Korean economy grew through own framework
By Kim Pan-suk
Professor of Public Administration at Yonsei University, Wonju Campus
Korea is one of the success stories in development administration. Korea has become a major economic powerhouse. Its growth is a good example of late industrialization, a process in which a nation's industries learn from earlier innovating nations.
The government itself led the industrialization drive. It took on developmental functions to catch up with developed countries.
In general, Korean development was made through concerted efforts of government, business, and an educated labor force. A steady inflow of foreign investment and a favorable international environment are also attributable to this successful development.
In Korea's industrialization, however, the government played a critical role through its industrial policy and state control of finance.
During the period of rapid economic growth, the relationship between government and business has been unusually close, with government clearly in the driver's seat.
The elite bureaucrats within the central government envisaged and mapped the course of industrial, urban and land development.
In fact, Korea was one of the poorest 25 countries in the world in 1960. Its Gross Domestic Product (GDP) per capita was just $82, in 1960 prices. After five decades of rapid growth, Korean GDP based on purchasing-power-parity (PPP) per capita in 2009 was around $20,000, according to the International Monetary Fund (IMF).
Consequently, it is fair to say that Korea has accomplished a very compressed form of economic growth in a relatively short period. Korean development also fueled by international aid that . But it is not the key reason for the successful development.
Korea attained the economic growth through its own policy framework and systems.
Alice Amsden, currently professor of economics at MIT, explained the reasons for Korea's phenomenal growth.
She noted Korea's adoption of the principle of reciprocity. The government imposes strict performance standards on those industries and companies that receive state subsidy. discussing state intervention, shop floor management, and chaebol.
In other words, Korea in the five past decades has been a noticeable example of the developmental state, which refers to the phenomenon of state-led macroeconomic planning in the late 20th century.
A developmental country had strong state intervention, extensive regulation and planning. It intervened directly in the economy to promote new industries.
Major characteristics of the developmental state include: protection of fledging domestic industries, focus on foreign technology transfer, a relatively large government bureaucracy, corporatism (alliance between the state, labor and industry), and emphasis on technical education.
For example, the public spending for education was concentrated on primary and secondary education.
A high-level of education (that is, a well educated population in general and a plentiful supply of trained engineers in particular) has been a key determinant of industrialization.
Korean growth was also sparked and sustained by an intensive industrial export-promotion drive. The Korean policy switch was dramatic and vivid.
The incentives for such policy were the adjustment of the exchange rate to a realistic level; tariff exemptions on raw materials for production; preferential export credits; links between import and export performance (those who reached export targets were given permission to import); accelerated depreciation allowances; and tariff exemptions for intermediate goods for export.
The growth of Korean exports was accomplished by the expansion of highly entrepreneurial big business groups. The political leadership also mobilized the leadership of the private sector to work toward the desired goals.
In 1960, W. W. Rostow published a book entitled “The Stages of Economic Growth: A non-communist manifesto” and he developed the Rostovian take-off model of economic growth. According to the model, economic modernization occurs in five basic stages: traditional society, preconditions for take-off, take-off, drive to maturity, and high-mass consumption.
This became one of the core concepts in the theory of modernization and it was widely discussed in many developing countries including Korea.
Overall, the historical development of Korean politics and public administration encompasses four phases: (1) state-building (1948 to 1960) to design a constitutional framework and institutional arrangement; (2) developmental state (1961 to 1979) to industrialize and urbanize society for economic prosperity; (3) democratization (1980 to 1999), which involves enhancing civil and political society simultaneously in order to articulate the citizens’ voices and enhance interaction with other countries across national borders; and (4) advancement (2000 to present) toward more advanced levels. Throughout these phases, the Korean government has made a crucial role in many ways.
Today’s Korean society has become much more mature and democratic than what it was decades ago.
Various, often contradictory, evaluations can be made about a period of the rapid economic growth. Some critics could pinpoint various problems of sociopolitical issues in the past several decades.
David Steinberg, professor at Georgetown University, however, asserts that the Korean government in the 1960s-1970s, although it was an authoritarian government, made a significant contribution for economic development.
It accepted economic development as its first priority. The government was able to maintain economic stability, and capable of making difficult economic policy decisions.
During the Asian financial crisis in the late 1990s, however, Korea faced a serious challenge.
While the severe recession was relatively short-lived, Korea had no choice but to reform.
Since then, the systems of dirigisme control that lay at the heart of the old growth regime have been gradually dismantled.
The public sector as well as the financial sector has undergone rigorous market-oriented reforms.
Under the neoliberal wind of new public management (NPM), the government also assumed that market-oriented operation of public sector will lead to greater cost-efficiency for governments. Since the government is different from simple market forms, NPM received substantial criticisms around the world. More in-depth analysis must be done on crisis and post-crisis restructuring. But it is noticeable to see the fact that the Asian financial crisis did mark the end of the era of state-led development in Korea.
The changes taking place in Korea are as dense as the compressed growth of the past half century. Globalization and market competition continue to intensify, and the fast transition to a knowledge‐based economy and an aging society with a low-birth rate appears to be the order of the day.
As the Korean national economy faces difficulties following the so-called “growth-first policy,” the government needs to expand a social safety net. In order to meet new challenges stemming from rapid development in globalization and diversification in domestic and international arenas, the government must adopt proactive and creative approaches.
Indicators show that Korea is reaching a level close to that of advanced nations. But there are many new challenges.
For example, the existing current social safety net is not sufficient to cover all the population and tackle the aging population, low fertility, long-term unemployment problems, and the gulf between rich and poor.
The general public demands more participatory and transparent public governance through better communication.
Policymakers must exercise transformational as well as collaborative leadership to gain public trust.
Korea has tried to catch up with advanced countries for the past decades and became an OECD member country in 1996, but it did not simply follow the way the Western countries are managed.
International technical assistance made a substantial contribution to the nation’s growth, but many other important factors made it possible for Korea to grow rapidly: strong leadership with a clear vision for economic development, a high-level of education, nearly homogeneous cultural identity, and hard-working hungry spirits.
One common problem in developing countries, however, is a tendency to try to imitate foreign experiences that have many differences from those of developing countries without a fully independent assessment of the reality.
If a country simply follows the experiences of the advanced countries and mechanically imitates their systems without indigenizing efforts, it is likely to make mistakes or fail.
Some reasons for such problems might include lack of understanding of sociopolitical dynamics between developing countries and advanced countries, and a failure to recognize that every country has a different background in tradition, history, culture and religion and a different path of nation building, industrialization, democratization, modernization, and institutionalization. Therefore, public officials need to develop better competencies and capacities for more collaborative public management in order to handle diverse demands and complicated challenges in an age of collaborative governance and globalization.