the Meiji state targeted an agriculture that was steadily increasing its yields. In fact, the agrarian sector was the most important source of capital in early Japanese industrialization; roughly 70 percent of state revenue after 1876 came from the land tax, and much of this was spent on industry and infrastructure. (In China, by contrast, agriculture was stagnating and a fiscally and administratively weak government profited little from any surplus.) Japan also had other advantages. Its population was large enough to generate internal
demand, producers (especially of silk) methodically penetrated foreign markets, yet the development model, unlike in Latin America, was not one-sidedly geared to export growth. In several regions—around Osaka and Kobe, for example—an efficient proto-industry held up for quite a long time alongside steam-driven factory production, especially in the cotton goods sector. This was one of the chief differences between the English Manchester and the “Manchester of the East” that resembled it in many other respects.
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The Meiji state did not aim to construct a permanent state economy. Having provided an initial stimulus, the public sector gradually withdrew from most industrial projects, not least in order to ease the strain on the budget. Business pioneers also saw industrialization as a patriotic matter and, scorning American-style conspicuous consumption, cultivated a frugal ethos of service to the father-land rather than individual profit maximization. One result of this was that firms generously shared with one another priceless knowledge about dealings with the world economy—knowledge that the Japanese had to acquire posthaste after the opening of the country. Bureaucrats and capitalists were successful in their efforts to achieve a diversified industrial structure so that Japan would be as independent as possible of imports.

Moreover, the Meiji oligarchs always kept the country's security policy in mind and were eager to prop up their own fragile legitimacy—after all, they had toppled the traditional political order—by the promise and reality of material progress. At the same time, there were sufficient private entrepreneurs willing to commit themselves through investment. At first, Japan could not avoid relying on Western technology, imported machinery, and foreign advisers. But the technology was often improved and adapted to Japanese conditions, and there could have been few other countries where the state took such an early systematic interest in this category of imports.
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In many cases Japanese industry was not content to adopt simple technologies but attempted to acquire knowledge and to enter markets at the highest international level. All this was done in a relatively cost-effective way. It also involved an emerging legal framework of international patent law that, from the 1880s on, became yet another macrosystem knitting together economies in distant parts of the world.
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We shall not examine here Europe's most extraordinary industrial success story, that of post-1880 Sweden, or the great miracle that raised the United States in one generation (c. 1870–1900) to the position of the world's leading industrial power.
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Two points should be noted, however. Even more than in Japan, industrialization in the non-slave-owning Northern States of the US took place on the basis of an “industrious revolution” and a palpable growth of per capita income during a period often identified as the “market revolution” (roughly 1815–50); international trade also played a greater role there than in Japan.
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Consequently, rather than overdramatize the novelty of industrialization in the United States, we should recognize the long-term continuities. It is true that America's path primarily involved the free play of capitalist market forces, but they were not the
only factor in operation. The federal government, controlled by the Republican Party between 1861 and 1913 with only two Democratic presidential interludes, pursued industrialization as a political project and set itself the task of ensuring national market integration, tariff protection, and a gold-backed currency.
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Industrialization entirely without state assistance, which some liberal economists considered both possible and desirable, was historically a great exception. By no means did two grand models—one Western liberal, the other Eastern statist—stand facing each other in mutual opposition.

4 Capitalism

In the past twenty years, historians in many countries have fundamentally altered our view of global industrialization. For many parts of the world, the eighteenth century has come to be seen as a time of commercial expansion and dynamic enterprise. Markets grew larger and denser, and specialized production was encouraged for near and distant outlets, often for export to other countries or even continents. Officialdom, even the “Oriental despotism” that Europeans tended to paint in such lurid colors, rarely intervened to stifle this economic vivacity, which, after all, often helped to fill the state coffers. Demographic expansion, however, and the vulnerability of nearly every society to “Malthusian” counterforces, did not allow for genuine and stable growth of per capita income. It would therefore be more precise to say that although many economies were
moving
and even recording a slow rise in income, not one—with the exception of England from the last quarter of the eighteenth century—was
dynamically goal oriented
; none was growing in the modern sense of the term.

This new picture of the eighteenth century confounds the usual chronologies. The early modern “industrious revolution” sometimes extended far beyond the formal time threshold of 1800. When it came to changes, they rarely took place as sudden sprints, even though Alexander Gerschenkron seems to have been right in that
later
industrialization processes were more abrupt and temporally compressed than those of the first and second generations; Sweden, Russia, and Japan are good cases in point. But like the original Industrial Revolution in England, later industrializations did not begin from scratch; rather, they involved a change in the speed and type of advance within the general movement of the economy. Although industrialization got under way in a regional or increasingly national framework, the outcome was rarely a complete dominance of large-scale industry. What Marx called “petty commodity production” often stubbornly held its ground, sometimes in a symbiotic relationship with the world of the factory. Naturally, the early generation of factory workers had originated in the countryside, and many of them retained their connections with it for quite a long time. Factories and mines became magnets of industrialization, but also of innumerable migrant labor circuits between village and production site.

From midcentury on, the name for the new order was
capitalism
. Karl Marx, who seldom used the term as a noun but preferred to speak of “the capitalist mode of production,” analyzed the new system in
Capital: A Critique of Political Economy
(1867–94) as a capital
relationship
, an antagonism between owners of labor power and owners of the means of material production. In a simplified form, interpreted by such loyal companions of the master as Friedrich Engels or Karl Kautsky or modified around the turn of the century by Rudolf Hilferding or Rosa Luxemburg, Marx's analysis of capitalism became the dominant theory in the European labor movement. Soon people less critical than Marx and his followers took up the term “capitalism,” and early in the new century, especially in Germany, the research and debates of “bourgeois” economists, invariably under Marx's powerful spell, developed into a complex theory of capitalism represented by such figures as Werner Sombart and Max Weber.
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These highly original thinkers, representing the “Historical School” of economics at its best, detached the concept of capitalism from its narrow association with nineteenth-century industry, seeing it as present not just in one particular stage of development, but in virtually all forms of economy, sometimes as far back as European antiquity. Various types were defined: agrarian capitalism, commercial capitalism, industrial capitalism, financial capitalism, and so on. The models of these German non-Marxists gave up Marx's central reliance on an “objective” labor theory of value, whereby all labor creates value in a way that is susceptible to measurement. At the same time, they did not embrace the new marginalist orthodoxy prevalent in British and Austrian economics since around 1870, for which the preferences of market participants are determined by their assessment of “subjective utility.”

Capitalism theory around the turn of the century, as variously developed by Weber, Sombart, and other social theorists, did not neglect institutions. While by no means ignoring the contradiction between capital and labor, it placed greater emphasis than Marx had done on the workplace structure of production under capitalist conditions and the ways of thinking (the economic “attitudes” and worldviews) that kept the system going. Moreover, its main exponents had such a keen historical sense that they tended to regard analysis of the contemporary world as somewhat secondary. Even if Sombart often commented on economic life in his time, and Max Weber produced early empirical studies of the stock exchange, the press, and Prussian agricultural workers, their main research interests focused for many years on what would later be called “the early modern age.” It was there that Weber found the origins of the “Protestant ethic” and Sombart a complex “commercial capitalism.” From Karl Marx to Max Weber and Thorstein Veblen, capitalism was a central theme in social analyses of the age, and the radical-liberal and socialist theories of imperialism that were an offshoot of the debates about capitalism are among the most sophisticated accounts of the fin de siècle written at the time.
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No uniform understanding of the term “capitalism” took shape,
however, and by 1918, still in Max Weber's lifetime, one could find 111 definitions of it in the literature.
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