Hoping BBM pulls off a Park Chung Hee

South Korea’s 60-year rise from impoverished nation to a bona fide industrial powerhouse is among the greatest success stories of our generation.

Owing that South Korea celebrated its National and Armed Forces Day yesterday, I find it fitting to narrate the story of South Korea not only as a tribute to President Yoon Suk Yeol, Ambassador Lee Sang-hwa and the Korean people, but more so to provide important lessons to our political leaders, especially to President Marcos Jr.

If there is any take-away from South Korea’s story, it is that the national vision always starts from the top or from the President himself; that the only way to achieve sustainable prosperity is through the development of industries; that the focus, grit and determination of the President determines the extent by which the national vision is achieved; that correct policies pave the way to national prosperity (its all about policy); that government’s principal role is to eliminate the obstacles that stand in the way of industrial development whilst giving support to the entities that drive industry; that in the appropriation of scarce resources, the President must prioritize industrial development above all else; that without class-leading industries, a country will remain poor or, at most, trapped in middle income.

Conditions in the Philippines today are different from that of South Korea when it started its assent in 1962. Whereas South Korea built their fortunes on heavy industries and exports, these are no longer viable for the Philippines, given our relatively high labor and power costs and absence of foundational industries like iron and steel and petrochemicals. The Philippines’ sweet spot (and competence) lie in high-value services that include software development, machine learning, robotic process automation, artificial intelligence, nanotechnology and the like. Global leadership in these realms is what our economic policies should focus on.

Although the thrusts of South Korea in the 60s and present day Philippines may differ, President Marcos can learn valuable lessons from the leadership style of President Park Chung Hee, the architect of the Korean economy.

South Korea was among the poorest nations in 1960. After enduring 35 years under Japanese rule, the ravages of the Korean war and splitting the country in two, the South Korean people found themselves poorer than the citizens of Yemen and Haiti at that time.

South Korea’s fate changed when General Park Chung Hee assumed power through a coup d’etat on May 16, 1961. The coup was widely supported by the people, given the poverty and corruption that prevailed. President Park established a reformist military government that lasted 18 years.

President Park had one objective – to build Korean industries. He believed that industrial development was the only way to achieve a functioning democracy whist eliminating poverty. Rather than go by the usual route of adopting free market systems and attracting foreign investments to facilitate industrialization, President Park built industries from within under a protectionist regime.

This was 1962 and South Korea had neither the savings nor the income to finance its own industrialization. Dead set on building core industries like metal and steel, cement,  petrochemicals, electric power, etc., President Park channeled all available financial resources towards building industries, even at the cost of social welfare. The rationale was that wealth would be created in all levels of society as industries grew.

Funding came mostly from the US and Japan. South Korea supported the US in the Vietnam war and the US returned the favor by granting billions in financial aid. In 1965, President Park signed the Treaty of Basic Relations with Japan and obtained some $800 million in financial aid. All these were channeled to industrial development. On top of this, President Park borrowed voraciously to support Korea’s industrialization. The country’s debts increased from $4 billion to $37 billion between 1972 to 1982.

President Park used every cent to support a small group of private but able family corporations as they spearheaded the industrialization effort. Support came in the form of soft loans, tariff exceptions, tax reductions and forex allocations. Too, government took care of expropriations and right of way whenever new factories and infrastructure needed to be built.

President Park preferred to support private companies rather than create state-run corporations as he believed that the private sector was more agile, more creative and free of state bureaucracy. This saw the birth of the chaebols.

In return, the state demanded ambitious industrial quotas be met and that the lion’s share of outputs be exported. Profits were always re-invested towards expansion.

President Park was assassinated in 1979 even if his industrial-export strategy was a raging success. Poverty rates dropped from 40 percent in 1965 to 9.8 percent in 1979. Per capita income grew from $1,027 to $4,058 in the same period.

By 1980, the new government shifted policies and opened-up the country to foreign investments and imports. The preferential treatment towards chaebols was gradually removed. Government demanded that the chaebols compete with their foreign counterparts through technology and innovation. They were mandated to climb the value chain and produce products with ever-increasing complexity. This is how South Korea evaded the middle income trap.

Fast forward to today and South Korea is an industrial and export powerhouse with one of the world’s most complex economies. South Korea has the world’s 12th largest economy with an output of $1.7 trillion. Each citizen has an average annual income of $33,400.

The Philippines can replicate the success of South Korea if it adopts the right vision, the right policies, an astute allocation of resources and a healthy dose of grit and determination from its leader.

The present generation of Filipinos (all of us) were damned to “miss the boat” in terms of wealth generation due to poor leadership of past presidents. But it will be enough for us to see the right seeds planted for the next generation before we fade away. President Marcos Jr. owes us as much.

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Email: [email protected]. Follow him on Twitter @aj_masigan