Review

State and Development in Korea and Taiwan JAMES PETRAS AND PO-KEUNG HUI ntroduction It has become a cliche to describe the rapid economic growth in the four Asian NICs as a 'miracle'. The annual GOP growth rates of Taiwan, Hong Kong, South Korea and Singapore have been the highest in the world over the last three decades. Average annual growth in per capita GNP in these three decades has been virtually double that of the industrial market economies and the middle income oil exporters.' This remarkable transformation has, not surprisingly, provoked debate and revision among theorists of economic development. The debate over development and underdevelopment has evolved considerably over the past several years. In the 1950s it focused on socialist versus capitalist exchange theories (Dobb, Baran Vs Rostow, Kuznets), in the 1960s on dependency versus modernization, and in the 1970s and 1980s it has been dominated by 'laissez faire' neoliberal versus state-centered polemics; discussion has now clearly shifted onto the terrain of capitalist political economy. Both the "free market" and "state-centered" approaches seek validation by examining the most "successful" experiences of capitalist development - the countries and city-states of Southeast Asia, and in particular South Korea and Taiwan. By focusing on the experiences of dynamic growth among the capitalist countries of Southeast Asia, both the neo-

I

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liberals and the state-centered theorists have made shortshrift of the predictions and assumptions of the dependency school and their various off-shoots (world systems analysts, de-linkers etc). This essay reviews these debates, and the data mustered in support of the arguments, concluding with a critique of the increasingly influential state-centered approach. Our discussion begins with a summary critique of the neoclassical and dependency schools in light of the East Asian experience. This is followed by a brief discussion of the "statist approach" and some empirical evidence about the importance of the state in East Asian development. We then discuss the function and role of the state in these countries and conclude with a critical appraisal of statecentered approaches. The Neoclassical Approach and Dependency Theory Neoclassical economists argued that the high growth rates of the Asian NICs were mainly due to the absence of regulation of the economic system. They claimed that state intervention was "largely absent''s and that the four NICs were "relying extensively on private markets. "3 Free trade regimes'[ and free-labour markets- were also mentioned as crucial factors contributing to the miracle. The state was relegated to a very limited role, providing infrastructure and policies to keep the free market working smoothly. The "free market explanations" have been under heavy attack from numerous sources, particularly from specialists in the development of Taiwan and Korea. State-centered analysts, Gordon White and Robert Wade, for example, reject the liberal analysis which attributed Latin American stagnation to excess government intervention in the market and growth in East Asia to non-intervention, we find that state intervention in the latter [East Asia] has been both stronger and more selective than in the former [Latin America], not only at the national boundary but also in key parts of domestic industry.e

Robert Wade also rejects the ahistorical premises of the

neoclassical theorists and their inadequate discussion of the 180

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effects of "non-liberal" aspects of policy on the success of the NICs.? By comparing regional financial systems, he reveals that statist bias favouring growth is significant. Since 1960 the financial systems of Taiwan and South Korea, with greater state regulation than Thailand and Malaysia, have had better development records.f The specialists on South Korea hold a similar view. In contrast to the "free trade regime" argument, Bruce Cumings argues that South Korea "has been a protectionist island in the hegemonic free trade sea since the 1940s. "9 Richard Luedde-Neurath provides even greater details to show that South Korea was not a free market paradlse.l? The mathematical formulations of the free market ideologues do not hold up to the facts and figures marshalled by the statecentered advocates. This is also true in the case of dependency theory. Asian dependency theorists applied the same approach as their Latin American counterparts in analyzing the development of the East Asian NICs. They purported to locate "major external constraints on dependent development in the multinational corporation.t'U and claimed that dependence of a country "on foreign capital... has resulted in economic exploitation, foreign indebtedness and political repression."12 Hence, outwardlooking development strategies were believed to undermine South Korean development by creating a heavy foreign debt burden, mass poverty, and political repression. Similarly, citing world systems theory, Hammer argued that the dependency in Taiwan since the 1960s would have negative effects on Taiwanese development in the long run.13 In a much cited article, Bill Warren refuted the stagnationist thesis of the dependency school citing the NICs in Asia as counter example to their predlctions.I'l Other scholars, Haggard and Chen, for example, criticized the dependency tradition for failing to consider strategic political considerations. The dependency tradition locates the major external constraint on dependent development in the multinational corporation. But this notion is incomplete and misleading. No account of East Asian growth is possible without attention being paid to the 181

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influence of empire and international security alliances; yet dependency theorists, no less than liberal economists, have been oddly negligent of high politics. International political relationships and the transnational networks they produce, from British and Japanese colonialism to the postwar system of American alliances, have influenced choice of growth strategies.lS

Empirical evidence is readily available which contradicts the arguments of the dependency theorists with respect to the Asian NICs. Apart from Singapore, foreign direct investments in other Asian NICs contributed little to domestic economic growth. (Table 2)16 TABLE 2. Foreign direct investment as a share of gross domestic capital formation in the gang of four, selected years (percentagesj'" Hong Kong 1960 1965 1966 1968 1970 1972 1974 1976 1978 1980 a. b. c. d.

average, average, average, average,

4.3a 2.3b 1.2c 0.8d

Singapore

Taiwan

1.6 12.5 15.1 21.5 23.2 6.0 6.5

0.5 2.7 1.3 2.6 2.8 1.3 1.4 1.2 1.5

Korea

.6 .9 1.1 2.6 2.8 1.5

.7 .4

1971-73 1974-75 1976-77 1978-79

Export controls by the multinational corporations in the Asian NICs (except Singapore) are also less pervasive than in the Latin American countries.(Table 3)

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TABLE 3. Share of foreign-invested firms' exports in total NICs exports, selected years (percentages)" Approximate share South Korea Taiwan Singapore Hong Kong Brazil Mexico

31.4 18.3 30 66.5 92.9 11 17.8 43 37

Year of estimate

1974 1978 1975 1970 1980 1974 1984 1969 1977

Moreover, it is also difficult for the traditional dependency theorists to explain why South Korea, Taiwan, Singapore and Hong Kong have become big foreign investors especially in Asia if they are so dependent on the imperialist countries.w The "State-centered" Approach Dissatisfied with the explanations provided by both the neoclassical economists and the dependency theorists, specialists in Asian studies sought a more promising explanation for the high growth rates by focusing on the state. These writers are grouped under the rubric "state-centered." Gordon White and Robert Wade provide a clear outline of the thesis: the phenomenon of successful 'late development' - whether 'capitalist' (Germany, Russia. Japan. South Korea, Taiwan) or socialist (the Soviet Union, China, North Korea) - should be understood primarily in terms of Listian 'political economy'. concretely as a process in which states have played a strategic role in taming domestic and international market forces and harnessing them to a national economic interest. .. [And] ...successful 'late development' takes a form very different from that of the early industrialisers, notably the United Kingdom: it is less 'spontaneous', more the subject of teleological determination. with the state playing the role of historical animator.20

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Although not accepting in toto the position of White and Wade, many specialists of East Asian development also centre their analyses on the strong role of the state in organizing rapid growth. For example Lim argues, "[flew Third World countries can match Korea in terms of the central role the state plays in promoting development't.U Bruce Cumings, in a major comparative essay concluded that in the cases of South Korea, Japan and Taiwan, state direction of development was critica1.22 Even in the citystate, Singapore, Haggard and Chen described strong state intervention as crucial to the development process.23 The first direct indicator of the importance of the state is the role of public enterprises in the economy. Among the Four Tigers, Taiwan no doubt has had one of the biggest public enterprise sectors in the world (excepting the exCommunist bloc) since the 1950s. Even in 1980, the six biggest industrial public enterprises had sales equal to the 50 biggest private industrial concerns. Of the largest ten industrial concerns. seven are public enterprises; of the largest 50, 19 are public enterprises.z-

Public enterprises in South Korea, while not as significant for economic growth as in Taiwan, are also major players. Their share of GNP, has been increasing "significantly over the seventies, particularly during the recession years of 1974 and 1975."25 Other direct indicators of state centered development include the fiscal and financial power of the state. The state's share of revenue rose from 21.6 percent of GDP in 1971 to 23.6 percent in 1982 in Taiwan; from 13.8 percent in 1972 to 19.6 percent in 1981 in South Korea; and from 22.1 percent in 1972 to 30.2 percent in Singapore.ze

The government's expenditure as a share of GNP also increased from 20 percent in 1963 to 27 percent in 1980-81 in Taiwan. Thus, while neoliberal policies prevailed in the economically stagnant countries of Latin American, the role of the state in the domestic economy of the Bast Asian NICs was 184

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increasing. If we turn to financial controls, the importance of the state is even clearer. It is well known that nearly all the banks in both Korea and Taiwan are strictly under the control of the state.z7 The state not only controls credit policy, its control is "extended even to low-level personnel policy, hiring and firing, salary reviews and budgets."28 Moreover, price controls were very important in shaping domestic market prices in South Korea.29 In addition, controls of international capital flow and international trade in Taiwan and Korea are well documented and described by Thomas B. Good and Richard Luedde-Neurath.F' Role and Function of the State in South Korea and Taiwan James O'Connor's thesis, that capitalist states increasingly socialize the cost of production for capital, does not appear to hold true for the East Asian NICs. It is true that the states in Taiwan and South Korea did socialize part of the cost of production for capitalists by providing social capital (especially during the 1970s), but their social expenditure is comparatively low.31 The poverty of the social security system and the undeveloped pension system forces citizens in these two countries to depend on family income pooling and saving. That is why in Taiwan (and to a less extent South Korea) there has been a relatively high household saving rate.32 Hence the cost of reproduction of labour is mainly a burden imposed on individual families rather than on the state or the firm. However, the states of both Taiwan and South Korea do socialize the risk of production for enterprises. Firms in the two countries depend heavily on borrowing rather than on equity capitaI.33 High debt/equity ratios are the result of government promoted industrialization. Especially in the period of initial accumulation, the firms in these countries lack the necessary internal capital (equity). In order to hasten the rate of industrialization, the state finances firms through external capital - bank loans (both from domestic saving and international loans), raising debt/equity ratios to high levels. Moreover, the high debt/equity ratio creates an "ever-present danger of financial instability," which will

also induce more government intervention in the economy 185

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(especially in countries like South Korea and Taiwan whose economies are heavily trade-dependent and politically under external threat) if the state wants stable economic growth.34 In short, we can say that in the late developing countries like Korea and Taiwan, capitalists externalize their costs and risks of production as the early capitalists did in the now developed nations (e.g. the United States and the Great Britain). The late developing state bears the risk of production while society shoulders most of the cost of production. The state has been directly involved in promoting the growth of the economy by taking responsibility for capital accumulation. In Taiwan and South Korea, the initial accumulation of capital was largely accomplished through the expropriation of peasant income by the state. In Taiwan, [a]griculture provided a major source of forced fmancing in the 1950s ... Agricultural taxes took the form of land taxes and, more importantly, of hidden taxes by means of compulsory government purchases of rice at below-market prices, and by means of the rice-fertilizer barter scheme.3S

In South Korea, during the initial accumulation period - the 1950s - the government exploited peasants chiefly by means of mandatory payment of rents and loans in grain with occasional legislated state monopoly of grain purchase.36 At the same time, the Korean Government also allowed abundant imports of grain and other agriculture products from the United States, causing domestic agricultural prices to fall below world levels.37 This of course lowered the cost of living, hence wages, for urban workers and, thus, allowed for more rapid capital accumulation. The states in South Korea and Taiwan directly participate in most areas of economic activity. In both countries, state economic planning agencies (in Taiwan the Economic Planning Council, in South Korea, the Economic Planning Board of Korea) guide the direction of investment, industrialization and foreign trade by means of credit policies, direct subsidies, taxes, and exchange rate policies. In Korea, for instance, the "state played a direct role in organizing production in upstream petrochemicals, steel, shipbuilding, and heavy machinery, avoiding some of the duplicative invest186

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ments."38 In addition, the Korean government also heavily intervened in the direction of the foreign trade,39 State intervention is even more apparent in Taiwan where public enterprises make a relatively large contribution to the economy. The state has also been a major force in the formation and destruction of classes in both countries. In the early development period of South Korea and Taiwan (i.e, the 1950s), the old landlord class was seriously weakened through land reform. A new working class and a local capitalist class, mainly driven out of the rural areas in Taiwan and South Korea, was formed.40 Land reform in both countries involved transfers from landlords to peasants. Payment to the landlords came in the form of Japanese industrial and commercial property bonds (at that time owned by the statesj.t! Many of the old landlord class, displaced from their rural property, became part of the capitalist class.42 Soon after the reforms, farmers were also pushed off their land by the high taxes and high input prices (e.g. for fertilizer) charged by the state. The role of the state in economic development was not necessarily confined to direct economic planning or to the control of economic institutions. The repression and discipline of the working class was also of crucial importance.43 Both the states in South Korea and Taiwan playa direct role in controlling union organization to prevent autonomous working class action.v' In order to sustain high levels of accumulation through intensive exploitation, the states built a huge army and police force. "In the 1950s both regimes had absurdly swollen military machines about 600,000 soldiers in each army, ranking among the highest military/civilian ratios in the world."45 The Secret police repression under the Nationalist regime in Taiwan is well known. In South Korea, the paramilitary riot police force of 150,000,46 and the all pervasive Korean Central Intelligence Agency (KCIA)47 constitute a highly cohesive state apparatus which extends its control into every arena of Korean economic and social life. In attempting to account for their success in promoting economic growth, proponents of the statist approach claim 187

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that the states of South Korea and Taiwan are more effective than states elsewhere. The reason why the financial controls do not produce the disasters that mainstream economics predicts is that the publicsector-in-general is more effective in these countries than in many others: more effective in promoting a competitivelyoriented will to produce.sf

Wade argues that state efficiency is directly related to the high exposure of the Taiwanese and South Korean economies to the international market which, has helped to discipline public sector interventions, especially the behaviour of public enterprises which, though mostly not export-oriented, are exposed to international competition indirectly through their sales to highly exposed downstream exporters.49

In addition to market exposure, Wade mentions two other factors making for an efficient state. Party reform in Taiwan (1950-52) allowed the Nationalist party to purge corrupt factions and tighten party discipline. 50 Successful repression of all potentially independent groups thus ensured that opposition forces could not consolidate against the party. As a result of their political monopoly, the Taiwanese and South Korean states possessed greater autonomy than did their counterparts in Latin American countries. Thus, they were positioned to define and implement national goals.51 White and Wade do not believe these experiences are transferable to other regions. They argue, for example, that some Latin American regimes may have wanted to do the same as Taiwan and South Korea, but they came to power in situations where many existing groups already had a considerable autonomy from the state and a capacity to exercise influence against it which could only be put down by the exercise of great violence.52

They further criticize the neoliberal outlook of Latin American governing classes because their

lu,l;k of concem for who controls production, foreigners or nationals, has resulted in much of the production for the lucrative 188

Petras & Hul/NICs and the State

end of the domestic market being in the hands of multinational corporations. The lack of concern for limiting the growth of financial capital (financial enterprises are treated on a par with industrial enterprises) has allowed a sizeable share of the economy's investment resources to go into financial dealings and speculation rather than into industrial production - into making money, not things.53

In the end, White and Wade counsel the Latin American ruling classes who seek to emulate the East Asian "miracles," that they have much to learn "about the efficacy of different forms and techniques of state action."54 White and Wade while mentioning global geopolitical issues as factors accounting for the rapid development in Taiwan and South Korea, subordinate them to the "state efficacy theme." For White and Wade, external factors are not very important in explaining the "miracles." Wade dismisses special external aid opportunities: aid is not a sufficient explanation of Taiwan's success. Several other countries have received similar or larger amounts of aid per capita (Algeria and Chile, for example) but have not used it as effectively.55

A Critique of the Statist Approach We agree with Hagen Koo that though "this statist approach reveals important dimensions of the East Asian development pattern, it tends to overstress the independent role of the developmental state."56 Other sociopolitical factors such as social classes, global and regional geopolitical forces in the world economic system should at least be paid the same attention. Hence, a more comprehensive account of the development of South Korea and Taiwan, would include class analysis, and the world historical relationships along with an analysis of the role of the state. World politics and economy Although White and Wade identify some important differences between the states in Latin America and East Asia, they neglect the different timing of export-oriented development in the two areas. Taiwan and South Korea (also Singapore and Hong Kong) embalked on export-led industtiali'Lation ahead of most other Third World countries, which joined the game only belatedly,

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in the 1970s .... In the 1960s and into the 1970s the world capitalist economy was on the upswing. Core capitalists were eager to invest, Euromoney was easy to borrow, and interest rates were relatively low; there were fewer trade barriers against Third World manufactures and little competition from other labour-rich developing countries. Finally, the Vietnam War was good for business in both countries.S7

Moreover, the nature of incorporation into the world economy for South Korea and Taiwan also differed from that of the Latin American countries. South Korea and Taiwan were integrated into the world economy in the mid20th century for political reasons rather than economic ones - as a result of US confrontation with China and its involvement in the Korean and Vietnamese revolutions. State to state relations in the form of imperial state economic transfers and imperial state trade openings and marketing opportunities were much more important in "internationalizing" the economies of South Korea and Taiwan. Hence the capacity of the multinational corporations in these two countries has been much weaker than in Latin America.58 Unprecedented opportunities for world market trade and aid were provided to Taiwan and South Korea not because of economic reasons, but as a result of hot and cold war considerations.s? As Haggard and Chen note, "[i]mportant transnational coalitions developed as both countries fell into the U.S. security orbit."60 In order to protect capitalist hegemony in Asia, the U.S. Government provided the two countries with tremendous military and economic aid.61 The aid helped these two countries to finance capital formation and build infrastructure.s- Moreover, both countries were able to keep real wages low by importing the US surplus.63 Most important, the enormous military aid,64 which supports both countries' huge armies (for the sake of protecting Japan and the rest of Asian capitalism and maintaining the world economic order under the U.S. hegemony),65 also stimulated the local economy. The paradox of South Korea and Taiwan is the dual nature of its state - 'weak' on the outside and 'strong' on the inside, interventionist in the economy and submissive in international politics. This paradox may, however, be re190

Petras & HullNICs and the State

solved in the near future as, on the one hand, an increasingly affluent internal ruling class seeks its own independent political expression against the state; and, on the other, as the US economic position declines along with its capacity to engage in global police roles. The tendency will be for the US to close off local markets and decrease military outlays. The relationships between the regimes and the US will, thus, probably change, challenging the thesis which banks so heavily on the internal effectiveness of the state. Class Nature of the State The statist approach does not provide a convincing sociological explanation that accounts for the differential efficacy of the state in Taiwan and South Korea, relative to other Third World countries. The statecentered analysts fail to describe the mechanisms whereby the state harnesses corruption, bureaucratic centralism and state planning to the dynamic accumulation process because they ignore class agents. They treat the state as a 'black box' structure, which can only be understood by examining what goes into it and what comes out. But it is not easy to discern whether or not the output they treat, i.e, the East Asian 'miracle', is really generated by the 'black box' state, or by the matrix of class relations in which the 'box' is inserted. A more egregious omission of the state-centered literature is the failure to theorize the centrality of class relations and class power in the accumulation process: the repressive and exploitive relations which accompanied rapid growth are only mentioned in passing, or underplayed through resort to regime style euphemisms (i.e. Alice Amsden's benign phrase "co-operative management" describing police-state social relations captures this spirit succinctly). Exploitation of labour both intensive and extensive was the cause and consequence for active state intervention. The data on the importance of class relations and exploitation to growth is compelllng.ss In order to explore the mechanism of the state, one must look at the state in a context of struggle among different classes and sectors of classes, as well as examining its tendencies to self-perpetuation. While the state-centered approach has effectively debunked the assumptions of neoclassical and dependency 191

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schools in their respective attempts to explain the high growth performances of Taiwan and South Korea, it has itself fallen victim to its own over-simplifications. By ignoring the international variables - geopolitics, foreign aid, neocolonial expenditures (US spending during the Vietnamese War) - and inadequately treating class relations, the state-centered approach presents us with a very partial and incomplete account of the determinants of high growth in the two countries. The complex interaction between the strong state and the larger political economic system has to be taken into account. While the state-centered writers can be credited for recognizing the 'efficient' use of surplus value, one should keep in mind the long-term, large-scale denial of popular rights and the harsh exploitation that undergirded the whole experience. Too facile a passing over of the harsh class realities leads to the reification of economic success. A theory of development focusing on the efficacy of the corporatist state which fails to integrate the social relations of production, is not likely to acknowledge the dark side of their state-centered arguments.

Notes 1.

2. 3. 4.

5. 6.

192

Richard E. Barrett and Soomi Chin, "Export-oriented Industrializing States in the Capitalist World System: Similarities and Differences," in Frederic C. Deyo (ed.), The Political Economy of the New Asian Industrialism (Ithaca: Cornell University Press, 1987) p. 26. Edward Chen, Hyper-growth in Asian Economics: A Comparative Study of Hong Kong, Japan, Korea, Singapore and Taiwan (London: Macmillan, 1979) p. 83-4. Milton and Rose Friedman, Free to Choose: a Personal Statement (New York: Harcourt Brace Jovanovich, 1980) p, 57. See Richard Luedde-Neurath, "State Intervention and ExportOriented Development in South Korea," in G. White (ed.), Developmental States in East Asia (New York: St. Martin's Press, 1988) p. 69; and Robert Wade, "State Intervention in 'Outward-locking.' Development: Neoclassical Theory and Taiwanese Practice," in idem p, 31. See Wade, "State Intervention in 'Outward-looking' Development ...," p.31. Gordon White and Robert Wade, "Developmental States and Markets in East Asia: an Introduction," in White (ed.), Developmental States •••, pp.9-10.

Petras & Hul/NICs and tbe State

7. 8. 9.

10. 11.

12. 13. 14.

15. 16.

17. 18. 19.

20. 21. 22.

Wade. "State Intervention in 'Outward-looking' Development ...••• p.35. Ibid. p. 123. Bruce Cumings. "The Origins and Development of the Northeast Asian Political Economy: Industrial Sectors Product Cycles. and Political Consequences." International Organization. 38/1 (Winter 1984) p. 13. See Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea." Stephan Haggard and Tung-jen Chen. "State and Foreign Capital in the East Asian NICs" in Frederic C. Deyo (ed.), The Political Economy of the New Asian Industrialism (Ithaca: Cornell University Press. 1987) p. 86. See Hyun-Chin Lim. Dependent Development in Korea 1963-1979 (Seoul: National University Press. 1985) p, 14. Heather Jo Hammer. "Comment on 'Dependency Theory and Taiwan: Analysis of a Deviant Case'." American Journal of Sociology. 89/4 (January 1984) p, 935. Bill Warren. "Imperialism and Capitalist Industrialization." New Left Review. 81 (Sept/Oct 1973); See also Richard E. Barrett and Martin K. Whyte. "Dependency Theory and Taiwan: Analysis of a Deviant Case," American Journal of Sociology. 87/5 (March 1982) pp. 106489. Haggard and Chen. "State and Foreign Capital in the East Asian NICs," p.86. See also the report from Clive Hamilton: "Nevertheless. the share of TNCs in the manufactured exports of the Four has been relatively small. with the notable exception of Singapore. For the early 1970s the figures were for Hong Kong 10 percent. South Korea at least 15 percent. Taiwan at least 20 percent and Singapore nearly 70 percent. The fact that. except for Singapore, indigenous capital has even greater proportion of total output. is essential to the argument of this essay." Clive Hamilton, "Capitalist Industrialization in East Asia's Four Little Tigers," Journal of Contemporary Asia. 13/1 (1983) p, 36. Haggard and Chen. "State and Foreign Capital in the East Asian NICs," p. 95. Ibid. p, 93. For example. "Hong Kong is the fourth largest foreign investor in Malaysia, after Singapore, Japan and the United Kingdom (in 1979)," and "investment of Hong Kong in Indonesia amounted to US $370 million in June 1980. Hong Kong is the second largest foreign investor in Indonesia. after Japan." Edward Chen. Hyper.growth in Asian Economics ... pp. 483 and 484. See also Alice Amsden. "Taiwan," World Development, 12/5-6 (1984) pp. 491-503. for the case of Taiwan. White and Wade. "Developmental States and Markets in East Asia: an Introduction." p. 1. Lim, Dependent Development in Korea 1963-1979. p. 28. Cumings, "The Origins and Development of the Northeast Asian Political Economy ... ," p. 11.

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23. 24.

25. 26. 27.

28. 29.

30.

31.

194

Haggard and Chen, "State and Foreign Capital in the East Asian NICs," p. 85. Wade, "State Intervention in 'Outward-looking' Development ... ," p. 47. "Short (1983) using two indicators - the percentage share of public enterprise output in GDP at factor cost, and the percentage share in gross fixed capital formation - estimates that, out of 72 developed and developing countries (excluding communist bloc and oil-exporters), Taiwan is amongst the upper quintile according to both indicators. In Asia, only India and Burma are of the same order of magnitude or more (Korea's is a good deal smaller); in Latin America, only Bolivia." pp, 46-7. Haggard and Chen, "State and Foreign Capital in the East Asian NICs," p. 126. Barrett and Chin, "Export-oriented Industrializing States in the Capitalist World System ...," p. 36. For South Korea, see Chalmers Johnson, "Political Institutions and Economic Performance: the Government-Business Relationship in Japan, South Korea, and Taiwan," in Frederic C. Deyo, (ed.) The Political Economy of the New Asian Industrialism (Ithaca: Cornell University Press, 1987) p, 161; Cumings, "The Origins and Development of the Northeast Asian Political Economy ... ," p, 31; For Taiwan see Robert Wade, "East Asian Financial Systems as a Challenge to Economics: Lessons from Taiwan," California Management Review, 27/4 (Summer 1985) p, 115; and Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea," p. 75. See also Haggard and Chen, "State and Foreign Capital in the East Asian NICs," p. 106 for the case of Singapore. Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea," p. 75. "[S]ince 1976 the number of items controlled has ranged from 46 to 193 in any on year." Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea," pp. 76 and 77. Thomas B. Gold, "Entrepreneurs, Multinationals, and the State," in Edwin A. Winckler and Susan Greenhalgh (ed.), Contending Approaches to the Political Economy of Taiwan, (M.E. Sharpe, Inc.: 1988) pp. 201-202 for Taiwan; Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea," pp. 77-89 for South Korea. "In 1973, expenditures on social insurance, public health, public assistance, welfare, and veterans' relief represented 0.97 percent of GNP in the ROK, 1.2 percent in Taiwan; this compares with 3 percent in Malaysia and 5.3 percent in Japan." Cumings, "The Origins and Development of the Northeast Asian Political Economy ...," p, 31. Even in the 1980s, percentages of total central government expenditure for health, social security, and welfare in Taiwan (8.1% in 1986) and South Korea (8.1% in 1985) are far lower than the Latin American NICs' (Brazil: 40.3% in 1985, Argentina: 40.1% and Mexico: 13.4% in the early 1980s). Frederic C. Deyo (ed.), Beneath the Miracle, (California: University of California Press, 1989) p. 95; See also Wade, "East Asian Financial Systems as a Challenge to Bconomics ... ," \l. 109.

Petras & Hui/NICs and the State

32. 33.

34. 35. 36. 37. 38. 39. 40.

41. 42.

43.

Wade, "East Asian Financial Systems as a Challenge to Economics ...," p. 109. "Taiwan's finns are typically highly 'leveraged' in the sense that they depend more on borrowing and less on equity capital. The Stock Exchange, started in 1962, remains rudimentary as a source of finance; by 1980 only 102 companies were listed. Again, the Government has been less than anxious to promote it." Wade, "East Asian Financial Systems as a Challenge to Economics ...••• p. 112. South Korea has a similar situation: "Around 80 percent. on the average. of assets comes from loans from the banking system and other money markets. including the curb market. [whereas] the Korean stock market is just beginning to serve as a means of raising substantial capital. The remaining 20 percent comes from internal (equity); this compares with more than 50 percent internal financing among firms in the United States." Hyung-chin Lim cited in Johnson. "Political Institutions and Economic Perfonnance: the Government-Business Relationship in Japan, South Korea, and Taiwan." pp. 147-8. Wade. "East Asian Financial Systems as a Challenge to Economics •..," pp, 117 and 118. Ibid. p, 108. Hamilton. "Capitalist Industrialization in East Asia's Four Little Tigers," p. 51. Mick Moore, "Agriculture in Taiwan and South Korea." in White, Developmental States in East Asia, p, 145. Haggard and Chen. "State and Foreign Capital in the East Asian NICs." p. 126. See Luedde-Neurath, "State Intervention and Export-Oriented Development in South Korea," pp. 77-81. "In Korea, as grain imports rose and land was left untilled. between 1967 and 1972 the rural population fell from 16 million to 13 million which with natural increase meant that about 7 million people left the land for the cities. in the space of 5 years. The long-term effect of land reform had been to drive both the richest and the poorest from the villages. A similar though less dramatic process of spawning a proletariat occurred in Taiwan." Hamilton, "Capitalist Industrialization in East Asia's Four Little Tigers," p. 52. Ibid. p. 50. Hence the local capitalists in these two countries were not indigenous at the very beginning of the formation. Even today. the local bourgeois still relies on the support of the state. For example, ,••All Korean businessmen, including the most powerful have been aware of the need to stay on good terms with the Government to assure continuing access to credit and to avoid harassment from the tax officials.' So when the Yolsan conglomerate added to President Park's difficulties by (reportedly) flirting with the main opposition leader in 1979. the president used his ability to control debt to bankrupt the company, taking several small banks with it (an admittedly extreme case)." Wade, "East Asian Financial Systems as a Challenge to Economics ...," p. 122. However, Amsden's "industrialization through learning" and "particiIllLtOry orgllniz,lltion" explanaticns seem to overlook. this aspect. Her casual mention of the exploitive conditions of the workers in

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44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56.

57. 58. 59. 60.

61.

196

South Korea falls far short of any effort to integrate this crucial area into a general explanation of the industrialization process. Alice H. Amsden. "Third World Industrialization: 'Global Fordism' or a New Model?" New Left Review. 182 (July/August 1990). Haggard and Chen. "State and Foreign Capital in the East Asian NICs." pp. 91-2. Cumings. "The Origins and Development of the Northeast Asian Political Economy ...••• p. 26. Ibid. p. 11. The Korean central intelligence agency (KCIA). founded in 1961 with 3.000-man cadre. sharply expanded to 370.000 employees by 1964. Ibid. p. 10. Wade. "East Asian Financial Systems as a Challenge to Economics ...••• p.124. Wade. "State Intervention in 'Outward-looking' Development ...•••p. 56. Ibid. p.37. Ibid. p. 38; and White and Wade. "Developmental States and Markets in East Asia: an Introduction." p, 10. White and Wade. "Developmental States and Markets in East Asia: an Introduction." p. 10. Ibid. p. 9. Ibid. p. 25. Wade. "State Intervention in 'Outward-looking' Development ...•••p. 37. Hagen Koo, "The Interplay of State Social Class. and World System in East Asian Development: the Cases of South Korea and Taiwan," in Frederic C. Deyo (ed.), The Political Economy of the New Asian Industrialism (Ithaca: Cornell University Press. 1987) p. 165. Ibid. p. 169. Ibid. p. 175 Ibid. p, 172; and Jon Halliday. "Capitalism and Socialism in East Asia." New Left Review 124 (Nov-Dec 1980) p. 7. Haggard and Chen. "State and Foreign Capital in the East Asian NICs." p. 103. See also Lim. Dependent Development in Korea 19631979: "From the U.S. point of view. Korea was regarded as an outpost in checking the Communist expansion in Northeast Asia to protect its East Asian allies, particularly Japan," (p, 61) and "[als far as Korea is concerned. the basic policy direction of the U.S. revolved far more around moral and security interests than around economic ones. But the predominant American concern with stability and antiCommunism. has usually given priority to security interests rather than moral interests in Korea:" p, 80. "Since 1945 South Korea has received some $13 billion in American military and economic aid. and Taiwan some $5.6 billion ($600 per capita in the ROK. $425 per capita in Taiwan) .... The ROK's total of nearly $6 billion in U.S. economic grants and loans. 1946-78. compares with a total for all of Africa of $6.89 billion and for all of Latin America of $14.8 billion; only India, with a population seventeen times that of South Korea. received more ($9.6 billion). U.S. military deliveries to Taiwan and the ROK in 1955-78 (that

Petras & HuilNICs and the State

62.

63. 64.

65.

66.

is. excluding the Korean War) totaled $9.05 billion. All of Latin America and all of Africa received $3.2 billion; only Iran got more. and most of that was pumped in after 1972 (the figure is $10.01 billion). Cumings. "The Origins and Development of the Northeast Asian Political Economy ...•" p. 24. For South Korea. the "contribution of foreign investment on domestic capital formation was substantial. accounting for more than 30 percent in annual average between 1962 and 1979 (EPB. 1980b:14)," Lim. Dependent Development in Korea 1963-1979. p. 64. In Taiwan, "Samuel Ho estimates for Taiwan that foreign savings, much of which was U.S. is. totaled 40 percent of gross domestic capital formation," Cumings, "The Origins and Development of the Northeast Asian Political Economy ...," p. 24. "Taiwan's ... US aid. it should be said, financed 59 percent of net domestic capital formation in agriculture over 1951-65," Hamilton. "Capitalist Industrialization in East Asia's Four Little Tigers." p. 51. See also ibid. p, 54; Haggard and Chen, "State and Foreign Capital in the East Asian NICs." p, 87. Cumings. "The Origins and Development of the Northeast Asian Political Economy ...••• p. 34. "[T]he coercive capacities of the South Korean state function as the completion of the Japanese states: that is. without the ROK Army Japan would have to reconsider its entire military posture (against foreign and domestic pressures). The condition of post-war Japanese democracy is in part the continued existence of a bureaucraticauthoritarian slate in Korea," Cumings. "The Origins and Development of the Northeast Asian Political Economy ...••• p, 14. US Military Assistance between 1946 and 1975 totalled:ROK $8,871.8 (millions); Taiwan $4,410; Latin America $2.562; Africa $1,030.4. See Halliday. "Capitalism and Socialism in East Asia," p, 8. For example. although Amsden correctly points out that real wages in South Korea and Taiwan increased faster than in other late-industrializing countries [Amsden. "Third World Industrialization: 'Global Fordism' or a New Model?" p. 30]. "[i]t should be noted that real wage increases started from a very low base and remain low by world standards. As recently as 1980, ..., Latin American industrial wages remained higher than those in Asia [the hourly wages in Mexico and Brazil are U.S.$2.76 and $1.73 respectively while in South Korea and Taiwan the figures are U.S.$l.10 and $1.25 respectively]. In addition, at least through the 1970s, wage increases generally lagged behind productivity increases. a reflection in part of the weak political status of Asian labour." Moreover. "workers in East Asian light export industries. pace-setters for economic growth through the mid-1970s, experienced greater job insecurity and worse working conditions than their counterparts in modem industrial sectors in Latin America ...• most important, relative income equality in Asia may be a consequence not so much of equitable sharing in the fruits of economic growth as of very high levels of labour extraction among low-income workers and families. The average number of hours worked per week by Korean manufacturing employees is among the highest in the world ....tin Taiwan and South Korea] employment expansion in export industries has

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involved a massive entry of secondary household earners, especially young women from low-income families, into low-wage jobs." Deyo, Beneath the Miracle, p. 197.

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