Having completed most of its four groundbreaking tasks—rule making, sectoral planning, institution building, and forced saving—the cabinet-level CPHCI went into a de facto adjournment with its eighteenth meeting in February 1974. The much more challenging stage of implementation began. With O Wôn-ch’ôl enjoying Park’s complete trust, the rules and plans of the Council for Promoting HCI—in actuality, of O Wôn-ch’ôl—
became institutionalized. The economic ministries were unsure who was really giving the orders, Park or his confidant O Wôn-ch’ôl, when the HCI Planning Corps chief “relayed” a presidential policy directive. The weekly Working-Level Interministerial Meeting of Assistant Vice Ministers, organized in place of the Council for Promoting HCI, never digressed from its mission of establishing at the working level an ongoing mechanism to coordinate the actions of the economic ministries in the interests of implementing the HCIPC-formulated set of HCI goals and strategies. Convening over eighty times between 1974 and 1979, the working-level meeting never became an agenda setter. Passively formulating an interministerial program of coordination to solve micro policy issues identified by O
Wôn-ch’ôl’s Planning Corps, the working-level meeting was a club of as-
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sistant vice ministers only in name. Before long, the member ministries began sending bureau directors and even division chiefs in place of assistant vice ministers.
As the Planning Corps became increasingly sure of its control over economic ministries and their loyalty to Park’s HCI drive, it too reorganized into a small staff organization. The Planning Corps had been staffed by over sixty bureaucrats from the EPB, MCI, MoC, and Ministry of Science and Technology (MST) while the cabinet-level Council for Promoting HCI was in operation to draw up basic goals, rules, and strategies.
Once the project entered the implementation stage in 1974, the number of HCIPC personnel fell to below forty. Now mainly a surveillance mechanism checking on its member ministries’ timely execution of policy rather than Park’s personal vehicle to draw up and inculcate the state bureaucracy with basic goals, rules, and strategies, the HCI Planning Corps no longer needed to be large. On the contrary, by returning most of the transferees back to their home ministries in the implementation stage, the Planning Corps could even strengthen its supervisory power over state ministries. The returnees could serve as the eyes and ears of the Planning Corps in their respective home ministry, checking on ministry policy as well as transmitting the HCI vision of the Planning Corps to the economic bureaucracy.
To be sure, in the effort to grow out of economic woes by means of HCI, Park was helped by an unexpected turn of events abroad. The oil-rich Middle Eastern countries aggressively embarked on modernization with their vast amounts of oil money. To win a share of this booming market before other nations rushed in, Park had the EPB vice minister head an interministerial task force of bureau directors to “exclusively” coordinate state support for chaebol-initiated Middle East construction projects. The prime minister also played a role in this effort to penetrate the Middle East markets, lining up state ministries behind the EPB-coordinated policy package in a newly formed Commission for Enhancing Cooperation with Middle Eastern Economies.37 As with O Wôn-ch’ôl’s Planning Corps for HCI projects, it was the working-level interministerial team, led by the vice minister—not the commission of economic ministries chaired by the prime minister—that crafted the basic framework of state support for Middle East business ventures. The working-level team had the MoF prepare tax deductions for both construction companies and workers employed in Middle East economies; the MoC discourage “excessive competition” among South Korean construction companies by encouraging their formation of cartels under a newly drafted Law to Promote Overseas Construction; and the EPB manage the construction workers’ remittance of
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overseas earnings by issuing a Principle for Administering Overseas Construction Earnings in 1976.
Partly as a result of this integrated program, South Korea enjoyed a
“Middle East boom” for a decade. By 1985 its construction companies were to earn over $80 billion from the Middle East, much of which was transferred to their affiliate companies in the South Korean manufacturing sector for investment. In 1979 alone, over eleven thousand South Korean workers were sent to work in the Middle East. For an economy that saw its “Vietnam boom” disappear after 1971, the Middle East boom was a godsend. By taking early advantage of opportunities in the Middle East, South Korea was able to break out of one of its structural afflictions, foreign exchange constraints, which was obstructing its heavy and chemical industrialization.
The HCI drive was an unambiguous success in terms of its own goals.
The fourth FYEDP (1977–1981) had more or less achieved the target goal of HCI investment by 1979, two years ahead of schedule. By contrast, light industries visibly suffered, with actual investment standing at only 46.2 percent of the target goal in 1981. The spectacular overachievement in HCI was possible only because Park channeled 79 percent of available funds into these industries in 1977 and 1978 at the expense of light industries. The annual growth rate of investment in production facilities shot up even higher, reaching 26.6 percent in 1977 and 40.5 percent in 1978.
The HCI investment boom also translated into other successes. The heavy and chemical industries furnished over half of the South Korean GNP by 1978, three years earlier than Park’s original plan of 1973. With an annual GNP growth rate of 11.2 percent after 1973, per capita GNP
topped $1,000 in 1978—again, three years earlier than the original plan.
Growth in exports was equally dramatic, growing sixfold between 1972
and 1977 and even producing a small but unprecedented current account surplus in 1977. The sense of triumph, however, lasted only briefly. The current account showed a deficit of a billion dollars in 1978 and over four billion dollars by 1979, although exports grew annually by 21.1 percent. The investment boom had become a dangerous “bubble.”38 Most of the HCI projects showed very low returns—if not outright losses.39 Park achieved his 1973 goals, but at high economic costs, including the cycle of boom and bust, the spiral of price increases, and financial vulnerabilities.
The strategy to grow out of illiquidity could not continue indefinitely.
The consumer price index rose by 10.2 percent in 1977, despite extensive price controls and the selective rationing system put in place by the EPB.
Black markets thrived and speculation spread. But because Park was solidly behind the HCI effort, the EPB had to continue along the expansion-
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ary path for one and a half year more. The planners devised only stopgap measures, tackling inflation mainly as a problem of supply bottlenecks and imbalances rather than as a result of systemic economic contradictions.
Likewise, the MCI worked to halt inflation on the assumption that economic priorities remained unchanged. Trying to dampen price increases with an expansion of the supply of goods, the MCI included 151 new items in its list of those automatically approved for import in 1978.40 In a similar spirit, the EPB used the recently legislated Law on Price Stability and Fair Trade to correct price distortions through an even tighter regulation on monopolistic goods and their distribution system.41 These efforts on the supply side of issues notwithstanding, inflation reached 14.4 percent in 1978. Only then did Park realize the futility of his efforts at price control. He had offered a meek supply-side reform for what was essentially a crisis triggered by easy credit and excess demand. With Ayatollah Khomeni’s Iran suspending oil exports and other members of the Organization of Petroleum Exporting Countries (OPEC) declaring a price hike of 14.5 percent in December 1978, adjustment became even more urgent for South Korea.
Looking for a way out of stagflationary pressures, Park brought in Sin Hyôn-hwak, who had a distinguished record of service at the Ministry of Reconstruct
ion (the EPB’s predecessor) in 1959–1960, as the deputy prime minister in December 1978. Given the profound financial vulnerability of chaebol firms, however, three months passed without meaningful change in policy. In March 1979, Park called Sin Hyôn-hwak to the presidential palace and ordered him to assemble an adjustment package. As Sin Hyôn-hwak later recollected, Park was by then South Korea’s “leading expert”
on economic issues, “fully aware of what was required of him to put the economy back onto the path of growth without anyone telling him so. The initiative for adjustment came from Park.”42 Once Park ordered economic adjustment, the EPB assembled the Comprehensive Measure for Economic Stabilization (CMES) within a mere twenty days.43 This speed was possible because a number of EPB bureaucrats had already become advocates of change and reform, even drafting a Fiscal and Monetary Policy for Currency Stabilization for in-house review a year before Sin Hyôn-hwak came to head the EPB. Brushed aside by top EPB officials as politically untenable, the draft proposal acquired a new life when Park independently came to the same conclusion and ordered Sin Hyôn-hwak to draw up an adjustment policy.
The CMES proceeded on five different policy fronts. To reduce budget expenditures, it had the EPB slow down—if not halt—HCI investment programs and also end the price support for rice. To relieve inflationary
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pressures, the MoF was to ram through an interest hike.44 For those firms suffering a liquidity squeeze as a result of this sudden shift in monetary policy, the EPB was to offer an “industrial rationalization program,” with the MoF providing loans and tax cuts for companies under bankruptcy protection.45 Equally critical, the EPB publicly pledged price decontrol to correct the distorted incentive structures. To continue the earlier effort to correct the supply bottlenecks that were causing inflationary pressures, the EPB advocated trade liberalization as well.46
The changes, however, came too late. The economy was trapped in a deep stagflationary crisis, precisely when Park’s ruling coalition was simultaneously challenged on the political front. Under Kim Young-sam’s leadership, the opposition National Democratic Party garnered more votes than Park’s Democratic Republican Party in the hotly contested 1978 National Assembly election, encouraging the NDP to take an increasingly intransigent stance against the regime, calling for direct presidential elections and even joining the workers’ struggle for economic justice. The repression of the NDP that ensued only made Park’s political position more untenable. When Park had Kim Young-sam censured and expelled from the National Assembly in 1979, Kim Young-sam’s regional strong-hold of South Kyôngsang Province became thoroughly alienated from Park, leading to a wave of political protests and labor strikes that paralyzed Pusan City and crippled the Masan Industrial Complex. In the face of this regime crisis, Park’s confidants and protégés fought each other over political options, until, as we saw in Chapters 5 and 6, KCIA director Kim Chae-gyu—a “soft-liner” who advocated dialogue with the NDP—assassinated Park on October 26, 1979, in a moment of despair and misguided heroism.
In retrospect, the state Park built with the engineering mind of an artillery officer exhibited a strong predatory quality, but the predatory character it showed was qualitatively different from Africa’s and Latin America’s
“classic” predatory states. The South Korean state generated rents for its business allies, but unlike the African and Latin American counterparts, it explicitly tied the provision of rents to the risky FYEDP investment projects and the development of export markets that these clients had to undertake. This game of exchanging political support for business performance acquired complexity and subtlety when Park returned to making HCI his top priority after 1973, but the game of political exchange was already in place in 1961 when Park put the leading chaebol owners under house arrest to negotiate their terms of participation in the ambitious first FYEDP projects. Tying rents to investment in FYEDP projects, however,
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did not make Park’s politics of modernization any less disruptive than the African and Latin American predatory states’ game of rent-seeking. Once state subsidies poured into one or another front-runner, other chaebol groups who had hitherto been passive, if not outright skeptical, toward state plans showed an intense interest in entering the industry despite the risk of heavy losses. To stay out of FYEDP projects was to pass up one’s opportunity to become a global market player.
The profoundly expansionary bias built into Park’s export machine inevitably threw South Korea into a political and economic cycle of boom and bust. Trapped in the increasingly illiquid corporate structure he himself created after 1964, however, Park was not able to put in place an orthodox adjustment policy. Because of the need to guard his image as a credible and trustworthy patron of risk-taking firms, Park frequently ended up delaying adjustment and overlooking disequilibrium until business difficulties developed into a systemwide crisis, threatening South Korea’s entire financial and industrial system in the 1969–1972 and 1979–
1982 periods. Even then Park shied away from closing down failing chaebol. Rather, despite increasing the risk of moral hazards, he came to the rescue of ailing industries. In 1972 Park relieved financial pressures on the chaebol by a freeze on interest payments on informal curb-market loans as well as by an injection of relief loans. Then in 1979 he began an “industrial rationalization program,” which subsidized a program of “business swap” between failing chaebol groups in the hope of reducing surplus capacity.
Looking back on the cycles of boom and bust, some speak of good fortune. “The policymakers were lucky,” write Young Chul Park and Dong Won Kim. “In each case of [restructuring], an upturn in the world economy rescued [South] Korea.”47 To a certain degree, this was true. Without a turnaround in export markets, the chaebol would have suffocated under massive debts. Yet when adjustment success becomes a pattern repeated in crisis after crisis, as happened in the case of South Korea under Park, simply identifying the friendly helping hand of Fortune will not do. Fortune helped only because South Korea helped itself by socializing investment risks and business losses through the patrimonial but rationalized developmental state apparatus. Fortune provided a helping hand only for those prepared to seize it, and South Korea was one of the few who were armed with the requisite political organization and societal structure.
Facing an amorphous society with neither an organizationally unified labor movement nor a strong political party system firmly rooted in social cleavages, and also wielding a massive arsenal of coercive and repressive power developed by state institutions during South Korea’s colonial and
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cold war eras, Park could force society to bear a disproportionate share of adjustment costs through wage cuts and job losses. He could also inject massive relief loans for ailing chaebol without precipitating a serious banking crisis, because South Korea was then financially a closed economy, with the EPB and the MoF tightly controlling transnational flows of capital. Relief loans, moreover, were not wasted, because of the existence of an economic bureaucracy capable of socializing business risks and implementing productive investment. By coordinating industrial rationalization programs and maintaining business confidence in Park’s rules of political exchange, the EPB-led hierarchical but segmented economic bureaucracy kept the financially vulnerable chaebol on the growth track for almost two decades. The risky strategy to grow out of financial illiquidity paid off handsomely for both political and business leaders, albeit at high economic costs, because South Korea was under tight authoritarian rule, strict capital regulation, effective bureaucratic leadership, and, most important, Park’s patrimonial but also organized way of intervening in the market.
c h a p t e r
e i g h t
The Origins of the Yushin Regime:
Machiavelli Unveiled
Hyug Baeg Im
When we look into [the new princes’] actions and
their lives, we will find that fortune provided nothing for them but an opportunity; that gave them material, on which they could impose whatever form they chose. Without the opportunity their strength
[ virtù] of mind would have been vain, and without that strength
[ virtù] the opportunity would have been lost.
— N i c c o l ò M a c h i av e l l i , T h e P r i n c e On october 17, 1972, Park Chung Hee turned back the clock on South Korea’s constitutional progress by replacing the existing constitution with a new one under the pretext of the need for “revitalizing reform” (yushin). The decision, Park argued, was made to permit South Korea to adjust more flexibly to the rapidly changing international security order from the cold war to the emerging environment of détente; to ameliorate the rising military tensions on the Peninsula brought about by North Korean military provocations in the late 1960s; if possible, to prepare the ground for the peaceful reunification of the two Koreas; to tackle the task of increased industrialization with an eye to continuing hypergrowth; and, ironically, to establish a more efficient “Korean-style democracy”1 that could enable the country to carry out the goals of military security, inter-Korea reconciliation, and economic modernization. Yet despite his promise to “nurture and develop liberal democracy more steadfastly, substantively, and efficiently,” the yushin regime imposed an unvarnished dictatorship.2 The new constitution bestowed on Park the power to rule without constraints in the absence of legislative and judicial checks-and-balances. Also, under the new regime, Park was de facto granted a lifelong presidency. His electoral victories were now guaranteed by a rubber stamp vote in the hand-picked National Congress for Unification (NCU or yuchônghoe). The contentious National Assembly was also undermined from within, as NCU members now took up a third of the National As-
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sembly seats. To facilitate his imperial rule, Park relied on his time-tested centers of coercive power, which included the Korea Central Intelligence Agency (KCIA), Army Security Command (ASC), and Presidential Security Service (PSS). No longer willing to take any chances on retaining his power, Park was determined to turn South Korea into a garrison state.
Park Chung Hee Era Page 33
