Nitty Gritty of South Korean Development

In almost every discourse about the development in Nepal, Korean example is cited as the epitome of the economic transformation. Korea is the only country in the world to have transformed an aid receiving country to aid-giving country. What are the factors behind the success of the Korean economy? The purpose of this blog will be primarily to examine this question. 

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The real growth of Korea started only in the 1960s, by which time the country had made significant reformation in agriculture and macroeconomic indicators. By then, the country had created a strong foundation for the export industry through a periodic focus on low to high-end products during the 1950s. It achieved the latter through its policy of overvalued currency in the 1950s and import substitution policies. Similarly, the government did not allow for the massive money-financed deficit and did not follow a real exchange rate policy. The combination of these policies ensured the profitability of the traded goods sector. As a result, government policies have sustained relative financial stability.

The sustained high level of investment since the early 1950s and large external financing kept the engine of the economy running for it to achieve sustained economic growth. A high level of investment was possible because of a) its people's tendency to save b) support from the United States and the United Nations. By the 1960s, Korea decreased external financing as external investors were turning away from the grant to loan. Korea could sustain economic growth firstly because of a) its competitiveness in the labor market and b) vibrant and trusted trading partners. It traded manufactured goods with the USA, Japan, and China, all of which were large, vibrant and growing economies. The opportunity to work in the European countries at the beginning of the 1950s and in the Middle Eastern Countries in the 1970s was an added advantage to Korea. These were the difficult times for Korea as the country was in the poverty trap in the 1950s and had to hold ground during oil shock in the 1970s. In the 1980s, Korea liberalized its economy and protected its infant industries and while also opening its market to import certain material intermediate materials for its export industry. 

What was the Important Factor for the Development of the Korean Economy?

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It is not a single policy per se that paved the way for the success of the Korean economy. The opportunity to study and learn from Japan, Taiwan, and other East Asian Countries, which went through a similar phase of development a few decades before Korea, gave Korea an edge to plan prudently to follow the positive footsteps of these countries or to avoid pitfalls. The constant support from the United States and the United Nations through grants, aid, loan, technological support and even military support at times played another role. While North Korea had to go through a long period of depressed growth because of its closed economy, South Korea, on the other hand, because of its open economy, trade liberalization and good relationship with the Western Economy leveraged the unique political situation to its benefit. 

Talking about the policies, it was not a high-interest rate or low-interest rate, weak currency or strong currency, emphasis on agriculture or Heavy Chemical Industry, emphasis on the import or exports of the goods, or high reliance on the foreign aid or low reliance on foreign aid but the prudent selection of each of these choices when the situation demanded. For example, the government pushed for labor-intensive industries and brought programs to enhance human capital when there was high unemployment, but the country switched to heavy and chemical industries when the competitive edge in these industries dwindled. At times the government intervened excessively to correct misallocation and at other times it relaxed the command over the economy. I think the leadership that was very erudite, prompt, far-sighted, and strong-willed to understand the need of the given time to form the policies that best fit the situation was the most important factor behind the success of the Korean economy.

Which Factor Should Other Countries Copy? 

The underlying aspects of Korean economic development were labor competitiveness, high investment through high national savings and external financing, appropriate government intervention and good macroeconomic policies. Investment is necessary for developing countries to make a large infrastructural investment or to industrialize to trade volumes. Emphasis is given to foreign direct investment or foreign aid to ensure a large influx of much-needed investment but the Korean success story suggests that the domestic saving is as important to break the poverty tap and in striding towards the high sustained economic growth. This is one aspect I think the developing countries can copy and should copy. 

Image Source: Freight Waves

The United States and the United Nation had a huge role in the development of Korea through its economic, technological and military aid and its support as a trading partner. The United States, in particular, was concerned about the development of South Korea to make it superior to North Korea, which was an ideological enemy to the United States. Not all the developing countries have this luxury to get support from the hegemonic power like the United States. 

Communism, literally?: A take on Nepal Communist Party(NCP)

Source: Nepali Times

After the unification of the two largest communist parties of Nepal, the crucial question of whether the party should embrace People's Multi-Party Democracy or 21st Century People's democracy has surfaced in the discourse of the party. Ironically though, these ideologies are a far cry from 20th-century typical communist maxims and there is not a significant difference between these ideologies. At present, Nepal Communist Party (NCP) embraces none of the typical communist features—one-party system, centralized government, command economy, state-owned means of production or shared wealth based on need rather than contribution.  For better or worse, these parties had morphed from a communist-inspired force to a liberal democratic force. In the process, they have conformed to the basic capitalist tenets such as the right to property and market economy and have embraced democratic values and civil liberties. Although the communist ambitions of these parties may have been compromised, the voters gave them an overwhelming majority to stand up to their socialist and democratic promises. Therefore, the NCP led government need to emphasis on shared prosperity and treat democracy as its core principle, irrespective of the semantics of their name or their official political ideology.

Democratic Values

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Karl Marx envisioned the communist system to be the dictatorship of the proletariat. The communist regimes formed after the death of Marx gave little to no respect for personal liberties and established centralized authoritarian states. Nepalese communists shed blood like the most communist, but they fought against the undemocratic state institutions of Panchayat and King Gyanendra's rule to establish the democratic values of pluralism, press freedom, and personal liberties.  The communists are to be commended for their fight for democracy, but the signs are telling that the NCP led government is burgeoning in the scale of authoritarianism.  

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In addition to bringing different departments under the Prime Minister Office’s (PMO’s) direct supervision, the government has stacked its loyalists in most state and non-state institutions, skewing more power towards the already powerful government. Meanwhile, NCP has tightened the freedom of speech within the party and NCP-led government has needlessly imposed politics into academia, has brought the media bill to hurt the freedom of the press, and has tabled a bill to curtail political independence and economic resources of the National Human Rights Commission. On top of that, the tabled Information Technology(IT) Bill can be to criminalize reporting on government misconduct and expression of critical opinions by civil society and citizens by levering the vague provision of protecting national sovereignty. Similarly, some ministries have barred their staffs from criticizing the government or party or commenting, liking or sharing posts to that effect on social media. At other times, it has deflected any criticism aimed at its workings. It appears that the current government does not like the idea of ideological feedback or the political debate as it gets offended by the customary criticism from media, civil society or intellectuals. The communist government is weakening the very the institution it fought to establish.

Equitable Economy

Before the Oli government took power, the economic growth rate of Nepal was one of the lowest among its peers in Asia—landlocked or otherwise.  Yet, Nepal had significant progress in income inequality reduction and poverty rate reduction in seven years and fared better than fast-growing economies like India and Bangladesh in this respect. The job, however, is far from over for the current government. The current K.P. Oli government has prioritized economic growth and has set a goal of economic growth as high as eight and a half percent. To this end, economic growth of over six percent has been achieved for the last two years. The trend of the economic growth also looks good, but emphasizing on the economic growth alone has its pitfalls. For example, the average income of the people in the bottom 50% of income bracket decreased in real terms from 1980 to 2010 despite an almost four-fold increase in the GDP per capita of the USA over the same period.

 

Source: Al-Jazeera News 

Therefore, as much as the government’s success will be measured by economic growth and their support of entrepreneurship, it will be most gauged by the economic empowerment of the poor and marginalized people who are the communist party's core political base. If the larger share of growth is disproportionately shared by those in the upper-income bracket, the end goal runs counter to the communist ideology. As such, the government should look at ways to maintain the balance between growth and its distribution. The researches show that countries can improve both economic performance and equality without a tradeoff with the right system and policies. Rampant cronyism and corruption are not the ingredients of such a system, however!

The Takeaway

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At present, Nepal is the only country to be ruled by a democratically elected communist party at the central level. While democratically elected communist parties, at times, have turned into a one-party system as in Czechoslovakia, these parties, at other times, have held into the government for considerable time as in Cyprus, Guinea or West Bengal. While the first avenue seems unlikely, whether the party in Nepal can prolong their hold of power depends on two distinct entities. The voters are the first entity. The government has made laudable steps by introducing the social security scheme and progressive tax system for their political base. However, if the government does not address the day to day expectations of the people such as more jobs, better roads, lower corruption, increased wage, rule of law, good governance or affordable cost of living, the frustrations may manifest in the next election. The second important entity is the political actors outside of the parliament. It is not to be forgotten that communist rose to power by tapping in the public frustration on the issues of exclusion, inequity, and unemployment. The last bit of their political success came about by inciting the masses against the authoritarianism of the then King and Panchayat system.  The communists must solve, not systematize, these problems ranging from inequity to authoritarianism if the country is to achieve the goal of happy-prosperous country.