Korea Amsden NLR 90

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  • Alice H. Amsden

    From the 1960s to the 1970s, industrial output in almost all Third World countries grew rapidly. Growth was especially fast in a subset of developing countries that can be called late industrializers, countries which industrial- ized without the competitive asset of being able to monopolize an original technology. Late industrializers include South Koreathe subject of this articleTaiwan, India, Brazil, Mexico, and possibly Turkey. ( Japan also qualifies as a late-industrializing country because it, too, started to grow without indigenous technology.) Since the 1980s, stagnation has afflicted the economies of most late-industrializing countries and those of the Third World in general. Yet Korea and Taiwan have continued to grow very rapidly, posing a special puzzle for those who seek to understand different patterns of growth in the world today. Dependency theories of economic development, for instance, have been unable to explain East Asias rapid growth, predicting instead underdevelopment as a consequence of inter- national trade and foreign indebtedness; yet exports have been pivotal in the

    Third World Industrialization: Global Fordism or a New Model?


  • rapid economic expansion of all the East Asian countries, and Koreas economy has also been highly leveraged on international loans. Nor have market theories of economic growth demonstrated greater explanatory power.

    The most orthodox economists have interpreted East Asian expansion as a vindication of free-market principles. Export-led growth is seen as reflecting comparative advantage, a pillar of free-market theory.1More broad-minded economists among the orthodox have been less complacent, however, recognizing the need to modify the free-market explanation because government intervention in the fast-growing East Asian economies has been so extensive. Nevertheless, such economists have argued that despite this widespread government intervention, the East Asian economies have not violated the canons of free-market theory and have got relative prices right; that is, they have allowed the forces of supply and demand to push prices of key resources, such as foreign exchange and capital, close to their equilibrium or scarcity levels. They argue that conformity to free-market principles is what accounts for East Asias rapid economic advance.

    In fact, there is little evidence to support the more liberal of the ortho- dox interpretations. In the case of Koreas exchange rate, even if it were never grossly over- or under-valued, exporters were generously subsidized by the government and strongly coerced to export through an export targeting system. Thus, the amount of exports and the dol- lar price received for them were highly politicized outcomes. In the capital market, government policy was equally distortive. One of the first acts of the Korean strongman, Park Chung Hee, after he seized power in a coup dtat in 1961, was to nationalize the banking system. This gave him control over domestic interest rates, exclusive of those which prevailed on an informal curb market. He also gained control over the allocation of foreign loans, targeting them to specific indus- tries earmarked for development, and even to specific firms that were both efficient and generous friends. He gained control over foreign- loan allocation because foreign lenders required government guaran- tees of repayment in the case of default, and the Korean government used its guarantee powers to determine which firms could borrow abroad.

    Because the rate of inflation exceeded the rate of currency deprecia- tion, the real interest rate in Korea on long-term foreign loans throughout most of the expansionary decades of the 1960s and 1970s was negative. In a capital-scarce country, a negative real interest rate on investment capital cannot be interpreted as allowing the forces of supply and demand to operate. A multiplicity of prices in the capital market for loans of the same maturityone for foreign loans, one for domestic commercial bank loans, and one for curb or informal loans suggests that not all prices could possibly have been right.

    In all late-industrializing countriesJapan, Korea, and Taiwan included not only have governments failed to get relative prices right, they

    1 See, for example, B. Balassa, Export Incentives and Export Performance in Develop- ing Countries: A Comparative Analysis, Weltwirtschaftliches Archiv, 114, 1978; Develop- ment Strategies in Semi-Industrial Countries, Baltimore 1981.


  • have deliberately got them wrong, in order to stimulate investment and trade.2 They have subsidized the price of capital and exports. The faster growth of the East Asian countries is therefore attributable less to freer markets than to the institutions that have allowed subsidies to be allocated more effectively than elsewhere. Conse- quently, an analysis of disparate growth rates among late-industrial- izing countries requires an institutional approach.

    I shall be concerned in what follows with two institutional approaches to late industrialization: one which has been called global Fordism, and which I would like to criticize because I think it has no explana- tory or predictive power; and another, derived from a particular dynamic of institutions and class relations, which, I shall argue, fur- nishes a properly substantive account.

    Global Fordism

    The notion of global Fordism is linked to the larger Regulation School of analysis only in so far as its major expositor, Alain Lipietz, has chosen to situate his writing within a regulation framework. Not all regulation theorists, however, accept the global-Fordist exten- sion of their work.3 Nor does the regulation framework adopted by Lipietz necessarily represent the most persuasive version of regula- tion theory.

    The chief elements of the global-Fordist version of regulation may be summarized as follows. The experience of mass-production industries in the United Statescall it Fordismis the point of departure for understanding Third World development. Mass-production technol- ogy created unprecedented increases in output based on Taylorism,which comprises two parts: the decomposition of jobs into their small- est constituent units; and top-down management. The de-skilling of jobs and top-down management, however, create downward pressure on wages, such that the mass consumption necessary to sustain mass production is jeopardized. Global Fordism uses a regulation approach to the extent that history is understood as a series of episodes. Each episode is defined by a certain regime of accumulation, or production system, in association with a certain mode of regulation, or institutional framework. Sometimes the association between the two favours growth, sometimes it favours stagnation. The postwar prosperity of the USA is regarded as one wherein Fordist institutions (say, industrial unions) favoured mass consumption, allowing mass production to proceed apace in a Golden Age of unprecedented expansion.

    Global Fordism, as expounded by Alain Lipietz, brings mass produc- tion, the two parts of Taylorism, and a concern for underconsump- tion, to the Third World. Lipietzs analysis is global to the extent that Third World development is understood in terms of relations

    2 See Chapter 6, Getting Relative Prices WrongA Summary, in A.H. Amsden, Asias Next Giant: South Korea and Late Industrialization, Oxford 1989. 3 See, for example, R. Boyer, La theorie de la Regulation: Une analyse critique, Paris 1986, pp. 11213.


  • between the centre and the periphery, in the grand tradition of the dependencia theory he so deplores:

    I will attempt to present, succinctly and in schematic form, the results of my work on how the present crisis [in the centre] is transforming the inter- national division of labour. I will not venture so far as to make a concrete analysis of the one hundred and fifty countries that make up the world or of their irreducible specificities . . . I will cast caution to the winds. I will talk about old and new divisions of labour, the centre, the periphery, Ford- ism, bloody Taylorism, peripheral Fordism and other bold conceptualiz- ations . . . The reader has been warned. She would do better to burn this book without reading it, if all she is going to get out of it is a new collection of labels to stick on real nations and actually existing international rela- tions without first analysing them carefully.4

    I must confess that this reader, for one, found no more than labels in Lipietzs booklabels, moreover, which are no substitute for a theory of industrialization.

    Peripheral Fordism

    Together with the other late-industrializing countries, Korea has pro- gressed well beyond the stage of producing labour-intensive manufac- tures. The country is possibly the worlds lowest cost steel producer, and has invested heavily in steel-making R&D. The Korean car that is a hot seller in the low-price range in the United States and Europe is made with Mitsubishi Motors engine technology. Nevertheless, most of the car is indigenously engineered by Hyundai Motors. Koreas huge electronics firms have moved beyond consumer electronics assembly and have begun to produce semiconductors and complex industrial electronics systems. Their R&D laboratories are run by Korean-Americans with long experience in high-tech companies. Their joint ventures in Silicon Valley infuse technology at the world frontier. These developments are rather remarkable given the chronic underdevelopment throughout most of the Third World, and they demand careful analysis. Lipietz labels such developments peripheral Fordism:

    In the 1970s a new pattern emerged in certain countries. It was character- ized by the existence of autonomous local capital and by the presence of a sizeable middle class, and a significant element of a skilled working class. In some cases, its origins lay in an earlier import-substitution policy or in a peripheral form of merchant capitalism (Chinese in Eastern Asia). In other cases, it emerged from the miraculous promotion of exports of raw materials such as oil or from an earlier stage of primitive Taylorization. This conjuncture allowed certain states to develop a new logic which we will refer to as peripheral Fordism (p. 79).

    According to Lipietz, peripheral Fordism is a true Fordism in that it involves both mechanization and a combination of intensive accum- ulation and a growing market for consumer durables (p. 78).

    4 Alain Lipietz, Mirages and Miracles: The Crises of Global Fordism, Verso, London 1987, pp. 45. Subsequent references to this work appear in parenthesis in the text.


  • It is true that production in sectors ranging from automobiles, machin- ery, steel, petrochemicals and pharmaceuticals may be described as mechanized or mass-produced. These industries generate high levels of productivity by virtue of their skill- and capital-intensive produc- tion processes. But to recognize and label the emergence of more com- plex production in the Third World as peripheral Fordism is not to explain it. Lipietz has no more to say about the origins of mass pro- duction in the Third World than the stark references cited above. He simply states that in some cases mass production came from an ear- lier import-substitution policy, but he does not explain how, or why, it developed in some countries and not in others. In some cases it emerged from a peripheral form of merchant capitalism (Chinese in Eastern Asia), whatever this befogged phraseology might mean, and in others it emerged from the export of raw materials such as oil (presumably Lipietz has in mind Mexico, or the Bombay region of India). But it is not made clear how oil money was translated into manufacturing investments, or why some oil-producing countries fared better than others. In other cases mass production emerged from an earlier stage of primitive Taylorization (read maquiladoras or export-processing zones). For such a bold conceptualization as peri- pheral Fordism, and for such a rare occurrence as Third World indus- trialization, these strands of explanation are woefully inadequate.

    According to Lipietz, primitive Taylorization refers to the transfer of specific segments of branch circuits to states with high rates of exploitation (in terms of wages, length of the working day and labour intensity) (p. 74). In other words, primitive or bloody Taylorization refers to investments, often by multinational firms, in labour-intensive production processes in the Third World, with a view towards re- export to the advanced countries. Analytically, however, peripheral Fordism cannot be seen as a logical extension of primitive Taylor- ism, as Lipietz implies. Even in Korea, Taiwan and Northern Mexico, which the multinationals favoured as locations for their labour-intensive production, such investments were only a small frac- tion of these countries total investments. Moreover, a country like India has a large industrial sector but virtually no export-processing activity. In another case, Puerto Rico, the maquiladoras have been omnipresent but economic development has floundered. Thus, no relationship between peripheral Fordism and primitive Tayloriz- ation can be assumed a priori. Nor can one attribute the emergence of mass production in a country like Korea to the multinational firm. Skill- and capital-intensive production in Korea is not dominated by the multinationals. Multinational investment has largely been restricted to labour-intensive exports. By contrast, the commanding heights are owned and controlled by local firms: privately in Korea and Japan; publicly in Taiwan.

    Lipietz provides no explanation for how mass production or an intensive regime of accumulation arose in late industrialization. None is forthcoming because his methodology is one of trying to understand the periphery in terms of the centre. For example, he states in his introduction: The fourth chapter brings us to the heart of our subject: the novel phenomenon of the partial industrialization of


  • the Third World, which will be shown to be the result of the various ways in which elements of the logic of Fordism have been extended to the periphery(p. 6, emphasis added). The rise of Third World industry, therefore, is seen by Lipietz as a response to the ever-present, proverbial crisis in the centre. Industry in the Third World arises as capital from the centre extends the scale of its operations in a search for new mar- kets and cheap labour. Chapter Four does not end, therefore, with a summary of how late industrialization occurred, or why some late industrializers grew faster than others. Instead, it concludes with a discussion of the extent to which the South serves the North as a market in the new international division of labour (new because some Third World countries now compete as manufac- turers). We know in retrospect from the failure of dependency theory that the dynamics of growth in the Third World cannot be analysed satisfactorily in terms of the categories of centre and periphery. To the extent that Lipietz employs these categories, he is a dependency theorist, and no more successful than they in explaining Third World industrialization.

    The Fordist Model Abroad

    To understand the process of late industrialization, one must learn from the history of earlier industrializing countries. The failure of the market paradigm to explain Koreas industrialization suggests the need for an institutional approach. The model of Fordism derived from US twentieth-century history does not, however, have predictive power when applied to the Third World, despite its rich institutional orientation. The institutions of late industrialization are quite differ- ent from those of the Second Industrial Revolution in the United States. Firstly, the Fordist model regards underconsumption as the major stumbling block to economic growth; whereas the problem of industrialization in the Third World is a problem of raising pro- ductivity and creating international competitiveness, not effective demand. Secondly, late industrialization has been a far more political process than the entrepreneurially driven model of American Fordism would suggest. The state has masterminded late industrialization with varying degrees of success. Finally, American, Korean and Japanese factories in the mass-production industries all have similar tech- nology, employ time-and-motion studies, and practise scientific management. Taylorist nuances, however, are quite distinct to the extent that productivity growth differs significantly. We will now look in more detail at the problems evident in transferring the Fordist model from one country and time period to another, with respect to underconsumption, the state, and Taylorism. Later these subjects will reappear in discussions of Korea.

    (1) Underconsumption

    The subject of underconsumption in the Third World is not analysed systematically by Lipietz, but it provides a leitmotif in most of his chapters. For example, he states:

    The term peripheral Fordism should only be used when growth in the


  • home market for manufactured goods plays a real part in the national regime of accumulation. In this context, it should be noted that South Korea, which some writers insist upon calling a workshop country because of the primitive Taylorization that exists in some segments of the trans- ferred labour-intensive industries, departed from the Taylorist schema long ago. That schema characterized its growth in the period between 1962and 1972. Since 1973, growth has centred on the home market . . .Real wages, which had been rising more slowly than productivity, took off in 1976, so much so that they began to threaten South Koreas competitive- ness vis--vis Taiwan (p. 80).

    In fact, since 1973, when Korea began investing heavily in basic and, later, computer-based industries, growth has not been centred on the home market. Korea now exports more capital- and skill-intensive products than light manufactures; and total exports as a percentage of GNP are approximately 35 per centfar higher than Lipietz allows. Moreover, wages began to rise rapidly in the mid 1960s, but have not yet undermined Koreas international competitiveness. Real average wages in Korea, as we will see below, appear to have risen faster than in any previous industrialization and in any contemporary one. They have grown far faster than in other late-industrializing countries such as Brazil and India, which have grown largely on the basis of the home market and which depend more on high wage increases to shore up effective demand. Contrary to the Fordist story, therefore, which sees the forces of mass production outstripping the capacity of workers to consume, high productivity in Korea has sustained high growth rates of both exports and wages.

    To reject an underconsumptionist theory of industrialization is not to underestimate the problems posed to expansion by impoverished home markets, or to dismiss too readily the influence of income distri- bution on what products can profitably be produced.5 Nor is it to minimize the struggle of capitalists the world over to find markets for their ouput. But in terms of a disequilibrium between what a Third World country can produce and what it can sell, the underconsump- tionist argument is untenable. The problem in developing countries is not that of too little effective demand but of too much, as different income groups and social classes struggle over the distribution of a puny pie. Governments are not confronted with the need to raise effective demand, but rather to dampen aggregate spending in order to check inflation. What they must raise is more foreign exchange, savings and public revenues; for these, and not effective demand, are the constraints on increasing the pies absolute size. Moreover, any country, particularly a small one, can produce without regard to the size of its home market, so long as it can export. The problem is that most Third World countries cannot export because they are not com- petitive internationally, despite low wage rates. Nor can they sell domestically at international prices, at high levels of productivity that would enable them to pay high wages and expand their internal


    5 For a critique of Latin American underconsumption theory, see N. Lustig, Distribu- cion del ingreso y crecimiento en Mexico: Un analisis de las tesis estructuralistas, Mexico 1981; Underconsumption in American Economic Thought, Review of Radical Political Eco- nomics 12 (1) 1980.

  • market size. Ultimately, therefore, as the Korea experience suggests, the problem of industrialization is a problem of increasing productiv- ity, not demand.

    (2) The State

    According to Lipietz, both primitive Taylorism and peripheral Fordism require a state that is autonomous in three senses: First, the regime must be politically autonomous from traditional forms of foreign domination . . . Secondly, the political regime must be autonomous from ruling classes connected with either the pri- mary export economy or the growth of the home market . . . Finally, the regime must also be autonomous from the popular masses . . . In short, it usually requires a dictatorship to break the old balance and to use the state to create managerial personnel who can play the part of the ruling classes within a new regime of accumulation (pp. 7273).

    I agree with Lipietz that the relative autonomy of the state was decisive in Koreas rapid growth, compared with that of other late- industrializing countries. Nevertheless, the category of autonomy, even in a non-idealized form, is insufficient to understand the late-industrializing state. Significant industrial growth has been achieved in India on the basis of parliamentary democracy, not dictatorship, and Mexico has registered industrial advance with a constitutionalist regime. Lipietz focuses on the degree of state power to the exclusion of two other critical issues related to the state: the conditions under which strong states act development- ally, investing long-term rather than speculating; and the precise policies which the developmental state follows in order to further industrial growth.

    Nor, more generally, does the model of American Fordism provide sharp insights into the role of the state in economic development. The states role in the United States in the era of mass production was largely one of creating effective demand in response to crisis, and of regulating business in the American sense of the termsupporting competitive market structures. By contrast, the states role in late industrialization has been far more comprehensive. The state is the principal initiator of industrial growth, and state control over big business in Japan, Korea and Taiwan is much broader than that of American-style regulation. Support for business is also greater than what was typically meant by infant industry protection.

    (3) Taylorism in the Fordist Factory

    The global-Fordist model is as flat-footed at the level of the firm as it is at the level of the state. Taylorist institutions, strictly defined in the American tradition, have never been exported to the mass-production factories of Japan, Korea or Taiwan. It is true that jobs in mass- production industries in these countries have been industrially engin- eered for maximum efficiency. But work has not been managed in a top-down fashion. Technical ignorance at the highest managerial level, and inexperience on the part of the workforce, have made it


  • impossible for borrowed technology to be optimized through a top- down, Taylorist approach to productivity and quality improvements. Instead, the standardization of work has been accompanied by a more participatory (and, it turns out, more productive) approach to work relations, not for cultural reasons but for reasons related to technology transfer.6

    Not even the kernel of Fordism itself holds up well in the Third World, where the essence of Fordism is higher wages and better work- ing conditions in the mass-production industries than in the bloody Taylorized industries like electronics assembly and apparel. Of course, long before Lipietzs labelling, it was widely recognized that the labour markets of the Third World, not least that of South Korea, were segmented by wage ratesalong lines of gender, capital-intensity, and possibly firm size. Real wages have risen faster in South Korea than in any previous or contemporary industrializing country, but South Korea also holds the dubious distinction of having one of the largest wage gaps between men and women (between 40 and 50 per cent) and between labour-intensive and capital-intensive manufactur- ing branches.7 Nevertheless, Fordism is an inappropriate label to append even to the situation of the highest paid workers in Korea, because they have been subject no less than other workers to forms of abuse that are incompatible with the notion of a Fordist aristocracy or elite. High wages and ill-treatment have coexisted in mass production.

    The industrial policy that has driven economic expansion in Korea has excluded any input from labour at the national level: until recent democratization, there was no accord comparable to the Wagner Act in the United States that recognized labours rights to share economic- ally, and to participate politically, in the process of growth. Instead, the Korea Central Intelligence Agency had formal jurisdiction over labour affairs, and high-paid and low-paid workers alike faced the danger of life-threatening repression. On the shop floor, the labour aristocracy has been subjected to harsh and demeaning forms of intimidation.8 High profits in Koreas mass-production industries have been derived not merely from investments in machinery and modern work methods (what Marx calls relative surplus-value extrac- tion and what the school of regulation calls an intensive regime) but also from the worlds longest working week (what Marx calls absolute surplus-value extraction and what the regulationists call an extensive

    6 It is noteworthy that Lipietz explains the recent decline in US productivity by imagin- ing an exhaustion of opportunities to raise productivity in a Taylorized system. See, for example, Behind the Crisis: The Exhaustion of a Regime of AccumulationA Regulation School Perspective on Some French Empirical Works, Review of Radical Political Economics 18 (1) and (2), Spring and Summer 1986. Yet the same Taylorized technology has proved merely the starting point for raising productivity in East Asia.7 For inter-industry wage differences, see A.B. Krueger and L.H. Summers, Reflec- tions on the Inter-industry Wage Structure, Discussion Paper No. 1252, Harvard Institute of Economic Research, Cambridge, Mass., 1989. For gender wage differences in Korea, see J.W. Lee, Economic Development and Wage Inequality in South Korea, Ph.D. thesis, Harvard University, 1983. 8 J-I. You, CapitalLabor Relations of the Newly Industrializing Regime in South Korea: Past, Present, and Future, mimeograph, Department of Economics, Harvard University, 1989.


  • regime). While Fordist theorists seem to view growth through higher productivity, and growth through harder work, as independent regimes of accumulationcharacterizing different groups of workers or differ- ent time periodsit is the case that in Korea the two forms of profit making operate side by side, and characterize the same group of workers simultaneously.

    The overall evidence suggests that Fordism (mass production in the United States) and peripheral Fordism (mass production in the Third World) have entirely different modes of regulation. One cannot predict from the global Fordist model, therefore, either which institutions in the Third World are conducive to fast growth, or which Third World countries will grow fast. If the problem of Fordism was undercon- sumption, then the problem of late industrialization is the creation of international competitiveness. If the state in the era of Henry Ford took a back-seat role to the private entrepreneur, then the state in late industrialization plays the leading part in capital accumulation. If, as Alain Lipietz has argued, the process of de-skilling and procedurizing work is exhausting opportunities to increase productivity in the Ford- ist system, thereby precipitating the ubiquitous crisis, then the very same process of de-skilling and procedurizing of work in Japan and Korea is producing a rate-of-productivity increase that is thoroughly realigning global competition. The Fordist model possesses little pre- dictive power when applied to the Third World, and consequently we are left with no more than empty categorical boxes borrowed from the regulation methodology.

    An Alternative Framework: Industrialization Through Learning

    I turn now to an alternative institutional explanation of late indus- trialization in general and Korean industrialization in particular, returning to the criticisms expressed above. I term those countries that have succeeded in entering more skill-, technology-, and capital- intensive industries late rather than newly industrializing, not in order to add to the clutter of jargon that already plagues the Third World, but because lateness matters to competitiveness, and hence to development, when it is defined in terms of the absence of novel technology, even in the leading or dominant firms of a country. The important question is not whether industrializing late, as so defined, is easier or harder than industrializing earlya question with which Alexander Gerschenkron was supposedly concerned.9 Rather, two more important questions are: first, whether there are general proper- ties specific to late industrialization; and second, whether differencesin growth rates among late industrializers can be understood in terms of variations in these general properties.

    I argue that the general properties of an industrialization process based on learning, or borrowing, technology are entirely different from those of an industrialization process based on the generation of

    9 See, for example, A. Gerschenkron, Economic Backwardness in Historical Perspective,Cambridge, Mass. 1962.


    Jayan Jose Thomas

    Jayan Jose Thomas

    Jayan Jose Thomas

  • new products or processesthe hallmark of the First and Second Industrial Revolutions. Thus, the late acquisition of international competitiveness has given rise to certain common tendencies in other- wise diverse countriesJapan, Korea, Taiwan, India, Turkey, Brazil and Mexico. Further, growth rates among these countries have dif- fered not because markets have been allowed to operate more or less freely, but because the institutions general to late industrialization have functioned with varying degrees of effectiveness.10

    The problems that late-industrializing countries confront in creating international competitiveness may be appreciated in historical con- text. Industrialization in eighteenth-century Britain may be said to have occurred on the basis of invention. Productivity increases were realized by means of a searchlargely through trial and errorfor better products and processes, in the context of the small-scale firm under the control and ownership of the individual entrepreneur. Industrialization in the nineteenth century by the dominant enter- prises of Germany and the United States may be said to have occurred on the basis of innovation, or the mass commercialization of the inven- tions of individuals, through a process involving systematic problem- solving, increasingly in the context of the R&D laboratory. The modern industrial enterprise replaces the small-scale firm as key insti- tution, and the owner-entrepreneur is eclipsed by the corporate manager. This Second Industrial Revolution, of course, provides the inspiration for Fordism.

    While these two modes of industrialization differ, if only in their degree of scientific content and company organization, nevertheless in both cases new technology provided leading firms with a competitive asset. By contrast, the mode of late industrialization has been one of borrowing technology from more technically advanced societies, or what may be called learning. Borrowing requires creativity, just as innovation or invention requires learning from others. Historically, leading firms in Germany and the United States learned from those in England, and only then advanced beyond the English with a series of innovations in the fields of chemicals, electricity and energy in the continuous process industries, and electrical equipment, transport- ation and machinery in the fabrication/assembly sectors. Moreover, while leading German and American innovators were responsible for outcompeting the British, most companies in the United States and Germany were followers.

    Nevertheless, the waging of competition by dominant firms without the aid of a novel technology involves a very different struggle from that in which technological advantage plays a key role. The citadel of Fordism provides the example of automobiles: while General Motors

    10 Most references are from Amsden, Asias Next Giant. See also A.H. Amsden, Republic of Korea, World Institute for Development Economics Research of the United National University, Stabilization and Adjustment Policies and Programmes, Country Study Number 14, Helsinki, Finland 1987 (published in the Korean language by Si-Sa-Yong- O-Sa Publishers, Inc., 1989). The argument in Amsden, Asias Next Giant, is summar- ized in Asias Next Giant: How Korea Competes in the World Economy, Technology Review, May/June 1989; and Invention, Innovation, and Learning, Political Economy 3(2), 1987.


  • learned from Ford and the European car manufacturers after the turn of the century, its distinct design technology enabled it to gain a market share from Ford in a manner that later manufacturers like Toyota and Hyundai could only envy. Consequently, inside Toyota and Hyundai a set of institutions evolved, with a set of supporting institutions in the Japanese and Korean economies, which contrast with those characteristic of General Motors and the US automobile industry.

    In general, postwar industrialization based on learning, or borrowing foreign technology, is associated with a common set of properties, or shared tendencies. In each case, howevergovernment intervention, conglomerates, shop-floor focus and labourJapan, Korea and Tai- wan excel.

    (1) Getting Relative Prices Wrong

    Government intervention in the process of industrialization has tended to be greater than in the past, both because technology has not constituted a competitive asset and because at international prices the low wage rates of late industrializers have been insufficient to com- pete against the higher productivity levels of more advanced econ- omies. If the metaphor of the First Industrial Revolution is laissez faire, and that of the Second infant industry protection, then that of late industrialization is a category comprehensive enough to overcome the penalties of latenesscall it the subsidy. The subsidy includes not just tariff protection of the home market but also incentives to export, subsidies on inputs, government investment to promote tech- nical or economic linkages among industries, as well as the usual state support of social-overhead and big-business diplomacy. To stimulate investment and trade, the state has used the subsidy to get relative prices deliberately wrongthat is, different from what the forces of supply and demand would determine.

    What is mystifying is not the extent of government intervention in the process of late industrialization, including in the East Asian countries, but rather why the state in East Asia has been more effective than most. The state in Korea, Japan and Taiwan has been more effective than other late-industrializing countries because it has had the power to discipline big business, and thereby to dispense subsidies to big busi- ness according to a more effective set of allocative principles.

    (2) Conglomerates

    In late-industrializing countries mass production has emerged embod- ied in a distinct institution: the diversified business group. A volume describing the proceedings of the International Conference on Busi- ness History testifies to the ubiquity of the diversified business group in the Third World: In developing countries such as South Korea, Taiwan, the Philippines, Thailand, India, Brazil, and Argentina . . . industrial groups which resemble Japans former zaibatsu have sprung up since the Second World War.11

    11 Editors Introduction, in S. Yasuoka, ed., Family Business in the Era of Industrial Growth: Its Ownership and Management, Tokyo 1984.


  • The diversified business group is part of a family that Alfred Chand- ler describes as the modern industrial enterprise. Family members are large-scale, multidivisional and hierarchical.12 The diversified busi- ness group, however, operates in a wider, less related range of indus- tries than is typical of such enterprises, and with a greater degree of central cohesion than that of the American conglomerate. The fact of lateness appears to encourage diversification by zaibatsu-like groups into more unrelated industries than the typical modern industrial enterprise, and to foster closer coordination of flows of financial resources and people at the top of the corporate structure. Because leading firms in late-industrializing countries do not have the techni- cal or marketing expertise to expand within a single high-quality market niche, they move instead into the bottom end of many differ- ent markets. Because they are able to borrow capital and technology from abroad, they do not have to dilute financial ownership by providing new investors with equity. With one family dominating at the top of the organization, there are close connections among all the various businesses in the group. In fact, central coordination linked to broad diversification may be a unique competitive advantage, or scope economy, of late industrializers, for it allows them to enter new industries quickly and efficiently.

    Diversified business groups are a phenomenon general to late indus- trialization, but they are especially large in Korea, where they are known as chaebol. Fortunes list of five hundred international, private, non-oil-producing firms in 1986 included ten from Korea and only seven from all the other developing countries combined. The chaebol account for a degree of aggregate economic concentration that is stag- gering even by the standards of American or German business his- tory. According to one estimate, sales of the top ten chaebol in 1984accounted for 67 per cent of Korean GNP.13 Yet the scope of the chae- bol has allowed them to attract the best professional managers and has given them the power to penetrate deep into international markets.

    (3) Strategic Shop-Floor Focus

    Different modes of industrializing, one with and one without original technology, are associated with differences in what may be termed the firms strategic focus. The corporate office, inclusive of research and development functions, tends to be the strategic focus of companies that compete on the basis of innovation, because it is at the adminis- trative level that new technology is developed and marketed. By con- trast, the shop floor tends to be the strategic focus of firms that compete on the basis of making borrowed technology work. Because

    12 See, for example, A. Chandler, Strategy and Structure: Chapters in the History of the American Industrial Enterprise, Cambridge, Mass. 1962; The Visible Hand: The Managerial Revolution in American Business, Cambridge, Mass. 1977. 13 S.K. Kim, Business Concentration and Government Policy: A Study of the Pheno- menon of Business Groups in Korea, 19451985, Ph.D. thesis, Harvard Business School 1987. These figures refer to sales rather than value added, and sales include inputs produced by other firms. However, many suppliers to the big business groups are satellite subcontractors, so the sales figures may not exaggerate aggregate economic concentration.


  • products similar to those of the company are internationally available, the strategic focus is necessarily to be found where the achievement of incremental, yet cumulative, improvements in productivity and pro- duct specification occur, and therefore enhance competitiveness.

    Shopfloor management in Korea, as in Japan, has been especially effective. There has been a large supply of engineers, who have kept in close touch with the ranks. Overhead costs have not become prohibit- ive. Compared with Latin America, there have also been few multi- national firms in Korea operating outside the labour-intensive, export-oriented sectors. Korean ownership and control of the com- manding heights have been a decided advantage to the extent that Korean management is more quality- and productivity-conscious than that of many multinationals, and lends itself more easily to govern- ment control.

    (4) Labour

    Cheap labour is the anchor of late industrialization. Labour has been available in unlimited supply, generally politically powerless, and educated to a level unknown in former industrial revolutions. The dis- cipline of labour by the state lies at the heart of all late industrializ- ation. For this reason, such discipline cannot account for differences in growth rates among late-industrializing countries. Even in India, which has tended to grow more slowly than Korea, parliamentary democracy has been conditioned by the caste system and dosed with emergency powers wielded by New Delhi. Mexicos constitutional regime embodies decisive privileges for the ruling party. Therefore, it would be simplistic to argue that growth has been faster in Korea because of more authoritarianism, and slower in India and Mexico because of more democracy. Labour repression is the basis of late industrialization everywhere, though in Korea as in other late indus- trializers a militant trade unionism contests this. Developmental dif- ferences among late industrializers are best explained in terms of the discipline imposed on big business, not labour, as I argue shortly.

    Korea has a highly educated workforce, however, and this makes its own contribution to economic progress. In 1903 there were 5 students in British universities or university colleges per ten thousand popula- tion, and 7.87 in Germany per ten thousand. In 1985 the comparable figure for Korea was 217.5 students. In 1899 the number of boys in public secondary schools per thousand was only 4.3 in Birmingham and 10 in Berlin. In 1984 the comparable figure for Korea, including both sexes, was 20.14 The school curriculum for Korea includes a heavy dose of social indoctrination.15 Doubtless the legacy of tradi- tional social relations as embodied in religion, domestic subordina- tion and agricultural routine has played a part in shaping a labour

    14 For Britain and Germany, see P.W. Musgrave, Technical Change in the Labour Force and Education: A Study of the British and German Iron and Steel Industries 18601964, Oxford 1967. 15 See, for example, H.F. McGinn et al., Education and Development in Korea, Cambridge, Mass. 1980.


  • force that is at once skilled and disciplined, yet the states educational and training policies have ensured that these disciplines and skills have assumed economically appropriate forms. By comparison with other late-industrializing countries, or even a city-state like Singapore, Korea is at the top of most educational indices, scaled for population size: secondary students as a percentage of eligible secondary-age students; scientists and engineers per capita, and so on. A large num- ber of engineers in Korea compete with each other for the best jobs, thereby driving up productivity.

    Most foreign technical assistance has come from Japan, a fact that has given Korea an edge over other late-industrializing countries cultur- ally and geographically further afield. Japan may not until very recently have been as close to the world technological frontier as the United States, nor as generous in transferring proprietary know-how, but it emerged as the worlds premier producer, and communicated to Korea both the most efficient production techniques and a serious- ness about the manufacturing function. Korea has been a successful learner partly because it has invested heavily in education, both of the formal academic variety and that derived from foreign technical assistance.

    To gain a closer picture of the institutional variations of late indus- trialization in the Korean case we will now focus on the state, shop- floor management and labour (at the cost of saying little specifically about the diversified business group, or chaebol). Let us start by addressing the issues raised by the global Fordism thesis, as a pre- liminary to outlining a more adequate model.

    The State

    Beginning in the 1960s, some Third World countriesKorea and Taiwan among thembegan exporting manufactures that embodied large amounts of unskilled labour. They had little trouble in gaining a competitive advantage in these goodswood veneer, wigs, Christmas- tree decorations, plastic toys and so forthbecause the amounts of labour embodied in such items is so large that the high productivity levels of advanced countries are no match for low wage rates. For neo- classical economists, economic development on the basis of such exports is taken as a confirmation of the theory of comparative advan- tage. For global Fordists, economic development on the basis of such exports is attributed to capitalist crisis and global restructuring. The terminology is different, but the emphasis on a new international divi- sion of labour as an explanation of economic development is quite similar.

    Foreign demand for ultra-labour-intensive goods from any single low- wage country is limited, however, because total world demand tends to be spread over many Third World regions. The location of direct foreign investment to produce the most labour-intensive manufac- tures in any single low-wage country is also limited. Consequently, it becomes problematic for any one Third World country to count on such manufactured exports to provide a powerful enough engine of


  • growth, save maybe small city-states such as Hong Kong and Singa- pore. By the same token, it is inappropriate to rely on the concept of global restructuring to supply a theory for Third World industrializ- ation. In Taiwan, which was among the most successful of Third World countries in attracting foreign investment, foreign firms on average accounted for no more than 5.5 per cent of capital formation between 1962 and 1975. Of this total, less than one-fifth was involved in export platform activity. Monthly employment in Mexicos maqui- ladoras averaged 307,866 in 1987. Although this represents a big jump from a monthly average of 119,546 in 1980, it is still trivial compared with Mexicos economically active population, which in 1987 stood at approximately 25 million.16 Foreign investment in the maquiladoras occupies centre stage in analyses of the international division of labour, which is widely regarded as the spur to economic develop- ment. In reality, labour-intensive export activity by multinational firms has usually been too modest in any one developing country to serve as the basis for extensive growth.

    Cheap labour has not sufficed to sustain comparative advantage in any other than the most labour-intensive branches. It does not explain the success of cotton spinning and weaving, the leading sector in the 1960s in Korea, Taiwan, and other late-industrializing countries. The evidence suggests that at world prices, or after repeated devalued exchange rates, low wages were an insufficient condition for these countries to gain international competitiveness. The governments of Korea and Taiwan had to intervene to subsidize the production even of cotton textilesa relatively labour-intensive gooduntil either productivity at home or the wages of foreign competitors rose enough to make subsidies redundant.

    Japan is a late-industrializing country by virtue of the fact that ini- tially even its dominant firms had no novel technology with which to enter world markets. Yet Japan is marked off from other such coun- tries by the behaviour of its leading sector. When its cotton spinners and weavers began to take a market share away from Lancashire after the turn of the century, they did so not merely by dint of lower wages, but through the deployment of competitive assets. They instituted centralized control over output to check overproduction, and large, integrated manufacturing units equipped with the most modern technology; they benefited from shipping subsidies and low shipping costs; and, finally, they showed great efficiency in marketing the finished product, resulting from the maintenance of closer contacts with customers and intimate cooperation between the manufacturing and mercantile sections of the industry.17 By contrast, when cotton spinners and weavers from Korea and Taiwan entered world markets in the 1960s, the only competitive asset they had was their low wage

    16 For Taiwan, see T-C. Chou, The Evolution of Market Structure in Taiwan, Revista Internazionale di Scienze Economiche e Commerciali 35 (2), 1988; and C. Schive, Direct Foreign Investment, Technology Transfer and Linkage Effects: A Case Study of Taiwan, Ph.D. thesis, Case Western Reserve 1978. For Mexico, see Anibal Yanez,mimeograph, University of California at Berkeley 1988. 17 G.E. Hubbard, Eastern Industrialization and Its Effects on the West, Oxford 1938, p. 81.


  • rates. These, however, proved inadequate to compete against the higher productivity levels of Japan. According to one account, labour costs in the cotton-textile industry of Japan, Korea and Taiwan were running neck and neck in the 1960s, and if other costs were taken into account, Japan would undoubtedly have had the edge.18 Conse- quently, the governments of Korea and Taiwan stepped in with a package of subsidies that became a model for subsequent industrial growth, not least in the mass-production sectors.

    Disciplining Big Businesses

    In the First Industrial Revolution, competition among a large number of small firms (the invisible hand) acted as a disciplinary mechan- ism. With the subsequent erosion of competitive market structures, Joseph Schumpeter analysed a new basis for competition, a new mechanism to discipline company behaviour in the age of Fordism. He recognized technological change as itself a disciplining factor: the creative gales of new technological discoveries uprooted old monopo- lies and increased productivity, in uneven spurts. Late industrializ- ation, however, is characterized neither by a large number of small firms nor by innovation. There is no automatic mechanism in it to drive firms to be productive because growth itself does not happen automatically. Growth is dependent on the subsidy, yet subsidies tobusiness invite the abuses of gross resource misallocation and corrup- tion.

    Korea largely avoided the paralysing venality and inefficiency asso- ciated with subsidies and protection. Take automobiles for example. For twenty-five years no foreign cars were to be seen on Korean roads, and no Korean cars were to be seen on foreign roads. Yet Hyundai Motors, Koreas most successful car manufacturer and part of one of its largest chaebol, is a well-managed firm. So are thirty other big Korean companies that I have studied. The performance of Koreas big businesses cannot be measured by profitability, because profit data are manipulated; nor can it be measured by volume of exports, which may merely reflect subsidization. Good performance must be measured by physical indicators of production and operations manage- mentsay, productivity, quality and inventories, as well as changes in export values. By these indicators, Koreas big businesses have generally been exceptionally well-managed, notwithstanding the fact that every one of them has prospered through political favour.

    The Hyundai Motor Company, soon after its founding, established a Design Centre to begin reducing its reliance on foreign design inputs. Eventually, all small parts were designed in-house and HMC estab- lished a Parts Development Department to upgrade the technological capability of its parts subcontractors. A Machine Tool Division, founded in 1978, makes 25 per cent of the materials-handling equip- ment used on HMCs assembly and transfer lines. The remarks of one manager help to convey HMCs proactive approach to raising

    18 K.D. Woo, Wages and Labor Productivity in the Cotton Spinning Industries of Japan, Korea, and Taiwan, Developing Economies, 16, 1978.


  • productivity: Many small robots are made by the workers. There are small study groups of workers on each line. All have long experience at each station. There is also a big Quality Department. There is someone from the Quality Department at all major workstations, who will work together with the workers. HMC is trying to build a good quality circle movement. It cannot yet do as well as the Japanese and sometimes . . . workers have to call on the Methods Engineering Department . . . The plant manager likes to do job rotation for learn- ing purposes. Rejected cars become workers teachers. HMC has intro- duced a new computerized system that allows a particular part to be traced right back to the worker responsible, or to the supplier.19

    No matter how well-connected they are politically, all subsidy recip- ients in Korea have been subject to four blanket controls imposed by the government. First, all firms have had to export sooner or later, in larger or smaller quantities. Minimal export targets have been set even for unpromising industries such as papermaking, for example, whose future is lustreless in a country, like Korea, with no timber resources. Exports have provided the Korean government with a transparent measure of the progress of those in receipt of subsidy. This has been one of their most important functions, more important in many industries than volume. Second, all commercial banks were until recently owned by the government, and all financial institutions continue to operate under government control. This has discouraged speculation on the part of the recipients of cheap credit. Third, disci- pline has been imposed on market-dominating enterprises through annually negotiated price controls, in the name of curbing monopoly power. At the end of 1986, the prices of as many as 110 commodities were controlled, including flour, sugar, coffee, red pepper, electricity, gas, steel, chemicals, synthetic fibres, paper, drugs, nylon stocking, automobiles and televisions. Fourth, investors have been subject to controls on capital flight, or the remittance of liquid capital overseas. Legislation passed in the 1960s stipulated that any illegal overseas transfer of $1 million or more was punishable with a minimum sen- tence of ten years imprisonment and a maximum sentence of death.

    No firm in South Korea could succeed if it openly criticized the government. No firm could flourish if it was not a staunch govern- ment supporter. Nevertheless, despite pervasive corruption sur- rounding the allocation of subsidies to specific companies, discipline has still been effective: generally only good performers have been rewarded and poor performers have been punished. On numerous occasions the government, in its role as banker, has not only refused to bail out poorly managed firms in otherwise healthy industries, but has transferred the assets of such firms to other enterprises (invariably political allies, but better-managed ones).

    In short, subsidies in Korea (as in Japan and Taiwan) have been allo- cated to big business according to the principle of reciprocity, in exchange for performance standards, whereas in other late-industrial- izing countries subsidies have tended to be dispensed as giveaways, in what amounts to a free-for-all. Subsidized firms in Korea have received

    19 Amsden Asias Next Giant, pp. 17679.


  • cheap capital (often at negative real interest rates, the ultimate wrong relative price), but they have had to produce, not speculate. They have been allowed to sell in a protected home market, but they have had to raise productivity and quality to increase their share of foreign markets. They have been allowed to import foreign tech- nology, but they have had to begin investing in their own R&D. They have been allowed to exploit Korean labour, but they have had to train it and, in the case of the big companies, retain it through eco- nomic slumps.

    South Korea has enjoyed one of the highest productivity growth rates in the world.20 As a consequence, it has been possible for the govern- ment to grant big business lower subsidies and less protection than in other countries. An astonishing fact about Koreas foray into the mass-production industries in the 1970s is that the burden of debt remained constant (as measured by the debt/GNP ratio) despite a heavy reliance on foreign loans. As indicated in Table 1, whereas the absolute value of debt increased from $3,589 million in 1972 to $20,500 million in 1979, total debt as a percentage of GNP declined slightly as a consequence of a large volume of production, from roughly 34 per cent in 1972 to 32 per cent in 1979, just before the second energy crisis.

    Table 1. External Debt and Debt Service

    Year Total Foreign Debt LongTerm Debt Total Debt(millions US$) as % of Total as % of GNP

    1965 206 98.54 6.811972 3,589 82.17 33.951979 20,500 67.80 31.751984 43,100 73.55 53.16

    Source: A.H. Amsden, Asias Next Giant: South Korea and Late Industrialization, Oxford 1989.

    Until recent democratizations, South Korea was an unambiguously authoritarian society. Yet if democracy means power by the people over their lives, then the antithesis of democracy is the power of busi- ness to decide if and when to invest. To the extent that the Korean government has disciplined business and has not allowed it to hold society to ransom with its investment decisions, Korea has exacted a measure of public accountability greater than that of many other late-, and even early-, industrializing countries.

    The State and Developmentalism

    Any analysis of late industrialization must have at its core a theory of economic developmentwhich, in this case, is getting relative prices wrongin conjunction with a theory of the state. It is not ade-quate merely to maintain that the state induces investment and is

    20 H. Chenery, S. Robinson, and M. Syrquin, Industrialization and Growth: A Compar- ative Study, New York 1986.


  • autonomous. All governments know that subsidies are most effective when they are based on performance standards. Nevertheless, state power to impose such standards, and bureaucratic capability to implement them, vary from country to country.

    The Korean state was traditionally weak, but in the 1960s the military regime of Park Chung Hee succeeded in consolidating its power over finance, commerce, industry and agriculture. Financiers were weak because the banking system was nationalized, first under Japanese colonial rule and then under President Park. Merchants were attracted into manufacturing with subsidies, and discouraged from importing by acute foreign-exchange shortages; thus mercantile interests were not capable of challenging the military governments authority. Because industry evolved in a government-subsidized hothouse, cor- porations did not have a history of independent existenceas they did, say, in Turkey and Indiaor the independent identity that came with it.

    Perhaps most importantly, in the late 1940s Korea (and Japan and Taiwan) underwent a land reform. It was prompted by US occupying forces as a way to deter the spread of Communism.21 Land reform created a system of small landowners who never had the power to compromise state authority. The coffee estates of Brazil, say, have no political equal in Korea. It is no coincidence that the three most suc- cessful late industrializers, Japan, Korea and Taiwan, all experienced land reforms after World War II which were critical in buttressing state power.

    The transformation of the state in Korea and Taiwan from speculative rent seeker to promoter of capital accumulation was gradual. Devel- opmentalism on the part of the military regimes of Park Chung Hee and Chiang Kai-Shek evolved pragmatically, in the course of economic development. As developmentalism evolved, the objective of the state also shifted: from overcoming the problems of underconsumption to creating economic viability based on higher productivity.

    In the early 1960s, export subsidies were arranged by the Korean government for cotton spinners and weavers because production capacity outstripped domestic demand. This fact is in keeping with the Regulation School view that the process of economic development is one wherein institutions evolve to overcome the problem of under- consumption. Korean cotton-textile manufacturers were suffering from excess capacity in this period because they had taken advantage of subsidized American aid-related investment loans to labour- intensive industries in the 1950s. Nevertheless, the governments policy on exports shifted quickly from one of creating demand to one of delivering Korea from dependence on US financial support. This is ironic because currently Koreas high export exposure is regarded in the opposite light: as deepening dependence. In the mid 1960s, exports were viewed by the government as a redemption from reliance on American aid.

    21 See the discussion in Bruce Cumings, The Abortive Abertura: South Korea in the Light of Latin American Experience, NLR 173, JanuaryFebruary 1989.


    Jayan Jose Thomas

    Jayan Jose Thomas

    Jayan Jose Thomas

  • As both subsidies, and hence exports, increased further, the official policy on exports changed again, from one of increasing self-reliance to one of providing an overall growth strategy. The focus was now the raising of productivity and competitiveness. In his New Years message for 1968, Park Chung Hee stated: In order to realize the target of more than $1 billion in exports, we must, on the one hand, improve our management skills and replace old industrial equipment with new as soon as possible, and on the other, rearrange the nations productive system in preparation for mass production.22 In pre- paration for mass production, he asked industrialists to think afresh, in terms of creating new markets through higher productivity rather than guarding old markets through protection: I sincerely ask indus- trialists to discard their habit of relying on protection as if they were plants in a hothouse, and to make an assiduous effort to explore new markets, improve the quality of their products, rationalize manage- ment, and effect technical renovation.23 The government had come a long way in a short time, from its early attempts to raise demand for cotton-textiles producers, to its later attempts to increase overall sup- ply and the productivity of manufacturers.

    As exports increased, the government became more convinced of the prospects for growth, and committed more resources to economic development. As more resources were committed, growth further increased. It can be said, therefore, that the state was transformed from speculator to investor in the course of economic development, just as the state transformed the course of economic development itself.24 The concept of autonomy is insufficient to capture either of these transformations.

    Before proceeding to the micro level of analysis, it is worth emphasiz- ing that the East Asian model is far from ideal. Labour is repressed, women in particular are exploited, business and government are in league, and pollution is extreme. Nevertheless, out of that process of industrialization have emerged popular movements for democracy. More to the point, that process is the only one that has achieved industrialization in the underdeveloped world.

    Raising Productivity

    The process of raising productivity in both Korea and Japan has dif- fered from that employed in advanced countries, despite the use of mass-production technology almost identical to that of European and American plants, and an accompanying (possibly more intensive) de- skilling and procedurization of work practices. Companies that bor- row technology tend to have a strategic focus on the shop floor, whereas companies that create technology tend to have a strategic focus on the design office. Additionally, the process of raising

    22 S.B. Shik (comp.), Major Speeches by Koreas Park Chung Hee, Seoul 1970, p. 147. 23 Ibid., pp. 126, 129. 24 The same process occurred in Taiwan. See A.H. Amsden, The State and TaiwansEconomic Development, in P.B. Evans, D. Rueschemeyer, and T. Skocpol, eds., Bringing the State Back In, Cambridge 1985.


    Jayan Jose Thomas

  • productivity in late-industrializing countries has differed from that of classical Fordism with respect to the conditions of labour. In both cases workers in heavy mass-production industries are better-paid than workers in other industries. Here, however, the similarity ends, because management in these industries in the United States have treated high wages as in themselves sufficient to motivate labour and ensure high productivity. By contrast, managers in Korea and Japan have regarded relatively high wages in the mass-production sectors as merely the starting point for extracting higher productivity from workers.25 Other methods of extraction have included the involve- ment of labour in shop-floor problem-solving, usually in the context of quality-control circles, and the successful repression of any labour organization or labour practices hostile to higher productivitythat is, industrial unions and their associated work rules. If these differ- ences appear minor, it should be remembered that they are partly responsible for a major shift in global competitiveness, from early- to late-industrializing countries, since the Second World War.

    To overcome technical ignorance, the chaebol that were to dominate the mass-production industries in Korea relied heavily on foreign technical assistance, often packaged initially as a turnkey transfer. A shop-floor focus started with the attempt to unpackage technology transfer and ultimately dispense altogether with foreign technical assistance. In the case of POSCO, Koreas state-owned integrated iron and steel company, the best managers were assigned to work with foreign technical assistants long before production began. Each facility within the huge steel-mill had a foreign expert and a Korean assigned to it, so that when construction was finished and operating proced- ures had been established, the Korean possessed familiarity with all aspects of the plant and could manage it independently. To operate the mill efficiently, the best managers were assigned to the line. Even shift supervisors were experienced people with college degrees. Addi- tionally, POSCO emphasized on-the-job operations training for all its technical managers. Newly recruited managers with university back- grounds were required to work on all three shifts in order to become familiar with every operation. On-the-job training in steel-making lasted for six months; in iron-making it lasted for one year. The staff of the quality-control department had to work in the plant for at least three months.

    Participatory Organization

    The protagonist of industrialization in successive historical epochs has shifted from the owner-entrepreneur, to the corporate manager, to the production engineer, because the latter is the only person with the technical knowledge to make imported technology work. An emphasis on hiring engineers rather than general managers is characteristic of all Korean industry. As Table 2 indicates, between 1960 and 1980 the employment of general managers increased only twofold, whereas the employment of engineers rose by a multiple of roughly ten (although it started from a lower base).

    25 Amsden, Asias Next Giant, p. 281.


  • Table 2. Managerial Resources in Koreas Manufacturing Sector by Category, 19601980

    Employment IncreaseCategory 1960 1970 1980 1980/1960

    Engineers 4,425 116,252 44,999 10.2Managers 31,350 47,166 69,585 2.2Sales 50,025 27,778 68,716 13.7Service 13,660 22,740 49,522 3.6Clerical 17,330 143,849 356,362 20.6Production 404,735 1,188,406 2,206,851 5.4

    Total 479,975 1,447,520 2,797,030 5.8

    Administrationa/Production (ratio) 0.13 0.10 0.10

    Administration and Clerical/Production (ratio) o.18 0.22 0.27

    Note: Includes transportation and communication workers in the manufacturing sector.

    a Administration includes engineers, managers, sales and service workers but excludes clerical workers.

    Source: see Table 1.

    To raise productivity, Korean companies computerized process con- trols and materials planning, tightened cost accounting, experimented with management information systems, and procedurized work. In mass-production industries such as shipbuilding, where the process is largely embodied in people, companies emphasized time and motion studies. The Production Engineering Department at Hyundai Heavy Industries, Koreas largest shipbuilder, modelled work organization along the lines of Japanese rather than European shipyards. Although both had provided HHI with technical assistance, in European prac- tice skilled workers wielded greater discretion over their job content and methods. Because Korean shipyards, like Japanese shipyards before them, were, during their early years of operation, short of experienced skilled workers, the Japanese practice of centralized defi- nition of job content and method was followed instead. By mid 1986labour requirements per representative vessel in HHI were almost half what they had been six years earlier, and bulk material usage was reduced by more than 25 per cent.

    In industries like steel-making, where the process is largely embodied in equipment rather than people, time and motion studies were less emphasized. To raise productivity of both labour and capital, POSCOattempted to stabilize operations, minimize downtime (through pre- ventive maintenance of equipment), improve the performance of each piece of equipment (through better worker training) and reduce


  • rejects (through tighter process control). An ironic indicator of the speed of POSCOs progress was a joint venture it entered into with United States Steel (USX) in 1986 for the purpose of modernizing USXs plant in Pittsburg, California. At that time, POSCO was supply- ing half of the capital requirements, or $180 million, for the modern- ization: providing the PittCal cold-rolled sheet facility with hot-bend coil, undertaking basic design of the facilitys modernization jointly with USX, and training American managers and workers in oper- ations and maintenance.

    In some Korean companies, quality circles arose not as foreign implants but spontaneously, often as part of attempts to improve pro- ductivity generally. Spontaneity is suggested by the first manager of HHIs Department of Quality Control (QC) for shipbuilding: I tried to develop feedback between production departments and QC. At first workers didnt work very hard. But soon people became very busy. Every morning, production people would use the microphone to address the workers, urging them to work harder. I noticed variations in quality across different production sections, so I called a joint meeting in order to compare performance. Then I called two meetings in which I presented a monthly evaluation of quality differences. At the fourth meeting, I made section chiefs undertake their own monthly evaluations and then compete against each other . . . When I visited Seoul in 1975, I heard about quality control circles and was surprised to learn that the kind of activity that I had started at HHIwas going on outside.26

    What helped participatory organization to evolve in Korea was the fact that the management structure of the average large-scale firm is relatively compacta general feature of Korean management and its strategic shop-floor focus. Firms with 5,000 employees or more have fewer levels of hierarchy than firms with 200 to 300 employees (although they have a greater number of departments and sections than do smaller firms, and a large number of subordinates per section chief ).27 The compactness of the hierarchical structure suggests that engineers who have entered the manufacturing sector in increasing numbers in Korea since 1960 have kept in relatively close touch with the ranks.

    The behaviour of overhead costs in Korea reflects a strategic focus on the shopfloor and a Spartan regard for staff functions. Table 2indicates that between 1960 and 1980 there was a sharp increase in the number of white-collar workers. Nevertheless, excluding the clerical category, the ratio of white-collar to blue-collar or production workersdeclined from 0.13 in 1960 to 0.10 in 1980. This is a rather surprising fact in the light of the steady increase in this ratio in the USA and

    26 For a jaundiced view of Japanese (post-Fordist) work methods, see John Foster and Charles Woolfson, Corporate Reconstruction and Business Unionism: the Lessons of Caterpillar and Ford, NLR 174, MarchApril 1989. 27 Seoul National University, College of Business Administration, The Current Situationand Tasks to Be Done by Korean Firms [in Korean], Seoul, College of Business Adminis- tration, Seoul National University, 1985.


  • Europe, beginning with the introduction of top-down management and the onset of Fordism at the turn of the century.28

    Wages and Working Conditions

    Industrializing by the gun does not promote high rates of productivity growth or quality on the shop floor. At minimum, workers have to be motivated to work efficiently because all their efforts cannot be policed. In capitalist societies, the rate of pay lies at the heart of worker motivation. Until the recent democratizations, rates of pay in Korea were determined in a milieu of unlimited labour supply and authoritarian repression of labours demands, both inside and outside the firm. Given the expectation in underconsumptionist theory for the forces of supply of goods and services to outstrip those of demand, the sustained growth of late-industrializing countries oriented towards producing for the home marketsay, India or Brazilought to reflect the resolution of institutional conflict in favour of rising mass incomes, and thereby to provide the effective demand for the output of mass production. By contrast, the export orientation of fast-growing Korea and Taiwan would lead an underconsumptionist to suppose that institutional conflict was somehow resolved in favour of stagnant mass incomes, in the interests of sustaining international competitive- ness. In fact, the growth rate of average real wages has been far higher in Korea and Taiwan than in Brazil and India, because productivity growth has been higher.29 Wage data tend to be subject to a wide mar- gin of error, but the differences in growth rates indicated in Table 3 are of an order of increasing magnitude, particularly in Korea. Between 1970 and 1980, for example, the index of real non-agricultural wages rose from 100 to 227 in Korea and only from 100 to 130 in Brazil. Reality, therefore, is diametrically opposite to the expectations of the underconsumptionist view. Moreover, salience of the cash nexus component in worker compensation in Korea helps to keep in pro- portion those cultural factors like Confucianism or nationalism beloved of non-materialist schools of historical or economic analysis. Koreas wage has exceeded that found in earlier industrial revolu- tions, including that of Japan. The real earnings of British workers are estimated to have risen by 150 per cent between 1781 and 1851, but Korean manufacturing workers achieved a comparable gain in about twenty years (from 1955 to 1976). Real wages increased in the United States in the fifty-year period between 1865 and 1913 by a factor of almost three. In Korea, real wages quadrupled in half as much time. In Japan, real wages rose by a factor of 2.7 in eighteen years, from approximately 400 yen in 1950 to about 1200 yen in 1968. In Korea they rose by more, by a scalar of 4.3 between 1955 and 1980, and 3.6between 1966 and 1980.3 Unexpectedly, the wages of production

    28 S. Melman, The Rise of Administrative Overheads in the Manufacturing Industries inthe United States, 18991947, Oxford Economic Papers, NS, 3, 1951.29 Chenery et al., 1986. 3 For British data, see P. Lindert and J.G. Williamson, English Workers Living Standards during the Industrial Revolution: A New Look, Economic History Review, 36,1983; for data on the United States, see E.H. Phelps-Brown, Century of Pay, London 1986; for data on Japan, see R. Minami, The Turning Point in Economic Development: Japans Experience, Economic Research Series No. 14, Institute of Economic Research, Hitotsubashi University, Tokyo.


  • workers in Korea have also risen faster than those of managers and engineers. The average wages of women workers, however, have lagged far behind those of men, enabling employers in the labour- intensive industries to remain internationally competitive alongside the growth of a mass-production sector. Wage discrimination against women in Korea and Japan is the worst in the world; in this area tra- ditional patriarchal forms have, so far, been successfully adapted to modern capitalism.

    Table 3. Real Nonagricultural Wage Increases in Seven Late-Industrializing Countries

    Year Koreaa Brazilb Argentina Mexico Turkey Indiac Taiwan

    1970 100 100 100 100 100 100 1973 119 119 107 104 98 1o6 1071976 154 129 80 123 122 120 1261979 238 134 87 121 155 130 1631982 241 115 79 117 129 1801984 276 84 112 83 111 191

    Note: Base! 100. Deflated by consumer price index. a Real earnings in the manufacturing sector. b Average wages for skilled workers in construction. Data are from the Central

    Bank. c Rupees per hour for industrial workers.

    Source: See Table 1.

    Wages appear to have risen in Korea partly for reasons related to effi- ciency. POSCO, for example, has approximately 450 job categories, and the largest number of workers can be found at data-collection stations positioned at well-defined set points in the process. Workers check sensors for temperatures in different process zones, note the chemical composition of gases, and register flow rates. For this they must have a fairly good understanding of the physical and chemical processes involved in iron-making and steel-making, in order to ensure a high quality product, since steel production is not all in closed-loop control, and the acceptable limits of materials change. Workers have had to be paid relatively well to enable them to think clearly in the presence of variability in the production process, particularly toward the end of an excruciatingly long working week. Production workers in POSCO average a 56-hour week with only one day off per month (or an eight-hour day, seven days a week).

    Wages also rose in Korea prior to democratization in response to fears of labour unrest, and pressure from the government for wealth sharing on the part of big business. Before democratization, wage increases may have been high but they almost never exceeded the growth rate of productivity. Certainly the government encouraged a narrowing in the wage gap between production workers and mana- gers. Flaunting of wealth has also been discouraged. At one time the


  • goverment banned colour television sets from the home market in the belief that they would widen social differences, and the purchase and use of automobiles has been heavily taxed.

    High wage increases appear to have had the independent effect of raising long-term productivity. In the 1970s, for example, most big firms saw the writing on the wall and began to invest more in tech- nological capability, aware that the days were numbered in which they could compete on the basis of low wages. When the government began sweetening the incentives to investment in R&D, big business began responding like clockwork to form centralized research labora- tories.

    In short, in both early and late industrialization, capitallabour rela- tions influence accumulation, and the regime of accumulation influences capitallabour relations. Similar regimes of mass produc- tion in early- and late-industrializers, however, have been associated with strikingly different capitallabour relations, throwing into doubt the existence of a global Fordist model.

    As noted earlier, Alain Lipietz begins his study of global Fordism by rejecting any attempt at the concrete analysis of the worlds 150countries with their irreducible differences.31 Although it is not necessary to study all 150, an effort should be made to study some in detail before constructing any model. Otherwise, there will be a ten- dency to interpret Third World industry as a diffusion of advanced- country industry. Also, the existence of qualitative differences between the two will be missed. Late industrialization, as I have sug- gested above, is a new paradigm, in terms of the operation of the market mechanism and the role of the state. It is not merely an exten- sion of advanced-country capitalism. The failure to perceive this fact has created a crisis in Western intellectual understanding of Pacific dynamism. There has been, moreover, a great flowering of scholarly research on Third World development that does not take the advanced countries as its point of departure, although external forces are factored in. In the fields of economic and social history, there has emerged in the last twenty-five years a Latin American and Indian literature, for example, that is striking for its insights and depth. Those who hope to understand economic development should not imagine that Fordist labels and speculations can be any substitute for the empirical research and conceptual wisdom embodied in these varied attempts to grasp the real dynamic of particular capitalist social formations.

    31 Lipietz, pp. 45.


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