Japan's acquisition and development of Taiwan did not stem from the efforts of a capitalist class seeking cheaper resources and new market outlets, or engaging in dumping practices to maintain a high rate of domestic profit. Taiwan's economic transformation was brought about by enterprising bureaucrats who formulated a policy of state action in areas unattractive to private capital in order to create conditions that would encourage and sustain private investment. Taiwan's traditional economy was not destroyed completely, but restructured in such a way that land and labor became more productive and resources previously idle were now employed. Japanese colonial policy was successful for the following reasons.

(1) The administration of Kodama and Gotō consisted of able leaders assisted by expert young subordinates who were dedicated to their jobs. Kodama was a first class administrator and apparently had a genius for organizing and extracting the best from his officials. Throughout his governorship he gave Gotō full support, especially in the early years when many military officers and foreign advisers complained to Kodama about Gotō's administrative methods. Aldiough Kodama's career ended in 1906, he stands out as one of the most able and imaginative young officials of the late Meiji period. In Gotō, Kodama had an enterprising, intelligent, and dedicated assistant capable of surrounding himself with able, loyal officials and providing the coordination and leadership necessary to organize their work efficiently. Gotō also had the initiative and ability to make the right strategy move or policy decision when the occasion demanded. He possessed a unique talent for discerning which elements in the traditional society could be used to strengthen modern institutions. His policy of integrating the pao-chia with a modern police system was the political key to the Japanese success in enforcing their control in the colony and obtaining local acceptance of it at the same time.

(2) The Kodama-Gotō administration simultaneously introduced a number of important reforms and investment to establish an extensive infra-structure. This encouraged expansion of the market and enabled the administration to formulate policies of promotion, regulation, and financial support to build an industry of great comparative advantage to the island, sugar.

(3) Kodama and Gotō relied on fiscal reform and deficit financing to finance their programs of reform and economic development. Taiwan's fiscal resources were limited, but the administration managed to secure the home government's underwriting of a large debt issue. The land tax reform, the introduction of new excise taxes, and the creation of the monopoly bureaus resulted in large tax revenues which enabled the administration to repay its debt within the stipulated repayment period and accumulate large budget surpluses at the same time. Taiwan's early economic growth was financed on a pay-as-you-go basis.

On first appearance, the events in Taiwan seemed to duplicate the Meiji modernization achievement. But one important distinction must be kept in mind. The Meiji bureaucracy, unlike the small group of active bureaucrats in Taiwan's administration, applied their policies of reform and state support to sectors other than agriculture. Kodama insisted that Taiwan's agriculture, particularly the export of food and raw materials to Japan, be developed to augment Japan's power for economic warfare. Had Kodama and Gotō remained in Taiwan, they might have introduced different economic and social programs in response to changing demands from Japan's industrialization and Taiwan's population increase. Subsequent colonial administrators only imitated Kodama's economic program, and while it is easy to explain this behavior by reference to the usual pattern of modern colonial rule, this seems overly facile in the light of Japan's early and heavy investment in her colony. An explanation of this puzzle is possible only after further study of Taiwan's economic growth and her economic and political relationships with Japan.

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