ECN 5164 ECONOMIC PLANNING AND POLICY. PLANNING IN SOUTH KOREA PREPARED BY: ABDUL RAZAK BIN ABU BAKAR MOHD SAKERI BIN ABDUL KADIR AFIDAH AZWA BINTI ABDUL AZIZ SALMIRA BINTI MOHD SHUKRI. OUTLINE OF PRESENTATION TYPES OF ECONOMIC PLANNING THEORETICAL FRAMEWORK OF PLANNING
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ECN 5164ECONOMIC PLANNING AND POLICY
PLANNING IN SOUTH KOREA
ABDUL RAZAK BIN ABU BAKAR
MOHD SAKERI BIN ABDUL KADIR
AFIDAH AZWA BINTI ABDUL AZIZ
SALMIRA BINTI MOHD SHUKRI
OUTLINE OF PRESENTATION
-FIVE YEAR ECONOMIC PLAN ( EDP1 – EDP4)
-EDP5 – EDP7
-FROM PLANNING TO A MARKET ECONOMY : 1979-1990
-KOREA’S GLOBALIZATION IN 1990s
Types of Planning
-the developmental state theory is that the state authority should make development its top priority and so by strategically intervening in the market, the state can facilitate economic growth and industrial transformation.
-One of the characteristic of developmental state is the state-business coalitions – i.e. the set up of chaebol in South Korea. The success of the Korean developmental state thus lay in its new production-oriented alliances with the dominant classes, which buttressed the state’s capacity to both control and transform, which led to sustained economic transformation
-Bureaucrats were not only executors of the will of lawmakers but setters of national goals and standards, and the standards they set drew upon international experience
-In particular, the South Korean Economic Planning Board set up an economic policy – the Five Year Economic Development Plans – during the industrialization period (1960s-1980s) provided administrative and financial aids to highly competitive export-oriented industries.
-the ability to mobilize social resources and allocate them to desired ends.
-the success of the planning depends much on the ‘state capacity’
-determines by the balance of power between the state and capital
-The success of the development project depends not only on the ability of the state to discipline capitalists, but also on an appropriate balance of forces between state and capital, where both feel that their own progress depends on the success of the other partner
-largely rests on the character of the distributional alliance, which is, in turn, determined by the distribution of power between state and society -- i.e. the ‘political settlement’.
-the developmental state has been defined by its autonomy from societal forces and its capacity and capability to implement economic policies effectively.
-Economies are neither self-constituting nor autonomous, but always ‘embedded’ within political processes and institutions; just as states ‘rest’ on economic bases, economies in turn ‘rest’ on certain political bases
BRIEF ECONOMIC HISTORY
PATHWAY TO ECONOMIC DEVELOPMENT
DURING PARK’S ADMINISTRATION – “ECONOMIC MIRACLE”
ECONOMIC DEVELOPMENT PLANNING 1 (1962-1966)
i)the development of energy industries (i.e. coal, electricity and oil refining);
ii)the expansion of social overhead capital;
iii)the expansion of export and development of import substitution industries; and
iv)the inclination of agricultural productivity (by preparing ground work for self-
sufficiency in fertilizer).
ECONOMIC DEVELOPMENT PLANNING 2 (1967-1971)
i) propel industrialization full speed by improving the industrial structure
through construction of heavy industries such as steel, machinery and chemical
ii) the exports (textiles and plywood) and promote import-substitutions
iii) to expand the foundations of agricultural production through farmland
consolidation and expansion of irrigation facilities;
iv) increase the farm household income by maintaining a high rice price policy and
carrying out special projects for the increase of farm and fishery incomes in
order to equalize living standards with the industrial sector; and
v) promote the advancement of scientific technology.
ECONOMIC DEVELOPMENT PLANNING 4 (1977-1981)
EDP4 stressed on the following goals:
i) To foster the development of the strategic industries designed to compete
effectively in the world’s industrial export markets, involving technology-
intensive and skilled labor-intensive industries such as machinery, electronics,
and shipbuilding; and
ii) To emphasize on large heavy and chemical industries, such as iron and steel,
petrochemicals, and nonferrous metal. The government introduced financial
assistance program that benefits the machinery industries most, where investments
were doubled in electric power generation, integrated machinery, diesel engines,
and heavy construction equipment. However, the global recession, rising fuel costs
and growing inflation during the 1970s, affected South Korea’s industrial structure
and the economy suffered from acute inflation because of an overemphasis on
investment in heavy industry at a time when many potential customers were not in
a position to buy heavy industrial goods.
1. THE GOVERNMENT
- implementation of a strong development policy
- General Park Chung Hee set a vision to transform South Korea from a backward agricultural nation into a modern industrial nation that would provide a decent way of life for its citizens while at the same time defending itself from outside aggression
-decided that the Central Government must play the key role in economic development because no other South Korean institution had the capacity or resources to direct such drastic change in a short time
-creation of Economic Development Plan (EDP) – nerve centre of government’s plan to promote economic development.
-extended control over business by nationalize the banking system
-increase the level of export, stressing greater international competitiveness and higher productivity
-other economic policies include strengthening key industries, increasing employment and developing more effective management systems to drive the development of export-driven economy.
-establishment of public corporations to develop and manage highly strategic industries to the fastest and most efficient way to foster growth in a variety of key areas.
-During the 1960s, SOEs were concentrated in such areas as electrification, banking, communications, and manufacturing.
-Korea Electric Power Corporation (KEPCO)
-Pohang Iron and Steel Company (POSCO)
-The family-owned enterprises treated as government-corporate alliance
-Modelled from keiretsu (successor of zaibatsu) system in Japan, chaebol however differ from Japanese zaibatsu that were controlled by professionals and organized around a bank for their source of capital. In contrary the chaebol were family dominated and were prevented from buying controlling shares of banks
-Concerntration of chaebols:
1950s & 1960s – wigs & textile
1970s & 1980s – heavy, defense & chemical industries
1990s - electronics & high technology industries
-The chaebol were able to grow because of foreign loans and special favours factors - Under the guise of “guided capitalism,” the government selected companies to undertake projects and channelled funds from foreign loans. The government guaranteed repayment should a company be unable to repay its foreign creditors. Additional loans were made available from domestic banks
-However, the chaebol-led industrialization accelerated the monopolistic and oligopolistic concentration of capital and economically profitable activities in the hands of a limited number of conglomerates
AFTER PARK’S ADMINISTRATION – “END OF MIRACLE”
DEVELOPMENT AFTER PARK’S ADMINISTRATION
i) the ownership of all commercial banks was returned to the private sector by 1983, and a number of regulations on the internal management and operations of banks were either abolished or greatly reduced; and
ii)2 new nationwide commercial banks and a number of new non-bank financial institutions were set up to provide a more competitive environment in the financial markets.
ECONOMIC DEVELOPMENT PLANNING 5 (1982-1986)
ECONOMIC DEVELOPMENT PLANNING 6 (1987-1991)
ECONOMIC DEVELOPMENT PLANNING 7 (1992-1996)
From Planning to a Market Economy: 1979-1990s
Korea's Globalization in the 1990s
-Wage increases average 18% annually
-High financial cost
-Excessive administrative regulations on business activities
-Low social overhead capital investment
-Sudden increased in disposable income among Koreans
-Deterioration of Balance of payments
-High inflation rate – 10%
-Deficit Current Account
-Reformation of financial sector
-Dismantled of EPB, replaced by Ministry of Finance and Economy
-Economic and Social Blueprint up to the year 2020 was planned
Why Has Such a Centralization Occurred in South Korea?
ii)Korea needs the economic efficiency and administrative rationality.
iii)Korea has a lack of resources, both human and capital, in its local areas.
iv)Korean government has stressed national security and economic growth as ultimate national goals.
v)Centralization may occur as new modes of production develop with the support of state intervention.
vi)Interest of the Core Power Elite
CRITIQUES ON KOREA’S ECONOMIC PLANNING
-the removal of workers rights, which was manifested through attempts to “repress labour conditions to keep wages low and thereby attract investment.”
-The welfare state function has been virtually absent, and the state has assumed no responsibilities outside the domains of production and capital accumulation.
-It is an authoritarian in nature and this is inconsistent with the vision of a pluralistic form of democracy, in which a multitude of small-scale interest groups enjoy broadly equal and unrestricted access to the state.
-issue of whether it is actually possible to simultaneously achieve both human and economic development.
several issues pertaining to Korea economic development are of particular interest.
It can be summarized that the Korean economic planning features some
characteristics as follows: