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 (Based on ADB Staff Paper 52 dated December 1993. Many of the following are quotes

the article although they do not have quotation marks)

    Both South Korea and Taipei, China have pursued interventionist trade industrial policies (see abstract).

    There has been an interest in interventionist policies following criticism from of World's Bank main lending partners that its structural adjustment policies have failed to consider the successful record of industrial policy and financial market control in Japan (p.1).

    The balance of evidence suggests that East Asian economic approach has been based more on "governed" than free markets (p.1).

    The reluctance of many economist to accept this characterization of the NICs as managed economy demonstrates the reverence in the profession for the neoclassical paradigm (p.1). The dictates of free market economics have dominated economic policy advise for much of the 1970s and 1980s (p.1).

    The existence of market failure no longer implies a priori case for corrective actions by the state. Instead a cost-benefit method has been recommended that compares the relative merits of state and market-led solutions (p. 5). Quoting the 1989 statement of  Killick of the Overseas Development Institute, the ADB paper says:

"Since the essence of the problem is one of balancing market failures against state failures, of calculating the costs of state inaction against the costs of state interventions, the solution which suggest itself is that the respective roles of the public and private sectors should be determined by the comparative advantages of each."

    Market-led economics may fail to expand the production frontier at an optimal rate (p.5).

    How did South Korean industrialization proceed? Table 2 (p.13) of the paper gives an insight:

TABLE 2: PERCENTAGE SHARE IN TOTAL MANUFACTURING

OUTPUT IN SOUTH KOREA, 1965-1984

INDUSTRY TYPE	1965	1971	1975	1981	1984
LIGHT	61.8	54.7	51.6	47.2	43.2
HEAVY	38.2	45.3	48.4	52.8	56.8

source:   Korean Statistical Yearbook as quoted by ADB

 

    Government actively intervene in the industrialization process through the establishment of state-owned enterprises (SOEs) and directing the extension of credit. Table 7 of the  ADB (p. 24) shows that SOEs has been significant in South Korea, especially during its early years:

YEAR	1970	1975	1980
PERCENTAGE SHARE OF SOEs in FIXED CAPITAL FORMATION	18.9	33.2	27.6

    Korea adopted a negative list in place of its positive list in 1967---specifying the items that were subjected to restrictions instead of those that were excluded from them---but continued to impose  wide range of import controls. While the number of prohibited items was reduced from 118 in 1967 to 50 in 1978, the restricted list increased from 402 to 602 items and the range of products granted automatic approval was cut by 25%. Table 5 (p. 18) of the ADB paper even shows that Korea increased its average effective real tariff rates from 5% in 1972 to 8.63% in 1983 amidst lower and trend towards decreasing average tariff rates in Japan, US, Brazil, Singapore, and Taipei, China.  The ADB Paper (p.20) also quoted a 1968 study which shows that there was an anti-trade bias ((ESRx-ESRm)/Value Added)in consumer durables (-36), machinery (-26), transport equipment (-182), and agriculture (-33) .

    The ADB Paper also indicate that Korea has stressed on the development of its industry. Share of the industrial sector in the total allocation of credit even increased from 61% in 1970 to 69% in 1980 (p. 30).