South Korea: The Tiger Strikes
State-dominated capitalism
But, although it was possible to subsidise whole sectors of the economy while they got started, or even when they faltered, it was always on the basis of either quite brutally penalising other sectors or by overdrawing on both domestic and foreign finances. However state-dominated, it was impossible for the Chaebol economy to escape the scourges of a system based on private profit. The headlong drive for expansion at all costs actually aggravates the crises. It ends up with productive capacity considerably in excess of actual demand - domestic or international. Workers within the country cannot buy back the products of their labour, since the bosses hold their wages so far below the value they create. A country that depends so much on trade is highly vulnerable when those crises occur elsewhere in the capitalist world but also when unfavourable changes in the prices of raw materials and of manufactured products result, precisely from the ruinous ‘free play of market forces’.
Although not suffering as seriously the periodic crises that afflicted other capitalist countries in the 1970s and 1980s, South Korea was not immune to ‘cyclical’ dips in growth rates. Now it faces actual recession caused by the vagaries of the market - domestic as well as international. By continuing to pay appallingly low wages and putting precious little into welfare spending, Korean capitalism has severely restricted demand at home. Wages in the newer industries with large workforces have increased dramatically in the past ten years - about 150%. This is not some automatic result of the ‘globalisation’ process but of bitter and persistent struggle on the part of the newly organised workers in these industries. The majority of Koreans work in low-paid service jobs. At least five million are not on any payroll and 2 million work on the land.
Producing for the foreign market, therefore, while consuming vast amounts of ‘start-up’ capital, has nevertheless been the quickest way for ‘Korea Inc.’ to make its profits. Exports increased by 800% in 30 years. But the heavy dependence on selling abroad to fuel the dazzling growth rates has built another fatal flaw into the foundations of the economy. It has made it particularly vulnerable to the effects of down-turns in other parts of the capitalist world. It is also highly susceptible to fluctuations in markets and prices. South Korea controls 35% of the world memory chip market but last year the world price of a ‘direct random access memory’ (DRAM) semi-conductor fell drastically to $8 from $84 a year before.
South Korean capitalism, far from enjoying a privileged status in its dealings with the USA and Japan, now suffers from aggressive protectionist measures on the part of its trading ‘partners’. They retaliate against cheap goods with anti-’dumping’ rules. It suffers adverse effects when the Japanese yen falls against the dollar, increasing the competitive edge of Japanese products - including cars and ships - in the USA and elsewhere. Also, as the second biggest recipient of exports from Australia, South Korea pays heavily when the government in Canberra moves to strengthen its currency.
Even the features in the South Korean economy that bear an outward resemblance to those of a Stalinist state have turned from being advantages to disadvantages. As there, the emphasis on quantity rather than quality has led to an inability to adapt to, and develop, new technology. This problem is compounded in Korea by the fact that much of its "miracle" growth was due to the use of Japanese technology borrowed under contract. Now that Japan sees South Korea as a rival rather than an offshore production base for its own firms, these contracts are not being renewed. The big firms are now either having to drive into the ‘lower quality’ markets of South and Central America, Eastern Europe, China and Asia or invest vast sums to develop their own technology... or both.
Overblown
All the strengths of the ‘special’ breed of capitalism that developed so rapidly in this South East Asian peninsular are now turning into its weaknesses and the giant conglomerates are themselves spreading into the global economy. Pressures are being exerted from foreign capital to lift the thousands of obstructive regulations and the blatantly protectionist measures operated by the state. The fact that the Chaebol’s rapid expansion has been based on loans rather than investment has also been a double-edged sword. Most firms have borrowed at least three times more than their asset value and some to a far greater extent. In the case of Hanbo, the 14th largest Chaebol that collapsed in January, it was 20 times. Sammi Steel has also collapsed under its debt burden and other conglomerates are said to be dangerously overblown.
The state itself has the second biggest national debt after the US of $104 billion. The lack of resources put into research and development and the absence of a ‘home-grown’ machine tool industry has meant Korean capitalism has had to pay for its spectacular export record with a spectacular level of imports of energy (40%), capital goods and components. In 1995 imports increased by 32% in one year to a total of $144billion.
It is a myth that the special status of South Korea meant massive investment from abroad in capital goods development. Most of the money put into Korea in the post-war period was in the form of ‘aid’ (including military) and loans. In addition, there were special foreign exchange and trade terms which gave South Korean goods disproportionate access particularly to US and Japanese markets. Now that world relations have changed, following the collapse of the state-owned planned economies, US and Japanese governments no longer need to bolster the South Korean economy.
In fact, for some years now, they have come to regard South Korea as a dangerous competitor on the world market. As well as the removal of the strategic reasons for propping up Korean capitalism, the slow-down in world trade and the difficulties experienced by most capitalist economies has intensified competition.
The US has for a long time been engineering more and more trade disputes, even before general hostilities in the ‘Cold War’ ceased. Japan has stepped up the withdrawal of its technical ‘know-how’. The Frankenstein’s monster they had helped to nurture had developed too many of the attributes of its creators - an appetitie for profits, an ability to compete and an awkward propensity to try and defend its own interests. Tight monetary policies aimed at cooling the over-heating economies of China, Malaysia and Thailand also hit trade with South Korea.
Protection racket
The state’s protection of the Chaebol conglomerates is another double-edged sword. When they are in favour with the ruling party, they can expand and prosper far beyond their ‘natural’ limits. But when they fall out of favour, they can be broken or, at best, severely weakened for a whole period.
In 1984 the founder/owner of the Kukje-ICC group made the mistake of only donating $400,000 to the ‘New Village’ movement of dictator Chun Doo-hwan, when the other large Chaebol-owners had been persuaded to give over $1 million. The empire was brought crashing down and its component parts redistributed to all the better-behaved conglomerates. Only later (after the General was murdered by the CIA and a new dictator came to power), did the owning family’s fortunes revive. The company reassembled and regained at least some of its former position.
Hanbo, on the other hand, even after its collapse, continues to receive vast handouts. A government that wants to see the completion of its prestigious new Tonjin steel mill is busily constructing feeder road and rail links to the ‘green field’ site. All the pieces of this broken conglomerate are being picked up by other Chaebol predators in the field (and even some not yet in that particular field). The government bailed out the now private banks affected to the tune of $7.1 billion, thus dramatically inflating its already massive budget deficit.
While formally freeing trade and opening up to foreign goods, the South Korean government is desperately trying to hold the lid on imports. The latest moral crusade against "luxury" goods has angered the US Trade Department which suspects it is aimed at protecting domestic producers. But now that more of Korea’s exports go to Asian countries than to the United States, the slowing down in the economies of all these countries is heightening tensions between them - including with China which was on its way to taking more South Korean exports than the US. (In the period 1987-94 exports to Asia increased by four and a half times to $25.8billion, to the US 12% to $20.5 billion and to China 38 times to $8 billion. In 1996, exports to the United States fell to just over $10billion).
Problems
In 1995 exports to developed countries were still growing - at a rate of 28%. A year later they were down by more than 8%. Semi-conductors account for 20% of South Korea’s exports. Last year sales of them abroad fell a dramatic 44%. There was also a substantial decrease in sales of chemicals and steel and a poor performance in most other fields. Domestic demand for electrical home appliances was also down and, according to ‘Economic Report’, heavy industry and chemicals were "anaemic" and over-capacity was now afflicting whole swathes of the economy. All this spells disaster for "Korea Inc." The country’s trading deficit has doubled in the past year. At $23.7 billion it is the second highest in the world.
The National Debt has gone over the $100 billion which, as ‘Business Korea’ noted, was double what it was at the time of Kim Young-sam’s inauguration in 1993. Now, according to the government’s own estimates, it could reach $144 billion by the end of 1997. Interest and repayments on it cost $10.1 billion per annum - interest alone amounting to nearly 13% of the national budget. Offshore borrowing costs $7 billion in interest. Foreign direct investment, which has always been a small proportion of total investment, is actually declining from a high point of no more than $1.5 billion. South Korea ranks second only to India for discrimination against foreign investment according to the Hong Kong based ‘Political and Economic Risk Consultancy’.
Investment by the top 200 Korean companies was expected to fall in absolute terms this year when only two years ago it was increasing at a rate of 47%. Meanwhile, these same firms have been doubling their own overseas direct investment and in the case of ‘information and communications’ and ‘machinery’, trebling and quadrupling it.
In the field of labour-intensive production like clothes and shoes, some South Korean firms (and some famous American and Japanese ‘names’ previously operating in South Korea) have moved to lower wage economies in the region and elsewhere. Capital-intensive industries regard easier access to markets as a more important consideration. Although cars form a substantial share of South Korea’s exports, they still represent only 1.9% of total sales in Europe. Companies like Daewoo are looking for ways of getting into that market. If they set up factories in Europe itself, they not only get round the EU external trade barriers but brings down the cost of transporting the final product to its destination. Even where wages are higher than in Korea, these other considerations can be more important in the investment decisions of the Chaebol. The world’s press has made great play of the massive rise in wages in South Korea over the past ten years, particularly in the metal-working and engineering industries - 15% per annum on average. The unions began to take advantage of the late 1980s boom and organised to pull themselves out of their ‘Third World’ conditions.
But a Daewoo workers’ leader at the KCTU’s February conference indicated what has been perhaps the biggest secret of Korea’s "miracle". Even after ten years of struggle and improvements, it is still South Korea’s workers who pay the biggest price to keep it going.
He spoke of the 12-hour shifts, six days a week. He pointed to every part of his body to indicate the muscles and limbs that have "gone" by the age of 40. He spoke of the super-profits and the arrogance of the bosses that made his blood boil. This is what lies behind the Korean workers’ anger that reached breaking point at the end of last year. At this delegate’s factory in Bupyong, 92% had voted for strike action and every one of the more than 10,000 workers had been out solid.
If South Korean capitalism came near to the highest levels of growth in history, it still depends more on the intensive exploitation of its workers than on the latest developments in equipment for helping them do their job. The average South Korean works with only two-fifths the amount of capital available to his American counterpart and even in the modern car factories, has much less equipment at his elbow.
The well-named ‘evil’ laws pushed through parliament, show that the South Korean bosses intend to keep things that way. The whole burden of the government’s propaganda has been that the economy demands sacrifices as the growth rate falls yet further. In 1995 it was 9% per annum, in 1996 it was 6.8% and in 1997 heading for 5% or less. (One journal makes out that 4% would actually mean entering a period of nil or "negative" growth, i.e. an actual decline.)
Dream or nightmare?
For the majority of workers, the "dream" is easily explained; for them it has been a nightmare. In terms of the way South Korean capitalism treats its workers it is a long way from ‘catching up’ with the far-from-adequate standards of its fellow OECD member-states. In fact, figures indicate the opposite. The 1995 International Labour Organisation (ILO) in its Year Book, for example, shows that workers in South Korea work longer hours than in 61 out of the 68 countries it reviewed. Only countries like Indonesia, Sri Lanka, Taiwan have a worse record.
A leader of Seoul’s subway workers, at a KCTU demonstration on 2nd February beside the Central Station explained why his members are in the "vanguard of the movement" as he puts it:
"Day shifts are ten hours; nights 14 with some of the most gruelling shift patterns imaginable - two days, two nights, two days, one night, rotation day, holiday and back to the beginning again...
"In 1994 we led a struggle against the government’s wage freeze and suffered police action worse than under the military.
"It is still illegal for us in the public sector to strike. Forty six of the activists were arrested and 16 ‘did time’. Nearly 3000 were victimised in some way by management and over 100 were sacked. Leaders of the union staged a week-long hunger strike at Myong Dong.
"Some of the (subway) lines are organised by the FKTU and that complicates our struggle. But we will not see our union crushed. We aim to stay in the front ranks."