Thursday, July 28, 2005

What to do about industrial policy?

Or, why I wish my Korean was better...

Here is a review in the Korea Times of a new book from Ha-Joon Chang and Jeong, Seung-il which is sure to raise some positive controversy. The two economists published a book [only in Korean I think] last week titled Cutting the Gordian Knot of Korean Economy (Koaedo Nanma Hanguk Kyongje) which suggests that the reason why the Korean economy in the democratic period has failed to boost equality and maintain economic growth is not because of a cyclical economic slump caused by the 1997 crisis but a structural problem attributted to the new ruling block's adoption neo-liberalism.

I've attached an extended section of the review below which is interesting, particulary for the authors' distinction between financial and industrial capital and, the controversial bit, their appraisal of Park Jung-Hee's developmental policies. I'm curious what students of the developmental state will think of this one, and the need to think about industrial policy alongside progressive politics, particulary labor rights, environmental issues, and participatory democracy: How can these be reconciled with strong, state-initiated industrial policy? Post a comment if you have any thoughts, but you'll have to read the book to figure out exactly how the authors see these issues unfolding. Apparently they appraise the role of the labour movment. It's possible they might agree with labour's present strategy of fighting labour market flexibility, which took a new turn last week with the withdrawel of the FKTU and KCTU from a number of labor relations committees, you can read about that here and here.

Here is the rest of the book review:

[The authors] note that neo-liberalism is not suitable for an economy eyeing high growth. ``Conservative newspapers have long demanded that the nation adopt neo-liberal policies, including deregulation and flexibility in the labor market for economic growth. However, neo-liberalism is focused on low growth rate,'' Chang writes.

He relates that neo-liberalism is basically for financial capital, not industrial capital. ``It is a system in which financial capital takes initiative of industries. From the perspective of financial capital, economic growth is not very desirable. To insure returns from their investment, they want to stabilize the economy and lower the price increase rate,'' Chang notes. Thus, neo-liberalism and a high economic growth rate are incompatible.

``Since the economic reform (by Kim Dae-jung and Roh Moo-hyun), Korea has entered a system in which people refrain from investment, which in turn has slowed economic growth.''

They note that the average investment ratio in 1990-1997 stood at around 37 percent, but it has hovered around 25-26 percent since 2000. ``It is not a cyclical phenomenon, but a structural problem,'' Chang writes.

As recent administrations adopted the low-growth-oriented policy, the nation's crippling economic growth rate is a ``successful'' result of the administrations' stance, the authors write sarcastically.

Discussing neo-liberalism in the nation, the two economists analyze Korean progressives' ``odd'' endorsement of laissez faire. For them, it is natural that the conservatives champion a freer market for the freedom of capital, but it is irrational for many progressives or the left to tilt toward market fundamentalism.

Then what is behind the progressives' strange stance? Chang and Jeong both point their finger at the Park Chung-hee regime, which masterminded economic growth but at the same time ruthlessly suppressed any resistance.

``Many progressives seem to believe that every bad influence stems from Park. As a result, they began to deny all Park-style economic policies, emphasizing a break with the past,'' they write.

For the author, the progressives made a serious mistake in believing that the key to overcoming the past regime was to go in the opposite direction of Park's policy. ``Because Park created a wide distance in the market, (controlling the market), they saw free market as a cure-all,'' they write.

This strange ``unanimous'' belief in the market, the authors write, could tie the hands of the government. Bearing in mind the past authoritarian government's wayward intervention, both progressives and conservatives are allergic to the administration's role in the market and have begun to regard laissez faire as virtuous. ``But, in Korea, the government still has a lot to do,'' Chang adds. ``For example, they are things such as nurturing next-generation industry, adjusting the labor market and instituting a better welfare social system,'' they write.

In the eight-chapter book, the two economists also discuss Korea's economic development under the iron fist of Park, chaebol and foreign capital. They there suggest that chaebol reform has often missed points in the process, only benefiting foreign capital. They also note the progressives need to wake up to the nature of foreign capital invested in Korean conglomerates.

The two economists blame the business for focusing excessively on labor market flexibility, which has spawned unemployment and destabilized social integrity. They also criticize labor for failing to come up with adequate demands under the framework of the nation's economic development.

With ample grounds for their arguments, the book gives readers persuasive and fresh insight into the current economic situation.

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