Beneath the Miracle [Reprint 2020 ed.] 9780520326392

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Beneath the Miracle

Beneath the Miracle Labor Subordination in the New Asian Industrialism

Frederic C. Deyo

U N I V E R S I T Y OF C A L I F O R N I A BERKELEY

LOS ANGELES

PRESS

LONDON

University of California Press Berkeley and Los Angeles, California University of California Press, Ltd. London, England © 1989 by The Regents of the University of California Library of Congress Cataloging-in-Publication Data Deyo, Frederic C. Beneath the miracle : labor subordination in the new Asian industrialism / Frederic C. Deyo. p. cm. Includes index. ISBN 0-520-06529-8 (alk. paper) 1. Industrial relations—East Asia. 2. Labor and laboring classes—East Asia. 3. Trade-unions—East Asia. I. Title. HD8720.5.D49 1989 331'.095—del 9 89-4678 CIP Printed in the United States of America 1 2 3 4 5 6 7 8 9

To Judy, Raymond, Diana, Peter, Alexis, and Rachael

Contents

List of Tables

ix

Acknowledgments

xi

List of Abbreviations Introduction 1. Export-Oriented Industrialization: The Asian NICs 2. Labor Movements and Asian Industrialization 3. Ideology, Welfare, and Labor Peace 4. The Political Demobilization of East Asian Labor 5. Divergent Labor Systems: The Impact of Economic Structure 6. The Hyperproletariat and Organized Labor

xiii 1

12 51 87 106 152 167

Conclusion: Structural Demobilization and Preemptive Developmental Sequencing

209

Bibliography

215

Index

255

Tables

1. Manufacturing and Manufactured Exports: The East Asian and Latin American NICs 13 2. Percentage Distribution of the Employed Work Force, by Industry and Year 30 3. Percentage Distribution of the Employed Work Force, by Occupation and Year 32 4. Average Factory Size, in Number of Employees, by Year and Country 39 5. Industrial Conflict in Hong Kong, by Year 56 6. Industrial Conflict in Taiwan, by Year 58 7. Industrial Conflict in South Korea, by Year 60 8. Industrial Conflict in Singapore, by Year 62 9. Working Days Lost Per Work Stoppage: Fi ve-Year Averages 64 10. Unionization Levels in Hong Kong and Taiwan, by Year 70 11. Unionization Levels in South Korea and Singapore, by Year 72 12. Unionization Rates in Hong Kong, by Industry 76 13. Major Reported Industrial Disputes in Singapore, by Industry and Year 82 14. Hourly Compensation Costs in U.S. Dollars for Manufacturing Production Workers 91

X

Tables 15. Index of Real Manufacturing Wages in the Latin American NICs, by Year and Country 92 16. Index of Real Manufacturing Wages in the East Asian NICs, by Year and Country 93 17. Physical Quality of Life Index Scores, by Country and Year 94 18. Percentage of Total Central Government Expenditure for Health, Social Security, and Welfare, by Country 95 19. Percentage Shares of Household Income, by Country, Year, and Percentile Group 97 20. Characteristics of East Asian Labor Systems 157 21. Percentage Distribution of Manufacturing Employment in South Korea and Taiwan, by Industry and Year 169 22. Percentage Distribution of Manufacturing Employment in Singapore and Hong Kong, by Industry and Year 171 23. Average Earnings in Selected Manufacturing Industries for 1985 176 24. Percentage Employment Declines in Singapore for Selected Industries, 1973 - 1 9 7 5 177 25. Women as a Percentage of Total Manufacturing Employment, by Year and Country 182 26. Female Workers in Selected Light Industries as a Percentage of the Total Female Manufacturing Work Force, by Country 183 27. Female Workers as a Percentage of Total Workers in Selected Light Industries, by Country 184 28. Percentage of the Female Labor Force Below the Ages of Twenty and Twenty-Five, by Year 186 29. Employee Separation Rates in Taiwan, by Industry for 1983 (in monthly percentage) 192

Acknowledgments

Research support for this volume was provided by the SUNY University Awards Program and by the National Science Foundation. I am indebted to the following people for helpful comments on various portions and chapters of the book: Judy Deyo, Patricia FernandezKelly, Gary Fields, Gary Gereffi, Melvin Kohn, Hagen Koo, Jeong Taik Lee, Linda Lim, Janet Salaff, Saskia Sassen-Koob, and William Sewell, Jr. Special thanks are due Whasoon Lee for her research assistance, Pete Deyo for his help in manuscript preparation, and Peter Evans, Stephan Haggard, Mark Selden, and William Tabb for their critical and very helpful reading of the entire manuscript.

Abbreviations

AID

Agency for International Development

ANZUS

Australia-New Zealand-United States

BLS

Bureau of Labor Statistics (U.S.)

CCP

Chinese Communist party

CFL

Chinese Federation of Labor

CLU

Chinese Labor Union

CoWEC

Company Welfarism through Employers' CPF Contributions

CPF

Central Provident Fund

DFT

Direct foreign investment

EOI

Export-oriented industrialization

EPZ

Export-processing zone

FEER

Far Eastern Economic Review

FKTU

Federation of Korean Trade Unions

GCKTU

General Council of Korean Trade Unions

GDP

Gross Domestic Product

GNP

Gross National Product

GTC

General Trading Company

xiv

Abbreviations

IAC

Industrial Arbitration Court

ILO

International Labour Office

ISI

Import-substituting industrialization

IWU

Industrial Workers Union

KMT

Kuomintang (nationalist party)

MNC

Multinational corporation

NIC

Newly industrializing country

NTUC

National Trades Union Congress

NWC

National Wages Council

OLA

Office of Labor Affairs

PAP

People's Action party

PDREUF

Public Daily Rated Employees Union Federation

PIEU

Pioneer Industries Employees Union

PQLI

Physical Quality of Life Index

PRI

Partido Revolucionario Institucional (Institutional Revolutionary party)

ROC

Republic of China (Taiwan)

SATU

Singapore Association of Trade Unions

SBEU

Singapore Bus Employees Union

SILO

Singapore Industrial Labour Organization

STUC

Singapore Trades Union Congress

UIM

Urban Industrial Mission

Introduction

Continuing economic stagnation, exploding populations, growing indebtedness, and increasing domestic income inequalities in Third World countries fostered a growing apprehension during the 1970s that international poverty was perhaps an intractable global reality for the balance of the twentieth century and beyond. It was against this bleak backdrop that attention turned to the stunning economic growth of Hong Kong, South Korea, Taiwan, and Singapore, beginning in the 1960s and continuing into the 1980s. A burgeoning literature on growth in these newly industrializing countries (NICs) sought to understand their success and to generalize their developmental experience to other less fortunate countries. But a preoccupation with the sources of this growth diverted attention from a dark underside of the East Asian "miracle": the extreme political subordination and exclusion of workers. By international standards, East Asian workers have prospered economically from the growth they have produced. But nowhere—not in their workshops, firms, communities, or governments— have they been able to influence the political and economic decisions that have shaped their lives. To outside

2

Introduction

observers, East Asian workers constitute the cheap, disciplined labor that has fired Asian growth. But as political actors in this closely attended developmental drama, these workers remain obscure. This study seeks to partially unmask these obscure actors in the four East Asian NICs—partially, because this broadbrush treatment of East Asian labor necessarily remains somewhat general. Although the discussion is informed by case studies that focus on the lives of real workers, my intent here is to clarify the larger context of the changing occupational, community, and political circumstances shared by large numbers of workers as they have entered and endured the industrialization process. More specifically, I focus on how these circumstances have inhibited and distorted the development of trade unions and labor movements that elsewhere have enfranchised and empowered workers. In order to highlight regional commonalities among the East Asian NICs, I draw frequently on comparisons with Argentina, Brazil, and Mexico, three equally industrialized Third World countries in Latin America. It is clear that in contrast to the historical experience of workers in France, England, and other early industrializes, labor movements in most Third World countries have been weak and politically dependent. This political subordination of labor movements is rooted in a number of factors that more generally distinguish Third World countries from their developmental predecessors. These factors include authoritarian political regimes, high levels of unemployment, and lack of a long tradition of craft unionism. Such impediments to labor movements are often reinforced by external political and economic links to industrially developed countries.

Introduction

3

Political alliances or treaty relationships can encourage and support local authoritarian controls over labor and other social groups (Galtung 1971; Sunkel 1973). Foreign investors can encourage local governments to impose wage and union controls as a condition for further investment (Kaufman 1979; Collier 1979). And international bankers can make continued credit or debt restructuring contingent on wage controls and reduced social welfare expenditures. In addition, reliance on foreign investment and technology can encourage the introduction of capital-intensive production. Technologies in manufacturing, mining, and agriculture often generate high-wage employment for a small portion of the work force, thus perpetuating high levels of unemployment and a corresponding weakness in the bargaining power of workers. Equally apparent is the great variation in the organizational and political power of labor movements among Third World countries themselves. For example, organized labor has played a significant political role in the Latin American countries of Cuba, Bolivia, Chile, and Argentina (see Bergquist 1985). In contrast, East Asian labor movements remain relatively weak and compliant. During the period from 1977 to 1985, there was not a single major strike in the industrial city-state of Singapore. This remarkable record of industrial peace finally was broken by a single strike in January 1986 by one hundred workers at a small American firm. Similarly, there were no major recorded strikes in Taiwan during the long period of martial law from 1949 to 1987. In these countries, as in Hong Kong, organized labor plays a politically marginal and insignificant role in national affairs. Labor organizations confront employers

4

Introduction

from a position of weakness in collective bargaining, industrial work stoppages are few and generally easily suppressed, and there is rarely more than symbolic labor participation in economic policy-making. South Korea stands as an exception to the labor peace of these three other East Asian NICs. There, workers have indeed challenged employers and state through sometimes violent collective action in factories and streets. Protests against long working hours, low pay, unacceptable working conditions, and dismissals have been particularly prominent among young factory workers in textile, electronics, and garment industries and, more recently, among workers in shipyards and automobile plants. But in South Korea, as elsewhere, militancy has until recently resulted in few enduring gains for workers. Labor's political exclusion has in turn encouraged and sustained an industrialization strategy centered on the exploitation of low-cost labor in the production of manufactured exports for world markets. In recognition of this fact, East Asian governments point proudly to their "responsible" trade unions and to their diligent and disciplined workers in an effort to encourage increased investment. Rapid, sustained industrialization has not altered the weak political position of labor. The great majority of workers in industrial East Asia now earn their living as employees in the modern firms and organizations that have displaced more traditional economic activities based on self-employment and unpaid family labor. Many of these workers are employed in factories that produce the clothing, transistors, and ships whose export has fired economic growth. Yet despite the creation

Introduction

5

of a vast factory work force over a period of three decades, labor movements in general remain controlled and inconsequential.

The literature on East Asian labor movements is uneven and sparse. Very little has been written on labor politics in either Taiwan or Singapore. This may reflect in part the assumption that rapid economic growth and rising levels of wages and economic welfare adequately explain labor peace, so that little more need be said on this matter. The somewhat more extensive literature on labor in South Korea doubtless flows from the higher level of political and labor conflict in that country, while writings on labor in Hong Kong are encouraged in part by the greater freedom of intellectuals and activists to engage in political debate there. To the extent that there has been serious scholarly attention to East Asian labor movements, three explanations have typically been offered to account for the continuing political weakness of labor: 1. A Confucianist cultural heritage shared by the East Asian NICs bolsters managerial and state authority and thus undercuts oppositional labor movements through its emphasis on hierarchy, cooperation, industriousness, paternalism, and the subordination of individual to state. 2. Rapid industrialization in East Asia has brought dramatic improvements in the level of employment and standard of living. In contrast to the more erratic economic growth in Latin America and elsewhere, the four East Asian economies have grown rapidly and steadily with only minor reces-

6

Introduction

sionary pauses. More important, they have generated almost full employment, rises in real income, and relative income equality. Such positive social consequences of growth reduce industrial conflict, enhance the legitimacy of political elites and development policy, and encourage individual rather than collective mobility efforts on the part of workers. 3. In South Korea, Singapore, and Taiwan, official controls over political parties, trade unions, and the media have severely curtailed organizational and political efforts by oppositional labor groups. And even in "liberal" Hong Kong, the political exclusion of labor has been rooted in part in an authoritarian colonial regime. These various cultural, economic, and political explanations have received the lion's share of attention in discussions of the political marginality of East Asian labor. Still, comparisons with countries outside the region, as well as among the East Asian NICs themselves, point to important questions that remain unanswered by such explanations. A Confucianist cultural explanation must be tempered by recognition of cultural traditions in other regions that seem equally supportive of authoritarian acquiescence (e.g., Iberian corporatism in Latin America). Why have East Asian elites employed such ideologies (including anticommunism and developmentalism) more successfully than their counterparts elsewhere? Additionally, how does a Confucianist explanation account for high levels of labor militancy during early periods of industrialization in Singapore, Hong Kong, and South Korea when those traditional cultural factors should

Introduction

7

have been more powerful at that time than during more recent years? Equally problematic is the link between economic performance and weak labor movements. In many cases, the frequency of conflict is greater among the lowestpaid workers in light manufacturing sectors (as in South Korea) than among the better-paid, more highly skilled workers in heavy industry. But the actual power and autonomy of workers' movements in East Asia, as in Latin America, are greater among more advantaged workers than among those materially worse off. Indeed, this observation is congruent with a substantial literature demonstrating the importance of an adequate economic resource base for strong labor movements. In any case, that the relationship between prosperity and labor movements is itself unclear suggests caution in attributing the weakness of East Asian labor to economic growth. Finally, political controls are clearly an important factor underlying labor impotence. Yet equally stringent controls have been imposed elsewhere with far less long-term effect in containing labor militancy. Why is this so? And how is it that labor protest was more widespread under South Korea's earlier repressive regimes than under Hong Kong's more permissive internal rule? The central argument of this book is that neither the generalized weakness of East Asian labor nor the varied impact on labor of cultural, economic, and political factors can be adequately understood without consideration of the economic and social structural context within which these variables operate. (For a similar argument for Latin America, see Bergquist 1985.) Of particular importance are the social organization of production and the characteristics of the communities where work-

8

Introduction

ers live. The structuralist argument of this book can be summarized as follows: 1. East Asian development is associated with the continued vitality, and indeed the expansion, of employment relations based on patriarchal, paternalistic, and patrimonial systems of labor control. Within these systems, economic conflict rarely assumes the form of collective organization and protest in public places. Only a comprehensive examination of the diverse forms of protest appropriate to these various employment systems permits an adequate understanding of East Asian labor movements. 2. East Asian development has centered until recently on rapid growth in light, labor-intensive export manufacturing. The attraction of young, lowskilled, and often female workers to employment characterized by low pay, tedium, minimal job security, and lack of career mobility encourages low job commitment, high levels of turnover, and lack of attachment to work groups or firms. These circumstances impede independent unionization efforts among workers in light export industries, the pacesetters for early export-oriented industrialization (EOI). In contrast, more skilled and secure male workers in the less dominant, heavy industries such as shipbuilding and automobile manufacturing (especially in South Korea) are able to challenge elite policies from a position of greater strength. 3. Closely related to these two economic structural factors is the role of communities in either sustaining or inhibiting labor movements. In some countries of Latin America and elsewhere, organized working-class communities provide an essential

Introduction

4.

5.

6.

7.

9

foundation for labor protest. This foundation is especially i m p o r t a n t wherever repressive states establish tight controls over trade unions, political parties, and other, more vulnerable organizations in the formal political a r e n a . In East Asia, in contrast, working-class communities fail to play a supportive role for worker organization a n d political action. Variation in these structural and c o m m u n i t y factors provides a sound basis for explaining differences in the power of workers, across countries and industries within East Asia, to sustain autonomous class politics, oppositional ideologies, a n d organized resistance to elite controls. The greater the oppositional potential of workers, the greater the likelihood of elite intervention in industrial relations in order to repress or control labor dissent. The relatively intrusive role of the state in South Korea and Singapore stems in p a r t from the greater structural capacity of workers there to challenge employers a n d state. Conversely, the continued vitality of employer controls in Hong Kong and Taiwan, and the lesser oppositional potential of workers there, invokes less direct state intervention in labor affairs. Structural considerations determine the efficacy of political a n d ideological forces in controlling a n d subordinating workers to the goals of elites. Without knowledge of the structural resources of workers to confront elites from a position of a u t o n o m y and strength, it is difficult to u n d e r s t a n d the impact on labor of political and other factors typically invoked in discussions of East Asian labor. The imposition of tight political controls prior to industrialization i m p a r t s a preemptive power to East Asian labor regimes. Exclusionary labor re-

10

Introduction gimes preceded, r a t h e r t h a n followed, industrial transformation a n d thus precluded the emergence of independent trade unions where structural a n d c o m m u n i t y factors might otherwise have fostered them. Where such controls penetrate deeply into c o m m u n i t y life (as in Taiwan and Singapore), they effectively p r e e m p t independent mobilization outside the formal political arena. But where these controls fail to penetrate communities effectively or where they seek only to repress r a t h e r t h a n to organize within elite-controlled structures, they are less effective in preempting dissent. In all cases, the structural demobilization implied by early export-oriented industrialization afforded a sustained period of consolidation of East Asian political controls until well into the 1970s.

The chapters t h a t follow explore in greater detail the impact of political, economic, a n d structural concomitants of East Asian development on Asian labor movements. Chapter 1 describes the origins a n d p a t t e r n of EOI development in the Asian NICs. Chapter 2 docum e n t s the continuing weakness of East Asian labor movements and their failure to achieve a degree of organizational and political power consonant with advanced levels of industrialization. The c h a p t e r also notes significant variation in levels of conflict and their outcomes across countries and industries. Subsequent chapters explore in greater depth the power of several m a j o r explanations of labor weakness, as well as the relationship of these explanatory factors to development strategies and to external political and economic linkages. Chapters 3 and 4 assess the impact of political, cultural, a n d economic factors on

Introduction

11

emergent labor movements. The impact of these factors is shown to be comprehensible only in conjunction with an understanding of the organizational and institutional resources available to workers as they seek to understand and alter the conditions of their labor. Chapters 5 and 6 deal more centrally with the structural aspects of rapid industrialization that determine the potential for strong, independent labor movements. Chapter 5 explores the divergent labor systems through which East Asian workers have been drawn into modern industry. I will argue that the nature of East Asian labor systems significantly undercuts Asian labor movements. Chapter 6 discusses the negative impact of occupational and economic structural changes on labor movements in proletarian sectors. Special emphasis is given to the relative weakness of workers in light, laborintensive export manufacturing. The conclusion draws political and structural factors into a single explanatory framework centering on the temporal sequencing of socioeconomic and political change.

1 Export-Oriented Industrialization: The Asian NICs Over the past thirty years, a small number of Third World countries have achieved dramatic gains in industrial production and economic growth. Table 1 presents basic economic data on seven of these newly industrializing countries in East Asia and Latin America. The East Asian NICs industrialized largely during the 1960s and 1970s and thus are the most recent entrants to this group of industrialized Third World countries. Although Hong Kong was already a major manufacturing center by 1960, the most decisive transformation among the other three Asian NICs occurred in the 1960s and early 1970s. By the mid-1980s, manufacturing constituted a substantial portion of the total Gross Domestic Product (GDP) in all these countries. Of particular importance were increases in export manufacturing. During recent years, the East Asian NICs have attained very high ratios both of manufactured exports to GDP and of manufactured exports to total exports. The following discussion traces more fully the origins and patterns of export-oriented industrialization in these four countries.

Export-Oriented

Industrialization

13

Table 1 Manufacturing and Manufactured Exports: The East Asian and Latin American NICs Manu^ V a l Added per Capita (U.S. $ million) Asia Hong Kong Taiwan0 Singapore South Korea ^atin America Argentina Mexico Brazil

u e M a n u f a c t u r e d Exports PercentAS A s PERCENTAGE age of ManuPER. 0F Work facturing CENTAGE MERCHANDISE Force in Exports 0 F G D P EXPORTS Industry (U.S. $

(1984)

(1985)

million)

(1985)

(1960)

(1985)

993 N/A 1,482 648

44 41 35 31

27,540 38,916 13,317 27,669

90 51 76 32

80 38* 26 14

91 92 89 58

34 29 c 27c

1,423 7,129 8,911

2 4 5

4 12 3

17 33 35

362 550 419

World Bank, World Development Report (1987, 211, 215, 225, 229, 265); ILO, Yearbook of Labour Statistics (1986); ROC, Statistical Yearbook (1987); Economist Intelligence Unit, South Korea Country Report (1988). SOURCES

"1986 except as noted. 6 1964. c 1980.

Early EOI: Divergent Strategy Initiatives and Economic Transformation Hong Kong Hong Kong was established as a British colony in the 1880s and served mainly as an entrepot center linking China with Europe. Its economy therefore revolved around the processing, transport, and storage of outbound primary products and the import of manufactured goods (Phelps Brown 1971). Much of the manual labor force was in dockwork, public services, and ship-

14

Export-Oriented

Industrialization

building and repair. In addition, a small portion of the labor force was engaged in light industries such as textiles, food processing, and a number of artisan and craft industries (Agassi 1968). Despite some involvement in the production of manufactured goods for the mainland, local manufacturing accounted for only about 10 percent of all exports during the early 1950s (Fan 1975). With the end of World War II, and especially during the final stages of the Kuomintang defeat, large numbers of political refugees poured into the colony. With them came many industrial entrepreneurs, especially Shanghai textile manufacturers accompanied by their skilled workers, seeking haven for their capital (Szczepanik 1960, 107). Even with some stimulation of trade by the Korean War, the 1951 U.N. embargo on trade in strategic goods with China, along with an overall stagnation in trade during the early 1950s, dictated expansion in export-oriented manufacturing. Taking advantage of a growing population of political refugees, whose numbers continued to grow into the early 1960s, entrepreneurs moved quickly into labor-intensive export sectors, such as textiles, enamelware, aluminumware, flashlights, batteries, paints, footwear, rattan, and plasticware. Between 1950 and 1960, the number of registered factories increased from 1,500 to 5,100, with the most extensive growth among small family firms embedded in tightly woven interfirm networks of credit, supply, and finance (Fan 1975, 239). Most of these firms gained access to world markets by relying on the many trading companies that had served the colony during its earlier entrepot period (Phelps Brown 1971). These firms gave out orders, designs, and specifications to small firms. They also maintained quality controls, and handled exports to foreign buyers. During this early in-

Export-Oriented Industrialization

15

dustrialization period, local banks played a particularly important development role, one usually assumed by the state, in providing long-term industrial investment loans to local firms (Howe 1983; Haggard and Cheng 1987). While the structural shift into manufacturing was largely complete by the early 1960s (Chen 1979), there was a subsequent rapid growth in textiles during the 1960s, followed still later by expansion in electronics and plastic goods (Fan 1975). More recently, growth during the 1970s has emphasized financial and other modern services (Chen 1979). Hong Kong today ranks among the world's largest financial centers. South

Korea

Following annexation of the Korean peninsula in 1910, Japan oversaw a substantial economic transformation of its new colony. Initially, in order to secure a new source of food and raw materials for the home country, most developmental emphasis was placed on agricultural modernization, with a corresponding neglect of industry. By the 1920s, most existent industry was owned by Japanese and under strict government control. By 1938, Japanese firms accounted for 88 percent of total paid-up capital in industry (Lee 1982). Of particular importance for future industrialization was Japanese assistance in the development of roads, rail lines, waterways, banking and credit associations, and electrification as part of their larger goal of agricultural modernization. It was only during the immediate pre-World War II period that a concerted effort was made to develop Korean industry. During this period, large-scale, producer goods industries, heavily subsidized and Japaneseowned, were established in the north, while consumer

16

Export-Oriented

Industrialization

goods industries were encouraged in the south. This development, based in large part on imported Japanese skills, capital, and technology, fostered an early economic dualism between modern, large-scale industry, on the one hand, and domestic agriculture and cottage industry, on the other. Partly as a consequence of the capital-intensive and limited nature of large-scale industrial enterprise, there was little growth in the industrial urban work force during this period. The postwar political division of the peninsula, along with the subsequent economic devastation of the Korean War, resulted in an economically truncated and largely agrarian South Korean economy. Starting in 1953, the government embarked on a relatively shortlived import-substituting industrialization (ISI) policy (Byun, Chough, and Jeong 1975). Through foreign exchange controls, infrastructural investment, and protective import tariffs, the government successfully encouraged rapid growth in local consumer goods industries, particularly textiles, leather products, paper, food, and rubber products. During the 1950s, growth rates in mining and manufacturing greatly exceeded those in agriculture. ISI growth relied heavily on foreign capital (Haggard and Cheng 1987). Much of this capital was channeled through government-controlled banks to a few politically favored firms, which soon established oligopolistic positions in major industrial sectors. In this way, government-fostered industrialization perpetuated the existing industrial dualism inherited from the Japanese. By the late 1950s, saturation of the domestic market, growing industrial stagnation, rising unemployment, and increasing difficulties in meeting the foreign exchange requirements for needed imports led to a re-

Export-Oriented Industrialization

17

assessment of the long-term viability of an ISI development strategy. Partly in response to urging by the U.S. Agency for International Development (AID) and the World Bank (Mason et al. 1980), the Korean government initiated a general realignment of economic policy. Under a new five-year economic plan beginning in 1962, greater emphasis was given to achieving economic stabilization and a reduction in the large foreign exchange gap, both through further ISI measures to stem imports and through expanded exports of manufactured and primary goods. The dramatic growth of manufactured exports subsequently encouraged a more decisive shift toward an EOI strategy in the mid-1960s, although even under the second development plan (19671971) import substitution remained important (Hamilton 1986). Thenceforth, export manufacturing was encouraged through currency devaluation, elimination of many trade controls, liberalization of import duties on the producer goods and raw materials needed by export industries, subsidized or state-guaranteed loans to exporters, and establishment of a number of new tax incentives (Byun, Chough, and Jeong 1975). During this same period, a low grain-price policy, instituted to foster industrial expansion, encouraged a massive migration of farmers and young persons from agriculture into industrial cities in search of work (Hamilton 1986). As in the earlier ISI period, Korean EOI remained dependent on foreign capital, obtained primarily through loans. In 1970, foreign savings comprised 35 percent of total investment. In most cases, foreign capital was directed through state-controlled banks to well-established local entrepreneurs, the assumption being that only they were in a position to effectively spearhead rapid economic growth. A pattern of economic concentration was

18

Export-Oriented. Industrialization

reinforced by industrial firms either importing necessary components for local production or relying on inhouse production of such components, rather than relying on small domestic suppliers. By 1986 ten major industrial and trading groupings, or Chaebol, accounted for 25 percent of the total Gross National Product (GNP) (Far Eastern Economic Review [FEHR], 11 February 1988). Equally important was government encouragement, beginning in the mid-1970s, of massive General Trading Companies (GTCs), which came to dominate export trade. Taiwan Like Korea, Taiwan was developed under Japanese colonial rule into an overseas source of food and raw materials. Lockwood (1970, 50-51) reports that during the late 1920s these two colonies accounted for four-fifths of Japan's rice imports, two-thirds of its sugar imports, and a substantial portion of Japanese imports of such items as oil-bearing materials, minerals, and lumber. Like Korea, Taiwan was subject to anti-industrial policies, which precipitated a decline in native manufacturing (Chen 1981). Similarly, the period leading up to World War II brought increased colonial emphasis on local development of an overseas site for the production of cement, fertilizer, chemicals, and petroleum (Liang and Lee 1975; Ho 1978). These new industries, along with earlier established food and textile industries, were generally Japanese-owned. Although the early Taiwanese industrial base was extensively damaged during World War II (Little 1979, 454), postwar growth in Taiwan, as in Hong Kong, was accelerated by an influx of Chinese industry and capital during 1948-1949 as the Chinese Communist party con-

Export-Oriented. Industrialization

19

solidated its mainland victory over Chiang Kai-shek's Kuomintang (KMT) forces. Thus, when the new Nationalist government of Taiwan initiated an ISI drive in the early 1950s, it was able to put an infusion of U.S. foreign aid to effective use in expanding an already strong economic infrastructure (especially roads and electricity) in order to stimulate both agriculture and industry (Barrett and Whyte 1982). Between 1954 and 1966, manufacturing employment doubled, with the fastest growth in food, textile, and chemical industries (Ho 1978). Especially important during this period was government emphasis on widely dispersed rural industry. Based on hard political lessons learned on the mainland, the government's attention was focused on the twin goals of providing jobs for a predominantly rural work force and of promoting industry with immediate backward and forward linkages to agriculture. During this period of ISI development, direct state participation in the economy was inhibited by substantial commitment of public funds to military purposes. In addition, the KMT divested itself of many former Japanese enterprises by distributing shares of these firms to landlords in compensation for land that was expropriated and redistributed to peasants during the land reforms of the mid-1950s. As in South Korea, the transition from ISI to EOI in the early 1960s was motivated by declining rates of industrial growth, politically unacceptable levels of growing unemployment, and strong international encouragement of trade liberalization, especially from AID and the World Bank. Although the EOI initiative was itself accompanied by foreign exchange reforms, currency devaluation, and simplification of the foreign exchange rate structure (Liang and Lee 1975), it is important to note that unlike the South Korean case, where a stag-

20

Export-Oriented Industrialization

nant agriculture provided little impetus to industrial expansion (Moore 1984-1985), the relatively more prosperous Taiwanese agricultural sector generated foreign exchange earnings and provided a growing domestic market for manufactured goods (Fei et al. 1979). In addition, rural and small-scale industries retained their economic importance throughout this period as export industries were encouraged to locate in rural areas in order to tap the large work force found there (Gallin and Gallin 1982). In many cases, especially in textiles, production was subcontracted to small firms on a piecerate basis (Barrett and Whyte 1982). For capital, such small rural firms relied less often on banks than on family connections and rotating credit associations (Stites 1982). Industrial dispersal to small firms and rural towns was encouraged by explicit public policy relating to infrastructure and industrial investment (Ranis 1979), and by an elaborate system of domestic subcontracting organized by Japanese and local trading houses (Amsden 1979; Chen 1981; Stites 1982). It was also assisted by government support in functional areas beyond the reach of small companies, such as marketing and research and development. A present-day example of such assistance is the continuing reliance of many small personal computer firms on the research and development activities of the Electronics Research and Service Organization (FEER, 14 January 1988). By 1971, 50 percent of all Taiwanese industrial and commercial firms and 55 percent of all manufacturing establishments were located in rural areas (Gallin and Gallin 1982, 239). Such economic dispersal is reflected in a trend toward declining enterprise size (Stites 1982), capital, and production capacity. In 1976, Taiwanese

Export-Oriented

Industrialization

21

synthetic fiber production averaged 8,300 metric tons per plant. In contrast, South Korean fiber production averaged 16,300 metric tons per plant (FEER, 14 October 1977, 50). Similarly, declining Taiwanese capital concentration is reflected in the fact that in 1962, 54 firms controlled 72 percent of all manufacturing capital, whereas in 1969, 143 firms controlled 79 percent of such capital (Chen 1979). More recent statistics suggest ever greater industrial concentration into the 1980s. By 1987, the 15 largest electronics firms in Taiwan controlled only 21 percent of the market, against 73 percent of the market controlled by the 15 largest such firms in South Korea (FEER, 7 January 1988). Industrial decentralization was reflected as well in the significance of off-farm work for rural families. By the early 1970s, 68 percent of the rural population earned some income from nonagricultural activities while only 5 percent earned their entire livelihood from farming. The percentage of the total income of farm families deriving from nonagricultural activities increased from 32.4 percent in 1966 (Fei et al. 1979, 250) to 75 percent in the early 1980s, by which time 90 percent of all farmers worked only part-time in strictly agricultural activities (FEER, 19 November 1982, 74-78). Whereas in 1960 nonagricultural sidelines provided over half the income of 23 percent of Taiwanese farm households, the sidelines provided the major portion of income for 55 percent of households by 1980 (Republic of China [ROC], Statistical Yearbook 1982). Again, the contrast with South Korea is striking. In 1981, 61 percent of Taiwanese rural income, against only 33 percent in South Korea, was earned from nonagricultural activities, a difference that has persisted despite renewed Korean government emphasis on rural development (Moore 1984-1985).

22

Export-Oriented. Industrialization

The major exception to the generally dispersed character of Taiwanese industrial production was the development, beginning in 1965, of several large exportprocessing zones within which export-manufacturing firms in electronics, textiles, and a few other industries were established. These zones attracted substantial direct foreign investment, especially in electronics, machinery, chemicals, and other intermediate industries (Gold 1986). Singapore In some respects, Singapore's early economic history is similar to that of Hong Kong. Both were British colonial entrepot centers linking Asian land masses with Britain and the West. The economies of both emphasized commerce, finance, and shipping (including British naval facilities in Singapore), along with some consumer goods manufacturing. In addition, both had very abbreviated ISI periods. As in Hong Kong, political events decisively aborted a short ISI phase in Singapore's development. During the late 1950s and early 1960s, trade flowed easily between Malaya and entrepot Singapore. This economic relationship was formalized through the creation in 1963 of the Malaysian Federation, which seemed to assure the continued access of Singapore manufactured goods to a large regional domestic market. Until 1965, Singapore's industrial development centered on consumer goods production by small firms, alongside foreign-dominated, capital-intensive manufacturing in chemicals, petroleum refining, and shipbuilding and repair. Local consumer goods manufacturing was explicitly encouraged through tariff protection and government financial subsidies.

Export-Oriented Industrialization

23

The dissolution of the federation in 1965, and the resultant contraction in the size of the domestic market for goods manufactured in Singapore, triggered a shift away from ISI. Market contraction, along with continuing high levels of unemployment that reached 9.2 percent in 1966, prompted a crash program of EOI development. Faced with the need to quickly create a viable export-manufacturing sector, Singapore's ruling party lacked not only substantial foreign aid and loans of the sort available to both South Korea and Taiwan but also a dynamic industrial bourgeoisie such as that present in Hong Kong and in Taiwan. The government thus instituted a number of tax incentives and other stimulants to attract direct foreign investment into labor-intensive industries. The success of these efforts was reflected in the massive entry of foreign capital starting in 1968. In 1975, foreign-invested firms absorbed 76 percent of manufacturing inputs, produced 71 percent of outputs, and accounted for 65 percent of manufacturing capital formation. By the mid-1980s, multinational corporations employed half the workers and produced 70 percent of total output in the manufacturing sector (FEER, 3 March 1988). Industrial Restructuring: The 1970s The economies of the Asian NICs underwent a decisive shift in the 1970s, away from simple labor-intensive export production and into higher technology, modern service industries, and more capital-intensive manufacturing (Chen 1979). This shift in some cases can be traced back to pre-1970 developments. For example, South Korean encouragement of the petrochemical industry

24

Export-Oriented Industrialization

dates to the early 1960s. Nevertheless, it is clear that the early 1970s generated tensions and developmental problems that were different in nature and consequence from those that had come before. If early EOI development was based on the mobilization of cheap, disciplined, low-skill labor for export manufacturing, the very success of such development eventually eroded the labor supply that made it possible. Starting in Singapore, with its lack of a rural hinterland labor reserve, all of these countries had begun to experience growing labor shortages by the 1970s (Fei et al. 1979). Such shortages were manifest in declining levels of unemployment and increasing wages. Despite their many known inadequacies, published employment data suggest a rapid and profound decline in unemployment in all four countries. In both Singapore and South Korea, unemployment dropped from over 8 percent in the mid-1960s to below 4 percent by the late 1970s. Taiwanese unemployment stood at 6.4 percent in 1964 and at around 3 percent in the mid-1970s (Galenson 1979), while Hong Kong's official rate fell from over 10 percent in the mid-1950s to under 5 percent by the mid-1970s and to 3 - 4 percent by the 1980s (Szczepanik 1960; Asia Research Bulletin, 31 December 1982; Asia Yearbook 1988). Although these figures do not take into account the far more extensive and serious problem of underemployment, most pronounced in South Korea (Koo 1984; Hamilton 1986, 42), they do suggest a marked reduction in labor surplus. Increasingly tight labor markets were reflected in rising wages, which in turn undercut the international competitiveness of the simple consumer goods produced in the East Asian NICs. Given the depletion of cheap, unskilled labor, employers in all four countries

Export-Oriented Industrialization

25

began to complain of growing difficulties in finding and retaining workers to fill job vacancies (Wall Street Journal, 2 September 1976, 26). In response to growing labor shortages and upward wage pressure, as well as to increasing industrial protectionism in the West, foreign investors began to shift their labor-intensive operations to other countries in the region (Wu and Yeh 1978), especially the Philippines, Thailand, and Malaysia with their plentiful and cheap labor. Even domestic capital began to move to other, more attractive sites. Singapore firms, for example, began investing in the development of an industrial estate on the nearby Indonesian island of Batam, while Hong Kong investors showed increasing interest in new investment opportunities in the exportprocessing zones being developed at Shenzhen and elsewhere in neighboring China ( Wall Street Journal, 2 September 1976, 26; Fortune, 11 June 1984). Similarly, South Korean firms have increasingly relocated factory production to other countries, in some cases to industrialized countries in order to evade trade restrictions. As means of coping with this new threat to the previously successful EOI development strategy, the governments of South Korea, Singapore, Taiwan, and, to a lesser degree, Hong Kong have sought to encourage mechanization of industry, development of high technology and heavy industry, and expansion of modern service sectors, especially finance, engineering, and consultancy. Their goal is both to diversify their economies and to shift labor into industries characterized by higher levels of skill and productivity, thereby maintaining their attractiveness to investors. Beginning in 1970, Singapore stopped providing special "pioneer" status to industries engaged primarily in simple assembly operations and began placing greater

26

Export-Oriented Industrialization

emphasis not only on consumer electronics, precision instruments, and other high technology products but also on engineering, communications, finance, and other modern service industries (FEER, 13 November 1981). During the mid-1980s, biotechnology received special encouragement with the establishment of the Institute for Molecular and Cell Biology at the University of Singapore. This initiative accompanied a more general effort to establish Singapore as a regional health care and pharmaceutical production center. Similarly, Korean planners encouraged expansion in heavy and chemical industries. Special emphasis, for example, was placed on completion of a joint-venture integrated steel mill, a zinc refinery, a shipyard, and a petrochemical complex. Over half of the total industrial investment during the early 1970s went into chemicals, petroleum, and basic metals (Hasan 1976, 67), with continued emphasis on these same industries under the 1977-1981 development plan. In 1980, two-thirds of government industrial loans were directed to heavy and chemical industries. Although Taiwan moved more cautiously into heavy industry, here too recent development planning emphasized high technology and heavy industries such as machinery, automotive production, shipbuilding, precision tools, and petrochemicals. In 1980, and again in 1983, the 1960 Statute for Encouragement of Investment was expanded to provide special incentives for heavy, petrochemical, and defense-related industries. Incentives were included as well for technological renovation and research and development activities, with particular emphasis on the industries of transportation, machinery, advanced electronics, computers, and precision instruments (Industry of Free China, March 1983; FEER,

Export-Oriented Industrialization

27

22 May 1981). More generally, the government encouraged industrial mechanization and automation in all manufacturing sectors (Wall Street Journal, 2 September 1976) and played a dominant role in the increase in domestic research and development expenditure from NT $4,617 million in 1978 to $20,206 million in 1985, the largest portion in engineering (ROC, Statistical Yearbook 1987). Especially important has been development of a science-based industrial park in Hsinchu. This park, envisioned as a Taiwanese equivalent of America's "Silicon Valley," has played a leading role in the drive toward technological upgrading in the computer and electronics industries (FEER, 28 January 1988). Even Hong Kong, with its official commitment to minimal state involvement in the economy, established an Industrial Development Board mandated to advise and monitor new industrial investments (Nyaw and Chan 1982), created an Advisory Committee on Diversification, and supported development of new industrial parks for high technology firms. Significant too is the growing economic role of the colonial government in the banking industry, a leading sector in industrial restructuring (Asian Wall Street Journal, 25 November 1985). Technological upgrading has necessitated an increased emphasis on vocational education and job training in order to improve skills. Given the relatively high risk to employers of training workers who can easily take their enhanced skills to other firms, the governments have had to play a major role in education. The Singapore government has supported expansion in technical education, attested by the growing enrollments in technical colleges, the engineering school at the National University of Singapore, and the Economic Development Board Joint Industrial Training Centers, the

28

Export-Oriented

Industrialization

latter jointly financed by government and industry. Of particular importance was the creation of a Skills Development Fund, a payroll levy used to reimburse firms for expenditures on worker training programs (Asia Research Bulletin, 30 November 1982, 988; Lim and Pang 1984). Additionally, the National Productivity Board has provided training through involvement in the creation of Quality Control Circles, as well as through technical seminars and workshops. In South Korea, as in Taiwan, there has been a substantial increase in public funds allocated to education, skill development, and professional and scientific training . Pursuant to the 1976 Basic Law for Vocational Training, substantial public support was provided for government and in-plant job training, both in large cities and in provincial areas (Hasan and Rao 1979). After 1981, these efforts were coordinated by the Public Vocational Training Corporation. Especially important are the training activities of the South Korea Productivity Center, where over twenty thousand industrial employees receive instruction each year in modern technologies. Overall research and development expenditures in South Korea increased from .58 percent of GNP in 1980 to roughly 2 percent in 1987 (FEER, 11 February 1988). Changing market pressures and development policy are reflected in industrial structural shifts during the 1970s and 1980s. In Singapore, the electronics industry continued its earlier rapid expansion, but with greater emphasis on computers, integrated circuits, and industrial electronics (Asia Yearbook 1988). There was also significant growth in automated tools and medical equipment and in business, financial, and other services. By 1985, finance alone accounted for roughly 20 percent of the GDP {FEER, 12 June 1986).

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In South Korea, heavy and producer goods production outpaced the manufacture of light consumer goods. During the 1970s, shipbuilding expanded rapidly, placing South Korea among the world's largest ship-producing nations (Los Angeles Times, 23 December 1983). The 1980s brought rapid growth of automobile and automobile components industries, consumer electronics, and steel. Spearheaded by new investments in the Pohang Iron and Steel Company, now the largest single-plant steel producer in the world, South Korea became the world's eleventh largest steel producer in 1987 (FEER, 7 January 1988). Similarly, light consumer goods production in Taiwan declined from 51 percent of total production value in 1966 to 40 percent in the mid-1970s, having peaked in 1971 (Bank of Korea, Quarterly Economic Review, December 1984). Electronics replaced garments in 1986 as the lead export earner (Asia Yearbook 1988), with simple component electronics giving way to computer and semiconductor production. The petrochemical industry expanded rapidly as an intermediate goods base for synthetic fibers and textiles, footwear, synthetic rubber, and plastics. And Taiwan's shipbuilding industry, led by the China Shipbuilding Corporation, became fourth largest in the world in tonnage produced during 1987. Hong Kong's response to growing market pressures has been somewhat different from that of the other three countries. Although there has been some shift into high technology industries (e.g., the shift from electronics assembly to consumer electronics and the growth in production of clocks, watches, and chemicals), the textile and garment industries remained the largest export earners in 1987 (Asia Yearbook 1988). Overall, however, there has been a marked shift away from manufacturing

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