Debin Ma, London School of Economics

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Competition and Growth: Japanese and Chinese Silk Reeling Industries 1860-1937

Debin Ma, London School of Economics

Raw silk was the most important export commodity for China and Japan in the late 19th and early 20th centuries, accounting for approximately 20 to 40% of their total exports. In 1873 China exported three times as much raw silk as Japan, but by 1905 Japanese raw silk exports exceeded the Chinese. In 1930, Japanese raw silk exports tripled those of China.

Behind this dramatic reversal of export performance lie some fundamental differences in the evolutionary paths of these two national industries in a span of four decades. On the technology side, Japanese silk reeling industry successfully evolved from an initial imitator, to an adapter of European technology, to eventually becoming the world’s leader in silk reeling machinery in the 1920s and 1930s. China, however, remained largely as an imitator and adapter of foreign technology throughout the entire period.
During this period, the institutional structure of Japanese silk reeling firms went through several phases of transition from rural cooperatives, to family firms, to modern corporations. Distinctive of the Japanese silk reeling industry was the emergence of several large-scale, multi-national, vertically integrated silk reeling conglomerates around the turn of the last century. They were the pioneers of major technological and institutional innovations. These leading firms co-existed with a large number of highly competitive small reeling firms spread all over the country.
The case of Chinese silk reeling firms presents an interesting contrast. There was no cluster of a few giant silk reeling firms. The firm sizes, in comparison with those in Japan, were relatively uniform. In particular, a form of machine and factory rental system began to dominate the Chinese silk reeling industry. Under this system, owners of reeling factories would rent out their machines on an annual fixed fee. The separation of ownership and management was considered as an inhibiting factor to technological innovation.
Using both Chinese and Japanese sources, this paper constructs time series indices for capital labor ratio, partial and total factor productivities, average firm size, concentration ratio and ownership types for both Japan and China in the first three decades of the twentieth century. These statistics along with a comparative narrative are to show that the contrasting performance of these national industries is largely a consequence of the drastically different political and economic reform policies pursued by China and Japan since the 1860s. The development of Japanese silk reeling industry benefited directly from the Meiji legislatures on the protection of private enterprise, joint stock corporation and industrial patents, the promotion of industrial associations. The rapid build-up of modern transportation and communication and a national banking system in Japan also contributed significantly, in particular, to the rapid decline in barriers to learning and economy-wide transaction costs. Political and economic reforms, after much twists and turns, began to take hold in early 20th century and eventually contributed to a spectacular catch-up with Japanese silk reeling industry in the 1930s. This again supports my argument for linking the industrial competitiveness with economic policies.

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