ROK’s Development Strategies

State-guided growth

South Korea’s 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

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

Japan & South Korea

Japan’s colonial rule (1910 - 1945)– bitter memories– normalization in relationships (1965)

Japan’s economic model– import substitution– large interlocked corporations– protection of domestic market

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

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”

Park’s strategies

prosperity and independence by pursuit of a high-growth economic strategy

Park took accepted economic theory Park’s observation of the wartime Japanese

economic model Park’s fervent nationalistic exhortations Korean people’s willingness to accept, obey

authority, and to sacrifice

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.”

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

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

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

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

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

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.”

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

Economic Planning Board

Park’s personal involvement Elaborate economic plans

– five-year plan– annual economic management plan

added more responsibilities– price policy– fair trade administration– reviews of projects

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

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

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