CHAPTER 3 The State and Tradition

Park Chung Hee, a lieutenant general with a complex personal history, came to power through a coup d’état in 1961. Born in 1917 as the last of seven children to a poor family in Kumi, a town in the southeastern region of the Korean Peninsula, he grew up under the Japanese colonial education system. He attended Taegu Normal High School, which trained elementary school teachers, and afterward entered the Manchurian Military Academy, which was run by the Japanese government. He also completed a short training course at the Japanese Military Academy in Japan and was appointed an officer in the Japanese army.¹ At the end of colonial rule, he reentered the Korean Military Academy and became an officer. He was soon thereafter implicated in the Yeo-Soon revolt in 1948, a communist-instigated uprising, and was released from active service. With the help of his military cohorts, he remained in the military as a civilian until he was reinstated in 1949. Park held a deep distrust toward and contempt for civilian politicians of the time for their corruption and cliquish behaviors and planned a military coup in 1960 but had to postpone due to the student uprising in April 1960 against election rigging by the Seung Man Rhee regime in March of that year. The Chang Myon regime, which came into power after the ouster of Rhee, could not exercise strong leadership, leaving the political situation extremely unstable. Park masterminded and successfully launched a coup d’état in May 1961 and took over the chairmanship of the Supreme Council for National Reconstruction. The military Junta issued the Six-Point Revolutionary Pledge to Korean society, the main themes of which were strong anti-communist posture, anti-corruption, strong commitment to economic development to overcome poverty, and pro-Western orientation.²

ECONOMIC BACKWARDNESS AND INFERIORITY

Park’s sense of Korea’s backwardness was grounded in his negative view of Korean history. He lamented that despite good natural and human endowments, the country had not been able to exert a visible international presence, largely due to domestic problems: “It is five thousand years since our founding father established the fatherland. Our nation is based on one of the few pure races in the world, but our history has been one of internal division, mutual hatred, and conflict in the midst of poverty and idleness. Although sharing pure blood, God-given land, and unique culture, we have not been able to establish a nation worthy of the name. Reflecting upon our past, our history has been one of insult and bloody tears. How could such a nation have dared to look outside?”³ His view of 20th-century history highlighted the loss of independence and loss of self-reliance in economy and culture: “Our history beginning with the 20th century had been one of hostile external environments and currents, colonization for 40 years, import of decadent culture since the end of World War II, the Korean War and consequent confusion, poverty, and two revolutions … This disgraceful half-century of our history witnessed offenses against our good customs and ideological and political confrontation, lavish spending and waste, idleness, vanity, mutual hatred, and jealousy, which all gave rise to a society of instability and emotional harshness.”⁴

Finally, Park addresses the psychological and social impacts of this negative history: “The masses, due to prolonged suffering, turned into expressionless semi-slaves and passive human beings who are used to idleness after many years of living with sadness and resignation. The pattern of land ownership that had dominated Korea throughout history dampened the idea of private ownership and dried up desire for reconstruction.”⁵ Park’s negative view of Korean history and sense of national backwardness started with his observations of the domestic situation:

Our five thousand years of Korean history from the Old Koguryo period through the Three Kingdom Period, the Unified Shilla, the post-Three Kingdom, the unified Koryo to the Yi dynasty of five hundred years were one of retreat, unsophistication and stagnation. When did we ever dominate others by crossing the border, seek for reforms and change by bringing in ideas and materials from abroad, demonstrate and extend our unified power to the outside and exalt our autonomy through special industries and culture? We have been pushed and purposelessly assimilated into foreign cultures and could not make an inch of progress from the primitive economy. We spent most of our time on fratricidal infighting. It was a history of microcosm of the feudal society which was characterized by idleness, remissness and stagnation.⁶

He goes on to highlight Korea’s relative backwardness vis-à-vis specific regions and countries, particularly in comparison to Western Europe:

What did our ancestors do then? At the end of the Chosun dynasty, factional struggles among Yangbans under Sunjong became chronic, the court was in chaos due to the intervention of the queen’s family in politics, and bureaucrats were frantically engaged in exploiting masses. Peasant revolts were pervasive, the culmination of which was Hong Kyung Rae’s rebellion in 1811. How could it not fall behind Europe? It would not be an exaggeration that Korea is falling behind Europe by more than 150 years. We should make a much greater effort to catch up for the 150 years. Are we indeed determined to do so? We should clearly remember that the rehabilitation of Germany is not merely a miracle. I urge our people to awaken at this point.⁷

It was obvious to Park that Korea was falling behind Japan and that Korea was relatively backward compared to most newly born Third World states.⁸ He noted, “Fortunately, our patriotic forefathers and the victory of the united forces brought liberation sixteen years ago. However, indulged in the jubilation of being independent we failed to complete a self-reliant system. Instead, while we were wasting our time, more than forty underdeveloped countries gained independence and joined the UN. But we have not come out of backwardness, remaining underdeveloped and suffering from poverty, hunger and chaos.”⁹ Finally, he pointed to social impediments to modernization and industrialization in Korean history: “It would not be an exaggeration to say that we have lived in a particularistic society where we judge people by the level of wealth, better education, family backgrounds of the past and the present, religious identities and political party affiliation.”¹⁰

These lamentations are well documented in Korean political historiography.¹¹ What bears emphasizing is that Park did not dwell on the backwardness of Korea but mentioned historical failings to heighten the sense of urgency to move forward:¹²

There is no progress and prosperity in human life that can be achieved without shedding blood and sweat. At a historical turning point, the clouds of retreat that cover our fatherland and history of our nation will not clear up unless we who live today make life and death effort to free ourselves from the bridle of disgrace and backwardness.¹³

One year to us is nothing but a moment in eternity. It is only a fleeting moment. But what we can do during the time will make a serious and critical impact on our journey to the modernization of our fatherland.¹⁴

We are facing the threat of aggression externally, and internally we face the enormous national task of the modernization of our fatherland. Even seconds and minutes are precious and not to be wasted. Waste of an hour today may bring 10 years’ underdevelopment. Unity today may bring about a great takeoff later.¹⁵

Park’s sense of backwardness and urgency led to overly ambitious goal-setting in economic development.

AMBITIOUS ECONOMIC GOAL-SETTING

Politically, Park was in a hurry to establish and demonstrate his political legitimacy through tangible achievements after the military coup d’état. The Korean economy prior to the industrialization drive was in a dire condition, with the agricultural sector taking up 47.3% of the national economy. The proportion of industrial production was only 12% of the entire economy, and the bulk of it was in light industry (79%).¹⁶ Personal GNP per capita was a meager 80 dollars. The number of production units was only 8,628, and the number of workers was 221,000.¹⁷ The Korean War further devastated industrial facilities. The scale of damage was enormous: the number of enterprises that were damaged was 10,436, 24.9% of which was in manufacturing sector. The total war damage in the industrial sector amounted to 40 billion won (in current prices) and more than 4,700 buildings were destroyed, with infrastructure damage reaching 19.8 billion won.¹⁸

Korean business prior to the mid-1960s relied heavily on the state for capital and technology. The state’s influence on business had become strong since liberation, especially through the privatization of seized Japanese- owned properties. The scale of Japanese property was enormous: 822 Japanese companies employed 59.6% of the entire workforce.¹⁹ As such, enemy properties drew interest from business sectors and beyond by using various ties to gain access to the state. The properties were privatized without following any systematic guidelines: personal connections and exchange for political support were used, with prices far below market prices.²⁰

Likewise, foreign assistance was also allocated in an arbitrary fashion. Between 1945 and 1961, Korea received 3.1 billion dollars’ worth of assistance from the International Cooperation Administration (ICA) and other agencies, some 30% to 40% of the national budget.²¹ Along with a high level of dependence of business on the state, the import substitution strategies taken by the government worked to give rise to pervasive corruption throughout Korean society. Import substitution strategies involved various protection measures for the domestic market, such as differential custom rates, import licensing, and foreign currency allocation. The supply of loans at low interest rates was also rampant and constituted favoritism. Even before the industrialization drive in the 1960s the dependence of business on the state and the consequent corruption was well established.²²

Under such circumstances Park set unrealistically high economic goals and emphasized achieving them quickly. Ambitious economic goals can be seen both at macro and micro levels. Park complained that the annual GNP growth during the first half of the 1950s was a meager 4% to 5%, while it was 6% for the second part of the decade. He then set much higher goals. The planned annual growth for the first five-year economic plan (1962–66) was 7.1%, but the actual growth was even higher at 8.3%. This pattern repeated for the second and third five-year plans: for the second five-year plan, the actual growth rate was even higher, at 11.4%, than the planned growth rate of 7%. For the third five-year economic plan, the planned growth rate was 8.6%, while the actual growth rate reached 11.2%.²³ Park’s sense of urgency and ambitious goals are reflected in how quickly economic structure changed. While it took almost two centuries for the agricultural sector’s share of the national economy to reduce to 20% in England, this transformation only took 20 years in Korea. Likewise, in England the industrial sector reached 34% of the economy in 1851 from 21% in 1688 (table 3). In the case of South Korea, the industrial contribution to the economy was 18.6% in 1961 but increased to 41% in 1980.

TABLE 3. Structural change of the English economy

Agriculture: fishing and forestry; industry: mining, building, and manufacturing; other: government, defense, domestic service, professions, rents of dwellings, etc.

Source: Peter Mathias, First Industrial Nation, 315.

Park also sought to dramatically increase export volume. As tables 4 and 5 show, annual targets for export were constantly upgraded by Park’s urging, without consideration of the previous year’s record. This ambitious goal-setting is clearly seen in the gap between the upgraded export targets and the actual performance. Between 1962 and 1966, with only one exception for the year 1963, the actual export record was always below the targeted goals.²⁴ For example, the original plan for 1971 was 550 million dollars, but it was increased to one billion dollars at the export promotion meeting presided over by President Park in June 1966, despite voiced warnings that this was overly ambitious.²⁵ Testimonies of the officials who worked under Park also lend credence to his sense of urgency: “My nickname was export minister, and day and night I was preoccupied with the idea that export is only way to survive, and thus put all of energy into promoting export. But then what made all these miraculous records possible? First and foremost, it was possible due to the faith in and determination on export promotion. Without the monthly export promotion meetings in the presence of President Park it would not have been possible to achieve consecutively 30% annual growth of export.”²⁶ Park not only expressed his ambitious goals in words; they were also reflected in his personal interventions in personnel issues and economic goal implementation that set the peculiar tones for state-business relations.

TABLE 4. Changes in export goals, 1962–65 (in million dollars)

Source: Sanggongbu, Muyŏk chinhŭng 40yon, 189.

TABLE 5. Changes in export targets, 1970–80 (in million dollars and rates of growth)

Source: O Wŏnch’ŏl, Han’gukhyŏng kyŏngje kŏnsŏl, 7:487.

ECONOMIC DEVELOPMENTAL STRATEGIES AND IMPLICATIONS FOR STATE-BUSINESS RELATIONS AND SOCIAL CHANGE

Based on Park’s sense of the country’s backwardness, it is necessary to closely examine state actions, business strategies, and interaction patterns between the state and business in order to understand the social and institutional implications of state-led late industrialization. State actions include the perceptions of general economic conditions, basic strategies to overcome backwardness, and specific interaction patterns between the state and business through implementation. More specifically, Park’s specific strategies to develop the economy and major economic policies need to be analyzed in terms of their implications for social change.

What set Park apart from the previous regimes in South Korea were his personal interest and involvement in economic development.²⁷ Park’s strong interest in economic development lies in part due to his general sense of the country’s economic backwardness and inferiority and urgency, but it was also politically motivated in that because he took power by military coup, visible early economic achievement would consolidate and enhance his political legitimacy. However, given the corrupt and small-scale economy based on import substitution, Park was deeply concerned that Korean business was not up to the task of rapid industrialization in terms of the size of capital, management styles, and strategic capability and thus thought the state should provide the business sector with detailed plans and incentives. This strong commitment to and anxiety over business success set a general tone for economic decision-making and implementation. Such a protective posture over business also gave rise to a peculiarly close relationship between the state and business in Korea, which in turn had serious social and institutional consequences.

Park’s prioritization of rapid economic development was put into specific economic plans.²⁸ The most consequential strategy for rapid economic development was the adoption of export promotion in the early 1960s.²⁹ Export promotion strategy was a clear departure from the import substitution strategy in the 1950s under the Rhee regime, and its social implications were, accordingly, quite different. Principally, export promotion strategy contrasts with import substitution strategy in economic opportunities, the state’s role, and the degree of interaction between business and the state. With import substitution strategy, the market is primarily limited to the domestic sphere, and business opportunities thus have less potential for expansion. Naturally, the number and scale of business and workers employed in industrial sectors tend to be less under import substitution strategy than under export promotion strategy.³⁰ As a limited number of business enterprises compete for the domestic market, competition is fierce and businesses seek state favors even through illicit means, which tends to give rise to frequent corruption.³¹ Due to a smaller scale of business, however, the scale of corruption under import- substituting industrialization (ISI) may be less than in economies under export promotion. The social impact of economic policies is also limited as fewer business enterprises compete for state favors.

Along with greater dependence of business on the state, ISI strategies taken by the government led to pervasive corruption throughout Korean society, although not at the scale seen in an economy based on export promotion. The ISI strategies involved various protection measures for the domestic market through such policy tools as differential custom rates, import licensing, and foreign currency allocation. Also, the supply of loans at low interest rates was rampant, and the fierce competition to get such loans engendered favoritism, as interest rates in the curb market were much higher than state-sponsored ones. Even before the industrialization drive in the 1960s, the dependence of business on the state and the consequent corruption was well established.

However, under export promotion strategy, business and job opportunities proliferate as the market expands to the international level. Thus, competition under export promotion strategy is not necessarily a zero-sum game around the domestic market. As such, economic policies have a much wider scope than those of ISI; they involve a larger number of enterprises and thus a larger portion of society. The state is much more open to society under export promotion than under import substitution, due not only to increase in business enterprises but also to much-expanded state activities. More important, participation in international markets through export sets certain standards in business behaviors, particularly in dealing with the state.³² In providing state subsidies to business, the state can base its decisions on export records, an objective criterion for achievement. As under ISI, business competes for state favors—but the degree of arbitrariness is bound to be more limited, because export based on the international market sets limits to corruption, as business cannot easily control international market prices.

The problem that Park faced in promoting exports was that Korean industries were not ready for export in terms of scale and marketing capability. Thus, the state prepared extensive economic developmental plans in which the government and business closely cooperated, although “the principal engine” was private enterprise.³³ The state’s perception that business is weak led to detailed measures to promote industries that could compete on the international market. The state’s attention to enterprises to ensure their success did not stop at the level of initiation but extended to the resolution of possible operational problems. Timely intervention by the state was crucial in case enterprises face crisis, as one official who was closely involved in industrial policies remarked:

Even after factories are built and start operation, the government needs to actively support them whenever they are in crisis. Without governmental support, factories in late industrialization countries cannot survive and need to be supported through various means, such as administrative guidance and measures and new legislation. Timing is critical in rendering support. Timing in the development of industries in late industrialization is like treating patients in an emergency room. Wrong timing is the same as seeking medicine for patients after they are dead. In Korea, monthly economic reports, export promotion meetings, and quarterly reviews of economic performance are prepared to monitor the economy. Also, the state head makes it a rule to attend ministry briefings at the beginning of the year and participates in-person in directly revising, supplementing, and supporting policies. There is no country in the world that takes more timely, strong, and effective measures for business than South Korea.³⁴

The following testimony of a former official at the Ministry of Commerce and Industry (MCI) clearly indicates how the state perceived the capability of Korean business to compete on the international market when preparing development plans:

Q: I heard that business people came to your ministry to ask for guidance in preparing business plans; what was the level of business in preparing plans and strategies?

A: Whether big or small business, their level was quite below that of bureaucrats. They were not in a position to conduct plans on their own. They could not catch up with ministry officials, and they asked state officials to guide them.

Q: How did they regard the ministry’s policies?

A: They just followed state policies, as their level of knowledge on market management and access to technology is low. They followed the instructions of the minister, vice-minister, and doctorate holders in the ministry who had broader knowledge. Institutionally and administratively, business was completely dependent on the state, as business was not capable of planning. The role of business was to follow the state. The Ministry of Commerce and Industry was to play the roles of CEO and adviser and the role of business was just to follow it.³⁵

The state’s perception that business was not ready for international competition led to various far-reaching supporting measures for business, including in the areas of taxes (6), tariffs (5), financial incentives (11), and others (17).³⁶ In addition, many administrative incentives were adopted, such as special economic zones and utilities.³⁷ The fact that the state was ready to support business with so many incentives laid the foundation for close state-business ties, which was unique to Korea.

Prowess in exporting became a necessary condition to do business in Korea, as it guaranteed the government’s support. Export policy was nothing but export support policy.³⁸ This had serious social and institutional implications. Under this broad export-first principle, bureaucrats of relevant ministries held consultative meetings with businesses and requested their cooperation while also offering various inducements, such as loans without letter of credit to cut export time and lowering consumption and corporate taxes. What was so distinctive about the Korean style of supporting business was that government export promotion measures were targeted not at industries as a whole, but at specific firms or enterprises within industries.

The enterprise-based approach to development refers to policymaking and implementation that targets specific companies. Due to limited financial resources, budgetary constraints, and shortage of foreign currencies, the state cannot take a comprehensive and balanced development approach where major industries are developed simultaneously. Instead, the state prioritizes industries in terms of early and visible success. Once certain industries reach a certain level and scale of export success, the state moves on to other industries. In the case of Korea, capacity to export was regarded as an important criterion in prioritization of industries. This targeted development strategy is based on the assumption that in countries where business cannot decide its own direction, due to lack of scale, know-how, and finance, the state ought to set the direction and provide means for development. The state decides which chaebols are to be awarded licensure of certain factories to be built, sets priorities for development, and prepares financial plans and measures to protect them after they are put into operation. On the specific process of enterprise-based approach to development, one former official remarked as follows:

“Without export no support” will be the guiding principle. Those companies that cope with export targets will be supported and those that cannot will be excluded from support. As such, support should not target industry but specific companies. The number of companies to be supported was to gradually expand rather than start with a large number of companies. Once selected, companies are supported fully as long as they continue to export. If capital is needed, they will be supported either with Korean currency or with foreign currency. The state and business need to be one entity. Businesses will be exempt from tariffs for imported materials that are to be used for export. Interest rates will be lowered. Operation funds will be sufficiently provided. Technical support will be provided free of charge. Inspection tour abroad will be permitted. Finally, when export targets are met, there will be reward with medals and commendation.³⁹

The modes of applying incentives adopted by the Korean government gave rise to distinct state-business relations that had serious social implications. Incentives can be either positive or negative—providing or withholding various material incentives, respectively—and can be applied either consistently or arbitrarily. Largely due to the sense of urgency and the need for rapid economic change, the Korean government’s approach to distributing incentives was arbitrary.⁴⁰

The enterprise-based approach was closely related to the state’s (i.e., Park’s) protective view of business: that rapid industrialization would not be possible without the state’s direct role in planning, implementation, and protection measures. On this a former official at the time recalled that as projects were successfully implemented one by one, the cumulative linkage impact of those successes vitalized industries as a whole. It was akin to retaking military strongholds previously overtaken by an enemy. From this Korean model of late development, new businesses and industries were created. This model was applied to successive industries beginning in 1964, such as the development of small to medium-sized enterprises (SMEs), petrochemical industries, electronics industries, and heavy chemical industries.⁴¹ Consequently, a uniquely close relationship developed between the top leader, state bureaucracy, and business under the so-called Korean-style economic developmental model in which the state monitored, assisted, and rewarded business to compete on the international market. On the overly protective state approach to business, one former official close to Park reminisced that “the state nurtured business as if a mother breast-feeds her child.”⁴² This peculiar state-business relationship in which business is autonomous and responsible for its own success while the state guides business with all possible support set the stage for the patterns of state-business interaction in decision-making and implementation, which in turn would have serious implications for social change.

DECISION-MAKING, IMPLEMENTATION, AND SOCIAL IMPLICATIONS

Social implications of state-business relations can be better grasped by examining how the general principles of planning and implementation were put into actual practice. The state’s strong protective view of business manifested itself in different areas of economic planning, such as decision-making and implementation, as well as at different levels, such as presidential, ministerial, and business. Korea’s economic developmental process was distinct in that President Park was directly involved in not only major decision-making, but his intervention was far reaching, even to the details of implementation.

One example of Park’s role is his vision for the development of the auto industry as early as the late 1960s, and in the early 1970s, he hinted at the need to develop heavy chemical industries: “On May 30 in 1972, President Park participated in the monthly export promotion meeting where there was an exhibition of auto parts for export. After this meeting President Park called me in his office and asked, ‘What should be the next industry for development?’ I said that would be heavy chemical industries, and the first priority was auto industry.”⁴³ Park proposed either unrealistic goals from the beginning or revised original goals upward both to enhance and consolidate the legitimacy of his regime and to meet the standards of the export market. For example, the idea to promote petrochemical industries was already decided at the time of Park’s annual inspection tour of the MCI in 1965. A task force was organized to pursue the project in July 1966, and a panel for the development of petrochemical industries was established in November 1967, with a series of discussions conducted regarding the projection of demand, industrial sites, and scale of production. The key problem was that due to the narrow domestic market and capital constraints it was not easy to compete on the international market, even if industries were established. With the suggested production capacity of 30,000 tons for the domestic market, it was not possible to compete on the international market, where the standard was 300,000 tons.

Park decided to build factories with 100,000-ton capacity, beyond the 60,000 tons that was regarded as optimal, and set the prices of petrochemical product at 3.9 cents per pound, which was competitive vis-à-vis the United States (4 cents), Taiwan (5.5 cents), and Japan (4.5 cents). All the costs, including utilities, were adjusted to the production cost, which was arbitrarily set for international competition. All the measures for support, such as taxes, financial support, and other subsidies were provided to the fledgling industries. This is a typical example of how Park turned from the conventional economic thinking that factories should be built based on current level of demand. Instead, production capacity was determined based on the consideration of international competition.

Park’s ambitious goal-setting was not limited to the scale of production capacity but was also salient in setting export targets. At monthly export promotion meetings Park made strong appeals for increases in export. The president’s intervention was also quite extensive beyond export issues, largely because of the uncertainty facing a latecomer economy as well as the president’s own sense of urgency. One indicator for this was the frequency of President Park’s field inspection and guidance: from his inauguration in 1963 to 1965 he visited local sites 43 times, with the total elapsed time of his visits amounting to 109 days, which is more than one day per week on average.⁴⁴

In addition to facilitating the initiation of new industries, Park played an important role in securing financial and other resources that were needed to implement the decisions already taken. One such example concerns the promotion of the electronics sector. Park strongly advocated for the need to develop electronic industries and encouraged the business community to participate in them. But Park also personally ordered the minister of economic planning to secure necessary funds to support the industries.⁴⁵

The state was eager for economic change and thus regarded business as a means to reconstruct the state. The boundary between the state and business was quite thin. The state tried to support business with every possible means to expedite economic changes. In turn, the state mobilized human resources on behalf of the private sector by arbitrary means, intervening in staffing in the business sector to realize state goals through business. The private sector itself adopted state goals as its own, and thus the sense of identity in goals was established between the state and business, as a businessman testified:

Q: How did the state-business relationship evolve as the two sectors worked closely together?

A: Bureaucrats and business managers belonged to similar age cohorts in many cases and frequently shared the same sense of mission to modernize the country. They coexisted with the will to realize state goals. Bureaucrats were not so much preoccupied with their private interests. The sense of “cooperation” existed between the state and business. The general mood was that the two sides shared scarce resources.⁴⁶

President Park’s ambitious goal-setting was directly reflected in lower levels of decision-making. Park pushed ministers to raise economic goals, who in turn exhorted directors and section chiefs. Whenever the low rung of bureaucrats came up with reasonable goals to achieve, high-ranking bureaucrats had to revise them for higher ones, as the following recollection indicates:

The first draft for the seven-year plan was based on safety, and I called in the department chief of the textile industry and told him, “You are a commander of special forces for export. If we cannot increase export, we will go bankrupt.” The revised plan was truly ambitious. The export of sewing products for 1963 was 86,000 dollars, which was increased to 4.03 million dollars. The target for the seven-year plan was set at 50 million dollars. It meant a 12.5 times increase during the seven-year plan period.… 50 million dollars was an amazing amount given the fact that it was almost a half of the total export in 1962.⁴⁷

Park’s constant upgrading of export targets is significant for understanding the social implications of this export promotion strategy. Park’s ambitious goal-setting caused a high level of anxiety and scrambling on the part of bureaucrats in charge of export, who had no choice but to accommodate these orders. To achieve ambitious goals that Park set, bureaucrats became inextricably involved in firm-level production processes, as so many problems and obstacles had to be cleared for business: “In order to achieve excessive export targets, the head of the textile department had to set monthly targets and allocate the targets to different companies and went around to encourage and supervise them to realize the goals. Factory people and ministry officials frequently worked through the night, and ministry officials came to know details about factory operations.”⁴⁸

Pragmatism and Particularism in Implementation

President Park showed strong interest in the details of industrial policy implementation and played an important role in accelerating policy implementation by mitigating bottlenecks, especially in carrying out export targets. He issued detailed instructions and orders to make sure various export promotion measures were correctly implemented. For example, he urged bureaucrats to facilitate meeting export targets as quickly as possible by taking all necessary measures to support business. Accordingly, both business and bureaucrats were under scrutiny, based on actual export records. Thus, export performance became an important criterion to evaluate the merits of both business and bureaucrats.⁴⁹ At the same time, Park kept urging bureaucrats to be flexible in applying rules and regulations in dealing with business as long as it helps business increase exports. The flexibility in applying rules and regulations in turn gave room for capriciousness on the part of bureaucrats in dealing with business.⁵⁰

Along with realizing export targets, the speed at which export targets were met was critically important. Virtually in every order he issued, Park always emphasized the speed of implementation. Revised policies and guidelines had to be completed in a matter of a few days.⁵¹ This sense of and need for speed was strongly felt among bureaucrats who worked under Park. For instance, one high-ranking official recollected that under President Park, “it was better to finish on time with 70% completeness than being late with 100% completeness.”⁵² A businessman of that time echoed this ethos, noting that “there was no room to waste a second when it was so important to build factories with much speed, so that export can be achieved.”⁵³

Speedy decision-making took its toll in the course of implementation. Decisions made in haste had to go through frequent adjustments when they were implemented. Thus, it was natural to see frequent changes of policies in day-to-day practice. Such decision-making and implementation styles reflected the extremely uncertain environments in which both the state and business had to work. As one high-ranking official remarked, there were no precedents or guarantees for the state’s decisions to succeed: “Nobody knew for sure what to do and how to do it and whether they were going to be successful. We did a life and death struggle to make things work. There were so many problems and a high degree of uncertainty.”⁵⁴ There were several reasons why original decisions had to be changed frequently in the process of implementation: first, they were made out of the sense of urgency without full consideration of relevant factors; second, the original goals were unrealistically ambitious or upgraded higher; and third, the environment itself was so volatile that so many contingencies occurred.

Finally, the distinct approach to economic development that was adopted under Park was “enterprise-based” support. This approach in turn tremendously affected the mode of implementation—and ultimately, state-business relations. Under such circumstances, the style of implementation can be characterized as pragmatism and particularism. Pragmatism refers to the frequent changes in decisions to realize target goals. Frequent changes are inevitable due to unrealistically ambitious goals, which were set out of a sense of urgency and pressure for rapid implementation.⁵⁵ Frequent changes in Korean decision-making even caught the attention of a foreign journalist: “Korean bureaucrats in economic affairs are undoubtedly geniuses of extemporization. They come up with new measures, institutions and regulations in a dizzying speed only to change them almost daily afterwards. Korean bureaucrats deserve to be called actors of thinking while running.”⁵⁶ Particularism frequently involves decisions with a low level of generality involving only a single firm at a particular time.⁵⁷ Particularism in the context of Korea’s economic development occurred for similar reasons as pragmatism but was also closely related to the government’s strategy, which was organized around enterprise-based support.

Frequent change in policies and certain company-targeted policies in the course of implementation can be found at the department level and below, where daily implementation occurred. According to one MCI official, frequent changes were bound to occur in the highly changing environment:

Q: Everything moved quite fast then?

A: Yes, it did.

Q: Was original policy changed during implementation?

A: Yes, it changed a lot.

Q: In some cases, laws were prepared in a single day for a particular company. And with new laws introduced, enforcing ordinances were also changed, correct?

A: I am not sure about laws, but ordinances were changed for particular companies when changes were absolutely necessary for those companies.

Q: How often did it change?

Q: Ministerial-level ordinances were changed quite frequently.

Regarding frequent changes in regulations, one businessman also concurred:

Q: Did you not feel that government’s regulations frequently changed?

A: Yes, they did.

Q: Why do you think so?

A: It occurs either for the purpose of improvement of the regulations or for a particular company.

Q: Do you mean that they change for particular companies?

A: Yes, that is lobbying power. It is lobbying power of companies that can even change laws. It is often the case that regulations change through lobbying. That is why there are so many changes in regulations.⁵⁸

Such enterprise-based policy is related to the top-down decision-making and implementation style led by the top leader. For example, when President Park issued a memo in the early 1970s on starting the auto industry, the ministry drafted a document to be sent to lower levels, and after Park handed down a memo to Hyundai chairman Chŏng Chuyŏng, through the deputy prime minister, the MCI drafted a plan and consulted with the company. These examples indicate the developmental logic of oligopoly or monopoly in late industrialization, where a late-industrializing country is willing to cultivate monopolies in certain industries, at least at the initial stage of development, and to support them—even when the government may be criticized for collusion with business and economic dictatorship.⁵⁹

Changing Decision-Making and Implementation

There were three major institutional actors involved in decision-making and implementation in Korea’s late industrialization: the president, the bureaucracy, and business. As mentioned earlier, the role of President Park in decision- making and implementation cannot be overemphasized, and the implications of his role for social and institutional change are enormous. First, his ambitious economic developmental goals, arising from the sense of urgency, led to frequent upgrading of economic targets. Second, his obsession with quickly realizing these goals caused continuous uncertainty and ambiguity. Third, his commitment to an export-based strategy provided a concrete standard in the midst of an uncertain environment. Finally, his protective support of business at the company level meant the provision of all possible incentives for business.

For bureaucrats, the circumstances set by Park meant they had to always be ready to meet Park’s demands in the highly uncertain and volatile environment—but at the same time they faced constant scrutiny by Park in terms of meeting export goals. They had to constantly provide new information through contacts with business for ever-changing decisions and implementation. Enterprise-based support, combined with changing rules and environment, meant they had to frequently make discretionary and arbitrary decisions in dealing with business. The only constraints on their arbitrariness were Park’s oversight and the level of achievement in export.

For bureaucrats this meant they had to make adjustments with new information. Bureaucrats had to realize ambitious economic goals set by Park in an environment in which “nothing can be done and anything is possible.”⁶⁰ Under extreme pressure to demonstrate visible success, they had to mobilize every possible means inside and outside the state. Internally they needed to establish informal networks to cope with new information, and externally they had to maintain close contacts with business, either by providing necessary incentives or by collaborating on new plans and implementation. This led to blurring of the boundary between the state and business.⁶¹

Business, which faced a highly uncertain environment, lack of experience, shortage of capital, and ever-changing international markets in which it was not experienced, tried every possible means to gain access to state incentives. It needed state support for new projects and to mitigate short-term bottlenecks. Effort to gain access to state incentives was all the more intense as business was aware that the state needed their cooperation for success. According to one survey, 64.7% of respondents replied that relationship with the state is critical for business success, and 90.5% of respondents were of the opinion that government policies affect business strategies. Most important, 63.9% said they needed lobbying for successful business management, and 75.5% said governmental support was helpful for business growth.⁶²

It is clear that both macro parameters set by Park and the micro level of implementation forced frequent contacts between the state and business. The state held incentives for business but needed cooperation from business to realize economic goals—while business desperately needed state support. The social base and patterns of interaction between the state and business are crucially important to understand the social implications of Korea’s late industrialization. State-business contacts were made through human interactions, and the analysis of recruitment patterns in both the state and business sectors is the first step to understand their implications for social change.

MERIT, REGIONALISM, AND SCHOOL TIES IN STATE RECRUITMENT

Although Park was so eager to achieve rapid economic development through unrealistically high economic goals, it was not an easy task to implement the plans. President Park faced two serious problems. First, administratively he was bequeathed a corrupt bureaucratic apparatus. Second, politically he was heavily dependent on the military because he came to power through a military coup d’état.⁶³ Thus, Park’s main challenge was to install a new administrative structure to cope with new economic tasks. In personnel changes, priority was given to competency and loyalty, both equally essential to fulfill the challenge of fostering rapid economic development. To have only the former would have risked the full implementation of policies, whereas with only the latter appropriate policies might not have been formulated and information distorted.

Park tried to solve this two-dimensional challenge by continuing the tradition of hiring middle-level bureaucrats through highly competitive examinations. At the same time, people from his native province were strongly favored. Park’s recruitment pattern can be seen at the macro and micro level; the former refers to the recruitment of high-ranking officials of the entire government (see table 6), while the latter to a case from the MCI. At the macro level, regional representation from the southeast increased significantly from the 18.8% of all ministerial-level officials during the First Republic (1948–60) to 30.1% during the Park regime (1961–79). Considering the fact that the southeast was underrepresented under the First Republic, this constituted a tremendous change.⁶⁴

Another survey also corroborates the trend of an increasing proportion of the high-ranking bureaucrats (above the fifth rank) coming from the southeastern region: in 1962, it was 20.8%, and it increased to 23.4% in 1971 and 31.6% in 1979.⁶⁵ This trend continued in 1982 (see table 7).⁶⁶ Kyŏngbuk Province, the core of the southeastern region, was overrepresented with the ratio of 1.6, whereas Chŏllanam-do (southwestern region) was significantly underrepresented with the ratio of 0.6. Such increasing recruitments based on regionalism was interpreted as evidence for the insufficient practice of the merit system and the overwhelming political influence in Korean public administration without considering that practice was related to the institutional imperatives of late industrialization.⁶⁷

The single most significant phenomenon in recruitment at the MCI is the increase of regionalism at all ranks. Before 1961 there were no disproportionate regional preferences, based on analysis of the regional origins of those who were recruited. The proportion of career bureaucrats (who served above section chief level) and non-careerists (who served below the section chief level) from the southeastern region visibly increased only after 1961.⁶⁸ The proportion of MCI officials from the southeastern region was less than 20% before 1961, but it more than doubled during the 1960s and 1970s.

In particular, during the 1970s, about 40% of officials were recruited from the southeastern region. This regional bias becomes clearer when compared to that of officials from the southwestern region (see table 8). Before 1961, the ratio of newly recruited officials from the southeastern region to the southwestern region was 1.2:1 (46:28). This roughly corresponded to the ratio of the population size of the two regions (1.36:1; see table 9). However, the gap greatly widened during the 1960s and 1970s, when the industrial takeoff occurred. In particular, the gap widened dramatically during the 1970s. As we can see in table 9, during the 1960s, 37 careerists and 48 non-careerists were recruited from the southeastern region, whereas 18 careerists and 31 non-careerists were recruited from the southwestern region. However, in the 1970s, only 15 careerists and 9 non-careerists were recruited from the southwestern region, whereas 58 careerists and 34 non-careerists came from the southeastern region. The ratio of the total number of the recruits from the southeastern region to those from the southwestern region was 3.77:1 from 1971 to 1979. This is twice the actual population ratio of 1.88:1 in 1980. This shows that regionalism operated at all ranks, contradicting the conventional observation that regional bias was weak at lower ranks.⁶⁹

TABLE 6. Regional origins of high-ranking officials of Korean governments (in percentages and number of persons)

TABLE 7. Provincial origins of high-ranking officials (fifth rank and above) in Korean government, 1982

^a The ratio refers to that between the percentage of bureaucrats from province above the fifth rank in Korean government and the percentage of the provincial population. A ratio of 1.0 means the provincial proportion of state employees is equal to that of the proportion of the provincial population.

Source: Ha Taegwŏn, “Han’guk insa haengjŏng,” 108.

TABLE 8. Regional distribution of Ministry of Commerce and Industry officials, 1948–79 (all ranks)

Source: Yong-Chool Ha and Myung-Koo Kang, “Creating a Capable Bureaucracy,” 85.

TABLE 9. Regional distribution of population, 1960, 1970, and 1980

Source: Office of Statistics, Republic of Korea; and Yong-Chool Ha and Myung-Koo Kang, “Creating a Capable Bureaucracy,” 96.

Here a notable phenomenon is that the regional bias toward the southeastern region was more salient at high ranks. From 1948 to 1979, a total of 443 bureaucrats served in the MCI as officials above the section chief level. Of these careerists, 35 officials were recruited before 1948 and 29 bureaucrats served as either the minister or the vice-minister of the MCI. The single most interesting pattern of these 64 officials was that Seoul origins were the highest: 14 out of those 35 officials were recruited before 1948, and 13 out of 29 ministers or vice-ministers were from Seoul. Except for these 64 officials, 379 officials were recruited through four different routes: 135 (35.6%) of them were recruited through higher civil service examinations, 37 officials (9.8%) were ex-military officers, 90 officials (23.7%) transferred from other ministries, and 116 officials (30.6%) were recruited through special recruitments.

The regional bias is also clear when analyzed by the channels of recruitment. More people were clearly recruited from the southeastern region from which President Park originated, indicating that regional background was clearly an important source of securing loyalty. As table 10 shows, in every channel of recruitment, regional preference toward the southeastern region—or, by contrast, bias against the southwestern region—was strengthened since 1961. For example, out of 130 total officials recruited by higher service exams since 1961, 48 officials (37%) were from the southeastern region, whereas only 16 officials were from the southwestern region. More important, however, regional bias in recruitment through higher civil service exams increased during the 1970s. Out of the total number of careerists recruited through these exams from 1961 to 1979, 48 officials (36%) were from the southeastern region. But of these, 23 officials (43%) and 14 officials (39%) were recruited in 1971 to 1975 and 1976 to 1979, respectively, surpassing the average population ratio of the southeastern region. This implies that the pattern of increasing regional bias could be undetected under the increasing trend of merit-based exam recruitment.

TABLE 10. Regional distribution of career bureaucrats, 1948–79

^a The percentage of the region is the ratio of each category of each time period.

^b Includes Kangwŏn, Cheju, and North Korean provinces.

^c Those who were transferred from other government ministries to the Ministry of Commerce and Industry.

^d Those who were recruited by higher civil service exams, military background, or transfer.

Source: Yong-Chool Ha and Myung-Koo Kang, “Creating a Capable Bureaucracy,” 89.

It is, of course, true that the examination itself does not produce a regional bias. However, the regional bias was more visible in the process of assigning posts and promotion. The blending of regionalism and the merit-based principle started as early as the ministerial assignments stage of the newly recruited officials. Usually, newly recruited bureaucrats from the southeastern region were assigned to the more prominent posts. Moreover, people from the southeast were more frequently promoted to important positions. The process worked as follows: During a typical promotion practice, five section chief candidates were recommended to form a promotion pool and competed for one department head position. They had to be qualified in terms of length of service and work experience for a given post, and in most cases candidates for promotion usually passed the higher civil service examination. It was perfectly legal for higher officials who made the promotion decision to choose any one of the five qualified candidates. It was only natural to expect that higher officials from the southeastern region would prefer those with the same regional origins. This meant that regional backgrounds served as the deciding factor for promotion among the strictly merit-based candidate pool, subtly combining merit with regionalism. Given this mode of promotion, it was technically difficult to register any formal complaints against the final decisions.

As a former ministry official in charge of personnel matters reflected:

More often than not, those who were recruited into the MCI either took the higher civil service examination or were graduates of the law school of Seoul National University. While we were formally committed to the merit system, in reality regionalism was a determinant. When section chiefs were promoted, those from the southeast were selected even when they were not ranked first in standing. It was possible because most people at the higher level were from the same region. The virtuous cycle goes like this: those from the southeast were assigned to important posts and could thereby demonstrate their work abilities better than others could.⁷⁰

Regional bias provided employees with good standing and a better chance for getting promoted. Although technically it does not seem unfair, regionalism is intricately linked to the promotion process. As for political positions, such as minister, vice-minister, and assistant minister, where external influences are visible, those from the southeast were absolutely dominant. Among the 11 who were promoted beyond the assistant secretary level between 1965 and 1975, seven were from the southeast region. This overrepresentation of the southeast region continued throughout Park’s regime, and the tendency increased over time, regardless of the levels and modes of entry.

Regional bias was also intricately related to regional high school and college ties. Regional and high school ties formed in the formative years of individuals were preserved when they entered colleges in Seoul. For example, out of total 379 careerists, a quarter of officials graduated from regionally famous high schools, and except for those famous high schools in Seoul, the majority of them graduated from the locally famous high schools in the southeastern region. Specifically, more than 40% of career bureaucrats of the MCI graduated from Seoul National University (SNU) during 1948 to 1979. Regardless of regional backgrounds, graduates of SNU were the absolute majority. Since 1961, the proportion of SNU graduates increased greatly from only 8 graduates of SNU recruited to the MCI before 1961 to roughly 50% of officials (149) graduates of SNU, and among them, 45 officials (30%) graduated from the law school of SNU in 1978. In particular, between 1966 and 1975, more than 55% of newly recruited careerists were SNU graduates. Meanwhile, 27 officials (9%) were graduates from Korea University, and 16 officials (6%) were from Yonsei University. In short, between 1961 and 1979, about 65% of newly recruited careerists were graduates of these three schools.⁷¹

More interestingly, we can observe an increasing regional bias among recruited SNU graduates as well. The overall proportion of SNU graduates from the Seoul/Kyŏnggi area was slightly higher than the southeastern region. In particular, in the 1960s, SNU graduates from the Seoul/Kyŏnggi region were much more overrepresented than the population size of the region. But if we look at the trend during the 1970s, SNU graduates from the southeastern region surpassed the total number of officials from the Seoul/Kyŏnggi region (31 to 25). Meanwhile, SNU graduates from the southwestern region decreased greatly after 1966. This phenomenon shows that regionalism was intermingled with the merit-based principle in recruitment.

Such deepening regional bias is attributable to the ways in which loyalty to President Park was secured. President Park took political power by military coup, and he justified his illegitimate rule by promising rapid economic growth. He needed both competent and loyal people for rapid economic growth, and his choice was constrained by the institutional setting of the period. In short, it is clear that for the Park regime, recruiting loyal and competent personnel to build capable bureaucratic organizations was essential not only for its political survival but also for expediting the industrialization process. The strategy chosen by President Park was to combine regionalism and merit, ultimately securing the loyalty that he desired.

FAMILY-SCHOOL-REGIONAL NEXUS IN THE BUSINESS SECTOR

Park’s sense of urgency for economic development and the distinct view that Korean business was not up to the task of export promotion led to an extensive list of incentives to businesses to facilitate economic development and exportation. Under such circumstances, a business had ample reason to seek state support to bolster its own advantages. What further facilitated individual companies to actively seek state incentives was the company-specific mode of distribution of state incentives.⁷² Under such circumstances it could not be more rational for companies to adopt mimetic recruitment patterns similar to those of the state, and in turn such mimetic recruitment patterns between the state and companies had consequential implications for social and institutional changes.

The Korean business sector has three features particularly relevant to the approach taken here. First, ownership is heavily concentrated in the hands of family members of the company founders. Second, the next management level is recruited from university graduates who frequently have regional ties with top owners. Finally, the workers at the lowest echelon are closely bound by regional ties. Korean chaebols, the central business group during industrialization, are owned and managed by family members of the founders. One survey shows that out of 137 big enterprises with employment more than 300, 121 (88.3%) were family owned and managed.⁷³ Other data corroborate this. Among 100 sons of 34 chaebols, 40 were presidents, managing directors, executive directors, or directors and another 10 were department chiefs of affiliated companies.⁷⁴

Among white-collar employees who entered chaebols and later became high-ranking managerial members of these conglomerates, most of them were graduates of Seoul National, Yonsei, and Korea Universities. Among the 3,987 who were high-ranking managers above the level of board member of the 347 member companies of the Korean Federation of Industrialists, 35.2% of them were SNU graduates, whereas Yonsei and Korea Universities each had 8%.⁷⁵ These proportions roughly correspond to elite distribution within the government bureaucracy as well. Among bureaucrats above department chief in 1980, 42.9% were SNU graduates, whereas 5.6% and 7.3% came from Yonsei and Korea Universities.⁷⁶ College ties are important, but what is significant is that high school ties constituted the core subcategory of grouping among college graduates.⁷⁷ Also remarkable are the high regional affinities between the owners and the high-ranking managers of the 100 chaebols. Among the 2,243 high-ranking managers who were not blood related to founders or owners who were from the southeast, 57% were from the southeast, and in the companies whose owners were from the southwestern region, 60.7% of them were from the southwest.⁷⁸ The same pattern was visible among SMEs. Among 69 manufacturing SMEs, 55 (79.7%) of them were family owned.⁷⁹ As of 1975, 59.2% of the financing sources of the SMEs were family and relatives.⁸⁰ SME recruitment favored workers who shared same regional origins.⁸¹

Finally, at the lowest tier, average workers found solidarity with others from the same region. Among factory workers, especially at production lines, regional ties were also strong, partly because of the recruitment patterns based on regional ties. That is, once workers of a certain region were recruited, they also brought in persons who shared their regional origin.⁸² Such regional gatherings were regarded as a survival mechanism. During the 1960s and 1970s, most factory workers were without a state welfare net. Consequently, workers, especially female workers, organized various means for self-support, such as rotating financing (kye), sharing housing and meals, and group purchasing, based on regional ties.⁸³

NEOFAMILISM IN INTERACTIONS BETWEEN THE STATE AND BUSINESS

Structural configurations of neofamilism became clear. As each company tried every possible means to secure access to state incentives, deeply rooted extensive and intensive human interactions based on regional and school ties formed a foundation for close ties and collusion between the government and business, which developed into a government-business “mingling” phenomenon. The following interview materials show the mutual perceptions between bureaucrats and business, as well as the reasons for and patterns of the mobilization of neofamilial ties.

First, business was fully aware that bureaucrats were hard-pressed to realize export goals set by President Park and that they were bound to support business:

Q: How were bureaucrats at that time, especially those of the Ministry of Commerce and Industry?

A: They thought without export the country would collapse and thus thought export as an issue where life or death is at stake. Successful implementation of export targets was regarded as a way to demonstrate patriotism. Bureaucrats’ determination to fulfill export targets was much stronger than now.⁸⁴

Under such circumstances business followed bureaucrats as the former was well aware of the dedication of the latter to export to maximize their interests:

Q: How did the business community view the government’s support for export?

A: As the government lent every possible support to business, had to follow decisions on support for business precisely, without making any changes. As President Park was so occupied with export, we could not but actively support it. However, bureaucrats dipped their hands in policy support to products for domestic market, let’s say, .5% for personal gains while 5% for political slush fund.⁸⁵

On the uncertain situation of the time one businessman said the following:

Q: Was the situation during the industrialization so uncertain that business people felt that everything was possible and at the same time that nothing was possible?

A: This was due to ambiguity in laws and regulations. The interpretation of laws and regulations varied, depending upon the situation. As such, officials tended to decide in favor of business. However, there were also situations that could not be subject to arbitrary decisions of officials.⁸⁶

According to the following testimony of a former MCI official, efforts to penetrate the ministry were palpably felt inside the bureaucracy:

Q: There was a saying that companies locate and maintain various personal ties within the ministry to contact them whenever problems arise.

A: It was quite natural. Most companies could not survive without them. They carefully cultivate the ties.

Q: Were school ties and regional ties mobilized?

A: If they decide to do so, they use school and regional ties as a way to open communication channels. In my case I have a lot of people who are connected through school and regional ties, and managerial people in companies mobilize whatever they have, and that was the normal practice of the time.⁸⁷

This means that business judiciously and carefully mobilized school, blood, and regional ties to secure information and financial support from the government. Such all-out efforts to secure channels within the state did not stop at the ministry level; they even reached the national assembly and top level of power:

Q: How did you contact the government?

A: Is it not true that there was no person in the presidential house and secretariat who could not be connected, not only through my own ties but also through school and regional ties of my friends and the friends of my friends? Companies systematically use these ties. When you become a high-level manager of company you are requested to submit a list of people in major institutions that you know, including all the people in political, administrative, and financial fields. When problems occur, a total mobilization of human contacts is launched with the MCI. The CEO calls for an executive meeting, identifies target officials in the ministry, and entrusts a certain executive to take charge in fulfilling the mission. The designated person discusses the scale of money to be spent for the mission and mobilizes every possible tie, sometimes succeeding in influencing more favorable regulations. From a business perspective it is a sort of investment. There are cases where a long-term investment is done through travel support and sending them abroad for training.⁸⁸

As such, companies tried to mobilize all possible ties to set up a “bridge” with the government. On this phenomenon one former high-ranking bureaucrat stated as follows:

Q: How did companies try to set up a communication channel with the ministry?

A: It would not be far-fetched to say that they tried to hang on to every possible “string” (tie).⁸⁹

Such practice in contacting the government was a well-known phenomenon. Companies especially took lobbying through various ties for granted because the state was seen as the source of all the support that business needed:

Q: How important was the connection with the state in doing business?

A: The connection with the government was most important in building new factories and doing business. State-business collusion started from this. There is nothing that exists without reason. Since the state held all the financial sources, the connection with the government was quite essential for business.

Q: How about a specific example?

A: When companies tried to secure special access to low-interest loans, each company tries their best in lobbying … naturally, regional and school ties become important. For me I am a graduate of a college of business and of a vocational high school. Since the number of graduates was not large, we knew each other well among the graduates of the college, and seniors and juniors knew each other well.

From the perspective of an official the situation was not that much different:

Q: If so, were there cases where business used school and blood ties in securing information from the state?

A: Yes, companies did so.

Q: If so, what was most effective?

A: In my case I do not have strong regional ties, and thus school ties worked better. In general, it was either school ties or regional ties. Is it not?

Having seen in rich empirical detail how neofamilial connections developed historically, we can now address neofamilism in more general conceptual terms.

NEOFAMILISM AS PHENOMENON AND ITS DIFFUSION

Neofamilism denotes the dynamic process of reinforcement of social ethos and relations based on primary ties that occurred during Korea’s industrialization. It can be understood at three levels: as identity, as a survival strategy, and as social modes of institutional operation. Neofamilism in terms of identity designates the act of individuals defining their social relations and their identity primarily in terms of familial, school, and regional ties. Familial ties can vary widely from immediate nuclear family to clan ties; school ties can take various forms, from primary to university levels (although high school ties are perceived as strongest); and regional ties include the village network. In Korea, class identity, functional identity, or role identity are overshadowed by neofamilial identity bases. On the level of individual strategy, people take for granted the uses of neofamilial ties to promote their socioeconomic interests. The mobilization of neofamilial ties, rather than playing by rules, to promote personal interests negatively affects the application of universal norms and predictability in administrative and legal operations. Finally, neofamilism at the institutional level is a non-Weberian phenomenon. For example, bureaucracy gradually lost its operating principles, such as legality and professionalism. Individuals operating by neofamilial mores weaken the operation severely by distorting structural configuration. Neofamilial institutional practice is partly affected by individual survival strategies in relation to institutions, but it is mainly driven by institutions’ own historical legacies in terms of their origins and historical development.

Neofamilism was thus perceived to be stronger than individualism. The ethos that neofamilism carries is “privatism.” In distinction from individualism, privatism denotes lack of respect for individuality and of keeping “proper” interpersonal distance.⁹⁰ Contrary to the conclusions of many Western sociological studies on informal organizations, Korean-style industrialization brought about a society in which neofamilial units were reinforced. Moreover, they are unlikely to disappear. Neofamilism in Korea has become a source of identity and survival.⁹¹

The neofamilism approach sheds important light on social and political phenomena in Korea. At the micro level (in public bureaucracies), transfers and promotions were based largely on school and regional ties. In business, blood, school, and regional ties were also salient features in the management structure. It also leads us to reconsider (a) the prevalent assumptions about the existence of a coherent middle class, (b) the emergence of a civil society, and (c) bureaucratization as a causal result of industrialization. Members of the Korean middle class shared only an income level, and otherwise they were isolated from one another. In fact, the whole society was divided by degrees of accessibility to state power. This raises a larger question. At the macro level, identities, survival strategies, and the prevailing institutional modus operandi based on neofamilism discourage class-based identities. This is seen in the rampant regionalism in Korean elections at all levels (legislative and presidential).⁹² Moreover, the institutional impact of neofamilism was equally serious. Due to the constant penetration of neofamilial ties into the internal workings of the bureaucracy, Korean bureaucracy came to lose its boundary with business and was eventually hollowed out (see chapter 4).

The core neofamilial relationships formed between business and the state were emulated and expanded into the rest of the society by two mechanisms. One, in the economic sphere, involved the structural linkage between chaebols and SMEs. As of 1975, 46 chaebols made up 13.4% of GDP and 36.7% of manufacturing GDP.⁹³ In 1982, the number of SMEs with 5 to 299 employees constituted 97.3% of the total number of industries, but their contribution in terms of value-added GNP was only 36.2%.⁹⁴ With such overwhelming economic concentration in the large conglomerates, the SMEs were highly dependent on the chaebols. In 1982, 38% of the business of SMEs involved subcontracting with the chaebols, and this had increased to 74% by 1991.

This high level of dependency forced SMEs to endure various exploitative business practices by the big industries, such as delays in payment and forced price reduction.⁹⁵ Each chaebol had a huge number of subcontracts with SMEs, and one byproduct was the transference of the neofamilial ethos to SMEs from chaebols.⁹⁶ The following interview with a small enterprise CEO is quite revealing:

HA: What do you think about the impact of chaebols on small- medium industry in terms of business practices?

HAN: Chaebol had a great deal of impact on small-medium industries. The latter tried to learn from the former in mobilizing various connections to approach chaebols to obtain contracts. Small-medium industries envied chaebols’ access to the state through the mobilization capacity of chaebols through school, blood, and regional ties. Small-medium industries learned from big business the need to mobilize various ties as chaebols set the tone for business practices for the entire economy. Small-medium industries during the 1970s also relied on blood ties and other ties in securing personnel and financial resources.⁹⁷

The second source for diffusion was the peculiar political and economic role of white-collar workers of chaebols. White-collar workers constitute the core middle class. In April 1975, the total number of workers nationwide was 1,404,399, of which 29.3% were in enterprises with more than 500 employees.⁹⁸ The social and institutional implications of this fact are quite consequential. Though white-collar workers are middle class in economic terms, their identity basis was so narrow and bounded by the three neofamilial ties that they became the main agents for spreading neofamilism in Korean society.

Through the chaebols’ ties with the state, these white-collar workers were also the primary beneficiaries of state resources. The background and orientation of chaebol white-collar workers was widely emulated by the rest of society, partly with some contempt but mainly in earnest. As business and employment opportunities multiplied with the shift to export strategy, the popular perception of the state changed from that of exploiter to that of provider. In one survey, 50% of the respondents said that money and personal connections were more important in obtaining a desirable job or status than individual efforts (40%).⁹⁹ The web of neofamilism was thus perceived to be stronger than individualism. Accordingly, chaebols’ practices of neofamilism became an importance source of spreading neofamilism to Korean society, trickling down to SMEs and thus to the rest of society.

PARK, NEOFAMILISM, AND TRADITION

The emergence of neofamilism in conjunction with Korea’s economic development shows a distinctive aspect of the interaction between tradition and late industrialization. That is, there was no conscious and explicit effort on the part of Park Chung Hee to invent traditional institutions. Rather, it was a sort of unintended consequence of the effort to recruit competent and loyal sources of manpower that can be entrusted with industrialization tasks. Park was not committed to any specific ideology except for nationalism and pragmatism, which did not entail recruiting personnel based on ideological predilection. Given Korea’s social and cultural tradition of the time, it was only natural for Park to combine merit-based examination and regional ties as the major principles of recruitment. It is ironic that Park ended up relying on school and regional ties, given the fact that he was repeatedly critical of them as negative legacies of Korean history.¹⁰⁰ In a sense unlike what happened in Meiji Japan, the way in which Korean traditions were brought back into industrialization was situation driven and totally unintended, thus constituting a case of tradition coming back through the back door.

This unintended aspect of neofamilism begs the larger question of whether and to what extent Park was conscious about Korean tradition. At the early stage of his power, Park held a negative view of Korean history and tradition. Furthermore, he thought that the colonial rule had essentially destroyed Korean traditions. Past research on Park’s use of tradition shows the total lack of evidence for his use of tradition as a way to think about managing social conflict arising from late industrialization.¹⁰¹ This does not mean, however, that he did not mention Korean traditional institutions and values. While he constantly referred to negative traditional institutions and values, he was, at the same time, fully aware of positive examples. For instance, he mentioned hyangyak (village covenants), kye (rotating financing system), ture (communal labor sharing), patriotism, and sirhak (pragmatism) as positive elements of tradition.¹⁰² However, there is no evidence to support the notion that Park was consciously inventing Korean traditions, especially in managing social conflicts and linking them to industrial institutions, such as labor relations and governance structure.

Park’s approach to tradition was so distinct in that while he was not so much interested in inventing Korean traditional institutions for economic development, he constantly emphasized the importance of spirit or values. For example, even in addressing labor relations he simply highlighted the importance of the spirit of cooperation rather than being interested in institutionalizing a distinctively Korean style of labor relations. This is a typical case of harnessing, where traditional values are opportunistically applied as opposed to inventing them. This applies to various cases, such as the New Village Movement, education policy, and the Second Economy Campaign.¹⁰³ This tendency to heavily lean on rhetorical invocations of values and spirit was reinforced as the regime character became more authoritarian since the introduction of the Yusin (Reform) regime in 1972.¹⁰⁴ He invented various traditional values, such as filial piety, patriotic loyalty, and the concept of nation to foster values among Korean people congruent with his authoritarian regime. This was a shift from his original negative view of tradition to a more utilitarian one.¹⁰⁵

This raises the question of why Park’s interest in Korean tradition was heavily tilted toward not so much institutions as values and spirit. One reason was the prevalent negative perception of Korean traditional institutions, which were seen as having been either distorted or destroyed during the colonial period. Put differently, Korean traditional institutions were deprived of opportunities to be upgraded due to the loss of authority of the ruling class of Korean society.¹⁰⁶ More specific to Park, his sense of urgency was so intense that he did not have much time to think about the issue. This is in line with testimony given by one of his close confidants, who observed that “Park did not have any coherent philosophy, nor did we see the use of traditional institutions consciously.”¹⁰⁷ According to the testimony, Park was simply occupied with how to create new jobs for a hungry populace. One objective condition also might have worked against any conscious effort to invent Korean traditional institutions. By the 1960s, Korean society had already been under the strong influence of Western institutions and values in politics, education, and the cultural sphere and, unlike in Meiji Japan, was already an amalgam of Western and Korean institutions, no matter how the latter was defined. Under these circumstances Park was more likely to end up emphasizing spiritual aspects of Korean traditions, and the upshot was that despite all the campaigns, declarations, and admonishment efforts to revive Korean culture and tradition, such projects ended up being incoherent, unsystematic, and transient in terms of long-lasting impact on Korean society.

SOUTH KOREA AS BOILING POT

An important implication of this analysis is that the unique content and background of tradition in specific late industrialization cases makes straightforward comparisons difficult. For example, South Korean state-led industrialization was unique in terms of its social implications. Although it shared with other late-industrialization cases such as Germany and Japan a high sense of backwardness and a sense of urgency for rapid change using heavy state involvement in economic development, the societal results were different. Korean industrialization did not face strong social forces that resisted industrialization, as in Germany. Korean bureaucrats were not tied to any strong social groups or classes, as in the German case of Junkers. Members of the Korean bureaucracy were formally recruited by merit based on examinations, but in contrast to Japan, the resulting administrative structure was bureaucratic only in a weak sense, with regional ties being an important factor for recruitment. With the breakdown of traditional social structure in Korea, political leaders and intellectuals were not overly conscious of the influence and impact of traditional values and institutions. This created the myth that as traditional structures (e.g., landlordism) broke down, industrialization would lead directly to modernity.¹⁰⁸ However, what really happened was that the mode of recruitment of bureaucrats combined merit with regionalism, unintentionally bringing neofamilism into the industrialization process.

The image of Korean society in the aftermath of economic development based on neofamilism can be compared to the Tadohae, an archipelago off the southern coast of South Korea: although all of the islands appear to be joined, they are in fact isolated bodies of land. The apparent homogeneity and unity of Korean society is similarly deceptive. Once the old social structure was destroyed by colonial rule, by the Korean War, and by the division of the country, South Koreans scrambled like isolated bubbles in a boiling pot searching for a higher social position in the rapidly changing environment. As South Koreans struggled for their positions in this new order by seeking out personal connections, there is little evidence that they developed a sense of class consciousness based on horizontal links among members of the same economic status.¹⁰⁹

The Korean case challenges the prevailing assumption that industrialization brings about universal social and institutional consequences. It shows that it may not be sufficient to apply conventional sociological analysis to understand the social consequences of late industrialization in South Korea. Fresh interpretations are needed to replace conventional narratives that explain bureaucratization as a causal result of industrialization, the existence of a coherent middle class, the potential for developing “civil society,” and the structure and dynamics of legal and business institutions involved in the process of industrialization.