Of the two core ministries, it was the EPB that Park chose as the overall coordinator. In his eyes, the board offered multiple organizational advantages as a lead agency. Unlike the MoF and MCI, whose sectoral organizational missions made each interface closely with the state banks and with
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chaebol as both a client and a patron of bureaucratic power, the EPB was a planner without a sector-specific mission. The agency identified the entire economy as its exclusive territory, setting the national agenda by budget planning and allocation, and influencing both real and financial sectors through fiscal expenditure as well as through license and approval powers over foreign loans and investments.8 Established in 1961 by merging the Ministry of Reconstruction (MoR) with the MoF’s budget bureau, the EPB
was also manned by the “internationalists” of the South Korean state bureaucracy. The MoR and the MoF budget bureau had been reformist enclaves since 1957, importing from abroad modern planning and budgetary expertise under the close guidance of U.S. aid officials, and recruiting young talent from the less politicized central bank and research institutes for managerial positions.9 These human resources became a source of the EPB’s strength with Park’s state reorganization in July 1961.
Discovering the EPB’s potential as a lead agency in 1963, Park made its minister the country’s deputy prime minister as well, with the legal prerogative to “orchestrate and coordinate” state policies.10 Parallel to this effort to make the EPB minister first among equals in the economic cabinet, Park showered the EPB with diverse privileges that made it as much a “patrimonial” as a “professional” organization. With Park’s blessing, the EPB enjoyed autonomy, recruiting 92.3 percent of Grade 1 bureaucrats from its own careerists. In its dealings with other economic ministries, however, the EPB was predatory, penetrating deep into their hierarchy for direct policy control. Between 1961 and 1980, the EPB sent 61.5 percent of its Grade 1
bureaucrats to the others as vice ministers and 38.5 percent of those even became ministers. Meanwhile, over a quarter of Grade 2 EPB bureaucrats entered other economic ministries as temporary transferees to head their respective planning and management offices (PMOs). Only nominally controlled by the prime minister, PMOs monitored and evaluated ministerial policies from inside the host ministries. By manning this strategic network of policy feedback and information flow with its own officials, the EPB
could detect and correct cross-cutting ministerial actions early on, as well as hold the leaders of line ministries individually accountable to the president and his EPB confidants.
However, aware of the dangers of demoralization in host ministries triggered by the transfer of EPB and MoF bureaucrats to the lesser ministries’ leadership posts, Park also carefully varied the degree of penetration across issue areas, with the effect of lining up the economic ministries into a hierarchical but segmented rank order. Entrusted with macroeconomic coordination, the EPB and MoF constituted a mini-state within Park’s larger patrimonial state, protected from penetration by other economic
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ministries. At the same time, Park was interested in transforming the two core ministries into a cohesive presidential team, which resulted in the ha-bitual circulation of their promising bureaucrats between each other and to the presidential Secretariat in the Blue House. The strategic post of vice minister was filled predominantly by careerists in both the EPB (76.9 percent) and the MoF (55.6 percent), but when an outsider was brought in, Park typically chose an EPB careerist for the post of MoF vice minister (22.2 percent) and an MoF bureaucrat for the post of EPB vice minister (23.1 percent). These two coordinating ministries were thus not only insulated from outside forces but also shared a common outlook on goals and strategies as a result of the staffing Park brokered at the top level of vice minister. Meanwhile, the transfer of EPB and MoF bureaucrats to the Blue House was also an opportunity to imbue them with Park’s ideas on industrialization.
On the other hand, the two core ministries served as a major source of ministers and vice ministers for those that were responsible for developing strategic sectors with the potential for growth or charged with oversight of societal constituencies capable of affecting policy outcomes or electoral campaigns (Energy and Resources, or MER; Agriculture, Fishery, and Forestry, or MAFF; and Commerce and Industry). These strategic sectoral ministries sat at the mid-layer of the pyramidal economic bureaucracy, performing technically complex tasks that required a sector- and even product-specific expertise. The existence of powerful constituencies and the complexity of the expertise needed placed this mid-layer group of ministries in a gray area where neither a retired army general (without expertise) nor a career sectoral bureaucrat promoted internally from within the sectoral ministry (without a broad macroeconomic perspective) was thought to be able to offer effective leadership. Recruiting a former military general for ministership in these areas aided Park’s efforts to win political loyalty among the armed forces, but at the cost of expertise.
Internally promoting a careerist who had had lifelong contact with big business or agricultural cooperatives from inside the ministry, on the other hand, could make the MCI, MER, or MAFF a captive of its societal clients. Desiring neither, Park relied primarily on his hybrid EPB and MoF
bureaucrats to steer this mid-layer group of economic ministries.
The flow of personnel—and hence power—was unidirectional, with the MCI and other strategic ministries recruiting as much as 60 percent of their ministers and vice ministers from the EPB and the MoF, without enjoying a similar privilege vis-à-vis the two coordinating agencies. Apparently, the type of bureaucrat Park preferred for a cabinet appointment in strategic issue-areas was a hybrid, who began his career in either the EPB
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or the MoF, but who had also served in line ministries as a vice minister or as a presidential aide on economic affairs at the Blue House after reaching the Grade 1 layer of the EPB or the MoF. Such a career trajectory helped create a coordinator with a broad macroeconomic perspective, expertise in micro sectoral issues, and an insider’s understanding of line ministries, which were the object of control and coordination. This practice of penetration helped build a pool of generalists who understood micro industry issues and the role such issues played in establishing a coherent macroeconomic policy.
There were auxiliary agencies like the Ministry of Construction and the Ministry of Transportation (MoT), which sat at the bottom of the bureaucratic ranking created by Park and were locked in a very different pattern of interministerial power relations. The armed forces and the Ministry of Home Affairs together provided 67.7 percent of MoC and MoT ministers and 38.9 percent of MoC and MoT vice ministers, whereas the EPB and the MoF supplied only 16.1 percent and 27.8 percent, respectively. Park apparently regarded the MoC and the MoT as “auxiliary” economic ministries to be mobilized from the top down for the goals enumerated by Park in consultation with the EPB and the MoF, and he distributed the MoC and MoT leadership posts as spoils to the political arm of his ruling coalition, the armed forces and the MHA. Park could sacrifice the organizational interests of the MoC and the MoT without fearing too much loss of competence, because the two agencies performed technically simple tasks, such as clearing the land for highways and industrial complexes, laying down telephone lines, and building post offices. Not facing tight technical constraints, Park freely chose the MoC and MoT leadership from former military generals, to reward them for their role in enforcing martial law in politically difficult times, and from MHA bureaucrats, for ensuring electoral victories for the ruling DRP through the mobilization of its thick network of local intermediaries and grass-roots bureaucratic institutions. The former generals and MHA bureaucrats promoted to the top positions in the MoC and the MoT displayed unswerving loyalty to Park.
They saw their ministerial roles as extensions of their previous careers as soldiers, police offi
cers, or local magistrates, and they aggressively implemented decisions made by Park and his EPB-MoF advisors.
The internally hierarchical but segmented organization of the state profoundly simplified economic policymaking. The bureaucrats transferred from the EPB and the MoF to the top positions of the mid-layer sectoral ministries and the bottom-layer auxiliary ministries “edited” their respective host ministries’ policy agendas, goals, and strategies from the macroeconomic perspectives of their home ministries and the Blue House,
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reinterpreting—if not outright suppressing—the host ministries’ interests, which they saw as directly colliding with their home agency or presidential interests. The editing process effectively preempted any open resistance by the MCI and others to a macroeconomic policy that threatened their internal organization and societal clients. The hierarchical but segmented state organization did not, however, in itself ensure high economic growth. The pyramidal power structure Park built through a selective distribution of political patronage could become a catalyst for rapid growth only if its core group of EPB, MoF, and Blue House presidential staff members, in close collaboration with the MCI, set the agenda, formulated strategy, and monitored implementation on the basis of clear and viable goals. Without well-articulated and agreed-upon goals and strategies, along with effective monitoring, the same structure of hierarchical but segmented interministerial power relations could bring about disaster, because it would be mobilizing resources for the wrong reasons. The search for a viable strategy occurred through two stages.
Search for a Strategy, 1961–1967
The first Five-Year Economic Development Plan (FYEDP), begun in June 1962, had performed dismally, with South Korea’s gross national product growing by 38 percent below the target level and local savings reaching only 21.6 percent of the original goal. The promised takeoff of investment never materialized, falling below its target by 38.3 percent in spite of—or because of—Park’s overly aggressive efforts to force savings on society through inflation and even expropriation of the “illicit” private wealth of some chaebol groups. Moreover, the first FYEDP was fundamentally flawed, identifying capital- and technology-intensive heavy and chemical industrialization (HCI) as an engine of growth when South Korea’s per capita GNP remained a meager eighty dollars. To implement the unrealistic first FYEDP, Park bypassed the EPB and MoF and used the KCIA as his think tank to mobilize resources through a politically as well as economically destabilizing program of forced savings.11 The only sign of progress that emerged from the two years of military junta rule was the unforeseen export increase in the light industry sector, which Park had brushed aside as inconsequential for South Korea’s modernization and therefore inappropriate for state assistance.12 In November 1962, aware of the light industries–led export boom, Park ordered the EPB to initiate a comprehensive revision of the first FYEDP and to search for ways to make better use of market forces.13
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The growth strategy South Korea came to adopt by the mid-1960s was a thoroughly politics-based policy package. Utterly failing to secure support from MNCs for his overly ambitious industrialization programs, Park turned to diplomacy to acquire the seed money to jump-start growth.
Park normalized diplomatic relations with Japan in 1965 in spite of domestic opposition with the goal of securing reparation funds. The Japanese money was to finance the launching of a newly organized Pohang Iron &
Steel Company after 1967. Then there was the dispatch of military troops to South Vietnam in 1965 that was rewarded by a boost in U.S. economic and military aid. In other words, Park was able to secure foreign capital only when he brought politics into a foreigner’s—in this case, the Japanese and the American governments’—calculation of costs and benefits and replaced market rationales with political-security imperatives as the reason for financial support. Both efforts bore fruit—albeit after throwing Park into a severe political crisis at home. As reparations for its colonial rule, Japan pledged $600 million in grants and loans. The military intervention in the Vietnam War brought $920 million in U.S. military and economic assistance. With this money, Park and his patrimonial but rationalized state were able to experiment with their economic ideas of state-led development and to develop strategic sectors, including the steel industry.14
The new growth formula, consisting of the partly contradictory promotion of light industry exports and a drive toward HCI, was drawn up by the EPB incrementally over eight years. The first breakthrough came on deputy prime minister Chang Ki-yông’s watch.15 He constructed the expansionary part of Park’s growth strategy and left a dynamic albeit financially fragile big business sector as his legacy.16 The process began with a reform proposal whose main thrust was anything but expansionary. Since 1957, the United States Agency for International Development (USAID) had tried to ensure a more efficient use of its aid by South Korea to prepare the country for an eventual “graduation” from U.S. economic tutelage and patronage. The United States’ goal was to force its client state to institute a financial stabilization program (FSP). As an integral part of this effort, USAID officials established a bilateral Economic Cooperation Committee (ECC) with the South Korean state ministries. In 1965, through the mechanism of the ECC, the two sides began to impose an upper ceiling on the South Korean money supply and set a lower ceiling on its foreign exchange reserves, with the understanding that they would be reappraised and redefined every three months. At the same time, the joint committee formulated a detailed schedule to reform interest rates and institute a single flexible exchange rate regime as proposed by USAID officials and advisors.17
However, Chang Ki-yông only partially accepted the USAID’s advice for
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rationalization and stabilization, moving from a multiple to a single exchange rate regime, but consciously undervaluing the won in order to prevent a loss of international competitiveness. The interest rate reform saw a similar move; Chang Ki-yông followed the United States’ advice to match the highly competitive private “curb markets” with a sharp increase in bank interest rates, but he set loan rates below deposit rates to subsidize industrial expansion.18 This “reverse margin system” transferred income from state banks to the recipients of loans—mostly the chaebol in charge of Park’s strategic industrial projects—squeezing out small- and medium-sized enterprises (SMEs) from financial markets by creating an excess demand for bank loans and unleashing powerful inflationary forces that disfavored wage earners and the middle class.
U.S. aid officials did not fight Chang Ki-yông’s unorthodox growth strategy. On the contrary, they followed his “reform” with generous rewards, backing the MoF in the 1965 negotiations with the International Monetary Fund (IMF) on the issue of provisional arrangements, and facilitating commercial loans for South Korean business firms.19 The United States also recognized the importance of Chang Ki-yông’s leadership in the daily operations of the ECC and his contribution to the institutionalization of the financial stabilization program.20 The U.S. accommodation of Chang Ki-yông’s reform owed much to the rapidly emerging “honeymoon” (milwôl) between Park and Lyndon B. Johnson. By 1965 Park resolutely sided with Johnson’s regional security strategy, normalizing diplomatic relations with Tokyo and sending military troops to defend South Vietnam. Politically, Johnson needed Park as much as Park needed Johnson, which made the USAID tolerant of, if not receptive to, Chang Ki-yông’s unorthodox ideas. Once the deputy prime minister secured his American partner’s endorsement, he used the bilateral ECC to line up the other South Korean state ministries behind his growth policy. With Chang Ki-yông himself chairing the South Korean delegation to the ECC, and the international cooperation director of the EPB backing Chang Ki-yông from below within the bilateral committee as the secretary general of the South Korean representatives, the ECC de facto became an interministerial network through which U.S. pressures and influence w
ere used by the EPB
to neutralize MoF resistance to the reverse margin system of bank interest rates. The ECC became an instrument of Chang Ki-yông’s economic policy that contradicted its original raison d’être of financial stabilization.
The risky expansionary strategy drew different reactions from different ministries. The MCI applauded, because it meant easy loans for its main clients, light industrial exporters and HCI investors. The MoF protested vigorously, because the EPB-formulated interest rate and foreign exchange
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reform reduced the MoF to the status of a mere resource mobilizer for industrial projects decided on by the EPB and the MCI. The strategy also entailed the danger of burdening the MoF’s state banks with nonperforming loans. Against the MoF’s opposition, Chang Ki-yông used Park’s disciplinary whip. When finance minister Hong S¤ng-hôn publicly rebelled against the reverse margin system in 1965, Park abruptly dismissed him. During Chang Ki-yông’s three years as the deputy prime minister, the MoF saw its minister fired five times and its vice minister four times. The Ministry of Finance thought it had no choice but to rebel, because what Chang Ki-yông proposed meant a de facto divestiture of its coordinating authority on the basis of interest rate and foreign exchange policy. The MoF’s ability to set the money supply autonomously through monetary policy instruments progressively declined as the EPB Budget Bureau set aside an increasingly large quantity of state resources for long-term investment projects, and as the EPB International Cooperation Bureau independently approved foreign loans and distributed international aid.21
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