Government-business relationship in East Asia

1. Forms of authoritarian government:

1)explicit authoritarianism – South Korea, Taiwan (before the end of the 1980^th ), Japan (before 1945). The legitimacy generated by external threat: European expansion (Meiji), Communist countries (South Korea, Taiwan). Exaggeration of threat (South-North Korea), construction of additional threats (War in China by Imperial Japan). Comparison as key element in establishing legitimacy (comparison with “civilized” Europe and “barbaric Asia” in Imperial Japan, comparisons with Communist countries in South Korea and Taiwan). Other element in legitimacy-building (psychologically close to the “external threat”) – crisis consciousness based on “rupture in foreign policy”. Typically, impact of USA-China détente in the 1970^th on the internal politics in South Korea and Taiwan. Everyday control and surveillance - through over-staffed intelligence (KCIA – 370,000 employees in 1964). Influence of the government is based, i.a., on its wide abilities to function as the channel for importing crucially needed foreign capital into money-starved economy (governmental guarantee even for private loans). Important feature is de-facto governmental controls over private banks (conglomerate ownership of banks, common in Japan, is prohibited in Korea). Foreign money and kickbacks for loan guarantees and credit allocation also serve as the source for funding intelligence and police. The concept of “militarized society” – schools and army as the instrument of internalizing the discipline. Shortcomings: rigidity of the society, “pariah capitalism”/”crony capitalism”.

Prototype of the model of authoritarian building of a capitalist “nation-state” in East Asia – Meiji Japan (1868-1912). The group that built the Meiji “kokumin kokka” (Japanese translation of “nation-state”) – lower-ranked activist samurai – shishi. Their mentality – strong sense of national crisis in connection with the “unequal treaties” with Western states, heated “statist” (kokkashugi) patriotism, fierce sense of loyalty (a traditional Confucian emotion now utilized in the process of “late modernization”). Strong points: utilitarian openness to foreign experience, meritocratic beliefs (“promotion of talent” – article of faith”). Shortcomings (from today’s viewpoint) – hypertrophied “statism”, “utilitarian” understanding of democracy (as a “tool for civilizing Japan”), absence of any human rights consciousness. Strong Confucian underpinnings of the worldview. Reasons for the difficulties in accepting democratic norms: manifold, including total lack of such a background in the traditional knowledge. Example of misunderstanding of democratic principles: Fukuzawa Yukichi (1834-1901)’s first trip to America and Europe in the 1860s and his misunderstanding questions: “Where are the descendents of George Washington?” (supposed them to be “American nobles”), “How can the members of mutually opposing political parties eat and drink together, if they are enemies?” (did not understand institutionalized nature of political struggle in a democracy). Up to the end, the Meiji pioneers did not wish to change some basic Confucian underpinnings of their mentalities: Japanese Civil Code (enacted in 1898) was based on the French one (Napoleonic code), but the concept of “house” (ie) and house head’s monopoly right to control “house property” was inserted. Imperial Rescript on Education (1890): “Be filial to your parents, affectionate to your brothers and sisters (…), bear yourself in modesty and moderation (…), promote common interests, (…), offer yourself courageously to the State, and guard and maintain the prosperity of Our Imperial Throne coeval with heaven and earth”.

All these features: largely copied by the authoritarian modernizers in Korea (Pak Chong- Hee, 1917-1979 – Japanese military education and experience) and Taiwan (Chiang Kai-shek, 1887–1975, Japanese military training in late Meiji period).

The process of building a “nation-state” from above, “by decree and mobilization”:

-1871 – abolition of feudal domains, establishment of “prefectures”. Iwakura Mission – four important Meiji leaders and huge escort go abroad for more than a year (18 months) “to learn modernity”.

- 1872 – permission to buy and sell farmland: capitalist land market is introduced by the government. Tomioka silk filature – established by the government to promote better silk-making technologies and export growth. Government also builds Tokyo-Yokohama railroad by a foreign loan.

- 1873 – Conscription Ordinance – beginning of the establishment of “national army” in modern style. Beginning of the Land Tax Reform (payment in cash, 3% of the assessed land value) – government secured a good source of revenue. Peasants’ burden did not change significantly. Still, gov-t remained heavily in deficit.

- 1874 – peak of employment of foreigners by the government (about 520 persons) – government-engineered “direct transmission of modernity” through foreign advisors. Foreign employees on the first industrial projects – English (spinning mills), French (filatures), Dutch (weapon industry), etc. At one point, foreign employees’ salaries cost the Ministry of Industry one-third of its budget.

- 1875 – more than 30 ships handed free to Mitsubishi to establish Japan’s own shipping company. Operating subsidies (Yen 200,000 a year). “Government-sponsored capitalism”.

- 1868-1881 – government invests more than Yen 36.4 million in governmental factories. Most non-military enterprises – sold over to privileged companies (future zaibatsu) in early 1880s at very low prices – government practically finances the establishment of big capitalist class. These measures – ensured Japan’s ascend as the regional “semi-core”, able to produce and export industrial goods.

Admiration of Meiji government-led industrialization – Korean Courtiers’ Observation Mission (1881) recommends the same to Korean government as well. Syngman Rhee, future President of Korea (1948-1960) - <The Spirit of Independence> - admiration of “Great Meiji Reforms”. Afterwards – combined with political anti-Japanese activities.

2) implicit (“soft”) authoritarianism – post-war Japan. Difference between “tatemae” (principles) and “honne” (realities). 1951 – the establishment of state-owned Japan Development Bank (Nihon Kaihatsu Ginko), with the aim to promote “strategic investment” into the industry. This model – afterwards learned by South Korea. 1952 – the Enterprise Rationalization Act, and the Special Tax Measures to assist “prospective” industries (also copied by South Korea afterwards). 1955-1972 – domination of technocratic bureaucracy. 1955 – the birth of LDP (Government also adapts Petrochemical Industry Development Policy that year). Then - intensified cross-penetration of technocratic and bureaucratic elites. MITI, Finance Ministry, and Economic Planning Agency and their levers of control: screening of foreign imports, permissions for introducing technologies and borrowing capital (aim – to minimalize the dependence on foreign components), influence on plant location, internal loans (dependence on stock market was lower), etc. tendency to reduce competition. Encouragement of the “sunrise” industries – “climbing up” the ladder of industrial dominance. (example: 1956 – Law on Promotion of Machine Tool Industry). In a word – “administrative guidance”. Interpenetration between bureaucracy and big businesses – movement of cadres from the former to the latter. Shortcomings of the model are visible: bad treatment of many promising companies (“Sony” and “Honda”, among others). Inside life of political parties (most of all, LDP) – individual connections with the notables of the constituency in question, and “client-patron” relationship with influential party leader (“bossism”/”factionalism”). Phenomenon of religious political party – Komeito. Shortcomings – lack of real separation of powers and between business and power, vulnerability to corruption (“structural corruption” – money- and connection- based politics).

Case of governmental usage of historical traumas: savings and savings promotion. Savings rate – 13% in Japan (twice that amount in Korea). Biggest saving bank – postal savings system (4 times the assets of the Bank of America in 1981). Savings promotion in Korea.

2. As direct consequence of governmental authoritarianism – “tamed labor”. Japan – low degree of political involvement of organized labor, still high unionization rate (30% in 1980^th , around 20% now), very few strikes. Methods of “taming” – exploiting cheaper labor of the subcontractors while giving better conditions to the big businesses’ unionized labor. Introducing “bonus system” – large part of the remuneration comes depending on the sales results, thus labor is interested in “working together for success”. South Korea – until 1987 – government-manipulated unions, afterwards – free unions and lots of strikes, but still no political involvement. Slow break-up of the unions (unionization rate – from 20% in 1987 to 10% now) through both “modern” (increase in short-term contract labor force – up to 60% now) and “conventional” methods (“competition in loyalty” between laborers, paternalism, boosting of conflicts between regular and contract workers). Taiwan – martial law and prohibition of strikes, KMT control over unions. Consequence – incomparably worse living standarts (in comparison with Europe). Working hours a year – 2833 in South Korea (1898 in the USA). Per hour earnings in South Korea were $1,69 for 1987 (even in Japan - $11). Working hours of bureaucrats and “white collars” – unlimited. Quality of life – housing space in Tokyo is 1/3 smaller than in N.-Y (and twice more expensive), available park space per capita is 7 times smaller. Sewerage diffusion rate – 60% now (97% in Britain). Number of paid holidays per year – 7-9 in Japan (4-5 in Korea). Consumption of food – 700-800 kcal less that in the USA (daily). Also patterns of “tamed consumption” – government-imposed informal taboos on the ownership of high-cost foreign-made merchandise (cars, typically).

Question of Zaibatsu (chaebol) – their existence in Japan and South Korea, and relative absence in Taiwan.

Pros and Cons of the “soft authoritarian” model. Problems: “bad loans” – non-performing loans, given on the basis of either misdirected “strategy” or personal connections, exploitation of temporary/subcontractors’ labor, etc. Pluses: relatively equal income distribution (Japan’s Gini coefficient – almost the same as in Sweden), social stability.

*Note: Gini coefficient and Lorenz Curve: Developed by Max O. Lorenz in order to describe the extent of inequality in a society. Imagine a graph in which the cumulated income (expressed as a percentage) is placed on the vertical axis and the cumulated number of households (expressed as a percentage) is placed on the horizontal axis. If there were perfect equality (so that the first 10 per cent of the households received 10% of the income and 20% of the households received 20% of the income, etc.) a diagonal line would be drawn across the graph. When actual income distributions are depicted on this graph the line (a curve) departs from the line of perfect equality. For example, the bottom 20 per cent of households may receive only 4.5% of the total income. This line is the Lorenz curve and can be expressed mathematically. The Gini coefficient is an expression of the ratio of the amount of the graph located between the line of perfect inequality and the Lorenz curve to the total area of the graph below the line of equality.