Foreign advisors crucial for Korea’s development
By Lee Tai-hee
Director for the Policy Consultation Division,
Korea Development Institute
Korea is the first country that has successfully transformed itself from an aid recipient to a donor nation. Categorized as one of the poorest countries with personal income of only $82 in 1961, Korea is forecast to see its personal income topping $20,000 later this year. After becoming the 24th member nation of the OECD-Development Assistance Committee (DAC) in November 2009, Korea’s position has been on the rise as an active donor in the international community. Korea’s turnaround has become an unprecedented example to the world.
Korea is one of the six countries in the global community that has a GNI per capita of around $20,000 together with a population of over 50 million people. After being officially selected to chair the G20 summit in November, 2010, Korea, rising as a near-advanced country from abject poverty, aims to bridge the differences between rich and poor countries. Such a dramatic transformation in Korea would not have been possible without the foreign technical and economic assistance the country has received over the past 60 years.
Korea stands as a model country which has moved out of poverty through the successful utilization of foreign assistance. Many developing countries have been learning Korea’s experience in transitioning from one of the least developed economies in the world to a near-developed economy.
Role of Technical Assistance
Many factors have been pointed out as contributors to achieving the successful turnaround of the Korean economy, including affluent and highly-motivated human resources, government leadership and efficient utilization of international circumstances. Indeed, technical assistance provided by donor countries and international organizations have also been pivotal factors.
The amount of technical assistance Korea received over 50 years, since its independence from Japanese occupation until 1995 when Korea graduated from developing countries, adds up to approximately $12.8 billion, which in current value would be about $60 billion or over 70 trillion Korean won. The United States and Japan account for $5.5 billion and $5 billion respectively, consisting of almost 83 percent of the overall technical assistance given. International organizations provided $1 billion during the same period, and the rest came from various countries, including West Germany. (For more details on this data, see Development Aid and Cooperation for Korea, KOICA Research Paper, 2004)
Although the amount was not enough for sustainable growth and development of the Korean economy, it acted as a trigger for firming up Korea’s volition to become a developed country.
Development assistance to Korea consisted of technical programs like training and consultation from advisors to set institutional and legal backdrops, and concessional loan to develop socioeconomic infrastructure. Development loans played a crucial role in developing the Korean economy. The construction of the Seoul-Busan Expressway and the establishment of POSCO are two noticeable fruits that were possible through massive foreign aid. Technical support also constituted a crucial part in building the basic socioeconomic infrastructure.
Diverse knowledge-transferring programs helped Korean policymakers work out a set of guidelines and regulations. Technical assistance was largely provided in the form of research papers, policy consultations and capacity development. Such programs are considered as the core assets that have led Korea to attain sustainable development in a short span of time.
Foreign advice in institution-building
Right after its independence in 1945 from Japan, Korea was in urgent need of drawing up institutional and legal arrangements in the economic, social and administrative sectors for nation-building. Foreign advisors, including government officials, scholars and consultants from developed countries and international organizations including the MDB and IBRD, have thus contributed greatly to Korea’s development by suggesting feasible policy alternatives and directions.
The foreign research teams offered advice tailored for Korea on the basis of feasibility studies. Some stayed in Korea over a given period of time to transfer knowledge and expertise to those in government bodies, research institutions and relevant organizations by suggesting policy recommendations or providing more practical consultations such as operational manuals.
What came first on foreign advisers’ recommendations was the introduction of an advanced banking system. The newly-established Korean government faced a dire need to put the lid on soaring inflation and financial chaos. A.I. Bloomfield and J.P. Jensen from the Federal Reserve Bank of New York helped Korea set up the banking system and formulate banking laws. In return, the two advisors called for the independence of the Bank of Korea from the government and the realization of monetary stabilization through application of regulatory measures by the central bank. They also sought the establishment of private commercial banks. The proposed Banking Law was passed by the National Assembly in May 5, 1950. Accordingly, the Bank of Korea was in charge of conducting policies on the rediscount rate, reserve requirements and operation of the open market.
Second, a salient feature was the introduction of an export-promotion policy. In 1952, the UN Korean Reconstruction Agency (UNKRA) hired the Nathan Association to deal with Korea’s economic recovery after the Korean War. The association called for an industrialization policy with a focus on agriculture, while the Korean government sought to utilize its affluent, highly-educated human resources in the industrialization process. After failures in industrialization policy based on import-substitution in the early 1960s, the country decided to pursue an export-led development strategy to get funding for national development from overseas. When specifying its export-driven strategy in the late 1964, the government called on Amicus Most, a former USAID consultant, to give advice. Eventually the country successfully made use of its own resources in light industries. This marked the start of the export-promotion strategy, the driving force behind Korea's economic growth. Korea’s experience in transforming into an export-led economy is one of the many lessons developing countries wish to learn.
Third, the adoption of the vocational training system was a boon to the economic pickup. Korea teamed up with the UNDP and ILO to set up the Central Vocational Training Institute. The country had no other such modern facilities to educate and train the potential workforce until the middle of the 1960s. Korea was in urgent need of drawing international attention to solve this issue. In 1965, the Korean government asked Edgar C. McVoy, an expert in the field of human resources development, to conduct basic research on Korea’s human resources potential. The findings were provided in the McVoy Report. The report helped understand the situation of Korea in terms of human resources development and set the basic guidelines in providing adequate vocational training. In addition, Korea established vocational training centers with assistance from Germany. These centers helped create a workforce that could be put to work immediately upon training. Korea was considered an example of the most successful human resources development in the world.
Fourth, the establishment of the Korea Institute of Science and Technology (KIST) is a representative product established through foreign aid. The project began instantly after a joint statement was released in a Korea-U.S. summit. The Korean government formed a committee to set up the institute while the then-U.S. President Lyndon B. Johnson sent a team of experts to Korea headed by Dr. Donald F. Hornig, a senior science and technology advisor to the U.S. president, in July 1965. The findings mentioned the objective, specifications, independent research and other relevant matters in setting up the institute. Battelle Memorial Institute conducted a feasibility study for the setup of such an institute in Korea. The study result showed positive signs for Korea and the U.S. to support the project. The founding of KIST was the first time the U.S. set up a science-related institute in a developing country through aid. This case had considerable implications in expanding Korea’s science and technology, and industrialization. It is considered an ideal example for developing countries for independent science and technological development.
Many other experts and specialized institutions played a critical role in the socioeconomic advancement of Korea in various fields. The Korea Medical Center was set up for the betterment of health and welfare of Koreans. The Korea-Germany Forest Management Center was established to promote forestation in Korea. These two cases indicate how much advanced countries’ experience and know-how influenced Korea in its development.
Training programs in capacity-building
The assistance programs provided expertise on knowledge sharing. It also contributed to the developing and strengthening capacity of human resources. Such practical and technical assistance focused on education and training programs to enhance Koreans’ capabilities. These were carried out hand in hand with the setup of an institutional framework.
Technical assistance contributed significantly to developing human resource skills and enhancing administrative capabilities. This not only had an impact on economic development but on the overall betterment of Korea.
The United States was one of the key countries which endowed Korea with various educational and training workshops and programs. Seoul National University and Minnesota State University signed a contract to exchange professors and students in engineering, agriculture and medicine. Facilities and machines related to research in the above areas were introduced to Korea through Minnesota State University. Teaching guidelines for middle and high-school students were adopted from the George Peabody College for Teachers. Yonsei and Korea universities in alliance with the University of Washington opened a business class so that Koreans could learn about management. The Graduate School of Public Administration, Seoul National University and the Graduate School of National Defense were all established with funds from the U.S. Continued exchange between faculty members has facilitated modernization of the education system.
The Ministry of Commerce and Industry sought to establish a Technical High School. It submitted its plan to the Japanese government in 1970, seeking cooperation from it in connection with the establishment of the school. The Japanese Education Ministry decided to assist Korea after its team conducted a pilot study. As a result, Geumho Technical High School came into being. Japan provided the necessary equipment and materials, while holding technician training workshops for many Korean teachers in Japan. This also helped Korea’s economic development.
Government officials, professional workers and technicians could study abroad. Under this on-site observation program, Korean technicians were sent to the Detroit Edison Company to get hands-on experience prior to running a thermal power station in Korea. The then West German firm Demag provided updated technology related to steel manufacturing and rolling mill construction for Korea. Technicians and managers attended specialized technical workshops in what was once West Germany.
In order to have related socioeconomic systems take root in Korea, developed countries came up with various education and on-the-job training programs. This in turn greatly contributed to speeding up the operation of institutions in various sectors. The enhanced quality of the workforce proved to be one of the primary reasons for Korea’s fast economic growth.
Knowledge Sharing Program
Korea has met rising expectations from the international community to become a new ODA leader. Korea is to act as a role model following a successful transformation from aid recipient to donor. As a host chairing the November 2010 G20 summit, Korea can act as a buffer between developed and developing countries, and lead the summit with an agenda expected to focus on sharing growth.
Korea is a model country which should show how foreign aid has helped it escape from poverty within a short period of time. In particular, a case study of Korea’s development mirrors the importance of technical assistance for laying the groundwork in building a social infrastructure, and capacity development. This stands as a textbook for the late-comers. The international community looks upon Korea’s success as an example for developing countries and wishes to share its experiences.
The Ministry of Strategy and Finance and KDI launched the Knowledge Sharing Program (KSP) in 2004. It seeks to provide Korea’s development partners with research and policy consultations based on its development experience and know-how. Through this program, the KDI strives to present policies aimed at helping economic growth while strengthening its ties with these countries.
KSP will no doubt become effective in development assistance. It is expected to show the benefits of technical assistance programs focused on creating institutional foundations and promoting capacity development, and finally help others follow in Korea’s footsteps.