Successful Approach to Development of Korea and Japan - Case Study Example

Introduction Today, Korea and Japan are considered to be the world’s largest economic giants. This is so because they are export oriented countries and they are also characterized by skilled labor. They both have high levels of industrialization as they use the latest technology in production of goods and services. The two economic giants have shown a rapid growth economically. This has made very many developing and developed countries to look at their economic strategies that aid them to maintain their economic stability and advancement. This can be done by looking at the history of their implementations of certain economic policies. The paper will generally concentrate on how the two countries; Japan and Korea are similar in their development and how they differ too. Korea Korea has experienced late industrialization as compared to Japan. This is so because it was colonized by Japan from 1910 to 1945. The economic development was definitely influenced by Japan as they left them with some knowledge on how to carry out specific economic development methods. Many scholars and policy makers have seen the need to study Korea and Japan but their main focus is on the economic side only. This is to find out how the two giant economies have managed to grow rapidly over the years. The colonial rule by the Japanese was a great influence on the labor structure of Korea despite all other economic factors. Japan passed on to Korea skilled labor. The importance of skilled labor in uplifting the economic status of a country comes in when there is proper utilization of raw materials thus increase in the rate of production. This simply means that there will be no wastage of raw materials as the human resources know how to carry out specific activities while using the raw materials. More so, because of specialization and perfect knowledge of a particular activity, an individual increases his or her number of goods produced. This meets the demand of the specific good or service by the general public. Moreover, there is always an addition for exporting (Alice, chapter 1 and 13). In addition, the Onada Cement plant of Japan had put up five branches in Korea and ten in Japan. The study of the workers in this palnt revealed that they were very skilled and this led to the province of South Pyongyang being one of the richest in Korea. Though Koreans were experiencing oppression by the Japanese due to colonization, they did gain modernity as Japan introduced them to new industrial methods. Japan had found cheap labor in Korea while they were colonizing them but they also did benefit later by learning their strategies. This is so because the Koreans learnt the new methods by participating in Japan’s development process as they colonized them. Though Korea did experience late industrialization, the skilled labor passed to it by Japan led to its industrial transformation to date. One similarity between Japan and Korea is the fact that they do have high literacy levels that brings about skilled labor. As it was in the process of developing, it ensured that it accumulated human capital by using methods such as on-the-job training, learning through constant practice and high education levels (Alice, chapter 1 and 13). Role of the government in development The government is known to play a very big role in a country’s development process. This is so because it has the duty of making policies that will either promote economic growth or recession. The government controls economic behavior in trade, monetary policies, fiscal policies, price making and labor laws. Korea and Japan are not an exception as their governments have contributed to their current economic development. It is always important to critically examine the role of the government in helping the two economies in becoming economic giants. Korea so far is being considered to have an economic miracle as it has highly developed economically in the past thirty years. After gaining its independence, Korea became economically stable at around 1960. It can be said that it started its industrialization process in the early 1960. This time there was a high rate of capital accumulation and technology within Korea. After the Korean War which was between 1950 and 1953, the country was divided in to two; South and North Korea. This had posed a great threat to Korea as it had destabilized its economic conditions because of destroying the infrastructure and reducing the labor force which is very important in economic development. Before 1960, the Korean economic status was seen as being hopeless as Koreans really depended on foreign aid to finance its economic procedures. At that time its per capita income was less than $100 (Robert, pp. 5-51). Rapid economic development in Korea occurred due to the government adapting to international trade that made Koreans gain knowledge of other countries’ production techniques. This led to the country using the export promotion method which made Koreans to produce their own goods within the country instead of importing them. On the other hand, they exported the same goods to other countries at cheaper prices thus their trade balance became stable with time. This contributed largely to Korea and Japan becoming major export and highly industrialized countries because they both use the same strategy till recently. Human capital accumulation was enhanced in Korea when the caste system was destroyed after being colonized by Japan. This gave any Korean the ability to advance economically. The government adapted the system to promote fair and equal education to all Koreans thus high rates of industrialization in all provinces. Thus the government used capitalism to ensure that everyone gained education thus giving out skilled labor. If it had used the social system where it allowed caste system, then it means that some provinces will be experiencing poverty and high illiteracy levels as compared to others (Robert, pp. 5-51). Export methods In 1962, the Korean government saw the need to adapt to the export promotion policy. It disputed on the use of import substitution method as it had so many economic disadvantages. The government really put up policies to support industries that were concentrating in producing goods and services that could be exported. Such industries were given subsidies in the purchase of raw materials, they were offered credit that had low interest rates payments and there taxation rates were reduced. This reduced the production costs of such industries making them produce more goods that could be consumed by their own citizens and the surplus exported to other countries. In 1980’s the trade balance of Korea was at a surplus level. Acquiring credit by export oriented firms was made easier by asking banks to offer such credit facilities. The Central Bank offered commercial banks loans with payment at low interest rates which made banks to give out loans at low interest rates too. The strategy allowed for such firms to increase their investments rates thus producing more goods. Japan has not been left behind as it also adapted the export promotion method to increase its economic status. This is the reason they have become the world’s largest export countries. The huge amounts of exports have made Japan and Korea to have the benefit of high annual economic growth. There trade balances are now recording surplus just because they implemented the export orientation method (Alice, chapter 1 and 13). In addition the government played a major role in exempting export oriented firms from tax investigations. This made the different firms to perform their various duties freely without worrying about tax payments and the law suites they would possible face if they had not paid taxes at the right time. It also removed the tariff payments on imported raw materials that the industries could use in producing goods to be exported. More so, the government went on to subsidize the packaging of export goods. Designing and wrapping costs went down making the prices of such goods to be very cheap. The goods and services of Korea became very competitive world wide giving them more market than any other countries. It also promoted the knowledge of other nations by opening training centers that allowed Koreans to learn other international languages and cultures. Another role of the government was to ensure that it kept close contact with the export oriented firms. It organized meetings with the firms monthly to know their progress and where they were failing and to see the way forward (Robert, pp. 5-51). Korea saw the need to focus in establishing heavy industries together with chemical industries. This was the only way the government thought that it would upgrade the industrial structure to enhance development and have a stronger army. Korea did face a lot of obstacles as it tired to promote the development of heavy and chemical industries (HCIs). It had a shortage of capital and it was experiencing low technical skills by the time it was concentrating on developing the HCIs. In 1967 to 1971, the Korean government had formed a five year plan to ensure that the strategy to enhance the HCIs had worked well. Thus it concentrated in promoting the petrochemical and steel industries. The growth of such industries was later redirected to promote the export system. This made a great turn around of the economic strategy of the Korean government from agriculture oriented to a fully manufacturing country. To promote security, the government put the defense system together with the HCIs to protect it from the cold war problems at that time. By promoting the HCIs, the government was able to rich the international standards of producing goods giving them an advantage of their goods being purchased outside their country. In the process of developing the HCIs, the Korean government saw the need of making peace with Japan and joining forces so that it could later become stronger economically. It put resentments aside and the two economies came together. This led to Korea experiencing new technological methods and foreign capital inflow from Japan. This helped the technical skills that were needed by Korea in developing the HCIs to increase (Robert, pp. 5-51). The growth of the HICs had its own shortcomings one being over dependency on capital intensive methods. More so, the government was rigid in accepting any trade liberalization methods. This is similar to that of Japan as its own government is against the trade liberalization strategy. The East Asian countries have been against the policy that they should open up their market for foreign goods to freely enter. They still hold their policies in trade of using quotas and tariffs to prevent problems that come with trade liberalization like dumping. The two economies have been accused of having too much government intervention in deciding on the economic policies. Thus their governments have remained rigid in accepting the trade liberalization strategies (Robert, pp. 5-51). MITI and the Japanese Economic Miracle Unlike Korea, Japan had developed earlier as it was responsible in passing on some technology to Korea by colonizing them. Though it experienced a great down fall after the Second World War, Japan did come up economically. The extreme economic growth is what is referred to as the economic miracle. The USA played a part in its growth as it invested in Japan’s economy. It should be noted that the government of Japan played a major role in building up the economy even though America helped it. The government like that of Korea had extreme intervention in economic strategies. The intervention was recognized when it set the Ministry of International Trade and Industry. The economic miracle era was characterized by suppliers, manufactures, banks, and distributors’ cooperating. This led to very many individuals securing their jobs because there were powerful unions that were formed for the sake of the workers (Chalmers, chapter 9). According to very many scholars, the Ministry of International Trade and Industry (MITI) was the largest instrument that Japan used to ensure it had achieved the economic miracle. This has been the major contributing economic policy by the government in ensuring that Japan is currently developed unlike other countries. MITI was implemented in 1949 and it begun by setting up policies that were focused on industrial rationalization. The policy ensured that industries were able to deal with issues that came about by the Supreme Commander of the Allied Powers (SCAPs). SCAP was a way in which the government of America helped Japan to recover from their economic crisis. This was to prevent the reign and progression of communism which was believed to be a set back to the economic growth of Japan. The main aim of MITI was to ensure that the production in the steel industry increased. This was easy because the capital and the assets needed were readily available. MITI had the responsibility of coordinating the industries by ensuring that they both understood the goals to be achieved. It was also in charge of ensuring that Japan had the knowledge of international technological techniques by importing some machinery. It also used the subsidized method of importing raw material and other industrial goods that could help build the export market. The adoption of new technology and proper machinery increased its production levels making it export cheap and international standardized goods. This saw the MITI, getting full control of the imports in Japan. It was responsible in giving out low cost capital to industries to promote production by opening the Japan Development Bank (Chalmers, chapter 9). Conclusion Korea and Japan have similar economic strategies because Korea was a colony of Japan. This contributed to it adopting some economic strategies to ensure that it developed economically. The two economies continue to be large exporters and they have proved that export promotion strategy works very well in enhancing economic growth of a country. They might have differed in the rate and time of industrialization but they have both achieved high rates of industrialization until now. Other economies need to copy from their strategy to succeed economically. References Alice H. Amsden, 1989.Asias Next Giant: South Korea and Late Industrialization. Chapter 1 and13. Chalmers Johnson, 1982, “A Japanese Model?” MITI and the Japanese Economic Miracle. Chapter 9. Robert Wade, 1990, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialization. Page 5-51. Read More