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Heavy and Chemical Industrialization of South Korea

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Heavy and chemical industrialization in Korea

South Korea today
is a world-recognized industrial producer.
All from very humble beginnings.

Princeton Ryman(Georgetown University)
I recall very well when I was going out there(South Korea),
my colleagues had very little optimism about the South Korean economy.
It was heavily aid-dependent, gone through political turmoil.
They didn’t see the resources.
And when getting there many Koreans felt the same way that
their futures were very bleak.

Yet, though many believed it impossible,
South Korea successfully industrialized.

The core of the economic miracle that
was South Korea’s economic rise,
was Heavy and Chemical Industry – the commanding heights.



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1. Plans to develop Heavy and Chemical Industry



South Korean governments since the 1950s,
under Syngman Rhee, had planned to nurture HCI.
But the US response to such ambitions was cool.

Indeed, the United States was negative about
the very idea of South Korea’s industrializing.
US policy makers believed it best if South Korea focused
on agriculture – where it had comparative advantage -
and import industrial goods from Japan.

The governments’ of Rhee, and his successors, Chang Myon
and Park Chung-hee, saw HCI as the only way to achieve
economic self-sufficiency.

In January 1962, the new government of Park Chung-hee
set out a Five Year economic plan in which it envisaged not
only the construction of four hydroelectric power plants
and eight thermal power plants, but also fertilizer, oil refining,
cement, combined steel, machine tools, shipping and automobile
producing facilities – i.e. every major area of heavy industry.

But without necessary technological capabilities and funds,
such plans remained on the drawing board.

The United States demanded that target growth rates be reduced,
and that excessive investment plans like the integrated steelworks
be shelved.

The Park Chung-hee government was forced to back down.

Much of the more ambitious parts of the plan were scrapped,
leaving only the oil refinery and the fertilizer factory.

To begin with in 1962,
the government created
a state oil company,
and with investment from the US Gulf oil company,
as well as loans, built a refinery in Ulsan.

Soon after, two fertilizer factories were also constructed.
There were already two fertilizer plants
in operation (Chungju and Honam)
but they did not produce enough to meet the country’s needs.

Thus, in the 1965-7 period,
fertilizer plants were constructed
in Ulsan and in Jinhae.

Thanks to experience already gained,
both plans were constructed quickly,
and soon operated above expected capacity.

Princeton Ryman(Professor of Georgetown University)

South Korea built two state-of-the art fertilizer plants.
They were big, beautiful plants, put it on stream a year ahead of the schedule..
So I went to see the minister of the Science and Technology,
asked, “how could you do that,
how could you built two state-of-the art fertilizer plants a year ahead of the schedule,
where did they come from.?”
He said “you remember Chungju fertilizer plant?”.
“O!”, I said, “It’s a terrible, terrible project.”
He said, “To you, it was a terrible project,
but every engineers in South Korea cut its teeth in Chungju fertilizer plant
now we know more about the fertilizer plant
than anybody else in the world.”

A private fertilizer plant was also built.
Samsung’s Lee Byung-chul,
obtained a $40 million loan
from Japan’s Misui Corp.,
and built a massive fertilizer plant in Ulsan,
planning an annual production capacity
of 330,000 tons.



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2. Early development of HCI



Refining and fertilizer producing capacity
had been but a part of the initially proposed
Five Year Plan.

Further HCI capacity would require
foreign currency in order to import
capital goods and raw materials.

The Park Chung-hee government focused
all its energies on obtaining foreign currency.

In December 1964,
Park’s visit to West Germany
resulted in agreements for $40 million
of government and commercial loans.

But this was not enough.
There was a need to find other ways to bring in massive foreign capital.

Those were to be:
The Normalization of Relations with Japan, and the Vietnam War.

1) The Normalization of Relations with Japan
Normalization of South Korean-Japanese relations
had been under discussion since 1951.

There had been five summits in the ten years preceding
the coup of 1961. But the two sides had failed
to reach agreement.

Park Chung-hee’s government
pursued normalization as a matter of urgency,
in order to so-called ‘claimable funds’.

Finally, in November 1962,
the head of the Korean CIA, Kim Jong-pil
and Japanese Foreign Minister Ohira Masayoshi/
agreed that Japan would pay $300 million in grants
and $300 million in the form of loans.
But, in the spring of 1964
as Park’s government rushed to normalize relations,
opposition parties and students began to express their anger
at what they saw as a shameful policy and a disgrace to the nation

Lee Won-deok(professor of Japanese studies, Kookmin University)
The Korean people were very critical of the government’s approach, which focused entirely on security and economic cooperation.

Student protests started to grow.
In response, on 3rd June 1964/
the government declared martial law in Seoul.

Opposition protests were suppressed.

A year later, in June 1965,
the Korean-Japanese treaty of Normalization was signed.
$800 million as reparation fund(economic cooperation fund/
A massive sum given that South Korean exports were
only $119 million at the time.
These funds allowed South Korea
to import much needed capital, advanced technology and
knowhow from Japan.

2) The deployment of troops in the Vietnam War
The deployment of troops to Vietnam was another major foreign currency earner.

In 1964, the United States decided to escalate the war in Vietnam,
and requested the deployment of South Korean forces.

Expecting that deployment would result in multiple benefits
including the maintenance of the US Army’s deployment in Korea,
as well as the modernization of the South Korean army,
salary incomes for South Korean soldiers and other workers sent to Vietnam,
the government agreed to deploy forces.

Unlike the normalization issue,
opposition parties did not oppose the deployment,
with the media being in favour.
Students also did not protest,
in fact, many enlisted in order to be deployed.

Woo Yong-rak (Vietnam Veteran)

Well, I was worried about survival, but if I survived, I hope to buy some land and a few calves for my family back home. Their lives were difficult, and they had very little land in the village they lived in. Cattle were very valuable back then. This was not some devil may care, do or die thing, life was difficult and we just wanted to help our families out as best we could.

A security battalion and an engineering battalion were soon followed by
20,000 troops from the backbone of the armed forces, including the Tiger Battalion of the army,
and the Blue Dragon Battalion of the marines.
In 1966, an entire division that included the White Horse battalion was also deployed.
Thus total military deployment to Vietnam reached 310,000.

Of those deployed, 5,000 were killed in action,
and 11,000 injured.
Another 80,000 were injured as a result of
defoliants.

Thanks to their sacrifice,
South Korea received substantial assistance from the United States.

In the 1966 Brown Memorandum,
the United States promised to
aid the modernization of the South Korean armed forces,
pay personnel and equipment expenses for South Korea’s military deployment in Vietnam.
It also agreed to buy all such equipment in South Korea,
as well as procuring some US army equipment from South Korea too.

US also helped Korea to establish an industrial institute.
Korean government created the Korean Institute of Science and Technology (KIST).
And it encouraged Korean specialists residing overseas to return.
They greatly contributed to the state-propelled development of HCI in 1970s.

The Vietnam deployment
led to a surge in exports.

Foreign currency earnings from
the pay of soldiers and workers sent to Indochina,
as well as Korean contractors there,
totalled $740 million.
Money earned through ‘blood spent’.

3) Rapid increase of foreign currency inflows
With the US-Korean-Japanese security alliance consolidated,
foreign capital inflows began to increase rapidly.

Foreign loans were did not reach
the $40 million mark in 1965.
In 1969, however,
they exceeded $500 million.

Private companies formed a line
to get permission to take out foreign loans.
Foreign capital could transform businesses.
Foreign loans were guaranteed by the banks,
and by the late 1960s, the size of such guaranteed money
exceeded loan balance of the banks.

The government used foreign currency
accumulated from the normalization and the Vietnam deployment
to begin work on a petrochemical works in Ulsan
and a combined steelworks in Pohang.

At the time, with the development of chemical fibre industry,
there was a need for domestic supply of raw materials. Hence,
the Park government undertook a plan to construct a petrochemical industry.

The petrochemical industry involved making basic products like ethylene
from naphtha in oil refinery,
from which the industry via intermediate products yielded polyester, acrylic etc.
Petrochemicals created
the inputs for light industry.

The connection between the various products of the petrochemical industry
meant that there was a need to concentrate all related facilities in one location.
Thus, the plan was to build complex in Ulsan with an area of around 1 million pyeong.

Given low domestic demand,
it was decided that facilities to produce
100,000 tons of ethylene would first be constructed.

For such a facility to be viable, large amounts of state assistance would be required.
The government helped the project with aid
in a variety of forms including subsidized raw materials,
and a variety of tax breaks, sparing no expense.
Major projects, such as the construction of a naphtha cracking plant
were entrusted to state companies like State Oil Refinery Co. and Chungju Fertilizer.
Private companies, as yet, lacked the capacity.

In October 1972, after four years
and investment totalling $250 million,
the Ulsan Petrochemical complex was complete.

And the supply of needed inputs
dramatically improved.

At a combined steelworks, iron ore and coke
are melted down in a furnace to make cast iron.
Carbon is removed from the cast iron
in order to make steel. From here, high pressure is applied,
and the resulting plate steel can be used in many ways.

In the early 1960s,
around 10,000 tons of cast iron
was produced by Samhwa steelworks in small scale blast furnaces,
while the Incheon works produced 200,000 tons of steel ingots annually
from melting down scrap iron in open-hearth furnaces.

The initial Five Year Plan of the Park government
envisaged the construction of a 300,000 ton capacity
steelworks in Ulsan. But financial constraints meant
plans had to be shelved.

Park Chung-hee, though,
was not deterred.
In state visit of the US in May 1965,
Park met American steel makers,
and requested their helps.

American Steel makers were instrumental in the formation of
the Korean International Steel Association (KISA).
The Economic Planning Board (EPB) under deputy prime-minister Jang Ki-young took charge of the steelworks project.
The EPB signed the Basic Agreement on the Construction of a Combined Steelworks
with KISA in October 1967, the Steelworks to have an annual capacity of 600,000 tons.

In April 1968,
Pohang Steel Corporation (later POSCO), was formed.
However, KISA was unable to
fulfil the agreement.
It failed to persuade the World Bank or
the US Import-Export bank to provide
the required loans.
Still in spring of 1969, the World Bank
published a report critical of South Korean
plans to build a combined steelworks.

Hwang Byeong-tae
What foreigners were saying was that South Korea was not suitable for a combined steelworks. US policy makers had reached the conclusion that building a combined steelworks in developing countries would just result in an expensive but useless white elephant, with production being unsustainable. Thus, they were implacably against the project from the outset.

Ultimately, in April 1969
at the International Economic Consultative Organization for Korea
in Paris, the KISA plan
was scrapped.

A new way was needed.
Park appointed Kim Hak-ryeol as his new deputy prime minister for economic affairs/
his main task: to find a way to get the combined steel works built.
It was decided to use Japanese claimable funds
for the project.
So negotiations with the Japanese government
began.

Hwang Byeong-tae

At the time, I had a talk with Kim Hak-ryeol. So far as I was concerned, there was one way to get it built: the Japanese-provided claimable funds. At that stage, there was about $200-300 million left, just enough for the project. Park wanted the money secured quickly, so Kim Hak-ryeol went to Japan, met with the Japanese finance minister Hukada, and got his agreement.

Yang Yun-sae/ Economic Planning Board, Investment Czar

One day Kim Hak-ryeol informed me that the President had decided to use the claimable funds for the steel works, and told me to sort out the arrangements with the Japanese.

To make the project work,
the government spared no expense,
funding the building of needed infrastructure
and providing tax breaks. Planned capacity was also enlarged.
The steel works was to have
a million ton annual capacity.

The Japanese went along with the plans.
The Japanese sought to lead the project,
gaining expertise and creating a reputation.

Oh Won-cheol
At the time, the Japanese were trying to export as much as possible. So the idea of exporting a steelworks, worth several hundred million dollars, well this was a big deal. Things started moving quickly.
In December 1969,
South Korea and Japan reached
a basic agreement for the construction of a combined steelworks in Korea.

Japanese steel companies formed a consortium
called Japan Group to construct the works in Pohang.

$178 million of foreign capital,
and 49.3 billion won of domestic funds,
a total of 120.4 billion won invested./
Three times as much as was the 42.8 billion won invested in
the Gyeongbu expressway
the largest project ever in Korean history.

Thus
on 9th June 1973,
the dream of an integrated steel mill
came true.

Yeo Sang-hwan (Person involved with Pohang)
The steel wouldn’t come out, we had to flush it out with an injection of air, and it was a nervy and restless time. We weren’t sure if it was going to work, but with a popping sound, the steel emerged. It was bright, it was the colour of creation, and with that we all roared “hurray!”.

The Pohang steelworks had had the most difficult of beginnings.
It was touch and go, but it did eventually see the light of day,
and this was principally thanks to the will of Park Chung-hee.
The efforts of Jang Gi-yeong, Kim Hak-ryeol, and Pak Tae-jun,
under Park’s leadership, should also not be forgotten.

Hwang Byeong-tae

This was Park’s baby. With his word, the pregnancy began, he took care of the child, and he is what made it happen. It lived because of him.



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3. Overall Development of HCI in 1970s



The petrochemicals complex
and the steelworks were great
steps for the country.
But the HCI plan accelerated as a result
of a national security crisis.

In the late 1960s,/
tensions between North and South Korea
escalated as North Korean provocations
intensified.

This was at the very time when
globally, relations between the Soviet Union
and the United States were improving.

In July 1969, US President Nixon
declared that there would be no new deployments
of US ground forces in Asia, under what became
known as the Nixon Doctrine.
Following this,
in July 1970,
the United States withdrew one of the two
divisions it had stationed in South Korea.

At the same time,
the United States began efforts to
normalize relations with the People’s Republic of China.

It appeared as if the United States,
that had hitherto defended South Korea,
had abandoned it, and moved to forge an
alliance with its enemy: the People’s Republic of China.

Park Chung-hee interpreted these changes in the international
situation as a potentially existential crisis for the state.
He saw no alternative but to pursue an independent defence policy,
and create a national defence industry capable of producing the weapons.

Thereafter, in June 1970,
the government put in place a plan to build what it termed the ‘four core industrial facilities’.
Those being: casting metals, special steel, heavy machinery, and shipping./
This was a definite indication that the government intended to make:
armoured vehicles and firearms.
Individual industrial magnates were entrusted with separate projects,
with Hyundai Construction’s Jeong Ju-yeong being charged with constructing a ship yard.

In August 1970, the government,/
set up the Agency for Defence Development (ADD),
to nurture the emergence of domestic defence industry.
However, unable to obtain loans,
the four core industry facilities plan did not get off the ground.

In November 1971, Park Chung-hee
appointed assistant secretary at the Trade and Industry ministry Oh Won-cheol
the second senior Secretary for Economic Affairs to the President for fostering defence industries.

The ADD, under Oh Won-cheol
produced personal arms and 60 mm mortars.
Codenamed, “Project Lightning’/
In just a month,
they successfully created prototype
carbine rifles and machine guns.
Thereafter they also developed guided missiles
and 105 mm shells.

Yun Eung-ryeol

General Shin Eung-gyun spoke frankly, “Mr President, making weapons is not simple. Only the Swiss and the British make ordnance. I am not sure if we can make machine guns or carbine guns, but even if we did, we have to make sure they fire properly, and that will not be easy.” The President was angered and responded: “Then what are you suggesting we do? The North Vietnamese are fighting a war with mortars made of drainage pipes, can’t we do better?” We were in trouble, the original map was no longer of use, that’s why we needed comprehensive heavy and chemical industrialization, which is the conclusion that Park had reached.

Park Chung-hee’s plans did not
end with the defence industry.
Now in power without term limits,
he planned to pursue general HCI.

On 17th October 1972, he suddenly declared
martial law, and suspended the constitution.

Becoming de facto president for life,
he constructed a new political system christened
the Yushin regime, meaning the revitalizing reform.
The representative democracy, in which people choose their own representatives, retreated far back.

His new declared aim: $10 billion annual exports,
and GDP per capita of $1,000 by 1980.
The means: Heavy and Chemical industrialization.

Oh Won-cheol

“Park said he planned to raise exports to the $10 billion level. In order to do that, Heavy and Chemical industry was needed. But this was not about weapons, we did weapons at the same time, but HCI was about exports.”
With existing light industry it is impossible to attain the vision of the Yushin regime, $10 billion annual exports, and GDP per capita of $1,000 by 1980.
Korean Economy should move to heavy and chemical industry.

Park, now in a one man dictatorship,
could pursue HCI without
political interference or opposition.

In January 1973,
Park declared the beginning of
Heavy Chemical Industrialization.

In February,
the government-wide
Committee for the Pursuit of Heavy and Chemical Industry
was formed.
In June,
the Plan to Foster HCI was released.
Steel, non-ferrous metals, machinery,
shipping, electronics and chemicals were
the six industries targeted for development.

By 1981, the target was to increase
these industries’ share of total economic output
to 51%.

Park Chung-hee, created an HCI Team,
that included Kim Jeong-reom, Blue House Chief of Staff,
and Oh Won-cheol, the second senior secretary for economic affairs.

The government moved to designate
one or two companies in a particular industry,
regulating and aiding them to realize
economies of scale.

Deposits from financial institutions
were used to create a national Investment fund.
And this was then poured into HCI investment.

HCI companies also benefitted from tax breaks.

To ensure an adequate supply of technical staff,
the government moved to raise enrolment at
technical high schools and engineering departments
at universities.
The number of technical high schools increased 1.6 times,
and the number of their student 2.5 times in 8 years.
The technical workers raised in those schools grew to
the main technological manpower of HCI.

The government also established research centres
in related fields.

The government constructed
the basis for these six industries.

The massive investment in HCI
led to what became known as the
‘biggest boom since Dangun’,
Dangun being the legendary founder
of the first Korean dynasty.
In the 1976-78 period,
annual economic growth exceeded 10%.

Over the same period,
manufacturing growth reached
16.6% a year.

Except for the machine industry,
every industry involved exceeded its growth target.
While the $10 billion export target
was met in late 1977, four years early.

It was at this time two of South Korea’s major industries:
cars and shipbuilding, were built.

1) The automobile industry
In the 1950s, South Koreans
made cars by reusing old truck and jeep
parts.
The Sibal (Beginning) Car, released in 1955,
was a representative example.

From the 1960s,
foreign model complete cars began to be made
from imported components.
Production increased,

but spending on import of car parts
required a lot of foreign currency.

Dollars, hard earned from exporting
sweaters, plywood and wigs,
were spent on importing expensive car parts.

Thus, in the early 1970s,
the government sought to begin home
production of cars and the parts involved.

NG production, a car assembly company,
was told it had to build a body shop.
Companies were given permitted production quotas
in line with the how much of their output was
made with domestically produced components.
In 1973, the government began encouraging
companies to produce their own car models.

The first to develop its own model was KIA.
In 1974, produced the Brisa 1.0 L car,
with an engine designed in-house.

Hyundai began developing its own model.
An Italian company was contracted to do design,
with engines and transmission handled by Mitsubishi.
In October 1974, the Hyundai Pony was developed./
South Korea was only the second country in Asia, and the sixteenth
in the world to develop its own cars.
Hyundai finished building its first car plant in 1975,
with the beginning of Hyundai Pony production in 1976,
Hyundai seized control of the Korean car market.

Thus it was that in the late 1970s,
the Korean car industry began to grow rapidly.
With HCI and the construction boom in the Middle East,
an economic boom meant that many more could afford to buy cars.

2) The shipping industry
From the 1970s,
the government also moved
to foster the emergence of
a shipping industry.

Until the late 1960s,
the shipping industry
had been small in scale and output.
There was little internal demand.
Domestic shipping companies
imported the ships they needed from overseas.

The Ministry of Trade and Industry
began by ordering a couple of ships
in the 20,000-30,000 ton range.

The Ministry of Trade and Industry
got Gulf, the American supplier of
South Korea’s crude oil,
to use South Korean ships for shipment.
The Korea Shipbuilding Corporation
supplied Gulf with 12 small, 20,000-30,000 ton
ships.

Jeong Ju-yeong, of Hyundai Construction,
had been told by the government to move into shipbuilding,
which he duly did,
by obtaining shipping technology from the UK,
and even obtaining an order to finance
the construction of the company’s shipyard.

In October 1971, Jeong
concluded a contract with a Greek shipping company
to supply them with two massive 260,000 ton ships, at $30.95 million
a ship – cheaper than the international price – to be delivered
two and a half years later.

The South Korean government agreed to pay
the Greek shipping company contract’s principle
with interest should Hyundai not fulfil its
obligations. This is what made the deal possible.

Thus, Hyundai was able to secure loans
worth $50 million,/ and in March 1972,
it began constructing a shipyard in Ulsan.
Shipbuilding began soon after, while
facilities were still under construction

From 1973 until early 1974, Hyundai built twelve,
massive 300,000 ton ships.
In cooperation with a Japanese shipbuilder,
Hyundai obtained design blueprints,
and also sent personnel to Japan to get technical training.

But the company soon ran into difficulties.

In late 1973,
with the first Oil Shock,
global oil prices increased by 400%.
With global economic stagnation,
demand for ships collapsed.

Three ships were, using delivery dates as an excuse,
not accepted by companies that had ordered them./
Soon after it had begun operations, Hyundai’s shipyards
were on the brink of bankruptcy.

With government support and great efforts,
the company survived.

Especially the construction boom in the Middle East,
was a welcome break for Hyundai Shipbuilding.
Hyundai construction, its parent company,
having won contracts in the Middle East,
purchased steel structures made at the shipyards.
They were sent across 6,750 miles, via sea, to
construction sites in the Middle East.

This saved the company,
and meant it could survive
what was a terrible time for the shipping industry
in the late 1970s.

In retrospect,
from March 1972 when building began,
until May 1975, there were over 2,000 safety accidents
at the ship yards.

However, amid such difficult circumstances,
workers and technicians successfully learnt how to build ships.
In the late 1960s,
South Korea’s ship industry
had productivity of only 5% of Japan’s.
By 1984 though,
it reached 50%.

It was this dynamic ability to learn that
would ultimately lead to South Korea
becoming the world’s number one shipbuilder.

It was the blood and sweat of workers,
technicians, industrialists and the government
that created the Korean shipbuilding industry.

As we have seen,
the core industries of South Korea’s economy
were constructed in the 1970s./ While the Chaebol
began to develop.

With Heavy Chemical Industrialization,
the large conglomerates commonly known as Chaebol
grew rapidly.
Chaebol are large, multi-sector, holding corporations
usually controlled by a family.

The assistance the government provided to industry
during this period was incomparably large compared to
times gone before.

And with government-mandated monopolies,
large conglomerates took shape.
The Chaebol used cross shareholding arrangements,
payment guarantees, internal transactions and a large core of expert personnel
to create a convoy management system.
It was so especially when Chaebol entered a new industry.

This allowed Chaebol to minimize risk,
construct capacity, and become settled in a new industry.
But this also created a concentration of economic power
that led sometimes to excessive expansion, and
chain-bankruptcies.

Chaebol industrialists contributed massively
to South Korea’s rapid economic growth.
But these emperor-like business leaders constructed monopolies
that also burdened the economy to some extent.



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4. Stabilization of Heavy and Chemical Industry in the 1980s



With the sudden death of Park Chung-hee in October 1979, and the resulting political crisis the economic crisis the country faced also worsened. In 1980, the economy contracted by 3% the first time in two decades. The new military dictatorship led by Chun Doo-hwan/ saw Park Chung-hee’s HCI as the cause of the economic crisis. It was here that the new government sought to distinguish itself from the previous government. Song Ui-yeong (Graduate School of Politics, Sogang University) The heavy and chemical industries built in the 1970s required a massive amount of prior investment, and was heavily centred on a small number of industries. Hence, if global demand was not in line with expectations, the HCI plan necessarily would lead to a financial crisis. It was not a case of the plan being well or badly set, rather I think it was a plan that was a bit excessive and implemented rather hastily. The new military government ended the Ministry of Trade and Industry’s HCI line, and put the Senior Secretary for Economic Affairs to the President Kim Jae-ik, from Economic Planning Board, in charge of economic policy. The government attempted to restructure investment in the particularly badly performing car and electricity generation equipment industries. New entry into these industries was prohibited, and the industries were restructured. The Chun Doo-hwan government also changed industrial policy. It ended preferential treatment and aid to particular companies within particular industries. The seven industry support laws were repealed,/ instead a law that provided generalized support to industry on a functionality basis adopted. These changes were designed to rectify problems with existing industrial policy, but also were in line with liberalizing economic trends worldwide. Neoliberalism was on the rise, the Thatcher government in Britain and the Reagan administration in the United States led the charge to cut government regulation and liberalize markets. At the same time, to stabilize the economy, anti-inflationary policies were put in place. And the government implemented a set of policies putatively designed to forcibly stabilize industrial relations: suppressing the labour movement, banning plural unions, and prohibiting third-party strike actions. This proved to a great help to nascent heavy and chemical industry. These economic stabilization and rationalization policies resulted in rapid growth returning in the early 1980s. And… in 1986-88, the economy boomed. Thanks to the explosive increase of export, the Korean economy grew over 11% annually for these three years. It was the car industry that expanded particularly rapidly in this period. With government reorganization in the early 1980s, only two car companies were left, but the viability of the industry appeared to be in doubt. For vulnerable Korean car industry to survive, investment should be concentrated in small model cars, mass production for export. In October 1981, Hyundai put in place the ‘X Car Project’, to make 300,000 cars a year. This was a plan to make more cars in a year than the 267,000 cars registered within South Korea at time. The World Bank was pessimistic about this investment’s prospects. But the tide had just turned. With the US-Japanese trade deficit rising, the Japanese Yen appreciated/ and the Japanese car industry cut back on exports of small cars to the US. The US small car market, unexpectedly, opened up. This presented a big opportunity for the Korean car industry. Hyundai Pony Excel exports grew rapidly. Exports of 16,000 units in 1983, rose to 564,000 in just five years. It was one of the ten hit products in the United States at the time. The Daewoo Lemans and the Kia Pride also soon became big exports. The Korean car industry, with constant improvements in performance, and active marketing, has grown into the fifth largest worldwide. In the 1980s… another industry that succeeded was semiconductors. In the mid-1960s, the industry had begun from with simple assembly from components produced overseas. From the mid-1970s, using wafer processing, Samsung began producing products through transistor large scale integration (LSI). In 1983, Samsung’s Lee Byung-chul, designated semiconductors a key industry for the firm, and entered the D-ram market. Samsung’s other main rivals, LG and Hyundai, followed suit. This was to be a fierce fight for market share. In November 1983, Samsung developed 64K D-ram. In October 1984, it successfully developed 256K D-ram. They had an expertise gap of 5 years compared to the most advanced makers. And this was not an easy market to compete in. Dumping by Japanese companies, meant that D-ram prices collapsed in 1985. In September 1984, when Samsung was releasing its first semi-conductor product, 64K D-ram cost $3, the price fell to 30 cents in August 1985. It cost Samsung $1.70 to produce 64K D-ram. In 1985, Samsung made an astronomical 130 billion won loss. Hyundai and LG were in a similar position. Fortunately, from 1986, market conditions improved. D-ram prices rose. The government felt pressed to invest in research. The gap in product development with Japan was shortened. In 9 years Korean Ram was of the same level as American and Japanese. Finally, in the 1990s, South Korea began to export D-ram in large quantities. As PC ownership increased rapidly worldwide, demand for D-ram also soared. Orders for South Korean D-ram rolled in. From 1993, South Korea became the no. 1 maker of semi-conductor memory worldwide. And it was the third largest producer of semi-conductors generally, with only the United States and Japan producing more. In 1995 Samsung became the first Korean company/ to make profits over 1 trillion won.



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Epilogue: The significance of Heavy and Chemical Industrialization



Beginning with steel,
petrochemicals,
shipbuilding
and even cars

HCI was the motive force
behind Korea’s economic rise.

The government systematically planned its development.
With the ambition of entrepreneurs and rapid learning abilities
as well as industriousness of workers and engineers
Korean HCI leaped forward.
Thus, South Korea, succeeded in conquering the
commanding heights of industry,
constructing industries that many thought
it could not.

Robert Lucas (Chicago University, Nobel Prize winner)
Huge number of Koreans moved out of the countryside into Seoul,
put their children in good classes.
Korea’s a success in that dimension
They’re always moving into some new hard area, and
getting good and good enough at us,
so competing with the best.

Hugh Patrick(Columbia University)
In some sense Koreans are the most ambitious people I know,
and that means they are working hard,
and trying to achieve more and more particularly in the economic side,
because people want to have better conditions for themselves and for their children in their lives.

There were many difficulties encountered on this road.
Many investments resulted in years of losses,
or sometimes outright failure.

But success ultimately resulted
in South Korea being able to
rub shoulders with the developed nations of the world.

Lee Geun(Seoul National University)
Evaluation of success seems to depend on the timeframe. For instance, Samsung, the most successful producer of semiconductors today in South Korea, made a loss for the first seven years.
Heavy and Chemical Industry is the same. But after enduring seven years of losses, they turned in a profit, HCI investments initially led to losses, but the investments allowed South Korea to learn a lot, and without trial and error, you cannot learn anything.

HCI meant that South Korea became one
of the world’s tenth leading economic power,.
paving the way for a brighter future.