What is industrialisation?

Industrialisation or industrialization is the period of social and economic change that

transforms a human group from an agrarian society into an industrial one, involving the
extensive re-organisation of an economy for the purpose of manufacturing.[2]
As industrial workers' incomes rise, markets for consumer goods and services of all kinds
tend to expand and provide a further stimulus to industrial investment and economic growth.
The first transformation to an industrial economy from an agricultural one, known as the
Industrial Revolution, took place from the mid-18th to early 19th century in certain areas in
Europe and North America; starting in the Netherlands and Great Britain, followed by
Belgium, Germany, and France.[3] Characteristics of this early industrialization were
technological progress, a shift from rural work to industrial labor, financial investments in new
industrial structure, and early developments in class consciousness and theories related to
this.[4] Later commentators have called this the First Industrial Revolution.[5]
The "Second Industrial Revolution" labels the later changes that came about in the mid-19th
century after the refinement of the steam engine, the invention of the internal combustion
engine, the harnessing of electricity and the construction of canals, railways and electricpower lines. The invention of the assembly line gave this phase a boost. Coal mines,
steelworks, and textile factories replaced homes as the place of work. [6][7][8]
By the end of the 20th century, East Asia had become one of the most recently industrialised
regions of the world.[9] The BRICS states (Brazil, Russia, India, China and South Africa) are
undergoing the process of industrialization.[10]
There is considerable literature on the factors facilitating industrial modernisation and
enterprise development.

The IR in Britain
How did the Industrial Revolution change Britain?
The Industrial Revolution caused sweeping changes to Britain by ushering in
scientific advancements, growth of technology, improvements to the fields of
agriculture and production and an overall economic expansion. The Industrial
Revolution began during the 18th century, and lasted well into the 19th century. During that
time, the Revolution improved living conditions for British systems, created new jobs,
increased and improved trade and introduced new technologies and advancements.
The Industrial Revolution breathed new life into the economy and spirit of Britain. British
citizens, encouraged by economic opportunities and prosperity, took new pride in the label of
British citizens. The Revolution improved upon existing economic activities like agriculture,
and introduced new sectors, such as the metal industry. During the 18th century, the
Industrial Revolution transformed agriculture from sustaining families and communities to an
economic endeavor. New tools emerged to increase and facilitate crop production. Farmers
grew a larger variety of crops, and more of them. Surpluses shipped throughout the country
and across international borders. Industry flourished under the Revolution as prosperity
increased the demand for consumer goods. Steam and coal emerged as leading sources of
power to drive machines, including mills, trains, ships and factories. Infrastructure emerged

and transportation systems improved during the Revolution too. Additionally, regions in
Britain specialized in certain products and traded among themselves.

What were the effects of the Industrial Revolution?

The effects of the Industrial Revolution were vast and far-reaching changes in the
political, economic and social structure of the countries in which it took place.
Beginning in Britain in 1750, technological innovations and inventions spawned the growth of
large machine-production factories and economic specialization. This revolution soon spread
throughout Europe and the United States and had a multitude of effects upon each individual
nation.
Initially, these changes took place in the landscape of nations, as rural and formerly
agricultural workers moved into urban settings. The population shift prompted the growth of
large municipalities, and with this, a need for municipal services.
With the advent of large-scale factories, the worker was now much more dependent on an
individual employer. Relationships between the capital employers and the laboring class
became tense, driving the rise of Marxism in response. Eventually, the dominant political
doctrines of both the United States and Great Britain adjusted from lassaiz-faire, in which the
government interferes as little as possible to best support the economic system, to one of
welfare capitalism, in which the state intervenes to protect the right of the laborer and to offer
necessary services.
The Industrial Revolution also gave rise to professions, population expansion and a higher
standard of living.

How did the Industrial Revolution affect cities?

The Industrial Revolution changed labor patterns, wealth, material production and
population distribution. The rise in industrial labor opportunities led to a population shift
from rural areas to cities.
Before the industrial revolution, more than 80 percent of people lived in the country side. As
people continued migrating from the rural areas, small towns grew into large cities. The new
industries were stimulated by the process of urbanization, which concentrated factories and
workers together.
However, the population spike led to dreadful leaving conditions; the cities became crowded,
dirty places where epidemics often broke out. The burning coal of the factories polluted the
air and coated the buildings with grime, and water supplies were polluted by waste.

What changes did the Industrial Revolution bring about?

The Industrial Revolution brought changes in the textile industry, communication,
transportation and the overall quality of life. All of these changes helped move society
from being more agrarian to being primarily industrial.
The invention of the spinning jenny and power loom moved textiles from a cottage industry to
factories. The changes improved many of the inefficiencies that once existed.

During the revolution, the invention of the telegraph improved communication. The travel of
news of important events was no longer limited by the time it took for a messenger to arrive.
In 1866, the first transatlantic cable connected the United States with Europe.
As the steel industry developed, it provided the raw materials for the steam engine. Robert
Fulton's steamboat made trade across the ocean more efficient than carrying goods while
depending on sails. The creation of railroads in the United States and Great Britain made
travel easier than ever.
For the middle and upper class, the Industrial Revolution made life easier. Products that were
once only available by creating them at home became commercially available. However, the
changes decreased the quality of life for the poor. Factory workers spent long hours laboring
at their jobs. Children became responsible for the most dangerous jobs and worked long
hours. Housing was often crowded, and the conditions were unsanitary for factory workers.

Early industrialisation in the USA

During the first 30 years of the 1800s, American Industry was truly born.
Household manufacturing was almost universal in colonial days, with local craftsmen
providing for their communities. This new era introduced factories, with machines and
predetermined tasks, producing items to be shipped and sold elsewhere.
In 1790, Samuel Slater built the first factory in America, based on the secrets of textile
manufacturing he brought from England. He built a cotton-spinning mill in Pawtucket, Rhode
Island, soon run by water-power. Over the next decade textiles was the dominant industry in
the country, with hundreds of companies created.
Eli Whitney's development of the interchangeable part began by revolutionizing the arms
industry, but ended up transforming the face of manufacturing in the United States.
In the iron industry, Pennsylvania's furnaces and rolling mills were fast supplanting small
local forges. In 1804, Oliver Evans of Philadelphia developed a high-pressure steam engine
that was adaptable to a great variety of industrial purposes. Within a few years it powered
ships, sawmills, flour mills, printing presses as well as textile factories. In 1798, Eli Whitney,
who had invented the cotton gin in 1792, contributed one of the most important elements of
the industrial age. He came up with the idea of making guns using interchangeable parts.
The idea of interchangeable parts had been raised in Europe, but it took an American to
successfully commercialize the concept.
A potato famine during the mid 1800s brought many Irish immigrants to American shores.
Here, they played a huge part in the Industrial Revolution as well as Westward Expansion.
The concept was seized by industry after industry. Canal and railway construction played an
important role in transporting people and cargo west, increasing the size of the US
marketplace. With the new infrastructure even remote parts of the country gained the ability
to communicate and establish trade relationships with the centers of commerce in the East.
The new industrialization was very expensive. Out of the need for money grew the
corporation. Chartered under state laws, corporations could accumulate capital from as many

investors as were interested in them, each of them enjoying some stock or stake in the
corporation's success. There was no limit to how much investors could earn, yet each with
"limited liability" whereby they were financially responsible for the corporation's debts only to
the extent of their investment.
Yet, the Industrial Revolution would not have been possible without one further ingredient
people. Canals and railways needed thousands of people to build them. Business schemes
required people to execute them. The number of projects and businesses under development
was enormous. The demand for labor was satisfied, in part, by millions of immigrants from
Ireland, Germany, and elsewhere. As is often the case when there is a mass immigration,
there was a great deal of resistance. Old and new political parties took strong positions on
the rights of immigrants. Ultimately these positions hardened, leading to major political
changes in America.

An Asian model of industralisation: Japan

Carl Mosk, University of Victoria
Japan achieved sustained growth in per capita income between the 1880s and 1970 through
industrialization. Moving along an income growth trajectory through expansion of manufacturing is
hardly unique. Indeed Western Europe, Canada, Australia and the United States all attained high
levels of income per capita by shifting from agrarian-based production to manufacturing and
technologically sophisticated service sector activity.
Still, there are four distinctive features of Japans development through industrialization that merit
discussion:

The proto-industrial base

Japans agricultural productivity was high enough to sustain substantial craft (proto-industrial)
production in both rural and urban areas of the country prior to industrialization.

Investment-led growth
Domestic investment in industry and infrastructure was the driving force behind growth in Japanese
output. Both private and public sectors invested in infrastructure, national and local governments
serving as coordinating agents for infrastructure build-up.

Investment in manufacturing capacity was largely left to the private sector.

Rising domestic savings made increasing capital accumulation possible.

Japanese growth was investment-led, not export-led.

Total factor productivity growth achieving more output per unit of input was rapid.
On the supply side, total factor productivity growth was extremely important. Scale economies the
reduction in per unit costs due to increased levels of output contributed to total factor productivity
growth. Scale economies existed due to geographic concentration, to growth of the national economy,
and to growth in the output of individual companies. In addition, companies moved down the learning
curve, reducing unit costs as their cumulative output rose and demand for their product soared.
The social capacity for importing and adapting foreign technology improved and this contributed to
total factor productivity growth:

At the household level, investing in education of children improved social capability.

At the firm level, creating internalized labor markets that bound firms to workers and workers to firms,
thereby giving workers a strong incentive to flexibly adapt to new technology, improved social capability.

At the government level, industrial policy that reduced the cost to private firms of securing foreign
technology enhanced social capacity.

Shifting out of low-productivity agriculture into high productivity manufacturing, mining, and
construction contributed to total factor productivity growth.

Dualism
Sharply segmented labor and capital markets emerged in Japan after the 1910s. The capital intensive
sector enjoying high ratios of capital to labor paid relatively high wages, and the labor intensive sector
paid relatively low wages.
Dualism contributed to income inequality and therefore to domestic social unrest. After 1945 a series
of public policy reforms addressed inequality and erased much of the social bitterness around dualism
that ravaged Japan prior to World War II.
The remainder of this article will expand on a number of the themes mentioned above. The appendix
reviews quantitative evidence concerning these points. The conclusion of the article lists references
that provide a wealth of detailed evidence supporting the points above, which this article can only
begin to explore.

The Legacy of Autarky and the Proto-Industrial Economy: Achievements

of Tokugawa Japan (1600-1868)
Why Japan?
Given the relatively poor record of countries outside the European cultural area few achieving the
kind of catch-up growth Japan managed between 1880 and 1970 the question naturally arises: why
Japan? After all, when the United States forcibly opened Japan in the 1850s and Japan was forced
to cede extra-territorial rights to a number of Western nations as had China earlier in the 1840s, many
Westerners and Japanese alike thought Japans prospects seemed dim indeed.

Tokugawa achievements: urbanization, road networks, rice cultivation, craft production

In answering this question, Mosk (2001), Minami (1994) and Ohkawa and Rosovsky (1973) emphasize
the achievements of Tokugawa Japan (1600-1868) during a long period of closed country autarky
between the mid-seventeenth century and the 1850s: a high level of urbanization; well developed road
networks; the channeling of river water flow with embankments and the extensive elaboration of
irrigation ditches that supported and encouraged the refinement of rice cultivation based upon
improving seed varieties, fertilizers and planting methods especially in the Southwest with its relatively
long growing season; the development of proto-industrial (craft) production by merchant houses in the
major cities like Osaka and Edo (now called Tokyo) and its diffusion to rural areas after 1700; and the
promotion of education and population control among both the military elite (the samurai) and the wellto-do peasantry in the eighteenth and early nineteenth centuries.

Tokugawa political economy: daimyo and shogun

These developments were inseparable from the political economy of Japan. The system of
confederation government introduced at the end of the fifteenth century placed certain powers in the
hands of feudal warlords, daimyo, and certain powers in the hands of the shogun, the most powerful of
the warlords. Each daimyo and the shogun was assigned a geographic region, a domain, being
given taxation authority over the peasants residing in the villages of the domain. Intercourse with
foreign powers was monopolized by the shogun, thereby preventing daimyo from cementing alliances
with other countries in an effort to overthrow the central government. The samurai military retainers of
the daimyo were forced to abandon rice farming and reside in the castle town headquarters of their
daimyo overlord. In exchange, samurai received rice stipends from the rice taxes collected from the
villages of their domain. By removing samurai from the countryside by demilitarizing rural areas
conflicts over local water rights were largely made a thing of the past. As a result irrigation ditches
were extended throughout the valleys, and riverbanks were shored up with stone embankments,
facilitating transport and preventing flooding.
The sustained growth of proto-industrialization in urban Japan, and its widespread diffusion to villages
after 1700 was also inseparable from the productivity growth in paddy rice production and the growing
of industrial crops like tea, fruit, mulberry plant growing (that sustained the raising of silk cocoons) and
cotton. Indeed, Smith (1988) has given pride of place to these domestic sources of Japans future
industrial success.

Readiness to emulate the West

As a result of these domestic advances, Japan was well positioned to take up the Western challenge.
It harnessed its infrastructure, its high level of literacy, and its proto-industrial distribution networks to
the task of emulating Western organizational forms and Western techniques in energy production, first
and foremost enlisting inorganic energy sources like coal and the other fossil fuels to generate steam
power. Having intensively developed the organic economy depending upon natural energy flows like
wind, water and fire, Japanese were quite prepared to master inorganic production after the Black
Ships of the Americans forced Japan to jettison its long-standing autarky.

From Balanced to Dualistic Growth, 1887-1938: Infrastructure and

Manufacturing Expand
Fukoku Kyohei
After the Tokugawa government collapsed in 1868, a new Meiji government committed to the twin
policies of fukoku kyohei (wealthy country/strong military) took up the challenge of renegotiating its
treaties with the Western powers. It created infrastructure that facilitated industrialization. It built a
modern navy and army that could keep the Western powers at bay and establish a protective buffer
zone in North East Asia that eventually formed the basis for a burgeoning Japanese empire in Asia
and the Pacific.

Central government reforms in education, finance and transportation

Jettisoning the confederation style government of the Tokugawa era, the new leaders of the new Meiji
government fashioned a unitary state with powerful ministries consolidating authority in the capital,
Tokyo. The freshly minted Ministry of Education promoted compulsory primary schooling for the
masses and elite university education aimed at deepening engineering and scientific knowledge. The
Ministry of Finance created the Bank of Japan in 1882, laying the foundations for a private banking
system backed up a lender of last resort. The government began building a steam railroad trunk line
girding the four major islands, encouraging private companies to participate in the project. In particular,
the national government committed itself to constructing a Tokaido line connecting the
Tokyo/Yokohama region to the Osaka/Kobe conurbation along the Pacific coastline of the main island
of Honshu, and to creating deepwater harbors at Yokohama and Kobe that could accommodate deephulled steamships.

Not surprisingly, the merchants in Osaka, the merchant capital of Tokugawa Japan, already well
versed in proto-industrial production, turned to harnessing steam and coal, investing heavily in
integrated spinning and weaving steam-driven textile mills during the 1880s.

Diffusion of best-practice agriculture

At the same time, the abolition of the three hundred or so feudal fiefs that were the backbone of
confederation style-Tokugawa rule and their consolidation into politically weak prefectures, under a
strong national government that virtually monopolized taxation authority, gave a strong push to the
diffusion of best practice agricultural technique. The nationwide diffusion of seed varieties developed in
the Southwest fiefs of Tokugawa Japan spearheaded a substantial improvement in agricultural
productivity especially in the Northeast. Simultaneously, expansion of agriculture using traditional
Japanese technology agriculture and manufacturing using imported Western technology resulted.

Balanced growth
Growth at the close of the nineteenth century was balanced in the sense that traditional and modern
technology using sectors grew at roughly equal rates, and labor especially young girls recruited out
of farm households to labor in the steam using textile mills flowed back and forth between rural and
urban Japan at wages that were roughly equal in industrial and agricultural pursuits.

Geographic economies of scale in the Tokaido belt

Concentration of industrial production first in Osaka and subsequently throughout the Tokaido belt
fostered powerful geographic scale economies (the ability to reduce per unit costs as output levels
increase), reducing the costs of securing energy, raw materials and access to global markets for
enterprises located in the great harbor metropolises stretching from the massive Osaka/Kobe complex
northward to the teeming Tokyo/Yokohama conurbation. Between 1904 and 1911, electrification mainly
due to the proliferation of intercity electrical railroads created economies of scale in the nascent
industrial belt facing outward onto the Pacific. The consolidation of two huge hydroelectric power grids
during the 1920s one servicing Tokyo/Yokohama, the other Osaka and Kobe further solidified the
comparative advantage of the Tokaido industrial belt in factory production. Finally, the widening and
paving during the 1920s of roads that could handle buses and trucks was also pioneered by the great
metropolises of the Tokaido, which further bolstered their relative advantage in per capita
infrastructure.

Organizational economies of scale zaibatsu

In addition to geographic scale economies, organizational scale economies also became increasingly
important in the late nineteenth centuries. The formation of the zaibatsu (financial cliques), which
gradually evolved into diversified industrial combines tied together through central holding companies,
is a case in point. By the 1910s these had evolved into highly diversified combines, binding together
enterprises in banking and insurance, trading companies, mining concerns, textiles, iron and steel
plants, and machinery manufactures. By channeling profits from older industries into new lines of
activity like electrical machinery manufacturing, the zaibatsu form of organization generated scale
economies in finance, trade and manufacturing, drastically reducing information-gathering and
transactions costs. By attracting relatively scare managerial and entrepreneurial talent, the zaibatsu
format economized on human resources.
Electrification
The push into electrical machinery production during the 1920s had a revolutionary impact on
manufacturing. Effective exploitation of steam power required the use of large central steam engines

simultaneously driving a large number of machines power looms and mules in a spinning/weaving
plant for instance throughout a factory. Small enterprises did not mechanize in the steam era. But
with electrification the unit drive system of mechanization spread. Each machine could be powered
up independently of one another. Mechanization spread rapidly to the smallest factory.

Emergence of the dualistic economy

With the drive into heavy industries chemicals, iron and steel, machinery the demand for skilled
labor that would flexibly respond to rapid changes in technique soared. Large firms in these industries
began offering premium wages and guarantees of employment in good times and bad as a way of
motivating and holding onto valuable workers. A dualistic economy emerged during the 1910s. Small
firms, light industry and agriculture offered relatively low wages. Large enterprises in the heavy
industries offered much more favorable remuneration, extending paternalistic benefits like company
housing and company welfare programs to their internal labor markets. As a result a widening gulf
opened up between the great metropolitan centers of the Tokaido and rural Japan. Income per head
was far higher in the great industrial centers than in the hinterland.

Clashing urban/rural and landlord/tenant interests

The economic strains of emergent dualism were amplified by the slowing down of technological
progress in the agricultural sector, which had exhaustively reaped the benefits due to regional diffusion
from the Southwest to the Northeast of best practice Tokugawa rice cultivation. Landlords around
45% of the cultivable rice paddy land in Japan was held in some form of tenancy at the beginning of
the twentieth century who had played a crucial role in promoting the diffusion of traditional best
practice techniques now lost interest in rural affairs and turned their attention to industrial activities.
Tenants also found their interests disregarded by the national authorities in Tokyo, who were
increasingly focused on supplying cheap foodstuffs to the burgeoning industrial belt by promoting
agricultural production within the empire that it was assembling through military victories. Japan
secured Taiwan from China in 1895, and formally brought Korea under its imperial rule in 1910 upon
the heels of its successful war against Russia in 1904-05. Tenant unions reacted to this callous
disrespect of their needs through violence. Landlord/tenant disputes broke out in the early 1920s, and
continued to plague Japan politically throughout the 1930s, calls for land reform and bureaucratic
proposals for reform being rejected by a Diet (Japans legislature) politically dominated by landlords.

Japans military expansion

Japans thrust to imperial expansion was inflamed by the growing instability of the geopolitical and
international trade regime of the later 1920s and early 1930s. The relative decline of the United
Kingdom as an economic power doomed a gold standard regime tied to the British pound. The United
States was becoming a potential contender to the United Kingdom as the backer of a gold standard
regime but its long history of high tariffs and isolationism deterred it from taking over leadership in
promoting global trade openness. Germany and the Soviet Union were increasingly becoming
industrial and military giants on the Eurasian land mass committed to ideologies hostile to the liberal
democracy championed by the United Kingdom and the United States. It was against this international
backdrop that Japan began aggressively staking out its claim to being the dominant military power in
East Asia and the Pacific, thereby bringing it into conflict with the United States and the United
Kingdom in the Asian and Pacific theaters after the world slipped into global warfare in 1939.

Reform and Reconstruction in a New International Economic Order,

Japan after World War II
Postwar occupation: economic and institutional restructuring

Surrendering to the United States and its allies in 1945, Japans economy and infrastructure was
revamped under the S.C.A.P (Supreme Commander of the Allied Powers) Occupation lasting through
1951. As Nakamura (1995) points out, a variety of Occupation-sponsored reforms transformed the
institutional environment conditioning economic performance in Japan. The major zaibatsu were
liquidated by the Holding Company Liquidation Commission set up under the Occupation (they were
revamped as keiretsu corporate groups mainly tied together through cross-shareholding of stock in the
aftermath of the Occupation); land reform wiped out landlordism and gave a strong push to agricultural
productivity through mechanization of rice cultivation; and collective bargaining, largely illegal under
the Peace Preservation Act that was used to suppress union organizing during the interwar period,
was given the imprimatur of constitutional legality. Finally, education was opened up, partly through
making middle school compulsory, partly through the creation of national universities in each of
Japans forty-six prefectures.

Improvement in the social capability for economic growth

In short, from a domestic point of view, the social capability for importing and adapting foreign
technology was improved with the reforms in education and the fillip to competition given by the
dissolution of the zaibatsu. Resolving tension between rural and urban Japan through land reform and
the establishment of a rice price support program that guaranteed farmers incomes comparable to
blue collar industrial workers also contributed to the social capacity to absorb foreign technology by
suppressing the political divisions between metropolitan and hinterland Japan that plagued the nation
during the interwar years.

Japan and the postwar international order

The revamped international economic order contributed to the social capability of importing and
adapting foreign technology. The instability of the 1920s and 1930s was replaced with replaced with a
relatively predictable bipolar world in which the United States and the Soviet Union opposed each
other in both geopolitical and ideological arenas. The United States became an architect of multilateral
architecture designed to encourage trade through its sponsorship of the United Nations, the World
Bank, the International Monetary Fund and the General Agreement on Tariffs and Trade (the
predecessor to the World Trade Organization). Under the logic of building military alliances to contain
Eurasian Communism, the United States brought Japan under its nuclear umbrella with a bilateral
security treaty. American companies were encouraged to license technology to Japanese companies
in the new international environment. Japan redirected its trade away from the areas that had been
incorporated into the Japanese Empire before 1945, and towards the huge and expanding American
market.

Miracle Growth: Soaring Domestic Investment and Export Growth, 1953-1970

Its infrastructure revitalized through the Occupation period reforms, its capacity to import and export
enhanced by the new international economic order, and its access to American technology bolstered
through its security pact with the United States, Japan experienced the dramatic Miracle Growth
between 1953 and the early 1970s whose sources have been cogently analyzed by Denison and
Chung (1976). Especially striking in the Miracle Growth period was the remarkable increase in the rate
of domestic fixed capital formation, the rise in the investment proportion being matched by a rising
savings rate whose secular increase especially that of private household savings has been well
documented and analyzed by Horioka (1991). While Japan continued to close the gap in income per
capita between itself and the United States after the early 1970s, most scholars believe that large
Japanese manufacturing enterprises had by and large become internationally competitive by the early
1970s. In this sense it can be said that Japan had completed its nine decade long convergence to
international competitiveness through industrialization by the early 1970s.

MITI

There is little doubt that the social capacity to import and adapt foreign technology was vastly
improved in the aftermath of the Pacific War. Creating social consensus with Land Reform and
agricultural subsidies reduced political divisiveness, extending compulsory education and breaking up
the zaibatsu had a positive impact. Fashioning the Ministry of International Trade and Industry (M.I.T.I.)
that took responsibility for overseeing industrial policy is also viewed as facilitating Japans social
capability. There is no doubt that M.I.T.I. drove down the cost of securing foreign technology. By
intervening between Japanese firms and foreign companies, it acted as a single buyer of technology,
playing off competing American and European enterprises in order to reduce the royalties Japanese
concerns had to pay on technology licenses. By keeping domestic patent periods short, M.I.T.I.
encouraged rapid diffusion of technology. And in some cases the experience of International
Business Machines (I.B.M.), enjoying a virtual monopoly in global mainframe computer markets during
the 1950s and early 1960s, is a classical case M.I.T.I. made it a condition of entry into the Japanese
market (through the creation of a subsidiary Japan I.B.M. in the case of I.B.M.) that foreign companies
share many of their technological secrets with potential Japanese competitors.
How important industrial policy was for Miracle Growth remains controversial, however. The view of
Johnson (1982), who hails industrial policy as a pillar of the Japanese Development State
(government promoting economic growth through state policies) has been criticized and revised by
subsequent scholars. The book by Uriu (1996) is a case in point.

Internal labor markets, just-in-time inventory and quality control circles

Furthering the internalization of labor markets the premium wages and long-term employment
guarantees largely restricted to white collar workers were extended to blue collar workers with the
legalization of unions and collective bargaining after 1945 also raised the social capability of
adapting foreign technology. Internalizing labor created a highly flexible labor force in post-1950
Japan. As a result, Japanese workers embraced many of the key ideas of Just-in-Time inventory
control and Quality Control circles in assembly industries, learning how to do rapid machine setups as
part and parcel of an effort to produce components just-in-time and without defect. Ironically, the
concepts of just-in-time and quality control were originally developed in the United States, just-in-time
methods being pioneered by supermarkets and quality control by efficiency experts like W. Edwards
Deming. Yet it was in Japan that these concepts were relentlessly pursued to revolutionize assembly
line industries during the 1950s and 1960s.

Ultimate causes of the Japanese economic miracle

Miracle Growth was the completion of a protracted historical process involving enhancing human
capital, massive accumulation of physical capital including infrastructure and private manufacturing
capacity, the importation and adaptation of foreign technology, and the creation of scale economies,
which took decades and decades to realize. Dubbed a miracle, it is best seen as the reaping of a
bountiful harvest whose seeds were painstakingly planted in the six decades between 1880 and 1938.
In the course of the nine decades between the 1880s and 1970, Japan amassed and lost a sprawling
empire, reorienting its trade and geopolitical stance through the twists and turns of history. While the
ultimate sources of growth can be ferreted out through some form of statistical accounting, the specific
way these sources were marshaled in practice is inseparable from the history of Japan itself and of the
global environment within which it has realized its industrial destiny

The Russian / Soviet model of industrialisation

In November 1927, Joseph Stalin launched his revolution from above by setting two
extraordinary goals for Soviet domestic policy: rapid industrialization and collectivization of
agriculture. His aims were to erase all traces of the capitalism that had entered under the
New Economic Policy and to transform the Soviet Union as quickly as possible, without
regard to cost, into an industrialized and completely socialist state.

Stalin's First Five-Year Plan, adopted by the party in 1928, called for rapid industrialization of
the economy, with an emphasis on heavy industry. It set goals that were unrealistica 250
percent increase in overall industrial development and a 330 percent expansion in heavy
industry alone. All industry and services were nationalized, managers were given
predetermined output quotas by central planners, and trade unions were converted into
mechanisms for increasing worker productivity. Many new industrial centers were developed,
particularly in the Ural Mountains, and thousands of new plants were built throughout the
country. But because Stalin insisted on unrealistic production targets, serious problems soon
arose. With the greatest share of investment put into heavy industry, widespread shortages
of consumer goods occurred.
The First Five-Year Plan also called for transforming Soviet agriculture from predominantly
individual farms into a system of large state collective farms. The Communist regime
believed that collectivization would improve agricultural productivity and would produce grain
reserves sufficiently large to feed the growing urban labor force. The anticipated surplus was
to pay for industrialization. Collectivization was further expected to free many peasants for
industrial work in the cities and to enable the party to extend its political dominance over the
remaining peasantry.
Stalin focused particular hostility on the wealthier peasants, or kulaks. About one million
kulak households (some five million people) were deported and never heard from again.
Forced collectivization of the remaining peasants, which was often fiercely resisted, resulted
in a disastrous disruption of agricultural productivity and a catastrophic famine in 193233.
Although the First Five-Year Plan called for the collectivization of only twenty percent of
peasant households, by 1940 approximately ninety-seven percent of all peasant households
had been collectivized and private ownership of property almost entirely eliminated. Forced
collectivization helped achieve Stalin's goal of rapid industrialization, but the human costs
were incalculable.

German Industrialisation
Germany Before Unification (Up to 1871):

The southern side of the Rhine Valley of Germany was incorporated into France by
Napoleon. At that time France was, despite its economic shortcomings with respect to
England and Belgium, quite a bit more advanced than Germany. This period of forced
integration with France stimulated economic change in the Rhine Valley. In 1815 this
area became independent of France but retained some of the economic and
institutional reforms of the Napoleonic period. Serfdom and the guilds were abolished.
Other remnants of fedualism were ended which restricted commerce and industry.

Before unification of Germany, Prussia (Later Germany) initiated the concept of a

common market in 1818 and in 1833 a treaty extended the Zollverein (Toll Union) to
the larger states of Germany, although Austria was excluded. The Zollverein (Toll
Union) of 1833 abolished tolls between the various German principalities, made
Germany into a common market. For a period of decades, until about 1860s, there
were attempts at imitating in Germany the industrialization that had taken place
elsewhere in Europe. This imitation was only moderately successful.

Why was Germany able to industrialize so rapidly between 1870 and 1914?

The Industrial Revolution began about a century later in Germany than it did in
England. Before 1870 Germany was not united properly. This was because of the

power struggle, mainly between Prussia and Austria, that was occurring at the time.
This disunity did not provide for a stable or flourishing economy, and so Germany was
not very advanced industrially at all.

Then Bismarck finally got his way, and in 1871 everything changed. The New German
Confederation was formed, and all the German states were united under one ruling
body. This meant that the country was co-ordinated in its actions and was less
vulnerable to political, social, or military attack. So the new Germany was very strong.

This unification provided a base platform for industry to grow, and Bismarck cared for
this well. He implemented several policies to protect the baby businesses; among
them were laws which forced up the cost of many foreign items and made the
German goods better value. This strengthened the economy and industry responded.
After this there was no stopping anyone; the economy was up and running. Germany
then went through a period of rapid industrial growth, culminating in the outbreak of
the First World War.

A big boost to the new economy was the five billion Francs paid to Germany was a
result of the Seven Weeks War with France. This fee was exactly equal to the amount
taxed by Napoleon from Germany. Also included in the package was the French
territories of Alsace and Lorraine. These were both rich in minerals and soil, and so
were a great boon to the fledgling economy.

Major Factors Responsible For German Industrialization:

Railways and Industrialization:

Railways played a very important part in Germanys growth. The country was a slow
starter in the railway race, but she soon caught up. The network quickly enveloped
the entire country and provided links with each area and the international community,
making everyone more aware of each other and decreasing the psychlogical distance
between places.

Railways increase efficiency, because everything gets there faster, and the tempo of
business speeds up. Germany became the centre of activity for the European
business community, and Germany was able to trade better because she could now
ship directly south, rather than via another country. This problem was caused
because all main rivers in the nation flowed north; away from the majority of trading
partners.

The rail system increased the demand for steel and coal. The coalfields in the Ruhr
Valley were fully developed and made Germany into the foremost coal producer in
Europe. A steel industry also developed and the stimulus of the coal and steel
development expanded the banking and capital markets available to Germany. This
helped other industries such as the chemical and electrical industries develop in the
latter part of the nineteenth century. The German chemical industry became the most
advanced in the world. At first the production of dyes based on aniline was critical.

By 1880, Germany had 9,400 locomotives pulling 43,000 passengers and 30,000
tons of freight, and pulled ahead of France.

Education:

Germany implemented a technical education curriculum which emphasised the

technical areas of industry, such as electrics, chemistry, and physics. This program
produced more scientists, and better ones, and so more and better advances were
made in these directions. This is why Germany was to become strong in the technical
fields.

Threat of France:

German politicians, industrialists, and academics all felt a threat from France. This
was because the feared a retaliation from the Seven Weeks War of 1866, but their
fears were unfounded. France had neither the power or motivation to challenge
Germany. Germany strived to make itself stronger, just in case of an attack.

Resources, Banks and Cartels:

Germany was, and still is, rich in natural resources. These include coal and iron ore in
the Rhur, the Saar and the south east corner of Upper Silesia; rich soil gained from
the Seven Weeks War with France (in Alsace and Lorraine); sodium and potassium in
large quantities (this is what enabled a large chemical industry); and the people. This
is probably the most important part of Germany; its people. The country possessed
many people capable of making and using the technology and resources to their
greatest capability, and capitalising on it as much as possible. This was particularly
obvious in the business sector; many high-flyers emerged. An example of this is the
growth of the chemical industry; Britain had 30 scientists in the field, while in the
same period Germany had 350. Germans had realised the value of the industry.

Another way in which Germany was ahead of Britain was in the confidence of banks
to lend money. In Britain, many banks did not lend money to businesses because
they feared that the business would not be able to pay it back. In Germany, it was a
different story. Banks gave over money willingly, and a special breed of bank grew up;
the credit bank. This type of bank is now known as a corporate bank. This breed is
entirely devoted to banking in the business sector.

Different banks formed cartels in different industries. Cartel contracts were accepted
as legal and binding by German courts although they were held to be illegal in Britain
and the United States. The process of cartelization began slowly, but the cartel
movement took hold after 1873 in the economic depression that followed the post
unification speculative bubble. It began in heavy industry and spread throughout other
industries. By 1900 there were 275 cartels in operation; by 1908, over 500. But many
German companies stayed outside the cartels because they did not welcome the
restrictions that membership imposed.

Prosperity was the general result of the growth in the economy. This was reinforced
by Bismarcks unfailing favour toward the business sector, and how he always backed
it. As a result of this prosperity, businesses were able to keep up with the latest in
technology, regrading their machines, and so they could keep abreast of the market.
This was a major point over Britain, who was still using old, antiquated, machinery.

In the search for new markets, more space for the population, and more resources,
Germany started to build up a colonial empire. The ultimate aim was no control lots of
Asia and Africa, but this did not eventuate. Instead, several different areas of Africa
were either taken over or annexed by Germany. These colonies served as extensions
of Germany, and so enhanced her economy.

Population:

As the country prospered, it became a desirable place to live, and so many people
moved in from other countries. This boosted the economy, and the country grew. This
causes a snowball effect (to know about snowball effect, refer to ethics chapter),
which is only stopped by rather unfavourable circumstances, such as over-population.
Because of this economic growth, living standards went up, wages went up, and so
people could afford to have more children. And so the population increased again.

Also, when a country industrialises about 70% (may be more) of all people in the
country move in toward the urban centres. The country becomes urbanised. This
means that there are more workers available, and so industry prospers.

Governments Role, Protection and Welfare:

The government played a powerful role in the industrialization of the German Empire
founded by Bismarck in 1871 during a period known as the Second Industrial
Revolution.(The Second Industrial Revolution or Technological Revolution was a
phase of the larger Industrial Revolution corresponding to the latter half of the 19th
century until World War I. It is considered to have begun around the time of the
introduction of Bessemer steel in the 1850s and culminated in early factory
electrification, mass production and the production line.)

Government supported not only heavy industry but also crafts and trades because it
wanted to maintain prosperity in all parts of the empire.

Even where the national government did not act, the highly autonomous regional and
local governments supported their own industries. Each state tried to be as selfsufficient as possible.

In 1879 industrial protection was introduced by applying the foreign tariffs on imports.
This encouraged trade, employment, and business. The State charged a protection
tax, and so it had more money to put back into the economy.

Social Welfare was also introduced (First time by Bismark); Sickness Insurance, in
1883; Accident Insurance, in 1884; and an Old Age Pension, in 1889. These
measures made people think twice about how bad the government was, and deterred
people from swinging toward the communist side of the political spectrum.

Technology:

As Germany gained international stardom, money and experts flocked into the
country. They always found work, and invariably made an advance in their field. So
Germanys technological expertise gained ground, and more people came.

Necessity:

The development of each new field, as more and more experts arrived, placed a
strain on the economy. There were more people than ever, and so the industries
produced more. As the population increased, each industry spurred on another. An
example of this is the growth of the railways; this required more rails, carriages, coal,
and drivers, and as the network got bigger and better more people travelled on it; the
cycle starts again.

Bismarck:

The entire secret to Germanys success lies with Prime minister Bismarck. Firstly, he
unified the country; secondly, he brought the economy into line; thirdly, he made sure
it stayed that way and encouraged it; and fourthly, he prevented anything from hurting
the economy badly.

Bismarck won the support of both industry and skilled workers by his high tariff
policies, which protected profits and wages from American competition, although they
alienated the liberal intellectuals who wanted free trade

Even before unification, his Blood and iron Policy included Iron (which fuelled
Industrialization).

Agriculture:

It is argued that more important than Bismarcks new tariff on imported grain was the
introduction of the sugar beet as a primary crop. Farmers quickly abandoned
traditional, inefficient practices for modern new methods, including use of new
fertilizers and new tools. The knowledge and tools gained from the intensive farming
of sugar and other root crops made Germany the most efficient agricultural producer
in Europe by 1914. Even so farms were small in size, and women did much of the
field work. Many worker became available for industrial work.

An unintended consequence was the increased dependence on migratory, especially

foreign, labor.

Other Facts and Factors in German Industrialization:

Regions:

The north German states were for the most part richer in natural resources than the
southern states. They had vast agricultural tracts from Schleswig-Holstein in the west
through Prussia in the east. They also had coal and iron in the Ruhr Valley. Through
the practice of primogeniture, widely followed in northern Germany, large estates and
fortunes grew. So did close relations between their owners and local as well as
national governments.

The south German states were relatively poor in natural resources and those
Germans therefore engaged more often in small economic enterprises. They also had
no primogeniture rule but subdivided the land among several offspring, leading those
offspring to remain in their native towns but not fully able to support themselves from
their small parcels of fragmented land. The south German states, therefore, fostered
cottage industries, crafts, and a more independent and self-reliant spirit less closely
linked to the government.

Class and the welfare state:

Germanys middle class, based in the cities, grew exponentially, but it never gained
the political power it had in France, Britain or the United States. The Association of
German Womens Organizations (BDF) was established in 1894 to encompass the
proliferating womens organizations that had sprung up since the 1860s. From the
beginning, the BDF was a bourgeois organization, its members working toward

equality with men in such areas as education, financial opportunities, and political life.
Working-class women were not welcome; they were organized by the Socialists.

Bismarck built on a tradition of welfare programs in Prussia and Saxony that began
as early as in the 1840s. In the 1880s he introduced old age pensions, accident
insurance, medical care and unemployment insurance that formed the basis of the
modern European welfare state. His paternalistic programs won the support of
German industry because its goals were to win the support of the working classes for
the Empire and reduce the outflow of immigrants to America, where wages were
higher, but welfare did not exist.

Chemicals:

Based on its leadership in chemical research in the universities and industrial

laboratories, Germany became dominant in the worlds chemical industry in the late
19th century.

Big businesses such as BASF and Bayer led the way in their production and
distribution of artificial dyes and pharmaceuticals, leading to the German
monopolisation of the global chemicals market at 90 percent of the entire share of
international volumes of trade in chemical products by 1914.

Steel:

Germany became Europes leading steel-producing nations in the late 19th century,
thanks in large part to the protection from American and British competition afforded
by tariffs and cartels. The German Steel Federation was established in 1874.