I was delighted to find The Demand for Opium in Colonial Taiwan, 1914-42 (Liu Jin-tan, Liu Jin-long, and Chow Shin-yi, 1996, Academia Sinica Discussion Papers), an old study paper published by the Institute of Economics at the Academia Sinica, among a huge pile of stuff recovered from our attic. It gives a summary of opium policy during the Japanese period and models the demand for opium during that period as a reference for future drug legalization policymaking.
When the Japanese took over Taiwan in 1895, opium smoking was legal and widespread. In fact, according to their stats, opium imports accounted for 45-75% of Taiwan's imports by value between 1864 and 1895.
Opium consumption was strictly illegal in Japan, but the new administration in Formosa balked at such a policy for the island, especially given the large number of smokers. Goto Shimpei, then director of the Health Administration Bureau of Japan (later head of Civil Administration Bureau in Taiwan beginning in 1898), warned that a ban with a death sentence as existed in Japan would have to be imposed by force, with the concomitant violence and loss of life among Japanese soldiery. Goto instead argued for gradual reduction over decades.
According to Liu et al, based on this policy, in 1897 the government established an Opium Monopoly Bureau, which legalized opium for medicinal use (similar policies were followed in Burma by the British and Java by the Dutch). Wholesale and retailer marketers of opium needed a government license to sell opium. Users had to get a diagnosis of addiction from a doctor and then a license from the government to purchase opium for their own use. Unlicensed use was severely punished.
In 1900 the government reckoned the number of users at 169,064, or 6.3% of the population. Addicts were granted licenses again in 1903 and 1908. After that no more licenses were issued. This fascinating book on opium production and revenues notes that after the Japanese figures came out in the early 1900s, the Qing gov't used them to revise its estimates of its population's own opium consumption.
To reduce consumption, opium prices were set high. In 1900 19.1% of the colonial budget came from opium revenues, but by 1944 that had fallen to just 0.14%. Goto had recommended that revenues from opium sales be used only for suppressing opium, and not for other administrative uses. Thus most of the funds went to public hygiene and health activities, along with some for education.
As is well known, the policy was a success. Opium imports plummeted from nearly 200,000 kilos in 1900 to just 7.940 in 1942. The Japanese model was widely discussed and studied among countries administering Chinese populations in their colonies.
I should add that this policy should not be viewed in isolation -- it was part of a larger imperial policy of exploiting drug use for profit and power. While opium consumption was suppressed in Japan and Formosa, Japanese merchants shipped it to China for large profits. This old text notes that Formosan shopkeepers naturalized as Japanese citizens (and therefore untouchable by Chinese police) ran a thriving trade in it. According to that book in Tsingtao (which Japan occupied following Germany after WWI) the Japanese brought in opium from Formosa and elsewhere and sold it through Chinese merchants allied to the Japanese administration (across Shantung), and used the police to suppress rival opium sellers, a program described in detail in Moral Nation. They also shipped opium by train protected by Japanese troops, a policy we have seen with cocaine and other drugs, as US forces discovered in Japanese records seized after WWII. In Kwangtung Japanese corporations sold opium from Persia, and apparently opium was sold illicitly with the connivance of Japanese authorities there. The Japanese had problems with opium use only among their own people...
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