A Curse on Both Our Houses

The soaring exchange has also been a big blow, rising from US$1︰89O won in 1985, to a rate of US$1︰723 won in May this year. With this 18.76 percent rate of appreciation, cries of anguish from export-led Korean industry have come thick and fast.

In the Red Again: Exports have declined but imports have risen. In the first half of this year Korea broke its historical records and reached a high deficit of US$6.34bn; this was especially marked for the United States with whom there was a deficit of US$1bn, the first deficit in nine years. Compared to our own surplus of US$5.33bn for the same period, Korea is obviously in worse straits.

According to Council for Economic Planning and Development member Wu Chia-hsing, the main reason for Korea going into the red has been fulfilment of the government's election pledges. With the construction of two million houses in the public sector domestic demand has diverted glass, concrete and steel from exports and even led to their being imported from overseas. Then industry has made large-scale overseas purchases of machinery and plant to further development, accounting for 37 percent of overall imports. This kind of "deficit" should be a very good thing for future industrial development. Nevertheless, it is the fact of average income running at US$6,000 and spending outstripping savings that should be worrying students of Korean society."

Wealth Gap and Labor Strike: What is even more worrying for economists is the unbalanced structure of Korean industry. Around a thousand large-scale enterprises (a large number of which are owned by the same conglomerates) account for more than 60 percent of the nation's entire industry, while the remaining section is occupied by some 50,000 small and medium-scale enterprises. The expansion of the huge conglomerates has led to a number of economic, political and social problems.

"Repeated investment, over-investment, leads to wastage," observes Jing Ker-yi, Korea expert at the Chung Hua Institute for Economic Research. Every conglomerate goes all out for developing heavy industry and the result is bad adjustment with over production and loss of capital which damages enterprises.

For a long time the conglomerates kept wages down with government backing. This led to anneven distribution of wealth and the eruption of labor disputes. At the beginning of May this year when a trade union leader at the Han Chin conglomerate was killed by security guards, nearly a million students and workers took to the streets and went on strike. Many foreign businesses withdrew their investments and closed down; a number of export contracts were lost to Taiwan and mainland China. This kind of political and social upheaval can be considered to be a side effect of the last twenty years of industrial policy.

Who Will Be Victor: What is interesting is that Taiwanese entrepreneurs have been envious of the strengths of the research and development and export performance of the large Korean enterprises in the international market while, on the other hand, the Koreans are jealous of the leading role played by small and medium-scale enterprises in Taiwan.

"This small scale and variety of output of Taiwan's small and medium-scale enterprises is really suitable for future diversification and the trend towards individuality among consumers," says Kim Hong-ji, director of the Korea Trade Centre in Taipei. "All sizes of enterprise have their own characteristics, and small and medium-sized businesses have the advantage of helping to foster activity among the people and a balanced distribution of wealth. This has led Korea to begin cutting their enterprises down to size in recent years. I did not think that as soon as the government stopped its favourable treatment of the conglomerates the largescale enterprises would be influenced so much by foreign competition, which can be seen by the poor performance of Korean exports from this year. The fever of real estate speculation among the conglomerates has also had a big effect on Korean society."

The industrial structures of Korea and Taiwan are very different. But we face the same political, economic and social turning points. Until now the two have always put competition before mutual benefit. In the future how will the question of whose way is best be settled? For this we will have to see who escapes from the bottleneck first and completes their industrial upgrading.