The samurai-controlled Tokugawa Shogunate (1603–1867) presided over a 250-year period of peace unparalleled in world history, but the stagnation and contradictions that grew out of the long-term stability also gradually undermined the foundations of the government. In particular, the extravagance of the 11th Shogun, who ruled from 1787 to 1837, led to rising prices and decadence. Then, following the 11th Shogun’s death, the government did an about-face, banning luxuries and tightening control. But this sudden shift also put a damper on the economy. To make matters worse, this was immediately followed by six straight years of bad harvests. Famine struck increasing numbers of people, and there were even reports of starvation in Osaka, Sumitomo’s operations base. The nation was on the brink of crisis, but the Shogunate vacillated and was unable to come up with an effective remedy.
The first half of the 19th century was a difficult period for Sumitomo as well. The Besshi copper mine, which had been the cornerstone of Sumitomo’s operations since mining began there in 1691, was reaching an advanced stage of exploitation. Fuel and other mining resources had to be brought from greater and greater distances, and copper had to be extracted from deeper and deeper layers of the earth. These factors, as well as trouble with seepage, lead to rising costs.
But since copper was one of the few Japanese exports at that time that was competitive in international markets, it was heavily controlled by the shogunate, which did not allow Sumitomo to pass on its rising costs by raising prices. Moreover, the advantages offered by the kaiukemai system, under which the shogunate provided incentives for copper mining by providing rice advances as food for mine workers (for details see Part V, last issue’s installment), failed to keep pace with skyrocketing rice prices, and the program actually became a hindrance.
Despite Sumitomo’s own efforts, which included cutting the pay of the mine’s 3,000 workers, the situation became serious enough that Sumitomo asked the shogunate for permission to shut down the mine. To make matters worse, such dire circumstances were not limited to the Besshi mine. The mine’s cumulative losses also undermined the financial position of the home operations in Osaka, and the shogunate’s policy shift dealt its financial services segment such a severe blow that Sumitomo was forced to pull out of that sector.
Amid such miserable conditions, the shock of the June 1853 arrival of the U.S. Navy brought down the final curtain on the samurai era.
With the arrival of the U.S. Navy, the shogunate found itself embroiled in the colonial disputes of 19th century capitalism. It tried to break out of its own deadlocked situation by strengthening national unity, but the effort backfired. The long-running system of absolute control by the shogunate and absolute obedience by the daimyo began to break down, giving rise to chaos.
The pace of change accelerated in 1854 when the shogunate yielded to American demands and opened the country to trade after over 200 years of forced seclusion. Export demand for goods such as silk, tea, and food products expanded rapidly, suddenly stretching a production system that was structured to supply only the domestic market. Prices climbed, and the economy fell into disarray. Finally, the weakened shogunate’s attempts to change this situation led to the outbreak of a civil unrest that challenged its supremacy. Japan descended still deeper into chaos.
Of course, there was no way Sumitomo could have escaped this turmoil unscathed. With the 1867 change of governments, it appeared that Sumitomo’s rights to operate the Besshi mine might be requisitioned. The situation looked bleak enough that within the organization some Sumitomo leaders put forward the idea that the mine should be sold and the proceeds used to provide for the future of the House of Sumitomo. The transformations of the time were so extreme that it was extraordinarily difficult to determine the best course of action. Even wealthy business people who ought to have been in a strong position to weather the storm were unable to escape bankruptcy.
Sumitomo’s ability to survive this crisis hinged on the outstanding leadership of Saihei Hirose (1828–1914) who had managed the Besshi mine from 1865. He pressed the case that Sumitomo’s mining operations had long contributed to the national wealth and he negotiated vigorously with officials of the new government. At the same time, he overcame the problems that had been plaguing the mine and brought new life into its operations.
During this excruciating transition in Japanese history, the period known as the Meiji Restoration, Hirose both preserved Sumitomo’s rights to the Besshi mine and reinvigorated it, earning him the sobriquet “restorer of the fortunes of Sumitomo.” In Part VII of this series, we will look at how he modernized the mine and rejuvenated it as a source of Sumitomo wealth.