The Importance of Leadership in Development: Lessons from South Korea

[This was a response memo in my Politics of Development class at the Harvard Kennedy School]

As a student of industrial policy I have always been fascinated by the so called “East Asian miracle”, and South Korea stands above the rest in its ability to rapidly industrialize through export-led growth. Scholars of South Korean industrialization such as Robert Wade and Alice Amsden have emphasized the role of the state and political leadership in orchestrating this ‘miracle’. Park Chung Hee led South Korea during its formative years from 1961 to 1979. I draw from the book Korea’s Development under Park Chung Hee: Rapid Industrialization, 1961–79 by Kim Hyung-A (2004) to analyze Park’s ‘guided capitalism’ through which he planned and managed economic development using state-led intervention in industrial enterprises. Kim Hyung-A’s study is based on personal interviews with Park’s principal technocrats in the 1970s as well as archival documents from both Korea and the USA.

Several factors are seen motivating Park in his quest for power. According to Kim Hyung-A, Park had a humble upbringing and he came of age during Japanese colonial control of Korea. Despite having served in the Japanese army, Park resented the ‘Japanization’ of Korea. He also abhorred Korea’s excessive[1] reliance on US-aid after Japan’s surrender in 1945, and the conditions this came with such as democratizing South Korea. He was able to win the elections in 1961 by appealing to the national desire for genuine sovereignty and development via what he called the ‘Korean way’. Korea’s industrialization and propensity to export thus partly came from Park’s need to build a self-sustaining defense industry and to accumulate foreign reserves should US assistance end. From 1961 he led a centrally organized political system and he recruited a core of planners that would carry out the heavy and chemical industrialization (HCI), which in turn would strengthen military defense. Park chose big conglomerates, or the chaebol, as his industrial partners, and technocrats rather than economic bureaucrats as his policy advisers (2).

Park’s tactics were not always welcomed despite their effectiveness. For example, he established a Confucian military-style master–student relationship between the government and the business community by means of what he called “administrative controls” over every business group. He confiscated property of 51 prominent businessmen, whom he later released after they each signed a statement saying “I will donate all my property when the government requires it for national construction” (81). In exchange for their cooperation Park’s “guided capitalism” offered extensive support protection and privileges. These included foreign loan guarantees, financial subsidies, protection from independent unionism and a fixed-wage system. These measures were specifically designed to create large-scale national enterprises through existing chaebol. In particular, the government’s foreign loan guarantee system (enacted in July 1962) allowed big business to access massive borrowings from abroad (ibid).

Park’s guiding principles were patriotism and economic nationalism. He relied heavily on the Korean Central Intelligence Agency (KCIA) for security, so that no one, under any circumstance, could obstruct him, or his state (206). Kim Hyung-A reports that Park even had his family tracked! Park’s technocrats in the Ministry of Commerce and Industry (MCI) became the driving force behind Korea’s export-oriented industry construction (EOIC). MCI resembled Japan’s MITI in its focus on technical micro policies to boost exports for example. Many insiders within MCI particularly noted the role of Minister Pak Ch’unghun who became known as “the Export Minister.” According to Kim Hyung-A, Pak apparently urged President Park as follows:

Exports are the only means to save us. I believe, from now on, we as a nation must strive to implement the export-first policy by designating it as the supreme priority of the nation. And, I urge you, Mr. President, that you lead us as the Supreme Commander. I also urge you to encourage us as well to eradicate bottlenecks [to facilitate exports.]…..Kim Hyung-A, 2004: 115.

Park personally chaired the Monthly Export Promotion Meeting and many other regular reviews, which meant that he directly managed the performance monitoring of all firms in the promoted industries. Korea achieved $100 million in export earnings in 1964 and by 1971, exports exceeded 1 billion dollars. As a result, the MCI formally declared December 5^th as Export Day.

Export-led growth facilitated increases in per capita incomes and empowerment of the civil society, which became increasingly vocal over state suppression of individual freedoms and corruption. There was discontent with the preferential foreign loan arrangements and the associated corruption, especially between politicians and chaebol. Moreover, financial instability, due largely to economic recession and excessive foreign loans in the late 1960s, became increasingly serious. The de-registration of 30 insolvent companies by Presidential Secretary Chang Tokchin in April 1969, was symptomatic of the many problems underlying Korea’s rapid economic growth.

In conclusion, Park’s legacy, for better or for worse, means that much of the character of the Korean people today and of their society is inextricably bound up with the political and economic system that he put in place under his regime. According to Kim Hyung-A (2004), Park is repeatedly acknowledged by his people as the “most effective president ever” and his reputation in international circles is also high (7). Almost everyone who holds a position of authority in Korea today is in some way a product of Park’s policies, and thus profoundly influenced by them (205). Many developments of political significance that have happened in Korea since 1979, after Park’s assassination are in some way either a continuation of, or a reaction against, what happened in the Park era.

Reference:

• Kim Hyung-A (2004). Korea’s Development under Park Chung Hee: Rapid Industrialization, 1961–79. RoutledgeCurzon/Asian Studies Association of Australia (ASAA) East Asia Series.

---

[1] US budget support was 52% of the total budget in 1961. (Kim Hyung-A, 2004: 90)