In a book, Empire of Debt: The Rise of Epic Financial Crisis, authors Bill Bonner and Addison Wiggin observed that in the big picture of things, it is unusual for one civilized nation to earn far more per capita than another. They said:
“In the thousands of years of history, some groups were poor . . . others were rich. But extreme differences had a way of working themselves out – by trade, war, pestilence, and degeneracy. By the year 1700, a man in India, China, Arabia, or Europe had about the same standard of living, which was not very high anywhere. But along came the industrial revolution, which threw incomes out of balance and changed the way people think. Europe stole a march on the rest of the world’s industries, with huge gains in output coming in a relatively short period of time. Soon, Europeans were the world’s leading imperialists, convinced that they had its best economic system, its finest scholars, its highest morals, and its most splendiferous armies.
“But if the world works the way we think it does you expect the incomes of the Europeans – and their American cousins – to revert to their historic means. The process could take several generations. It could stall. There could be countertrends. But there is no reason to think a man’s labor is inherently more in France than in Bangladesh, or that a plumber with stars and stripes on his overalls should earn more than one with a crescent moon.
“If there is a mean, things will regress to it. You can expect, relatively speaking, Asian incomes to rise and American incomes to fall.”
That is, of course, just what is happening now, Bonner and Wiggin concluded.
Indeed, many countries in Asia, including China recently, are now catching up with the developed nations in Europe, US, and other rich countries in the western world in terms of per capita income. Japan was the first country in Asia to modernize and join the developed industrial world. South Korean, Taiwan, Singapore, and Hong Kong followed it later on.
Japan, began its effort to industrialize after the restoration of direct imperial rule with the collapse of the Tokugawa shogunate, which controlled the country militarily for more than 200 years (1603-1867). During this period, Japan was practically closed to foreigners. The Meiji restoration resulted in the reopening of Japan to foreign intercourse, during which it endeavored to imitate the foreign ways of modernizing and industrializing Japan.
How did Japan do it? In his book, Asia Pacific: Its Role in the New World Order, Michael Dobbs-Higginson, wrote:
“Wasting little energy, Japan sprinted to catch up with Europe and the United States. Universal education began. The new navy was molded on the British Navy. Gavels came down in modern courts enforcing a codified legal system, based on first a French and then on German model. Modern banks opened in a country, which not long before had paid bills in rice. The telegraph wired the country together.
“As Meiji industrialization took off, government control over the economy became automatic. Just as the feudal Shoguns and their retainers had monitored and directed society, their new Excellencies arrange the game and set their rules. They not only planned, but build and finance with government money, the industries they decided they needed. . . Instead of beginning with light industries and consumer goods – the traditional first step in modernization – Japan’s planners first concentrated on key heavy industries: arsenals, shipyards, iron works. By the early 1880s, industries were well-organized and business prosperous, but state management soon became grossly inefficient. Recognizing this, the government then sold the state concerns at absurdly low prices to a chosen, usually family-run conglomerate – to one of the Zaibatsu groups – thus setting one of the world’s first precedents for privatization.”
So why was the Philippines left behind when it started to modernize at about the same time as Japan?
In his book, Philippine Industrialization: Foreign and Domestic Capital, Yoshihara Kunio said that during the second half of the nineteenth century, while other developing counties remained dormant, the Philippines under Spain received the first impetus to modernize. Unlike Japan, however, which began industrialization around this time, this early phase of Philippine development was confined mainly to the export and processing of agriculture products, which were in great demand in the West.
Despite the country’s potential, Kunio observed that before the middle of the nineteen century, the volume of foreign trade was miniscule, adding that this was because the Spanish colonial government had little interest in exploiting the country for economic gain. Under pressure from Britain and other western countries, however, which were looking for new supply of tropical products and markets for their manufactured goods, the Spanish government reluctantly opened up the country to foreign trade. Thus, during the last few decades of the nineteenth century, abaca, copra, sugar, and tobacco became major Philippine exports.
The transfer of colonial power from Spain to the United States in 1898 accelerated production of these export commercial crops. More factories were built and copra began to be exported in form of coconut oil and desiccated coconut. Cigar from tobacco was also exported while in the case of sugar, milling was unavoidable using wooden and stone mills. When the Americans came, many sugar centrals were built to take advantage of a more efficient method of centrifugal sugar production.
Kunio noted, however, that during this period the lack of progress outside the processing of agriculture products was appalling because not only sophisticated machines but also even simple manufactured goods were imported. This is the reason why after independence, the Philippine government took measures to encourage domestic production of some goods previously imported. This second impetus to modernization and industrialization is what we now know as import-substitution.
What happened then is what I would tackle next week.