“lion,” forcing the opposition to think twice before challenging his vision of what regime change should entail.
In addition to his political leadership, Park was aided by many fortuitous events or circumstances. These events, however, could have become either a crisis or an opportunity, and it was Park who turned those events into opportunities. At first glance, it appears that fortuna lent its hand to Park, but upon a closer examination, it was Park who transformed the events into fortuna to clear the way for the promulgation of the yushin regime. First, the coming of détente and the accompanying U.S. retrenchment of its forward-deployed military posture in East Asia provided Park with greater room to maneuver in domestic politics by triggering a Red
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scare in society and by reducing the United States’ capacity to intervene against Park in South Korean domestic politics on the basis of its military and economic patronage. By timing the transition to the yushin regime in October 1972, when the United States was busy negotiating the terms of peace with North Vietnam, Park was able to prevent the United States from voicing its dissent during the crucial days of regime change. Second, like the security crisis triggered by Nixon’s Guam Doctrine, Park made South Korea’s financial and corporate distress work in favor of his political interests and goals by using it to justify the establishment of presidential power to declare emergency economic measures. With the newly acquired power to shape the market through presidential decrees, Park effectively resolved the country’s mounting corporate and financial distress in August 1972. The EDESG contributed to his power consolidation not only by clearing the financial obstacles to HCI, with which he planned to legitimize the turn to the yushin regime, but also by strengthening his alliance with the chaebol on the basis of asymmetric political exchange.
Third, even the repeated military provocations of North Korea during the 1968–1971 period and Kim Il Sung’s peace overtures in 1972 became instruments for Park in persuading the public why the yushin regime had to be established. He packaged the yushin as the answer to both South Korea’s fear of military invasion and its hope for peaceful coexistence with the North. Fourth, the eruption of social dissension after the 1971 presidential election had the effect of justifying the move to the authoritarian yushin regime by raising the specter of political instability.
In the last analysis, it was Park’s vision to become the Meiji of South Korea that got him to use his virtù to transform the multiple political, economic, and security challenges into fortuna. In the first instance, Park launched the yushin to prolong his political rule. But the prolongation of his rule was also deemed essential for building a wealthy and powerful nation. The yushin was an instrument to transform South Korea into a second Japan. Unfortunately for Park, the same instrument also planted the seeds of ideological illegitimacy that would lead to his downfall in 1979.
p a r t
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ECONOMY AND SOCIETY
c h a p t e r
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The Chaebol
Eun Mee Kim and Gil-Sung Park
Faced with south korea’s unique transformation into a modern industrial economy in a mere generation’s time, many observers fall back on simple images to explain the state-business relationship that enabled the nation’s hypergrowth. Some analysts project an image of “Korea, Inc.,” where the state and the chaebol deeply penetrated each other’s organizations by personnel exchanges at the top of their hierarchies, seeking to influence decisions and to learn from the other’s organizational features and functions.1 The chaebol is portrayed as an organization created and managed by the state for national interests, with Park sitting on top as the CEO. There are others who agree with the proponents of Korea, Inc., that the state- chaebol relationship was extremely close during Park’s political rule, but give it the opposite characterization of “crony capitalism.” In this view, the chaebol captured the state to pillage banks and sabotage market forces in pursuit of rents. Rather than the chaebol serving national interests as defined by the state, it was the state that came to the aid of rent-seeking chaebol conglomerates in the literature of crony capitalism.
The two views both have the historical facts wrong. Indeed, the state-chaebol relationship was extremely close, but the nature of that closeness cannot be adequately captured by static, unidimensional concepts like those of Korea, Inc., or crony capitalism. The chaebol were neither captives of the state nor its masters. They were organizations based not only on traditional family ties but also on modern rational business enterprises
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that made their own decisions, albeit within the confines of state policies.2
As Stephan Haggard argues, it is more useful to view the state- chaebol relationship as an ongoing negotiation, continually reinterpreted and remade under the pressures of socioeconomic and political change.3 Even during Park’s rule, when the chaebol were reborn into industrial conglomerates under massive political patronage, their relationship with the state was more complex than those images of unidirectional power flow that the proponents of Korea, Inc., and crony capitalism portray.
The transfer of elite bureaucrats to the chaebol did not occur with great frequency during Park’s rule.4 In fact, because the locus of decision making and coalition building resided at the top of the state organization, Park’s Blue House, there was less need for the chaebol to invite retired career bureaucrats to act as go-betweens in the way the Japanese keiretsu did through amakudari. 5 Big deals were made directly between Park and the owner-managers of his choice, so that the chaebol were less interested in securing amakudari- like channels of coordination with state ministries.
Moreover, deal making in the Blue House took place in ways that made the concept of leader-follower less relevant. To be sure, Park had the power to make or break any one chaebol group, but Park could not weaken the chaebol as a class if he was to transform South Korea into an industrial economy in his lifetime. On the contrary, after committing a series of economic policy blunders in 1961–1962 that almost cost him his military junta (see Chapters 2 and 3), Park came to recognize that the chaebol were more experienced in running a business entity, just as he was more knowledgeable about running the state. As long as the chaebol accepted the broad direction of economic policy and refrained from getting entangled in partisan politics, Park let the chaebol be the CEOs of South Korean economic development, implementing politically formulated and bureaucratically elaborated goals with great autonomy and discretion. In fact, the chaebol came to be the source of major innovative policy ideas, from the construction of special export zones and industrial complexes to the launching of Japanese-style general trading companies, to the entry into the Middle East construction boom in the mid-1970s.
Just as it is wrong to view Park and the chaebol in terms of leader and follower, it is not constructive to ask who was more indispensable and who was less powerful. Rather, Chapter 9 proposes to look at the state-chaebol relationship as a partnership, asking how each party complemented the other. And this was a partnership between visionaries. Park strove to become the Meiji of South Korea, whereas the leading chaebol groups hoped to grow into conglomerates on a par with the Japanese keiretsu. Sharing the han, or anguish, of being born into one of the world’s
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poorest countries, only recently liberated from Japanese colonial rule and scarred by three years of a violent cold war conflict–turned–civil war, Park and the chaebol were united by the vision of pulling South Korea and its people out of their absolute poverty, and drawn together by their fearless “can do” spirit and ethic of hard work. For Park the chaebol were indispensable for his political project of “rich nation, strong army”
(puguk kangbyông), and for the chaebol Park was indispensable for their growth into a corporate empire. As Yi Chun-lim once recollected, “it was not really that one led the other into something that he did not want
to do. Park and [big business] formed a full-fledged partnership on the basis of broad trust, common vision, and hard work.”6 In the eyes of David Kang, this partnership was one of “mutual hostages,” with the state and the chaebol each preventing the other from taking measures that threatened vital interests. By contrast, Chapter 9 presents the partnership to be that of “mutual guarantors,” each enabling the other to achieve its vital interests.
Because the partnership was based on asymmetric political exchange, where Park defended chaebol allies from the threats of business failure in return for their plunging into his risky industrial projects, it imbued both the state and the chaebol with contradictory traits. The state was both predatory and developmental (see Chapter 7), generating rents to lure the chaebol into the risky frontiers of growth, but at the same time bureaucratically regulating and politically disciplining rent-seekers to keep rent-seeking below a systemically dangerous level. Likewise, the chaebol were both cronies and entrepreneurs, cultivating Park’s support to secure licenses, subsidies, and loans, but also harnessing the rents for investment in his industrial programs as part of their original pledge to line up behind his vision of nation building. Consequently, during the Park era, the state-chaebol relationship was characterized by a constant effort to balance between the predatory and the developmental tendencies of the state, the cronyism and the entrepreneurial energy of the chaebol, and the generation of rents and the regulation of the ensuing moral hazards.
Park knew that the balancing act required for the state- chaebol partnership he envisioned would be an extremely challenging political task. To generate rents for the chaebol willing to invest in risky projects, but without worsening the moral hazards to the level of triggering a systemic crisis, Park developed a set of rules and norms for the state- chaebol partnership.
First, in order to ensure that his business “cronies” were also individuals with a conquering entrepreneurial spirit, Park chose partners from the chaebol with a proven track record of risk taking, managerial capability, and high performance. To be sure, Park preferred allying with the chaebol
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from his Kyôngsang region in order to insure against the danger of non-Kyôngsang business groups coalescing around one or another alternative regional center of political power, but he did not shy away from partnering with non-Kyôngsang entrepreneurs like Chông Chu-yông of Hyundai (Kangwôn Province), Kim U-jung of Daewoo (Kyônggi), and Cho Chung-hun of Hanjin (Seoul) when they shared his visionary mind, “can do”
spirit, and entrepreneurial capabilities. Even then, however, Park was aware of the need to keep his chaebol partners in line and check their abuse of his trust. The best way to do so was to take advantage of their rivalry. Consequently, as a second rule of thumb, he built a structure of oligopolistic competition in the strategic industries over time, searching for challengers among second- or third-tier medium-sized chaebol groups to compete with the front-runners.
Third, as the proponents of Korea, Inc., and crony capitalism argue, Park backed his chaebol allies with massive subsidized resources, but contrary to the portrayal of guaranteed business success, he was prepared to let failing chaebol groups go under, once he thought he had exhausted relief measures. This was an extremely costly way to balance between the requirements of socializing business risks and disciplining the moral hazards, but it was nonetheless effective in moving state- chaebol relations toward hypergrowth. On the one hand, by supporting hard-pressed business partners until he exhausted all possible policy options during a period of macroeconomic adjustment, Park crafted the image of a reliable patron who backed words of support with concrete actions when his business partners were in trouble. This image made his words of commitment credible, thus making his task of mobilizing the chaebol behind risky industrial projects that much easier. When Park had to pull the plug from the weakest of the chaebol to save the stronger of the South Korean big businesses and to stabilize the economy during a period of adjustment, on the other hand, most of the chaebol looked at his action not as a breach of his earlier promise of unswerving support but as an unavoidable adjustment forced upon him by the financially fragile South Korean economy, because he resorted to restructuring the weakest of the chaebol only after he had exhausted all options of keeping those chaebol groups afloat through state support.
That the weakest of the chaebol would be allowed to fall—albeit after the failure of a concerted rescue operation by the state—was a rule that prevented the moral hazards from rising to the level of a systemically destabilizing scale. The rule was economically inefficient, wasting too many resources in keeping alive too weak business ventures for too long, but it was a politically effective strategy to retain the trust and loyalty of big business while at the same time preventing the worst forms of moral
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hazards. As a result of this economically costly but politically effective balancing act, the Park era came to be characterized by both spectacular business successes and spectacular business failures. The likes of Chông Chu-yông, Kim U-jung, and Cho Chung-hun grew into industrial tycoons during Park’s eighteen years of rule, but there were also many more would-be chaebol leaders who fell while attempting to seize what they thought was the opportunity of their lifetime to build a corporate empire. In sharp contrast to the arguments of Korea, Inc., and crony capitalism that the chaebol had an easy way to the top, the Park era was Janus-faced, where an opportunity for hyper corporate growth could turn into a dangerous moment of adjustment and maybe even business failure. The opportunity and the risk that came with it resulted in a continuous reordering of the Big Ten. It was only in the late 1970s that the structure of the South Korean business community stabilized.
Fourth, aware of the danger that the chaebol could use their rents to become alternative centers of political power either on their own or as a junior ally of party politicians, Park made it very clear to big business that his support for their industrial ventures came on the condition that they did not seek political power themselves. To be sure, there were chaebol-
turned-politicians like Kim Sông-gon of Ssangyong, who raised political funds for the ruling Democratic Republican Party (DRP) by leveraging his business background, but they were more the exception than the rule. Park preferred the chaebol to remain entrepreneurs. When he relied on the likes of Kim Sông-gon to raise political funds, Park made it clear that they worked solely for him under his trust. When they strayed from their role of caretakers to seek their own power, as Park thought Kim Sông-gon did in 1972, Park swiftly cracked down on the real or imagined challengers in order to send a clear message to all that DRP fundraisers were only caretakers, that the ultimate power rested solely in the hands of Park, and that the chaebol should not seek political power for themselves. The rule that the chaebol should not themselves become political powers was essential for Park’s ability to choose his partners largely on the basis of performance, to keep the chaebol in line through oligopolistic rivalry, and to discipline the worst forms of moral hazards by letting the weakest of the chaebol go under during a period of adjustment. The transformation of the chaebol into an alternative center of political power either on their own or as a junior ally of party politicians would have obstructed the already very challenging task of balancing between predatory and developmental tendencies of the state, between cronyism and entrepreneurial energy of the chaebol, and between the generation of rents and regulation of the ensuing moral hazards.
This is not to argue that Park had in place these four rules and norms
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governing state- chaebol relations from the very start of his rule. On the contrary, these rules and norms emerged out of political conflicts, policy mistakes, and learning throughout the eighteen years he was in power.
They were continually made and remade as Park zigzagged to find an appropriate formula for the state- chaebol partnership that
would enable him to use the rents for economically productive purposes. Chapter 9 analyzes this making of rules and norms governing state- chaebol partnership during the Park era.
Partnering with the Chaebol, 1961–1963
When Park seized power in 1961, his first priority was winning public support for his military coup. Having overthrown the democratically elected government of Chang Myôn by brute force under the pretext of cleaning up corruption, establishing political order, and building state competence, Park necessarily came to justify his coup by stressing his ability to generate economic growth. The technocratic rationale made Park search for ways to win over the business community, because only with its support could he make economic growth happen. Consequently the first months of military rule saw Park busy with the task of selecting entrepreneurs that he could trust and work with to devise a new set of rules and norms governing the state- chaebol relationship in the direction of launching an economic takeoff. The objective was to get the chaebol to collaborate in state-formulated industrial projects through an asymmetric exchange of political support and risk taking between the state and the chaebol.
Despite his statist ideology, Park knew that he would be able to achieve his economic goals only with the private sector’s cooperation. Consequently, he sought to strengthen state leverage, but he did so not to expand the state’s direct productive capacities at the expense of the chaebol, but to secure the private sector’s compliance with state-formulated policy objectives. And to induce the chaebol to venture into more risky kinds of production and marketing activities, Park was ready to assist his strategically chosen chaebol partners in strengthening their corporate capabilities. To strengthen state leverage with which to persuade the chaebol into collaborating with the military junta, Park centralized power in the Economic Planning Board (EPB) and used it to encourage the chaebol into taking risks in return for his political support. He also nationalized all commercial banks with an eye to controlling the sources of capital. At the command of the Ministry of Finance (MoF), banks no longer acted as the agents of commercial financial transactions. Rather, they became an in-
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