ROK’s Development Strategies State-guided growth

South Korea’s political legacy n Strong presidency, center of state – legacy of Park Chung Hee – control over policy process n Bureaucracy and business interests n other political institutions underdeveloped – legislature – political parties – interest groups

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

Japan & South Korea n Japan’s colonial rule ( ) – bitter memories – normalization in relationships (1965) n Japan’s economic model – import substitution – large interlocked corporations – protection of domestic market

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

Military coup of 1961 n 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.” n “Unless we can establish an ‘economy first’ consciousness, our dream of building a strong national state will end in a dream and nothing more” n “Enrich the nation and strengthen the army”

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

Park Chung Hee n Economic growth was both important and possible n Economic growth was a historic goal worth suffering for n “In human life, economics precedes politics or culture.”

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

Chaebol n Park nationalized all the Korean banks n 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 n Pohang Iron and Steel Company n state-owned company established in 1968 n opposed by World Bank – South Korea has no iron ore deposit n POSCO is now one of the lowest cost steel producers in the world

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

A strong state n state controlled virtually all economic activities in South Korea – government approved all bank loans – granted licenses for virtually all businesses – controlled many prices n 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) n “Throughout the plan period, the economic system will be a form of ‘guided capitalism’ n “the principle of free enterprise and respect for the freedom and initiative of free enterprise will be observed n “the government will either directly participate in or indirectly render guidance to the basic industries and other important fields.”

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

Economic Planning Board n Park’s personal involvement n Elaborate economic plans – five-year plan – annual economic management plan n added more responsibilities – price policy – fair trade administration – reviews of projects

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

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

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