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Postcrisis Growth and Development
had to secure scale economies, make massive complementary investments, and develop technical manpower with requisite skills. Figure 5.5 shows an integrated conceptual diagram for the HCI drive. On scale economies Korea had to make a strategic choice. It could play safe and develop heavy and chemical industries for the small domestic market and risk inefficiency resulting from suboptimal scales and entrenched protectionism. Alternatively, it could promote these industries for the global market and risk capacity underutilization and financial distress. Korea chose the latter option because, despite considerable risks, it promised a dynamically efficient growth trajectory if Korea managed to develop technological prowess before the financial burden became overwhelming. To minimize time and exploit scale economies in establishing capital-intensive industries, the government decided to rely on a select group of state-owned enterprises and chaebol with a successful track record such as POSCO and Hyundai. The government provided them with extremely generous financial support, restricted entry into targeted industries, and used direct monitoring rather than competition to ensure good performance. It felt that scale economies called for Figure 5.5. Conceptual Diagram for the HCI Drive Government Plan
Export Target
Incentives • Tax • Financing • Interest Rate • Tariff • Trade Protection • Price Control
Government Expenditures • Technology Development • Research & Analysis • Education • Investment • Manpower Training • Export Promotion • Resource Policy
• Investment Requirement • SOC Investment Plan
Source: Y. Kim 2003. Note: SOC = social overhead capital.
Private Sector Decision Making (re: Investment, Production, Sales) HCI Plan • Export Plan • Investment Plan - Choice of Optimal Technology - Construction of Ind. Complexes - Investment Timing - Investment Scale Heavy Industries
Ind
Multistage Plan
ica tive
n
Multisector Plan - Inter-Sectoral Balance
Chemical Industries Energy Sector Investment • Energy • Capital Goods SOC • Transportation • Water
Pla
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as rec Fo