Kicking Away the Ladder. Development Strategy in Historical Perspective

Biucchi argues that free trade was the most important aspect of Swiss economic’ policy as early as the sixteenth century. He admits, however, that the ‘natural’ protection from British competition accorded by Napoleon’s intervention provided the Swiss textile industry with a critical breathing space, particularly in view of the technological gap that was emerging as a result of British success in mechanization in the textile industry at the time.[174] Moreover, Switzerland’s laissez-faire policy did not necessarily mean that its government had no sense of strategy in its policy-making. Its refusal to introduce a patent law until 1907, despite strong international pressure, is such an example. This anti-patent policy is argued to have contributed to the development of a number of industries. Especially affected by this were the chemical and pharmaceutical industries, which actively stole technologies from Germany, and the food industry, in which the absence of patents actually encouraged direct foreign investment (more on this in sections 2.3.3 and 3.2.3.B).[175]

2.2.7. Japan and the East Asian NICs

Japan came onto the industrial scene rather late. It was forced open by the Americans in 1854 (the infamous ‘Black Ship’ incident). Though they had had some glimpses of the European world before this through their contact with Portuguese and Dutch traders, the Japanese were, on gaining wider exposure to the West, shocked by the relative backwardness of their country. Soon afterwards, the feudal political order collapsed and, after the so-called Meiji Restoration of 1868, a modernizing regime was established. Since then the role of the Japanese state has been crucial to the country’s development.

In the earlier days of its development, Japan was not able to use trade protection, as the series of ‘unequal treaties’ that it was forced to sign in 1858 barred it from having tariff rates over five per cent. For example, as we can see in table 2.1, the average rate of tariff on manufactured products in Japan in 1875 was five per cent at a time when the USA, despite having a much smaller technological gap with Britain, boasted an average industrial tariff rate up to 50 per cent. The Japanese government therefore had to use other means to encourage industrialization until it recovered tariff autonomy, which did not happen until 1911.

To begin with, in a manner similar to that of the Prussian state in the early nineteenth century in the absence of private sector entrepreneurial initiatives (see section 2.2.3 above), the Japanese state established state-owned model factories (or ‘pilot plants’) in a number of industries – notably in shipbuilding, mining, textiles (cotton, wool and silk), and military industries.[176] Although most of these were soon sold off to the private sector at discounted prices, this did not mean the end of state involvement in the industry. In the 1870s and 1880s, for instance, most state shipyards were privatized, but were still given large subsidies even after privatization. Together with the related merchant marine industry, the shipbuilding industry claimed between 50 and 90 per cent of all state subsidies before 1924. The first modern steel mill (the State Yawata Iron Works) was also established by the government in 1901.[177]

State involvement in large-scale projects, however, did not stop with model factories but extended to infrastructural development. The Meiji state built the country’s first rail line in 1881. It had to provide massive concessions to private investors to interest them in railways[178] and throughout the 1880s and the 1890s subsidized the private sector rail companies; indeed, in the 1880s 36 per cent of all state subsidies went to railways. In 1906, the major trunk lines were nationalized. The Japanese government also started building telegraph infrastructure in 1869, and by 1880 all major cities were linked in this way.[179]

How do we evaluate the role of state-owned enterprises in industry and infrastructure in early modern Japan? Many commentators are not very positive about them, given that they were mostly· unprofitable.[180] However, other scholars see more positive aspects. For example, in his classic study, Thomas Smith sums up his verdict on the role of Japanese state-owned enterprises in the early Meiji period in the following way: