Park Chung Hee Era

by Byung-kook Kim

  In fact, EPB was as much an “owner” of the POSCO project as Pak T’ae-jun was. With Park’s delegation of power, the EPB thoroughly dominated other state ministries in the formulation of POSCO policy. The MCI was legally in charge of the steel industry,27 but it was viewed as at best a junior partner in the launching of POSCO or, at worst, a sectoral ministry captured by the small-size, electric furnace–based steel producers, to be kept in close check if the EPB was to carry out Park’s vision of catching up with the Japanese steel industry—ironically, with Japanese money and technology. Even the elite Ministry of Foreign Affairs (MFA) had to move aside to give the EPB the spotlight in negotiations with Japan over reparation funds and technology licensing. Under the special Presidential Order of June 7, 1969, it was the EPB, not the MFA, that headed an interministerial task force for the construction of POSCO to coordinate the MFA’s negotiations with Japan on the use of reparation funds, the MCI’s pre-liminary preparation of the Steel Industry Promotion Act, Pak T’ae-jun’s business strategy, and the development of the infrastructure of POSCO, led by the Ministry of Construction (MoC).

  POSCO’s Search for Autonomy, 1973–1981

  Building a Second Integrated Steel Mill Even before completing the construction of POSCO in July 1973, Park planned to expand its production capacity radically. The HCI drive was already in full swing by early 1973, with the state announcing myriad development plans, policy guidelines, and political manifestos for a wide range of heavy and chemical industries, many of which the MCI and other line ministries had been preparing since the late 1960s. What had been isolated instances of line ministries drawing up a wishful list of projects became merged into a concerted, integrated program of HCI and, in the process, was transformed into an even more ambitious plan to upgrade the South

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  Korean industrial structure. The deteriorating condition of military security put the HCI drive on a qualitatively different plane as well. With President Nixon’s visit to China in 1972, the U.S. Seventh Infantry Division’s withdrawal from South Korea in 1971, and the U.S. military disengagement from South Vietnam in 1972, Park’s urgency in developing the steel industry as part of South Korea’s modern defense industries rose dramatically. Politically, too, the HCI drive made sense for Park, who was in need of a showcase project to justify the launching of his authoritarian yushin constitution in October 1972. He also faced the triple woes of falling growth rates, worsening balance of payments, and declining foreign exchange reserves, all of which he hoped to reverse with the half-import-substitution, half-export-promotion of heavy and chemical industries.

  The launching of HCI profoundly strengthened the status of the steel industry within the hierarchy of the national agendas. Park looked at the steel industry as the engine of deepening industrial development. This change of perception within the inner policy circles led to the announcement in July 1973 of plans to construct a second integrated steel mill upon the completion of POSCO. To support the simultaneous development of the shipbuilding, electronics, machinery, and nonmetal materials industries, Park called for increasing the South Korean steel production capacity from one million tons in 1973 to ten million by 1980. That required not only POSCO to undergo expansion, but also the construction of a second integrated steel mill.

  The 1973 HCI drive also brought a shift in the balance of power within the state bureaucracy. As HCI began, the EPB, as the lead agency in charge of macroeconomic growth and stability, argued for a more moderate shift toward HCI, whereas the MCI, as the agent of industrial transformation, advocated a massive entry into the heavy and chemical industries. Park favored an even more radical change, prodding MCI to raise the scale of its plans to the level of the best of Japan’s industries. Park’s intervention resulted in the declining influence of the EPB. Eventually Park had the newly established cabinet-level Heavy and Chemical Industrialization Promotion Committee (HCIPC) make strategic decisions, with EPB-MCI bureaucrats then translating those decisions into feasible policies. To ensure bureaucratic loyalty and control, Park had his second senior economic secretary, O Wôn-ch’ôl, a former MCI assistant vice minister already transferred to the Blue House in 1971, steer the HCIPC as head of the HCI Planning Corps (see Chapter 7). Nominally under the prime minister–chaired HCIPC, the Planning Corps prepared plans, guidelines, and strategies for the members of the HCIPC to review and approve. In its role as a secretar-

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  iat, the Planning Corps came to influence the agenda of the HCIPC and structure the options of Park in decisive ways. Under O Wôn-ch’ôl’s patronage, the Bureau of Steel at the MCI came to dominate the expansion of POSCO as well as the construction of a second integrated steel mill.

  Such an upgrading of the steel industry in the hierarchy of national priorities posed not only an opportunity for POSCO, but also a serious challenge to its status of national champion. In November 1973, Park established Second Integrated Steel, Ltd., with its equity capital provided entirely by the state. Renamed Korea Integrated Steel, Ltd., in September 1974, the company signed a joint venture agreement with U.S. Steel to construct an integrated steel mill with an annual production capacity of seven million tons. The foreign partner was to provide 20 percent of the required investment. The challenge was thwarted only because the U.S.

  company demanded that it be guaranteed a 20 percent profit margin.

  Moreover, the South Korean negotiators could not accept U.S. Steel’s demand that the South Korean state block POSCO from entering the market for steel plate. In April 1975, POSCO absorbed Korea Integrated Steel, Ltd., as part of its internal expansion program. Ironically, it was the foreign steel producer’s effort to keep POSCO from diversification that tipped the state toward the protection of its monopoly status in 1974. Until 1978

  there would be no talk of launching a second integrated steel mill to break that monopoly.

  The real test of POSCO’s ability to guard its interests came when its third expansion phase neared its end in 1978. With the scheduled completion of Phase III, the issue of whether South Korea should build a second integrated steel mill resurfaced. This time, second senior economic secretary O Wôn-ch’ôl called for the Hyundai Group’s entry into the steel industry with the goal of creating a private competitor for POSCO. The MCI and the Ministry of Construction (MoC), by contrast, supported POSCO. A deadlock ensued until Pak T’ae-jun met with Park on October 26, 1979, a few hours before his assassination. The aging president sided with POSCO. Although objections were raised at the ministerial level, Park’s decision was honored by Chun Doo-hwan’s Fifth Republic (1980–

  1988). With it, POSCO came to consolidate its dominant market position.

  Going It Alone

  The slogan at POSCO was “Catch Up with Nippon Steel.” To do that, the company had to strengthen international competitiveness, which was possible only when POSCO increased its own capacity for technological innovation and expanded production to meet world standards. In 1981,

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  POSCO announced its plan to construct the Kwangyang Steel Mill in South Chôlla Province and approached Japanese steel producers for support. This time, however, the earlier transnational alliance was not to repeat. The world steel industry was suffering from severe surplus capacity, and the global market was in a deep recession. Moreover, to the Japanese steel producers’ surprise, POSCO had proved to be a formidable challenger to the Japanese steel industry, undergoing four phases of expansion without hurting its profit level. The month of August 1981 even saw South Korean steel exports to Japan surpass South Korean steel imports from Japan, causing an outcry among Japanese steel producers, who believed that they had inadvertently undermined their market position by assisting POSCO. Accordingly, Nippon Steel turned down POSCO’s 1981 overture and even tried to give the Kwangyang project a bad name in global markets through its influence at the International Iron and Steel Institute. Only
Chairman Yoshihiro Inayama of Keidanren supported the Kwangyang project, but even then only at the “personal level” in the words of Pak T’ae-jun.28

  POSCO transformed the challenge into an opportunity to diversify its sources of loans, technology, and production facilities. Austria and West Germany were particularly responsive, providing production facilities at low prices in order to reverse their falling export receipts. Alarmed by their willingness to cooperate with POSCO, but also fearful of losing the South Korean market for production facilities, estimated at $2.3 billion, some of the Japanese changed their stance and promised technological cooperation, which enabled POSCO to construct the Kwangyang Steel Mill.29 Having strengthened POSCO’s ability to independently raise funds abroad, engage in technological innovation, and capture new export markets through the realization of economies of scale, Pak T’ae-jun was able to assemble a coalition of foreign technology licensers, plant suppliers, and bank lenders for the Kwangyang investment project on a strictly commercial basis.

  The leadership of Pak T’ae-jun proved to be an even greater asset for POSCO after the death of Park in 1979. Before the demise of the yushin regime, Pak T’ae-jun served as the link between POSCO and the ultimate center of power, Park Chung Hee. From warding off political party pressures for financial contributions to the struggle against foreign lobbyists’

  pressures for concessions30 to the defense of POSCO’s organizational interests in interministerial turf wars, it was Park who swung the balance of power in a direction favorable to POSCO. The president was a safety net, protecting POSCO from rent-seekers and bureaucratic intruders during its formative years and giving it the time it needed to build up its corporate

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  identity, institutional autonomy, and technological capabilities to grow out of the infant stage. When Park died, Pak T’ae-jun faced a true test of his leadership, which he passed masterfully. He was a model “network organizer,” to borrow Ken-ichi Imai’s concept describing the Japanese style of political organization.31 Consolidating the powerful support group he had built up for POSCO within the South Korean state bureaucracy and the ruling political party as well as among foreign steel producers, Pak T’aejun himself became the safety net for POSCO after October 1979.

  With Pak T’ae-jun’s network warding off would-be rent-seekers, POSCO

  was able to decide its investment, procurement, and outsourcing policy autonomously according to the requirements of global markets, even during the Fifth Republic. That was unusual among South Korea’s state enterprises, which were notorious for being heavily influenced by outsiders in personnel and investment policy. In addition to its insulation from external political forces, POSCO also had a diverse array of support from the developmental state that ensured large profits. With these state supports, POSCO was able to finance the four phases of expansion, the results of which were a greater exploitation of the economies of scale, an enhancement of international competitiveness, and a reasonable level of profits. The virtuous cycle of profitability and expansion also strengthened POSCO’s political autonomy. Since the mid-1990s, POSCO has been able to raise funds directly in capital markets, freeing it from dependence on the state for subsidies and loans and, conversely, from vulnerability to external political intervention in internal business operations.32

  The concept of “strong state” is inadequate in explaining the successful development of POSCO into a national champion. Much more critical was the establishment of a developmental coalition with all crucial actors with the necessary resources on board. The coalition building was an extremely challenging task for Park, even with the massive carrots he could and did offer to potential coalition partners. The outcome was a spectacular success, but the process by which South Korea got there was nothing spectacular. Even with the strong state’s guarantee of a stable supply of subsidized policy loans, trade protection, license privileges, and industrial peace through repressive company unionism, it took a decade to build an integrated steel mill on the scale Park envisioned.

  POSCO’s success was the product of leadership and risk taking. Without Park’s unswerving commitment to the development of the South Korean steel industry and Pak T’ae-jun’s ability to gain the support of political leaders, bureaucrats, and business elites both at home and abroad, POSCO could not have become what it is today. These two great politi-

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  cal entrepreneurs secured funds for POSCO only after repeated failures, and they protected its institutional integrity from powerful external rent-seekers during its formative years. It was the enormous dedication and leadership of Pak T’ae-jun and Park Chung Hee that guarded and nurtured POSCO into a world-class steel producer.

  The political leadership that proved crucial for POSCO’s success involved either risk taking or recklessness, depending on the ideological bag-gage of who is doing the evaluating. A series of foreign lenders from USAID and the United States Export-Import Bank to the World Bank to eight KISA member-states turned down Park’s request for funds because his vision of making South Korea a “steel power” (ch’ôlgang kangguk) contradicted the wisdom of neoclassical economics. South Korea’s ability to secure Japanese support in 1969 did not imply that the Japanese thought differently. Despite Japan’s talk of dynamic comparative advantage, its LDP bosses, keidanren leaders, and bureaucrats decided to support the POSCO project only because it was to be funded by the reparation funds, because it was judged as serving Japan’s geopolitical need to bring South Korea firmly into a U.S.-centered regional security alliance, and because it was expected to remain an inefficient infant industry.

  Among the three rationales, the first two were not economic, but political.

  The story of POSCO has a happy ending; it succeeded. But the process of developing POSCO was often mired in setbacks, making its success anything but inevitable, necessary, or natural. It was politics, not economics, that made possible the development of POSCO into a world-class steel producer.

  c h a p t e r

  t w e l v e

  The Countryside

  Young Jo Lee

  Since the mostly left-leaning peasant organizations were eradicated in the course of the revolutionary challenge and counterrevolutionary reaction during the 1945–1953 period, there have been no autonomous peasant movements to speak of in South Korea. This absence, however, does not mean that the peasantry have been unimportant in politics. The dominant view of their role is that of yôch’onyado (the countryside for the government, the city for the opposition).1 Its advocates make four propositions. First, after the land reform of the early 1950s, the countryside turned into a strong support base for the ruling coalition even when it pursued an economic strategy hostile to rural interests. Second, farmers did so because immersed in traditional culture, raised in political conformism, and looking to clan leaders, village elders, and local officials for guidance,2 they lacked a sense of individual autonomy and “civic capacity”3

  and became available for top-down mobilization in support of the ruling coalition.4 Third, those in power commanded an extensive state and party organization with which to hand down “carrots” to reward their rural supporters and to wield “sticks” to punish their rural adversaries selectively with the goal of top-down mobilization. Fourth, sure of the countryside’s political backing, the ruling coalition was able to turn terms of trade against the farmers toward urban-based manufacturers with an eye to generating export-led industrial hypergrowth.

  Essentially, the four propositions of yôch’onyado add up to the image of

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  the South Korean farmers as a sort of safety net for Park Chung Hee (1961–1979). In the eyes of yôch’onyado advocates, the steady flow of electoral support from the countryside, even when Park financially squeezed it to secure the necessary resources for industrial development, allowed him to “afford” electoral competition during the 1960s and to contain t
he politically contentious city with top-down rural electoral mobilization during the 1970s, despite his personal distaste for elections and his modernization strategy’s “selective affinity” with authoritarianism rather than with democracy.5 Equally critical, from the perspective of yôch’onyado advocates, support in the countryside helped cushion Park’s political dilemmas with regard to modernization. Park knew that the primary beneficiary of his modernization effort—the “modern” and “dynamic” urban sector, up-rooted from traditional ways of life—would oppose him on mainly ideological grounds. However, Park stuck to his goal of modernization because he knew also that the rural sector would come to his rescue by overwhelming the votes of growing but still minority pro-opposition city dwellers.

  That there was solid rural support for Park during his political rule is beyond dispute. What is at issue is rather the farmers’ political motivation and capabilities and Park’s political strategy to reshape them. Were the farmers mere captives of cultural conformism? Did Park’s local electoral machines unilaterally control and mobilize the rural population without any direct or indirect feedback from the farmers? Was Park only exploiting the countryside to generate macroeconomic hypergrowth? By going beyond the national or regional aggregation of votes to decipher variations in rural support for Park over time and across regions, Chapter 12 brings out the complexity of South Korean rural politics that advocates of the yôch’onyado thesis overlook. First, it will be argued that Park’s rural strategy was a variable, tilting toward the farmers’ interest during his junta years (1961–1963), only to swing to the opposite strategy of agricultural squeeze (1964–1968), then to a politically timely but economically unsustainable Bismarckian alliance of “rye and steel” on the basis of simultaneously supporting the farmers’ price for rice and the chaebol groups’ entry into heavy and chemical industries (1968–1979). As his zigzags in rural politics showed, Park saw farmers as rational actors, evaluating the benefits and costs of his agricultural policy and acting on those evaluations in elections with their votes. Rural votes were not consistently pro-Park; they had to be nurtured with incentives. Consequently, Park had to be a rational mobilizer as well, changing his rural strategy as his political fortunes waxed and waned and his primary political goals altered.