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Reference
Luca Lombardi  (2010) The State & Capitalist Development . In Defense of Marxism : -.

Summary
How capitalism developed in Taiwan and South Korea – any parallels with China today? Part One
Luca Lombardi 16 September 2011

The crisis that has shaken the world economy since 2008 has pushed bourgeois ideologists to desperately seek a solution. They are looking for alternative ways of running their system, seeking to square the circle and maintain capitalism without its inevitable contradictions. As Asia, and China in particular, is doing so well, there is a burgeoning literature about the Chinese model, just as in the past there was so much made of the “Japanese miracle”. In Part One of this article Luca Lombardi looks at the experience of Taiwan.

The conclusions the bourgeois “experts” draw from the economic development of China are completely off the mark and, above all, there is not much new in it. The fact is that bourgeois ideologists have begun to believe in their own propaganda, losing sight of past experience and history itself. In order to create illusions about the future, they have forgotten their own past!

For decades, they lectured the world about globalization, forcing the governments of the “emerging” economies to sell off everything to big multinationals, mainly from western countries, to reduce state intervention in the economy, to crush trade unions and so on. Then, all of a sudden, the IMF and all the rest discovered how risky these very same policies are in the face of the present crisis. As they have forgotten their own history, now they find it difficult to understand what is going on.

Role of private capital and role of the state
That private capital promotes growth is historically a rare exception. Once the first European powers had started to develop as capitalist economies, no one else could develop in the same way. Even Germany, the most powerful capitalist nation in Europe, and countries like Italy and other smaller European capitalist economies were not developed by private capital alone. If Germany, that was already a powerful economy at the end of the 19th century, was not able to grow without permanent and strong help from the state, it was certainly impossible for Asian nations that had been colonies or semi-colonies of the imperialist countries.

Today’s big multinational companies cannot be challenged by the small emerging capitalists of the less developed economies. If these “newcomers” wish to compete with these giants, they can only hope to do so by using the combined resources of the state. Without such help these emerging economies would be simply squeezed out by the higher efficiency, the greater productivity of the multinationals and forced to produce what the imperialist giants deem necessary to maximize their own profits.

All the fundamental economic and political events of the 20th century flow from this fact, that Marxists define as the “law of uneven and combined development”. This law explains why a spontaneous development of economies outside the grip of the imperialist countries is impossible. It also explains why the indigenous bourgeoisies of the developing countries can only aspire to being the local errand boys of the more powerful imperialist powers. Trotsky drew the political conclusions from this situation in developing the theory of the Permanent Revolution[1].

Planning and state intervention – contrary to what many believe – play a role in capitalist development. Indeed they are by far the most used methods in underdeveloped economies because there is no alternative other than to remain completely subdued to imperialism. This is particularly true in Asia. Japan was the first country to endogenously develop capitalism on the continent. This happened in a very peculiar way, basically transforming former soldiers into businessmen[2].

The success of Japan was remarkable. Before the Second World War, it had already become a world power with a vast sphere of influence in Asia. Japanese imperialism was no less cruel than its western version, albeit with Japanese ideologists pretending that the Land of the Rising Sun was protecting Asia from western invasion, giving back to the continent its historical primacy. The reality was that Japan was amassing territories and slaves for its big companies.

The way Japan became a world power influenced the whole of capitalist development in Asia. Then came the 1949 Chinese revolution that also strongly changed the outlook of the ruling classes in Asia. Thanks to the victory of the Maoist Red Army, for the first time since western powers had occupied Asia, China was united and independent, and able to decide on its own destiny, whereas the other Asian countries were basically puppets of US imperialism or, in the best case scenarios, instruments of the Kremlin’s foreign policy. The political and economic examples of Japan and China show how state planning and intervention has been the accepted norm of capitalist development on the continent.

As we have dealt elsewhere with Japan (see above quoted article) here we will deal with the two most prominent cases after Japan: South Korea[3] and Taiwan. It is worth noting that both of these states came into being as the result of revolutions and civil wars between emerging deformed workers’ states and imperialism. Taiwan was occupied by the Kuomintang defeated on mainland China. South Korea started to develop after a bloody war that provoked the partition of the country. Their origin and position explain the desperate need for rapid economic growth to counter the influence of Stalinist neighbours. US imperialism and the national elite of these countries discovered in practice that the only way of achieve that goal was through economic planning, albeit on a capitalist basis.

The example of Taiwan
For most of the first decades of the 20th century, the Chinese economy was in a state of permanent chaos due to war, civil war and military occupation. The only viable modern economic initiatives were taken either by Japanese imperialism in what it considered its sphere of influence or by the nationalists (the Kuomintang). Since the 1930s the Kuomintang (KMT) had set up a Central Committee for Planning in charge of managing most of the big factories of the country, to help in the military efforts. When the Chinese Communist Party took power in 1949, it seized the around 3,000 companies that were already state owned and that formed the backbone of Chinese industry. The Kuomintang on its part, having been pushed onto a small island, subjugated the population and started from where it had finished on mainland China.

Taiwan, just after the war, was in ruins. The Japanese army had fled leaving behind chaos and hyper-inflation. Moreover, there was a threat of a Maoist invasion. The government needed social cohesion and a base of support among the population to resist. That is why the KMT was forced to carry out an agrarian reform. On the surface, the fact that a national bourgeois government actually carried out such a policy may seem to disprove the theory of the permanent revolution. In reality, as Marxists always explain, reforms are a by-product of revolution. The Chinese revolution terrified the ruling classes all over Asia and the agrarian reform in Taiwan was a direct consequence of this. It was either this or lose any base of support the regime may have had. It is also true that Japanese imperialism had already begun to implement an agrarian reform after 1895 in order to facilitate their own corporations in grabbing the best land on the island. That process was accelerated after the break out of the Korean War. It was US imperialism that forced its Asian allies to carry out these reforms in order to to appease the masses:

“With American help, the government implemented a land reform program. This program (1) sold public land to tenant farmers, (2) limited rent to 37.5% of the expected harvest and (3) severely restricted the size of individual landholdings forcing landlords to sell most of their land to the government in exchange for stocks and bonds valued at 2.5 times the land’s annual expected harvest. This land was then redistributed. The land reform increased equality among the farm population and strengthened government control of the countryside”[4]

In the 1950s, economic planning was firmly established as the core strategy for the development of the island. In 1953, the Taiwanese government adopted the first four-year plan. In the forty years from 1953 to 1993, the government adopted and carried out ten “medium term plans”. It is true that Taiwan succeeded because it enjoyed the benefits of an expanding world market in the post-war boom and US aid. Nevertheless, the results, thanks to economic planning, were astonishing.

In 2009 the Council for Economic Planning and Development published a document that summarizes fifty years of economic growth strategy of the Republic of China (the official name of the Taiwan state)[5]. In this interesting document we find that between 1952 and 2007, the average annual growth of Taiwan was 7.8% (10.4% according to other sources), raising the per capita GDP from id="mce_marker"97 to almost id="mce_marker"7,000. In the 1950s, Taiwan was basically a third world country, but by the 1990s it had become one of the “Asian tigers” and enjoyed world leadership in many economic sectors.

This remarkable development was achieved by successive stages. First came the agrarian reform that motivated the peasants and increased productivity in the primary sector, freeing manpower for the industry. Then the state created export powerhouses in heavy industry. After the 1970s, the CEPD and the government directed Taiwanese industry towards high-tech sectors, where the country conquered a leadership position that it has kept until now.

As we said, as well as the role of the state we should not overlook aid from Washington:

“Taiwan benefited enormously from a huge infusion of economic and military aid from the United States, totalling more than four billion U.S. dollars. Economic aid alone accounted for 7.4% of GNP and 30.5% of government revenues; altogether, U.S. aid provided 85% of the money spent by the government carried out one of the most extensive land reform programs undertaken in Asia.”[6]

The point here is, however, that this aid was used within the dynamic of state planning, with the Taiwanese government using foreign investment as well as internal resources to plan the national economy, with very good results.

In 1966 the government set-up “export-processing zones” to attract western multinationals that were seeking cheap labour to exploit. This policy was to be copied by Deng some years later. The Taiwanese leaders did not used communist rhetoric to justify this choice of policy; instead they resorted to a more traditional Confucian philosophy. The results were similar: factories mushroomed and both countries enjoyed a big trade surplus used to finance the development of infrastructure.

Starting from the 1970s, when a modern industrial economy was already in place, Taiwanese planning started to change, concentrating more on infrastructure than on actual industries:

“In 1973, the government launched the Ten Major Development Projects, a set of national infrastructure projects for railway electrification, freeway, International airport, steel plant, and nuclear power plant construction, and other such works to drive forward the transformational development of Taiwan’s economy. This was followed in 1978 by the Twelve Development Projects, which encompassed not only physical infrastructure for such purposes as developing heavy and chemical industries, but also basic social, welfare and cultural infrastructure. In the 1980s, as Taiwan’s national income rose rapidly, the government turned its focus to enhancing national living quality. This formed the main theme of the Fourteen Major Infrastructure Projects launched in 1984”[7]

This turn in policy is very common at this stage of economic growth. In capitalist economies the more the economy develops, the more the bourgeoisie becomes hostile towards the role of the state as it begins to feel that it is able to directly manage big companies to make profits for themselves. Today, after the crisis of 2008, this approach no longer has the force it had in the past as the state is more and more forced to intervene to sustain private capital.

In Taiwan, this change meant a gradual erosion of direct planning in favour of what the French call “planification indicative”, that is a general analysis of the direction of capitalist development and a mild indirect intervention of the state based on fiscal tools such as tax incentives. In Taiwan, the role of the state remained vital to economic growth during the transition to ordinary “light” planning. For instance, in 1991 the Six-Year National Development Plan was launched with the aim of expanding sectors such as electric power and aviation, but also to enhance environmental protection, medical care and public construction.

As the CEPD points out, “the private sector overtook the public sector in R&D spending for the first time in 1993”. This means that only after 40 years of economic planning under the guiding hand of the state did private capitalists invest more than the state. The big role of the state could also be seen in terms of total employment. Up to now, the state sector has accounted for a third of GDP and a quarter of total employment, more than in “Communist” China according to some statistics.

Economic planning in Taiwan started to change even more significantly over the last decade due to the growing integration with China, what the Taiwanese government calls “cross-strait reconciliation”. Today, there are hundreds of thousands, possibly millions, of Taiwanese working in mainland China and tens of thousands of Taiwanese firms doing business there. Many Taiwanese entrepreneurs complain that the situation on the ground is too dependent on local authority vagaries, in other words, paradoxically they complain of the lack of central planning. It is worth noting that even if the two Chinas are getting closer by the day in terms of economic development, the leaders of the CCP never forget their “national” interests and they squeeze “bad” Taiwanese capitalists, while they are very friendly to the “good” ones. What decides what a bad Taiwanese capitalist is, has nothing to do with how he treats his workers but only with his acquiescence or not to the demands of the CCP leaders[8].

China and Taiwan
Economic planning in a fully developed capitalist state normally finds many constraints and, above all, it finds a political barrier in the organic subordination of the state to the bourgeoisie. Basically, the capitalist class accepts state intervention and planning only when other alternatives have failed and inasmuch as these help to rebuild its economic base putting the economy back onto its feet. After the collapse of 1929, economic planning in one form or another was adopted by almost all capitalist states in the world, not only the fascist ones but also the “democracies”. This kind of intervention served to save industries that already existed but were facing collapse due to the crisis and also to expand infrastructure. The state seized firms to save and modernize them. When they started to be profitable again, the state handed them back to the capitalists. Sometimes, this handing over to the private capitalists took decades because of the historical weaknesses of the national bourgeoisie, such as in Italy where the banking sector was mainly state owned from the 1930s to the 1990s. Public, of course, never meant that these were used for public purposes; it only meant that Italian capitalists were unable to manage banks and make a profit.

Generally speaking, the subordination of the state to large companies holds true also for Asian capitalist states. The problem was that in Taiwan, right after the war, there were no big private companies to serve. The role of the state could not be limited to merely putting in order the situation as in the West; it had to be expanded considerably: there was no industry to seize; it had to be created from scratch by state planning. This gave to Taiwanese planning a sweeping role as many commentators have noted: “as the private sector lacked economic power, the government commanded great influence in the national economy”[9]. Of course, here we are not dealing with the kind of planning that we observed in deformed workers’ states such as the Soviet Union, but neither was it the typical “light touch” capitalist planning. To be more precise, it was not so at the beginning. Later, in the 1990s, it started to become similar to classical capitalist planning in the sense that the development plans only fixed general targets, not detailed instructions for every factory and every sector. This change is perfectly clear to the Taiwanese bourgeoisie:

“Many economists believe that the less a government interferes in the economy, the better… However, in general, developing nations are not like their advanced counterparts. Since a government exercises direct influence over a nation’s economic development, it can make or break the economy. The role of the ROC government has changed along with advances in the nation’s economic development, the general level of education, and the arrival of full democracy.

“From the 1950s to the 1960s, the government assumed the role of an economic babysitter. As such, the government usually approached problems related to industrial development from the protectionist angle, while solving such problems in an equally controlling fashion…

“By the 1980s, Taiwan’s economy had achieved considerable success, with private enterprises sprouting up in large numbers. The government’s grasp of the international market was nothing compared to that of the private sector. This fact rendered REI less attractive to investors. At the same time, the utilization of the export processing and industrial zones set up by the government was also on the decline. Private enterprises wanted the government to loosen up regulations and provide a better investment environment. However, economic planning at that time only targeted government agencies and state-run enterprises, and not the private sector.

“Under such circumstances, the government had to adjust its role, from that of babysitter to mentor. As mentor, it could provide private enterprises with information on economic growth and technology as well as assistance in training personnel.”

In other words, in Taiwan as anywhere else, the state, even a strong semi-bonapartist state, is obliged to follow the interests of the big capitalists and planning is only a way of achieving profits in the long run, not an end in itself. To put it differently, the fact that in any given economy there is planning is not sufficient in and of itself to pinpoint the nature of that economy and the direction it is going in.

It is also a mistake, when assessing the social nature of an economy, to single out an aspect that can be easily used to confirm a thesis, especially for such a complex economy that has been in transition such as the Chinese one. Red flags in Tiananmen Square do not make China Communist; neither is economic planning automatically proof of its Stalinist nature. Some comparisons with Taiwan can help to highlight how China is very far from even that primitive and terribly deformed form of workers’ state that existed under Mao in the past.

Firstly, the actual control of the central state over the economy is in today’s China far less pervasive in most of the economic sectors than it was in Taiwan some decades ago. For instance financial regulation in the PRC now is by far less invasive. As recently as 1989, in Taiwan it was not possible to set up new banks, interest rates were fixed by the state and foreign banks were allowed to operate only with strong limitations. Nowadays in China rates are fixed by the market, new banks are created regularly and foreign banks have important stakes in the biggest Chinese banks. There remains the planned exchange rate, which is considered the only anomaly left in the Chinese financial sector, because the yuan is not fully convertible yet. In contrast, Taiwan totally controlled its exchange rate until 1978.

As for the strategic axis of development, the two countries are very similar, as China is aping the Asian Tigers that, in their turn, aped Japan. In post-Deng China, as was the case in Taiwan, FDI (Foreign Direct Investment) played a key role at the beginning in helping economic growth, which was then gradually substituted by internal accumulation from the state and private capitalists. The difference is that in Taiwan the process was more gradual. For instance, in 1952 industrial production by the State Owned Enterprises (SOEs) in Taiwan accounted for 57% of the total, 1980 21% and in 1990 10 to 15% (according to different measures). The same reduction in the PRC took ten-fifteen years. Both countries based their development strategy on exports. Ironically, Taiwan was accepted as a member of the WTO only after the PRC. Historically speaking, Taiwan for years adopted a protectionist policy, whereas China after Deng was one of the more enthusiastic supporters of free trade on a world scale.

Stalinist countries were known for providing a wide ranging, if not always efficient, welfare state to their citizens. That is why, in fact, in spite of the brutal nature of the old regimes, many Romanians look back to the Ceausescu era and Russians to the Brezhnev era as periods when many social services and reforms were available. Of course, this is not the case in China. The Taiwanese welfare state is no match for the Chinese and the gap is widening. However, differently to what happened in most capitalist countries after the 1980s, the welfare state was expanded in Taiwan:

“In March 1995, it introduced national health insurance, which now covers almost the entire population; and in January 1999, an unemployment insurance scheme was inaugurated. Labor rights received further protection from the enactment of the Employment Insurance Law in May 2002 and the Labor Pension Act in June 2004. In 2008, the government actively implemented a series of measures to promote employment, aiming to increase job opportunities and relieve unemployment.”

While Taiwanese governments were actually building up a welfare state, in Beijing they were busy destroying the conquests of the revolution. What is even more striking is that Taiwan is now a more egalitarian society than China. Traditionally, Taiwan has always been a fairly egalitarian society for a capitalist state as. This was due to the fact that it had to justify its existence vis à vis China. For instance, in 1964 the Gini coefficient[10] was 0.321 and in 1980 it reached a minimum of 0.277, much lower than the international average. At that time, the Chinese coefficient was even lower (about 10% less). After that, the Taiwanese coefficient increased once again but it always remained low for capitalist standards. On the contrary, the so called People’s Republic became one of the most unequal societies and every year has become more so. Now the Chinese Gini coefficient is around 10% higher than in Taiwan[11]. In fact, China is such a polarized society that even the bureaucracy is concerned[12].

To sum up, in China we have an economy where the state has a role comparable to that in Taiwan after the war (although proportionally less important) but is shrinking, where the welfare state is smaller and every year more so and inequality is higher and growing. Of course, the Chinese bureaucracy quotes Marx and Mao, while the Taiwanese governments prefer Confucius. Hot air, however, remains hot air even if tinged in red. When the leaders at the top of the CCP think about their future they have no central economic planning in mind. They are building a “mixed economy”, where they see their heirs as being wealthy thanks to the ownership and management of giant companies, together with the brutal repression of the working class by the state. The Taiwanese CEPD summarizes as follows the history of economic growth on the island:

“Contrary to popular perception, Taiwan’s economic growth did not result from the ruling party’s commitment to a purely capitalist, free market economy. Instead, the government has exerted direct influence by operating enterprises and through economic planning. It also has channelled capital, contracts, and other resources to favored sectors and firms, and is able to make life difficult by denying licenses and funds to entrepreneurs who support the opposition.

“Government enterprises only accounted for 10% of industrial output in the late 1980s, down from 57% in 1952, but the government maintains monopoly control in such industries as ship building, steel, electric power, petroleum refining, and tobacco and alcoholic beverage production and distribution. The state also enters into joint ventures with local and foreign firms: the Taiwan Semiconductor Company, for example, is jointly owned by the government, Taiwanese private investors, and the Dutch electronics firm Philips. Until 1989, the government also held monopoly control over domestic banking, and greatly restricted the activities of foreign bank branches. Government-owned enterprises produce some 50% of state revenues, thereby offsetting extremely lax income tax collection.”

The top leaders of the CCP hope they will be able to tell a similar story to their children in the future while, in the meantime, they are carrying out similar policies in China.
[To be continued...]
www.marxist.com

Reference
[1] As there are plenty of articles on www.marxist.com – such as The Theory of The Permanent Revolution – that deepen this theory, we will not deal with it here. We also suggest http://www.trotsky.net/permanentrev.html for a detailed outline of Trotsky’s theory.

[2] For a more detailed account of the Japanese example, see The role played by the state in the development of capitalism in Japan by Fred Weston (http://www.marxist.com/role-played-by-state-in-capitalism-in-japan.htm ).

[3] Hereafter, Korea stands for South Korea if not stated otherwise.

[4] http://eh.net/encyclopedia/article/olds.taiwan.economic.history.

[5] http://www.cepd.gov.tw/encontent/m1.aspx?sNo=0011878.

[6] http://www.cwcmf.net/Taiwan/html/chap6_economy.html.

[7] Quotations in this and the following paragraph are from the CEPD website if not stated otherwise.

[8] Murray Scot Tanner, Chinese Economic Coercion Against Taiwan A Tricky Weapon to Use, 2004, (http://www.rand.org/pubs/monographs/2007/RAND_MG507.pdf).

[9] http://www.taiwan.com.au/Polieco/History/ROC/report04.html.

[10] The Gini coefficient is a measure of the inequality of a statistical distribution, in this case, income distribution. It goes from 0 to 1, where 1 is total inequality. In other words, the higher it is, the more unequal the society (see, for an introduction, http://en.wikipedia.org/wiki/Gini_coefficient).

[11] http://en.wikipedia.org/wiki/List_of_countries_by_income_equality.

[12] http://www.chinadaily.com.cn/china/2010-05/12/content_9837073.htm



How capitalism developed in Taiwan and South Korea – any parallels with China today? Part Two
Luca Lombardi 19 September 2011

The experience of economic planning in South Korea was broadly speaking, similar to that of Taiwan. What most characterizes the Korean experience is the prominent role of the chaebols, the giant conglomerates, in developing the economy.

Chaebols in Korea and in China
Port of Posan. Photo: Ju Seok OhThe chaebols, these veritable behemoths are not a Korean invention. They are a local version of the Japanese zaibatsu (after World War Two called keiretsu), immense industrial and financial groups that have dominated the Japanese economy since the Meiji revolution.

Like Taiwan, at the end of the Second World War, Korea was largely a rural economy, with a very low standard of living, comparable to that of sub-Saharan Africa. The only existing modern factories were the remnants of the Japanese occupation. Due to the war and the continuous confrontation with the Stalinist north, the Korean approach to growth was based more directly on repression: less Confucius more Bonaparte. Labour movement activists were jailed and tortured, yellow unions were set up to counteract the “red” organisations, i.e. the genuine unions. It is worth noting that the role of these yellow unions was very similar to that of the official trade unions in China today. The difference is that in Korea the workers also have real unions, though heavily repressed by the state.

Just like in Taiwan, when the Korean state started to plan the economy, there was not much to plan. As we have already noted for Taiwan, we are not dealing here with the Italian IRI or the British NEB (National Enterprise Board), created to manage an already existing if ailing industry.

The Korean example is particularly important because it did not start with economic planning. Planning was the inevitable plan B after the “market economy” had failed. An Economic Development Council was created right after the end of the Korean War, but it never worked because it was based on the private sector having the the primary role while the state’s role was reduced to providing a general orientation for the private companies. The Korean elite were lulled by the Americans into believing that that was the right track. We have one example from an analysis of the Rand Corporation: “Korea also has a relatively active and experienced private business sector which can be a powerful force in the country’s industrial development”[1]. This strategy, completely out of touch with reality, was imposed by US imperialism on the Chang Myun government. As Korea completely relied on US aid during and after the war against the Stalinist north, no one dared to object. It proved to be a total failure, and a dangerous one at that, because North Korea, with the help of other deformed workers’ states, was rapidly creating its own modern industry. The Korean army grew impatient at the total inability of the national ruling class to stand up to the Americans even though this could have led to a new war with North Korea. After some years, the army had had enough.

In 1961, general Park Chung Hee, that had had a direct experience of the Japanese economy and state, dissolved the government and abandoned its economic strategy and started to industrialize the economy by very different methods. In order to win popular favour, the Park junta used anti-corruption propaganda that verged on anti-capitalist arguments. The army even jailed some big capitalists for corruption, forcing others to retire. Anti-capitalist propaganda was very common on the part of the military elite at that time in many parts of the world. On this topic, Park was following in the steps of Nasser or Nehru and many others nationalist leaders in the former colonial world. The peculiarity here was that he used this rhetoric with the help and as loyal ally of US imperialism. Both had no choice but to support each other. For instance, some years later Park sent hundreds of thousands of soldiers to Vietnam to help US imperialism.

The military government created an Economic Planning Board and five-year plans. The first plan started in 1962. The aims of the different plans were typical of the same export-led economic strategy used also in Taiwan and in Japan: to create the basic heavy industries (setting up large companies) to start exporting and hence amassing resources to finance strong investment and economic growth.

A difference with Taiwan is that Korea did have big companies: the chaebols. However, in the first period after the war, they were not doing what was needed according to the economic interests of the country. Thus, after the Park coup, despite the fact that the army had not formally nationalised the chaebols, these were integrated within the five year plans. The state oriented or, more precisely, pushed the chaebols towards specific economic sectors, financing their investment through state banks. Meanwhile, the more reluctant owners of the chaebols were arrested for corruption. The others got the message and never dared to obstruct the junta again.

In the beginning, chaebols, no more than a handful, were created copying the model of the Japanese conglomerates. Often it was the case that they had been set up by Japanese themselves during the military occupation. Park did not wait for the small and medium sized companies to grow until they could reach the levels of western and Japanese competitors, because this would never have happened on a “free market” basis. On the contrary, the Korean state applied the law of combined development, starting off from where the advanced capitalist countries had arrived: they set up giant monopolies. Although the chaebols were not formally expropriated, the government nationalised or created from scratch entire economic sectors: steel production, public utilities, chemical industry, telecommunications, to provide the chaebols with cheap raw materials and infrastructure – all paid by the state. The history of the steel industry is a typical example. In the 1960s, Park decided that Korea was to become a major steel producer. The “market” was not the solution; economic planning was:

“In the 1960s, the Park government concluded that self sufficiency in steel and the construction of an integrated steelworks were essential to economic development. Because South Korea had not had a modern steel plant before 1968, many foreign and domestic businesses were sceptical of Seoul’s decision to invest heavily in constructing a steel plant. Despite the scepticism, however, POSCO began production in 1972, just four years after the company’s inauguration in April 1968 with only thirty-nine employees.”[2]

Japan provided part of the financial and technical assistance. POSCO started production in 1972 for the domestic market. The success of the company was immense:

“By the late 1980s, POSCO was the fifth biggest steel company in the non-communist world, with an annual production approaching 12 million tons... In terms of productivity, POSCO was rated the world’s best steel manufacturer throughout the late 1980s and also was rated at the top in terms of facilities.” (cit.).

That’s how Korea became a major competitor in the steel industry.

In steel as in the other sectors, the companies (public firms and chaebols) were given production targets. Also thanks to political repression, wages were kept low so that Korea could export much of its production. Moreover, in 1961 Park nationalised the banks in order to have control over the levers of investment, while creating rural cooperative banks to help the modernization of the primary sector. From 1961 to 1987, the government also set interest rates. Control of the financial sector was a basic pillar of the junta’s strategy:

“The government’s direct control over all institutional credit further extended Park’s command over the business community. The Economic Planning Board was created in 1961 and became the nerve center of Park’s plan to promote economic development.” (cit.)

In this strategy, the relationship between the chaebols and the Korean state was an organic one. The US army summarized it as follows:

“Government-chaebol cooperation was essential to the subsequent economic growth and astounding successes that began in the early 1960s. Driven by the urgent need to turn the economy away from consumer goods and light industries toward heavy, chemical, and import-substitution industries, political leaders and government planners relied on the ideas and cooperation of the chaebol leaders. The government provided the blueprints for industrial expansion; the chaebol realized the plans. 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.” (cit.)

Correctly, the strategists of the US army underline the main consequence of this relationship: Korea became the most concentrated economy in the world. Chaebols grew more rapidly than the economy as a whole, in a period when Korea was experiencing decades of explosive development. In the 1980s an increase of 20-30% in their assets and turnover each year became the norm. In 1997, the five biggest chaebols were 20 times their size of 1985. Consequently, their weight in industrial production jumped from 16 to 40%. At the end of the 1980s, the first four chaebols had a dimension comparable to two thirds of the country’s GDP. Besides their size, the chaebols had experienced a transformation in their composition, becoming active in the most dynamic economic sectors. In fact, they passed trough the different stages of technological revolution – from textiles to heavy industries, to high techs – in a matter of a few decades instead of centuries. Economic planning via the chaebols was a success and these giant conglomerates grew to world dimensions. Nowadays, everyone has heard of Hyundai cars and Samsung electronics products, brands that not so lonmg ago were completely unknown outside Korea.

The quantitative growth of the chaebols transformed qualitatively their political nature. In the 1960s the chaebols, although formally private, were completely subdued to the government, having no choice but to follow Park directives. However, in the 1980s, chaebols became less and less junior partners of the government. As in Taiwan, the more the country developed, the more the big capitalists grew wary of economic planning. In that period, the EPB was becoming marginal and in 1994 it was merged with the Ministry of Finance, i.e. it was liquidated. After 1983, the government started large scale privatizations and liberalizations. In line with the new policy, in 1987 Seoul announced that it was going to transform POSCO into a private company.

The chaebols were the main beneficiaries of the privatizations, to the point that in 1997 the government was forced to pass a law to prevent them from acquiring controlling interests in newly privatized firms. However, at that time, the economic priorities of the country had changed. Korea was heavily struck by the crisis that hit the “Asian tigers” and the chaebols were the most hit. Eleven of the thirty biggest chaebols collapsed. Korean banks ceased to lend them money to avoid being dragged into the abyss and the state had to intervene to save them. The nature of this intervention revealed that the economic development mechanism in Korea had completely turned around. Now the chaebols called the shots and their puppets in the government obsequiously complied.

What the chaebols tell us about China
As in Taiwan, economic planning in Korea was a success. The annual industrial production growth rate was about 25 percent; there was a fivefold increase in GNP between 1965 and 1978. In the mid-1970s, exports increased by an average of 45 percent a year. Also the rate of profit was exceptional, especially for the chaebols. The development of chaebols was such a success that they were used as an example even in Portugal when in 1975 minister Cravinho was looking for a model to nationalize the banks.

Capital strategists define these kinds of economy “guided capitalism”. The final benefits of economic growth went to the capitalist class but only after many decades of state-led economic planning. In the beginning the chaebols could not have stood up to international competition, just as a lion cub cannot hunt alone in the savannah. The Korean state nurtured the chaebols for decades, financing them, defending them with protectionist measures and exchange rate controls. When they were ready to take on other multinationals, liberalization policies were used to help them grow on a world scale.

It is not difficult to see a similar strategy under way in China today. That the Chinese government had strived to created national champions for at least a decade is nothing new; neither is it a surprise that they have been copying the chaebols since the 1990s. For instance, in the very well documented book by professor Nolan China and the Global Economy: National Champions, Industrial Policy and the Big Business Revolution (published just a decade ago), the author, analysing thoroughly the policy of creating national champions, points out that the big Chinese firms were not yet ready for a confrontation with the biggest competitors and they had to wait for at least five to eight years. In the banking sector, this expected time span proved to be correct. Chinese banks are now the biggest in the world and growing many times faster than their biggest competitors. In other sectors an open confrontation with multinational corporations on the world market is premature. In any case, the crisis has helped China’s big companies to face up to competitors around the world.

Of course there are differences between China and Korea. First of all, the bureaucracy of the CCP is hostile to a pure keiretsu or chaebol style trend of development, i.e. the creation of immense conglomerates producing everything. They would be too powerful to control. National champions have to be big and strong but more specialized and focused firms. In this sense China is following the US multinationals more than the Japanese ones. Secondly, the creation of big Chinese multinationals is taking place in an economic environment by far more liberal than that in Korea or Taiwan or even Japan at the same stage of development. For instance, China is hardly protectionist and even in very sensitive economic sectors, such as banking, state control is more relaxed than it was in Korea or Taiwan in the 1960s and 1970s. Thirdly, the Chinese internal market is huge and growing fast, providing the Chinese national champions with another lever by which to grow, and not just the export-led strategy that was the only choice for the Korean chaebols. We could mention other differences as well, but the core strategy is absolutely the same, only carried on in a different period and different environment.

The CCP bureaucracy is aware that, for now, the Chinese champions are not able, in general, to defeat competitors from the imperialist countries. They have resisted the crazy advice of the IMF and other globalization enthusiasts that they should rapidly privatize their best companies. This would have made the country once more totally dependent on foreign capital. The bureaucrats are doing business with imperialism but with the aim of creating their own chaebols, i.e. their own multinational companies, the backbone of any developed capitalist country, the heavy artillery of any serious imperialist contender. They are following in the steps of other Asian elites towards becoming a fully fledged capitalist class. However, while Japan, Taiwan and Korea developed during the biggest boom capitalism has ever experienced, China is growing just when capitalism has entered an epoch of stagnation and slump. Therefore, the goal of the Chinese bureaucracy will not be easy to attain, especially once the Chinese working class starts to move.
www.marxist.com

Reference
[1] C. Wolf, Economic Planning in Korea, RAND Corporation, 1962.

[2] U.S. Department of the Army, The Government Role in Economic Development, (1990) http://countrystudies.us/south-korea/.

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