In the early 1960s, Joan Robinson argued with a colleague about the great economic success of Korea. It was a confusing debate until the listener realised Robinson was talking about North Korea and the other about the South. Soon after this discussion, there was a military coup in South Korea.
Gordon Tullock is an interesting writer on South Korea saying that:
• Syngman Rhee was a socialist who knew nothing of capitalism.
• To make his country look capitalist to please the Americans, Rhee gave previously Japanese owned industries to his friends as monopolies.
• When General Park overthrew Syngman Rhee, he knew no economics, but he knew the bureaucracy was filled with Rhee’s cronies so he fired them all.
Tullock considers that South Korea became an open economy as a by-product of this political purge.
Mancur Olson argued that the accumulation of interest groups in even a previously prosperous society may lead to its economic stagnation because of this institutional sclerosis.
These special interests build their power over time and start to slow down a society’s capacity to adopt new technologies and to reallocate resources in response to changing conditions, and thereby reduce the rate of economic growth.
President Park swept away these interest groups after he came to power in Korea. The rest is history.
When the old political networks are disrupted, the lack of political connections forces the remaining entrepreneurs to focus on productive market activities. The defeat of Germany and Japan in the war also led to the overthrow of special-interest groups that impeded growth.
A realignment of patronage is common after leadership successions in autocratic societies. These routine reallocations of patronage – Perestroika is an example – can get out of hand and destabilise the entire pre-existing rent-seeking society. This happened to the old order when President Park cleaned house in South Korea.
A key feature of this development miracle was an enormous increase in Korea’s international trade. In the early 1960s, Korea eliminated tariffs on imported production inputs and capital goods as long as these imports were used to produce goods for export. Beginning in the 1970s, Korea engaged in a broader, gradual reduction of tariff from about 40 per cent to 13 per cent.
Utopia, you are standing in it! 
Recent Comments