The relentless revolution: a history of capitalism (39 page)

Longer-term changes were already converting the country’s network of self-sufficient villages into an integrated, commercial economy. With a vibrant agriculture, Japan’s standard of living was probably as much as a third higher than that of its neighbors. A nascent middle class made up of wealthy farmers, small traders, and urban professionals provided critical support to the restoration effort. Over the next few decades, the central and centralizing authorities went on a crash course to modernize Japan while using industrial power to build up its military. The goal became achieving “Great Power Status.”
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Merchants and artisans in the rural area favored the restoration, hoping for a larger ambit for enterprise along with opportunities to participate in politics. In 1889 a constitution was promulgated, setting up a bicameral legislature, composed of a lower house—the Diet—and a House of Peers. The constitution reserved most powers for the emperor, but these were exercised by his advisers. Political parties existed, but a dominant concern with harmony and a new aristocracy to interpret what that harmony consisted of severely limited their effectiveness. The constitution itself represented the acme of achievement for those Meiji critics hoping for a more liberal order than they got.
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Meiji administrators turned out to be experimental and pragmatic without yielding on their goal of catching up with the West. “Catching up,” as it turned out, meant jettisoning the country’s feudal arrangements, its addiction to traditions, its costly samurai, and a tax system that favored the feudal overlords over farmers. They turned samurai stipends into bonds that could be used as bank capital and unified the multiple currencies into one. The old and new sectors of the economy grew concurrently and were often mutually enhancing. In fact the capital for modernizing came from accelerating growth in venerable craft and textile trades.

Japanese farmers had a long tradition of using family labor in both agriculture and cottage industry. They continued to make textiles at home long after modern factories had been established in the cities. This labor-intensive work went a long way to compensate for Japan’s lack of capital. Japan exported cotton yarn and cotton cloth, silk spun yarn and cloth, and an array of inexpensive parasols, European-style umbrellas, paper products, pottery, glass bottles, lamps, ropes, mats, and soap.
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Foreign trade brought fertilizers to farmers and cotton dyes to textile makers. Export demand for Japanese silk doubled in five years.
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The new government developed a national banking system. It reordered the nation’s finances by reducing the stipends to the samurai. It replaced the old agricultural tax with a set land tax, turning land into a capital asset and giving the new farmer-landlords, rather than overlords, the benefits of improvement. It recapitulated swiftly the agricultural changes in sixteenth-and seventeenth-century England that had released workers and capital for commercial and industrial enterprises. The government invested heavily in railroads, highways, and a merchant marine. Under the slogan “Rich country, strong army,” the new leadership changed the laws, the schools, and the priorities of the country. It abandoned the lunar calendar derived from China in favor of the Gregorian calendar, which England had adopted in 1752, necessitating a loss of eleven days as September 3 of the old Julian calendar became September 14 of the new. Soon smokestacks, telephone poles, railroad tracks, shipyards, and coal mines dotted the picture-perfect Japanese landscape.
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The dislike of foreigners that had kept the country isolated found expression in a domestic ideology of emperor worship. Japanese xenophobia actually got stood on its head as copying Western dress, aesthetics, and technology became identified with patriotism. The forced concessions wrested by Great Britain and the United States continued to abrade Japanese pride and provide the emotional fuel for an expansive foreign policy. More menacingly, Russia was moving east toward Manchuria, Sakhalin, and Korea, as the Trans-Siberian Railway took shape during the 1890s. China too was angling for more control over Korea, something intolerable to the Japanese government, which was willing to spend one-third of the national budget on soldiers and weapon systems.

Integral to Japan’s drive for autonomy was the determination to repel Western powers that intruded too far into East Asia. They’d all already arrived—the British in Hong Kong, the Dutch in Macao and Timor, the Spanish in the Philippines, the French on the Pacific island of Tahiti—and then, in 1867, the United States bought Alaska and the Aleutian Islands from Russia and acquired Midway Island. The new Meiji government was able to dispatch a challenge from China in the successful prosecutions of the Sino-Japanese War of 1894–1895. When Russia extended into Manchuria, more action was called for. Negotiations over mutually exclusive spheres of influence broke down, leading to a Japanese attack on Port Arthur in Manchuria in early 1904. A very swift war ensued, with Japan again emerging victorious. Peace negotiations in New Hampshire brought an end to hostilities and a Nobel Peace Prize to President Theodore Roosevelt in 1906.

While the English were learning of these victories, they were also enjoying Gilbert and Sullivan’s popular spoof of imperial Japan in their 1885 operetta
The Mikado
with little thought of the wounds to Japanese pride. Japan added the colony of Korea in 1910 to that of Taiwan, acquired in 1895, and annexed Korea in 1910. With little regard for the neighbors that they would “save” from the West, Japan moved into China next. Like its European imperialist mentors, Japan saw its mission as civilizing its backward neighbors. At the same time, American and European artists and architects discovered the Japanese aesthetic and began incorporating Japanese designs into their work. Western consumers, attuned to novelty, responded with great enthusiasm to these objects and styles.
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The well-known slogan of the Meiji Restoration about “enriching the country and strengthening the armed forces” describes what happened as Japan replaced backward methods with the latest Western technology, but what it doesn’t reveal is even more important. Japan yielded to demands to come out of its isolation at the same time that its leaders worked diligently to achieve the autonomy that had eluded so many of the non-Western countries brought into the Western orbit. This meant to them maintaining government direction of economic development in order to build a strong military presence. Skilled administrators, not business leaders, oversaw industrialization, though the latter were always ready to take advantage of any economic opportunities that opened up. Japan became famous for its borrowings. Even its constitution reflected a respect for English political institutions, but its leaders eschewed the West’s faith in the free market to allocate resources. You might say that Japan copied every arrow in the Western economic quiver except its theories about free enterprise.
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While Japan had startled the West by handily sinking the Russian Baltic fleet in Tsushima Strait, the impact of this display of its prowess astounded Asians. It thrilled them, for Europe’s long dominance of their homelands had left a legacy of anger, bitterly larded with a sense of inferiority. One of their own defeated the mighty Europeans, even if it was the backward czarist Russia.
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Never had Europeans sustained such a resounding defeat at the hands of an Asian nation. The novelist Pramoedya Ananta Toer in his
Buru Quartet
gives lyrical expression to the exhilaration felt as far away as Malaysia at this stunning, unexpected triumph over the arrogant Europeans.

Imperial Japan actually acted as midwife for two revolutions, both precursors of world-shaking ones. The humiliating defeat of Russia spurred the leaders of the premature Russian Revolution of 1905. More directly, Japanese leaders encouraged Chinese revolutionaries, reasoning that it would facilitate their plans to control Manchuria. The five hundred Chinese students who came to Japan to study in 1902 had grown to thirteen thousand by 1906. Many of these political radicals returned home to support Sun Yat-sen. The Japanese government had subsidized the successful creation of a Chinese Republic in 1912, figuring that it would open up a power vacuum in Manchuria.

Since the Meiji Restoration, Japan had come to control considerable territory outside its island borders. These acquisitions strengthened the military as well as financial and industrial leaders, who began to participate in the political parties previously dominated by the landlord class.
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When the United States invaded the Philippines in 1898 during the Spanish-American War, it announced the policy of the open door. Although it sounded benign in its invitation to all to participate, the Japanese saw it as a threat to their maturing plans for dominance in China. The Japanese military, which had grown stronger with every decade, joined Japan’s big industrialists in backing the government’s view of Manchuria as a prime colonial area. The stage was set for protracted conflict.

Restructuring of Corporations

At the turn of the twentieth century, that chameleon capitalism changed pace and structure once more. In sharp contrast with the imperialists’ pell-mell approach to acquiring new territory, business firms, now the key players, were becoming more rational and efficient, and much better organized. The earlier development of railroads and telegraphy had made complex business structures both possible and necessary. Trains and telegrams broke down the isolation of villages and towns and linked cities far apart. Their lines and rails kept up a constant movement of people, goods, and information. When the new firms were organized well, their size made possible cutting costs while buying materials, organizing production, and attracting customers. Bigness promoted organizational restructuring and paid for it.

By the opening of the twentieth century capitalism was no longer an obnoxious intruder disturbing settled ways. It was the ascendant economic system in Europe, the United States, and Japan. The previous century had demonstrated the potent connection between an ever-evolving technology and risk-taking entrepreneurs. The experience of Germany and the United States in surpassing Great Britain offered many lessons, though rarely were they studied. For starters, risk taking was an essential, but disruptive, part of the capitalist dynamic. Innovation sustained economic development, and cultivating consumption was as important as enlarging production. Panics and recessions reminded people that no one was explicitly in charge of an entrepreneurial economy, even if some participants had a great deal more power than others. Coming to terms with that fact alone has proved difficult for people and governments. The accumulation of market choices expressed in private decisions to produce, save, spend, hire, work, lend, and borrow could, can, and will continue to deliver surprises, not all of them pleasant.

In the closing decades of the nineteenth century, fierce competition was eating up profits throughout the capitalist world, and it happened while technological innovations soaked up more money. At first, trade associations held out the hope of moderating price wars; creating a holding company of many outfits was an even more effective solution. The “firm”—a shorthand term to refer to private companies—took over at the closing of the Vanderbilt-Carnegie-Rockefeller era. In fact, Rockefeller made a novel move when his Standard Oil Company of Ohio achieved a near monopoly of oil fields, pipelines, and refineries. Under his Ohio charter, he could not legally own stock outside Ohio, so he came up with a new strategy. He created a board of trustees to hold stock in his various enterprises, creating the Oil Trust in 1881. Not only was competition suppressed, but the new firm became big enough to both need and pay for a managerial make-over.

Surprising as it sounds, bureaucracy is what distinguished the firm from earlier business arrangements, bureaucracy and the separation of ownership from management. Long before the U.S. government set up its landmark bureaucracies with their alphabet soup acronyms like ICC and SEC, the Pennsylvania Railroad, DuPont, Standard Oil, and International Telephone and Telegraph put together sophisticated organizations whose very complexity brought into being a new profession, management. Managers acquired prestige as they learned new skills. Concurrent developments merged to create more complex organizations. Compulsory education upgraded the work force while trained managers learned how to use statistics, financial reports, procurement strategies, and technical papers.

You can grasp the principle behind the new business structures if you imagine the typical organizational chart with its stacks of boxes, descending from the top layer. The boxes looked at vertically denote authority; the board of directors with final authority sits atop the chart, but the presidents were in charge 24/7. Salaried executives, who later were called chief executive officers, instead of owners, now ran the companies. Each organizational unit in the firm had a specific task in the operation along with its own hierarchy of managers, their staffs, accountants, engineers, technicians, salespersons, and, for production units, workers and foremen. These unit managers reported to those above them through an established chain of command and connected to one another through a flow of information pulsating back and forth.

Though the new organization was slightly military in its rigid structure, its essence was fluidity, the ability to respond quickly to subtle changes in all the markets the firm had to deal with. There was an incentive for firms that relied more upon capital than labor to adopt the new organizational structure because they benefited most from following the drumbeat of regular upgrading.
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No one heard the whistle of competition more loudly than the CEO and his team of middle managers. Like good generals, professional managers kept their teams attuned to ways for widening their market, staying abreast of innovation, riding hard on competitors, and cutting costs.
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Research and development had to be constant. Many of the new firms were big enough to dominate their line of business. The concept of market share now joined steady profits in the lexicon of success. Alfred P. Sloan, Jr., the legendary organizer of General Motors, for example, raised GM’s market share from 12 to 52 percent over the course of his career from 1920 to 1956.