British perceptions of Japanese economic development in the early 1930s

In this section, we attempt to analyze the British perceptions of Japanese economic development in the 1930s, to back up our argu­ments, especially, those of 'complementarity'. The traditional view has been that Britain and other Great Powers generally discouraged indus­trialization in the non-European world and that Japan achieved industrialization by reacting against the Western encroachment or the Western impact.

1 Commercial Counsellor, Sir George Sansom

The main source of our study is the Report on the Commercial, Industrial, and Financial Situation of Japan, published annually by the Department of Overseas Trade. In addition, we refer to other contemporary printed materials, such as the Board of Trade Journals, The Economist and The Banker's Magazine.

These documents are only tiny fragments of a large amount of com­mercial information collected by the British in those days. However, one prominent diplomat had played an important and significant role in writing the British Commercial Reports of Japan for the Department of Overseas Trade. His name was Sir George B. Sansom. He was the Commercial Counsellor at His Majesty's Embassy in Tokyo. In the explanation on the front page of every British Commercial Report, we can see the status of British Commercial Diplomatic Services in foreign countries as follows:

There are 38 Commercial Diplomatic posts in all the more important foreign markets of the world.

network of Government commercial representatives is thrown over foreign countries.²¹

Sir George Sansom had three different careers in his life.²² First, he was well known among Japanese academics as a prominent scholar of Japanese studies in the United States. He published three books on Japanese history: Japan: a Short Cultural History (1931), The Western World and Japan: a study in the interaction of European and Asiatic cultures (1950) and A History of Japan, 3 volumes (1958-63). He became the first Director of the Institute of East Asian Studies, University of Columbia. However, he had originally entered consular service and first came to Japan in 1904. He continued to be stationed in Tokyo for 35 years, becoming a veteran diplomat and the best informed foreign specialist on Japanese affairs. From 1923, he was engaged as the Commercial Counsellor and played a leading role in this field. He also attended the Indo-Japanese trade negotiations in 1933-34 as one of the British delegates.²³ Thirdly, after returning to England before the outbreak of the Second World War, he reappeared on the public stage as the British Minister to the United States in 1943 and was responsible for nego­tiations with American military officials about the postwar recon­struction scheme of Japan.²⁴

We refer to the first stage of the multitalented activities of Sir George Sansom as a Commercial Counsellor. Owing to his high reputation in the British Foreign Office as well as his surpassing knowledge and acquaintance with Japan, the British Commercial Reports in the interwar years seemed to reflect a dominant and influential opinion or percep­tion on Japanese economic affairs in those days.

2 Sansom's analyses of Japanese economic development

The changing perspective of 'complementarity'

In an article, one of the authors has emphasized the existence of a com­plementary relationship between the United Kingdom and Japanese industrialization at the turn of the last century.²⁵ During the interwar years, this complementarity tended to diminish, especially in the case of British exports of machinery. Just after the First World War, 'American competition is being keenly felt and threatens to become a permanent danger'. 'The pre-war positions of Great Britain and America have been reversed and a recapture of the market will be a matter of the greatest dif­ficulty,' and 'a great advance was made in local [Japanese] manufac­ture'.²⁶ This situation continued and the rapid growth of the Japanese manufacturing industry was accelerated in the 1920s and the early 1930s 'under the stimulus of a vigorous campaign for the encouragement of home products',²⁷ especially in electrical machinery. This reflects 'the increasing ability of Japan to supply her own machinery requirements',²⁸ and Japan started to export her machinery and machine tools to Manchuria in the 1930s (1934). Therefore, the competitiveness of British machinery was lost in the Japanese import market and led to the weak­ening of a recognized sense of complementarity, keeping pace with the higher development of Japanese industrialization.

On the other hand, British financial interests also witnessed a dimin­ishing share in Japan. Japan reopened her foreign-bond issues in 1923, especially for the reconstruction projects following the Great Earth­quake. She raised $536,000,000 (£57,000,000) from foreign capital markets up to 1931, when she was forced to readopt an embargo on sales of gold following the abolition of the gold standard by the British government. This period in the 1920s was referred to as the second introductory period of foreign capital.

Changes in the character of the Japanese import trade

On the eve of the Great Depression of 1929, Japanese economic devel­opment was described as 'remarkable and well-sustained'²⁹ even despite the Financial Crisis of 1927. Over half of her imports were raw materi­als, and it was noted that 'Japan's position is not unlike that of Great Britain....She must purchase abroad the raw materials of industry, and with her profits buy such finished goods as she requires'.³⁰ This chang­ing character in Japan's import trade gradually increased the value of imports from India [raw cotton and pig-iron], Malaya [iron-ore and rubber], Australia [wool] and the Dutch East Indies [sugar].

As her manufacturing capacity advances, she buys more raw mater­ials and less finished products, to the advantage of those countries which supply such commodities as raw cotton, wool, wheat, iron, oil and timber.³¹

The importance of the British Empire, especially that of British India, increased greatly, whereas the imports of manufactured goods from the United Kingdom to Japan dropped drastically at that time.

Sansom observed that 'this appears to be an inevitable tendency in world trade...the scale of vast quantities of raw materials by these regions increases in the long run their purchasing power and their con­sumption of manufactured goods'.³² He also pointed out that:

disturbed conditions, or any other causes which reduce purchasing power in China or British India, affect seriously the total volume of her [Japanese] exports and, indirectly, her purchasing power in for­eign markets in general... The defeat of a customer in one market may mean the loss of a customer in another.³³

His remarks revealed the so-called 'final demand linkage effect', which comes from the consumer goods demand of producers of primary prod­ucts for export, according to the definition of Kaoru Sugihara.³⁴ Through the process of rapid recovery from the Great Depression, Japan became an 'important buyer in the world's markets for raw materials'³⁵ and 'one of the most important consumers of raw materials'.³⁶ Therefore, Japanese demands and imports of raw materials contributed, to a great extent, to the economies of the primary-producing countries.

The strong competitiveness of Japanese exports

As mentioned before, achieving rapid economic development in 1928, 'Japan has already... developed from an importer, through an interme­diate stage of production for domestic needs, into an exporter'. She was 'not only... an importer of manufactured products but also...a poten­tial competitor in other markets'.³⁷ This trend continued in spite of the Great Depression, and in 1932

Japan offers less and less prospect as a market for the manufactured goods of other countries....She is now established as one of the most serious competitors of those countries, and is at the same time one of the most important consumers of raw materials.³⁸

The Japanese export market changed drastically in the early 1930s. On 11 January 1930, the Japanese government lifted the gold-embargo under deflationary policies and her economy fell into unusual difficul­ties. Sansom pointed out at the time that 'her main economic interests are in two regions, the USA and Asia... which must have an important bearing upon her foreign policy'.³⁹ However, owing to the financial depression in the USA and political unrest in China, combined with the development of the Chinese manufacturing industry, by 1934 Sansom was forced to observe that 'the two leading markets have lost their relative importance' and that 'it is somewhat surprising to find 1934 exports to British India valued at 238 million yen, whereas exports to what is described as China in the Japanese trade returns were only 117 million yen'.⁴⁰ British India became the largest trading partner of Japan in 1933 and this development led to the trade dispute with India. Sansom had already insisted in 1930 that:

Japan must turn more and more to the production of finished goods to supply not only her present markets but also to attempt to push far afield into Africa, Near Eastern, and South American areas hitherto supplied mainly by Lancashire.⁴¹

The Economist also pointed out that:

under pressure of boycott in China and restrictions in India, Japan has been forced to seek new markets for her goods, and has been successful in opening new connections in Central and South America, Africa and Eastern Europe.⁴²

In the early 1930s, many Japanese commercial missions were dispatched to these latter regions in order to open new export markets, which took about one-quarter of total Japanese exports in 1934.

The positive estimate for Japanese economic nationalism

Sansom put much emphasis and high value upon the Japanese economic and financial policies introduced from 1932 by the Finance Minister, Korekiyo Takahashi. His economic policy was characterized as 'a policy of State expenditure financed by State borrowing', reflation and liberal spending. 'The loan-financed expenditure of the Government has set in motion economic factors which were awaiting release and has thus produced those favorable conditions.' 'It is at least true that a country which is rapidly increasing its production can more safely depart from financial orthodoxy than one where production is stationary.' 'It may be regarded as an experiment in recovery from depression by an un-orthodox programme of public works financed by public loans.'⁴⁵ The Japanese government issued domestic bonds of £200,000,000 [about 3 billion Yen]. According to Sansom's judgement, these bonds were 'not an excessive price to pay'. Takahashi's financial policies might be called Keynesian, even in the first half of the 1930s. Of course, Sansom also mentioned that the loan-financed expenditure was mainly poured into military spending, leading to the poverty of Japanese farmers, and that 'the capital resources of Japan do not suffice for the economic development of Manchuria at the pace which it has hitherto maintained'. 'A Japan-Manchuria economic bloc has not yet been constituted.'⁴⁶

However, the depreciation of the Yen and a fall in the exchange rate gave a great advantage to Japanese exports. 'Most exporting industries benefited' and a 'spectacular revival in foreign trade'⁴⁷ was achieved within a short period. Sansom also tried to analyze other secrets of Japanese competitiveness. He referred to the 'rationalization' of indus­tries, the bid for increased efficiency and the beneficial role of govern­ment assistance, especially subsidies for shipping. These kinds of economic policies of the Japanese government and the positive roles played by the state were highly appreciated as they were in sharp con­trast with the poor performance of the British government.

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