ROKs Development Strategies

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ROKs Development Strategies

• State-guided growth

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South Koreas political legacy

• Strong presidency, center of state
• legacy of Park Chung Hee
• control over policy process
• Bureaucracy and business interests
• other political institutions underdeveloped
• legislature
• political parties
• interest groups

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A developmental state?

• Is the South Korean state a unitary actor?
• President
• state
• bureaucracy
• Is the South Korean state strong?
• Variation over time
• variation across issues
• variation across social sectors

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Japan South Korea

• Japans colonial rule (1910 - 1945)
• bitter memories
• normalization in relationships (1965)
• Japans economic model
• import substitution
• large interlocked corporations
• protection of domestic market

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Park Chung Hee (1917 - 1979)

• Served in Japanese air force in WWII
• became a general in South Korean army
• led a bloodless military coup in 1961
• became president after 1963 election
• imposed martial law in 1972
• presidential decree
• assassinated in 1979 by the head of KCIA

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Military coup of 1961

• Park I want to emphasize, and re-emphasize,
  that the key factor of the May 16 Military
  Revolution was to effect an industrial revolution
  in Korea.
• Unless we can establish an economy first
  consciousness, our dream of building a strong
  national state will end in a dream and nothing
  more
• Enrich the nation and strengthen the army

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Parks strategies

• prosperity and independence by pursuit of a
  high-growth economic strategy
• Park took accepted economic theory
• Parks observation of the wartime Japanese
  economic model
• Parks fervent nationalistic exhortations
• Korean peoples willingness to accept, obey
  authority, and to sacrifice

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Park Chung Hee

• Economic growth was both important and possible
• Economic growth was a historic goal worth
  suffering for
• In human life, economics precedes politics or
  culture.

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Sacrifices

• long work hours
• high rate of savings
• high rate of investment
• a hierarchical, authoritarian system
• rewarded those who succeeded
• punished those who did not cooperate

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Chaebol

• Park nationalized all the Korean banks
• reinforced the system of chaebol
• a few specially selected large companies
• encouraged to tailor their growth and production
  targets to meet government objectives
• dependent on those state-owned banks for the
  credit they needed to operate and grow

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POSCO a chaebol

• Pohang Iron and Steel Company
• state-owned company established in 1968
• opposed by World Bank
• South Korea has no iron ore deposit
• POSCO is now one of the lowest cost steel
  producers in the world

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Chaebol

• A conglomerate of many companies
• companies hold shares in each other
• concentration of national economy
• does not have own financial institution
• spreads across industries
• has centralized structure and control
• tends to be family-based

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A strong state

• state controlled virtually all economic
  activities in South Korea
• government approved all bank loans
• granted licenses for virtually all businesses
• controlled many prices
• copied much of the Japanese model
• with a heavier emphasis on political and military
  influence in the running of the economy

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1st 5-year development plan (61)

• Throughout the plan period, the economic system
  will be a form of guided capitalism
• the principle of free enterprise and respect for
  the freedom and initiative of free enterprise
  will be observed
• the government will either directly participate
  in or indirectly render guidance to the basic
  industries and other important fields.

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Brains of the new economy

• Economic Planning Council (1961)
• renamed to Economic Planning Board (EPB)
• centralized economic information
• took over planning powers
• from the former Ministry of Reconstruction
• took over responsibility for the budget
• from the Ministry of Finance
• took over statistical collection
• from the Ministry of Home Affairs

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Economic Planning Board

• Parks personal involvement
• Elaborate economic plans
• five-year plan
• annual economic management plan
• added more responsibilities
• price policy
• fair trade administration
• reviews of projects

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Hands of the new economy

• Ministry of Commerce and Industry
• later known as the Ministry of Trade and
  Industry, or MTI
• Ministry of Finance
• nationalization of the banks
• centralization of the financial system
• day-to-day contact with businessmen who wanted
  approval for projects

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Nationalism versus pragmatism

• International export market to make sure that
  companies were competitive
• industrial expansion needed to be financed by
  foreign bankers
• foreign companies were the best source of
  competitive technology
• normalized diplomatic relations with Japan in 1965

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Export promotion

• The administration made exporting into a national
  campaign, almost a patriotic duty.
• export producers were given priority in
  investment decisions, credit allocations, and
  other benefits
• strategy of forcing domestic consumers to
  subsidize exports
• Korea Traders Association

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