Men of steel: the founding history of POSCO

By Michael Breen

As he set about to develop Korea into an industrialized state, strong enough and diversified enough to defend itself

without depending totally on the United States, strongman Park Chung-hee started to think about developing a steel industry.

The aide handed this daunting task was named Park Tae-joon (no relative). Park had grown up during the Japanese colonial period and gone into the Korean Army, where in the 1950s, he had been schooled in some aspects of American-style management training, then new to Korea, with its emphasis on rationality and efficiency.

Like other notable figures in Park’s nation-building enterprise, Park, a major-general, had a single-minded capacity for hard work. But he was not a rough and ready bulldozer type, nor was he a cutter of corners, such as Chung Ju-yong, the Hyundai Group founder. Rather, Park was a perfectionist.

When his first efforts came to nothing – he was turned down for World Bank and U.S. Exim Bank loans – he used personal connections in Japan and an argument that the Japanese were honor-bound to atone for their 1910-45 occupation by helping the Koreans develop the country. This approach succeeded and, in 1969, he got the loans he needed in 1969.

In little over a decade, the Pohang Iron and Steel Company (POSCO) had turned what had been a sleepy fishing village at Pohang into the world’s single biggest steel production plant. With new plant openings in the mid-90s, POSCO became the world’s biggest steel-maker after the Japanese company, Nippon Steel. (POSCO has since been overtaken by Chinese and Indian firms and now ranks third in the world).

As with everything about Korean growth, nobody predicted such a rise. Steel had been important for the Koreans but domestic production had been badly damaged the Korean War (1950-53). During the 1950s, the country managed to stabilize but, with bureaucrats not paid enough even for basic living, few minds were giving serious thought to development until Park’s 1961 military coup.

The first 5-year development plan include a proposal for an integrated steel mill with an annual capacity of 300,000 tons, but the World Bank and other international bodies considered this idea overly-ambitious. Koreans would not be able to master the technology, and domestic demand would be insufficient for such a plant, they reasoned. In its place, several small-scale steel plants based on electric furnaces and domestic scrap were built.

Five years later, Park returned to the idea of an integrated steel mill and called on Park Tae-joon, who was the chairman of the Korean Tungsten Mining Company. The new plan called for an annual capacity of 600,000 tons of crude steel. The government signed a contract with a consortium of seven Western steelmakers, known as Korea International Steel Associates in October 1967, which incorporated Pohang Iron and Steel as the operating company the following year. (POSCO became the official name in 2002, during a time when initials had become all the rage).

This second plan, however, hit the rocks the following year because its make-up made the consortium unwieldy and it was unable to raise the target US$100 million in private capital to start. The consortium was dissolved. Park Chung-hee, still determined, opted to raise foreign loans to finance the steel plant.

In that same year, Japanese officials, convinced that helping the Koreans would be in their interest, agreed to lend around 75 percent of the required capital ($52.5 from the Export-Import Bank, $46.43 million from the Economic Cooperation Fund, and $28.58 million in commercial loans). Mitsubishi Heavy Industries helped with planning and technology was provided by Nippon Kokan and Nippon Steel Corporation. This involvement meant a considerable role for Japanese engineers and experts.

Construction began in 1970 under the close eye of Park Tae-joon. True to style, he set and then re-set deadlines, each time more ambitious and was on site to make sure they were met. The first phase of construction, a blast furnace and two steel converters with capacities of 949,000 tons and 1 million tons, was completed ahead of schedule in 1973. The plant reached full production in four months, eight months faster than expected.

During this time, Koreans were being trained in Japan and elsewhere in construction as well as operations and by 1979, when the final stage began, had supplanted foreign engineers. Crude steel production capacity was now 8.5 million tons.

Originally conceived for weapons manufacturing, the Korean steel business soon began to make a name for itself. Much of its product was taken a few miles round the coast to Ulsan, another small fishing hamlet which had become the site for the huge Hyundai shipyards and car factory.

As for Park Tae-joon, he ran the company for 25 years and then went into ruling politics. In the early 1990s, he had opposed the nomination of Kim Young-sam as the party’s presidential candidate and wisely moved to Japan after Kim won and he was accused of running a slush fund – true or false, the kind of accusation that served as retribution for being on the losing side. He returned to politics in 1997, as an ally of Kim Dae-jung, and later became prime minister.

Michael Breen is an author, former foreign correspondent and the chairman of Insight Communications, a public relations consulting company. He can be reached at mike.breen@insightcomms.com.