Alice H.

Amsden

Third World Industrialization: Global

Fordism or a New Model?

From the 1960s to the 1970s, industrial output in almost all Third World
countries grew rapidly. Growth was especially fast in a subset of developing
countries that can be called late industrializers, countries which industrialized without the competitive asset of being able to monopolize an original
technology. Late industrializers include South Koreathe subject of this
articleTaiwan, India, Brazil, Mexico, and possibly Turkey. ( Japan also
qualifies as a late-industrializing country because it, too, started to grow
without indigenous technology.) Since the 1980s, stagnation has afflicted the
economies of most late-industrializing countries and those of the Third
World in general. Yet Korea and Taiwan have continued to grow very
rapidly, posing a special puzzle for those who seek to understand different
patterns of growth in the world today. Dependency theories of economic
development, for instance, have been unable to explain East Asias rapid
growth, predicting instead underdevelopment as a consequence of international trade and foreign indebtedness; yet exports have been pivotal in the
5

rapid economic expansion of all the East Asian countries, and Koreas
economy has also been highly leveraged on international loans. Nor
have market theories of economic growth demonstrated greater
explanatory power.
The most orthodox economists have interpreted East Asian expansion
as a vindication of free-market principles. Export-led growth is seen
as reflecting comparative advantage, a pillar of free-market theory.1
More broad-minded economists among the orthodox have been less
complacent, however, recognizing the need to modify the free-market
explanation because government intervention in the fast-growing East
Asian economies has been so extensive. Nevertheless, such economists
have argued that despite this widespread government intervention,
the East Asian economies have not violated the canons of free-market
theory and have got relative prices right; that is, they have allowed
the forces of supply and demand to push prices of key resources, such
as foreign exchange and capital, close to their equilibrium or scarcity
levels. They argue that conformity to free-market principles is what
accounts for East Asias rapid economic advance.
In fact, there is little evidence to support the more liberal of the orthodox interpretations. In the case of Koreas exchange rate, even if it
were never grossly over- or under-valued, exporters were generously
subsidized by the government and strongly coerced to export through
an export targeting system. Thus, the amount of exports and the dollar price received for them were highly politicized outcomes. In the
capital market, government policy was equally distortive. One of the
first acts of the Korean strongman, Park Chung Hee, after he seized
power in a coup dtat in 1961, was to nationalize the banking system.
This gave him control over domestic interest rates, exclusive of those
which prevailed on an informal curb market. He also gained control
over the allocation of foreign loans, targeting them to specific industries earmarked for development, and even to specific firms that were
both efficient and generous friends. He gained control over foreignloan allocation because foreign lenders required government guarantees of repayment in the case of default, and the Korean government
used its guarantee powers to determine which firms could borrow
abroad.
Because the rate of inflation exceeded the rate of currency depreciation, the real interest rate in Korea on long-term foreign loans
throughout most of the expansionary decades of the 1960s and 1970s
was negative. In a capital-scarce country, a negative real interest rate
on investment capital cannot be interpreted as allowing the forces of
supply and demand to operate. A multiplicity of prices in the capital
market for loans of the same maturityone for foreign loans, one for
domestic commercial bank loans, and one for curb or informal loans
suggests that not all prices could possibly have been right.
In all late-industrializing countriesJapan, Korea, and Taiwan included
not only have governments failed to get relative prices right, they
1

See, for example, B. Balassa, Export Incentives and Export Performance in Developing Countries: A Comparative Analysis, Weltwirtschaftliches Archiv, 114, 1978; Development Strategies in Semi-Industrial Countries, Baltimore 1981.

have deliberately got them wrong, in order to stimulate investment

and trade.2 They have subsidized the price of capital and exports.
The faster growth of the East Asian countries is therefore attributable
less to freer markets than to the institutions that have allowed
subsidies to be allocated more effectively than elsewhere. Consequently, an analysis of disparate growth rates among late-industrializing countries requires an institutional approach.
I shall be concerned in what follows with two institutional approaches
to late industrialization: one which has been called global Fordism,
and which I would like to criticize because I think it has no explanatory or predictive power; and another, derived from a particular
dynamic of institutions and class relations, which, I shall argue, furnishes a properly substantive account.
Global Fordism

The notion of global Fordism is linked to the larger Regulation

School of analysis only in so far as its major expositor, Alain Lipietz,
has chosen to situate his writing within a regulation framework.
Not all regulation theorists, however, accept the global-Fordist extension of their work.3 Nor does the regulation framework adopted
by Lipietz necessarily represent the most persuasive version of regulation theory.
The chief elements of the global-Fordist version of regulation may be
summarized as follows. The experience of mass-production industries
in the United Statescall it Fordismis the point of departure for
understanding Third World development. Mass-production technology created unprecedented increases in output based on Taylorism,
which comprises two parts: the decomposition of jobs into their smallest constituent units; and top-down management. The de-skilling of
jobs and top-down management, however, create downward pressure
on wages, such that the mass consumption necessary to sustain mass
production is jeopardized. Global Fordism uses a regulation approach
to the extent that history is understood as a series of episodes. Each
episode is defined by a certain regime of accumulation, or production
system, in association with a certain mode of regulation, or institutional
framework. Sometimes the association between the two favours
growth, sometimes it favours stagnation. The postwar prosperity of
the USA is regarded as one wherein Fordist institutions (say, industrial
unions) favoured mass consumption, allowing mass production to
proceed apace in a Golden Age of unprecedented expansion.
Global Fordism, as expounded by Alain Lipietz, brings mass production, the two parts of Taylorism, and a concern for underconsumption, to the Third World. Lipietzs analysis is global to the extent
that Third World development is understood in terms of relations
2

See Chapter 6, Getting Relative Prices WrongA Summary, in A.H. Amsden,

Asias Next Giant: South Korea and Late Industrialization, Oxford 1989.
3 See, for example, R. Boyer, La theorie de la Regulation: Une analyse critique, Paris 1986,
pp. 11213.
7

between the centre and the periphery, in the grand tradition of the
dependencia theory he so deplores:
I will attempt to present, succinctly and in schematic form, the results of
my work on how the present crisis [in the centre] is transforming the international division of labour. I will not venture so far as to make a concrete
analysis of the one hundred and fifty countries that make up the world or
of their irreducible specificities . . . I will cast caution to the winds. I will
talk about old and new divisions of labour, the centre, the periphery, Fordism, bloody Taylorism, peripheral Fordism and other bold conceptualizations . . . The reader has been warned. She would do better to burn this
book without reading it, if all she is going to get out of it is a new collection
of labels to stick on real nations and actually existing international relations without first analysing them carefully.4

I must confess that this reader, for one, found no more than labels in
Lipietzs booklabels, moreover, which are no substitute for a theory
of industrialization.
Peripheral Fordism

Together with the other late-industrializing countries, Korea has progressed well beyond the stage of producing labour-intensive manufactures. The country is possibly the worlds lowest cost steel producer,
and has invested heavily in steel-making R&D. The Korean car that is
a hot seller in the low-price range in the United States and Europe is
made with Mitsubishi Motors engine technology. Nevertheless, most
of the car is indigenously engineered by Hyundai Motors. Koreas
huge electronics firms have moved beyond consumer electronics
assembly and have begun to produce semiconductors and complex
industrial electronics systems. Their R&D laboratories are run by
Korean-Americans with long experience in high-tech companies.
Their joint ventures in Silicon Valley infuse technology at the world
frontier. These developments are rather remarkable given the chronic
underdevelopment throughout most of the Third World, and they
demand careful analysis. Lipietz labels such developments peripheral
Fordism:
In the 1970s a new pattern emerged in certain countries. It was characterized by the existence of autonomous local capital and by the presence of a
sizeable middle class, and a significant element of a skilled working class.
In some cases, its origins lay in an earlier import-substitution policy or in
a peripheral form of merchant capitalism (Chinese in Eastern Asia). In
other cases, it emerged from the miraculous promotion of exports of raw
materials such as oil or from an earlier stage of primitive Taylorization.
This conjuncture allowed certain states to develop a new logic which we
will refer to as peripheral Fordism (p. 79).

According to Lipietz, peripheral Fordism is a true Fordism in that it

involves both mechanization and a combination of intensive accumulation and a growing market for consumer durables (p. 78).
4

Alain Lipietz, Mirages and Miracles: The Crises of Global Fordism, Verso, London 1987,
pp. 45. Subsequent references to this work appear in parenthesis in the text.

It is true that production in sectors ranging from automobiles, machinery, steel, petrochemicals and pharmaceuticals may be described as
mechanized or mass-produced. These industries generate high levels
of productivity by virtue of their skill- and capital-intensive production processes. But to recognize and label the emergence of more complex production in the Third World as peripheral Fordism is not to
explain it. Lipietz has no more to say about the origins of mass production in the Third World than the stark references cited above. He
simply states that in some cases mass production came from an earlier import-substitution policy, but he does not explain how, or why,
it developed in some countries and not in others. In some cases it
emerged from a peripheral form of merchant capitalism (Chinese in
Eastern Asia), whatever this befogged phraseology might mean, and
in others it emerged from the export of raw materials such as oil
(presumably Lipietz has in mind Mexico, or the Bombay region of
India). But it is not made clear how oil money was translated into
manufacturing investments, or why some oil-producing countries
fared better than others. In other cases mass production emerged
from an earlier stage of primitive Taylorization (read maquiladoras or
export-processing zones). For such a bold conceptualization as peripheral Fordism, and for such a rare occurrence as Third World industrialization, these strands of explanation are woefully inadequate.
According to Lipietz, primitive Taylorization refers to the transfer of
specific segments of branch circuits to states with high rates of
exploitation (in terms of wages, length of the working day and labour
intensity) (p. 74). In other words, primitive or bloody Taylorization
refers to investments, often by multinational firms, in labour-intensive
production processes in the Third World, with a view towards reexport to the advanced countries. Analytically, however, peripheral
Fordism cannot be seen as a logical extension of primitive Taylorism, as Lipietz implies. Even in Korea, Taiwan and Northern
Mexico, which the multinationals favoured as locations for their
labour-intensive production, such investments were only a small fraction of these countries total investments. Moreover, a country like
India has a large industrial sector but virtually no export-processing
activity. In another case, Puerto Rico, the maquiladoras have been
omnipresent but economic development has floundered. Thus, no
relationship between peripheral Fordism and primitive Taylorization can be assumed a priori. Nor can one attribute the emergence
of mass production in a country like Korea to the multinational firm.
Skill- and capital-intensive production in Korea is not dominated by the
multinationals. Multinational investment has largely been restricted
to labour-intensive exports. By contrast, the commanding heights
are owned and controlled by local firms: privately in Korea and
Japan; publicly in Taiwan.
Lipietz provides no explanation for how mass production or an
intensive regime of accumulation arose in late industrialization.
None is forthcoming because his methodology is one of trying to
understand the periphery in terms of the centre. For example, he
states in his introduction: The fourth chapter brings us to the heart of
our subject: the novel phenomenon of the partial industrialization of
9

the Third World, which will be shown to be the result of the various ways in
which elements of the logic of Fordism have been extended to the periphery
(p. 6, emphasis added). The rise of Third World industry, therefore,
is seen by Lipietz as a response to the ever-present, proverbial crisis in
the centre. Industry in the Third World arises as capital from the
centre extends the scale of its operations in a search for new markets and cheap labour. Chapter Four does not end, therefore, with
a summary of how late industrialization occurred, or why some
late industrializers grew faster than others. Instead, it concludes with
a discussion of the extent to which the South serves the North
as a market in the new international division of labour (new
because some Third World countries now compete as manufacturers). We know in retrospect from the failure of dependency theory
that the dynamics of growth in the Third World cannot be analysed
satisfactorily in terms of the categories of centre and periphery. To
the extent that Lipietz employs these categories, he is a dependency
theorist, and no more successful than they in explaining Third World
industrialization.
The Fordist Model Abroad

To understand the process of late industrialization, one must learn

from the history of earlier industrializing countries. The failure of the
market paradigm to explain Koreas industrialization suggests the
need for an institutional approach. The model of Fordism derived
from US twentieth-century history does not, however, have predictive
power when applied to the Third World, despite its rich institutional
orientation. The institutions of late industrialization are quite different from those of the Second Industrial Revolution in the United
States. Firstly, the Fordist model regards underconsumption as the
major stumbling block to economic growth; whereas the problem of
industrialization in the Third World is a problem of raising productivity and creating international competitiveness, not effective demand.
Secondly, late industrialization has been a far more political process
than the entrepreneurially driven model of American Fordism would
suggest. The state has masterminded late industrialization with
varying degrees of success. Finally, American, Korean and Japanese
factories in the mass-production industries all have similar technology, employ time-and-motion studies, and practise scientific
management. Taylorist nuances, however, are quite distinct to the
extent that productivity growth differs significantly. We will now look
in more detail at the problems evident in transferring the Fordist
model from one country and time period to another, with respect to
underconsumption, the state, and Taylorism. Later these subjects will
reappear in discussions of Korea.
(1) Underconsumption
The subject of underconsumption in the Third World is not analysed
systematically by Lipietz, but it provides a leitmotif in most of his
chapters. For example, he states:
The term peripheral Fordism should only be used when growth in the
10

home market for manufactured goods plays a real part in the national
regime of accumulation. In this context, it should be noted that South
Korea, which some writers insist upon calling a workshop country because
of the primitive Taylorization that exists in some segments of the transferred labour-intensive industries, departed from the Taylorist schema
long ago. That schema characterized its growth in the period between 1962
and 1972. Since 1973, growth has centred on the home market. . .Real
wages, which had been rising more slowly than productivity, took off in
1976, so much so that they began to threaten South Koreas competitiveness vis--vis Taiwan (p. 80).

In fact, since 1973, when Korea began investing heavily in basic and,
later, computer-based industries, growth has not been centred on the
home market. Korea now exports more capital- and skill-intensive
products than light manufactures; and total exports as a percentage of
GNP are approximately 35 per centfar higher than Lipietz allows.
Moreover, wages began to rise rapidly in the mid 1960s, but have not
yet undermined Koreas international competitiveness. Real average
wages in Korea, as we will see below, appear to have risen faster than
in any previous industrialization and in any contemporary one. They have
grown far faster than in other late-industrializing countries such as
Brazil and India, which have grown largely on the basis of the home
market and which depend more on high wage increases to shore up
effective demand. Contrary to the Fordist story, therefore, which sees
the forces of mass production outstripping the capacity of workers to
consume, high productivity in Korea has sustained high growth rates
of both exports and wages.
To reject an underconsumptionist theory of industrialization is not to
underestimate the problems posed to expansion by impoverished
home markets, or to dismiss too readily the influence of income distribution on what products can profitably be produced.5 Nor is it to
minimize the struggle of capitalists the world over to find markets for
their ouput. But in terms of a disequilibrium between what a Third
World country can produce and what it can sell, the underconsumptionist argument is untenable. The problem in developing countries is
not that of too little effective demand but of too much, as different
income groups and social classes struggle over the distribution of a
puny pie. Governments are not confronted with the need to raise
effective demand, but rather to dampen aggregate spending in order
to check inflation. What they must raise is more foreign exchange,
savings and public revenues; for these, and not effective demand, are
the constraints on increasing the pies absolute size. Moreover, any
country, particularly a small one, can produce without regard to the
size of its home market, so long as it can export. The problem is that
most Third World countries cannot export because they are not competitive internationally, despite low wage rates. Nor can they sell
domestically at international prices, at high levels of productivity that
would enable them to pay high wages and expand their internal
5

For a critique of Latin American underconsumption theory, see N. Lustig, Distribucion del ingreso y crecimiento en Mexico: Un analisis de las tesis estructuralistas, Mexico 1981;
Underconsumption in American Economic Thought, Review of Radical Political Economics 12 (1) 1980.
11

market size. Ultimately, therefore, as the Korea experience suggests,

the problem of industrialization is a problem of increasing productivity, not demand.
(2) The State
According to Lipietz, both primitive Taylorism and peripheral
Fordism require a state that is autonomous in three senses: First,
the regime must be politically autonomous from traditional forms
of foreign domination . . . Secondly, the political regime must be
autonomous from ruling classes connected with either the primary export economy or the growth of the home market . . . Finally,
the regime must also be autonomous from the popular masses . . .
In short, it usually requires a dictatorship to break the old balance
and to use the state to create managerial personnel who can play
the part of the ruling classes within a new regime of accumulation
(pp. 7273).
I agree with Lipietz that the relative autonomy of the state was
decisive in Koreas rapid growth, compared with that of other lateindustrializing countries. Nevertheless, the category of autonomy,
even in a non-idealized form, is insufficient to understand the
late-industrializing state. Significant industrial growth has been
achieved in India on the basis of parliamentary democracy, not
dictatorship, and Mexico has registered industrial advance with a
constitutionalist regime. Lipietz focuses on the degree of state
power to the exclusion of two other critical issues related to the
state: the conditions under which strong states act developmentally, investing long-term rather than speculating; and the precise
policies which the developmental state follows in order to further
industrial growth.
Nor, more generally, does the model of American Fordism provide
sharp insights into the role of the state in economic development. The
states role in the United States in the era of mass production was
largely one of creating effective demand in response to crisis, and of
regulating business in the American sense of the termsupporting
competitive market structures. By contrast, the states role in late
industrialization has been far more comprehensive. The state is the
principal initiator of industrial growth, and state control over big
business in Japan, Korea and Taiwan is much broader than that of
American-style regulation. Support for business is also greater than
what was typically meant by infant industry protection.
(3) Taylorism in the Fordist Factory
The global-Fordist model is as flat-footed at the level of the firm as it
is at the level of the state. Taylorist institutions, strictly defined in the
American tradition, have never been exported to the mass-production
factories of Japan, Korea or Taiwan. It is true that jobs in massproduction industries in these countries have been industrially engineered for maximum efficiency. But work has not been managed in a
top-down fashion. Technical ignorance at the highest managerial
level, and inexperience on the part of the workforce, have made it
12

impossible for borrowed technology to be optimized through a topdown, Taylorist approach to productivity and quality improvements.
Instead, the standardization of work has been accompanied by a more
participatory (and, it turns out, more productive) approach to work
relations, not for cultural reasons but for reasons related to technology
transfer.6
Not even the kernel of Fordism itself holds up well in the Third
World, where the essence of Fordism is higher wages and better working conditions in the mass-production industries than in the bloody
Taylorized industries like electronics assembly and apparel. Of
course, long before Lipietzs labelling, it was widely recognized that
the labour markets of the Third World, not least that of South Korea,
were segmented by wage ratesalong lines of gender, capital-intensity,
and possibly firm size. Real wages have risen faster in South Korea
than in any previous or contemporary industrializing country, but
South Korea also holds the dubious distinction of having one of the
largest wage gaps between men and women (between 40 and 50 per
cent) and between labour-intensive and capital-intensive manufacturing branches.7 Nevertheless, Fordism is an inappropriate label to
append even to the situation of the highest paid workers in Korea,
because they have been subject no less than other workers to forms of
abuse that are incompatible with the notion of a Fordist aristocracy or
elite. High wages and ill-treatment have coexisted in mass production.
The industrial policy that has driven economic expansion in Korea
has excluded any input from labour at the national level: until recent
democratization, there was no accord comparable to the Wagner Act
in the United States that recognized labours rights to share economically, and to participate politically, in the process of growth. Instead,
the Korea Central Intelligence Agency had formal jurisdiction over
labour affairs, and high-paid and low-paid workers alike faced the
danger of life-threatening repression. On the shop floor, the labour
aristocracy has been subjected to harsh and demeaning forms of
intimidation.8 High profits in Koreas mass-production industries
have been derived not merely from investments in machinery and
modern work methods (what Marx calls relative surplus-value extraction and what the school of regulation calls an intensive regime) but
also from the worlds longest working week (what Marx calls absolute
surplus-value extraction and what the regulationists call an extensive
6 It is noteworthy that Lipietz explains the recent decline in US productivity by imagining an exhaustion of opportunities to raise productivity in a Taylorized system. See,
for example, Behind the Crisis: The Exhaustion of a Regime of AccumulationA
Regulation School Perspective on Some French Empirical Works, Review of Radical
Political Economics 18 (1) and (2), Spring and Summer 1986. Yet the same Taylorized
technology has proved merely the starting point for raising productivity in East Asia.
7 For inter-industry wage differences, see A.B. Krueger and L.H. Summers, Reflections on the Inter-industry Wage Structure, Discussion Paper No. 1252, Harvard
Institute of Economic Research, Cambridge, Mass., 1989. For gender wage differences
in Korea, see J.W. Lee, Economic Development and Wage Inequality in South
Korea, Ph.D. thesis, Harvard University, 1983.
8
J-I. You, CapitalLabor Relations of the Newly Industrializing Regime in South
Korea: Past, Present, and Future, mimeograph, Department of Economics, Harvard
University, 1989.

13

regime). While Fordist theorists seem to view growth through higher

productivity, and growth through harder work, as independent regimes
of accumulationcharacterizing different groups of workers or different time periodsit is the case that in Korea the two forms of profit
making operate side by side, and characterize the same group of
workers simultaneously.
The overall evidence suggests that Fordism (mass production in the
United States) and peripheral Fordism (mass production in the Third
World) have entirely different modes of regulation. One cannot predict
from the global Fordist model, therefore, either which institutions in
the Third World are conducive to fast growth, or which Third World
countries will grow fast. If the problem of Fordism was underconsumption, then the problem of late industrialization is the creation of
international competitiveness. If the state in the era of Henry Ford
took a back-seat role to the private entrepreneur, then the state in late
industrialization plays the leading part in capital accumulation. If, as
Alain Lipietz has argued, the process of de-skilling and procedurizing
work is exhausting opportunities to increase productivity in the Fordist system, thereby precipitating the ubiquitous crisis, then the very
same process of de-skilling and procedurizing of work in Japan and
Korea is producing a rate-of-productivity increase that is thoroughly
realigning global competition. The Fordist model possesses little predictive power when applied to the Third World, and consequently we
are left with no more than empty categorical boxes borrowed from the
regulation methodology.
An Alternative Framework: Industrialization Through Learning

I turn now to an alternative institutional explanation of late industrialization in general and Korean industrialization in particular,
returning to the criticisms expressed above. I term those countries
that have succeeded in entering more skill-, technology-, and capitalintensive industries late rather than newly industrializing, not in
order to add to the clutter of jargon that already plagues the Third
World, but because lateness matters to competitiveness, and hence to
development, when it is defined in terms of the absence of novel
technology, even in the leading or dominant firms of a country. The
important question is not whether industrializing late, as so defined,
is easier or harder than industrializing earlya question with which
Alexander Gerschenkron was supposedly concerned.9 Rather, two
more important questions are: first, whether there are general properties specific to late industrialization; and second, whether differences
in growth rates among late industrializers can be understood in terms
of variations in these general properties.
I argue that the general properties of an industrialization process
based on learning, or borrowing, technology are entirely different
from those of an industrialization process based on the generation of
9
See, for example, A. Gerschenkron, Economic Backwardness in Historical Perspective,
Cambridge, Mass. 1962.

14

new products or processesthe hallmark of the First and Second

Industrial Revolutions. Thus, the late acquisition of international
competitiveness has given rise to certain common tendencies in otherwise diverse countriesJapan, Korea, Taiwan, India, Turkey, Brazil
and Mexico. Further, growth rates among these countries have differed not because markets have been allowed to operate more or less
freely, but because the institutions general to late industrialization
have functioned with varying degrees of effectiveness.10
The problems that late-industrializing countries confront in creating
international competitiveness may be appreciated in historical context. Industrialization in eighteenth-century Britain may be said to
have occurred on the basis of invention. Productivity increases were
realized by means of a searchlargely through trial and errorfor
better products and processes, in the context of the small-scale firm
under the control and ownership of the individual entrepreneur.
Industrialization in the nineteenth century by the dominant enterprises of Germany and the United States may be said to have occurred
on the basis of innovation, or the mass commercialization of the inventions of individuals, through a process involving systematic problemsolving, increasingly in the context of the R&D laboratory. The
modern industrial enterprise replaces the small-scale firm as key institution, and the owner-entrepreneur is eclipsed by the corporate
manager. This Second Industrial Revolution, of course, provides the
inspiration for Fordism.
While these two modes of industrialization differ, if only in their
degree of scientific content and company organization, nevertheless in
both cases new technology provided leading firms with a competitive
asset. By contrast, the mode of late industrialization has been one of
borrowing technology from more technically advanced societies, or
what may be called learning. Borrowing requires creativity, just as
innovation or invention requires learning from others. Historically,
leading firms in Germany and the United States learned from those in
England, and only then advanced beyond the English with a series of
innovations in the fields of chemicals, electricity and energy in the
continuous process industries, and electrical equipment, transportation and machinery in the fabrication/assembly sectors. Moreover,
while leading German and American innovators were responsible for
outcompeting the British, most companies in the United States and
Germany were followers.
Nevertheless, the waging of competition by dominant firms without
the aid of a novel technology involves a very different struggle from
that in which technological advantage plays a key role. The citadel of
Fordism provides the example of automobiles: while General Motors
10

Most references are from Amsden, Asias Next Giant. See also A.H. Amsden, Republic
of Korea, World Institute for Development Economics Research of the United National
University, Stabilization and Adjustment Policies and Programmes, Country Study
Number 14, Helsinki, Finland 1987 (published in the Korean language by Si-Sa-YongO-Sa Publishers, Inc., 1989). The argument in Amsden, Asias Next Giant, is summarized in Asias Next Giant: How Korea Competes in the World Economy, Technology
Review, May/June 1989; and Invention, Innovation, and Learning, Political Economy 3
(2), 1987.
15

learned from Ford and the European car manufacturers after the turn
of the century, its distinct design technology enabled it to gain a
market share from Ford in a manner that later manufacturers like
Toyota and Hyundai could only envy. Consequently, inside Toyota
and Hyundai a set of institutions evolved, with a set of supporting
institutions in the Japanese and Korean economies, which contrast
with those characteristic of General Motors and the US automobile
industry.
In general, postwar industrialization based on learning, or borrowing
foreign technology, is associated with a common set of properties, or
shared tendencies. In each case, howevergovernment intervention,
conglomerates, shop-floor focus and labourJapan, Korea and Taiwan excel.
(1) Getting Relative Prices Wrong
Government intervention in the process of industrialization has
tended to be greater than in the past, both because technology has not
constituted a competitive asset and because at international prices the
low wage rates of late industrializers have been insufficient to compete against the higher productivity levels of more advanced economies. If the metaphor of the First Industrial Revolution is laissez
faire, and that of the Second infant industry protection, then that of
late industrialization is a category comprehensive enough to overcome
the penalties of latenesscall it the subsidy. The subsidy includes
not just tariff protection of the home market but also incentives to
export, subsidies on inputs, government investment to promote technical or economic linkages among industries, as well as the usual state
support of social-overhead and big-business diplomacy. To stimulate
investment and trade, the state has used the subsidy to get relative
prices deliberately wrongthat is, different from what the forces of
supply and demand would determine.
What is mystifying is not the extent of government intervention in the
process of late industrialization, including in the East Asian countries,
but rather why the state in East Asia has been more effective than
most. The state in Korea, Japan and Taiwan has been more effective
than other late-industrializing countries because it has had the power
to discipline big business, and thereby to dispense subsidies to big business according to a more effective set of allocative principles.
(2) Conglomerates
In late-industrializing countries mass production has emerged embodied in a distinct institution: the diversified business group. A volume
describing the proceedings of the International Conference on Business History testifies to the ubiquity of the diversified business group
in the Third World: In developing countries such as South Korea,
Taiwan, the Philippines, Thailand, India, Brazil, and Argentina . . .
industrial groups which resemble Japans former zaibatsu have sprung
up since the Second World War.11
11

Editors Introduction, in S. Yasuoka, ed., Family Business in the Era of Industrial

Growth: Its Ownership and Management, Tokyo 1984.

16

The diversified business group is part of a family that Alfred Chandler describes as the modern industrial enterprise. Family members are
large-scale, multidivisional and hierarchical.12 The diversified business group, however, operates in a wider, less related range of industries than is typical of such enterprises, and with a greater degree of
central cohesion than that of the American conglomerate. The fact of
lateness appears to encourage diversification by zaibatsu-like groups
into more unrelated industries than the typical modern industrial
enterprise, and to foster closer coordination of flows of financial
resources and people at the top of the corporate structure. Because
leading firms in late-industrializing countries do not have the technical or marketing expertise to expand within a single high-quality
market niche, they move instead into the bottom end of many different markets. Because they are able to borrow capital and technology
from abroad, they do not have to dilute financial ownership by
providing new investors with equity. With one family dominating at
the top of the organization, there are close connections among all the
various businesses in the group. In fact, central coordination linked to
broad diversification may be a unique competitive advantage, or
scope economy, of late industrializers, for it allows them to enter new
industries quickly and efficiently.
Diversified business groups are a phenomenon general to late industrialization, but they are especially large in Korea, where they are
known as chaebol. Fortunes list of five hundred international, private,
non-oil-producing firms in 1986 included ten from Korea and only
seven from all the other developing countries combined. The chaebol
account for a degree of aggregate economic concentration that is staggering even by the standards of American or German business history. According to one estimate, sales of the top ten chaebol in 1984
accounted for 67 per cent of Korean GNP.13 Yet the scope of the chaebol has allowed them to attract the best professional managers and has
given them the power to penetrate deep into international markets.
(3) Strategic Shop-Floor Focus
Different modes of industrializing, one with and one without original
technology, are associated with differences in what may be termed the
firms strategic focus. The corporate office, inclusive of research and
development functions, tends to be the strategic focus of companies
that compete on the basis of innovation, because it is at the administrative level that new technology is developed and marketed. By contrast, the shop floor tends to be the strategic focus of firms that
compete on the basis of making borrowed technology work. Because
12

See, for example, A. Chandler, Strategy and Structure: Chapters in the History of the
American Industrial Enterprise, Cambridge, Mass. 1962; The Visible Hand: The Managerial
Revolution in American Business, Cambridge, Mass. 1977.
13
S.K. Kim, Business Concentration and Government Policy: A Study of the Phenomenon of Business Groups in Korea, 19451985, Ph.D. thesis, Harvard Business
School 1987. These figures refer to sales rather than value added, and sales include
inputs produced by other firms. However, many suppliers to the big business groups
are satellite subcontractors, so the sales figures may not exaggerate aggregate economic
concentration.
17

products similar to those of the company are internationally available,

the strategic focus is necessarily to be found where the achievement of
incremental, yet cumulative, improvements in productivity and product specification occur, and therefore enhance competitiveness.
Shopfloor management in Korea, as in Japan, has been especially
effective. There has been a large supply of engineers, who have kept in
close touch with the ranks. Overhead costs have not become prohibitive. Compared with Latin America, there have also been few multinational firms in Korea operating outside the labour-intensive,
export-oriented sectors. Korean ownership and control of the commanding heights have been a decided advantage to the extent that
Korean management is more quality- and productivity-conscious than
that of many multinationals, and lends itself more easily to government control.
(4) Labour
Cheap labour is the anchor of late industrialization. Labour has been
available in unlimited supply, generally politically powerless, and
educated to a level unknown in former industrial revolutions. The discipline of labour by the state lies at the heart of all late industrialization. For this reason, such discipline cannot account for differences
in growth rates among late-industrializing countries. Even in India,
which has tended to grow more slowly than Korea, parliamentary
democracy has been conditioned by the caste system and dosed with
emergency powers wielded by New Delhi. Mexicos constitutional
regime embodies decisive privileges for the ruling party. Therefore, it
would be simplistic to argue that growth has been faster in Korea
because of more authoritarianism, and slower in India and Mexico
because of more democracy. Labour repression is the basis of late
industrialization everywhere, though in Korea as in other late industrializers a militant trade unionism contests this. Developmental differences among late industrializers are best explained in terms of the
discipline imposed on big business, not labour, as I argue shortly.
Korea has a highly educated workforce, however, and this makes its
own contribution to economic progress. In 1903 there were 5 students
in British universities or university colleges per ten thousand population, and 7.87 in Germany per ten thousand. In 1985 the comparable
figure for Korea was 217.5 students. In 1899 the number of boys in
public secondary schools per thousand was only 4.3 in Birmingham
and 10 in Berlin. In 1984 the comparable figure for Korea, including
both sexes, was 20.14 The school curriculum for Korea includes a
heavy dose of social indoctrination.15 Doubtless the legacy of traditional social relations as embodied in religion, domestic subordination and agricultural routine has played a part in shaping a labour
14
For Britain and Germany, see P.W. Musgrave, Technical Change in the Labour Force
and Education: A Study of the British and German Iron and Steel Industries 18601964,
Oxford 1967.
15
See, for example, H.F. McGinn et al., Education and Development in Korea, Cambridge,
Mass. 1980.

18

force that is at once skilled and disciplined, yet the states educational
and training policies have ensured that these disciplines and skills
have assumed economically appropriate forms. By comparison with
other late-industrializing countries, or even a city-state like Singapore,
Korea is at the top of most educational indices, scaled for population
size: secondary students as a percentage of eligible secondary-age
students; scientists and engineers per capita, and so on. A large number of engineers in Korea compete with each other for the best jobs,
thereby driving up productivity.
Most foreign technical assistance has come from Japan, a fact that has
given Korea an edge over other late-industrializing countries culturally and geographically further afield. Japan may not until very
recently have been as close to the world technological frontier as the
United States, nor as generous in transferring proprietary know-how,
but it emerged as the worlds premier producer, and communicated
to Korea both the most efficient production techniques and a seriousness about the manufacturing function. Korea has been a successful
learner partly because it has invested heavily in education, both of the
formal academic variety and that derived from foreign technical
assistance.
To gain a closer picture of the institutional variations of late industrialization in the Korean case we will now focus on the state, shopfloor management and labour (at the cost of saying little specifically
about the diversified business group, or chaebol). Let us start by
addressing the issues raised by the global Fordism thesis, as a preliminary to outlining a more adequate model.
The State

Beginning in the 1960s, some Third World countriesKorea and

Taiwan among thembegan exporting manufactures that embodied
large amounts of unskilled labour. They had little trouble in gaining a
competitive advantage in these goodswood veneer, wigs, Christmastree decorations, plastic toys and so forthbecause the amounts of
labour embodied in such items is so large that the high productivity
levels of advanced countries are no match for low wage rates. For neoclassical economists, economic development on the basis of such
exports is taken as a confirmation of the theory of comparative advantage. For global Fordists, economic development on the basis of such
exports is attributed to capitalist crisis and global restructuring. The
terminology is different, but the emphasis on a new international division of labour as an explanation of economic development is quite
similar.
Foreign demand for ultra-labour-intensive goods from any single lowwage country is limited, however, because total world demand tends
to be spread over many Third World regions. The location of direct
foreign investment to produce the most labour-intensive manufactures in any single low-wage country is also limited. Consequently, it
becomes problematic for any one Third World country to count on
such manufactured exports to provide a powerful enough engine of
19

growth, save maybe small city-states such as Hong Kong and Singapore. By the same token, it is inappropriate to rely on the concept of
global restructuring to supply a theory for Third World industrialization. In Taiwan, which was among the most successful of Third
World countries in attracting foreign investment, foreign firms on
average accounted for no more than 5.5 per cent of capital formation
between 1962 and 1975. Of this total, less than one-fifth was involved
in export platform activity. Monthly employment in Mexicos maquiladoras averaged 307,866 in 1987. Although this represents a big jump
from a monthly average of 119,546 in 1980, it is still trivial compared
with Mexicos economically active population, which in 1987 stood at
approximately 25 million.16 Foreign investment in the maquiladoras
occupies centre stage in analyses of the international division of
labour, which is widely regarded as the spur to economic development. In reality, labour-intensive export activity by multinational
firms has usually been too modest in any one developing country to
serve as the basis for extensive growth.
Cheap labour has not sufficed to sustain comparative advantage in
any other than the most labour-intensive branches. It does not explain
the success of cotton spinning and weaving, the leading sector in the
1960s in Korea, Taiwan, and other late-industrializing countries. The
evidence suggests that at world prices, or after repeated devalued
exchange rates, low wages were an insufficient condition for these
countries to gain international competitiveness. The governments of
Korea and Taiwan had to intervene to subsidize the production even
of cotton textilesa relatively labour-intensive gooduntil either
productivity at home or the wages of foreign competitors rose enough
to make subsidies redundant.
Japan is a late-industrializing country by virtue of the fact that initially even its dominant firms had no novel technology with which to
enter world markets. Yet Japan is marked off from other such countries by the behaviour of its leading sector. When its cotton spinners
and weavers began to take a market share away from Lancashire after
the turn of the century, they did so not merely by dint of lower wages,
but through the deployment of competitive assets. They instituted
centralized control over output to check overproduction, and large,
integrated manufacturing units equipped with the most modern
technology; they benefited from shipping subsidies and low shipping
costs; and, finally, they showed great efficiency in marketing the
finished product, resulting from the maintenance of closer contacts
with customers and intimate cooperation between the manufacturing
and mercantile sections of the industry.17 By contrast, when cotton
spinners and weavers from Korea and Taiwan entered world markets
in the 1960s, the only competitive asset they had was their low wage
16

For Taiwan, see T-C. Chou, The Evolution of Market Structure in Taiwan, Revista
Internazionale di Scienze Economiche e Commerciali 35 (2), 1988; and C. Schive, Direct
Foreign Investment, Technology Transfer and Linkage Effects: A Case Study of
Taiwan, Ph.D. thesis, Case Western Reserve 1978. For Mexico, see Anibal Yanez,
mimeograph, University of California at Berkeley 1988.
17
G.E. Hubbard, Eastern Industrialization and Its Effects on the West, Oxford 1938, p. 81.
20

rates. These, however, proved inadequate to compete against the

higher productivity levels of Japan. According to one account, labour
costs in the cotton-textile industry of Japan, Korea and Taiwan were
running neck and neck in the 1960s, and if other costs were taken into
account, Japan would undoubtedly have had the edge.18 Consequently, the governments of Korea and Taiwan stepped in with a
package of subsidies that became a model for subsequent industrial
growth, not least in the mass-production sectors.
Disciplining Big Businesses

In the First Industrial Revolution, competition among a large number

of small firms (the invisible hand) acted as a disciplinary mechanism. With the subsequent erosion of competitive market structures,
Joseph Schumpeter analysed a new basis for competition, a new
mechanism to discipline company behaviour in the age of Fordism.
He recognized technological change as itself a disciplining factor: the
creative gales of new technological discoveries uprooted old monopolies and increased productivity, in uneven spurts. Late industrialization, however, is characterized neither by a large number of small
firms nor by innovation. There is no automatic mechanism in it to
drive firms to be productive because growth itself does not happen
automatically. Growth is dependent on the subsidy, yet subsidies to
business invite the abuses of gross resource misallocation and corruption.
Korea largely avoided the paralysing venality and inefficiency associated with subsidies and protection. Take automobiles for example.
For twenty-five years no foreign cars were to be seen on Korean roads,
and no Korean cars were to be seen on foreign roads. Yet Hyundai
Motors, Koreas most successful car manufacturer and part of one of
its largest chaebol, is a well-managed firm. So are thirty other big
Korean companies that I have studied. The performance of Koreas
big businesses cannot be measured by profitability, because profit
data are manipulated; nor can it be measured by volume of exports,
which may merely reflect subsidization. Good performance must be
measured by physical indicators of production and operations managementsay, productivity, quality and inventories, as well as changes
in export values. By these indicators, Koreas big businesses have
generally been exceptionally well-managed, notwithstanding the fact
that every one of them has prospered through political favour.
The Hyundai Motor Company, soon after its founding, established a
Design Centre to begin reducing its reliance on foreign design inputs.
Eventually, all small parts were designed in-house and HMC established a Parts Development Department to upgrade the technological
capability of its parts subcontractors. A Machine Tool Division,
founded in 1978, makes 25 per cent of the materials-handling equipment used on HMCs assembly and transfer lines. The remarks of
one manager help to convey HMCs proactive approach to raising
18

K.D. Woo, Wages and Labor Productivity in the Cotton Spinning Industries of
Japan, Korea, and Taiwan, Developing Economies, 16, 1978.
21

productivity: Many small robots are made by the workers. There are
small study groups of workers on each line. All have long experience
at each station. There is also a big Quality Department. There is
someone from the Quality Department at all major workstations, who
will work together with the workers. HMC is trying to build a good
quality circle movement. It cannot yet do as well as the Japanese and
sometimes . . . workers have to call on the Methods Engineering
Department . . . The plant manager likes to do job rotation for learning purposes. Rejected cars become workers teachers. HMC has introduced a new computerized system that allows a particular part to be
traced right back to the worker responsible, or to the supplier.19
No matter how well-connected they are politically, all subsidy recipients in Korea have been subject to four blanket controls imposed by
the government. First, all firms have had to export sooner or later, in
larger or smaller quantities. Minimal export targets have been set
even for unpromising industries such as papermaking, for example,
whose future is lustreless in a country, like Korea, with no timber
resources. Exports have provided the Korean government with a
transparent measure of the progress of those in receipt of subsidy.
This has been one of their most important functions, more important
in many industries than volume. Second, all commercial banks were
until recently owned by the government, and all financial institutions
continue to operate under government control. This has discouraged
speculation on the part of the recipients of cheap credit. Third, discipline has been imposed on market-dominating enterprises through
annually negotiated price controls, in the name of curbing monopoly
power. At the end of 1986, the prices of as many as 110 commodities
were controlled, including flour, sugar, coffee, red pepper, electricity,
gas, steel, chemicals, synthetic fibres, paper, drugs, nylon stocking,
automobiles and televisions. Fourth, investors have been subject to
controls on capital flight, or the remittance of liquid capital overseas.
Legislation passed in the 1960s stipulated that any illegal overseas
transfer of $1 million or more was punishable with a minimum sentence of ten years imprisonment and a maximum sentence of death.
No firm in South Korea could succeed if it openly criticized the
government. No firm could flourish if it was not a staunch government supporter. Nevertheless, despite pervasive corruption surrounding the allocation of subsidies to specific companies, discipline
has still been effective: generally only good performers have been
rewarded and poor performers have been punished. On numerous
occasions the government, in its role as banker, has not only refused
to bail out poorly managed firms in otherwise healthy industries, but
has transferred the assets of such firms to other enterprises (invariably
political allies, but better-managed ones).
In short, subsidies in Korea (as in Japan and Taiwan) have been allocated to big business according to the principle of reciprocity, in
exchange for performance standards, whereas in other late-industrializing countries subsidies have tended to be dispensed as giveaways, in
what amounts to a free-for-all. Subsidized firms in Korea have received
19

Amsden Asias Next Giant, pp. 17679.

22

cheap capital (often at negative real interest rates, the ultimate

wrong relative price), but they have had to produce, not speculate.
They have been allowed to sell in a protected home market, but they
have had to raise productivity and quality to increase their share of
foreign markets. They have been allowed to import foreign technology, but they have had to begin investing in their own R&D. They
have been allowed to exploit Korean labour, but they have had to
train it and, in the case of the big companies, retain it through economic slumps.
South Korea has enjoyed one of the highest productivity growth rates
in the world.20 As a consequence, it has been possible for the government to grant big business lower subsidies and less protection than in
other countries. An astonishing fact about Koreas foray into the
mass-production industries in the 1970s is that the burden of debt
remained constant (as measured by the debt/GNP ratio) despite a
heavy reliance on foreign loans. As indicated in Table 1, whereas the
absolute value of debt increased from $3,589 million in 1972 to
$20,500 million in 1979, total debt as a percentage of GNP declined
slightly as a consequence of a large volume of production, from
roughly 34 per cent in 1972 to 32 per cent in 1979, just before the
second energy crisis.
Table 1. External Debt and Debt Service

Year

Total Foreign Debt

(millions US$)

LongTerm Debt
as % of Total

1965
1972
1979
1984

206
3,589
20,500
43,100

98.54
82.17
67.80
73.55

Total Debt
as % of GNP
6.81
33.95
31.75
53.16

Source: A.H. Amsden, Asias Next Giant: South Korea and Late Industrialization, Oxford 1989.

Until recent democratizations, South Korea was an unambiguously

authoritarian society. Yet if democracy means power by the people
over their lives, then the antithesis of democracy is the power of business to decide if and when to invest. To the extent that the Korean
government has disciplined business and has not allowed it to hold
society to ransom with its investment decisions, Korea has exacted a
measure of public accountability greater than that of many other late-,
and even early-, industrializing countries.
The State and Developmentalism

Any analysis of late industrialization must have at its core a theory of

economic developmentwhich, in this case, is getting relative prices
wrongin conjunction with a theory of the state. It is not adequate merely to maintain that the state induces investment and is
20

H. Chenery, S. Robinson, and M. Syrquin, Industrialization and Growth: A Comparative Study, New York 1986.
23

autonomous. All governments know that subsidies are most effective

when they are based on performance standards. Nevertheless, state
power to impose such standards, and bureaucratic capability to
implement them, vary from country to country.
The Korean state was traditionally weak, but in the 1960s the military
regime of Park Chung Hee succeeded in consolidating its power over
finance, commerce, industry and agriculture. Financiers were weak
because the banking system was nationalized, first under Japanese
colonial rule and then under President Park. Merchants were attracted
into manufacturing with subsidies, and discouraged from importing
by acute foreign-exchange shortages; thus mercantile interests were
not capable of challenging the military governments authority.
Because industry evolved in a government-subsidized hothouse, corporations did not have a history of independent existenceas they
did, say, in Turkey and Indiaor the independent identity that came
with it.
Perhaps most importantly, in the late 1940s Korea (and Japan and
Taiwan) underwent a land reform. It was prompted by US occupying
forces as a way to deter the spread of Communism.21 Land reform
created a system of small landowners who never had the power to
compromise state authority. The coffee estates of Brazil, say, have no
political equal in Korea. It is no coincidence that the three most successful late industrializers, Japan, Korea and Taiwan, all experienced
land reforms after World War II which were critical in buttressing
state power.
The transformation of the state in Korea and Taiwan from speculative
rent seeker to promoter of capital accumulation was gradual. Developmentalism on the part of the military regimes of Park Chung Hee
and Chiang Kai-Shek evolved pragmatically, in the course of economic
development. As developmentalism evolved, the objective of the state
also shifted: from overcoming the problems of underconsumption to
creating economic viability based on higher productivity.
In the early 1960s, export subsidies were arranged by the Korean
government for cotton spinners and weavers because production
capacity outstripped domestic demand. This fact is in keeping with
the Regulation School view that the process of economic development
is one wherein institutions evolve to overcome the problem of underconsumption. Korean cotton-textile manufacturers were suffering
from excess capacity in this period because they had taken advantage
of subsidized American aid-related investment loans to labourintensive industries in the 1950s. Nevertheless, the governments
policy on exports shifted quickly from one of creating demand to one
of delivering Korea from dependence on US financial support. This is
ironic because currently Koreas high export exposure is regarded in
the opposite light: as deepening dependence. In the mid 1960s,
exports were viewed by the government as a redemption from reliance
on American aid.
21

See the discussion in Bruce Cumings, The Abortive Abertura: South Korea in the
Light of Latin American Experience, NLR 173, JanuaryFebruary 1989.

24

As both subsidies, and hence exports, increased further, the official

policy on exports changed again, from one of increasing self-reliance
to one of providing an overall growth strategy. The focus was now the
raising of productivity and competitiveness. In his New Years
message for 1968, Park Chung Hee stated: In order to realize the
target of more than $1 billion in exports, we must, on the one hand,
improve our management skills and replace old industrial equipment
with new as soon as possible, and on the other, rearrange the nations
productive system in preparation for mass production. 22 In preparation for mass production, he asked industrialists to think afresh,
in terms of creating new markets through higher productivity rather
than guarding old markets through protection: I sincerely ask industrialists to discard their habit of relying on protection as if they were
plants in a hothouse, and to make an assiduous effort to explore new
markets, improve the quality of their products, rationalize management, and effect technical renovation. 23 The government had come a
long way in a short time, from its early attempts to raise demand for
cotton-textiles producers, to its later attempts to increase overall supply and the productivity of manufacturers.
As exports increased, the government became more convinced of the
prospects for growth, and committed more resources to economic
development. As more resources were committed, growth further
increased. It can be said, therefore, that the state was transformed
from speculator to investor in the course of economic development,
just as the state transformed the course of economic development
itself.24 The concept of autonomy is insufficient to capture either of
these transformations.
Before proceeding to the micro level of analysis, it is worth emphasizing that the East Asian model is far from ideal. Labour is repressed,
women in particular are exploited, business and government are in
league, and pollution is extreme. Nevertheless, out of that process of
industrialization have emerged popular movements for democracy.
More to the point, that process is the only one that has achieved
industrialization in the underdeveloped world.
Raising Productivity

The process of raising productivity in both Korea and Japan has differed from that employed in advanced countries, despite the use of
mass-production technology almost identical to that of European and
American plants, and an accompanying (possibly more intensive) deskilling and procedurization of work practices. Companies that borrow technology tend to have a strategic focus on the shop floor,
whereas companies that create technology tend to have a strategic
focus on the design office. Additionally, the process of raising
22

S.B. Shik (comp.), Major Speeches by Koreas Park Chung Hee, Seoul 1970, p. 147.
Ibid., pp. 126, 129.
24 The same process occurred in Taiwan. See A.H. Amsden, The State and Taiwans
Economic Development, in P.B. Evans, D. Rueschemeyer, and T. Skocpol, eds.,
Bringing the State Back In, Cambridge 1985.
23

25

productivity in late-industrializing countries has differed from that of

classical Fordism with respect to the conditions of labour. In both
cases workers in heavy mass-production industries are better-paid
than workers in other industries. Here, however, the similarity ends,
because management in these industries in the United States have
treated high wages as in themselves sufficient to motivate labour and
ensure high productivity. By contrast, managers in Korea and Japan
have regarded relatively high wages in the mass-production sectors as
merely the starting point for extracting higher productivity from
workers.25 Other methods of extraction have included the involvement of labour in shop-floor problem-solving, usually in the context
of quality-control circles, and the successful repression of any labour
organization or labour practices hostile to higher productivitythat
is, industrial unions and their associated work rules. If these differences appear minor, it should be remembered that they are partly
responsible for a major shift in global competitiveness, from early- to
late-industrializing countries, since the Second World War.
To overcome technical ignorance, the chaebol that were to dominate
the mass-production industries in Korea relied heavily on foreign
technical assistance, often packaged initially as a turnkey transfer. A
shop-floor focus started with the attempt to unpackage technology
transfer and ultimately dispense altogether with foreign technical
assistance. In the case of POSCO, Koreas state-owned integrated iron
and steel company, the best managers were assigned to work with
foreign technical assistants long before production began. Each facility
within the huge steel-mill had a foreign expert and a Korean assigned
to it, so that when construction was finished and operating procedures had been established, the Korean possessed familiarity with all
aspects of the plant and could manage it independently. To operate
the mill efficiently, the best managers were assigned to the line. Even
shift supervisors were experienced people with college degrees. Additionally, POSCO emphasized on-the-job operations training for all its
technical managers. Newly recruited managers with university backgrounds were required to work on all three shifts in order to become
familiar with every operation. On-the-job training in steel-making
lasted for six months; in iron-making it lasted for one year. The staff
of the quality-control department had to work in the plant for at least
three months.
Participatory Organization

The protagonist of industrialization in successive historical epochs

has shifted from the owner-entrepreneur, to the corporate manager, to
the production engineer, because the latter is the only person with the
technical knowledge to make imported technology work. An emphasis
on hiring engineers rather than general managers is characteristic of
all Korean industry. As Table 2 indicates, between 1960 and 1980 the
employment of general managers increased only twofold, whereas the
employment of engineers rose by a multiple of roughly ten (although it
started from a lower base).
25

Amsden, Asias Next Giant, p. 281.

26

Table 2.

Managerial Resources in Koreas Manufacturing

Sector by Category, 19601980

Employment
Category

1980

Increase
1980/1960

1960

1970

Engineers
Managers
Sales
Service
Clerical
Production

4,425
31,350
50,025
13,660
17,330
404,735

116,252
47,166
27,778
22,740
143,849
1,188,406

44,999
69,585
68,716
49,522
356,362
2,206,851

10.2
2.2
13.7
3.6
20.6
5.4

Total

479,975

1,447,520

2,797,030

5.8

Administrationa/
Production (ratio)

0.13

0.10

0.10

Administration
and Clerical/
Production (ratio)

o.18

0.22

0.27

Note: Includes transportation and communication workers in the

manufacturing sector.
a Administration includes engineers, managers, sales and service workers but
excludes clerical workers.

Source: see Table 1.

To raise productivity, Korean companies computerized process controls and materials planning, tightened cost accounting, experimented
with management information systems, and procedurized work. In
mass-production industries such as shipbuilding, where the process is
largely embodied in people, companies emphasized time and motion
studies. The Production Engineering Department at Hyundai Heavy
Industries, Koreas largest shipbuilder, modelled work organization
along the lines of Japanese rather than European shipyards. Although
both had provided HHI with technical assistance, in European practice skilled workers wielded greater discretion over their job content
and methods. Because Korean shipyards, like Japanese shipyards
before them, were, during their early years of operation, short of
experienced skilled workers, the Japanese practice of centralized definition of job content and method was followed instead. By mid 1986
labour requirements per representative vessel in HHI were almost half
what they had been six years earlier, and bulk material usage was
reduced by more than 25 per cent.
In industries like steel-making, where the process is largely embodied
in equipment rather than people, time and motion studies were less
emphasized. To raise productivity of both labour and capital, POSCO
attempted to stabilize operations, minimize downtime (through preventive maintenance of equipment), improve the performance of each
piece of equipment (through better worker training) and reduce
27

rejects (through tighter process control). An ironic indicator of the

speed of POSCOs progress was a joint venture it entered into with
United States Steel (USX) in 1986 for the purpose of modernizing
USXs plant in Pittsburg, California. At that time, POSCO was supplying half of the capital requirements, or $180 million, for the modernization: providing the PittCal cold-rolled sheet facility with hot-bend
coil, undertaking basic design of the facilitys modernization jointly
with USX, and training American managers and workers in operations and maintenance.
In some Korean companies, quality circles arose not as foreign
implants but spontaneously, often as part of attempts to improve productivity generally. Spontaneity is suggested by the first manager of
HHIs Department of Quality Control (QC) for shipbuilding: I tried to
develop feedback between production departments and QC. At first
workers didnt work very hard. But soon people became very busy.
Every morning, production people would use the microphone to
address the workers, urging them to work harder. I noticed variations
in quality across different production sections, so I called a joint
meeting in order to compare performance. Then I called two meetings
in which I presented a monthly evaluation of quality differences. At
the fourth meeting, I made section chiefs undertake their own
monthly evaluations and then compete against each other . . . When I
visited Seoul in 1975, I heard about quality control circles and was
surprised to learn that the kind of activity that I had started at HHI
was going on outside.26
What helped participatory organization to evolve in Korea was the
fact that the management structure of the average large-scale firm is
relatively compacta general feature of Korean management and its
strategic shop-floor focus. Firms with 5,000 employees or more have
fewer levels of hierarchy than firms with 200 to 300 employees
(although they have a greater number of departments and sections
than do smaller firms, and a large number of subordinates per section
chief).27 The compactness of the hierarchical structure suggests that
engineers who have entered the manufacturing sector in increasing
numbers in Korea since 1960 have kept in relatively close touch with
the ranks.
The behaviour of overhead costs in Korea reflects a strategic focus on
the shopfloor and a Spartan regard for staff functions. Table 2
indicates that between 1960 and 1980 there was a sharp increase in the
number of white-collar workers. Nevertheless, excluding the clerical
category, the ratio of white-collar to blue-collar or production workers
declined from 0.13 in 1960 to 0.10 in 1980. This is a rather surprising
fact in the light of the steady increase in this ratio in the USA and
26

For a jaundiced view of Japanese (post-Fordist) work methods, see John Foster
and Charles Woolfson, Corporate Reconstruction and Business Unionism: the
Lessons of Caterpillar and Ford, NLR 174, MarchApril 1989.
27
Seoul National University, College of Business Administration, The Current Situation
and Tasks to Be Done by Korean Firms [in Korean], Seoul, College of Business Administration, Seoul National University, 1985.
28

Europe, beginning with the introduction of top-down management

and the onset of Fordism at the turn of the century.28
Wages and Working Conditions
Industrializing by the gun does not promote high rates of productivity
growth or quality on the shop floor. At minimum, workers have to be
motivated to work efficiently because all their efforts cannot be
policed. In capitalist societies, the rate of pay lies at the heart of
worker motivation. Until the recent democratizations, rates of pay in
Korea were determined in a milieu of unlimited labour supply and
authoritarian repression of labours demands, both inside and outside
the firm. Given the expectation in underconsumptionist theory for
the forces of supply of goods and services to outstrip those of demand,
the sustained growth of late-industrializing countries oriented towards
producing for the home marketsay, India or Brazilought to
reflect the resolution of institutional conflict in favour of rising mass
incomes, and thereby to provide the effective demand for the output
of mass production. By contrast, the export orientation of fast-growing
Korea and Taiwan would lead an underconsumptionist to suppose
that institutional conflict was somehow resolved in favour of stagnant
mass incomes, in the interests of sustaining international competitiveness. In fact, the growth rate of average real wages has been far higher
in Korea and Taiwan than in Brazil and India, because productivity
growth has been higher.29 Wage data tend to be subject to a wide margin of error, but the differences in growth rates indicated in Table 3 are
of an order of increasing magnitude, particularly in Korea. Between
1970 and 1980, for example, the index of real non-agricultural wages
rose from 100 to 227 in Korea and only from 100 to 130 in Brazil.
Reality, therefore, is diametrically opposite to the expectations of the
underconsumptionist view. Moreover, salience of the cash nexus
component in worker compensation in Korea helps to keep in proportion those cultural factors like Confucianism or nationalism
beloved of non-materialist schools of historical or economic analysis.
Koreas wage has exceeded that found in earlier industrial revolutions, including that of Japan. The real earnings of British workers are
estimated to have risen by 150 per cent between 1781 and 1851, but
Korean manufacturing workers achieved a comparable gain in about
twenty years (from 1955 to 1976). Real wages increased in the United
States in the fifty-year period between 1865 and 1913 by a factor of
almost three. In Korea, real wages quadrupled in half as much time.
In Japan, real wages rose by a factor of 2.7 in eighteen years, from
approximately 400 yen in 1950 to about 1200 yen in 1968. In Korea
they rose by more, by a scalar of 4.3 between 1955 and 1980, and 3.6
between 1966 and 1980.3 Unexpectedly, the wages of production
28

S. Melman, The Rise of Administrative Overheads in the Manufacturing Industries in

the United States, 18991947, Oxford Economic Papers, NS, 3, 1951.
29 Chenery et al., 1986.
3 For British data, see P. Lindert and J.G. Williamson, English Workers Living
Standards during the Industrial Revolution: A New Look, Economic History Review, 36,
1983; for data on the United States, see E.H. Phelps-Brown, Century of Pay, London
1986; for data on Japan, see R. Minami, The Turning Point in Economic Development:
Japans Experience, Economic Research Series No. 14, Institute of Economic Research,
Hitotsubashi University, Tokyo.
29

workers in Korea have also risen faster than those of managers and
engineers. The average wages of women workers, however, have
lagged far behind those of men, enabling employers in the labourintensive industries to remain internationally competitive alongside
the growth of a mass-production sector. Wage discrimination against
women in Korea and Japan is the worst in the world; in this area traditional patriarchal forms have, so far, been successfully adapted to
modern capitalism.
Table 3.

Real Nonagricultural Wage Increases in Seven

Late-Industrializing Countries

Year Koreaa Brazilb Argentina Mexico Turkey

1970
1973
1976
1979
1982
1984

100
119
154
238
241
276

100
119
129
134
115
84

100
107
80
87
79
112

100
104
123
121
117
83

100
98
122
155
129
111

Indiac Taiwan
100
1o6
120
130

107
126
163
180
191

Note: Base ! 100. Deflated by consumer price index.

a

Real earnings in the manufacturing sector.

Average wages for skilled workers in construction. Data are from the Central
Bank.
c Rupees per hour for industrial workers.
b

Source: See Table 1.

Wages appear to have risen in Korea partly for reasons related to efficiency. POSCO, for example, has approximately 450 job categories,
and the largest number of workers can be found at data-collection
stations positioned at well-defined set points in the process. Workers
check sensors for temperatures in different process zones, note the
chemical composition of gases, and register flow rates. For this they
must have a fairly good understanding of the physical and chemical
processes involved in iron-making and steel-making, in order to
ensure a high quality product, since steel production is not all in
closed-loop control, and the acceptable limits of materials change.
Workers have had to be paid relatively well to enable them to think
clearly in the presence of variability in the production process,
particularly toward the end of an excruciatingly long working
week. Production workers in POSCO average a 56-hour week with only
one day off per month (or an eight-hour day, seven days a week).
Wages also rose in Korea prior to democratization in response to
fears of labour unrest, and pressure from the government for wealth
sharing on the part of big business. Before democratization, wage
increases may have been high but they almost never exceeded the
growth rate of productivity. Certainly the government encouraged a
narrowing in the wage gap between production workers and managers. Flaunting of wealth has also been discouraged. At one time the
30

goverment banned colour television sets from the home market in the
belief that they would widen social differences, and the purchase and
use of automobiles has been heavily taxed.
High wage increases appear to have had the independent effect of
raising long-term productivity. In the 1970s, for example, most big
firms saw the writing on the wall and began to invest more in technological capability, aware that the days were numbered in which they
could compete on the basis of low wages. When the government
began sweetening the incentives to investment in R&D, big business
began responding like clockwork to form centralized research laboratories.
In short, in both early and late industrialization, capitallabour relations influence accumulation, and the regime of accumulation
influences capitallabour relations. Similar regimes of mass production in early- and late-industrializers, however, have been associated
with strikingly different capitallabour relations, throwing into doubt
the existence of a global Fordist model.
As noted earlier, Alain Lipietz begins his study of global Fordism by
rejecting any attempt at the concrete analysis of the worlds 150
countries with their irreducible differences.31 Although it is not
necessary to study all 150, an effort should be made to study some in
detail before constructing any model. Otherwise, there will be a tendency to interpret Third World industry as a diffusion of advancedcountry industry. Also, the existence of qualitative differences
between the two will be missed. Late industrialization, as I have suggested above, is a new paradigm, in terms of the operation of the
market mechanism and the role of the state. It is not merely an extension of advanced-country capitalism. The failure to perceive this fact
has created a crisis in Western intellectual understanding of Pacific
dynamism. There has been, moreover, a great flowering of scholarly
research on Third World development that does not take the
advanced countries as its point of departure, although external forces
are factored in. In the fields of economic and social history, there has
emerged in the last twenty-five years a Latin American and Indian
literature, for example, that is striking for its insights and depth.
Those who hope to understand economic development should not
imagine that Fordist labels and speculations can be any substitute for
the empirical research and conceptual wisdom embodied in these
varied attempts to grasp the real dynamic of particular capitalist
social formations.

31

Lipietz, pp. 45.

31

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