A Dependence Relationship?

Korea’s economic success has been claimed by both the major schools of thought on economic development, the neo-classical and the state interventionists (or statists). The claims of the neo-classical school, as expounded by Balassa1, Krueger and others, which maintain that Korea is a model of free enterprise and trade liberalization, have been severely dented by the interventionists who have produced evidence of strong government involvement. The Koreans realized that it was not enough to provide a suitable policy environment to encourage efficiency and greater competition. What was needed was a more industry-specific programme which through a variety of incentives (e.g. subsidies, tax reductions, loans, foreign exchange allocation) promoted the growth of specific industries. Such an approach, based on industry-specific incentives rather than overall incentives, was very different to the ‘neutrality’ approach espoused by the ‘neo-classical’ school. On the other hand, the interventionists’ school have oversimplified the development process in claiming that the NICs emerged as ‘directed plan national political economies’,2 and that the most explanatory variable in economic development is administrative competence on the part of the government.3 It is too facile to assume that the state was in the ‘driver’s seat’. The statist emphasis on the role of state institutions in influencing economic progress is not borne out by this study, which transfers the main causal explanation from the national level to the supranational.