Reclaiming the Roar

The miracle wasn’t a miracle. It was a combination of hard work, a focus on exports, and a willingness to learn.

The economic transformations of Japan and South Korea stand as testaments to the power of focused development strategies. Both nations rose from the ashes of war to become technological powerhouses, offering valuable insights for Pakistan as it navigates its own path toward economic prosperity.

“The miracle wasn’t a miracle. It was a combination of hard work, a focus on exports, and a willingness to learn.” - Amsden, Alice H. (1989) author of Asia’s Next Giant: South Korea and Late Industrialization.

The past several years have seen a huge surge in interest in Korean popular culture. A lot of you might have probably seen the Oscar-winning film Parasite or the Netflix series Squid Game, which are among the most popular. Maybe we’re eating kimchi while watching them on our Samsung Galaxy tablet. However, we could rather watch an anime movie on our Sony television as we eat sushi. Alternatively, we could choose to take our Hyundai or Toyota automobile and drive to the movies. Since the Second World War, the economies of these Asian countries have grown remarkably.

Two distinct strategies were followed by developing or rising economies following World War II, both of which had an emphasis on economic nationalism. One approach was import-substituting industrialization, which aimed to substitute imported commodities made in the developed industrial economies of the US, UK, and Germany with domestically produced goods made behind tariff barriers. During the 1930s Great Depression, this strategy was used in India and, more importantly, Latin America. Based on isolationism, it was economic nationalism. Growth driven by exports was the other. It was associated with the defence of home markets and the expansionist ideology of economic nationalism. It believed that the path to economic expansion, national strength, and survival lay in exports. Japan, South Korea, and some other Asian economies implemented this tactic perfectly to their national economic interest.

Argentina was among the richest nations in the world around 1900; by 1960, its per capita GDP was about the same as Japan’s and about ten times that of South Korea. By 2020, however, the per capita GDP of both countries was about three times that of Argentina. In mu next article I will explain the subpar economic performance of Latin America. Today, my concern is the success of South Korea and Japan, though as you will see if you watch Squid Game or Parasite, you will understand that success is not without its share of major issues. These are potent critiques of how economic growth has affected society. In order to comprehend what transpired after 1945, we must first travel back to the Meiji restoration of 1868 and the annexation of Korea in 1910, which caused Japan to undergo a swift economic revolution.

Following centuries of isolation, Japan embarked on a radical modernization project during the Meiji Restoration (1868). This top-down approach involved adopting Western institutions, building a strong central state, and fostering a national army. The government actively promoted industrialization, creating a unique partnership with powerful conglomerates known as zaibatsu. These companies received significant state support, including access to financing, raw materials, and technological advancements.

Japan’s strategy focused on developing heavy industries like steel and shipbuilding. This required a long-term vision, as these sectors had high initial investment costs but promised significant future returns. The government played a crucial role in directing resources and managing foreign investment. Nationalized banks facilitated financing for strategic industries, and the state prioritized technologies with high potential for growth. This model, however, wasn’t without limitations. The emphasis on heavy industry came at the expense of developing domestic consumption. Additionally, the close relationship between the government and zaibatsu raised concerns about a lack of competition and potential for corruption.

South Korea’s post-war economic miracle differed from Japan’s top-down approach. Following the Korean War, the government under Park Chung-hee implemented an export-oriented growth strategy with significant support for chaebols, similar to Japan’s zaibatsu. These family-run conglomerates received government incentives like loans, tax cuts, and guaranteed foreign borrowing. The aim was to rapidly shift the industrial structure towards sectors critical for long-term growth, particularly heavy and high-value-added industries.

The government played a crucial role in directing credit and channelling foreign investment. Nationalized banks provided financing, and the state guaranteed foreign borrowing by chaebols. Success in exports was rewarded, while underperforming firms faced consequences. South Korea’s development push wasn’t limited to industrial policy. The Saemaul Undong, or New Village Movement, launched in 1970, focused on modernizing rural areas. This government-funded program empowered communities to improve housing, infrastructure, and agricultural practices. By drawing on traditional Korean communalism, the Saemaul Undong fostered self-reliance and cooperation, creating a more stable social foundation for economic growth.

Recognizing the importance of a skilled workforce, South Korea heavily invested in education. This resulted in a highly educated population, a key factor in its technological advancements and industrial competitiveness. However, this success came at a cost, with a large portion of the financial burden falling on families rather than the government.

Both Japan and Korea’s economic success stories came with significant social costs. The rapid industrialization led to rising income inequality, with wealth concentrated among a select few. The focus on exports and corporate dominance often came at the expense of environmental concerns. Additionally, the strong state involvement in both countries often resulted in authoritarian governments and limited political freedoms.

South Korea’s compressed modernity with rapid social change crammed into a short period placed stress on families. This societal strain manifested in high suicide rates, family breakdown, and educational disparities. The vulnerabilities of the Korean model were exposed during the 1997 Asian financial crisis, highlighting the dangers of relying solely on foreign capital and a lax regulatory environment. Both Japan and South Korea faced periods of economic stagnation in the late 20th century. Japan’s lost decade of the 1990s was attributed to financial sector problems and an aging population. South Korea, following the 1997 crisis, implemented reforms aimed at greater corporate transparency and reduced reliance on government support.

Mus’haf Khan
The writer is a Fintech-DFS advocate, Policy Enabler & former Advisor of the Government of Punjab.

Mus’haf Khan
The writer is a Fintech-DFS advocate, Policy Enabler & former Advisor of the Government of Punjab.

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