The Southeast Asian Economic Miracle

Young Kim

• Publisher: Routledge
• Year: 2018
• Print ISBN: 9781560001966
• eBook ISBN: 9781351293464
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

There is widespread agreement that the world's most successful developing countries in the 1980s were those in Southeast Asia. Following in the footsteps of postwar Japan and more recently Korea, the populations of Thailand, Malaysia, Indonesia, Singapore, Hong Kong, and the Philippines have made enormous strides in income, industrial and agricultural production, exports, education, health, nutrition, consumption, and other development indicators. This book brings together political scientists, economists, officials of Asian governments, the United States, and representatives of the multilateral banks to analyze and explain Southeast Asia's extraordinary growth.

Chapters and contributors to The Southeast Asian Economic Miracle include: "Recent Developments and Future Prospects of Indonesia" by Anwar Nasution; "The Economic Experience and Prospects of Thailand" by Sukhumbhand Paribatra; "The Development of the Former Indochina States" by Frederick Brown; "Trade and Investment in Southeast Asian Development" by Stephen Parker; and "Managing Renewable Resources in Southeast Asia: The Problem of Deforestation" by Gareth Porter.

Among the critical questions that the contributors address are: Is the success of the 1980s and early 1990s a permanent part of the world's economic landscape? How will this region react to the growth of China's vast productive capacity and to the faltering of Japan's economy? What will be the effect of U.S. military disengagement caused by domestic budgetary concerns and the end of the cold war? The Southeast Asian Economic Miracle is an important study of the shifting winds of the political economy of growth in our time—the movement away from a command to a free market environment. It will be an essential resource for political scientists, Asia area scholars, economists, and policymakers.

1

The Transition in the Political Economy of South Korean Development: Issues and Perspectives

Hak K. Pyo

Since after Lipset¹ advanced the proposition that democracy is a product of economic development, there have been voluminous theoretical and empirical studies investigating its validity. The critics of democracy argue that dictatorships can insulate the state from particularistic pressures and, therefore, are better at mobilizing savings. On the other hand, the defenders of democracies argue that only democratic institutions can constrain the state to act in general interest and that dictatorships of any stripe are a source of inefficiency; democracies are better at allocating investment.

After reviewing 18 empirical studies, Przeworski and Limongi² conclude that the statistical evidence on the Lipset proposition is inconclusive. Among the 21 findings generated by those studies, eight found that authoritarian regimes grew faster, eight found in favor of democracy, and five discovered no difference.

On the other hand, Lipset’s proposition has been examined by a number of comparative historical studies. Moore,³ for example, has come to skeptical conclusions about the chances of democracy as capitalist economic development spread around the globe. More recently, Huber, Rueschemeyer, and Stephens⁴ have examined democratic transition and breakdown in Europe, South and Central America, and the West Indies. They have concluded that the level of economic development is causally related to the development of political democracy. They argue that the underlying reason for the connection is that capitalist development transforms the class structure, enlarging the working and middle classes and facilitating their self-organization, thus making it more difficult for elites to exclude them politically.

The purpose of this chapter is to examine the current democratic transition in South Korea both in an empirical and historical context. The success story of South Korea in development provides us with two edges of the connection between economic development and political regime. On the one hand, as cited by Sah⁵ and Bardhan,⁶ its development under President Park and President Chun provides a case in favor of an authoritarian regime that fosters economic growth by insulating development-minded decision makers from short-term rent-seeking and distributive politics. On the other hand, it also provides a case for the Lipset proposition in the sense that its economic development invited democratic transition under President Roh and the current President Kim. In this regard, a careful examination of the South Korean case is fully warranted. In my view, South Korea is a perfect example of supporting the view of comparative historical research, advanced by Huber, Rueschemeyer, and Stephens⁷ and endorsed by Bardhan,⁸ that the level of economic development is causally related to the development of political democracy. In the present chapter, I examine how capitalist development in South Korea has transformed the class structure and the nature of economic dependency.

In the next section, the capitalist development in South Korea under two consecutive authoritarian regimes is analyzed and its dependent nature and limitations are examined. This is followed by a discussion of the transformation of the class structure and the changes in economic dependency that ultimately have brought about a Lipset phenomenon. The final sections discuss the ongoing democratic transition and the conditions for the survival of democracy and reach a contentious conclusion.

Economic Development Under a Uthoritarian Regimes and its Limitations

After the independence from Japanese colonial rule, the division of the Korean peninsula, and the subsequent Korean War, South Korea remained a poor underdeveloped country. The Rhee government relied heavily on U.S. military and economic aid. During the period of 1954-1961, the average growth rate of real GNP was about 4.0 percent with an average annual inflation rate of 22.1 percent, as shown in table 1. The balance of payments could be maintained at equilibrium only with U.S. aid.

In a recent article, which refers to South Korean development as an economic miracle, Lucas⁹ has compared the country’s economic situation in 1960 with the Philippines. Both countries had about the same standard of living with per capita GDP of about 640 U.S. dollars in 1975 prices. The college enrollment rates in South Korea and the Philippines were 5 percent and 13 percent respectively. Only 20 percent of South Korean GDP was generated in industry while the comparable number in the Philippines was 28 percent. Primary commodities made up 86 percent of Korean merchandise exports and 96 percent of Philippine merchandise exports. However, from 1960 to 1988, GDP per capita in the Philippines grew at about 1.8 percent per year, while in Korea it grew at 6.2 percent per year.

President Rhee followed a typical course of development dictatorship, oppressing the opposition party and bribing voters to hold the majority in the assembly. He also alienated himself not only from the public but also from the ruling class. Ultimately, the nationwide voting scandal in the 1960 general election invoked strong opposition by the opposition party and student activists.

The Rhee government was toppled by a student uprising in April 1960 and a cabinet system was formed under the new constitution. Even though the Second Republic under Prime Minister Chang was a seemingly democratic regime, it was too weak to consolidate power and secure both political and economic stability. It could not handle effectively the rampant demands by student activists and the newly formed opposition party.

It was setting up a classic situation for military intervention. While division among elite groups—with no individual group powerful enough to hijack the state by itself—may somewhat enhance the chance of democracy, it should nevertheless be pointed out that in some countries intra-elite conflicts may get out of hand (inviting extra-constitutional interventions, perhaps from the military).¹⁰

The political instability has provided the military both opportunity and legitimacy to intervene. Following a coup in May 1961, President Park consolidated military power and formed a new government. At the beginning of his rule, he rode on the popular sentiment of suppressing capitalist groups established under the Rhee government. Several well-known businessmen were put into jail and had to surrender their assets to the public. But soon Park realized that he needed their help to restore economic stability and, therefore, released most of them but requested that they come up with development project proposals. He started using the stick and carrot to control the business circle.

President Park was desperate to build the legitimacy of his government against the hesitant U.S. recognition and the vigorous opposition activities. He tried to establish it by making the public concentrate on two issues: national security from the North Korean threat and economic growth to avoid the vicious circle of poverty. The phaseout of U.S. economic aid increased public awareness of economic hardship and, therefore, the slogan for mobilizing national resources for the economic take-off was effectively penetrated into the public’s mind.

Throughout the period of Park’s presidency (1961-1979), South Korea managed to pass the take-off stage and to achieve a remarkable industrialization. The government drafted successive five-year economic development plans beginning in 1962. However, there was tight security control and political suppression. The political opposition to Park’s regime was at its peak in October 1972. After being reelected with a narrow margin against Dae-Jung Kim, President Park declared what is called the “Restoration System” and made himself an almost permanent president by changing presidential election law from direct vote to indirect vote.

However, at the same time, he was able to insulate the development-minded bureaucrats from particularistic pressures and the marauding lobbies of distributive politics.¹¹ The South Korean economy managed to overcome the first oil crisis in 1974 and to pass the Lewisian turning point in 1975, ending the period of unlimited labor supply. During the 1960s, in order to fill the gap between domestic savings and investment demand, South Korea relied on foreign capital. Foreign capital inflow was made mostly in the form of borrowings from international lending institutions such as the World Bank and bank syndicate loans. The role of foreign direct investment was relatively low. The combination of capital and abundant but well-educated labor made it possible to achieve successful export-led growth.

After 1975, President Park pushed for a second stage of industrialization, focusing on heavy and chemical industries as strategic industries. He became more confident about the country’s industrialization after successfully overcoming the first oil crisis. But, pressure from the Carter administration on the human rights issue and the pullout plan of the U.S. forces in South Korea made him obsessed with the goal of self-defense. At the same time, domestic opposition was getting more organized and, consequently, he put more people in jail as the political situation worsened. In addition, a worldwide recession and the second oil crisis was about to come.

As Przeworski and Limongi pointed out,¹² regimes do differ in their probabilities of surviving various economic conditions: authoritarian regimes are less likely than democracies to survive when they perform badly. In 1979, the South Korean economy was heading downward due to sluggish export demand, rampant inflation, and violent labor disputes. The Park regime did not survive: President Park was assassinated on October 26, 1979, by the chief of the Korean Central Intelligence Agency. The downfall of an almost absolute power created a huge vacuum in both political and economic life in Korea. In the following year, the Korean economy recorded a negative growth rate of real GNP (-3.7 percent) and the division of the main opposition party created another classical set-up for military intervention.

In retrospect, no one can deny that President Park became a develop-mentalist leader¹³ and achieved his goal of industrializing the South Korean economy. As summarized in table 1, the economy grew at an average rate of 9.2 percent with inflation averaging 18.5 percent. The economy followed a route of high-pressured extensive export-led growth. Even though the Park government was closely connected with large enterprises and business groups, it promoted competition among them by allocating bank loans through government-controlled banks.

However, the insulation of the development-minded policy elite from politics is only a necessary condition of a developmental state, not a sufficient condition. As Bardhan¹⁴ noted properly, large-scale technocratic development projects directed from above by an insulated modernizing elite were far removed from domestic realities and quickly became white elephants. The downfall of the Park regime was accelerated by inefficient resource allocation. It is evidence for the view that while an authoritarian regime can foster growth, it creates its own limitation. Only democratic institutions can work in the interest of the general public. It is for this reason that we do not observe any single industrial nation with a dictatorship.

In the aftermath of President Park’s sudden death, a military group consolidated power and its leader, Mr. Doo-Hwan Chun, became president by another indirect vote after suppressing violent demonstrations in Seoul and Kwangju against the military intervention.

When President Chun began his presidency in 1981, he had to face the same situation President Park had faced two decades ago. The economy was in deep recession with hyperinflation and his regime had to establish political legitimacy. He relied heavily on experienced bureaucrats and supported them in their efforts to carry out a package of stabilization policies. The inflation rate came down and the economy was put back on a sustained growth path. Again the authoritarian regime managed to insulate bureaucrats successfully from politics.

During the Chun regime, the Korean economy went through a significant structural change. A revitalization plan for heavy industries was carried out, streamlining some of the inefficient enterprises. At the same time, major conglomerates started investing in more technology-intensive industries such as semiconductors and automobiles. A series of import liberalization plans were initiated and the industrial policy changed from a direct industry-specific support system to an indirect functional support system (for example, providing tax incentives for investments in energy-saving equipment). In other words, the Korea...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Contents
• Preface
• 1 The Transition in the Political Economy of South Korean Development
• 2 Malaysia
• 3 Recent Developments and Future Prospects of the Indonesian Economy
• 4 Southeast Asian Economic Experience And Prospects Myanmar
• 5 The Economic Development Of Vietnam, Laos, And Cambodia
• 6 The Prospects For Democratization In Southeast Asia
• 7 Government and Business in Thailand
• 8 Trade and Investment in Southeast Asian Development
• 9 Managing Renewable Resources in Southeast Asia
• 10 Showtime for Southeast Asia
• 11 The PRC, Taiwan, and the Overseas Chinese
• 12 Southeast Asian Economic Experience and Prospects
• Contributor
• Index