Japan is famous for its dominance of consumer electronics, not to mention the miracle of its glittering economy. There have been successive phases of rapid and slow growth in Japan, and most recently Japanese growth has slowed. We see in figure 32 (which has a logarithmic scale in which every unit increase means a doubling of income) that these variations are minor in the long run. Starting in 1870, the Japanese economy registered miraculous growth. It recovered quickly from the destruction of World War II to post even more miraculous growth. It became a full democracy after the evil militarist detour of the 1930s and 1940s. Today, income per capita is thirty-two times higher than what it was in 1870. And it did all this without the White Man’s Burden—the West never colonized Japan. Instead, Japan had homegrown Searchers.
Fig. 32. Japan Per Capita Income, 1820–2001
The first reaction to Matthew Perry’s visits to Japan in 1853–1854 was “revere the Emperor; expel the barbarians.” But when a group of samurai rebels overthrew the shogun and restored power to the Meiji emperor in 1868, the new catchphrase became “Japanese spirit, Western learning.1 The young revolutionaries combined patriotism with pragmatism—they realized the West was ahead, and they wanted to borrow Western methods to catch up, while preserving Japanese institutions, culture, and independence. Once in effective power (the Meiji emperor was only fifteen in 1868), they studied Western institutions and technologies. They invited Westerners to Tokyo, and themselves went on long tours of the West. But this was to create no dependence on the West; the watchword was “self-help.” (Even the ex-samurai who lost out in the new order established a Self-Help Society.) They had no particular ideology or attachment to any one Western method—their only criterion was to search for things that worked in Japan. One of the leaders of the new government, Yamagata Aritomo, said they wanted “to establish the independence of our country” and “to preserve the nation’s rights and advantages among the powers.2
The new government faced many economic problems. Searchers found solutions that laid the basis for a miracle. Devoid of revenue bases, it declared a 3 percent tax on the value of land on July 8, 1873. What was more revolutionary was that the emperor declared all land, which had been allocated by village custom, to be the private property of those who farmed it. The government issued certificates of ownership.3 Land could be bought and sold, and used as collateral for loans—the famous Hernando de Soto formula for unlocking the “mystery of capital.” Although externally imposed land reforms have often been disasters, a homegrown reform that respected local custom was more successful.
However, when the land tax was insufficient to cover state spending, the inexperienced rulers printed money. Inflation resulted. Matsukata Masayoshi, the architect of the land reform, became finance minister in October 1881. He cut spending and privatized the many state-owned enterprises, using the revenues of the privatizations to buy back currency issues. In 1882, he created the central bank, the Bank of Japan, with a monopoly over the issuance of paper currency. He eschewed foreign borrowing as a trap that had prompted Western intervention or colonization in other non-European countries (Britain in Egypt, for example). Inflation came to a halt, and private enterprise took off with the privatizations. Matsukata wrote, “The government should never attempt to compete with the people in pursuing industry or commerce.4 Although such reforms often work badly when imposed from the outside by the IMF today, these homegrown reforms worked.
Other Searchers emerged from the private sector. One of the enterprises that bought up privatized state companies was Mitsui. Mitsui Takatoshi founded a trading firm in the seventeenth century as a combination liquor store and porn shop (a good business formula across the ages). Two hundred years later, what had become a venerable chain of dry goods stores founded the Mitsui Bank in 1876. A key leader of Mitsui was Nakamigawa Hikojiro, who had spent the mid-1870s in London and translated works on economics and American politics into Japanese. Nakamigawa persuaded Mitsui to diversify into industry. They purchased the state-owned Tomioka silk-spinning factory, converting it from a loss maker into a profitable enterprise. The former porn shop also added the Oji Paper Company, the Miike Coal Mine, and the Shibaura Engineering Works (later to crowd the Akihabara district with electronics such as Toshiba) and partially integrated Toyota on its way to becoming one of the world’s biggest companies.5
Another buyer of privatized state enterprises was Mitsubishi, founded as a steamship line in 1870. Like Mitsui, it bought up mines—copper as well as coal. It leased from the government the Nagasaki Shipbuilding Yard in 1884, where it designed Japan’s first steel steamship. In 1890, it purchased eighty acres of marshland next to the Imperial Palace in Tokyo for one million dollars. Ridiculed at the time for buying a swamp, Mitsubishi later realized some profits on what became the downtown Tokyo business district, today worth billions of dollars. To keep its workers happy, it founded the Kirin Brewery. In the twentieth century, Mitsubishi would diversify into just about everything, most famously automobiles and cameras (Nikon). Today, it also makes some of the computer monitors, cell phones, high-definition projection televisions, plasma-screen televisions, DVD players and VCRs that Caleb and I saw in Akihabara.
Heads of Mitsubishi during its formative period included graduates of the University of Pennsylvania and Cambridge University. However, foreign schools could not provide all of the skills that Japan needed to become an industrial power. To make up for the shortage of skilled management talent, Mitsui founded Hitotsubashi University in Tokyo to train future executives. The government founded Tokyo University in 1877, and provided a system of elementary education in the 1880s, which was so successful that enrollment for both boys and girls was close to 100 percent by the close of the Meiji era.6 Teachers’ schools were established to train teachers. The Meiji rulers expressed their passion for education and their break with the past in a declaration in 1872:
Centuries have elapsed since schools were first established…. Because learning was viewed as the exclusive province of the samurai and his superiors, farmers, artisans, merchants, and women have neglected it altogether…. There shall, in the future, be no community with an illiterate family, nor a family with an illiterate person…. Hereafter…every man shall, of his own accord, subordinate all other matters to the education of his children.7
After the militarist epoch of 1931–1945, Japan did have six years of American military occupation, during which it had the usual ambitions to transform Japan from the top down. The American conquerors brought along the patronizing attitudes of the West toward the Rest. Douglas MacArthur compared the Japanese people to “a boy of twelve.” John Foster Dulles told Japanese executives that they “should not expect to find a big U.S. market because the Japanese don’t make the things we want,” although he suggested that maybe they could export cocktail napkins.
The Japanese knew better. The wartime development of heavy and chemical industries left behind advanced technology, engineers, middle managers, and skilled workers that could produce products considerably more advanced than cocktail napkins.8 The Americans broke up large combines like Mitsui and Mitsubishi to promote competition, but these soon reemerged as economic power centers because the Americans had left untouched the large banks that had become their nerve centers.9 The American occupation preserved and perhaps even reinforced the Japanese bureaucracy that was to implement Japan’s peculiar state-managed capitalism. Public and private Japanese Searchers soon found the consumer electronics, automobile, steel, and other industries that would fuel Japan’s extraordinary postwar export boom.
It is possible that the American post–World War II occupation is one of history’s rare examples of top-down transformation of a society by outsiders. If this is true, the example doesn’t lend itself to much replication since it took complete annihilation to get the chance to remake Japan. However, most of the evidence points to homegrown factors—the Americans were at most reconstructing an economy that was already advanced. (The same was true of the much-abuse
d example of the Marshall Plan.)
Success and Self-reliance
It is easier to search for solutions to your own problems than to those of others. Most of the recent success stories are countries that did not get a lot of foreign aid and did not spend a lot of time in IMF programs, two of the indicators of the recent incarnation of the White Man’s Burden (table 9). Most of the recent disasters are just the opposite—tons of foreign aid and much time spent in IMF constraints. This of course involves some reverse causality, as I discuss throughout this book—the disasters were getting IMF assistance and foreign aid because they were disasters, while the IMF and the donors bypassed success stories because those countries didn’t need the help. This does not prove that foreign assistance causes disaster, but it does show that outlandish success is very much possible without Western tutelage, while repeated treatments don’t seem to stem the tide of disaster in the failures. Most of the recent success in the world economy is happening in Eastern and Southern Asia, not as a result of some global plan to end poverty but for homegrown reasons.
Moreover, the success stories follow a variety of formulas, perhaps an indication of an exploration that reflected each country’s unique history and characteristics. South Korea’s government intervened in guiding its corporations, while Hong Kong was the poster child for laissez-faire capitalism. China is a unique blend of Communist Party dictatorship, state enterprises, and partial free-market liberalization. India is a long-standing democracy, South Korea and Taiwan more recent democratic converts, while Singapore is not a democracy. All of these cases did realize most of their success from markets, but some were quite far from a laissez-faire model. While I think that free markets and democracy are a big part of the success story of the West, countries sometimes take a circuitous route to get there, or they may conceivably have their own unique recipe.
What we do know from the success stories is that the West played small part in them. As noted earlier, it is also interesting that five of the success stories were never completely colonized by the West, while all of the disasters are former colonies.
Two Special Colonies
Singapore and Hong Kong were British colonies where things turned out better than in other colonies. What was different?
What is unique about these two colonies is that they were unoccupied territories that the British colonized with the permission (or coercion) of the nearby local rulers. Even if the British were disposed to boss around or mistreat the indigenous population, they couldn’t, because there was none. The peopling of the two trading stations depended on voluntary migration, mainly from China. Since these colonies depended on trade, the British induced Chinese merchants to settle there. The Brits would hardly have scared the merchants away with exploitation, or any restrictions on trade, so Hong Kong and Singapore were born free traders. The British also left the Chinese communities free to pursue their incomprehensible customs and more or less govern themselves, only intervening if social upheaval threatened. Chinese traders prospered, the richest of them wealthier than the local Brits. Chinese representatives sat on colonial councils as early as 1889 in Singapore and 1880 in Hong Kong.10
Starting with a clean slate, culturally homogeneous (the immigrants even largely came from the same region of China, the southern coastal belt that is the same one booming in China today), and committed to free trade, these Chinese microstates started with a much happier colonial legacy than others. This could be ex post facto rationalization, but the colonization of empty territory was fairly unique in colonial experience.
During a visit to Singapore, I shared some guava juice with the Singaporean organizer of the conference I was attending there. We sat on a verandah overlooking a golf course. She told me that she was the first generation in her family to receive a formal education. She has a Ph.D. in economics from an American university, the University of Rochester. Her parents were illiterate when they migrated from southern China to Singapore several decades ago.
As recently as 1974, there were three times as many Singaporeans with no education as there were Singaporeans with a university education. Today, the proportions are reversed. The Organization for Economic Cooperation and Development (OECD) in 1996 certified Singapore’s graduation as a developed country. Singapore is the first tropical country to officially become a rich country, according to the OECD. Travelers familiar with the gleaming airport, the efficient subway system, and the immaculate downtown area of skyscrapers can attest to the country’s prosperity.
Hong Kong has had equal success at attaining OECD income levels. By 2001, Hong Kong and Singapore had overtaken their erstwhile colonial master.
Hong Kong and Singapore never got significant amounts of foreign aid, nor were they recipients of other Western attention, such as IMF programs or military intervention.
Fig. 33. Per Capita Income in United Kingdom Versus Hong Kong and Singapore
East Asia Dynamo
The success of Hong Kong and Singapore was the leading edge of the well-known success of the East Asian Tigers. I won’t belabor the story of their success, since it is so well known—just note a few indicators.
The latest sign of success is in science education. In 2003, about the same number of citizens of East Asian countries received engineering Ph.D.s from American schools as U.S. citizens did.11 The number of scientific journal articles published in East Asian countries quintupled over 1986–1999. Perhaps reflecting increased scientific expertise, high-technology exports from East Asia took off, growing by a factor of five in a decade (see figure 34).
Fig. 34. High-technology Exports of East Asia Six: China, Hong Kong, Korea, Malaysia, Singapore, and Thailand
Taiwan, whose numbers figure 34 above does not include because the cowardly international agencies do not recognize it, has become a remarkable technological success story. The Taiwan Semiconductor Machinery Corporation (TSMC) is the world’s largest producer of foundry chips. The Electronics Research and Service Organization (itself started by the Taiwanese government in the early 1970s to get a jump on the IT industry) started the TSMC as a joint venture with Phillips of Holland in 1987.12 Today TSMC has sales of $2.3 billion.13 Taiwan also produces such complex items as notebook and desktop PCs, video cards, and sound cards. Acer Computers of Taiwan is the world’s third-largest manufacturer of PCs, with sales of eight billion dollars.14 Taiwan’s amazing economy has produced ten billionaires.15
The Dark Continent Born Again
But what hope could there be for a region impoverished by warlords, civil conflict, unending war, corruption, and brutal tyrants, after futile attempts by the West to influence events?
I am talking about China in the twenty-first century.
There can actually be a lot of hope, as shown by figure 35, which illustrates the launch of China’s per capita income late in the twentieth century.
Fig. 35. China Per Capita Income in U.S. Dollars
If the West has never had much effect on China, it hasn’t been for lack of trying. Long-standing Western enthusiasm for bringing the Middle Kingdom into the modern world has included the usual White Man’s Burden brew of Christianity, civilization, and commerce. The Jesuits tried to bring the gospel to the imperial court as long ago as the seventeenth century, packaging it with Western science. The Jesuit Johann Adam Schall got an entrée by predicting the exact time of a solar eclipse on September 1, 1644. (The Chinese astronomers could also predict eclipses, but not so exactly.) The Chinese took the Jesuit astronomy and left the gospel.16 The Chinese were happy to use Western knowledge and technology, but showed less interest in Western efforts to Christianize and civilize them.
Americans got even more excited about China’s development after a recent convert to Christianity, Chiang Kai-shek, consolidated his hold over most of the country during 1927–1931. In a triumph of wishful thinking, the American media (led particularly by Time editor Henry Luce, the son of a missionary to China) saw Chiang as a democratic paragon who was leading China into the mod
ern world. Chiang’s Wellesley-educated wife, who did publicity tours to the United States, helped Americans visualize a progressive China. Luce said Chiang had “embarked on a vast reformation, partly inspired by the Christian gospel.17 Chiang-led China was the “protagonist of democracy in the Far East.” Americans lent their support through military aid and private contributions funneled through the United China Relief Fund, which fed starving children and promoted industrial development.
A few naysayers, backed up by later historians, noted that Chiang Kaishek was also a ruthless warlord who came to power by butchering his opponents. Chiang benefited from his long-standing connections to the Shanghai underworld, the Green Gang, whom he employed to massacre his Communist and other rivals in taking over Shanghai in 1927.18 His underworld friends later helpfully assassinated other enemies, such as the head of the Chinese League for the Protection of Civil Rights (in 1933) and the editor of Shanghai’s leading newspaper (in 1934).19 Chiang installed concentration camps for political prisoners, maintained three secret police forces, and censored the press, publishers, and the universities—all in the name of “Free China.” Meanwhile, nationalist officials enriched themselves under his rule.20 This would not be the last time that the West would idealize its local “partners” in spreading development throughout the world.
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