Viewpoints of analysis on the International Order of Asia in the 1930s

1 The International Order, economic responses and interdependence

In the context of world economic history, the 1930s have been characterized by the long economic depression that followed the Great Depression of 1929, and by the steady erosion of the liberal free trade regime owing to the shift towards bloc economies.

In the 1930s, the Western countries had many colonies in Southeast and South Asia, whose economic histories have been written in the context of a passivity under the strong influences of the Western Powers. Each area was incorporated into the European spheres of influence and divided separately by the implementation of bloc economies. On the other hand, in the political context, the national­istic interpretation of history has put much emphasis on the aspects of resistance and self-assertion against colonial rule, and the 1930s have been pictured as a prelude to political independence or decolo­nization after the Second World War.

We would also like to mention another important viewpoint with regard to the history of international relations. That is the formation of mutual interdependence or interconnectedness between 'the Core' and 'the Periphery' of the Modern World System. This picture cannot be comprehended from an orthodox interpretation of 'domination and opposition' between the ruler and the ruled. For example, in the context of Asian history in the late 1930s, it used to be insisted that the Asian regions claimed sovereignty in political struggles for indepen­dence or resistance to the Japanese military invasion. This insistence has led to too much emphasis on the importance of domestic factors for the formation of a 'nation state', and the exclusion of external influences from the interpretation of contemporary Asian history.

2 Economic nationalism, the ‘Imperial division of labour' and ‘complementarity'

First, we shall try to reconsider the historical significance of Asian industrialization in the 1930s from a global perspective. It has often been said that the trade frictions in the 1930s represented a scramble for Asian markets between the Lancashire and Japanese cotton industries and that they were regarded as a clash of manufacturing interests. However, the recent works in the field of British Imperial History, espe­cially the arguments of ‘Gentlemanly Capitalism' by Cain and Hopkins, suggest that the financial and service sectors had always dominated British economic interests and that manufacturing was secondary. The external economic policies of Great Britain reflected this structure of the British economy. They put much emphasis on the payment of interest and dividends from the colonies, and the defrayal of administrative costs by dependencies. They stress that the maintenance of credibility of sterling was imperative for the British ‘official mind'.⁷ The same logic can be applied in the case of the Netherlands and her colonial rule over the Dutch East Indies.⁸ Following these new interpretations, it is notice­able that some kind of ‘coexistence' of economic interests tended to appear in Asia between the British and Dutch financial interests and the Asian manufacturing interest, supported by the rise of nationalism.

The rise of economic nationalism in each Asian region was an essen­tial factor for the development of Asian industrialization. To promote industrialization in Asia, it was important to get two institutional frame­works; first, tariff autonomy and, second, an independent currency policy, which are the essential requirements of ‘national economies'.⁹ Japan recovered the former in 1899 by the revision of the so-called ‘unequal treaties' and got the latter in 1897 through the adoption of the gold standard. China recovered the first requirement in 1929 and obtained the second in 1935 in the process of its own currency reform. In the case of British India, the process of attaining tariff autonomy was a gradual step-by-step process. But she could not control her currency policy, especially the exchange rates of Indian rupee to the sterling.¹⁰ Its lack of currency autonomy led to an upsurge of nationalistic feelings and accelerated the acquisition of tariff autonomy in the 1920s.

However, an important element in Asian industrialization was the 'complementarity' between the Western powers and the Asian regions. The industrialization of Asia in the 1930s is not solely explainable by a confrontational schema or rivalry between 'the Core' and 'the Periphery'. In the case of British India, the loss of competitiveness of the Lancashire cotton industry in the Indian market used to be interpreted as an 'economic triumph' for Indian nationalism.¹¹ However, industrialization in British India was achieved by utilizing the imperialistic order of the British Empire even under colonial administration.¹² In the 1920s the Government of India gradually raised the level of import duties in order to attain more revenues and to balance Indian finances.

We can also identify the same kind of complementary relationship between China and the United Kingdom in the 1930s, especially in the case of Chinese currency reform in 1935. The Nationalist Government of China suffered financially from a heavy outflow of silver in 1933-35, caused by fluctuations in silver prices in the American market. They received some advice from American finan­cial advisers such as the Kemmeller Commission and A.N. Young about possible remedial action. However, in the end, Chinese minis­ters of finance, T.V. Soong (1928-33) and H.H. Kung (1933-47) almost completed the planning of monetary reform by themselves and carried it out resolutely in November 1935 in opposition to Japanese obstruction. The British Leith-Ross Mission visited Japan and China on the eve of the currency reform to persuade the Japanese government to agree to a joint-loan to China. The Chinese Nationalist Government tacitly took advantage of this opportunity, and successfully obtained support from the representative of British financial interests in China, the Hongkong and Shanghai Bank.

These two examples of British India and China reflect the unique features of the industrialization of Asia in the 1930s, and a similar economic relationship has been discerned between Japan and the United Kingdom at the turn of the 19th-20th centuries.¹⁵ They demonstrate the need to reconsider Asian economic links from the new angle of complementary relationships with, rather than antagonism against, the Western powers. Asian industrialization made steady progress by taking full advantage of the imperialistic international order of the world in the 1930s.

3 The ‘openness' of the Imperialistic International Order and Asia It has been argued that the European Powers and Japan in the 1930s divided Asia into their spheres of influence through exclusive ‘bloc' economies and that their rivalry was a contributory factor to the Asia- Pacific War (the Second World War). However, we would like to insist that European policies toward Asia in the 1930s were not so exclusive as is so often argued and that the Ottawa Trade Agreement and the ster­ling area of Great Britain possessed a degree of ‘openness' as a bloc economy. We agree with the new interpretation of Cain and Hopkins on the following point: the Ottawa Agreement was intended primarily to promote the financial and service interests of the City of London rather than British manufacturing interests, by smoothing the payment of interest and dividends from the colonies to the metro­polis.¹⁶

In order to achieve this smooth payment of interest, it was impera­tive to increase and maintain the trade surpluses of the colonies. Therefore, the metropolis, especially Great Britain, had to be the largest purchaser of primary products from the colonies. As a result, the Ottawa Trade Agreement gave priority to the expansion of colonial exports of primary products rather than the export of manufactures from the United Kingdom. A contemporary publication by the Royal Institute of International Affairs clearly points out the logic behind this and the results of the sterling area in the late 1930s.¹⁷ However, it was difficult to maintain a large trade surplus for the colonies by relying only on the sterling area. It had to be complemented by the growth of exports to other advanced industrial nations, such as the United States and Japan, from the British Empire and Commonwealth. It is worth noting here that B.R. Tomlinson has pointed out the following points: the Ottawa Agreement and Imperial Preference rarely functioned to strengthen the economic links within the British Empire, and the application of Imperial Preference to British India was completely irrelevant.¹⁸ As we have already mentioned, British India in the 1930s industrialized by taking full advantage of the protection of Imperial Preference. The main concern of the United Kingdom was not to implement tariff policies for the protection of British domestic indus­tries, but to maintain the international value of sterling along with the 'financial and service interests' of the City. The British Empire and Commonwealth in the 1930s was not a 'closed' bloc protected by Preferential Tariff. It was open and responsive to the external world in order to promote British 'financial and service interests'. In the third section of this chapter, we will reveal the Japanese response to this 'openness' of the sterling area, by analyzing the economic diplomacy of the 1930s, especially the Indo-Japanese trade negotiations in 1933-34, and the Dutch-Japanese trade negotiations in 1934. Kaoru Sugihara also points out the unofficial linkage between the Japanese Yen, the Chinese dollar and the sterling area, which constituted a de facto 'devaluation zone' in the middle of the 1930s. The emergence of this 'devaluation zone' contributed, to a great extent, to the industrial­ization of Asian regions.¹⁹ Britain depended heavily on a relatively 'free-trade' regime, balanced budgets and low military expenditure in the 1930s. A 'closed' empire usually increases the cost of maintaining an empire,²⁰ and the British Empire provides a good example of how to reduce costs through the 'openness' of an empire.

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