As evidenced from facts and data, the Meiji leaders succeeded in making Japan a modern and partially industrialized nation by the end of the Meiji era.

Fiscal reforms -- at the time of the Meiji Restoration, the new government had insufficient sources of revenue. The collection of the land tax under the Tokugawas was inefficient. Moreover, Japan did not possess tariff autonomy under the restraint of unequal treaties. For fear of western encroachment, the government was unwilling to ask for foreign financial assistance.

On the other hand, the government had to undertake a large number of financial responsibilities. Already it had spent vast sums on costly military campaigns before it could control Japan. The extension of its authority after the abolition of feudalism in 1871 increased its expenditure because it had to pay the daimyo their pensions and the samurai their stipends. Moreover, it had to finance the economic development of the country. In the beginning, the government had to live on credit. In addition, it issued paper notes which had little backing. The financial situation was extremely chaotic.

The situation improved in the early 1870s. This was partly due to the rising confidence in the future of the new government and the rapid expansion of the Japanese economy. As a result, the government found that it could float adequate bond issues at home. More important were the monetary, banking and tax reforms carried out by the government. These reforms were largely carried out on the initiative of Ito and Okuma.
In 1871, the currency was standardised. The yen was adopted as the unit of currency and was backed by gold. A modern mint was set up in Osaka. The Bank of Japan (1881) was established as the central bank. The greater part of government revenue was derived from the land tax since Japan was still largely agricultural. The reform of the land tax began in 1873 and this greatly improved the financial position of the government, as we shall see from below.

Agricultural development: Land tax system -- in 1872, the government dealt with the problem of land ownership. All feudal restrictions on the free sale of agricultural land were removed. Under the new law, it was established that the man paying the tax, either the independent cultivator or the landlord whose fields were farmed by tenants, was the owner, and he was issued a land certificate. The next year, in 1873, a thorough revision of the agricultural tax system was undertaken. All land was to be valued at an estimated price and the owner was to pay an annual tax of three per cent of its value in cash. Since the new monetary tax came close to half of the field’s productivity, the percentage was reduced to 2.5 per cent in 1876.

The advantages of the land tax to the Meiji government were considerable. First, it continued to be the chief source of government income, amounting to 80% of the total revenue by 1880, and 60% by 1894. Second, it was a steady source of income. On the basis of the fixed monetary tax, budgeting became possible.
On the other hand, the new land tax contributed to the growth of tenancy. Because of the rigid monetary tax, the poor peasants easily fell into debt and often lost their land to the rich peasants or money lenders by foreclosure. The percentage of tenancy rose from about 25% in 1873, 40% in 1890s, to almost 50% by the 1920s. Naturally, there was much opposition to the rigid land tax which became a major cause of rural unrest.
In short, the land tax was instrumental in producing capital (government revenue) and labour (landless peasants) which were indispensable for industrialization.

Agricultural development: Modernization - - W.G. Beasley wrote that “Economic modernization (of Japan) began, not with the factory, but with the farm.” Since land was the chief source of government revenue, to encourage the production on land was the first task of the Meiji government.
The government took the initiative in promoting agricultural modernization. It sent students abroad and invited foreign experts to Japan; opened up new land in Hokkaido; founded agricultural colleges and experimental stations; introduced irrigation facilities and fertilizers. All these helped agricultural development even though
plots remained small and cultivation intensive.

At the same time, commercialization of agriculture quickened with the removal of feudal restrictions. This brought with it greater concentration of land into fewer hands. (tenancy rate grew) The main cash crops were cotton and silk. Well until the 20th century, agriculture was still Japan’s major occupation. In 1872, 75% of the population earned their living this way; it dropped to 50% in 1920. The agricultural sector as a whole enjoyed a rise in production. Rice yields grew 30% between 1880 and 1894. Thus it could cope with the rising population and the increased per capita rice consumption. Secondly, silk production for export increased from 278,000 kan (1868) to 1,000,000 kan (1900). Exports, at an annual average of 27 million yen for the years 1889-93, accounted for a third of Japan’s export trade by value.

Agricultural production continued to rise in the 20th century. For rice production, the annual average rose from 40 million koku (1890-4) to 51 million koku (1910-4). Silk output increased even faster, and its export value rose to 144 million yen in 1914, or one-third of Japan’s total export. Modernization also affected activities on which the Japanese peasants depended for additional incomes. In coastal villages, farming was often combined with fishing. Better boats and equipment made fishing a major economic pursuit after 1900. Greater demand for cotton and the growth of textile industries brought an increase in the quantity of cotton growth. The production of raw silk was another reliable source of peasant income because silk exports were booming. On the other hand, the cottage industries declined because they were unable to compete with factories.
Agricultural development in many ways helped much of Japan’s industrialization. First, land tax was an important source of revenue to the government. Second, poverty of tenants drove cheap labour from villages to factories. Third, increase in rural cash income created a home market for manufactured goods. Lastly, agricultural exports (e.g. silk) brought foreign imports (e.g. machinery).

Industrial development: Role of government -- the Meiji government believed that trade and industries were the pillars on which western greatness rested. Moreover, Japan’s high population density put limits on agricultural development. For these reasons, industrialization was the primary target of the Meiji leaders.
Accordingly, the Meiji government took a number of measures that directly and indirectly helped economic modernization and industrialization.

The abolition of feudalism made possible occupational mobility, allowing farmers to become labourers. Political and economic stability provided a favourable environment for economic growth. Centralization created a national domestic market, and new communication networks had economic value. Finally, the government also organized trade fairs, set up technical schools, sent students abroad, trained Japanese technicians, invited foreign instructors and experts and so on.

In addition, it sacrificed agricultural interests to the advantage of industrialization. Taxation from the agricultural sector (through the 1873 Land Tax Act) provided 80% of the total revenue up to 1880 and over 60% by 1894. With this steady income, the government invested on industries. Also agricultural exports paid for much of the machinery and materials that had to be bought abroad.

Since Japan was without huge capital from the people and Japanese were not interested in industrial enterprises, the Meiji government financed and invested heavily on early industrial ventures (at least until 1880). It invested most significantly on manufacturing industries and means of transportation. By 1880, the government owned 52 industrial concerns, 3 shipyards, 10 mines, 5 munitions works and most railway mileage.
It was not until 1880 that the government sold some of its plants to private investors for economic reasons. Since many government owned factories and plants were running at a loss, it was decided to sell them to the highest bidders. The government retained only those strategic and munitions works.
In effect, the sale of government undertakings marked the beginning of a new economic policy -- one in which subsidies and contracts awarded to private firms replaced state ownership. Those pro-government private firms gradually became zaibatsu, such as Mitsui and Mitsubishi. Industrialization continued to progress under such government-zaibatsu cooperation.

Textile industries -- it required less capital outlay and less technical knowledge; it also made use of Japan’s labour skill. Therefore, it attracted private entrepreneurs and was free from government interference.
Cotton industry was much modernized. Cotton supply in Japan was augmented by imports from India. The number of spindles rose from 8,000 (1877), 77,000 (1887), 382,000 (1893), to 2.4 million (1913). The rise of power looms was equally significant. Yarn output rose from 116 million pounds (1893) to 650 million pounds (1913). The growth of silk industry, as we have seen, was also spectacular.

Development of transportation and communication -- coastal shipping developed fast for geographical and historical reasons. At first, the government built shipyards and bought ships from abroad. Then, Iwasaki Yataro (the founder of Mitsubishi) had interest in this field. He founded the N.Y.K. (Japan Mail Line) in 1885 which had 58 ships totalling 65,000 tons for the provision of coastal and foreign services. The enterprise was to receive government patronage, accepting in return government supervision of its routes and operations.
The government controlled all railway construction up to 1877. Later on, private companies began to participate and soon owned more mileage than the government. Total mileage increased from 350 (1885), 2,080 (1895), to 5,000 (1906).

Much was being done to modernize Japan’s communication under the supervision of the Department of Public Works. By the end of 1870, telegraphs were already in use in the Tokyo-Yokohama region. In 1871, Japan was linked by cable with Shanghai and Vladivostock. For strategic purpose, telegraphs were kept under government control. A modern postal system was also set up in 1871, first between Tokyo and Osaka. It developed rapidly throughout Japan and by 1879 all foreign postal offices were closed.

Manufacturing industries -- the development of manufacturing industries followed a similar pattern: of state initiative at first and private investment later. The year 1881 marked a watershed between the two stages.
As we have seen, the Meiji government first opened factories and introduced new techniques. It operated cement works, glass and chemical factories. By 1880, it owned 52 industrial concerns, 3 shipyards, 10 mines, 5 munitions works and most railway mileage. The cost of investment in these various undertakings was considerable. Together with the burden of compensations to daimyo and samurai as well as the persistent excess of imports over exports, they led to chronic Treasury’s problems. Inflation was alarming. For example, rice price rose from 5.7 yen per koku (1877) to 12.2 yen (1880).

The government began to seek remedies between 1880 and 1881. Matsukata Masayoshi was appointed Minister of Finance. On the one hand, he made efforts to balance revenue and expenditure by raising new taxes, reducing government grants, and adopting administrative economy. On the other hand, since many factories and plants were running at a loss, it was decided to sell them to the highest bidders. This measure would reduce calls on revenue and recovered some part of the funds that had been invested. In effect, most of the concerns were sold at bargain prices to the oligarchy’s friends among the businessmen who later emerged as zaibatsu founders.

Since the sale of government undertakings, heavy industries progressed steadily. There were to be greater numbers of new shipyards, engineering works, mining industries and so on. Some figures could be given to illustrate these achievements. First, iron and steel output came close to 250,000 tons by 1913. Second, coal production reached 5 million tons in 1895, 13 million tons in 1905, and 21 million tons in 1913. Third, annual tonnage of ships launched reached 50,000 tons between 1909 and 1913. Fourth, imports of raw materials rose from 3.5 per cent to 22.7 per cent between 1880 and 1894. Fifth, exports of finished goods increased from 7.2 per cent to 26.2 per cent between 1880 and 1894 mainly because of the export of textiles. Finally, electricity was made available in cities since 1910.

Conclusion-- by the end of the Meiji era, Japan was not yet a fully industrialized state, but it implied the direction of change. At the very least, industrial growth was now great enough to have a substantial effect on foreign trade. A spectacular boom was to come with the First World War.