This book describes struggles of different countries and their development after World War II. It presents a panorama of different ideologies of accelerated development, which dominated the world just before the war and in the next 40 years. The author explains why in the 1970s global and local elites began to turn away from the state, exchanging statism for the belief in the «invisible hand of the market» as a panacea for underdevelopment. He focuses not only on the genesis of underdevelopment, but also on the causes of popularity of economic planning, and the advent of neoliberalism in the discourse of development economics. This book evaluates the power of state as a vehicle of progress and focuses in detail on the Soviet Union, China, Poland, Ghana, Tanzania, and South Korea.
Chapter 7. Small dragons. Korea and Taiwan, 1945–1980
They have absolutely no will to work. The men squat in their
white clothes smoking on their long pipes and dream of the
past, never thinking of the present nor hoping for the future.
Japanese colonial administrator Nitobe Inazō speaking about
Koreans, “A Decaying Nation”, 1906846
On the night of 8–9 July 1853, Lieutenant John Duer, commander of the USS Mississippi, watched as a “brilliant orange and blue meteor” flew across the sky over the fleet of American warships moored in Tokyo Bay. In his log, he wrote that he took this as a good omen. His dangerous expedition would end in success.848
The commander of the fleet, Commodore Matthew Perry, had just delivered a proposal for a trade agreement to a representative of the Japanese imperial government. The Japanese rejected the proposal, but Perry offered to leave them time to consider it further. He would return in a year’s time for a definitive reply.
In actuality, this was an ultimatum from the West to the closed Asian country. Japan had been in self-imposed isolation since the mid-seventeenth century, allowing only very limited and strictly controlled trade with the outside world through the port of Nagasaki. Europeans were treated as a fifth column. They were a source of contamination that must not be allowed to spread, and a necessary evil that had to be kept from putting down roots. One of the conditions laid down by Japanese authorities for Portuguese merchants since the 1630s was a prohibition on European women residing in trade colonies – with the only exception being professional prostitutes.849 Japan rulers were committed to maintaining domestic tranquillity and harmony, which they tended to believe contact ←279 | 280→with strangers could only upset. No one, or almost no one, among the Japanese wanted to open up to the outside world, writes historian Louis M. Cullen.850
When in 1854 a U.S. fleet of nine ships returned for an official response, Japanese politicians had a strategy of their own prepared. They were well aware of Europe’s military superiority – Perry’s fleet alone had more cannons than the coastal batteries around the capital – and, of course, they knew that almost all of Asia had already be subjected to European domination. They decided therefore to play for time and to acquiesce as little as possible. The treaty ultimately signed in 1858 – which at the request of the Japanese included the possibility of renegotiation after 14 years – was meant to serve one goal: to maintain the country’s independence, giving up to the foreigners as little as possible, and using this time to modernize the army so that it would be capable of resisting future foreign aggression.851 The Meiji Restoration that followed also had this as its main purpose.
One of the gifts Perry had brought for the emperor was a working miniature steam train, intended to demonstrate the power of American industry.852 The message conveyed to the Japanese was not necessarily the one the sender had intended: Japan needed to modernize if it wanted to maintain its independence.
The country began to open up to the West at an impressive rate, but it did so in a carefully controlled manner. By the 1860s, Japanese students were attending universities in America and Europe, and soon after, working in their factories and shipyards. The country had a lot of catching up to do. The debut of this future industrial power in international trade was disappointing. Japan’s pavilion at the International Exhibition in London in 1862 was described by the press as being “such a ramshackle assortment of artefacts that it looked just like an old antique shop.” “I could not bear to look”, noted one of the Japanese students living in London at the time.853
The attitude of the Japanese towards Europeans, like many non-European peoples, was a mixture of awe, fear and disgust. The Meiji Restoration introduced European patterns to things big and small. Ito Hirobumi, the primary author of the 1889 Constitution, was so impressed by German Imperial Chancellor Bismarck that he even held his cigar the same way Bismarck did in photographs. ←280 | 281→British ambassador Sir Harry Parkes’ Victorian sideburns were imitated by many of the leading politicians of the Meiji, with limited success.854
Forty years after Commodore Perry’s visit, Japan already had its own constitution, parliament, aristocratic titles, newspapers and centralized administration based on European models. Gone were the old feudal domains, replaced by prefectures under the authority of the central government. As late as the 1860s, Marx could write in the New York Herald Tribune that the island nation was a model example of feudalism. By the 1890s, the Chinese diplomat Huang Chun- Hsien in his letters from Tokyo was already calling Japan an example of modern centralization.
Given the scale and depth of change it involved, the Meiji Restoration encountered surprisingly little resistance. The well-known researcher of Asian economies Robert Wade has written about the difference between “hard” and “soft” states, seeing in this distinction the foundations for economic success. A “hard” state shapes society in accordance with the needs of the ruling bureaucracy. “Soft” states act according to dictates resulting from the plays for power of various social interests. The United States is a “soft country; Japan, Korea and Taiwan are “hard” countries.855
The Japanese state was definitively “hard”. For the Japanese, the best school for modern living was the army, which itself was also a primary target of modernization efforts. The establishment of an army based on conscription, in accordance with decrees, laws and regulations modelled on the German, British and French systems, was a landmark event in the history Japan’s path to modernity.856 Its slogan was “a soldier is a model for society”. Various social institutions – from schools and hospitals to factory dormitories – were organized according to military models. Marches, salutes, military uniforms and short haircuts were introduced in schools. This new social order was evident in the country’s classrooms, where emphasis was placed on “cleanliness” and “order”. In dormitories, the rigour maintained was on par with that of military barracks. In 1886, teachers began to be trained according to a military regime, “military-style” physical education was adopted, and students were under observation day and night by supervisors and upperclassmen. Meticulous rules governed every aspect of life: in the barracks where prospective teachers lived, no more than 10 people were allowed to a room, with each resident being assigned three shelves with an exact ←281 | 282→length of three shaku (90.9 cm); regulations defined where and exactly how too fold one’s uniform, underwear, shoes and belt. After five years of such training, teachers brought these models to their schools. Similar rules were in force in factory dormitories. The Education Order of 1872 warned young, mostly teenage workers: “Whether outside or inside, deport yourselves prudently, and never disregard proper feminine manners. Take care never to violate the rules against joking, singing vulgar popular songs, speaking in a loud voice, and removing clothes. Both body and clothing must be kept thoroughly clean.”857 The Education Order of 1872 stated: “in the village, no home without learning; in the home, no person without learning”. Society was to be disciplined like an army and be subjected to a military-style system of indoctrination.
Uniformity and standardization were to be part of every aspect of life. In November 1872, the government abolished the old calendar, introducing – in place of 50,000 separate bells regulating the rhythm of the day in 50,000 Japanese villages –standard time and a calendar based on those used in the West. This reform also had a spiritual dimension. A Proclamation by the Governor of Kyoto supplied the reform’s ideological rationale:
The need to value time and work industriously has been frequently proclaimed. It is for this purpose that drums to beat the hours have been set up in every school, that the solar calendar is now being adopted and the time system revised, and that all districts throughout the country must keep the same time. People should keep time all the more seriously than ever:
1. Take care not to be late in disregard of time commitments to others, or to do such things as waste time in idle talk or disturb the work of others.
2. To avoid differences in working hours caused by long and short days, carpenters and other day labourers are urged to contract for wages based on working from a certain time in the morning to a certain time in the afternoon, without regard for the time of sunrise and sunset.
3. With the abolishing of the old calendar, all sales of publications such as astrological explanations of karma surrounding past, present, and future lives, and compatibility between men and women, must absolutely stop.
4. Furthermore, telling ghost stories is prohibited by law. In order to develop talent and wisdom and not fall into barbarism, evil customs of the past, including telling ghost stories to frighten and quiet crying children, are prohibited by the clear laws mentioned above, which warn against telling or listening to falsehoods.858
All of these measures to promote modernization were imposed from above by the imperial bureaucracy. In the West, the introduction of an official standard ←282 | 283→time had been dictated by the need to coordinate domestic and international railway, shipping and telegraph systems. In Japan, this order was reversed: in an effort to modernize, the state began developing all of these systems, but it first standardized time. Prior to the adoption in April 1876 of an hourly work schedule in factory administration, such a means of measuring time had never been used in Japan. This change, too, was introduced by bureaucratic fiat. All modern institutions – barracks, hospitals, prisons, railways and government offices – became schools of punctuality based on a top-down system of order.859 The main features of the Meiji Restoration – nationalism, an economy viewed as a collective strategic project, almost military in nature, subordinated to collective interests (rather than those of particular businessmen or individual citizens), a powerful bureaucracy, carefully selected imports of technology (including management techniques), and a highly self-disciplined society – would all later become features of the Japanese model, which was emulated by neighbouring East Asian countries.
Yet prior to the Meiji Restoration, the Japanese economy had not been stagnant: economic growth had been pronounced since the eighteenth century. Rice harvests and the number of labourers employed by farmers rose, technical innovations were introduced (although none on the level of the steam engine), new textile factories opened and books devoted to new farming techniques appeared. Meanwhile, the population grew slowly: between the 1721 and 1846 censuses, which historians consider to be accurate, the population increased by only three percent.
Although this increase was very similar to what Western Europe experienced before the industrial revolution (at least since the mid-seventeenth century.), it is unlikely that when Commodore Perry’s fleet made its diplomatic visit, Japan’s per capita income was as high as England’s a century earlier.860 Some historians think that industrialization might have taken place on its own and without contact with the West, and that domestic trade had a greater impact on its development than state intervention; however, this is not the dominant view.861 Yet there is no doubt that this growth provided Japan with the means to build its own industry: the level of education among the population increased, but its business enterprises grew larger and more complex.←283 | 284→
Compared to the West, Japan around 1900 was still a poor and underdeveloped country. The distance separating them was particularly pronounced in heavy industry and machine building, and in the length of their railway lines. The first steam locomotive was not produced in Japan until 1893, and the first battleship not until 1910. The hand of government was visible in almost every major industrial project in the form of subsidies, protective tariffs and loans. The first big steel mill – Yawata – was founded by the state in 1895 through a resolution of the parliament, and it was subsidized generously for several years before it became profitable. The First World War brought the first real boom: the Japanese started exporting textiles on a large scale, and industrial production rose by 72 percent in the years 1914–1919.862 Isolation from European competition brought even greater benefits to Japan than to the countries of Latin America. The government invested heavily in infrastructure: by 1930, 90 percent of houses in Japan had electric light, which was a much higher proportion than in most Western European countries.863 The main beneficiary of the country’s modern industrial production, however, continued to be the army.864
This project as a whole was never guided by a uniform and consistent ideology. The Japanese borrowed certain ideas from Western thought – “productive forces” from Marx, “innovation” and “management of demand” from Keynes, and the idea of “total war” from German political thought – but they did so selectively and always placed them in a Japanese context. The Great Depression was key to the emergence of Japanese economic thinking: as in most peripheral countries, the collapse of the liberal agenda led Japan to a search for its own national path to prosperity and power. The country’s main priorities became national security – which, according to Japanese politicians, required that the country arm itself – and industrial self-sufficiency (self-sufficiency in terms of raw materials was unthinkable for an overcrowded and small island country, hence the need for expansion). Industrial policy was caught up in the cult of production. The economy was a strategic undertaking for the entire nation: the state needed to oversee it.
Japanese regulations during this period were subordinated to three main principles. The first was sangyō kōzō, that is, building an optimal industrial structure through government policy; “optimal” here meant one whereby Japan would achieve the best possible position in terms of world trade. The second keyword, ←284 | 285→kado kyōsō, meant restricting competition in order to concentrate resources effectively in selected industries, and maintaining controlled order in economic growth. The third principle, seisansei, meant rejecting profit as the most important criterion in management. Companies were to sacrifice short-term profits in order to assure themselves an obedient and loyal workforce dedicated to raising productivity.865 This of course did not mean that unions were tolerated: the State remained hostile to the idea of workers self-organizing.
Key industries were carefully nurtured. Even those that remained private were often in practice creations of the state. A good example of this is provided by the automotive industry. Investment in the industry began in 1907 when the Japanese army became interested in acquiring motor vehicles. The first subsidies for domestic production were enacted into law 1918. These however proved ineffective: it was still cheaper to import mass-produced American cars. Ford soon opened a Model A assembly plant in Yokohama, which turned out 20,000 vehicles a year. General Motors assembled a similar number of cars in Japan, mainly using parts produced in the U.S. As a result, the first Japanese manufacturers – Hakuyosha, Miyata Seisakujyo and Orient Jidousha Seizou – failed because they could not compete with American mass production.
In the 1930s, the government decided that the import of automotive parts was negatively affecting the balance of trade, as well as making an important manufacturing sector increasingly dependent on the outside world. In 1936, the Automobile Manufacturing Enterprise Law was passed, which required manufacturers to obtain a government license if they wanted to produce more than 3000 vehicles a year. This license could only be granted to Japanese companies. Each licensed company received a five-year exemption from taxes and duties on imports of machinery, but in return had to agree to obey the orders of government officials (this is stated in the law). Nissan and Toyota were the first companies to receive such a license. At the same time, the government ordered the Americans to cut back on production and raised tariffs on imported cars to 70 percent. As a result, local automobile production increased from almost from zero to 35,000 in 1939, while imports dropped to zero. Before the outbreak of the Second World War, Japan was able to produce domestically nearly all the automobiles it needed – and most importantly, the trucks required by the army.866←285 | 286→
This was an almost textbook example of both protecting a nascent national industry and of import substitution. It was also successful, unlike many such projects in Latin America, and brought long-term benefits: Toyota and Nissan are today among the largest car manufacturers in the world.
During the Great Depression and wartime mobilization new systems for maintaining control over industry were developed – including compulsory state-controlled producers’ associations, which decided not only on the levels, composition and methods of production, but also on the terms, prices and timing of transactions; it also had the authority to set the level of profits, dividends and bonuses.867 Companies remained private, but the economy was managed by the State beyond just the strategic level, with its bureaucracy exercising deepreaching control.
This style of managing industrialization was accompanied by the ideology of “technological patriotism”, which arose in the 1930s, and made advancements in technology and organizational efficiency national political objectives. In Japanese propaganda, the engineer was a soldier in service to the empire. Belief in the superiority of the “Japanese spirit” and “Japanese blood” were among the elements constituting Japan’s imperial ideology. However, a second important foundation was the belief that the Japanese had a special predisposition for success in science, technology and the organization of production. This superiority was defined narrowly – it applied not to those in the basic and social sciences, but to engineers and technical experts, whose work led to advancements in production. Japan needed to be independent from the West, and it could achieve this by emancipating itself from technical thinking and technology imported from the West. The “New Order for Science-Technology” proclaimed in Asia by the imperial government during the war treated Japan as a centre for scientific research and production, while the surrounding countries – primarily occupied Manchuria – were to provide the centre with resources and, if needed, a workforce.868
Japan’s defeat in the war and its occupation by the U.S. led to a transformation in this model, but not to the abandonment of its primary objectives. In the 1940s, the Americans dismantled the zaibatsu – the powerful family-based conglomerates that dominated industry and commerce – separating ownership of the companies from their management. In practice, however, the changes were primarily political and ideological. Japan had been demilitarized, but the struggle ←286 | 287→for national survival and independence continued, moving from the battlefield to the realm of international trade and production. Until at least the mid-1960s, Japan’s postwar leadership cadre had been shaped during the prewar years, which were dominated by a quasi-fascist cult of unity and productivism. The “religion of export” was an attempt to build national power using non-military methods. A popular slogan in the 1950s was “export or die”.
The economy remained a collective, strategic effort. Although Japan had lost the war, Prime Minister Shigeru Yoshida maintained that a “defeated nation, by analyzing and exploiting the shifting relations among world powers, could contain the damage incurred in defeat and instead could win the peace”.869 Yoshida’s strategic plan envisaged an alliance with the United States, which, in exchange for political and military support, would provide Japan with economic aid and military protection, while it concentrated its resources on building its economic might.
The Americans were also eager to see the economic rebirth of Japan: the U.S. needed an ally in the fight against communism in Asia, but given its hegemony in world trade and position as the world’s largest exporter, it was not afraid of competition. The diplomat George F. Kennan, who was an adviser to Truman and one of the fathers of the doctrine of containment, mainly emphasised the need for the U.S. to maintain control over the supply of raw materials to the islands, thereby giving it veto power over Japanese policy.870 The liberalization of the Japanese economy under the 1949 “Dodge Line” imposed by the occupiers was likewise limited in scale. It abolished state control over the distribution and pricing of raw materials for production and replaced direct control of credit with indirect control. It freed up market forces, but the state still professed the principle of “limited competition”. The American market remained open to its allies. The Korean War (1950–1953) provided a powerful impulse for growth: from July 1950 to February 1951, the U.S. Army ordered over 7,000 trucks from Japanese companies, for a total of $ 13 million, which put the country’s automotive industry on its feet.871 U.S. military spending accounted for almost 40 percent of ←287 | 288→foreign exchange inflows in the mid-1950s. Growth skyrocketed: for two decades Japan grew at nearly 10 percent annually, and national income doubled.872
Control over this economic miracle was exercised by the MITI, the Ministry of Industry and Foreign Trade. It was the heart and quintessence of the Japanese technocracy. In a statement issued in the 1980s, a few years before the collapse of the Japanese miracle, in his classic book on the MITI, American economist Chalmers Johnson described the mechanism by which this unique institution operated.
The MITI had a number of tools at is disposal, ranging from preferential loans to the ability to forgive taxes. The most powerful of these tools, however, were the close ties between the bureaucracy and business. The amakudari (Jap. descent from heaven) system, for example, assured government bureaucrats positions on the supervisory boards of strategic enterprises. The government controlled the economy through a complex system of licenses, incentives and permits: companies that employed former officials had, of course, better access to these. Johnson did not think of this as “corruption”, but merely as an adaptive mechanism; in contrast to the situation in countries ruled by oligarchies in Latin America, this system favoured production. The highest-ranking positions in the amakudari system – held by former MITI deputy ministers – were always in strategic export sectors. Satō Kiichiro, president of Mitsui Bank in the 1960s, noted that “during and after the war, … Japan’s economy was controlled until it has become second nature with us to uphold a planned, controlled economy.”873
The nation state remained the primary focus of discussion about economic matters: promoting its interests and importance were an overriding concern. During discussions about trade liberalization in the late 1950s and 1960s, a high MITI official, the director of the Office of Entrepreneurship Sahashi Shigeru said:
There was the National General Mobilization Law, the state was bestowed with great power to mobilize everything for the purpose of war by coercion and in the form of topdown. In order to make Japan the first class country among the first class countries, the national general mobilization is still needed today, though its format may differ from the wartime. Without the national general mobilization to consolidate the intelligence and power of the whole nation, people will assert and do whatever as they like and consequently Japan can accomplish nothing.874←288 | 289→
For decades there were no signs that other Asian nations were capable of moving quickly onto the path laid out by Japan. The reputation of other Asian nations in the West was similar to that enjoyed by the Chinese in the nineteenth century: they were widely seen as lazy, dirty, rotten, rooted in the past and unable to adapt to the discipline of modern times. During the Russo-Japanese War in 1905, the American journalist and specialist on Russia and Asia, George Kennan (a distant cousin of Truman’s advisor) wrote about the Koreans:
They are not only unattractive and unsympathetic to a Westerner who feels no spiritual interest in them, but they appear more and more to be lazy, dirty, unscrupulous, dishonest, incredibly ignorant, and wholly lacking in the self-respect that comes from a consciousness of individual power and worth. They are not undeveloped savages; they are the rotten product of a decayed Oriental civilization875.
This opinion was a commonly held one at the time. Kennan had no doubt that the civilizational superiority of the Japanese justified their domination over Korea. Another American traveller, Professor George T. Ladd, after his visit to Korea in 1907 said, “[t]he Koreans are the most untrustworthy and lacking in manly virtues of any people I have ever come in contact with”. He complained about their lack of manly virtues, cruelty and character, which was worthy, in his opinion, of contempt.876
By the 1970s, however, there was talk in the West about the “four little dragons” – South Korea, Taiwan, Singapore and Hong Kong – which had copied/ imitated/borrowed the Japanese model of growth and successfully adapted it to local conditions. But while Hong Kong and Singapore were small city-states, and could easily be regarded as unique examples of a civilizational “jump”, South Korea and Taiwan were larger parts of ancient Asian empires, and their fate seemed to prove that the success and growth enjoyed by Japan could be repeated. First Japan, then the “four dragons”, managed to do what economics textbooks – which had gradually become increasingly neo-classical since the 1970s – considered impossible: enact a policy of import substitution and protecting domestic industry that led to rapid growth in the economic, which did not get bogged down by an inefficiency bureaucracy and political corruption.
Korea’s industrialization had already begun in earnest in the 1930s, during colonial times. In 1931, Japan abolished a law prohibiting the building of plants in ←289 | 290→the colonies that might compete with Japanese enterprises; the Japanese zaibatsu (Jap. financial clique) responded by building power plants, textile mills and cement plants in Korea. In 1939, large factories (employing more than 200 workers) made up only one percent of the businesses in Korea, but accounted for two-thirds of industrial production. Korea, however, remained significantly behind Japan: in 1930 just 0.75 percent of the population were industrial workers, while in Japan the proportion was 3.5 times higher. In 1940, the value of Korea’s industrial output matched its agricultural production, which for a country that remained backward and dependent, testified to its rapid development.877 The boards of directors and technicians were mainly Japanese – on the eve of the war there were nearly 100,000 Japanese in Korea – but as Japan began occupying huge expanses of Asia, many had to be replaced by Koreans, allowing them to gain valuable experience. The Japanese Korea quickly dismantled Korea’s feudal institutions and built the beginnings of a modern infrastructure, including roads, ports and power lines. They also carried out land reform and built a bureaucracy modelled on Japan’s whose tentacles reached even the smallest village.878
Despite this, South Korea was still a very poor country. A decade after the war, which completely destroyed both the north and south of the country, the GDP per capita amounted to approximately 80 dollars a year, while in Ghana it was 200 dollars, and in Argentina 3700 dollars.879
Despite massive postwar aid from the U.S. – reaching up to 15 percent of GDP and 80 percent of foreign currency revenue – growth took off only after a military coup by a group of officers in 1961, headed by Park Chung Hee. His twenty years in power turned out to be one of the biggest economic success stories in the history of humankind.
Just 100 days after taking power, the junta announced its first five-year development plan. In two books written shortly after the coup – Our Nation’s Path and Country, Revolution and I (the author’s ego suited his ambitions) – Park Chung Hee laid out the foundations for his economic policies. There was no talk yet of exports, but two elements were borrowed from other development projects and ←290 | 291→clearly inspired by Japan’s success – a focus on large companies (production on a larger scale was more economical, just as large economic organizations were considered more efficient) and long-term planning. Park wrote:
One of the essential characteristics of a modern economy is its strong tendency towards centralization. Mammoth enterprise – considered indispensable at the moment to our country – plays not only a decisive role in the economic development and elevation of living standards, but further, brings about changes in the structure of society and the economy […] Where the appalling power of mammoth enterprise is concerned, only with private profit under a self-assumed assertion of contribution to national development, there is no free competition […] Therefore, the key problems facing a free economic policy are coordination and supervisory guidance, by the state, of mammoth economic strength.880
Planning was modelled after that in communist countries. Park believed in the power of motivation, which generates profits, and rational (that is, controlled by the state) competition:
The economic planning or long-range development program must not be allowed to stifle creativity or spontaneity of private enterprise. The overall national development program may necessitate, for the rational operation of the economy, reluctantly imposed administrative controls over the regional relocation of various industries and planning for investment.881
In the Korean dictator’s next book, Country, Revolution and I, there were as many numbers, and descriptions of new plants and investment projects as in the speeches of communist leaders. There were also plenty of examples of how the dictator envisioned rational state planning. His premises were usually fairly simple and not the result of painstaking economic analysis. The shipbuilding industry must be a priority, Park said, because “Korea is surrounded on three sides by the sea”, which “the previous government seemed to have been unaware of for the past ten years.882
Park was a student of the Japanese system of military education. After his death, the Japanese ambassador praised him as “the last soldier of Imperial Japan”.883 During the war, he had spent two years at a school for army officers in Manchuria, ←291 | 292→and then another two at the prestigious Imperial Japanese Army Academy. He was proud of this and emphasized that it had taught him discipline, loyalty and leadership skills. This education shaped his worldview: among his most important characteristics, he listed his sensitivity to detail, precision, determination and readiness to sacrifice for the nation. His militaristic and nationalistic intellectual orientation was taken straight from Japan during the 1930s and 1940s.
The dictator spent his nights reading books on history, and his favourite was The Economic History of Japan. He was an outstanding expert on the Meiji Restoration in Japan. His revolution was to be comparable to the accomplishments of Sun Yat-sen in China, Atatürk in Turkey, and Nasser in Egypt. “These were all holy projects aimed at resurrecting and building up their peoples”, he wrote.884 He consciously incorporated the most important slogans from the Meiji Restoration into his modernization project: fukoku kyōhei (Eng. rich nation, strong army) and shokusan kōgyō (Eng. industrial development, literally “production promotion”).885 According to Park, the secret to the success of his reforms lay in his elevating to power a new modernizing elite, and his tearing down the old power structures (interested in the benefits of power, not development). The army and industrial production should be under the close oversight of an elite, nationalistically oriented bureaucracy. The South Korean state, like Japan, called for “production promotion, exports, and construction”, promoted “construction on the one hand and national defense on the other,” and praised “frugality, hard work, and saving.”886
The success of the Meiji Restoration was not, according to the dictator, the result of economic policy in the strict sense. Park himself did not have much to say about the promotion of exports or the role of the exchange rate. He saw development as a function of the relationship between the state and the social classes, and of ideology.887 He wrote:
1. The Meiji reform had as its ideological basis a nationalistic patriotism.
2. Thereby they succeeded in Japanizing foreign thoughts that came in volume, and guarding the reform tasks undergoing then-repeated domestic ordeals from foreign invasion.←292 | 293→
3. By eliminating the influence of feudal lords and directly connecting the emperor with the energetic middle class, a progressive atmosphere to overcome feudalism was created.
4. Millionaires who promoted the reform were allowed to enter the central stage, both politically and economically, thus encouraging national capitalism. An imperial system was thus established with the emperor at the apex of the pyramid of political and economic forces, and with the nobility serving as elder statesmen of the nation.888
Admiration for Japan did not clash with a dislike and distrust of the former colonial power – and this was no paradox. Like many nationalist modernizers, Park intended to base his program on the middle class – businessmen and officials – who were interested in economic growth, not just (like the old feudal elite) in maintaining their income and social position at the price of national backwardness. His program, like the Japanese program, also had its roots in a national obsession with power and external threats. Prosperity and wealth were not values in themselves: they served a different objective, which was increasing the nation’s power and importance.
Also typical of the era – and certainly already clear to the reader of this book – was the dictator’s conviction that heavy industry and the chemical industry could ensure South Korea’s independence and lead it out of backwardness. Park once told his minister of trade and industry that the power that allowed Japan to start a war in the Pacific came from its large steelworks, and that Japan could produce tanks, guns and warships because it had steelworks.889 Believing in the importance of steel – like many third-world modernizers, from Stalin and Mao to Nehru and Minc – Park made the building of a giant steel conglomerate a priority project in his development plan. Construction began in 1962, and was carried out in spite of the objections of experts from the United States and the World Bank, who regularly pointed out to the government that it had no chance of turning a profit (the facility was saved by exports). In the late 1960s, the dictator’s interests shifted toward the chemical industry, which also became a base for a huge export success in the 1970s.
The dictator’s original intuitions were, like in the case of Latin America, to follow a policy of import substitution and independence from foreign trade. Efforts were also made to put this into practice in Taiwan in 1958–1959. In both cases, these attempts failed. It quickly became clear that the domestic market in both countries was too small to sustain large-scale enterprises (large-scale production ←293 | 294→lowered costs).890 They also moved away from a policy of import substitution for political reasons: politicians in Asian countries feared the formation of political interests that would seek to close markets to competition and enrich themselves on state subsidies, and thus, feared the emergence of social forces that would threaten their power. In the early 1960s, both South Korea and Taiwan began major reforms intended to promote exports. They devalued their currencies to lower the prices of their exports on world markets, began a multi-year program to lower protective tariffs in order to motivate industrialists to increase competitiveness, introduced a system of tax exemptions and loan guarantees to encourage exports, began subsidizing transport and set up special export zones. The state also created export consortiums, forcing many smaller local firms to use one of several specialized trade centres.
Nationalism, state control, and Japanese colonial reign linked the fates of Korea and Taiwan. When the remnants of Chiang Kai-shek’s army evacuated to Taiwan along with thousands of officials and businessmen who feared communist repression, they had taken with them under escort by the American fleet the lion’s share of the state treasury – then worth 330 million dollars – and numerous artworks. They also carried with them a much more valuable lesson: political success is based on economic success. China’s Kuomintang government lost its legitimacy to rule as the result of corruption, hyperinflation and a lack of real ideas about a way out of economic stagnation. This could all happen again. Already in the 1950s, agrarian reform was being carried out in Taiwan, through which the Kuomintang won the support of local farmers. American economic assistance and the opening of the US market to exports from Taiwan helped the development of local industry – first in areas that required intensive and arduous physical labour.891 There were of course differences between the models of growth in the two countries: while in Taiwan the backbone of the economy was small and medium-sized companies which exported with the help of stateowned commercial centres, the Korean dictatorship supported the development of large industrial and trade conglomerates. Park believed that only large, powerful companies could cope with international markets and ensure an adequate level of innovation.
The fate of the Korean chaebol and their investment decisions provided an illustration of the role played by cooperative relations between industries during a ←294 | 295→“big push” – as Rosenstein-Rodan and Hirschman had imagined them a decade earlier. The son of the founder of the LG Group and its second president recalled that in 1985:
My father and I started a cosmetic cream factory in the late 1940s. At the time, no company could supply us with plastic caps of adequate quality for cream Jars, so we had to start a plastic business. Plastic caps alone were not sufficient to run the plastic-molding plant, so we added combs, toothbrushes, and soap boxes. This plastics business also led us to manufacture electrical and electronic products and telecommunication equipment. The plastics business also took us into oil refining which needed a tanker-shipping company. The oil-refining company alone was paying an insurance premium amounting to more than half the total revenue of the then largest insurance company in Korea. Thus, an insurance company was started. This natural step-by-step evolution through related businesses resulted in the Lucky-Goldstar group as we see it today. For the future, we will base our growth primarily on chemicals, energy, and electronics. O u r chemical business will continue to expand toward fine chemicals and genetic engineering while the electronics business will grow in the direction of semiconductor manufacturing, fiber optic telecommunications, and eventually, satellite telecommunications.892
Korean chaebol were private, but closely integrated with the state through a network of personal relationships and common interests. The most important business decisions were often taken at the dictator’s residence. The relations between the President and the chaebol were complex and mutual: Korea’s leader and business elite needed each other. Chung Hee Park thought that the big conglomerates would help him achieve his political goal – “rich nation, strong army” – while the heads of chaebol treated him as a guarantee of their safety and success in business.893 GDP growth in South Korea and Taiwan were identical – and in the years 1950–1980 averaged 5.7 percent per capita per year. This impressive performance – the best in the history of modern economic growth – was accompanied by substantial social changes: a move away from agriculture towards industry; a significant reduction in social inequality, mortality and unemployment; rapid growth in labour productivity, education levels and life expectancy.894 The “dragons” had managed to do what they had not done when they reached Latin America, Africa and most of Asia.←295 | 296→
In 1993, the World Bank issued a famous report on the “economic miracle” in East Asia, in which it described in enthusiastic words the gigantic civilizational success of several countries on the continent.895 It did so without enthusiasm: Japanese sponsors had forced conservative bank officials to prepare the report, recognizing/seeing this as a condition for further financing.896
Bank President Lewis T. Preston wrote in the Introduction:
The authors conclude that rapid growth in each economy was primarily due to the application of a set of common, market-friendly economic policies, leading to both higher accumulation and better allocation of resources. While this conclusion is not strikingly new, it reinforces other research that has stressed the essential need for developing economies to get the policy fundamentals right.897
This advice of the President of the World Bank was the motto behind the structural economic transformations being carried out in developing countries – including those in post-communist Eastern Europe – in the 1980s and 1990s. In the case of Asian countries, writes Chalmers Johnson, this was “deliberately misleading”: Japan, Korea and Taiwan owed their success precisely due to the fact that they did not put liberal prescriptions into practice.898 Those that they did – like South Korea in the 1950s – paid for this with a slow growth rate.
The World Bank president admitted, somewhat reluctantly, that government intervention could sometimes work:
The report also breaks some new ground. It concludes that in some economies, mainly those in Northeast Asia, some selective interventions contributed to growth, and it advances our understanding of the conditions required for interventions to succeed.899
The liberal politician believed that Asian interventionism succeeded only due to the fact that – firstly – it removed obstacles to the proper functioning of markets; second – it took place in the context of a “fundamentally good policy”; and, third, that its success depended on the ability of the government to create ←296 | 297→“economic competition”, that is, to support those companies that had been most competitive, not just those that were politically important.
This was an illusion: the only example of liberal success in Asia was provided by small Hong Kong, and even that required a creative reinterpretation of an active policy of the local authorities. According to the dominant belief among specialists on growth in Asia, growth was due to the driving force of the state. Japan developed in a way that “flagrantly flouting all received principles of capitalist rationality”, wrote Economist Ronald Philip Dore in 1986.900
Japan, Korea and Taiwan applied a set of political ideas for growth, which had much in common with those they tried to put into practice in Latin American countries. The list is long – protective tariffs, trade licenses and taxes, loans and grants, state planning of industrial growth, reducing competition and maintaining artificially high levels of investment in relation to GDP. All of this took place at the expense of workers who earned relatively little and paid a higher price for locally produced goods, but in return received a promise of a quick increase in the standard of living in the future. However, while growth in Latin America collapsed in the 1970s, Asian countries continued to develop rapidly: they were evidently doing something better. “In other countries – in Turkey and India, for example – subsidies have been dispensed primarily as giveaways”, says Alice H. Amsden, one of the most prominent researchers of the history of Asian economies. The key to success in Japan, South Korea and Taiwan was discipline, which the State imposed on businesses and employees. Its roots are essentially cultural and historical in character: a meritocracy in the civil service, militarism, a lack of natural resources and a hyperactive student movement that was monitoring politicians during the dictatorship.901 Elsewhere Amsden writes about the role of experience in manufacturing – the earlier it began (as in the case of Korea and Taiwan, which were colonies of Japan), the faster the subsequent growth.902 Another historian of Asia’s success, Robert Wade wrote about the difference between a “hard” and “soft” state – which was mentioned earlier in the chapter.
Many researchers of the Asian “miracle” emphasize the blurring of the opposition between the state and the market, the role of nationalism and a sense of danger, and a clear rejection of the neoclassical economy as inconsistent with a vision of the economy and society not as a sum of individual interests, but as a harmonious whole. Neoclassical economics sees the economy as a natural ←297 | 298→system that is controlled by the invisible hand of the market, which always seeks a balance between supply and demand. The Japanese, and behind them the elite of South Korea and Taiwan, consider the economy as a system that plastycznie submits to the will of man. Programmes for industrialization were always, above all, projects for social change, and not strictly just economic calculations.903
The main component of the Asian success was not so much the adoption of appropriate economic policies, understood as technical solutions on the issues of taxes, duties or subsidies, but in the ideology consistently professed by the elite. Political decisions such as deliberately undervaluing the exchange rate in order to facilitate exports, which, according to Dani Rodrik, contributed much to growth in Asia, were mainly the result of ideology and political power plays within Asian societies and less a matter of technocratic calculation.904
Asian authors often emphasize the importance of “Asian values”, such as hard work, thrift and perseverance, as well as education, dedication and selflessness elites – who think most of all about the good of the country, and not about their own pockets and the benefits of power. Kishore Mahbubani, a Singapore diplomat and one of the Asia’s most famous political scientists, writes:
Why did East Asian elites perform better than many of their Latin American counterparts? Any attempt to give a full answer to this question will reveal the complexity of the East Asian story. Culture is certainly part of the explanation. Since the days of Confucius, the ethical fabric of East Asian societies has been laced with the belief that obligation to society is an integral part of being an ethical person. But a similar strain occurs in other societies, including Christian and Muslim societies […] This willingness to learn Western best practices and to adapt and apply them may thus be the key distinguishing feature of East Asian elites. In theory, these elites might have been afraid of losing their cultural identity in trying to copy the West. In practice, they retained their deep cultural confidence that they could learn from the West and not lose their souls. Hence, both the capacity to learn and the confidence to accept Western best practices are central elements of the East Asian narrative.905
In response to the question why did Asian elites fare better than the elites in Latin America, Mahbubani has two answers: the Confucian heritage (“Since the days of Confucius, the ethical fabric of East Asian societies has been laced with ←298 | 299→the belief that obligation to society is an integral part of being an ethical person.”) and a tendency to follow the “best practices of the West”.906
Less idealistic authors usually emphasize the complex political economy of East Asian societies. Economic growth was from this perspective a side effect, although perhaps the most important one. South Korea’s state promoted growth: it supplied public goods, such as security and education, and built an infrastructure conducive to investment. “But […] this was not necessarily intentional,” writes David Kang. “Corruption was rampant in Korea, and the state intervened in the way it did because its doing so was in the interests of a small group of business and political elites.”907
Kang examines the divergent trajectories of the two Asian countries – Korea and the Philippines – of which the latter have long been richer and seemed fated to success. World Bank Report from 1957 stipulated a repeat of the success of Japan.908 In 1955, per capita GDP in the Philippines was twice as high as that in Korea. Countries razed in 1970 in 1985 South Korea was already five times richer.909
Both countries were thoroughly corrupt, and the links between government and the business remained very close. South Korean state also took decisions to support various business ventures because, because businessmen had good political connections, not because it is particularly deserving of support for economic reasons. These two countries differed, however, the political dynamics. In Korea, the influence of political and economic elites balanced each other and the whole system gained legitimacy through economic growth. In the Philippines – first surviving episode democratic, then a long dictatorship of Ferdinand Marcos – the situation was different: first the state was weak and vulnerable to pressure from various interest groups, and later – under the dictatorship – has become so strong that the ruling could with impunity and without enforce restrictions and steal a large part of domestic capital. There also had to remain in power, hold an investment in education or infrastructure. Kang came to the conclusion that not all corruption is harmful for growth “if the transfer of wealth is from businessmen to politicians and results in productive investments, a nation may even benefit”.910←299 | 300→
Whatever the causes of the Asian success, both his politics and ideology are the most distant from liberal laissez-faire. In the 1970s this lesson, however, was completely forgotten – or at least ignored. The world has lost faith in the fact that the state can be leveraged development and believed in the power of the free market mover.
846 Quoted in A. Dudden, Japan’s Colonization of Korea. Discourse and Power, Honolulu 2005, p. 134.
847 Japanese slogan from the 1950s.
848 D. G. Wittner, Commodore Matthew Perry and the Perry Expedition to Japan, New York 2005, p. 80.
849 L. M. Cullen, A History of Japan, 1582–1941. Internal and External Worlds, Cambridge–New York 2003, pp. 36–37.
850 L. M. Cullen, A History of Japan…, op. cit., p. 97 and 177.
851 L. M. Cullen, A History of Japan…, op. cit., p. 178.
852 D. G. Wittner, Commodore Matthew Perry… op. cit., p. 85.
853 A. Cobbing, The Japanese Discovery of Victorian Britain. Early Travel Encounters in the Far West, Richmond 1998, p. 95.
854 M. B. Jansen, The Making of Modern Japan, Cambridge–London 2000, p. 335.
855 R. Wade, Governing the Market. Economic Theory and the Role of Government in East Asian Industrialization, Princeton 1990, p. 337.
856 N. Akira, “The Social Order of Modern Japan”, [in:] The Political Economy of Japanese Society, vol. 1, The State or the Market?, Oxford–New York 1997, p. 199 ff.
857 Ibid., p. 199.
858 Ibid., p. 202.
859 Ibid., p. 204.
860 T. C. Smith, Native Sources of Japanese Industrialization, 1750–1920, Berkeley–Los Angeles 1989, p. 16.
861 Cf. e.g. S. Tsunoyama, “Sino-Japanese Trade and Japanese Industrialization”, [in:] Japanese Industrialization and the Asian Economy, eds. A. J. H. Latham, H. Kawakatsu, London–New York 1994, p. 194 ff.
862 L. M. Cullen, A History of Japan…, op. cit., p. 250.
863 K. Smith, A Time of Crisis: Japan, the Great Depression and Rural Revitalization, Cambridge 2001, p. 23.
864 H. Oshima, “Review: Accelerated Growth: Japan’s Experience”, Economic Development and Cultural Change, 1970, vol. 19, no. 1, p. 114.
865 B. Gao, Economic Ideology and Japanese Industrial Policy. Developmentalism from 1931 to 1965, Cambridge 2002, p. 14.
866 K. Togo, “Infant Industry Protection Policy Reconsidered: The Case of the Automobile Industry in Japan”, [in:] Miraculous Growth and Stagnation in Post-War Japan, eds. K. Hamada, K. Otsuka, G. Ranis, K. Togo, New York 2011, pp. 16–17.
867 B. Gao, Economic Ideology… op. cit., p. 26.
868 H. Mizuno, Science for the Empire. Scientific Nationalism in Modern Japan, Stanford 2009, p. 43 ff.
869 B. Gao, Economic Ideology…, op. cit., p. 29.
870 B. Cumings, “The Origins and Development of the Northeast Asian Political Economy: Industrial Sectors, Product Cycles and Political Consequences”, [in:] The Political Economy of the New Asian Industralism, ed. F. C. Deyo, Ithaca 1987, p. 61.
871 C. Johnson, MITI and the Japanese Miracle: Growth of Industrial Policy: 1925–1975, Stanford 1983, p. 200.
872 F. G. Adams, L. R. Klein, Y. Kumasaka, A. Shinozaki, Accelerating Japan’s Economic Growth. Resolving Japan’s Growth Controversy, London–New York 2008, p. 9.
873 C. Johnson, MITI and the Japanese Miracle…, op. cit., p. 71.
874 Quoted in B. Gao, Economic Ideology…, op. cit., p. 43.
875 Quoted in A. J. Brown, The Mastery of the Far East: The Story of Korea’s Transformation and Japan’s Rise to Supremacy, New York 1919, p. 45.
876 Quoted in A. J. Brown, The Mastery… op. cit., p. 45.
877 A. Amsden, The Rise of “The Rest”: Challenges to the West from Late-Industrializing Economies, Oxford–New York 2004, pp. 101–102.
878 A. Amsden, Asia’s Next Giant. South Korea and Late Industrialization, Oxford–New York 1989, p. 34.
879 K. Mahbubani, “From Confucius to Kennedy. Principles of East Asian Governance”, [in:] East Asian Visions. Perspectives on Economic Development, eds. I. Gill, Y. Huang, H. Kharas, The International Bank for Reconstruction and Development / The World Bank and The Institute of Policy Studies 2007, p. 197.
880 C. H. Park, Our Nation’s Path: Ideology of Social Reconstruction, Seoul 1962, pp. 228–229
881 C. H. Park, Our Nation’s Path…, op. cit. pp. 224–225.
882 C. H. Park, Country, Revolution and I, Seoul 1970, p. 80.
883 C. Moon, B. Jun, “Modernization Strategy: Ideas and Influences”, [in:] The Park Chung Hee Era. The Transformation of South Korea, eds. B. Kim, E. F. Vogel, Cambridge– London 2011, p. 117.
884 C. H. Park, Country, Revolution and I, op. cit. p. 137.
885 R. J. Samuels, Rich Nation, Strong Army. National Security and the Technological Transformation of Japan, Ithaca–New York 1994, p. 37.
886 C. Moon, B. Jun, “Modernization Strategy…”, op. cit., p. 118.
887 A. Amsden, Asia’s Next Giant…, op. cit., p. 51.
888 C. H. Park, Country, Revolution and I, op. cit., p. 120.
889 C. Moon, B. Jun, “Modernization Strategy…”, op. cit., p. 118.
890 Jason P. Abbott, Developmentalism and Dependency in Southeast Asia. The Case of the Automotive Industry, London–New York 2003, p. 44.
891 X. Song, Between Civic and Ethnic. The Transformation of Taiwanese Nationalist Ideologies 1895–2000, Brussels 2009, p. 138 ff.
892 Quoted in A. Amsden, Asia’s Next Giant…, op. cit., p. 126.
893 E. Kim, G.-S. Park, “The Chaebol”, [in:] The Park Chung Hee Era. The Transformation of South Korea, eds. B. Kim, E. F. Vogel, Cambridge–London 2011, p. 267.
894 H. T. Oshima, “The Transition from an Agricultural to an Industrial Economy in East Asia”, Economic Development and Cultural Change, 1986, vol. 34, no. 4.
895 The East Asian Miracle. Economic Growth and Public Policy, Washington–New York 1993.
896 C. Johnson, “The Developmental State: Odyssey of a Concept”, [in:] The Developmental State, ed. M. Woo-Cumings, Ithaca–London 1999, p. 35.
897 The East Asian Miracle…, op. cit., p. vi.
898 C. Johnson, “The Developmental State…”, op. cit., p. 36.
899 The East Asian Miracle…, op. cit., p. vi.
900 R. P. Dore, Flexible Rigidities. Industrial Policy and Structural Adjustment in the Japanese Economy 1970–1980, Stanford 1986, p. 18.
901 A. Amsden, Asia’s Next Giant…, op. cit., p. vi.
902 A. Amsden, The Rise of “The Rest”…, op. cit., p. 101 ff.
903 B. Gao, Economic Ideology…, op. cit., p. 48.
904 D. Rodrik, The Real Exchange Rate and Economic Growth: Theory and Evidence, July 2007, http://www.cid.harvard.edu/neudc07/docs/neudc07_s1_p04_rodrik.pdf
905 K. Mahbubani, From Confucius to Kennedy…, op. cit., p. 190.
907 D. C. Kang, Crony Capitalism. Corruption and Development in South Korea and the Philippines, Cambridge 2004, p. 6.
908 D. C. Kang, Crony Capitalism…, op. cit., p. 181.
909 Ibid., p. 40.
910 Ibid., p. 184. The literature on the relationship between corruption and economic growth is quite extensive. Cf., e.g. P. Bardhan, “Corruption and Development: A Review of Issues”, Journal of Economic Literature, 1997, no. 35; M. Khan, “The Efficiency Implications of Corruption”, Journal of International Development, 1996, vol. 8, no. 5; A. Shleifer, R. Vishney, “Corruption”, Quarterly Journal of Economics, 1993, no. 108.