Innovation and technology policy in Korea (1/2)

This argumentative essay presents the process of voracious development in South Korea and the primary role of the State in its fulfillment, focusing mainly on the governmental policy of innovation and technology. The theory used is about the National Innovation Systems, which explains how the interaction among the different national institutions and companies facilitates technological changes and the emergence and diffusion of innovation, as it occurred in South Korea.

Keywords: South Korea, Governmental Policy, Innovation and Technology, National Innovation Systems.

Introduction

   South Korea reached an extraordinary economic development in a relatively short time of approximately four decades (1953-1996); however, to achieve its current development has passed through a structured and aggressive process where the government played a very important role. This phenomenon is known as a Korean economic miracle or miracle of the Han River. At that time, the country, and especially its capital city, Seoul, experienced a process of voracious industrialization, educational development, raising of the quality of life and urbanization.

   In addition, it should be noted that the South Korean government also implemented policies oriented towards the innovation and technological development which have positioned this country among the most advanced countries in the world[1], taking the country out of poverty and devastation in which it was submerged, transforming it into a developed economy.

   The Republic of Korea has had an enormous growth in the production and exports sectors, as well as a significant transformation of its economic structure. The average growth of its Gross Domestic Product (GDP) has been higher than 9% annually, and its GDP per capita increased from US $ 87 in 1962 to US $ 5,523 in 1990. During the same period, its exports grew from US $ 55 million to US $ 65,000 million. Thanks to this fact, South Korea passed from being number 101 among the exporting countries to number 14 (Gómez, 2003).

   At the same time, the levels of productivity in the Asian country increased due to the incorporation and diffusion of innovation and technology, which in turn was stimulated by the growth of exports. The process of the spectacular development in the Republic of Korea and the primary role of the State in its fulfilment is approached in this argumentative essay, focusing mainly on the governmental policy of innovation and technology.

Premise, theory and methodology

   This essay presents the premise about the governmental policies of innovation and technology implemented by the South Korean government which have been a key element for the economic development of the Asian country. The counterfactual argument to this premise is that, if the government had not directly and drastically intervened in the implementation of innovation and technology policies, South Korea’s economic development would probably have been slower than the one experimented by the country.

   The theory employed to verify this argument is the one of the National Innovation Systems (NIS) which is used to explain how the interaction among different national institutions facilitates technological changes and the emergence and diffusion of innovation. In addition, this theory explains how these national institutions provide a framework within which the government and the private sector can negotiate policies that directly affect the nation’s innovation process (Watkins et al, 2015). This is an important aspect, since the relations of the South Korean government with the industrial actors were transcendental for the better implementation of their innovation policies.

   According to the NIS theory, the central institutions are the governments and their agencies which support innovation through regulation, public-private associations which support the financing of research; the industrial sector conformed by the companies that generate commercial innovation through experimentation, Research and Development (R & D) and improvements in the products; the universities where the technical and scientific research and training of the workforce are carried out; and other public or private organizations committed to activities oriented towards education (Patel and Pavit, 1994). A very important factor regarding the mentioned institutions is the interaction among them and the formation of bonds which facilitate the exchange of information until reaching an accumulated level of knowledge and collective learning that leads to innovation (Watkins et al, 2015).

   Additionally, an effective National Innovation System has certain established functions, such as support for entrepreneurial activities, collective learning, dissemination of knowledge through networks, selection and promotion of technologies, market creation, mobilization of resources and the legitimization of technology (Hekkert et al, 2008). In this research, through a methodological analysis of historical events, it can be seen how the elements described by this theory have been carried out by the South Korean government and how they have impacted the economic development of that country.

State intervention in the development process

   The Asian country was under Japanese rule from 1910 until the end of World War II when the peninsula was divided into two parts. During this period the Koreans developed organizational and technological capabilities through the Japanese, becoming one of the great Japanese legacies regarding the formation of the human capital. On the other side, the war between North and South Korea from 1950 to 1953, left both territories destroyed and under a complete economic and military dependence on two superpowers, the USSR and the United States, respectively. The South Korean country was ruled authoritatively by Syngam Rhee from the end of the war until its overthrow in 1960. During this period the economic and military contribution by the United States exceeded US $ 2,000 million (Bonilla, 2012).

   North American support is considered an important political factor to consolidate the regime and lay the foundations for economic stability in the 1950s. By the time of the first five-year plan, donations from the United States were still part of 70% of the total capital invested in the country, 28% was made up of loans and 2% were foreign investments. It was since 1967 that loans from foreign banks, mostly Japanese, were part of capital inflows. Additionally, foreign investments were insufficient until the end of the 1980s, when South Korea had already achieved industrialization (Bonilla, 2012).

    From 1962 to 1996, the South Korean government used a peerless procedure, the application of five-year economic plans to develop its economy. There were seven economic and social development plans which were mainly protectionist in nature (See Table 1). Each of them focused on a specific sector of the local economy, to accelerate industrialization and exports. As a result of these economic plans, the country transformed its poor agricultural economy into a robust and industrialized economy (Bonilla, 2012). As it is observed in the Table 1, the five-year plans emphasis on the development of science and technology, accompanied by a constant increase in investment in research and development.

   In the dictatorial period of Park Chung Hee (1961-1979), the industrial and financial conglomerates, called chaebols (in Korean: 재벌)[2], were created, with the aim of promoting the development of economies of scale in mature technologies and to stimulate key industries. The government contributed to stabilize the chaebols not only with its support to the capital formation and the diversification of these conglomerates, but also through incentives to the creation and development of integrated trading companies able to develop their own competition in marketing, which enabled them to place themselves in the world market and dominate their own brands.

   It is worth mentioning that the government was rigid with the chaebols, it even sanctioned negative results and incentivized their performance in new and risky industries. Additionally, the government created governmental and private institutions and agencies dedicated to the exports of companies. This government intervention is explained in the theory of the National Systems of Innovation, since the South Korean national institutions had the capacity to provide a framework within which the government and the private sector had their participation through the negotiation of policies of impact in the innovation process (Watkins, et al, 2015).

   It should be noted that the Republic of Korea is the only peripheral country that developed private Trading Companies similar to the Japanese ones, which were subject to specific requirements of capitalization, export volumes and number of offices abroad. This exercise was possible thanks to the close relationship between the government and the conglomerates (chaebols). These companies contributed to the growing export activity not only to their own, but also provided commercial and technical services to small traders, both direct and indirect, which allowed them to enter international markets and achieve sufficient know-how[3] to diversify markets and to promote South Korean products inside them. From 1975, these conglomerates and companies had a significant impact on the increase of their exports from 12% to more than 50%. (Bekerman and Sirlin, 1996).

   On the other hand, the Republic of Korea had its first civil and democratic government, Kim Young Sam (1993-1998), for whom the deregulation, the trade liberalization and globalization became the slogans of his administration. The objectives that characterized his economic policy included: a) globalization; b) deregulation and reduction of the government apparatus; c) expansion of the commercial opening; d) reduction of restrictions on foreign direct investment (FDI); e) adaptation of commercial legislation to the standards of the World Trade Organization (WTO) and other international trade organizations; and f) encouragement of regional economic cooperation for the purpose of liberalizing trade in the East Asian region (Gómez, 2003).

Authors

Ivonne Bonilla and Ana Figueroa

[1] According to Global Innovation Index report (GII) of 2017, South Korea ranks 11th after Germany and 2nd, of the Southeast Asia region after Singapore.
[2] Some of the most known chaebols are: Samsung, Hyundai, Daewoo, LG, Ssangyong, among others.
[3] It is an English term that means “know how or know how to do”. It consists in the capacities and abilities that an individual or an organization possesses in terms of carrying out a specific task. These capabilities give value to the company by going one step ahead of the rest of the market. This expression is used in recent times in international trade to refer to pre-existing not always academic knowledge, which includes: techniques, secret information, theories and even private data (such as clients or suppliers). See E-economic: http://www.economic.es/programa/glosario.