Comment on “Chaebol and Industrial Policy in Korea”
Article first published online: 1 JUN 2012
© 2012 The Author. Asian Economic Policy Review © 2012 Japan Center for Economic Research
Asian Economic Policy Review
Volume 7, Issue 1, pages 89–90, June 2012
How to Cite
HILL, H. (2012), Comment on “Chaebol and Industrial Policy in Korea”. Asian Economic Policy Review, 7: 89–90. doi: 10.1111/j.1748-3131.2012.01220.x
- Issue published online: 1 JUN 2012
- Article first published online: 1 JUN 2012
Lim (2012) has written a very interesting paper on Korean industry policy, emphasizing both the extraordinarily rapid industrial growth and the country's highly distinctive policy approaches, set against that country's dramatically impressive transition from poverty to the ranks of the OECD economies. Korea and industry policy are natural research bedfellows. There remains a continuing divide in the broader literature on what sort of industry policy is most effective, and there is surely no more interesting case study than Korea. Indeed, it is difficult to think of a country where the debate over industry policy has been more contentious than Korea. The coincidence of a historically highly interventionist regime and very rapid industrialization has been seized upon by the proponents of activist industry policy to support their arguments that selective industry policy is the key to rapid industrialization. Thus, for example, Amsden (2001) in her widely quoted book argued that Korea “deliberately got prices wrong.”
It needs to be emphasized that the definition of “industry policy” is no simple matter. I would define it as any policy regime where incentives are deliberately non-neutral across industrial sectors. This covers the usual policy instruments such as import protection and preferential credit allocation. But there is also a variety of less transparent – and therefore more difficult to measure – interventions, including state-owned enterprises, industrial licensing regimes, informal exhortations, selective infrastructure provision, selective training and R&D support, and so on. Moreover, as the political economy literature stresses, a lot of interventions are firm-specific as much as industry-specific.
There are several interrelated issues that are referred to in this paper, but which might have received greater emphasis if more space were available. First, since policy was so interventionist, the political economy dimensions are a critical part of the story. In particular, why is that more of the interventions were not captured by rent-seeking interests? If I follow the story correctly, in the early phase the government was relatively powerful vis-à-vis the private sector and unusually committed to national interest goals. But what about from the late 1980s, after the transition to democracy, when governments were less insulated and therefore more subject to pressure from vested interests?
Second, as the author briefly mentions, the commitment to export orientation was a central feature of the strategy, that is, by quickly exposing inefficient operations and checking rent-seeking behavior. Third, and related, it would be useful to unpack the chaebol story a bit more. There were clearly great success stories, but what about the failures? Learning the lessons from them is just as important as from the successes. The late Linsu Kim (1997) provided a most balanced assessment of technology policy through to the mid-1990s, including his important conclusion that the chaebol were both an “asset and burden” (p. 196).
Fourth, some of these shortcomings, in particular the more adventurous macroeconomic and financial policies, were exposed during the 1997–1998 financial crisis, and nearly so in the late 1970s. It is not without coincidence that Korea was the only newly industrialized economy to be seriously affected during this crisis. It might have been useful to draw a tighter connection between this crisis and the industrial policy settings.
Fifth, as I understand it, Korea's industrialization is really unusual in two other, closely related aspects. One is that its earlier policy toward foreign direct investment (FDI) was highly restrictive, except when FDI was literally the only means of technology or market-information acquisition. Hence, the country denied itself the opportunity of much technology spillover from this channel. The other aspect, in partial compensation, is that the country “overachieved” with respect to both education and later research and development. With respect to both indicators, it was at Organisation for Economic Cooperation and Development levels when its per capita income was still well below this group. The author draws our attention to the latter phenomenon, but rather less so to the former (the restrictive FDI policy).
Sixth, the strong promotion of the large-scale chaebol was partly at the expense of small- and medium-size enterprises. Here the contrast with Taiwan is particularly pertinent, especially the latter's more nimble industrial adjustment and its resilience in the face of exogenous economic shocks.
Seventh, some discussion of exchange rate policy and how it impacted on industrialization would be useful. Some writings on the Korean experience emphasize this as a key policy tool, in particular a deliberate strategy of exchange rate protection for tradable goods activities, mainly for manufactures (of course, in addition, agriculture was heavily protected).
Finally, it would be useful to have some discussion of the applicability of the Korean model to follower countries. Given its rapid industrialization, many would be tempted to try to emulate it. But I would conjecture that very few countries have Korea's ruthless commitment to development goals and their achievement, not to mention its insulated polity in the earlier years. Moreover, it is doubtful that, in an era of multinational enterprise-linked global production networks and a more powerful World Trade Organization, the followers would want – or could get away with – Korea's restrictive approach to FDI.
- 2001). The Rise of “The Rest:” Challenges to the West from Late-Industrializing Economies. New York: Oxford University Press. (
- 1997). Imitation to Innovation: The Dynamics of Korea's Technological Learning. Cambridge, MA: Harvard Business School Press. (
- 2012). Chaebol and industrial policy in Korea. Asian Economic Policy Review, 7 (1), 69–86. (