Investing Japan: Foreign Capital, Monetary Standards, and Economic Development, 1859–2011 by Simon James Bytheway (review)

In his latest book, Simon Bytheway takes up the challenge of tracing a comprehensive history of foreign investment in Japan, from the opening of the country to the West in the mid-nineteenth century up to the most recent years. The basic question he seeks to answer is: what has been the role of foreign capital in the economic development of Japan? While of obvious interest to economic historians, this question is also crucial to the understanding of Japanese politics and international relations in the last 150 years.

The book is made up of three parts. The first (chapters 1–3) discusses monetary policy in Japan from the start of the Meiji period in 1868 to World War I. The focus of the analysis is on the process that led to the adoption of the gold standard (1897) and on the latter's importance as a tool to attract much-needed foreign capital. As the author explains, pegging the yen to gold was for Japan a "powerful developmental factor" (p. 47) because it fostered confidence among foreign investors and granted the country access to credit under favorable conditions on the international financial markets. Building on this premise, part 2 opens with a chapter on Anglo-Japanese relations in the age of the bilateral alliance (1902–23). Here Bytheway explores the linkages between diplomacy and finance, pointing at the strategic interests behind British lending to Japan. Each of the next three chapters is a systematic investigation of a specific kind of foreign capital inflow, namely loans to the central government (1870–1930), loans to city administrations and to corporations (1870–1930), and direct investment in the private sector (1899–1939). Overall, this section of the book sheds light on long-term trends through the modern period.

The analysis shows, first of all, that through the issue of bonds the state played by far the leading role in the import of capital. Money raised in this way was pivotal to waging war against Russia in 1904–5. It also made a significant contribution to the development of an economic infrastructure both in Japan and in its colonies. Second, in the sources of funding there was a shift from London to New York as the principal bond market, particularly after World War I. This change reflected the decline of Britain vis-à-vis the United States not just from a financial viewpoint but also in broader terms of hegemonic power. Third, corporate loans had chiefly two kinds of recipients: on the one hand, parastatal enterprises that functioned as agents of the government's colonial policy, such as the South Manchuria Railway Company; on the other hand, a few big private corporations, especially electric power companies that rose in the 1920s. Furthermore, direct investment was negligible in quantitative terms as it represented just 1.4 per cent of total foreign capital over the whole period considered. Nevertheless, Bytheway argues that foreign direct investment (FDI) had a significant impact on the structural development of the Japanese economy, because it concentrated in high-end technology industries. In addition, he makes the point that several companies that benefited from foreign capital and technology transfer at this stage, as did Fujitsu and Toshiba, would eventually play a leading role in the business world after World War II.

Part 3 extends the scope of research into the postwar era. Chapter 8 tracks the gradual reopening of the Japanese economy to foreign investors despite the adoption, in the initial phase of reconstruction, of a protectionist policy that posed a strong barrier to the participation of overseas firms. Before international pressure led to a loosening of this government policy in the late 1960s, thanks to U.S. patronage Japan was nevertheless able to obtain from the World Bank a number of loans for the development of infrastructure and heavy industries. As in the case of prewar FDI, these loans...