Developmental state

A state that sets industrial targets and allocates capital toward them, using its control of banks, licences and foreign exchange, with support tied to measurable output rather than to relationship. Korea’s version lent through state-controlled banks to the largest business groups, against export performance targets. Miss the number and the next loan does not arrive.

The distinguishing feature is not that the state spends money on industry. Almost every state does that. It is that the money is conditional and the condition is checked, which makes the arrangement discipline applied to capitalists rather than protection handed to them. That is the half of the Korean story that goes missing whenever the model is summarised at a conference, and it is the half that does the explaining.

Two things it is not. It is not a synonym for authoritarian government: Korea’s development period was authoritarian and so was Marcos’s Philippines, and only one of them produced sustained growth. And it is not a synonym for subsidy, because money nobody has to earn a second time is a transfer rather than a discipline.

Source: The performance-conditional reading of Korean industrialisation belongs to Alice Amsden, Asia’s Next Giant: South Korea and Late Industrialization, Oxford University Press, 1989, and to Ha-Joon Chang, Kicking Away the Ladder, Anthem Press, 2002, both of whom argue that the mechanism was state credit disciplined against export results rather than free markets or protection on their own. Both are paid books, neither has been read from the source for this course, and they are named here as the owners of the argument rather than quoted. The Korean detail the lesson uses, including directed credit through state banks and the growth of the largest business groups from roughly 31 percent of GDP in 1975 to nearly 100 percent by 1985, is compiled with its sourcing in section 1.2 of the Hope cases research map.

First used in: 4.1 · In 1960 the Filipino was the richer one