Economic Development of South Korea under Park Chung Hee (1961-79)
1. ECONOMIC
DEVELOPMENT OF
SOUTH KOREA UNDER
PARK CHUNG HEE
(1961-1979)
How South Korea escaped poverty and
became one of the richest countries in the
world
Hyunsu “Philip” Cho
Edmonds-Woodway High School
2. ► Despite trillions of aid given, 2.6 billion live w/ less than $2 a
day
► Countries in Africa and Lat. Am. are still dependent on
commodity exports
► Productivity has stagnated in Lat. Am. - falling behind in int'l
competition
POVERTY IS A STUBBORN THING
3. ► GDP per capita around $100,
poorer than Philippines
► Ravaged by the Korean War
(1950-3)
► Large standing army - menace
from North
► Largely agarian country
► Lack of natural resources - coal,
iron, copper, oil
SOUTH KOREA IN 1950S
4. ► GDP growth averaged 9-10% a year
► Manufactoring sector took greater share of the economy
(close to 30% - comparable to West Germany)
► “Boys who grew up working in rice paddies found
themselves building oil tankers and designing
semiconductor chips.” - Mark L. Clifford
SOUTH KOREAN ECONOMY
ROARS
5. RESEARCH QUESTION
TO WHAT EXTENT did Park Chung Hee‟s iron rule contribute
to South Korea‟s economic growth?
6. ► Sense of desperation
► U.S. aid kept people barely alive: 1/2 of national budget
► 1/5 of adults unemployed; social unrest fueled by unemployed youth
► Menace from the North
► Traditional social structure dismantled
► Land Reform: wiped out traditional landed aristocracy
► Tepid economic growth, lack of manufacturing base
► Democracy seemed helpless in mounting economic challenges
► Capital shortage kept businesses from growing
POSTWAR SITUATION
7. ► seized the capital + other
important cities
► purged politicians on corruption
charge
► brought businessmen into
submission (June 14 law)
► The military was the most modern
sector of that time
“Western democratic institutions do
not harmonize with the
underdeveloped conditions of Korea.”
– Park
PARK STAGES MAY 16
REVOLUTION
8. ► Economic growth as the historical goal, to be achieved at
all cost
► “In human life, economics precedes politics or culture.” – Park
► “Guided Capitalism”: The state as the engine of economic
development
► central planning + gov‟t intervention in the market
► industrial policy, corporate state
► Influenced by state-planning in Manchukuo
PARK‟S “DEVELOPMENTALISM”
9. ► The state intervenes in individual firms‟ decisions
► Economic Planning Board (EPB) : planning, national budget
► Ministry of Finance (MoF) controlled the banking sector
► Nationalization of banks
► Extraordinary power over credit-starved businesses
► All businesses were required to join associations
► Policies, regulations, orders move quickly from ministries to firms
► domestic cartels – steady stream of profit
► Enfoncement devices
► Cutting off credit line • Personal connections
► Arbitrary tax audit • Uneven law enforcement
KOREAN CORPORATE STATE
10. Top-down, General Headquarter
style
Other Gov‟t
- Park himself made major decisions
Ministries
MoF (Ministry of state-owned
Finance) banks
EPB (Economic
Planning Board) MTI (Ministry of industry/business
Trade + Industry) associations
FKTU (Federation
(gov‟t-controlled) Businesses
of Korean Trade
industrial unions
Unions)
National Budget
Coopted labor
11. ► Pro
► Allows for great flexibility in policy implementation
► Channel of communication b/w gov‟t and private sector
► Unlike Mussolini, Park utilized corporate state to the fullest
► Con
► Coercive element – individual initiatives are often compromised, tight gov‟t
control, the state always had upper hand
► Red tape – maze of permits, regulations, and licenses
► Institutionalized corruption
► favors big business over small business
KOREAN CORPORATE STATE
(CONT.)
12. ► Early 1960s: dollars began to run out; U.S. threatened to cut aid
► 2nd FYP: Build industries targeted to export markets
► 1960s: S. Korea utilized cheap labor – light manufacturing
► Huge incentives for exporters
► Import license conditional on export performance
► Tariff exemption for raw materials and machinery
► Exporters could automatically borrow against overseas orders
► More credit to companies w/ superior export performance
► Coercive element: Corporate state had business go along
EXPORT-ORIENTED
INDUSTRIALIZATION (EOI)
13. 1st Export Promotion Meeting (1960)
Park hands over export towers
► Monthly Export Promotion Meeting
► President, gov‟t officials, academics, reps from trading companies – “rapid response
team” for exporters
► Export Day (11/30)
► “Export towers” to companies w/ best export performance
EXPORT-ORIENTED
INDUSTRIALIZATION (EOI)
14. ► Scoured the world for new export
markets
► Helped Korean businesses how to
market their products in foreign
countries
► Key to overcoming the obstacles
early exporters faced
KOREA TRADE PROMOTION
AGENCY (KOTRA)
15. ► HUGE SUCCESS!
► Exports skyrocketed; trade deficit stayed under $1 billion
► S. Korea established a firm international standing in light
industries – shoes, wig, clothes, plywood etc
► Foreign borrowing + direct investment plugged the gap
► Exports: $33 million -> $3.3 billion (100 times)
► Imports: $343 million -> $3.8 billion (11 times)
► Raw materials + machinery for export industries
► Investment: 6% of GDP -> 23% of GDP
RESULTS (1961-73)
16. EOI (EXPORT ISI (IMPORT
PROMOTION) SUBSTITUTION)
► Taiwan, South Korea ► Latin America, Soviet
Union, Mussolini‟s Italy, North
► Selective, short-term protection – Korea
international competition makes
infant industries grow up ► Blanket, permanent protection –
infant industries don‟t grow up
► Up-to-date machinery introduced
► Lack of competition →
► Experience w/ overseas market drag in int‟l competitiveness
► Gov‟t complements market forces ► Inflated wages
► Correction of market failure – high ► Tried to reinvent the wheel:
set-up costs of exports; imperfect expensive intermediate goods
information
► Gov‟t resists market forces
► Meritocracy in allocating credit
► Balance of Payment crisis lowers
► Reduced possibility of BoP crisis quality of inputs
► Selective use of FDI (Foreign Direct ► Dependence on FDI and foreign
Investment) aid
WHAT‟S GOOD ABOUT EOI?
17. ► North Korea continued its
offensive; U.S. threatened to
withdraw its troops
► Yushin Constitution
► Nation ruled under martial law;
Korea became Single Party State
► Park turned into dictator
► KCIA censored the
press, eavesdropped phone calls
THE BIG PUSH (1973-79)
18. ► HCI (Heavy & Chemical Industries) Plans – 4th FYP
► Aim: build up defense
► Shipbuilding, machinery, chemicals, steel, electronics, automobile
► Unprecedented industrial expansion
► Good: gain experience in heavy industries, which create far more added
value; acquire managerial skills; economies of scale
► Korea became competitive in semiconductor, shipbuilding, steel
► Bad: policy loans caused massive inflation in 1970s; some target
industries didn‟t work out in the end (i.e. aluminum)
THE BIG PUSH (1973-79)
19. ► Lure Koreans who‟d been
educated overseas with attractive
pay packages
► Cutting-edge managerial
techniques and scientific
knowledge
► KAIST (Korea Institute of Science
of Technology)
► engineering education
“REVERSE BRAIN DRAIN”
20. ► State-owned enterprise
► World Bank refused to finance the project
► Park Tae Joon used personal connection in Japan to channel
reparations (for past colonization)
► Ran like military
► Rapid construction schedule + high quality standard
► Long work hours (60-70 hour work week)
► Became one of the largest, most efficient
steel maker in the world
► Opened up the way for heavy industries
POSCO: INTEGRATED STEEL MILL
21. ► National conglomerates (groups) run by founding families
► Profitable firms subsidize less profitable firms within the
conglomerate (cross-subsidization)
► Factors
► Scarce credit + abounding investment opportunities
► Red tape – lots of paperwork
► Export promotion – bigger is better in export market
► State-owned banking sector – political clout was a must to
secure loans
► Quite a few became successful global multinationals
RISE OF CHAEBOLS
22. PARK: A HERO OR A VILLAIN?
Controversy still continues
23. ► Economic growth was impossible
w/o Park
► Western-style democracy isn‟t fit
for an undeveloped country like
Korea
► Nonpartisan planning is the way
to rapidly modernize
► Park had a grand vision for
economic development
Kim Seong Jin – President
Park‟s former secretary
CONSERVATIVE HISTORIANS
24. ► Strength
► EOI wasn‟t as politically palatable as ISI (popular in 3rd world countries)
► Businesses were reluctant to export if left on their own
► State autonomy allowed for quick policy decisions
► Capital market hadn‟t fully developed (curb market)
► Weakness
► Park didn‟t have a “vision” (1st FYP didn‟t include export promotion)
► Park adjusted his strategies according to economic realities
► He listened to U.S. AID advisers + foreign-educated technocrats
► Park was luckier than his Latin American counterparts
EVALUATION OF ARGUMENT
25. ► Military/Economic alliance with the United States
► U.S. wasn‟t so friendly w/ some Latin American countries
► U.S. aid $3 billion by 1968; Vietnam gave military contracts
► The Cold War: need to contain North Korea
► U.S. gave Korea considerable freedom in economic policy
► 1960s: rise of international division of labor
► Labor cost too high in developed countries
► Opposition was weak/unorganized; the state was autonomous
► Anticommunism: leftists and labor unions were repressed
► Land reform of 1950s: landed aristocracy wiped out
► Bourgeoisie lost wealth during wartime; industrialists and businessmen were
dependent on the state for foreign aid
EXTERNAL FACTORS
26. ► Harms done by Park‟s iron rule
outweigh benefits of economic
growth
► South Korea‟s economic
development was mainly driven
by external factors above Park‟s
control
► Chaebols became a huge liability
► Expansion into many different
fields of production, regardless of
profits
Jin Jung Kwon – a ► High debt-equity ratio –
social critic vulnerable to recessions
► Corrupt gov‟t-business alliance
LIBERAL HISTORIANS
27. ► Strength
► Democracy and economic development aren‟t mutually exclusive
► Labor sacrificed too much
► Jeon Tae-il (labor activist) burned himself in 1970
► External factors
► 1997 financial crisis: gov‟t allowed chaebols to borrow excessively
► Weakness
► Efficient developmental state requires autonomous state
► Initial phase of development entails hard time for labor
► Economy of scale is necessary to compete in global market
► Gains in competitiveness stuck after 1997 financial crisis
► Not every leader can take advantage of good environment
EVALUATION OF ARGUMENT
28. ► Park instilled into people the value
of thrift and hard work
► Although circumscribed, private
property encouraged investment
► Korea had (virtual) free trade
► Park contained communist North
► Park is guilty of central planning
► Economy is best left to the
individual
► Economic freedom and political
freedom are intertwined
Kim Jeong Ho – president of
Center for Free Enterprise (CFE)
LIBERTARIANS / NEOCLASSICALS
29. ► Strength
► Saemaul (New Community) Movement mobilized idle workers in countryside
► Businessmen and entrepreneurs maintained their roles
► Exporters didn‟t pay tariffs on raw materials + machinery
► Businessmen couldn‟t speak up against gov‟t, fearing their credit lines might be
cut off
► Weakness
► Corporate state forced businesses to invest more than they would otherwise; cult
of austerity induced people to save
► Gov‟t intervention corrected market failures in exports
► Gov‟t selectively protected + nurtured infant industries
EVALUATION OF ARGUMENT
30. ► Chaebols served to protect
national economy from predatory
foreign capital
► Park‟s developmental state offers
model for “economic democracy”
► State-owned financial sector
► Extensive control over capital
► A democracy is powerless if it
cannot contain the excesses of
the market
Chang, Ha-Joon – author of
23 Things They Don’t Tell You About
Capitalism
CONTRARIAN
31. ► Strength
► Profits made by chaebols stayed within the border
► Corporate state ensured that businesses act in accordance with the national
interests
► Weakness
► Modern nations with sizable population have representative democracy. Putting
too much financial power to politicians is like putting all eggs in one basket.
► Corporate state requires autonomy of the state – interest groups hamper such
development.
► Chaebols are just like other multinationals of the world
EVALUATION OF ARGUMENT
32. ► Park has built a “Tiger Daddy State”
► Economic development in exchange for political freedom
► Single party corporate state speeded up development
► Businesses were forced to compete overseas
► Park was pragmatic and flexible
► Took maximum advantage of int‟l + domestic politics
► EOI as result of policy adaptation
► Acknowledged role of businessmen and entrepreneurs
► Recognized need for advanced foreign technology
► While developmental state is somewhat at odds with interest group
democracy, Park didn’t need iron rule to advance his agenda; state
autonomy had been established since 1950s
CONCLUSION
33. ► It takes right kind of “parenting” to develop a country‟s industrial base to
internationally competitive level
► Park‟s South Korea: too authoritarian
► Latin America: too overprotective
► Somewhere in the middle
► Alexander Hamilton‟s American School
► France and Quebec: “indicative planning”
► Countries should integrate into world economy, on their own terms
► Infant industries need some time to grow and mature
► The individual cannot overcome market failures
► The individual succeed only so far as his country provides him opportunities to
do so
CONCLUSION
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Notes de l'éditeur
June 14 law: punish anyone who'd "illicitly" grown rich in the last 8 years -- license to prosecute anyone w/ money at will
North Korean agents tried to assassinate Park in 1968, then again in 1974
HCI took up vast amounts of capital that might have gone to light industries. Consumer goods were in short supply, and the middle class frantically hoarded them
Conservatives in South Korea are more statist and nationalist than American counterpart. They approve of state intervention in the market (e.g. trade protectionism) as long as it serves national interests.
South Korea maintained its “capitalist” image in order to stay friendly with its Western allies