Who runs the economy? Intervention by the government lessens

Who is really running the Korean economy? In neighboring Japan, the postwar tradition has been for business to dictate and government to follow. In less developed Korea the opposite was true, certainly throughout the long reign of the late President Park Chung Hee from his 1961 military coup to assassination in October 1979.

With the change of government last year and the emergence of yet another national leader from the military ranks, the initial impression was that this systemn would not only continue but was being strengthened.

The new leadership energetically began a complete reorganization of industry, ordering some companies to close, others to merge.

But government officials and some of the businessmen involved insist that the initiative for this came from the private sector and was dictated by public opinion.

And, they also maintain that Korea is moving steadily toward a free market economy, even if it wasn't so already.

Korea's first postwar president, Syngman Rhee, was an independence leader who devoted his attention to politics and national integration while largely ignoring economics. The productive heritage left by the Japanese occupiers was dissipated by a combination of administrative chaos and the Korean war.

The Korean economy was like a ship without a tiller until Park chung Hee assumed power and began the government's heavy interventionist role in the economy either through direct participation in public enterprices or through stimulating, cajoling, and forcing private enterprises to comply.

Opinion on the effectiveness of this is divided. Undoubtedly Korea sustained the most amazing growth rates throughout the 1960s and 1970s. But there are some who say: "Imagine what these people could do if the government didn't stick its nose into everything."

Il Sa kong, research director of the Korea Development Institute, argues that in the 1960s "firms didn't have the capital or the managerial experience, so the government had to lead. In general it worked well, although there were bad side effects. Still, we are where we are now because of it."

"The economy, of course, was much smaller then and therefore more manageable. Now it is much more complicated and open, and the government is trying to leave more to private initiative.

"I don't think last year's government measures show any change in official attitude toward developing a free economy. Left alone, the market would have sorted things out eventually . . . all the government did was to speed things up."

Yes, agrees Kim Ip Sam, vice-president of the Korean Federation of industries , the initial impression was that the government was going to dictate the terms of an industrial reorganization.

"But then they discovered how complicated a job it was going to be, so they decided to let industry do the job."

Last September the industries federation was asked to work out an overall program, now nearly complete. The basic idea is that big trading groups like Hyundai and Daewoo should consolidate in their main lines and not spread themselves over too many industrial sectors. Secondly, there should be less companies involved in each main line -- competition but not duplicating overcapacity.

Mr. kim becomes extremely animated when the suggestion is made that Korea is a dictatorship, a tightly controlled society and economy.

"That's nonsense. We're not angels, of course. But this is basically an open society, where we can say and do what we want. As to the economy . . . well, we have to export to survive.

"Government officials can't do that. Military men can't do that. How can you sell products in uniform?

"So, in order to survive we must export, and in order to export this country will basically have to be a free economy."

Japan, he insists, has a controled economy, with business, government, and workers all pursuing a single national goal. Koreans, however, are too individualistic to work together well.

In a study of government involvement in business management, published last year by Harvard University. Il Sakong noted that "government policy response to changing conditions typically is closer to the alacrity of a crack air force unit scrambling to the attack than the lethargy usually associated with the bureaucracy.

"This has costs in that the first decision may prove misguided. But such costs are minimized by the flexibility in changing directions as the effects of the initial decision become apparent. The Korean policymaking style is not so much a deliberate one of careful planning and debate, but more of diving in, getting started, observing results and adjusting policy (free of ideological hangups) and repeating the process until the appropriate mix is found."

He describes the whole process as "thinking on the run."

A perfect example was last year's Changwon fiasco.

This goes back to 1975 when the government planned an industrial estate for machinery along Masan Bay on the southern coast. The centerpiece was to be a $ 600 million integrated plant manufacturing turbine generators, boilers, and other equipment for nuclear, thermal, and hydroelectric power stations.

Hyundai International, part of the powerful Hyundai trading group, won the contract but soon ran into trouble. By last year the construction was more than two years behind schedule and the project's debts exceeded assets by an estimated $200 million.

With Hyundai unable to continue, the government first handed the task to the Daewoo Group, which quickly found it too big to handle.

Finally, the state-run Korea Electric Company was instaled as caretaler manager while efforts continued to sort out a mess which involved several dozen international creditors and licensees.

Officials now admit the original project smacked of "delusions of grandeur." Its annual capacity for producing generating machinery would have been more than double the most optimistic estimates of domestic requirements, with no chance of offsetting exports.

American and German experts, called in to offer advice, said right away the project had to be scaled down considerably.

So, for the moment, Korea Electric is content to run the existing facilities to meet urgent existing orders, while the government tries to work out ways to pay for the whole thing.