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The rising companies and the Establishment 1905-1931 : the forerunners of Japanese expansion and their… Walton, Robert Derwent 1976

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THE RISING COMPANIES AND THE ESTABLISHMENT 1905-1931: THE FORERUNNERS OF JAPANESE EXPANSION AND THEIR STRUGGLE FOR EMERGENCE B.A. (Hons,), University of B r i t i s h Columbia, I969 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA December, 1976 f^) Robert Derwent Walton, 1976 By ROBERT DERWENT WALTON i n the Department of History In presenting th i s thes is in pa r t i a l fu l f i lment of the requirements for an advanced degree at the Univers i ty of B r i t i s h Columbia, I agree that the L ibrary sha l l make it f ree ly ava i l ab le for reference and study. I further agree that permission for extensive copying of th is thesis for scho lar ly purposes may be granted by the Head of my Department or by his representat ives. It is understood that copying or pub l i ca t ion of th is thes is for f inanc ia l gain sha l l not be allowed without my writ ten permission. Department of s ' The Univers i ty of B r i t i s h Columbia 2075 Wesbrook Place Vancouver, Canada V6T 1W5 Date 2 1 F<£y?*~&*n ^ 7 ? i ABSTRACT The two main themes of the thesis are the growth of the highly d i s t i n c t i v e r i s i n g companies and t h e i r c o n f l i c t with the Establishment i n the period 1905 to 1931. The three r i s i n g companies discussed are the Suzuki Shoten, Japan Nitrogenous F e r t i l i z e r s and Showa F e r t i l i z e r s . The rapid expansion of these firms, each under a singl e , bold, dynamic entrepreneur, i s contrasted with the sluggishness of established c a p i t a l , as represented by the two Great Z a i b a t s u — M i t s u i and Mits u b i s h i — a n d the t e x t i l e majors. The difference i n investment behaviour was es p e c i a l l y notable i n the rayon and ammonia synthesis i n d u s t r i e s , where a great opportunity existed f o r those s u f f i c i e n t l y resolute to seize i t . By the end of World War I , chemists and chemical technologists existed i n abundance, and s p e c i f i c foreign processes were available at prices low enough to allow p r o f i t a b l e production. Domestic demand f o r both rayon and ammonium sulphate rose dramatically throughout the twenties. There was, however, considerable r i s k as the technologies were d i f f i c u l t and t o t a l f a i l u r e was possible. The origins of the dynamism of the r i s i n g companies and the lethargy of the established firms are discussed. The creative a c t i v i t y of the entrepreneurs of the r i s i n g companies was not the product of factors associated with any region, s o c i a l group, type of education, or early work experience. I t i s possible that i t was the consequence of moral debt repayment to the mother. The sluggishness of the Great Zaibatsu cannot be attributed to t h e i r managerial structure. I t was i i probably of compound o r i g i n , being rooted i n t h e i r sense of security and attitudes to the West. The r i s i n g companies clashed with the Great Zaibatsu-dominated Establishment on three occasions. From mid-World War I , M i t s u i f e l t threatened by the explosive growth of Suzuki, and the giant combine, together with i t s p o l i t i c a l a l l i e s , attacked the r i s i n g company twice. Suzuki suffered a setback i n the Rice Riots of 1918, when the firm's head o f f i c e was destroyed by mobs i n c i t e d to violence by the Seiyukai. Suzuki, x^hich was closely associated with the Bank of Taiwan, was forced i n t o bankruptcy i n 1927, as M i t s u i engineered a run on the bank a t a time when i t could not be supported by the Kenseikai Cabinet. With the Fujihara-Bosch Agreement of 1930, M i t s u i and M i t s u b i s h i , i n collaboration With the Western nitrogen industry, moved to h a l t the ' construction of the two gigantic ammonia synthesis plants owned by Japan Nitrogenous F e r t i l i z e r s and Showa F e r t i l i z e r s , with the i n t e n t of forcing these firms into bankruptcy. The two r i s i n g companies defied t h i s pressure by a l l y i n g with anti-Establishment forces, activated by the revolutionary mood of the early t h i r t i e s . The main motive of foreign c a p i t a l i n the Fujihara-Bosch Agreement was a desire to eliminate the emergence of new productive capacity i n an industry that was already suffering from serious overproduction. The Great Zaibatsu may have acted under the duress of Western pressure, or i n an attempt to attack the revolutionary forces which threatened t h e i r hegemony. In the p o l i t i c a l changes of the early t h i r t i e s , the bold, expansionist s p i r i t xtfiich had characterized the r i s i n g companies i n the i i i twenties, spread to the nation as a whole. These companies were the forerunners of Japanese expansion. Of the minor themes, perhaps the most notable i s the high ambition of certain sectors of Japanese society, as evidenced by the great oversupply of technical graduates and the often, almost f a n a t i c a l response of the technicians to opportunity. The importation of technology comes sharply into focus; the technology gap, methods of technology transfer, and other related matters are discussed. In the f i n a l section, some interpretations of the philosophy of Japanese business are c r i t i c i s e d . TABLE OF CONTENTS CHAPTER PAGE I. INTRODUCTION 1 The Period 1905-1931: Perspective . . . . . . . . . . 1 The Themes 7 Footnotes . 16 A. THE ESTABLISHED COMPANIES . . . . . . 17-166 I I . THE GREAT ZAIBATSU 17 Introduction . . . . . . . . . . . . 17 Early History of the Great Zaibatsu 18 Di v e r s i f i c a t i o n of the Great Zaibatsu . . . . . . . . 22 General Record i n I n d u s t r i a l i z a t i o n . . . . 23 The Opportunity . . . . . . . . . . . . kh Foundations of Japanese chemical technology . . . . UU The Japanese chemical industry . . . . . . 55 A super-abundance of technicians 58 The opportunity i n ammonia synthesis 75 The opportunity i n rayon . . . . . . . . . . . . . . 91 The Great Zaibatsu i n the Chemical Industry . . . . . 100 The Great Zaibatsu i n rayon 102 The Great Zaibatsu i n synthetic ammonia . . . . . . 110 The Cautious Compradors 116 Conclusion . . . . . 132 Footnotes 134-i v CHAPTER PAGE I I I . PUSSYFOOTS EXTRAORDINARY: THE TEXTILE COMPANIES . . . . U,S Introduction 14-8 Response 14-9 The Seven Pussyfoots . . . . . . . . . . . . . . . . . - 154 Conclusions . . . . . . . . . . . . . . 162 Footnotes . . . . . . . . . . . . . . 165 B. THE RISING COMPANIES 167-290 IV. THE SUZUKI SHOTEN: THE COMPANY WHICH GREW NOT WISELY BUT TOO WELL 167 Overview 167 Suzuki's Development Pr i o r to World War I . 169 World War I: Explosion 176 The Fettered Giant: Suzuki 1920-1927 . . . 187 • Suzuki i n Rayon . . . . . . . . . . . . . . . . . . . 190 Introduction 190 Early experimentation , 192 Development . . . . . . . . . . . . 195 Conclusion 204-Suzuki i n Ammonia Synthesis . . . . . . . . . . . . . 207 Introduction . . . . . . 207 Adoption of the Claude Process . . . . . 208 In d u s t r i a l i z a t i o n of the process 211 Summary 214. Footnotes 216 v CHAPTER V. JAPAN NITROGENOUS FERTILIZERS Introduction . . . . . . . . . Independence of Japan Nitrogenous F e r t i l i z e r s . . . . Development of Japan Nitrogenous F e r t i l i z e r s : Aggressive Leadership and Positive Response . . . . Pr i o r to ammonia synthesis . Ammonia synthesis . . . . . . . A c t i v i t y other than i n ammonia synthesis . . . . . . Summary Footnotes . . . . . . . . . . . . . . . . . . . . . . VI. SHOW*. FERTILIZERS Introduction . . . . . . . . . . . . . . . Mori's Early Career . . . . . . . . . . . . The Establishment of Showa F e r t i l i z e r s . . . Footnotes . . . . . . . . VII. THE ENTREPRENEURS OF THE RISING COMPANIES Introduction . . . . . . . Family and Home Background . . . . . . Early Business Careers . . . . . . . . . . . . . . . . The Origin of the Drive to Construct . . . . . . . . . Main Strength and Operating Style . . . . . Supporting Assets . . . . . . . Footnotes . . . . . . . . . . . . v i CHAPTER r i i u ^ C. THE CONFLICT . 291-4-56 V I I I . THE FIRST ATTACK ON THE SUZUKI SHOTEN: 1918 291 Business and the Oligarchy 291 Business and p o l i t i c s p r i o r to World War I 291 Business, p o l i t i c s and World War I . . . . . . . . . 294-Suzuki i n P o l i t i c s and Business 295 Suzuki and the oligarchy . 295 Suzuki and the two Great Zaibatsu . . . . . . . . . 297 The Attack on Suzuki 301 The (5saka Asahi 301 The campaign of the "Osaka Asahi: early phase . . . . 304- b Rice cornering i n Kobe . . . . . . . . . . . . . . . 305 The campaign of the "Osaka Asahi: l a t e phase . . . . 308 The Rice Riots i n Kobe 309' r The Role of Mitsui 315 The selective attack on Suzuki 315 The case against M i t s u i . 317 Footnotes . 321 IX. THE FALL OF SUZUKI: THE BANK OF TAIWAN CRISIS OF 1927 . 325 Introduction . . . . . . . . . . . . . . . . 325 The Japanese Commercial World and China . . . . . . . 325 P o l i t i c s i n the Mid-Twenties . . . . . . 331 Overview . . . . . . 331 Forces and p o l i c i e s . 335 v i i CHAPTER PAGE The Situation i n Early 1927 34-3 Events i n China 34-3 The Diet 34-6 The developing c r i s i s . 34-9 The C r i s i s 356 The M i t s u i p l o t 356 The development of the Mitsui plot 357 The six-day charade . . . . . . . . . . . . . . . . 372 The Winding-Up 380 Footnotes . . . . . . . 384 X. EMERGENCE 390 Introduction 390 The Nitrogen C r i s i s . . . . . . . . . . . . 391 The world background i n the 1920's 391 The International Nitrogen Industry and Japan . . . . 399 The foreign companies i n Japan . 399 Early reactions to the foreign offensive . . . . . . 4-03 The resistance 4-04-The Fujihara-Bosch Agreement . . . . . 416 The significance of the Fujihara-Bosch Agreement , . 416 The agreement . . . . . . 416 Motives i n the Fujihara-Bosch Agreement 4-19 The International Nitrogen Cartel , . 419 The Great Zaibatsu 421 v i l i CHAPTER PAGE Pressure Applied ............ 423 Mitsui and Showa F e r t i l i z e r s ............ 428 Mitsubishi and Korean Nitrogenous F e r t i l i z e r s . . . 4-31 The Breakout 4-35 Toward revolution 4-35 Mori breaks free . . 4-38 The unbinding of the Korean Prometheus Noguchi . . . 440 A Pre-Emptive Attack . . . . . . . 448 Footnotes 4-50 XI. CONCLUSIONS 4-57 Introduction . . 4-57 The Three Rising Companies 4-58 The Established Firms 4-66 The Great Zaibatsu 4-66 The t e x t i l e companies 4-72 C o n f l i c t 475 Summary 475 Overview . . . . . . . . . . . 481 Ambition . . . . . . . . . . . . . . . . . 484 Technology . . , 489 Technology transfer to Japan . . . . . . 489 Possible applications . . . . . . . . . . . . . . . 498 i x CHAPTER PAGE Philosophy of Business . . . . . . . . 500 The theories of Ranis and Marshall . . . . . . . . . 500 Intercompany c o n f l i c t . . . . . . . . . . . . . . . 505 The Economic P o l i c i e s of the Twenties 509 Footnotes . . . . . . . . . . . 511 BIBLIOGRAPHY 514-APPENDIX 536 GLOSSARY 54-6 LIST OF TABLES TABLE PAGE I . The D i v e r s i f i c a t i o n of the Two Great Zaibatsu . . . . 20 I I . Open Hearth Furnace Capacities by Company 1913 . . . . 27 I I I . Mitsubishi Goshi: Comparison of Net P r o f i t by Division P r i o r to World War I 30 IV. M i t s u i Mining P r o f i t s 32 V. Mitsubishi and M i t s u i : Trading P r o f i t s and Dividends 1918-1932 34 VI. Mitsubishi Shipyards: Net P r o f i t 1919-1929 37 VII. Mitsubishi A i r c r a f t : Net P r o f i t 1927-1933 . . . . . . A2 V I I I . Number of Staff: Tokyo I n d u s t r i a l Experimental Station A9 IX. Production of Chemists and Chemical Technologists to 1917 59 X. Chemistry and Chemical Technology: University Graduates 1918-1932 Analyzed According to University and Subject . . . . . 6 l XI. Chemistry and Chemical Technology: University Graduates 1918-1932 Analyzed According to Subject . 64 XII. Chemistry and Chemical Technology: Technical College Graduates 1918-1932 Analyzed According to Subject . X I I I . Chemistry and Chemical Technology: University Graduates Cumulative Total 1917-1932 Analyzed According to Subject , 66 68 TABLE - PAGE XIV. Chemistry and Chemical Technology: Technical College Graduates Cumulative Total 1917-1932 Analyzed According to Subject . . . . . . . . . . . . . . . . 69 XV. Chemistry and Chemical Technology: University and Technical College Graduates Combined Cumulative Total 1917-1932: Analyzed According to Subject . . . 70 XVI. Japan Proper: Ammonium Sulphate Production, Imports and Exports , 90 XVII. New Rayon Enterprises 1932-1938 153 XVIII. The Textile Majors: Financial Analysis 157 XIX. The Suzuki Group P r i o r to World War I: In d u s t r i a l Firms . . . . . . . . . . . . . 173 XX. The Suzuki Group P r i o r to World War I: Non-Industrial Firms 174 XXI. The Suzuki Group August 1914 to December 1919: Ind u s t r i a l Firms . . . . . . . . . . . 179 XXII. The Suzuki Group August 1914 to December 1919: Non-Industrial Firms . . . . . . . . . . 181 XXIII. The Suzuki Group January 1920 to A p r i l 1927: Ind u s t r i a l Firms . . . . . . . . . . . . . . . . . . 182 XXIV. The Suzuki Group January 1920 to A p r i l 1927: Non-Industrial Firms . . . . . . . . . . . 184 XXV. The Five Leading Zaibatsu i n 1928 186 x i i TABLE PAGE XXVI. Main Japanese Rayon Producers: P r o f i t s and Production i n Latter Half of 1934 205 XXVII. Soki E l e c t r i c : Board of Directors 1908 , 223 XXVIII. Japan Nitrogenous F e r t i l i z e r s : Board of Directors 1920 225 XXIX. Japan Nitrogenous F e r t i l i z e r s : Board of Directors 1921 227 XXX. Japan Nitrogenous Fertilizers:-Twenty Largest Shareholders 1928 228 XXXI. Progress of Japan Nitrogenous F e r t i l i z e r s 1909-1918 . 236 h XXXII. Suzuki and the Rice Riots i n Kobe 1918 316 XXXIII. Mitsui and Mitsubishi i n China: December 1935 . . . . 327 XXXIV. Japanese Cotton I n s t a l l a t i o n s i n China at the End of 1924 342 XXXV. The Composition of the F i r s t Uakat sulci Cabinet March-April 1927 347 XXXVI. Election of May 10, 1924 348 XXXVII. The Bank of Taiwan C r i s i s : Closure of Banks 360 XXXVIII. Bank of Taiwan: Statement of Position A p r i l 17, 1927 . 377 XXXIX. Deposits at the Major Banks Before and After the Bank of Taiwan C r i s i s 382 XL. German Exports of Ammonia Synthesis Products 1928-1929 397 XLI, Average Yearly Price of Ammonium Sulphate Produced i n Japan . . . . . . . . . . . . . . . . . 401 x i i t TABLE PAGE XLII. Wholesale Price of Ammonium Sulphate i n Japan 1927-1935 4-02 XLIII. Rural Income i n Japan 405 XLIV. Development Cooperatives: Number and Membership . . . 4-07 XLV. Development Cooperatives: Finance 4-08 XLVI, Development Cooperatives: Sales and Purchases . . . . 4-09 XLVII. Associations: .Number and Type 411 XLVTII. Associations: Finance . . . . . . . . . . . . . . . . 412 XLIX. Associations: Sales and Purchases . . . . 413 . XL. Peasant Unions and Tenancy Disputes 414 L XLI. M i t s u i : The Rural Commodity Trade 430 XLII. The Position of the Bank of Korea 1915-1931 445 XLIII. The Eight Leading Combines i n 1939 . . . 447 XLIV. Ammonia Synthesis Plants i n the Japanese Empire 1923-1940 544 x i v ACKNOWLEDGEMENT Many people have contributed to the completion of t h i s thesis. At the University of B r i t i s h Columbia, f i r s t mention must go to my committee. My adviser, Professor John F. Howes, who encouraged me from my e a r l i e s t days at the u n i v e r s i t y , was a regular source of help and i n s p i r a t i o n . Professors Edgar Wickberg and Don Burton gave much valuable c r i t i c i s m . On economic matters, I must thank Professors W, Winiata and R, Huenemann for t h e i r generous assistance. In Japan, the reference s t a f f of the National Diet Library i n Tokyo were u n f a i l i n g l y h e l p f u l , while Mr, Shibamura Yogo, a hi s t o r i a n on the s t a f f of the magazine, Kagaku K e i z a i , gave much kindly encouragement during the early period of my research. Professor Yamazaki Toshio of the Tokyo University of Engineering was most helpfu l i n forming contacts. I would l i k e to thank those members of the s t a f f of Nissho-Iwai and Showa Denko who were of assistance. Especial thanks are due to Mr, Mine Takeshi of M i t s u i High Pressure and Mr, Watanabe Tokuji of Mitsubishi Gas-Chemical. I am grateful to Professor Ho Peng-yoke, Chairman of the School of Modern Asian Studies, G r i f f i t h University, Brisbane, A u s t r a l i a , who gave me the freedom to complete the study. I received support from the Killam Foundation and the Canada Council, while Professor Winiata generously awarded me a grant f o r contract research. xv Last, but by no means l e a s t , I must thank my wife, Shirley, who not only typed the manuscript, proof-read the text, and offered much hel p f u l c r i t i c i s m , but gave encouragement beyond the c a l l of wif e l y duty. I assume r e s p o n s i b i l i t y f o r a l l errors of content and interpretation. x v i CHAPTER I INTRODUCTION I. THE PERIOD 1905-1931: PERSPECTIVE This thesis i s concerned with the years between 1905 and 1931 when Japan was s t i l l a developing country and a f a r cry from the economic giant of today. In order to understand the setting of the themes, i t i s necessary to b r i e f l y examine the progress of Japan up to the time of the Russo-Japanese War (1904-1905), and then to consider developments within the period i t s e l f . During the two-and-a-half centuries of the Tokugawa Period which ended with the M e i j i Restoration.of 1868, Japan had been p o l i t i c a l l y fragmented. Though the country had been divided into some 260 nan (baronies), each of which enjoyed a considerable measure of autonomy i n administration, j u s t i c e and economic a f f a i r s , a r u l i n g c o a l i t i o n of han, headed by the Tokugawa House, held so ti g h t a control of inter-han relations and foreign p o l i c y that the country remained e s s e n t i a l l y at peace fo r the duration of the period. During the Tokugawa, the l o y a l t i e s of the ind i v i d u a l were to the han and not to Japan, but i n the national revolution which was the M e i j i Restoration l o c a l l o y a l t i e s were superceded by national, and a highly centralized system of government came to be established with the support of the main active elements of Japanese society. U n t i l World War I , p o l i t i c a l power rested f i r m l y with the groups 2 which had carried out the national revolution. P a r t l y i n response to agitation by a section of the people and partly as the window-dressing of a nation anxious to gain the acceptance of the West, a written constitution establishing a Diet was adopted i n 1889. The r e a l power of the Diet was to increase with the passage of time, though even i n 1905 i t s t i l l remained a subordinate organ of government. While during our period the government played l i t t l e role i n the economy, i n the f i r s t three decades of the M e i j i Period (1868-1912) the state, reacting to the constant spur of possible Western conquest, established much of the economic infrastructure and a c t i v e l y encouraged economic development. A single currency was fashioned from the monetary chaos which had preceded the Restoration, and an adequate banking system was developed with special government banks to foster growth. An excellent land and sea transportation network was created. Building on a considerable heritage from the Tokugawa Period, primary education was extended to almost the entire population by the 1890's, while an able e l i t e was educated at the state u n i v e r s i t i e s . The decade and a h a l f p r i o r to the Russo-Japanese War also saw the s t a r t of technical education. Partl y i n response to government encouragement, but i n the main as a continuation of the vigorous t r a d i t i o n of Tokugawa economic a c t i v i t y , there was a considerable development of private enterprise after the opening of the country to the West. In l i g h t industry, especially t e x t i l e s , much Western technology had been assimilated by the turn of the century, and t h i s sector developed quite rapidly. In heavy industry, and even more especially chemical industry, which were more technologically complex, the rate of advance was very much slower and, even i n 1905, Japan remained and was f o r long to remain, a heavy importer of most of the products of these industries. The Russo-Japanese War marked the culmination of a period of r i s i n g Japanese prestige within the international community. Her p o l i t i c a l development and economic progress won her a degree of respect i n the West accorded to no other non-occidental nation. Her reputation was enhanced by the defeat of China i n 1895, while the v i c t o r y over R u s s i a — a l b e i t a very close one—ensured her security i n the Far East. Japan was henceforth the equal of many Western powers, but she was not Western and neither did the West accept her as such. This was one element which was to profoundly affect l a t e r developments. Turning to the period 1905-1931, the economic developments w i l l be outlined f i r s t , as they strongly influenced the pattern of events i n other spheres. The economy expanded steadily throughout the period. Urbanization with corresponding growth of secondary and t e r t i a r y sectors continued, while the importance of agriculture steadily diminished even though half of the population was s t i l l r u r a l i n 1930. After World War I , because of the importation of cheap col o n i a l r i c e and low world raw s i l k prices, a chronic depression enveloped the r u r a l areas which was not to l i f t u n t i l the end of the t h i r t i e s . In industry, the trends of the M e i j i Period continued. Light industry, especially t e x t i l e s , maintained i t s rapid growth, and by the twenties Japanese t e x t i l e s were highly competitive on world markets. Heavy industry continued to develop more slowly, with technology and productivity 4 lagging the West considerably. The chemical industry began a belated development i n the 1920's, but the volume of production i n i t s modern sectors remained small u n t i l the end of the decade. World War I , which offered very favourable marketing conditions, was marked by a great leap forward i n industry and commerce. The war boom years were to afford a sharp contrast to the deflationary and rather depressed decade which followed. Although the economy expanded more rapidly i n the twenties than i n the M e i j i Period, the population was also increasing at a high rate. I n d u s t r i a l development was i n s u f f i c i e n t to absorb a l l of the growing work force, and considerable unemployment and under-employment resulted. By the end of World War I , expectations had been raised by the heady war boom and the r i s i n g l e v e l of education. As the twenties progressed, increasing numbers came to f e e l that the pace of economic development was too slow. The p o l i t i c a l history of the period i s complex and interpretations vary. There i s some ground common to a l l . None would dispute that there were two periods of swift p o l i t i c a l change—one at about the end of World War I and the other i n the early t h i r t i e s . Again, none would doubt that, i n the f i r s t change, power passed from the oligarchy to a Cabinet which was essen t i a l l y drawn from Dietmen and that, i n the second, power was transferred from the Diet to a constellation of forces which centred heavily on the m i l i t a r y . Where interpretations d i f f e r i s i n the nature of the p o l i t i c a l system between the end of World War I and the early t h i r t i e s . 5 In the broad spectrum of opinion, most would i n c l i n e to a position approaching the following interpretation which comprises one end of that spectrum. In Japan, from the adoption of the Constitution i n 1889,there was a continual broadening of the democratic base and, with the death of the p r i n c i p a l oligarchs i n the l a t e tens and early-twenties, there was a transference of power to party cabinets responsible to a largely-elected Diet. These party cabinets ruled Japan i n an es s e n t i a l l y democratic fashion u n t i l the early t h i r t i e s when the m i l i t a r y became the•principal influence i n government. The positions 1 2 of Borton and Duus, for example, are very close to t h i s interpretation, 3 A number of other writers l i k e Scalapino would take a position some distance toward the other end of the spectrum. At the other end of the spectrum i s a school of opinion which has few advocates today, but would have been supported by many Japanese i n our period. For t h i s school, the sway of the oligarchy was succeeded,not by democratic government, but by the rule of money power(and especially that of Mitsui and Mitsubishi),acting through the agency of a nominally democratic Diet, The p o l i t i c a l change of the early t h i r t i e s i s seen as the replacement of zaibatsu power by that of the m i l i t a r y , A considerable part of t h i s thesis concerns the i n t e r - r e l a t i o n of business and p o l i t i c s . Such i n t e r - r e l a t i o n as I have described i s only meaningful i n the l i g h t of a position i n the spectrum close to the interpretation of the second school. This i s not to deny the v a l i d i t y of the ideas of the f i r s t school e n t i r e l y . There i s ample evidence to indicate a very r e a l broadening of the basis of true parliamentary democracy i n Japan i n the period from the adoption of the Constitution up to 1930. I would, however, strongly argue, both on the basis of evidence presented i n t h i s thesis and on other grounds, that throughout the entire period p r i o r to World War I I parliamentary democracy was shallowly rooted i n Japan. Though the voice of pr i n c i p l e was frequently heard and, at times, heard loud and clear, the p r i n c i p a l springs of p o l i t i c a l a c t i v i t y of the times were not the c o n f l i c t of contending p o l i t i c a l philosophies, but the clash of interest groups. Of these interest groups, Mitsui and Mitsubishi, which are styled the Great Zaibatsu i n t h i s thesis, were without doubt the most i n f l u e n t i a l . While largely following the second school of p o l i t i c a l i n t e r -pretation, I have added an o r i g i n a l element by describing the p o l i t i c a l change of the early t h i r t i e s as a revolution, though many would disagree strongly with the use of th i s term. Much depends on one's d e f i n i t i o n of revolution. I have used the word to mean simply a f o r c i b l y induced, fundamental change i n p o l i t i c a l d i r e c t i o n , and t h i s essentially describes the metamorphosis of Japan i n the early t h i r t i e s . To be sure, there was l i t t l e armed c o n f l i c t , but t h i s does not mean that there was l i t t l e threat of the application of force. Just as, i n the M e i j i Restoration, the p r i n c i p a l Bakufu supporters did not muster to the defence of the regime, as they r e a l i z e d that the opposing forces were too strong, so too did the Establishment of the twenties y i e l d to oven/helming force i n i t s turn without s i g n i f i c a n t armed struggle. The Establishment, comprising the Great Zaibatsu and t h e i r p o l i t i c a l a l l i e s , recognized by the time of the Manchurian Incident (September, 1931) that they no longer had the capacity to set national p o l i c y . Once i t was backed by a public opinion angered by the deprivations resulting from the World Slump, the constellation of forces centring on the m i l i t a r y was too strong to be opposed. The change i n direction was certainly fundamental. There was a drastic change i n economic policy. The drive for a balanced budget, so important i n the p r i o r i t i e s of the twenties, yielded place to a stress on the promotion of rapid i n d u s t r i a l expansion. The state, so passive i n the twenties, came to play an increasingly large and direct role i n the economy as the t h i r t i e s progressed. In the p o l i t i c a l sphere a f t e r 1931, cabinet r e s p o n s i b i l i t y to the Diet declined very sharply, while i n foreign relations the change v/as even more marked. The stance of accommodation to the West, which had characterized the twenties, yielded abruptly to a posture of defiance, as Japan commenced more than a decade of continental expansion i n the face of the opposition of almost the entire occidental world. I I . THE THEMES This thesis treats two closely related main themes. The f i r s t i s the emergence of a s p i r i t of aggressive enterprise i n a number of new companies which I have styled the r i s i n g companies. The bold dynamism of these companies affords a s t r i k i n g contrast with the sluggish behaviour of established c a p i t a l . The second theme springs from the f i r s t . I t i s the c o n f l i c t between the r i s i n g companies and 8 the established firms. In developing the f i r s t theme I have sought to account for the difference i n s p i r i t of enterprise between new and established c a p i t a l , and have considered such factors as managerial structure, age of the managerial group, the Japanese i n f e r i o r i t y complex, the position of the firm i n the economic hierarchy, and the personalities of the entrepreneurs of the r i s i n g companies. The established companies include such presently well-known firms as the M i t s u i , Mitsubishi, Sumitomo and Kawasaki combines, together with t e x t i l e firms l i k e Kanegafuchi and Japan Spinning. This thesis, aiming at depth rather than breadth, treats only a few of these companies: Mitsui and Mitsubishi, and a small number of the larger t e x t i l e companies. The names of the r i s i n g companies are less f a m i l i a r today, as these firms have either disappeared or e x i s t under diff e r e n t names. They include the Suzuki Shoten, Japan Nitrogenous F e r t i l i z e r s , Showa F e r t i l i z e r s , Kuhara and Tokuyama Soda, but only the f i r s t three are treated. The r i s i n g companies expanded explosively i n the i n d u s t r i a l boom of the t h i r t i e s to become the so-called new zaibatsu, which were surpassed i n size by only the Great Zaibatsu themselves. In presenting the f i r s t theme, I have sought to contrast the bold, determined s p i r i t of enterprise of the r i s i n g companies with the t i m i d i t y and hesitancy of the established firms. The performances of the l a t t e r are described f i r s t as a f o i l i n Chapters I I and I I I . Chapter I I portrays the p a s s i v i t y of Mitsui and Mitsubishi, while Chapter I I I demonstrates the pusillanimity of the major t e x t i l e firms. The motivation of management i s also treated i n these chapters. Chapters IV, V and VI describe the aggressive empire-building of three major r i s i n g companies: the Suzuki Shoten, Japan Nitrogenous F e r t i l i z e r s and Showa F e r t i l i z e r s . The careers and personalities of the entrepreneurs, who were the prime movers i n the expansion of the r i s i n g companies, are of such importance that they have been discussed separately i n Chapter VII, which compares t h e i r family backgrounds, early careers, main strengths, operating styles and basic constructive impulses. I t i s i n the approach to the new, technologically d i f f i c u l t and therefore r i s k y industries where the differences i n the attitude of management are best displayed. While other new industries are discussed, much of t h i s thesis concerns two new chemical industries which constitute excellent touchstones of managerial approach. These are the ammonia synthesis and rayon industries, which are singularly appropriate f o r a number of reasons. Ammonia synthesis was the most advanced form of chemical technology i n the period and, by the beginning of the twenties, i t was apparent that i t constituted the threshold to the major developing branches of the modern chemical industry. The chemical industry i t s e l f was c l e a r l y destined to be a much more important i n d u s t r i a l sector than i t had been i n the past. The basic chemical technology of viscose rayon was much simpler than that of ammonia synthesis, but the production of commercially competitive thread required a high l e v e l of expertise i n both the chemical and spinning processes. The development of a rayon enterprise was thus also a r i s k y undertaking. While the rayon industry was not comparable to ammonia synthesis i n national strategic importance i n the early twenties, i t was c l e a r l y to be of great commercial value i n the future. The r i s e of the l e v e l of technical competence i n the chemical industry i n general and i n ammonia synthesis and viscose rayon i n p a r t i c u l a r are described i n some depth i n Chapter I I , A l l three of the r i s i n g companies displayed great aggression i n one or both of these industries. Of the two Great Zaibatsu, M i t s u i demonstrated i t s characteristic over-caution, not to say t i m i d i t y , i n both industries, while Mitsubishi showed almost no interest i n the entire chemical industry u n t i l the t h i r t i e s . The t e x t i l e companies, with enormous advantages over t h e i r r i v a l s , showed incredible caution i n the development of the rayon industry. How does our f i r s t theme relate to e x i s t i n g knowledge? To what extent have historians recognized the contrast between the bold dynamism of the r i s i n g companies and the lethargy of established c a p i t a l i n our period of study? How have they viewed the differences i n the 1930's between the zaibatsu and the new zaibatsu, which were the s p i r i t u a l and material successors to the r i s i n g companies? After evaluating the present state of knowledge concerning the Japanese combines and the r i s i n g companies, the interpretations of the difference between the zaibatsu on the one hand and the new zaibatsu and the r i s i n g companies on the other w i l l be examined. 11 Considering the importance of the subject, very l i t t l e indeed has been published i n English on the Japanese combines. The general h i s t o r i e s make only occasional references to the combines, while none of the standard works on economic history provides any treatment i n depth,^ There are only two presently available, detailed works on the combines—a thesis by Hadley, presented i n 194-9, and a book by Roberts, published i n 1973, The r i s i n g companies are scarcely mentioned i n English-language texts; only Roberts makes any s i g n i f i c a n t comment concerning them. Among the English-language works, neither the general nor the economic h i s t o r i e s distinguish c l e a r l y between the old and new zaibatsu, Borton, f o r example, among the general h i s t o r i a n s , does not even note the existence of any of the new zaibatsu, while Lockwood, i n the most authoritative economic history of Japan, makes passing reference to a few of the i n d i v i d u a l new zaibatsu, but does not d i f f e r e n t i a t e them from the old. Even Hadley's detailed treatment of M i t s u i , Mitsubishi, Sumitomo and N i t c h i t s u does not make a d i s t i n c t i o n between the l a t t e r and the older zaibatsu. Roberts, while not c l e a r l y distinguishing between the structure and p o l i c i e s of the new and old zaibatsu, i s the only writer i n English to touch on the difference i n investment policy of the r i s i n g companies and the zaibatsu i n the twenties. For him,the "more adventurous" r i s i n g companies were simply 5 foolhardy, and he commends the caution of the zaibatsu, Japanese-language material offers both contrast and s i m i l a r i t y to i t s English counterpart i n the coverage of the hist o r y of the 12 Japanese combines p r i o r to World War I I . In comparison to what i s available i n English, there i s a considerable volume of writing i n Japanese, but r e l a t i v e to the great economic and p o l i t i c a l importance of the combines to Japan coverage i s sparse. Nor are the deficiencies those of quantity alone. The quality leaves much to be desired, as the treatment i s largely s u p e r f i c i a l . In part, t h i s i s a consequence of a lack of data, r e s u l t i n g from the secrecy which has v e i l e d the a c t i v i t y of much of Japanese business i n general and the zaibatsu i n p a r t i c u l a r . The rationale f o r t h i s secrecy i s not f a r to seek. P r i o r to World War I I , business a c t i v i t y was frequently a grim and desperate struggle for existence, and most firms feared to give any information to r i v a l s . The postwar period was easier and more enlightened, but competition remained keen, and the zaibatsu were f o r long concerned to avoid p u b l i c i t y of t h e i r involvement with the m i l i t a r y i n the t h i r t i e s and early f o r t i e s , A number of Japanese-language monographs cover the h i s t o r i e s of the p r i n c i p a l zaibatsu and new zaibatsu p r i o r to World War II.. The combines also receive f a i r l y extensive treatment i n a number of i n d u s t r i a l h i s t o r i e s , while some of the i r leaders figure i n both essay and book-length biographies. With few exceptions, these sources are u n c r i t i c a l of t h e i r subject matter, and make l i t t l e attempt to relate i t to the general politico-economic context. Although the Japanese writers have la r g e l y ignored the a c t i v i t i e s of the r i s i n g companies i n the period p r i o r to 1931, many have distinguished between the new zaibatsu and the zaibatsu i n the t h i r t i e s . They have, however, largely viewed the difference i n terms 13 of a d i s t i n c t i o n between production and finance c a p i t a l , ' and have f a i l e d to see the difference i n the s p i r i t of enterprise, A few writers have contrasted the dynamic investment a c t i v i t y of the r i s i n g companies i n the twenties with the sluggishness of the•zaibatsu, Shibamura, for example, makes a number of passing references to the energy and courage of the r i s i n g companies and to the lethargy of the old zaibatsu. The main contribution, however, i s an a r t i c l e by 8 Morikawa, who has performed a valuable service i n focussing attention on the difference between the two types of company, though he throws l i t t l e l i g h t on the reasons for t h e i r contrasting investment attitudes. Most writers on the history of the combines have either not noted the 9 difference, or l i k e K a j i n i s h i have downplayed i t . The second main theme i s the attack by established c a p i t a l on the r i s i n g companies, as i t moved to defend i t s position. Chapters VIII and IX describe Mitsui's attack on the Suzuki Shoten i n 1918 and 1927. The c o n f l i c t i n both years was fought i n the p o l i t i c a l rather than the business arena. In 1918, M i t s u i attacked Suzuki because i t was both a dreaded commercial r i v a l and a supporter of the oligarchy whose power the Great Zaibatsu sought to destroy, Suzuki did not suffer greatly i n t h i s assault, but i n 1927 the combine was forced into bankruptcy during the Bank of Taiwan C r i s i s . Chapter X discusses a dramatic move by M i t s u i and Mitsubishi to h a l t large-scale plant construction, which v&s v i t a l to the existence of Japan Nitrogenous F e r t i l i z e r s and Showa F e r t i l i z e r s , The two r i s i n g 14 companies, although hard-pressed by Great Zaibatsu power, were able to r e s i s t t h e i r pressure by a l l y i n g themselves with newly-active, a n t i -Great Zaibatsu p o l i t i c a l forces, which became the prime movers i n the revolution of the early t h i r t i e s . I f there are fev; English-language sources treating the history of Japanese combines pr i o r to World War I I , there are almost none which deal with intercompany r i v a l r y and c o n f l i c t . Apart from b r i e f coverage of the struggle between M i t s u i and Mitsubishi i n the e a r l i e r part of the M e i j i P e r i o d , t h e f i e l d i s almost untouched, Japanese sources offer more information, but even here the fare i s meagre i n the extreme. The r i v a l r y of M i t s u i and Mitsubishi p r i o r to World War I has been covered by popular w r i t e r s , b u t l i t t l e r e a l research has been done even i n t h i s area. Other intercompany r i v a l r y p r ior to World War I has received l i t t l e attention, while the interwar period i s v i r t u a l l y a v i r g i n f i e l d . No work treats intercompany c o n f l i c t or any aspect of that c o n f l i c t as a major theme. Apart from Shiroyama's work on the Suzuki Shoten at the time of the Rice Riots, there are only a few scattered and frequently oblique references i n i n d u s t r i a l and company h i s t o r i e s . This i s hardly surprising. Contemporaries who had first-hand knowledge feared to become involved, while recent writers have f e l t constrained by an almost c r i t i c a l shortage of documentary evidence. In treating the major themes i n the body of the thesis, a considerable amount of information concerning several minor themes 15 has been presented. This information i s summarised and the minor themes discussed i n the Conclusions. > Two of these themes—the enthusiastic response of the technicians to opportunity and the great oversupply of chemists and chemical t e c h n o l o g i s t s — r e l a t e to the high l e v e l of ambition among certain sections of the Japanese people. The economic arid p o l i t i c a l implications of t h i s are examined. A t h i r d group of topics relates to technology and international technology transfer i n the chemical industry. Discussion i s based on information contained i n the case studies presented. A further section i s a c r i t i q u e of the philosophies of business put forward by Ranis and Marshall, i n the l i g h t of the attitude of the entrepreneurs of the three r i s i n g companies. The l a s t minor topic treated i n d e t a i l i s the f e r o c i t y of intercompany c o n f l i c t i n our period. Although t h i s comes into focus very sharply i n the C o n f l i c t Section, i t has not been emphasized i n previous business studies. The treatment of the minor themes concludes with a note on the possible origins of the deflationary p o l i c i e s of the twenties. 16 1 INTRODUCTION FOOTNOTES "Hlugh Borton, Japan's Modern Century (New York: Ronald Press, 1955). Peter Duus, Party Rivalry and P o l i t i c a l Change i n Taisho Japan (Cambridge, Mass.: Harvard University Press, 1968). 3 R. A. Scalapino, Democracy and the Party Movement i n Prewar  Japan: The Failure of the F i r s t Attempt (Berkeley: University of Cal i f o r n i a Press, 1953). ^G. C. A l l e n , A Short Economic History of Modern Japan 1867-1937 (second edition, London: Al l e n & Unwin, 1962); and W . 17, Lockwood, The Economic Development of Japan: Growth and Structural Change (Princeton: Princeton University Press, 1954). John G. Roberts, M i t s u i : Three Centuries of Japanese Business (New York: Ueather h i l l , 1973), pp. 242-2^5. ^For example, Nihon Kontsuerun Zensho 19 vols. (Tokyo: Shunjusha, 1937-1939). ^Yamaguchi Kazuo et a l , Nihon Sangyo Hyakunen Shi (Tokyo: Nihon Keizai Shimbunsha, 1966), p. 228. 8 — — — Morikawa Hidemasa, "Senzen Nihon Zaibatsu no Jukagaku Kogyo Toshi n i Kan Suru Kigyoshiteki Kosatsu," Keizai Shinrin, Vol. 29, Nos. 1-4, 1961. \ a j i n i s h i Mitsuhaya (ed.),_Seni Jo (Vol. XI of Gendai Nihon  Sangyo Hattatsu Shi (Tokyo: Tokoryo, 1964), p. 525. ^°Yamamura Kozo, "The Founding of Mitsubishi: A Case Study in Japanese Business History," Business History Review, Vol, 41, Summer, 1967. 11 — For example, Shirayanagi Shuko, Zaikai T a i h e i k i , 1929. THE ESTABLISHED COMPANIES 171 CHAPTER I I THE GREAT ZAIBATSU I. INTRODUCTION The Japanese word "zaibatsu" i n l i t e r a l translation means "f i n a n c i a l clique." The term actually covers a wide spectrum of enter-prises, although i t essentially implies a self-financing combine. In the interwar period, at one extreme, the word was applied to r e l a t i v e l y small firms heavily concentrated i n one narrow sector of industry with rather weak i n t e r n a l f i n a n c i a l capacity. Furukawa f e l l i n t o t h i s cate-gory. At the other end of the spectrum, the word "zaibatsu" was applied to the greatest combines which had immense f i n a n c i a l reserves, large trading branches, and a considerable number of subsidiaries active i n industry. M i t s u i was the zaibatsu par excellence i n t h i s category. The term "zaibatsu" connotes nothing as to type of management, the age of the concern, or i t s general policy. The generation of combines which originated i n the twenties and t h i r t i e s were, however, distinguished from t h e i r older counterparts by the appellation "new." These "new" zaibatsu, as we s h a l l see, were different from the "old" i n style of management and s p i r i t of enterprise. In Japan before World War I I and especially i n the 1920's, two zaibatsu towered above a l l others. These were Mi t s u i and M i t s u b i s h i — and they are styled the Great Zaibatsu i n t h i s thesis, Sumitomo i s sometimes ranked with these two giants, but i n fact hardly bears com-18 parison. Though f i n a n c i a l l y strong, i t was much smaller than the other two, and lacked t h e i r range of i n d u s t r i a l d i v e r s i f i c a t i o n and p o l i t i c a l influence. I I . EARLY HISTORY OF THE GREAT ZAIBATSU By the mid-seventeenth century Mitsui had emerged as a medium-sized family concern. I t s p r i n c i p a l holdings were a large drapery shop i n Edo and a money-lending business i n Matsuzaka i n present-day Mie Prefecture. The business grew steadily and, by the l690's, i t had shops i n Kyoto and Osaka as well as Edo, and several hundred employees. In 1691 M i t s u i was of s u f f i c i e n t importance to be appointed money-changer to the Tokugawa Bakufu and, from t h i s time on, banking became the family's main business. Due largely to i t s close r e l a t i o n to the Tokugawa government, the family prospered throughout the seclusion period, but with the disrup-tions of the Bakumatsu Period Mitsui and nearly a l l Japanese business suffered reduced p r o f i t s or losses. In addition, as a major business closely connected to the government, Mitsui was repeatedly pressed f o r funds by the tottering Bakufu. The family, however, appears to have judiciously aided both sides i n the struggle leading to the M e i j i Restoration, and t h i s foresight was rewarded when the new M e i j i govern-ment sought i t s f i n a n c i a l expertise. This l i n k with the government was to continue. Mitsui survived the troubled early M e i j i Period, but grew rather slowly at f i r s t under a t r a d i t i o n a l type of management. The firm remained 19 centred on finance, founding the Dai-ichi Bank i n collaboration with the Ono family i n 1872, and establishing the M i t s u i Bank i n 1876. The world-famous trading company, Mitsui Bussan, was founded i n the same year and prospered under the s k i l l e d modern management of Masuda Takashi. The subsidiary's London o f f i c e was the f i r s t branch o f f i c e abroad of any Japanese firm. Neither did M i t s u i neglect industry. In 1887 the prede-cessor of Kanegafuchi Spinning was established under Mitsui's guidance, but the firm did not thrive f o r some time. The venture which became Miike Coal Mining was purchased from the government i n 1888 and, under Dan Takuma's expert guidance, developed into a highly profitable enterprise. Thus, by 1890, under energetic modern management, M i t s u i Bussan and Miike Coal Mining had become p i l l a r s of strength, but the central organ, the M i t s u i Bank, languished under the dead hand of t r a d i t i o n , and a number of subsidiaries were also a i l i n g . Reform came with the appoint-ment i n 1891 of the f o r c e f u l , westernized Nakamigawa Hikojiro to head the M i t s u i Bank, who carried out a thorough program of r a t i o n a l i z a t i o n which extended to a l l parts of the Mitsui empire. In the year 1900 the foundation 1 2 of the M i t s u i Zaibatsu was w e l l and t r u l y l a i d (Table I ) , In contrast to M i t s u i , Mitsubishi i s of modern o r i g i n . The combine was founded and developed into a considerable enterprise by one man, Iwasaki Yataro. Born the son of a Tosa peasant i n 1834, he acquired a degree of wealth early i n l i f e , and t r a v e l l e d to Osaka where he became interested i n commerce. When the four rebellious han (Satsuma, Choshu, Tosa and Hizen) were arming, he profited from the weapons trade between Nagasaki and Tosa, and showed great a b i l i t y , especially i n his dealings v/ith Westerners. With the TABLE I THE DIVERSIFICATION OF THE TWO GREAT ZAIBATSU 1868-1904 1905-19U 1915-1920 1921-1931 1932-1945 MITSUI Okioka Mine 1874 Mi t s u i Bank 1876 Mi t s u i Bussan 1876 Miike Coal Mining 1889 Kanegafuchi Spinning 1892* Mit s u i Mining 1892 Fukuoka Paper 1893 Shibaura Engineering 1893 Miike Spinning 1898 O j i Paper 1898 Taiwan Sugar 1900 Hokkaido Coal & Taisho Marine & F i r e Mitsui Trust 1924 Steamship 1906 Japan Steel 1907 Toshin Ware-housing 1909 Insurance 1918 Oriental Cotton Wool 1920 Oriental Rayon 1926 Mitsui L i f e Insurance 1927 Japan Flour M i l s 1927 Oriental Otis 1932 Oriental High Pressure 1933 Mitsui Shipyards 1937 Mitsui Chemical Industries 1941 Mitsui Construction 1941 Mitsui Warehousing 1942 Mitsui Machinery 1943 MITSUBISHI Yoshioka Copper Mine 1873 Takashima Coal Mine 1.881 Mitsubishi Iron 1875 Japan Mail Line 1875 Mitsubishi Exchange 1880 119th Bank 1885 Tokyo Warehousing 1887 Nagasaki Shipyards 1887 Kobe Paper 1898 Mitsubishi Shoji 1918 Mitsubishi Marine & F i r e Insurance 1919 Shantung Agr i c u l t u r a l 1919 Mitsubishi Internal Combustion 1920 Mitsubishi E l e c t r i c a l Machinery 1921 Mitsubishi Trust 1927 Mitsubishi O i l 1931 Japan Tar Industries 1934 Mitsubishi Steel 1937 N3 O *Kane--afuchi l a t e r l e f t the M i t s u i Combine by mutual consent. 21 success of the Restoration Movement, he came into possession of considerable property, including s i x steamships. These ships were the foundation of the Mitsubishi Zaibatsu. Iwasaki displayed enormous energy and enterprise throughout the 1870's. In 1873 he founded a shipping venture, the Mitsubishi Trading Company, and soon defeated the Mail Steamship Line which was linked with the M e i j i government. After 1874- he himself gained state support and, i n the mid-seventies, ousted the U.S. firm P a c i f i c Mail from the Japan to Shanghai run, and even drove the B r i t i s h P. & 0. Line from Japanese waters. During the Satsuma Rebellion of 1877, Iwasaki profited greatly as the p r i n c i p a l shipping contractor supplying the government forces. After 1881 the government of Japan passed exclusively into the hands of oligarchs drawn from the former Satsuma and Choshu Hans, and the government came to favour Mitsui which was closely associated with the Choshu oligarch, Inoue Kaoru. M i t s u i , with government backing, established a large shipping firm, the Union Transport Company, to combat the Mitsubishi merchant shipping empire. A savage trade war ensued, but Mitsubishi was ultimately v i c t o r i o u s . P a r a l l e l l i n g t h e i r r i v a l r y i n trade, the two firms also clashed i n the p o l i t i c a l arena i n the early eighties, as Mitsubishi backed the Kaishinto and Mitsui supported the Jiyuto. During the maritime trade war with M i t s u i , Iwasaki came to rea l i z e the value of d i v e r s i f i c a t i o n , as he received support funds from his Yoshioka Copper Mine, After the end of the trade war, he i n i t i a t e d 3 a vigorous d i v e r s i f i c a t i o n program, which was continued by his successors. 22 By the turn of the century, the Mitsubishi Zaibatsu was also well established (Table I , page ). The l a s t quarter of the nineteenth century was the heroic age of the Great Zaibatsu, with both combines responding aggressively to the opportunities of the new era. After the turn of the century, there was a slackening i n t h e i r drive to expand as they became established and each came to accept the existence of the other. I I I . DIVERSIFICATION OF THE GREAT ZAIBATSU By the early 1890's, each of the Great Zaibatsu was starting to assume the form which was to characterize i t by the end of World Vlar I. Mitsubishi had made the l o g i c a l addition of shipbuilding to i t s o r i g i n a l base i n shipping and, i n 1885, had added a banking d i v i s i o n necessitated by the firm's loss of central government support. I t had further d i v e r s i f i e d i n mining. M i t s u i , which had been centred on banking and trade immediately a f t e r the M e i j i Restoration, had d i v e r s i f i e d more widely but more haphazardly than Mitsubishi. I t had moved into mining, cotton spinning, paper manufacture and, on a rather small scale, into engineering. In the period from the early nineties u n t i l World War I , Mitsubishi established no new companies, but d i v e r s i f i e d by setting up an extensive engineering complex designed to serve i t s shipbuilding arm. Mi t s u i , apart from a move into iron and steel with the founding of Japan Steel i n 1907, also d i v e r s i f i e d r e l a t i v e l y l i t t l e u n t i l World 'War I , being content to expand i t s e x i s t i n g base. 23 ! VJorld War I and the twenties saw Mitsubishi further expand the engineering complex, moving into i n t e r n a l combustion engines i n 1920 and e l e c t r i c a l machinery i n 1921. The firm also established a f u l l - s c a l e trading arm i n 1918 and moved into insurance i n 1919. Mitsui moved into shipbuilding with the establishment of the Tama Shipyard i n 1917, and also developed a chemical d i v i s i o n during the war. Both of these new ventures were administered by Mitsui Mining. The combine continued i t s t r a d i t i o n i n t e x t i l e s by establishing a rayon venture i n 1926, and branched into insurance i n 1918 and 1927. In the t h i r t i e s Mitsubishi greatly expanded i t s i n d u s t r i a l complex and, fo r the f i r s t time, added a chemical d i v i s i o n i n 1934- called Japan Tar Industries. Rather random d i v e r s i f i c a t i o n continued to characterize the Mitsui Zaibatsu i n the t h i r t i e s and few r e a l l y new divisions were established. Oriental High Pressure, founded i n 1933, and Mitsui Chemical Industries, established i n 1941, simply continued branches already established within Mitsui Mining. The combine did not benefit to the same extent as Mitsubishi from the boom of the t h i r t i e s , as i t had a much smaller base i n those industries which related to m i l i t a r y procurement. IV. GENERAL RECORD IN INDUSTRIALIZATION The pre-World War I I major zaibatsu and especially the Great Zaibatsu have been written into Western h i s t o r i e s as f l a g bearers of technological modernization and i n d u s t r i a l and commercial defenders of the Japanese state. For example, G. C, Allen concurs with Bisson's 24 assessment of the role of the zaibatsu (by which he meant mainly the two Great Zaibatsu) i n the period from 1914- to 1932 when he wrote:^ Whatever objections there may be on s o c i a l and p o l i t i c a l grounds to such a concentration of economic power,' there can be l i t t l e doubt that i t assisted i n the accumulation of c a p i t a l and that i t c o n t r i -buted "strength, e f f i c i e n c y and sureness of purpose" to Japan i n her period of rapid economic development. I t i s true that there were two periods p r i o r to World War I I when the Great Zaibatsu did act as national defenders and vigorous entre-preneurs i n new f i e l d s of endeavour. In the heroic age of the Great Zaibatsu from the M e i j i Restoration to the early 1890's, they repelled the foreign shipping companies and, to some extent, the foreign traders; they introduced modern shipbuilding and raining technologies into Japan; and they played an important role i n the development of the cotton spinning industry. Their reputation i n Japan during the M e i j i Period was, thus, considerable. Between the early t h i r t i e s and the end of World War I I , the Great Zaibatsu were also extremely active, but t h i s a c t i v i t y had d i f f e r e n t causes. The e a r l i e r energy had been that of able and highly ambitious men intent on self-aggrandisement. The l a t e r a c t i v i t y was largely forced on the Great Zaibatsu by the competition of daring and energetic r i v a l s , and by a people angered by past Great Zaibatsu contempt for their-material welfare. In the atmosphere of the 1930's, the Great Zaibatsu had no choice but to expand boldly. From about 1900 to the early 1930's, the Great Zaibatsu were far from aggressive i n developing the national economy. They played l i t t l e part i n the building of the economic infrastructure or i n the establishment of r i s k y , t e c h n o l o g i c a l l y - d i f f i c u l t new industries. 25 This i s not, however, to argue that they did absolutely n o t h i n g — t h i s was not the case. Their a c t i v i t i e s , however, were of a much lower order than would be expected considering t h e i r vast f i n a n c i a l resources, t h e i r huge pools of technical and commercial expertise, and t h e i r excellent l i a i s o n with the West. For combines which to a considerable degree controlled the government i n the twenties, they did singularly l i t t l e for the national welfare. This i s not simply the view of the present w r i t e r — i t was the opinion of most of the Japanese people themselves by the end of the twenties. Let us look at the general record of Mitsui and Mitsubishi i n industry from the late 1890's to 1931. This period f a l l s into two sub-periods divided by World War I. P r i o r to the war, the so-called new industries were s t i l l mostly i n t h e i r infancy, even i n the most economically advanced countries of the West. By the end of the war, however, these new industries were developed on some scale i n the West, and i t was obvious that Japan's economic development would depend to a considerable extent on these industries. Let us consider the period p r i o r to World War I f i r s t . The Great Zaibatsu, i n general, did not invest i n those industries where the return of a large c a p i t a l investment was spread over a long period of time, even though the technology was r e l a t i v e l y simple. Railways, e l e c t r i c power generation, and c i t y gas production were thus v i r t u a l l y ignored by M i t s u i , Mitsubishi and the other zaibatsu. Prior to the war, the economic infrastructure was s t i l l i n the process of formation and the development of these industries was v i t a l to further economic 26 ! advance. Yet, the zaibatsu were almost e n t i r e l y disinterested. Indeed, so great was the neglect of these investment opportunities by the zaibatsu, that the oligarchy established the Ind u s t r i a l Bank of Japan i n 5 1900 expressly to fund these v i t a l sectors. While i t was not to be expected that the zaibatsu would place the major part of th e i r investment i n industries where p r o f i t margins were, for the most part, rather low, i t might have been expected that, as supposed p i l l a r s of the national welfare, they would have invested to some extent i n such c r u c i a l areas. The Great Zaibatsu were also slow to enter the iron and steel industry which offered great opportunities. In spite of the steadily r i s i n g consumption, no iron and ste e l plant on any scale existed i n Japan u n t i l the government took the i n i t i a t i v e . Only then was Mitsui s t i r r e d to invest i n t h i s v i t a l and po t e n t i a l l y highly-profitable f i e l d . While there had been moves within the government from the early 1890's to establish a state-run i r o n and ste e l industry, i t was not u n t i l 1895, with the pressure of the Sino-Japanese War, that the Diet f i n a l l y approved the plan of Matsukata Masayoshi, the Minister of Finance, for the construction of a large-scale i r o n and ste e l plant at Yahata i n Northern Kyushu,^ Construction commenced the following year, and the plant was i n f u l l operation by 1905. The much smaller and less technologically advanced plant of Mitsui's Japan Steel did not come on stream u n t i l 1907. Mitsubishi took no interest at a l l i n the i r o n and ste e l industry u n t i l World War I, By 1913, of the f i v e major plants i n Japan^ (Table II) only Yahata had an integrated works. In that year, Yahata was considerably 27 TABLE I I OPEN HEARTH FURNACE CAPACITIES BY COMPANY 1913 Company Year of No. of furnaces by capacity Annual ste e l start-up 5 Q 2 5 1 5 1 Q capacity Yahata Iron Works (Government) 1905 - 12 - - 375,000 Japan Steel (Mitsui) 1907 2 U - - 158,000 Japan Steel Pipe (Asano) 1912 2 38,000 Sumitomo Steel Casting 1901 - - 2 - 23,000 Kobe Steel (Suzuki Shoten) 1905 - - - 1 11,000 NOTE: A l l figures i n tons. 28 more than twice the size of i t s nearest r i v a l , Mitsui's Japan Steel, and ten times the si^e of the third-ranking Japan Steel Pipe, which was connected to the Asano Zaibatsu, Yahata's dominant role i n the iron and steel industry continued into the interwar period. In 1926, for example, the government works manufactured f u l l y 65,9 per cent of t o t a l Japanese g pig iron production and 62,5 per cent of a l l raw s t e e l made i n Japan. Pr i o r to World War I , the Great Zaibatsu, i n common with most of the rest of Japanese industry, showed l i t t l e or no interest i n those new, technologically intensive industries which had developed i n the West, Japan did not, for example, develop the new branches of the chemical industry, which had grown to a considerable size i n Europe by the star t of the war. The Great Zaibatsu took very l i t t l e i n t e r e s t i n these new f i e l d s , although small enterprising Japanese firms did attempt unsuccessfully to develop rayon. At the end of the M e i j i , the technical l e v e l of the chemical industry i n Japan was considerably further behind that of Europe than i t had been i n the early 1880's. The i n d u s t r i a l staples of l a t e nineteenth-century Europe were developed by the Great Zaibatsu, but technical levels and thus produc-t i v i t y remained very low up to World War I, In shipbuilding, for example, which was p r i n c i p a l l y i n the hands of the zaibatsu, i n 1913 productivity i n Japan was about one-fifth of that i n the United Kingdom 9 and one-third of that i n the United States. There i s no evidence that productivity was s i g n i f i c a n t l y higher at Mitsubishi than at other zaibatsu ya.rds i n t h i s period. Japanese productivity i n coal mining, 29 which was la r g e l y zaibatsu-operated, also remained low by Western standards, suggesting i n f e r i o r technology. For Mitsui and Mitsubishi, the more technologically intensive staples were of subsidiary importance p r i o r to World VJar I . This was especially true of M i t s u i . The difference i n scale between Mitsui's investment i n the less technologically-intensive and the more techno-l o g i c a l l y - i n t e n s i v e industries i s well i l l u s t r a t e d by a comparison between Kanegafuchi Spinning and Shibaura Engineering. In 1913, the c a p i t a l i z a t i o n of Kanegafuchi was 17,4-30,000 yen, compared to Shibaura's modest 500,000 yen."^ In the case of Mitsubishi, the subsidiary nature of the more technologically intensive staples was not so c l e a r l y marked, but nevertheless shipbuilding was a much less important source of p r o f i t 11 to the zaibatsu than i t s mining a c t i v i t i e s , or even i t s trade (Table I I I ) , In the period between 1914 and 1931, while the Great Zaibatsu did move into some of the new technologically-intensive industries, they were unaggressive considering t h e i r vast f i n a n c i a l strength and great accumulated expertise. Their sluggishness i s even more remarkable when one considers that they had a strong incentive to f i n d new f i e l d s f o r investment i n the reduced p r o f i t s of t h e i r main branches i n the period after the war boom. We w i l l f i r s t demonstrate the unsatisfactory p r o f i t l e v e l s of the Great Zaibatsu and then consider t h e i r record i n the new 12 industries, setting aside the chemical industry f o r special treatment l a t e r . The f a l l i n the p r o f i t s of the Great Zaibatsu a f t e r the war must be established rather i n d i r e c t l y . Neither of the con t r o l l i n g companies, TABLE I I I MITSUBISHI GDSHI: COMPARISON OF NET PROFIT BY DIVISION PRIOR TO WORLD WAR I * Division Net p r o f i t Metal raining 1,637 Coal mining 1,047 Trading 1,14-1 Shipbuilding 1,032 Land 376 Banking .^ 844- ' *The average of the three years 1912, 1913 and 19H NOTE: A l l figures i n thousands of yen. 31" the Mitsui Gomei Kaisha and the Mitsubishi Goshi Kaisha, published p r o f i t figures, so we must attempt to establish t h e i r p r o f i t s by reference to data published by t h e i r subsidiaries. P r i o r to World War I , Mitsui's p r i n c i p a l sources of p r o f i t were the mining and trading div i s i o n s . In the twenties mining p r o f i t s i n r e a l terms f e l l sharply from the levels of the preceding decade. Mining income came c h i e f l y from the sale of coal, but the development of hydro-e l e c t r i c power and the d i e s e l engine during and a f t e r the war greatly l i m i t e d the increase i n demand for coal, Japanese coal production i n 1919 was 31,271,000 tons, but by 1929 i t had only increased to 13 34,258,000 tons. Table IV shows the f a l l i n p r o f i t s i n terms of current yen, but measured i n r e a l money the drop was much greater. I f the Tokyo cost of l i v i n g index"^ for the two periods i n the table i s averaged and compared, then the average price l e v e l between 1912 and 1920 was almost exactly two-thirds of that between 1921 and 1929. I f the p r o f i t of the period 1921 to 1929 of 52,647,000 yen i s deflated according-15 l y , then a r e a l p r o f i t of only 35,098,000 yen i s obtained,. Not only were these p r o f i t s i n r e a l terms sharply down, but the size of Mitsui Mining's coal operations had diminished sharply r e l a t i v e to the size of the Japanese economy i n general and to the size of the manufacturing sector i n p a r t i c u l a r . The production index f o r a l l Japanese manufac-turing i n the years 1925-1929 exceeded that of the period 1905-1909 by a r a t i o of 4.55:1."^ Thus, p r o f i t s f o r the period 1921-1929 were down by an average of 2,178,666 yen per year i n r e a l money compared to the preceding nine 32 TABLE IV MITSUI MINING PROFITS Division 1912-1920 1921-1929 Miike Coal Mining 45,285 (67%) 34,284. (61%) Other coal mines 9,421 18,363 Total coal mining 54.706 (81%) 52.647 (95%) Other than coal 13,154 3,195 TOTAL 67,860 (100%) 55,842 (100%) NOTE: A l l figures i n thousands of yen. 33 1 years. The p r o f i t s of Mitsui's trading branch, Mitsui Bussan, were also low for much of the twenties. The firm paid low dividends f o r a number 17 of years and, i n one half-year period, f a i l e d to declare any dividend (Table V). Mitsui Bussan*s p r o f i t s i n the twenties were almost cer t a i n l y fa r lower than i n the boom years of the war, although we only have the figure f o r 1918 for comparison. Were these low p r o f i t s i n the main branches compensated for by increased earnings from other sources? The answer seems to be a clear negative, although earnings from some newly-established firms made up some of the difference. Let us consider possible supplementary sources of income. Spinning cannot have increased Mitsui's income, as p r o f i t s were depressed i n the twenties. The combine's a c t i v i t i e s i n chemicals and engineering were on a small scale and also could not have contributed much. The only possible sources from which p r o f i t s could have been augmented to a considerable degree were the three recently-established, finance-related ventures. What did these enterprises contribute to Mitsui's p r o f i t s ? These firms were: Taisho Marine & F i r e Insurance, established i n 1918, Mitsui Trust and Mitsui L i f e Insurance, established i n 1924 and 1927 respectively (see Table I, page ). Let us consider the two l a t t e r companies f i r s t . The Mitsui Trust, when figures f i r s t become available i n 1927, was a source of modest p r o f i t f o r M i t s u i . In that year i t paid the 34 TABLE V MITSUBISHI AND MITSUI: TRADING PROFITS AND DIVIDENDS 1918-1932 YEAR PROFITS (1,000 yen) Mitsubishi Mitsui DIVIDENDS {%) Mitsubishi Mitsui 1st h a l f 2nd h a l f 1st h a l f 2nd hal f 1918 4,755 36,464 10.0 10.0 10.0 10.0 1919 876 19,864 10.0 8.0 19 .4 1920 964 16,395 - 8.2 6.0 1921 -1,629 6,718 - 5.0 -1922 1,791 11, 121 5.0 6.0 6.0 1923 1,963 • 10,164 6.0 6.0 6.0 6.0 1924 1,988 14,177 6.0 5.0 8.0 9.0 1925 952 16,226 - 10.0 10.0 1926 1,230 20,766 5.0 12.0 10.0 1927 1,836 15,573 5.0 6.0 10.0 10.0 1928 2,923 17,651 6.0 12.0 12.0 1929 387 17,558 - 12.0 12.0 1930 389 13,582 - 10.0 8.0 1931 -1,794 11,637 - 8.0 6.0 1932 1,397 11,901 8.0 6.0 10.0 35 same dividend as i n the three preceding years—600,000 yen or eight per cent on paid-up c a p i t a l . The carry-over amount was also not l a r g e — 602,4.63 yen. While the firm had money i n tr u s t of no less than 206,394-,349 yen, i t had a paid-up c a p i t a l of only 7,500,000 yen, and had 18 holdings of only 3,974,230 yen i n company bonds. Mit s u i L i f e Insurance was considerably smaller. I t paid a dividend of only 30,000 yen i n 1927, or s i x per cent on the paid-up c a p i t a l of 500,000 yen, with a carry over of only 9,432 yen. The firm's holdings were small; the most noteworthy being stocks valued at 3,851,794 yen. 1 9 There are no figures available f o r Taisho Marine and F i r e Insurance, but i t was undoubtedly small. In 1933, the firm had a paid-up c a p i t a l of only 1,250,000 yen,, or less than one-fifth of that of the Mitsui Trust. I f we assume that, l i k e the M i t s u i Trust, the firm paid eight per cent on paid-up c a p i t a l , t h i s would give a t o t a l dividend of merely 100,000 yen, supposing that the firm was the same size i n the twenties. Thus, assuming that M i t s u i owned one hundred per cent of the shares of these three firms, the t o t a l dividends accruing to Mitsui would have been only about 730,000 yen per year; not nearly enough to s i g n i -f i c a n t l y augment the income of the zaibatsu i n the 1920's. What of Mitsubishi? Again the case i s much the same. A l l Mitsubishi's key sectors were hard-hit by the depressed conditions of the twenties. P r i o r to World War I, as we have seen, the zaibatsu had derived i t s main p r o f i t s from metal and coal mining, trade and ship-building (see Table I I I , page .). In the postwar period, the price of 36 i a l l base metals was seriously depressed due to competition from foreign producers with very low costs and to stagnation of demand within Japan. Demand for coal, as vie have seen, showed l i t t l e increase. In trade, p r o f i t s were also low i n the twenties. During the decade, annual p r o f i t rose only once above two m i l l i o n yen and, i n 1921, Mitsubishi's trading branch, Mitsubishi Shoji, suffered a substantial l o s s . No dividends were paid i n a number of years ('see Table V, page ). In contrast, between 1912 and 1914-, annual p r o f i t s i n r e a l terms averaged approximately twice those of the period 1919 to 1930, and high y i e l d s are indicated f o r the war boom years by a p r o f i t of 4,755,000 yen i n 1918. Shipbuilding was hard-hit by the over-supply of shipping on the termination of the war and by the naval disarmament programs of the twenties. P r o f i t s i n ship-building during the twenties were very much lower than they had been i n 20 1919 (Table VI), Mitsubishi p r o f i t s were thus low i n a l l key sectors.. Mitsubishi, l i k e M i t s u i , was unable to compensate for low p r o f i t -a b i l i t y i n the old i n d u s t r i a l staples by new investment i n finance-related f i e l d s . ' Mitsubishi had two ventures i n t h i s area and i t i s probable that neither provided much p r o f i t , Mitsubishi Trust, founded i n 1927 with a paid-up c a p i t a l of 7,500,000 yen, was very much the size of M i t s u i Trust. No p r o f i t figure or dividend has been published, but i t seems very probable that p r o f i t approximately equalled that of the Mitsui Trust, which was 600,000 yen i n 1927. We have more de f i n i t e information on Mitsubishi Marine and Fire Insurance, which was founded i n 1913. The company, which had a c a p i t a l i z a t i o n of 1,250,000 yen, paid a dividend of 150,000 yen or twelve per cent i n 1927. I t s operations 37 TABLE VI MITSUBISHI SHIPYARDS: MET PROFIT 1919-1929 Year Net p r o f i t Year Net p r o f i t 1919 9,921 1925 4,827 1920 5,591 1926 3,529 1921 6,051 1927 3,336 1922 . 6,824 1928 3,774 1923 6,357 1929 3,499 1924 7,369 NOTE: A l l figures i n thousands of yen. 38 were much larger than those of Mitsui L i f e Insurance.*""*" Mitsui and Mitsubishi were thus l e f t with very unsatisfactory profit-to-investment ratios i n a l l key sectors, with l i t t l e prospect of immediate improvement of these ratios for already-invested c a p i t a l , or of future expansion of profitable investment i n these f i e l d s . The combines were thus under some pressure to f i n d new sectors f o r profitable investment. Under these circumstances, the Great Zaibatsu might have been expected to invest aggressively i n new,technologically intensive industries, but they did not do t h i s . What were these new,technologically intensive industries? Technical innovations, made p r i o r to World War I , had led to the estab-lishment of a number of major new industries i n the West by the postwar period. By 1920, the marine di e s e l engine was coming into use, and the aeroplane, though s t i l l not of great c i v i l importance, was being manu-factured i n some quantity f o r m i l i t a r y purposes. Automobile manufacturin, by the early twenties was assuming considerable importance i n the U.S. and, to a lesser extent, i n Europe, I t was apparent that these industrie were destined to grow s w i f t l y i n the near future i n the West, and some of them might well be established on some scale i n the not-too-distant future i n Japan, Yet the Great Zaibatsu took r e l a t i v e l y l i t t l e interest i n them. At the end of World War I , with the exception of chemicals, Mitsui was less well placed to enter the new,technologically intensive indus-t r i e s than Mitsubishi. The combine, though highly d i v e r s i f i e d and with 22 considerable strength i n i t s coal complex at Miike, had only a weak 39 i foothold i n the engineering industries through Shibaura Engineering and the Tama Shipyard. During the twenties Mitsui did l i t t l e to establish manufacturing capacity i n any of the new mechanical industries. The company did not enter automobile, a i r c r a f t or diesel engine manufacture. Reflecting Mitsui's lack of stress on the engineering industries, the Tama Shipyard i t s e l f , although founded i n 1917, remained under the management of Mitsui Bussan u n t i l 1937, when i t became independent as Mitsui Shipyards (see Table I , page ). The Mitsui subsidiary, Japan Steel, developed a major pig i r o n plant at Kamaishi a f t e r 1924, but the 2 operation appears to have u t i l i z e d no technology that was new to Japan, although considerable technological upgrading was taking place i n the contemporary West. Mitsubishi was certainly more active than Mitsui but, considering the very favourable position of the company i n the new mechanical engineering industries, i t cannot be said to have aggressively exploited the opportunity offered, Mitsubishi did enjoy some early successes i n technology. In 1916, i n cooperation with Kawasaki Shipyards of Kobe, the Kobe branch of Mitsubishi Shipyards developed a d i e s e l engine f o r submarine use. During World War I, Mitsubishi researched automobile manufacture with some success and, by 1916, the combine had developed an a i r c r a f t engine, although some of i t s components were of foreign manufacture. In spite of these successes, the combine f a i l e d to develop an automobile manufacturing arm, although i t would have enjoyed unpara-l l e l l e d advantages i n this industry. In 1917, Mitsubishi b u i l t twenty 40 experimental passenger cars and, between 1918 and 1920, constructed four prototype trucks f o r the m i l i t a r y under subsidy. In 1921, however, research was terminated. The reasons which are usually given f o r t h i s decision include: the small size of the Japanese c i v i l market due to low per capita income; the undeveloped state of the road system; the a v a i l -a b i l i t y of other and cheaper forms of transport; and competition from U.S. manufacturers mass producing f o r a vastly greater home market. 25 The r e a l reason seems to have l a i n elsewhere. Other manufacturers, 26 subsidized under the M i l i t a r y Vehicle Aid Law of 1918, did continue production on a small scale for the m i l i t a r y market. These producers t 27 were: the automobile divisions of Ishikawajima and Tokyo Gas E l e c t r i c , 28 29 Kaishinsha, and Shirayanagi, The m i l i t a r y market was not such an easy mark as may be thought, as the m i l i t a r y would not purchase i f the r price quotedwas greatly above the world price plus t a r i f f . While there was l i t t l e immediate opportunity for considerable p r o f i t i n the automobile industry during the twenties, the probable future returns were enormous. While the possible c i v i l demand i n the 1920's must have seemed very l i m i t e d , the probable future m i l i t a r y demand f o r vehicles was very large. The tank had proved i t s value i n World War I , and trucks were coming into use f o r hauling a r t i l l e r y , transporting troops and carrying supplies. That Mitsubishi, GO heavily committed to the engineering industries and so favoured i n p o l i t i c a l connections, finance, organizing capacity and expertise, should abandon i t s foothold i n the automobile industry, i s surprising i n the extreme. 41 Mitsubishi, while abandoning automobile production, continued to produce a i r c r a f t . The c i v i l market f o r aeroplanes i n the 1920's was even less assured than that f o r cars. The automobile industry was w e l l -established i n much of the West by 1920, but i n no country was there mass 30 production of a i r c r a f t u n t i l the 1930's. In the twenties, not only was the current scale of the a i r c r a f t industry much smaller than that of the automotive industry, but the future must have also seemed less certain. Why did Mitsubishi p e r s i s t i n developing t h i s r i s k y new industry? The answer i s almost cer t a i n l y that, for Mitsubishi, i t was not r i s k y , and i n fact p r o f i t s i n a i r c r a f t manufacture were assured. The p r o f i t s of Mitsubishi A i r c r a f t from 1927 to 1932 were almost constant th i s strongly suggests that the combine was i n receipt of a regular 31 government subsidy (Table V I I ) . There would thus appear to have been a fundamental difference i n government policy with regard to the motor vehicle and a i r c r a f t industries. The i n f e r i o r treatment accorded to automobile manufacture was a serious blunder. I t was probably due to the f a i l u r e of government 32 o f f i c i a l s • to appreciate the complex i n d u s t r i a l structure necessary to maintain a successful automobile industry. I t i s i n t e r e s t i n g to note that Mitsubishi, u n t i l very recent times, was not a major manufacturer of motor vehicles and, even now, i s heavily overshadowed by the automotive giants. Yet, i t was the Japanese company which was by f a r the best-placed to enter the industry i n 1920. Had Mitsubishi owned a functioning plant at the time of the large-scale m i l i t a r y demand i n the t h i r t i e s , the company would almost certainly TABLE VII MITSUBISHI AIRCRAFT: NET PROFIT 1927-1933 Year 1st h a l f 2nd hal f 1927 330 324 1928 307 305 1929 306 304 1930 305 307 1931 305 251 1932 280 381 1933 599 850 NOTE: A l l figures i n thousands of yen. 43 have received a considerable proportion of the government's orders. In a i r c r a f t engine manufacture, thanks to an early s t a r t , Mitsubishi had a highly successful record, as the firm was well-placed to expand rapidly with the m i l i t a r y build-up i n the 1930's. By the beginning of World War I I , Mitsubishi had a commanding lead over a l l competitors i n 33 a i r c r a f t engine production, and the Mitsubishi Zero was to be by f a r Japan's most famous f i g h t i n g aeroplane. In summary, i t can be said that, up to the early t h i r t i e s , the sa l i e n t features of Great Zaibatsu investment policy were: 1. They did not invest to any s i g n i f i c a n t degree i n industries which required large amounts of c a p i t a l repayable over a long period. These industries, especially the railways and h y d r o - e l e c t r i c i t y , were essential components of the economic infrastructure, 2. The Great Zaibatsu, with few exceptions, avoided the r i s k y , new, technologically intensive industries, unless t h e i r p r o f i t s were guaranteed, 3. I t seems probable that the Great Zaibatsu had a greater propensity to enter the new, technologically intensive industries p r i o r to the war than a f t e r the war. /+. In neither the m i l i t a r y nor the c i v i l sectors did the Great Zaibatsu develop' existing industries or i n i t i a t e new ones i n the interests of "national welfare." 44 We must now proceed to investigate the record of the Great Zaibatsu i n the two new chemical in d u s t r i e s , ammonia synthesis and rayon, during the period 1918-1931, as i t i s here that we f i n d the clearest indication of the attitudes of the two combines. A great opportunity existed i n these two industries, but Mitsubishi v i r t u a l l y ignored i t , while the response of Mitsui was at,best half-hearted. Before we can describe the response of the two great combines, however, we must establish the nature of the opportunity. V. THE OPPORTUNITY This section w i l l examine the factors which contributed to the formation of a situation highly favourable to the development of the ammonia synthesis and rayon industries by the beginning of the twenties. We w i l l f i r s t examine the development of Japanese chemical technology as a whole and the creation of a super-abundance of chemists and chemical technologists. We w i l l then s p e c i f i c a l l y discuss the ammonia synthesis • and rayon industries, noting such factors as the a v a i l a b i l i t y and cost of processes and the development of markets. Foundations of Japanese Chemical Technology The M e i j i government, intent on modernization, created an education system to produce an e l i t e of pure s c i e n t i s t s and technicians capable of o r i g i n a l work and leadership. Chemistry was one of the areas of government in t e r e s t . In t h i s area, as i n others, although the M e i j i government sowed w e l l , the harvest was to be long-delayed. In chemistry, 45 i while the M e i j i government supplied the i n i t i a l impetus and the finance, the emphasis within the education system and the dir e c t i o n of research were to be shaped by powerful individuals within the u n i v e r s i t i e s . While t r a i n i n g i n applied chemistry started with the adoption of the "Course i n P r a c t i c a l Chemistry" at the College of Technology i n Tokyo i n 1877, i t s r e a l foundation i n Japan was largely due to the ef f o r t s of one man. In 1884, thanks to the foresight and i n i t i a t i v e of Professor of Science Takamatsu Toyokichi, a separate department of applied chemistry was founded i n the face of considerable opposition i n the Faculty of Technology at the Imperial University i n Tokyo, In establishing the department, Takamatsu took the lead i n the selection of s t a f f , the choice of teaching methods, the design of the curriculum, and 35 the selection of research topics. Takamatsu's stress on the p r a c t i c a l application of chemical knowledge resulted from h i s experience i n Germany, In 1879, at the age of twenty-eight, he travelled to England, where he spent one year at Owens University i n Manchester, He then attended B e r l i n University f o r four years, studying tar product chemistry and s p e c i a l i z i n g i n synthetic dyes. The German chemical industry up t i l l World War I was by f a r the most advanced i n the world, and i n no branch was t h i s superiority more marked than i n synthetic dyes. In contrast to other countries, Germany placed great emphasis on research and stressed the production and marketing of the products of research. In no other country was there such close integration of the university and industry. In no other country was there such integration of science, technology and marketing. 46 | Takamatsu could not but have been impressed with the scale, organization and technological modernity of the new organic chemical industry i n Bismark's r i s i n g empire, and he determine to transplant what he could of the German technology, organization and s p i r i t to the rather un-promising s o i l of M e i j i Japan. I t would be d i f f i c u l t to over-estimate the role of Takamatsu i n the introduction of applied chemistry. He not only performed noteworthy research i n synthetic dye chemistry and, to a lesser extent, i n the 37 f i e l d s of carbon, soap and scent, but he guided student research m such p r a c t i c a l areas as seaweed chemistry. He not only introduced the German emphasis on chemical research f o r p r a c t i c a l ends, but also trans-planted the German t r a d i t i o n of graduate research into the Japanese u n i v e r s i t i e s , at a time when t h i s was almost e n t i r e l y lacking i n the Anglo-Saxon countries. On the firm base established by Takamatsu, education i n applied chemistry advanced rapidly within the university, though for many years i t was not to have the close integration v/ith industry for which Takamatsu strove. At the Imperial University an expansion of t r a i n i n g f a c i l i t i e s i n applied chemistry came with the establishment of the Explosives Department i n the Faculty of Technology i n 1887 and, i n 1893, there was a further expansion when the Department of A g r i c u l t u r a l 38 Chemistry was set up. In 1898, Departments of Pure and Applied Chemistry were established at Kyoto Imperial University, which had been founded i n the preceding year. In 1910, yet a t h i r d centre of applied chemistry came into existence v/ith.the founding of Kyushu Imperial 47 University. The M e i j i government, besides moving to create a s c i e n t i f i c and technological e l i t e , proceeded, though rather belatedly, to establish t r a i n i n g f a c i l i t i e s for middle-rank chemical technicians. In 1881, the Tokyo School f o r I n d u s t r i a l Workers was established. I t was reorganized under the Special Schools Ordinance of 1904 as the Tokyo Technical College, and by that year i t offered courses i n dyeing, pottery and applied chemistry. Under the same Ordinance, the Osaka In d u s t r i a l School was reorganized as the Osaka Technical College, and offered a curriculum which included brewing, as w e l l as the three courses offered at the Tokyo Technical College. E a r l i e r i n 1903, a course i n dyeing had been established at the Kyoto College of the I n d u s t r i a l Arts, which was founded i n that year. With the Russo-Japanese War, four further technical colleges were created, and two of them, Yonezawa and Nagoya Technical Colleges, offered courses i n dyeing.^ 0 Government research i n s t i t u t i o n s were also important i n the creation of Japanese capacity i n chemical technology. Due to the i n i t i a t i v e of Takayama J i n t a r o , the Tokyo I n d u s t r i a l Experimental S t a t i o n ^ 1 (TIES) was founded i n 1900. Takayama graduated i n pure chemistry at the Imperial University i n 1878 and served i n the Geology Branch of the Ministry of Agriculture and Commerce u n t i l 1889, when he t r a v e l l e d to Germany, There he studied for four years, receiving a doctorate of engineering i n 1891, On return to Japan, he taught for a time at the Imperial University College of Engineering and, i n 1897, was appointed Head of the Analysis Division of the 48 state-operated Mining Bureau. Takayama,. l i k e Takamatsu, was powerfully moulded by h i s German experience. I t was almost certainly t h i s influence which made him press for the creation of a state-run chemical technology . ZP research station. TIES came into existence as a sub-section of the Ministry of Agriculture and Commerce to conduct request analyses and to perform independently i n i t i a t e d experiments i n i n d u s t r i a l chemistry. I t s i n i t i a l s t a f f was small; a head, four engineers, eight technicians and three s e c r e t a r i a l personnel. Early experimentation was confined to work designed to discover substitutes for chemical imports and to develop production technology f o r establishing chemical export industries. TIES expanded i t s range of a c t i v i t y steadily, though the number of s t a f f remained r e l a t i v e l y small (Table V I I I ) . In 1903 a t h i r d d i v i s i o n to deal with pottery and glass manufacture technology was added to the analysis and general experimental d i v i s i o n s . Three years l a t e r , i n 1906, a fourth d i v i s i o n was established to deal with the f i n i s h i n g of t e x t i l e products and to work on synthetic dye technology. A f i f t h d i v i s i o n was added i n 1909 to import electro-chemical technology into Japan. There had been considerable advances i n t h i s sector i n Europe from the 1890's, but i t was l i t t l e developed i n Japan, even though the country had considerable potential on account of i t s excellent hydro-electric power resources.^ Besides i t s a c t i v i t i e s i n the import of foreign technology, TIES also served as a repository of foreign technical books and a r t i c l e s . ^ TABLE VIII NUMBER OF STAFF: TOKYO INDUSTRIAL EXPERIMENTAL STATION Year No. of engineers No. of technicians Total employees 1900 4 7 20 1914- 14- 18 126 1919 22 29 193 1927 21 25 183 1928 22 35 279 1929 28 40 296 1930 35 44- 302 1931 36 44 301 1938 38 44 278 50 Some of the key s t a f f at TIES spent considerable periods abroad. Odera, Head of the Analysis Division, spent nearly three years between 1908 and 1910 i n the U.K., Germany and the U.S., studying electro-chemistry. Miyama, Head of the Experimentation Di v i s i o n , studied the applications of chemistry i n the same three countries f o r a period of •t i 4-8 about ore year. Thus, by World War I , TIES was playing a valuable, though l i m i t e d r o l e , i n augmenting Japanese technical knowledge i n a number of f i e l d s of applied chemistry. During World War I, TIES expanded modestly. The t o t a l number of engineers increased from fourteen i n 1914 to twenty-two i n 1919, while the number of technicians rose from eighteen to twenty-nine,^ 9 There was one very s t r i k i n g development—the establishment of the Special Nitrogen Research Station (SNRS). This receives detailed treatment l a t e r (see pages ). The a g r i c u l t u r a l research centres played an important role i n preparing the opportunity f o r a great advance i n the chemical industry a f t e r World War I. They determined the regional s u i t a b i l i t y of chemical f e r t i l i z e r s and helped to popularize t h e i r use among the farmers. Popularization was by no means an easy task, as most of the farmers were poorly educated and extremely conservative. The state-run Komaba Agr i c u l t u r a l School i n Tokyo conducted research on the application of calcium super-phosphate as a f e r t i l i z e r , and published a detailed report i n 1891. Farmer p a r t i c i p a t i o n i n these experiments led to a 50 wider dissemination of knowledge concerning chemical f e r t i l i z e r s . 51 In 1893, the A g r i c u l t u r a l Experimental Organization was founded with a main establishment at Tokyo and s i x widely distributed regional stations. This organization also did much to promote the use of f e r t i l i z e r s . The m i l i t a r y contributed l i t t l e to the accumulating pool of knowledge on chemical technology. While the Army and Navy had both commenced the manufacture of explosives early i n the M e i j i Period and had expanded t h e i r f a c i l i t i e s p e r i o d i c a l l y , basic research was neglected 52 u n t i l a f t e r World War I. Neither service attempted to develop c i v i l industries related to explosives production, and the non-military uses 53 of such chemicals as n i t r i c acid were ignored. Naval modernization programs during and after World War I did contribute to the preparation of the opportunity i n the chemical industry i n the postwar years. Research on submarine submergence systems led to the development of high-pressure tanks, valves, a i r compressors, and other high-pressure equipment, v i t a l to the indus-t r i a l i z a t i o n of synthetic ammonia technology. Bureaucrats, t r a v e l l i n g on government missions i n the West, occasionally transmitted some knowledge of nev; chemical technologies to Japan. Oya Jun, who was l a t e r to become well-known as one of the chief executives i n the chemical branch of Sumitomo, while serving as an o f f i c i a l of the Ministry of Communications, was despatched to the West to investigate the electro-chemical industries, i n order to f i n d a means of u t i l i z i n g the day-time e l e c t r i c i t y surplus. On his return to Japan i n 1912, he presented a memorandum to the Ministry on the atmospheric 52 nitrogen industry i n Europe, and also reported on the aluminum, carbor-54. undum, carbide, and calcium cyanamide industries of the U.S. Takamine J o k i c h i , who was l a t e r to achieve world-wide repute as the discoverer of several drugs, played an important part i n relaying knowledge on calcium super-phosphate manufacture to Japan. Takamine graduated i n applied chemistry from the state-operated College of Technology i n 1879, where h i s extraordinary f a c i l i t y i n English v/as a 5 great advantage at a time when most lectures were given i n that language. He joined the Ministry of Agriculture and Commerce, and was despatched to the U.K. f o r three years to study the chemical industry. He investigated electro-chemistry, soda and a r t i f i c i a l f e r t i l i z e r manufacture, and became interested i n the technologically simple, calcium superphosphate industry. On return to Japan, Takamine v/as appointed Head of the Ministry's Engineering Bureau and, i n 1884-, on a reconnaissance for the Ministry i n the U.S., he was impressed by a sample of phosphate ore from Southern C a l i f o r n i a displayed at an exhibition i n New Orleans. Investigation showed that the industry could be e a s i l y developed i n Japan. He returned to Japan with s i x tons of calcium super-phosphate and offered samples to a l l who expressed an i n t e r e s t . In 1887 he persuaded a group l e d by Shibusawa E i i c h i to establish a plant for the manufacture of super-56 phosphate f e r t i l i z e r . We have discussed the steady development of Japanese knowledge i n chemistry and chemical technology and the dissemination of that knowledge. We have noted the development of the higher education system, the a c t i v i t y of government research, i n s t i t u t i o n s , the 53 information-collecting a c t i v i t i e s of t r a v e l l i n g bureaucrats, and the rather minor role of the m i l i t a r y . The p e r i o d i c a l l i t e r a t u r e supplies an excellent index of the progress of Japanese chemical knowledge. Perhaps the e a r l i e s t magazine to contain a r t i c l e s r e l a t i n g to chemistry i n Japan, though i t s c i r c u l a t i o n was t i n y , was Kogyo Shimpo (Industry News). This p e r i o d i c a l was devoted to the d i f f u s i o n of engineering knowledge, and was produced at the College of Technology. Takamine J o k i c h i and two of h i s classmates, p r i o r to graduation i n 1879, contributed a number of a r t i c l e s on chemistry, though these were, f o r 57 the most part, merely translations from Western publications. Japanese chemistry, then i n i t s infancy, was at a highly imitative stage. I t would seem that knowledge of chemistry was i n s u f f i c i e n t l y widespread i n Japan to support a general c i r c u l a t i o n magazine u n t i l the l a t e 1890's, when Kagaku Tsushin Kyoju Sho (Chemical Communication Instruction Paper) appeared i n 1897 and 1898. Though Kagaku Sekai (The Science World), a general magazine which covered chemistry at a semi-popular l e v e l , appeared i n 1908, the f i r s t r e a l l y s c i e n t i f i c a r t i c l e s did not appear u n t i l the sta r t of publication of the monthly magazine Kagaku No Tomo (The Chemist's Companion) i n 1909. This magazine, which continued publication u n t i l 1919, carried a r t i c l e s treating technical subjects at a f a i r l e v e l of sophistication. Let us consider some examples. Volume IX contained an a r t i c l e dealing i n some depth with a process for the manufacture of n i t r i c acid from ammonia."^ Volume XI carried a contribution treating a method f o r the volumetric 59 analysis of barium. In a l a t e r edition of Volume XI, a f a i r l y 54 sophisticated contribution dealt with the testing of drugs. D U The appearance of this magazine s i g n i f i e s the existence, by 1909, of a considerable public with a f a i r grasp of pure and applied chemistry, and an interest i n the chemical industry. There i s a steady r i s e i n the l e v e l of sophistication of the a r t i c l e s r e f l e c t i n g increased levels of comprehension, which becomes p a r t i c u l a r l y marked after the star t of World War I. With the demise of Kagaku No Tomo i n 1919, i t s place was taken by Kagaku Kogei (Chemical Technology), which had commenced publication i n 1918 and continued to appear u n t i l 194-0. This journal was similar i n format, content and l e v e l of sophistication to Kagaku No Tomo, though the e d i t o r i a l s t a f f were e n t i r e l y d i f f e r e n t . The Editor-in-Chief was a w e l l -known fi g u r e , Dr. Nishida Hirotaro, who was also a frequent contributor. A second magazine concerned with the chemical industry, Kagaku  Kogyo (The Chemical Industry), f i r s t appeared i n 1922 and continued t i l l 194-3. Few copies e x i s t at present, and i t s c i r c u l a t i o n may have been very small. The s t a r t of publication of Kagaku Kogyo.Shiryo (Materials on the Chemical Industry) i n 1928 marked a further stage i n the advance of chemical knowledge i n Japan. Not only were there now three regular journals treating chemistry and the chemical industry, but Kagaku Kogyo  Shiryo, i n addition to the more general material which had appeared before, carried very highly technical a r t i c l e s on chemical technology. This reflected the growth of a technical class which could deal with chemical engineering problems of some complexity. The ammonia manufacturing industry was especially w e l l covered i n t h i s magazine. I t ceased publication only with the advent of the war shortages i n 194-3. With the move onto the quasi-war economy i n 1937, two magazines appeared which were devoted exclusively to the chemical equipment, manufacturing industry. Kagaku K i k a i (Chemical Machinery) was circulated between 1937 and 1944, and Kagaku To K i k a i (Chemistry and Machinery) was published between 1940 and 1943. Both magazines dealt with the technical problems of equipment manufacture at a high l e v e l of sophistication, i n d i c a t i n g the a r r i v a l of s p e c i a l i s t , chemical machinery manufacturing on some scale. The Japanese Chemical Industry What of the Japanese chemical industry i t s e l f up to the star t of World War I? By l a t e M e i j i , the state u n i v e r s i t i e s had established f a c i l i t i e s for the train i n g of chemists and chemical technologists and for research, which did not compare unfavourably with those i n much of contemporary Europe. In contrast-, the Japanese chemical industry i t s e l f was, for the most part, extremely unenterprising i n the importation and i n d u s t r i a l i z a t i o n of foreign technology. As we have noted, by the end of M e i j i , ' the industry was further behind i t s European counterpart than i t had been i n the early 1880's. The considerable accumulation of knowledge at the u n i v e r s i t i e s produced l i t t l e r e