A Managed Economy as the Short-Run Means to Long-Run Growth and Development: A Look at South Korea's Utilization of Such a Process and its Effectiveness

Abstract

In recent years economists have begun looking to the Far East for solutions to economic development in underdeveloped countries. They have turned to this region in response to the overwhelming success of countries located there. Taiwan, Japan, Singapore and South Korea, to name a few, are nations which may serve as an example for other governments attempting to raise the standard of living among their citizens, and to become competitive players in the global market economy. Effective use of a model however, is dependent upon how the interpreter views it to begin with. While the process of economic expansion may be composed of a bazillion factors, it is feasible to consider only a handful at one time. Therefore the selection of elements in which to observe is of extreme relevance. If one chooses to look at government intervention only as being applied by way of fiscal, monetary, and commercial policy as defined in terms of the scholarly tradition in economics of his or her own country, he or she may miss a significant part of the picture. Monetary policy in South Korea for instance, has been much more dynamic than that of the United States. Because in the beginning of its development process, the banks in South Korea were controlled by the State, government possessed the power to be more decisive over who received financial credit. In ways such as this officials have played a more active role in the economy. Indeed, it has not been Adam Smith's invisible hand alone, which has guided the development for many East Asian economies. Rather, in many cases the government has put on its work gloves in order to lend some help. The example that East Asian tigers such as South Korea has set, frankly, is the shortrun utilization of a managed economy as a means to attain long-run growth and development. Actually, given the current playing ground in the world economy, the use of a method such as a planned economy to achieve growth and development may indeed prove useful as simply a temporary state. Recently, in countries such as South Korea in which the government has played a large role in the process of economic expansion, a greater number of reductions in government intervention has occurred. As South Korea has come to be recognized as a newly industrialized country in the world today and is ranked by the U.S. government as being "a big emerging market," the nation's competitiveness has caused its trade partners to re-evaluate the fairness of its commercial laws and practices. (9, p. 260) In fact, countries such as the U.S. have put pressure upon the Korean Government to lessen the burden of foreign investors by cutting barriers to trade. In order to maintain peaceful trade relations, the country has had to comply to international standards in some areas as "it is a signatory to many international conventions including the World Trade Organization and trade related aspects of Intellectual property (TRIPS). (15, p. 2)" Thus while South Korea had exercised the power of government authority to better the country's economic standing in the world, and at the same time to raise the standard of living of its people by means of a managed economy, the course of events has led naturally to a swing towards a more market-oriented economy. While the transition is still in progress with some distance left to go, the long-run holds a more competitive economy than in the decades of fast growth and development.. In spite of the success of using managed economies in East Asian nations, will the economics scholars and planners of the world actually seek to utilize such examples and apply them elsewhere? It is common knowledge that bringing thinkers of a capitalist tradition to buy into what has come to be an age-old opposition is not easy. In the realm of economic debate, people often stand steadfastly behind theories as if they were principals. But theory is not fact and fact is not fiction. When applied in reality, some theories end-up seeming more fictitious. In Africa for example, many capitalist notions about economic development have not only faltered, but flopped when put to the test. Truthfully however, the hypothesis that a managed economy in the short-run is potentially effective for growth and development of developing countries in the long-run, has been proven more than once in the laboratory of the real world. Therefore, it is time to seriously consider the examples which have already been set and to look at methods which will actually achieve the goals of development and growth. Using South Korea as a model and as a base for comparison, the following text will consider the history of this country's managed economy. Measures that the Korean government has taken and the motivations behind these actions will be explored. The effectiveness of such measures will be evaluated based upon country data and conclusions shall be drawn.