[Korea’s 60th Anniversary Special Contributions]Advantages of adversity

Korea is Asia’s Poland. Lodged between two ancient civilizational states, and forever fiercely protective of its autonomy and endowed with a clear sense of self, Korea marks its national history in long centuries, not short decades.

Koreans have suffered more than most other people during the second half of the 20th century. The suffering during the Korean War made headlines all over the world. After the war ended in a stalemate peace, Koreans suffered through the trauma of national partition, as did Vietnam and Germany, which are now reunited.

South Korea’s economic miracle was not made by efficient markets operating in peace. The South Korean story over the last six decades reminds us instead of the advantages of adversity.

Vulnerability was the central condition which set South Korea on the course of making one of the most remarkable economic runs in the history of capitalism. [...]

War, it turned out, was both a source of terrible human suffering and an incubator for something dramatically new in Korea’s history and in the history of capitalism.

South Korea’s phenomenal accomplishments are worth noting. But they are not unique. Taiwan became South Korea’s twin at least in the eyes of scholars studying the process of rapid economic advancement in East Asia. And Taiwan, like South Korea, was also extremely vulnerable.

Vietnam took a somewhat different path, through many decades of a prolonged war of national liberation, against France first and then against the United States, before experiencing unification under Communist rule, followed soon by the Sino-Vietnam border war of 1979 and eventual living under China’s growing economic shadow. Although Vietnam’s move to rapid economic takeoff is occurring only now, in the wake of China’s economic ascendancy, the long run-up is marked by at times extreme vulnerability to that nation’s survival.

These economic miracles are thus rooted in one common condition, often extreme vulnerability, and show one common institutional feature: the existence of a strong, developmental state, intent on leading the nation rapidly to high and self-sustaining economic growth.

Variations in the character of the state and state-economy linkages are considerable. This is illustrated well by South Korea’s more centralized and Taiwan’s more decentralized pattern of organization and development.

But in all cases the underlying condition of vulnerability and a strong developmental state gave the initial impetus to different ways of coping with adversity.

One should not think of the underlying condition of vulnerability and developmental statism as something that economic advancement of the 1960s and 1970s eliminated.

In the South Korean case, it is true of course that the freezing of the military situation along the DMZ into a permanent stalemate eventually led to a normalization of South Korean life and a diminution of the sense of vulnerability. Yet South Korea remained exposed to typically venomous threats shouted from up North and 6,000 North Korean pieces of artillery trained on Seoul.

And a new kind of vulnerability came with the embracing of export-led growth as the guiding doctrine for the South Korean economy starting in the early 1960s.

Although for several decades world markets were kind to South Korea, world markets can create their own tsunamis as financial markets did in 1997. An IMF bailout of historic proportions saved South Korea but at what, initially, looked like intolerable foreign interference.

I remember seeing newspaper pictures of South Korean housewives donating their jewelry at street corners to help raise capital to pay for the meltdown in South Korean reserves. And I remember South Korean journalists angrily, though politely, posing tough questions to a top IMF official at a meeting at the Smithsonian Institution that I had a chance to attend in the winter of 1997 in Washington, D.C.

That self-sacrifice and that anger were tokens of an economic nationalism that defeated handily any attempt of Wall Street bankers eager to finally buy into South Korean industry on a large scale.

South Korea was rocked by the crisis. But vulnerability galvanized an underlying economic nationalism that became a crucial ingredient in the defense of South Korean autonomy.

In Western Europe, under less harsh conditions, vulnerability helped produce similarly beneficial outcomes.

If one arrays countries by their quality of life, based on about 200 indicators of well-being, most of the small European states - Scandinavia, the Low Countries, Austria and Switzerland, and recently also Ireland and Finland - typically show up in the top 10. The secret of their success lies in a perception of vulnerability to outside influence.

That vulnerability has taken different forms - market disruptions brought about by economic collapse in the 1930s, the experience or threat of Nazi occupation, the threat of Communist aggression, Findlandization, or in the case of Ireland, British neglect followed by the subsidies that accompanied European Union membership.

The social, political, institutional and policy consequences of vulnerability differed from those we see in East and Southeast Asia. Instead of developmental states, in Western Europe it was democratic corporatism that came to express and shape the collective power and will of the people.

Vulnerability was a crucial factor to generate an ideology of social partnership that brought the owners of capital, workers and farmers into the same national boat. And it taught the different and normally quarreling political parties and factions that pulling on the same oar was going to be more advantageous in the end than fighting over the spoils of capitalism in a dog-eat-dog form of distributional struggle.

One obvious difference between the Western European and East Asian pattern is the fact that the small European states of northwestern Europe were democratic throughout the second half of the 20th century.

This was not true of the succession of developmental states that stepped onto the stage of regional and global capitalism in Asia: South Korea and Taiwan, most of the Southeast Asian Newly Industrializing Countries (NICs), China, and now Vietnam. The latter two remain firmly committed, at least for now, to a Leninist form of capitalism. They are unwilling to cede authoritarian political control to match the liberalizing impetus of their economic policies.

In sharp contrast, South Korea, Taiwan and many, though by no means all, of the NICs have made remarkably peaceful political transitions from authoritarianism to democracy.

In the case of South Korea democracy is rambunctious and noisy. Democratic politics in Seoul is not a sport for the faint-hearted.

But during the last two decades South Korea has undeniably become democratic, with vigorously contested elections and a vibrant civil society and social movement politics. While liberal theory and policy prescriptions that seek to advance a liberal agenda are bound to be disappointed in the short term, in the long run, the South Korean case suggests, setting markets free and making space for economic advancement will create a middle class that eventually will demand more than a good paycheck.

This is both the promise that South Korea holds and the threat that South Korean history poses to its big Chinese “brother” in the North.

South Korea’s economic takeoff to long-term, sustained economic growth fits into a pattern of delayed industrialization with distinctive characteristics not anticipated by liberal theory.

It was an economic historian, Alexander Gerschenkron, who observed that delayed industrialization was marked by specific institutional characteristics. Compared to the British economy, which was the first to industrialize, the continental economies that came later had to compete on different terms. Markets were no longer as free as they had been when Britain entered on the stage. Instead the latecomers had less time and less freedom to find their way.

Concentration of industrial and financial capital and protectionism were the result. Late European industrializers, starting with France and continuing with Germany, Italy, other countries and eventually Russia, evolved different types of capitalisms than the one that had emerged initially on the British isles.

Late-late industrializers, starting with Japan and later encompassing in succession the economies of East and Southeast Asia, were operating under still different sets of rules. While it is true that the initial cohort of late and late-late industrializers concentrated economic and political power to compensate for their vulnerability in freely operating markets, somewhere along the way the Gerschenkronian model stopped working.

Instead of late-late development, contemporary capitalism is looking for a new label to characterize the great transformation that we are witnessing in East Asia.

Compressed industrialization differs from South Korea’s late-late development pattern by one basic condition - the disjointed co-occurrence of the old and decrepit with the new and super modern.

Donkeys pull their carts in front of gleaming skyscrapers. Beggars can be found napping in front of sumptuously luxurious villas. Ancient machinery sits under one roof with the most advanced computer controlled machining center. Doctors attend to the hungry and the obese. The young are beholden to tradition-bound ways and mores and fully engaged with a free-wheeling transnational consumption culture.

The rapidity of late-late development has given way to the simultaneity of compressed development. Technological shortcuts, juxtaposition of opposites and political contradictions create a potential for enormous political volatility as a concomitant of compressed development.

It is true that South Korea’s late-late industrialization pattern no longer provides many navigational tools that might help China, Vietnam or India to sail in new, uncharted waters. But South Korea’s history teaches an enduring lesson of a different sort - how to live with great vulnerabilities. For six decades now it has danced on the top of a volcano, marked by periods of calm and quiet as well as periodic, unpredictable eruptions.

Compressed development, especially in China, creates enormous opportunities. But it will undoubtedly also create violent eruptions.

[...] Vulnerability is not an exceptional but a habitual condition. In the last six decades South Korea has made the most of it. This is not a unique gift of the Korean nation. It is a condition that many nation states have no choice but to accept and live with.

South Korea’s economic evolution thus fits into a broader pattern in world politics. As South Koreans look back at the last six decades, they have much to be proud of. And as they look around the world, they can see many national experiments from which they can learn.

Vulnerability and the possibility to learn from others augur well for the next 60 years of exploiting the advantages of adversity.

*Peter J. Katzenstein is the Walter S. Carpenter, Jr. Professor of International Studies at Cornell University. Katzenstein is president-elect of the American Political Science Association (2008-09). In 1987 he was elected to the American Academy of Arts and Sciences.

by Peter J. Katzenstein

Korea’s 60th Anniversary Special Contributions

Advantages of adversity
Inter-Korean economic relations at 60

The Republic of Korea at 60

A second look at Roh Tae-woo