Mozambique’s economic miracle –Korea 1961 -2010

How to escape poverty!

Presenters: Part 1 –Tim Wilson; Part 2 –Sasha Shakov; Part 3 –Vivienne Oyunchimeg; Part 4 –Dasha Karyukhina

Korea 1961

Author: Ha-Joon Chang 장하준

PROLOGUE: Ha-Joon Chang Born: October 7, 1963 Seoul National University University of Cambridge Is a leading,

Heterodox Economist  specializing in  Development Economics

Currently a Reader in the Political Economy of Development at the

BOOK COVER:pages vii-xxv

Book Title: The Bad Samaritans, A Prologue Excerpt:

Prof. Ha-Joon Chang

http://geology.com/world/south-korea-map.gif http://www.vassar.edu/headlines/2008/images/ha-joon-chang.jpg http://wwp.greenwichmeantime.com/images/time/africa/mozambique.jpgMozambique,

Africa

A short comparative analysis of the economic and developmental advancement of Korea, whose state in 1961 was similar to the condition of Mozambique today.

South Korea

Author’s Story

When I was born in 1963, Korea was one of the poorest countries in the world! “Today I am a citizen of the wealthier, if not wealthiest, countries in the world. During my lifetime, per capita income in Korea has grown something like 14 times, in purchasing power terms. It took the UK over two centuries (between the late 18th century and today) and the US around one and half centuries (the 1860’s to the present day) to achieve the same result.” –Ha-Joon Chang

Author’s Story: Continued

AUTHOR’S CHILDHOOD:

During the 1960’s the author’s family lived in a new two bedroom house without flush toilets. But they owned one of the few TVs and Refrigerators in their neighborhood (Chang, x-xi).

AUTHOR’S PARENTS CHILDHOOD:

Mother’s Story: “…her heartbreak when her little brother, starving during the Korean War at the age of five, said that he would feel better if he could only hold a rice bowl in his hands, even if it was empty (Chang, xi).”

Father’s Story: “At the age of ten, he had to watch helplessly as his seven-year-old younger brother died of dysentery, a killer disease then that is all but unknown in Korea today (Chang, xi).”

http://lcweb2.loc.gov/frd/cs/korea_south/kr02_02e.jpg

Korea’s Story

LITERACY RATES

Literacy Rates0%

20%40%60%80%

100%

1945

2010

194519612010

PER CAPITA INCOME

Ko-rea - Per

Capita In-come

$0

$15,000

1961

2006

196120042006

Within 16 years the Literacy Rate was increased 49% (1945-1961)22% (1945) – 71% (1961) – 99% (2010)

From 1961 to 2004 the Per Capita Income increased over 172 times$87 (1961) - $14,162 (2004) - $20,000 (2006)

Korea’s Story: Continued

ABOUT THE KOREAN WORKER ABOUT THE KOREAN JAEBEOL

“…the government can persuade, threaten, or induce, but in the last analysis it is the people who achieve.”

–W. Arthur Lewis, Daily Newspaper Joong AngRepublic of Korea

재벌 : “…if Samsung were not in Korea, the Korean economy would have been at the same stage as that of the Philippines.”

–Ikeda Motohiro, Seoul Nihonkeizai Newspaper, Seoul

Ha-Joon Chang’s Story Mozambique’s Economic Miracle is a story retelling Korea’s Economic Miracle.

Korea’s Economic Miracle

Tres Estrelas takes on the Big Boys

Maputo, Mozambique-based Tres Estrelas, the largest African business group, unveiled a breakthrough technology for mass production of hydrogen fuel cells.

The new fuel cell factory will start production in the autumn of 2063.

Advantages of this action

1. Hydrogen fuel is set to replace alcohol as the main source of power for automobiles

2. This is bound to pose a serious challenge to the leading alcohol producers.

3. Offering consumers much better value for their money in the form of Hydrogen Fuel Cells, Tres Estrelas takes on the Big Boys

Historical steps of the company

1. The Tres Estrelas Company started with the exporting of cashew nuts in 1968

2. Then diversifying into textiles and sugar refining

3. Followed by a bolder move into electronics; first as a subcontractor for Samsung and later as an independent producer.

Historical facts of Mozambique after its civil war

1. In 1995 the per capital income was $80 and the country had the poorest economy in the world.

2. Deep political divisions, rampant corruption and a 33% literacy rate.

3. In 2000, eight years after the civil war the average citizen earned $210 a year.

The rise of the Tres Estrelas company in Mozambique symbolizes the fast company

growth that happened with modern Samsung in Korea.

Tres Estrelas = Samsung

Korean Economic Development

The Korean economic development programs started from the time of president Park with the launching of the ambitious Heavy and Chemical Industrialization program in 1973. New firms were set up in electronics and other advanced industries. During this period, the country’s per capita income grew by more than 5 times; also exports grew even faster increasing more than 9 times in US dollars between 1972-1979.

Reflection: on the economic development

The country’s obsession with economic development was fully reflected in their education, where they learned about their patriotic duty and were taught to ignore foreign advertisements and offerings of imported products. This was to preserve foreign currency for purchasing products which would directly help the Korean economy. They darkly commented on those who preferred foreign products.

Investing in the Korean Economy Spending foreign

exchange on anything not essential for Korean industrial development was prohibited or strongly discouraged through import bans, high tariffs and excise taxes. Also foreign travel was banned unless you had explicit government permission to do business or study abroad.

http://www.koreaittimes.com/images/imagecache/large/Early%252070's%2520TV%2520manufactured%2520by%2520Gold%2520Star.jpg&imgrefurl

Growing Affluence

A considerable quantity of illegal and semi-legal foreign goods was in circulation. There was some smuggling, especially from Japan, but most of the goods involved were things brought in illegally or semi-legally from the numerous American army bases in the country. Increasingly affluent middle class families could afford to buy M&M’s and Tang juice powders from shops or itinerant peddlers. Less affluent people might go to a restaurant to be served boodae chige or kimchi chige.

A dark side of Korean Economic Miracle

Korea’s economic miracle wasn’t without its dark sides.

In the textile and garment industries, which were the main exports industries, workers often worked 12hours or more in very hazardous and unhealthy conditions for low pay.

Conditions were better in the newly emerging heavy industries: cars manufacturing, steel, chemicals, machinery, and so on-but, overall, Korean workers with their average 53-54 hour working week, put in longer hours than just about anyone else in the world at the time.

Dedicated Korean Worker

http://www.deanstalk.net/photos/uncategorized/2008/04/16/workinghours.jpg&imgrefurl

2005

Cultural Upheaval and the Under-Privileged

Also, urban slums emerged. Families of 5 or 6 would be squashed into a tiny room and hundreds of people would share one toilet and a single standpipe for running water. Many of these slums would ultimately be cleared forcefully by the police and the residents dumped in far-flung neighborhoods, with even worse sanitation and poorer road access, to make way for new apartment blocks for the ever-growing middle class

FootballStadium

Few people outside of Korea were aware that the beautiful public parks surrounding the impressive Seoul Football Stadium they saw during 2002 World Cup was built literally on top of the old rubbish dump on an island

http://en.wikipedia.org/wiki/File:Seoul_World_Cup_Stadium.jpg

President Park and Hwan In October 1979,president Park was

unexpectedly assassinated by the chief of his own Intelligence Service, amid mounting popular discontent with his dictatorship and the economic turmoil following the Second Oil Shock. A brief ‘Spring of Seoul’ followed, with hopes of democracy welling up. But it was brutally ended by the next military government of General Chun Doo Hwan, which seized power after the 2 weeks armed popular uprising that was crushed in the Kwangju Massacre of May 1980.

Replication then Innovation By 1982, Koreans had become competent

enough to copy advanced products and rich enough to want the finer things in life (music, fashion, books). Also at this time, the country was one of the ‘pirate capital’ of the world, churning out fake Nike shoes and LV bags….

Today Korea is one of the most inventive nations in the world -it ranks among the top 5 nations in terms of the number of patents granted annually by the US Patent office.

Short History Summary, last 45 years

In the late 1980’s,Korea had become a solid upper middle income country.

In 1996,the country even joined the OECD (Organization for Economic Cooperation and Development) the club of rich countries-and declared itself to have ‘arrived', although that euphoria was badly deflated by the financial crisis that engulfed Korea one year later in 1997

Korea’s economic growth and the resulting social transformation over the last four and a half decades have been truly spectacular.

How has the Korean miracle been possible?

For most economists, the answer is a very simple one. Korea has succeed because it has followed the dictates of free market. The view is known as Neo-liberal Economics.

Neo-liberal Economics: is an updated version of the

liberal economics of the 18th

century economist Adam Smith.

Main features of Neo-liberal Economics:

Belief that unlimited competition in the free market is the best way to organize an economy

Judging of government intervention as harmful, because it reduces competition

Supporting of certain forms of monopoly (such as patents or the central bank’s monopoly over the issue of bank notes) and political democracy.

The core Neo-liberal agenda of deregulation, privatization and opening up of international trade and investment has remained the same since the 1980’s

Policy of rich governments:

Use their aid budgets and access to their home markets as carrots to induce the developing countries to adopt neo-liberal policies

Creation of an environment in the developing country concerned that is friendly to foreign goods and investment in general

The Role of International Organizations:

The IMF (International Monetary Fund) and the World Bank play their part by attaching to the loans the condition that the recipient countries adopt neo-liberal policies.

The WTO (World Trade Organization) contributes by making trading rules that favor free trade in areas where rich countries are stronger but not where they are weak.

Real Cases of Korean Success: Nurturing certain new industries, selected by the

government The government owned all the banks, so it could

direct credit and loans Some big projects were undertaken directly by

state-owned enterprises Pragmatic , rather than ideological, attitude to

the issue of state ownership Absolute governmental control over scarce

foreign exchange and foreign investment Encouraging of “reverse engineering” and over

looking ”pirating” of patented products

Is such a strategy an exception? - No!

Today's rich countries while gaining market strength used protectionism and subsidies, while discriminating against foreign investors.

They have state-owned enterprises They provide macroeconomic management In the past the Netherlands and Switzerland

refused to protect and enforce patents.

Practically all of today’s developed countries, including the UK and the USA have become rich

on bases of policy recipes that go against the orthodoxy of Neo- liberal Economics

Why don’t the rich countries recommend the strategies that served them so well?

1. According to Friedrich List, they “kicking away the ladder”. They preach free market and free trade to the poor countries in order to take larger shares of the latter’s markets and to pre-empt the emergence of possible competitors.

2. As a result of re-writing their own histories Bad Samaritans are recommending free trade, free-market policies to the poor countries in the honest belief that their own countries used to have the same routes.

Conclusion:

Free trade reduces freedom of choice for poor countries Keeping foreign companies out may be good for them

(Developing Countries/Economies) in the long run Some of the world’s best firms are owned and run by

the state “Borrowing” ideas from more productive foreigners is

essential for economic development Low inflation and government prudence may be

harmful for economic development Corruption exists because there is too much, not too

little market Free market and democracy are not natural partners Countries are poor not because their people are lazy;

their people are lazy because they are poor

Any Questions or Comments?

Presenters: Part 1 –Tim Wilson; Part 2 –Sasha Shakov; Part 3 –Vivienne Oyunchimeg; Part 4 –Dasha Karyukhina

Korea 1961