The government made several key policy changes to provide selected firms a strong start. Two crucial policies during this period are the import-substitution industrialization (ISI) and export promotion (EP). ISI allowed government selected firms in government target industries to borrow foreign currency, and borrow domestic funds at rates beneficial to those firms. This was the beginning of importing advanced technologies only to improve, adapt, and reproduce them for export. EP gave firms access to low interest loans. The relations between the Korean firms and industries with the rest of the world broadened in EP. Efficiency grew, production went up and Korean saw exponential economic leaps in a few decades.
During the Vietnam War in the 1970s, U.S. troops withdrew from Vietnam. South Korea relied on the military presence of the U.S.A. As protection from North Korean. South Korean leadership decided to not rely on the U.S.A. For military presence and supplies because they could not. They decided to produce munitions domestically. This is another example of a factor contributing to Koreas rapid development and industrialization.
7. What is meant by Ha-Joon Changs claim that the Korean financial crisis represented the revenge of the rentiers?
Ha-Joon Chang is a leading economists and his specialty is developing economics. He is South Korean, with a first hand experience of the reality of late industrialization and developing economics. His writings and body of professional experience make him a leader and expert.
Ha-Joon Changs comment refers to the financial crisis that occurred in Asia in 1997. Some symptoms of the financial crisis included the decreased value of national currencies, decreased values in stocks, and exponential rise in the accumulation of private debts. Indonesia, South Korean, and Thailand were the Asian countries that were most heavily affected by the “Asian Financial Crisis.” Large conglomerates at the mercy of the government, took on increasing amounts of capital investment leading to numerous debts, mergers, and takeovers.
Rentiers are individuals or organizations whose income comes from rents, such as rent from real estate. If we view this crisis from a historical perspective, we could say that this crisis was managed with the interests of domestic and foreign rentiers, whereas earlier financial crises were settled with the interest of management as a priority. Changes in regards to corporate governance, financial regulation, and industry policy went in favor to the rentiers. So when Ha-Joon Chang says the crisis is the revenge of the rentiers, he means that the rentiers got their revenge: loads of money and policy that favors them.
8. Using the readings and the movies provide a brief synopsis the genesis of the East Asian Financial Crisis.
The East Asian Financial Crisis is a monumental historical event in of itself as well as the consequences that resulted from it. The causes of the crisis are a point of contention in academic and in the press. There is a great spectrum of viewpoint of what began the crisis, what the solutions are, and precautions on how to prevent such a crisis from reoccurring not just in East Asia, but also in other parts of the world such as Eastern Europe and South America as well. Are the domestic economic policies of the affected countries to blame or is the crisis a natural by-product of the global financial system? There are no absolute answers.
In the first part of the crisis, countries such as Indonesia, the Philippines, Malaysia, and South Korea blamed their banks for the crisis. They blamed fixed exchange rates and increased real estate population. As the crisis persisted, the blame went to the global financial system. This crisis repeated in Latin American countries during the 1980s and to European countries in the 1990s. The value of currencies depreciated at alarming rates as well as the monumental increase in private debts. The assets tied up in short-term loans that no one could pay were also not worth very much as the value of the national currency was extremely low. These conditions caused economies to slow to almost a standstill. There came a general decrease in the value of most assets: loans, land, currency, etc. This crisis also resulted in the slowing of economic production and manufacture.
The crisis has affects felt both nationally and locally. Countries suffering from the crisis experience not only the aforementioned consequences, but also several others on a national scale. Individuals saw astronomical decreases in income. Many firms and companies were outright destroyed by the crisis. Many suffered from poverty, social dislocation, and low morale.
Some contend that more transparency in the global financial system can considerably lower the probability of crises and resulting recessions such as the Asian Financial Crisis. Others contend reform in the global financial system is necessary; there should be less favoritism toward speculators and owners.
9. What is meant by the East Asian Miracle?
The East Asian Miracle is a term that describes the “East Asian Dragons.” The East Asian Dragons are the economies of Hong Kong, South Korean, Taiwan, and Singapore. All four tigers are evidence and example of economic “miracles.” These are all countries that demonstrate unparalleled economic growth, industrialization, and leadership in global markets. South Korea was at the forefront of global economics as a victim of the East Asian Financial Crisis of 1997 and as member of the dragons of the East Asian Miracle.
The East Asian Miracle is not just rapid growth. It is the generation of rapid growth and the sustaining of that growth as well. Furthermore, during and after experiencing rapid economic and industrial growth, it is part of the miracle to propel oneself into other markets or create new markets where one is a leader and formidable competitor. These four dragons have done just that. The recent economic and cultural narratives of the dragons now act as models for other developing countries to emulate. These examples of accelerated economic growth can partially be attributed to policies that advocate exporting to affluent, developed countries with massive consumer basis. This is logical as part of the economic strategy of countries/dragons such as South Korean is to adapt advanced foreign technologies, improve upon them, and resell them back to the original producers and consumers of the product. The governments of each dragon exercised strict tariffs during their periods of economic development and expansion. The intention was to create incentive and production on domestic fronts and markets.
10. Evaluate the arguments for and against understanding the East Asian Financial Crisis as arising from Crony Capitalism.
Crony capitalism occurs within a capitalist economy. The relationships and camaraderie between government officials and captains of industry/business are stressed in crony capitalism. These relationships are used to show favoritism in both directions. Thus the partnerships and relationships in crony capitalism are selfish. People form and exploit relationships with those who can best satiate their desires and needs. In capitalism, those desires and needs are often power and wealth. This form of capitalism in this part of the world is also referred to as “relation-based capitalism.” Eastern cultures are more stringent in the concept of insider vs. outsider than Western cultures. While nepotism and favoritism can occur anywhere, there may be an eastern cultural disposition to crony capitalism due to the prioritization of favoring ones own people. It is possible that within crony capitalism, the countrys capital can be redistributed in areas where companies wish to influence government officials. Companies are offered credit whether their actions are economically active or not. With limited budget constraints due to easy attained credit, cronies continue their business with little direct side effects to themselves.
In the case of the East Asian Financial Crisis, there have been accusations that crony capitalism was at work. Companies that seemed to fiscally stable to fail were offered credit with ease. Governments did not consider these companies would fail; their size and presence in the market instilled a sense of security. These policies and lack of contingency plans arguably contributed to the 1997 economic catastrophe. There was less of a focus on public enterprise and more focus shifted to relations between business people and government officials. These behaviors played out in places such as Hong Kong and Japan. In the banking industry in Indonesia and South Korea, families, like dynasties, ruled the banking world.
There is no one cause for the East Asian Financial Crisis. The crisis was a convergence of circumstances and conditions that created an atmosphere where an event like this could occur. In other words, it was in the air. There was no one primary cause and effect. There were events playing out over decades in several countries within a system that is utilized around the world. Again, a crisis of this nature is not the first of its kind. Therefore if some of the variables changed, the conditions would modify, and some outcomes could be mitigated or outright avoided.
Boyer, Robert & Toshio Yamada (Ed.) Japanese Capitalism in Crisis: A regulationist interpretation. Chapter 6, “Rapid Economic Growth and Its Standstill,” by Makoto Itoh..