Translation of a Japanese article published in “Koken” Magazine, September 2017

During the World Economic Forum in Davos in January 2017, I met Dr. Joerg Wolle, Chairman of DKSH, a leading trading firm in Switzerland, at one of the luncheons. He told me an interesting story about the history of his company: DKSH originated from Siber & Brennwald, which was founded in Yokohama during Bakumatsu, the final years of the Tokugawa Shogunate (1603-1868) before the Meiji Restoration started in 1868. When I mentioned that the Asian Development Bank's annual meeting was scheduled to be held in Yokohama in May this year, he later graciously sent, to my office in Manila, a book titled Brennwald Diary in Bakumatsu-Meiji Japan: Unknown History of Exchange between Switzerland and Japan (Yokohama Archives of History edition in Japanese), written about the company’s founder.

Brennwald, who was 24 years old in 1863, arrived in Japan as a member of the Swiss delegation (which was led by Mr. Aime Humbert who had previously been President of the Swiss Council of States) to negotiate a commercial treaty with Japan. Such treaties had already been agreed with the U.S., Netherlands, Russia, the U.K., and France in 1858. Switzerland, which, at the time, was already competitive in the fields of high quality textiles, clocks and other precision instruments, was seeking to market them in Japan. The Treaty of Amity and Trade between Switzerland and Japan was concluded in 1864, and Brennwald launched a business in 1866 in Yokohama. As the Japanese at the time were not so concerned about precise time, the Swiss clocks did not sell. However, selling raw silk that was purchased in Japan to Europe turned a tidy profit well into to the 1920s.

Brennwald arrived in Yokohama by way of Singapore and Hong Kong. Since many European companies had already made inroads there, he received a warm welcome at each of these ports of call by fellow Swiss, German, and other European businessmen. The 1860s brought construction of foreign settlements to Yokohama as well — the Yamate (“the hill side”) District, a residential and educational area, and the Yamashita (“down the hill”) District, a commercial area. The foreign inhabitants pooled their resources and built a theater (named the “Goethe Theater”), a rifle range, and other amenities.

Brennwald climbed Mt. Fuji and rode his horse as far out as Hachioji, an inland town in the suburb of Tokyo from Yokohama. He apparently had a low opinion of Japanese sericulture, filature, and textile spinning of that time. After Brennwald's company was founded, a foreign minister of the Tokugawa Shogunate visited, from Tokyo, the company in Yokohama to see samples of Swiss-made small arms. It was in 1872 that Yokohama installed Japan's first gas lamps (and a gas production factory). Thanks to the assistance of Brennwald and a French engineer, a group of Japanese businessmen including Yokohama lumber merchant Takashima Kaemon won the bid for a concession to operate them.

Lately in the world of development finance, there has been much talk of utilization of private sector funds. This is primarily achieved through public-private partnership (PPP) schemes whereby the government tenders concessions for private firms to fund, construct, and operate new infrastructure, and the private firms, in turn, recoup their investment through revenues from operating such infrastructure as highways, power, and water. The Asian Development Bank helps countries develop institutional frameworks and formulate specific projects for PPPs. We should admit that project finance in developing countries is not so easy in practice as in theory, since there are various risks related to land acquisition, projections of revenue and costs, regulatory changes, and remitting returns abroad converting from domestic currency to foreign exchanges.

However, when I come to think of it, utilization of private funds for infrastructure, as in the case of gas lamps in Yokohama, is nothing new. In the 19th century, it was private sector companies that built most of the railroads in the U.S. and the U.K. This was the case also in Japan. Not only do the private railway networks of major metropolitan areas (Tokyo, Nagoya, Osaka, and Fukuoka) owe their beginnings to government concessions for private sector operating rights, but so do the Chuo and Tōhoku Lines, which were later taken over by the former Japan National Railways (now under the East Japan Railway Co.). In economic terms, it could be said that capitalism was more pervasive in the Meiji period than it is now.

If we go back further, Suminokura Ryōi, a wealthy merchant in Kyoto (who made a fortune in trade business with Asian countries before the isolation policy was adopted), in the early 17th century petitioned the Tokugawa shogunate for permission to excavate the Hozu River and to establish a waterway transport connecting the agriculturally-rich Tamba Region with Kyoto. While a portion of the profits from this waterway transport was set aside for repairing and maintenance and another portion was paid as tribute to the shogunate, the rest was retained by the Suminokura family from generation to generation and re-invested in the development of other rivers. Without a doubt, this example is the epitome of what today's PPPs aspire to achieve.

Just by looking back at history, we can see how important the role of merchants seeking business opportunities around the world has been — not only in trade but also in infrastructure development and the relations between countries.

Here in the Philippines, Japanese merchants had been active and built trust in the country before the war, exporting Manila hemp and selling Japanese sundries including cosmetics and sports equipment. The vast damage caused by the war turned sentiments against Japan. In the post-war period, in addition to Japan’s diplomatic and foreign assistance efforts, it was the businesspersons that turned things around. They came back to the Philippines and re-established good relationships with their clients with sincere attitude and trust respecting mutual long-lasting benefits, through direct investments in manufacturing and trade of various goods including the banana trade in the earlier years.