In Japanese history, the term “Meji Restoration” refers to the restoration of the emperor as the central authority after the abolishment of the Tokugawa Shogunate (Warrior or War lord rule). The economic policies followed during the Meji period (1868 – 1912) built the foundations of today’s modern, industrial Japan. In order to get a better understanding on what those policies were- why were they put in place and what lessons that India could have learnt from Meiji Japan, it is important to take a quick overview of Japanese history prior to Meiji restoration and understand the socio-economic situation that prevailed at the beginning of the Meiji restoration?

Tokugawa period

Inspired by China, during the 7th and 8th centuries, the Japanese established a central government ruled by the Emperor. But, regional leaders continued to remain powerful. Between the 10th and 12th centuries, certain policy decisions made and imprudent fiscal management followed caused a gradual erosion of the imperial authority. Power struggles between multiple local lords resulted in a further weakening of the court. The ambitious among the local lords developed a followership and were used by the court’s aristocrats to fulfill their needs. In the 12th century, multiple wars broke out between aristocrats. The end result of which was the establishment of Shogunates. ‘Shogun’, hitherto temporary, became a permanent and hereditary title to designate the head of warrior houses. Shogunates established military authority, that, overtime, overshadowed the authority of the court and the wishes of the Emperor counted for much less. Between 8th century and towards the end of 19th century, Japan transformed from a centralized government under the emperor to a feudalistic one ruled by the warriors. The period between 1603 and 1868 was called the Tokugawa period. Though during this time the Tokugawa Shogunate dominated most of Japan, somewhat autonomous domain lords called ‘Daimyo’, though dependent on the Shogunate, retained their administrative structures, armies and fiscal systems. One modern day American scholar calls this paradoxical system as “Centralized feudalism”. It is important to note that, though the powerful Shogunates controlled the country, weakened considerably in power, monarchy continued to exist with monetary support from the Shoguns.

Society and Status groups

(My aim in this section is not to draw any parallels with the Indian caste system, but to merely point out the existence of a class hierarchy within the Japanese society).

The Japanese society was divided into primarily 4 status divisions, which were Samurai (Warrior), Farmer, Artisan and the Merchant. These classes were not internally homogenous. Each of these classes, in turn, had hierarchies within themselves consisting of upper, middle and lower classes. Migrations up or, more often down, were possible from the borders of these groups. In addition, there were groups above and below these 4 classes.

Above the 4 classes was the Emperor who was considered divine and had supreme authority. Though he was politically powerless, the emperor symbolized tradition and legitimacy. Shogunate and the Emperor honored each other. There were multiple classes below the 4 primary classes. The ‘Eta’ class, which was hereditary, dealt with occupations that were repugnant to Buddhist sensibilities such as slaughtering and disposal of animal carcasses, tanning and so on. Etas were discriminated against and were collectively considered ‘invisible’. Yet another community called ‘Hinin’ (non human), they included people who engaged in lower forms of entertainment, fortune telling, prostitution and begging. Hinin status was not hereditary.

Sakoku (Closed Country)

For a long time, Japanese were forbidden from leaving the country and if they did, on their return, were condemned to death. These rules were a bit relaxed towards the end of the Tokugawa period. Though Japan maintained cultural and technological connections with China and even with the Dutch, owning to their paranoia about Christianity, Japan maintained lesser and lesser relationship with the rest of the world. Following the British advances on China and the Russian advances onto Kurils and Hokkaido, fearing a threat to national security, the Tokugawa isolated their country even more.

Enter the Americans

Slogans of Manifest Destiny, access to the pacific after California was won over and the need to establish a faster route to China prompted Americans to establish relationship with Japan. In 1846, the US representative in China dispatched Captain James Biddle who arrived in Edo bay (near present day Tokyo) only to be pushed back by the Japanese citing the rule that foreign relations could only be conducted from the Nagasaki port. In 1853 Commodore Perry, determined to (in his own words) [1] “demand as a right, and not as a favour, those acts of courtesy, which are due from one civilized nation to another”, entered the Edo bay, unannounced, with 4 ships, 61 guns and 967 men. The American warships were six or more times the size of any Japanese ship. Perry rebuffed the request to go to Nagasaki and instead handed the letter from the American president over to the Japanese with a lot of fanfare, told them that he would return the next year to get Japan’s response to the letters and then left Japan after surveying the coast neglecting Japan’s prohibitions. He returned back the next year (1854) with a bigger squadron of ships, with a warning of his ability to ask for 50 or even 100 more ships from California if needed, to negotiate a treaty. The Japanese had no other option other than accepting a treaty. The main provisions of the treaty were for Japan to [2]

  1. Provide hospitality to ship wrecked sailors
  2. Open two ports one at Hakodate and one at Shimoda (a particularly poor harbor)
  3. Establish a US consulate at Shimoda after 18 months

Though the treaty looked harmless, the 3rd point paved the way for more American influence in Japan.

The first US Consul General Townsend Harris arrived in Shimoda in August 1856. For the next two years, he negotiated a treaty with the reluctant Shogunate convincing them of the dangers of British descending on Japan, if America was rebuffed, and demanding even harsher treaty. The end result was the Harris Treaty signed in 1858 (Formally called, The United States-Japan treaty of Amity and Commerce). The main provisions of the treaty were [2]

  1. Opening up of 5 ports for unimpeded Trade
  2. The right for Americans to reside in designated areas and practice their religion
    1. Harris failed to persuade the Tokugawa Shogunate to lift the ban on religious preaching
  3. The right for Americans to be tried only under American law
  4. Low fixed scale of duties for imports (In 1866 it was fixed at 5%) with no clear end dates denying Japan the tariff autonomy
  5. A ban on Opium trade (Opium trade with British was the bane for China)
  6. A Most Favoured Nation Status, whereby America would get the same additional privileges that another foreign nation may get from Japan
  7. A provision for Japan to purchase Ships and all forms of Arms and ammunition from America.

Soon after this, Netherlands, Russia, England and France extracted similar bilateral treaties with Japan. These 5 countries were collectively called as “The people of the 5 nations”.

Meiji Restoration

The abandonment of Sakoku (Closed Country) policy, the capitulation to Western treaty demands and the revulsion against the presence of foreigners in Japanese soil caused sufficient resentment among the Samurai to overthrow the Tokugawa regime and “Restore the Old” which was to restore back the Emperor as the authority. The process was nothing less than a civil war and the Samurais, through their skill and tact, were successful in overthrowing the Tokugawa regime, in ending feudalism and in re-establishing the emperor. The emperor took the name ‘Meiji’ (Enlightened Rule) as the name of his reign [3]. In April of 1868, the emperor took his charter of oath which though was more due to the political compulsions of that time; even in today’s standards was very progressive. It read [1]

  1. Deliberate councils shall be widely established and all the matters decided by public discussion
  2. All classes, high and low, shall unite in vigorously carrying out the administrations of affairs of state
  3. The common people, no less than the civil and military officials, shall each be allowed to pursue his own calling so that there may be no discontent
  4. Evil customs of the past shall be broken off and everything based upon the just laws of Nature
  5. Knowledge shall be sought throughout the world so as to strengthen the foundations of imperial rule

Samurai from southwestern domains formed the core leadership of the early Meji period. Though the emperor was the central authority, he was to act only on the advice of the Samurai leadership. The Samurai worked through their Daimyo and the aristocrats to arrive at the consensus for the centralization, which was the first step that they needed to undertake. The Meiji leadership consisted of young patriots who rose through the ranks and was to make their country an equal to the western powers that were encircling Japan. In order to achieve this, the Meiji leadership quickly realized that Japan has to come out of isolation (though coming out of isolation was antithesis to revolution) and engage with the rest of the world from a position of strength. This thought was reflected in the charter of oath as well. But at the same time, Meji leaders signaled to the world that they will honour all international treaties and will abide by international law. In addition to that, Meiji took the crushing debt burden of all domains that acceded to it and the stipends for Samurais (which constituted about one third of the new Government’s revenue)

To summarize, at the beginning of the Meiji period, Japan was a feudalistic, class-ridden society devoid of technology, no major industries to speak of, saddled by heavy debt and other obligations, and burdened by bad treaties with almost all the world powers of that time.

Meiji Economics

To begin with, the government invested its meager resources heavily into industrial development, retained the title whatever industries the Shogunate and domains possessed and nationalized forests and mines. The fact that the new government wanted to go into protectionist mode was evident from a letter written by a Meiji leader to his fellows [1]

Unless domestic products are cheaper than foreign products one’s own people will not buy them, so one increases import tariffs in order to put up the prices of foreign goods…such a tariff is called a defensive tax…

Countries like our own that have not yet attained full development will delay the arrival of civilization if they do not apply this method.

But unequal treaties meant that Japan could not impose tariffs on imports and this turned out to be a blessing in disguise. Meiji leadership had to bootstrap self-help. Imports increased and trade deficit soared drastically. In order to manage the situation, the government got into austerity mode and increased taxes. Though these taxes caused considerable difficulties, they resulted in stronger and more competitive elements of urban and rural economy thriving and weaker ones perishing. Moreover, government industries were sold off to private investors. In the words of Milton Friedman [4]

The Meiji government did intervene in many ways and played a key role in the process of development. It sent many Japanese abroad for technical training. It imported foreign experts. It established pilot plants in many industries and gave numerous subsidies to others. But at no time did it try to control the total amount or direction of investment or the structure of output. The state maintained a large interest only in shipbuilding and iron and steel industries that it thought necessary for military power. It retained these industries because they were not attractive to private enterprise and required heavy government subsidies.

Finally, an international treaty prohibited Japan during the first three decades after the Meiji Restoration from imposing tariffs higher than 5 percent. This restriction proved an unmitigated boon to Japan, though it was resented at the time, and tariffs were raised after the treaty prohibitions expired.

Reliance on the market in Japan released hidden and unsuspected resources of energy and ingenuity. It prevented vested interests from blocking change. It forced development to conform to the harsh test of efficiency.

In the same book, Friedman compares the policies that India followed after independence and says

India is following a very different policy. Its leaders regard capitalism as synonymous with imperialism, to be avoided at all costs. They embarked on a series of Russian-type five-year plans that outlined detailed programs of investment. Some areas of production are reserved to government; in others private firms are permitted to operate, but only in conformity with The Plan. Tariffs and quotas control imports, subsidies control exports. Self-sufficiency is the ideal. Needless to say, these measures produce shortages of foreign exchange. These are met by detailed and extensive foreign exchange control—a major source both of inefficiency and of special privilege. Wages and prices are controlled. A government permit is required to build a factory or to make any other investment. Taxes are ubiquitous, highly graduated on paper, evaded in practice. Smuggling, black markets, illegal transactions of all kinds are every bit as ubiquitous as taxes, undermining all respect for law, yet performing a valuable social service by offsetting to some extent the rigidity of central planning and making it possible for urgent needs to be satisfied.

While it is true that the problems faced by India at Independence and Japan during Meiji restoration were similar in some aspects, there were differences in other aspects. For example, India was much more populated than Japan and perhaps Indian caste system was much more entrenched than the Japanese class system. But, India had several advantages too. For example, India had far superior natural resources, better access to foreign loans and grants and so on.

Well known Japanese private companies such as Mitsui, Mitsubishi and Sumitomo were established during the Meiji period and flourished due to the policies followed by the Meiji administration. This is a proof that with ingenuity and efficiency, domestic companies can survive and even beat foreign competition


Considering her international relations until the end of World War II, we may or may not consider Japan as a good example to emulate. But we must understand very clearly that the seeds for economic powerhouse that Japan is even today were sown during the Meiji period.  Those seeds were clearly the capitalistic economic policies and that is the lesson that I wish Nehru had learnt before he took over the reigns of our independent nation.


  1. The Making of Modern Japan by Marius B Jansen (This book was my primary reference and a considerable amount of material is sourced from this book).
  2. (Accessed March 19th 2013)
  3. (Accessed March 20th 2013)
  4. Free to Choose: A Personal statement, Friedman and Friedman

About Author

Shankar is a software manager by profession and considers himself a student of Hindu Philosophy and Economics.

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