Reviewed by: The South Korean Economy: Towards a New Explanation of an Economic Miracle Joseph J. Stern (bio) The South Korean Economy: Towards a New Explanation of an Economic Miracle, by Junmo Kim. Burlington, Vermont: Ashgate Publishing Company, 2002. xii, 222 pp. $99.95 cloth. The history of Korea's transformation from a poor and backward state to a leading growth center in Asia and an active player in the global economy remains a central mystery of development economics. Effort by government to create so-called leading sectors such as steel and heavy machinery, which were presumed [End Page 104] to be necessary before a country could attain rapid growth, were discredited by the debacles that befall countries pursuing this strategy. Korea and Taiwan were the two exceptions to this general outcome and their experience suggests that there may be more to the development process than critics of government-led development allow for (I omit the experience of Singapore and Hong Kong, two other examples of rapid development, as these two city-states, successful though they are, faced problems different from those faced by most developing economies). While many scholars have analyzed Korea's development experience, there is still no consensus on what was the root cause of its success nor whether the policies pursued in Korea hold lessons for other nations struggling to achieve more rapid growth. Fortunately this volume is not just another retelling of Korea's remarkable successful development effort that assigned a central role to the development of the heavy and chemical industry (HCI) sectors. Rather this volume applies a relatively little used analytic tool to an often-neglected data set in the expectation that this will shed new insights on the factors that led to Korea's success. Indeed, the author proclaims on the cover of the book that this is an effort to "provide a new explanation of an economic miracle," and this is a worthwhile goal indeed. In chapter 1 Kim reviews a host of theories that have been used to explain Korea's successful industrialization. Whatever the merits of this brief overview, it gives the reader a succinct survey of different development theories that purport to explain Korea's success. The reader will no doubt be informed by this review but also amused (and bemused) by the various, and often contradictory, insights provided, none of which seems to account fully for Korea's remarkable transformative process. In chapter 2 Kim focuses more narrowly on Korea's development, bringing together different data sets as well as presenting a timeline of the first structural adjustments that the government undertook in the late 1970s and 1980s when it became necessary to deal with emerging macroeconomic imbalances and a decline in the growth rate. As Kim points out (p. 52), the government confronted the growth of multiple firms whose capacities seemed to exceed demand by restricting further entry and forcing firms to merge, in effect becoming less competitive but nevertheless more efficient as the large firms initially concentrated on their core expertise. Kim uses the experience of the motor vehicle industry to illustrate the impact of the initial restructuring efforts and the additional restructuring efforts that were used in the early 1990s, well before the Asian economic crisis hit Korea. With chapter 3 Kim begins his theoretical analysis. He uses wage data as a measure of competitiveness rather than relying on more traditional measures such as the returns to capital or some index of international competitiveness. Kim correctly notes that capital efficiency is difficult to measure, but it is less easy to accept his assertion that "downward capital efficiency may be an indication of a successful industrial policy" (p. 67). Admittedly over the short run, [End Page 105] while a specific plant is reaching its optimal level of output and workers are being trained, capital efficiency may decline. But over a longer period this should not be so. Kim proposes to get around the shortcomings of more traditional measures of capital efficiency by relying on "industry-specific labor rents," which, he claims, "distinguishes one industry from another and forms a clear indicator of industry competitiveness" (p. 65). While the presence of rents may well allow one...
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