Park Chung Hee Era

by Byung-kook Kim

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  statist, approach to development. President Park Chung Hee may have pushed that development more resolutely and in some ways more successfully than any other leader, but he was building on precedents set in Japan and he was often matched by the KMT in Taiwan.

  After Park’s death, the system he created fell into crisis twice. Immediately after Park’s assassination, President Chun implemented a vigorous, but still largely statist, stabilization and reorganization of the economy.

  The government privatized banks, but retained virtually complete control over them. In part, the failure of the reforms to persist reflected quite specific factors, such as North Korea’s assassination of Kim Chae-ik and other liberalizing advisors in the Rangoon bombing of 1983. At a more fundamental level, though, in the 1980s the system created by Park was still capable of sustaining rapid investment and growth.70 In contrast, the transition to lower rates of investment and growth in Taiwan occurred “naturally” at the same time as Chun’s reorganization, and genuinely private Taiwanese banks appeared at the beginning of the 1990s, though the market share of government banks declined only slowly.71

  By the early 1990s, however, there were ominous signs that Park’s system was running out of gas. The chaebol were no longer capable of wring-ing adequate returns out of their huge investments.72 Banks and chaebol teetered on the edge of insolvency, and finally fell over. Once again, a new president was left to deal with the excesses bequeathed by his predecessor.

  Kim Dae-jung tackled the task of financial reform with more vigor than had Chun, but it was hard to fix the banks and trust companies without undertaking fundamental changes to the industrial system inherited from Park Chung Hee. Fifteen years after Park’s death, the positive elements of his legacy were greatly reduced. The task of revitalizing and reorganizing the South Korean economy and the chaebol-oriented financial system fell to Kim Dae-jung, his successors, and the Korean people.

  Conclusion:

  The Post-Park Era

  Byung-Kook Kim

  Park chung hee died on October 26, 1979. So ended his developmental era. Or did it? Given his great successes and dismal failures, and his profoundly effective but costly authoritarian way of rulership, it was inevitable that even after his death Park lived on as either a hero or a villain in South Korea’s politics. In the three decades after Park’s death, the memory of his powerful and controversial rule still towered over the country. In what can be called the “post-Park era,” allies and enemies still defined themselves and each other by their attitudes toward Park and his political, economic, and coercive systems. Not only did the structures that he created continue after his death but the forces that supported and opposed him both remained vigorous. By making Park a hero or a villain and deeming his leadership indispensible or dispensable for South Korea’s progress, the conservative and progressive forces of the post-Park era hoped to legitimate their past, win the present, and shape the future. Virtually all discussion of Park has been contaminated by the power of Park’s image, whether positive or negative. The deep involvement of all parts of society in the

  “pro-Park” and “anti-Park” battle has made it impossible to achieve the detachment necessary for an objective discussion of who he was, what he did, and whether his vision still has relevance today.

  The effort to achieve a more balanced understanding of Park and his place in South Korean political history requires an acknowledgment of both his successes and his failures. It requires abandoning the sharp dis-

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  tinction widely used by South Korean intellectuals between Park’s “modernizing era” and post-Park “globalization” and “democratization” to permit a more nuanced understanding of how the institutions of the Park era survived and were adapted to fit the emerging democracy and the globalized political economy. To understand how the Park legacy was adapted and changed by his supporters and his opponents as they confronted the challenge of democratization and globalization in the three decades after his death, it is useful to distinguish the post-Park politics of reform along three institutional dimensions.

  First, this chapter will focus on Park Chung Hee’s legacies for South Korea’s economic system and his successors’ two decades of reform aimed at taming its extremely destabilized character through a diverse array of restructuring programs. All successors—whether military or civilian, conservative or progressive, Kyôngsang- or Chôlla-born—projected one or another kind of reformist image, reshaping South Korea’s developmental state and chaebol industrialists in a more market-friendly and less dirigiste direction. Their risky efforts at partial reform continued until an Asian regional crisis took down South Korea in 1997. Only then did its political authorities adopt a strategy of systemic change. Ironically, however, it took South Korea’s “Weberian” state bureaucracy inherited from Park’s developmental era to weed out Park’s other legacy of structural pressures for boom and bust from South Korea’s hypergrowth economy. Even then, its powerful state only shed its developmentalist ethos. Transforming into a regulatory state, it regained the commanding heights in South Korea’s much changed neoliberal economy. Likewise, chaebol industrialists purged their overly expansionist “gene,” but kept much of their “imperial” corporate governance structures.

  Second, South Korea’s post-Park political system also lived in the shadow of Park. Given their weaker political standing in South Korean politics, in fact, many of his successors ended up copying Park’s triple strategy of electoral mobilization: regionalist agitation, ideological mobilization, and money politics. The politics of regionalist agitation, already contagious during Park’s last years of rule, only became more aggravated, with smaller regions developing their own “mini” regionalism to split away from larger voter blocs. The Ch’ungch’ông broke its ties with Kyôngsang voters and became a swing variable in elections after its regionalist leader, Kim Chong-p’il, lost all hope of presidential succession. The political opposition also fractured into Kim Dae-jung’s Chôlla and Kim Young-sam’s South Kyôngsang factions, which evolved into rival parties as democratization proceeded. The politics of ideological mobilization likewise escalated during the post-Park era too, but with a major twist. The “left-

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  right” struggle Park waged in an attempt to delegitimize his opponents as an ideologically heretical leftist force transformed into a “progressive-conservative” electoral contest for power. The progressive forces, continually evolving and splitting into undong’gwôn ( chaeya activists), NGO

  leaders, and party politicians in tandem with democratization, but maintaining their raison d’être as a moralistically organized transformative political force, packaged their “progressivism” in terms of “anti-Park” beliefs. The conservatives responded in a mirror image, personifying their modernization ideals in a continually re-created, reinterpreted, and relived image of Park. The third instrument of electoral mobilization, money politics, also worsened until two former presidents were prosecuted under charges of military mutiny, national subversion, and corruption in 1995.

  By contrast, Park Chung Hee’s third system of political coercion, which included the Korea Central Intelligence Agency (KCIA), the Presidential Security Service (PSS), and the Army Security Command (ASC), began collapsing after the 1987 democratic breakthrough. The security agency still plans, executes, and monitors key elements of South Korea’s policy toward P’yôngyang, and even intervenes in domestic politics as a strategist, but it has more or less stopped dirtying its hands with the politics of selective coercion, especially since Roh Moo-hyun’s presidency (2003–2008). Likewise, the military has become a “modern” institution of national defense, as Park hoped, but has given up its other role as a watchdog for regime stability in the midst of Kim Young-sam’s crackdown on the Hanahoe (Society of One) in 1993.

  The Economic System

  Successes and failures coexisted side by
side nowhere more clearly than in the economic arena. Park built the South Korean banking system, corporate community, and labor market with an eye focused on the maximization of economic growth. It was the socialization of the risks and dangers in corporate expansion that enabled Park Chung Hee to achieve his goal of grow-at-all-costs. To his aides who warned of the serious socioeconomic dislocations that would result from his expansionary industrial policy, he answered: “Push society to its limits when you can.”1 When political protests spread and social unrest worsened, he defiantly declared: “Spit on my grave!”2 He was not ignorant of the dangers of “modernization Park-style.” A good listener rather than an overbearing speaker, Park always let his advisors air their doubts and worries, and yet he chose to take the risky strategy of grow-at-all-costs.

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  The economic system performed as Park Chung Hee intended, growing at a double-digit rate during much of his rule, but, as his advisors warned, it also periodically became paralyzed under the pressures of financial and corporate distress, at high social costs. The periodic implosion of financial and corporate distress, in particular, came to constrain his policy options and even threaten the sustainability of his economic system itself.

  Financing corporate growth primarily through state-guaranteed foreign loans and state-channeled bank loans, the chaebol became extremely vulnerable to financial distress during recessions. Their vulnerability became Park’s vulnerability as well, forcing him to come up with ever larger industrial projects and ever more policy loans3 in order to keep the failing chaebol afloat during economic downturns. When Park died in 1979 amid a liquidity crisis, which had become a generic trait of his economic system since the late 1960s, he left behind a manufacturing sector with a staggeringly high debt-equity ratio of 488 percent.4

  From Park’s seemingly reckless policy gambles, however, also arose a group of industrial combines unique among third world big business.

  Whereas most third world industrialists grew as subsidiaries and joint ventures of multinational corporations (MNCs), each of the chaebol came to possess its own international brand, domestic supply network, technological capacity, and overseas distribution facility, with which it strove to acquire independent capabilities to generate corporate growth across unrelated business sectors. The chaebol wanted to become MNCs in their own right.5 In the process of their corporate expansion, the country annually increased its GDP more than 8 percent in real terms. The downside was the very sharp business cycle of boom and bust that profoundly destabilized and polarized South Korean civil society.

  The chaebol, in fact, embodied both the strengths and the weaknesses of the economic system constructed during the Park era. The most critical problem with Park’s export machine lay in its propensity to head toward a liquidity crisis by utterly failing to devise a viable “exit policy” for shaky chaebol groups. By forcing state banks to underwrite investments and assume business risks through subsidized policy loans, Park encouraged chaebol groups to become reckless and diversify into unrelated industries without adequate risk management. Once investments were made with bank loans, the chaebol became burdened with an extremely vulnerable debt-equity structure that prevented their owner-managers from corporate restructuring for fear of losing ownership and management control.

  On the contrary, the financially weak chaebol sought ever more bank loans for business growth, lest any stagnation in their business sales trigger a liquidity trap within the context of their extremely high debt-equity ratio.

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  However, by taking on more loans, they sowed the seeds for even bigger financial crises and dragged society into a cycle of boom and bust.

  To be sure, Park could have chosen to deal with the root cause of South Korea’s vicious circle of boom and bust by making the chaebol more cost-conscious and less sloppy in their risk calculation. He could have established a banking system that made loans on the basis of borrowers’ objective cash flow rather than on the basis of state bureaucrats’ administrative guidance, but he did not, because the restructuring of banks would have threatened his entire export growth machine. The regimen for banks would have worked only if Park had moved to strengthen the market threats of bankruptcy and downsize chaebol combines, which in turn would have required massive debt-restructuring and layoffs. The system of company unions would have been at stake too, because the workers had implicitly agreed to forgo their rights to collective action because of Park’s pledge to deliver job security and steady wage increases by continually generating economic hypergrowth. Layoffs threatened this implicit class bargain and would have taken away any restraint the workers might have felt in demanding political rights and strengthening their industrial and national labor federations.

  Coupled with these structural barriers against systemic reform, there was also Park’s vision of transforming South Korea into a second Japan with an army of national champions in his lifetime. This goal constantly encouraged Park to take chances when a new frontier of economic growth arose.

  There was also the problem of capital scarcity, which had originally made Park base his growth strategy on bank subsidies, chaebol organization, and company (as opposed to industrywide) unionism. Because domestic resources were limited, Park would have had to turn to foreign direct investment sooner or later if he had decided to restructure the chaebol in any meaningful way. Lifting entry barriers, however, would have posed multiple political dangers for Park. The foreign investors would have recapitalized insolvent corporations and banks only if excess employees could be dismissed quickly and redundant production lines closed down. Such investors would also call for a thorough reform of South Korea’s corporate governance structure, because only when account books were clean and transparent, majority shareholders legally accountable, and opaque cross-shareholding among subsidiaries discontinued could banks establish prudent supervision over corporate borrowers. Even with just a few commercial banks under foreign control, Park would have seen his discretionary power over credit allocation and industrial policy rapidly slip away and his personal ties to chaebol weakened. Park instead tried to

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  tame the excesses of the developmental state’s expansionary nature by imposing more regulations each time he faced a severe banking crisis.6

  In lieu of structural reform, Park had to fall back on the strategy of “industrial rationalization” to cool down the overheated economy with shock therapies such as foreign exchange devaluation, interest hikes, debt restructuring, and wage controls,7 but at the same time put in place safeguards to prevent these measures from disintegrating the chaebol, South Korea’s microfoundation of economic hypergrowth. To stave off disintegration, he got the state to broker, coordinate, and subsidize business swaps between rival chaebol as well as state banks to subsidize the restructuring of corporate debts. The state-brokered and -subsidized business swaps were thought of as a substitute for market-led M&As (mergers and acquisitions), reducing surplus capacity, holding executives accountable for mismanagement, and resolving financial distress, but without a spread of corporate bankruptcy. Unfortunately, however, industrial rationalization could never serve as such a substitute for market-led M&As, because its mechanism of state-brokered business swaps and corporate takeovers was designed more as a rescue operation than as a disciplinary measure. Consequently, it helped the chaebol weather two or three years of hard times, but did not make them financially any stronger. On the contrary, the strategy of industrial rationalization Park-style trapped the chaebol in deeper moral hazards, as they diversified and conglomerated in the belief that state rescue could be relied on in the event of external supply or demand shock. Consequently, the task of interrupting the cycle of boom and bust at the macro level and of disciplining the chaebol conglomerates’

  moral hazards at the micro level without paralyzing the sources of growth was passed on to Park’s successors.

  Unfortunately
, however, until the Asian financial crisis struck South Korea in 1997, Park’s successors—whether authoritarian or democratic—

  were all alike in waiving the option of disciplining the chaebol with a credible exit policy on the basis of the market threat of bankruptcy, lest the U-turn in corporate finance and industrial policy trigger massive corporate and bank failures. Like Park, they resorted to secondary measures to tame the chaebol conglomerates’ excessive appetite for loans, and like Park, they failed, albeit to varying degrees. Having seen the stagflationary crisis of 1979 bring down Park, Chun Doo-hwan (1980–1988) severed the cycle of boom and bust at the macro level by ending the practice of easy government loans and other monetary policies, but he failed in the other task of weeding out the moral hazards of the chaebol at the micro level because he resorted to his predecessor’s strategy of industrial rationalization out of fear of systemic instability. In 1981, emulating Park in industrial policy,

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  Chun Doo-hwan oversaw a limited business swap among South Korea’s top chaebol groups to reduce surplus capacity and encourage specialization, only to see another liquidity crisis descending upon smaller chaebol and construction groups in 1985, which he met with massive rescue money.8

  In other words, the old ways of doing business continued, albeit with a subtle but critical shift in policy priorities. Chun provided privileges and benefits for the chaebol, but he also made sure that these subsidies were made within an overall framework of conservative monetary policy and, in doing so, purged from his predecessor’s growth model one of the causes of systemic instability. The policy innovation he pushed through was a change within Park’s growth model, not a fundamental “neoliberal” overhaul of South Korea’s financial as well as corporate governance structures.

  Nor did the democratic breakthrough of June 1987 bring about the needed U-turn. In fact, Roh Tae-woo (1988–1993) remained within Park’s paradigm of developmental statism and Chun’s notion of stabilizing growth. The series of industrial policies Roh proposed were a replica of Chun’s program to tame rather than to discipline the chaebol. The loose ceiling Roh placed on bank loans and cross shareholding to restrain chaebol groups from risky empire building was originally introduced in 1984.9