Asian Capitalism(s)

The Case of South Korea

Industrializing through Learning

case of Korea: late industrialization
new way of industrializing, challenges
traditional assumptions of economic thinkers
contrast between:
a) Britain First Industrial Revolution
b) Germany/US Second Industrial Revolution
c) 20th century economies
difference: 20th century economies
transformed through learning

Learning: A new mode of Industrialization

nature and role of technical knowledge
distinguishes different types of industrial revolutions
industrial revolutions based on:
1. Invention (England)
2. Innovation (Germany/USA)
3. Learning (backward countries, i.e. 20th century
agrarian societies South Korea, Japan, Taiwan,
Brazil, India, Mexico, Turkey, etc.)
But: global process of industrialization always
combined and uneven, depending on leaders
and followers

Learning: A new mode of Industrialization

strategy focus of learners: competition on basis of
low wages, state subsidies, incremental productivity
and quality improvements
two strategic foci:
1. companies that compete on basis of Innovation
(corporate office)
2. companies that compete on basis of borrowed
Technology (shopfloor)
Since 1960s: learners moved into markets
developed by innovators huge international
competition

Learning: A new mode of Industrialization

after World War II: industrialization process far faster
than before
advancement of science as main reason behind
distinction between industrialization by invention vs.
by innovation
scientific advancement made it easier for
technology to be transferred (to backward
countries)
But: ambiguous impact, benefits and costs, e.g.
wider gap in relative income levels and
technological capabilities, power imbalance
between stronger and weaker nations

Characteristics of late-industrializing
countries
1. the state intervenes with subsidies deliberately to distort
relative prices in order to stimulate economic activity
2. in exchange for subsidies, the state has imposed
performance standards on private firms

3. below the level of the state, the agent of expansion in all

late-industrializing countries is the modern industrial
Enterprise (chaebol)
4. salaried engineers are a key factor in late
industrialization gatekeepers of foreign technology
transfers

Late Industrialization: the Korean case

state intervention
discipline

reciprocity, subsidies and protection

diversified business groups (chaebol)
investment in education training of
competent salaried engineers
importance of colonization experience due
to internal social conflict more complicated
process of industrialization

Late Industrialization: the Korean case

government control of banks chaebol accumulation
of capital
rise of scale economies and mammoth business groups
necessary to build basic industry
yearly negotiated price controls to curb monopoly
power
strict controls on capital flight and remittance of liquid
capital overseas
government as premier entrepeneur by using ist
industrial licensing policies to determine what, when,
and how much to produce

Learning: A new mode of

Industrialization
learners rely on foreign know-how
changing form of technology acquisition
shift from imitation (absorption) to
apprenticeship (adoption)

Late Industrialization: the Korean case

industrialization almost exclusively on the
basis of nationally owned rather than foreignowned enterprise
credo:
Invest now in inhouse technological
capabilityeven if outside expertise is
cheaperto reap the rewards of self reliance
later.

Korea: Failure of the Market Paradigm?

two approaches to analyze industrial expansion:
1. market oriented

2. institutional
Korea: government made most of the pivotal
Investment decisions institutional

success of Korea and other late industrializers

new paradigm

Korea: Failure of the Market Paradigm?

market oriented vs. institutional paradigm =
market conforming vs. market augmenting
policy
market conformance: minimum amount of
government intervention necessary to get
relative prices right
market augmenting: government intervention
necessary to correct existing market distortions
growth itself not automatic process

Developmentalism
disciplined / developmental state:
advancement of capital rather than own
enrichment relationship between
developmentalism and Democracy

backward countries: due to international

competition, technology gap, investment
barriers, savings deficiencies government
must intervene

Korea: Failure of the Market Paradigm?

Korean market mostly oligopolistic
the diversified business group: multidivisional, more
diversified in unrelated products, more centrally
coordinated than the conglomerate result of
lateness of Korean industrialization
Korea: out of a highly politicized process of resource
allocation arose a diversified economic base and fast
growth rate of output intense competition among
leading producers and rapid increases in productivity
the two pillars of the market-conforming paradigm:
marginal productivity theory (getting relative prices
right) & law of comparative advantage Korea =
antithesis (getting relative prices wrong) failure of
market-conforming paradigm in case of Korea