Asia's Next Giant: South Korea and Late Industrialization. - book reviews

Asia's Next Giant: South Korea and Late Industrialization by Alice H. Amsden.

Alice H. Amsden's new book, Asia's Next Giant: South Korea and Late Industrialization, is a useful corrective to mainstream misrepresentations of South Korea. Although Amsden, who is no advocate of socialism, agrees with the majority of economists that South Korea is a success story, she forcecully shows how South Korea's experience represents a refutation of neoclassical free-market theory.

This argument is important because capitalist ideologues, surveying the worsening conditions for the majority of people in Latin America, Africa, and parts of Asia, claim that the cause of these world economic problems is "socialism"--governments interfering with the smooth workings of the market by regulating trade and capital flows, shaping investment and production decisions, and influencing labor markets. The superiority of capitalism, they argue, is demonstrated by the performance of the Asian "newly industrializing countries"--South Korea, Taiwan, Singapore, and Hong Kong.

Of these four, South Korea has received perhaps the most attention and praise. Even socialist countries such as China, the Soviet Union, and Hungary have sought to learn from its experience. Superficial analysis suggests that South Korea's record economic growth and industrial transformation stem from free-market forces and international comparative advantage. Pointing to the 1987 presidential election (the first direct election in 16 years) some analysts even claim that they reveal the democratic impulses inherent in capitalism and that capitalism is the choice of a free electorate.

Given South Korea's image as a model of capitalist development, it is unfortunate that so many on the left have avoided careful study of the country's economic and political experience. Have we feared that the mainstream view is true? If so, this fear testifies to the power of ideology, because most free-market explanations of South Korea's economic growth have more to do with ideology than with reality.

The State and Development

In Asia's Next Giant, Amsden explains how South Korea, her classic late industrializing country, "began the twentieth century in an economically backward state based on [production of] raw materials, and dramatically raised national income per capita by selectively investing in industry." (p. v) From this specific history she tries to draw out general principles of successful third world industrialization. Amsden's main contribution is the point (developed in the first half of the book) that a strong interventionist state is key to development. She argues convincingly that South Korea began to grow rapidly and to transform its economy only after a strong leader, Park Chung Hee, took state power in a 1961 military coup, and adopted policies exactly opposite to those recommended by the U.S. government and neoclassical theory. Most significantly, the state greatly expanded its control over the economy so that its policies, rather than free-market forces, shaped prices, production, investment, and trade.

Amsden describes several parts of this process. In one, the military government immediately gained control over the financial system by nationalizing the banking system and requiring government approval for foreign loans. Since only those firms politically and economically responsive to government initiatives received low cost loans, credit allocation became a powerful instrument of state policy.

Beginning in the mid-1960s, the state used this control over credit to make exports of light manufactures the engine driving the economy. Then, in the 1970s, a change in state policy, not private capital initiatives, shifted industrial priorities: heavy and chemical manufacturing production began to drive the economy. The state, using a complicated system of subsidies and licensing, even determined which firms would export and/or import and their product areas. The decision to give a leading role in production to private instead of public enterprises apparently was not made until the early 1970s' heavy and chemical industrialization drive. As part of that decision, the government favored the rise of a small group of family-owned conglomerates called chaebol; the top ten chaebol accounted for only 15.1 percent of GNP in 1974, but over 67 percent by 1984. (p. 116)

Such favors had to be returned: individual military and government leaders were rewarded with sizable financial gain. The state, however, held the upper hand in this relationship, as the history of the Kukje group makes clear. In 1984, when Kukje was the seventh largest chaebol, its president refused to make a contribution to a foundation controlled by the president of South Korea. In response, government-owned commercial banks called in their loans to Kukje, forcing the company into bankruptcy, and then redistributed its assets to other chaebol.

This picture of a centrally planned, state-controlled economy dominated by a few large, diversified conglomerates bears little resemblance to neoclassical descriptions of economic growth led by free-market forces. As Amsden writes: "Korea is an example of a country that grew very fast and yet violated the canons of conventional wisdom . . . instead of the market mechanism allocating resources and guiding private entrepreneurship, the government made most of the pivotal investment decisions." (p. 139)

The South Korean experience strongly suggests that state control and planning of an economy is now required for industrial growth and transformation even under capitalism. It is worth emphasizing, as Amsden does in her book, that planning worked in South Korea only because the state had the power to discipline private capital if it did not make "appropriate" use of trade and financial support. The left need have no fear of the mainstream view that the free market caused South Korea's economic success--it didn't. This conclusion should also give pause to free-market advocates in Eastern Europe.

Amsden recognizes that "it is frustrating to model builders in 'backward' countries to learn that Korea's success rests heavily on a strong state. . . . It is frustrating because countries are 'backward' mostly because their state is weak." (p. 147) But, having gone so far as to recognize the need for state planning, she does not go further to consider the need for a social revolution to put state power in the hands of the populace.

Chaebol and Late Industrialization

A cornerstone of late industrialization, in Amsden's theory, is the necessity for third world countries to compete in world markets on the basis of learning (through the purchase of foreign technology) rather than invention or innovation. Amsden therefore continues her study of South Korea in Parts II and III with an examination of the organization and operation of the chaebol, a business form of organization that she considers well-designed for such learning. Part II is an account of how reliacne on foreign technology has shaped the role of management, labor markets, and education and training of workers in South Korea. Part III maps out South Korea's non-linear path of industrial transformation, showing through a series of industry case studies that the chaebol did not grow according to any simple stage theory based on the neoclassical law of comparative advantage.

These sections offer valuable insights into state-business interaction, the relationship between business organization and industrial diversification/expansion, and shop-floor sources of growth and productivity. But the book loses its focus in these two parts, becoming more like a series of Harvard Businesss School case studies than continued analysis and evaluation of the dynamics of the South Korean political economy as a whole.

Overall, we get a picture of South Korean development as a successful trip over a rough road. Amsden mentions many of the problems and injustices encountered along the way, but they remain in the background. Yes, there was a lack of democracy, but it did enable the state to drive industrialization, and the country now is solving its political problems. Yes, big business exercises disproportionate power, but the state counteracts it by forcing the chaebol to operate in the national interest and share wealth with workers. Yes, workers, especially women workers, are highly exploited, but look at the heroic struggle of workers working overtime to build ships, cars, and other things. In short, Amsden's analysis omits contradictions and class conflicts. Introduce these into the picture, as I do below, and we see that development has been far rougher than Amsden admits, and now confronts the South Korean people with tough choices about the way to go in the future.

Contradictions and Class

Beginning in the mid-1960s, the state sought to create an exportled expansion not only through financial incentives for capitalists but also through the creation of a low-cost industrial labor force. In the countryside, a brutal agricultural policy ruined many farms and forced farmers to migrate to the cities for industrial work. Farmers continue to be sacrificed as the government allows increasing imports of agricultural products in order to keep U.S. markets open for South Korean manufacturers. As a result, growing numbers of farmers are organizing to oppose the country's export-led model of development, U.S. domination, and lack of democracy.

A majority of the early rural migrants were young women who found jobs in the first export industries known as "female industries" (apparel, textiles, shoes, wigs, and electronics) upon which the economy was heavily dependent. In order to survive and send money to their rural families, these women worked long hours in unsafe conditions and often were dismissed after only a few years of employment. These circumstances led many into prostitution, especially near U.S. military bases. Conditions for women workers have changed little from the early days of industrialization. While manufacturing workers in general have the lowest average wages of any sector, workers in the crucial "female industries" have the lowest of all. Not surprisingly, then, women also are organizing within trade unions and women's groups.

The rural-urban migration (especially into Seoul) helped to create a movement of urban poor in the early 1970s which became more militant in the 1980s. Although this movement is less organized than those mentioned above, its strongest groups also seek radical change in the country's economic and political structures and relationship to the United States.

All of these movements were set into motion by the South Korean growth process itself. By 1972 they, along with student and church activists demonstrating for political democracy, created serious problems for the government. Ex-general and president, Park Chung Hee, responded by imposing martial law and the heavy-handed rule of the Korean Central Intelligence Agency.

Unable to force the government to moderate its harsh policies by peaceful acts of resistance, many student and church activists began to realize that their efforts would achieve little if disconnected from the demands and struggles of workers who, while making the economy run, were also its victims. Over the decade of the 1970s these activists increasingly supported the workers' movement and, as a result, began to broaden their understanding of democracy to include empowerment of working people. At the same time, the establishment of heavy industries in new industrial cities, as mandated by government plan, helped srengthen workers' capacity for association and class struggle.

This new alliance of workers and other activists, although organizationally weak and politically unfocused, threatened the South Korean political economy. In an attempt to stop its development, General Chun Doo Whan seized power in a bloody coup and had himself declared president in 1980. In reaction, by the mid-1980s, an explicitly left movement had emerged, openly challenging the liberal opposition, the ruling party, and the country's monopoly-dominated system. This political movement, now maturing rapidly, has working-class leadership and clear organizational form: the National Democratic Federation unites the democratic labor movement with a broad spectrum of progressive forces including groups of religious activists, artists, and intellectuals, and mass organizations of farmers, the urban poor, and women.

In spite of intense government repression, this movement has achieved considerable success. One indication that the elite takes this movement seriously: the Asian Wall Street Journal reports that the government is launching "a think tank aimed at promoting capitalism, in response to what it views as growing support for leftist ideologies on campuses and workplaces. . . . [An Economic Board Official noted that] opposition groups have provided extensive education on socialism or communism to blue-collar workers, farmers and students since the 1970s." (10 July 1989)

Economic obstacles to continued growth compound political tensions. First, South Korea's export-led economy is increasingly dependent on access to the U.S. market and a favorable exchange rate--both problematic conditions. Secondly, South Korea's chaebol, having expanded rapidly into a number of product markets on the basis of foreign technology, are in danger of losing market share due to even lower wages in some countries and to the unwillingness of firms in developed capitalist countries to continue to share advanced technology. Finally, strikes resulting from the chaebol's exploitative labor policies have seriously disrupted production of leading exports, especially automobiles.

I make no predictions here abouth South Korea's future; I have tried to demonstrate only that contradictions and class struggle are part of the South Korean experience. To ignore them, as Amsden does, seriously impairs our ability to understand that experience. Amsden's book is a valuable contribution to the literature on South Korea; but remember while reading it that from the capitalist development she describes has emerged a working class leading a political movement to create a socialist political economy based on democratic participation in economic planning and political life.

Martin Hart-Landsberg teaches economics at Lewis and Clark College, Portland, Oregon.

COPYRIGHT 1990 Monthly Review Foundation, Inc.
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