Asia's Next Giant: South Korea and Late Industrialization

by Alice H. Amsden

South Korea has been quietly growing into a major economic force that is even challenging some Japanese industries. This timely book examines South Korean growth as an example of "late industrialization," a process in which a nation's industries learn from earlier innovator nations, rather than innovate themselves. Discussing state intervention, shop floor management, and big business groups, Amsden explores the reasons for South Korea's phenomenal growth, paying special attention to the principle of reciprocity in which the government imposes strict performance standards on those industries and companies that it aids. She thereby shows how South Korea, Japan, and Taiwan were able to grow faster than other emerging nations such as Brazil, Turkey, India, and Mexico.
With its new insights, Asia's Next Giant is essential reading for anyone concerned with global competition and the world economy.

Genres: Economics, History, Asia, Nonfiction

400 pages, Paperback

First published September 7, 1989

Reviews

[Rakesh · Rating 5 out of 5]

South Korea has turned Ricardo's comparative advantage inside out - that countries should specialize only in industries where they have natural advantage by creating capabilities through non-market interventions. South Korea build capabilities and comparative advantage in complex industries like shipbuilding and steel from the scratch. Steel giant POSCO best encapsulates the industrialization story of Korea and role of interventionist state in emerging economies.

Steel making was not natural to Korea. This requires huge capital investment while Korea lacked capital. Economy of scale is needed here but Korea had small domestic market and largest nearby market, Japan , was one of the finest producer of steel. Steel industry also need easy access to raw materials , Korea lacked iron-ore and was far from the main sources of supply. Besides , Koreans lacked steel making skills. And above all, Big Daddy - World Bank was hostile to such an ambitious project being taken up by an emerging economy.

Still, POSCO became one of the lowest cost steel producers in the world competing with Japan on productivity and quality and ironically even assisting USA in modernizing one of its plant. How did Korea achieve this and what role State played?

Entire funding of $3.6 billion came from state while technical know-how came from Japan. To lower input costs, govt provided discounted rate for port access, gas and electricity charges, roads water supply facilities etc. Domestic upstream industries were encouraged by govt policy of higher local component requirements. Steel manufacturing need economy of scale to lower costs. In formative years, when POSCO was not internationally competitive enough to capture steady international market, Korean govt. gave impetus to domestic shipbuilding, automobiles and heavy machinery industries - major consumers of steel. Thus, govt. not only created artificial demand for steel but also created entire ecosystem of industrialization around steel industry.

If Korean govt. were stuck with advise of Friedman or Ricardo, even today they would have been pre-occupied with textile industry. If they had fallen for Communist propaganda, they would have pampered and inefficient public sectors causing stunted growth. Instead they choose the Third way , combining State's capacity to take long term risk and national priorities with private enterprises' profit driven efficiency (POSCO was profitable from the start). Must read book to understand what is required of policy makers from emerging economies like India who have struggled with industrialization.

[Adam Hersh · Rating 5 out of 5]

Amsden's book is a remarkable achievement of scholarship--incredibly detailed research that few take the time to really do anymore. The story is of South Korea's miraculous post-war ("late") economic development, a feat so few other countries have been able to attain. The story of Korea is not as interesting to me, as the bigger story about how development worked in practice--particularly the central and indispensable role played by the state in spawning and guiding the development process.

The state's role, Amsden argues--and the source of Korea's success--was government intervention in the market to deliberately get prices "wrong." This approach is the antipode to what Bretton Woods institutions and economic orthodoxy prescribe: retrenchment of the state from economic affairs, and allowing markets to get the prices right. All but the most dogmatic free marketeers, I think, know this to be the case. Allowing markets to dictate development through the principle of "comparative advantage" will never result in moving up the value-added chain to more sophisticated, technologically advanced industrial production (by definition, if a country is endowed with a relative abundance of low skill labor, they will be comparatively advantaged in low-skill, labor-intensive production and it would be economically undesirable to try to produce more sophisticated goods).

Amsden outlines in great detail the institutional process by which Korea escaped backwardness: government coordination of economic activity (especially investment and the choice of technology), combined with strong disciplining mechanisms to keep big business in line. An authoritarian state that repressed labor was probably part of the equation, too.

The book is not a blueprint for developing countries struggling to find their own path to development, but a clarion call for them to open their eyes, discover the fallacy of the Bretton Woods path, and begin to explore new and successful ways forward.

[Billie Pritchett · Rating 4 out of 5]

Alice Amsden's Asia's Next Giant is a work of economic history on modern Korea. She argues that Korea's state-controlled economy has been an asset for the country's growth and that many of Korea's interventionist policies and price controls clearly show that the standard market paradigm and economic laws do not necessarily apply to really-existing economies, especially economies like Korea's, which industrialized late. Fascinating book and a valuable resource.

[Owen Hatherley · Rating 3 out of 5]

Useful, clear and unsentimental account of the South Korean 'miracle' with much intelligent commentary on how much it broke most rules in the Free Market Book, but at times a little bit formidably boring.

[Emilia Rosén · Rating 5 out of 5]

Lol, not my usual pick, but just finished reading this as background information for my dissertation and it was pretty darn phenomenal.

[Max · Rating 4 out of 5]

Only read the beginning and the conclusions after each chapter, but logging for posterity. The Korean entry in the East Asian Miracle trilogy, I think it is also the clearest encapsulation of the model (no disrespect to Johnson (MITI - Japan) and Wade (Governing Market - Taiwan)).

[Jim Gulley · Rating 1 out of 5]

This book is a case study of post-war South Korea and how the country economically outperformed non-East Asian late industrialization countries. Amsden’s thesis is a refutation of neoclassical, free-market economics by claiming that the cause of South Korea’s post-war growth was driven by government subsidies for and direction to the private sector. She argues that the South Korean state intentionally distorted the market, i.e., got prices “wrong,” in order to drive economic growth. She further posits that South Korea is most accurately characterized as a “learning” economic system, one that relies on low wages, state subsidies, and incremental productivity improvements to be competitive in the global economy.

I rated the book poorly because it is mind-numbingly dense, and her arguments did not persuade me. Her evidence presents much correlation but little causation.

[Yong Kwon · Rating 5 out of 5]

If you have to read only one book only about South Korea's industrialization in the 1970s, make it this one. Amsden's emphasis on building human capacity helps fill the gaps on existing hypotheses on growth and, perhaps more importantly, may explain how an economy sustains it.

[Gokul Gr · Rating 5 out of 5]

A careful and detailed account on the rise of Korea. Must read for anyone interested in comparative development.

[Taras Malyshivskyi · Rating 5 out of 5]

Strongly recommend for everyone who is interested in history of economic development.