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Government Subsidies in Japan

GOVERNMENT subsidies have been a consistent feature of Japanese practice since the country emerged from the feudal system in the eighteen-sixties. Japan's industrial history is singularly unlike that of other countries in that it is not marked by a policy of "laissez faire." Immediately following the restoration of 1867-8, the government set itself the task of industrializing the country, realizing that for this purpose it would have to convert into capitalists and factory workers a nation of knights and retainers. From the first, therefore, the government has exercised a paternal rôle in Japan's economic development. The result has been to make the Japanese people dependent upon the government to a degree unparalleled in other capitalist countries. "Almost any new industry," says a recent writer,[i] "so long as its promoters had some political friends, could secure exemption from taxation, even if no more direct form of subsidy could be obtained."

In starting modern industries it was the government's intention to turn them over to private management and ownership as soon as possible, retaining only a measure of control. In some cases this was done, but not in all. Not only has the government continued to manufacture steel, woolen cloth, and other articles, but it has reserved as state monopolies the trade in salt, tobacco, camphor and ginseng. For the rest, the "westernization" policy has created mammoth corporations, which -- despite their size -- still look to the government for sustenance. Indeed, the list of interests receiving aid in one form or another covers almost the entire field of Japanese economic life. Banking, industry, agriculture, labor, shipping, and shipbuilding, foreign trade, construction, and domestic commerce, all are in receipt of help; hardly any activity of importance or promise is not clamoring for it.

The most important subsidies reported in 1930, apart from those to the all-important silk industry, are those to shipping. Plans are afoot this year which look to low-interest loans, postponement of loan repayments, and other financial assistance to the shipping industry in general and to shipbuilding in particular.

The reason is not far to seek. As a compulsory importer of food stuffs and raw materials and as an exporter of manufactured goods, Japan must assure her carrying eminence. Early in her industrial history she turned to the creation of a merchant marine by extending bounties both for the training of seamen and for building ships. By 1894 considerable progress had been made. The conflict with China in that year gave further stimulation to Japan's marine program. Legislation in 1896 provided two kinds of bounties, one for ship construction and the other for navigation. Fifteen subsidized routes were specified, and extraordinary favors were granted to owners of Japanese vessels under fifteen years old.

Shipbuilding immediately responded, while imports of foreign vessels also increased, but the overproduction of ships forced rates down and, in spite of the subsidies, caused severe losses to the shipping companies. The government, too, felt the burden, and in 1899 reduced certain subsidies, though it extended others. The Russo-Japanese War, which brought Japan into the front rank of nations, gave a fillip to the subsidy program. Rebates were allowed on imports of ship materials, and additional aid to shipbuilding came in the tariff law of 1911, which raised the duty on imported vessels.

The demands of the World War brought on a boom in Japanese shipbuilding, and, seeing that the object of the subsidies could now be accomplished without assistance, these were discontinued. Direct aid to shipping was henceforward confined to the navigation bounties. Instead of making shipbuilding grants, the government subsidized the steel industry, with the result that by 1921 domestic production equalled imports in volume. After 1921 these steel bounties were limited to steel products used in the construction and repair of naval vessels or merchant ships.

In 1920-21 an important change in the system of navigation bounties was put into effect by the authorization of a system of postal subsidies. This applied to the lines to Europe and Australia (for which navigation bounties were not included in the budgets after 1921) and to the line from Japan to Seattle. The purpose seemed to be eventually to eliminate oversea navigation bounties and to substitute therefor a system of mail payments. In the case of shipping plying between Japan and the Pacific coasts of Asia and adjacent islands, there was no move to make this substitution, navigation bounties being retained.

The difficulties of the post-war period, coupled with the suspension of warship construction after the Washington Conference, called for a revival of assistance to the shipyards. Hence, in 1921 the present system of indirect encouragement was initiated. This consists of putting on the free list imports of steel and steel products consumed by the shipyards, and, as already mentioned, of paying to Japanese steel manufacturers a bounty on all steel used in building or repairing ships in Japan. Further indirect encouragement to Japanese shipbuilding is contained in the provision in the law authorizing the subvention of four trans-Pacific lines that foreign-built ships shall not share in these benefits, except under special permit.

Special subsidies to steamship lines carrying cotton or cotton goods are also in effect. The Osaka Shosen Kaishu, for instance, has since 1926 been receiving 400,000 yen ($200,000) per annum for its East Africa service, and the Nippon Yusen Kaisha received 663,075 yen ($330,000) in 1925-6 and 616,379 yen ($310,000) in 1926-7 for fourteen San Francisco-Japan sailings per annum. Because of the receipt of subsidies, the shipping companies are more or less obligated to the government. Thus, they are sometimes requested to cut rates on goods the trade in which the government wishes to foster. This has been particularly marked in the export trade in cotton goods.

In other countries subsidies are granted to aid infant industries to become independent. In Japan, it is true, the government has had this principle in mind. In many cases the industries so sponsored have been slow in attaining the desired maturity. Encountering difficulty, they try to persuade the government to come to the rescue. And very frequently the government is willing to do so. Thus the demand for subsidy is always heard, particularly in times of business depression like the present.

[i] G. C. Allen: "Modern Japan and Its Problems," p. 112.

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