Foreign Affairs: 100 Years
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TOWARD the end of the nineteenth century Gladstone prophesied that "it is America alone who, at a coming time, can and probably will wrest from us our commercial supremacy." At that time Japan had scarcely appeared on the economic map of the world. Secluded in the Far East, hers was still a land of fragile, pretty things -- of the cherry blossom and the dancing girl. No British statesman could foresee that within half a century Japan would become, next to America, Britain's greatest commercial rival. Yet that is exactly what is happening today. Of course, there is no comparison between Japan and America in natural resources and in financial strength. Beside America Japan is but a pigmy. Yet in certain limited fields of industry she is a very grave concern to England.
Broadly speaking, America has to no small extent superseded Britain in heavy industries and as the world's financier. In this field England has nothing to fear from Japan, now or even in the future. It is in a limited number of light industries that Japan has been making serious inroads into the markets long monopolized by British manufacturers. But it so happens that chief among those light industries is the cotton industry, which is as essential to Great Britain as the more important of her heavy industries. It is one of England's basic industries.
Before the World War British cotton factories had a total of 55,000,000 spindles, more than one third of the world's entire number of spindles. In 1913 England exported 6,780,000,000 square yards of cotton fabrics, and dominated the cotton market of the world.
In 1932 England had 50,000,000 spindles, a decline of 5,000,000 as compared with the pre-war total. In the same year British exports of cotton fabrics totaled 2,200,000,000 square yards, a decrease of 4,580,000,000 square yards. This shows clearly that, while the decrease in spindles was not in itself so serious, the shrinkage in the exports of cotton fabrics was large enough to alarm even the most optimistic. It shows that even the reduced number of spindles were not fully employed -- that many of the spindles remained idle either entirely or part of the time.
Meanwhile, what of Japan? Her cotton spindles increased from 2,300,000 in the pre-war period to 8,000,000 in 1932, an almost four-fold increase. Although this increased total is only 16 percent of the British total, the productive capacity of Japanese mills is such that in 1932 they exported 2,030,000,000 square yards as compared with 2,200,000,000 square yards exported by British mills -- a difference of only 170,000,000 square yards. This difference was still further reduced to 48,000,000 square yards in the first six months of 1933 -- Japan having exported 1,035,000,-000 square yards as compared with 1,083,000,000 square yards exported by England. Roughly speaking, the total world production of cotton textiles for export alone is 5,500,000,000 square yards per year. Of this total about 4,230,000,000 square yards are now supplied by England and Japan in almost equal amounts. The balance of some 1,300,000,000 square yards is supplied by the United States and other countries.
Here is food for reflection. Japan's 8,000,000 spindles, it seems, are turning out almost as many square yards of material for export as are England's 50,000,000 spindles. Is it because many of England's cotton mills are idle? Is it because the Japanese mills are better organized and better equipped?
The greatest battleground in the British-Japanese rivalry is India. Following the World War, Japanese cottons made steady inroads into that country, long monopolized by Lancashire and Manchester. In 1929 British India received from England 66 percent of its total imports of cotton fabrics, and 30 percent from Japan. In 1930 England's share declined to 59 percent, while Japan's increased to 35 percent. Again, in 1931 the percentage for England fell to 50, and that for Japan rose to 45. Finally, in 1932 Britain's share was 48 percent as compared with Japan's 50 percent. Translated into terms of square yards, British cottons imported into India in 1932 totaled 600,000,000, while imports from Japan amounted to 645,000,000. To the British that was the last straw. The British interests at home and in India, alarmed by this steady expansion of Japanese trade, caused the Government of India in August 1932 to raise the import duty on non-British cottons (which, in effect, meant Japanese cottons) from 31 percent to 50 percent, while the duty on British cottons remained the same as before, namely, 25 percent.
The discrimination thus introduced against Japan was great enough. But on April 10, 1933, the Indian Government, through the Government at London, notified Japan of its intention of terminating within six months the Indo-Japanese Treaty of Commerce with most-favoured-nation provisions, thus paving the way for further discrimination against Japanese cottons. The treaty, which was to have ended on October 10, 1933, has been extended from month to month. On that day, however, the Indian Government issued an Act for the Safeguarding of Industries, which authorized the Viceroy to impose at his discretion higher duties upon foreign goods which were imported at such a low price as to jeopardize native industry. Invoking this Act, the Viceroy on June 6 increased the duty on Japanese cotton goods to 75 percent as compared with 25 percent levied upon imports from Lancashire and Manchester.
In the meantime, embattled Britannia moved with amazing swiftness and extended her line of defense against Japanese trade over almost the entire front of her far-flung economic empire. On May 14 Egypt began to impose upon Japanese imports an extra duty of 35 percent. On May 15 the Government at London announced the termination within one year of the Commercial Treaty between British West Africa and Japan. On June 16 the Straits Settlements raised duties against Japanese cottons. On June 26 British East Africa adopted a similar measure. On June 29 Australia, too, adopted an anti-dumping law which went into effect on December 5.
Despite all these precautions the British position, especially in India and Australia, the two most important "colonial" markets for British goods, is far from invulnerable. First let us examine the Indian situation.
During the ten years 1921 to 1931 inclusive Japan bought from India an average of 1,600,000 bales of raw cotton (worth 240,000,-000 yen) per annum. Should Japan retaliate against British exclusion by boycotting Indian cotton, a majority of the cotton growers in India would be ruined. As a consequence, the purchasing power of the natives would be so curtailed that British manufacturers would derive little benefit from the exclusion of Japanese goods. The only remedy would be for Lancashire and Manchester to take the place of Japanese mills and buy Indian cotton. But Lancashire and Manchester have not been buying and will not buy Indian cotton. A century ago it was they who encouraged cotton culture in India. For some decades they imported raw cotton from India and exported manufactured cottons to the same country -- a transaction which was highly profitable to the British. But when the southern states in America developed cotton culture Lancashire and Manchester gradually shifted their source of supply from India to the United States, until India was practically left in the lurch. Had not the Japanese mills come to the rescue, Indian cotton farmers would have been in a sad plight. Today the mill operators of England might gladly resume buying Indian cotton in order to recapture the Indian market for their products. But the mill workers, having long used American material of finer quality, refuse to handle Indian cotton, which they claim to be insanitary. Furthermore, the British mills are equipped to manufacture textiles of finer quality, and unless they change the entire equipment they cannot use coarse Indian cotton.
For India, and to a lesser degree for England, to exclude Japanese fabrics is to kill the goose that lays the golden egg. Let us drive this point home. In the past twenty years Japan bought from India materials worth 2,600,000,000 yen more than what she sold to that country. In the same period England sold to India materials worth 2,300,000,000 yen more than what she bought of that country. In other words, Japan poured into India 130,000,-000 yen annually, while England took away from India 110,000,-000 yen every year. To a very large extent, then, it is what India receives from Japan which enables her to pay for the goods imported from England. Let the Japanese stop paying India the 130,000,000 yen a year, and British exports to that country will decline. The plain fact is that England has been selling much to India and buying little in return -- a one-sided practice which has been possible only through the operation of certain political factors and by reason of the Japanese annuity paid to India. Did not even President McKinley, that protagonist of protectionism, admit that "if we will not buy, we cannot sell"?
It is no doubt the realization of this obvious fact on the part of England which moved the Indian Government and the Government at London, after pourparlers of four months with Japan, to agree, on January 8, 1934, to a three-year arrangement under which India is to buy from Japan cotton fabrics not exceeding 400,000,000 square yards a year -- 138,770,000 square yards less than the figure for 1932. In return, Japan is to buy 1,500,000 bales of Indian cotton, 100,000 bales less than the total for 1932. India is to levy a 50 percent duty on Japanese cotton goods, while duty on British goods is to remain at 25 percent. This agreement, which is based upon the principle of live and let live, is the first of the kind concluded on so large a scale, and may become the model for similar agreements which will have to be made among other countries.
Had no compromise of this nature been reached, the Japanese mill operators would have boycotted Indian cotton. In fact, the Japanese Cotton Spinners' Association, a powerful organization comprising all the leading cotton manufacturers in the country, adopted on June 13 a resolution for a boycott. Although the British think that Indian cotton is absolutely indispensable to Japanese mills, the Japanese operators take the contrary view. In their opinion, American cotton can take the place of Indian products, while Persia, China, Turkey and New Guinea will supply short-staple cotton to be mixed with long-staple American material. The only obstacle is the high price of American cotton. During 1932, when the price of American cotton was unusually low, Japanese ships carried away more than two million bales from Galveston, Savannah and New Orleans -- which caused some American newspapers to guess that Japan was using the cotton to make gunpowder to be used in the fracas with China!
Australia vis-à-vis Japan is in much the same position as India. Sheep culture is to her what cotton culture is to India. Roughly speaking, Japan has for years been buying from Australia 100,-000,000 yen more than she sold to that country. In 1932 Japanese purchases from Australia amounted to 134,000,000 yen as against 36,000,000 yen paid by Australia for Japanese goods. Wool, of course, is the chief Australian export to Japan. And yet Australia, acting upon the Ottawa agreements of July 1932, raised a tariff barrier against Japanese imports which had never been large -- another instance of killing the goose that lays the golden egg. What would happen to Australia's all-important sheep industry should Japan turn to Argentina for her supply of wool? Japanese manufacturers are confident that this can be done. Although South American wool lacks the merino which is found in Australian wool, this will not be a serious disadvantage, because in Japan merino is used chiefly as a raw material for muslin -- a material for which a substitute can easily be found.
It is perhaps fear of Japanese boycott of wool which has caused Australia to contemplate stationing a diplomatic representative in Tokyo, much as Canada stations a minister in Washington. It is also reported that of late Australia has somewhat increased her imports from Japan. At this writing, Australia's Minister of Foreign Affairs is on his way to Tokyo to confer with the Japanese Government on trade questions.
It will serve no good purpose for England to drive Japanese trade from India, Australia and other British Dominions, for then the Japanese will surely contest British trade in other countries, notably South America, where British textiles have been preponderant. Iraq, under British mandate, has recently ordered from Japan khaki drill in considerable quantities for the army, which caused an outcry in Lancashire and Manchester. Furthermore, Japanese trade is penetrating into Kenya, Congo, Uganda, Tanganyika, Ethiopia, Turkey, Syria, Persia, Afghanistan, etc. In a recent book,[i] I commented upon the action of the League of Nations in virtually encouraging an anti-Japanese boycott in China, and said, "The League's chickens will come home to roost." And they did. China is Japan's nearest and natural market. Drive out Japanese goods from China and they will seek new outlets in other parts of the world.
Nor is this surprising when we consider that foreign trade is to Japan a matter of national existence. Japan, devoid of natural resources, and with a population growing at a rate of almost one million a year, has always been and still is buying more than she sells abroad. In the thirteen years from 1920 to 1932, Japan's imports exceeded her exports by 3,448,000,000 yen. In the same period she borrowed abroad about 820,000,000 yen, which in effect paid for a part of the excess imports. Obviously she cannot keep on borrowing indefinitely. If she is to stop borrowing she must reduce excess imports and establish a more favorable trade balance. It was with this end in view that Japan went off the gold standard in December 1931, and that she is going forth to extend her trade to the remotest corners of the world. Due, no doubt, to these efforts, the excess of her imports over her exports for 1932 was reduced to 21,470,000 yen. This is a remarkable achievement when we remember that in 1924 the excess rose as high as 646,-000,000 yen.
There is no doubt that the depreciation of the yen has been an important factor in Japan's trade advance in the last two years. But the depreciated yen is but a passing phenomenon. When the gold standard is reëstablished in Japan the export of Japan's cotton fabrics may suffer a temporary setback. But that it will resume its advance there is no doubt, because her cotton mills are today admittedly the best-managed, the most advanced and efficient in the world.
Soap-box orators denounce a low standard of living, "coolie" labor, the sweat shop, a "cheap" yen, etc., as the secret of Japan's success in the cotton industry. But that is merely to evade the real issue. The valor of ignorance is no valor at all. Far better is it for British manufacturers to seek counsel with such unbiased experts as Dr. Arno S. Pearse, for many years General Secretary of the International Federation of Master Cotton Spinners' and Manufacturers' Association, with headquarters in Manchester, England. On January 11 last it was reported from Geneva that the League of Nations, alarmed by Japan's trade expansion made possible by "coolie" labor, asked the International Labor Office to make an investigation. It is to be hoped that the League will not once again prove itself unfamiliar with the problem it essays to solve.
In 1929 Dr. Pearse spent a few months in Japan, looking into her cotton industry. His conclusion was that England had much to learn from Japan in this field. He found the Japanese like the Americans rather than like the British in that they did not, in industrial enterprises, stick to tradition but were quick to adopt new and advanced methods and instruments.
The treatment of Japanese mill operatives, as pictured by Dr. Pearse, seems to set at rest the bogy of "coolie labor" so often conjured up by foreign orators speaking against Japanese industry. Describing the dormitories of a typical Japanese mill, he says:
Each room is provided with the usual alcove, the most distinguished place in every Japanese room. There will be found a little altar, books, and writing materials. There will hang a Japanese scroll-picture, or the portraits of the Emperor and Empress. Fresh flower decorations are placed in every room. Scrupulous cleanliness and tidiness reign supreme in the dormitories. . . .
The welfare work undertaken by the Japanese mills calls for the admiration of anyone who takes the trouble to investigate it impartially. About 80 percent of the operatives live on the premises, and two hours are daily devoted to schooling. Not only is the ordinary school curriculum provided, but practical subjects and even ethics are taught. The mill operatives of Japan are all able to read and write, and their general standard of education must be quite up to the standard of the mill operatives of Europe. Every operative has a bath daily, and dormitories in which the operatives sleep are an example of cleanliness and comfort.
Even in China the Japanese-owned cotton mills treat their Chinese employees far more generously than do other mills. When, in 1925, the Chinese laborers of the British-owned cotton mills in Shanghai went on a strike, and even resorted to violence, the Japanese mills there were immune from the disturbance.
In the Occident, society is founded upon individualism, and human relations have been governed largely by the legal sense of individual rights. When the Industrial Revolution descended upon Europe what sentiment of personal attachment had existed between the employer and the employee was swept away. In Japan, on the contrary, society is founded upon the family system, and the family sentiment of mutual attachment has for centuries been a dominant factor in the intercourse among individuals. Not only has the Industrial Revolution failed to destroy that sentiment, but its impact has been mitigated by it. No foreign critic who overlooks this important point can really understand the labor problem of Japan.
Much nonsense has been talked about the Japanese standard of living as compared with the western standard. The truth is that there is no higher or lower, no superior or inferior standard of living as between Japan and the West. The question is simply one of difference. Transplant a Japanese mill hand to Lancashire, give him an iron bed with a soft mattress, put him on a ration of bread and butter, beefsteak, coffee and cream, and he will go on a strike, demanding Japanese bedding spread on a matted floor, and a ration of fish, rice and vegetables which, to him, are more palatable and wholesome. It is the misfortune of the British or American that his standard calls for higher-priced materials than the Japanese, that is all. Despite the advent in their midst of Western culture, which Norman Douglas characterizes as "frowsy and fidgety," the Japanese still cling to the simple life, and are satisfied with fewer worldly things than are coveted by their Occidental brothers.
From which it follows that the wage scale of Japanese mill operatives should not be judged by the British standard. In 1930, Mr. Charles K. Moser, now Chief of the Far Eastern Section of the Bureau of Foreign and Domestic Commerce in the American Department of Commerce, went to Japan and, like Dr. Pearse of England, made a study of her cotton mills. Taking a large cotton mill at Tokyo as a typical example, Mr. Moser reported that the average daily wage of all male employees was 2.09 yen or $1.045 at the rate of exchange then prevailing. In addition, they were given a semi-annual bonus of 164.77 yen, or, counting 26 workdays per month, 1.55 yen per day. So the average daily wage of a male hand amounted to 3.64 yen, or $1.55. The female operatives are mostly daughters of peasants and are recruited from rural districts. They enter the mills at from 14 to 17 years of age, and their average tenure is about three years. They then leave to get married, and only rarely return to the mill service. The average earnings of a female employee are 1.55 yen per day. She is charged, however, 15 sen per day for her food, the actual cost of which is 45 sen, or 30 sen more than she pays for it. So the actual wage is 1.85 yen per day. In addition, she receives a semi-annual bonus of some 33.34 yen. This increases the actual pay of a female employee to 2.06 yen per day.
This was the condition found by Mr. Moser in 1930. Since then the world-wide depression has resulted in a substantial reduction in the wages of cotton mill workers. And the reduced wage scale, when spoken of in terms of dollars or pounds at the current rate of exchange, is ridiculously low. That is what has caused so much ado among foreign critics. But the important thing to be remembered is that in Japan a yen is still a yen, with its purchasing power not radically impaired.
In an earlier paragraph it has been pointed out that Japan's 8,000,000 spindles produce almost as much cotton fabrics for export as England's 50,000,000 spindles. How can this be? No doubt it is partly because many of the British spindles are idle, but that is not the entire explanation. A more complete answer is found in the reports by Dr. Pearse and Mr. Moser. In Dr. Pearse's opinion, the Japanese cotton mills are better organized and managed than those in England, while Mr. Moser expresses much the same view in comparing American and Japanese mills. The centralized method generally followed in Japan of importing raw cotton and of exporting manufactured yarns and fabrics is far superior to the British method. It eliminates waste, securing raw material at the lowest price and commanding the highest price for manufactured cottons. There are in Japan only four or five firms which buy raw cotton for the mills, and which also sell yarns and fabrics for them. Three of them handle 80 percent of all raw cotton imported to Japan. On the contrary, Lancashire and Manchester depend upon innumerable small importers.
One of the important phases in the management of Japanese cotton mills is the absence of "hedging." The mills, whenever they consider prices right, purchase large quantities of raw cotton. One single firm often orders ten thousand bales in a single day. "It was a great surprise to me," writes Dr. Pearse, "that not one of the big combines and very few, if any, of the financially weak mills hedge their cotton purchases. I was assured time after time that it is quite a common occurrence for these combines to have 30,000 or 50,000 bales and at times even 80,000 bales unhedged." By this practice -- a practice uncommon in England -- they reap handsome, often enormous, profits from purchases of raw material alone.
The Japanese method of mixing raw cotton of various staples in order to produce yarns or fabrics of various grades to meet the respective tastes and requirements of the countries to which they are shipped, is, according to Dr. Pearse, "an art of which the Japanese mill managers are justly proud." It is a secret jealously guarded by all mills. The proportion of the various materials in the mixture varies to harmonize with the local conditions of the purchasing countries. The Japanese mills endeavor to produce what the purchasers want, and not what they think the purchasers should like. That is why Japanese cotton goods have won new markets.
In the weaving industry Japan enjoys a great advantage over her western competitors by reason of the increasing use of a superior loom known as the Toyoda Automatic Loom, so named after its inventor. So superior is this loom that in 1929 Platt Bros., of Oldham, England, procured the exclusive right to manufacture and sell Toyoda looms upon a royalty basis in Great Britain, on the continent of Europe, and in British possessions. In 1930 a number of Toyoda mechanics went to England to instruct the Platt engineers in the process of setting up a new factory for the manufacture of the new loom.
But in England there has been much opposition to the use of the Toyoda loom, because the trade unions fear that its superior efficiency will put many mill operatives out of work. Even where this loom has been adopted the British operatives have been reluctant to make as good a use of it as have the Japanese. "One would not like," writes Dr. Pearse, "to think that European weavers are inferior to Japanese, but evidently trade unions hold the view that the Europeans are capable of attending only to half the number of looms of what the Japanese girl can do." If one were to believe a Japanese authority, the efficiency of the Japanese worker would seem even greater. According to Mr. Shingo Tsuda, President of the Kanegafuchi Mill at Tokyo, a Japanese male operative takes care of twenty weaving machines, an average including both plain and automatic looms, while a British male operative looks after only six, mostly plain looms. Four years ago, in England, four machines was the maximum to be tended by one operative. Only after four years of struggle between capital and labor, says Mr. Tsuda, was the number increased to six. In Japanese mills, where automatic looms alone are used, one operative handles fifty or sixty looms. Fortunately or unfortunately, trade unions dominate industries in England as in no other country. Compared with them, American labor unions are docile and tractable, which, according to Mr. Ludwell Denny, is "one of the chief assets of American capital, both in the matter of even-flowing high production and in competition for domestic and foreign markets." If this is true, the virtual absence of militant trade unionism in Japan must be an asset to her industries.
There is little use in accusing Japan of "dumping" her goods upon foreign markets. Mr. G. B. Sansom, Commercial Councillor of the British Embassy at Tokyo, in his report dated December 31, 1932, says that "such charges are as a general rule without any foundation, if by 'dumping' is meant the sale of goods abroad at below production cost. There have doubtless been cases where stocks have been disposed of at a sacrifice, and some small traders and producers have probably taken orders at unremunerative prices. But the bulk of the export trade has certainly been conducted at a profit, and the Government, far from encouraging cheap sales, has urged small export traders to combine for the maintenance of higher prices." As for government subsidies to Japanese industries, they hardly amount to $10,000,000 a year, of which one-half goes to shipping -- certainly a negligible sum. None of the cotton mills enjoys subsidy.
The Pearse report on the Japanese cotton industry was a startling revelation to Lancashire and Manchester. It was then that Mr. Moser wrote as follows:
Thoroughly aroused, Britain's manufacturers are undertaking extraordinary measures to rehabilitate themselves in Far Eastern markets -- the foremost being reorganization of practically their entire industry into the Lancashire Cotton Corporation. Their hope is that with this instrument and the support of the British Government they may engage the textile industries of the East with their own weapon, i.e., lower labor and manufacturing costs; lower freight and handling charges, involving, perhaps, rebates, subsidies or coöperation with the Government and transportation agencies in some form; and closer coördination of cotton merchants, manufacturers, distributors and financial institutions.
On every hand throughout Eastern countries, however, among cotton men from Egypt to Osaka -- and most of them British -- is heard the opinion that Lancashire's effort has come too late. The Eastern industries, they say, have obtained a most impressive start, while the West lagged along indifferently, and they cannot be headed off. There is no dissension from this point of view except among newspaper economists, writers who do not know, or who still cling devotedly to their partisan hopes.
If it was too late in 1930, what shall we say in 1934? It is unthinkable that England should admit defeat and shut down any considerable number of the mills which contributed so much toward the upbuilding of her vast trade empire. In her Japan sees a worthy adversary who may yet retrieve lost ground and reëstablish the high place she has so long maintained in world commerce. Meanwhile, Japan may well congratulate herself upon the fact that none of her major industries comes into conflict with any of the similar industries in the United States. To a large extent, her trade has been complementary to, rather than competitive with, American trade.
[i] K. K. Kawakami, "Manchoukuo, Child of Conflict." New York: Macmillan, 1933.