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?

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  • 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.

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  • 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.

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  • 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 cla