Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Institution Building in South Korea (Dec. 31, 2012)

           A graduate mentee of mine at the University of Asia and the Pacific, Luis Montesclaros, made a very perceptive comparative study of the South Korean authoritarian model of Park Chung Hee (1963-1979) and a similar regime at almost the same time, that of President Ferdinand Marcos (1965-1986).  Doing a survey of literature about these two countries in East

Asia, he noted that both had previous experiences of occupation by foreigners (United States and Japan), and were reliant on external financing.  Despite these similarities, however, South Korea succeeded, while the Philippines failed, plummeting from one of the most developed economies in Asia after the Second World War in the 1950s to the "sick man of Asia" in the 1980s.  Over the same period, the Philippines grew only 0.4% in GNP per capita, while South Korea grew 8.2%.  Moreover, by the time the authoritarian regimes ended, the Philippines' debt-to-GNP ratio was at 90% while South Korea's was only 56%. 

          South Korea followed the East Asian model of the last century which began with implementing authoritarian developmentalism as a way of government.  With this as base, the states increased the scope of government power in performing roles such as creation and regulation of markets, management of infrastructure spending (especially in the rural areas), and creating strong macroeconomic fundamentals.  This so-called "flying geese" process began with Japan, which registered high economic growth after rising from the shambles of the previous war, and then was followed by South Korea, Singapore, Hong Kong and a little later Thailand, which became a model of rural and agricultural development. 

          Citing the studies of Hyung A. Kim (2011), Montesclaros acknowledged the success of Park Chung Hee in implementing top-down reforms in order to abolish the patrimonial cycle that  characterized Korea under Syngman Rhee, the first President of the Republic of Korea.  Park did this by first removing the chaebols, the group of heads of the biggest industries which had the power to obstruct reforms by refusing to cooperate.  The chaebols had in their hand the ability to generate the necessary economic growth.  Then through a masterful strategy of getting their cooperation, Park gave them back their positions and resources on condition that they invest in the new firms that were being built for the reconstruction of South Korea.  He also created a civil body of advisers who helped craft the Comprehensive Five Year Economic Plans of South Korea.

          Park then moved to reform the bureaucracy by removing previous officials who had been appointed by Syngman Rhee who bypassed civil service examinations.  Park then selected highly trained and well-educated officials to occupy high posts.  He rationalized the bureaucracy to make it more effective.  He did not hesitate to make extensive use of the military, headed by KCIA Director Kim Chong P'il, in implementing reforms.  In fact, one of those he appointed from the military to head the Bureau of Trade and Industry, Ick Ho Um, is a long-term resident of the Philippines and is the Dean of the South Korean business community in Metro Manila.  Mr. Um was responsible for the establishment of companies like the KIA Motor Company, now a part of the highly successful Hyundai conglomerate. 

          Korea's success in attaining First World status at present and avoiding the middle-income trap, into which many economies in Latin America and Africa which also had authoritarian regimes fell, can be attributed to effective governance reform.  This was the missing ingredient in the experiment on authoritarian government of President Marcos.  The Philippine economy continued its route towards capital-intensive, import-substitution and protectionist industrialization.  This was attributed by Hutchcroft (1998) to the vested interests of oligarchies and landed elites which wanted to monopolize the markets for themselves.  Unlike the efforts under Park Chung Hee to improve the conditions of farmers and rural workers through the saemaul undung movement, President Marcos failed to invest heavily in rural and agricultural development.  While South Korea was able to implement merit-based export incentives that led to the rapid growth of labor-intensive industries, the Philippines was left to patronage-based incentives, especially in the coconut and sugar industries in which monopolistic control was handed over to the cronies of the President. 

          From the comparative study of the regimes of Park Chung Hee and Ferdinand Marcos, we can now present the theory of institution building as the main reason for the success of Park and the failure of Marcos.  The study confirms the thesis of Max Weber (1978) that the "patrimonial state lacks the political and procedural predictability, indispensable for capitalist development, which is provided by the rational rules of modern bureaucratic administration."   Capitalist development or any activity is dependent on a certain degree of institutions being grounded in social and political foundations, which are carried by bureaucracies.  These institutions guarantee a certain degree of calculability/predictability in law and administrative policies.  By building institutions, Park Chung Hee improved the investment climate and gave investors greater confidence in the long-term assurance of stability.

          In contrast, the Marcos regime displaced landed Filipino elites in major companies (Philippine version of the chaebols) but transfered ownership of these to his own cronies through nationalization or forced sale of company shares at lower prices.  Although he had very honest and competent technocrats whom he appointed to high government positions, he often went against their advice, listening more to relatives and close associates.  Among some of his more competent advisers, there were those who continued to guide him towards large-scale, import-substitution industrialization.  In the last years of his regime, the Ministry of Trade and Industry tried to launch the so-called Eleven Major Projects which were heavy industries like Iron and Steel, Aluminum Smelter, etc.  Fortunately, only a few of them were able to take off before President Marcos was ousted through a peaceful people power revolution.

          Park Chung Hee was more successful in building institutions that professionalized the government bureaucracy.  Together with the professional technocrats, the chaebols that received favorable treatment from Park Chung Hee acquired a stake in the reforms and were the first ones who sought to maintain the gains from these reforms.  In a way, such an approach guaranteed sustainability because the reforms had a constituency that sought to maintain the new status quo that replaced the landed elite and other feudal lords.  The modern and relatively efficient government bureaucracy of today's First World South Korea is a testimony to the wisdom of the policies followed during the Park Chung regime. In contrast, it has taken more than 25 years after Marcos was ousted for the Philippine economy to accumulate a critical mass of reforms in the key sectors of society that now is enabling the Philippines to recover lost ground in economic development.   Fortunately, today President Benigno Aquino III is focusing on institution building.   For comments, my email address is bernardo.villegas@uap.asia.