VietNamNet Bridge - South Korea was an underdeveloped country in the early 1960s but it passed the initial stage of development and succeeded to become a developed country in a very short time.

If Americans can do, so can Japan

Seoul, South Korea.

The era of industrialization and modernization of this country began when Park Chung-hee took power (1961) with determination to develop the country.

In 1988 South Korea successfully hosted the Olympics in Seoul and in 1996 it was admitted to the Organization for Economic Cooperation and Development (OECD), an organization of developed countries. It took Korea only 35 years since it began implementing the development plan until it became a member of OECD.

How did South Korea succeed in the process of continuous development, to transform from the period of poverty to low-level, medium and high middle-income stages, and to a high-income country in a short time?

The best trained at the most prestigious universities

Firstly, from the outset Korea already had social consensus on the need to develop, to keep up with developed countries, especially its neighbor Japan.

To have consensus, the capacity, the will and policies of political leaders are the most important. Although under a dictatorship, determination to develop the country was shown by strategies and policies made by technocracies, officials were selected based on ability and talented people were respected.

As commented by many experts on East Asia, in Korea, the government selected the most talented people from the most prestigious universities.

In particular, Park Chung-hee set up the Economic Planning Board gathering experts who had studied in the US.  They were assigned to make policies. Park directly instructed the mobilization of resources (capital, foreign currencies, ...) and created mechanisms for the successful implementation of the policies.

When necessary, he picked potential businesses and created favorable conditions for them to start developing industries as part of the development strategy.

Secondly, South Korea built a very effective mechanism for the relationship between the State and enterprises. While chasing developed countries, the specific objective was to actively invest, accumulate capital, and protect young industries and boost exports to have foreign currency to import raw materials and technology and to pay debt.

Thus the role of the state was very large. In that situation, in many other countries, companies colluded with officials to get access to concessional loans, with scarce foreign currencies and sources of support for export. Corruption was easily derived therefrom.

But South Korea generally avoided such evils thanks to transparent, consistent, fair and disciplined mechanisms. The companies that were granted preferences must be obliged to increase their competitiveness, for example, having to export more than before. If they did not fulfill their obligations, they would not enjoy preferences in the later stage. Generally, companies had to compete with each other, and offered viable targets to receive state incentives.

When exports are the national target, the highest leaders must constantly be interested in and direct the government to monitor market developments to make timely adjustment of policy. Cooperation mechanism between the government and enterprises must be also promoted. Since 1965 the Korean government has conducted a monthly export promotion conference. Most impressively, the conference was chaired by the president. The export target was huge, but the targets was almost achieved annually thanks to such mechanisms.

Thirdly, South Korea carried out industrialization on the basis of learning. The budget for education in the late 1950s was just under 10% of the state budget, but rose to 15%-18% in 1960, and 19%-21% in the early 1980s.

Korea was among the countries with a very high ratio of spending on two indicators: the proportion of overseas students of the total students and proportion of overseas students who returned to Korea to work. This achievement was thanks to the mechanisms related to the recruitment of talents.

Korea constantly enhanced research and deployment (R&D) activities. The ratio of spending on R&D to GDP rose from 1% in the early 1980s to around 2.5% in 2000 and 3.4% in 2007. In this effort, in the period from 1980 the state retained a dominant role, then the private sector played a major role even though the state budget increased continuously.

China: with the same institution, why is its development better than VN?

In the past 30 years, especially since the 1990s, China's economy has flourished. From 1980 to 2008 its average annual growth rate was 10% then fell but still remained at 7%. China has become the world's workshop and since 2010 it has been the second largest economy in the world.

Many people started asking the question: Why has China’s development been much higher than Vietnam, although they have the same political institutions, and the similar basic goal of social development.

In 1991, Vietnam launched the economic goal of building a socialist-oriented market, and China in 1992 also stated the basic motto of building a socialist market economy or socialism with a Chinese color.

China started reform and an open-door policy eight years before Vietnam. We can say China's leaders have explicitly advocated a development policy. Specifically, it allows the free development of the private sector and creates favorable conditions for foreign direct investment (FDI).

In the 1980s, the conservatives were still strong, but the reformers followed the motto "The reality is the measure of truth" and took the fruits of reform to initially convince the conservatives and continued reform. Seeing the flourishing of the non-state sector and the formation of a new generation of business leadership, instead of constraining them to defend the ideal for the working class, China launched the Three Represents Theory (2002) to amend the ideal, the goal of the Communist Party.

The second was the role of local government. In China, local governments also have the spirit of "node elopement". Provinces competed with each other in the development process. The development of localities was a condition for local leaders to be promoted to higher positions in the central government.

Thirdly, it was the capacity of development strategy implementation. After having a strategy and development guidelines, the ability to immediately implement the strategy also affected development outcomes.

In this respect, the attitude of China was impressive. Since it decided to reform and open its door, China has recognized the strength of technology and knowledge, and had strategies to take advantage of resources of Japan and the US, the two countries they considered the most powerful in the world at that time. They also chose Guangdong and Fujian to establish special economic zones aiming at power and promoting nostalgic sentiment of the majority of overseas Chinese, most of whom were from these two provinces.

The fact shows that this strategy was right. In the 1980s, while the legal framework was not and finalized, European and American businesses were still afraid of the risks of investing in China, overseas Chinese poured money and brought technology into four special economic zones. In the 1990s, a wave of FDI from Taiwan, Japan, the US and European countries began to actively flow into China.

The fourth was the quality of the state apparatus. Regarding business costs, corruption, the performance of the bureaucracy, and other indicators related to institutional quality, China has improved rapidly. According to Doing Business 2014, the number of taxes that businesses had to pay in China fell from 35 in 2005 to 7 in 2012.

Prof. Tran Van Tho

from Waseda University (Japan)