Economic Bureaucracy
Contrary to the later image of Park the modernizer, the military junta’s record of economic policy was anything but developmentalist. Power struggles within the faction-ridden SCNR, the crippling of the cabinet’s authority by the “upside-down” power structures of the military junta, and the KCIA’s use of economic policy as an instrument of power consolidation rather than of economic growth all ended up marginalizing the role of the economic ministries and their technocratic rationality. It was only when the KCIA’s economic role was thoroughly discredited (June 1962), all the potential rivals of Park were weeded out from the SCNR (March 1963), and Park was legitimated electorally (October 1963) that Park was able to follow the tenets of technocratic rationality in economic policymaking. Until the threats to his power were resolved through purges and elections, Park remained a político, not a técnico, in his approach to the issues of the day, making decisions almost solely on the basis of how his choices affected his power.
Nonetheless, it was also true that the years of military rule laid down the
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institutional infrastructure for a developmental state through a series of organizational experiments. It might be said that the military junta failed at the level of articulating a strategy of development, but succeeded at the level of putting in place the institutions of power that would later contribute to the economic takeoff, once there emerged an effective strategy. The most important organizational experiment was the establishment of the Economic Planning Board (EPB) in July 1961. The EPB was a product of two forces: the reformist bureaucrats in the Ministries of Reconstruction (MoR) and Finance (MoF) and the Park–Kim Chong-p’il mainstream faction in the SCNR. The MoR-MoF reformers were then searching for a patron and co-owner for their idea of creating a superministry to prevent the sorts of planning failures that had occurred under the Rhee regime, whereas the SCNR was in need of an institution that could translate its broad goals into a concrete set of feasible targets and strategies and speed up the process of developing new policy approaches. The SCNR knew it needed more than military organizational skills and experience to turn the South Korean economy around. The need to recruit civilian talent was especially pressing in view of the formulation and implementation of the first Five-Year Economic Development Plan that was to be the centerpiece of the junta’s budgetary, monetary, fiscal, and industrial policy. As a superministry, the EPB took on the responsibility of economic planning. To give the board authority for the implementation of its plans, the EPB absorbed budgetary powers, foreign capital licensing authority, and statistics functions from the MoF’s Budget Bureau and the MHA’s Bureau of Statistics.
Kim Yu-t’aek, then minister of finance and former chairman of the Bank of Korea, became the first minister of the EPB on July 22, 1961, just a month after his appointment as finance minister.48
Although a strong ability to lead was not one of Kim Yu-t’aek’s attributes, he understood the complexity of economic issues from his career as a banker and a diplomat.49 By making Kim Yu-t’aek one of the two civilian ministers appointed to the junta’s cabinet, the Park-Kim mainstream faction hoped to show its seriousness in reaching out to civilian experts for the implementation of the first FYEDP. But the question of power inevitably dominated technocratic rationales, making Kim Yu-t’aek not much different from the other cabinet ministers in that he was limited to strictly managerial tasks, implementing goals formulated elsewhere. In fact, it was Park who ordered three young economists—Kim Sông-bôm (thirty-seven years old), Chông So-yông (twenty-nine years old, with a PhD in economics), and Paek Yong-ch’an (thirty-two years old)—
to draft the first FYEDP even before the EPB was organized. The team completed the plan in less than sixty days, providing a blueprint for ac-
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tion for the Economic Planning Board upon its establishment on July 22. This five-year plan was popularly known as the May 1961 Plan, or more formally as the Comprehensive Five-Year Economic Development Plan.50
The May 1961 Plan sought to double South Korea’s gross national product within a decade by maintaining economic growth at an annual average rate of 7.1 percent. Given the country’s 1960 growth rate of 2.3 percent, the plan was criticized as overly ambitious both within the SCNR
and by the U.S. State Department. The United States referred to the plan as a “shopping list” for U.S. assistance when Park explained its goals in his official visit to Washington in November 1961.
The first FYEDP was based on the principle of what Park then defined as
“guided capitalism.” The driver in guided capitalism was to be the state, and the objective of state-led economic and industrial management was defined as guaranteeing the “equalization of income and public benefit from the economy.” To Park and many other coup leaders, the greatest challenge in implementing the plan stemmed from the lack of an institutional mechanism to oversee the process of capital mobilization, resource allocation, and policy coordination within the state. Their efforts at reform consequently focused on the establishment of a state bureaucracy powerful enough to resist the “overwhelming pressure on legislative and administrative organs [by the chaebol] to get laws favorable to them.”
Park believed that the chaebol’s past activities “clashed head-on with free economic activities” and constituted “a betrayal of democratic principles.” His concept of guided capitalism was designed to end any further obstruction by chaebol leaders.51
Once Kim Yu-t’aek completed his mission of readying the first FYEDP
for implementation in March 1962, Park had Song Yo-ch’an serve as minister of the EPB. In spite of Song’s ignominious retirement from the army in the middle of the anticorruption campaign led by Park and his young colonels immediately after the April 19 Student Revolution in 1960, Park thought Song to be the man for the job given his reputation for “strong drive.” Park had already tested Song by appointing him to the post of prime minister between July 1961 and March 1962. Having confirmed Song’s ability to implement Park’s directives on administrative reform with a sense of loyalty, military efficiency, and fortitude as prime minister, Park chose him as the implementor of the ideas prepared by Kim Yu-t’aek.
Song’s style of leadership made him many enemies among the military coup makers,52 but as a U.S. embassy telegram dated August 12, 1961, shows, he got things done, thus winning respect from U.S. officials. The telegram reported positively on the introduction of training programs
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based on ones used by the military into the South Korean civil service under Song’s leadership:
Prime Minister Song . . . is working his ministries 18-hour days to drive through programs and decisions . . . He has instituted methods used by [the]
military, i.e., staff studies defining the problem, discussing the issues, and coming up with alternate recommendations for top level decision. He has established task forces and date deadlines for completion . . . Job analyses and work assignments are being reviewed at breath-taking speed and civil servants are being given firm instructions on how to handle routine paper work with maximum efficiency and within a fixed time period. Offenders are being disciplined and even fired.53
Despite Song’s contribution, it is important to emphasize that he was the implementor, not the original formulator, of these goals, ideas, and strategies. The vision of establishing a state bureaucracy modeled after the South Korean hybrid military organization with the American ethos of technocracy and the Japanese tradition of discipline through sweeping top-down reforms of a fundamental kind was the vision of Park—not Song. Song succeeded because he was the implementor of Park’s ideas. The SCNR chairman expected his cabinet ministers, including prime minister and later EPB minister Song, to lead the state in the fashion of a military organization. Capitalizing on Song’s military credentials as former army chief of staff just before the coup, Park entrusted So
ng with the task of building the EPB into a military-style organization, using military concepts and ideas in its day-to-day language and copying the ministry staff organization in its structure.
In the process of transforming the EPB and other state ministries into military-style organizations, Park overlooked the complexity of creating a civilian superministry in charge of formidable developmental tasks that required the cooperation of societal forces, some of whom held veto power.
The economy could not be run according to military practice. Issues were complex, roadblock players were many, and policymaking required economic and fiscal management expertise. Although Song exposed the concept of staff, task forces, job specifications, and deadlines to the civilian bureaucracy, he lacked ideas on what to do once the infrastructure was set up. In any case, at that time the KCIA had usurped the role of economic policymaker. Consequently, Kim Yu-t’aek was brought back as the EPB
minister in July 1962 for the second time, less than four months after his departure, when the KCIA-led currency conversion reform plunged the junta into crisis.
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The fiasco began when the Ministry of Finance, under Park and Kim Chong-p’il’s secret instructions, officially announced the KCIA-prepared currency conversion reform in June 1962. The conversion of South Korea’s currency from hwan to won at a ratio of 10:1 was simultaneously announced with an emergency banking measure that froze saving accounts with large deposits. The goal was to channel the frozen money into the military junta’s heavy and chemical industrialization projects by forcing depositors to purchase stock in the Korea Industrial Development Corporation. The whole operation was initiated by the KCIA, with Colonel Yu Wôn-sik, a member of the SCNR’s Finance and Economics Subcommittee, acting as the front man. With the exception of Yu, the SCNR was kept in the dark, although the planning for currency conversion began as early as December 1961, if not earlier, when Major General Chông Nae-hyôk, on his way to Europe to seek economic cooperation, visited Great Britain in his capacity as the minister of commerce and industry to negotiate the printing of the new currency.54
The currency conversion reform was poorly conceived and executed.
Even the United States, which was supplying 90 percent of the South Korean budget as late as 1961, was not consulted, infuriating U.S. policymakers and aid officials. Deputy assistant secretary of state Edward Rice officially warned the South Korean ambassador to the United States, Chông Il-gwôn, that “if U.S. efforts are to be nullified, [the United States]
must reassess [its] assistance policy.”55 The primary aim of the reform was to raise domestic capital by freezing large bank accounts. The KCIA was tempted into the idea of currency conversion by the rumor that ethnic Chinese residents in South Korea had stashed away large amounts of money in bank accounts opened in the names of third parties.
Park and Kim Chong-p’il quickly became aware of their miscalculation when it was found that not many people in South Korea, including its Chinese residents, had much cash on hand. By mid-1962 it was also clear that the actual growth rate was below the target of the first FYEDP, prompting Park to review the goals and assumptions of the plan. A U-turn from the KCIA’s strategy of shock therapies quickly set in. Under U.S. threats to cut aid and in the middle of financial turmoil, the junta rescinded the freeze on the bank accounts. Also, Park personally ordered EPB planning director Chông Chae-sôk to revise the first FYEDP in December 1962, the result of which was the announcement of a revised plan in mid-1964 that significantly lowered South Korea’s projected growth rate to 5 percent, with the goal of restraining inflationary pressures caused by an excessive push for rapid industrialization.56 The colossal failure of the currency con-
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version reform, coupled with the disappointing early results of the first FYEDP, triggered the KCIA’s disengagement from the junta’s economic reforms.
The policy fiasco thus led to a significant change in the structure of power, as well as discrediting the radical nationalist ideas held by Kim Chong-p’il and the KCIA. The incident prompted the opponents of Kim Chong-p’il in the SCNR as well as the U.S. embassy to urge Park to down-grade the role of Kim Chong-p’il and curtail the activities of the KCIA.57
The failure taught Park the lesson that some of Kim Chong-p’il’s policy ideas could threaten economic growth, backfire on South Korea–U.S. relations, and thereby threaten his power. Henceforth Park began to rely more on civilian technocrats not only for policy implementation but for policy formulation. For the sake of his own power and credibility, Park needed to keep Kim Chong-p’il under check. As the KCIA withdrew from economic issues and focused on the political realm, the economic bureaucracy began to take charge of economic reforms.
The direct beneficiary of the KCIA’s disgrace was the Ministry of Finance. Having been profoundly weakened through the frequent change of its minister during the first year of military rule,58 the MoF’s power grew rapidly after mid-1962 as its Financial Management Bureau (FMB) took over where the KCIA had left off in the management of economic reform.
In 1962 the appointment of two career financial experts, Kim Se-ryôn and Kim Chông-ryôm, as the finance minister and vice minister, respectively, was one consequence of the failed currency reform. The appointment of Kim Chông-ryôm to the post of MoF vice minister was part of Park’s efforts to place the most trusted of the civilian aides recruited in the immediate aftermath of the coup to positions of power within the economic bureaucracy. The shift of power put the economic ministries under the control of a tightly knit “patrimonial” force of civilian experts loyal only to Park. As will be shown below, Kim Hak-ryôl was promoted to EPB vice minister in 1962, while O Wôn-ch’ôl moved up to the Ministry of Commerce and Industry (MCI). These constituted the most spectacular examples of Park’s efforts to create a professional and yet patrimonial hybrid state bureaucracy, but they were joined by many other figures in the EPB, MoF, MCI, and the Blue House in this goal.59 Their forward deployment represents Park’s engagement of civilian experts in reform processes to supplement the military ethos of discipline and control with technical expertise: the mix of these two ingredients laid the groundwork for an effective economic bureaucracy. Ironically, these civilian aides’ efforts to create a powerful professional and yet patrimonial state bureaucracy in the post–
currency conversion period were critically assisted by the institutional in-
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frastructure established by the Kim Chong-p’il–led radicals who had previously driven economic policy. Thanks to Kim’s ambition to fundamentally reshape the structures of power in South Korean society, the MoF had been in control of the five major nationwide commercial banks since their nationalization immediately after the May 1961 coup. To establish pockets of expertise within the state and ensure their political independence from the faction-ridden SCNR, Park refrained from appointing military officers as the banks’ governors. Instead he turned to civilians to lead both the MoF and the EPB, in sharp contrast to large parastatal institutions under the direction of other state ministries, including the Ministry of Commerce and Industry (MCI) and the Ministry of Agriculture and Forestry (MAF), where Park recruited former generals and sometimes colonels on active duty to maintain support from the armed forces for himself. Park had thus learned by mid-1962 that he needed to rely on professional civil servants in the elite ministries for financial and banking management. The practice of ensuring civilian leadership of key economic ministries, while at the same time using other ministries and state institutions to build a loyal following within the military establishment, was to become institutionalized after Park’s inauguration as president in 1963.
After the failed currency reform, the chaebol had to go through the MoF, especially its Financial Management Bureau, rather than deal with the KCIA or the commercial banks. The Financial Management Bureau became the headquarters for South Korea
’s bank loan arrangements, both domestic and foreign, to carry out credit allocation effectively and speed-ily. The introduction of government guarantees on the payment of foreign commercial loans in July 1962 also contributed to the rise of the FMB to the status of “prince” among ministries and institutions. The authority of the FMB quickly came to be seen by many high-ranking policymakers and business leaders as the “FMB Republic,” and the Bank of Korea as a
“branch office” of the MoF. The extraordinary powers of the FMB also strengthened the status of the MoF and made it a de facto coordinator until the EPB began to assume its leadership role as a superministry in mid-1964.
The evolution of the MCI during the military junta followed a different track. The ministry underwent a radical overhaul in organization with the appointment of Major General Chông Nae-hyôk as its minister in May 1961. Chông turned the MCI upside-down by undertaking a massive top-down military-style restructuring of both line and staff organization, dismissing many of the senior bureaucrats and recruiting a new breed of highly qualified experts from the outside. Both of the assistant vice ministers and three of the four bureau directors he appointed were experts with
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training in engineering and the natural sciences, creating a new working environment with an emphasis on efficiency and productivity. The technocrats recruited during Chông’s tenure included O Wôn-ch’ôl, who was to become the senior economic secretary responsible for leading heavy and chemical industrialization in the 1970s, and Ch’oe Hyông-sôp, the founder in 1966 of the Korean Institute of Science and Technology, which became the hub of technological development in South Korea.60 Whereas the elite MoF relied on its internal experts and the new EPB recruited its personnel from other ministries, the MCI was reborn through an infusion of new blood from society.
Moreover, unlike the MoF and the EPB, the MCI was headed by a major general, which made the ministry more receptive to the innovative ideas developed by the South Korean armed forces since the Korean War. Chông led the MCI in a strictly military style. The MCI minister made every MCI bureaucrat above the rank of section chief undertake a compulsory
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