Transcript 슬라이드 1

Understanding the Korean Miracle
E. Young Song
Sogang University
Summer, 2011
Asian Miracle
Sachs and Warner (1995)
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Google Map
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II. Asian Model – the Origin
Korean Model of Development
Strong and stable government
Dictatorship of Chung Hee Park
Stable and consistent policy
State-led development
Government plans and private enterprise executes plans
Symbiosis between politics and business
Export-oriented growth
vs. import substitution
Chaebols
a family controlled network of big conglomerates
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Japanese Model of Growth
Prototype of the Asian Model of Growth
- Miraculous post-war recovery in Japan (1945-1960)
Government Interventions -MITI and Monster Sahashi
Administrative Guidance
– MITI – industrial policy (industry targeting)
– Ministry of Finance (Bank of Japan) and Bank of Development provides
low-cost loans to targeted industries
Development of heavy industries
Tight cooperation between government and Keiretsu(系列)
 export-led growth
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Japanese Model of Growth
Debate – Myth or Reality?
Was the Administrative Guidance of the MITI essential to Japanese
Growth?
Was the industrial targeting of the MITI successful?
Were the Japanese industries heavily protected?
State vs. entrepreneurship
Sony, Airplanes and Robots
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III. Asian Values
1. Ideology
Market vs. State
Prosperity of the Western Europe and the US in the 19th century
Liberalism : free market, free trade, small government
Rapid expansion of industry and international trade
World war I, the Great Depression of 1929
Shattered belief in liberalism
Statism : experimenting with state-led systems in less developed regions
Socialism in Russia
Fascism in Germany, Italy and Spain
Newly liberated countries after World War II
Statism was a popular choice
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Liberalism vs. Statism
WW I
Great Depression
Classical Liberalism
Statism
Socialism
Fascism
WW II
1980s
Modern (Roosevelt)
Liberalism
Neoliberalism
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Economic 2 –Growth Theory
 Should be separated from economic fluctuations
Real GDP per capita = A*F(h, K/L)
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A: scientific knowledge, institutional efficacy
h: human capital, skill level of labor
K: physical capital
L: physical labor
 Three forces of economic growth
– Technological progress (A increases through institutional
reforms, imitations and R&D)
– Education (h increases)
– Capital accumulation (K/L increases through saving or
borrowing from abroad)
Economic 2 –Growth Theory
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Which economic policies are conducive to growth?
(technological progress, education and capital accumulation?)
– stable macroeconomic policy (low inflation and low budget deficits)
– trade openness (low tariffs on capital goods and low taxes on
exports)
– low taxes?

Which institutions are conducive to growth?
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civil laws and protection of property rights
political stability
democracy or dictatorship?
low level of corruption and nepotism?
temperature?
culture and people?
2. Culture and Economic Development
Asian countries started with high level of education (for their
income level)
known for parents’ dedication to children’s education
 Many Asian countries are high savers.
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Japan, Korea, Taiwan, Singapore, China
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Asians known for hard work and self-discipline
Confucian Influence?
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Max Weber
The Protestant Ethics and the Spirit of Capitalism salvation anxiety => hard work, discipline and thrift
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Morishima
Why has Japan Succeeded?
Parallel between Protestant ethics and Confucian ethics
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Is Confucianism conducive to economic growth?
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Why did the Asian countries remain so poor until recently?
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West
East
individualism
society over the individual
(finding the proper place of
an individual in a social order)
legalistic contracts
family-like relationship
checks and balance
virtue and benevolence of
the ruling class - sage(君子)
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West
individualism
profit motive and creative
efforts
legalistic contracts
property rights and conflict
resolution through legal
process
competition between
buyers and sellers
democracy
checks and balance
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East
society over the individual
social harmony and
consensus
family-like relationship
collective ownership
virtue and benevolence
virtuous ruler
discipline and thrift
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East
society over the individual
suppression of freedom
and creativity
family-like relationship
cronyism and corruption
virtue and benevolence
authoritarian ruler
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• Have to be careful about cultural determinism.
Q) Is it a dominant force in economic growth?
Japan, Korea, China in the past
Malaysia and Indonesia (Islam)
India (Hindu)
Korean households once high savers, now low savers
• Confucianism may generate some synergy when
combined with capitalistic environment.
• It has to be adapted and transformed to progress into
a mature market economy.
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3. Democracy, People and Economic Development
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Authoritarian regimes in miracle economies
(Japan – long rule of the Liberal Democratic Party)
Korea – Park, Chung Hee Park
Taiwan – Chiang, Kai Shek
Singapore – Lee, Kuan Yew
Malaysia – Mahathir
Indonesia – Suharuto
China – Communist Party
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Benevolent dictator – Confucian legacy?
Korea – Park, Chung Hee
Singapore – Lee, Kuan Yew
China – Deng, Xiaoping
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Advantages of authoritarian regime
– national level coordination of development strategies (big-push)
– quick and efficient decision making
– policy consistency (vs. left-right swings in a democracy)
Q) Why did Communist countries not grow in 70s?
Q) How explain Hong Kong and India?
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Disadvantages of authoritarian regime
– Hidden political instability
wealth now, representation later
growing dissatisfaction of middle class as the economy develops
could explode with an economic crisis
– Suppression of free sprits and entrepreneurialism
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Does democracy promote growth?
No strong empirical evidence
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Debate
Lee, Kuan Yew
Western democracy is neither necessary nor suitable in the Asian model of
development. Needs to guard against cultural imperialism.
Dae Jung, Kim
Asia has a long tradition of democracy. Petty apology for dictatorship.
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Korea, Singapore and China Model
Korea and Singapore – rapid growth as a means of justifying the authoritarian
rule and defending capitalism against communism.
China– rapid growth as a means of justifying the sustained rule of the
Communist Party
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4. Korean Values
Brief History
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Long tradition of centralism – Chosun Dynasty (1392-1910)
No feudal or local powers.
King and bureaucratic scholars dominate in political power and
distribution of economic resources.
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Colonial rule of Japan (1910-1945)
Modernization under the Japanese colonial rule.
Debate – Was the Japanese rule asset or liability for the Korean Miracle?
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US Army Military Government (1945-1948) – South Korea
Some efforts to implant democracy and capitalism
Period of political and economic chaos
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Syngman Rhee (1948-1960) – first president of the Republic of Korea
Korean War (1950-1953)
justifying dictatorship for anti-communism campaigns
inefficient and corrupt distribution of Japanese enterprises and US aids
failed to lay foundation for future economic development
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4. Korean Culture
Brief History
• Long tradition of centralism – Chosun Dynasty (1392-1910)
No feudal or local powers.
King and bureaucratic scholars dominate in political power and
distribution of economic resources.
•
Colonial rule of Japan (1910-1945)
Modernization under the Japanese colonial rule.
Was the Japanese rule asset or liability for the Korean Miracle?
•
US Army Military Government (1945-1948) – South Korea
Some efforts to implant democracy and capitalism
Period of political and economic chaos
•
Syngman Rhee (1948-1960) – first president of the Republic of Korea
Korean War (1950-1953)
justifying dictatorship for anti-communism campaigns
inefficient and corrupt distribution of Japanese enterprises and US aids
failed to lay foundation for future economic development
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Distinctive characteristics of Korean culture (Song)
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Fusion and flexibility + risk-taking resilience
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Ethnic homogeneity
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Strong influence of Christianity – channel for importing Western
individualism?
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New Confucian ethics – the breakdown of traditional social hierarchy
scholars (bureaucrats) – farmers - artisans – merchants
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Communitarianism – family, clan, region, school, nation
Social harmony in business, government, labor relationship
Life-long employment and patriarchic corporate culture
Business group maintained by family ties
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Economic 3 Gains from Trade
 Comparative advantage and gains from trade
QA
unit labor requirement
Textile
Auto
Labor
1
1
200
400
PT/PA = 2
200
+1
100
-1
C
100
200
QT
Economic 4 Development Strategy
 Export Promotion vs. Import Substitution
QA
unit labor requirement
Textile
Auto
Labor
1
1
200
400
PT/PA = 2
200
QT
200
Development Strategies
• Laissez-faire
• Government Interventions
• Export-Promotion
Both exports and imports increase
outward-oriented
• Import-Substitution
Both exports and imports decrease
inward-looking
self-sufficiency
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Chung Hee Park (1961-1980)
Period of authoritarian politics and rapid economic development
Anti-communist
Threatened by the economic success of the North Korea
Economic development has all the priorities
political freedom and reunification put aside
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State-led economic development
Economic Planning Board created – 5 year plans
Nationalized commercial banks
Put the Bank of Korea under the control of the Ministry of Finance
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Initial plan – import substitution development a la Latin American
countries
exporting primary products and
developing steel and machinery industries
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Switch to Export-led growth
Export drives of labor-intensive products
Historical accidents - Lim
US tried to manipulate Park with US aids. Park, fierce nationalist, tried to be
independent of US pressures by developing dollar-generating industries.
US pressures
US preferred market-oriented outward-looking growth strategy.
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Nationalism and anti-FDI policy
Compare with Singapore
Development of local technologies and companies to lead growth
Similarity with the Japanese model
Heavily relied on foreign loans
Government directly borrowed from the world and distributed to the private
sector
Government guaranteed foreign loans of private businesses
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Development based on private entrepreneurship
-backed by foreign loan guarantees and low interest rate loans
-closely monitored by the government in export performance
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