Asia's Next Giant: South Korea and Late Industrialization

"East Asia is where industrial policy is being done, and has been done, and where the most number of people are and were focused on it. There have been an immense number of books written on the subject, and it’s actually really hard to choose just one. Just to give a sense of this, there are multiple books with more than 10,000 citations on the subject. It’s a huge literature, an endless sprawl. But I think Asia’s Next Giant gets you the closest to a book that gets into the weeds, to answer your direct question of, practically, how does this work? Amsden is an economist, and frankly, it’s not a particularly easy read. It’s an economist’s economics book. If you want to understand why economics is known as a dismal science, this is the book for you: it has dozens of tables of capital and interest rates and loans, and all of the actual mechanics of how South Korea in the 1950s to the 1980s went from being among the poorest countries in the world—making $60 per capita per year after the Korean War —to the country we see today. Annual per capita income is now $35,000 according to the World Bank and last year Korea beat Japan in per capita income at purchasing power parity. “During the late 1960s and 1970s, Korea was one of the fastest-growing countries in all of history” The book’s argument is that the Korean government took a very central role in economic planning. They didn’t have a lot of resources and they were very aggressive and strategic in placing every dollar they had in industries that mattered. Amsden shows how it changed interest rates based on whether a company was in exactly the right industry or not. She also shows the metrics around business performance the government expected: when companies weren’t performing, the government would just transfer the ownership of the business over to someone else and say, ‘Look, you said 12% growth, but you got 10% growth, your business is now going to move over here to someone who can get the job done.’ That’s the terrible part for a free marketeer, but a necessary part for such an immiserated country looking to get ahead quickly. What miraculously emerges—and the Koreans do dub it the Miracle on the Han River—is Korea transforms into the fastest-growing country in the world for a period of time. During the late 1960s and 1970s, Korea was one of the fastest-growing countries in all of history, with 10% to 15% GDP growth year after year after year. Amsden gets deeply into those weeds to really show how industrial policy happens. Definitely. I think part of the reason is that China has 1.4 billion people and Japan has over 100 million. Korea is a small country, with 52 million people. It’s surrounded on all sides by water or North Korea, and so is de facto an island. It tends to get short shrift because it’s surrounded by these giant neighbors who receive a lot more attention. Since you mentioned Japan, I should mention MITI and the Japanese Miracle , the Chalmers Johnson book from 1982 that is by far the most-read book on industrial policy. Japan hits its zenith in the 1980s, and it’s really hard for people to realize if you weren’t there, or don’t read about it, that Japan was buying everything in the United States. It was a bubble, but they bought the Rockefeller Center in New York and choice properties all around America. It felt like they were undefeatable. There was a real fear that Japan Inc. would own the United States by the end of the millennium. I think the difference with Korea is Japan experienced ‘the Lost Decade,’ as a lot of people call it, in the 1990s. They did not transition well into the digital economy. Whereas in the Korean case—Alice Amsden ends in the 1980s when she was getting this book ready to go, but this is true up until today—Korea just continued with its industrial policy as if nothing happened. So they went from shipbuilding and heavy chemicals into chips and electronics, and taking a lead in smartphones and displays and memory. Samsung generates the majority of worldwide revenue from mobile screens. Despite the obvious competition between Apple and Samsung, the iPhone uses a Samsung screen. Korea just endures. And Korea, with the Korean Wave, continued to move beyond manufacturing into culture too. Starting in the 1990s, the Korean government has a huge industrial policy around taking Korean culture global. Unlike the Japanese culture industry, which is still mostly domestically focused, K-pop, K-dramas, K-films, etc, all get exported. The government has this goal of, ‘Look, we’re a small economy with a small internal market—how do we get K-pop to have a billion listeners?’ That’s not to diminish the entrepreneurs that did this or cut down the artists that are producing their art, but the reality is that the Korean government put in place heavy incentives around tax, exports, and trade promotion to help those companies expand and reach overseas markets. They’ve continued, so they’re still moving up the value chain as Japan has just stagnated."