MITI and the Japanese miracle

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the U.S. Department of Justice sued the Trade Council for civil fraud, charging that 90 percent of its funds actually came from MITI via the New York office of JETRO. The Council settled out of court. It also agreed to file as a foreign agent and to identify its publications as coming from Japanese government sources. The issue in this case was not JETRO's lobbying efforts on behalf of Japanese interests but possible American confusion over just whom, exactly, JETRO represented.

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One of the more innovative aspects of the early JETRO was its funding. During the 1954 recession MITI raised the money for it from the import of bananas. Under the system of foreign exchange quotas, licenses to import bananas and sugar had become the most valuable in the country; supplies of both commodities were in such short supply that any amounts that could be brought to market commanded exorbitant prices. In the case of bananas, the government charged importers a tax on their profits and turned the proceeds over to JETRO. The organization's funds grew from slightly under ¥3 million in 1954 to over ¥100 million in 1955, all because of bananas. This scheme was similar to the sugar-link system for subsidizing ship exports. Between 1953 and 1955 MITI would issue import licenses for sugar to trading companieswhich were then selling Cuban sugar in Japan at from two to ten times the import priceonly if they had allied themselves with a shipbuilder and could submit an export certificate showing that they had used 5 percent of their profits to subsidize ship exports. For the two years it was in effect, the sugar-link system supplied some ¥10 billion to the shipbuilding industry. It ultimately had to be stopped because too many other industries wanted subsidies from the sugar and banana fees and because the IMF frowned on the practice.

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The sugar and banana links were only two of the more spectacular tax breaks that Ministry of Finance and Enterprises Bureau officials invented in this era to aid industries and to help commercialize particular products. Nakamura Takafusa argues that tax exemptions replaced direct subsidies as early as 1951 as the main means by which the government pursued its industrial policy.

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And it is certainly true that after Dodge cut off subsidies created through price differentials and RFB loans, MITI's Enterprises Bureau moved decisively into the tax field in search of alternatives.

The main obstacle to its work was the lingering influence of SCAP's special tax mission, which Prof. Carl S. Shoup of Columbia University had headed, and which included such experts as Jerome B. Cohen of the City College of New York. In the spring of 1949 the Shoup mission accompanied Dodge to Japan, and it delivered its report in September. The Ministry of Finance held the mission in high regard, and its