The Impact of South Korea's Pre-War Manufacturing Experience - Essay Example

The impact of South Korea's pre-war manufacturing experience on her pattern of industrial structure and trade policy in the post- war era There are several labels that seek to elaborate on the economic miracle that catapulted South Korea into one of the world’s success stories. The “fourth Asian tiger,” “Korean economic miracle,” and “Asia’s next giant” are just some of these which underscores the growing significance of the Korean economy in the world stage. As a matter of fact, the South Korean roadmap to progress is currently the fashionable research subject in economics. This paper will critically analyze the significance of the pre-industrial experience of the country in the pattern of its highly successful industrial structure and its trade policy in the post war period. Background Korea is the third largest economy in Asia, next to Japan and China. An economic backwater in the 1950s and prior to that, South Korea has practically built its current economic progress from scratch. Its road to success is widely credited from the low-cost but high quality export production which drives an annual trade growth rate of at least 12%, making the country the thirteenth-largest trading economy in the world. (Genzberger 1994, p. 1) The Korean economy boasts of a long-term growth which converted the once low-income and war-torn country into an economic powerhouse in a span of mere decades. In fact, in just half of a century later since the Korean peninsula was divided at the 38th parallel, the southern state has demonstrated that poor and weak country, constantly being subjugated by its more powerful neighbors, can leapfrog the international hierarchy of development and practically eliminate the incidence of poverty. Today, its export-driven economy enabled the country to become the world’s largest shipbuilder, the third biggest manufacturer of large capacity memory chips, and a substantial player in the global automobile industry. (Kong 2000, p. ix) Pre-industrial Economy The pre-industrial economy of Korea points to several factors for its system and influences – Japanese occupation; the conflicts, such as the Korean War and the Second World War; Korea’s partition; and, finally, and Park Chung Hee and his Korean Model.. When Japan bested China in the Sino-Japanese War in 1894, it began to interfere with Korean affairs until it fully annexed the country in 1910. In effect, it was the Japanese who developed Korea’s economy, educational system and infrastructure. However, such hand in Korea’s development was harsh and that it was mainly geared towards designing the Korean economy to benefit further the Japanese economy and not for some altruistic reasons. Such exploitation would reach its height during the Second World War when Japan needed resources for its battles. As a result, South Koreans today have inherent distrust in Japan and that such anti-Japanese sentiment became the cornerstone of Korean nationalism and the ensuing effort to better themselves and maybe beat Japan in certain fronts. But what lies beneath this development was the fact that it was Japan’s harsh rule that introduced a hesitant Korea to industrialization and modern commerce. There is an abundant supply of literature exploring this aspect in the South Korean economic maturity. To start, we previously explained that the Japanese occupation was responsible for the installation of the political and economic system of the country as well as the infrastructure that were used by the later administration. For instance, we cite the rail route to Seoul built by the Japanese in Pusan. It was extended into Manchuria, was responsible for some bit of commercialization in the area and cultivated an understanding of economic development in the acknowledged father of Korean progress, Park Chung Hee, as he lived in the locality. (Vogel 1991, p. 52) Japanese Trade It is an undeniable fact that the development process of forerunners provides ‘models’ for latecomers in industrialization. For South Korea, such model or on a lesser degree, influence, is the Japanese economy, which was characterized by impressive growth as early as the pre-war period. This is not surprising because Japan has been in close contact with the country since time immemorial, both as an “enemy” and unavoidable trading partner. So as South Korea, a “latecomer” in progress, embarked on its industrialization, it looked up to the Japanese story for guidance. At present, such closeness of South Korea’s economic relations with Japan was continually downplayed and understated due to nationalistic reasons. For instance, Vogel writes: Korean leaders had a cultural background similar to that of the Japanese, and with a country that was also poor late developer without resources, they adopted organizations strikingly similar to Japan’s. The Korean Finance Ministry and Ministry of Trade and Industry looked very much like Japan’s Ministry of Finance and MITI. To promote foreign trade, MITI had established JETRO, and South Korea established KOTRA. (p. 53) There are so many semblances between Japan and South Korea’s economic systems and institutions and one of these was the Korean chaebol system, which took after the Japanese zaibatsu. Zaibatsu was a Japanese pre-war policy of government support for businesses especially those who have military importance. The zaibatsus were controlled by families and that some of the most prominent were Mitsubishi, Mitsuo, Sumitomo and Yasuda which at one point in Japan’s economic history amounted to 25% of Japan’s GNP. (Chang 2003, p. 25) Chaebol, on one hand, are also family-controlled business conglomerates which are supported by the government. The most of prominent of these businesses were the multinational giants like Samsung, Daelim, Dong Ah, SK, LG and Hyundai. The concept of chaebol and the zaibatsu is anchored on the idea that a productive state must integrate three primary sources of collective welfare in a society – the economy, the family and its networks, and the welfare state. According to Brown, Green and Lauder (2001), such economic model emphasizes the way in which these institutions can support individuals in making a contribution to the society. (p. 214) Korea followed suit in the Japanese legacy of intervention which tend to lean more than the liberal impulse. In their shared policy, even though economic liberalization is important, the state is given a higher degree of preparedness in economic intervention. As a result, the state-business relationship is strengthened as with the case of that of the Korean chaebol and the Korean government. Tat Yan Kong explained that Korean policy-makers favored this Japanese model than the Anglo-Saxon model of social capitalism because the latter is perceived to be fraught with instability. (p. 18) The Korean War and the Rise of Park Chung Hee After World War II, Korea was ravaged by the Korean War which divided the country in the 38th parallel. Seoul, in the course of its modern history, changed hands four times. The war which started in 1953 forestalled major economic developments and as a result, the South Korean economy was basically agricultural within this period. The plight of the South Korean economic progress was further hampered by the corrupt and weak government of South Korea. An upheaval finally happened when a coup d’etat successfully toppled Syngman Rhee’s civilian government and installed a military which was led by Park Chung Hee. The country, under the uninterrupted administration of Park experienced a rapid industrialization which peaked in the 1970s. Park Chung Hee’s legacy is one of the most influential factors that defined the pattern of Korean industrialization. Park’s Legacy Most of those who hold relevant governmental authorities today in modern South Korea credits Park or his policies as their influences. Hyung A-Kim writes about it in his book Korea’s Development Under Park Chung-Hee: Many developments of political [and economic] significance that have happened in Korea since 1979 are in some way either a continuation of, or a reaction against, what happened in the Park era. Park’s legacy for better or for worse means that much of the character of the Korean people today and of their society is inextricably bound up with the political and economic system that he put in place under his regime. (Kim 2004, p. 205) Part of Park’s success in achieving his economic miracle was his uninterrupted 17-year rule or what others call as developmental dictatorship. Such fact was instrumental in the stability of the political system and institutions while ensuring an industrial policy that is both consistent and continuous. Park’s Korean model was dominated and directed by the dual engine of the government and the chaebols to the extent that the alliance had almost absolute control over all aspects, both bright and dark, of the “miracle on the Han River.” (Yi 2006, p. xiii) The regime’s dictatorial politics and Park’s determination to create a modern and industrialized state spearheaded Korea’s export-oriented rapid industrialization and anti-Communist economic nationalism, maneuvering the South Korea that we have now – a country with one of the highest standards of living in the world and its emergence as a new power in North-East Asia. US Aid Another important factor, though it does not take precedence over the two previously discussed influences in Korean industrialization, was the United States. It must be noted that the major foreign economic advisors to South Korea from the end of the Korean War until 1965 were Americans and that they played a role in improving agriculture and in rebuilding the roads and bridges, shoring up riverbanks, increasing electric power, and importing new technologies. These were extensively discussed by Vogel as she wrote about the American aid packages that saw South Korea through in its darkest periods. We turn to Myungsook Woo (2004) in the explanation of such massive aid: The American economic aid was quickly provided because the United States intended to incorporate South Korea as well as Japan into US geo-political alliance against communism in East Asia. Stabilizing South Korean political situation through the aid was critical to help South Korea confront the communist regime of North Korea. A huge aid reinforced the strength of the state largely because it was through the state that the aid was distributed to local capital. (p. 22) By the mid-1960s, as the United States brought in massive aid program comes to an end, Park began to normalize relations with Japan who, for its part, extended loans and technological assistance which became important in the country’s overall development. Five-year Plans South Korea’s transformation into a newly industrialized country was particularly guided by a series of five-year plans initiated by Park Chung-Hee. This was result of previous experiences, both positive and negative, such as the Japanese relationship, the agricultural economy, US aid among others. The first and second five-year plans, for instance, emphasized on industrial growth rather than food self-sufficiency which was the focus of previous economic plans. These plans were designed to break the cycle of poverty through the foundation of a self-sustaining economy and the modernization of South Korea’s industrial structure. According to John Rosser (2004), the government provided about one-third of investment funds to achieve the objectives in energy production, grain production and import substitution industries as well as the encouragement of the textile export. (p. 558) The succeeding five year-plans saw the rapid industrialization of South Korea as the course of the economy was marked by exceeded performance targets. For the third and fourth five-year planning cycles (1972-81), “the government made a major effort to build chemical and heavy industries in order to gain industrial competitiveness. Automobile, machinery, steel, shipbuilding, chemical, and petrochemical industries were the direct beneficiaries of the government’s financial and legislative support.” (Chung 1997, p. 10) The Fifth Five-Year Plan was the first of the economic plans implemented after Park’s assassination. This and the ensuing series of economic five-year cycles, featured the maturity of South Korean economic progress as it addressed contemporary issues such as the trade deficit, Asian financial crisis and the chaebol reform. This series of five-year plans saw the shift from the more command-like prescriptive style to the looser indicative style. (Rosser p. 558) The Korean economic model owes its success to its prewar and pre-industrial experiences. The country’s close relationship with Japan as shown in its political and economic history was indicative of this fact. As previously explained, the Japanese and Korean models in economic development are closely identified with each other. Besides other factors such as the Korean version of welfare state, this element defined the pattern of South Korean roadmap to economic progress. Japan paved the way for the Korean miracle as it posed as an example for the country – where positive developments are assimilated and policy pitfalls were avoided. The record of development in South Korea could be used as a model for other Third World countries as much as it used the Japanese model for its advantage. We have a clear definition of the origins of the country’s private enterprise and government economic policies, so a wealth of insights is available for the Korean roadmap to finally exert its own influence elsewhere. References Brown, Phillip, Green, Andy, and Lauder, Hugh. (2001). High Skills: Globalization, Competitiveness and Skill Formation. Oxford University Press. Chang, Se-jin. (2003). Financial Crisis and Transformation of Korean Business Groups. Cambridge University Press. Chung, Kae. (1997). Korean Management: Global Strategy and Transformation. Walter de Gruyter. Genzberger, Christine. (1994). Korea Business: The Portable Encyclopedia for Doing Business with South Korea. World Trade Press Kong, Tat. (2000). The Politics of Economic Reform in South Korea. UK: Routledge Kim, Hyung-A . (2004). Korea's Development Under Park Chung-Hee. UK: Routledge. Rosser, John. (2004).Comparative Economics in a Transforming World Economy. MIT Press. Vogel, Ezra. (1991)The Four Little Dragons: The Spread of Industrialization in East Asia. Harvard University Press. Woo, Myungsook. (2004).The Politics of Social Welfare Policy in South Korea. University Press of America. Yi, Pyong-chon. (2006). Developmental Dictatorship and the Park Chung-Hee Era. Homa and Sekey Books. Read More