Now let's consider the extent to which undustrial policy
was a factor behind the economic success of South Korea.
In general, since the early 1960's
South Korea has been one the world's biggest economic success stories.
The communist North Korea was originally wealthier than the South,
but North Korea today still has problems with famine
and South Korea has become an economically advanced nation.
After its turnaround in the early 1960's,
South Korea had many years of rapid economic growth,
sometimes double-digit growth.
So South Korea in the early 60's
was about as poor as many poor parts of Africa.
Today it's nearly as wealthy as Japan,
and it is universally considered
a completely economically developed nation.
What's especially striking is the very rapid growth
in South Korean exports.
So, for instance, over the course of a decade,
from 1963 to 1973, South Korean exports went up by almost a factor of 20.
Pictured here is shipbuilding,
which was one of the areas of their greatest success.
The obvious question of course is why South Korea saw so much success.
And it will turn out that industrial policy is one reason,
but it's one reason of many.
The most basic reason for South Korean success
is simply that over time, they moved to a regime
based on property rights and market incentives.
And the contrast here with North Korea is indeed striking.
But it's much more than that, over the 1960's and 1970's
South Korea also was able to ride the economic rise of Japan.
Japan itself was growing very rapidly,
and it was seeking a lower-cost, lower-wage partner
for a lot of assembly and manufacturing.
And in part because of earlier cultural and colonial ties
South Korea stepped into that role.
South Korea also has done a wonderful job
educating its population, especially at the primary level.
The number of hours that South Korean schoolchildren put in each day into study
really is striking and stands out by international standards.
In general, there has been and there has evolved
an ethic of discipline and an ethic of hard work
which has been a very real boost for the South Korean economy.
South Korea also did extensive land reform
before the time of its rapid economic growth.
And it's believed by many commentators that this set the ground
for a more egalitarian economy based on the middle class and ultimately
it made South Korea's later democracy more possible and more stable.
South Korea also managed to develop a workable political economy.
Starting in the early 60's you don't at all have democracy in South Korea.
You have a kind of military rule, and there is indeed a lot of corruption.
But for whatever reason the corruption
managed to be turned in the direction of supporting
an overall consistent and coherent approach to economic development,
rather than having corruption
which sets up a lot of roadblocks to development.
So, in this case you can think of the corruption or at least some of it
as relatively trade-supporting,
growth-supporting, and also export-supporting.
So given all these questions we now turn to the issue
of how much did industrial policy really matter.
Note that again, starting in the early 1960's,
the government of South Korea undertook a very systematic attempt
to promote South Korean businesses and to promote South Korean exports.
The nature of South Korean industrial policy is sometimes misunderstood.
During this period the South Koreans actually moved away
from what is called import substitution,
or the doctoring of the domestic industry,
to try to make up for what you might otherwise be importing.
Instead, during the 1960's and later, it was realized
that simply boosting exports was the key,
and that should be the obsession of policy.
So policy became more pro-trade.
It was indeed a kind of industrial policy,
but it was not based on choking off contact with the outside world,
but rather stimulating it.
A truly key feature of the South Korean approach
is something called export discipline:
That is, businesses would be supported,
but they would be expected to successfully export
what they were doing to the rest of the world.
That's a kind of do-or-die market test.
And if businesses could not pass that export test,
over time they wouldn't actually receive
comparable aid from the South Korean government.
As part of this export discipline,
it was the case that the chaebol, the large conglomerate corporations,
which play such a large role in the South Korean economy,
that over time, if they failed in international markets,
they would actually be allowed to fail.
So you did have an industrial policy, and it was largely successful,
but it also was combined with this market test,
and with this, export discipline.
A big part of South Korean industrial policy, by the way,
was simply low-interest loans for exports.
That is, a significant portion of the capital of South Korea
and capital markets were really oriented toward the dominant firms
and firms which were exporting using the medium of politics.
We do know from the histories of other nations
that these policies often don't work well,
they end up in very bad forms of corruption,
but I think it is correct to think of South Korea
as one of the cases, as one of the countries,
that has made a success of these policies.
When you put all of these pieces of South Korean policy together,
what you find, overall, is an approach of following the market
and to some extent supporting it, but not distorting the market.
So, for instance, if you look at relative prices in South Korea
and you compare them to relative prices outside of South Korea,
in comparable Asian nations, we find that those relative prices
were not so different.
So the industrial policy here,
what it was doing was giving firms a chance to succeed.
But it was not really trying fundamentally to override market prices.
This is just a brief introduction to a very complex topic.
Unfortunately, a lot of the best readings are not available online.
But if you would like my picks for the best place to go
to read about the industrial policy of South Korea,
I would recommend the works and the books on this screen here.