[Lee Byung-jong] President Park’s legacy

In this season of Nobel Prize awarding, South Koreans were happily surprised twice. The biggest news was of course the winning of the Nobel Prize in literature by the novelist Han Kang. Equally important, but perhaps less noticed news was the fact that the three winners of the Nobel Prize in economics revealed their work was largely inspired by the success of the Korean economy. In studying why some countries succeed economically, while others fail, they used Korea as a prime example of a success story. They particularly credited President Park Chung-hee’s export-led development policies for Korea's remarkable success.

In his seminary book titled “Why Nations Fail,” James Robinson of the University of Chicago, one of the three laureates, argued that Korea succeeded because it had the right political and economic institutions. While North Korea’s “extractive” economic policies brought impoverishment, South Korea’s “inclusive” policies with a firm institutional base led to creativity and opportunities for its people. Daron Acemoglu, another laureate, also attributed the difference between South and North Korea to their institutions. In interviews with the Korean press after winning the prize, Robinson attributed Korea’s earlier success to Park who “had a project to develop his country.”

Robinson admits Park was a dictator, but one with a vision. He built sound economic and social institutions that lasted even after his death. Believing that Korea’s future is in exports, Park established a powerful bureaucracy machine solely dedicated to the promotion of exports. The Economic Planning Board, in particular, worked as a control tower monitoring and mobilizing other ministries for that purpose. To further exports, various measures were taken, including export insurance and general trading companies. The won currency was kept weak to help exporters. A monthly meeting attended by Park himself and high officials was held to make sure export targets were met. The meeting was held 177 times from 1963 until his assassination in 1979.

In that sense, President Park’s economic policies were not purely capitalistic. It was a strong top-down command economy where all the decisions were made at the top. His Five-Year Economic Development Plan is indeed modeled after the Soviet Union’s planned economy. Yet Park’s government motivated the private sector with a certain degree of incentives. If they followed government directions, private companies were given cheap money, tax breaks and other subsidies. More importantly, the labor movement was severely curtailed by Park’s repressive regime to guarantee their continuous growth. It was a uniquely Korean-style hybrid economy where the government and the private sector worked together to share risks. A key example of such risk-sharing was the development of the heavy chemicals industry in the '70s.

And the collaboration project finally took off, albeit after Park’s death. From the '80s, Korea’s exports began to move upscale in its portfolio from simple labor-intensive to more capital and technology-intensive areas. The early export items of clothes, plywood and wigs were replaced by electronics, automobiles, steel, ships and petrochemicals. Park’s legacy programs, such as the Economic Planning Board, continued to serve as an efficient commanding tower even as the private sector grew rapidly.

Yet the economic and social institutions Park built became too obsolete to manage the already developed, mature Korean economy in the late 1990s. The system was also too rigid to absorb volatile external shocks. As a result, the Korean economy was dealt a heavy blow during the 1997-1998 Asian financial crisis. With too much borrowing from overseas and excessive investments by the private sector, Korea barely escaped national bankruptcy via an emergency bailout by the International Monetary Fund.

But the Korean economy bounced back as its technology as well as heavy and chemicals manufacturers, the legacy of Park, regained their strength. Experienced bureaucrats trained during Park’s administration also played a key role in cleaning up the mess created by over-leveraged companies. Companies were forced to streamline and restructure their portfolios and become leaner and meaner. Banks and other financial institutions were also required to enhance their financial health to avert another financial crisis. Indeed, during the 2007-2008 global financial crisis, triggered by the Wall Street meltdown, Korea was one of very few countries that weathered the storm successfully.

Although Korea’s economy today remains strong, it is not without problems. And some of those problems are also legacies of President Park. The wide gap between exporters and domestic sellers that continues to haunt the Korean economy was no doubt Park’s product. Park’s decades-long support of large family-owned conglomerates led them to dominate the economy at the expense of small and medium-sized enterprises. Economic inequalities threaten to undermine society’s cohesiveness.

Yet Park’s contribution to Korea’s economic vitality cannot be denied. To attest that, Korea is now finding a new, totally unexpected blue ocean that was also Park’s legacy -- the defense and nuclear power sector. His push to build a heavy chemicals industry for the dual purpose of civil and defense is now paying off in the form of huge amounts of weapons exports to Poland, Romania, Norway, Saudi Arabia and a host of other countries. Park’s obsession with developing Korean technology at any cost also translates into multi-billion-dollar nuclear power plants in the United Arab Emirates and Czech Republic. In addition to the country’s traditional exports, defense and nuclear power industries are becoming a new cash cow. The Nobel Prize laureates were quite right in linking Korea’s economic success to Park.

Lee Byung-jong

Lee Byung-jong is a former Seoul correspondent for Newsweek, The Associated Press and Bloomberg News. He is a professor at the School of Global Service at Sookmyung Women’s University in Seoul. The views expressed here are the writer’s own. -- Ed.