The Koreas: totalitarian socialism vs industrial policy

A link below to Michael Roberts’ blog post on the Koreas. It focuses mainly on some analysis of the post-Korean War economic history of the North, but also some comparison with the capitalist South and his desire to see the two of them reunified under centrally-planned socialism, something that I cannot see being a success.

The diverging fortunes of North and the South in terms of economic (and political) development illustrate the potential dynamism of capitalism versus largely autarkic socialism. But it does not lend support to an idealised and unfettered free-market capitalism either.

As is fairly well-known, at least among heterodox economists, South Korea’s growth miracle was engineered with US support and a well-designed industrial policy. Under military dictatorship, policymakers gave targeted support to ‘infant industries’ via trade protection, subsidies and public ownership in order to encourage rapid industrial development. Support was ultimately withdrawn from firms that did not become internationally competitive enough to export onto the world market after a period of protection. The threat of such action from a strong and credible state gave incentives for industries to ‘catch up’ with the West in terms of productivity.

The protection encouraged a process of ‘learning-by-doing’ as firms and their employees became more efficient, supported by high levels of investment. The result was rapid economic growth for several decades.

The hegemonic US needed South Korea to be a success in order to undermine support for communism and as a result it gave the South the space to engage in highly interventionist policies alongside military and foreign aid and access to its markets. Failure was not an option. So politics and economics at all levels were very much intertwined in this relatively rare example of a poor country catching-up with the rich world. It shows how industrial policy can be a success if it is compatible with the politics of the country concerned.

Dictatorship ultimately gave way to democracy, and although South Korea now has a variety of economic and social problems such as high levels of private debt, inequality and widespread job insecurity, it possesses well-known world-beating firms like Samsung which remain exporting giants. The need for reform now does not negate its remarkable development success story.

North Korea: a story of isolation — Michael Roberts Blog

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2 thoughts on “The Koreas: totalitarian socialism vs industrial policy

  1. Economics is too much focussed on economic ideal types. It should concentrate more on the conditions of the successful modern economy—which is a mixed economy. Actually, what we need to study is not so much the economics of a country (or economic region) but its political economy (the complex interplay of economic and other social and historical factors). Some of the research on Korea has been helpful in making progress towards that goal.

    • Thanks for this. Absolutely agreed. I have always been more inspired by the interdisciplinary political economy approach, rather than the narrower neoclassical one that most of us were taught at university. The former seems to me to offer richer explanations of socio-economic phenomena. The SOAS economics department is an exception in that many of its staff have a PE focus, mainly towards development, but also economic theory in general. I was lucky enough to study there a while back.

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