Catch-up and Crisis in Korea

Catch-up and Crisis in Korea

Wontack Hong

Whilst the process of catch-up in Korea – led by export-oriented growth – has been rapid and, in a sense, very successful, it has also been subject to turbulence, not least in a crisis of near bankruptcy that has dramatically revealed its Achilles heel. Informed by the 1997 crisis, Wontack Hong writes a new history of the Korean economy; one that seeks to understand export-oriented catch-up in newly industrialized countries (NICs) whilst offering a realistic appraisal and forewarning of the pitfalls which could signal self-destruction.

Chapter 5: The Engine of Catch-Up: Big Conglomerates

Wontack Hong

Extract

1. INTRODUCTION This chapter investigates the engine of export-oriented catch-up in the context of small firms versus big conglomerates (chaebols) on the basis of the experiences of Korea and Taiwan. Big conglomerates dominate the Korean economy as do smaller firms (that is, the so-called small and medium-sized firms) the Taiwan economy. This chapter attempts, first, to identify the factors that cause such differences between the two countries and, second, to investigate their efficiency implications. This chapter will present a set of hypotheses that may be tested empirically. My objects are to inspire an analytic framework that enhances our understanding of the engine of catch-up under different market conditions, and also to provide a crude guide for policy and institutional arrangements to improve a country’s performance in catch-up. In order to make the messages simple and clear, I will amplify the differences between Korea and Taiwan, although their differences may be just matters of degrees. Big conglomerates have served as the engine of growth in Korea. The Korean government has promoted the concentration of economic power in the hands of a small number of conglomerates. The conglomerates in Taiwan are much smaller in size and organizationally very different from their Korean counterparts. In Taiwan, large enterprises that manufacture steel, petrochemicals, and so on are mostly owned and operated by the government and supply their products mostly to domestic markets. On the other hand, small firms have been, on average, exporting more than twothirds of their...

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