Natural Resources in Japanese Economic History, 1800-1940

Yasukichi Yasuba
Osaka University

1. 1800 - 59

Many students seem to have an impression that Japan suffered from the shortage of natural resources throughout its modern history, but such an impression cannot be supported by facts. It is true that the latter half of the Tokugawa Period was the one which was characterized by a stagnant population, but, judged from the pattern of limited trade, namely the export of copper and silver in exchange for manufactures, Japan in that period was a natural-resource-rich country. The major cause of the relatively low per capita income was a low level of technology and the scarcity of capital. Agricultural productivity was constrained mainly by the shortage of fertilizers (working capital) and not by the shortage of land.

2. 1859 - 99

This is a period in which trade expanded rapidly under a regime virtually prohibiting intervention by the government. The patterns of trade clearly revealed that Japan's comparative advantage was in natural-resource-intensive commodities and its weakness was in technology- and capital-intensive commodities.

INSERT TABLE 1 + Notes

As shown in Table 1, as late as 1880, Japan's major exports were raw silk, tea, waste silk, sea weed, potteries, copper, and coal. All but potteries were natural-resource-intensive commodities. In contrast, most of Japan's imports, namely cotton yarn, woolen cloths, cotton cloths, wrought iron, rice, cotton and rails were manufactured commodities, except for relatively unimportant rice and cotton. It can safely be concluded that the trade pattern of Japan in 1880 was that of a typical LDC, except that there were very little capital goods in imports unlike in many of the LDCs in the period after World War II. Rosovsky's thesis that in "the early years of her industrialization, Japan had to depend heavily on imports of foreign machinery" (Capital Formation in Japan, p.50) is untenable. The ratio of the value of imported producers' durables to total value of producers' durables installed (both adjusted for transportation costs and margins) was only 18.9% in 1876-80 and 17.8% in 1886-90.

Prebisch's contention that the terms of trade tends to move against an LDC is shown not to have applied to Japan in this period. It improved 395% between 1857 and 1875 and another 38% between 1875 and 1895. Since average trade dependency ratio was 2.5% in the former period, gains from trade was 9.8% (395x0.025) of GNP in this period. Similarly, it can be shown that the gains from trade was 9.5% of GNP in 1875-95. The gains were substantial, but not enormous as Huber insisted.

The economy in this period was close to a laissez-faire one despite the contention of many historians to the contrary. The slogan of fukoku kyohei (the rich nation and the strong military) is at fault. It certainly suggests that the government must have played an important role, but actually the government was very small by any standard.

The proportion of the expenditure of the central government in GNP was only 7.9% in 1888-92, somewhat larger than in Great Britain (6.0) but much smaller than in Italy (13.2%) or Sweden (12.5%) for the same period. Even the size of the military expenditure (the strong military) was small at least until the Sino-Japanese War. The military expenditure as a proportion of GNP, 2.3% in 1888-92, was smaller than the figure of 2.7% in 1954-56 under the "Peace Constitution". Since many of the naval vessels were imported in this period, the strain on natural resources coming from the military expenditure must have been minimal.

3. 1899 - 1940

Population growth, the emergence of protectionism and the rise of imperialism all tended to increase the strain on natural resources, with the rise of imperialism proving to be the most important.

The rate of growth of population rose gradually, surpassing 1% around 1900 and reaching 1.8% in 1925. There is no indication, however, that population pressure became an important deterrent of economic development in this period. On the contrary, an increase in arable land and, more importantly, the absorption of labor force in rapidly expanding secondary and tertiary sectors relieved population pressure on land so much that once-redundant labor on land disappeared around 1900 despite Ryoshin Minami's contention to the contrary.

Emigration to the United States and elsewhere was negligible at this stage. Even the internal migration to Kokkaido, Japan's last frontier, was only 30,000 to 50,000 annually in the first decades of the 20th century. There is no evidence whatsoever for the contention that the American ban on Japanese immigration, which was only about 10,000 per year, meant a severe blow to the Japanese economy, even though the psychological impact cannot be neglected.

The revision of the unequal treaties paved the way to the rise of protectionism. The average tariff rate on imports rose from 3.7% in 1898 to 1.5% in 1910 and 21.0% in 1933. The contention of Japanese economic historians that the revision of the treaties helped the economic development of Japan is dubious. High tariff rates on heavy industrial products and luxuries were particularly lamented.

A 100% duty on sugar and whiskey certainly retarded economic development and the rise in the standard of living. A 37.5% duty on ships cannot be defended except on a military ground. Even a 15.2% duty on pig iron (effective in 1932) can be blasted for inviting a disaster. There is no reason for a capital-short and resource-poor economy like Japan in the 1930s to welcome a rapid expansion of such a capital-intensive and resource-dependent industry as iron. Besides the expansion of the iron industry enabled imperialistic expansion which proved to be disastrous.

INSERT TABLE 2 AND NOTES

As shown in Table 2, by 1930 trade structure had been changed dramatically reflecting the change in industrial structure between 1880 and that year. Most of the exports were by now manufactures such as raw silk (which should probably be classified as a manufactured product by then), cotton cloths, silk cloths, rayon cloths, sugar, wheat flour and potteries. All but potteries were light manufactures. It should be noted that Japan had achieved a fairly high standard of living without exporting almost any heavy industrial goods.

Major imports including cotton, sugar, rice, soybeans, lumber, oil and coal were nature- resource-intensive commodities, either food, raw materials or fuel. This structure of imports resembled that for the 1970s, even though raw materials in 1930 were mostly for light industries, unlike in the 1970s.

It is said that the limitation in the supply of raw materials and fuel, population pressure, and the depression were the economic causes of imperialistic aggression in the 1930s and 1940s. It is true that the military tried to justify the expansion based on the logic of "have nots". Such an expansion, however, was not only immoral but also disastrous economically. Japan could have raised the already fairly high standard of living by the expansion of light industrial exports and the exports of light machinery such as bicycles and appropriate-technology automatic looms.

As it was, the policy of military expansion and of the development of heavy industry was adopted. The military expenditure which was so small in the period before the Sino-Japanese War expanded later, but, partly thanks to disarmament in the 1920s, the ratio of military expenditure to GNP was still as low as 3.6% in 1926-30. This ratio rose rapidly in the 1930s with the rise of imperialism, to reach 19.0% by 1940.

INSERT TABLE 3 and NOTES

The expansion of military expenditure increased demand for natural resources, eventually creating a severe shortage of natural resources. As a result, the terms of trade deteriorated by 41.6% between 1929 and 1940. Economic historians tend to say that the deterioration in the terms of trade in this period was caused by the decline in the relative price of raw silk and other textiles. This is only a part, a smaller part of the entire picture. The shortage of natural resources, or the rise of the relative price of imports (a 54.0% rise from 1932 to 1940) was more important (See Table 3).

Thus, the shortage of natural resources was created, and a quest for territories had come to look more reasonable. Clearly, a vicious circle was put into motion. As a result, a huge number of people (including the military) had to move out of Japan proper to Manchuria, Korea, China and South America. The number of the Japanese who were stranded abroad (including territories) at the end of World War II was as many as 7 million.

In the 1930s (1929-40), real GNP grew at an "unprecedented" rate of 4.7% per annum. Ohkawa-Rosovsky's "trend acceleration", however, was highly misleading. For one thing, a large part of the growth was accounted for by the increase in military expenditure, leaving only 3.1% for the growth of civilian real GNP. Secondly, even though the growth of population slowed down due to the exodus referred to above, the average rate of population increase for the period was still 1.2%, leaving 1.8% for the growth of per capita civilian real GNP. Finally, the effect of the deterioration in the terms of trade (4.8% x average trade dependency ratio of 24.2% = 1.2 points) will have to be deducted. All that remains is a 0.6% average annual growth for 1929-40, lower than in any upswing period before.

In fact, even this much rise in the standard of living did not materialize. Due to the shift of the center of gravity to capital-intensive industries, real wages declined by 8.1% between 1929 and 1940. Real per capita consumption declined by 9% with the consumption of alcohol, tobacco, and clothing decreasing by 20% or more. It is clear that even before the Pacific War started, imperialistic expansion was causing a disaster in people's standard of living.

4. Conclusion

If Japan had not launched the imperialistic aggression starting with the Manchurian Incident, the United States and other Allied nations would never have taken action against Japan. The depression in the 1930s would have been cured by the Takahashi fiscal policy which would have expanded expenditure on public works and agrarian relief more extensively without wasting money for military purposes. The standard of living would have risen sharply rather than declining as it actually did. This is all conjectural, and more work will have to be done to show the point really convincingly. All that this paper did is to reveal beyond any reasonable doubt that the military expansion proved itself an economic flop even before the outbreak of the Pacific War.