Comparing Economic Progress of Pakistan with South Korea – Part 2

Abstract

Comparing the 70-year development experience of Pakistan with that of any of the Asian Tigers, particularly South Korea, is an exercise in futility; the speed and content of the economic development of a country depends upon several constants and variables such as

  1. Initial conditions at the start of its economic development
  2. Economic policies adopted to accelerate its economic progression
  3. Unknown Factors & Global Environment available.                                                                                                                                                

Using the historical data, the author maintains that all these four Asian Tigers enjoyed certain advantages in the above mentioned three areas which Pakistan did not.

This 2-paret article attempts to highlight the comparative advantage those countries had over Pakistan when they started their development process and made all the difference.

Economic Policies Adopted by South Korea

After the Japanese defeat in World War 2, the USA occupied the Korean peninsula which after a two-year war split into two, with the Southen part coming under American control. To obviate the possibility of unleashing the revolutionary forces in South Korea that were budding in the north, the American occupation forces kept the Japanese colonial state intact in post-war South Korea.  A façade of civilian government under Syngman Rhee, who had spent 39 years in Washington, was set up. He effectively used the rep[ressive state apparatus bequeathed by the retreating Japanese to repress communist and other revolutionary flavours, even killing the freedom fighters who had fought to liberate Korea from the Japanese.

However, besides allowing a reign of terror by the puppet regime, the US military carried out the sociopolitical re-engineering and finetuning of the political economy of South Korea. After seeing the popularity of Communist land reforms and massive infrastructural development in the North, they launched their own land reforms in the South and started a massive programme of infrastructural development. Utlising the US$ 1,500 million military aid provided by the USA, they built roads, bridges and other infrastructures which greatly helped Korean industrial firms.

As South Korea lacked natural resources, growth through industrial development became the priority for which the state played a pivotal role. Following the MITI model of Japan, Korea created a planning board that steered the economic development of the country with an iron hand. The State took over the farming surplus by making it compulsory for farmers to deliver to State entities at a price determined by the authorities. The State kept on patronising the colonial era chaebols, like Samsung, Hyundai, Lucky Goldstar, Daewoo, Kia, etc. They benefited tremendously from the numerous subsidies, tax and non-tax concessions from the state, financial institutions, USA and Japan. This state patronage was instrumental in converting these Chaebols into global MNCs.

Similarly, the state played an extremely crucial role in the creation of a vast pool of educated and skilled manpower readily available to the manufacturing firms at the cheapest possible wage rate. It was supplemented by the huge amount of resources allocated for the Research & Development whose fruits were accessible to firms almost free of cost.  For two years, 1977-79, almost 80 % of all state investments were devoted to establishing heavy industries by these conglomerates through deficit financing, diversion of pension funds and massive foreign loans. South Korea was fourth on the list of most heavily indebted countries in absolute figures (43 billion dollars) but got bailouts because of its strategic position  The United States urged Korea to resume economic relations with Japan. Japan signed a ten-year agreement (1965-1975) that included economic aid to the amount of USD 500 million, 300 of which was in the form of grants.

One of the components in the Korean miracle was the exploitation of industrial manpower with impunity. In 1963 there were 600,000 industrial workers, in 1973 1.4 million and 1980 over 3 million, half of whom were trained. They were subjected to extreme exploitation: the longest working hours, extremely low wages, no trade union capable to fight for their rights. Fierce repression resulted in all opposition leaders being arrested, which led to violent urban uprisings leading to the imposition of martial law in May 1989.  Paratroopers were sent out and killed demonstrators (including young girls) with their bayonets.

Policies adopted by Pakistan

Economic Policies Adopted by Pakistan

Incidentally, the policies Pakistan adopted after gaining independence to kickstart its economic development did not differ significantly from those adopted by the South Koreans because the source of both the policies framework was the same. Pakistan started its development through economic planning stressing on capital accumulation and rapid industrialization through import substitution, the globally accepted strategy to overcome the critical shortage of essential goods necessitate. The state thus formulated an extremely pragmatic Industrial Policy in 1948 which favoured globally accepted capitalist development model and adopted the same policies as were the hallmark of the South Korean model namely

  • Quantitative restrictions on the import of manufactured goods
  • Imposition of taxes on the export of raw material
  • Keeping currency overvalued to ensure cheap import of capital goods/raw material needed for the industry
  • Cascading structure of import duties to allow capital goods and raw material for the manufacturing sector at cheaper rates
  • Squeezing the peasants by keeping the terms of trade in favour of industry vis a vis agriculture
  • Liberal tax concessions and non-tax incentives to industrialists

Consequently, despite all the handicaps mentioned above, started construction of infrastructure, built factories to hand over to the private sect and within one decade was able to develop a robust private sector which was not only meeting domestic demand of the consumer goods but also started exporting. These very policies were continued with greater gusto during the 1960s and even afterward till today with one small deviation during the Bhutto regime in the early 1970s.

It helped in the emergence of the commercial mercantilist class of Pakistan which was to play a very dominant role in the succeeding decades. However, while the freehand given to the private sector in South Korea helped the colonial era conglomerates(chaebols) to become global MNCs, in Pakistan the same freehand to market forces led to an accentuation of inherited inter-provincial economic disparity between the two wings. Seeds of secession of East Pakistan were strengthened because of the vast economic disparity these policies created.

Thus, we can say that it was not the difference in policies adopted by the two countries which can account for the difference in their respective development processes. Rather, it was the edge South Korea had over Pakistan in terms of human development indicators, level of industrial development and the nature of the state that made all the difference between the speed and scale of their economic growth. The South Korean state was capable of extracting resources and suppressing its ethnically homogeneous citizenry with impunity when it agitated against the lack of political empowerment and economic injustice created during the process of economic development at breakneck speed. And the state had no qualms in brutally squeezing its peasantry and exploiting its labour force with the help of the apparatus left behind by colonial Japan.   

On the other hand, the same economic growth model when applied in Pakistan resulted in agitation, insurgencies and even a civil war that the state could not manage because we were not an authoritarian, centralized state with the capacity to suppress at the level South Korea could repress. Nor were we ethnically homogeneous enough to bypass economic disparities across ethnic lines.

External Environment & Unknown Factors

In Irma Adleman’s famous development model identifying the factors instrumental in accelerating the growth rate of an economy, there is a set of factors bracketed under the word U-Unknown factors. These are the historical socio-economic and political reasons unique to a country or a region causing its rate of economic growth to be better or worse than other countries starting with similar initial conditions or adopting the same set of economic policies.

To me, after the differences in the initial conditions between Pakistan and South Korea at the start of their development process in the 1950s, it was the difference in these U factors which made all the difference in their efforts to grow. One was the Confucianism with the principles it incorporates, which favoured economic development in the South-East Asian regions.

 “Indeed,”[…], the Confucian values and tradition lead to a model of maximal government, with its myriad responsibilities, duties, and obligations. The State is not just supervisory and regulatory in function but to a very large extent developmental, educational and mobilizational in emphasis. The bureaucracy is not just administrative and government functionaries but acts as guidance of national interests and is often perceived as leaders, intellectuals and teachers”.

Secondly, South Korea was situated in proximity to the sea, thus their transport and shipping costs are relatively small, and the ratio between the population living near the coasts to the land area is one of the highest in the world.

Thirdly, massive amounts of US financial aid, mostly grant along with technical assistance provided by the USA to the South Korean regime serving at the forefront of anti-Communist bulwarks. The grants Korea received from 1945 to 1961 amount to more than the World Bank’s total loans to newly independent developing countries meant that South Korea did not rely on loans for 17 years after the end of WWII. 

Fourthly, and paradoxically, South Korea had no option, like its model Japan, to go for early and rapid industrialisation because of the shortage of natural resources. And the USA permitted South Korea to industrialize to allow it’s the anti-communist regime the economic stability needed to survive.

Fifthly, the South Korean firms benefitted enormously through another fortuitous event; the presence of large contingents of American forces inside and around Korea. By the 1970s, 20 % of South Korean exports comprised supplying to the American forces in Vietnam and other countries of the region. These were not only taking care of their security needs but also providing them a window case for manufacturing goods and services and improving them as per specifications needed in mainland America for subsequent export. In fact, the top 50 Chaebols of South Korea’s business class which had their roots in the Japanese colonial era, became global MNCs and international brands by supplying goods and services to the American forces in the region.

And finally, not only South Korea but the three other Asian Tigers were more like the city-states of ancient Greek without any poverty-stricken hinterland to carry along. If someone wants to make a meaningful comparison, then compare them with Karachi which has marvelously taken along the entire country. And this very smallness of theirs was a blessing in disguise for them; their exports, being a small percentage of import bill of the USA and Europe, did not result in any substantial dislocation of the American and European industries. If China and India had also started exporting similar goods and services to these countries, all type of sanctions could have been imposed to protect their domestic industries

(Taken from author’s book Political Economy of Pakistan; 1947-2020/ A Short History available at

https://www.amazon.com/dp/B0844ZMKNW#reader_B0844ZMKNW
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