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... observers, the temptation to compare Korean and Japanese development is irresistible. Many people, both Koreans and foreigners try to estimate the number of years Korea is behind Japan. In this regard there is an interesting coincidence; Korea was opened to foreign trade 23 years later Japan 1876 versus 1853. Similarly Korea hosted the Olympics 24 years later they were held in Japan in 1964, and finally in terms of major economic indicators many Korean economists say that Korea is also behind Japan by about 20 to 25 years. Japan aimed to develop the economy and its army to meet the global competition, Japanese reforms were meant to catch up with the western countries and emerge as a self- sufficient and strong power, similarly the motivational force behind Korea was to develop the economy and to compete with North Korea.
National growth was the main focus in both the countries, the investments decision by the businessmen in Japan and Korea were made in national interest. During the Meiji period, Japan lacked experienced entrepreneurs, so was the case in Korea, therefore the governments decided to develop and run certain key industries while concentrating and helping few capable entrepreneurs. Japanese industrial policy is considered to be the most successful in the world. According to M.
Shinohara (1982) The Japanese industrial policy equates to policies adopted by the ministry of intervention trade and industry (MITI) that have been designed to bring about an overall strengthening of international competitiveness of various modern industries. With the offset of the first five-year plan in Korea, it adopted similar industrial policy as in Japan to achieve rapid economic growth. The business conglomerates and the government facilitated the industrial development in Japan. In Japan the main government organisation was MITI, however in Korea the main government organisation was the president himself, assisted by the economic planning board and the MTI.
As S Y. Kwack (1994) says Because the role of government was much stronger in Korea than in Japan, especially during the 1961 - 79 period cooperative effort in which government took the lead and business followed, whereas the opposite was perhaps the case of Japan. The economic development in Korea is characterised by high growth rate, similar to Japan, however the time span of growth in Japan was relatively short. B N. Song says According to world bank statistics, the average annual growth rate for per capita GNP in Korea was 6. 4 percent for the 1965 - 87 period this far exceeded Japans growth rate of 4. 3 percent over the same period. During the economic growth period in Japan, the average growth was higher than Korea, because Japan did not face any problems in this period, in fact the circumstances were favourable and it boosted the economic growth.
The banks in Japan were large and privately owned; these played an important role in promotion of industrial and economic development, because the finance was easily and equally available to everybody. Whereas in the case of Korea the banks were small and were owned by the government, the main role of the banks was to implement the financial policies, therefore there contribution was nominal towards the industrial growth. The industrial policies of Japan and Korea were also different. Japans policy was to develop promising and modern infant industries on an overall basis, while Korea directed its policy towards development of export- led industries leaving the other sectors under developed. Along with export promotion, import substitution was followed in Japan. In Korea export promotion was accompanied by import promotion, the firms in Korea were allowed to freely import machinery, parts and raw material for the production of export goods.
Goods could be imported up to the value of export earnings. B N. Song states this is the reason why imports expanded rapidly with the rise of exports and why trade deficit grew sharply between 1962 and 1985 import substitution as such was not considered an explicit policy objective after the adoption of the export oriented growth strategy. Japan had a huge domestic market, if any firm was able to compete with the larger firms then it was capable to export its products in the world market; this boosted the export promotion activity. In Korea the domestic market was too small and so the firms had to directly start on an international platform. In the domestic market they marketed their goods only to meet the domestic demands.
In Japan high economic growth was achieved by strong demand from domestic markets and high exports. Japan was capable of producing parts and machinery required by the export industries, therefore the export industries were supplied with parts and machinery domestically. However in the case of Korea, due to concentration on only few industries, and small domestic market it had to import goods for production process in export industries. B N. Song discusses When I computed the proportion of total imports to the total output tables for the Korean and Japanese economies for 1985, I found that the figures for Japan was 6. 9 percent, much lower than the Korean figure of 28. 1 percent for the same year.
The high economic growth in Japan was an out come of export promotion as well as heavy investments in domestic markets, in Korea as the domestic market was small, investments were much low. There was an overall economic development in Japan i. e. the large, medium and small sized firms developed at the same time, where as in Korea the main focus was on development of heavy industries. Both the economies have been successful in implementing there policies and developing the economies. However Korea was not able to withstand Asian crises.
From riches to rags, once looked upon as a role model for development, is in worse economic crises. According to K O'Toole (1998) Korea, known these days as one of the world's biggest debtor nations. According to OCED (1999) the causes for this downfall were First the corporate sector was characterised by low level of profitability and high level of debt, reflecting the tendency of the business conglomerates to diversify into capital intensive industries. Second, Korea had a poorly functioning financial system that was further weakened by a string of major corporate bankruptcies in 1997. Third, Koreas short term foreign debt was high relative to its decision to liberalism short term borrowings rather than direct investment inflows.
On the contrary though Japan faced the same crises it was able to survive because, the Japanese government was innovative in its approach for example the government shifted towards promotion of I-T industry. Korea has set up new plans to overcome these crises. According to BBC News (1998) The newly appointed Deputy Prime Minister and Finance Minister, Lm Chang-Yes, recognised the need for financial reform and announced a government plan to help the country's economy. It included a $ 10 bn fund to help banks write off bad debts, and a wider trading range of 10 % for the South Korean currency The IMF granted its biggest ever loan of 57 bn. Deregulation and globalisation are the key issues, which need to be dealt with, in present economic situation, according to Ministry of foreign affairs, Japan. Japan in the new millennium is likely to see an unprecedented level of restructuring and merger and acquisition activity, including major mergers and alliances with foreign companies.
Similarly After Kim Dae-Jung became the president of Korea measures have been taken for speedy recovery from the crises, the country is focusing on developing financial segment, privatisation of sate owned companies, opening the countries doors to foreign investors and fundamental restructuring of the companies. As B N. Song said we do not believe that developing countries that want fast growth can succeed simply by adopting macro-economic policies similar to those in Korea. But an overall development is essential to achieve the status of self-sufficiency.
References 1) Byung Nak Song, The Rise of the Korean Economy Oxford University press; year 1990. 2) BBC News, South Korea: economic reforms run into difficulty; year 1998 January 8, Published at 13: 10 GMT. 3) Cheery Hollis B and Moshe Syrquin, Patterns of development, Oxford University press; year 1977. 4) Ha-Joon Chang, The Political economy of Industrial policy in Korea, Cambridge journal of economics; year 1993. 5) Kathleen O'Toole, Whats next for Korea? ; year 1998 source: (web) 6) Ministry of Foreign Affairs, Japan, Japans economy enters an era of globalisation; year 2001 Source: (web) 7) Miyohei Shinohara, Industrial growth, trade and dynamic patterns in the Japanese economy, Tokyo, University of Tokyo press; year 1982. 8) OCED Economic Surveys, Organisation for Economic co-operation and development; year 1999. 9) Sung Yeung Kwack, The Korean economy at a crossroad; year 1994.
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Research essay sample on Analysing The Growth Of Korean And Japanese Economy
