2012-03-08_Lecture#8-State, Corruption and Development.docx

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12 Mar 2012
Ernie Tam
Lecture#8-State, Corruption and Development
Criticism of East Asian Developmental Model
Contrast corruption in South Korea and China
Lecture Outline
South Korea: Corruption and Development State
SK under Park Chung Hee
Corruption, special favors, and political donations
Reconciling high growth and corruption?
Individual corruption
Organization corruption
What is the nature of the Chinese State?
SK’s high growth period of 1960’s and 1970’s
Park Chung Hee’s rule: 1961-1979
o SK’s GDP was lower than Philippine’s in 1961.
o South Korea has improved drastically in the last 40 years
o Set his priorities on industrial promotion and economic growth
o Given SK’s vulnerabilities in the 1960’s particularly the threat of communism from the
north, restoring economic growth was essential to preserve national security.
o Different from Predecessors (Rhee) who ruled in the 40’s
o Rhee was preoccupied with the relationship with the US and reunification of North
(Economy was second)
Park Chung Hee was educated in Manchuria and had admired Japan.
Park’s affinity with Japan
o Solution to communist threat and economic growth is to copy the Japanese model of
state led economy
o He wanted to reconstruct SK with Japan’s model
o Japanese modelState led
o Under park, there have been powerful administrations: economic growth board and
South Korean Bank.
o Government bureaucratSecond prize in comparison to private entrepreneur.
o Military associates in charge of key industries
o More politically repressive in comparison to Japan
Violently suppressed workers
Attempt at forming unions were declared as communist
Keiretsu are not family owned but owned by private individuals who are centered by banks.
Economic domination by the Chaebol
o Chaebols are family owned
o Under Park, the state had a close relationship with big businesses
o When he first came to power, he was charged with corruption and realized that in order
to grow economy, you had to have good relationship with big businesses
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Ernie Tam
E.g. Samsung has chemical industries, financial industries, etc
o Bank loans for Chaebols came from government owned banks. (direct ability to
determine the fate of big businesses)
o The Kieretsu had loans from major banks (which are NOT owned by government)
This does not mean, however, that Japanese government cannot intervene.
Means that SK and Japanese government intervened in the economy in
different ways.
o If the Chaebol fails, economy fails
Highly concentrated buisnesses facilitated government collaboration
o Under Rhee, there is an import substitution policy.
Use of import tariffs and various policies to keep imports out in order to develop
your own infant industries
Costly policyAll of these tariffs would keep imports out but the subsidies given
to domestic industries were also costly for the government. By keeping the
imports out, there is a major drain on economy.
o Then there was export promotion policies
Encourage local industries to grow by exporting their scale.
Traditional view of Development state asserts that Park used export subsidies
and bank loans to encourage Chaebols to export to foreign markets.
Subsidies were provided at a cost of government. Once the company puts
exports around the world, it can reclaim its costs.
Special favors and Political donations
o These subsidies are only given to CERTAIN companies hence the favors.
o Author DavidBank loans were awarded selectively to politically connected firms.
o Park created a democratic republican party after coup in 1961; Park started to hold
elections in 1963.
o Political opposition and dissent was monitored.
Credit control was an important tool of government to control business behavior.
Park also used tax credits and benefits to support loyalty from businesses. All these bodies were
used in exchange in allocation of bank loans and other preferential policies.
Corruption and developmental State
How do we reconcile the fact that high economic growth and corruption?
o 10% of economic growth vs. intense corruption.
o Evidence that SK’s government was corrupt but at the same time, the economy was
growing quicly
Developmental state model gives the initial impression that these bureaucrats do not have
personal references, neutral, and would allocate subsidies based on performance of companies.
o This is wrong b/c these individuals have their own motives, their own biases. It is not
necessarily good for economic growth b/c you think about your own pockets.
o TO advance is to be successful. You NEED to produce RESULTS.
Mutual hostages: keeping each other in check.
o Give me some under the table pay/ guaranteed job, if I guarantee company’s success
o Case of encouraging large business colomegrates while discriminating against the
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