High-Growth
Development in East Asia (1950s-1980s)
1. Basic patterns:
a) - World War II wiped out many of the gainss Japan had made since 1868. About 40 percent of the nation's industrial plants and infrastructure were destroyed, and production reverted to levels of about fifteen years earlier. The people were shocked by the devastation and swung into action. New factories were equipped with the best modern machines, giving Japan an initial competitive advantage over the victor states, who now had older factories. As Japan's second period of economic development began, millions of former soldiers joined a well-disciplined and highly educated work force to rebuild Japan. Two advantages – “clear beginning” in the technology and the military background of the workforce.- Japan's highly acclaimed postwar education system contributed strongly to the modernizing process. The world's highest literacy rate and high education standards were major reasons for Japan's success in achieving a technologically advanced economy. Japanese schools also encouraged discipline, another benefit in forming an effective work force.
|
University Entrance
Ratio
(percent) |
||||||||||||||||||||||||||||||
|
At the same time, it should be kept in mind that the higher education institution entrance rate of 71% in Japan breaks down to appr. 40% heading for 4-years universities and 2-year junior colleges, and 30% going to the senmon gakko (vocational schools – just job training). The difference in subsequent earnings between the university and senmon gakko graduates is significant, and that constitutes an important pattern of social stratification. Then, important class cleavages emerge on the entrance exams for the universities/junior colleges – these who are able to make it best at the highly competitive exams and enter the most prestigious universities (and those are usually from the better-to-do families, able to provide better conditions for study), have the best chances in subsequent carriers. So, the educational system – not only the background for the high-speed economic growth, but also an instrument of “legitimized” class stratification.
Similar prerequisites for the high-growth development in S.Korea and Taiwan:
Taiwan: Japanese Colonial bureaucracy stated very much intact (until 1946). Its successor, local bureaucracy – very autonomous from local society (and able to do drastic things, like land reform). Army – standing army up to 600,000 – “great educator”. 9-year education – made compulsory since 1968. Today, the university enrollment ratio – about 50 students on 1000 Taiwanese – among the highest in the world (on the level of former Eastern European socialist states). South Korea – the view that “soldiering helps in life and accustoms to the due discipline” was thoroughly internalized – even now about 75% of South Koreans reply to the pollsters that “serving in Army helps in life”. 9-years education – made compulsory in 1969. Enrolment to the post-high school educational institutions – around 80% (even higher than in Japan). Still, the differences in status between junior colleges (2-year course – around 500 thousands students) and universities (4-year course – around 1 mln. 300 thousand students) – huge. Status of vocational school students – even lower. Preference for the graduates of “elite” (prestigious) universities – even stronger than in Japan.
b) The early postwar years in Japan were devoted to rebuilding lost industrial capacity: major investments were made in electric power, coal, iron and steel, and chemical fertilizers. By the mid-1950s, production matched prewar levels. Released from the demands of military-dominated government, the economy not only recovered its lost momentum but also surpassed the growth rates of earlier periods. Between 1953 and 1965, GDP expanded by more than 9 percent per year, manufacturing and mining by 13 percent, construction by 11 percent, and infrastructure by 12 percent. In 1965 these sectors employed more than 41 percent of the labor force, whereas only 26 percent remained in agriculture. Korean war – great boost to the Japanese economy: “special procurements boom” (trucks, uniform). United States military procurement from Japan peaked at a level equivalent to 7 percent of Japan's GNP in 1953 . Post-war enterprising boom – based not on the stocks (as before the war), but on the bank financing (60-70%; ultimately central bans decisions) – “overloaning”. Re-birth of major zaibatsu: Mitsubishi (1952), Mitsui (1955), with their own banks. Other source of financing – American-funded Export-Import Bank of Japan (1952), and Japan Development Bank, both government-owned. Direct governmental supply of money to businesses through those banks in 1950th – 20-40%. So – government-financed economy. “Foreign Exchange and Foreign Trade Control Law” (1949) – all export earnings are obligatorily sold to the state. Government-directed foreign investment channeling and government-directed land use – building of integrated facilities (Kawasaki Steel Combinate). In a word – government-led, “soft authoritarian” development.
Situation in South Korea and Taiwan in the 1950s: South Korea was practically ruined by the 1950-53 War, and the tasks of reconstruction were aggravated by the mismanagement of Rhee Syngman’s “clique government”. Up to 1960 – the country barely regained the pre-war level, with huge American support (around $ 2 billions in civil support only). Per capita GNP in 1960 – around 100$ annually. Taiwan in the 1950s – also patterns of low growth, governmental mismanagement, and increasing deficit (mostly covered by American grants). 40% of gross capital formation – contributed by the American aid. Important – in the context of the Cold War, USA had to finance its East Asian clients mostly with gratis grants, not loans – thus, they could enter the industrial stage without too big “backlog” of the foreign debt (debt accumulated afterwards). Japan – already in the 1950s recovered and developed its industrial potential, thus being able to claim economic leadership over South Korea and Taiwan, which developed much slower on that stage.
c) The mid-1960s ushered in a new type of industrial development as the economy opened itself to international competition in some industries and developed heavy and chemical manufactures. Whereas textiles and light manufactures maintained their profitability internationally, other products, such as steel (especially) automobiles, ships, and machine tools, assumed new importance. The value added to manufacturing and mining grew at the rate of 17 percent per year between 1965 and 1970. Growth rates moderated to about 8 percent and evened out between the industrial and service sectors between 1970 and 1973, as retail trade, finance, real estate, information, and other service industries streamlined their operations. Trade Liberalization (mainly import opening) – 1960-1964 (80%). Full acceptance of GATT rules (no export subsidies, etc.). Instead: “discussion groups”, “investment coordination”, promotion of mergers (with governmental “structural credits”). Interpenetration of bureaucracy and industry: in 6 biggest steel companies, former MITI officials serve on boards (exception – Mitsubishi, Sumitomo, for some time): “amakudari” (“descending from Heavens”) network. Some liberalization of foreign investment in late 1960th, first big joint ventures (in autos, etc.). Shifting of “sunset industries” to Korea and Taiwan: EPZ with Japanese capital invested. In a word, relative liberalization with the continuing maintenance of “administrative guidance” over economy.
Situation in South Korea and Taiwan in the 1960s: in mid-1960s, USA decided to stop gratis aid to Taiwan, and instead urged it to introduce export-driven economic growth model, based on private enterprise, liberalized trade, and devalued currency. As a part of the deal, USA opened its market for Taiwanese products (40% of the 1960s Taiwanese exports – to the USA), and agreed not to force the open of Taiwan’s internal market for American products. Vietnam War – great boost to Taiwanese economy, in large part due to GI’s dollars spent on “recreation” in Taiwan. 9,5% growth rates in the 1960s. South Korea – also great boost by the openness of American market, American-advised currency reform of 1964 (devaluation), and Vietnam War (in 1966 – Vietnam War revenue accounted for 40% of foreign exchange reserves; US direct payments only exceeded $ 1 bln.). Growth rates – higher than 10%. In both countries – mostly labor-intensive industries (apparel, etc.). USA-dominated growth, which still did not lead to the formation of totally dependent Latin America-type economy, for USA had to permit its key Cold War allies to defend their domestic markets and regulate the economy in a way conducive to the sustained growth.
d) Japan faced a severe economic challenge in the mid-1970s. The world oil crisis in 1973 shocked an economy that had become virtually dependent on foreign petroleum. Japan experienced its first postwar decline in industrial production, together with severe price inflation. The recovery that followed the first oil crisis revived the optimism of most business leaders, but the maintenance of industrial growth in the face of high energy costs required shifts in the industrial structure. Changing price conditions favored conservation and alternative sources of industrial energy. Although the investment costs were high, many energy-intensive industries successfully reduced their dependence on oil during the late 1970s and 1980s and enhanced their productivity. Advances in microcircuitry and semiconductors in the late 1970s and 1980s also led to new growth industries in consumer electronics and computers and to higher productivity in already established industries. The net result of these adjustments was to increase the energy efficiency of manufacturing and to expand so-called knowledge-intensive industry. The service industries expanded in an increasingly postindustrial economy. Structural economic changes, however, were unable to check the slowing of economic growth as the economy matured in the late 1970s and 1980s, attaining annual growth rates no better than 4 to 6 percent. But these rates were remarkable in a world of expensive petroleum and in a nation of few domestic resources. Oil shocks – required stronger governmental price controls (emergency measures of 1973) – to some degree, governmental management of the economy was strengthened. Liberalization to foreign investment and trade – almost completed in 1973 (except. – retain sales – up to 1976, agriculture, “non-tariff barriers”). Switch to semi-conductors and computers – strongly influenced by the Korean competition in steel, auto, and shipping exports in late 1970th . new shift of “sunset industries” to Korea. “Trade dependence” of Korea on Japan – 38% of Korean imports are from Japan (mainly technology-intensive goods).
Situation in South Korea and Taiwan in the 1970s: both countries retain very high growth rates (8-9%), while successfully switching to the “heavy and chemical industrialization” – producing cars, ships, and petrochemicals. Already by 1970 – more than 70% of South Korean and Taiwanese exports are manufactured goods. For making this costly venture to succeed, these two countries utilized several factors: Middle East “oil money” and “construction boom” (South Korea only – received around $ 22 bln. in construction sales), cheap credit from the Western financial institution (“oil rents” boom in the Western banks), and the boom of Japanese investment (1171 projects authorized in the 1970s for S.Korea and Taiwan. Mass relocation of Japanese production facilities to S.Korea and Taiwan. So, S.Korea and Taiwan are becoming rather “semi-peripheries” of the Japanese economic “core” of the region than American dependencies in the Latin American manner.
e) Japan's average growth rate of 5 percent in the late 1980s, for example, was far higher than the 3.8 percent growth rate of the United States. Despite more petroleum price increases in 1979, the strength of the Japanese economy was apparent. It expanded without the double- digit inflation that afflicted other industrial nations and that had bothered Japan itself after the first oil crisis in 1973. Japan experienced slower growth in the mid-1980s, but its demand- sustained economic boom of the late 1980s revived many troubled industries. Very large share on the foreign markets – by 1992, 42% in the semiconductors, 38% in the data communications, 44% in the large computer systems, 16% in software. Japanese banks’ share of international assets in 1990 – 36%: global financial power. Interdependence relations with the USA - $ 142 mutual trade in 1990. Semiconductors, computers, electronics – main staple. Japan as a crucial part of “USA-Europe-Japan” hegemonic triangle. Problems – mounting “bad debts”, overexpansion of bureaucratized zaibatsu (chaebŏl are largely the same), real estate speculations (“bubble economy”).
Situation in South Korea and Taiwan in the 1980s: government-led shift from the 1970s capital-intensive growth to the high-tech-centered economy (semi-conductors, electronic appliances, etc.). As S.Korea and Taiwan strengthen their position as “semi-periphery”, new “periphery” emerges around them in late 1980s-early 1990s – China and Vietnam. Taiwanese trade with China – already around $ 8 bln. in 1990, and highly important in launching China on the high-growth path. Taiwanese investment in China – around $ 1,5 bln. in 1990. S.Korea –also becomes an overseas investor ($ 269 mln. in 1990). Change of the image – return to democracy in the late 1980s, development of popular culture, self-image as “part of the developed world” – superstructure developments follow the changes in the basis structures.
- The consequences of Japan's economic growth were not always positive. Large advanced corporations existed side-by-side with the smaller and technologically less-developed firms, creating a kind of economic dualism in the late twentieth century (bi-polar economy). Often the smaller firms, which employed more than two-thirds of Japan's workers, worked as subcontractors directly for larger firms, supplying a narrow range of parts and temporary workers. Excellent working conditions, salaries, and benefits, such as permanent employment, were provided by most large firms, but not by the smaller firms. The same “dual economy” model followed by South Korea (conglomerates vs. SM enterprises).
2. Labor – exclusion:
Basic possibility - export-oriented economy with less dependence on home market consumption (ban on domestic sales of color TVs in Korea before 1980). Domestic demand-led industrial growth – in Japan, in 1980th, in Korea – only in 1990th (partly).
Japanese and Korean temporary workers (in Korea today – 60% in industry, in Japan – 20%), mostly women, received much smaller salaries and had less job security than permanent workers (in Korea Telecom Inquiry Service – only $ 400 monthly, and monthly unstable contracts). Thus, despite the high living standards of many workers in larger firms, Japan in 1990 remained in general a low-wage country whose economic growth was fueled by highly skilled and educated workers who accepted poor salaries, often unsafe working conditions, and poor living standards. In Japan, 75% of companies do not hire women for career-track position (only for secretarial jobs), and in Korea, the gender discrimination is even worse. Korea – “overwork”, almost total lack of recreational time, relatively low wages (especially for low-skilled manual labor). Wage increase – never catch up the productivity increase (the law of limited economic inclusion).
In Korea and Taiwan before the end of 1980th – government-dominated “official” compliant trade unions. Absence of formal wage bargaining and collective agreements (except of the biggest enterprises), thus the chronic problem of the management arbitrariness and back wages. Enterprise-based corporatism – pseudo-consentual micro-level controls. Strikes – totally prohibited in major sectors in Korea in 1973-1979. Usual – police intervention and violent disruption of the strike. Politically – labor is totally excluded, except of post-war Japan.
Even in Japan – growing dissatisfaction of salaried employees:
