to the earlier and widely acknowledged one achieved by Japan. But why
should the issue of governmental activities come up at all? There are several
reasons, each of them highly controversial and even ideological. One is
what might be called "Taira's enigma." Writing in 1982, Professor Taira
Koji observed: "Japan's modern economic growth is believed to have begun
in the late 1880s, curiously coinciding with the preparation and promulgation
of the Meiji Constitution which defined the character of the Japanese
state.... The combination of an absolutist state with a capitalist economy
from 1889 to 1947 has been an enigma, far from fully unraveled, among
scholars interested in Japanese economic history.">
Since 1947, despite its adoption of a formally democratic constitution and
the subsequent development of a genuinely open political culture, Japan
seems to have retained many"soft authoritarian" features in its govermnental
institutions: an extremely strong and comparatively unsupervised state
administration, single-party rule for more than three decades, and a..set of
economic priorities that seems unattainable under true political pluralism
during such a long period." Because the post-1947 period also witnessed
even greater rates of Japanese economic growth, it has seemed to some that
the coincidence of soft authoritarianism in politics and capitalism in economics
had something to do with economic performance.
Japan's achievement of the status of the secon,d most productive economy
that ever existed is no longer simply an enigma; it is a challenge to the main
political and economic doctrines that currently dominate global thinking
about human social organization. Japan's performance challenges the Leninist
command economies because it calls into question their theory that
capitalism leads to class antagonisms and political instability, and it also
suggests that their resort to explicit absolutism without capitalism is misplaced
and doomed to failure. Japan's performance also challenges the
Anglo-American "free enterprise" economies because it calls into question
their theory that governmental intervention in the economy is inevitably
inefficient and distorting, and it also suggests that their faith in the market
mechanism without explicit political direction is misplaced.
Needless to say, these implications of the Japanese challenge are nowhere
fully accepted and are only recently even being debated in either the Communist
or the English-speaking capitalist worlds. Most foreign observers,
whether Communist or Western capitalist, seem to prefer theories of Japan's
economic achievements that deflect attention from the connection between
soft authoritarian politics and capitalist economics; and the Japanese themselves,
for their own good and sufficient reasons, are among the leading
Political institutions and economic
performance: the government-business
relationship in Japan, South Korea, and
Taiwan Chalmers Johnson
The facts are not in serious dispute, even if their explanation and interpretatlO~
.are among the most controversial issues in the field of comparative
political economy today. In 1950, measured in 1974 U.S. dollars, South
K?rea had a per capita income of $146; equivalent figures were $150 for
Nigeria, $129 for Kenya, and $203 for Egypt. Taiwan was then slightly
ahead of Korea at $224 but lagged far behind Brazil at $373 let alone
Mexico at $562 or Argentina at $907. Thirty years later the per capita GNP
of the Republic of Korea (ROK) had risen to $1,553; Nigeria's was $670
(even with oil), Kenya's $380, and Egypt's $480. In 1980 the per capita
Inco~e ,of the Republic of China (ROC) was $2,720; Brazil's was $1,780,
Mexico s $1,640, and Argentina's $2,230. 1 To take only the two decades of
high-speed growth in Korea (1962-80), GNP (expressed in 1980 prices)
Increased 452 percent, from $12.7 billion to $57.4 billion, achieving an
average growth rate of 8.5 percent per year.2 With regard to Taiwan, during
1983 the London Economist noted ruefully: "The 130 million Brazilians
export only about as much as the 18 million people of Taiwan, and (outside
oil) the 75 million Mexicans-though they sit on America's doorstepexport
only a quarter as much as the Taiwanese."> And Taiwan and Korea
were only the fourth and fifth richest countries in East Asia; the leaders were
Japan, with a 1980 per capita GNP of $8,870, Hong Kong with $4,432, and
Singapore with $4,298. 4
Such figure~ are c?mmonplaces of contemporary Asian economic journalism,
The hidden Issues behind them are the roles the governments of
South Korea and Taiwan played in contributing to their economies' extraordinary
growth rates and the relevance of these recent economic "miracles"
ri
I
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political Institutions and Economic Performance 137
,1, G. L. Hicks and S. G. Redding, "Industrial EastAsia and thePost-Confucian HypotheSIS;
A,Shallenge to ~conomics" (University of Hong Kong, December 1982), pp. 3-4.
2. Citibank, Executive Guide: Korea (Seoul, 1982), p. 7.
3. The Economist, April 30, 1983, p. 7.
4. Keizai Koho Center, Japan 1982: An International Comparison (Tokyo, 1982), pp. 6, 8.
5. Koji Taira, "Japan'sModern EconomicGrowth: Capital~st Developme~t under Absolutism
" in Harry Wray andHilary Conroy,eds., Japan Examined: Perspectives on Modern
Japan~se History (Honolulu: University of Hawaii Press, 1983), p. 34. . .
6. See Chalmers Johnson, MIT! and the Japanese Miracle (Stanford: Stanford University
Press, 1982).
7',Leroy P. Jones and II SaKong, Government, Business, and Entrepreneurship in Economic
Deve~opm~nt: The Korean Case (Cambridge, Mass.: Councilon East Asian Studies,
Harvard University, 1980), pp. 132ff; and Edward S. Mason, Mahn Je Kim, Dwight H.
Perkins, Kwang Suk KIm, and David C. Cole, The Economic and Social Modernization of
the Republic of Korea (Cambridge, Mass.: Harvard UniversityPress, 1980), p. 255.
8. Parvez Hasan, Korea: Problems and Issues in a Rapidly Growing Economy (Baltimore:
Johns Hopkins University Press, 1976), p. 29.
creato;s and purveyors of such conceptual alternatives to a political theory
of their achievements. The most common theme in the alternative view is
that Japan's economic achievements are to be explained by Japan's unique
culture, often traced back to sociological changes during the Kamakura
military government of the 13th century or even earlier. Of course, if that
were true then the culture is also responsible for the two-and-a-half centuries
of sakoku (closed country) during the Tokugawa era, for the militarism and
imperialism of the 1930s, and for the defeat of 1945. But no matter. The
cases of the ROK and the ROC inevitably draw the analyst's attention back
to the political nexus.
If postwar Japan has arguably displayed a degree of soft authoritarianism
in its political system, and if this has had something to do with its economic
performance, then Korea and Taiwan are "hard states" (in the words of
Leroy Jones and II SaKong) and in economic affairs, "Government, at least
in Korea, is the senior partner."7 These new cases of absolutist states and
capitalist economics suggest that there may indeed be a Japanese "model"
that the Koreans and Taiwanese have been refining and perfecting. In fact,
the study of the new cases may reveal to us what is intrinsic and what is
superficial in the older, Japanese example, particularly because the Japanese
always prefer to stress the superficial in their own case, shielding the intrinsic
from foreign gaze. Thus, for example, it may turn out that the real
Japanese contribution lies in the method of operating the soft authoritarian
side of the capitalist developmental state-the Japanese have been much
more effective on this score than either the Koreans or the Taiwanesewhereas
Japan's "unique" labor relations and innovative managerial techniques,
staples of Western journalism on the Japanese economy, may actually
be insignificant and even counterproductive because they are missing
from Korea and Taiwan with no noticeable effect on economic performance.
Writing for the World Bank, Parvez Hasan notes "the apparent paradox
that the Korean economy depends in large measure on private enterprise
operating under highly centralized government guidance. In Korea the government's
role is considerably more direct than that of merely setting the
broad rules of the game and influencing the economy indirectly through
market forces. In fact, the government seems to be a participant and often
the determing influence in nearly all business decisions." 8 Hasan suggests
that part of the solution to this paradox is the existence of mass nationalism
in Korea and a widespread public-private agreement on economic goals,
139138 Chalmers Johnson
1
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political Institutions and Economic Performance
thus eclipsing the class or pluralist pressures on governments that are commonly
encountered in less mobilized societies. I agree, and I also behe~e
that the issue of the national mobilization of a united people for economic
go~ls is an important challenge to econo~ic theories based on class analysis,
which have proved to be parlicularly stenl~ m p~stwar Eas~ ASiawhen us~d
as a guide to policy formulation (notably m mainland China). But what IS
the "apparent paradox" that Hasan sees in an intrusive government and
bigh-speed economic growth? . . .
Here we encounter the first serious challenge to the authontartamsmcapitalism
nexus-namely, the thought that although the high-growth Asian
economies are strongly influenced by their govements, their successes are to
be explained not because of this influence but in spite.of it. The poorly
informed simply ignore the role of government III t~e captta~~stdevel?pm~ntal
cases. Thus, for example, Milton and Rose Friedman: Malaysia, Singapore,
Korea, Taiwan, Hong Kong, and Japan-all rel~ing extensi~elyon
private markets-are thriving.... By contrast, l~dJa, Indonesia, and
Communist China, all relying heavily on central planning, have expenenced
economic stagnation.' '9 That is all very well, but it ignores President Park
Chung Hee's intent to attain economic self-sufficib~cy for Ko~ea thro~gh '.
the' 'establishment of a planned economy," Taiwan s repeated justification \
of its policies in terms of Sun Yat-sen's semisocialist principle of "people's
livelihood," and Singapore's single-party "socialism that works." 10
The tendency (or the desire) to downplay the role of government has been
most pronounced in the Japanese case, particularly after the onset of. s~called
economic liberalization in the late 1970s." In Japan today It IS
commonly argued that, even if the government once perforr;'~d important
roles in the economy, it no longer does so (thereby dichotomizing the Is~ue
of governmental intervention instead of stressing th~ government's changmg
role in light of new economic challenges). Many wish passionately to arg~e
that Japanese entrepreneurship always was more important to econo;n~c
growth than any policies or practices of the government. The Economist s
9. Milton and Rose Friedman, Free to Choose (New York: Harcourt Brace Jovanovich,
1980), p. 57. . T ks (S I ROK
to. ParkChung Hee, People's Path to the Fulfillment ofRevolutionary ~,as ~~u :
Ministry of Public Information [c. 1962]), ~noted by John P. Lovell, The .Milltary and
Politicsin Postwar Korea," inEdward R. Wnght, ed.. K?reanPolUl,CS tn Transl~lOn.\Sea.ttle.
University of Washington Press, 1975), p. 177. On Taiwan see TIllman Du~d~n" Chiang
Ching-kuo's Taiwan," Pacific Community (October 1975), I?P. 92-117. DurdIll, S IS thebe,st
availablesourceon ChiangChing-kuo's twelve years s~ent m the USSR, a subject ~aboo 10
the Taiwanese press. On Singapore, and on the American tendency generally to ~~tef{~~t
Southeast Asian economic growth in American terms, see DonaldK. Emmerson, P~c~ftc
Optimism. Part I: America aft~r Vietnam: Confidenc7,Regained," and "PartII: Explammg
Economic Growth: How Magic Is the Marketplace? UFSIR~P01:tS. nos. 4 and, 5 (1982),
II, OnJapanese economicIiberaltzation ,and theextentto which Ithasb7.enca,rned,outsee
Chalmers Johnson, "The 'InternationalIzatlon' of theJapanese Economy, California Managemenl
Review 25 (Spring 1983), pp. 5-26.
,
I
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140
which the principal engine has been private enterprise. The relationship between
a government committed to a central direction of economic development
and a highly dynamic private sector that confronts the planning
machinery with a continually changing structure of economic activities presents
a set of interconnections difficult to penetrate and describe. Planning in
South Korea, if it is interpreted to includenot only policy formulation but also
the tecbniques of policy implementation, is substantially more than "indieaI
tive." The hand of government reaches down rather far into the activities of
individual firms with its manipulation of incentives and disincentives. At the
same time, the situation can in no sense be described in terms of a command
economy. 13
In previous writing on the Japanese and Taiwanese examples, I have
listed as an indispensable element in any model of the capitalist developmental
state the commitment by the political elite to "market-conforming"
methods of intervention in the economy.!" Lim Youngil is even more explicit
with regard to Korea. He argues that Korean government planning,
target setting, and incentive measures have been "market sustaining rather
than market repressing" and that it is necessary to distinguish "between
market-augmenting planning (reducing risks and uncertainties) and marketrepressing
planning (increasing fragmentation of the market or rent-seeking
opportunities). The former accelerates development while the latter hinders
it." Lim further makes the point that markets do not necessarily come into 7
being naturally, that "one of the most common characteristics of underdeveloped
countries is underdevelopment of the market system. " One of the
things a state committed to development must do is develop a market system,
and it does this to the extent that its policies reduce the uncertainties or
risks faced by entrepreneurs, generate and disseminate information about
investment and sales opportunities, and instill an expansionist psychology in
the people. t5 Once a market system has begun to function, the state must
then be prepared to be surprised by the opportunities that open up to it, ones
that it never imagined but that entrepreneurs have discovered. The East
Asian wig export industry is the classic example; no state bureaucrat ever
thought of it or imagined the profits to be made by switching from human to
synthetic hair. East Asia had a comparative advantage in the wig trade, but it
was never seen or seized upon until the state had set up the capitalist
development system. 16
The logic of such a system derives from the interaction of two sub-
~'I
Chalmers Johnson
~urvey of Japan for 1983 is typical: "Foreign competitors exaggerate the
Importanc~ of MIT'. [Ministry of International Trade and Industry] in shapmg
Japan s industrial future .... Japan's major manufacturers are law
la~gely unto themselves-especially when it comes to investment. ... It is
this, rather than any carefully aimed 'industrial targeting' policy on MIT'.'s
part, that has been largely responsible for the surge in Japanese exports that
has been sweeping across America and Europe lately." 12 Ever since the
catchphrase "Japa~, Inc:" w~s invented to refer to the Japanese governmen~-busIness
~elatlOnshlp, wnters on the subject have found it de rigueur
to rmsmterpret It to mean Japanese government domination of the econom
and then to dem.olish it. But Taira's enigma, with regard to Japan or the role
of g?~ernment In Korea and Taiwan, does not imply domination; it refers
explicitly to the coexistence of authoritarianism and capitalism-and that
must be explained.
For the sake of discu.ssio~, the logic of the capitalist developmental state
can best be understood If It IS approached from the point of view of socialist
theory. If one posits the existence of a developmentally oriented political
elite for whom economic growth is a fundamental goal, such an elite must
then devel~p a concrete str~tegy for attempting to reach that goal. If one
further posits two more points, that such an elite is not committed first
and fore~ost to the enhancement and perpetuation of its Ownelite privileges
(someth!ng that cannot be assumed in Leninist systems or, for that matter, in
the Philippines) and thatthe elite appreciates that the socialist displacement
of the market threatens Its goal~ by generating bureaucratism, corruption,
loss of I~CentIVe~, and ~n inefficient allocatlOn.of resources, then its primary
I leadership task IS to discover how, organizationally, to make its own dev~lopmental
goals compatible with the market mechanism (that is, with such
thIn~s as pnces that are real measures of value, private property in theory
and In practice, aud decentralized decision making).
Developmental elites are generated and come to the fore because of the
desire to break out of the stagnation of dependency and underdevelopment.
the t~uly succe~sful ones understand that they need the market to maintai~
~ffI?le~cy, ~otlvate the people over the long term, and serve as a check on
, mstitutionalized c?rruption while they are battling against underdevelop.
ment. The Republic of Korea IS an excellent example:
The rapid economic growth that began in South Korea in the early 1960s
and has accelerated smce then has been a government-directed development in
political Institutions and Economic Performance 141
i I
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. 12. "What Makes Yoshio Run,?" The Economist, July 9, 1983, p. 18. For an unarnbl~UOUS
example of contemporary industrial targeting and nurturing by MITI see Edward A
Felge~baum and Pamela McCorduck, The Fifth Generation: Artificial l~telligence and
Japan s Computer Challenge to t~e World (Reading, Mass.: Addison-Wesley, 1983). For a
study of th~ role of government m Japanese and Korean growth see Miyohei Shinohara
Torn Yanagihara, and Kwang Suk Kim. The Japanese and Korean'Experiences in Mana in'
Development, World Bank Staff Working Paper no. 574 (Washington, D.C., 1983). g g
13. Mason et al., Economic and Social Modernization, p. 254 .
14. Cf. Johnson, MITI, pp. 315-20; and Johnson, "The Taiwan Model," in James C.
Hsiung, ed., The Taiwan Experience, /950-1980 (New York: Praeger, 1981), pp. 9-18.
15. Youngil Lim, Government Policy and Private Enterprise: Korean Experience in
Industrialization, Korea Research Monograph no. 6 (Berkeley: Institute of East Asian Studies,
University of California, 1981), pp. 4, 8.
16. B. Balassa, The Newly Industrializing Countries in the World Economy (New York:
Pergamon, 1981), cited in Hicks and Redding, "Industrial East Asia," p. 10.
142
19. Mason et al., Economic and Social Modernization, p. 267.
noncriticalsectors (it discriminates against them with disincentives and then
ignores them),
Why are such political systems normally authoritarian? The first and most
l obvious reason is to achieve political stability and long-term predictability
of the system, Continuity of the government may be achieved by explicit
authoritarianism or by a rigged system that nonetheless achieves a monopolization
of political power, Such quasi-authoritarian political monopolies are
disappointing to liberals, but it should be understood that they are ultimately
legitimated not by their ideological pretensions, as in Leninist systems, bnt
by their results. Also, the criterion here is stability, for which authoritarianism
is only a means, "Assured political stability [in Korea]," write Edward
Mason and his associates, "tended to lengthen time horizons and made
manufacturing a much more feasible alternative to commerce as a field of
entrepreneurial activity." 19
Authoritarianism can carry with it exceedingly damaging side effects,
such as the suppression of human rights. (It should at the same time not be
forgotten that authoritarianism is the most common form of political regime
on earth but one that is only rarely accompanied by the trade-off of very
high-speed, equitably distributed economic growth.) For Japan since 1955
we must drop the term and substitute for it one of the common Japanese
euphemisms-the distinction between tatemae (formal principles) and
honne (actual social reality), For purposes of this discussion, I use the
shorthand term "soft authoritarianism," meaning in Ja]Jan's case the prewar
authoritarianism'ofthe Meiji and early Showa eras andthe postwar pattern
of the monopolization of political power by a single party, The issue under
analysis here is not primarily the nature of the Japanese political system but
rather the significance for economic management of Japan's having inhibited
the corning into being of an effective two-party system, regardless of
the possibilities inherent in the constitution of 1947.
In general, the Japanese have been masters at using the least amount of
political authoritarianism needed to achieve stability for economic growth;
but even they during the 1930s and 1940s, succumbed to the potential trap
of all authoritarianism: assumption by the elite of all powers, ideologization,
and the displacement of developmental goals. Normally the Japanese disguise
and ameliorate their soft authoritarian system through many common,
as well as some unusual, political devices: monarchical or democratic constitutions;
formal and informal institutional barriers against dictatorship,
such as indirect elections, party factionalism, and an implicit balance of
power among political, bureaucratic, and economic elites (Japan was the
only belligerent power during World War II to change its head of state in a
processual manner); gerontological supervision of reigning politicians
(genro, sempai-kohai relationships); a marked separation between reigning
Chalmers Johnson
systems, one public and gearedto developmental goals and the other private
and geared to profit maXimization, The mteraction between the two afti t
the nature of the decisions made in both systems,17 The intent of the blic
tern i ' I ' PUIC
sys ern IS to mampu ate the Inputs i?to the decision-making processes of
pnvately owned and man~ged enterpnses m order to achieve developmental
goals, but the conte~t. of Its Inputs IS continuously affected by feedback on
profa-~nd-Ios~ conditions, export prospects, raw materials costs, and tax
receipts" The mtent of the pnvate system IS to maximize profits, limit risks
and achieve stable growth given the political-economical environment in
which It must ?perate, but Its decisions on products, markets, and investments
are c?ntmuously ~ffec~ed by changing costs and availability of capital,
export mcentIves, hcensmg requirements, and all the other things the
government mampulates,
Governmental planning in such a context is thus not merely indicative
nor I~ It part of a state-command allocation system. Planning has indicativ~
functIOns-to layout clearly what the elite's fixed-term goals are so that
)pnvate ent~rpnses ,and households can adjust to them with precision and
( over ~ definite penod-but planning also sets criteria through which the
, '/?peratlOnal. state bureaucracy c~n change incentives and disincentives, or
I ; Inte.rv~ne directly at the enterpnse level, as required. Precise fulfillment of
an mdlCatIve plan is not necessarily a good measure of its effectiveness,
Normally the plan sh?uld be overfulfilled, indicating that the synergisms of
the syste?1 are carrying It toward unanticipated growth. Plans should be
underfulfllled when changed circumstances require shakeouts and reorganizatron-s-as
after the ?il crisis ?f 1973. Korea and Taiwan both have employed
explicit planning: five five-year plans (1962-86) in Korea, the first
three overfulfIiled, the fourth underfulfilled; and six four-year plans (1953-
75), one six-year pl~n (1976-81), and one ten-year plan (1980-89) in
Taiwan, four overful~Iiled, two underfulfilled, and one without a target.tf
,A devel~pmental ehte creates political stability over the long term main\
t~InS sufficient equality i~ distribution to prevent class or sectoral e~ploita~lon
(land reform IS critical), sets national goals and standards that are
InternatIOnally onented and based on nonideological external referents
creates (or at lea~t recogni~es) a bureaucratic elite capable of administerin~
thesystem, and In~ulates ItS bureaucrats from direct political influence so
that they can functI,o? technocratically. It does not monopolize economic
management or decls,lOn. making, guarantee full employment, allow ideology
to,confuse ItS thl,nkmg, permit the development of political pluralism
that might challenge ItS goals, or waste valuable resources by suppressing
I? cr. Ian Inkster, " '.r:vr,odelling Japan' fortheThird World," inEast Asia: International
Review ofEconomic, Political, and Social Development (Frankfurt: Campus 1983) 1-180
18. For thepla~~ and thel: reSUlts,. see,eitibank, Executive Guide, pp. 13-14; and k. T. Li
(aFndbW. A'19YSezh, Economic Planning III the Republic of China," Industry of Free China
e ruary ), p. 5,
political Institutions and Economic Performance 143
-------------_.~_.~intheKuomintang,
multiple centers of power in the party, and weakening of
martial law.
Nonetheless, Taiwan is the most explicitly authoritarian of the three
countl'ies and has relied for its one instance (through 1986) of leadership
succession not on an electoral struggle or assassination but on the most
ancientmethod of all, lineal descent from father to son. It would be easy to
say that Taiwan and Korea would have done better with less authoritarianism,
but there are no examples to support such a view. It seems more likely
that they would have done better with more of the Japanese style of authoritarianism.
Here the deshi have not yet equaled the sensei, even if on some
other measures they have improved on their teacher.
I shall return to the topic of soft authoritarianism and other political
features of the capitalist development state. First, however, I would like to
summarize the discussion thus far in terms of il brief, fourfold SbUC.tural
model of the East Asian high-growth systemS.,The model's elements are
stable rule by a political-bureaucratic elite not acceding to political demands
that would undermine economic growth; cooperation between public and
private sectors under the overall guidance of a pilot planning agency; heavy
and continuing investment in education for everyone, combined with policies
to ensure the equitable distribution of the wealth created by high-speed
growth; and a government that understands the need to use andreJJlect
methods of economic intervention bascdonthcpricemechanism.j> ~
Each of these elements exists in the Japanese, Korean, and Taiwanese
systems, although with differing weights, patterns of historical evolution,
and trade-offs that arise from stressing one more than the others. Moreover,
each case is a moving target: the model itself remains constant, but the
actual degree of bureaucratic autonomy from politics, of public-private cooperation,
of investment in education and equality, and of emphasis on
incentives rather than commands varies over time. It varies in response to
how far down the learning curve of the capitalist developmental state a
people is and in response to exogenous and endogenous shocks to the
system.
In general, the role of the government and its degrees of reliance on
authoritarian intervention are enlarged by actual or anticipated crisis conditions
in the environment. By crisis conditions I mean not just obvious crises,
such as the oil-price hikes of 1973 and 1979, but also such events as
succession struggles, ruptured alliances (for example, between Taiwan and
the United States), rising economic protectionism, shifts of industrial structure
from labor-intensive to capital-intensive or knowledge-intensive industries,
balance-of-payments squeezes, serious exchange-rate fluctuations,
and so forth. When crisis conditions abate, the balance of initiatives in the
systems may once again shift from the public sector toward the private
sector, as we saw in Japan during the late 1970s and early 1980s. Sometimes
144
Chalmers Johnson
and ruling in the Japanese system' d h .
itocratic elite. Japan has been bes;t ~ t ~ system~tlc ~urturing of a mer_
occasions since the Meiji era' I di Y senou~ political mstability on man
and massive protest demonst:~t~o~ mg assassmatlon~, conuption scandal;
stabilities associated with mass-basesci :~~t:~~as. a~01ded the.particular in:
South Korea is ostensibl adem . parties and their platforms.20
dominated single-party regi:e_cloocrali~. country but a~tualIy a militarily I
during the 1930s and 1940s. It wou:~~~ i~lr~, I.f not mldeology, to Japan
defend the regimes of generals Park Chun Heeoi here to either attack Or .
pomtIS that, although the military cou of ~a e~ or Chun Doo Hwan. My
the kind of developmental elite and ~olif {t6
b.J96I, brought to Power .
nomic development, the personal rule rca .s a I tty neces~ary for eco- .',
promulgation of the Yushin constjj r of Pr~S1dent Park, partICUlarly after '
to political disruption than it needIh~~~nb rna e t?e system more vulnerable
turmoil and incoherence following th een',This Was demonstrated by the
1979. Had Park, in the early I970s r~i~ssassmatlOn of Park on October 26,
seruor statesman supervising his ca~ef IIed ~o Taegu and assumed the role of
become a Korean genro not on th ~y~. osen Successors (that is, had he
Shigeru in Oiso), he would be hailedetod.elJI ~odel but on that of Yoshida
modern times-and would probabl stilt~ as ~he greatest Korean Leader of
the time of the coup in 1961). Y e ahve (he was only forty-four at
Taiwan differs from both Japan and Korea i th .
claim to be a democracy Publici T' . ~. at Taiwan does not even
the Kuomintang in term~ of th y'. aiwan justifies the single-party rule of
Yat-sen. Plivately, it justifies s~ns;~~y~to-seventy-year_old theories of Sun
Communist China, the political c~si p rty rule I~ terms of the threat from
and the need to rnainral t bili s caused by ItS mternational isolation
ain s a I ity on the . I d I '
carpetbagging (that is, rule by exiles) i till lSIan so ong as. mainlander
cations have been acknOWledged d s s I to erated. These pnvate justifithe
Taiwanese for several reasonsa~. e~e~hto ~ growing degree accepted by
real, just as the threat from NorthK Irs,. e treat fr?m mainland China is
to a military government in Seo Io~a IS real and gives added legitimacy
distribution economy legitimates ~h~ -!a~~~ the high-growth, equitablenomic
performance has built su ese government, Just as ecogovernments.
Third, the Chines:~~r:n[or the Japanese ~nd South Korean
Ian and less capable in eithe r and government IS more authoritarmenr,
and comparison is a: ;nohlCY or execution tha~ the Taiwan governactual
administration of single_p;;nt ~Ie.m~t.III legitimacy. Fourth, the
over time, and moderating trends co ~ e III laIwan h~s been ameliorative
n mue marge Taiwanese membership
2~. ~or an insightful discussion of theJa ..
AmI Shillony, Politics and Culture in HI: tpanysepolitical system during wartime, see Benand
passim. ar tme apan (Oxford: Clarendon Press, 1981),p, 67
political Institutions and Economic Performance 145
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21. For the distinction between regulatory and developmental states, see Johnson, MITl,
pp. 19-23. For evidence that mature regulatory states may be tending in a developmental
direction, see John Zysman and Stephen S. Cohen, "Double or Nothing: Open Trade and
Competitive [nduSlIy," Foreign Affairs 61 (Summer 1983), pp. 1113-39.
22. Jones and II Sakong, Government, Business, and Entrepreneurship, p. 286.
23. For a quantitative analysis of industrial policy that is aimed at overcoming these kinds
of objections, see Yakushiji Taizo, "Government in Spiral Dilemma: Dynamic Policy Interventions
vis-a-vis Japanese Auto Firms, c. 1900-c. 1960," in Aoki Masahiko, ed., An
Economic Analysis of Japanese Firms (A~sterdam: North Holland, 1984).
147
Financial control .
. . h- rowth economies shown more .creatlvIn
no area have the East ASI~n hig tt~rlY nonideological, easily mampulated vity
than on the front of I?gemous: Us and investment. Examples range from
public incentives for pn~ate saving f th 1950s to Taiwan's annual goldJapan's
banana-import link system 0 e
orts
exceed U.S. $100 million a
medal awards for compame.s whos~.expss here all the different kinds of
year.>' It would be impossible to hi~c~e; ht different "export promo~ion
incentives-Lim alone lists some t d y gt 1976-or to take fully mto
policy tools" used in ~outh K?re~nt~;~h~n old ones must be abando?ed
account how new mcentlv~sar~~nv ffects international agreements against
for various reasons (negative Sl e e
25
'
nontariff trade barriers,. and so on)'ristic of all three economies is go~ern-"\
However one endunng characte t guide and control pnvate ,
' . . 1 d monetary means 0 . .
ment reliance on financia an often unorthodox by Anglo-Amenactivities.
These financial m~as;:;:i~~~phasis on the supply of capit~l to
can standards, partlcular~ ~n b nking system. In Korea, for example.
industry primarily throug teae of assets comes from loans from the
Around 80 percent, on the averagmarkets, including the curb market,
banking system and other k mark t i just beginning to serve as a means of
[whereas] the Korean stock mar e IS
" MITI p 232' forTaiwan's gold medals, see24. For the banana-link system, see J~hnson, ,. ,
Free China Weekly (June 5, 1983), Pi9~20. \
25. Lim, Government Polley, pp.
d E ic Performancepolitical Institutions an iconom
. . '1 NATO members such as Greecemple Mexico With Its own 01 , or(for exa ,
r Portugal or Italy). Koreans and Taiwanese have put
o(My contention is that the Jap;nes~; l' in ~ays unprecedented in the
together the political economy ~ carls ~~::terperformance but less politiWest
and with qu\te dlfferenttah~~osubstance to this proposition, I shall
cal participation)} To. gl."e . ?rt differences among the three cases m
explore some of th~ sl.mtlantle; t~~dtheory of the capitalist d~velopmental
terms of seven major Issues 0 onom . (2) labor relations; (3) the
state: (I) financial control over th~ce~ureau~;acy;(4) the degree to which
degree of autonomy of the econ?ml ain economic clients; (5) the balance
the state has been captured by It~ m . guidance: (6) special private.
d mand m economic ,
between incentive an com I I trading companies and governsector
organizations, pa~tlculary gene~a known in Japanese pejoratively
mentally favored in.dustr~al conglodm:~r:s~ccuratelYas keiretsu (industrial
as zaibatsu (financial cliques) 'r . Chinese as caifa; and (7) the role of
groups) or in Korean as chaebo or m
foreign capital.
,
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Chalmers JOhnson
such a shift toward greater private initiative will reflect a governmental
policy to forestall foreign criticism or quiet domestic unrest or shift respon_
sibility, and it will be understood by insiders as cosmetic. The changing
relations between the public and private sectors are, in my view, cyclical
and not linear; the logic of the systems remains unaltered even though their
particular stmctures have considerable flexibility. It is possible that all three
systems under discussion here will evolve from capitalist development states
into capitalist regulatory states, but the evidence is equally strong that instead
many regulatory states are evolving toward greater developmental and
industrial-policy commitments. 21
I am aware that models of this sort-or even questions such as "To What
extent was the government of Park Chung Hee in some sense 'responsible'
for the decade-and-a-half of 10percent real growth in Korea?" -are not, in
the words of Leroy Jones and Il SaKong, "the sort of questions with which
economists are comfortable. "22 And the economists are not alone. There
are serious methodological problems with any theory or model that posits
intentional government intervention as an independent variable. These indude
a historical problem (there may be causal factors other than policy
intervention), a span-of-time problem (the failure to recognize long-term
trends inherent in the data), the problem of perspective (mistaking random
fluctuations for intentional results), and so forth. 23 There are, however, also
serious problems with theories, often highly quantified, that filter out the
factors of politics, strategy, and leadership.
In a short presentation it is impossible to discuss all the influences that
have affected the growth of three different economies in some thirty years
(for example, cheap energy until 1973, U.S. aid until the mid-I 960s , a
stable system of international commerce until the mid-I 970s, land reform in
all three countries). It seems to me, however, that sufficient time has
passed, sufficient comparative data are in, and a sufficient number of alternative
theories have been explored in depth to reject the views that the highspeed
growth of the Japanese, Korean, and Taiwanese economies was a
purely contingent phenomenon, or one dependent primarily on a favorabte
v international environment, or one in which the role of government has been
exaggerated. Most factors cited in nonpolitical theories as favoring the
growth of the three East Asian economies have been equally or even more
favorable for numerous other economies, with great differences in results
146
149political Institutions and Economic Performance
( 31. Mason et aI., Economic and Social Modernization, pp. 336-37.
Labor relations
Foreign analysts have often credited Japan's "unique" labor relations with
being the key to Japan's economic success. The virtual absence of economically
significant strikes in Japan (except in the public enterprises), a labor
force that does not object to technological changes even of a labor-saving
type (for example, robotics), and federations of unions devoid of all but
token political power are real comparative advantages in international economic
competition. It has also often been supposed that the institutions that
give Japan these advantages-enterprise unionism, semilifetime employment,
and seniority wage scales-rest to a significant extent on Japanese
developmental states such as Taiwan and Korea but.also of mature developmental
states such as Japan. Although such a system undoubtedly restricts
international capital flows, it remains in place because of the power, combined
with low political visibility, it gives to Ministry of Finance bureaucrats.
With regard to Korea, for example:
The Korean government has viewed control over the allocation of credit, both
domestic and foreign, as an important element of economic and political policy.
It has resisted repeated advice (mainly foreign) to let interest rates and
competition among independent financial institutions determine the allocation
of credit. (Few Korean businessmen have ever advocated such a policy.) Instead,
the government has kept loan interest rates below equilibrium levels
and has intervened pervasively-although generally unofficially-in allocation
decisions. The reasons for this appear to have been both economic and political:
the credit instruments could be used to mobilize businessmen for major
economic programs such as export promotion or developmentof the machinery
and petrochemical industries, while on the political side they served to
maintain control over, and cooperation from, the business community. All
Korean businessmen, including the most powerful, have been aware of the
need to stay on good terms with the government to assurecontinuing access to
credit and to avoid harassment from the tax officials."
In Taiwan, financial control and loan allocation have been as real and as
crucial to economic growth as in Korea, but the form is different. The
government in Taiwan tends to rely on monetary rather than fiscal policies-tax
breaks and high-depreciation allowances rather than outright
loans to encourage investment in particular sectors. Moreover, most Taiwanese
loans go to state-owned enterprises rather than to big businesses.
The state sector is much bigger in Taiwan than in Korea. In 1976 public
enterprises accounted for 22 percent of Taiwan's gross domestic product but
for only 9 percent in Korea.
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Chalmers Johnson
raising substantial capital. The remaini 20 .
source (equity); this compares with mo~~ tha percent com~s from an internal
among firms in the United Stateszo n 50 percent internal fmancing
The corollaries of such debt b d i d . ..
emmental incentives, for hous~h~~~er~ntoU~~~~1t~~~~cing are po~erful s,ov(or
through a governmental "b k" h. gh the bankmg system 1
restrictions to prevent eas fore~n, s~c.. as a postal savings system)
firms, freedom of entrepr:rleurs fr~~C~U1s.It~nS of very highly leveraged
curities analysts, governmental UnderWri~~gno~e~c:,~f st~ckho!?ers or senated
national banks . . over oans of desig_
its cost, and utter de;!n~:~~em:pt~:abiiity to rati~n capital by m~nipulating ! i
operate at alJ.27 In South Korea P,,~~t: managers on.thelr banks m order to Ii j
menting economic polic have un most potent instruments for imple- .
access to foreign borro:ers.' '2S doubtedly been control of bank credit and I
Japan today might be thought t fit hi
its growth-promoting incentives ~n~ ~~~:~~e~nno ~~ger, ~ecause m.0st of
process of being dismantled folio' . ave to. e or are in the
However, although some measuresw;~~iPlOt~slts"from fo~elgn competitors.
taken place, the government' t I n.ancla mternafl?nallzaflon" have
"investment budget" (th F
S
'::l'r;: savings system and Its unconsolidated
kei~ak~) are still intact a~d ~~nctio~~;~r:~n~and ~~an P!an, zais~i toyush)
mshtutlOnal inventions Durin 1982 t wo a apan s most Important
controlled assets about four tim~s th h~ ~ap~ese postal savings system
cial bank, the Bank of America a:;~0 t. e t en world'~ largest commerinstitution
to be totally in the hands of thha~ IS a very conslder~bl~ financial
and which is generally beyond th . 11 e urefaucracy for public mvestment
. e in uence a pork barr I liti D .
m postal savings and postal life-in - e. po I ICS. eposus
amounted to Y86 290 billi $ surance accounts in February 1982
deposits of the Ba~k of ~ Ion, or 359.5 billion at 240 yen to the dollar'
(Of course the Japanese s~~~~~:a~~c~mber31, 19~1, were $96 billion2 ;
by law, these accounts offer the high~stnnit~stafl savings acc?unts because,
savers.) a interest available to small
Equally important, bank-based fin . . .
tive features of the Japanese syst ;~cmg IS still one of the most distinccompanies
showed almost no c~:· e s?urces of f~nds for large Japanese
companies obtained 75 percent oft;~ dtn~g ~e period 1972-81: in 1972
only 19 percent from shares and th el~. un strough loans from banks and
21 percent. 30 Indirect financing e. Igure~ f~r 1981 were 68 percent and
remams an mtrinsic feature not just of new
26. Ibid., p. 26.
27, The classic work on this subject is Suzuki Y ki
rary Japan (New Haven: Yale University Press 19~J)' Money and Banking in Contempo_
28. M~80~ et a1., Economic and Social Mod;rnizat"
29. Keizai Koho Center Japan 1982 21 lOn, p. 267.
30 "8 f I ' , p. .. urvcy 0 nternational Banking" TL. E .
, ne conomisi, March 26, 1983, p. 76.
150 151
.Chalmers Johnson
cultural predispositions. However the causes of the exceptional weak
f J ' d " nesso apan s tra e-umon movement may lie as much in social engineering b
government and management as in cultural factors. Y
South Korea and Taiwan resemble Japan in their tranquil labor relatio
but they have achieved this goal through more directly authoritarian means,
"In K " it L' " h ns.orea, wn es 1m: ~, e practice of permanent employment or company
loyalty does not exist. 32 There are no Korean minimum-wage standards,
and stnkes and closed shops are outlawed. Of an industrialized w k
fo~ce estimated at eight million in Korea, only 850,000 are members o~ra
Union, a umonization r~te of 10.6 percent compared with Japan's 30.8
pe:c~n~, the United State s 23.6 percent, Germany's 41.5 percent, and Great
Britain s 59.4 percent.33
Taiwan resembles ~outh Korea: it still applies the basic labor legislation
enacted by the Kuo~mta~g on the mainland from the 1920s to the 1940s,
and although the Legislative Yuan has discussed a new labor-standards law
for a decade, It has y~t to pass it. Strikes and collective bargaining are
prohlb.lted under martial law; the unions that do exist are under stron
Kuommtang supervision, including party controls over the selection 01union leaders and all union activities. 34
Taiwan and Korea have ,much higher labor turnover rates than Japan, but
these ha~e no~ posed a senous obstacle to high-speed growth. End-of-year
bonus~s in Taiwan and in Korea two or four bonuses a year, each equal to a
month s sala:Y, are part of standard wage packages, just as semiannual
bonuses are In Japan; but these are more important to household savings
than to labor peace. Large lump-sum severance payments at retirement are
more common ~n ~ll three countries than genuine pensions. It seems that
through a combination of authoritarianism, free labor markets, and paternalIsm,
Korea and Taiwan achieve labor relations roughly similar to Japan's
but without Japan's sacrifice of a labor market external to the firm or the
rigidities .of the semilifetime employment system.
There IS, however, more soft authoritarianism in Japan's labor-relations
system than IS .commonly appreciated abroad. According to Totsuka Hideo
dunng the penod 1955-70, "Japanese management developed a sophisticated
labor management style which encouraged workers' loyalty to their
super,vlsors an~ competition among the workers themselves.' '35 Management
s two mam achievements during this period were, first, a very hard
32. L~~, Government Policy, p. 56.
33. ~ltI~ank" Executive GUit!e, RP' 31-34; Keizai Koho Center, Japan 1982, p. 64.
34. Taiwan s Workforce Stirs, Far Eastern Economic Review February 26 1982
U
78-:-79'Mand A. P. (CNOldriCk and Philip Jones, eds., The Internatio~l Directory ofthe T~E~;
man ovement. ew}/"ork: Facts on File, 1979), pp. 449-51.
A ?5: lotsuka. Hideo, ,Japanese Trade Union Attitudes toward Rationalization" in East
C~~pu~,te[;:~)~nl~~:evlewof Economic, Political, and Social Development (Frankfurt:
T!
political Institutions and Economic Performance
line against militant unions leading to the Mitsui Miike coal-~ine.disput~of
1960, when militants were fired and when the more radical federatlO?,
Sabya (General Council of Trade Unions ~f Japan), began to lose ground m
the private sector to the more moderate Domei (the Japa~ Confede~atIon of
Labor); and, second, the setting up of the J~pan ProductlVlt~ Ce~term 195~,
opposed by Sohyo but supported by Darnel, which institutionalized Japan s
system of consultations (jizen kyogikai) between management and labor, the
~ero defect (ZD) movement, and the quality circles (QC) movement.36
During the 1970s Japanese management was able to h?ld the annual average
rate of real wage increases to less than 2 percent; It had been 5 percent
during the 1960s. .
"The 'success' of Japanese management in the 1970s," Totsuka writes,
"has very much depended on theJull~s~ale,~oope:ati~n of the enterpri~e
unions which have followed the Domei line. 37 This IS not to say that this
achievement was negligible or that foreigners have nothing to learn from
Japan's labor relations, where wages must be, "reconciled with the national
economy."38 It is, rather, to stress that Japan s labor relatIOns.are neither as
mysterious nor as culture-bound as some Anglo-Amencan wnters alkge: ~t
would also seem that all three East Asian high-growth economies inhibit
political influence by the trade-union m?vement because dev~lopmentally
oriented forces have preempted the political scene-but Japan has to be
more creative than the other two because it is less authoritarian. All three
nations compensate labor for its decreased political role through policies of
comparatively equitable distribution and automatic wage increases tied to
increases in productivity.
Bureaucratic autonomy
Serious industrial policy must be long-run in focus, consistent in its various
aspects (monetary, regulatory, environmental, and so forth), and operated
through mutually supportive policy instr~~ents. It must also be extern~lly
oriented (based on cost and price competItIveness In world markets, not Just
the domestic market); and because it will direct some res~urces to h~ghpriority
sectors cheaply it must have the power to require these high,'.
priority sectors to meet p~rformancegoals."? Each of these things is difficul~
\ to do politically. Politicians tend to seek popular support In the short run,
36. On the Japan Productivity <;enter see C~almers. Johnson, Japan's Public Policy Companies
(Washington, D.C.: American Enterprise Institute, 1978), pp. 52-53.
37. Totsuka, "Japanese Trade Union Attitudes," p. 37.
38. Ibid., p. 33. r- U' d SId
39 Hugh Patrick "Japanese Industrial Policy and Its Relevance lor TIlte. tates n ustrial
Policy," testi~ony before the U.S. Congress, Joint Economic Committee, July 13,
1983.
40: Cf. "China's Educated Class Struggles for End to Harassment," Christian Science
Monitor, July 21, 1983,
153,political Institutions and Economic Performance
olitical elite:) From 1955 to about I~72? the end of the Sat~ era, a stable
Pittern of tacit separation between reigning and ruhng prevailed m Japan.
~bis was also the period of Japan's unpr~cedented1y high-speed growth.
Since 1972 the politicians have been gammg III strength",The pr~c~ss has
been slowed by new crises that again called for nonpolitical policies (f~r
example, energy conservation, trade liberaliz~tion), and It has been ~1I11ted
by an extensive cross-penetration of political and administrative ehtes.
~:t the Japanese economic bureaucracy had considerably less independence
in the early 1980sthan it did in the 1950s and 1960s. No~etheless, as long as
the Liberal Democratic party continues to control the Diet, the bure~~cra~y
of Japan will enjoy more power and more autonomy than state officials m
any other advanced industrial democracy. . . ,,
The Korean case was decisively altered by the military coup d etat of
19'61. 'In"~ broad, sociological sense the coup was caused by extensive
military influence on Korean society during the previous decade (~omewhat
anaologous to the case of Japan during the 1930s). The Kore~ military h.ad
become an intrinsic elite, and the coup merely served to make It a~ extrm~lc, \
socially recognized one. "It is difficult full~,to comprehend a?d impossible
fully to document," writes John Lovell, the cumulative I~pact.of .the
process by which millions of Koreans have been exposed to mt!lt~ institutions
and military ideas. One may safely suggest, however, that qU.lte apart
from the institutional changes effected by the 1961 coup, the SOCial, ~conomic,
and political changes stimulated directly or indirectly by the mihtary
have been more far-reaching and significant than those generated by any
other single group within the society."41 C?~cretely, Cho Suk-choon argues,
{'especially since the advent of the military rule in 1961, adv~nced
techniques of military management have been extensively adopted m th.e
civil bureaucracy.' '42 And Lee Hahn-been adds, .' ':rhe :nos~ general contribution
of the military to the development of administration in Korea was ItS
. . f' . I h ' "43 Needintroduction and vigorous application 0 a managena ~pproac . less
to add, many military officers transferred to and directly ~ana!led ~ew ,
civilian enterprises, particularly the public corpor.ations set up III high-risk,
strategic sectors (for example, Korean Oil, which in 1980 was headed by Yu
Chae-hung a graduate of the Japanese military academy and the U.S.
Army's Ge~era1 Staff College and a former head of the ROK Joint Chiefs of
St~t).44 . al I' h 11 .
I The problem in Korea, then, was not a rising politic ~ ite c a engmg an
already installed bureaucratic elite, as in Japan. Rather, It was the problem
41 Lovell "Military and Politics in Postwar Korea," p. 189.
42: Cho S~~choon, "The Bureaucracy," in Wrigh~. Korec:n. Pali,tics.p. 79. . .
_ 43. LeeHahn-been, Korea: Time, Change, and Public Administration (Honolulu. University
of Hawaii Press, 1968), p. 23. " 0) 96
44. Inoue Ryirichiro, "Daehan Sukyu Gongsa,' Ekonomisuto 58 (June 17, 198 ,pp. -
97.
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Chalmers Johnson
and there will never be a shortage of private claimants on the government
r)Sardless of their economic performances and prospects. '
\.Political leaders attempting to implement a long-term industrial polic,
mu~ttherefore have the capacity to depoliticize in part their key economi~ Iff
decisions, This IS normally done byentrusting such decisions to a "nonpoliti: Iff
~al elite.'" she~t~red t? some degree from direct political pressures and able to /'
justify ItS declslOn~ m terms of the good of all (for example, the Federal
Res,erv.e Board and Itscontrol of monetary policy in the United States~(In the
capitalist developmental states this depoliticization is achieved through a
covert separation betwe~n reigning and ruling; the politicians setbroad goals,
?,rotect the t~,chnoc:allc bureaucracy from political pressures, perform
safety valve functions when the bureaucracy makes mistakes, and take the1
heat when corrupnon scandals are uncovered (such scandals are unavoidable
when government plays any role in eco?omic affai~s); the official bureau-)
cr~cy does the actual planning, mtervening, and guiding of the economy)
~here does such a bureaucracy come from? It must first of all be created
and recruited from among the technically most highly qualified people in the
system: And this is why the commitment to education up to the highest,-,
levels IS so Important m Japan, South Korea, and Taiwan. Perhaps the
greatest contrast between these three nations and the Communist states of
Asia lies in the emphasis ?n.and nurturing of a rigorously educated elite.4d)
Once th~ bureaucracy IS m place, the greater issue becomes achieving
bureaucrallc independence from the political leadership. Politicians do not
want to give up any of their powers, and bureaucrats usually believe that
they.themselves should have greater powers. The relationship between the
two IS always unstabl~, and the greatest task of political leadership in such
systems IS to maintain a balance between the main wings of the elite.
Reigning and ruling are never perfectly separated, but they must be to some'
degree in order to impose long-term strategic goals on a society that may /I!
have strong authoritarian elements but that also has a strong private sector. IIi
All three Ea~t Asian systems have achieved a workable degree of bureauc~atl~
expertise a?d independence in their state structures through a comby:allon
of hlston~al accident, learning, and astute leadership at the top.
(Japan's ~conomlc bureaucracy began its rise to power during the 1930s
and 1940s in response to the crises of the Depression, the war in China, and
World War II. It achieved its greatest power during the Allied Occupation
and the early 1950s when its chief rivals, the military and the prewar
Zaibatsu, were weakened or destroyed and when the issues of economic
recovery and independence commanded universal attention. Since the creationof
the Liberal Democratic party in 1955 (and in light of the democratic
constitution of 1947), the bureaucracy has had to share its power with a
j
154
47, "ChinaAir Lines," Ekonomisuto 59 (March t981), pp, 100-101.
48, Neil H, Jacoby, U,S, Aid to Taiwan (New York: Praeger, 1966), pp- 60-61.
Taiwan's case is similar to South Korea's in the pervasive influence of the
military-China Air Lines, for example, is a direct descendant of the R?C
Air Force-and in the existence of an even more firmly entrenched political
elite, the Kuomintang, that had a long history of concentrating all power in
ideological and political hands."? In breaking this monopoly, the mfluence
of the United States was decisive,even though at the time it did not have a
comprehensive understanding of wh~t it was doing.(Taiwan',s economic
pilot agency, the Council on International Econonuc Cooperation and Development
(CIECD), founded in 1963, traces ItS ancestry back to the Council
on United States Aid (CUSA), which was set up in 1948 under the U.S.~
China Aid Act as an interministerial council to supervise aid expenditures:
As Neil Jacoby explains:
(Although [CUSA's] chairman was the president of the Executive Yuan and it
contained other ministries of the Chinese government, financially the Council
was semi-autonomous in nature and functioned outside of the regular minis.tries,
, . ' Being free of the need to obtain legislative approval of its expenditures,
the Council was able to act speedily on developmental projects, Not
being subject to all Chinese civil service regulations, it was also able to pay
higher salaries that enabled it to recruit and retain a highly competent staff.4~
With the 1963 announcement that American aid would end in 1965, CUSA
became CIECD and took on developmental planning and coordination func-
tions.
General Chen Cheng, who had been responsible (together with C. Y,
Yin) for Taiwan's successful land reform and import-substitution policies of
the late 1950s, was the leader, until his death in 1965, of the group concentrated
in the CIECD. His main factional rival in the Kuomintang was Chiang
Ching-kuo, whose chief experience until the 1960s had b~en in the, secret
police and in eliminating subversive influences on the Island, WIth the
ending of American aid, President Chiang Kai-shek quietly shifted hIS pr,lorities
from a military campaign against the mainland to the economic
indepenence of Taiwan-and he also beg~n to shift his son into the groups
Chen had fostered (by 1969 Chiang Chmg-kuo was deputy premier and
chairman of CIECD). The two Chiangs also appear to have been influenced
by the Korean model and by its EPB. With political support and sanction for
the work of the economic bureaucracy finally secured at the top, the Kuomintang
slowly began to lose some of its ideological rigidity, Some,,:hat
surprisingly, Chiang Ching-kuo proved to be the most cllpable political
sponsor of economic development the ROC has yet seen.i The degree of
autonomy permitted to expert elites by Chiang Kai-shek rested on pers?nal
factors-Chiang's full trust in Che~ Cheng and C. Y, Ym; ChIa?g Chmgkuo
enlarged and institutionalized iti Nonetheless, WIthout the initial AmenChalmers
Johnson
of ~ ,military-bureaucratic elite:-P~esident Park's Blue House-assUmin
political power~ and then shanng Its bureaucratic functions with an edu~
cated, nonpolitical ehte capable of working with civilian entrepreneu )
President Park's first economic problem was the decision by the Unit~~
States to ~nd foreign aid to Korea, (the ROK has been the third-highest per
capita reclpl,ent of Umted States t,lld m the postwar period; first and second
are South VIetnam and Israel),~5iPark solved this crisis by concentrating all
I Korean governmental economic powers in a newly created agency, the
E~o~omlc Planmng Board (EPB) , The EPB, placed under a deputy prime
mlms~er, took over all planmng responsibilities from the Ministry of Recon-
1,1 struction and absorbed the Bureau of the Budget from the Ministry of
V FIlla~ce and the Bureau of Statistics from the Ministry of Home Affairs, The
EPB III tum set up th~ Korean Development Institute, manned by a cadre of
professional e~o,n01,'usts who held advanced degrees from domestic and
foreign umversltIes)
The .EPB quickly gained some autonomy from the Blue House, but not
primarily because Park intended for it to do so, As Lim explains:
The First Five-Year Economic Plan (1962-1966) document reveals that the
govem~ent initiall~ did ~ot clearly envisage adopting export-led growth based
?ll unskilled, labo~-llltensive manufactures. The primary concern then was to
Improve the chrome bal~nce of payments deficits that foreign aid had permitted,
. " ' However" this IS not what occurred, The composition of actual ex\:
ports differed drastically from the government's projections, or targets. It was
II the pn,vate exp?rters whoplayed a major role in identifying and taking risks,
exporting unskilled-labor-intensive products in which Korea had a comparative
advantage.so
The EPE. gained its independence as it assumed responsibilities for manag,',
mg the civilian sector-rewardmg the clever and aggressive, penalizing the
"I c<)l'tly and slow,
(Even so, the Korean economic bureaucracy never gained the kind of
~utonomy,from Blue House politics that its Japanese equivalent once enJoyed.
ThIS ~as reflected most obviously in the chaotic state of the Korean
eco~omy dunng 1,981, :-vhen a new military leader came to power and tried
to dictate economic pohcy to the government and private sectors, However,
General Chun was soon forced to recognize that he needed the EPB's
e~pertIse ~ven more tha~ the EPB needed his political authority, particularly
~mce foreign Illvestor~ ~n the Korean economy made it clear they did not
Intend to financ~ a mlhtary leader who took very long to learn the same
lessons that President Park had learned in the mid-1960s)
45. David c. Cole, "Foreign Assistance and Korean Development," in Cole Lim
Youngil, and Paul W. Kuznets, The Korean Economy; Issues of Development, Kor~a Re~~:)h
Monograph no. 1 (Berkeley: Institute of East AsianStudies, University of California,
, p, 1.
46. Lim, Government Policy, pp. 16-17.
".,I
political Institutions and Economic Performance 155
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156 Chalmers Johnson political Institutions and Economic Performance 157
can pressure and Chiang Ching-kuo's adroit use of his own authority, it is
hard to see how the Kuomintang would ever have invented the capitalist
developmental state on its own.
Autonomy of the state
Any particular political arrangement generates its own special political problems-for
example, the powers and influence of the U.S. Congress generate
the extensive lobbying and political action committees that surround it
things unknown to the Japanese Diet.(However, one problem of the capital:
ist developmental state is for the political elite to avoid becoming the captive
of Its maJ?r clients, who are the representatives of big, privately owned
?USllleSS~S) Some, particularly the Marxists, would answer that the problem
IS unavoidable. The whole theory of "state monopoly capitalism" in Japan
IS devoted to this proposition. But there is clearly a distinction between
systems of public-private cooperation in which the state independently develops
national goals (the East Asian capitalist cases) and systems of public-I
private cooperation in which the state's goals are reducible to private interests
(Mexico and the so-called bureaucratic authoritarian regimes of the
cone of South America). It may be true that even in the Asian cases the state
cannot directly contradict the interests of big business, but it is also true that
the politicians have maintained their independence to a greater degree than
II} other quasi-authoritarian capitalist nations. How do they do it?
\)n Taiwan the politicians appear to rely on authoritarian means: the ideological
pretensions of the Kuomintang justify ultimate reliance on militarypolice
powers to put down any challenges to KMT authority. The party itself
also owns and manages numerous enterprises and thus is independent of big
business for its own fundst Thanks to land reform, moreover, the party's
electoral strength in the rural areas remains solid. At the same time it must
be said that so little is known about the latter-day Kuomintang (an extremely
difficult subject on which to do political research) that it would be best to
pass over this case. In Japan and South Korea, however, election contests
and the maintenance of large, expensive political parties require that the
reigning politicians raise enormous sums of money, and this certainly makes
them vulnerable to private interests.
Big business in Japan supplies money to the Liberal Democratic party
(LDP) to keep it in power, but it does not thereby gain a dominant influence
over government policy. The LDP supports big business, but it also relies on
an electorally over-represented farming population to remain in power. The
party does payoff the farmers, even though it does not give them a political
voice on any subject other than agricultural affairs. In 1983, for example,
when the Japanese government was imposing cuts of 5 to 10 percent on all
budgetary requests (with the exceptions of defense, foreign aid, salaries,
and science and technology) and had frozen public works expenditures for
the previous four years, it nonetheless agreed to raise the governmental
purchase price of rice by 1.75 percent over the previous year's level.
This Japanese pattern of relying on a powerful but uninfluential agricultural
sector while accepting support from an influential but not all-powerful
industrial sector is a creative solution to a major problem of the capitalist
developmental system. It also suggests the consequences that are likely to
follow from any determined foreign or domestic effort to break up the
protected and privileged position of Japan's admittedly inefficient agricultural
sector. Either the LDP would lose its majority in Parliament and
with it the single-party rule on which capitalist developmentalism is predicated,
or the LDP would remain in power but only as the captive of bigbusiness
interests, with an attendant rise in corruption and loss of national
di~ection.
,In South Korea, with its more authoritarian government, the pattern has
included support for agriculture, but more with the intent of equalizing
incomes among sectors than as a basis of political support. More important,
the government has developed sources of income for the political system
other than contributions from big business. Korean politicians have had
some big expenses} Park's first and perhaps most important (although for
him personally, an ultimately fatal) act was to create, by decree of June 10,
1961, the Korean Central Intelligence Agency (KCIA) as an independent
political support apparatus. Originally built on a 3,000-man cadre from the
existing Army Counter-Intelligence Corps, the KCIA expanded to some
370,000 employees by 1964 and became, without question, the most cohesive
political organization in South Korean society. The problem was how to
finance it.
Park obtained funds in two ways. First was the ratification on August 14,
1965, of the treaty normalizing relations with Japan, and second was the
authorization on August 18, 1965, of the dispatch of some twenty thousand
troops to South Vietnam. Both of these decisions had wide popular support
in principle bnt were heatedly and sometimes violently opposed in context
because they supplied the funds with which the military government could
consolidate its rule. Joungwon Kim explains:
The Japan-Korea Treaty and the commitment of troops to Vietnam were to
provide important new resources to the Park government, both directly and indirectly.
The new financial resources would provide funds not only for the
carrying out of the government's economic plans, but new resources for political
funding as well, During the period from 1965 to 1967, in additionto the
claims payments from Japan ($12.08 million in grants and $14.07 millionin
loans in 1966, the first year of payment, $37 million in grants and $25 million
in loans in 1967), the treaty agreement with Japan opened the way to com~
mercialloans from that country. During 1966and 1967, South Korea received
atotal of $108.5 million in private loans from Japan. Since private loans re-
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158 Chalmers Johnson political Institutions and Economic Performance 159
qu.ir~d gove~nment approval and repayment guarantees, the Korean party recervmg
foreign loans was required to pay a percentage (popularly believed to
be 10-15 percentand sometimes as much as 20 percent of the loan amount)
m payoffs to obtain the necessary government guarantees. The system, of
course, applied to foreign loans from other nations as well. The decision to
send troops to Vietnam in 1965 and 1966 bolstered confidence abroad in the
American willingness to defend South Korea, and helped to induce commercial
loans from other nations. During 1966 and 1967, South Korea received
$19.9 million in commercial loans from the United States, $53.1 million from
West Germany, $30.9 million from Italy and France, $2.5 million from Great
Britain, and $41.2 million from other nations, making a total of $256.1 milli?ll
in priva~e commercial loans during those two years alone. Assuming a
kickback-ratio as low as 10 percent, this would mean political fund resources
of $25.6 million from this source.w
Needless to say, the money received in this manner was nol used exclusively
to fund the regime and the KCIA; some of it also helped replace
American aid and finance the first five-year plan. But the monies also made
the regime independent of domestic financial backers, which further meant
that the regime's needs were not a drain on the investment funds of enterprises.
A pattern similar to that of President Park's first few years emerged
in the penod 1981-83 under the so-called Fifth Republic of President Chun
000 Hwan, when South Korea sought some $6 billion in aid from Japan
and, after a year-and-a-half fight, punctuated by the school textbook controversy,
received some $4 billion.
The principle that emerges from this analysis is that the political independence
of the "economic general staff" is not easily achieved but that
without it, the setting of long-term economic goals and industrial policy is
uuhkely to produce the results envisaged by theorists of public policy. If, of
course, the politicians and their economic bureaucrats are themselves hopeIessly
~orrupt (viz., innu.merable African states) then no amount of foreign
aid or independent funding will free them from their business sector: the
money will simply be siphoned off or otherwise misspent.
Administrative guidance
All democratic governments have general, macrolevel economic policies
designed to influence private economic decisions in ways that these govern-
49. Joungwon Alexand.er K~m, Divided Korea: The Politics of Development, 1945-1972
(CambrIdge: Harvard Umv.erSlly Press, t975), pp. 263-64. On the Korean party system,
KCIA, VIetnam, and political fundIng,. also see Hahn Bae-ho and Kim Ha-ryong, "Party
Bureaucr~ts, and Party Developm.ent,'.' III Suh Dae-sook and Lee Chae-jln, eds., Political
Le~d~~shlP m ~orea (Seattle: U~lyerslty of Washington Press, 1976), pp. 67-88; Hahn KiShl~,.
Underlying Factors III Political Party Organization and Elections," in Wright, Korean
Politics, pp. 85-103; and Lovell, "Military and Politics in Postwar Korea," p. 191.
ments deem desirable. One of the characteristics that distinguishes industrial
policy from general economic policy is its penetration to the microlevel,
meaning government attempts to influcence economic sectors (agriculture,
high technology), whole industries (advanced electronics), and individual
enterprises within industries (Lockheed, Chrysler). Many democratic governments
also implement industrial policies in this sense, such as the American
government's long-standing policy of supporting agriculture and the
defense industries. But general Western theory and. practice concerning
either macro or micro interventions hold that they should take the form of
incentives, equitably applied and available and not specific commands directed
at individual firms. The Western emphasis is on the rule of law and
the use of nondiscretionary controls to the maximum extent possible.
One lesson from the East Asian capitalist developmental states is that this
concern for nondiscretion may be misplaced. The Japanese economic bureaucracy
has long found that its most effective powers are tailor-made,
verbal, ad hoc agreements implemented through "administrative guidance."
And the Korean case is even clearer:
A firm that does not respond as expected to particular incentives may find that.'
its tax returns are subject to careful examination, or that its application for
bank credit is studiously ignored, or that its outstanding bank loans are not renewed.
If incentive procedures do not work, government agencies show no
hesitation io resorting to command backed by compulsion. In general, it does
not take a Korean firm long to learn that it will "get along" best by "going
along." Obviously, such a system of implementation requires not only cooperation
among the various government agencies that administer compliance
procedures but continuous consultation between firms and public officials.'
Such a system could well be subject to corruption, and there is some evidence
that payments are, in fact, made and received for services rendered, but again
it must be emphasized that there is very little evidence that such corruption as
exists interferes in any serious way with production processes.50
Evidence on the balance between incentives and commands in Taiwan is
lacking and must await further research.
The relative importance of incentives and commands in industrial policy
pinpoints an often unnoticed trade-off. It is true that, in terms of economic \
theory, the nondiscretionary manipulation of incentives is to be preferred
because it retains to the maximum extent the motives of and information
provided by the market. But it is often overlooked that such a system also
inevitably increases reliance on laws, lawyers, litigation, and excessively
codified procedures. Administrative guidance (a euphemism for governmental
orders) is obviously open to abuse and has been abused on occasion,
but it is also much faster than the rule of law and avoids the unpredictable
impact of new legislation and court decisions on sectors that do not require
t 50. Mason et al., Economic and Social Modernization, p. 265.
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160 Chalmers Johnson political Institutions and Economic Performance 161
adjustment but that are affected anyway because of the universal scope of
laws. One of the marked differences between the regulatory and the developmental
capitalist states is tbe pervasive influence of lawyers in the
former and their minimal role in the latter. This is not simply a cultural
difference but above all a result of having different political economies.
Zaibatsu
Just as tbe public sectors of the capitalist developmental states have contributed
several institutional innovations that are unusual from the point of view
of Western capitalist theory, the private sectors have been no less creative.
Perhaps the best known private innovations are tbe general-trading companies-s-that
is, enterprises that specialize in the import of raw materials for
domestic industries and in the export of tbeir manufactured goods. They also
maximize cost and price margins through global intelligence networks COncerning
all available markets, and they perform important functions in the
short-term financing of foreign trade. The effectiveness of these organizations
is today so widely recognized that legislation has been enacted in tbe
United States authorizing versions of them for the American economy and
exempting them from some provisions of the American antitrust laws."!
Much more controversial are what are known pejoratively as "financial ,
cliques," or, both in the Japanese language and today generically, as
zaibatsu. These are vertically and horizontally integrated "industrial
groups" or conglomerates, usually including their own trading company
and, in Japan only, tbeir own bank. Over the years, since tbeir first appearance
during the Meiji era, zaibatsu have been heavily criticized by both
domestic and foreign writers for, among other tbings, putting their own
interests before those of the nation, contributing to a marked "dualism" in
the economy (that is, extensive, poorly paid subcontracting firms totally
dependent upon and often exploited by the groups), and caving in to irresponsible
national leaders (as in tbe Japanese military-industrial complex of
the 1930s and 1940s). During the Allied Occupation of Japan, direct measures
were taken to dissolve the zaibatsu-measures that had the unintended
effect of modernizing rather than eliminating tbem.
Today, with several more decades of global experience and knowledge of
intentional development programs, ranging from Stalinism to the Alliance
for Progress, it seems that the zaibatsu may have been underappreciated.
They function as powerful institutions for concentrating scarce capital for
developmental projects in underdeveloped countries, and tbey constitute a
51. See Michael D. Erony, The Export Trading Company Act of 1981: A Legislative
Analysis and Review (Los Angeles: Coro Foundation, 1981).
compromise between the inefficiencies of purely state enterprise and the
indifference to developmental goals of purely private enterprise. Lim adds:
\ Vertical and horizontal integration allow an enterprise to alleviate risks and
.' the uncertainties of market instability and rapid structural change. Vertical in,
tegration eliminates the need to depend on monopolistic suppliers of input materials
or assures steady flows of needed inputs in adequate amounts ... .
Horizontal integration (participation in many different activities not related to
input linkages) increases information flows and consequently reduces the uncertainty
surrounding investment and production decisions.... These are
some of the important reasonsfor the birth of the so-calledgeneral trading
companies and enterprise groups, started in Japan and recently copied in
Korea.... Such groups internalize uncertainty, information, and factor-market
flows, and substitute for a perfect market as a way of coping with market
imperfections in less developed countries.V
In addition, in advanced capitalist developmental states they still perform
international competitive functions by making capital available more _/_
cheaply for companies in the group and by freeing new ventures from the
need to make a profit in tbe short term.
The three leading Korean chaebol are Samsung (twenty-seven companies),
which produces primarily consumer goods, Hyundai (eleven companies),
which concentrates on producers' goods and automobiles (the
Pony), and Daewoo (seventeen companies), which is spread among trade,
finance, machinery, electronics, and engineering.P A fourtb, tbe Lucky
Group (the one hundred thirty-fourth largest firm in tbe world according to
Fortune's 1978 ranking) includes Bando Trading Company, Honam oil
refinery, Yochun petrochemicals, plus electronics, nonferrous metals, insurance,
and securities.54 These organizations are similar to Japanese zaibatsu
except that in the prewar period the Japanese zaibatsu groups included
their own bank and in the postwar period rebuilt around their own bank.
Korean chaebol, on the other hand, "must rely on government-controlled
mcredit institutions. This is a central fact in government-business relations in
II Korea and has an important bearing On the extent of private economic
power-.' '55
In Taiwan, large-scale enterprises, if not true zaibatsu, are very important,
although there is some evidence that the culture of business in China
resists conglomerate integration more than in either Japan or Korea.r" The
52. Lim, Government Policy, p. 46.
53. See "Chaebol Case Studies," in Jones and II SaKong, Government, Business, and
Entrepreneurship, pp. 343-64.
54. "Lucky Ltd.," Ekonomisuto 58 (Aprit 1980), pp. 124-25.
55. Mason et al., Economic and Social Modernization, p. 286.
56. See S, G. Redding and G. L. Hicks, "Culture, Causation, and Chinese Management"
(University of Hong Kong, February 1983), p. 5.
162
58. Based on reports of the Bank for International Settlements, Country Exposure Lending
Surveys.
evented foreign participation in their economy. Japanese bureaucrats, hisf~rically,
have been close to paranoid on the subject of the dangers of an
invasion of foreign capital. By contrast, the Koreans and ~a[~anese h~ve
iven virtuoso performances in how to use foreign and multinational capital
gr . . This ! I dwithout at the same time becoming subservient to It. . IS. IS a arge an
complex subject, and we can hope here only to Signal ItS Importance and
some of its ramifications. . . .
postwar Japan did not totally exclude foreign investment or foreign borrowing;
loans from the World Bank and from American coml~ercialbanks
were important during the 1950s. Moreover, If Korea and Taiwan ~nJoyed
large amounts of American aid, Japan probably profited more.than either ~f
them from American offshore procurement contracts and military expenditures.
At the same time Japan was concerned to separate foreign money and
technology, both of which it needed, from foreign-ownership rights and
manufacturing facilities because it wanted to preserve ItS own large domestic
market as a proving ground for its new industries. The domestic markets
in Korea and Taiwan are significant, but they have not had the same magnetic
power as Japan's for either foreign ~r domestic. manufacturers. Foreign
firms in Korea and Taiwan are producing pnmanly for export, whereas
foreign firms in Japan would have liked to produce for the domestic Japanese
market.
Moreover, just as the Korean and Taiwanese dome~tic markets are. not
large enough to sustain high-speed growth, their domeslic savings capacities
are smaller than Japan's. They had to internationalize in order to attract the
needed savings. At the end of 1981 South Korea and Taiwan were the fourth
and seventh most indebted non-OPEC, non-Communist, less developed
countries (the leaders were Mexico, Brazil, and Argentinaj.P'' Even so, in
1982 South Korea enjoyed a debt-service ratio of 13.3 perc~nt, below the
international average of 15 percent, and it had prospects of mcrea~mg exports
enough to lower its debt-service ratio to IIpercent during ~he five-year
plan of 1982-86. Korea is not one of the countnes whose liabilities threaten
the solvency of the international banking system-and Taiwan IS even less
so.
But the issue of Korea's export prospects raises the question of the other
side of the trading coin. North America and Western Europe are the world's
largest markets, and access to them is indispensable for any manufactun~g
and exporting country. By the 1980s Japa.n, thanks to ItS highly nationalistic
policies, had become the only advanced industrial nalio~ m the world that,
for all intents and purposes, did not Import any pr~ducts It ~a~ufa~tured and
exported so successfully (for example, automobiles). This situation, combined
with the sheer size of the Japanese economy, contributed powerfully
Chalmers Johnson
Tatung Group, however, would appear to be a true zaibatsu In 1977 it
by far the largest of some eight hundred Taiwanese home eI~ctric-appll. Was
ft d it has si lancemanu ac urers, an It as smce branched out into electronics commu .
tio tr ti b ildi ' mca-ns, cons uc ton, U1 ing materials, and publishing. The chairman ofth
Tatung Group, Dr. T. S. Lin, began his enterprise in 1942 under Japa e
rule. A graduate of the engineering department of Taiwan Imperial Un·nes~
. L· < ded the Tanmo-Hi Ivel-SHy, in roun ed the Tatung High School for Engineering and the Tat
I ti f E· . ungns itute 0 ngmeenng. He has allowed small amounts of outside ca lt I
into hi . der to obtai pia_ .ISgroup m or er to 0 tam ~ew technologies, including 8 percent from
!os_hlba, and has entered into joint ventures with Nippon Electric and Fu.
jitsu, In 1972 Lin expanded to the United States, and in 1980 his plant in
Los.Angel~s was the largest electric-fan manufacturer in the country. Compa~les
Similar to Tatung include Formosa Plastics (headed by Wang Yun _
ching, allegedly the biggest capitalist in Taiwan), Yue Loong Motors (rn
1983 Yue Loong exported the first of its "Sunny" cars to the Middle East)
Far Eastern Textiles, and Taiwan Cement.57 '
(Are zaibatsu, of ~ither the Japanese or the more attenuated Korean and
Taiwanese type, an ~nhe~e~t feature of capitalist developmental states? More
research on.this subject IS indicated, b~t it seems that zaibatsu are important
for unleashing entrepreneurship-and It wastentrepreneurship)that provided
the dynamic growth. element in all of these economres"TBY permitting the
r gr~wth of Zaibatsu m Japan and Korea and encouraging their growth in
! Taiwan, the government helped reduce risks, encouraged greater investment
tha~ .~ould have occurred without the zaibatsu, and ensured that private
activities would be aimed unintentionally toward developmental goals. The
rehance on Zaibatsu as the locomotives of an entire economy meant that
antitrust c~ncerns were relegated to a lesser priority or, more accurately,
that ~apltahst developmental states took as their standard for antitrust intervenuon
the size and degree of oligopoly of their international competitors.
There are undoubtedly trade-offs involved in adopting such a standard but
then there are also trade-offs in antitrust intervention that is oriented exclusively
to domestic competition.
Foreign capital
One element ofthe Japanese model that appears to be contradicted by the
Korean and Taiwanese cases is the degree to which the Japanese have
57. See the series" Ajia no biggu bijinesu," in Ekonomisuto 58 (February 1980), pp 96-
97, 58 (May 1980), pp. 96-97, and 58 (November 1980), pp. 96-97; aod Free China
Week!~ 24 (June 19, 1983), p. 4. For a survey of the five hundred biggest firms in Taiwan
see T len HSl~ (Comn:lOnw.ealth: A Business Monthly) (Taipei), September I, 1982, pp. 49-":
61. The ten biggest firms III the country are analyzed in T'len Hsia November I 1981
43-48. ' " pp.
political Institutions and Economic Performance 163
164 Chalmers Johnson
t? the global trend toward protectionism (or, at the least, toward interna_
tlO~al cartelization) that appeared in the 1970s and 1980s. South Korea and
Taiwan are not Immune to these trends, but their access to the American and
Wester~ European ~arkets is less threatened because of tbeir longer histo_
nes of internationalization and market ~~cess. Th~ lessons in this develop_
ment seem to be that the neomercantilism pracllced by Japan is not an
inherent feature of tbe capitalist developmental system (Korea and Taiwan
have not overindulged in it), but that tbe controls exercised by Korea and
Taiwan over foreign investment are probably necessary to avoid neo-
colonialism.
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The interplay of state, social class, and world
system in East Asian development: the cases of
South Korea and Taiwan Hagen Koo
,
.'
Many important aspects of the three capitalist developmental states discussed
in this chapter have not been even touched upon in this sketch of their
features-for example, the large public sectors in all three economies and
the differing measures adopted by each nation to try to keep them efficient
o.r to get rid of them. The model presented here does not aim at comprehen-(
srveness or econometric detail. Its intent is threefold: to illustrate how economic
perf~rma~ce is related to political arrangements, to argue for the
essential rationality of the soft authoritarianism-capitalism nexus in terms
of comparative development strategies, and to explore the range of subtle
and specifically political problems that must be addressed and solved in
implementing the strategy.
If tbese goals have been achieved in even a tentative manner, we may
then conclude by asking what are tbe future prospects of the model for the
thre~ successful cases or for poteutial emulators? Superficially, it would be
possible .to argue that to the extent that the model implies export-oriented
growth, ItS future prospects are poor because changes in the international
envlr?nment ha~e lowered the chances for dramatic expansions of exports.
This IS superficial, however, because it implies that the environment is tbe
main determining factor in the model. If that were so, tbere should today be
ma.ny successful capitalist developmental states and not just a few in East
ASia. It seems instead that the particular political economies of tbe capitalist
de~elopmental stat~s have managed to adapt more effectively and more
rationally to any given environment than either tbeir purely absolutist or
their purely capitalist rivals. Thus, as a matter of batting averages ratber
than absolute growth rates, it would follow that in a world in which all
economies ~ay grow more slowly in tbe future, the capitalist developmental
states will still outperform the others. This is because they have discovered
wa~s t~ surmount the rigidities of zero-sum domestic competition without
fallmg mto the trap of authoritarian displacement of the market and private
V enterprise.
•
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The growing literature on East Asian economic development is dominated
by conventional economic analyses that stress the comparative advantages
of the East Asian NICs and how they have reaped the benefits of these
advantages through tbe workings of world market mechanisms (Westphal,
1978; Little, 1982; Balassa, 1982). Recently, however, schol.ars hav~ begun
to pay close attention to tbe role of developmental state.s 10 gmdm!l and
directing export-oriented industrialization through strategic intervention m
the economy (Amsden, 1979; Hofheinz and Calder, ~982; Haggard and
Moon, 1983; Wade and White, 1984). Although this statist appro~ch reveals
important dimensions of the East Asian development pattern, It t~nds t?
overstress the independent role of the developmental state, paymg insufficient
attention to other, equally important sociopolitical fo~ces such as SOCial
classes and core-periphery relations in tbe world economic system.
Here I take a more comprehensive, albeit somewhat eclectic, ~proach,
using an analytic framework advanced elsewhere (Koo, 1984a).\Thls approach
assumes that development in a Third World country IS shaped by the
interplay of state, social classes, and.world ~ystem. The focus of analysis IS
not the individual factors but the interacuon among these three sets of
variables; If we do not examine these variables in their dynamic interaclio~,
I believe; we cannot delineate tbe specific ways in which each set of van"
abIes influences the development process. Dependency mecham~ms, for
example, cannot be specified until we have investigated the ways 10 which
external forces are linked to internal class structure. Similarly, class relations
in a peripheral nation cannot be adequately understood ~nless we
consider the influence of international capital and core states. Fmally, .tbe
role of the state in economic development cannot be fully understood without
its being situated in the contexts of class structure and world economic
I gratefully acknowledge assistance rec.eived.from the Social Science Research Institute,
University of Hawaii, while I was preparmg this chapter.