The Politics of Developmentalism: The Midas States of Mexico, South Korea and Taiwan

The Politics of Developmentalism The Midas States of Mexico, South Korea and Taiwan

John Minns

International Political Economy Series General Editor: Timothy M. Shaw, Professor of Commonwealth Governance and Development, and Director of the Institute of Commonwealth Studies, School of Advanced Study, University of London Titles include: Leslie Elliott Armijo (editor) FINANCIAL GLOBALIZATION AND DEMOCRACY IN EMERGING MARKETS Robert Boardman THE POLITICAL ECONOMY OF NATURE Environmental Debates and the Social Sciences Jörn Brömmelhörster and Wolf-Christian Paes (editors) THE MILITARY AS AN ECONOMIC ACTOR Soldiers in Business Gordon Crawford FOREIGN AID AND POLITICAL REFORM A Comparative Analysis of Democracy Assistance and Political Conditionality Matt Davies INTERNATIONAL POLITICAL ECONOMY AND MASS COMMUNICATION IN CHILE National Intellectuals and Transnational Hegemony Martin Doornbos INSTITUTIONALIZING DEVELOPMENT POLICIES AND RESOURCE STRATEGIES IN EASTERN AFRICA AND INDIA Developing Winners and Losers Fred P. Gale THE TROPICAL TIMBER TRADE REGIME Meric S. Gertler and David A. Wolfe INNOVATION AND SOCIAL LEARNING Institutional Adaptation in an Era of Technological Change Anne Marie Goetz and Rob Jenkins REINVENTING ACCOUNTABILITY Making Democracy Work for the Poor Mary Ann Haley FREEDOM AND FINANCE Democratization and Institutional Investors in Developing Countries Keith M. Henderson and O.P. Dwivedi (editors) BUREAUCRACY AND THE ALTERNATIVES IN WORLD PERSPECTIVES Jomo K.S. and Shyamala Nagaraj (editors) GLOBALIZATION VERSUS DEVELOPMENT

Angela W. Little LABOURING TO LEARN Towards a Political Economy of Plantations, People and Education in Sri Lanka John Loxley (editor) INTERDEPENDENCE, DISEQUILIBRIUM AND GROWTH Reflections on the Political Economy of North–South Relations at the Turn of the Century Don D. Marshall CARIBBEAN POLITICAL ECONOMY AT THE CROSSROADS NAFTA and Regional Developmentalism Susan M. McMillan FOREIGN DIRECT INVESTMENT IN THREE REGIONS OF THE SOUTH AT THE END OF THE TWENTIETH CENTURY S. Javed Maswood THE SOUTH IN INTERNATIONAL ECONOMIC REGIMES Whose Globalization? John Minns THE POLITICS OF DEVELOPMENTALISM The Midas States of Mexico, South Korea and Taiwan Lars Rudebeck, Olle Törnquist and Virgilio Rojas (editors) DEMOCRATIZATION IN THE THIRD WORLD Concrete Cases in Comparative and Theoretical Perspective Benu Schneider (editor) THE ROAD TO INTERNATIONAL FINANCIAL STABILITY Are Key Financial Standards the Answer? Howard Stein (editor) ASIAN INDUSTRALIZATION AND AFRICA Studies in Policy Alternatives to Structural Adjustment

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The Politics of Developmentalism The Midas States of Mexico, South Korea and Taiwan John Minns School of Social Sciences Australia National University, Australia

© John Minns 2006 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The author has asserted his right to be identified as the author of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2006 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N. Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN-13: 978–1–4039–8611–5 hardback ISBN-10: 1–4039–8611–8 hardback This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data Minns, John, 1956The politics of developmentalism : the Midas states of Mexico, South Korea, and Taiwan / John Minns. p. cm. – (International political economy series) Includes bibliographical references and index. ISBN 1–4039–8611–8 (cloth) 1. Industrialization–Mexico. 2. Industrialization–Korea (South) 3. Industrialization–Taiwan. I. Title. II. International political economy series (Palgrave Macmillan (Firm)) HC135.M665 2006 338.9–dc22

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Printed and bound in Great Britain by Antony Rowe Ltd, Chippenham and Eastbourne

For my father Bob Minns and to the memory of my mother Margaret Minns

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Contents Lists of Acronyms

viii

Preface and Acknowledgements

xii

Chapter 1 Chapter 2 Chapter 3 Chapter 4

1 25 56

Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9

Newly Industrialising Countries and the State The Autonomy of Developmentalist States Mexico: from Revolution to ‘Perfect Dictatorship’ Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism South Korea: Devastation and Development The South Korean ‘Miracle’ in Decline Taiwan: the Migrant State Taiwan: on the Edge of the Descent The Rise and Fall of the Midas States

88 118 150 181 212 231

Notes

245

Bibliography

276

Index

303

vii

List of Acronyms

General EPRs ESRs FDI GDP GNP IDB IMF ISI NICs OECD PRC SMEs WHO

Effective Protection Rates Effective Subsidy Rates Foreign Direct Investment Gross Domestic Product Gross National Product Industrial Development Bulletin International Monetary Fund Import Substitution Industrialisation Newly Industrialising Countries Organisation for Economic Cooperation and Development People’s Republic of China Small and Medium Enterprises World Health Organisation

Mexico CANACINTRA CCE CCI CCM CD CGT CIOAC CMHN CNC CNOP COM CONAMUP CONASUPO CONCAMIN CONCANACO COPARMEX

Cámara Nacional de la Industria de Transformación Consejo Coordinadora Empresarial Central Campesina Independiente Confederación Campesina Mexicana Corriente Democrática Confederación General de Trabajadores Central Campesina Independiente Consejo Mexicano de Hombres de Negocios Confederación Nacional Campesina Confederación Nacional de Organizaciones Populares Casa del Obrero Mundial Coordinadora Nacional del Movimiento Urbano Popular Compañía Nacional de Subsistencias Populares Confederación de Cámeras de Industria Confederación de Cámeras Nacionales de Comercio Confederación Patronal de la República Mexicana viii

List of Acronyms ix

COSEI CROM CSUM CTM CUD CUT DINA EZLN FAT FDN FSTDF IMSS ISSSTE MRM MSF NAFIN NAFTA PAN PARM PASCO PCM PEMEX PFCRN PL PMS PNR PPS PRD PRI PRM PSUM SNE SNTE SNTMMSRM STFRM STPRM

Coalición Obrera Campesina Estudiantil del Istmo Confederación Regional Obrera Mexicana Confederación Sindical Unitaria de México Confederación de Trabajadores de México Coordinadora Única de Damnificados Confederación Única de Trabajadores Diesel Nacional Ejército Zapatista de Liberación Nacional Frente Auténtico del Trabajo Frente Democrático Nacional Federación Sindical de Trabajadores del Distrito Federal Instituto Mexicano de Seguridad Social Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado Movimiento Revolucionario del Magisterio Movimiento Sindical Ferrocarrilero Nacional Financiera North American Free Trade Agreement Partido Acción Nacional Partido Auténtico de la Revolución Mexicana Pan-American Sulphur Company Partido Comunista Mexicano Petróleos Mexicanos Partido del Frente Cardenista de Reconstrucción Nacional Partido Laborista Partido Mexicano Socialista Partido Nacional Revolutionario Partido Popular Socialista Partido de la Revolución Democrática Partido Revolucionario Institucional Partido de la Revolución Mexicana Partido Socialista Unificado de Mexico Sindicato Nacional de Electricistas Sindicato Nacional de Trabajadores de la Educación Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la República Mexicana Sindicato de Trabajadores Ferrocarrileros de la República Mexicana Sindicato de Trabajadores Petroleros de la Républica Mexicana

x List of Acronyms

SUTERM TAMSA TD UNAM UOI

Sindicato Unico de Trabajadores Electricistas de la República Mexicana Tubos de Acero de México Tendencia Democrática Universidad Nacional Autónoma de México Unidad Obrera Independiente,

Korea CGWU CPKI DJP DRP EPB FEZs FKI FKTU GTCs HCIP HHI JOC KCIA KCTU KDP KSE NBFIs NDP ONTA PDP POSCO ROK UIM UNP UPP USAMGIK

Chonggye Garment Workers’ Union Committee for the Preparation of Korean Independence Democratic Justice Party Democratic Republican Party Economic Planning Board Free Export Zones Federation of Korean Industry Federation of Korean Trade Unions General Trading Companies Heavy and Chemical Industry Plan Hyundai Heavy Industries Young Christian Workers Korean Central Intelligence Agency Korean Confederation of Trade Unions Korea Democratic Party Korean Stock Exchange Non-bank financial institutions New Democratic Party Office of National Tax Administration Peace and Democracy Party Pohang Iron and Steel Corporation Republic of Korea Urban Industrial Mission Unification National Party United People’s Party US Army Military Government in Korea

Taiwan CEPD CFL

Council for Economic Planning and Development China Federation of Labor

List of Acronyms xi

CIECD CUSA CY DPP EPC EPDC EY FEC GSMC JCRR KMT LY MOEA ROC TEPU TPB

Council on International Economic Co-operation and Development Council on US Aid Control Yuan Democratic Progressive Party Economic Planning Council Economic Planning and Development Council Executive Yuan Financial and Economic Committee Grace Semiconductor Manufacturing Corporation Joint Commission on Rural Reconstruction Kuomintang Legislative Yuan Ministry of Economic Affairs Republic of China Taiwan Environmental Protection Union Taiwan Production Board

Preface and Acknowledgements The dramatic industrial transformation of a small number of countries since the Second World War has provoked a variety of responses. For some observers, the appearance of these Newly Industrialising Countries (NICs) has been a verification of their faith in the ability of world capitalism to raise the incomes of the poor. That these transformations have often been based on the uprooting of millions of people, extremely low wages and sweatshop conditions has been seen, in this view, as a temporary condition – merely the birth pangs of modernity. This generally optimistic, pro-capitalist outlook has been soured by two factors. The first is the rarity of the NICs – the limitation of the economic ‘miracles’ to relatively small sections of the world’s population. The second is that each of them has, at different times and to different degrees, disappointed its supporters – ceasing to post high growth rates and even suffering major economic crises. Their rankings in the global hierarchy of economic power have fallen as a result. On the other hand, various radical theorists were committed to the view that world capitalism could do nothing but continue to underdevelop countries such as Mexico was in 1940, Taiwan in 1949 or South Korea in 1961. One response from this perspective has been to deny that any real transformation has happened at all. But the evidence of major change – in the form of large industrial workforces, urbanisation, and increases in the relative and absolute size of their manufacturing sectors – has continued to accumulate. These theoretical difficulties posed by the NICs have suggested the need for an analysis which emphasises their peculiarities – those individual attributes which may have made a degree of industrialisation possible – and the specific contexts in which they were able to undertake that process. There have been numerous valuable studies of the industrialisation of Mexico, South Korea and Taiwan. Broader theoretical work has followed with various models being suggested. Most have been based either on neo-classical economic theory or on neo-statist analysis. This book takes the view that the industrialisation of Mexico, South Korea and Taiwan is not a vindication of the neo-classical world view, but a repudiation of it. The model outlined here revolves around the nature of the state in each and the ways in which the class structure of xii

Preface abd Acknowledgements xiii

these societies contributed to an unusually rapid form of industrialisation. Just as the development of capitalism in Europe, North America and Japan was the product of classes and class struggle, so too is the transformation of the more recently industrialising countries. Moreover, the economic ‘miracles’ have not and, it will be suggested here, cannot continue indefinitely. Rapid economic transformation of the kind that Mexico, South Korea and Taiwan have experienced is possible in the capitalist world system. But it is likely to be far more rare than neo-liberalism might suggest. Each instance of it has turned out to be more limited than its proponents claimed. Ultimately, the industrialisation of each of the first generation of NICs has ceased to be as rapid or ‘miraculous’ as once thought. I owe many people debts of gratitude for their support in the time it has taken to produce this book. Foremost among these are two of my teachers and mentors, Professor Michael Pearson and Dr Jim Levy. Both nurtured my interest in questions associated with development and underdevelopment in the Third World. Their encouragement, example and, on occasion, patience, was indispensable. The friendly efficiency of Jen Nelson at Palgrave Macmillan has made the process of submission, review and editing of the manuscript rapid and pleasant. The enthusiastic response of Professor Tim Shaw, as editor of the International Political Economy series encouraged me to continue and make the substantial cuts needed to make the book fit to publish. On a more personal level, and above all, I must thank my partner, Sophie Singh, whose love and encouragement has kept me going. Finally, I would like to thank my father, Bob, who laboured so hard to see his children succeed, and my late mother, Margaret Minns, who had great confidence that I could undertake this work, but sadly did not live to see it completed. John Minns

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1 Newly Industrialising Countries and the State

King Midas had the power to turn everything he touched to gold. A similar touch was apparently possessed by the states of South Korea, Taiwan and Mexico for at least several decades. They were among a very select group of Third World nations which, since the Second World War, made the transition from primarily agricultural economies to industrialised ones. In each case the state, rather than private business, was both driver and engine of growth. If there was a ‘Midas touch’, it was the state which had it. The first argument of this book is that the abilities of these Newly Industrialising Countries (NICs) derived from historical trajectories which left the state in an unusually dominant position relative to the social classes of each. On the basis of this dominance, they were able to focus all available resources on key development projects. Furthermore, such a focus enabled them to position their economies in world capital and commodity markets to greater advantage than was the case for most Third World countries. A necessary condition of this advantageous alliance with world capitalism was the domestic supremacy of the Midas states. Although the Mexican, South Korean and Taiwanese states all enjoyed such dominance, its nature, forms and origins were different in each case. Each of these states employed correspondingly different methods to achieve their industrialisation objectives. There was, of course, a less fortunate side to the newly-acquired powers of Midas. His children, food and everything else turned to gold when touched. So that which brought him wealth also threatened to destroy him. In the end, Midas was forced to sacrifice his alchemistic abilities in return for mere survival. In the same way, the states of these three NICs found that their very success in transforming their societies undermined the precious peculiarity which enabled them to do so in 1

2 The Politics of Developmentalism

the first place. As industrialisation proceeded, their freedom of manoeuvre and relative independence from the main social classes of their countries was eroded. With industrialisation, the Midas states faced new demands from private capital demanding more control over their investments, from middle class groups demanding more democracy and from working classes no longer content with rapid but very inequitable economic growth. Under these conditions, political and economic concessions by the state were the price for avoiding social explosions. After – usually tumultuous – periods of transition, each state was forced to change its strategy – and to cease leading a ‘miracle’ economy as it once had. In the process of losing its powers, the internal composition and structure of the state itself was also transformed. Thus there are ascending and descending phases of the Midas states. In the ascending phase, policies to promote rapid growth are linked to high levels of state autonomy. The descending phase is characterised by a thorough reorientation of economic strategy, involving a decline in the level of state intervention and slower growth as the state’s autonomy is eroded. The Midas state model may well have implications beyond these three examples. These three cases studied are good tests of the model. All enjoyed high growth rates and quite broadly-based industrialisation over at least several decades. Their spurts of growth were not flashes in the pan. Industrialisation and economic development has also been rapid in other developing economies. But in some cases, it is too early to tell how sustained this growth will be. In others, growth has been rather narrowly based. Each of the three NICs selected has a substantial population and market. Their economic growth is not that of a city-state, an entrepôt or a financial crossroads, as is the case with Hong Kong or Singapore, where it is necessary to see the local economy as an adjunct of a larger hinterland. The choice of these three countries allows examination of a range of development policies, strategies and abilities. A tendency of the last two decades in popular commentary has been to consider the NIC phenomenon as an entirely Asian one. Often it is forgotten that in the 1960s and 1970s, theorists marvelled at the Mexican economic ‘miracle’ and strained to discover the secrets of its success. Also, since much of the recent discussion about the NICs has centred on East Asia, there has been some return to the introduction of cultural elements – especially neo-Confucianism – as central to explanations of rapid economic growth. Apart from the disturbing tendency here to equate or

Newly Industrialising Countries and the State 3

conflate all East Asian cultures, the argument has little explanatory power outside the regions which may have been affected by neoConfucianism. As one Korean theorist has noted: ‘the “developmental” conception mires itself in a unique East Asian configuration, attributing too much similarity to Japan, South Korea, and Taiwan…’1 The introduction of Mexico as a case study may prevent us from becoming mired in this way and, in particular, suggest comparisons beyond the question of culture. Finally, a great deal of effort has been expended, especially by economists, on attempting to discover the precise policy ‘mix’ which led to success for the NICs – in order that it might be repeated elsewhere. Not surprisingly, proponents of various policies have discovered in particular NICs, those policies which seem to validate their views. Yet the policies pursued by the Mexican, South Korean and Taiwanese states were quite different from each other, and for a considerable time they all led to success. Clearly, government policy is important and some policies would have made development impossible. But comparing three NICs which took different policy paths to development allows the analysis to go beyond the question of state policy and, instead, to look at the nature of the state itself, why it chose the policies it did and how it was able to carry them out with uncommon and single-minded ruthlessness.

The notion of ‘development’ The term ‘development’ is fraught with difficulty. It seems to imply some form of progressive change. Yet what is progressive for some is not for others. It is far from clear that the changes which took place in Mexico, South Korea and Taiwan since the Second World War were welcomed by all in those societies. Indeed in many, perhaps most, cases since the first industrial revolution in eighteenth and nineteenth century England, economic transformation has initially meant higher standards of living for a minority while much larger numbers experienced increased hardship. Economic growth in largely agricultural countries has involved a transfer of resources: from the countryside to the cities, from agriculture to industry, from some social classes to others. In Mexico especially this process has seen rural dwellers become poorer. Most of those who were forced off the land and drawn to the shantytowns around the cities found conditions there as appalling as those they had fled. Even in South Korea and Taiwan, where early land reforms improved the material condition of many

4 The Politics of Developmentalism

farmers, the economic ‘miracles’ of the 1960s and 1970s were accompanied by the creation of a highly exploited factory workforce often made up of young women. What ‘development’ means or should mean is deeply contested. But, whether for good or ill, life in these three countries has been profoundly transformed by the process described by this difficult and inadequate term. Our aim is to discover how that transformation happened. Since the Second World War, development theory has been dominated by two debates. The first, raging most fiercely from the 1950s to the late 1970s, was between theories of modernisation and theories of dependency. The second, between neo-liberalism and neo-statism was, to some degree, derived from these earlier controversies. The change in the terms of the argument was in part a response to a perceived impasse in the earlier debate. In part it also reflected the decline during the 1970s of what was known as ‘Third Worldism’. But this shift in the terrain of the argument was also a response to the development of the NICs themselves, whose emergence posed major theoretical challenges for all who had concerned themselves with development in poor countries.

Modernisation and dependency Central to the modernisation framework is the notion of stages of development – that between the traditional and the fully modern are a number of points common to all societies undergoing the transition between them. Understanding the characteristics of these stages was not simply a matter of noting what had happened – it was a practical guide for developing countries in defining their objectives at each stage and dealing with the obstacles to moving to the next. The theory was diffusionist – linkages between advanced capitalist societies and others would speed the process of modernisation. Integration in the world capitalist economy should therefore be an objective for poor countries – modernisation was determinedly and optimistically pro-capitalist. In contrast, the dependency theorists – known as dependistas in recognition of the largely Latin American origins of the school – saw capitalism as the root cause of the problems of what eventually became known – rightly or wrongly – as the ‘Third World’. One of the great strengths of dependency theory was its ability to view the present state of underdeveloped countries both from the perspective of the totality of the world economy and with an historical approach. Poverty was seen as part of

Newly Industrialising Countries and the State 5

an historical process by which capitalist countries incorporated other regions into the capitalist system and so ‘underdeveloped’ them. But if, as the dependistas claim, greater integration into the world economy leads to greater dependence and therefore a process of underdevelopment, then the emergence of the NICs becomes completely incomprehensible. Cardoso and Faletto have pointed out that, on this score, history has prepared a ‘trap for pessimists’.2 South Korea, Taiwan and Mexico all industrialised in the 1960s and 1970s in the context of an increasing volume of trade with the advanced economies. If integration in the world economy was to mean inevitable underdevelopment, then in all of Latin America, Venezuela, with its dependence on oil exports, rather than relatively isolated areas such as the Brazilian northeast, should be the most underdeveloped.3 In Asia, highly export-dependent Taiwan and South Korea should have been underdeveloping since the 1960s while a more autarchic economy such as Afghanistan would be spared that fate. In fact, the opposite is the case. A great strength of dependency theory has been its insistence on considering the context of the world economy in analysis of Third World countries. But, at times, the complexity of the local class forces and their role in choosing a relationship to the international environment has been crudely downgraded. Despite some exceptions, a tendency to reduce local class struggle to a reflection of international pressures remains. One of the indications of this is a fairly cavalier treatment of the concept of class and a tendency to confuse it with ‘elite’, ‘strata’ or ‘sector’.4 So dependency theory spawned a kind of internationally-oriented determinism in which the options for local classes are severely limited. Curiously, for a theory which set out to attack the optimistic determinism of the modernisation theorists, it has produced its own form of determinism in response.

Neo-liberalism and neo-statism By the 1980s, it seemed that the dependency and modernisation perspectives had fought each other to a standstill. An impasse had apparently been reached in development theory. Moreover, modernisation theory had been shaped in important ways by the Cold War, dependency theory by sympathy for the Third World. Both of these considerations began to recede in significance to many Western intellectuals in the 1980s. However, a new debate – on the relative importance of states and markets in the process of economic development – soon took its place. Although both sides added the prefix ‘neo’ to describe

6 The Politics of Developmentalism

their positions, the debate was not new. It echoes through economic controversies – especially those about ‘late’ development – since at least the 1830s with the arguments made against adulation of the free market by protectionist economists such as the German, Friedrich List and the American, Henry C. Carey.5 Neo-liberalism Until the 1970s most conservative, pro-Western theorists had no objection to a degree of government planning and state economic intervention. Indeed it was one of the few things which many of the modernisation theorists and some of the dependistas had in common. This broad consensus on the need for development planning and state intervention was challenged in the 1980s by those who called themselves neo-liberals. They argued that economic resources are allocated most efficiently when decisions – and especially prices – are left to the market. High levels of government intervention could only distort natural prices and the comparative advantages of various branches of production in each country and so would reduce the ability to produce wealth. The argument was applied to both rich and poor countries. In the former, Reagan, Thatcher and many others carried out at least some of the neo-liberal prescriptions. In developing countries the argument was promoted even more vigourously by the World Bank and the International Monetary Fund (IMF) whose neo-liberal missionary zeal was facilitated by the great explosion of Third World debt of the late 1970s and early 1980s. By 1982, Mexico had failed to make its debt repayments and was forced to submit to IMF intervention. Thus the main period of Mexican economic success had passed before the neo-liberal argument became the orthodoxy among many Western economists, the IMF and the World Bank. But because of its continued industrial triumphs in the 1980s, East Asia was a crucial testing ground for neoliberalism. In 1993, the World Bank produced the most influential of neo-liberal accounts: The East Asian Miracle: Economic Growth and Public Policy.6 The difficulty, however, for neo-liberals in their analysis of the East Asian NICs, was that it was abundantly clear that massive state intervention was involved in each – whether it occurred via direct state ownership, high protective tariffs, state control of finance or state planning. Neo-liberal analysis has tended to fall back on the proposition that state action in East Asia merely ‘simulated’ market conditions at a time when no developed markets existed. 7 This argument immediately attracted criticism. Commenting on the

Newly Industrialising Countries and the State 7

World Bank report, Jene Kwon made a point since repeated many times. The report suggested that: If government is to deserve any credit, it only does so because its myriad interventions (in pricing, interest rates, wages, bank credit, monetary and fiscal policy, protection of domestic industries, export promotion and subsidies and industrial policies, and so forth) must have, by some magical coincidence, jelled into a neo-classical formulation.8 In other words, the neo-liberal position suggested that even when state intervention happened and was successful, it was really something else. The invisible hand of the market was somehow temporarily operating through the very visible one of the state. But if states are so ineffectual in properly distributing economic resources, why was it that, in these East Asian cases, they apparently possessed such acumen? In fact, these states did not intervene only to correct minor distortions in markets. Nor did they operate simply to liberate private business from nonmarket constraints. They did so with the conscious intention to industrialise and were prepared to radically alter the operations of the market to achieve that end. They were not anti-business, but they were willing to discipline and, on occasion, trample on the rights of private business to achieve industrialisation. Moreover, they openly declared this to be their aim – evidence which the neo-liberals consistently ignored. Neo-statism Partly in reaction to the rise of neo-liberal theory, and partly to that of the East Asian NICs themselves, a neo-statist position began to form in the mid-1980s. The thrust of this view was to argue for a new emphasis on the role of the state by political scientists and developmental economists. In particular, following work by Chalmers Johnson on Japan, the neo-statists emphasised the importance of a particular kind of state – a developmentalist state – in economic growth in late developing countries.9 Under certain circumstances, states, whether to maintain domestic political control or because of the external threats they face, may be forced to initiate economic development. In doing so they consciously distort market rationality. Rather than simply allow their countries to be subject to the laws of comparative advantage, the state in successful late industrialisers such as Taiwan and South Korea and, in an earlier period, Mexico, constrains market ‘rationality’ in order to

8 The Politics of Developmentalism

promote rapid industrialisation. The strongest empirical examples supporting the arguments of the neo-statists were Taiwan, South Korea and Japan. Developmentalist states are necessary in poor countries, according to the neo-statist perspective, because of their extreme shortage of capital and because of the enormous advantages in technology and scale of production enjoyed by their competitors – those countries which have already been industrialised. The developmentalist state must concentrate scarce capital and maximise whatever small advantages the late developer possesses. Therefore, a ‘congenital characteristic of twentieth-century late industrialization [was] a greater degree of state intervention’.10 Neo-statism provides an important starting point for understanding the success of the NICs. It is the contention of this book that not only are the neo-liberals wrong in their analysis of the modern NICs, they are wrong in relation to many other late developing countries, including those of nineteenth century Europe and Japan. Later chapters on Mexico, South Korea and Taiwan will detail the enormous importance of state intervention and the conscious limitation of market forces in the interests of rapid industrialisation in these countries during the ascending phases of their development. During the 1980s, the conception of the developmentalist state replaced modernisation and dependency as the dominant paradigm competing with the neo-liberal framework. But as the decade wore on, all of the East Asian nations started to behave less like developmentalist states. They became less interventionist, began to sell state assets and to loosen trade and investment controls. Secondly, no other developing countries such as China or Malaysia have adopted such high levels of state intervention as did South Korea, Taiwan and Mexico. Questions were immediately posed which the neo-statist position was not easily able to answer. Why did the successful NICs decide to shed the statist powers which had apparently worked so well for them? Why didn’t other states, having witnessed the progress of their predecessors, decide to use the same methods? By the late 1980s, the shine had worn off the neo-statist position as well. The model of the Midas states developed in this book builds, in part, upon much of the neo-statist case. However, it also does so with an emphasis on the significance of class and class conflict to an understanding of the dynamics of the state in capitalist society. Such an emphasis adds several new dimensions to the neo-statist position: an appreciation of the varied forms of state historically created by

Newly Industrialising Countries and the State 9

differing class configurations, and an awareness of the dynamics of the NIC state and its changing powers and possibilities as the balance of class forces shifts. Numerous theorists have contributed to the literature on the nature of industrialisation and its historic importance. One of the most important and pathbreaking is Alexander Gerschenkron. Among the huge body of work on the ‘rise of the West’ and industrialisation in Europe, his is distinguished by its systematic attempt to compare industrial development in different periods; specifically, to compare early and late industrialisation. His Economic Backwardness in Historical Perspective made an attempt to understand the changes in the industrialisation process by linking them to the organising principles of ‘backwardness’ and the ‘lateness’ of development; that is, how long after English industrialisation the industrial development being studied took place and in how ‘backward’ a region.11 The relevance of this comparison of early and late development in the nineteenth century to an analysis of the post-Second World War NICs is obvious. The NICs industrialised in circumstances which could be considered very late and very ‘backward’ by Gerschenkron’s standard. Moreover, even a preliminary glance at their development suggests that it took a very different course and used different means from the industrial countries which preceded them. A key element of Gerschenkron’s analysis was that the later developers of the nineteenth century faced an already economically powerful Britain. For them, the path to industrialisation taken by Britain was blocked by this simple fact. Much greater centralisation of capital and conscious coordination of the accumulation process was required for them to face the British challenge and catch up. For Gerschenkron, variation from the British pattern of industrialisation was a necessity for those countries whose industrialisation followed it. Rather than a single path to industrialisation, the actual route taken was related to the degree of economic, political and social ‘backwardness’ at the time of the ‘spurt’ of industrial growth. In other words, the size of the gap between the already developed country or countries and those on the verge of industrialisation determined the new course that the late developer would take. In particular, what can be seen as prerequisites in the British case – a long-term build-up of capital, a potential industrial labour force, entrepreneurial ability, a credit system and many others – did not usually develop in the same way or were not present in the same measure as they had been in Britain in the middle to late eighteenth century. Therefore

10 The Politics of Developmentalism

substitutes had to be found for them. The more ‘backward’ the economy, the greater the importance of such substitutions. According to Gerschenkron, six general changes mark an industrial spurt as relative ‘backwardness’ increases. The more ‘backward’ a country is at the time of its spurt of growth, the faster the spurt; the greater the concentration on large-scale production; the greater the stress on producer goods; the heavier the pressure on the consumption levels of the population; the greater the part played by special institutional factors such as banks or the state; the less likely that agriculture will play any major part in the process.12 Of these six, we are most concerned here with the institutional means which late developers might employ.

England The state played an important facilitative role in England’s industrial revolution but its direct part in capital accumulation was much more limited. It facilitated industrialisation in three ways. The state created a system of financial and political stability conducive to industrial entrepreneurship. Secondly, over several centuries preceding the industrial revolution, it helped to speed the development of capitalist agriculture. Thirdly, the British state carved out and maintained an empire which provided both sources of raw materials and markets for British industry. The so-called ‘financial revolution’ of the 1690s created a recognisably modern capitalist structure of finance and fiscal management. By the end of that decade, the Bank of England had been established, there was a de facto gold standard, a market in mortgages existed, the stock exchange became important, marine and fire insurance had been created and a financial press was being published.13 A measure of the degree of financial stability provided by the British state was the ease with which it was able to raise loans. Through the wars of the eighteenth and early nineteenth centuries the British government was able to find substantial credit easily on the basis of its reputation for stability and fiscal rectitude. A second long-term means by which the British state helped to create the pre-conditions for industrialisation was its encouragement of marketdriven agriculture. Above all the enclosure of common land was a major force in the growth in the number of gentry farmers and ‘improving’ landlords with a capitalist orientation and, eventually, cash to spare. By 1700 around 70% of England was already enclosed.14 But enclosure was

Newly Industrialising Countries and the State 11

not a conscious attempt to stimulate industrialisation – it began several centuries before the first factories were established. It did, however, speed the breakdown of pre-capitalist relationships in the countryside. It eventually created – with much misery – a dispossessed labour force of former small farmers which could be turned into an industrial proletariat. Enclosure also promoted the rise of a class of capitalist farmers with savings, some of which found their way into industry. All of this had a crucial bearing on the emergence of Britain as the first industrial nation, but it was not calculated government intervention aimed at achieving industrialisation. The third area in which the British state had a significant impact on economic development was its construction of an empire. But those who began the small manufacturing establishments associated with industrialisation in this period were not in foreign trade. Indeed they were a world apart socially and economically from the great merchant monopolists who were most associated with intercontinental trade.15 They tended to start their enterprises with small outlays of capital and funded themselves primarily by reinvesting profits or through family and local connections.16 Direct government investment in industry was minimal. Even infrastructural projects such as turnpikes and canals were developed by private interests. Nevertheless, the lack of direct government involvement does not prove that laissez-faire was a pre-condition for industrialisation. The reason is that the British model was not followed by later industrialisers in the nineteenth century. As we shall see, it could not have been.

France Whereas in Britain the controllers of the industrialisation process were the industrial entrepreneurs themselves, in France and especially Germany, banks played a far more important role. The brothers Péreire, the figures behind the famous Crédit Mobilier, pioneered a new kind of banking from 1852. Supported for a time by Louis Bonaparte, the Emperor Napoleon III, it was no longer designed, as were the old banks, merely to provide short-term credit; the Crédit Mobilier was pledged to the industrialisation of the country. In doing so it found itself in a bitter struggle with the old banks – particularly the Rothschilds. The Emperor, eventually finding that he needed the support of the old financial establishment, refused to allow it to raise further capital in 1862–63 and it collapsed in 1867. Nevertheless, by

12 The Politics of Developmentalism

the time of its demise it had already forced its competitors to adopt its own methods. It had created the first universal bank – a type soon copied in Germany and elsewhere in continental Europe. The Crédit Mobilier was the kind of institutional ‘substitute’ claimed by Gerschenkron to be necessary in late industrialisation. It is, of course, not inevitable that such substitutes will be found or, if found, that they will be developed and used to the degree necessary to ensure a major ‘spurt’ of industrial growth. Indeed, the absence of an institutional lever for growth such as the Crédit Mobilier before 1852 may have postponed France’s industrial spurt and made it less intense when it did occur. Lacking the means to attract savings into large-scale investments, the French economy, according to Tom Kemp: ‘tended to be slowed to a snail’s pace, leaving the country as a whole still largely in the grip of an “eighteenth century” economy of small units and archaic techniques’.17 Britain’s first stage of industrialisation in the eighteenth century did not require a Crédit Mobilier. But the larger scale of enterprise in the nineteenth century demanded greater outlays of capital. If it was to succeed, some new arrangement had to be found. This is not to say that a conscious search occurred in France for an institution such as the Crédit Mobilier as a means to industrialise. But it found in the government of Louis Bonaparte a supporter who could see its potential as a counter to the Bank of France and other established bankers who were unfriendly to the regime. In the end, the Crédit Mobilier itself had only a slight direct influence on industrialisation. The main outlets for its investment were public works and railways. Nevertheless, it forced its competitors to look to investment banking and thereby pointed the way to the future for later industrialising countries. Gerschenkron’s thesis also seems, at least temporarily, sustained by the role of the state in the 1850s. The French state, for a short time, also provided a great spur to industrialisation under the Bonapartist regime after 1851. State spending rose by 50% between 1852 and 1855 before levelling off.18 The new government forged ahead with railway construction after years of prevarication by previous regimes. Ninety thousand miles of track were laid between 1852 and 1857.19 The government was prepared to risk deficit financing to develop industry. But soon it was to move away from its interventionist role. A free trade treaty with England in 1860 – the Cobden–Chevalier Treaty – signalled the retreat. Nevertheless, Gerschenkron’s most important insight – that late development requires new forms and methods in order to succeed – seems to fit the French case quite well.

Newly Industrialising Countries and the State 13

Germany In the case of German industrialisation, there is indeed a dramatic ‘spurt’ of the type anticipated by the Gerschenkron model. Although there had been a slow but important development of manufacturing in a number of German states from the end of the Napoleonic Wars, the critical period from which we can date such a qualitative breakthrough is around the late 1830s and early 1840s – the point at which large scale railroad construction began to fuel a boom in heavy industry. From then, industrialisation proceeded very rapidly indeed. The momentum built up was sufficient to allow German industry to grow continuously through the international recession of 1849 and to further strengthen its heavy industrial base in the 1850s. The German ‘spurt’ was based on heavy industry, not as in England, on the production of light consumer goods. Cotton textiles, the ‘leading edge’ industry of the English industrial revolution had no chance to play the same role in Germany. After 1815, when restrictions imposed by Napoleon’s Continental system were lifted, cheap British cotton textiles flooded into Europe and virtually destroyed the embryonic Prussian and Saxon industries. Facing such competition, latecomers such as the German states had little choice but to emphasise heavy industry if they were to industrialise. In fact, it was the German railways which led the industrial advance. By the 1840s Germany had the second most extensive railway network in Europe, with more than twice as much track as France. Railways in turn stimulated other heavy industry – iron and steel, mining and engineering – in some areas even outstripping their English counterparts. The pace of German development and the rapidity with which it could catch up with Britain in some areas should not be surprising. Germany had the great advantage of being able to ‘borrow’ technology from Britain. The capital requirements of heavy and relatively high-technology industries were vastly greater than those of the English textile industry in its critical period of development in the late eighteenth century. As such it was rare that an individual entrepreneur alone could finance such undertakings. The only recourse for prospective industrialists was the banks, not merely for short-term loans as in the English case, but for long-term capital requirements. In the 1840s and 1850s new banks were formed with the express purpose of providing these funds. The Crédit Mobilier was their model. Its form of aggressive, industriallyoriented banking, now taken up on a large scale in Germany, shocked both British and French observers.

14 The Politics of Developmentalism

The long-term credit provided by these banks to industry made them partners in management. In many cases, they purchased large blocks of securities and, to minimise their risks, then sought seats on the board. German industrial capitalism had developed foundations fundamentally different from those of both Britain and France. What the Crédit Mobilier had merely hinted at as a possibility in France came to fruition in Germany. Participation by the banks also changed the structure of industrial capital. Bankers’ instincts were to limit industrial competition in areas in which they were involved by facilitating mergers and cartels. The severe recession which struck the newly unified Germany in 1873 intensified the process – prompting many banks themselves to merge for protection. Because of the banks’ close connections with industry, cartelisation and concentration of industrial companies was advanced still further. The German credit banks and their part in industrial growth is a key difference between the British and German industrial revolutions. But just as the Crédit Mobilier had presaged future developments in Germany, so German industrialisation brought forth its own innovation which would become more important in later years and in other countries. This was the conscious involvement of the state in stimulating, protecting and, in some cases, owning and controlling industry. Whereas the English state has often been compared to the ‘nightwatchman’ – guarding business but not usually interfering with it, the German states were involved at a much higher level. The pressure of international competition drew the German states into a greater role in industry in the critical period of the 1830s and 1840s. The Prussian state set up metal and engineering plants and factories to produce woolen cloth. It had its own shipping line and, in an attempt to reduce Prussia’s trade imbalance, even involved itself in the manufacture of luxury goods. The Prussian state owned and operated nearly all the collieries in the Saar and several in Upper Silesia and produced about 20% of all the coal mined within its borders. It also had extensive salt mines and a virtual monopoly on salt production. Similarly, the Bavarian state owned two coalmines, ironworks, saltworks and even porcelain factories in the mid-nineteenth century. Many other enterprises were joint ventures between governments and private businesses. But even this understates the level of state direction of industry in the early critical phase in the 1830s and 1840s since public officials were often involved in closely overseeing business in which there was

Newly Industrialising Countries and the State 15

no state investment. In some areas they made day-to-day decisions such as whether to allow new seams to be opened in mines. Furthermore, state credit was important to a range of enterprises – giving governments additional leverage and control. In the railway industry – the most important for German industrialisation – state involvement was pivotal. From the 1830s and 1840s railways in some states – Baden, Wurttemburg and Bavaria – were entirely built by governments. In Prussia, the Diet, seeking political concessions from the King in the 1840s, refused to vote for the necessary bondraising that would have established government-owned railways. Nevertheless, the Prussian state still guaranteed the profits of private railway companies and invested heavily itself. German governments did not plan industrial development in a rigorous way. On the other hand nor did they have any objection in principle to state involvement or adhere to any serious laissez-faire prejudices. Part of the interest of states in industrialisation was for reasons of defence. Railways and shipyards attracted state support partly for strategic and administrative reasons. Following the 1873 depression, German unification and the intensification of competition between the major European powers, the German state moved to even more aggressive intervention – nationalising railways and directing private investment more strictly. But probably the most important form of state involvement was the tariff. Before the spurt of the 1830s and 1840s, German tariffs were generally low. Industrialisation, especially railway development, created pressure for tariff protection as entrepreneurs saw the new opportunities opened up in industries supplying the railways. The tariff law of 1844 was a decisive turning point. Before it, coke-fired bar iron had entered Germany duty-free. Afterwards it attracted a duty of 68%. With the recession of the 1870s, levels of protection rose sharply, and even more than direct state ownership or partnerships it became the main form of government intervention in the economy.

Russia Russia’s economic spurt in the 1890s – four to five decades after Germany’s had begun – took place in a Europe where industrialisation had already changed the balance of power between states. A new hierarchy had been established – based as much on levels of industrial development as on military prowess. Indeed the connection between the two was obvious. The military imperative had become clear to

16 The Politics of Developmentalism

Russia’s rulers in the Crimean War of 1853–56. Humiliating defeat at the hands of Britain, France and Turkey prompted a massive attempt to catch up with the West. When, in 1878, Russia became estranged from Germany – the leading industrial power on the continent, its own industrialisation became even more urgent. Russian industrialisation also took place in a state which, in the 1890s, was far more economically ‘backward’ than Germany had been in the 1840s. Agriculture was much less efficient than in France, Germany or Britain. Indeed, serfdom had only been formally abolished a scant few decades earlier in 1861. This fact, and because it was to happen half a century after that of Germany, meant that the attempt to imitate and catch up to the West required enormous efforts and different means. Yet the Russian rate of industrial development outpaced all of its predecessors for a time. Industrial output had been increasing for decades and, in the second half of the 1880s rose by an annual average of 6.1%. But the turning point, a genuine ‘spurt’ in Gerschenkron’s sense, was the 1890s. Industrial output grew by an average of about 8% over the decade, faster than in any other industrial nation at the time. Furthermore the industries created were more concentrated than was the case in even the most advanced of the older industrial nations. Russia had attained a greater level of industrial concentration (though not output) by 1900 than existed in Germany or the United States. As in Germany, the driving force of heavy industry was the construction of railways. Russia had the world’s fifth most extensive railways in 1890. By 1900 only the United States had a larger network. By that time, the railroads employed 400,000 people. Even more than in Germany, it was the state which was the motor of industrialisation – especially in the part it played in building the railways. Whereas in the 1860s and 1870s about 80% of railway development was done by private capitalists (though often with state support), from the 1880s, the Tsarist state shouldered most of the burden. For several decades afterwards, the railways consistently lost money, but the losses were absorbed by the state. In addition to the demand created by the railways, the metal industry prospered as a result of substantial state orders for arsenals and naval dockyards. A further way in which the Russian state contributed to industrialisation was through a tough tariff regime. The move away from a free trade policy began with the tariff rise of 1877. Tariffs were increased by about one-third. Further rises in tariffs in 1881 and 1882 followed. Then in 1891, a ‘monster tariff’ was introduced. The result was that

Newly Industrialising Countries and the State 17

where tariff revenue had amounted to 12.8% of the total value of imports between 1869–76, the ratio rose to 28.3% between 1885 and 1890 and then to 33% in the 1890s. After the 1891 tariff only 14 products were allowed free entry into Russia – and for these there was little demand in any case. By that time Russian tariffs exceeded any others in Europe. Whether via railway construction, tariff protection, preferential purchasing policies, subsidies or the provision of credit, it was the state which played the decisive part in the industrial spurt of the 1890s. This policy of government-sponsored industrialisation was implemented by powerful Finance Ministers from the time of M.K. Reutern (1862–78) but became especially pronounced under I.A. Vyshnegradskii (1887–92) and above all under the famous Count Sergei Witte (1892–1903). What became known as the ‘Witte system’ was premised on the shortage of domestic capital capable of the task of rapid industrialisation. The government therefore encouraged foreign investment and in order to attract it worked to achieve a stable rouble (eventually in 1897 a gold standard). To achieve this in turn required tariff protection to minimise non-essential imports. A favourable trade balance also required promotion of exports – inevitably in the Russia of the nineteenth century this meant mostly grain exports – and the severe exploitation of the peasantry to obtain the grain for export. Witte’s idea was that the system would work by using state finance to build railways, which would in turn stimulate the development of heavy industry paid for by large-scale injections of foreign capital. Heavy industry would, in time, feed into the development of light industries. Eventually, progress in light industry would help to advance the efficiency of agriculture by providing the means to mechanise it.20 The shortage of capital in Russia was such that domestic capital could not possibly play the leading role. But foreign capital found the state-led program very much to its liking. Foreign capital invested in Russia increased almost six times during the 1890s. 21 Much of this was in the areas which required the largest injections of capital to begin production – heavy industry. Domestic capitalists were largely left to light industry. The Witte system appeared to work in the 1890s – at least in terms of its objective of rapid industrialisation. But it contained a number of inherent weaknesses which ultimately made it unsustainable. Large amounts of state investment had to be drawn from somewhere. The only possible source of foreign exchange was grain exports. The major source of state

18 The Politics of Developmentalism

revenue had to be taxation of the mass of the population – mostly the peasants. High taxes on the peasants were designed both to force them to produce and export grain and to increase the income of the state, which it then used to fund industrialisation. Witte’s predecessor as Finance Minister, Vyshnegradskii, established the dictum: ‘let us starve but export’ and that remained the policy through the 1890s.22 But it was the peasants, not the Tsar’s Ministers, who were likely to starve. The ending of serfdom in 1861 did not provide the peasants with land. Even those who could secure it had to make hefty payments to do so. By the 1890s there existed a massive peasantry with very little purchasing power. Such a population could not provide a market for industrial goods and could not invest in agricultural improvements to any substantial extent. Thus in the 1890s the state was demanding much more from a peasant agriculture which had not significantly improved its efficiency. The result was inevitable. Although the decade is usually seen as one of economic progress, the living standards of peasants actually fell.23 By 1900, they were exhausted and by 1905 in full scale rebellion. In the first decade of the twentieth century, it was clear that the state could no longer sustain the industrialisation effort. It was forced to retreat. Some of the vacuum left by its partial withdrawal from large scale investment was taken up by private banks. However, the Russian banks were much weaker than the German investment banks on which they were modelled. The spurt of industrial growth was over for the time being. As the state withdrew under pressure, growth rates slowed. But it was not simply willpower or singlemindness that was lacking. State policy during the great push of the 1890s illustrates that, under intense international military pressure, the state was capable of generating both and being extraordinarily ruthless. What was missing, in the end, was the ability of the state to proceed with its plans despite the opposition of major class forces in Russian society.

Japan Military pressure was also central to the Japanese industrialisation drive. The visits to Japan by the American, Commodore Perry, in 1853 and 1854 marked the beginning of the Western push to ‘open’ the country. By 1858 the Shogun had been forced to sign treaties opening five ports and giving various rights, including that of extraterritoriality, to foreigners. To underline the threat, British and American warships bombarded Shimonoseki and Kagoshima in 1862

Newly Industrialising Countries and the State 19

and 1863. The Japanese also had before them the example of China in the Opium Wars of the 1840s to remind them of the fate of a nonindustrial country challenged by the expansionist Western powers. Japanese feudalism was rapidly breaking up by the 1850s. There were some signs of economic development and the wider spread of market relationships – though not yet industrialisation. The merchant class (chonin) were increasing their wealth and influence and the traditional feudal lords (daimyo) were often heavily in debt to them. Significantly, the militarised samurai class was in disarray. During the Tokugawa period, there had been little conflict, hence the samurai were without function. By the middle of the nineteenth century most had given up their hereditary servants; many were impoverished. Nevertheless, they still constituted about 7% of the population. The combination of a decaying feudal structure, the threat from the West and the existence of a disaffected section of the population who were also well-schooled in the art of war was explosive. Between 1864 and 1868 civil war raged and the Tokugawa Shogun was overthrown. Although the anti-Tokugawa forces had fought under the traditionalist banner of the restoration of the power of the 16-yearold Emperor, renamed Meiji (‘enlightened rule’), the government they formed was keenly aware of the need for a major renovation of Japanese society in the face of the dire peril posed by the West. Its slogan ‘rich nation, strong army’ pithily summarised their aims. In addition, the new regime, led by young samurai such as the first Prime Minister, Ito Hirobumi, had come to power on the basis of a rebellion led by the samurai and was sensitive to the dangers posed by this class of largely unemployed yet armed and dangerous men. Indeed General Saigo, the leader of the army that destroyed the Shogunate, left the government and went to war against it in protest at one of the Meiji government reforms – its abolition of stipends for the samurai. The defeat of this revolt – the Satsuma rebellion – removed a key obstacle to the creation of a modern capitalist society. The need for rapid economic expansion to provide occupations for at least some of the disaffected samurai and prevent further upheaval added to the pressures on the Meiji government. This new government immediately set out to modernise in order to meet the Western threat and maintain domestic stability. As well as ending the feudal rights of the samurai it decreed peasant emancipation. The most commercially-minded elements of Japanese society were given its full backing. Trading houses were encouraged to branch out into banking and, especially, industrial production. Eventually

20 The Politics of Developmentalism

they formed the great zaibatsu (money-cliques), including the four biggest – Mitsui, Mitsubishi, Sumitomo and Yasuda. The government immediately built a close relationship with these banks and heavily influenced their investment decisions. Private business, even with the most generous support from the state, could not establish industry with the necessary speed. So in all the areas where it was deficient, the state stepped in. The clearest example was the establishment of factories directly owned and controlled by the state. These included some involved in cotton spinning, shipbuilding, tile and cement works, sugar refining and brewing. A major area of state involvement was the manufacture of armaments. State-owned enterprises were not designed to carry out the industrialisation project in its entirety. Rather they were ‘model’ factories, meant to stimulate other private projects. Nevertheless, in the 1880s the government carried out about 40% of total capital formation.24 By 1897, government factories accounted for 56% of the total number of factories, 88% of factory employees and 75% of the horsepower used in industry.25 A major state initiative was to import Western technology on a large scale in order to overcome the enormous technical gaps between Japanese and foreign industries. By the end of the nineteenth century, 40–50% of the budget of the Ministry of Industry was spent on the salaries of foreign technicians. Technological help, along with various other financial subsidies offered to private investors, meant most industries in the late nineteenth century owed their existence to state support. Although foreign investment was permitted, it was primarily in the form of portfolio investment. At no point did the government allow foreign investors to directly control any section of the economy. From the 1880s many state factories were privatised – so that by 1912, only 12% of factory workers were employed by the state.26 But it had never been the intention of the Meiji rulers to establish a stateowned system. Rather, they were prepared for the state to bear the early costs in order to break through and begin to industrialise. In any case, the many direct and indirect subsidies to the zaibatsu, which continued after the 1880s, were more important forms of state promotion of industry. Even after this period of privatisation, the government remained committed to industry – especially heavy industry – because of its importance to Japanese imperial ambitions. In 1894 and 1895, Japan successfully waged war against China, and in 1904 and 1905 against Russia. Private capital developed very quickly. But it was invested on a large scale only after the state had overcome the initial

Newly Industrialising Countries and the State 21

problems of technological backwardness and lack of incentive. In all, the state, driven by external military threat and then by imperialist ambitions, played a major part in the rapid industrial transformation of Japan. Gerschenkron’s model, especially that aspect which relates to the importance of institutional ‘substitutes’ in late development, seems to fit well the course of nineteenth century ‘late’ industrialisation. Lacking many of the ‘prerequisites’ for industrialisation that England already possessed by the late eighteenth century, German and French industrialisation in the nineteenth century required much greater centralisation. The instrument used to achieve this centralisation was the banking system – although the German states also played a significant role. Japan’s economic spurt after 1868 and Russia’s in the 1890s – coming later than those of France and Germany and taking place in still more ‘backward’ countries – required even greater centralisation. Investment banks alone would not do. The state played a leading role in each. It was neither ‘nightwatchman’ – protecting the economy but not intervening in it – nor a parasite simply feeding off economic activity. The state had to be the organiser, a mobiliser of scarce resources and a motivator. England stands at one end on a scale of state intervention, Russia and Japan at the other. Between them are France and the German states. With few exceptions, those economies which began to industrialise later still – especially since World War Two – relied even more heavily on state initiative. Because industrialisation happened extremely unevenly, some regions and countries find themselves in competition with others whose industries are more developed. By the nineteenth century the connection between industrialisation and war-making ability was well understood by rulers. Serious rivalry for world supremacy between Britain, easily the most industrialised power, and France was over by 1815, with France utterly defeated. Although Prussia had been Britain’s ally in the Napoleonic Wars, it was obvious by the 1830s and 1840s that none of the German states could match British industry, and still less its Navy. Tsars Alexander II, Alexander III and Nicholas II had before them the example of the Ottomans, a once grand empire fallen into decay and unable to maintain a place at the table of the great powers. The first and last of these three Tsars suffered military defeat at the hands of industrial powers. The Meiji rulers had the even more shocking example of China – effectively carved up by Europeans in the 1840s. The experience of the Ottomans and of China showed that vast

22 The Politics of Developmentalism

populations and heroic military traditions alone would no longer prevail in warfare. Military power was clearly related to both the wealth of states and to the level of industrial development they had achieved. Industrialisation changed the balance of state power within only a few decades. The rise of Germany is a prime example. Early in the industrialisation process there – by 1862 when Bismarck became Prime Minister of Prussia – this state was still regarded as the weakest of the five great European powers. By 1871, it had won three wars and led a unified Germany that was home to the greatest military and industrial power on the continent. Similarly, Japan, which feared suffering the fate of China, comprehensively defeated that huge empire in 1894–95 – less than three decades after the Meiji state began to industrialise. In one decade more, it humiliated the Tsarist empire as well. Serious military threats prompt urgent action. A slow, gradual industrialisation based on the incremental accumulation of capital and the accretion of entrepreneurial and technical skills is not enough to meet such threats. In any case, in late developing societies, the bourgeoisie which might otherwise lead industrialisation may well be content to establish a connection with foreign capital and play second fiddle to it, acting as compradors in their own country. In no case could the English experience be replicated – where small entrepreneurs and small banks were the principal actors in a slowly maturing industrial revolution. The industrialisation process was never nationally autarchic in the nineteenth century. Russia was heavily reliant on foreign capital. Moreover, one of the advantages of Gerschenkronian ‘backwardness’ is the ability to begin industrial development with the highest levels of imported technology. Germany, Russia and Japan all consciously strove to import technology (and technologists) from more developed countries. And usually it was the most highly evolved technology and capital equipment available in the world which was sought. Apart from its obvious advantages in efficiency such technology had another important benefit to late developers. The most modern techniques in nineteenth century heavy industry required lower levels of operator skill than older techniques. Thus modern technology also helped to solve the problem of shortage of suitable labour in non-industrial or newly industrialising countries. The dependista tradition has never satisfactorily explained the importance of international example, technology and capital in the transformation of the nineteenth century late developers.

Newly Industrialising Countries and the State 23

But while late development in the nineteenth century was not autarchic, nor did it easily hand control of the process to foreigners. The tariff, subsidy, state ownership, and state-controlled finance all attempted to maintain the dominance of nationals in industry. To use the language of modernisation theory, the state did not prevent all ‘linkages’ with the world economy. But it tried to control them and, as with the attempts to attract French capital to Russia and to import technology to Russia and Japan, even to create them. Here we find a new role for the state of the late developer – as intermediary between the domestic and world markets, between local and foreign capital. It must interact with world capital in order for its country to progress. But to allow foreign capital simply to colonise it would defeat what was, in the minds of German, Japanese and Russian statesmen, the whole purpose of late industrialisation. Tsarist Russia, with its heavy industry almost completely under the control of foreign banks and industrialists was the least successful of these efforts. Japan, which restricted foreign capital greatly and never allowed it to dominate, was the most successful. In none of the nineteenth century cases where the state played a significant role – Germany, Russia and Japan – was it actually controlled by capitalists. What is important here is less the class of the titular aristocrats at the heads of these states – the Kaiser, Tsar and Emperor – than their key government ministers during the main period of development. In each case they too were drawn from backgrounds in feudal elite classes. Sergei Witte and the main ministers of his time were all hereditary members of pre-capitalist elite classes, so too were Otto von Bismarck and Ito Hirobumi. All saw their international competitors employing capitalist methods and sought to emulate them. Although they came from non-capitalist classes themselves, they were not necessarily anti-capitalist. For them, state intervention was pragmatic not ideological. It was designed to force the pace of industrialisation, not to create a state-controlled economy for all time. Thus, when they had achieved their objectives, they were content to let private capitalists take over industry. Finally, late industrialisation was not a gradual process of diffusion as suggested by modernisation theory nor a simple creation by the state of market conditions in which private capitalists could take the lead. It was a conscious effort and one that could fail more easily than it might succeed. Because it involved large-scale transfers of resources from some sections of society to others, it always provoked opposition. The Tsarist attempt was brought to an end by mass resistance, first by

24 The Politics of Developmentalism

peasants and, ultimately by workers and peasants in the great revolt of 1917. The Japanese state was able to control the process longer and managed to survive. Thus it had correspondingly greater success in industrialisation. Differential success here is not simply a matter of the level of repression which can be employed. The Tsars did not shrink from the use of violence any more than did the Meiji leadership. The question now becomes: if the state is central to late development, what are the salient features of those states which are able to lead such development successfully? The pressure of international competition is felt by all states. In the nineteenth century some succumbed and became the Third World of the twentieth century. Others led an industrialisation process and avoided that fate. The nature of the latter will now be the centre of our investigations.

2 The Autonomy of Developmentalistist States

Resistance to state intervention Beginning with Gerschenkron, and continuing with neo-statist theorists, the idea that substantial economic intervention by what has been called a ‘developmentalist state’ is central to late industrialisation has become common. The lesson has been generalised to include the postWorld War Two NICs. Indeed, some suggest that all states – those of already industrialised societies as well as those of the Third World and the NICs – play a much greater role in economic life in modern capitalism than in the past, despite neo-liberal ideology and the alleged effects of globalisation. Preparation for war and the imposition of domestic order are roles shared by all states at all times to varying degrees. But as economic success has become a greater source of military strength and domestic legitimacy, the state’s economic role has been increased. But states in late developing societies face particular difficulties. One of Gerschenkron’s six differences between early and late development is the suggestion that the later development takes place, the heavier will be the pressure on the consumption levels of the population.1 This is consistent with the other differences which he notes. Late development, in Gerschenkron’s model, produces a greater emphasis on capital goods industries, on ‘bigness’ in production and therefore requires larger outlays of investment capital. Whether the institutional forms which mobilise these funds are banks or the state, initially they must be mobilised at the expense of some section of the population. Furthermore, late developers have not usually gone through the long process of small scale accumulation of funds in developing capitalist agriculture as in England. Hence, it is likely that there will be a shortage of potential 25

26 The Politics of Developmentalism

middle class investors in industry or depositors in large banks. State investment funds must be raised from taxes. Doing so usually means transferring resources from non-industrial, primarily agricultural sectors of the economy to industry. Resistance from small farmers and landowners is therefore very likely. An example of this is Meiji Japan. In the 1870s and 1880s, 80–85% of the government’s revenue came from land taxes.2 Commonly a third of the value of the farmer’s crop was taken by taxes. As a result many small farmers found themselves in debt and lost their land. Debt caused by government taxes, high prices and the new policy of conscription introduced by the Meiji government produced rural revolt on a massive scale. In the first few years of its rule, there were 180 riots in the countryside. In 1873, 300,000 people rioted in one province alone against government policies and 4,590 buildings were destroyed or damaged.3 In Tsarist Russia, modernising reforms such as the 1861 emancipation imposed even heavier economic burdens on the peasantry. The costs of tax and redemption payments contributed to lower living standards, poorer health and landlessness. Among other indicators of the increasing burden on the peasants, especially from the 1870s, was the decrease in the consumption of alcohol and the rejection of larger number of peasants for military service on the grounds of poor physical health or physique, despite the lowering of entry requirements.4 Also, most of those involved in the new industries are themselves reluctant participants. The workers who labour in them are usually only recently torn from the land, often under extreme economic pressure, occasionally as a result of physical force. Moreover, in the early stages of industrialisation they are not used to close supervision, are normally paid very low wages and are accorded few if any rights to protest or organise themselves collectively. In the Japanese textile industry – a key one during the early years of the Meiji era – wages were about one-tenth the British level and strikes had already begun to break out by the mid1880s. The Russian workers’ movement was even more rebellious. Organisation among workers in the last two decades of the nineteenth century fed into the two great revolutions of 1905 and 1917. Landed classes are also likely to resist an industrialisation program which shifts wealth to the cities and is likely to contribute to a decline in their social status and political power. Even the private capitalists, who are often the eventual beneficiaries of state-led industrialisation, commonly object to it. It may require that they give up lucrative rent-

The Autonomy of Developmentalistist States 27

seeking activity or comprador-like connections, and invest in industries which may not show profits for years. Thus states which seriously pursue late industrialisation might well find themselves besieged on all sides by social forces opposed to their strategies. Despite rural and urban worker resistance, the Meiji authorities never lost control. Nor were they forced to change seriously their plans for industrialisation. In contrast, by the beginning of the twentieth century the Tsarist state was in full retreat from the Witte policy of the 1890s. Ito Hirobumi and the Japanese state were able to overcome the opposition and press forward with industrialisation, while the state machine of Tsar Nicholas II was not. The question now becomes: what is it that enables some states, for a considerable period, to pursue industrialisation against the wishes of so many in their societies? Since most authoritarian states, the Tsarist state and many others in the Third World today fail to do so, state repression alone is not a sufficient explanation. Nor does it appear that the precise policies adopted by each government are the key to their success as is suggested by the neo-liberal position. The ability of a state to overcome resistance to its policies is not a matter of technical ability or policy choice but of the historically determined structural abilities of the state and its connections with the broader society. The question is not what policies might be pursued by a developmentalist state, but what form of state might be capable of being developmentalist. At issue is not only the background and motivations of the people who occupy positions of power within it but also the nature of the links between the state and the broader society of which it is a part. Discussion of the nature of developmentalist states must centre on two aspects of the states themselves: their ability to remain insulated from social pressures which might militate against industrialisation; and their internal cohesion, efficiency and strength of purpose. The first of these questions – the extent to which the state is insulated from social pressures – has often been referred to as its degree of relative autonomy.

State autonomy in theory Nearly all theoretical frameworks which attempt an analysis of state power accord the state at least some degree of autonomy from other forces in society. Liberal and pluralist paradigms deal with the democratic state as a structure or site which responds to competing interests. Power is dispersed between interest groups and, under democratic con-

28 The Politics of Developmentalism

ditions, no single one of them is able to control it completely. The result is that, over time, power and wealth are dispersed. The state is controlled by interest groups, but because of the multiplicity of them and because no single one can ever gain a monopoly of political power, the state also has a degree of autonomy. Despite profound differences with the pluralist and liberal perspectives, most Marxist theorists share at least one element of this view: that forces external to the state push and prod it to take action in their interests and against the interests of other groups. Moreover, most Marxists would agree that there is competition amongst various groups for access to state power. However, at that point the two perspectives part company. The claim, often implicit, by liberal/pluralist theorists that no single group can gain permanent control over the state suggests that groups compete on roughly equal terms over long periods. Marxists argue, on the other hand, that in a capitalist society, capital has an immense advantage in such a competition and is able to exert far more pressure on the state than other social forces.

State autonomy in theory: Marx The insistence by Marxists that the state in capitalist society is a capitalist state rather than a neutral one, has led to a general perception that Marxism, amongst all approaches to state power, grants the state the least autonomy. But in fact, the idea that the capitalist state has some autonomy – and more in some circumstances than in others – is present throughout much of Marx’s (and Engels’) actual historical and political analyses. The caricature which has often been presented to dismiss Marxism in discussions of state action usually relies on a famous quotation from the Manifesto of the Communist Party: ‘The executive of the modern state is but a committee for managing the common affairs of the whole bourgeoisie’.5 If we were to take this as the final and complete position of Marx and Engels on the state, then indeed, Marxist analysis of state behaviour would simply be a matter of discovering the class interest of the bourgeoisie in every action and policy of the state. Actually, the thinking of Marx and Engels on this point is considerably more complex – as has been illustrated by the excellent textual study by the American Marxist, Hal Draper.6 In contrast to feudalism, capitalist societies usually exhibit a division between the people holding direct political power and those with the greatest economic power. The feudal aristocracy held state power at all levels. Feudal state power and economic dominance based on owner-

The Autonomy of Developmentalistist States 29

ship of land and rights to labour were mutually reinforcing. But in developed capitalist societies, capitalists rather rarely personally hold high political office. This division between political and economic functions reflects central aspects of the capitalist system. Firstly, even in conditions in which there is a high concentration of capital, capitalists are in competition with each other to some degree. Disastrous consequences – losing everything – may, at times, follow failure in this competition. Exclusive control of the state machine could give an individual capitalist or group of capitalists an enormous advantage over competitors. Therefore, a non-participant in the conflict is more likely to be trusted by the class as a whole. Although state leaders may well be induced by fair means or foul to favour one capitalist or group of them over others, this is likely to lead to agitation to replace them and consequent instability. The professional politician is the result – skilled at manoeuvring between different sections of the economically dominant class or classes and capable of appealing to the subaltern classes as well. To be fully effective, the personnel of the state require a degree of independence. Hence the attitude of Marx and Engels to that master of political manoeuvre, Disraeli: This change in leadership amounts to a complete, and perhaps to the final transformation of the Tory party – Disraeli may congratulate himself on his emancipation from the landed humbugs. Whatever be our opinion of the man, who is said to despise the aristocracy, to hate the bourgeoisie, and not to like the people; he is unquestionably the ablest member of the present Parliament, while the flexibility of his character enables him, the better to accommodate himself to the changing wants of society.7 Secondly, and linked to the preceding point, capital needs a degree of long-term planning which is difficult, if not impossible, for individual capitalists or companies, constantly concerned with their immediate profits and perhaps solvency, to undertake. Such planning might mean that immediate sacrifices are required for the stability of the system as a whole or even that entire sections of the capitalist class must themselves be sacrificed for the good of the whole class. In some cases this may involve restraining capitalists from particularly harmful forms of exploitation of the workforce.8 Marx wrote of the British Factory Acts of the nineteenth century that they: are the negative expression of the same greed. These acts curb the passion of capital for a limitless draining of labour-power, by forcibly

30 The Politics of Developmentalism

limiting the working-day by state regulations, made by a state that is ruled by capitalist and landlord.9 In other words, to pursue the enduring interests of the British capitalist class – the preservation of a supply of labour power – the state was compelled to prevent capitalists from exploiting it in the way they would wish. The long-term interests of the capitalist system as a whole sometimes require short-term sacrifices and these can only be ensured by an apparatus which stands outside the immediate competitive struggle of each capitalist against all. To individual capitalists at any particular time, the state may appear to be a parasite, drawing taxes from and imposing restrictions on them but providing little in return. The need for a level of social services, protective legislation and a myriad of other state activities which can underpin and strengthen capital accumulation might easily escape the attention of the capitalist whose eyes are fixed resolutely on profit and loss. In an analogy drawn from Shakespeare’s The Tempest and used by Draper, the state is Caliban to the bourgeoisie’s Prospero. Caliban is in service to Prospero but has his own independent dreams. On the other hand, Prospero is suspicious and doubtful of his servant. But ultimately he cannot do without him.10 Finally, modern political democracy relies on the notion that the masses of people actually control the destiny of society. For the state to appear to stand above all grubby questions of material self-interest it cannot also be obviously staffed by the rich themselves. The separation of economic from political power provides the illusion that, since the rich have only one vote like everyone else, the state is neutral between social classes and therefore deserves consent from the citizenry. States which are directly presided over by an individual capitalist, or a politician who uses state power to turn himself/herself into one, might have to rely heavily on expensive, and possibly eventually ineffective, repression. So capitalist states are linked to the capitalist class in a partnership, but the concerns of each partner may vary. Moreover, the state may hold the whip-hand in the relationship. All of this discussion revolves around what we might call ‘normal’ situations of state autonomy. But, in addition to the ‘normal’ situation of state autonomy in advanced capitalism, certain circumstances – especially where the capitalist class is not yet in a situation of clear social and political dominance – may allow the state to operate in an even more autonomous fashion. For the most part, Marx and Engels believed

The Autonomy of Developmentalistist States 31

that these situations would be historically transitory – moments in history which threw up exceptionally autonomous states.

‘Exceptional’ state autonomy in the nineteenth century Britain The first such instance is that of the British bourgeoisie of the nineteenth century and its compromise with the aristocracy which preceded it as a ruling class. An early division was established whereby members of the aristocracy continued to hold important state office long after the economic power of their own class had dwindled. The old ruling class remained capable of fighting a rearguard action in which they attempted to hold on to the state administration – even though they now operated it in the interests of the bourgeoisie. In part, this reflected a timidity of the bourgeoisie; a sense of inferiority in the face of an older, more experienced and sophisticated propertied class. Engels records his astonishment at this: In England, the bourgeoisie never held undivided sway. Even the victory of 1832 left the landed aristocracy in almost exclusive possession of all the leading Government offices…. The English bourgeoisie are, up to the present day, so deeply penetrated by a sense of their social inferiority that they keep up, at their own expense and that of the nation, an ornamental caste of drones to represent the nation worthily at all state functions; and they consider themselves highly honoured whenever one of themselves is found worthy of admission into this select and privileged body….11 Another element which caused this division of the political and the economic between propertied classes related to a struggle within the bourgeoisie itself – between its older rentier section and the newer and more dynamic manufacturers. In the end, to the exasperation of Marx and Engels, the aristocracy held on to important positions within the state. The bourgeoisie which had conquered markets all over the globe could not, or did not want to, completely conquer Westminster. France Another, and the best known, set of circumstances in which Marx, and later Engels, dealt with the concept of state autonomy was during the coming to power and the early reign of Louis Bonaparte. Marx’s analysis of the French situation was that the Restoration

32 The Politics of Developmentalism

Monarchy, occupied by the House of Bourbon, which ruled France until 1830, represented landed interests. That which followed, the ‘July Monarchy’ of Louis Philippe of the House of Orléans, was oriented towards the interests of financiers and industrialists. The July Monarchy was finally brought down by the wave of revolutions which swept Europe in 1848. In June of that year, a further revolutionary upsurge of the Paris working class took place. Fifty thousand workers took up arms in Paris, 1,500 of them were killed and about 12,000 arrested. The rising was smashed by 25,000 regular troops and 12,000 of the notorious gardes mobiles – the troops of the new bourgeois government. The conclusion of this turmoil saw Louis Bonaparte elected as Prince-President for a non-renewable four-year term. In the following two years, a complex series of political manoeuvres allowed Bonaparte to stage a coup in late 1851. The next year he was crowned Emperor Napoleon III. For Marx, the rise of Bonaparte represented the seizure of power by an individual rather than a class: France therefore seems to have escaped the despotism of a class only to fall back beneath the despotism of an individual and, what is more, beneath the authority of an individual without authority. The struggle seems to be settled in such a way that all classes, equally impotent and equally mute, fall on their knees before the rifle butt.12 Thus we have a dramatic separation of political from economic power: the loss of direct control of their state by the ruling classes of French society. From Marx’s writings on Bonaparte we can distil a number of elements which seem central to his understanding of the phenomenon. The first was the enormous fear, sharpened by the June insurrection, which the ruling classes had of the workers of Paris. Having experienced this threat once, the wealthy were prepared to sacrifice direct political power so long as whoever held it could guarantee ‘order’. At one point, Bonaparte came into conflict with the bourgeois representatives in the National Assembly. But the mass of the bourgeoisie outside the chamber, demanding ‘tranquility’ above all, broke with their own parliamentarians and allowed Bonaparte to strengthen his position. Rather than fight him, the bourgeoisie permitted Bonaparte to take over the army. A second reason why Bonaparte was able to seize power was the disunity between the main sections of the ruling class: landed interests on one side and financial and industrial ones on the other. Although

The Autonomy of Developmentalistist States 33

ongoing conflicts over material interests were involved in the division, it was expressed through different historic allegiances to noble houses: the landowners supporting the Bourbons; the financial and industrial sections, the Orléanists. They could not rule together but an open contest between them might open the door to instability and a return to the ‘June Days’ of working class revolt, a result which both groups of the propertied feared more than anything. A third basis for Bonapartism was the mass support of the French peasantry. Although his regime may appear to have been completely ‘suspended in mid-air’, it was not: ‘Bonaparte represents a class, and the most numerous class of French society at that, the small-holding peasants’, wrote Marx.13 However, while the peasantry might support a Bonapartist state they could not control it; their conditions of existence made them permanently incapable of ruling society. They needed a figure such as Bonaparte as their champion: The smallholding peasants form a vast mass, the members of which live in similar conditions but without entering into manifold relations with one another. Their mode of production isolates them from one another instead of bringing them into mutual intercourse…. Each individual peasant family is almost self-sufficient; it itself directly produces the major part of its consumption and thus acquires its means of life more through exchange with nature than in intercourse with society. In this way, the great mass of the French nation is formed by the simple addition of homologous magnitudes, much as the potatoes in a sack form a sack of potatoes.14 A fourth basis for Bonaparte’s power was his leadership of an organisation of armed adventurers, mercenaries, declassed elements and thugs – the storm troopers of the day. ‘But above all, Bonaparte looks on himself as the chief of the Society of 10 December, as the representative of the lumpenproletariat to which he himself, his entourage, his government and his army belong…’.15 A fifth element of the Bonapartist phenomenon was the weakness of the working class and its inability to impose its will on the situation following the defeats of June. Besides, having seen many of their number slaughtered by the bourgeois republic in June, the Parisian poor were in no mood to sacrifice themselves again to save that same republic from Bonaparte. A lesser point which Marx makes here is that Bonaparte consciously set out to appeal to the workers, peasants and the poor, on occasion doing so as their protector and saviour from the

34 The Politics of Developmentalism

wealthy. Indeed he had produced a small book titled The Extinction of Pauperism and was considered by some as a kind of Saint-Simonian socialist.16 It is commonly suggested that Marx’s conception of Bonapartism is where there is an equilibrium between the bourgeoisie and the working class. This is a misconception. Although the bourgeoisie’s fear of allowing the working class to re-enter the political arena may cause it to leave power in the hands of a Bonaparte or a Bismarck, this does not constitute an equilibrium. On the contrary, as Poulantzas points out, the working class in France had ‘disappeared from the scene’ and played no direct role at all in events after June 1848.17 In other words, for Marx, Bonapartism did not require a balance between classes – it could exist on the basis of the smashing of the power of one or more of them. A sixth factor which Marx seems to suggest helped to sustain Bonapartism was the great size of the French state itself: This executive power with its enormous bureaucratic and military organization, with its ingenious state machinery, embracing wide strata, with a host of officials numbering half a million, besides an army of another half million, this appalling parasitic body which enmeshes the body of French society like a net and chokes all its pores, sprang up in the days of the absolute monarchy, with the decay of the feudal system, which it helped to hasten.18 Such a state had its own inertia; its payroll alone could buy the support of many thousands for the figure at its head quite independently of the ruling classes – at least for a time. Under Bonaparte, ‘the state seem[s] to have made itself completely independent. As against civil society, the state machine has consolidated its position so thoroughly that the chief of the Society of December 10 suffices for its head…’.19 And a key element of that state was the army, of which Bonaparte had made himself the head – ‘raised on the shield by a drunken soldiery, which he has bought with liquor and sausages’. At one point, Marx even suggests that the Bonapartist state might cut itself free of all classes, at least for a time. In February 1858, he agrees that previous regimes in France had rested on the army. But in these cases, although the army was crucial for the existence of the government, the state power still served a ‘specific social interest’.20 For a time, Marx thought that under Bonaparte: the interest of the army itself is to predominate. The army is no longer to maintain the rule of one part of the people over another

The Autonomy of Developmentalistist States 35

part of the people. The army is to maintain its own rule, personated by its own dynasty, over the French people in general. It is to represent the State in antagonism to the society.21 Such a situation was dangerous, however, for Bonaparte. Resting on the army alone meant that he could easily be overthrown by it: ‘Bonaparte is … aware of the dangerous character of the experiment he tries. In proclaiming himself the chief of the Praetorians, he declares every Praetorian chief his competitor’.22 Whether or not Bonaparte did, in fact, become completely independent of the classes of French society for a time, the point here is that Marx was prepared to concede that such a situation could emerge. Germany Apart from Bonaparte, the other great political figure of continental Europe for much of the mature lives of Marx and Engels was Otto von Bismarck, Prime Minister of Prussia from 1862 and, finally, Chancellor of a united Germany. Marx and Engels cut their political teeth in the left wing of the German revolutionary democratic movement of the 1840s. The key demands of that movement were essentially bourgeois: national unification and some form of representative parliamentary government, with universal suffrage as one of the more advanced demands. Yet in the revolutionary year of 1848, the German liberals, with the developing urban bourgeoisie at their core, were terrified by mass upheaval. They abandoned these demands and embraced the most reactionary, aristocratic and anti-democratic forces in German society. Ironically, by the 1870s, German unification and a wider suffrage than anywhere else in Europe had been brought about in large measure by Bismarck, a member of the Prussian Junker class of militarised landowners who were the most hostile to liberal reform. It was doubly ironic in that Bismarck had established his personal reputation, at least until 1866, as the scourge of the liberals. Once again, the capitalist class had refused to carry out a program of reforms which, in the long-term, might suit their interests more than anyone. As in Meiji Japan, and to a lesser extent France under Napoleon III and the Russia of the last three Romanovs, modernisation was carried out by human material shaped by a pre-modern class. It was not only a revolution from above, but one carried out by those who might have been most expected to resist it. In their comments on these events in Germany, Marx, and especially Engels, began to generalise their concept of Bonapartism. In their writings, three factors appear to underpin the Bonapartist – or relatively

36 The Politics of Developmentalism

autonomous – position of Bismarck in Germany. The first was the cowardice of the bourgeoisie in refusing to press forward with its own demands and come into conflict with the old order. When, in 1866, Bismarck introduced, or allowed to be introduced, universal (male) suffrage, Engels commented: ….Bonapartism really is the true religion of the modern bourgeoisie. It is becoming increasingly clear to me that the bourgeoisie does not possess the qualities required to rule directly itself, and that therefore, unless there is an oligarchy as here in England capable of taking over, for good pay, the management of state and society in the interest of the bourgeoisie, a Bonapartist semi-dictatorship is the normal form; it promotes the great material interests of the bourgeoisie, but allows it no share in the government itself. Conversely, this dictatorship itself is in turn compelled unwillingly to adopt the material interests of the bourgeoisie.23 This timidity was a product of the fright it had received in the revolution of 1848. When the German businessman had to decide which he valued more, democracy or property, it was always democratic reform which took second place. The aristocrats who controlled the state, including the army, were in the end the ultimate guarantors of stability and respect for property. A second basis for Bismarck’s independence from the rising bourgeoisie was his ability to manoeuvre between classes, appealing to and using one against the other. His basic tactic was to play off the old order from which he had sprung against the rising bourgeoisie and, occasionally, to threaten the bourgeoisie with working class discontent.24 This strategy could only work because both aristocracy and bourgeoisie were propertied classes who could co-exist – albeit with some tension between them. The prosperity of either was not dependent on the total impoverishment of the other. Furthermore, the bourgeoisie could affect some aristocratic styles of life while the Junkers could assimilate bourgeois habits and even take up business.25 Finally, both of these classes were united on a series of important aims: an expansionist foreign policy, economic development and industrialisation. When Bismarck found himself dangerously isolated from both sections of the propertied classes, war or the threat of it could consolidate his position, as it did in successful campaigns against Austria in 1866 and again in 1870 and 1871 against France. But to maintain such autonomous power, Bismarck had to be able to partially separate

The Autonomy of Developmentalistist States 37

himself from his own class background and do the things which by upbringing and instinct he despised. In the late 1860s, he was sufficiently flexible to become almost a liberal. He wrote: ‘Only chance decides whether conditions make the same man a White or a Red’.26

State autonomy in Marx Thus for Marx and Engels there appear to be broadly two sets of circumstances where state autonomy exists: a ‘normal’ form which the operation of an advanced capitalist state requires in order to do the job for the capitalist class. This form appears because of the internally competitive nature of this class, its inability for any section of it to formulate a long-term strategy for the class as a whole, and because of the advantages of a degree of state autonomy in winning the consent of the masses to be governed by it. In addition there are exceptional circumstances in which the state acquires a much greater degree of autonomy. However, there is no single way in which state autonomy can be created. The specific bases for it vary with the historical circumstances. Among them are: (i)

the specific nature of the division in the bourgeoisie – whether, for example, it is between landowners and industrialists or industrialists and rentiers; or the political ways in which that division is expressed, for example, between Orléanists or Bourbons, Whigs or Tories; (ii) the nature of the pre-capitalist ruling class, its size, degree of control of the state and especially the army, whether it will accept ‘taking over, for good pay, the management of state and society in the interest of the bourgeoisie’, how easily it can assimilate bourgeois habits or accommodate itself to a capitalist economy, the degree to which it shares goals and interests with the bourgeoisie; (iii) the size, degree of organisation and militancy of the working class, whether it has a revolutionary history and the extent of the bourgeoisie’s fear of it; (iv) the support for a Bonaparte of a mass class such as the peasantry which is intrinsically incapable of taking power itself; (v) the size and social weight of the state machine; (vi) the transfer of the allegiance of the army from a ruling class to a Bonapartist group or individual; (vii) the presence of an extra-state armed force not under the control of one of the major classes.

38 The Politics of Developmentalism

There is no theory of state autonomy in Marx or Engels and we cannot regard this as a completed list. Different circumstances could well throw up other foundations for Bonapartism. However, it is clear that they regarded the phenomenon as intrinsically limited in two ways. In the first place, a state could break free of direct control by the capitalist class, but it could not, for long, be dismissive of the need to accumulate capital. By the nineteenth century the condition for military success, imperial grandeur, or even national survival was a thorough and successful industrialisation, a rule which Britain and Germany demonstrated in a positive way and Hapsburg Austria and Romanov Russia in a negative one. Indeed, although Marx and Engels give little attention to it, both Bonapartist and Bismarckian states were more interventionist in their economies – they took more of the burden of capital accumulation on themselves than did the British state at a comparable level of industrialisation. Besides, domestic legitimacy in the late nineteenth century, especially under conditions of universal suffrage, increasingly relied on providing employment in industry. A state which consistently undermined capital accumulation also eroded its domestic support. But this need to accumulate capital contributes to a second limitation on a Bonapartist regime. By creating conditions in which the capitalist mode of production could thrive, the state inevitably augments the social power of the bourgeoisie – whatever its intentions: he [Bonaparte] is somebody solely due to the fact that he has broken the political power of this middle class and daily breaks it anew. Consequently, he looks on himself as the adversary of the political and literary power of the middle class. But by protecting its material power, he generates its political power anew.27 Having adapted to the need to modernise in a capitalist sense, the state promotes the economic power of the capitalists. As a result the capitalist class will eventually overcome their timidity and seek political power to match their economic strength. Furthermore, although Marx and Engels do not mention this specifically as an element of the Bonapartist dynamic they identify, further development of industry must create a larger and potentially more powerful working class. To the extent that a Bonaparte might find support in the peasantry, that basis too will be undermined by the growth of industry and the decline of the rural smallholder. Thus there is a permanent contradiction at the core of Bonapartism. The conditions of its success are also,

The Autonomy of Developmentalistist States 39

ultimately, the conditions of its decline. Bonapartism contains the seeds of its own destruction.28 This implies that not only are specially autonomous regimes eventually likely to fall, but that during their existence, they are in a constant process of change as the class or classes whose power they usurped gradually gain in strength and confidence.

State autonomy and development: the nineteenth century The preceding discussion of Bonapartism makes it clear that further theoretical work on exceptional forms of state autonomy does not require eschewing a Marxist class perspective. On the contrary, the constellation of social classes, their strengths and weaknesses, their historical development and experiences, their levels of organisation, internal cohesion, fears and ambitions are central to understanding the phenomenon. Marx and Engels did not apply the concept of Bonapartism to an analysis of the forms of late economic development. On the other hand, Gerschenkron, although dealing exclusively with forms of late development, used neither the concept of Bonapartist state autonomy nor the class analysis on which it is based. Yet a brief survey of nineteenth century development suggests the usefulness of marrying the two approaches. Some form of state autonomy seems crucial to the ability of the state to overcome the resistance of the many forces which might oppose industrial development. But both the degrees of autonomy and its forms differ in various late developing countries. Understanding these differences and forms might contribute to an explanation of both the means which a late developing state employs to industrialise, and the likelihood of its success. Bonaparte’s intervention in the economy was the least extensive of the cases studied. In the Gerschenkronian framework this suggests that France was less ‘backward’ than the others in the nineteenth century. This is true in comparison to Russia and Japan. But it is not true in relation to Germany. Also, France’s economic development was less spectacular – the ‘spurt’ is not nearly as dramatic as in Germany, Russia or Japan. A possible element of the explanation is that after a short time, Bonaparte’s state enjoyed much less freedom of action than either the German states or the Japanese one. Bonaparte’s Bonapartism was, ironically, quite weak. He was not a representative of an old ruling class but owed his position largely to his ability to manoeuvre between the classes and to the support of the army. He offended the

40 The Politics of Developmentalism

financial bourgeoisie by his brief flirtation with the Crédit Mobilier but thereafter obediently carried out the economic policy the bourgeoisie wanted – especially the 1860 trade treaty with Britain. The complete rift between the state power and the ‘specific social interest’ of a major class that Marx had seen as a possibility in 1858 was healed.29 In political matters, Bonaparte began to feel the pressure of the Orléanist elites – the rising capitalist class – at about the same time. A series of liberal reforms in November 1860 was designed as a concession to them: As the danger from the ‘reds’ receded, the Orléanists soon demonstrated that they had relinquished none of their aspirations to political pre-eminence within the framework of a liberal parliamentary system. Even before the issuing of the decrees of 24 November, 1860, there had been signs that they were chafing under the restrictions imposed by the constitution.30 Such was the pressure that Bonaparte reformed the system himself to allow the bourgeoisie more political powers ‘before a day dawned when they would be extorted from him’.31 Bonaparte enjoyed only a moderate degree of freedom of action in economic matters, and that for less than a decade: 1851–60. His economic intervention was limited; the great industrialising push by the state was relatively weak and short-lived. Bismarck and, before him, the rulers of the states of northern Germany, came from established social classes. Although they were old, pre-industrial classes, they nevertheless provided some firm foundation for state power. With that as a solid base, Bismarck could manoeuvre between them and the rising bourgeoisie. Moreover, with their military backgrounds, especially in the case of the Prussian Junkers, they understood the need for industrial progress as the key to a powerful army. The enormous state railway appropriations – the foundation of German industrialisation – could never have been passed by the German Diets or agreed to by their Princes without a consciousness on the part of these old classes of the military threat. Nor could the high tariffs which they pursued have been accepted by landowners who had nothing to gain economically from them. The Romanovs were also closely bound up with an established aristocratic class, and one bitter at the humiliating settlement of 1856 which their military and industrial weakness had forced them to accept. From Alexander II, the Tsars made some attempt to use the state machine to

The Autonomy of Developmentalistist States 41

spur industrial development autonomously – that is, without the initiative of the bourgeoisie. But the preceding economic development of Russian society was, on the whole, very much weaker than in northern Germany. As a result the state effort required to industrialise rapidly was much greater than in Germany. Since the resources for this could only be found by virtually starving the peasants, fierce resistance was to be expected. Moreover, the great push soon provided the material basis for a powerful working class movement. Although the Tsarist state was highly repressive, its strength relative to the great mass of the peasantry and the newly emerging working class was much less than in Germany or in France, especially when measured against the vastly greater task it faced. Since the domestic bourgeoisie in Russia was also very weak, the state relied heavily on attracting foreign capital. Finally, the state’s close connections with the great landowners prevented any serious policy of land redistribution which might have improved the productivity of agriculture, and peasant living standards. The Russian state needed more autonomy than the German states to lead a successful industrialisation drive, but it had less. Thus Tsarist economic policy until the late 1890s was closely linked to the nature of the state, the threats it felt and the strengths and weaknesses of the main classes of Russian society. So, too, the collapse of the state’s efforts to industrialise after that point illustrates the limits of its autonomy. It could sustain the great push for only a short time: not nearly long enough for an industrialisation program to provide it with the military wherewithal to hold its own in the war of 1904–05, and still less to defend itself effectively between 1914 and 1917. Japan provides yet another variant. The group of young samurai who took state power in 1868 were not themselves landowners. They too felt the pressure of military competition to industrialise; it was a key motivation of the Restoration. But they faced far fewer obstacles and had much greater autonomy than did the Tsars. Tokugawa Japan had been based on a highly centralised state from which the large landowners were excluded. Indeed, ‘a politically powerful landed upper class simply did not exist in Tokugawa Japan’.32 Thus the Meiji state did not have to confront this potential block to its attempts to modernise. Furthermore, the civil war which brought the new government to power was not a product of peasant rebellion. Peasant opposition, while serious before and after 1868, was able to be contained. Groups excluded from political power under the Tokugawa Shogunate – indeed most of society – remained excluded. In 1881, ex-samurai and their families made up 5.3% of the population. Yet

42 The Politics of Developmentalism

they held 40.7% of official government posts. At the very top of the state bureaucracy their dominance was overwhelming. In 1885, there were 88 ex-samurai among the 93 highest ranking officials. But while the Meiji government ministers and bureaucrats personally had samurai backgrounds, this was a class whose real basis for existence – permanent internal warfare between the clan-based upper aristocracy – had long since been eroded. Many samurai realised that they must change – the government showed it was more than capable of ending the feudal dreams of those who did not do so in defeating the Satsuma rebellion. So the personnel of the new state were not beholden to other classes in society, nor were they bound to their own old class interests, which had disappeared. The heritage of that class was to be retained only for ceremonial and ideological purposes. Thus the new state was in a supremely commanding position – the most autonomous of any of the nineteenth century industrialising states. None of this is intended to suggest that state autonomy is the only variable in understanding the basis of the strategies and successes, or otherwise, of late developers. The existing level of development before the industrialisation push, the way international economic and military competition impinges on a late developer and many other factors come into play. But the form and extent of state autonomy is a crucial feature – a key historico-political element in each.

State autonomy and development: the NICs The concept of state autonomy has now become an important focus of research into the NICs. For some, the notion is implicit although the term ‘autonomy’ is not used. Yoo, for example, writes of South Korea that: In general, South Korean technocrats and bureaucrats have not had strong vested interests in the welfare of specific social classes or sectors or industries of the economy. Their choice of policies was guided by considerations of overall economic performance….33 In other cases, ‘autonomy’ is explicitly used as a central organising concept to explain the abilities of developmentalist states by many theorists including Haggard and Moon, Leftwich, Yahya, Alschuler, Önis, Riggs, White and Wade, Weiss and Hobson, Hamilton, Skocpol and Trimberger.34 For some of these the key to developmental success is a

The Autonomy of Developmentalistist States 43

high degree of autonomy of the state from dominant classes.35 For others, it is also important to consider the ability of the state to hold off challenges from the working class and the peasantry in the process of industrialisation.36 Autonomy from both enables developmentalist states to carry out policies such as land reform, a transfer of resources from countryside to city and from agriculture to industry, low real wages, state-directed investment for expansion rather than immediate profit, restriction of investment in speculative activity and the use of subsidies and protection for industrial growth rather than simple rent-seeking. A common distinction is that states might possess and employ either despotic or infrastructural power. Despotic power, following Michael Mann, involves the ability of a state to use force to extract resources from society. Such states do not intervene in the economy to reorganise it or to create conditions under which accumulation might take place most effectively and rapidly. In the end they are merely parasitic, standing aloof and taking their means of sustenance from society but giving nothing back. In the longer term they are unstable because they weaken the productive systems on which they depend. They eventually fail to withstand external threats as a result, or they face rebellion from within. On the other hand, states which possess infrastructural power do not stand aloof; they use their network of connections to the broader society both to extract the resources the state needs to survive in competition with other states and to organise productive activity more effectively, and/or provide the institutional settings in which capitalist production thrives.37 In a similar vein, Yahya makes the distinction between a ‘benevolent’ or developmentalist state and a predatory one which merely extracts wealth to the point where it undermines economic growth.38 Thus the autonomy of successful developmentalist states does not suggest isolation from society but an intense engagement with it. The relative autonomy of a developmentalist state is used for interventionist purposes. Some theorists who use the idea of the relative autonomy of the state in their work on the NICs have argued that the state’s abilities should not be seen as a power used against business. Instead they emphasise business-state cooperation, and institutions which link the common interests of each. Ziya Önis, for example, suggests that the two central features of developmentalist states are a high degree of bureaucratic autonomy and public-private cooperation.39 Similarly, Richard Doner argues that coalitional arrangements between public and private sectors are the central elements in the success of developmentalist states, a view he and others call ‘institutionalism’.40

44 The Politics of Developmentalism

The point that the state and private capital can cooperate, and that each benefit from the collaboration, is important and well-made. But this relationship in the NICs has not been one of equality. There are important moments when the state has disciplined capital and forced it into a course of action which the capitalists did not want to take and which, left alone, they would have avoided. In all three of our case studies (South Korea, Mexico and Taiwan) there are instances where the state has threatened, disciplined, bullied, punished, and even destroyed sections of capital in order to bend them to its will. Once the ability and willingness to use this power is demonstrated clearly, it has to be threatened less; capitals get the message. Then the strength of the state vis-à-vis capital may be obscured and the relationship between them may appear more consensual than it is. Therefore it is in the moments of major conflict that the real balance of power between the state and capital is best revealed. It is important to understand that for theorists employing the concept, relative autonomy is an important, but not the only, condition for effective state intervention. Haggard and Moon, for example, argue that there are two dimensions of state power: autonomy and capacity.41 In other words, the state must itself be internally organised in such a way that it can project its power effectively. The model of the developmentalist state suggested by Leftwich is more elaborate. It has six elements: (i) a determined developmentalist elite; (ii) relative autonomy; (iii) a powerful, competent and insulated economic bureaucracy; (iv) a weak and subordinated civil society; (v) the effective management of non-state economic interests; (vi) the use of repression, the search for legitimacy and the need for good economic performance.42 However, it seems that (i) and (iii) are essentially identical, as are (ii), (iv) and (v), while (vi) involves the means which developmentalist states may use to stay in power. Thus the definition resolves itself into an element internal to the state – the cohesiveness and motivations of the state elite – and one which involves its relative power vis-à-vis other social forces: autonomy. The degree of industrial success which the NICs have had is unusual by Third World standards. One way of understanding the origins of that peculiar success involves a direct examination of the NIC states. Another strategy is to look at the extent to which autonomy is possessed by those states which have had much less developmental success. In contrast to the NICs, most Third World states are not able to operate in an autonomous, developmental manner to the same degree. The greater contemporary strength and reach of the advanced

The Autonomy of Developmentalistist States 45

capitalist centres is such that comprador and rentier groups opposed to industrialisation policies will be much stronger than those which faced nineteenth century late-developing states. As Rueschemeyer and Evans point out: The dominant class is likely to include a tightly-knit set of oligopolists, some of whose primary interests are transnational rather than local, and an equally tightly-knit agrarian elite, whose interests are as much patrimonial in character as they are profit-oriented.43 As a result, a high degree of state autonomy in the contemporary Third World is quite uncommon. John Lie compares Pakistan with South Korea in terms of the ability of the state to impose policies not favoured by large landlords and a few large capitalists: In the late 1960s, 43 families controlled over half of the total assets of non-financial firms… In spite of many similarities, what distinguished the late 1960s Pakistan from 1970s South Korea was state power over capitalists. In Pakistan, large landlords and large capitalists combined to challenge and to temper state power. Hence the state was unable to discipline capital or to pursue export-oriented production.44 The failure of many Third World states to implement serious land reform programs is another pointer to their inability or unwillingness to confront powerful landowners – in part because of the social and political weight of the latter, but also because of the myriad connections between this class and the state itself. The failure of the Indian state to conduct very extensive land reform contrasts sharply with the land reforms of South Korea and Taiwan which were extremely thorough. Such a contrast points to differential degrees of state autonomy.45 The Mexican state, another which played a major developmental role, also carried out an early and major distribution of land – to an extent almost inconceivable in India. The mechanisms by which states are bound to the policies of dominant Third World classes may not always be obvious. ‘Clientalism’ is one of the mechanisms which has been much discussed in this respect. Especially in South East Asia, clientalism has often been a means by which business interests, often ethnically Chinese, pressure politicians and state bureaucrats without themselves playing a public political role and incurring indigenous resentment. MacIntyre makes this point

46 The Politics of Developmentalism

about Southeast Asian state bureaucracies in contrast with those of South Korea and Taiwan: In terms of the degree to which economic policy makers are insulated from contending societal pressures, Indonesia is the country which appears to come nearest to South Korean or Taiwanese experience… However… economic policy-making processes in Indonesia could scarcely be described as being insulated in the fashion of Taiwan or South Korea. The most obvious difference is the pervasive importance of patrimonial or clientalistic links between government figures and business people.46 Although the Third World state may be strong in the sense that it absorbs a significant part of social wealth and is capable of using great force against its domestic opponents, typically it maintains little autonomy from dominant groups or is even effectively fused with them.

The limits of state autonomy Several groups of theorists of developmentalist states have combined the concept of state autonomy with great hostility to Marxism arguing that Marxist theory imposes unnecessary theoretical limits on the autonomy of states. Theda Skocpol, for example, claims that in Marxism it is impossible to conceive of a fundamental conflict of interest between the state and dominant classes and therefore Marxist ideas of ‘relative autonomy’ miss the point.47 In the end, she says, in a Marxist framework, states are still measured by the class structures or modes of production of which they are a part.48 Thus for Marxists and neo-Marxists: ‘Many possible forms of autonomous state action are thus ruled out by definitional fiat’.49 Similarly, Linda Weiss and John Hobson rely on the notion of relative autonomy to analyse the East Asian NICs but suggest that the Marxist concept of state power is reductionist.50 Certainly, in a Marxist framework, it is true that, to survive, the state must undertake capital accumulation on a scale comparable to its rivals. But that does not mean, as Marx’s work on Louis Bonaparte and others shows, that the state must follow the lead of the capitalist class itself. Especially in an underdeveloped country, capitalists may be interested in short-term profit-taking rather than the long-term accumulation necessary for the survival of the state. The best long-term interests of the capi-

The Autonomy of Developmentalistist States 47

talist class (although they may not realise it), as well as the survival of the state in a competitive system, are sometimes served by not attempting to immediately maximise profit but, instead, by maximising the accumulation of capital. Private capitalists, for the reasons outlined earlier in this chapter, are often in the worst position to see this or carry it out. This is especially the case in underdeveloped economies as Rueschemeyer and Evans point out: The difficulties created by leaving accumulation in the hands of private decision makers disciplined only by the market increase dramatically as market structures deviate from ideal typical standards… In Third World countries, where smaller markets and imported technology make oligopolies even more pervasive, the decisions of even the most carefully calculating profit maximizers may not mesh into an optimal strategy for industrialization.51 However, a certain kind of state can develop something like an optimal strategy for industrialisation. It does so for its own purposes, not to please the capitalists. But the consequence – even though unintended – is eventually to strengthen the capitalist class. Theda Skocpol and other non-Marxists such as Ellen Kay Trimberger emphasise the autonomy of the state from the need to accumulate capital.52 Yet the actual trajectory of the NICs illustrates the many ties that bind the developmentalist state to capital accumulation. In the modern capitalist world, the ultimate basis for the existence of states is the ability of the society of which they are a part to generate an economic surplus. Short of some form of socialist production, this surplus must be generated by wage labour in a capitalist fashion. Nation states which persistently block the production of this surplus and halt the accumulation process face huge penalties and, in some cases, ultimate destruction – either through external military competition, or because stagnation is likely to lead to loss of domestic legitimacy and internal upheaval, or both. The penalty for failure to develop a modern industrial base was as severe, or perhaps more so, for Park Chung-hee of Korea, Díaz Ordaz of Mexico and Chiang Kai-shek of Taiwan as it once was for Bismarck, Ito Hirobumi, Louis Bonaparte and Nicholas II. Perhaps none of them aimed to develop a stronger capitalism; but that was a possible consequence of their struggle for survival in a developing world capitalist system. Secondly, quite apart from military challenges, the world capitalist market ultimately places limits on the autonomy of all states. For

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example, failure to produce export goods competitively or to pay international creditors quickly undercuts the funding base of the state itself by reducing export income or by raising the cost or halting the availability of future loans. So, as in Mexico, even where military competition is not the main force driving a state to industrialise, the stability of the state still depends on its ability to industrialise. This is not to suggest that there is an inherent structural mechanism which prevents the state becoming completely autonomous from the capitalist class. Nor is there any which prevents it temporarily becoming autonomous from the requirement to accumulate capital. ‘Democratic Kampuchea’ between 1975 and 1978 appears to have done both. But the consequences were severe. In the long-term, at least while world capitalism exists, states which block the accumulation process must become weaker and either succumb to international pressure or corrode internally – a future any state elite will normally try to avoid. So developmentalist states may have a high degree of autonomy from the classes of their societies, but they have very little autonomy from the requirement to accumulate capital. Indeed, they are slaves to accumulation. In one sense such states are strong and independent, in another they are extremely weak and are thus driven to take the difficult and uncertain path of rapid accumulation. This raises the question of how states, which are normally anchored in class relationships domestically, are also shaped by and deal with international pressures. The fundamental unit of analysis of the dependista perspective is the world-system which essentially creates a role for the state as part of the periphery, semi-periphery or core; metropolis or satellite. Some of the limitations of this perspective have already been dealt with. An additional problem is that it has little room for states which consciously set out to change their own position in the world-system – developmentalist states. Yet the world-system obviously does make an impact on the developmentalist state and its choice of strategies as well. The analyses of Mexico, South Korea and Taiwan which follow will show how the successful developmentalist state uses its relatively greater degree of domestic autonomy to mediate between the domestic and international economies. The Midas states both insulate local capital from its domestic competitors and arm it in international competition. At times, such states create a domestic monopoly for local business through protection; at others they force that same business into vigorous competition in the world market. Autarchic development – ‘delinking’ from the international system – is not a long-term

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option, since the need to import modern technology and the location of mass markets in developed economies require such links. But, in the case of the Midas regimes, it is the state which forges these links. The export orientation adopted, especially by Taiwan and South Korea, did not emerge from the logic of the world market itself, as the neo-liberal analysis suggests. Indeed, the push to export posed a serious problem for companies which had grown up behind tariff walls and were oriented towards the domestic market.53 The export strategy was a conscious effort, initiated by these states, which induced – or even drove – often unwilling firms to venture far from home.54 But in doing so, the state helped to prepare them and provided them with great competitive advantages. Similarly, the Midas states – in the period when they still retained their domestic autonomy – were able to deal with the shocks which the international economic system delivered to them. While some developing economies were further marginalised or even devastated by world recessions, these states used them to their advantage. A pointer to their loss of state autonomy is when they were no longer capable of doing so.

The dynamics and decline of relative autonomy State autonomy depends on the strengths and weaknesses of social classes. But neither strength nor weakness is forever. Some classes grow numerically and in wealth, organisational coordination, sophistication and confidence. Others decline. Changes in all of these attributes are especially marked during periods of rapid industrialisation; the private capitalist class, the working class and some sections of the urban middle class tend to gain the basis for greater social power, while the peasantry declines as a force. The degree of autonomy of the state changes correspondingly. Developmentalist states which, as we have seen, require autonomy, find that their own success undermines them. Eventual decline is built in. Industrialisation strengthens the bourgeoisie, the working class and the ‘new’ middle class. Business mounts a challenge from one direction; typically, they refuse to be told by state planners how to dispose of the money they consider to be rightly theirs, or to accept direction from planners, bureaucrats and politicians. The working class is not prepared to be exploited to the same degree and is now in a position to do something about it, especially by resisting the low-wage strategies which lie ‘beneath the miracles’.55 Often the ‘new’ middle class – whose rise is

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associated with the expansion of higher education and of technical and bureaucratic positions – plays a part in campaigns for greater democracy. The state cannot sustain the same degree of control it once had (in what we might call its ascending phase) in the face of the emergence and strengthening of these challenges. It is not inevitable that these forces will win the battles that now take place with the old state elite. But the terrain on which they fight becomes more favourable for them, and less so for the old state machine. With its freedom of action more limited by these growing social constraints, the state is now less able to make ‘miracles’. It enters the descending phase of the Midas phenomenon. Forced to give up their Midas touch, these exceptional cases of state autonomy come to an end, and, after social upheaval and turmoil, a more ‘normal’ capitalist relationship ensues, especially between the state and capital. This does not necessarily mean economic collapse – although serious crises occurred in two of the three cases studied. But it almost certainly means an end to the earlier, highly focussed state policy which drove the miracles, and a reduced ability of the state to deal with international shocks. This model of developmentalist state dynamics is an amendment to the statist and neo-statist positions which have made a great contribution in correctly emphasising, against the neo-liberals, the importance of state intervention to the success of the NICs. But the work of these theorists – Alice Amsden (on Korea and Taiwan), Chalmers Johnson (on Japan), Robert Wade (on Taiwan) and Nora Hamilton (on Mexico) – establishes a picture of the operation of the developmentalist state, but not a clear idea of its dynamics.56 Though lacking an explicit notion of the developmentalist state, that was the implication of Gerschenkron’s work as well. Their models of the state have not yet explained why the ‘miracles’ should ever end.57 But, in fact, they do end. We have seen Mexico and, more recently, South Korea close to economic collapse. They and the Taiwanese state have all undertaken a major retreat from developmentalism. The precise and immediate international events which provoke economic collapses in former ‘miracle’ economies – the ‘Asian’ currency crisis of 1997 or the collapse of the oil boom in the late 1970s and early 1980s – cannot be predicted within this model. But there are systematic, underlying causes for why these states are weakened to the point where they can no longer manage such external shocks in their descending phases. A second element of these dynamics concerns the period of transition between ascending and descending phases – the apogee of the

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development. Here there is a point where the strength of the state and the challenges to it are close to being balanced. The state has not yet begun its full-scale retreat, yet it is unable to continue ruling in the old way. Also, the forces ranged against it are not all pushing in the same direction. The state elite may attempt to shore up their position by satisfying first one demand, only to face a contradictory demand from another quarter. So this transitional period typically involves incoherence in policy: vacillation between repression and reforms, between dirigiste and liberal economic measures, between democratic concessions and authoritarian controls. A third feature of the dynamics of the developmentalist state concerns the composition of the state elite. So far, we have used the term ‘the state’ as a shorthand to indicate the combination of a series of publicly funded bureaucratic, military and similar institutions, as well as the political leadership which asserts general control of them and sovereignty over the country as a whole. We assume a hierarchical structure with some form of executive exercising broad ultimate (though not necessarily immediate) power over most of its institutions. Some such institutions may have a degree of autonomy from the executive themselves; for example, the judiciary and elements of the bureaucracy whose inertia, technical expertise or professional pride make them less than totally responsive to outside direction. Although we continue to use the term ‘the state’ it is important not to assume a commonality of interests and views within it – even within the elites which are in charge of each of its components. As pointed out by several theorists of the successful developmentalist state, one of its important attributes is the cohesion of these state elites – the extent to which they are united on central developmental goals.58 If state policy is pulled in different directions by various elements of the state elite and motivated by different aims, its effectiveness will be at least minimised. The emergence of an elite which is coherent with regard to development policy as well as being motivated and disciplined is a feature common to all the Midas states studied. In all three cases the state elite – or a significant section of it – exhibited these qualities in the ascending phases of the NICs studied here. What makes these people orient in this way? Firstly, all were cut off from other, sometimes earlier, paths to personal advancement, either by the simple absence of other routes, or as a result of cataclysmic social and political change which closed other routes to them. All were deeply committed to some form of nationalism,

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whether anti-communist nationalism as in Taiwan and South Korea or the more populist nationalism of Mexico. Thirdly, because they were cut off from other means of social advancement they tended to orient towards the state as the vehicle for their own, and therefore their country’s progress. Finally, all realised that their survival as a state elite depended on the economic progress which their countries were able to achieve. Within the state elite two distinct sections are important. The first is a highly political element who owe their positions to connections with the political executive of the state or with the ruling political party. Serving or former army officers may be important in this group, and were so in Taiwan and South Korea, although it also contained important civilian members. The second is a techno-bureaucratic group whose position in the elite depends on their expertise in managing, planning and coordinating the developmental project. The key technobureaucratic groups are located in the economic and planning sections of the state bureaucracy. Typically they are better educationally qualified than the political elite. However, the division between these two elements is not always sharp, nor is it impermeable. At some stages in the life of the developmentalist state there is a great deal of traffic between them; a feature quite rare in advanced capitalist democracies.59 One important point of differentiation between these elites is the nature of the connections they have with the broader society. The political state elite may have a base in the army or in the political party of government, or, having begun with a base in the former, it may create the latter. The techno-bureaucratic group is more likely to have closer connections with private business. Because of their separate origins and external linkages, the balance between these two sections of the state elite changes in the evolution of the Midas state. In the early part of the ascending phase, the political element is clearly dominant. As industrialisation takes place this balance is altered. Modern industry and a more complex economy require a higher level of technical sophistication. The techno-bureaucratic element of the state therefore grows in importance as a result. Since this group is more closely connected on a day-to-day level with private firms, the growth of private capital also enhances the position of the techno-bureaucrats within the state. Moreover, the causal chain also runs in the opposite direction. As the techno-bureaucrats extend their influence they become a pressure group within the state urging it to turn over more of its functions to private business. The forces working on the state to limit its autonomy and push it into a descending phase are now also

The Autonomy of Developmentalistist States 53

felt internally as well as from external pressure groups. So changes in the composition of the state elite and increasing conflict between its sections are an indication of the point which the state has reached in its Midas curve of ascending and descending development. The political elite represents its origins and past, the techno-bureaucratic elite its future. Growing pressures on the state associated with the decline of its autonomy exacerbate these differences and open up other divisions – even within each of the two groupings mentioned. Mass pressure for democracy or a militant workers’ movement might split open previously closely knit groupings, dividing them into hard-liners and softliners, between traditionalists and reformers and in many other ways. In the early ascending phases of the developmentalist states such divisions are relatively minor because external pressures are more easily contained. Later, as the pressure builds, they may become central to political events.

Forms of state autonomy The debate on state autonomy within Marxism and also between Marxists and state theorists such as Skocpol, Evans, Trimberger, Weiss and Hobson has been one about whether and how much autonomy exists for particular states. This quantitative dimension is important, and indeed, as is argued above, is a central variable in the rise and decline of developmentalist states. But there is another dimension to the question. As we have seen, the autonomy of the European late industrialisers and of Japan each emerged in quite different ways, and was therefore based on locally specific configurations of classes. We have already seen the differential developmental abilities of the French, German, Russian and Japanese states in the nineteenth century and traced these, in part, to varying strengths and weaknesses of social classes. As a result, we cannot simply position each on a single linear scale of degrees of state autonomy. Since we are dealing with different class configurations we must see them as different forms of autonomy. Thus, in addition to measuring different degrees of autonomy, we must introduce a qualitative element. A high-level of autonomy from the capitalist class but a low level of autonomy from a landowning one does not allow the state to pursue the same policies were the situation to be reversed. Strong autonomy from the working class but weak autonomy from the capitalists produces different state abilities yet again. A large, potentially

54 The Politics of Developmentalism

rebellious peasantry is likely to force the state to make concessions different from those required by a powerful bourgeoisie. Given the various classes and fractions of classes involved, there are many such possible combinations of class strength and weakness in any specific case of ‘exceptional’ autonomy. Thus states are not only autonomous to different extents, they are autonomous in different ways. These forms of autonomy are a product of the historical trajectory of classes and the state rather than an act of free choice of the state elite, who act within the constraints imposed by such forms. Moreover, since the abilities of a developmentalist state vary with the form of autonomy it possesses, we can expect forms of state autonomy to be closely related to the specific developmental strategies and public policies which each state pursues. Thus an ontology of the developmentalist state and its public policy requires a phylogeny – a study of the evolution of each state’s form of autonomy. Development, then, is not merely a technical problem of policy choice, but an historical one of the emergence or otherwise of these structures or forms of state autonomy. The research agenda which flows from this model involves an investigation of the forms and emergence of state autonomy and the creation of a typology of the developmentalist state based on these, bearing in mind the dynamics dealt with above: that each form of autonomy is itself subject to transformation over time.

Propositions We are now in a position to connect strands from a number of quite different theoretical traditions in a new synthesis. These include the essential insights of Gerschenkron on the importance of state intervention in late development, the neo-statist position which deals with the relative autonomy of the developmentalist state, and the Marxist emphasis on the centrality of class interest, class conflict and the configuration of social classes to an understanding of social structure and change. The model advanced here – called for convenience the ‘Midas state’ model – involves firstly approaching the NIC states as developmentalist states which use their relative autonomy to intervene regularly and heavily to transform the economic and social structure of their countries and their relative position in the world-system. Secondly, the model suggests the need for a typology of the developmentalist state based on the form of autonomy it possesses. Each form of state autonomy is related to the abilities of the state in various areas

The Autonomy of Developmentalistist States 55

and therefore to the developmental strategy pursued. Thirdly, the Midas state model posits an ascending and a descending phase of the developmentalist state’s autonomy. The eventual decline of the state as a Midas state is built in to its earlier success. With that, the developmental effort of the state and the control which it once exerted is diminished. The Midas touch is eventually lost. Fourthly, within this model, in the transition between ascending and descending phases, an interval of policy confusion and oscillation between state strategies is likely to take place. Finally, the composition of the state elite changes with the movement of the Midas state through these phases, with a political state elite losing and a techno-bureaucratic one gaining in prominence and influence.

3 Mexico: from Revolution to ‘Perfect Dictatorship’

As it prepared to become the first Third World country to host the 1968 Olympic Games, Mexico was widely considered to be a ‘miracle’ economy. That assessment is now often forgotten because of its more recent poor economic performance. But, in fact, the intensity and duration of economic growth in Mexico was remarkable. Between 1940 and 1980, it recorded an annual average growth of gross domestic product (GDP) of over 6%; an achievement matched by very few advanced or developing countries over that period. Moreover, this high rate of growth took place in apparently sustainable circumstances; until the 1970s, inflation remained below 5%. Per capita income rose at an average of 3% between 1940 and 1954 and at 3.3% between 1955 and 1972.1 The value of manufacturing output reached 28% of GDP in 1977; a level similar to that of highly industrialised countries.2 Manufacturing also came to contribute crucially to the country’s export income – rising from a mere 3% of export value in 1940 to 12.6% in the late 1950s, to over 40% in the early 1970s.3 The highest growth rates in manufacturing were posted by heavy industry – especially the capital goods sector. The steel, chemical, machinery and transport equipment industries all grew significantly faster than the economy as a whole. As might be expected in a situation where such capital-intensive industries led the way, labour productivity rose very fast – at least until 1975.4 This rapid growth was largely fuelled by a major increase in the mobilisation of internal resources. The proportion of GDP being invested more than doubled – from 9% to 20% between 1940 and 1960.5 Up to the eve of the 1968 Olympics this economic growth was still combined with an imposing political stability. Since the 1920s the 56

Mexico: from Revolution to ‘Perfect Dictatorship’ 57

military have been kept on the political sideline. Alone in Latin America, Mexico can boast that it has had no successful military coup d’etat since 1920. Indeed, although elections had been held on schedule since 1920, only one party, the Partido Revolucionario Institucional (PRI), had ever formed a government at the national level between 1929 and 2000.6 But rapid industrial development did not benefit all Mexicans equally. In the early 1970s, after three decades of rapid growth, Mexico had one of the most unequal distributions of income in the world. In 1975, more than 35 million people, 65% of the population, were described by the World Health Organisation (WHO) as having a food intake below the minimum requirement.7 Between 1958 and 1977 – the core period of the ‘miracle’ – the share of national income going to the poorest fifth of households was halved.8 Economic development has been harsh, even cruel, for many Mexicans. But it has occurred at a pace and over such a sustained period that Mexican industrialisation must be considered unusual.

The developmentalist state in action, 1940–70 The driving force in industrial expansion in Mexico was the state. Its average share of total investment between 1940 and 1975 was 39.2%, reaching a high point of 45.6% in 1973.9 Central to state investment were a wide range of government business enterprises, a key state financial institution, Nacional Financiera (NAFIN), and the Bank of Mexico. State-owned corporations dominated many areas of the economy between the 1950s and the early 1980s. By 1978, the 29 state-owned corporations in the top 100 businesses held 68.3% of the total capital of that group. Amongst the top 50 companies the state was even more predominant; the assets of the 17 state-owned companies among them represented 71.5% of the total assets of the group.10 State companies included strategically placed manufacturing giants such as the steel company Altos Hornos de México and others involved in the production of petrochemicals, copper, fertilisers, electric power, truck manufacturing, newsprint and much else. Petróleos Mexicanos (PEMEX) – the state-owned oil company – became the largest corporation in Latin America. As well as its own direct investments, the state effectively forced private financial capital into public enterprises. From the 1950s, financial institutions could meet their reserve requirements either by lodging cash with the Bank of Mexico – in which case they earned no

58 The Politics of Developmentalism

interest – or by buying interest-paying government bonds or issues of public enterprises which paid dividends. Obviously, most chose the latter courses and thus found themselves effectively investing in public companies. Private domestic and foreign capital was also voluntarily drawn into joint industrial ventures with the state, but in two-thirds of such cases, the government maintained control through a majority shareholding.11 Such a high level of state investment tended to concentrate on both financial and industrial capital. State policy favoured larger enterprises and only the biggest private companies could either compete with the state or gain from its immense power. NAFIN played a major part in this process of concentration. By 1960, half of its credits and securities were in just ten firms in which NAFIN was a majority shareholder and another 20% was in state firms. 12 In the 1970s, two banking groups controlled 72% of the total resources of the private sector and 51% of the total capital reserves of the economy as a whole.13 At the end of the developmental period in the early 1980s, Mexico had a level of industrial concentration similar to or higher than most advanced economies; just 0.82% of firms accounted for 64.3% of total production.14 Heavy state intervention and policies designed to produce rapid industrial growth began in 1936–37 with tariff changes which strongly protected domestic industry. Then the oil industry was nationalised in 1938.15 Use of the state to promote industrialisation intensified in 1954 and 1955 with sweeping tax exemptions for targeted industries, still broader protection and a ‘Law of New and Necessary Industries’ designed to encourage strategically central sectors.16 This state intervention and ownership, begun in the 1930s and continued until the early 1980s, might be expected to have alienated private capital. Indeed, there were important conflicts between domestic capitalists and state political and technocratic leaders. But private business also benefited enormously from the Mexican state’s emphasis on industrial expansion. The state subsidised large-scale private capital by maintaining low prices for state-produced goods – especially oil – but also steel, chemicals and other capital and intermediate goods. Had the state maintained market prices for these goods it would have shown a budget surplus for every year between 1965 and 1980. Instead, as a result of such subsidies, it was running a budget deficit of about 20% of GDP by the end of the period. The very size of the state made many sections of the domesticallyoriented private bourgeoisie dependent on it for contracts and, more

Mexico: from Revolution to ‘Perfect Dictatorship’ 59

broadly, on the demand that it created. Private capital also gained from state financing and government investment in joint ventures and from tariff protection. So, until the 1980s, business challenges to the governing party were rare and weak. Most businesspeople stayed out of politics or became members of the PRI. A poll of business leaders in the 1980s found that only 17% of industrialists and 22% of company presidents admitted membership of a political party. Of these, three-quarters were members of the PRI.17 Despite the huge investments undertaken and the subsidies provided to the industry, the Mexican state was one of the lowest taxing in Latin America throughout most of its long period of economic expansion. Only Honduras and Guatemala had a lower ratio of tax to gross national product (GNP) than Mexico in the two decades after 1940. Brazilian government revenue as a percentage of GNP was nearly three times that of Mexico in 1965.18 The Mexican state maintained a highly interventionist approach but did so while draining relatively few resources from elsewhere in society. This was possible because, until the 1970s, state spending was highly focussed on industrial development. Between 1940 and 1975, the industry and infrastructure share of total public spending never fell below 56%.19 Relatively small amounts went to education, health and other social services or, crucially, to the military. From the 1930s to the 1970s, the Mexican state developed a peculiar ability to contain popular demands for higher wages and improved living standards even while profits boomed. Furthermore, although it used many forms of violence against its internal opponents, the levels of repression it employed were, for the most part, much lower than other Latin American countries in the same period. More often than not it was able to undermine mass opposition before it became a major threat. This ability to concentrate scarce capital resources on industrial development, while simultaneously containing popular demands was a crucial element of Mexican state-led growth. In Latin America, only Costa Rica and Panama spent less on the military as a proportion of their GNPs than did Mexico.20 Indeed, on a per capita basis, both the numbers of the military and the military budget were amongst the lowest in the world. Elsewhere, the military has often intervened when there have been major disputes between or within elite groups or in the context of a serious challenge from subaltern classes. In Mexico it hasn’t done so because such divisions have been contained and thus there were no obvious supporters for it to play a directly political role.

60 The Politics of Developmentalism

The state and foreign capital Mexico’s 3,200 kilometre border with the US has meant that relations with the world’s most powerful state and economy have been central to its history and recent economic development. Mexican nationalism remains a powerful force in its politics; few Mexicans have forgotten that the US annexed half of their national territory. Mexican economic plans have inevitably had to take account of the proximity to and connection with the most powerful economy in the world. Throughout much of the nineteenth century the relationship was a classic one of dependency. The revolution of 1910–20 and its aftermath transformed the situation. It almost completely halted foreign investment, except in the oil industry. Then the Depression of the 1930s caused international capital flows to dry up anyway.21 In 1938, Mexican President Lázaro Cárdenas nationalised the US and British-owned oil industry, suggesting to foreign capitalists that the regime might be serious about some of its socialist rhetoric. But after World War Two, Mexican governments, beginning with that of Miguel Alemán (1946 to 1952), actively sought foreign – primarily US – capital investment, especially in manufacturing. As successive administrations created excellent conditions for rapid accumulation, foreign capital flowed in. In the two decades after the war, the total value of foreign direct investment (FDI) in manufacturing increased five-fold.22 By 1972, 32% of the largest 500 firms were foreign affiliates.23 By the mid-1970s, foreign capital accounted for 36% of the income of the largest 400 companies and nearly half of the industrial product of the largest 290.24 This investment was concentrated in the north of the country – although only a small proportion of it was actually in the border region. In 1964, the Border Industrialisation Program was established allowing assembly plants to be set up there – the maquiladoras. Components were imported for the maquiladoras duty-free and finished goods taxed only on the value added. Nor was post-war industrialisation in Mexico autarchic in terms of trade volumes and patterns. Between 1950 and 1976, the ratio of foreign merchandise trade to GDP was always relatively high – ranging between 17.3% and 21.4%.25 The US has been the destination for 60–80% of Mexico’s exports throughout the post-war period.26 The PRI has frequently launched verbal assaults on US imperialism – but largely for the purposes of strengthening its revolutionary nationalist credentials at home. Usually, the US State Department accepted

Mexico: from Revolution to ‘Perfect Dictatorship’ 61

that this was meant for domestic political reasons and was seldom backed by serious action. Alone in Latin America, the Mexican government refused to break off ties with Cuba.27 But its policy here was typical of its hypocritical position in relation to the US. Two flights were allowed each week between Mexico City and Havana during the 1960s but, to keep the US happy, the CIA was allowed to record and photograph all travellers to Cuba.28 Other points of conflict between the US and Mexico were attitudes to the Sandinista government in Nicaragua, the armed struggle in El Salvador and the Allende government in Chile. The Mexican government strongly supported Allende in the early 1970s and provided as much as US$200 million in aid for the Sandinistas.29 The rhetoric of nationalism was politically valuable to the PRI, but it never allowed this to undermine its strategy since the 1940s of collaboration with US capital – involving an inflow of US investment and access to the US market. On the other hand, neither was foreign capital simply allowed to do as it pleased – to operate purely according to market laws or to ‘diffuse’ throughout the host country. On the contrary, it was quite highly regulated, channelled into sectors which the Mexican state decided matched its industrialisation plans, and forced to make space both for the domestic bourgeoisie and for public enterprises. The tacit understanding, until the 1980s, was that the Mexican state would welcome US capital but would still aggressively make space for the local bourgeoisie and for state enterprises and maintain some measure of control. In 1944, President Avila Camacho began a ‘Mexicanisation’ program; a policy which continued until the late 1980s. It required all firms operating in the country to have at least 51% Mexican ownership. Where Mexican private capitalists could not raise the 51% investment required, the state provided it. There was an even tougher line on banking; no foreign banks were allowed to operate in Mexico from the 1940s until the 1980s. Until the early 1970s, there was a steady stream of nationalisations and ‘Mexicanisations’ of foreign enterprises. The production of basic petrochemical products was reserved for the state in 1958. Shortly after, the maximum level of foreign ownership in secondary petrochemical production was set at 40%. In 1960, the two remaining foreign companies involved in electrical power generation were nationalised. This was closely followed by the requirement that all new mining operations were to be 66% Mexican-owned.30 An important example of this process was the ‘Mexicanisation’ of the US copper

62 The Politics of Developmentalism

giant, Anaconda, whose Cananea mine was ‘Mexicanised’ in 1971 with money supplied by NAFIN. Two years later NAFIN did the same with the US firm, John Deere.31 Even when there was no question of public ownership, the Mexican state still refused to allow foreign companies to shape the economy. In 1960, the government of President López Mateos intervened in automobile manufacturing after deciding that Ford and General Motors were using Mexico as a site for the lowest value-added production in the industry – assembly. In an attempt to create a more broadly-based industry, the government insisted that 60% by weight of the components of passenger cars assembled locally be manufactured in Mexico. Ford and GM at first claimed that this would be unworkable. But the government stood its ground and the companies eventually agreed.32 The state had at its disposal such a wide range of inducements and sanctions that it had considerable leverage even over these multinational giants. The firm position which the Mexican state took in relation to foreign capital was also illustrated in the 1965 conflict between it and the American-owned Pan-American Sulphur Company (PASCO). By this time, Mexico was the world’s biggest producer of sulphur and PASCO dominated the industry. Concerned that Mexican sulphur should be conserved for future domestic use, the government limited leases and imposed a cap on exports. PASCO demanded an end to the limitations. The response was sharp and clear – all sulphur exports were immediately halted by the government. Then the company was ‘Mexicanised’; 66% of PASCO was bought out by domestic and state capital.33 Despite this high-level of state interference, US capital continued to pour across the border. It did so because the Mexican state had created an investment environment which returned extremely high rates of profit. On average, between the end of the Second World War and the 1980s, rates of return for US investors in Mexico were about 50% higher than they could obtain in the US.34 The autonomy of the Mexican state enabled it both to cooperate with foreign capital for mutual benefit while still maintaining enough domestic strength to stand up to it when necessary.

Origins of state autonomy: the Revolution, 1910–20 The unusual abilities of the Mexican state to play a powerful developmental role over a prolonged period were derived from its origins in the revolution which began in 1910 against the dictatorship of

Mexico: from Revolution to ‘Perfect Dictatorship’ 63

Porfirio Díaz. Díaz came to power in 1876 and his long rule, known as the Porfiriato, left Mexico with severe social tensions. In the countryside, just 834 hacendados (owners of large estates – haciendas) controlled over 80% of the inhabited communities of Mexico. Traditional collective and semi-collective landowning communities – the ejidos and pueblos libres – had been pushed to the margins of society by large-scale capitalist farming – the latifundios. A small bourgeoisie engaged in manufacturing was established around Monterrey and Puebla in the north. But the economically dominant class were the latifundistas, the richest of whom were also concentrated in the northern part of the country. Díaz had built around him a state elite known as the científicos. After such a long period of dictatorship, strains had developed in the relationship between Díaz and this group on the one hand and the agrarian and manufacturing bourgeoisie of the north, who felt excluded from political power, on the other. A small, but increasingly restive, working class was also extremely alienated from the regime. An important strike at the Cananea copper mine in 1906, then owned by a US company, broke out against management’s discrimination in favour of anglo workers. The strike was eventually smashed with the help of US forces. The following year, textile workers at Río Blanco struck for better wages and the right to form a union. Influenced by anarchism, each strike had insurrectionary overtones. The dictatorship was being challenged by peasants and workers in what many thought would be a revolution from below, yet it was also alienated from the wealthy classes of Mexican society. With his regime increasingly isolated and under pressure, Díaz decided on a gesture of reform. In deference to the rising power of the northern commercial classes, he raised hopes that the presidential elections of 1910 would be relatively open. But as the election approached, he reneged and moved to ensure yet another term for himself. In those elections Franscisco I. Madero, from a family of northern landowners with mining and industrial interests, stood against Díaz on the platform of universal, effective suffrage and no re-election. Madero and his supporters aimed at a reform from above which might head off a revolution from below. Such hopes were dashed when Díaz was returned to the Presidential palace and Madero was jailed. Later, in exile, Madero’s plan was expanded; he suggested that some lands should be returned to the peasants. Although he certainly never intended it, the peasants began to arm themselves and take land by force. The revolution had begun.

64 The Politics of Developmentalism

With masses of peasants mobilised, the regime was easily overthrown in just a few months. The peasants had joined the revolution to fight for land above all. But Madero, soon the new President, wanted the preservation of the old economic order. He dropped the land question and attempted to disarm the peasant armies. Emiliano Zapata, the great peasant leader of southern Mexico, now attempted to continue the social dimension of the revolution. He issued a program demanding land for the peasants, including the seizure of the land of the Catholic Church, and the nationalisation of the property of counterrevolutionaries. Moreover, having lost faith in Madero, he called for it to be done with guns in hand. Madero himself was considered weak – especially by the US ambassador – who backed a coup against him by General Victoriano Huerta in which the new president was assassinated. Huerta immediately faced two opponents: the revolutionary peasant armies, known as the Conventionists and led by Zapata and Franscisco Villa, and those forces controlled by the bourgeois groups which had originally supported Madero – the Constitutionalists – led by Venustiano Carranza. When Huerta was defeated, the battle between these two elements – bourgeois and peasant – became the main axis of struggle – the third civil war in four years. The peasants, both villistas and zapatistas, with the cooperation of some of the anarchist workers of the Casa del Obrero Mundia (COM), or House of the World Worker elected their own interim President in October 1914 – the first of three Conventionist Presidents. Militarily, it seemed that they would win the struggle. Indeed the peasant armies occupied Mexico City in December 1914. But from that point the uneasy alliance between peasants and workers began to break down. The peasant leadership had not put forward a plan radical enough for the workers, and the anarchistinfluenced worker activists found little in common with the deeply religious peasants occupying the capital. In truth, the peasant rank and file did not want to rule Mexico, nor to remain in control of the cities. Above all they wanted land and the sooner they returned to it the better. The peasants, like those who had supported Louis Bonaparte, although they constituted the ‘most numerous class’, were incapable of ruling society. The critical turning point in the revolution was the decision by one of Carranza’s key generals, Alvaro Obregón, to seek an alliance with the anarchist workers of the COM against the peasant forces. Obregón gave the COM a school and a press, both of which had been taken from the church. Carranza initiated a decree recognising the rights of

Mexico: from Revolution to ‘Perfect Dictatorship’ 65

labour. In 1915, during an electrical workers’ strike, Obregón put the company under union control. Promised major changes in working conditions and in the right to organise, the COM agreed to the alliance. It organised 7,000–10,000 workers – the six ‘Red Battalions’ – from around Mexico City to fight alongside Carranza’s army against the peasant forces.35 They also became active propagandists for Obregón and Carranza in the cities. The organised working class had now become a major support for the new regime of Carranza and a means of defeating the peasants – the real force which had made the revolution. The importance of the workers’ movement in the formation of the government was recognised in the revolutionary constitution of 1917. It gave workers rights to strike, boycott, and organise, decreed a minimum wage and the 8-hour day, set health and safety standards and even required employers to pay strikers for time lost in legal strikes. Until the October revolution in Russia later that year, it was the most pro-labour legal framework that had ever been introduced. The revolution, for all its faults, had brought the masses into action and therefore produced a genuine striving for a better and more egalitarian society. But Carranza and Obregón did not keep their bargain with the working class. High inflation undermined wages, food was short in Mexico City and unemployment rose, contributing to strikes led by the COM in 1915 and 1916. Government repression quickly followed. The Red Battalions were disarmed, martial law declared in August 1916, the strikes smashed and the COM declared illegal. The anarchists in Mexico represented the most militant section of the working class at this time. But their principles, emphasising abstention from political activity and absolute opposition to taking state power, were incapable of dealing with the complex political situation of revolutionary Mexico. Above all, they could not imagine a scenario where they might take power themselves in alliance with the revolutionary peasantry. Instead, the majority of the COM entered the disastrous pact with the bourgeois Constitutionalists against the peasants. When, too late, they took action alone against their former allies and were defeated in 1916, the anarchist movement was fatally weakened. A more reformist grouping, the Confederación Regional Obrera Mexicana (CROM) under the leadership of Luís Morones, took their place in 1919. In the same year, what remained of the peasant revolution ended with the assassination of Zapata. Morones and the CROM supported Obregón in the overthrow and assassination of Carranza in 1920 and again when Obregón was

66 The Politics of Developmentalism

challenged by General Adolfo de la Huerta in 1923. Some sections of the labour movement supported de la Huerta as did two-thirds of the army. Obregón had learnt the lesson of the Red Battalions – controlled mass mobilisation could make the difference in the struggle for power. He called on peasant and worker militias for help. In response, the peasant organisation – the Partido Nacional Agrarista – armed 6,000 men. The CROM and its political arm, the Partido Laborista (PL), put many thousands under arms. CROM support tipped the balance for Obregón in a major conflict which involved months of fighting and left 20,000 dead. In return for backing Obregón, the CROM received government aid in enrolling members and in wiping out the remaining anarchist elements of the movement. Moreover, within a few years, the CROM bureaucracy was rewarded with major government posts. It soon controlled the Ministry of Labour, Industry and Commerce, and the juntas de conciliación y arbitraje – a federal system which arbitrated and effectively determined the outcome of labour disputes. So, by the early 1920s, there were already three instances – the ‘Red Battalions’ in 1915, the overthrow of Carranza in 1920 and the defence of Obregón in 1923 – when the mobilisation of workers had been crucial to the outcome and to the formation or maintenance of state power. The last two of these were mobilisations carried out in an extremely controlled fashion by reformist bureaucrats, rather than upsurges of the rank and file. Mass mobilisation and revolutionary rhetoric were built in to the fabric of the new state, but that state had no intention of handing over power to the workers or building a socialist society. Indeed, the workers’ leaders themselves did not desire such an outcome. The more conservative of the revolutionary generals and politicians, Carranza, and even more Obregón, had successfully manoeuvred between classes to raise themselves to power, first with the help of first the peasantry, and then of the working class. When the chance of either of these classes seizing power had receded, it became possible to construct new, highly bureaucratic organisations whose leaders would support the state by controlling mass mobilisations and by undermining genuine resistance to the regime. The power of the old oligarchy of capitalists, landowners and the Church, which had been dominant under the Porfiriato, had already been broken by the revolutionary masses. In addition, the sheer ferocity of the struggles – between one and two million were killed from a population of 15 million – destroyed much of the structures of local

Mexico: from Revolution to ‘Perfect Dictatorship’ 67

capitalist power. The small urban bourgeoisie, probably already incapable of leading any serious industrial development, was weakened even further. The mass and popular aspects of the revolution didn’t end capitalism, but they did undercut the political power of the capitalist class. In this way, those who controlled the new state found themselves in an exceptionally strong position vis-à-vis all other social classes. The revolution was bourgeois in its outcome, but it took place in the context of a very weak bourgeoisie and brought, for the first time and on a mass scale, workers and peasants into politics. Thus the relative autonomy of the Mexican state developed a peculiar twist – one where bureaucratic mass organisations were necessary to the state and, indeed, became central to the party which controlled it.

Consolidating the revolutionary state, 1920–40 Although the revolution was over, the regime was still far from stable in the 1920s. The CROM and the PL had emerged as a virtual arm of government, but Morones was not yet entirely in control of the working class. The anarchist Condeferación General de Trabajadores (CGT) still held the allegiance of many powerful sections of workers. Strikes amongst railroad workers, petroleum workers and streetcar workers between 1919 and 1925 were influenced by the CGT. However, the crushing of those strikes helped to consolidate the regime and, increasingly positioned the CROM as the major organisation of the working class. Furthermore, the government positions occupied by Morones and other CROM leaders helped them to defeat rivals such as the CGT.36 A second source of instability was the highly militarised nature of Mexican society in the wake of the revolution. During the fighting, the Constitutionalist army had been controlled by 11 divisional generals, each operating with considerable autonomy in his own region. After the victory, these commanders and their entourages became the effective governmental power in much of the country. The rebellion of de la Huerta, supported as it was by most of the army, illustrated the dangers. As Marx noted in relation to Louis Bonaparte, those who come to power on the basis of army support are likely to find their future adversaries within that same army: ‘In proclaiming himself the chief of the Praetorians, he declares every Praetorian chief his competitor’.37 Obregón ordered the execution of all leaders who supported de la Huerta. Then he cut the military budget and tried to separate the remaining revolutionary generals from the army by providing them

68 The Politics of Developmentalism

with opportunities in business and in political office as state governors and in other high posts.38 But the incident emphasised the importance to the regime of mass organisations of workers and peasants loyal to it. The army alone could not be relied on. A further indication of the shaky nature of the state in the 1920s was the cristero rebellion. Between 1926 and 1929, these Catholic forces opposed to the strongly anti-clerical elements of the revolution and the Constitution of 1917 battled the government in large parts of central and western Mexico. In 1928, Obregón himself was assassinated by a cristero fanatic.39 Finally, the crash of 1929 and the subsequent Depression, following the enormous economic dislocation already caused by the revolution, increased the peril facing the government. After Obregón’s first term as President, a close ally, Plutarco Elías Calles, succeeded him in 1924 and ruled until 1928. It was during this time that the CROM and its leader Morones became a central prop of government. As well as having control of the Ministry of Labour, Industry and Commerce, he was appointed to a key post as head of the Department of Military Manufacturing and Provisions and put in charge of the oil industry. Other cromistas were given high government bureaucratic positions and CROM officials made up 11 of the 58 senators and 40 of 272 congressmen.40 Such power presented the CROM bureaucrats with vast opportunities to enrich themselves and to dispense patronage. Furthermore, CROM control of the juntas de conciliación enabled it to support unions affiliated to it and to disadvantage others. It maintained its own force of strike-breakers ready to smash militancy which it did not control.41 But the power of the CROM – although central to the stability and even the existence of the state – was also a threat to it. Tension between Morones and Calles began to develop until, in 1928, an open split took place. The CROM needed state patronage as much as the state needed the support of a major union grouping. Cut off from government backing, unions began to disaffiliate from the CROM. In 1929, the most important section left it – the Federación Sindical de Trabajadores del Distrito Federal (FSTDF) – a grouping of unions in and around Mexico City involving many workers in small workplaces, street vendors and others. Led by Fidel Velázquez and four other officials – los cinco lobitos (the four little wolves) – they were largely dependent on state largesse. Velázquez was soon to become central to the union movement and to the Mexican state for more than five decades. These leaders now had the support of the new President, Emilio Portes Gil. He and the following two Presidents, Pascual Ortiz

Mexico: from Revolution to ‘Perfect Dictatorship’ 69

Rubio and Abelardo L. Rodríguez were effectively puppets of Calles, the big boss (Jefe Máximo) in a period known as the Maximato. Behind the scenes, Calles effectively determined which unions and union officials would be favoured. The significance of the rise and fall of the CROM is that it illustrated the real relationship between the state and the union leaders. The union bureaucracy needed the state for support against competitors in the working class, for patronage and to maintain their own organisations intact. The state needed mass organisation of the sort that the union officials commanded. But the state leaders were not wedded to any particular group of union bureaucrats. They could pick and choose between individuals, unions and federations. Since there were always plenty of career-minded opportunists in the bureaucracy, whenever necessary the state leaders could split a group of them away and supplant the formerly dominant section. The state leadership could choose which of many bureaucracies to which it might orient. But the union leaders could orient to only one state. Their dependence on it is illustrated by the fate of the CROM. Within a couple of months after Calles and Portes Gil withdrew their support, it entered a rapid decline. By the early 1930s, four union federations existed: the CROM, the CGT, the purified CROM (CROM depurada) led by Vicente Lombardo Toledano, and the Confederación Sindical Unitaria de México (CSUM) organised by the Communist Party. All placed great importance on obtaining state support. The CSUM, although it contained many of the most militant workers, also became virtually uncritical of the state as a consequence of the popular front strategy imposed by the Comintern. The person to emerge as the leading figure following this reshuffling of the union bureaucracy was Vicente Lombardo Toledano, a radical CROM official who left it to form the CROM depurada. The new organisation was seen as more militant and less corrupt than the old Morones clique. By 1933, Lombardo had succeeded in uniting several union federations into a new, much larger one with himself as its general secretary and including Fidel Velázquez in its leadership. The reshuffling of the union movement in this way coincided with yet another split in the state elite. Expecting to be the power behind the Presidency yet again, Calles supported Lázaro Cárdenas as Presidential candidate in 1934. But, contrary to expectations, Cárdenas set out to build his own, independent base of support premised on a radical, even socialist, image and a closer relationship with the peasant and worker organisations. Besides, by 1934 the Mexican economy was recovering from the Depression and worker militancy was beginning to

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revive; from just 11 strikes in 1931 to 202 in 1934 to 674 in 1936.42 A wave of left-wing radicalisation was taking place which might pose problems for a regime whose revolutionary credentials were looking rather faded. Cárdenas and his close supporters thought to ride the wave of militancy – the better to avoid being engulfed by it. This approach threatened the power which Calles had carefully accumulated over more than a decade. A confrontation within the official revolutionary elite was inevitable and the key ally for Cárdenas was now Lombardo and his new union federation. In late 1935, Lombardo and the Communist Party organised a demonstration of 80,000 in support of Cárdenas. Mass support like this enabled Cárdenas to carry out a purge of Calles supporters in the ruling party and the government. Congress expelled 17 Deputies and five Senators. The governors of ten states were prosecuted.43 Calles was forced into exile in 1936. Cárdenas had triumphed in the intra-elite battle with the help of Lombardo’s unions. A further consolidation of these unions under the leadership of Lombardo took place the following year. The new Confederación de Trabajadores de México (CTM) was not merely closely allied with Cárdenas, it became a constituent part of his political party. By 1941 it had 1.3 million members. The approach of Cárdenas to the labour movement was summed up by his intervention in a series of strikes in Monterrey in February 1936. When the workers’ strikes were recognised as legal the employers began a lockout. In response, Cárdenas issued a 14 point manifesto, one of the key documents on which his radical and pro-labour reputation came to be based. On the one hand, Cárdenas warned the capitalists that the state would not permit them to prosecute the class struggle independently and that any attempt to do so would result in them losing everything. To the workers, Cárdenas proposed a single union federation and the exclusion of ‘minority groups’. But this unity was not to mean that the workers themselves were allowed to be the agents of their own liberation. That place was to be reserved for the state: ‘The government is arbiter and regulator of social problems’.44 Between 1934 and 1940, under the Presidency of Cárdenas, the developmental nature of the Mexican state took its final shape based on this central role in overseeing clashes between classes and between domestic and foreign capital. In 1937 and 1938, a dispute involving the state, labour and foreign capital illustrated perfectly the dynamics of the new relationship between each of these elements. Strikes in the oil industry – mostly owned by British and US interests – brought in the junta de conciliación which found that management

Mexico: from Revolution to ‘Perfect Dictatorship’ 71

had the ability to pay the workers. Eventually, the Supreme Court agreed. The reluctance of the companies to do so finally convinced Cárdenas to nationalise them in March 1938. This action intensified both class and nationalist consciousness in the working class as a whole and amongst the oil workers in particular. As soon as the nationalisation decree was issued, workers seized oil fields, refineries, gas stations, tug boats, pipelines and company offices.45 They did so partly to prevent management sabotage, but also as part of a widespread demand that the industry be put under workers’ control. The nationalisation also encouraged workers in the industry to pursue their wage demands. In response, Cárdenas issued another 14 point list to the oil workers’ union, the Sindicato de Trabajadores Petroleros de la Républica Mexicana (STPRM) – demanding wage cuts, sackings and making it clear that control of the new state company – Petróleos Mexicanos (PEMEX) – would remain in the hands of management. Strikes were banned. Nevertheless, 6,000 union members voted both to stop work and to leave the CTM.46 Now Lombardo and the CTM proved their usefulness to the government. He accused the workers of being ‘counter-revolutionary’ and agents of the former foreign owners.47 The army was sent in to break the strike at a refinery in Mexico City. The oil workers were beaten in a newly nationalised industry as a result of the joint efforts of the government and the CTM. The strikes in Monterrey in 1936 and in the oil industry in 1937 and 1938 showed that the Mexican state, under Cárdenas and after, was capable of strong action against both domestic and foreign capitalists on occasion and of an impressive line in radical rhetoric. But it was also dedicated to the preservation of an economic and social order which precluded any move to workers’ democracy or socialism. The CTM, under Lombardo and later under Velázquez, was a crucial mechanism preventing disruptions to that order. Moreover, its participation in the government added a populist and pro-labour veneer to the regime. The peasantry had borne the brunt of the fighting in the revolution, but, in the end, its aspirations for an equal share of the land were disappointed. Zapata was assassinated in 1919. Villa was forced to agree to retire from politics in 1920. He too was assassinated in 1923. Nevertheless, the Constitution of 1917 had recognised the importance of the peasantry to the revolution in Article 27, which gave legal recognition to an institution known as the ejido. This consisted of communally-held lands allotted to the heads of families, usually for only one

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lifetime. Then the land would be reassigned, mostly to the eldest son of the family, with the agreement of the local community. The user of the land was not the owner; it could not be sold, rented or mortgaged. Constitutionally, ejidal land belonged to the nation rather than to those who farmed it. Despite the existence of the ejido and of a series of land redistributions in the 1920s, by the time Cárdenas came to the presidency, two-thirds of rural dwellers were still without land. While the peasantry were of declining importance as a political force compared to the urban working class, they nevertheless made up over two-thirds of the population. In the attempt to build a strong state with mass support, Cárdenas could not ignore them. In 1937 he initiated a land reform, limiting each farmer to 150 hectares of irrigated or 300 hectares of non-irrigated land. He also ended many of the exceptions which large landowners had used to evade earlier land reforms.48 Whereas all the Presidents since 1920 had redistributed a combined 26 million acres of land, Cárdenas alone redistributed 29 million acres. By the end of his term, about one-third of the population had received land in the reform. The bulk of the arable land of Mexico had now been redistributed. Most was distributed in the form of ejidos. Since this land could not be used as collateral for loans, ejidal farmers faced a chronic shortage of capital for seed or to make improvements. Accordingly, Cárdenas established a National Bank of Ejidal Credit to provide them with some limited funds. For collateral, the Bank retained the right to buy farmers’ crops at fixed prices. By 1940, half the rural population lived on ejidos and they produced roughly the same proportion of Mexico’s farm products.49 The major peasant organisation, the Confederación Campesina Mexicana (CCM), had lobbied for Cárdenas as presidential candidate in 1934 and supported him against Calles after his election. In office, Cárdenas moved to formalise the relationship with the peasantry in the same way as was already happening with the working class. In 1938, he established the Confederación Nacional Campesina (CNC), the National Confederation of Peasants, as a constituent part of his political party. The CNC adopted a militant agrarian populist rhetoric – agrarismo – declaring itself in favour of the socialisation of the land. But this was to take place under government control and tutelage. Cárdenas refused to allow Toledano or other labour leaders to undertake the organisation of the peasants. The peasant and worker sections of the party were to remain distinct.60 In an echo of the revolution, peasant militias were formed, with government support, to fight ‘white guards’ in the countryside. Cárdenas

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declared that the peasants must be armed. The CNC, like the CTM, was to be used as a counterweight to elite resistance to the state. By the end of the Cárdenas presidency, virtually all that remained of the hacendado class had been abolished. Operating in the same way as the CTM did with the working class, the CNC was designed to undermine peasant rebelliousness which might get out of hand or be directed at the state. The ruling party takes shape Calles was the first to realise the importance of a mass political party to the stability of the regime. In 1929, he set up the National Revolutionary Party, Partido Nacional Revolutionario (PNR), the official party of the revolution. The pressing problem at that time was the centralisation of political power in an environment in which the local powerbases of regional caudillos still threatened any incumbent of the Presidential palace. Initially, the PNR was a party of parties – incorporating dozens of smaller groupings with some claim to the heritage of the revolution, but mostly with purely local followings. As a result of the formation of the PNR, the number of registered parties fell from 51 in 1929 to just four in 1933.51 Cárdenas then reorganised it as the Party of the Mexican Revolution, Partido de la Revolución Mexicana (PRM) in March, 1938 with the radical slogan: ‘For a workers’ democracy’. Although there was significant continuity in the politics and operation of the party, the change was more than just in name, program or rhetoric. The PRM now had four sectors. The first was labour – comprising the CTM, CGT and CROM. The peasant sector was the CNC. The military made up the third sector. The fourth – the National Confederation of Popular Organisations, Confederación Nacional de Organizaciones Populares (CNOP) – was for small businesspeople, state employees, housewives, tenant associations and anyone else who didn’t fit into one of the other sectors. Big business had no official place in the party but individual businesspeople could join the CNOP. The sectors were to be vast organisations through which the party leadership reached down into the masses, organising support for the state and neutralising opposition. This division of the party into sectors also served to keep the peasants and workers separate, reducing the likelihood that a worker-peasant alliance of the type that had been destroyed in 1915 would form once again. Membership of either the CNC or one of the labour federations – of which the CTM was the most important – automatically made one a member of the party as well. In 1946, the military sector was

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disbanded in an attempt to present the party as a civilian organisation distinct from the old revolutionary generals of the civil war period. Such was the domestic political strength of the party by then that the generals accepted their permanent exclusion from politics with little protest. At the same time, the name was again changed – to the Institutional Revolutionary Party, Partido Revolucionario Institucional (PRI) – its current name. The labour sector was tightly under the control of the CTM bureaucracy which, in turn, was under the even tighter control of CTM Secretary-General, Fidel Velázquez. The ossified and unresponsive nature of this bureaucracy is perhaps best illustrated by the length of his tenure. Velázquez was in substantial control of the union by the early 1940s. He remained its leader until his death at the age of 97 in 1997. At its formation in 1929, the stronghold of the party was the agrarian sector. The Cárdenas reforms, which distributed land to hundreds of thousands of peasants, made the ejido a solid base of support. But as Mexico began to industrialise, the CNC became less important than the other two. Nevertheless, all ejidatarios were automatically members of the CNC and therefore of the PRI as well.52 The CNC played a significant part in dampening discontent in rural Mexico and in dispensing patronage in the form of land grants, seeds, bank credit and jobs to selected supporters of the PRI – all lubricating the vast political machine.53 By 1940, at the end of the Cárdenas period, the PRI had basically assumed the shape which it maintained for at least the next 30 years; capable of directing and, to a large extent, fusing with a state dedicated to development. As a result of the changes made by Cárdenas, the PRI developed tentacles which reached into virtually every corner of Mexican society. Hardly any workplace, village, street, shantytown block or university department lacked some form of PRI presence or organisation. Party membership reached a claimed 14 million by the 1980s. Its size and sectoral organisation enabled it to co-opt potential opponents in the trade unions, peasant organisations, tenant and municipal organisations. For the politically ambitious, the PRI was almost the only route to advancement; whether at federal, state or local level. The PRI elite essentially was the state elite. The party enabled Mexico to become, as Mario Vargas Llosa once put it, ‘the perfect dictatorship’.54 Most importantly, it provided a social basis for rapid industrialisation – enabling state policy makers to ensure stability in the course of a painful and inequitable process of economic transformation.

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Cárdenas and the developmentalist state Mexican state autonomy was built in stages. The mass and radical nature of the revolution created the first precondition for this autonomy by smashing the political, and to a certain extent, the social power of the agrarian and industrial bourgeoisie. But the peasantry which had been the main force in doing so, could not hold power. Its own defeat was achieved with the help of the organised working class. However the workers, because of the disastrous alliance their organisations made against the revolutionary peasants in 1915 and also as a result of the weaknesses of their leaders’ anarchist politics, were never in a position to seize state power. Thus the regime that emerged at the end of the revolution already had significant autonomy from the classes of Mexican society. But the confidence and potential power of all classes can recover over time as the memory of previous defeats fades and a new generation emerges. By the early 1930s both the bourgeoisie and the working class showed signs of an increasing combativity, while peasant resentment at the lack of progress in land reform was on the rise. The autonomy of the state was under threat as a result. The Cárdenas Presidency represented a successful attempt to rebuild that autonomy by reinvigorating the mass institutions of peasants and workers and drawing their bureaucratic leaderships into close collaboration with the state. The mechanism for achieving this was the party which Cárdenas reorganised. Its mass institutions could then be used as a lever against the bourgeoisie, both foreign and domestic, and as a crucial means of undermining resistance to the state and its plans. By 1940, a peculiar, yet enduring, form of Mexican state autonomy had been created.

Maintaining state autonomy: 1940–70 Dealing with the private bourgeoisie The reaction from private capital to the nationalisations and radical rhetoric of the Cárdenas years caused some capital flight and a sagging economy around 1938. Accordingly, the next two presidents, Manuel Avila Camacho and Miguel Alemán Valdés, began a partial retreat from cardenismo. Compensation for the foreign oil companies nationalised in 1938 was agreed and efforts were made to reassure the bourgeoisie that their property was safe. Land redistribution slowed to a crawl. However, foreign capital especially, was still restricted and prevented from attaining a dominant position. In 1944, an Emergency Decree

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limited new foreign investment to a minority position – the ‘Mexicanisation’ drive. In 1958, foreign companies were required to divest their holdings in communications. The following year, foreign-owned power and light companies were nationalised. In the 1960s, local content schemes were imposed on foreign car manufacturers and ‘Mexicanisation’ extended to mining and petrochemicals. What became known as alemanismo emphasised the creation of a good business environment and cut back on the redistributive aspects and revolutionary rhetoric of the past, but preserved a central role for the state. Domestic capital was divided over the continuing dirigiste approach. In the north, especially around the city of Monterrey, capital was quite closely connected with US companies and, to some extent, oriented to the US market. What became known as the ‘Monterrey Group’ coexisted uneasily with PRI governments throughout the postwar period. These norteños felt that they had developed industry without much aid from the state. By and large, they simply wanted it to leave them alone, but, until the 1980s, they never felt politically confident to challenge it. On the other hand, in the sprawling industrial areas around Mexico City, many domestic capitalists were very content with the regime. They saw the advantages of an activist, protectionist, but low-taxing state, channelling resources to their industries through NAFIN while using its mass organisations to control wage demands and to ensure social stability. This faction of capitalists – dubbed the ‘New Group’ – produced primarily for the domestic market, were often reliant on the state for contracts and lacked close ties with the private banks.55 In 1942, they formed the Cámara Nacional de la Industria de Transformación (CANACINTRA), which remained generally supportive of the PRI for the next 40 years. A cleavage had been created in the private bourgeoisie, which, as was the case with Louis Bonaparte, helped to sustain the regime. Dealing with the peasants Government policy after Cárdenas was firmly oriented to industrialisation; the ejido was left to stagnate and urban industry absorbed the bulk of the available credit. But the government’s industrialisation program in the post-war period, especially during the shift to a vertical Import Substitution Industrialisation (ISI) strategy – an attempt to deepen industrialisation – required significant imports of capital goods and technology. The only way to raise the foreign exchange required for this was to increase agricultural exports. Thus, as the industrialisa-

Mexico: from Revolution to ‘Perfect Dictatorship’ 77

tion drive progressed, government policy came to favour larger capitalist farming over the mass of small farmers and ejiditarios. After Cárdenas, the following five presidents concentrated funds for agriculture on irrigated, capital-intensive operations producing cattle, fruit and vegetables for the US market.56 By the early 1980s, 85% of all credit provided to agriculturalists went to the wealthiest 0.5% of landowners.57 At first these boosts to commercial agriculture led to steady growth in the sector; the value of agricultural output grew at an annual average of 5.7% between 1940 and 1955 – only slightly less than the dynamic industrial sector. However, eventually, the rate of growth of agriculture slowed down significantly – to just 1.5% by the late 1960s.58 Under Cárdenas, 30% of ejidatarios received some government credit. By 1960, only 14% had access to such credit.59 Government policies supporting commercial agriculture caused further decline of the ejidos – many of which became unsustainable. By the 1980s, 80% of ejidatarios were unable to live on the proceeds of their plots alone and only 40% could earn even half their income from farming.60 Between 1950 and 1980, millions of peasants were forced to leave their farms or ejidos and hire themselves out as paid, often seasonal, labourers. In that period, the rural proletariat increased from 31.7% to 51% of the agricultural workforce.61 As commercial agriculture became more capital-intensive in the 1950s, even this option was closed to many rural dwellers. Between 1950 and 1960, the average number of days worked by landless labourers fell from 190 to 100 annually.62 The only possibility for many was to move to the cities – creating both a cheap labour force and huge shantytowns. The concentration of landholdings soon began to reach Porfirian proportions. By 1970, the 2% of farms of more than 1,000 hectares covered 76% of the arable land while the 51% which were under five hectares accounted for just 0.6% of it. And of this 51%, half were of less than one hectare – well below the possibility of providing subsistence.63 Given the enormous hardships experienced by most in rural post-war Mexico, the truly significant fact was the relatively small scale of the struggles which did erupt – at least until the late 1960s. Rural protests still occurred at the local level but did not threaten the PRI. The party, through the CNC, seemed capable of containing outbreaks of anger against the big landowners and the government. A number of independent regionally-based peasant organisations were created and at least one federation of them was formed – the Central Campesina Independiente (CCI) – founded in 1963 and affiliated

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with the Communist Party. But, until the late 1960s, such organisations found it difficult to gain a firm foothold because of the activities of the CNC and the PRI. Affiliation to the opposition might mean farmers who were already heavily in debt being cut off from credit and forced into bankruptcy. The dozens of small advantages associated with adherence to the ‘official’ peasants’ organisation were lost to those who came out openly in support of its critics. In the words of a common Mexican adage, the regime understood the importance of ‘giving the centavo to save the peso’. It had a deeply rooted mass organisation which enabled it to know the most politically effective way to spend those few centavos it allocated to the peasants. Dealing with the working class The romantic image of the revolutionary peasant, to which many on the political left still look for inspiration, seems oddly mismatched with post-war industrial Mexico. By the late 1970s, over 70% of the labour force worked in secondary industry and services. The peasantry were in decline numerically and as a political force in post-war Mexico. The growth of the urban working class was the most likely threat to the state’s plans for industrialisation. The most powerful central union federation – the CTM – had over two and a half million members by the 1970s and boasted over 11,000 union affiliates. Moreover, its membership was concentrated in the crucial industries driving economic growth: manufacturing, transport, mining and petroleum. In Mexican conditions, these workers had the relatively rare advantage of a steady job with an assured income and various fringe benefits. In the post-war period, many CTM unions began to operate their own business ventures and, in some cases, were reliant on government contracts or funding. The most notorious case was that of the oil workers’ union – the Sindicato de Trabajadores Petroleros de la Républica Mexicana (STPRM). After four decades of such business activities, it was estimated that the union was taking in two billion pesos annually.64 It collected 2.5% of its members’ wages directly from the national oil company, PEMEX, a 2% commission on all contracts entered into with firms outside PEMEX, as well as income from hundreds of its own businesses. Many of these businesses supplied work or labour to PEMEX. Obviously, the opportunities for its leaders to enrich themselves were immense. Its dominating figure, Joaquin Hernández Galicia, known as La Quina, was accused of personally embezzling US$34 million.65 The union itself employed non-union contract workers in its enterprises. Such a huge economic empire meant that an enormous bureaucracy

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could be created. By the late 1980s, the STPRM had one paid official for every 75 full union members.66 The CTM, and unions such as the STPRM, were a major part of ‘stabilising development’ – the official description of Mexican economic growth in the 1950s and 1960s. They supported the government and were supported by it, while doing their utmost to undermine serious resistance to the regime and genuine militant movements in the working class. One of the ways they did so was by the claúsula de exclusión – an exclusion clause generally added to Mexican labour contracts. It obliged an employer to sack any worker who was expelled from the legally-recognised union.67 We have already seen how a union bureaucracy closely aligned with the state came to emerge in various stages – through the unlikely avenue of the anarchists of the Casa del Obrero Mundial, then through the more clearly opportunistic CROM of Morones, and eventually, as a constituent part of the ruling party, in the CTM of Lombardo. At the end of the Second World War, this bureaucracy went through a further series of transformations. The first was induced by the Cold War climate that soon affected Mexican politics. The socialist-sounding Lombardo and his followers and Communist Party militants in important unions became targets for more politically conservative officials. In the CTM, anti-communists such as Fidel Velázquez began to campaign against Lombardists and Communists. In addition, Lombardo had already begun to form another political party – the Partido Popular. Two key points about the party that made it dangerous for the PRI were that it proposed to unite the peasants and the workers within the same organisational framework and that Lombardo made a point of saying that the new party would not be a servile appendage of the government.68 Reflecting the Cold War climate, the slogan of the CTM was changed in 1947 from ‘For a society without classes’ to ‘For the independence of Mexico’. President Miguel Alemán was named by the union as ‘obrero número uno de la patria’ – worker number one of the fatherland.69 The second transformation resulted from the weakening of the CTM bureaucracy itself. Real wages fell during the war, and the CTM’s inaction caused several important unions to split from it. One of the most significant was the petroleum workers’ union – the STPRM. In 1946, both Velázquez and Lombardo had tried and failed to end a mass strike by the oil workers. The union voted to leave the CTM. At several points the Mexican army was sent in to occupy the oil installations. A major strike followed in which the soldiers again seized plants and President

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Alemán openly intervened, with the help of Velázquez and Lombardo, in support of a change in the leadership of the union. When their candidate won, the STPRM rejoined the CTM.70 But the militant forces in the union rallied and succeeded in getting one of their number elected as General Secretary. The danger for the government was not simply an outbreak of struggle by the STPRM – but that the petroleros would form the core of a new labour federation opposed to the CTM. In fact they were attempting to do so along with the Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la República Mexicana – Miners and Metallurgical Workers Union (SNTMMSRM), and the railway workers, the Sindicato de Trabajadores Ferrocarrileros de la República Mexicana (STFRM).71 Between them, these represented the most powerful groups of workers in the country. The possibility of their independence from the government was a major threat to it. Accordingly, the next convention of the union was stacked with police and government employees disguised as STPRM delegates. A progovernment candidate was elected and the union affiliated once again with the CTM. A similar procedure – known as a charrazo – direct government intervention in the affairs of the union to change its leadership – was used in the case of the railway workers, the STFRM.72 The union was big – claiming 75,000 members – and strategically important. Moreover, it had its own proud revolutionary nationalist history; its members had played an important part in the revolution. The STFRM had already begun to play an oppositional role in the CTM and in 1947 had organised a new union federation – Confederación Única de Trabajadores – the Sole Confederation of Workers (CUT).73 The following year, the government introduced a number of provocative changes to the railway workers’ contract with the aim of weakening the STFRM and lessening its ability to lead an anti-government coalition of unions.74 On 14 October, 1948, pro-government railway workers and police disguised as workers stormed the headquarters of the STFRM. Meanwhile, troops occupied four other local union offices in Mexico City and a number of leaders were arrested. In this situation of violence and government intimidation, a supporter of the government – Jesús Díaz de León – was elected Secretary-General of the STFRM.75 The following year, a rail accident became the pretext for the completion of the charrazo. Two workers, under torture by police, ‘confessed’ that a militant leader of the STFRM – Valentín Campa – had organised the ‘sabotage’. Campa was sentenced to eight years in prison and served four.76 After the charrazo, the railway workers’ union became a loyal supporter of

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the PRI; its top officials regularly spending periods as federal deputies or senators. With the defeat of the militants in the STFRM, the CUT fell apart and the CTM was back in control. Another charrazo was organised in the Miners and Metallurgical Workers Union – (SNTMMSRM) in 1950. Alemán’s supporters – many employed by the Ministry of Labour – took control of the credentials committee for the union’s conference. By excluding many legitimate delegations, they secured the election of a close supporter of the government. The new leadership expelled the left and suspended many of the most important and militant local branches.77 The charrazos in these unions in the late 1940s established a new level of state control over the labour movement; using all the resources of the state to support one faction against another. As a result there were virtually no important strikes for ten years – a crucial result for the next period of Mexican industrialisation. It took until 1958, with an outbreak of militancy in the teachers’ union – the Sindicato Nacional de Trabajadores de la Educación (SNTE) – for another significant threat to the PRI to emerge. A campaign for a wage rise, made possible in part by a division amongst the union’s bureaucracy, led to the formation of a rank and file organisation called the Movimiento Revolucionario del Magisterio (MRM) – the teachers’ revolutionary movement.78 In this case, the government, under President Ruiz Cortines, realising that the SNTE was not in control of the rank and file, opened direct negotiations with the MRM and awarded a significant pay rise. But the attempt to form similar opposition movements in other unions was met with repression. Railway workers, recovering from the charrazo of a decade earlier, held strikes during 1958 and 1959 – mainly over wages – and the old leadership was ousted. This time, the government used both the carrot and the stick. It conceded a pay rise, then it imprisoned the new leaders and sacked 20,000 workers until the union was back under its control.79 The autonomy of the Mexican state was not a fixed quantity. It was a dynamic relationship which depended on the ability of the state to resist, undermine or in other ways prevent, the pressure of the major classes on it. At various points this autonomy was challenged – especially in the late 1940s and, to a lesser extent in the late 1950s – by groups of militant workers. But each time, the PRI was able successfully to bring the labour movement back under its domination. Although it was fully prepared to use force, the maintenance of control would not have been possible by repression alone; it had to be combined with the support of a ‘friendly’ bureaucracy.

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That bureaucracy – known as charros (cowboys) – was closely tied to the state at many levels. Typically, important charros could occupy local, state or national political office at the same time as they held union positions.80 Fidel Velázquez served as a Federal Senator for two six-year terms while Secretary-General of the CTM. At the workplace level, the bureaucratic structure of patronage, rewards for loyalty and obedience and punishment for those who opposed the leadership was replicated on a smaller scale. The local union steward or delegate – the delegado de planta – was not usually elected by the rank and file but appointed by the union officials and brought in from the outside – often when the plant was first opened. Frequently, they received a share of union dues. Such delegates’ loyalties were to the officials above them rather than to the workers they supposedly represented. Yet the bureaucracy was relatively inclusive; charismatic and talented leaders who emerged spontaneously would often receive an offer to join it – with all the material rewards that this involved. Those who refused often found themselves persecuted by management or even by the police. The major unions and the CTM were also said to have armies of thugs at their disposal to attack opponents or, on occasion, wildcat strikers. La Quina of the petroleros built a paramilitary organisation of 3,000 men to deal with those who opposed him.81 Yet, despite all of the apparatus of repression and corruption at their disposal, to maintain control the union bureaucracies still needed to be able to point to real advantages which workers gained from union membership. Their aim was not necessarily to stop all struggle – but rather to limit it in intensity, duration and scope and to direct it through channels sanctioned by the state. For this reason, the hegemony of the PRI and the union bureaucracy was contingent on a highlevel of economic growth. The expansion of the economy made possible slowly rising real wages, allowing the union bureaucrats to claim some victories without endangering the developmental plans of the government. And without the union bureaucracy, the PRI would have lost one of its main institutional supports. Real wages fell sharply during the Second World War; indeed, the real value of wages didn’t reach the 1939 level until 1969. Nevertheless, after the war, they rose constantly – although much more slowly than profits – until 1975.82 Moreover, economic expansion allowed the state and the union bureaucracy to provide many benefits such as workers’ health programs, housing and credit facilities for union members. Economic development was crucial for the legitimacy of the PRI in a broad ideological sense. The successful growth of Mexican industry

Mexico: from Revolution to ‘Perfect Dictatorship’ 83

supported its claim that it was the party which could ensure the country’s national economic integrity and independence. Economic expansion was also necessary to maintain the structures of bureaucratic union control without which the state’s sole weapon, as in many other less ‘perfect’ dictatorships, would have been only the blunt one of repression.

The party of institutionalised patronage One reaction to the emergence of the caudillos as regional powerbrokers in revolutionary Mexico was the establishment of a highly centralised and powerful Presidency. Congress was relatively weak, routinely approving laws nearly all of which were initiated by the President. The office of the President can also choose and remove government ministers, state prosecutors and most government employees. A further consequence of the revolution and its aftermath was the entrenching, after the assassination of Obregón in 1928, of the principle barring re-election for the President, state governors and members of Congress. In particular, the fact that the President’s six-year term (the sexenio) is fixed and non-renewable has led to some peculiar features of the Mexican system.83 Firstly, the careers of most middle and high-level state officials are linked to an even higher official or a politician – who tend to assemble their teams (equipos) – of officials and experts and move with them through different positions. These top officials are, in turn, often linked to the President and his immediate supporters. Thus towards the end of each sexenio a very high proportion of officials move on to a different job along with their patron. Their own futures depend on the prospects of their boss in the following sexenio. At the middle and higher levels such patrons were members of the PRI or its predecessor organisations. Thus the personnel who make up the state apparatus found that their career prospects were tightly bound up with the top leadership of the PRI. Each new President brought his own equipo in the form of loyal ministers and top bureaucrats. Each of these had, in turn, an equipo to install in their new posts as well. The sexenio has enormous importance in the patron-client networks of the Mexican state. It means that there is a constant turnover of personnel in bureaucratic and political positions. A rapid and thorough rotation in power circulates the elites and therefore, for decades, encouraged the disaffected and dissidents to remain loyal to the party. The next sexenio might always bring advancement. It also meant that

84 The Politics of Developmentalism

new and talented people could be brought into the regime with each electoral cycle. Thus, the amalgamated machine of the PRI and the Mexican state could be an inclusive bureaucracy, constantly drawing in new, ambitious people every six years. Some of those came as leaders of the mass organisations. Many entered as highly educated graduates or even professors – especially of the Universidad Nacional Autónoma de México (UNAM). Since PRI candidates always won, the real hurdle for those seeking elected office was to be nominated by the party. In this, the higher officials made the key decisions. At the national level, the President had the major say. So, as well as remaining inclusive and open to new talent, the machine constantly rebuilt an upwardly-directed loyalty towards its top leadership. Such was the importance accorded to the internal cohesion of the PRI and the state that PRI candidates – especially those for President – were always publicly supported ‘unanimously’ by the party – whatever machinations preceded their destape (unveiling). Elections have been held on schedule since 1920 – formally a better record than most of Europe and all of the Third World and the other NICs. They were extremely valuable for the PRI in that they contributed to its revolutionary legitimacy yet, until the 1980s, were most unlikely to lead to its removal. Elections also provided the constitutional mechanism for the sexenio turnover and reshuffling of state elites. Moreover, they gave the mass constituent organisations of the PRI – the CNC, CTM and CNOP – an incentive to build and maintain their networks and actively campaign for the party in an attempt to maximise voter turnout. This is not to say that elections were conducted fairly. Indeed, vote rigging was a well-developed skill in the PRI. The fact that vote tallies were not immediately declared after counting gave local officials ample time to adjust the results. Until 1988, the PRI’s vote in Presidential elections always ranged between 77% and 99%.84 Opposition candidates were systematically bullied and sometimes discriminated against in highly creative ways. During the 1992 election for the governorship of Michoacán, the opposition mayor of Morelia was forced to set up his office in a tent in the street because a PRI-affiliated union of street vendors had occupied the Town Hall. After two weeks, the PRI governor of the state got the union to leave voluntarily – just one day before the election. The local media on election day used the incident to point out that citizens could only trust the PRI to manage social conflict.85 At times, serious political violence – even murder – was used to ensure that opposition parties did not establish a foothold.

Mexico: from Revolution to ‘Perfect Dictatorship’ 85

The picture of the PRI and the state bureaucracy that has emerged so far might suggest that official positions were sinecures where lazy, wellconnected but untalented people might thrive. In fact, the state’s leaders were well aware that the entire structure held together only on condition that it presided over a high-level of economic growth. Without that, workers’ wages would not rise fast enough to hold the PRI’s mass organisations together or to continue the flow of patronage through the many channels they had carved. The need for capital accumulation was systemic – it disciplined the entire machinery of state – including the PRI. The result was that inefficient officials were not usually tolerated, there was great pressure to perform and sacking often quickly followed failure to do so. So the PRI developed as an ideal political machine for a capitalist developmentalist state. It was highly centralised and motivated to perform. And it created loyalty and group cohesion within what came to be known as the ‘revolutionary family’. Yet it constantly drew in many of the most talented and the best educated as well as those leaders who might emerge spontaneously from the working class or the peasantry through the mass organisations of which the PRI was made up.

Relative autonomy Path one: pre-emptive mobilisation The involvement of the state was crucial to Mexican industrialisation; a process whose scale and duration has been rare in the Third World. In the main period of dirigiste development – 1940–70 – the state was able to gather together extremely scarce resources and focus them efficiently on the key tasks of capital accumulation. It sometimes did so against the wishes and immediate interests of private capitalists, and always against the interests of the working class and the peasantry. The mechanisms of growth included state enterprise as well as the use of macroeconomic tools to direct and control private business. By 1940, the state in Mexico had an unusually high degree of autonomy – both from the private bourgeoisie and from the subaltern classes. This autonomy emerged in stages. The first of these was the effective banishment of the bourgeoisie from the possibility of political power. The social objectives of the revolutionary peasantry put paid to the kind of landlord control of state and society which persisted in most of the Third World. The industrial and commercial bourgeoisie similarly felt unable to take control. In any case, they were divided about whether to support the regime.

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The inability of the peasantry to take state power in 1915 and the political weaknesses and tactical failures of the organisations of the working class at that time left control of society in the hands of a few of the revolutionary generals. They were committed to national capitalist economic development but nevertheless owed their power to a mass revolution. That contradiction led to the peculiar form of state autonomy which was, once again in stages, shaped and consolidated between the conclusion of the revolution and 1940. The army – the prop of so many regimes in the Third World – was soon shifted away from the centre of state power. Instead of armed force alone, between 1915 – when the Casa del Obrero Mundial made its deal with Obregón – and the end of the Cárdenas presidency in 1940, Mexico’s rulers often had to rely on the controlled mobilisation of peasants and, increasingly, of workers to secure their state power. Mass organisations of peasants and workers were built and dominated by bureaucrats who were closely integrated with the state machine. However, unlike many apparently similar organisations elsewhere (the legal trade union federations in South Korea and Taiwan for example), these were not merely artificial creations of the state; they had a real background in struggle and therefore the capacity both to mobilise and, when necessary, to demobilise masses of people. These organisations – the CTM and the CNC in particular – gave Mexican state autonomy its peculiar character. Their existence held the private bourgeoisie at bay – who continued to feel that a direct challenge to the PRI would cause it to unleash mass struggle against them. Like Louis Bonaparte, the PRI could guarantee order and threaten disorder. On the other hand, these mass organisations were highly bureaucratic and their leaderships were committed to the preservation of the existing state power – both because of their nationalist ideology and because their personal material interests were protected and advanced through their service to the state. The difference between these bureaucracies and those of the many other trade unions around the world is that they were born out of a revolution. Then, in post-revolutionary Mexico, which had experienced such intense periods of mass struggle, the survival of the state depended on institutionalising arrangements for controlling, diverting, undermining and limiting further mass mobilisation. Some channels through which popular discontent could flow had to be constructed or those who held state power could not have done so for long. Without such channels, the state’s leaders could not have

Mexico: from Revolution to ‘Perfect Dictatorship’ 87

extracted from workers and peasants the great sacrifices necessary to industrialise rapidly. This form of state autonomy was not absolute – it was challenged in every decade of PRI hegemony by upsurges of class struggle. But, until the 1970s at least, the state was able to defeat, undermine or divert these challenges and maintain its control of the economy and society. Moreover, its strong position at home gave the state the confidence to impose restrictions on foreign capital designed to maximise domestic capital accumulation. The Bonapartist position of the Mexican state was based on the political weaknesses of all classes of Mexican society, but it was not an autonomy of isolation. Because of the importance of bureaucratic mass organisations to it, the continuing stability of the state depended on its ability to provide, through these mass organisations, certain small – but nevertheless real – material benefits. Without some wage rises in the post-war period the CTM would have fallen apart or been supplanted by other unions. At some points – such as the late 1940s – the danger of this happening was very real. Without some social benefits available through membership, the CNC could not have prevented the outbreak of more serious disturbances in the countryside. Without economic growth, these inducements would have required eating into profits far more seriously. The centavos could only be provided so long as the pesos were being generated. So, for the survival of its mass organisations, and therefore its own survival as well, the state needed to force the pace of growth; it was obliged to be developmentalist. Then, in turn, its mass organisations gave it the ability to be so.

4 Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism

For decades, both Mexico’s boom and the PRI’s electoral success seemed unstoppable. In the 1960s and through much of the 1970s, it appeared that Mexico might be the first Third World country since the Second World War to get close to First World levels of industrialisation and living standards. In the 15 years to 1981, its real GDP rose by a cumulative 66%. Thus the collapse, when it came, was very hard indeed. In the seven years after 1981, real GDP actually fell by 16%.1 In 1982, Mexico became the first Latin American country to default on its huge foreign debt, heralding a decade of debt crisis and IMF restructuring. Mexico had gone from being amongst the most acclaimed, to one of the most discredited, economic performers in the world. The Mexican boom was made possible by the autonomy of the Mexican state. In its ascending phase, this autonomy was maintained through political structures linking the state with bureaucratic mass organisations. Early signs of the erosion of this autonomy and of increasing pressure on these political structures began to appear in the late 1960s. From the 1970s, there were unmistakable signs of panic in the ‘revolutionary family’ of the PRI; public policy swung from one extreme to another as they attempted to maintain control. But each oscillation failed to satisfy the social class it was intended to placate – while it enraged others even more. Attempts by the state in the 1970s to spend its way out of trouble only exacerbated the economic situation. Finally, in the early 1980s, the Mexican state gave up its developmentalist role altogether and allowed its economic and social policy to be largely dictated by domestic and foreign capital and the IMF. 88

Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism 89

In part, this, the descending phase of the PRI state, was a product of its own success in transforming Mexican society. The working class, expanded by industrialisation, had much greater social weight than before 1940. Much of it was unwilling to meekly follow the dictates of PRI union officials. Workers began to challenge the union bureaucracies which anchored the rigid system of state control. The ejidal peasantry, once the stronghold of the PRI, had declined numerically. But even here, because of the neglect of their needs by successive administrations in favour of commercial agriculture, they too had become restive by the late 1960s. Though now much less powerful than the urban working class, many peasants deserted the PRI; in a few cases they took up arms against it. A new, educated middle class had also emerged. There were many inducements – including careers in the state bureaucracy – for this section of the middle class to support the regime and most continued to do so. But some, at least, were moved to protest the lack of democracy and the manifestly unequal nature of the Mexican boom. In this, the students led the way – their protests in the late 1960s sparking more open defiance of the regime from others. While workers’ wages continued to rise slowly until 1975, Mexican society became much less egalitarian. About 70% of the population experienced a decline in their share of national income between 1950 and 1970.2 In 1958, the richest 5% of the population was 22 times wealthier than the poorest 10%. By 1970, it was 39 times wealthier.3 Unionised workers employed in manufacturing, mining and the oil industries did best – although their wages lagged far behind the rate at which profits grew. But the boom led to extreme poverty for many others. Many peasants were forced to leave their land. Others who survived on it did so in increasing poverty. Industrial development was capital-intensive and unable to absorb the potential labour force being created by migration to the cities and by natural increase. Hence the number of shantytown dwellers and the underemployed in the cities – marginal to the main economy – rose swiftly and became an obvious feature of every sizeable Mexican town.4 Eventually, even sections of the bourgeoisie began to work up the courage to fitfully oppose some aspects of the regime. Whereas, in the preceding three decades, the PRI had great power to determine the direction of Mexican society, during the 1970s it seemed surrounded by ever stronger enemies to which it felt forced to make concessions. Its economic policies began to be driven by very short-term political imperatives rather than longer-term developmentalist aims.

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The rise of an independent labour movement Central to the erosion of state autonomy was the difficult, halting and partial – but nevertheless powerful – emergence of an independent labour movement. Sections of the working class had resisted the bureaucratic domination of the PRI and its attendant trade union bureaucracies in every decade since the revolution. But each of these efforts resulted in the victory of the state and an even tighter government control. However, a small number of breaches were made in the bureaucratic wall of the CTM in the 1960s. In the following decade, the trickle became a flood. The first way in which these new, independent forms of worker organisation were expressed was through the formation of opposition groupings or reform groupings inside established PRI-aligned unions. The foremost example of this type was the Tendencia Democrática (TD), a reform movement which began in the Sindicato Unico de Trabajadores Electricistas de la República Mexicana (SUTERM), the strategically powerful electrical workers union. The railway workers, defeated by the charrazos and government repression in 1948–49 and 1958–59, again threw up an opposition group inside STFRM – the Movimiento Sindical Ferrocarrilero (MSF) – led by Demetrio Vallejo, a key organiser of the strikes in the late 1950s. In many other cases, independent unions were formed or split away from the CTM. Those who worked in auto manufacturing led the way. Along with other major industries, domestic and foreign auto companies had been pushed by government policy into the vertical phase of ISI and thus, into higher value-added production. It had become crucial to the newly-industrialising Mexican economy. The auto industry’s share of GDP rose from 3.6% in 1965 to 6.9% in 1975 and the value of its production increased at an average annual rate of over 15% in the same period. Productivity increased massively – the average number of vehicles produced per worker rose by 50% between 1965 and 1975.5 As a result, auto workers were amongst the first to develop a consciousness of their great bargaining power. Truck workers at the state-run diesel manufacturer, Diesel Nacional (DINA), in Ciudad Sahagún were the first to break away from the CTM in 1961. By the early 1970s, the trickle away from it had grown into a flood of proportions alarming to the PRI. Volkswagen workers in Puebla left the CTM in 1972 as did Nissan workers in Cuernavaca in 1974. Those at Ford and General Motors stayed in the official unions but campaigned for more democracy and autonomy.6 By 1975, workers

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in five of the seven main firms which manufactured vehicles had won control over their local unions.7 Similar movements, some locallybased, others embracing whole industries, began elsewhere. Workers’ commissions, operating free of the control of the union bureaucracy, were set up in the aviation and other industries. The dead hand of the old bureaucracy could not as easily prevent struggles as in the past. Over 3,600 unofficial strikes took place between 1973 and 1976. Two bodies emerged attempting to unite workers opposed to charro control: the Frente Auténtico del Trabajo (FAT), a group originally influenced by Christian social thought, and, although its claim to independence was much less strong, Unidad Obrera Independiente (UOI), a coalition organised by a well-known labour-lawyer, Juan Ortega Arenas. The FAT, originally formed in 1960, was heavily involved in the new union at Nissan and Ortega Arenas was active both there and at Volkswagen. These new federations had the effect of generalising local disputes into an overall oppositional framework. Workers’ dissatisfaction about pay, conditions and authoritarian control by the union bosses was turning into overt opposition to the CTM. In the Mexican context this amounted to a highly political opposition to the regime as a whole. The car industry illustrates the dilemma for the PRI – its developmental success had created forces which were beginning to undermine the structure of the regime. Whereas many previous union reform movements in Mexico had been simply attempts by one group of potential officials to take over from an incumbent group, the new movement was based on militant strike action on the ground and, in many cases, a desire to break altogether with the CTM bureaucracy rather than become a part of it. The struggle was between the new workers’ organisations on the one side and the government and its tame union bureaucracies on the other. One of the clearest examples of this was at Spicer, an axle manufacturer, in 1975. After a push by workers to form an independent union, the Miners and Metallurgical Workers’ Union (SNTMMSRM), with the support of management and the government, began to move its own supporters into the plant to replace the existing long-term casual workers. A 121-day strike ensued. In the end, the workers lost, but such was the optimism of the times that they returned to work under the slogan – ‘Create one, two, seven hundred Spicers’.8 That exuberant spirit is captured by the progress of a new organisation – Tendencia Democrática (TD). Beginning in the electrical workers’ union, TD was soon challenged by the Sindicato Nacional de Electricistas (SNE) – a charro union allied to the CTM and the PRI. Predictably, the

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official Committee of Conciliation and Arbitration found in favour of SNE in 1971 and the government announced that it would recognise only the SNE as the representative of the electricity workers. Conflict with the charro bureaucracy and the government began in earnest.9 Tendencia Democrática became the leader of a national organisation for democracy in all unions and quickly linked itself with opposition groups of oil workers, railway workers, teachers, steel workers and university workers.10 In 1972, it organised demonstrations for union democracy in over 40 cities. In 1975, it held protests throughout the country, mobilising tens of thousands of people. In November 1975, TD led a demonstration of 150,000 in Mexico City to support the democratic union movement.11 In a series of struggles in which Fidel Velázquez intervened, charro leaders introduced scabs to break electrical workers’ strikes and the government used troops to occupy plants, TD was eventually defeated – its members finally dissolving the organisation in November 1977. By 1978, most of the dissident unions belonging to the TD had been repressed. But the credibility of the charro unions and of the government could not easily recover. The CTM was forced to lead some strikes – especially in the early 1980s. And after the upsurges of the 1970s, the class struggle could not be so easily diverted into official channels, contained or bought off cheaply as in the past. The 1980s saw mass demonstrations of up to 150,000 people against government austerity, sackings and low wages, sometimes led by coalitions of up to 150 unions and other popular organisations.12 The independent unions of the 1970s had mixed success and many did not survive. But as a result of their emergence and their struggles, the government was, for the first time since the 1920s, in serious danger of losing control.

The restive peasantry Organising and reorganising the urban working class was the key problem for the Mexican state since the revolution. After the dust had settled from the Cárdenas reforms, the countryside was relatively quiet. In one election after another, rural Mexico solidly supported the PRI. But the slowing of the agrarian reform program increased peasant discontent. In the 1960s, very little land was distributed and that was mostly of poorer quality – less than 6% of it was irrigated.13 The government was clearly favouring large-scale, capitalist farmers, even issuing certificates of inviolability protecting them from future expropriation.14 As most agricultural credit went to these larger farmers as

Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism 93

well, the minifundistas (small farmers) and the ejiditarios were increasingly marginalised. Class tensions in the countryside, which had last exploded in 1910, were being resurrected. Desperation led peasants to seize land on their own account in the late 1960s. In several areas, armed guerrilla movements sprang up and began to clash with government troops. Two armed, peasant uprisings took place in the state of Guerrero. In the early 1970s, rural guerrillas in the mountains of that state tied up 10,000 troops for a year.15 These armed struggles were merely the tip of the iceberg of peasant discontent. An independent peasant movement began to form in place of the declining local CNC organisations controlled by the PRI.16 Land invasions reached major proportions; in 1975 and 1976, land was invaded on a large-scale in Sinaloa, Oaxaca, Chiapas, Veracruz, the Federal District, the Yucatán and Sonora. After 1976, the government increasingly resorted to repression to deal with the problem – the army being used to clear peasants from invaded land. The official CNC organisations could not easily back the land invasions against government policy – and therefore quickly lost support. In their place, new, independent peasant organisations were formed. The Communist Party-aligned Central Campesina Independiente (CIOAC), founded in 1963, has already been mentioned. Of the many others, the most important, the Coordinadora Nacional Plan de Ayala (CNPA), was set up in 1979 to unite a large number of diverse groups. Significantly, it argued for the agrarian program which Zapata formulated in 1911. The unmet demands of the Mexican peasants had finally brought them back to the point where their movement began. As with the working class, the decades-long grip which the PRI had on the peasantry was weakening.

Coordinadoras, coaliciones, corrientes Great turning points are sometimes initiated by insignificant events. The explosive opposition building up to the PRI was touched off by such an incident – a minor fight between students in Mexico City in July 1968. The PRI Mayor overreacted and sent in the granaderos – a paramilitary riot police – who behaved brutally. Another clash between students and police happened later that month on 26 July, the anniversary of Castro’s attack on the Moncada. More demonstrations against the government followed. The following month, the students of UNAM organised a demonstration of 500,000 calling for democracy; it was the biggest gathering in Mexico since the revolution. The

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Olympics – Mexico’s boast to the world that it had become a modern country – were approaching and in mid-September, President Díaz Ordaz ordered 10,000 troops to seize UNAM and oust students who were occupying it and threatening to disrupt the Games. Then, on 2 October, another demonstration at the Plaza de las Tres Culturas in the historic district of Tlatelolco in Mexico City was set upon by the authorities. At least 2,000 people were arrested. The government admitted that 49 were killed. The New York Times correspondent present said that 200 was more likely. Later estimates put the death toll between 350 and 500.17 The massacre at Tlatelolco produced a national convulsion. The legitimacy of the PRI was shattered. It had murdered its critics rather than attempting to incorporate them as it had mostly done in the past. For those who had hoped that the system might be reformed, the event caused immense frustration; it now seemed that the regime would never change.18 The importance of the massacre to the diverse movement gathering against the government was enormous. The state was being challenged by emerging forces which would no longer permit it to rule in the old way. Moreover, these new forces would not easily be diverted into official channels via the PRI’s constituent mass organisations. After 2 October 1968, a large number of social movements in some way opposed to the PRI sprang up. Some of these were based on the millions in the major cities who made up the ‘informal sector’. Left behind by the Mexican boom, these people eked out a living by parttime or occasional work or through small-scale enterprises such as street vending. For the most part unorganised by the PRI, they often felt alienated from the political system. Yet they constituted a large part of the population in the cities; one estimate was that the informal sector made up 35.5% of the income-earning population in Mexico City in 1979.19 Throughout the 1970s, new grass-roots coalitions and networks (coordinadoras), often begun by radical students, attempted to organise people in this sector and to link them to independent workers’ and students’ organisations. The best known was the Coordinadora Nacional del Movimiento Urbano Popular – Coordinating Committee of the Urban Popular Movement (CONAMUP) – founded in 1981.20 Radical students in Juchitán formed a grass-roots activist group Coalición Obrera Campesina Estudiantil del Istmo – Worker, Peasant, Student Coalition of the Isthmus (COSEI) – which pushed for municipal democracy, land redistribution, wage rises and improved benefits for workers. The coali-

Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism 95

tion had considerable success – going on to win local office for some periods in the 1980s and 1990s.21 The earthquake of 1985, the response to which revealed corruption and inefficiency in the government, led to the formation of the Coordinadora Unica de Damnificados – Coordinating Body of Earthquake Victims (CUD). This coordinadora produced the internationally-known agitprop street theatre of ‘Superbarrio Gómez’. Sections of the population which had known only the stage-managed official mobilisations of the PRI were being drawn into mass politics for the first time. Also threatening the PRI ascendancy were new dissident currents emerging within it. The internal discipline of the PRI was being shaken. One of the demands articulated in the mid-1960s was for open primary elections in order to eliminate the nepotistic and authoritarian way in which the PRI’s top leadership determined who was to become a party candidate. Such attempts came to nothing and, in some cases, led to sections splitting from the party and forming local independent opposition groups. Internal dissent accumulated in the PRI in the 1960s and 1970s. But such was the tightness of the party’s control mechanisms and its emphasis on unity that the explosion did not take place until 1986, with the formation of Corriente Democrática – Democratic Current (CD). Its two leading members, Cuauhtémoc Cárdenas and Porfirio Muñoz Ledo, had been important figures in the party. Both felt the pressure of the movement against the government and urged greater democracy, a shift away from the neo-liberal agenda of the PRI in the 1980s and a return to cardenismo – the (somewhat mythologised) populist and redistributive politics of Lázaro Cárdenas in the 1930s.22 This neocardenismo had enormous mass appeal and an opposition electoral front – the Frente Democrático Nacional (FDN) – was born. Cuauhtémoc Cárdenas, running for President in 1988 with this new and untried organisation behind him received an official 31.29% of the vote, compared to the PRI’s 50.03%. These results were almost certainly rigged; it is quite likely that Cuauhtémoc actually won the election. The fragility of the PRI’s electoral support was now apparent to all. It had lost its ability to manipulate mass organisations and turn that control into votes from workers and peasants. Now, only corrupt electoral practices were keeping it in power. 1968 was the watershed – the end of the ascending, developmentalist phase of the Mexican state. After 1968, the state was unable to manage either the economy or society generally as it had before – everyone seemed to be in revolt against it. Of course, in many countries there was

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a radicalisation in 1968 which changed the way that political parties did business. The difference in Mexico was that the ruling party itself relied to such a high degree on controlled mobilisation. Now there was mobilisation aplenty – but the PRI did not control it at all. Furthermore, the PRI had relied on this control to force the pace of industrialisation and bring the country to NIC status. That ability was now also lost. Sustained economic growth had not, in the end, prevented social disorder – in fact, by strengthening the social forces which would ultimately limit its autonomy and thus prevent the state operating in the old way, economic expansion did the opposite. After the Tlatelolco massacre, the PRI did not immediately fall from power. It tried to rebuild its own credibility and that of the mass organisations which had enabled it to manage society. It did restore order, but at a very high political cost. And in doing so it increasingly relied on force and electoral rorting.

Policy incoherence in the descending phase Echeverría and the ‘farmers’ and workers’ government’ The shock of Tlatelolco led the new President in 1970, Luis Echeverría Alvarez, to distance himself from the previous government and from his own role as Secretario de Gobernación in suppressing the 1968 student movement. Determined to rebuild links with the students, he adopted a stridently anti-imperialist, tercermundista (Third Worldist) rhetoric.23 But this was largely window-dressing – talk was cheap. A more substantial reorientation in economic policy was desperately needed to arrest the decay of the PRI’s mass organisations and to stop the rise of new opposition movements. Echeverría began to turn away from his predecessors’ post-war policies of fast growth funded by high rates of exploitation of labour, low wages and low social spending. His new program changed the public strategy of the regime from ‘stabilising development’ to ‘shared development’. It was an attempt to rebuild the legitimacy of the party and the system in the eyes of its mass base by sharply increased spending on social welfare, by allowing some wage rises and by making land and credit available to the peasantry. He vowed to bring Mexico back under an agrarista and obrerista (farmers’ and workers’) government. There was to be an expansionary fiscal policy which would increase the funds available to state-owned companies in order to expand employment. He also determined to increase the size of the state and parastatal bureaucracy to provide greater opportunity for the educated middle class – overall, public sector employment grew by 60% under

Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism 97

Echeverría.24 Some wage rises would not be opposed by the government and there was to be an increase in government-supplied credit for the ejido. These massive new expenditures were not, as in the past, closely targeted at areas of greatest potential capital accumulation. They were essentially redistributive. Economic policy was now being driven by political necessity. Government spending increased by an annual average of 14.1% during Echeverría’s term – almost double that of the preceding sexenio of Díaz Ordaz and three times that of the growth of the economy.25 In the four years before Echeverría became President, government expenditure as a percentage of GDP had averaged 21%.26 In 1970 it rose a little – to 23.6%. Then, over the next five years, government spending rose dramatically – to 36.6% of GDP by 1975.27 The state and parastatal sectors’ share of total investment also rose fast – from 35.5% in 1970 to 46.2% in 1975.28 Echeverría conceded union demands for a 40-hour week and a 33% pay rise for workers in the maquiladoras.29 Overall, wages in industry were allowed to rise by 17% in 1974, by 22% in 1975 and by 16–23% in 1976.30 In the electrical industry, where Tendencia Democrática posed the greatest threat to PRI and charro control, wages were allowed to rise even faster than in other sectors. Funding for the workers’ health programs of the Instituto Mexicano de Seguridad Social – the Mexican Institute of Social Security and Social Services (IMSS) – and the Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado – the Institute of Insurance and Social Services of the Workers of the State (ISSSTE) – was also considerably expanded. As part of an olive branch now offered to the militant forces emerging within the working class, Echeverría began to distance himself from the CTM bureaucracy and even to allow the legal registration of some of the new, independent unions. But by 1973, with inflation on the rise, Echeverría needed the CTM once again to rein in the militancy and restrain wage rises; the breach with Velázquez was healed. Nevertheless, a number of independent unions were able to establish themselves in the meantime – especially those associated with the UOI of Ortega Arenas. For the urban poor, the government expanded Compañía Nacional de Subsistencias Populares (CONASUPO) – the National Company of Popular Goods – a chain of state-owned stores which sold basic food and other goods at subsidised prices. The peasant base of the PRI was courted with an increase in public funding to agriculture – its share of total public spending nearly doubled between 1971 and 1975.31 Land reform was put back on the

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agenda and more land distributed to small farmers than at any time since the Cárdenas era. Echeverría promised that 1973 would be the ‘year of the campesinos’ (peasants) and that the government would provide land grants, credit and water for irrigation. Near the end of his term, he made the spectacular gesture of expropriating and redistributing 100,000 hectares of very rich farmland in the Yacqui and Mayo valleys in the northwestern state of Sonora. Then, on the very last day of his Presidency, Echeverría distributed another 500,000 hectares across the country. Most of these moves meant major increases in public spending. As a result, the Federal deficit of 1976 was 15 times as large as in 1971. 32 By the second half of the sexenio, the government was facing the consequences: severe inflationary problems and the need to borrow much larger amounts abroad. Inflation reached 10% for the first time in 20 years. 33 Through the 1940s, 1950s and 1960s, Mexican economic growth was largely debt-free. But foreign public and publicly-guaranteed debt during the Echeverría sexenio rose nearly 500% – to over US$18 billion. The net flow of foreign public debt as a percentage of GDP rose from 1% to 6%. More importantly, the Mexican economy was much less able to repay the debt – the ratio of net flow of foreign public debt to current account income was 11.6% in 1971. In 1976, it reached an unsustainable 62%.34 Higher inflation was a direct consequence of increased government spending, which was, in turn, motivated by the need to build the bases of the regime. So too, the massive increase in state debt in the first half of the 1970s was directly related to this need by the government to spend its way out of political trouble. It is true that foreign finance, awash with petrodollars, became more easily available in the Echeverría period. But nothing compelled the PRI government to borrow so heavily abroad except the desperation which it felt at the erosion of its major pillars of support. Echeverría and the ‘democratic opening’ The huge democracy demonstrations of 1968 proved that many – perhaps most – Mexicans, had come to believe that the government was effectively a dictatorship. Brutal repression on 2 October reinforced that belief. With its legitimacy in tatters, the PRI desperately needed to restore faith in the whole system over which it presided. Echeverría embarked on an apertura democrática – a democratic opening. There was a selective release of political prisoners and some dissidents were

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brought into state positions. The Partido Comunista Mexicano – Mexican Communist Party (PCM) – was permitted legal registration. The plan for electoral reform was to institute a dual voting system for the Chamber of Deputies which would give the opposition a better chance of winning seats in the Chamber. But neither Echeverría’s redistributive economic strategy nor his apertura democrática rebuilt the PRI’s mass organisations or its legitimacy. In part this was because the reforms were simply too little and too late. Electoral changes had not been implemented in time for the 1976 Presidential elections and the PRI candidate, José López Portillo, had to suffer the embarrassment of running in the absence of any major opposition candidate. The wage increases allowed by Echeverría were soon eaten up by higher inflation; real wages began to decline in 1975 for the first time since the Second World War.35 Echeverría resisted pressure to devalue the peso – which would have meant a further wage cut. Then he did so on the last day of his presidency, the first time there had been a devaluation since 1954.36 Concessions offered to the independent unions between 1970 and 1973 allowed a breathing space in which some could develop. But as wage rises began to push at the limits which the government was prepared to allow, Echeverría closed ranks again with the CTM. Moreover, the government itself engaged in the brutal use of police and troops to smash strikes such as those of the electrical workers and at Spicer. Despite this, strike levels peaked in the last three years of his term. Neither Echeverría’s brief flirtation with the militants nor his repression of them prevented the rise of struggle outside the state’s preferred and controlled channels. The agrarista component of the Echeverría program also fell short of what was necessary to assuage rural discontent. Despite increased government investment, agricultural output grew at an annual average of only 1.6% between 1970 and 1976. Between 1975 and 1976, it actually fell.37 However, the agrarista rhetoric of the Echeverría regime spurred further land invasions. Echeverría was caught between two classes; he needed to rebuild the confidence of the peasantry in the PRI but could not afford to alienate agricultural capital. In April 1976 he said that he supported ‘neither invasions nor latifundios’ – a position guaranteed to satisfy no one.38 Land was redistributed, but the amounts involved were not nearly enough to make a major impact on landlessness. Nor were they enough to calm rural protests. Guerrilla activity in the countryside continued and increased between 1972 and 1976 and new peasant organisations grew outside the CNC.

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While Echeverría’s redistributive policies were too half-hearted to rebuild the mass base of the PRI, the land redistributions, wage rises and increased social spending he did undertake – as well as his populist rhetoric – enraged the bourgeoisie, urban and rural. Large sections of capital which had either supported the PRI or at least been prepared to tolerate it, now moved into virulent opposition to the regime. They saw Echeverría’s social spending as fiscal recklessness and his confiscation of landed property as a move toward communism. Their immediate reaction was to take their capital out of the Mexican economy, reducing investment by 20% between 1971 and 1974.39 The urban working class, especially, had been strengthened by the long economic boom. But so too had all sections of capital. By the 1970s, the social weight of the agricultural bourgeoisie had declined compared to that of the urban industrial capitalists. But, especially in the north, they were much stronger and better organised than were their predecessors – the latifundistas of 1936–38 – during the Cárdenas redistributions.40 A strike by commercial farmers (the ‘tractor strike’) in Hermosillo, Sonora in 1975 made it clear that a powerful agricultural bourgeoisie had emerged in Mexico – especially in the North West – and it was determined that the state would not be permitted to interfere with its property.41 Moreover, these rural capitalists were now closely linked to the industrialists of the Monterrey Group – the section of the bourgeoisie most hostile to the PRI. The Monterrey bourgeoisie began to see itself as the leading force opposed to echeverrismo. It set up the Consejo Coordinadora Empresarial – Entrepreneurial Coordinating Council (CCE) – to oppose Echeverría. It was the first time since the 1930s that any significant section of the bourgeoisie had felt confident enough to openly challenge the regime. When the large commercial farmers resisted echeverrismo with tractor strikes in 1975 and 1976 they were supported with a mass campaign by the CCE. It was clear that should the government make further incursions into the rights of private property by expropriating land or by sanctioning land invasions or strikes it would now be met with determined economic and political resistance from the bourgeoisie. Bourgeois hostility to echeverrismo grew to enormous proportions. When Eugenio Garza Sada, the elder of the ‘Monterrey Group’, was killed in an attempted kidnapping by a leftist terrorist group, Monterrey Group leaders publicly blamed the President and his left-wing rhetoric. Antagonising the bourgeoisie had immediate economic consequences – an investment strike and a worsening outlook for the

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economy. Now international capital began to play a greater part as well. In 1976, Mexico’s growing foreign debt caused international bankers to stop the flow of funds. The IMF offered a US$1 billion loan in return for a three year austerity program. In October of that year, the government agreed. No one talked of a ‘miracle’ anymore; Mexico’s descent into economic crisis had begun. Echeverría’s attempt to rebuild the Bonapartist machine that had ruled for decades failed because the revived mass forces the state faced – especially the urban working class – were now too strong to be bought off with a mere centavo. Whereas, for different reasons, all social classes in the past had been weak compared to the state, the balance had been reversed by the time Echeverría took the oath of office. Like Cárdenas, Echeverría attempted mass mobilisation of the militant workers and peasants. But unlike him, Echeverría could not control the mobilisation. He ended up with the worst of both worlds. Worse, the PRI had failed politically but in the process it abandoned the ruthless yet coherent policy of capital accumulation employed by administrations since Cárdenas. Thus it helped to plunge the country into economic crisis. Echeverría’s was the first of two Presidencies of transition between the ascending and descending phases of the developmentalist state – years in which the state’s leaders attempted to respond to the increasingly pressing and contradictory demands of the society around them, but failed miserably to do so. López Portillo and the ‘Alliance for Production’ Whereas Echeverría’s sexenio – and especially his first three years – represented a major attempt to regain mass support, that of his successor, José López Portillo, began with an effort to placate the bourgeoisie. The IMF stabilisation plan and the hostility of business to the government budget deficits of the Echeverría years caused López Portillo to implement a more conservative fiscal policy. Real government expenditures were cut by 12.3%.42 After just one year in office, his spending cuts had brought down the public sector deficit as a proportion of GDP by more than 3%, reduced inflation from 27% to 20% and cut the current account deficit in half. 43 The government clamped down on wage increases, but allowed prices to rise – nearly 150 basic items were freed from price controls.44 Almost immediately on taking office, López Portillo formed a pact with business labelled the ‘Alliance for Production’. Under the terms of the Alliance, the private sector promised to create 800,000 jobs and, in return, it would receive various state financial rewards. In a further

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move to win the confidence of capital, López Portillo immediately announced a halt to the agrarian reform program. He did not return land already expropriated by Echeverría, but compensation was negotiated. Capitalist landed property was safe and the big ranchers and other agrarian capitalists were relieved. With government spending cut, an end to the confiscation of private capitalist land and more public funds directed their way, private business approved of the new government. According to Pedro Sánchez Mejorada, a leading Mexican businessman, López Portillo made ‘a magnificent impression’ on business for the first year or two of his Presidency.45 The compliments were returned. When the Monterrey Group pledged its cooperation with the President, he publicly praised these old enemies of his party as ‘profoundly nationalist’.46 In the early years of the sexenio, the workers’ struggle was muted by the shock of the IMF plan of 1976. High rates of inflation eroded real wages, which fell by 36% between 1978 and 1980, fuelling further anger.47 Soon the number of strikes began to rise. Once again, many of these were strikes against management and also against the oficialista union leaderships so vital for the hegemony of the PRI. Early in 1978, a new confederation of 70 unions was formed, independent of the CTM.48 In 1980, over 4,000, increasingly bitter, labour disputes were reported.49 The movement that had appeared in 1968 and developed through the Echeverría sexenio had only paused for breath for a year or two in the middle of the 1970s. The López Portillo government was, like that of Echeverría, caught between the Scylla of business hostility and the Charybdis of rising working class discontent. Under pressure, López Portillo began to shift back to economic populism. His first budget in 1977 cut the deficit from 64.07 to 61.13 billion pesos. The next two increased it and, by 1980, the swing back to large-scale spending was complete – with a deficit of 133.68 billion pesos – more than double that of three years before.50 López Portillo no longer made a ‘magnificent impression’ on the bourgeoisie. Increased state spending was designed to recreate rapid growth – the only circumstances under which both the bourgeoisie would continue to invest and working class living standards could be allowed to rise significantly. This combination was a different one from that which had succeeded during the long boom – when workers’ wages and other benefits were allowed to rise only very slowly. Some magic element had to be added to make the new formula work. By 1977, López Portillo and his administration believed that they had found it in Mexico’s huge oil resources.

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López Portillo and the politics of Mexican oil López Portillo saw in oil the source of government revenues enormous enough to solve his government’s difficulties. His appointee as Secretary-General of PEMEX, Jorge Díaz Serrano, was brought before the Chamber of Deputies in 1977 to make a speech which argued that in oil lay the solution to all the country’s problems.51 The pressing political problems facing the government pushed it to attempt to develop the industry at breakneck pace. In the same year as Díaz Serrano’s speech to the Chamber, a plan for oil production was adopted with targets rivalling in optimism those of Stalin in the 1930s and 1940s. It called for the doubling of crude production and the tripling in output of basic petrochemicals in just six years.52 For a time it looked as if oil might indeed be the magic ingredient for which the PRI was searching. As a result of extensive exploration, Mexico’s proven reserves of oil were quickly doubled – to 40 billion barrels in 1978–79. In 1980, they were increased further to 50 billion barrels.53 Revenues from oil production rose from US$340 million in 1976 to US$12 billion in 1980.54 The share of oil in Mexico’s exports rose from 43.9% in 1979 to 75% in 1981.55 PEMEX taxes increased from 5% to 24.9% of the Federal government’s tax revenue in the first five years of the López Portillo sexenio.56 Based on these early successes and the increased state revenue they brought, López Portillo announced in 1979 an equally ambitious ‘Global Development Plan’, designed to run until 1982. The Plan called for 8% annual growth in GNP and for the public sector to play the main role based on its new oil revenues. For a time it appeared that the new Plan was not overly ambitious at all. In 1980 and 1981, GNP growth averaged 8.2% – the highest rate ever. The state was indeed the driving force; government spending increased 26.8% in that period and spending by the parastatal sector rose 22%.57 State spending created new jobs – over four million between 1977 and 1981 – more than double the growth in the labour force. Oil revenues allowed Mexico to pay the last installment on its debt to the IMF by 1979 – ahead of time. It seemed as if the Mexican ‘miracle’ might be restarted. Oil production did not come without cost. Had the expansion of the industry been funded largely out of export income, the program might have been sustainable in the longer-term. But political considerations ruled out such a cautious approach. The crash program actually planned could only happen on the basis of massive foreign borrowing. Foreign capital was readily available since holders of Eurodollars were desperately looking for outlets and by effectively using its oil reserves as collateral, Mexico was easily able to get loans.

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The future Minister of Finance, Jesús Silva Herzog, said in 1980 that: ‘The money seeks us out and at times it has been difficult to choose the best offer’.58 Although oil revenues were flowing, the inflow of loans was even greater. Mexico quickly began to build a major current account deficit – in 1978 it hit 68.9% of GDP, by 1979, an unsustainable 80.9%.59 The massive amounts of capital equipment PEMEX purchased were largely imported – making the current account deficit even worse. In 1981 alone, PEMEX bought US$2 billion worth of equipment from the US.60 Foreign debt grew to a staggering US$80 billion by late 1982 and public debt made up US$58 billion of that.61 It was, at that time, the largest per capita debt in the developing world. Debt levels rose in many developing countries in this period – especially in Latin America. But even by those standards, Mexico’s debt was uncommonly high. By the end of the López Portillo administration in 1982, foreign debt amounted to 87% of Mexican GDP, compared to 75% in Chile, 60% in Argentina and 26% in Brazil.62 PEMEX’s share in the public foreign debt rose from 11.3% in 1976 to 29.2% in 1981. Furthermore, the collateral which PEMEX could provide in the form of future oil production was used by other parts of the state to access loans. Almost every Ministry in the government took the opportunity to gain extra funds. A high debt strategy such as this was extremely risky. It depended on two major factors remaining advantageous for Mexico: high oil prices and low interest rates. Until 1980, the oil price seemed likely to go even higher, rising from US$12.57 per barrel in 1976 to US$30.93 per barrel in 1980.63 But in May–June 1981, it fell sharply and state income plummeted by six billion below the expected level in 1981.64 In the first six months of 1982, the lower oil price reduced Mexico’s income by US$10 billion.65 The second reason why the oil plan was a massive gamble was its reliance on stable world interest rates. By the late 1970s, although the US economy had begun to recover from the recession of the earlier part of that decade, inflation was a persistent problem. To control it, Paul Volcker, Chairman of the US Federal Reserve, increased interest rates; the prime rate charged by US banks went from 12.7% in 1979 to 18.9% in 1981.66 Debt servicing now became impossible for the Mexican state and parastate institutions. The timing was disastrous. The huge investment required to increase oil production as rapidly as planned by Díaz Serrano meant that oil exports did not even begin to contribute net income to the country until 1981. At that precise moment, the price softened. López Portillo simultaneously lost both of his wagers – on

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high oil prices and on low interest rates. By the middle of 1982, Mexico was being refused all new loans. In August of that year, Finance Minister Herzog flew to the US to tell the banks that Mexico could not pay the US$10 billion due on its public sector debt. The savage crisis into which the country was now plunged made previous economic difficulties seem minor by comparison. Domestic political pressures on the regime alone did not determine that Mexico would have its crisis in 1982. Had oil prices remained higher or interest rates stayed lower for longer, the disaster might have been less severe and would have been postponed. But that would also have been the case had the López Portillo government chosen a more prudent rate of oil industry expansion and a less risky program of foreign borrowing. From 1970 to 1982, two administrations opted for a rate of economic growth about 30% above the historic average. The reason is clear – it seemed to them that faster growth was the only way that a governing party under siege on all sides could hold power. And to them, the governing party virtually was the state. Without it, uncontrolled social struggles would lead to chaos. So Echeverría and López Portillo each took the risks associated with massively increased state spending. Echeverría drove the economy toward IMF-imposed austerity, López Portillo catapulted it into bankruptcy. The danger that the whole ‘revolutionary family’ sensed was an outbreak of mass struggles which, in the past, they had always been confident they could control. Fidel Velázquez, as head of the CTM, was in a better position than most to feel the pressure. Even in 1982, as the debt crisis deepened, he argued that major cutbacks in government spending would be disastrous because the CTM leadership would be unable to maintain control of the workers: ‘If we change tactics or abandon the workers to their luck, employers won’t have time to realize what will happen: imagine a mob let loose on the streets, out of control’.67 After oil prices softened in 1981, although it was clear to everyone that they would not soon recover, López Portillo continued a relatively high-level of government spending in the full knowledge that it would exacerbate debt and deficit problems. Furthermore, since the PRI was committed to the maintenance of a capitalist system, it also felt the pressure of the private bourgeoisie; which after the first couple of years made its own judgement about López Portillo. Capital flight continued – especially after 1979. One estimate suggests that, throughout the Echeverría and López Portillo sexenios, US$53.4 billion fled the country – representing 60% of the total increase in the external debt, public and private, in that period.68

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López Portillo and the banks The action that demonstrates, perhaps better than anything, the erratic nature of policy in this period of transition was the decision by López Portillo in the last few months of his term in office, to nationalise the entire banking system of Mexico. In his State of the Union Address on 1 September 1982, just three months before formally relinquishing office he declared that: In the last two or three years … a group of Mexicans … supported and advised by the private banks, has stolen more money from our country than the empires that have exploited us since the beginning of history… They’ve robbed us… but they will not rob us again… The revolution will speed up; the state will no longer be intimidated by pressure groups.69 The new austerity program imposed by the IMF as a result of the 1982 default had seriously wounded López Portillo. His plan to achieve rapid growth and some redistribution was in tatters. The bank nationalisation was his attempt at a master stroke which would re-establish his populist credentials. It was a desperate move. In the ascending phase of Mexico’s development, state direction and patronage favoured the largest firms. Thus, by 1982, Mexico had a highly concentrated industrial structure. The banks were a central part of this system and had major interests in most industries.70 Nationalising them put virtually all financial capital and, indeed, 75–85% of all capital, under the control of the state.71 Almost as stunning as the decision to nationalise was the new manager of the state banking system who López Portillo installed. He was the left-wing intellectual – Carlos Tello Macías – who had co-authored a book with Rolando Cordera – a leader of the Partido Socialista Unificado de Mexico (PSUM) – the name the Communist Party had adopted at that time.72 López Portillo argued that bank nationalisation was necessary to end capital flight. But above all other considerations, it was a desperate attempt by the government to regain political ground with its base. Interviewed anonymously, a senior state official said that before all else: ‘The President was thinking of the interests of the political system… He convinced us that it [bank nationalisation] was necessary for political reasons’.73 The emergency atmosphere which surrounded the decision can be gauged by the manner of its making. López Portillo announced it to the Cabinet a mere 12 hours before the State of the Nation address and then asked for the resignation of anyone who objected.74

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Bank nationalisation did succeed in rallying support for the President for a time. Within days of the action, the PRI organised a massive rally of 300,000 in the zócalo (central plaza) of Mexico City where the president thanked the crowd for supporting this ‘profoundly revolutionary measure’.75 That this was, in fact, a desperate short-term political manoeuvre rather than a ‘revolutionary measure’ can be seen from the series of government decisions which followed it. The first question was who would be appointed to the boards of the newly nationalised banks. Tello, a well-known left-populist, gave the new Bank of Mexico management a radical appearance. But then the conservatives inside the state machine, especially those linked with Finance Minister Herzog got their way. In many cases the new managements looked like the old – indeed, often the former directors of the private banks were simply re-appointed to the new state ones.76 The second indication that the government would not seriously impinge on the rights of capital generally was the decision by López Portillo not to impose exchange controls. As Tello himself argued, the nationalisation could not possibly work properly and guarantee a greater degree of government control of the economic system unless restrictions were imposed on the movement of capital. Large-scale investors would simply move their funds to banks across the border. But Tello did not get his way. In any case, the incoming President, Miguel de la Madrid, was known to have opposed the nationalisation and had sought support from private capitalists before his election on that basis. Under his Presidency, non-bank financial institutions, which had largely been owned by the private banks before nationalisation were transferred back to the private sector – leading inevitably to the development of a parallel banking sector which siphoned funds from and undermined the nationalised banks. As a result, total financing provided by these non-bank institutions increased more than seven times as a proportion of GDP between 1980 and 1988.77 Indeed, deregulation of financial markets began within months of bank nationalisation. In his inaugural address on 1 December, 1982, Miguel de la Madrid attacked the ‘financial populism’ of the final stages of his predecessor’s presidency and pledged himself to ‘realism’ in economic policy.78 The point here is that bank nationalisation did not represent a serious return by the Mexican state to the dirigiste developmentalism of previous decades. Paradoxically, it signalled the last, pathetic gasp of a state which no longer had the capacity to be developmentalist. The death agonies of that type of state produced wild swings as it

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tried to recreate its old base in circumstances where such a thing could not be done. Bank nationalisation has to be seen as one of these swings. Despite these oscillations in policy, the overall direction of the state was toward deregulation and acceptance of its impotence. The Presidency of Miguel de la Madrid reinforced this trend, even though he left the bank nationalisation partly intact. Finally in March 1989, a major financial liberalisation took place which removed all state controls on credit and the preferential credit schemes which had once been crucial tools for the state’s development efforts during the boom. In early 1990, President Carlos Salinas de Gotari proposed a constitutional amendment to privatise the banks once again. It passed Congress easily. The two Presidencies between 1970 and 1982 give the appearance of impetuosity in policy. Echeverría began with a left-sounding program, drifted back to the right and ended with the leftist flourish of land confiscation. López Portillo began on the right, drifted to the left and again ended with a left flourish – bank nationalisation. Major upheavals in established government attitudes – such as the confiscation of capitalist land, temporary support for independent unions, the breakneck pace of the oil industry plan and bank nationalisation – all suggest two administrations making policy under pressure and on the run. It is a picture consistent with a period of rapidly declining state autonomy and frantic attempts to satisfy first one class, then another. But after 1982, Mexican administrations gave up the attempt and became more ‘normal’ governments which do not balance between the classes or attempt controlled mobilisations of the workers and peasants in order to get their way with the bourgeoisie. Instead, they responded largely to the bourgeoisie – domestic and foreign.

The changing state bureaucracy These pressures on the state were reflected inside the state machine itself. In its ascending phase – from 1940 to 1970 – the old PRI oligarchy running the Mexican state was dominated by the leaders of mass bureaucratic organisations – oficialista trade union leaders, agrarista leaders of the CNC and local party caciques (bosses) who would bring out the vote, dispense and receive patronage. Their positions of privilege were derived from their political role in the party and the state. Dubbed the políticos, they were the local ward bosses of the country – managing the discontents of the people and providing the controlled mobilisation that the system needed by assuring attendance at rallies and meetings.79

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But industrialisation created the need for a more technically sophisticated state bureaucracy. By the late 1960s and early 1970s, a new breed of PRI bureaucrat was becoming prominent. These, the técnicos, were almost always university-trained – commonly in the disciplines of economics or science. Indeed they were often recruited at university – especially UNAM – by professors active in the PRI and sometimes working in the state bureaucracy as well as in academe. 80 Because it was a bureaucracy where rapid economic growth, and therefore bureaucratic competence, were keenly sought, high-levels of education were increasingly valued from the time of Cárdenas. Amongst agency heads who began their careers in his sexenio, fully 65% had tertiary qualifications. By the López Mateos sexenio (1958–64) the proportion with tertiary degrees had risen to 85%. In the de la Madrid administration, 100% had such qualifications.81 The de la Madrid cabinet also reflected the growing importance of this highly educated PRI elite. Of 11 cabinet ministers, nine had degrees from UNAM, six had taught at UNAM and one had been its rector. Eight had postgraduate degrees from outside Mexico; four of these were technocratic degrees in economics and business administration.82 The políticos were by no means all poorly educated either. Many had also been recruited at UNAM. But the preferred training for técnicos since the 1950s was in economics, accounting, engineering and architecture. Educated políticos tended to have a law or social science degree and often then spent some time within the PRI apparatus, in electoral politics or in the mass organisations of the party.83 Técnicos still needed to be politically active in the PRI and loyal to it in order to succeed. But they were much less connected to the PRI’s mass organisations.84 Even amongst elected politicians, the route taken by políticos to high office has been in long-term decline. The políticos had emerged in stages along with the Bonapartist state up to 1940. They represented its origins. The técnicos represented what the state was becoming. Because they had fewer connections to the mass constituent organisations of the PRI – except the CNOP, which eventually effectively became their own grouping – the técnicos felt the pressure of the working class and peasantry less and were not as likely to support concessions to them. Instead, their technical roles more commonly put them in touch with sections of the bourgeoisie. In summary, the técnicos were highly focussed on the need of business to make profits while políticos were more mindful of the need to maintain a political structure that made such profits possible.

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In the period of transition between 1970 and 1982, the conflict between políticos and técnicos intensified. Less sensitive to the need to maintain the mass organisations, the técnicos were more likely to be fiscal conservatives. The pressures on the state now resonated within it. As the political difficulties of the transitional presidencies increased, every demand made by a force external to the state found an echo in the halls of bureaucratic and political power. In this internal struggle, it was the técnicos who, over time, would gain the upper hand. Their growing power hindered Echeverría’s expanded spending program and forced him to compromise. The pressure of private capitalists opposed to his left turn was then reflected in the more conservative, less populist economic policy under Lopéz Portillo, argued for strongly by neoliberal técnicos such as Julio Rodolfo Moctezuma Cid. At this time, there was still opposition from políticos like Carlos Tello Macías, then at the Ministry of Programming and Budget, who were bitterly opposed to budget cuts.85 The use of oil revenues also generated serious internal conflicts. The Ministry of Patrimony and Industrial Development was for increased state investment, rural development and social expenditure. The Treasury and the Bank of Mexico – strongholds of the técnicos – were for deregulation and reduced state spending and intervention.86 A similar internal battle was waged over bank nationalisation.87 Here the major struggle was between Tello and Herzog. Increasingly bitter divisions in the state during the transitional period, where once a high degree of discipline had prevailed, were in part a consequence, in part a cause, of inconsistent government policy. But the broadest cause was the gathering of forces external to the state, which were now breaking apart its unity. The de la Madrid administration enshrined the final victory of the técnicos. Although they have been effectively in control of state policy since 1982, it was a state which no longer had any policy other than that dictated by domestic capital and the foreign banks.

Autonomy lost: the state after the 1982 crisis Between 1982 and 2000, under de la Madrid and the following two PRI presidents – Salinas and Ernesto Zedillo Ponce de León – the state was no longer searching for a way back to the relative autonomy it had lost; it had basically surrendered to private capital. With extraordinary rapidity it dismantled all the mechanisms of state control – its leverage over investment, finance, credit and trade – which it had once used to direct the ‘miracle’. Domestic capitalists were well pleased with the de la

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Madrid administration. It took an even tougher approach to peasant demands than López Portillo and dropped the ‘land to the tiller’ rhetoric of the past.88 A new agrarian law reform made major concessions to large-scale rural interests, although it caused a walkout from the Chamber of Deputies of 44 PRI delegates associated with the CNC.89 But the bourgeoisie had been shocked by the bank nationalisations. That and their gradual development of a sense of their own importance in the national economy, led some sections of them to organise politically against the PRI. Many moved to support the Partido Acción Nacional – the National Action Party (PAN). The PAN was created in 1939 by Manuel Gómez Morín, a university professor, as a conservative party designed to appeal to the middle class professional.90 But the elimination of the military section of the PRI by Avila Camacho in the 1940s and its developmentalist orientation meant that it, rather than the PAN, tended to recruit the educated, modernising elite of post-war Mexico.91 As a result the PAN made little progress, only managing to increase its share of the congressional vote from 8.7% to 14.2% between 1952 and 1970. The PAN’s chance came with the leftist rhetoric, land invasions and budget deficits of the early Echeverría years. Its congressional electoral support rose to 16.3% in 1973. But the subsequent retreat from echeverrismo and the early reassurances to business by López Portillo saw the PAN once again lose support in 1976. Business tended to stay clear of direct involvement with politics, knowing that the PRI was likely to continue to win elections and that it was more than capable of taking revenge against its opponents. Then the bank nationalisations of 1982 built the PAN substantially. Business people began to support it on a large-scale. The degree to which capitalists were prepared openly to back the PAN depended, in large measure, on the extent of their ties with and reliance on the government and, to a certain extent, on their regional location. The Confederación de Cámeras de Industria (CONCAMIN) and Cámara Nacional de la Industria de Transformación (CANACINTRA) wanted a halt to nationalisation, but their approach was to quietly lobby the PRI. The harder line Consejo Coordinadora Empresial (CCE), the Confederación Patronal de la República Mexicana (COPARMEX) and some sections of the Confederación de Cámeras Nacionales de Comercio (CONCANACO) – all based in the north – wanted a party more clearly aligned with business to be a real alternative in electoral politics.92 For the first time the PAN looked like a serious force, especially in the north – the richest part of the country.

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Under de la Madrid and Salinas, the PRI won back some business support. Also, business felt somewhat constrained from attacking the governing party by the fear that the working class and land-hungry peasantry might be unleashed against them once again. There was still a sense that the PRI might be best able to control the masses and maintain order. But many of those who had joined the PAN after the bank nationalisations remained – believing that the PRI could not be trusted and might ‘go crazy’ again.93 Although the PAN presented itself as a broad coalition of forces wanting greater democracy and pluralism, business had now become its key pillar. Presidents de la Madrid (1982–88), Salinas (1988–94) and Zedillo (1994–2000) moved the PRI closer than ever to business interests. Three ‘pacts’ in 1983, 1987 and 1988 introduced income policies which reduced wages and firmly put a neo-liberal economic agenda in place.94 Since inflation averaged 88% per year between 1982 and 1988, there were desperate workers’ struggle for wage rises to keep pace. In 1983 the largest wave of strikes for wage rises in Mexican history, involving both the official and the independent unions, took place.95 The full force of the state was now used against the working class. In a major increase in the level of repression, during the de la Madrid sexenio, police or troops were used against strikers at DINA (1983), URAMEX (1983), TELMEX (1984), SICARSTA (1985), Renault (1986), Luz y Fuerza (1987), Ford (1987) and Aeroméxico (1988).96 The government also employed strategic insolvency to break labour contracts or they allowed it to be used by private companies. With this method, the company would declare itself bankrupt and close down, sacking the workforce. A few weeks later it would reopen and demand a new and harsher labour contract; the strategy was used at Aeroméxico (1980 and 1988), Mexicana (1982 and 1987), TELMEX (1984 and 1987), CLFC (1987) and Ford at Cuautitlán.97 Almost no strikes were given legal authority; between 1983 and 1988 the government approved only 1.8% of strike petitions filed in Federal jurisdiction.98 Under de la Madrid, central government expenditures were cut from 27.1% of GDP in 1982 to 17.1% in 1988.99 Education and health funding were badly hit, falling by a cumulative 29.6% and 23.3% respectively during his sexenio.100 The austerity program introduced was even tougher than that of other Latin American countries also working to IMF requirements. The de la Madrid administration auctioned off 34% of the newly nationalised banks to the private sector, and made sure that private bankers kept most of the management of those that remained state-owned.101 Privatisation of virtually the whole

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huge state sector was undertaken with extraordinary haste. Between the beginning of the de la Madrid sexenio and 1991, the number of state-owned enterprises fell from 1,155 to 269.102 The process cost an estimated 200,000 jobs.103 Mexicanisation was forgotten; foreign interests were allowed to buy 100% of former state-owned companies. The 1980s were a boom time for foreign investors in Mexico. Foreign investment increased from $10 billion in 1980 to over $50 billion in 1992.104 As a result of sackings, austerity and government repression, Mexican workers’ buying power dropped during the 1980s by more than 60%. Their position relative to workers in the US became very much worse; the ratio of US to Mexican wages went from 4.4 to 1 in 1975, to 10.4 to 1 in 1985.105 The real value of wages had dropped in every year of the de la Madrid sexenio and the minimum wage in 1988 bought about half of what it did even the year before.106 Under Salinas, one of the great achievements of the revolution for the peasants was finally dismantled; Article 27 of the 1917 Constitution was amended to permit the sale and purchase of ejidal land.107 The effect of all of these government policies made life extremely difficult for most Mexicans and devastating for the really poor. Even commentators from the World Bank, sympathetic to trade liberalisation and government deregulation, were forced to admit that malnutrition had become a much more serious problem in the 1980s – especially amongst the rural poor.108 But it was a bonanza for domestic capital as well as foreign investors. The combination of lower wages and windfall profits for business as a result of privatisation meant that the business share of GNP rose from 48% to 65% during the 1980s.109 This pro-business offensive led by the PRI took the wind out of the PAN’s sails. It was almost impossible to help business more than the PRI was already doing in the 1980s. Although the PAN continued to propagandise about the lack of democracy, their balance sheets mattered much more to private capital. And their balance sheets were much healthier. Business became less enthusiastic about supporting the PAN and, having reached 17.5% of the vote in the congressional elections of 1982, its share of the vote then stagnated for the rest of the decade, despite the extremely harsh conditions most Mexicans were facing. A second reason why the PAN could make little progress in the 1980s has to do with the emergence of the electoral front led by Cuauhtémoc Cárdenas and the eventual formation of the Partido de la Revolución Democrática (PRD).110 As mentioned above, in a rigged election for

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President, Cárdenas got an official 31.29% of the vote – and, in fact, probably actually won. His neo-cardenismo had great appeal to former supporters of the PRI disappointed with its new neo-liberal agenda. For a time they were more likely to support the PRD than switch to the PAN. The success of Cárdenas, and the poor performance of the PAN in that election convinced many in big business that support for the PRI was still their best option at that time. The 1988 elections also signalled a major increase in the direct influence which business had within the PRI. Indeed, some said that the party had added a fourth sector – business. High profile businessmen, perhaps aware of the tide of support for the PRD, came out to back the PRI. Some ran as candidates – 35 PRI deputies associated with major business groups took their seats in the 1988–91 legislature.111 The PRI was becoming less identified with the mass organisations and more with business. The Salinas administration continued all of the pro-business trends associated with de la Madrid. In 1989, his government announced that the state-owned Cananea copper mine was bankrupt, then reopened it under a tougher labour contract. It declared as illegal, strikes at a beer plant in Modelo in 1989 and at Ford in 1989 and 1990, then allowed sackings and the mass use of strike-breakers at each. At Tubos de Acero de México (TAMSA) in 1990, police were sent to remove strikers from the plant. During a strike in 1992 at Volkswagen, all 15,000 unionists were sacked with the agreement of the government.112 The distinctive innovation of Salinas on behalf of capital was the entry of Mexico into the North American Free Trade Agreement (NAFTA). The técnicos, in total control of the PRI after 1982, signalled their intention to open the Mexican economy to the world by accepting the IMF stabilisation plan in 1982 and then by joining GATT in 1986. But Salinas surprised many when he announced in 1990 his intention of negotiating a free trade treaty with the US.113 It was, after all, a complete break with the revolutionary nationalist rhetoric on which the PRI had always traded. NAFTA further transformed the way in which the Mexican state, in its ascending phase, invited, but also attempted to manage, foreign capital inflow. In that developmentalist phase it had kept foreign business out of some strategic areas such as power generation, oil and most mining and demanded Mexican participation in investment. The NAFTA agreement, signed eventually in 1993, gives much freer access to Mexico for US exporters and investors. Foreign capital in the 1980s and 1990s began to take advantage of the PRI’s retreat from its economic nationalism – increasingly turning their production in Mexico into export-oriented enclaves taking advantage

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of low wages. The agreement, therefore, was seen by many Mexicans as a betrayal of their national interest – the imposition of a new form of dependency. It was also opposed as a symbol of the neo-liberal economic changes which had brought great hardship to most. On New Year’s Day 1994, the day in which the agreement came into operation, the Zapatista Army of National Liberation – Ejército Zapatista de Liberación Nacional (EZLN) – seized half a dozen municipalities in the southern state of Chiapas in protest at the lack of land available for the indigenous people of the region and, significantly, at the NAFTA treaty. Largely as a result of its opposition to NAFTA and the economic direction of the PRI, the EZLN attracted great sympathy from urban workers who had never lived in the countryside. The transformation of the PRI and the state that it ran can be gauged from the process by which NAFTA was established. In the negotiations before 1994, Mexican business leaders played a major part – in some cases actually leading the formal discussions for the Mexican side.114 The Mexican bourgeoisie had entered the state directly and had done so through the PRI. They publicly lauded its approach. The multibillionaire media owner, Emilio Azcarraga, said that he had done so well as a result of the Salinas administration that he was willing to give US$75 million to the PRI.115 As well as its direct access to the halls of power through the PRI, by the 1990s, Mexico’s bourgeoisie was also much better organised and less divided over their approach to the state than in the past. The CCE came to include representatives from Mexico’s seven major business associations. One, the Mexican Businessmen’s Council, Consejo Mexicano de Hombres de Negocios (CMHN) was limited to the 40 top billionaires in the country, who, by the mid-1990s, controlled, between them, around 27% of the nation’s economy.116 The CMHN was increasingly closely linked with Presidents Salinas and Zedillo. So by the time of the signing of the NAFTA treaty, the PRI had transformed itself purely into a party of big business. In doing so it disillusioned its middle and lower level cadres and lost many of its supporters.117 In some cases there seemed little point in staying in the PRI when it offered basically the same economic and social program as the PAN but was much more tainted by charges that it was undemocratic and corrupt.118 Ironically, having eroded its mass base, the PRI was of less value to the bourgeoisie. By the late 1990s, business was once again turning to the PAN – the party whose history was more to its liking, which did not carry the baggage of long-term corruption and ballotrigging and, most importantly, had not suffered the opprobrium of

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introducing changes in the previous 20 years which made most Mexicans poorer.119 In the year 2000, the PAN candidate, Vicente Fox, a former Coca Cola executive, was elected President of Mexico. The 71-year rule of the PRI was over.

The decline of pre-emptive mobilisation In its ascending phase, the PRI-dominated state used bureaucratic mass organisations of workers and peasants in two ways. The first was to show urban and rural capital why it, the PRI, was needed. The masses could be unleashed or restrained; only the PRI could decide which. The second was to undermine any independent resistance from the workers and peasants themselves. The crucial ability it possessed in each case was control of the masses. It began to lose that control in the late 1960s. The core of the crisis for the Mexican state was the rebelliousness of the urban working class, although student demonstrations in 1968 had helped to spark broader struggles and the constant demands of the campesinos and the urban poor were also serious difficulties. In Mexico, the great challenge to the developmentalist state came from below because the stability of the state, from the time of the revolution, was based on bureaucratic organisations of the masses. The quarter from which instability appeared for the Mexican state was the same quarter in which its earlier stability had been based. Independent unions, strikes and peasant uprisings disrupted the bureaucratic mass organisations and therefore undermined the state’s autonomy. Business, on the other hand, was not nearly as much of a problem. During Mexico’s boom and the state’s ascending developmentalist phase, business largely stayed out of politics. It only appeared as an important oppositional force after the bank nationalisations of 1982. Even then it partly withdrew from the attempt to create a party more organically linked to it when the PRI began wholeheartedly to support a pro-business agenda under Miguel de la Madrid. Only after the PRI had lost these pillars of stability – the ability of its mass organisations to control the class struggle – did the majority of the bourgeoisie decide that it would back a new party to control the state. Between 1970 and 1982, a sense of crisis and impending political instability haunted those who administered the Mexican state. Their responses to it gave the appearance of incompetence. But these politicians and officials in the Echeverría and López Portillo governments were often the same ones who, earlier, had successfully administered the boom. The appearance of incompetence comes from their frenzied

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attempts to do the impossible – satisfy the increased, yet contradictory demands of the major social classes of Mexican society, who each used the greater social strength they had developed by the 1970s to attempt to advance their interests. Associated with these pressures, and exacerbating the bitterness with which they were fought out, was the transformation of the personnel of the state machine. Those most connected with the mass organisations were gradually replaced by those more responsive to the needs of big private business. After 1982, the complete victory of the latter corresponded to the shift of the PRI and the state into unconditional support for the immediate requirements of capital. The PRI of the 1980s had already lost its capacity to control mobilisation. But its huge size and entrenched position gave it a certain political inertia. Its usefulness to the bourgeoisie in carrying out a massive transfer of wealth in their favour also helped to keep it in power for a time. But it was no longer a developmentalist state operating with a significant degree of autonomy. In this, its descending phase, the state simply relied on support from capital and, in turn, used repression against workers and peasants. It would only be a matter of time before the political party which had built the modern Mexican state was removed from control of it.

5 South Korea: Devastation and Development

Introduction South Korea, along with other rapidly growing economies in East Asia, was dubbed a ‘miracle’ by many with an ideological axe to grind – especially by those who advocated export-oriented policies and the ‘discipline’ of the world market. The ‘miracle’ was given official approval with the publication of The East Asian Miracle: Economic Growth and Public Policy, by the World Bank in 1993.1 Even compared with other NICs, the transition of South Korea was spectacular. Its GDP per capita in 1960 was about the same as the Congo. Until the early 1960s, per capita income lagged behind many African countries – including Ghana and Kenya – and behind most in Latin America.2 The Philippines at this time was considered by many as a nearly unreachable role model for Korea.3 Over the following 30 years, South Korean growth easily outstripped all of Latin America and Africa. By 1992 it was the third biggest producer of colour TV sets and the second biggest of videocassette recorders and microwave ovens.4 In 1996 it joined the Organisation for Economic Cooperation and Development (OECD) – the first of the Asian ‘tigers’ to be admitted – and became the twelfth largest economy in the world. An average annual growth rate of GNP of about 10% between 1965 and 1980 laid the foundations for this spectacular success. In that period, South Korean GNP multiplied 20 times, per capita GNP increased 16 times and per capita consumption rose 12 times.5 South Korean social structure was dramatically transformed as a result. The proportion of the population living in rural areas dropped from 56% in 1965 to 17% in 1988.6 South Korea became an urbanised, industrialised nation. Educational levels of the population rose dramatically. Even in 118

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1970, only 28.1% of high school-age teenagers attended school; by 1990, 86.8% did so.7 Massive industrialisation also altered the country’s place in the world. Hyundai, Daewoo, Samsung, Goldstar and other South Korean brands became household words. The Fortune list of the top 500 private, non-oil companies in 1986 included ten from South Korea and only ten from all other developing countries combined.8 This dramatic transformation took place despite, rather than because of, the natural wealth available to Koreans. The country lacks most mineral resources and must import oil. Of course, rapid industrialisation came at a price – paid for, most obviously, by a highlyexploited working class. And this form of development brought with it terrible pollution – according to one source Seoul is the world’s second most polluted city – after Mexico City.9 It sometimes created shoddy and dangerous infrastructure. The ‘miracle’ gave South Korea a higher industrial accident rate than any other industrialised or rapidly industrialising country.10 The transformation of this country had its ugly, jerry-built and even tragic side. But it was a rare and spectacular transformation nonetheless. Only with the Asian financial crisis in mid-1997 was widespread confidence in South Korea’s future growth dented.

State intervention in the economy State planning South Korea presented itself to the world as a proudly capitalist country. But it was the state which was the truly dynamic capitalist. State discipline over the market was ubiquitous. Elements of its operations resembled the old Eastern bloc more closely than the strictures of Adam Smith. The state allocated resources for investment. It decreed price controls. It imposed controls on capital movement – especially for off-shore investment. It shared risks and underwrote research and development. The state and its economic instrumentalities initiated every industrial drive or shift in economic emphasis in the 1960s and 1970s. In the early 1960s it embarked on Import Substitution Industrialisation (ISI) to produce goods which had previously been imported: cement, fertilisers, synthetic fibres, refined oil and its derivatives. In the mid-1960s, the state made exports the major emphasis. Then in 1973, it was again the state which initiated the shift in emphasis from light manufacturing to heavy industry – including large-scale car and steel production. The fourth of its five-year plans (1977–81) led South

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Korea into the electronics industry on a major scale – especially the production of computers and semi-conductors. The apparatus of planning One of the first acts of the new Park government after the coup which brought it to power in 1961 was to establish the Economic Planning Board (EPB), which became the driving force and bureaucratic coordinator of Korean economic planning. It immediately drew up a Five Year Plan which proclaimed its own role as ‘constructing the basis for an autonomous national economy’.11 The EPB was given serious political influence – from December 1963, its head automatically held the rank of Deputy Prime Minister. Such a highly centralised economic bureaucracy meant that economic determinations were always infused with political motivations. The EPB under Park was given privileged access to the highest levels of politics. It reported directly to Cabinet and to Park and thus had clear political support which it could use to advantage within the broader state bureaucracy. This high-level of centralisation also made for great speed in decision-making. The 1971 Law on Restraining Real Estate Investment was said to have emanated from a 24 hour study. The 1973 Law on Price Stability was prepared in just three days.12 The Presidential Emergency Decree issued on 14 January 1974, in response to the international oil price crisis, was issued three weeks after a study was commissioned.13 State control of finance The key muscle available to the South Korean state in the 1960s, 70s and 80s to back its planning instruments was its near total control of banking and other sources of credit. Rhee had denationalised banking in the 1950s to please the US. 14 Yet, despite its continuing need for US support, five months after the coup the Park government nationalised them again. Then, to further strengthen direct political control of the banking system, in May 1962 Park amended the Bank of Korea Act to make the bank more compliant in carrying out government decisions. The Bank was to fall within the field of responsibilities of the Ministry of Finance with little pretence of independence. By 1970, the government controlled 96.4% of the country’s financial assets.15 State control of finance allowed EPB planners and, on occasion, the President himself, to distribute resources to areas of industry deemed vital to industrial development. It enabled the government to favour some

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firms – usually the giant chaebol – and to discipline those which failed to perform satisfactorily within the parameters of the government’s plan. Most industry was to remain in private hands. The chaebol were to keep their assets – often under the control of a single family. But their growth and profits were reliant on government approval. To follow the plan meant a drip-feed of government finance. To stray from it was to risk immediate bankruptcy. Bank loans were used both to punish and to reward private capital in this way and to shape the future of industrial development. So-called ‘policy loans’ – where finance was offered on the basis of adherence to government plans predominated between the 1960s and the mid-1980s. This mix – of private ownership of most industry combined with state control of finance – was already reflected in the First Five Year Plan (1961–65). Between 62% and 65% of total planned investments were to be made by the chaebol. But an average 56% of their funding was to come from government sources.16 Government finance was not only cheap, for a time it was essentially free. Some observers claim that the real interest rates available to the chaebol remained negative until 1980.17 The Korean chaebol were especially reliant on external finance. Throughout their existence – as was made painfully clear in the financial crisis of 1997 – the chaebol raised comparatively little of their funds from retained earnings or by selling equity. In the ten years from 1963 to 1973, they generated only 20% of their funds in this way compared with 65% and 32.6% for US and Japanese firms respectively in various periods of their post-World War Two expansion.18 Credit provided by the government became increasingly important to the economy as it expanded. The ratio of credit to GNP increased from 15.8% in 1963 to 38.7% in 1973.19 Even this figure understates the centrality of credit to the Korean ‘miracle’ since credit was more important in the crucial manufacturing sector than it was in the economy as a whole. The ratio of bank loans to value added in manufacturing averaged 55% for the period 1963–73.20 Furthermore, reflecting their privileged access to loans, the chaebol developed a much higher debt-equity ratio than smaller firms. This easy availability of cheap state finance allowed the chaebol to expand production rapidly without too much concern for immediate profitability. State-guaranteed lending also had a profound effect on company ownership structures. Because it cannot easily raise the necessary finance for large-scale expansion, the family-owned firm in modern industrialised economies usually gives way to publicly-listed companies with diverse ownership. Since they could borrow freely

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from the government, the South Korean chaebol were able to maintain their largely family-based structures yet expand enormously. Government-provided finance was allocated strictly to designated sectors. Businesses in the sectors considered crucial to the government’s economic plan and especially those involved in exports were most favoured. Between 50% and 70% of domestic loans were allocated in this way under the Park regime, whose planners constantly intervened in the state-run banking system to ensure that these sectors received disproportionately privileged financing.21 Loans raised overseas were also subject to strict state control. In this case, control also meant government guarantee. The Law Guaranteeing Foreign Loans of July 1962 meant that domestic banks became the guarantors of external finance. But although government-owned commercial banks provided such guarantees, approval for the loans was still required from the heart of the planning apparatus – the EPB. The economic liberalisation of 1965 Some observers have argued that the early dirigiste policies of the Park regime were fundamentally altered by a partial economic liberalisation which took place in September 1965. The exchange rate was devalued, commercial lending rates were raised and certain imports deregulated. In a sense these reforms did mark a watershed – but not one which heralded the beginning of a new period of laissez-faire in allocation of credit. The reform had the effect of increasing domestic deposit rates and thus creating a large gap between foreign and domestic interest rates – as much as 20%. When the exchange rate and domestic inflation were factored in, the real cost of borrowing abroad was negative.22 It led to a stampede for foreign loans. But these loans were still subject to government approval and were guaranteed by it. In fact, this apparent liberalisation turned foreign borrowing into a new weapon of government policy. Furthermore, the increase in domestic interest rates attracted money to the state-controlled banking sector giving it, and therefore the EPB and the government, greater resources to allocate to priority areas. What appeared to be a market-oriented move actually had the effect of increasing the sources of finance for industrial expansion while also enlarging the power of the South Korean state. Although some tariff barriers came down, many remained and proved a formidable obstacle. Liberalisation happened to the extent that the former positive list system – in which only listed goods were permitted entry – was changed to a negative list system in July 1967.

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But even then, there were restrictions on 42.9% of all import categories.23 The number of items subject to the ‘Provisional Special Customs Duties Law’ rose from 587 to 2,702 during 1965.24 In any case the impact of liberalisation was limited by extremely tight foreign exchange controls which made it difficult for Koreans to buy foreign goods whether they attracted tariffs or not. Overall, tariff protection continued at a high-level. Even in 1990, protection redistributed 13% of GNP – about 60% of which went to the manufacturing sector.25 Contrary to the neo-liberal account, the 1965 reforms were the prelude to another round of rapid industrial expansion still firmly under state control.26 Finally, whatever element of financial liberalisation took place in 1965 was clearly ended by the Presidential Emergency Decree for Economic Stability and Growth of 3 August, 1972. The Presidential Emergency Decree, 1972 The Decree, described by an advisor to Park as an ‘unprecedented move in a free economy’ was a state response to the increasing indebtedness of the chaebol, which had borrowed heavily on both foreign and domestic markets.27 Essentially the Decree cancelled all debts and credits between businesses and private moneylenders – the curb market – and replaced them with new contracts. Here was yet another example of the South Korean state intervening heavily to save and build big business whatever the situation in the market. Private moneylenders and savers were the losers, the chaebol the winners. In an extraordinary interference with private contracts, the government at a stroke declared a moratorium on all private loans incurred by businesses. Loans over 3 million won were forcibly rescheduled for payment over five years after a three year grace period at below the current interest rate. Loans made by large stockholders or executives to their companies were mandatorily converted into stocks.28 By relieving the chaebol of their massive burden of debt incurred during the previous round of expansion, the Decree paved the way for another such round – the Heavy and Chemical Industry Plan which began in 1973. The Heavy and Chemical Industry Plan (HCIP) In the early 1970s, domestic as well as geopolitical factors forced the government to undertake a major shift in economic strategy. This period marked a shift away from the earlier emphasis on light manufacturing and towards heavy and chemical industries – largely designed

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for export. The reasons for the shift were both economic and political. South Korea’s first phase of export growth was dependent on its comparative advantage in cheap labour. Labour-intensive industries such as plywood, textiles, apparel and wigs made up the bulk of its exports. By the early 1970s, domestic wage pressures and greater competition from other low wage economies had eroded much of the country’s advantage in light, labour-intensive manufacturing. Also, in the developed countries, barriers were beginning to be constructed against textiles and footwear from sources such as South Korea. Geopolitical factors were even more important. In the early 1970s President Nixon withdrew a US combat division (totalling 24,000 men) from duty in South Korea. Later, President Carter declared his intention to withdraw the rest by the end of the decade. The US defeat in Vietnam and the consequent reluctance of the American public to have their troops involved in distant wars was seen by Park and the South Korean military as a sign of US unreliability. Heavy industry was to provide the basis for defence self-reliance should the US cease to provide a shield against the ever-present threat from the north. As a result, the industries selected for special emphasis in the Heavy and Chemical Industry Plan (HCIP) were largely defence-related: steel and petrochemicals, non-ferrous metals, electronics and shipbuilding. The push to heavy industrialisation was also motivated by domestic political considerations. Park had only narrowly won the 1971 election amidst charges of widespread electoral fraud. His response was to issue a Declaration of Emergency, proclaim martial law, close the universities for a time, ban political activity and impose press censorship. He introduced the Yushin Constitution of 1972, a turn towards more open authoritarianism, and justified it by the threat from the north and by this bold proposal for rapid growth in industrial power. Industrial growth meant greater national prestige and held out the prospect of higher living standards eventually. Heavy industry would translate, Park hoped, into political legitimacy. In May 1973, Park created the Heavy and Chemical Industry Promotion Committee and the Planning Council. The Council bypassed the EPB which had been unenthusiastic about the HCIP. They were not alone; most economic specialists, the World Bank, and the US and Japanese governments thought the push into heavy industry far too ambitious. That the HCIP was an initiative of the central political element of the state machine can be seen from the way in which it was controlled and monitored. Park did not trust even the bureaucracy which he had installed and which had organised industri-

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alisation to that point. He kept a situation-room next to his office in the Presidential palace, the Blue House, to keep in touch with the progress of every aspect of the plan. He pushed for quick solutions, constantly phoning ministers urging them to push ahead faster.29 As a result of these new plans and the state’s preferential loans policy, more than three-quarters of total manufacturing investment in the late 1970s was undertaken in heavy and chemical industries although they accounted for only 50% of manufacturing output.30 Although the HCIP was inflationary and led to problems of greater debt, it dramatically transformed the South Korean economy and created the basis for the next vast export drive. Also, because it greatly increased the demand of the chaebol for finance to fulfil the plan, the HCIP made them even more dependent on the state – for a time. State-supported concentration of capital The initial promise of the military coup of 1961 was to promote small and medium businesses in order to avoid the ‘illicit’ accumulation of wealth by the rent-seeking monopolists of the Rhee period. At first, it is clear that Park was quite suspicious of big business.31 The new regime attempted to develop popular support by a campaign against corruption and the ‘illicit accumulation of wealth’. It initiated a Government Audit Report on Illicit Wealth as a result of which 44 tycoons were investigated and 27 – including the founders of Samsung, Samho and Washin – were eventually arrested and charged with ‘illicit accumulation’.32 It was even suggested that their wealth might be confiscated. But the state sector simply did not have the personnel or the experience to carry out rapid industrial expansion alone. Nor could small business lead the development of heavy industry. So the government’s planned forced march to rapid industrialisation could not take place except within the framework of big business. Park, therefore, quickly shifted back to promotion of the chaebol and abandoned his early emphasis on small and medium enterprises. The 1961 ‘war’ on the bourgeoisie soon gave way to close cooperation with it. Besides, in 1961, business had neither the desire nor the ability to assert itself against the holders of state power. The government made a deal. Charges against the chaebol leaders were dropped, their enterprises were not confiscated, but 27 of them were forced to pay fines.33 It might appear that the thesis that the Park regime caved in to business and therefore had no real freedom of action in relation to the capitalist class. Certainly the government’s

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autonomy was limited. But the fact that it took the action in the first place makes it clear that Park and his fellow military men were prepared to stand up to business if they felt that their interests and those of the new state elite they were creating could be furthered. Having shown that it could take coercive action against the chaebol, the state had established its likely dominance in any future test of strength. That power was reinforced within three months when it nationalised the banks and began to use its financial control to direct the chaebols’ strategies for expansion. The effect of the state’s support for industrial concentration was that, whereas in 1963 small and medium businesses produced 58.5% of the total output in manufacturing, by 1971 their share had plummeted to 27.7%.34 In order to achieve economies of scale the government often restricted the number of firms allowed to enter an industry – usually to only two. The chaebol came to be one of the most concentrated forms of capital anywhere in the world.

State mediation of foreign capital Foreign aid It might be tempting to see South Korean development as largely a creation, for Cold War purposes, of the US in the 1950s and 1960s. It is true that foreign aid, overwhelmingly from the US, was vital for the Rhee government in the 1950s and was quite important in the early years of the Park regime. Thereafter, it played a fairly small part. However, even in the 1950s, aid contributed little to industrialisation. About 75% of all aid between 1953 and 1960 went on general imports for relief purposes and for curbing inflation. The remaining 25% was used for industrial and social overhead construction. But little of this went to manufacturing. By the end of the Rhee period in 1959, foreign aid imports accounted for only 6.5% of capital investment in manufacturing.35 Rhee relied on US aid, but used it, often corruptly, to survive politically – with little thought to industrial development. In contrast, Park was scathing about the reliance of the Rhee government on aid – a habit he saw as weak and a distraction from the main goal of government – rapid development.36 In any case, foreign aid declined sharply in the 1960s, forcing the chaebols and state planners alike to look elsewhere – increasingly to foreign banks to fund expansion. To the extent that aid did provide cash it tended to further strengthen the position of the state vis-à-vis the capitalist and other social classes. Aid, after all,

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was paid to the government – giving it extra funds to distribute as it saw fit. The Rhee regime used the aid to distribute largesse to its political supporters. Park used (by then declining) aid funds for the purposes of development. Foreign loans Capital was in very short supply in South Korea in the early 1960s. Thus significant and rapid industrial expansion would have been impossible without foreign capital. As mentioned above, to speed up the inflow of foreign loans, the Park government passed the Law Guaranteeing Repayment for Loans in July 1962. The law was designed to induce foreign loans for the First Five Year Plan. Loans would have to be approved by the Minister of Finance as well as the Governors of the Bank of Korea and the Korea Reconstruction Bank and then the Cabinet and National Assembly.37 Both principle and interest on foreign loans approved in this way would be guaranteed by the state.38 Because of these state guarantees, the inflow of foreign loans to the chaebols accelerated. By the early 1970s foreign borrowing accounted for between 18.4% and 36.6% of gross investment.39 As long as these arrangements stayed in place, increased capital inflow could only take place via the South Korean state. It had established itself as the vital mediator and conduit between domestic and international capital. At this stage, every new linkage between them, rather than undermining the domestic power of the state, actually strengthened it. Foreign investment The Park regime, and to a lesser extent its successors in the 1980s, understood the need for foreign capital and technology in order to build a modern industrial society. But South Korea was not to be simply a site for foreign capital accumulation, an off-shore adjunct to more advanced economies. On the contrary, Foreign Direct Investment (FDI) was carefully limited and regulated and care was taken to prevent it from crowding out local firms. The Park regime’s main interest in foreign investment was as a source of technology transfer. But ownership of the industrial base of the economy was to remain in Korean hands. Despite the Foreign Capital Inducement Law of 1965 the government continued to limit foreign access. It insisted on screening all FDI closely in order to limit competition with Korean firms. In 1966, amendments to the law, and further amendments in 1971 and 1973, restricted foreign investment to export-oriented and heavy-chemical industry sectors and set the

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ceiling for foreign equity holdings at 50%. The EPB had the right of final approval for all foreign investment. In Free Export Zones (FEZs), such as that at Masan, 100% foreign ownership was allowed, along with tax and other concessions. But these enclaves were not typical of the South Korean government’s relationship with foreign capital. 40 In fact foreign capital in the FEZs was only about 10% of all FDI by 1975. 41 More important, FDI remained only a small part of the total capital inflow to South Korea – 3.7% between 1967 and 1971 and 7.9% between 1972 and 1976. 42 Between 1964 and 1973, FDI accounted for only 5% of all gross investment in manufacturing and 1% of total gross domestic capital formation.43 By 1974, foreign firms accounted for only 2.9% of GNP (9.9% of manufacturing) and 1.4% of total employment (7.6% of manufacturing) – one of the lowest levels in East Asia.44 A survey of US multinationals in 66 countries showed South Korea in the early 1980s had one of lowest shares of wholly US-owned subsidiaries.45 By the end of Park’s government in 1979, FDI in South Korea was much less significant than in comparable NICs. It represented only about 3% of Korean GDP – about half the level in Argentina, Mexico or Brazil and significantly less than Thailand, Turkey or Colombia.46 State export targets and promotion The South Korean ‘miracle’ depended heavily on loans raised in the world market yet guaranteed and controlled by the state. The second connection with the world-system – a heavy emphasis on exports – was also mediated by the state. From an early stage the Park government was obsessed with the promotion of exports. Even by the early 1960s, it was clear that growth through ISI, would be quickly exhausted. The Korean market was simply too small and impoverished and the resource base of the country too meagre to allow otherwise. Suchul ipguk (nation building through exports) became a favourite motto of Park’s Presidency and exports were seen as the key to selfsufficiency. Exports became an obligation rather than a choice for the private sector. Businessmen were expected to maximise exports rather than profits – which were relegated to a secondary objective. Imports were often subject to quotas and high tariffs, but those which were to be inputs for export industries were not burdened by such restrictions. The former head of the Industrial Policy Division of the Korea Development Institute and Fair Trade Commissioner at the EPB

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summed up the virtually militarised system by which exports were promoted by state agencies: Under President Park’s government, larger Korean firms were assigned annual ‘export targets’ by officials in the Ministry of Trade and Industry. The export targets were seen by firms as virtual ‘orders’ or assigned ‘missions’.47 The success of the export push was only partly-based on planning and the state’s driving will. In at least the first phase, 1965–73, South Korean exporters enjoyed a propitious international situation. The long post-war boom in the advanced Western economies and Japan provided expanding markets. Protectionist walls against relatively small economies such as South Korea were not yet seen as necessary. The Vietnam War provided further opportunities. Finally, as a low wage economy at that time, South Korea still had a strong comparative advantage in labour-intensive goods. But all of this provided only the opportunity. To take it meant forcing private businesses to do what they otherwise would not – make the maximisation of exports rather than short-term profits the centrepiece of their business strategies. In return for pursuing the export goals of the government, business was well rewarded. Between 1961 and 1972 exporters got a 50% tax cut on their export earnings.48 Interest rates on loans for investment to boost exports were maintained at a low 6% per annum. Subsidised credit was easily available for any exporter – in the main the larger firms.49 In effect, the government was operating a regime of multiple interest rates. Until 1981 loans meant to produce exports were provided at rates of 6–10%, whereas general loans had rates of 17–23%.50 In the mid-1970s, the government introduced a system of General Trading Companies (GTCs) to further promote exports. Samsung was the first in 1975 – by the following year 13 had been established. The ten largest GTCs accounted for 13.6% of Korea’s exports in 1976. By 1983 the share of these ten had increased to 51.3% of total exports.51 GTCs were given direct cash subsidies by the government on the basis of their export volumes. The government was then able to continually pressure them to increase exports by periodically raising the minimum export requirement to qualify as a GTC and therefore retain all the benefits such status brought with it. Perhaps the most important factor of all in promoting exports was a subjective one – the knowledge of exporters that the government

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would back them in whatever risks they took in attempting to break into export markets. The chaebol could be confident that export incentives would remain in place as long as the regime survived. They also knew that the regime was capable of punishing those firms which failed to adopt an export orientation.

Stabilising development While export promotion in the early phase to 1973 might be seen as relatively easy for the government to achieve because of the favourable external situation, the same cannot be said about the rest of the 1970s. These were difficult years for developing countries to break into new world markets with manufactured goods. The oil price shocks, two recessions and rising interest rates should have caused an economy such as Korea’s – without oil, based on exports and with a high-level of international borrowing – to stagnate. But on each occasion the government stepped in vigorously, using aggressive international borrowing and bailing out troubled firms. The first stabilisation was required even before the 1973–74 recession. Reaching the limits of the first and easier stage of export development – which relied on low wages in manufacturing – Korean GNP growth fell from 13.8% in 1969 to 7.6% in 1970.52 Government intervention was dramatic. It reduced domestic interest rates and rescued companies in trouble – simply refusing to allow sizeable businesses to go bust. By 1973, the economy was back on track with GNP growth of 14.1% and export growth of 73%.53 Government intervention was equally important in response to the second shock – the oil price rises and recession of 1973–74. This socalled ‘Second Stabilisation’ began in January 1974 – again with efforts to expand domestic credit and maintain growth. To finance this, the government borrowed abroad more heavily and ran down its foreign reserve holdings. The result was that at a time when most other nonoil producing countries were experiencing serious recession, the South Korean economy continued to post very healthy growth rates – 7.7% growth of GNP in 1974, 6.9% in 1975 and an extraordinary 14.4% in 1976. The ‘Third Stabilisation’ of 1980 was an attempt to resolve the most serious economic crisis for Korea since the 1950s. Under the impact of a second world recession and another oil price rise, GNP growth fell to minus 5.2%. Yet by pursuing the same vigorous expansionist policies

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and, as in previous stabilisations, by preventing large-scale insolvency, growth climbed again to 6.2% in 1981. State subsidies The Korean state in the 1960s and 1970s provided a broad range of subsidies to the chaebol. In order to slow wage rises, food prices were controlled and subsidised. Although grain prices were formally set by the market, the government was able to manipulate the price by announcing its own – usually below market-level – purchase price at the beginning of the harvest. This announcement would usually have the effect of reducing the market price. In addition, the government could force farmers to sell to it. Finally, it could dump its stored grain supply on the market – again lowering prices.54 Incentives were provided to new investors in industries targeted by the five year plans. These included total exemption from tax for three years, a 50% cut in corporate tax for the following two years, discounted rates for government services and a wide array of other benefits. Government aid also took regulatory, non-monetary forms. Assistance to the shipbuilding company – Hyundai Heavy Industries (HHI) – is an important example. HHI began building its first ship in March 1973. It immediately experienced difficulty with cancellation of orders. The government, which owned the only oil refinery in South Korea, responded by demanding that all crude deliveries be in Koreanowned vessels – those of the Hyundai Merchant Marine Company – whose ships were supplied by HHI. One decade later, HHI was the world’s largest shipbuilder.55

State ownership Park made his emphasis on the retention of private ownership of industry obvious in the First Five Year Plan in 1962. 56 After all, the chaebol, although completely reliant on state support, were a living example of the regime’s abhorrence of communism. As we have seen, state control of finance was nearly total in the 1960s and 1970s. But, for practical as well as ideological reasons, the bulk of businesses were to remain in private hands. A few non-financial businesses, however, remained state-owned. Public enterprise did increase somewhat – from 6.98% to 9.07% of GDP between 1963 and 1972. 57 Public enterprises that remained of some importance included the Korea Highway Corporation, the Korea Electric Power Corporation, the Korea Trade Promotion Corporation, the Korea

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Broadcasting Corporation, the Korea Tourism Corporation and the Korea Land Promotion Corporation.58 The Rhee government had privatised some public firms – essentially as a subsidy to its political supporters in the business community. For different reasons, the Park regime also privatised firms. It used public enterprise to break through into new areas of industry or infrastructural development and thus to reduce the risks associated with trailblazing for private firms.59 Some firms privatised under Park – Saenara Motors, Korea Machinery, Taihan Transportation and Korean Air – were of considerable size. During the Park period at least 20 of the top 50 chaebols acquired public enterprises more than once.60 But this was more than a handout to private business. As we shall see, those chaebol which benefited from privatisation were expected to perform well. One state-owned company which remained extremely important was the Pohang Iron and Steel Corporation (POSCO). No chaebol could gather the funds necessary for establishing steel production on a largescale. So the state took on the responsibility itself – a task which appeared to be beyond it. A World Bank team in the 1960s concluded that an integrated steel mill in Korea was not viable. The South Korean government had attempted to find a foreign partner in steel throughout the 1960s. Negotiations took place with a German company in 1962 and with the World Bank in 1967. All had failed because the South Korean planners wanted a huge plant – and that was not considered feasible by the prospective partners. The state went ahead alone and established POSCO in 1968. POSCO not only became viable, providing cheap steel as a crucial subsidy to domestic manufacturers, it was actually exporting steel-making technology to the US by 1986. This extraordinary performance was made possible by massive government financing with long-term, low-interest loans and reduced charges for railroads, ports, water and gas.61

Penalising poor performers State support for private business was, as we have seen, central to industrialisation in the 1960s and 1970s. But government largesse was linked to the demand that firms cooperate in meeting the targets set by state planners in production and exports. The rewards for those which conformed and performed well were considerable. But so was the penalty for those which did not. As government finance was the main kind available to Korean firms and since they generally found themselves with high debt-equity ratios, even the threat of the withdrawal

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of finance was serious. Should finance actually be withdrawn, these companies would almost certainly collapse. When that happened, the government would step in to distribute the assets of the fallen company to others. Examples of the government’s ruthlessness include: the carmaker Shinjin, whose assets the government, as the banker, transferred to Daewoo Motors; Asia Motors, which was allowed to go bankrupt; the Taihan group, whose failed consumer electronics division was tranferred to Daewoo Electronics; and the construction firms Kyungnam and Samho, which were merged into Daewoo and taken over by Daelim Engineering respectively.62 At least one – the Kukje-ICC conglomerate – the seventh largest chaebol, was deliberately bankrupted by the state after it proved recalcitrant. The Ministry of Trade and Industry sometimes disconnected electricity or cut off other basic infrastructure to firms which failed to meet government targets.63 The Office of National Tax Administration (ONTA) was described as the ‘ultimate control agency of the government’.64 Complex and often ambiguous tax laws give the state considerable discretion in deciding whether there was a breach of the law. Even the threat of an audit was often enough to discipline firms; some had been driven to bankruptcy by an actual audit.65 Disciplining firms to maximise exports was made easier by the GTC system introduced in 1972. The considerable benefits to be had as a GTC could only be gained through the acquisition of a GTC license, which had to be renewed every year. Those deemed not to have exported enough were simply unable to renew them.66

Relative state autonomy How was the Park regime able to succeed in this massive industrial transformation of South Korea? Certainly it was an authoritarian state – but no more so than many others in developing countries. Its dirigiste policy orientation was also fairly common. What was not common was the capacity of the state to undertake these policies consistently with, at first, little effective challenge from the main classes of South Korean society. The state possessed a high degree of autonomy domestically. Such autonomy enabled it to mobilise resources for industrialisation rapidly and to focus them within the parameters of coherent plans for several decades. This domestic strength then allowed it to mediate the relationship between South Korean capital and international investment capital and markets. South Korean companies could not do as

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they liked in the international marketplace, nor would the state allow foreign companies and banks to undermine its national development goals. This high degree of state autonomy is clear in the record of economic planning and progress during the 1960s and 1970s. The specific form of autonomy that existed can only be uncovered by an understanding of the historical trajectory of the South Korean state and its relationships with the social classes of South Korea. That analysis must begin in Yi dynasty Korea. Japanese colonialism The Yi dynasty state in Korea (1392–1910) intervened in the economy, but with the primary goal of raising revenue to sustain itself. It was a parasitic state with no intention of fostering economic growth. Moreover, it had many of the classic elements of high feudalism – a weak central state competing, often unsuccessfully, with the aristocratic landowners – the yangban – for a fairly stagnant pool of surplus. There were important changes during the long Yi period but there is no evidence, as there is in Japan under the Tokugawa, that a proto-capitalist system was beginning to develop. The Japanese state which colonised Korea in 1910 was quite different. Committed to development under the slogan ‘rich nation, strong army’, it was already 15 years into a program of colonial expansion designed to strengthen its economy and strategic position. Japanese colonialism attempted to turn the Korean peninsula into an adjunct of the Japanese military/industrial machine. Korea was to supply rice to the Japanese market and, by keeping food prices low there, minimise wage rises in Japanese industry. Several scholars have attempted to trace the South Korean ‘miracle’ to the legacy of the period of Japanese colonialism between 1910 and 1945.67 It is true that, under the Japanese, colonial Korea maintained a relatively rapid rate of economic growth – an annual average of 4% increase in GDP and nearly 11% in manufacturing – albeit from a very low base.68 However, this perception of the colonial roots of Korean economic growth must be balanced by other considerations. Firstly, industrial development under the Japanese was always unequivocally designed to serve as an adjunct to the home economy. Korean businesspeople and Korean capital played only a small role. By 1938, local capital made up just 12.3% of the total industrial capital of Korea.69 Furthermore, because of their orientation to Manchuria, manufacturing gradually shifted to northern Korea under the Japanese. 70 By

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the end of the colonial period, the north had 86% of Korea’s heavy industry.71 The south was left as a largely agricultural region, intended to provide cheap rice as a subsidy to the Japanese economy. In any case, north or south, only 5.4% of Korean workers were employed in manufacturing in 1940.72 While individuals may have gained some entrepreneurial experience before 1945, the business organisations they built were very largely born in the 1950s and 1960s. Only one of the top ten business groups (commonly known in Korea as the ‘chaebol’) that existed in 1983, was formed under the Japanese. Of the top 50, only six were started in the colonial period.73 Although in the last two decades before colonialism, some factories and three Korean banks had been established by yangban, these fledgling indigenous capitalist enterprises were cut short by the Japanese occupation. Company regulations passed in 1910 made the formation of new corporations subject to official approval – which was seldom given to Koreans. Although these prohibitions were repealed in 1920, it remained a Japanese policy to allow only the development of small-scale Korean companies which could not pose a competitive threat to Japanese business. Furthermore, apart from the important exception of the army, Japanese colonial institutions provided few opportunities for Koreans to develop the bureaucratic skills necessary for the management of a modern industrial state. In the colonial government no Korean ever held the highest bureaucratic rank (Shinnin) and even in 1942, when Japanese manpower was stretched to the limit by the demands of war, Koreans made up only 18% of the next two ranks (Chokunin and Sonnin).74 Japanese colonialism did play a role in later South Korean industrialisation. But it was primarily a negative one. Along with other elements in Korea’s historical trajectory, it helped to remove or, inadvertently, to discredit, pre-industrial social groups and structures which could have been obstacles to rapid capitalist growth. It weakened these old structures. But it did not create new, industriallyoriented ones. The Japanese abolished the political power of the yangban class while allowing them to maintain some of their economic interests in the land – that part not taken over directly by the Japanese themselves. The yangban had no access to the apex of power in colonial society. They had lost some of their wealth and prestige as well. Thus a certain ‘levelling’ of Korean class structure had taken place – with the very top of the pyramid removed. Traditional aristocratic privilege was trimmed, but the development of an indigenous

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bourgeois power which might take its place was also inhibited. The colonial power uprooted much of the old without creating solid foundations for the new system. The privileged classes – old and new – were stultified by the colonial power. But they nevertheless owed whatever position they had retained or gained to Japanese toleration. They earned that toleration by collaboration. Thus they were politically compromised in fiercely nationalistic Korea. The label of collaborator was applied both to the privileged and to the lower ranks of the colonial state staffed by Koreans. By 1941 there was one policeman for every 40 Koreans.75 That suggests both a high-level of repression and a significant number of Korean collaborators. The weakening of the yangban and the restrictions placed on the development of an indigenous bourgeoisie created considerable room for manoeuvre for the post-colonial state. That a defeated colonial power should leave behind a major power vacuum is certainly not unique to Korea. Elsewhere, elite social forces – variously comprador, bourgeois nationalist, Stalinist or pre-capitalist in character – eventually emerged to fill the gap. All of these were possibilities in Korea in 1945. What made Korea different, and eventually shaped the form that state autonomy took there, was the battering which all such potential forces took in the terrible maelstrom which engulfed Korea in the eight years following the Japanese departure. Independence and uprising The power vacuum in Korea in late 1945 was, inevitably, complicated by the Cold War. In the immediate aftermath of liberation, a Committee for the Preparation of Korean Independence (CPKI) was established before US troops arrived. Political prisoners of the Japanese – many of them leftists – were released. People’s Committees – local branches of the CPKI – were established; 145 of them existed by the end of August 1945.76 The manner in which the Pacific War ended – with the very sudden surrender of Japan before Allied troops arrived in many of the territories it had occupied – meant that left-wing nationalists faced no repressive forces which might have contained them. Moreover, most of the conservative establishment had been collaborators and were therefore politically discredited. A powerful left-nationalist surge culminated in the declaration of a People’s Republic on 6 September 1945. That finally prompted the conservative forces to regroup; the Korea Democratic Party (KDP) was formed by a merger of various right-wing groups. Backed by landowners

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and businessmen, often with personal records of collaboration, they elected as their leaders two exiled figures who, because of their unquestioned backgrounds of opposition to the Japanese, were politically saleable – Syngman Rhee and Kim Ku. Despite the intense popular feeling for independence, in late 1945 the US still planned to turn Korea into a four-nation trusteeship. By campaigning against such an outcome Rhee built a base somewhat independent of the landowner and business interests which had bankrolled him in the beginning. He formed a National Society for the Rapid Realization of Korean Independence – known as the ‘National Society’. By April 1946 it had more than a million members. This popular base provided Rhee with a lever to extract more resources and support from business – which was painfully aware of its own collaborationist past and weak political position. Outside these elite circles millions had responded to the liberation by joining radical peasant organisations and labour unions. Long pentup nationalist feeling and anger at the collaboration of much of the ruling stratum of Korean society exploded in attacks on government authority – especially the police, and in the growth of militant trade union and peasant organisation. A People’s Republic Movement, led by Lyuh Woon-hyung, established a provisional government in Seoul and built a structure of People’s Committees by the time the Americans landed. At one point, about half of all Korean counties were governed by the People’s Committees. Trade union organisation grew dramatically. The National Council of Labour Unions (Chun Pyung), built in close association with the Choson Communist Party, already claimed 574,475 members in August 1945.77 The upheavals of 1945 and 1946 produced demands for economic improvements for workers and peasants, the purging of collaborators, independence and the transfer of power from the remnants of the quisling state to the people. They culminated in 1946 in what became known as the Autumn Harvest Risings. Massive peasant riots shook the countryside, the insurgents targeting landlords and police; more than 200 policemen were killed.78 In many cases, workers took over factories and contracted out managerial positions to those with experience and expertise and shared the profits among themselves. In South Cholla, 42 of its 50 factories were already operating in this way just two months after the Japanese surrender. Over a quarter of a million workers were involved in a general strike in September 1946. The risings were monumental in scale – so was their defeat. The US Army Military Government in Korea (USAMGIK), along with the

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remnants of the colonial state apparatus and the Korean right-wing fought back ferociously. The American Director of the Department of Transportation in Korea gave an account of the repression unleashed by US occupation forces: We went into that situation just like we would go into battle. We were to break that thing up and we didn’t have time to worry if a few innocent people got hurt. We set up concentration camps outside of town and held strikers there when the jails got too full. It was war. We recognised it as war. And that is the way we fought it.79 The number of insurrectionists killed is not known – possibly there were more than 1,000. As many as 30,000 were arrested, including over 11,000 trade unionists.80 The leadership of Chun Pyung were either forced to flee to the north or were arrested. As a result of this battering, union membership was reduced from over half a million to just 2,465 in a few years.81 The US military commander, General Hodge, made it more difficult for a bona fide union movement to be revived by supporting the formation of a tame union body, the General Confederation of Korean Labor Unions (No Chong) – led by Kim Ku and Hong Yoon-ok. It could get money from employers, bank on police support and hire thugs to smash the militants of Chun Pyung. After the defeat of the risings, genuine peasant and worker organisations simply did not exist on any scale. Land reform – the end of the landed elite Although the peasant and worker upsurge of 1945 and 1946 was roundly defeated, it gave the US occupation authorities cause for serious thought. Future peasant unrest could be the basis for a revived Communist Party in the south. North Korea’s land reform began in 1946. If the southern regime smashed the peasants while in the north they were given land, then the Communists would be an irresistible pole of political attraction. Long-term stability required land reform. Besides, decisions had to be made about the future of large landholdings which had belonged to Japanese owners. Thus the USAMGIK began the land reform in 1947, breaking up and distributing formerly Japanese-owned land under its control. Land reform was also favoured by Rhee. In the manoeuvring following liberation, his main opponents, apart from the left – which in any case had ceased to be a major obstacle by the end of 1946 – were sections of the land-owning class, who, of course, opposed reform. The

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happy coincidence for Rhee was that land reform could strike a blow against his rivals while falling in line with US policy and, perhaps, building support for himself amongst the peasants. Land reform legislation was finally adopted in 1950 and land began to be distributed in that year. With reform, 70% of the eligible land was redistributed. Over half of the south’s two million rural households benefited.82 A three chongbo limit on paddy holdings was decreed (about 7.35 acres). In fact, very few households came close to this upper limit. The countryside came to be dominated by very small farms.83 Land reform was possible because of the already feeble condition of the land-owning class at the time of liberation. The reforms weakened them even further – eventually removing the old landowners from political calculations. Another potential limitation on the power of a future developmentalist state had been removed. War Whatever chance the workers and peasants might have had to rebuild their leftist organisations following the savage defeats of 1946 disappeared amidst the growing tension between the regimes in the north and south and their superpower backers. Finally, in the south, the purging of the left was completed by the war which broke out in June 1950. In terms of its effects on this relatively small country, the Korean War was one of the most destructive ever fought in modern times. The four million killed over its three year duration included two million civilians who suffered particularly because, for the first year, the war was fought on extremely fluid battle lines. It swept up and down almost the entire peninsula until the lines stabilised around the 38th parallel – the only region to escape the ravages of battle was the Pusan perimeter in the south east. Nearly one million South Korean civilians and 320,000 South Korean soldiers were killed – all this in a population not much above 20 million. About 25% of people of the south became refugees.84 Five million were forced to live on relief.85 Physical damage due to the war has been estimated at almost the equivalent of the total GNP in the year before it began. Seoul was one of the worst hit areas as it changed hands four times during the conflict. There, over 80% of industry, public utilities and transport and over half the dwellings were destroyed.86 Nationwide, 68% of industry was in ruins and industrial production was halved by 1951. There was a slight recovery by the end of the war – but still 43% of manufacturing facilities, 41% of electricity generating capacity and 50% of coal mines had been

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taken out of action.87 In short, the war wiped out much of the already scant infrastructure and productive capacity which Korea possessed. Furthermore, it completed the destruction of the left – forcing many radicals to flee to the north. Those who did not were likely to be targeted by the Rhee regime. Executions of leftists and those who sympathised with the north were common. The Republic of Korea forces routinely murdered potential political opponents before they retreated southward. Then, on retaking territory, they would kill those suspected of collaboration with the communist troops. One report suggests that 29,000 were slaughtered in Seoul alone.88 Within a year of the outbreak of the war, neither workers nor peasants in the south were left with organisations which could seriously claim to represent their class interests. The indigenous bourgeoisie, small and weak as it was in 1950, found that much of its capital stock was destroyed. On the other hand, war is a state-run activity. The long, vicious fighting immensely strengthened the position of the state in South Korean society. The bourgeoisie’s hopes of recovering the wealth it had seen reduced to rubble rested with the state. State contracts, state finance and the state’s role in doling out foreign aid, combined with their own originally weak position, all made South Korean capitalists uncommonly dependent on state support. In short, the war had the effect of further stripping political power and influence from both elite and subaltern social classes. In summary, by the end of the war in 1953, South Korea had undergone major social transformations which, taken together, contributed to a highly unusual situation in an underdeveloped country. The landowning class, commonly dominant in such countries, had lost first its prestige, then its political power and finally the core of its wealth – the land itself – as a result of colonial occupation, the taint of collaboration, war and land reform. The nascent bourgeoisie, although stifled by the Japanese, were nevertheless, in most cases, pathetically collaborationist – grateful for whatever concessions their masters allowed them. Branded as collaborators, they, like the landowners, could not pretend to lead the nation. They saw their businesses occupied by workers. Then, when they thought they had been delivered from danger, much of their wealth was destroyed in the most destructive of wars. The best opportunities to make money in the 1950s involved obtaining privileged access to foreign aid – typically to buy aid goods cheap and sell them dear. But that required state support. Reliant on state largesse to recoup their for-

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tunes, the bourgeoisie could not summon the political self-confidence and organisation to seize and use the machinery of state. In any case, they saw no reason to do so as long as Rhee was prepared to provide protection, channel foreign aid and contracts towards them and allow rent-seeking activity to thrive. It would be an exaggeration to claim, as some do, that the state created the bourgeoisie.89 However, the feeble bourgeoisie could only first survive the challenge from the masses and then prosper because of its political connections – its links with the state. The peasantry was a force to be reckoned with after liberation. But its organisations were shattered in 1946. Then land reform removed its central complaint. In any case, the peasants needed the support of an urban class to impose their will on the situation. The small but powerful working class might have fitted the bill. But its ability to organise was also broken by the defeats of 1946 and then buried during the 1950–53 war. It would be nearly two decades before workers again began to organise independently and make serious demands on capital and the state. Thus, by 1953, the domestic external obstacles to the state over which Rhee presided had been removed. The state did indeed possess a high degree of insulation or autonomy. If external impediments were the only consideration, Rhee could have adopted a developmentalist approach with little opposition. But what his state lacked for the rest of the decade was the internal coherence and motivation to use its autonomy and embark on a major program of industrialisation. Rhee stayed in power after 1953 courtesy of US assistance and because no domestic forces were capable of unseating him. He rewarded his business supporters but expected little from them in economic performance. In the few years after the Korean War, the economic situation was especially conducive to his political survival. The war, the large American troop presence and the inflow of US aid all contributed to a booming economy for a time. GNP growth hit a post-war peak of 7.7% in 1957. Then the boom began to run out. American aid was cut after 1958, limiting the flow of funds through government to business. Effective demand in the domestic market was seriously limited by its small size and great poverty. GNP growth fell to 5.2% in 1958, to 3.9% in 1959 and to 1.9% in 1960.90 What industrial production existed began to close down. A survey conducted in 1959 reported that the number of factories operating in South Korea was 56% lower than in the colonial period and only one-quarter of

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these were operating at full capacity. By 1960, in the area around Seoul, about 90% of the mines and 80% of the factories had closed.91 Yet Rhee, unlike Park in future crises, was unable or unwilling to intervene decisively. Rhee and his close circle of supporters had captured government. But they lacked firm agreement amongst themselves about what to do with it except to reward themselves. They certainly did not have the internal discipline to take the harsh measures and great risks associated with rapid industrialisation. No serious economic plan was ever implemented during the Rhee period. 92 Economic downturn and lack of developmental progress weakened Rhee’s originally strong position. The bourgeoisie ceased to actively support him. Political repression under Rhee culminated in April 1960 when students protesting against crooked elections were killed by police. More student protest demonstrations followed. Rhee called out the army. For the first time it refused to intervene and the government fell. The new interim government, led by Chang Myon was intrinsically unstable. The students were not a large or powerful enough group to sustain a government in power for long. In any case, it was internally divided and faced 2,000 student demonstrations in its first year. In May 1961, the army moved. General Park Chung-hee led the new regime – at first an openly military one, then dressed in civilian clothes. It was under Park, from 1961 until his assassination in 1979, that the great spurt of industrialisation began. The army: the origins of state coherence and motivation Military involvement in politics is not uncommon. Altogether the military intervened in about two-thirds of the more than 100 nonWestern states between 1945 and 1976.93 But after the coups they are usually neither able nor motivated to stimulate rapid economic growth. Military involvement alone is not the key to economic development. Indeed the military may well construct a parasitic state which simply draws resources from the productive sections of society and therefore weakens them. Or it may allow or encourage unproductive rent-seeking behaviour in return for political support from elites. But the officers in control after the coup in South Korea were different in many ways from most of those who have led hundreds of Third World governments since the Second World War. Whereas the main social classes of South Korea had been politically enfeebled by the historical trajectory described above, the army emerged during the 1950s as a cohered and motivated body. Its absolute size made it a very powerful

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force. At the end of the Korean War, the Republic of Korea (ROK) army numbered 600,000 – the fourth largest outside the Soviet bloc. The war necessitated rapid recruitment of officers and men. The number of officers required simply could not be found in privileged circles. More importantly, it was an extremely bloody affair; the South Korean military forces suffered more than 40% casualties.94 Therefore, promotion of those who survived was rapid. Officers, even of high rank, usually had lower middle class origins – literate, but by no means privileged. They despised the left and the communism which they had fought. On the other hand, their relatively humble origins meant that they had few social connections with any elite grouping. They were free of links to social classes which might hamper a military regime in undertaking a program of rapid economic growth. In that sense they were quite different from the officer corps of many poor countries who often come from privileged classes or who develop personal (and sometimes financial) links with such classes during their tenure as senior officers. At the time of the coup and in the early days of his Presidency, Park exemplified this background. He had little but disdain for landowners and big business and viewed the Rhee regime as a cosy and corrupt arrangement between politicians and business which had operated against the interests of the nation. The ‘revolution’ of 16 May 1961, in which he had taken power, was designed to end all of that. For Park, the ‘leading forces’ of the future would be soldiers, students and intellectuals – not chaebol owners or bankers. The army had developed a strong ethos opposed to the pursuit of purely personal gain – something which they saw businessmen doing freely in the 1950s. In their view a disciplined, selfless, nationalist force was required. Its key tasks would be national defence and economic development. In his published work Park frequently made this connection between the army, nationalism and national development. Just as frequently he contrasted military selflessness with the pursuit of private profit: Patriotism and national self-awakening are rooted deeply in the hearts of the revolutionary troops who risked their careers and their lives to save democracy in Korea. The soldier is the shield of the people, the son of the people.95 We must take a great leap forward toward economic growth, and a social and economic order which will give priority to the public interest over the selfish pursuit of private profit at the expense of the people in this Communist threatened nation.96

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Links to the capitalist class or to the old landowners might have been generated quickly once the military came to power had not the same historical trajectory which strengthened the armed forces simultaneously politically weakened or, in the case of the landowners, obliterated the elites. A second important difference between the South Korean military and most others was that the former faced the long-term, serious military threat posed by North Korea. The military, more than any other group in society, were in a position to understand, feel and perhaps even exaggerate, the danger poised just a short tank drive from their capital. It focussed their minds on the urgent tasks of economic development as a basis for military defence. This threat and the memory of the immense slaughter of 1950–53 maintained a high degree of unity and discipline in their ranks. Until 1979, there were no serious internal factional disputes, no suggestions of a second coup by disgruntled officers or public disputes about the direction of policy. Despite democratic window dressing – with former generals running for office as civilians – a central group of senior officers remained at the core of the state. Even a decade and a half after the coup, 66% of the Cabinet and 22% of the National Assembly were military men. 97 After Park’s assassination in 1979, the Presidential palace was occupied by former generals until 1992.

Maintaining state autonomy The civilian mask Having come to power as soldiers, Park and his fellow putschists immediately felt it useful to shed their uniforms in favour of civilian garb. One reason for doing so was to court the continued good grace of the US – which would look more favourably on a regime which had at least the trappings of democracy. A more important impetus for civilianisation of the coup was the difficulty of maintaining legitimacy for the military once it entered the political arena. The negative reasons for mass support or neutrality towards it – the failings of the Rhee regime – had disappeared. The idea that the military stands above politics and is impartial and fair can also begin to disintegrate once they actually hold political power. In the Korean case – where their domestic opponents were quite weak – the military had nothing to lose by donning a civilian mask and contesting elections. Therefore General Park, as head of the Supreme Council for National Reconstruction, decided to hold open elections. The military created

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and sponsored a civilian party – the Democratic Republican Party (DRP) – to contest the elections. In 1963, the ‘civilian’ Park Chung-hee narrowly won the Presidency and the DRP won two-thirds of seats in the legislature. But there was little risk in this course of action. Had they lost, the military would have been easily able to revert to more forceful methods of rule. The DRP was successful again in both the 1967 and 1971 elections. But the transformation of the military regime into an apparently civilian one didn’t change its basic dynamic. Many government ministries were staffed by retired army generals and colonels. In the wings, the soldiers still in uniform guaranteed that no parliamentary or extraparliamentary attempt to throw them out would succeed. And the most senior officers quickly found much in common with technocrats in the bureaucracies. Both supported a top-down approach to state management of the economy. Military and former military officers of whatever rank knew that their long-term rule (and, as they saw it, the very survival of their country) depended on economic growth. Mechanisms of control That the Park regime, on coming to power in 1961, felt itself to be in a strong position vis-à-vis the capitalist class can be seen from its ‘war’ on the bourgeoisie and on its ‘illicit accumulation of wealth’. That it was able to go further and take over the commercial banks which had been sold to the chaebol illustrates both its own strength and the bourgeoisie’s weakness. It was able to maintain this position of strength in the first place because its economic strategy was stunningly successful. The state made the chaebol rich. In the first two Five Year Plans – 1962–66 and 1967–71 – the real growth rate averaged 9% per annum. In the period 1972–79, it was higher still – averaging 10% per year. During the first two plans, real growth of exports averaged 40% – an enormous rate of increase.98 In the second place, state control of finance and a multitude of other benefits and incentives served as a reminder to the chaebol that they could be bankrupted as well as enriched if they refused to cooperate. Cooperation meant following government economic strategy and allowing the generals and former generals to keep control. The military after 1961 restructured the state-business relationship. Whereas under Rhee, the relationship enriched individuals on both sides through rent-seeking and corruption, Park Chung-hee used business weakness to impose a coherent economic strategy. Although corruption remained, it was not at the centre of the relationship as it

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had been in the 1950s. Business needed the state even more after the coup. The chaebol were growing but still insecure. At this stage of development, they could easily fall as well as rise. Of the top ten chaebol in the mid-1960s, four had not been in the top ten in the late 1950s.99 The student upsurge which toppled Rhee in 1960 briefly gave the working class a chance to assert itself after the great repression of the previous decade and a half. Once again workers went on strike on a significant scale.100 New unions were formed and took up political as well as economic demands. But this wave of labour activity collapsed quickly after the 16 May coup. Park almost immediately decreed the dissolution of unions. Within a few months, however, it became clear that there was an advantage in allowing a tame union organisation to exist. The General Confederation of Korean Labor Unions (No Chong) had, after all, been virtually an arm of government under Rhee since the destruction of Chun Pyung in the 1940s. So the Federation of Korean Trade Unions (FKTU) was formed almost overnight with Park’s backing. Most of its officials were more concerned to stamp out rank and file (wildcat) action than to advance their members’ interests; the FKTU became an important means by which the state controlled the growing industrial working class in the 1960s and 1970s. Perhaps the most powerful instrument of state control of opposition in the working class and in society as a whole was the Korean Central Intelligence Agency (KCIA). Created in 1961, its range of operations was much broader than intelligence gathering. It was simultaneously a secret police force, a monitor and executor of economic planning and a coordinator of different sections of the state bureaucracy. One of its first acts was to discipline the bureaucrats and bend them to the will of their new military masters by screening 41,000 government employees. Of these 1,863 of them were found to have been involved in ‘anti-revolutionary’ activities. 101 The KCIA infiltrated hundreds of agents into factories. They uncovered agitators and opponents of the official FKTU leadership and of the regime. Local police were also authorised to monitor labour. Police, KCIA and Army staff frequently coordinated their efforts in this area and the KCIA played a major role in FKTU elections. State repression, already heavy in the 1960s, became even greater in the 1970s. In 1971, a Special Act for National Security was introduced – under it all forms of industrial action were made subject to government approval. In 1972, Park introduced the Yushin Constitution – a turn towards heavy state repression of all forms of opposition. Violence by police and privately employed thugs – the

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kusadae – against labour organisers became more prevalent. Even work practices inside the factory were shaped by militaristic discipline. Employees were often required to have short hair cuts and wear uniforms with their rank indicated by the shape of name tags on the breast pocket. 102 Slogans such as ‘industrial warrior’, ‘industrial fighting line’, ‘constructing while fighting’, ‘export war’, and ‘occupation of the ten-billion dollar export hill’ were commonly posted around factories. 103 Companies often recruited retired army officers as field managers. Hyundai hired more than 80 of these in 1977 alone. 104 Faced with all of these forces of repression, the working class in the 1960s and 1970s was as yet unable to offer significant resistance to the Park regime’s economic plans. Repression and censorship extended throughout society: on campuses, in the press and in churches. In 1975, a free speech campaign at two newspapers – Tonga Ilbo and Choson Ilbo – led to the mass sacking of editors and journalists. Even a 1973 article about the poor quality of local instant noodles was suppressed by the KCIA.105 A Seoul National University Professor, Ch’oe Chong-gil, was abducted, tortured and murdered in the early 1970s. But most South Koreans had no knowledge of this until 15 years later.106 A further limited and, in this case at least, generally unsuccessful attempt to maintain ideological control over both workers and small farmers was the saemaul undong (New Community Movement). The Movement was a government-sponsored move to encourage people to improve their villages by undertaking collective tasks of rebuilding, improvement and beautification. Fences were to be repaired, thatch roofs replaced with tiles and so on. Most projects were to be carried out at village level but the initiative came from government ministries, starting with the EPB, which supported and planned each of them. In industry, the factory saemaul were supposed to motivate workers to achieve greater production in the war against communism. In city and country, these campaigns were accompanied by moral and ideological indoctrination – ironically reminiscent of the Chinese Cultural Revolution. But this attempt to mobilise masses of workers and farmers behind the government had little effect. Although the saemaul had some of the features of organisation from below, in fact it was organised very tightly from the top down. Initiatives of the saemaul resembled the planning of industry – with the same centralised, autonomous state directives. By the end of the Park regime in 1979, the saemaul had failed in its purpose. It did not prevent increasing disillusionment with the gov-

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ernment. The remnants of the saemaul were later taken over by Chun Kyung-hwan – known as Little Chun – the brother of the president who succeeded Park. He gained a reputation for thuggery and corruption – skimming saemaul funds for his own use. 107 Unlike the situation in Mexico, mass organisation such as the saemaul was never a major means by which the regime established or maintained its legitimacy and control. It was artificial with no genuine roots in the Korean population. By 1984, the saemaul was virtually dead.

Relative autonomy and public policy Path two – from devastation Against this background, it is clear that the South Korean state had a high degree of relative autonomy. But the form which that autonomy took and the manner of its coming into being also played a part in determining the strategy adopted by the state. South Korean state autonomy came about through the extreme weakening of the major classes of Korean society in the period to 1953. The Rhee regime, lacking a cohesive state apparatus, used that autonomy for purposes other than industrial growth. Park’s coup added a tightly-knit group which felt driven to make it happen. The public policy of the regime was shaped by this peculiar background. The problem of the concentration of land ownership, a burning one in many underdeveloped countries, was quickly solved as a result of the weakness of the old landowning class. But this was already fundamentally resolved by 1961. Thereafter Park’s interventionist policy was (i) private ownership of industry; (ii) state control of finance; (iii) state planning and tight state control of private industrial expansion; and (iv) maintenance of a low wage economy during expansion. Low wages were possible because the working class needed a generation of industrial expansion before it could develop the confidence to openly fight for its rights with any significant success. It might be possible to see the fact that the state left industry in private ownership as a sign of its insecurity and weakness. On the contrary, it is an indication of the state’s great strength relative to the private capitalist class in the 1960s and 1970s. Capital could be securely left in the hands of the chaebol owners because Park knew that their formal ownership of it did not give them discretion over its use. State directives about the use of their resources would be followed by the chaebol – just as if they were managers of publicly-owned enterprises. Rigorous planning could be undertaken in a largely privately-owned system because the owners –

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for two decades after 1961 – lacked the self-confidence to challenge the direction of state policy. Although the state made private business richer than it could have dreamed in 1961, their immediate interests were not always the same. Instant profit-taking conflicted with long-term industrialisation, rent-seeking with strategic development. But when their objectives diverged, the state always had its way. To maintain this position of dominance over 20 years and through the enormous growth of the chaebol, the state needed control over the blood supply of Korean business – finance. Just as state autonomy was the result of a lengthy process of struggle – both a domestic class struggle and the effects of a global struggle fought out on Korean soil – so also was the particular form which capital accumulation took under Park based on the outcome of this struggle. The Park regime’s blend of public policy was closely linked causally to the specific configuration of classes with which it was presented by the preceding historical trajectory.

6 The South Korean ‘Miracle’ in Decline

Introduction In 1988, South Korea hosted the Olympic Games in Seoul. The government bid for and planned the Games as a message to the international community that South Korea was a modern, industrialised and democratic country. But well before the opening ceremony, the South Korean ‘miracle’ had already begun to unravel. Massive labour unrest broke out in 1987 and continued for the rest of the decade. In that same year, a militant democracy movement emerged on the streets which forced major concessions from the regime. Within a year of the Olympics, GNP growth was cut in half. The powerhouses of the boom – the chaebol – were becoming bold enough to challenge the prerogatives of the state. Conflicts between state and chaebol over policy became common; in contrast to the Park era, now the state did not always win them. State economic and social policy lost its coherence, swinging, sometimes wildly, between one extreme and another. The key to understanding these changes lies in the erosion of state autonomy which had been central to the ascending phase of South Korea’s economic growth. The very success of the South Korean ‘Midas’ state now began to undermine the basis of its power.

The rise of the working class The most important reason why the South Korean state was no longer able to carry out its plans for industrial development with anything like the old certainty or focus was its inability to control the burgeoning working class movement. Militant organisations of the working class had been destroyed in the first half of the 1950s and repressed for 150

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the rest of that decade and the next by the methods of a police state: intensive spying in factories, legal restrictions on association, dismissal, imprisonment and torture of activists. But the sheer pace of industrialisation in the 1960s, 1970s and 1980s created wage workers so fast that the mechanisms of repression eventually could not deal with them. The proportion of wage and salary workers in the workforce increased from 31.5% in 1963 to 54.2% in 1985.1 The industrial workforce alone rose from 10% of the labour force in 1965 to 23% in 1983. The service component of the workforce increased from 31% to 47% in the same period. Farm labour fell from 65% of the workforce in the early 1960s to 38% in the early 1980s.2 From the first economic plans of the Park regime until the late 1980s, cheap labour was a crucial ingredient in the strategy of the chaebol and the government. In that period South Korean wages were far below comparable countries. Until the wages ‘explosion’ of 1987–90, the hourly rate of Korean manufacturing workers was just 75% that of the Taiwanese level and 80% of that which prevailed in Hong Kong.3 Low wages, of course, gave South Korea a huge advantage over First World producers. Manufacturing wages were just 11% of the US level and 14% that of Japan.4 The hours worked by South Koreans actually rose as the industrialisation drive progressed – from 50.5 to 54.3 hours per week between 1975 and 1983 – giving them the longest working week and the highest rate of industrial accidents in the world at that time.5 This newly created industrial workforce began to exercise its great potential power during the early 1970s. The first stirrings began in the ‘leading edge’ industry of Korean industrialisation – textiles and garments. In the Peace Market area east of downtown Seoul, over 20,000 women garment workers – mostly aged between 14 and 24 – laboured in more than 1,000 shops under appalling conditions. They worked for an average 15 hours per day, sometimes in ‘rooms’ with only three feet between floor and ceiling, so that they were unable to stand upright. Their daily wage was about the equivalent of the price of a cup of coffee.6 The Peace Market was, and remains, the symbolic starting place of the South Korean labour movement. It came to prominence in 1970, after worker activists there appealed to the Office of Labour Affairs for the enforcement of legal minimum standards of working conditions. Their appeals were ignored and they demonstrated, only to be beaten by police. When a second demonstration was also set upon by the police, a 22-yearold male worker, Chun Tae-il, poured petrol over himself and set it alight in protest.7 The suicide drew enormous sympathy from workers across the

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country and from radical students and other opponents of the regime. Lee So-sun, the mother of Chun Tae-il, became the most prominent leader of the first union at the Peace Market – the Chonggye Garment Workers’ Union (CGWU). It existed under conditions of illegality and continual harassment from the authorities. The union office and a small room on the roof of the Peace Market used to provide workers with training in basic literacy and in union organising were frequently attacked and closed by the police.8 Lee Sosun was arrested and charged as a communist. At one point, when police again attacked the union office, the workers, mostly young women, fought back and drove them away. They agreed to leave the building if Lee So-sun was freed. The police broke the deal – beating and arresting them and jailing eight of their number.9 Despite the repression, the CGWU survived until forcibly dissolved by government edict in January 1981.10 The CGWU achieved some better conditions for its members – including shorter working hours – but its great importance lay in the example it set for others. Throughout the 1970s and early 1980s, in a series of tumultuous labour struggles, workers threw themselves against the repressive edifice of state power and thus challenged the industrialisation strategy chosen by the Park regime. Many of these disputes revolved around questions of union democracy. Since the FKTU was so clearly in the pay of management and government, replacing existing union leaders became central. That struggles should take this direction was, at first, inevitable. The formation of independent unions was illegal and subject to state attack, as the CGWU experience had shown. One important dispute, in which the question of union democracy was paramount, was at the Dong-il Textile Company in Inchon beginning in 1972. Then, and again in the 1976 and 1978 local union elections, a militant woman defeated a male candidate backed by management. After a long battle involving sit-ins, public demonstrations, strikes, sackings and broad public support for the workers, the Dong-il women finally achieved some measure of union democracy. Through numerous disputes such as this in the 1970s, the basis of a union movement independent of government control was being laid. Between 1970 and 1979, 46% of major industrial disputes concerned questions of the freedom of labour to organise.11 In virtually all of these struggles, the workers’ actions were illegal. Because of the pervasiveness of government intervention in industrial matters, disputes such as these immediately had broader political implications. One well-known clash of this kind took place in 1979 at

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the YH Trading Company, a needlework business specialising in wig-making in the eastern suburbs of Seoul. After sackings at the plant, the women workers there set up their own union. It began a sit-down demonstration. When the company shut down part of the factory and brought in police, the workers moved their protest to the headquarters of the opposition New Democratic Party (NDP). After two days there, 1,000 police attacked and ejected them. Workers and NDP members were injured and one woman worker was killed. The incident put the regime under great pressure. Even the US State Department described the police action as ‘brutal and excessive’.12 Disputes such as these attracted huge public sympathy – both because of the savageness of the government and because the workers frequently looked for outside help. Often they found it amongst students, the developing broader movement for democracy and amongst some sections of the Christian churches. A powerful front opposed to the regime was being formed. An important point of intersection between the workers’ movement and these broader forces was what became known as minjung thought. In Korea, old notions of popular democracy and nationalist egalitarianism, summed up by the word minjung, played a crucial role in the workers’ movement of the 1970s and 1980s. Minjung literally means ‘people’, but it has connotations of the popular, national will and of an oppressed community. Minjung thought looked back to an idealised, nationally united and largely rural past, as well as forward to a just future. It was aimed at rallying workers but revered the poor, including the small proprietor, as a whole. It is nationalist – but not only nationalist. It is a struggle against oppression partly expressed in cultural terms. Minjung found a resonance amongst industrial workers, but it was also widely discussed on university campuses. Minjung forms of sociology, literature, theology and art were developed. On university campuses in the 1980s, it was common to see students performing revived peasant music, dance and drama.13 Shamanist rituals – considered the native ‘folk’ religion of the Korean masses – were often performed at demonstrations. In one sense, under the conditions of a police state, minjung cultural opposition was safer than opposition expressed in other, especially Marxist terms.14 However, it was not much safer. Its adherents could still easily find themselves arrested, tortured and imprisoned. Minjung ideas appealed to workers with little working class tradition, with only a short history as workers and with strong collective memories of the countryside. By the mid-1980s, large sections of the working

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class had considerable experience of their own in battles against employers and the state and the appeal of a populist ideology with its roots in rural rebellion declined. Cultural methods of transmitting a political message, however, continued. But they became more explicitly steeped in the experience of the working class. A working class literature developed, often encouraged by student activists who help set up small publishing houses for the purpose. Korean workers had begun to outgrow minjung. By the 1990s, its influence was very much weaker. Religion and religious institutions played an important part – although a transitory one – in the Korean working class movement in its early stages. Minjung thought provided a point of intersection between working class resistance to the regime and the beliefs of some Korean Christians. Two organisations in particular – the Catholic group, Young Christian Workers (JOC) and the Protestant, Urban Industrial Mission (UIM) – began to involve themselves in the welfare of factory workers during the 1960s. Lessons in labour law and union organising were combined with classes in scripture. Some clergy even took factory jobs as part of their mission. At first they offered legal courses, with the support of the labour department of the government, in how to run a union within the FKTU official structure. But they rapidly became associated with some of the most important disputes of the 1970s. About 20% of new unions formed in that decade were assisted by the UIM. 15 By the mid-1970s, the tame FKTU hierarchy spent a great deal of time attacking both church groups, claiming they were ‘impure’ forces in Korean society. Being associated with either could cost workers their jobs or even earn a visit from the police. In response, workers’ groups linked with the JOC or the UIM were forced into a semi-underground existence, meeting late at night, at irregular times and places.16 The Christian churches provided social bonds for people who had been removed from a network of family and friends by the process of industrialisation. Young rural migrants, working long hours in factories far from their homes, experienced extreme isolation. Many found themselves housed in factory dormitories, closely supervised by management and frequently shifted between dorms in order to prevent the growth of networks of resistance. These isolated, uprooted workers were searching for companionship, solidarity and shelter from a brutal and intrusive management as much as they were looking for a religious belief system.17 Finally, the church provided those who wanted to organise a union with some resources and with a degree of ‘cover’ – a site to organise

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which, for a time at least, remained just on the safe side of the law and its enforcers – a vital legal window in the early period. Under church influence, about 40,000 workers were organised into unions at around 100 enterprises during the late 1960s.18 Many of the activists who went on to found the large independent unions of the late 1980s and unite them in the Korean Confederation of Trade Unions (KCTU) in the 1990s got their original experience here. Yet during the 1980s, church influence on the labour movement waned. Just as its attraction in an earlier period was to a recently dislocated workforce, so when workers became more settled, they could form social bonds in their own community without the church. Also, the growth of the labour movement began to create a different sense of community – a community of worker activists. Finally, increasing confrontation, on broad political and as well as economic questions, between the new unions and the state radicalised unionists further. Activists shifting leftward, some influenced by Marxism, often found the church too mild.

The assassination of Park By the late 1970s, the pressure on the regime from various opposition sources, but especially from the growing working class, had reached the point where the unity between key state actors began to crack. In the National Assembly elections of December 1978, the opposition NDP won the majority of contested seats. Park was able to keep control only because of his own direct appointments. An attempt to throw the leader of the opposition, Kim Young-sam, out of the National Assembly caused riots in the streets – especially in the industrial city of Pusan, his hometown. The YH strike, connecting as it did, the parliamentary and legal opposition with a militant strike by workers, also proved a crucial turning point. Nation-wide protests in support of the YH workers left the regime unsure whether to employ even greater repression or to make concessions. Disagreements over how to respond to this troubling new instability began to develop within the previously solid military group at the core of the state machine. In the end, it was the head of the KCIA, one of the most trusted of Park’s henchmen, who shot him dead at a dinner party in October 1979. The political crisis created by the assassination briefly gave the working class greater space in which to organise. Strikes for economic demands and for the right to form independent, democratic unions increased. But this brief liberal interlude was ended by the coup led by Chun Doo-hwan in May 1980.

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In the city of Kwangju, capital of the home province of opposition leader Kim Dae-jung, virtually the whole population – with students in the lead – rose in opposition. Troops were sent and, in the resulting massacre of 18 May 1980, the government claimed that 200 citizens were killed. The opposition said that up to 2,000 died.19 The Chun regime, having begun with brutal force, continued a policy of harsh repression. It cracked down on labour organisations. Thousands of activists were removed from union positions, others were sacked and blacklisted. Between 1980 and 1983, all autonomous unions were destroyed, 500 news reporters and 80 professors were sacked and 500 politicians either arrested or banned from taking part in politics.20 The repression of the early 1980s, however, was a sign of the increased resistance which had developed to a regime now desperate to survive.21

The upsurge of the late 1980s Struggles, often by women workers, in the 1970s had begun the process of developing an autonomous labour movement and broad support for it. Great economic inequalities were becoming evident in the industrialisation process. This, and the authoritarianism of the state, especially after the imposition of the Yushin constitution, caused many streams of opposition to converge. By the time of Park’s assassination, the point of convergence was this new labour movement. In the 1980s, the industrial structure of South Korea had already begun to change. Under the impact of the HCIP, large-scale engineering, car manufacturing, shipbuilding, steel making and other heavy industry had begun to supplant light manufacturing, especially textiles and garments. The new plants were much larger than before and were staffed predominantly by male workers. The centre of the industrial struggle began to shift. Various pressures building on the regime, including the rise of working class resistance, pushed the government into an abrupt reversal of position on the structure of the state and the question of democracy. An announcement in June 1987 by Roh Tae-woo, the chairman of the ruling Democratic Justice Party (DJP), that the next President would be directly elected was the catalyst for the great workers’ upheaval of 1987. The signs of an industrial upsurge were already present before Roh’s volte-face. Long before the declaration, there were already sporadic but explosive outbreaks of action across the country. In April 1980, 3,500 coal miners at Sabuk in Kangwon province rioted and took control of the town for several days. Their fury was directed

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at the officials of the FKTU, who had done a deal with management. The leaders of this virtual insurrection were eventually jailed and martial law was declared in the area. In 1982, 650, mostly women, workers at the Wounpoong Industrial Company organised a sit-in to protest sackings and the use of kusadae thugs. Plain clothes police dragged out 250 and put 58 in hospital. The next day tear gas was used to remove the rest of the workers.22 In late 1983 and 1984, Chun loosened the controls on opposition activity somewhat. The relaxation only encouraged another wave of struggles. Even when the brief political abertura ended and Chun shifted back to full-scale repression, the movement continued. There was now a layer of working class activists who had fought in an underground manner for a decade or more, been victimised and, in many cases, beaten and jailed. They constituted an experienced and politically sophisticated cadre who knew how to organise and to appeal for support. Solidarity strikes and demonstrations were becoming common as a result. In one of the most important disputes of this period, at Daewoo Apparel in the Kuro Industrial Park in June 1985, a strike that began as a protest at the arrest of three union leaders spread to other plants. Solidarity demonstrations were organised outside the gates of the factory for the ten days of the strike. Finally, a huge police assault and the sacking of 2,000 workers ended the struggle. But the pattern – of large-scale, militant and determined industrial action defending union rights and receiving broad support – was established.23 Two things were politically important in the many disputes such as these in the few years before June 1987. Firstly, they involved conflict with the state at several levels. Secondly, they attracted broad popular support. Confrontation with the state was inevitable since nearly all strikes were illegal and many, perhaps 40% of the total, involved violence.24 Government restrictions on union activity had served to restrict and postpone industrial action. But they also made it more political, and even insurrectionary when it happened. Clashes with police were almost routine. Since public demonstrations and sit-ins were an important tool of union organising, state bans on protests and, once again, the intervention of the police followed. And there was an ongoing conflict between the new militant activists and the FKTU officials, who operated virtually as an arm of the authorities. Secondly, despite the fact that these disputes involved confrontation with the state at all these levels, or perhaps because they did so, they were widely supported by most South Koreans in the late 1980s. A

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survey conducted in 1987 found that 56.9% of people believed that the bosses were responsible for labour disputes. Another 18.7% blamed the government. Only 6.6% blamed the unions.25 Fully 72.6% of industrial workers blamed management and another 11.9% blamed the government. Only 3.5% blamed the unions. Just 8.5% of all respondents blamed radical movements (the main argument used by the government) and only 6% of industrial workers did so.26 Even areas of the workforce which were not highly unionised and had not been heavily involved in the action also tended to support the militants. Amongst clerical workers, 58.8% blamed the bosses and 17.6% blamed the government. Only 8.1% blamed the unions.27 Thus the key tools of political control which the state had used since at least 1961 were being challenged regularly in the streets and the factories. And the militants were being (at least) passively supported by most of the population. As these challenges mounted on a number of fronts, the effectiveness of state controls was undermined. After the democracy declaration in June 1987, a dramatic working class upsurge took place that changed forever the balance of forces in the conflict between the state and its growing number of opponents. Roh’s limited liberalisation opened the floodgates for an enormous wave of struggle, the like of which had not been seen in Korea since 1946. Liberalisation was not meant by the government to allow union organisation to develop. It was strictly limited to the question of direct elections for President. Nevertheless, it seemed to be a visible chink in the armour of the regime and thus gave workers greater confidence to defy both it and their employers. Pent-up bitterness poured out of the new struggles. At a strike at Daewoo Motors, the workers forced the company presidents and vice-presidents to kneel in front of them in disgrace. The same happened to executives of many other companies.28 As well as demands for wage rises and improvements in working conditions, typically workers struck for the right to organise their own union, an end to the FKTU presence and the return of workers victimised for union activities in the past. In what became known as the ‘hot summer’ of 1987, more than 3,700 labour conflicts took place between July and September.29 Between that summer and late 1989, there were more than 7,100 disputes and the number of unions rose from 2,725 to 7,358.30 Moreover, most of these disputes were taking place in the heart of the beast – within the chaebol and in the largest plants. The 109 day strike at Hyundai Heavy Industries, finally ended only by a full-scale police attack, was reported to have cost the company 454.5 billion won (US$700

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million).31 In the car industry, then undertaking a massive export drive, strikes averaged 27 days in 1988; at Daewoo it was 90 days.32 Genuine union organisation spread rapidly. The first autonomous union at Hyundai was formed in July 1987 by just 120 workers. Within a week it had 1,400 members and after a month workers from 13 companies in the Hyundai group had joined.33 Between July and September alone 1,060 new unions were organised.34 Whatever credibility the leaders of the state-controlled FKTU unions had was seriously damaged. On some occasions, these officials were forced to manoeuvre to support the workers’ demands. On others, they were swept aside and new leaders elected or, in some cases, illegal unions formed. Nearly half of the presidents of enterprise unions resigned. For the most part, the strikes were not centrally coordinated. There were a few city-wide organisations, such as the Inchon Free Workers Association. But usually, strikes spread by example. A higher level of solidarity action than before was also made possible by the fact that the strike wave included the great industrial estates such as Ulsan, Changwon, Masan, Okpo and Guro, where many large factories were concentrated in close proximity. Radical workers referred to the MasanChangwon complex in 1987–88 as a ‘liberated zone’.35 Efforts to establish regional labour councils and to link workers in the same chaebol eventually led to the attempt to form a national, independent union federation to counter the FKTU. A National Alliance of Trade Unions was formed on 22 January 1990. It was illegal and almost its entire leadership was immediately arrested. Nevertheless the drive to form a genuine national union movement continued. Managements were forced to grant substantial pay increases. Wages now began to rise sharply in industry generally and especially in heavy industry. The result was a major change in industrial strategy on the parts of both management and the state. Because of working class pressure, South Korea was rapidly losing its competitive advantage of low wages in a range of products. As well as the internal pressures on wages, two other international factors intervened to force a change in industrial strategy. The first was the construction of protectionist barriers to the US market. Although not primarily aimed at South Korea, growing protectionism in the US during the 1980s undercut the export goals of the regime.36 Secondly, competitors, especially in textile production and cheap electronics manufacture began to multiply. China and the Philippines, among others, could offer much lower wages to investors than could South Korea, especially after the strike wave of 1987–90.

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The middle classes Industrialisation created a powerful, and potentially insurrectionary working class. It also changed the nature of the middle class in Korean society – both the ‘old’ middle class of petty proprietors and the ‘new’ middle class of technical experts, middle level management and professionals. The small peasant proprietor declined rapidly as a proportion of the population. But the number of urban small proprietors – such as shopkeepers and small contractors – increased. The non-farm selfemployed – mostly small retailers or small businesspeople in services – increased between 1955 and 1985 from 7.5% to 21% of the labour force.37 An even greater increase took place in the numbers of the ‘new’ middle class – who were needed to staff the huge bureaucracies of the state and business and to provide technical expertise. The proportion of professional, managerial and white collar workers (not including sales employees) increased from 4.8% to 17.1% of the workforce between 1955 and 1985.38 Following the need for more professionally trained people, the numbers of tertiary-level students also rose rapidly in the 1960s and 1970s. As the industrialisation push developed, significant numbers from both sections of the middle class moved into varying degrees of opposition to the regime. The most volatile and radical were the students. It was students who led the revolution of 1960 which brought down the Rhee regime. During the following decade, sporadic protest actions continued on university campuses – especially against the normalisation of relations with Japan in 1965. In the 1970s, a mass radical student movement began to form and to move into violent opposition to the Park government. Repression was severe. Police were stationed on university campuses in the 1970s and early 1980s. Professors and students who expressed oppositionist sentiments were expelled or arrested. From the 1970s, small numbers of students, some of them Christian activists in the UIM or the JOC, involved themselves in the independent workers movement. Some students became involved in teaching in workers’ schools – such as the one run by the CGWU.39 Some took blue collar jobs with the aim of mobilising workers and forming trade unions, falsifying their background in order to escape detection. In the 1970s and 1980s, an estimated 3,000 students took jobs in industry with this in mind.40 In one year alone, 1985–86, the police claimed to have unmasked 671 such agitators.41 The penalty for being discovered was severe. In 1986, a woman student, Kwon In-sook, was found working in a factory. She was arrested, sexually assaulted

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and tortured with electric shocks. She attempted suicide. Finally, she was sentenced to a year and a half in jail for lying on her employment application. The government often blamed industrial stoppages on these ‘disguised workers’. That was certainly an exaggeration. However, the students did play an important role in generalising the lessons of workers’ struggle. Since the press was tightly controlled, it was sometimes student leaflets and rallies which spread the word of the growing working class militancy and so took resistance to the regime beyond the factory or the factory district. In October, 1984, a series of student demonstrations in and around Seoul demanded free trade unions, guaranteed minimum wages and other basic working conditions.42 At the Daewoo Apparel strike mentioned above, students demonstrated in support – often clashing with the police.43 The brief period of liberalisation under Chun from late 1983 also gave radical students a chance to regroup. As a result of the University Autonomy Measure of December 1983, police forces were removed from campus grounds and some expelled professors allowed to return.44 Experienced student activists, freed from prison, could now rebuild the networks of resistance which had been crushed in Chun’s coup in 1980. In 1984, they managed to form a National Alliance of Students, with student associations from 42 universities represented.45 Throughout the 1970s and 1980s, the students were consistently the most left-wing element of the democracy movement and the section of it which most clearly oriented itself to the working class in an attempt to overthrow the regime. In the midst of many such struggles, close links were built between radical students and the developing workers’ movement, some of which remain today. From the second half of the 1970s and into the 1980s, a broad middle class reform movement began to develop. For most of this time it existed in an uneasy alliance with radical minjung theorists, worker activists and revolutionary students. A range of issues concerned many in the middle class. First, there was the high priority given to the chaebol, which some small businesspeople saw as unfair. Also, in the late 1970s, inflation rose as a consequence of massive government spending on the big push into heavy industry. High rates of inflation eroded middle class savings. And escalating real estate prices began to take the prospect of home ownership from the grasp of many.46 Yet even relatively mild oppositionists were constrained by the nature of the authoritarian state they faced. Excluded from access to the corridors of power and prevented from undertaking public protests

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in the streets, many of them gravitated towards others similarly excluded – the more radical movements of workers and students. Therefore, by the late 1980s there was great sympathy from middle class people for demonstrations against the regime – especially when they involved the demand for democracy. Attitude surveys conducted in the middle of that decade showed that the middle classes had strong sympathies for demonstrations by workers, slum dwellers and students.47 In the late 1980s, farmers also followed the lead of the workers’ movement and began a series of major protests against a government irrigation tax. A total of 178 farmers’ protests were recorded in nearly half of South Korean counties between July 1987 and February 1989.48 In 1984, two national groups were formed: the Council of People Democracy Group (Min-min-Hyup) and the National Council of Democracy and Reunification (Kukmin Hoei). These were merged in 1985 into Democracy-Reunification-People-Alliance (People’s Alliance – Mintong’ryun – for short).49 At a parliamentary level, these groups supported the NDP, whose success in the 1985 National Assembly election in winning 30% of the seats made it the premier opposition party.50 Middle class concerns in South Korea in the 1970s and 1980s did not challenge the existence of the chaebol in the way that many in the workers’ and students’ movements did. They did, however, question the special connection between the chaebol and the state. What was, in the 1960s and for much of the 1970s, seen by many as a productive relationship and the key to economic development, was increasingly thought of, under the Chun and Roh governments, as corrupt and disgraceful. Even mild protest groups were under pressure to take more militant action in the 1980s by two forces: the intransigence and brutality of the Chun regime and the gathering of more radical opposition forces which were challenging the regime on the streets and in the factories. In 1986 alone, the government itself estimated that 1,700 protest demonstrations took place.51 On 13 April 1987, Chun announced that he would not accept constitutional revision – the direct election of the President – during his term. This meant that the next president would be chosen by the Chun regime itself. Hopes for a smooth transition to democracy were dashed and the regime continued to use barbaric force. The sexual torture of a female student activist by police in Inchon outraged many. Then the torture and murder of a Seoul National University student, Park Jong-Chul, by National Police in Seoul seemed to galvanise the opposition.52 In May 1987, the Headquarters

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of the National Movement for a Democratic Constitution was established to coordinate the push for democratic rights. It launched a series of massive marches beginning on 10 June 1987, which involved millions of Koreans. Although they included students, workers and middle class people, the Korean media dubbed it a ‘middle-class revolution’. Whatever its precise class composition, it was clearly the largest movement of protest and opposition in Korean history. The choice facing President Chun and Chairman Roh was whether to repeat the 1980 Kwangju massacre on an even greater scale and risk revolution or to make concessions. It was these marches which finally convinced them that concessions had to be made. The June democracy declaration was the result.

The opposition splits – and comes to power Until the democracy declaration, an uneasy alliance had been developing between the middle class opposition and the growing working class movement. The closest point of intersection between the two was the radical student movement, which was, in social background, of the middle class although much of it was politically-oriented to the working class. The most powerful element, by far, of the opposition was the workers’ movement. But it produced no political expression – no party which could challenge for power at the level of the state as a whole. Therefore, the field was left open to quite socially conservative politicians, above all the ‘two Kims’ – Kim Young-sam and Kim Daejung – to take advantage of the erosion of the legitimacy of the regime. Neither wanted to associate with the radical elements of the broad opposition movement. Each had his base in small and medium business and in the middle class generally and each was attempting to build links to the chaebol. Regional loyalties – an important factor in Korean politics – also played a part in the constituencies of these opposition leaders. Both the Park and the Chun governments had discriminated against the Cholla provinces in favour of their home province – Kyoungsang. Both economic development and key positions in the state at national level bypassed the Cholla provinces which accordingly harboured feelings of resentment and oppression. The core of support for Kim Dae-jung was in Cholla. Kim Young-sam’s base was in Kyoungsang. After the democracy declaration, all of these fundamental differences between components of the opposition began to express themselves. The milder middle class democracy activists were placated by Roh’s

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concessions. Even more importantly, since the democracy declaration had set off a huge wave of workers’ strikes, the material interests of some of the middle class – those who employed labour – were imperiled. The workers’ offensive hastened the inevitable rupturing of the class alliance of the period up to June 1987. The democracy declaration also allowed regional and personal rivalries between the leading oppositionists to become more visible. Unable to agree on a joint candidate for President, the two Kims both ran, splitting the vote and allowing Roh Tae-woo to become President in 1988. But he managed to do so with just 36% of the popular vote. It was the bickering of the opposition, rather than the credibility of his own party, which had lifted him to office. The Roh Presidency involved liberalisation at some levels, but a continuation and even intensification of repression at others. Greater press freedom was allowed. Some 1,492 periodicals and newspapers were newly registered between June 1987 and April 1989.53 But the Roh government cracked down even harder on labour. One estimate suggests that, under Roh, more than three times as many unionists were arrested as under Chun.54 By the middle of July 1990, there were 1,400 political prisoners in South Korea. More than half of these were workers or labour activists.55 The new, independent Trade Union Congress was declared illegal and its leaders arrested while 300 intelligence agents were deployed in factories.56 Roh was making concessions to the middle class at the same time as launching a major assault on workers. Meanwhile, Kim Dae-jung’s Peace and Democracy Party (PDP) became the leading opposition party at the 1988 National Assembly election – weakening Kim Young-sam’s forces and credibility. Now, in a number of covert meetings, some of the leaders of the chaebol began to urge Kim Young-sam to deal with the old ruling party. The result was the formation of the ‘Grand Coalition’ in 1990 – a merger of Kim Young-sam’s party with the government party and another small conservative party to form the Democratic Liberal Party. The new party could boast more than two-thirds of the seats in the National Assembly. The Grand Coalition can be seen in a number of ways: as an act of treachery by an ambitious Kim Young-sam or as a final breakup of the middle class/working class alliance for democracy that formed in the period before the democracy declaration of June 1987. It was each of these. It was also a desperate act on the part of the core of the military which had controlled state power since Park’s coup in 1961. Weakened

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by strikes, demonstrations and protests over nearly two decades, they lacked any legitimacy amongst broad sections of the population. Even the increasing use of force could not be a long-term solution for them. So they decided to deal with one of their opponents – albeit the most conservative of them. After the Grand Coalition was formed, a further power struggle began within it. The old military ruling bloc was preserved but with less control than before. Kim Young-sam was careful to distance himself from his new political partners since, by this time, the wrongdoing of the military was being judicially investigated. It was clear to all in the new ruling party that a credible candidate for the next Presidential campaign could not come from the military core of the old regime. Besides, the major concern of this military core was no longer to remain at the centre of power but to save itself from prosecution and jail under the next government. It was in this context that Kim Young-sam was chosen as the coalition’s candidate for the 1992 presidential election. Even though the military were not happy with the choice – and Roh and others resigned from the coalition as a result – they had no serious alternative. In 1992, Kim Young-sam became the first President since 1961 whose political career did not begin in the military. The final humiliation for the officers who had run the state for so long was the arrest of Chun and Roh in 1995 and the sentence of death imposed on them in 1996 for abuses of power. Although they were later pardoned by President Kim Young-sam, it was clear that the military no longer had a reserved place at the head of the table of state power. The popular opposition movement which had developed in the 1970s and 1980s had succeeded in this at least.

The bourgeoisie Throughout the 1970s and until the democracy declaration of 1987, opposition to the Park and Chun regimes grew among many sections of South Korean society. But the social group which had been strengthened most by industrialisation in those years – the big bourgeoisie in control of the chaebol – played no significant part in the democratic movement.57 In part, this was because militant workers’ organisations and radical student groups were so central to it. The chaebol could hardly join a movement which was cheering the strikes and sit-ins besieging their factories. The state was still the guarantor of low wages and a controlled workforce. While the chaebol did not agree with the aims of the democracy movement and especially of its

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radical components, they did have their own – often bitter – complaints about the government. Beginning in the 1970s, and then with greater force in the 1980s, the chaebol began to demand greater freedom from the many restrictions which the statist model of economic development had imposed on them. While the chaebol often disagreed with state policy in the 1960s and 1970s, it was only in the late 1970s that they began to develop the political and social weight, and the self-confidence, to dare to resist it. As they did so, the state retreated step by step, giving up more and more of the levers of control which had been the basis of the economic miracle. An early indicator of this shift in state policy was the way in which the state dealt with the economic crisis of 1980. As a result of higher international interest rates, the recession in the industrialised economies and the political shock created by the assassination of Park, the South Korean economy turned down sharply. Real GNP fell by 5.2% in 1980, inflation hit 29% and the current account deficit rose alarmingly.58 In the world recession of 1973–74, the government had responded with massive spending programs, plans for industrial expansion and the conquest of new markets. In contrast, in 1980, it cut the government budget and introduced a degree of deregulation.59 In the 1990s, the retreat of the state continued. The chaebol were given a freer hand to dispose of their capital and raise finance as and where they saw fit. The developmentalism of the state was withering away. One of the main reasons for this change in the balance of power between the state and the chaebol was simply the enormous growth of the latter in the 1960s and 1970s. As the major chaebol came to so completely dominate the South Korean economy, it became almost impossible for the state to allow them to falter – because to do so would mean major dislocation for the country.60 The chaebol grew to such proportions because of state support. But once large, it became difficult to arrest their growth. Credit allocation, for example, shows a bias for size. That is, banks and investors are more likely to favour large firms as better risks than small ones. Since credit expands business further, in an economy such as South Korea, which was and is heavily reliant on credit, the process of industrial concentration is difficult to stop. This was despite several attempts by the Chun and Roh governments to restructure the chaebol and restrain their growth. Chun attempted to direct more finance to small and medium enterprises. But the scheme was wrecked by the acquisition of large slices of the financial institutions by the chaebol themselves – which had the effect of directing an even greater share of the available finance to the chaebol. After 1988,

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the Roh government attempted to restrict the chaebol to their core firms, trying to direct credit to only three core businesses in each group. Some of the biggest chaebol managed to subvert the plan by siphoning credit from the core businesses to others in the group.61 While the policy of both governments was to force them to split into smaller and more flexible units, in practice the chaebol increased their control over the economy as a whole by strengthening their grip on its key sectors.62 In some cases, such as that of Samsung, chaebol cut the number of subsidiaries, but by divesting themselves of the least profitable and then expanding into new growth areas, still managed to expand the overall size of their businesses.63 This apparently unstoppable growth and concentration of the chaebol continued after 1992 despite the early policy of President Kim Young-sam to break them up.64 No government since the 1980s has been able to discipline or restructure the chaebol. Their sheer size, diversity, increasing control of finance and importance to the economy as a whole has fundamentally altered the balance between them and the state. A second reason why the state began to lose its ability to control the chaebol by the 1980s was the much greater global reach of their activities and the intertwining of their networks with foreign corporations. A case in point is car production. By 1980, Korean car companies had already begun to link up with American manufacturers. In August 1980, the new President, Chun Doo-hwan, announced a reorganisation of heavy industry designed to restrict competition amongst Korean producers and maximise economies of scale. As part of this plan Hyundai and Daewoo were ordered to exchange equity such that each would have a monopoly in its own area. Hyundai was to take over car production and Daewoo would concentrate on power generation. The founder/owners of each – Chung Ju-yung (Hyundai) and Kim Woochung (Daewoo) were instructed to work out such an exchange within a week. Both were reluctant, but had no choice except to agree. General Motors, however, had a joint venture in place with the automotive arm of Daewoo. GM management told Chun Doo-hwan personally that his plan wasn’t satisfactory. This time, the government retreated – its rationalisation plans derailed.65 As similar linkages between South Korean and foreign companies began to expand in the 1980s, the state was to find it increasingly difficult to impose its will. Beginning in the early part of that decade, the chaebol began to invest outside South Korea. Growing protectionism in the advanced countries made the old strategy of producing at home and exporting difficult for industries such as electronics and textiles. And after 1987,

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working class militancy had forced up wages to the point where some industries were barely viable in South Korea. North America was the destination for most Korean overseas investment in the early 1980s. By 1992, Southeast Asia had caught up to it. This suggests that the earlier outflow of investment capital was related to attempts to overcome protectionism in the US market. Later, overseas investment was being driven by higher wages in South Korea and the search for low wage economies. By the end of 1994, Korean companies had begun 2,650 projects overseas, involving investments of US$4.2 billion.66 Globalisation (segyehwa) even became an important political slogan of the Kim Young-sam government during the 1990s.67 As a significant part of their operations were located outside the country, the chaebol were simply not prepared to accept South Korean state control. The domestic political consequence of segyehwa was to further weaken the ability of the South Korean state to direct chaebol investment, to plan an industrial strategy or to limit the sources and amounts of finance for the chaebol. Another factor speeding the interpenetration of Korean and foreign capital was the opening of Korea to capital inflows. In the 1960s and for most of the 1970s, foreign direct investment, when it was allowed at all, was tightly regulated. This began to change in the 1980s. The expansion of heavy industry under the HCIP created great pressures to import high-technology equipment and processes. Often foreign investment capital came with them. Measures to liberalise capital inflows began in 1981 with foreign securities firms allowed to open offices in Korea. At this stage, still only very limited foreign investments were allowed on the Korean Stock Exchange (KSE). But throughout the decade, the obstacles to foreign investment were gradually dismantled. The amount which required approval by the government’s Foreign Investment Deliberation Committee was gradually raised.68 In 1992, foreigners were allowed direct access to the stock market. At that stage foreigners owned only 4.1% of stocks listed on the KSE. Four years later they owned 11.6% of listed stocks.69 Just as the barriers to foreign capital were lowered in the 1980s, so were many of those which restricted imports. Average tariff rates fell from 31.7% in 1982 to 21.9% in 1984.70 The import liberalisation ratio (the ratio of types of goods allowed to be imported without state permission to the total number of types actually imported) rose from 68.6% in 1980 to 87.7% in 1985.71 Lowering the barriers to the import of goods and capital further weakened the controls available to the state.

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The major means by which the state controlled the operations of the chaebol in the 1960s and 1970s was control of finance. Thus an important indication of the changing relationship between state and chaebol in the 1980s was the privatisation of banks and nonbank financial institutions. Denationalisation began under Chun in 1981 with the sale of Hanil Bank. By 1983, the state had divested itself of all five major government-owned commercial banks. Insurance and other finance companies, many of which were already owned by the chaebol themselves, were given a freer hand. Non-bank financial institutions (NBFIs), now quite deregulated under Chun, became key financial players, absorbing 51.3% of all deposits by 1987.72 Despite the 1983 privatisation, the government had not fully given up control of the banks at this stage. It kept strong oversight and regulatory powers – setting rates and adjudicating policy loans. And it attempted to prevent the chaebol from completely acquiring the banks themselves by setting a 10% ceiling on the shares of each stockholder.73 The government was worried that completely deregulating interest rates, in circumstances where most businesses were highly leveraged, would lead to widespread bankruptcies. Therefore, most of these restrictions remained in force until they were gradually removed in the late 1980s and early 1990s – especially with a major liberalisation of interest rates in 1988. Financial liberalisation and denationalisation of banks and NBFIs was touted by Chun as a means by which the near monopolistic power of the chaebol could be lessened. But ironically, after their sale the chaebol emerged as major owners of these institutions. Despite the 10% legal limit on bank ownership, the ten largest chaebol effectively held up to 52% of all bank shares as a result of their control over NBFIs and by the simple ruse of registering bank shares in the names of family members of the chaebol owners.74 As a result, finance tended to flow even more strongly to the chaebol themselves – increasing their size and power further. Indeed, economic concentration doubled in less than five years after the privatisation.75 Although the privatisation of banks did not at first lead to a total loss of state control over finance, it did reduce the leverage of the state over the chaebol since they could now turn to foreign lenders at home and abroad. Foreign banks were allowed some access to the Korean market in 1981 and restrictions on their operations were also gradually loosened. US banks and finance companies got permission in 1985 to expand operations in South Korea.76 In 1992 a further liberal-

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isation of finance, the ‘1993–97 Financial Sector Reform Plan’, allowed much greater foreign participation and began to remove the remaining controls on the movement of capital. By the middle of the 1990s, the domestic financial system was, in all essentials, deregulated. One of the major effects of the liberalisation of finance during the 1980s and 1990s was increasing indebtedness of the chaebol. They were already highly leveraged in the 1960s and 1970s. But at least then their loans were regulated and only approved by the state for specific purposes associated with the Five-Year Plan of the time. During the 1980s and 1990s, chaebol borrowing became truly out of control. The chaebol had become geared to expansion through credit. Then, from the late 1980s and especially in the 1990s, they took full advantage of their new freedom from state restrictions on borrowing. Between 1992 and 1996, overseas funds loaned to South Korea rose by 158%. In the same period, lending by banks from the developed countries to other developing countries rose only 44%.77 By March 1998, some estimates put chaebol indebtedness at an impossible US$600–700 billion.78 In many cases the chaebol used their enormous interlinked property holdings as collateral and loans were granted on this rather than on the merit of the investment plan. The complicated structure of the chaebol enabled them to disguise poor performance and the real level of their debt in order to continue to attract loans. Moreover, as state restrictions were removed, a larger proportion of chaebol debt became short-term – making their financial positions increasingly insecure. The situation of the economy as a whole became more precarious as a result. Whereas short-term debt had made up 34% of South Korea’s total external debt in 1992, it constituted 63% of it by late 1996. By the middle of the following year, the country’s short-term debt amounted to more than three times its reserves.79 By 1997, Korea had the highest proportion of short-term debt of any country in Asia, Latin America or Eastern Europe.80 This shift to short-term debt reflected the decline of long-term planning by the state and of its ability to impose such plans on the chaebol. From the fifth Five-Year Plan (1982–86) there was an increasing emphasis in the planning documents on removing state controls and encouraging market competition. By the sixth plan (1987–91) it had become the key objective.81 The chaebol were no longer prepared to accept state planning and, with their great size, importance to the South Korean economy, independence in financing and global sweep, could not be made to do so. Chung Ju-yung, founder of Hyundai, told

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a joint meeting of President Roh’s Democratic Justice Party (DJP) and the Federation of Korean Industry (FKI) in October 1988 that: In the past [we] recognized that it was appropriate for the bureaucratic elite to direct [our companies]. But the passion that entrepreneurs feel in regard to the development of [their] companies is strong, and the era of desktop policy-making by the bureaucracy is over. If bureaucrats interfere in company management by drawing up excessively detailed plans, the result will only be to impede company development.82 The government of Kim Young-sam, from 1992, was also committed to giving the chaebol a much freer hand. In a final blow to the old, powerful state apparatus which had organised, guided and controlled the chaebol, Kim announced the total abolition of the EPB as part of his government’s bid to join the OECD. As the machinery of planning was weakened in the 1980s and largely dismantled in the 1990s, chaebol investment became much less focussed on the great national project of industrialisation. Short-term profit-taking, rather than long-term capital accumulation, increasingly came to dominate their activities. Company expenditure on research and development fell sharply in the 1980s and spending on plant modernisation and new equipment also declined. Writing in 1996, a former Minister of Labour, Governor of the Korea Development Bank and Vice-Minister at the EPB, the Ministry of Finance and the Ministry of Construction claimed that the chaebol ‘have become reluctant to build more new production facilities. They prefer to invest in service industries such as the leisure industry or they avoid investment altogether’.83 Without state discipline, a great deal of chaebol investment was diverted to speculative areas, especially the Seoul real estate market and arbitrage money lending – exploiting the difference in rates between bank loans and the curb (unofficial) market. By 1988, only 10% of the vacant land owned by the top 30 chaebol was earmarked for plant construction.84 Most of the rest, it seems, was held for speculation. By 1990, these same chaebol held US$15 billion in real estate at home and abroad.85 To appreciate the scale of these activities it is useful to mention one estimate which suggests that capital gains from real estate speculation in 1988 and the first half of 1989 were 2.2 times the South Korean GNP.86 The decline of state planning allowed much of the surplus available for investment to be diverted to essentially unproductive fields. In the

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process, the public perception of the chaebol also changed. Once seen by many as the leaders of the nation’s development, by the late 1980s, the chaebol were increasingly perceived as mere rentiers, symbols of flagging growth and greed. Since all governments in the 1980s and the 1990s failed to curb these trends on the part of the chaebol, they too lost the legitimacy with which economic growth had once provided them.87 Corruption Links between the chaebol and the South Korean state were always tainted by corruption to some degree. But the scale and, in important ways, the nature of the corruption changed in the governments to follow Park. Chun was probably the most corrupt. Charges brought against him in 1995 revealed that he had accepted bribes of US$273.35 million and accumulated a political slush fund of US$890 million during his seven year Presidency.88 Most notorious was the Ilhae Foundation, established by Chun supposedly to collect funds for the families of 18 South Korean officials killed in a 1983 bomb blast in Rangoon. In fact, Ilhae acted as a conduit for bribes from businessmen. It eventually amassed about US$90 million.89 Chun, and after him Roh, systematically demanded large amounts from business – both for personal use and for the support of their political apparatus. Chun’s wife had her own organisation – the Saesedae Foundation – to demand money for the same purposes. His younger brother, Chun Kyung-hwan, was later found guilty of embezzling huge sums from the Saemaul Undong movement.90 Rorts continued into the 1990s. The Hanbo scandal during the tenure of Kim Young-sam showed the President’s son to have used his connections to arrange US$6 billion in commercially non-viable loans for a steel firm with which he was connected.91 Also, various state bodies in the 1980s and 1990s frequently demanded that business make contributions towards special projects – such as the preparations for the Olympics in 1988. These kinds of taxes in 1983 amounted to 7.79% of corporate value added. The official corporate tax was only 5.21% of value added.92 According to a FKI survey (admittedly not an entirely unbiased view) in 1986 these ‘unofficial taxes’ amounted to more than 1% of total sales and about 7% of the total labour costs of the chaebol.93 Money from the chaebol was demanded with menaces. Failure to pay could mean savage government reprisals. Yang Chung Mo, the chairman of the Kukje group, at one time the seventh largest chaebol,

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claimed that the government had turned against him after he had refused to ‘donate’ as much as required to the Ilhae Foundation.94 Kukje was broken up in February 1985 and parts of it handed over to other chaebol as a result.95 Corruption under Park was different in two other senses from that which took place under his successors. Firstly, there was a different purpose. Park demanded money to establish his political party. Corruption later was much more directed to personal enrichment.96 Secondly, Chun and Roh especially, allowed those below them to take bribes on a large-scale whereas Park had kept a fairly tight control on his officials. During the Chun and Roh governments, a dozen ministers, a similar number of senior military officers, half a dozen presidential advisers, the chief justice of the Supreme Court, the speaker of the National Assembly, the chief of the National Police Administration, the mayor of Seoul and many others were charged with corruption.97 Under Chun and Roh the entire state, no longer focussed on industrial expansion, had begun to degenerate into a simply parasitic body. With the loss of this focus, its internal discipline weakened and individuals within it were much freer to pursue their self-interest. Institutional decay had set in. This new, entirely parasitic aspect of the state’s operations naturally antagonised the chaebol. In the Park era, they had received enormous benefits from the support of a developmentalist state. As the state ceased to operate in a developmentalist way, yet still demanded considerable resources from them, the chaebol leaders began to object to its exactions. Moreover, since the balance of power between the state and the chaebol had shifted by the 1980s and 1990s, the chaebol felt bold enough to protest in a way they would never have dared in the 1960s and 1970s. In 1988, the founder of Hyundai, Chung Ju-yung told a National Assembly committee that he and other businessmen had been forced to give large sums to the Ilhae foundation. The alternative was to endure government reprisals.98 Throughout the 1980s and 1990s, business became increasingly candid about the demands made on them and critical of governments and their meddling. Public antagonism between chaebol and state in the 1980s and 1990s altered the perception of the relationship between the two in the minds of ordinary Koreans. In the 1960s and 1970s, they could be seen to be in a partnership aimed at building a new, modern Korea. By the 1980s they each seemed to have corrupted each other: the state by chaebol money, the chaebol by being allowed by the state to become greedy speculators rather than the pioneers of a glittering, wealthy

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future.99 These perceptions represented a blow to the legitimacy of both state and capital and to the alliance between them.

The changing bureaucracy Under Park, the key personnel directing the state – at both political and bureaucratic levels – were serving and former military officers. Even towards the end of the Park presidency, in 1975, 66% of the Cabinet and 22% of the National Assembly had a background in the military.100 This military/political group, accustomed to command and motivated by strong nationalist sentiments, had a strong predisposition to state control of economic affairs. Non-military technocrats played an important – but still subordinate – part. At first, because it came to power on the back of a military coup, the Chun government reinforced the power of the military within the state apparatus. In 1982, over half the members of the National Assembly were former military officers.101 At lower levels as well, the influence of the military initially increased under Chun. After the 1980s coup, Chun cleaned out many sections of the state which he believed could not be trusted. About 5,000 low-level government bureaucrats were sacked and replaced.102 Under the precarious conditions of a government which owed its existence to a recent coup, Chun needed to consolidate his support within the state and reward his base – the military – at the expense of other elements of the state machine. But, from that point, the make-up of the South Korean state began to change. Moving into positions of great power in the late 1980s and 1990s and gradually displacing the military core were non-military technocrats. Some at the highest levels of the bureaucracy boasted doctorates from US universities. Committed to a market-based system and the loosening of state discipline over the chaebol, they gradually displaced the older statist bureaucrats of military background or those who owed their positions to the military. An indication of the transformation is that under the influence of the new technocrats, the EPB, once the heartland of state control and planning, became a base for supporters of free-market reforms during the 1980s. Dr Rha Woong-bae, Deputy Prime Minister (and therefore the head of the EPB) under Roh, was one such.103 Following him in these positions was Cho Soon, who argued that government intervention caused distortions in the industrial structure, discouraged saving and retarded financial entrepreneurship.104 When the planning team Cho had led was removed, they were replaced by bureaucrats still more committed to the removal of state

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controls and even more favourable to the chaebol.105 The administration of Kim Young-sam, who was elected to the presidency in 1992, largely completed the change to a civilian, technocratic bureaucracy. This transformation of the state’s personnel was both cause and effect of the wider changes taking place in the relationship between the state and capital. Technocratic liberals fitted better in a state which did not and, probably could not, control business. Once they had gained a foothold in the state apparatus, this new breed of bureaucrat consolidated the shift already under way. By the 1980s, the developmentalist state of the previous two decades was being undermined from within as well as challenged from without.

The bourgeoisie dabbles in politics In the Park era, the chaebol funded Park’s political operation but played little or no role in it, preferring to concentrate on the business of making money. In any case, their direct intervention in political matters against the top leadership would not have been tolerated. By the late 1980s this was changing. The chairman of the FKI and head of Lucky-Goldstar, speaking after the October 1988 joint meeting between the ruling DJP and the FKI, said that: ‘in the future [we] will collect all political funds openly within the business community, and [we] will distribute [these funds] only to those parties supporting a free market economy’.106 No businessman would have dared to say such a thing ten years earlier. The clearest indication that the bourgeoisie would no longer stand aside from politics was the formation of a political party by Chung Juyung, the founder of Hyundai. By the early 1990s, although officially in retirement, Chung was furious at what he saw as gross interference by the state in his affairs. The catalyst was an attempt by the government to extract US$181 million in taxes from the Hyundai group. He was also outraged that his son, Mong Hun, had been arrested by the Roh regime and held in prison for nearly four months.107 When Chung formed the Unification National Party (UNP) – later changed to the United People’s Party (UPP) – it was a signal that a section of the bourgeoisie, at least, was no longer prepared to accept whatever their political masters decided and that the state was no longer omnipotent.108 Chung decided to run in the 1992 Presidential campaign against Kim Young-sam. He was able to pour huge funds into the campaign and mobilise tens of thousands of Hyundai employees as campaign workers. Despite this, the results for the Hyundai boss were poor. He

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received just 16.1% of the vote, compared to 42% for Kim Young-sam and 34% for Kim Dae-jung.109 The electorate was as unprepared to accept the chaebol leader as they were to accept the old military rulers. Chung failed, but the fact that he tried at all illustrates a major change in the attitude of the chaebol to the political elite.

Policy incoherence in the descending phase As the autonomy which the Korean state enjoyed in the 1960s and 1970s was eroded in the 1980s, it seemed to its political leaders that they faced pressure from all sides. Overall, the direction of policy was to move away from state intervention in economic matters and to allow the chaebol much greater freedom. But the immense pressures on the state pushed it to policies designed, in the short-term, to satisfy the various social groups making demands on it. Often these policies were contradictory and at times they swung, within a short period, between one approach and its opposite. Such inconsistencies can best be explained as the actions of a developmentalist state in serious decline, desperately trying to maintain control in the face of mounting opposition. One such series of oscillations in policy concerned the question of democratic reform. The assassination of Park in 1979 represented a response by some within the military bloc to placate the growing opposition to the regime – evidenced by the success of the NDP in the National Assembly elections of December 1978, the widespread support for the YH strikers, and anti-government riots in Pusan and elsewhere.110 The Chun coup in 1980 sent policy in exactly the opposite direction. It underlined the victory of those in the military who wanted to respond with a return to ruthless repression. The new government attempted to wipe out all opposition to it, closing down independent unions, critical newspapers and sending 20,000 of those it described as ‘hooligans, racketeers and gamblers’ to re-education camps.111 By 1984, these same hardliners had also begun to bend and Chun allowed a short relaxation of the repression. Yet in April 1987, he shifted back to a tough policy with the announcement that there would be no concession on a key demand of the opposition – the direct election of the president. In just two months the storm of protest pushed the regime in the opposite direction yet again. Roh’s declaration in June 1987 promising democratic change was the result. Yet even this was combined with continuing repression of the labour movement: the use of troops and national police in industrial rela-

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tions and the illegality of genuine unions. Such lurches from repression to reform and back again reflect the immense and growing pressures on those holding state power in the 1980s. They could not rule as in the past with a reasonably long-term, consistent approach. Instead policy became increasingly piecemeal and short-term as they searched, ultimately unsuccessfully, for a way to maintain themselves in power. The regime’s approach to large-scale capital illustrates the same inconsistencies as its approach to the popular movements of the 1980s. The group around Chun believed that big business had become too powerful. Even before the 1980 coup, they were making attempts to reduce the size of the chaebol.112 Then Chun’s new government required them to report all of their landholdings and, in a bid to curb real estate speculation, to sell land unrelated to their main businesses. Moreover, chaebol were required to sell minor lines of business. Some finance was to be directed away from the largest firms and towards smaller ones. But this attempt to limit the size and speculative activities of the chaebol was spectacularly unsuccessful. Business concentration, the near monopoly of bank loans enjoyed by the chaebol and unproductive speculation increased markedly under his and the following Presidency. What appears odd is that these attempts to reclaim the role of patrimonial regulator of business, ran directly counter to the main thrust of government policy expressed in the Five-Year Plans of the 1980s, which was to lessen regulation. The reason for this apparent contradiction was that Chun was moving to limit the social power of the chaebol and thus revert to the arrangement whereby they took orders without complaint from their masters in control of the state.113 He believed that this could be achieved by breaking them up into smaller and, hopefully, more compliant units. Chun saw liberalisation and the reduction of government protection as a way of taming business. Thrown into the rough waters of the international market without the guarantees the state had once provided them the chaebol would be forced to change their monopolistic ways. 114 Whereas once the state had stood between South Korean and foreign capital as a buffer for the chaebol, now it relied on international business to rein in the ambitions of these same chaebol. By themselves, the Chun and Roh governments could neither punish nor reward the chaebol adequately.115 Another reason for the anti-chaebol measures of the 1980s by Chun and Roh was the pressure from the popular movement. Chun needed

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to defuse anger at his regime generated by its harsh repression – especially of the Kwangju uprising. He planned to do so by a populist campaign against the chaebol. For a time in the early 1980s, newspapers were allowed, even encouraged, to print stories about monopolistic abuses by the chaebol.116 The most famous South Korean capitalist of all, Hyundai’s Chung Ju-yung, became the major public target of both governments in the 1980s and their leading bourgeois critic. Throughout the 1980s, the government attempted to undermine him and to force him from his position as FKI chairman – the public leadership of South Korean business. Yet, for ten years, he stubbornly resisted all pressure to quit.117 How can this falling out of thieves – the state and the chaebol – during the Chun and Roh governments be interpreted? Superficially it may appear to indicate an even stronger state. But it is clear that the direction of policy over the decade, taken as a whole, was for the state to retreat. What was happening in the anti-chaebol campaigns of the 1980s was merely the first symptom of the weakening of the state. They were a response by a beleaguered state elite, a series of heavy-handed actions where previously the merest suggestion or nod would have the chaebol rushing to carry out the state’s wishes. All of these manoeuvres were the signs of a regime losing its earlier autonomy – but one which had not accepted this loss. Nor did it yet have the means to conduct relations with capital or the mass of the population in ways more typical of an advanced capitalist country. Therefore, it zigzagged – adopting a course which was at one moment anti-business, while at the next it gave business whatever it wanted. At some points it pursued a populist anti-chaebol approach, at others it embraced the same businessmen it had abused. It veered uncertainly between reform and repression of the mass movement with short-term political gain – or even survival – always high on its agenda. This period of transition, when the state was rapidly losing autonomy and alternating between contradictory policies in several areas gave it the public appearance of indecision and instability. The rule of Chun and Roh was no more authoritarian than was Park’s at various points. But these later presidents seemed much more arbitrary and unsure. The ground was moving from under the state apparatus. Roh himself expressed this uncertainty and insecurity of the 1980s: ‘The old political, economic and social systems and orders started to crumble and we have had to grapple with the formidable task of building new systems and orders to replace them’.118

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The decline of state autonomy and the crisis of 1997 Chey Jong-hyon, then chairman of the FKI and head of the Sunkyong chaebol told the Korean Business Weekly, in June 1993 that: ‘The decade of the 1960s can be considered as the period of our economic infancy. The 70s and 80s were the adolescent years and the 90s mark a crossing into maturity’.119 However, the ‘maturity’ which the chaebol strove for and attained in the 1990s was a mixed blessing. It is not so easy to cast off one’s background and the ‘mature’ chaebol were seriously marked by their childhood and adolescence. They had vastly reduced their dependence on the patrimonial state – but the basic structure of their businesses was still a product of its tutelage. The chaebol were created by massive state support and on the basis of a high-level of borrowings. It could hardly have been otherwise in the circumstances of extreme capital shortage in the 1960s. Rapid business growth was linked to access to credit, which was, in turn, either provided by or guaranteed by the state. Relaxation of state discipline over the chaebol and the winding back of the state’s role as credit provider did not change their need to borrow. In fact, because state controls on overseas and domestic borrowing were removed or relaxed, chaebol debt and debt-equity ratios increased. The debt-equity ratio of the ten largest chaebol grew from 356% in 1979 to 464% in 1985.120 Although these ratios declined in the late 1980s, they rose again in the 1990s. The average debt-equity ratio of the top 30 chaebol, (other than the banking and finance sector) was 450% by December 1997. Also, because state support had created a highly concentrated structure dominated by relatively few firms, a high-level of indebtedness amongst the top chaebol could have a devastating effect on the national economy if even one of them was to falter under the weight of borrowings. By the time of the 1997 financial crisis, the four largest chaebol – Hyundai, LG, Samsung and Daewoo – accounted for more than half of the country’s debt.121 The debt was also largely short-term and, in contrast to the Mexican debt crisis of 1982, largely private rather than contracted by government.122 Furthermore, by 1997, the scale of chaebol debt had begun to affect the domestic banks. In the first half of that year, ten of the Korean commercial banks posted losses. At the end of the year they held an estimated US$4.2 billion in bad loans.123 The catalysts for the 1997 crisis were a change in the export conditions for Korean firms and a broader loss of international confidence in the ‘new’ Asian economies. In the first half of the 1990s, Korean export

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growth – especially in steel, cars and semiconductors – was able to continue because of the strength of the Japanese yen. That meant that Korean exports were more competitive in markets where they competed with Japanese goods. But the apparent inability of the Japanese economy to recover during the 1990s pushed the yen down, and thus cut into the growth of Korean export revenue. The decline in export conditions would not have been disastrous except for the huge levels of borrowings undertaken by the chaebol. By 1996, the 20 largest chaebol were showing returns below the cost of the capital they had borrowed.124 The ensuing crisis put an end to talk of the South Korean economic ‘miracle’. Average incomes were halved between August and September of 1997 and, in the aftermath of the crisis, more than one-quarter of the chaebol collapsed.125 In 1998, the top five chaebol alone sacked over 80,000 workers. South Korea’s unemployment rate rose from 3.1% in December 1997 to 8.5% in January 1999.126 Ironically, an economy which had just joined the OECD and which once had neo-liberals enthusing about its strategy of export-led growth now required the largest IMF bail-out in history: US$57 billion in December 1997 with another US$10 billion to follow. Any remaining hint that a developmentalist state still existed in South Korea was ended by the IMF conditions: the almost complete opening of the Korean market to foreign goods and investors, the removal of virtually all state controls on business borrowing and a change in the law to facilitate hundreds of thousands of sackings throughout industry. In November 1997, South Korea had a GNP of almost US$500 billion and per capita GNP of about US$11,000. It was ranked as the eleventh industrial economy in the world. Two months later, its estimated GNP had crashed to US$312 billion, its GNP per capita to US$6,600. It dropped to seventeenth place, behind India and that other tarnished NIC – Mexico.127 GDP declined by 5.8% and investment in equipment plunged by 38.7% in 1998.128 Korea’s banks and NBFIs held 118 trillion won in ‘problem loans’.129 The total short-term foreign debt amounted to an impossible US$80.2 billion by December 1997.130 International pressures were building on Korea to liberalise in the 1990s. But domestic classes and fragments of classes had their own reasons for challenging the power of the state. In different ways, workers, sections of the middle classes and the bourgeoisie did so. Their demands are openly expressed in South Korea throughout the 1980s and even earlier. US and other international pressure may well have played a part in tearing down whatever was left of the kind of state over which Park presided. But the job had already been largely carried out by Koreans themselves.

7 Taiwan: the Migrant State

Introduction Unlike Mexico and South Korea, Taiwan has never hosted an Olympic Games, and is very unlikely to do so. But Taiwan, or the Republic of China (ROC), as its government calls it, has had the most intense, long-term and stable economic growth of the three. Between 1965 and 1988, real GNP grew at an annual average of 9%.1 The value of manufacturing increased from 15.6% of GDP in 1955 to a peak of 37.6% in 1985.2 Taiwan managed this transition with few of the natural resources such as coal, iron or other minerals most useful for manufacturing industry and with no oil deposits. Its economic progress was only temporarily slowed by two oil shocks – 1973–74 and 1979–80. Moreover, it grew despite the uncertainty associated with its forced withdrawal from the United Nations and diplomatic de-recognition by its two largest trading partners – Japan and the US – in 1972 and 1979 respectively. Furthermore, Taiwan, more than any of the NICs, has been proposed as an example of rapid economic growth combined with increasing equality.3 In marked contrast to Mexico in particular, most measures of equality improved in Taiwan during its development. The ratio of the income of the richest 20% of households to the poorest 20% fell from 20.47 in 1953, to 11.56 in 1961 to 4.17 in 1980.4 Taiwan has been the most difficult of cases for world-systems and dependency theorists. It achieved significant industrialisation yet was, in one sense, the most ‘dependent’ of any peripheral economy, with a very high ratio of foreign trade to GNP. Its ‘trade dependency’ (the sum of its exports plus its imports divided by GDP) was extraordinarily 181

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high, passing 100% in 1979 and remaining there almost every year through the 1980s.5 Taiwan’s two leading trading partners are the world’s largest capitalist economies. It has been popular with neo-liberals and foreign investors. For 15 years it depended heavily on foreign aid from the US and it still relies on US arms and military support despite the ending of formal diplomatic relations between the two countries. If ever a country was to suffer underdevelopment as a result of integration in the world capitalist system, Taiwan must be it. Taiwanese economic growth has also been a major field on which neo-liberals and neo-statists have done battle. For neo-liberals it is a shining example of virtuous, export-oriented growth, driven by the market rather than the state.6 But while the precise form of dirigiste control was very different in Taiwan from Mexico and Korea, its extent and the effect of state involvement in economic growth was possibly even greater than in these other NICs.7

The developmentalist state in action, 1949–90s From 1949, the Taiwanese state used all the means at its disposal to spur industrialisation. It maintained a very large state production sector which controlled the ‘commanding heights’ of the economy – upstream and strategic industries such as petrochemicals and steel. Most banking and finance was state-owned. Four-year plans, with precise sectoral and economy-wide targets, operated from 1953. The state targeted industries for special assistance and imposed local content requirements on foreign investors. It created the infrastructure deemed necessary for industry. High tariffs and quantitative import controls were established and operated, especially in the early phase of industrialisation.

State investment, state ownership State companies concentrated on, although were not confined to, large, capital-intensive industries. In the 1950s the state owned and operated enterprises in the fuel, chemical, mining, metal processing, textile, fertiliser and food processing industries. In the case of glass, cement and plastics, the state first developed the industries and then handed them over to private businessmen.8 Public sector importers were allowed to exchange the new Taiwan dollar at a more favourable exchange rate than was available to those in the private sector.9 In short, Taiwanese industrialisation owed more to state-

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owned companies than did any other economy whose government called itself capitalist. Even in the 1970s, when the public share of fixed investment had declined from its earlier peak, the state sector still played a more important part in Taiwan’s economy than was the case in most other ‘market’ economies. A comparative estimate for the 1974–77 period shows that the contribution of the public sector to GDP in Taiwan was 140% that of the average of the industrial economies as a whole and 160% that of the developing countries.10 Through the 1950s and the first half of the 1960s, industrial production and services by state-owned and managed bodies amounted to approximately half of the total output of the economy.11 Then, between 1965 and 1981, private industrial production grew faster; the state share was reduced to about 20% of total output by the end of this period. However, this still represented an extremely significant part of total production – especially since it was concentrated in capital-intensive, upstream industries such as China Petroleum, Taiwan Power, and BES Engineering – without which many of the smaller-scale private businesses could not have survived. Moreover, although the state production sector did decline relative to the private sector after the mid1960s, the state compensated in other areas – particularly by increasing its general expenditure and by enormous outlays on infrastructure. Between 1961 and 1981, government spending as a proportion of GNP rose from 21.4% to 27.5%.12 The degree of state ownership in Taiwan was much greater than commonly perceived overseas. Closely allied to the US in a Cold War environment, the Taiwanese government was caught between the actual statist means they were using to achieve their aims and the need to be seen as champions of the free market. Thus their planning and other economic documents often make no mention of the fact that many of the industries they deal with were largely state-owned.13

State control of finance Government-controlled finance was used both to direct economic development and to promote state-owned enterprises. The task was made easier because the Taiwanese state owned the bulk of financial institutions until liberalisation measures began to be introduced in 1989. The dominance of government-owned banks in Taiwan during most of its industrialisation was such that state or province-owned

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banks controlled 94.3% of total bank assets in 1964. In 1979, the four private banks took only 4% of total deposits.14 State finance and state industry reinforced each other. Relative to their output, public enterprises received seven times as much finance from government banks as did private enterprises in the 1950s and twice as much in the 1960s.15 Lack of finance for private firms was one of the factors keeping the average firm small and mostly free of debt to either domestic or foreign banks. Almost all of their financing came from their own savings or from family and other private networks. Conservative banking practice also tended to keep private firms small. Banks typically refrained from commitment to longer-term projects and put a great deal of emphasis on the ability of the potential borrower to provide collateral.

Planning From 1953 until the 1990s, the Taiwanese state undertook detailed economic planning, formulating targets for industry sectors and assessing previous outcomes. Moreover, the targets for overall economic growth listed in these plans were usually met – and even exceeded. The only exception was the target for GNP growth in 1973–75 (a plan shortened because of the recession and oil crisis of that period). Even then the growth rate of 6% was still very high and not much below the targeted 7%. But on other occasions, economic performance massively exceeded the targets. For example, the 1965–68 plan aimed for 7% growth, 9.9% eventuated. The 1969–72 growth objective was 7%, a target easily passed by an actual performance of 11.6%.16 The first development plan – 1953–56 – called the ‘Plan for Economic Rehabilitation’ – assigned most resources to agriculture, fertilisers and textiles. 17 The Second Plan – 1958–61 – explicitly stated the government’s intention to guide private investments so that they flowed into areas of which it approved.18 Targets were established for exports in various categories.

Targeting industries Individual industries were selected for special protection, subsidies and other forms of state assistance. In the 1950s, preferential credit was used by the state to promote specific industries and even individual firms. While this method of infant industry promotion later declined overall, it remained important in certain areas such as machine tools

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and, later, in the late 1970s, high-technology electronics.19 Another method used to direct the economy was state control of the allocation of foreign exchange. It was rationed with quotas established by commodity category. In 1951–53, the government approved only 20% of the foreign exchange requested by importers.20 Priority went to those importing capital and intermediate goods for the further development of manufacturing. The textile industry was the first major target for selective state support. In the early 1950s, the state chose textiles as an appropriate industry for Taiwan and consciously set out to create an ideal environment for its expansion. High tariffs on imported textiles encouraged import substitution. Subsidies – which were often funded by foreign aid – provided much of the initial working capital.21 Indeed, so great was the level of government intervention in early textile production that market allocation of resources was almost completely replaced by planning. As well as tariffs and quantitative restrictions on the import of yarn and finished products, a government agency directly supplied raw cotton to the spinning mills, advanced the working capital requirements and then bought up all production at both spinning and weaving stages.22 The response to this government manipulation was a massive increase in textile production; between 1951 and 1954, production of cotton yarn rose by 200% and of woollen yarn by over 400%. By mid-1953, Taiwan was more than self-sufficient in both yarn and cloth.23 In 1954, state planners decided that the natural-fibre textile industry should be encouraged to diversify. Moreover, the state-owned chemical industry had developed to the point where it could supply inputs for synthetic fibres. The government then oversaw the construction of a rayon textile industry – acting as an intermediary to bring together an American company with several local textile producers to form the China Man-Made Fibre Corporation in 1957.24 A similar selection by the state of an appropriate industry took place in the case of plastics. The government established the first plastics factory producing polyvinyl chloride (PVC) in the 1950s and then handed it over to Y.C. Wang, a local businessman thought to have entrepreneurial ability. Wang went on to lead Formosa Plastics – the country’s largest private corporation.25 It is true that infant industry selection did not always work. In the 1950s and 1960s, the government made a push into automobile production; the first firms beginning with assembling knockdown kits under license from foreign companies. Tariffs and import quotas were

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used to help the domestic assemblers; five had emerged by the end of the 1960s.26 But the auto industry never succeeded in generating the economies of scale necessary for modern production and it remained marginal to Taiwan’s economic development. While the particular industries singled out for major state organisation and support changed over time – with textiles and auto production later being de-emphasised – the method of selective promotion did not. For example, in the great push into the semiconductor industry in the 1980s, the state initiated the original project, trained the key personnel, acquired the technology from an overseas company and itself produced and marketed the first products. It then passed some of this capacity to private companies, but continued to initiate every subsequent development of new forms of semiconductor technology.27 Overall, the planners had considerable sway over the direction of investment and even over production quality. In one well-known incident in the 1950s, the chief economic planner oversaw the destruction, at a public demonstration, of 20,000 light bulbs considered to be of poor quality. He then threatened to liberalise imports if the quality did not improve.28 The incident suggests something of the power that the planning machinery had at its disposal. Yet, while state-owned enterprises, and a few large private firms in sectors considered crucial for development, were heavily regulated in this way, most small private businesses were left alone by the government – receiving neither hindrance nor favours. They tended to remain small or medium-sized, developing independently and almost out of sight of the state development bodies.

Squeezing agriculture Some of the finance for the early development of Taiwanese manufacturing industry came from foreign sources – especially in the form of aid. But the government also ran a conscious policy of squeezing agriculture to extract the resources for industrial investment. Various mechanisms were employed to achieve this. The simplest was the ‘hidden rice tax’, by which land taxes in the 1950s could be paid to the government in rice at prices considerably below market level.29 The government also enforced other compulsory purchases at these lower prices. A system whereby farmers were able to barter rice for fertiliser – of which the government was the sole supplier – also worked to drain resources from agriculture since the terms of the barter were set at highly disadvantageous rates for farmers.

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The state also operated an exchange rate regime which worked to transfer resources to industry. Until 1958 the exchange rate was overvalued so that the major exports – at that time primarily agricultural ones – were disadvantaged and imports – largely of the capital and intermediate goods required for industrialisation – benefited manufacturing. Furthermore, multiple exchange rates operated such that some exports – such as rice and sugar – were even further disadvantaged.30 Quantitative import controls and tariffs also raised the prices of manufactured consumer goods while industrialists benefited both through the higher costs of their products sold on the domestic market and through the lower costs of equipment and other inputs to industry. The outflow of capital from agriculture to industry in the early stages of ISI made up the bulk of industrial investment; indeed it was estimated at 75% of total capital formation between 1951–55 and 40% between 1956 and 1960.31 Although the system was a huge burden on farmers, it succeeded in its aim; manufacturing production doubled between 1950 and 1958.32

State mediation of foreign capital Taiwan has developed a reputation of welcoming foreign investment. Indeed, it has actively sought it over the whole period since 1949. But, while offering numerous inducements, the Taiwanese state imposed quite strict conditions on foreign investors. In some industries, local content requirements were employed to prevent foreign companies using Taiwan as a site for the lowest valued-added segments of their production. Usually, the government encouraged joint ventures with local firms and put ceilings on the profits which could be remitted, especially in the first years after the investment was made. Legislation passed in 1954 made it possible for foreign investors to remit up to 15% of the total sum invested in foreign exchange but application to do so could only be made two years after the original investment.33 As a result of such restrictions and because of the conscious promotion of local – especially state-owned – enterprises, foreign capital financed only about 5% of domestic capital formation by the second half of the 1960s. 34 Even as late as 1990 there were no foreign companies in Taiwan’s top ten enterprises and only three in the top 25.35 Overseas finance, like all private finance in Taiwan, also found it difficult to get a foothold until recently. It was totally excluded until 1969.36 Although some overseas banks opened branches in Taiwan in

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the middle and late 1970s, they failed to gain a large share of the market. Smaller private business tended to limit their borrowing anyway and state firms borrowed from local state banks. The foreign bankers were left only those loans which local banks had refused.37

Import substitution and export orientation State promotion of import substituting industries in the 1950s was extremely successful. By 1957, the process of substituting domestic production for imports had largely been completed. The share of consumer goods in Taiwan’s total imports had fallen to 7% and imported consumer goods supplied only 5% of domestic consumption.38 In some areas of production – such as textiles – the domestic market was saturated to the point where no further expansion was possible.39 An industrial survey of 1959 showed many plants turning out far less than they were able; those producing simple manufactures were using only one-quarter to two-thirds of their capacity.40 The narrow domestic market had now become an obstacle to further development. The government’s response was to restructure industry, pushing firms in its selected areas towards vertical integration and greater economies of scale and limiting the entry of competitors. It also began to encourage exporting. A concessional export credit scheme was introduced and the levers of state control which had previously been used to encourage ISI were now gradually turned to export promotion. Between 1958 and 1961 numerous changes were made to encourage exports, the New Taiwan dollar was gradually devalued, the multiple exchange rate system dismantled and some import restrictions were lifted. Tax rebates were introduced for customs duties paid on imports that contributed to exports. The government encouraged the formation of export cartels. The effect was soon felt. Exports amounted to only 10% of GDP in 1952 and just 12% in 1962. But they reached 39% of GDP a decade later – a very high rate by any measure.41 The success of the export drive meant that Taiwan’s balance of trade could improve despite the ending of US aid in 1965. Moreover, its manufacturing sector was being driven by exports by the end of that decade. However, the turn towards exports was pragmatic rather than ideological. Taiwanese planners had no reason to dismantle all of the apparatus of ISI. In some sectors, import substitution remained the strategy, and tariffs and other import controls were still consciously used to develop domestic industries.

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Foreign aid One major controversy about Taiwanese economic development concerns the role of US aid. Especially after the outbreak of the Korean War in 1950, Taiwan was a key part of US perimeter defence. Over the 1950s as a whole, non-military aid amounted to about 6% of Taiwan’s GNP and nearly 40% of gross investment. Of non-military aid, 19% went to finance the import of capital goods (machinery and tools) and another 38% bought intermediate goods for manufacturing (mainly cotton, yarn, ores, metals and fertiliser). Most of the remainder paid for consumer goods – mainly food. 42 Between 1951 and 1963, US aid financed almost one-third of all domestic investments. 43 Military aid was even larger. It was crucial for building and maintaining Taiwan’s huge armed forces. Per capita, Taiwan had and still has one of the world’s largest militaries, with more than half a million men under arms – 14% of the male population – in 1952. 44 Defence expenditure was 65.8% of government spending and 12.9% of GNP in 1955. Despite the rapid growth of the economy, the military shares declined only slightly over the next ten years – to 62.3% and 11.4% respectively. 45 Non-military aid in the 1950s and early 1960s also overcame some of the constraints imposed by lack of foreign exchange and helped to keep inflation rates low – both major problems in the early stage of ISI. However, care needs to be taken in assigning to aid the major place in the rapid industrialisation of Taiwan. For a start, the nonmilitary part of US aid ceased in 1965, a time when the Taiwanese export program was only just beginning. The cessation of aid coincided with only a very small and temporary drop in the growth rate of GDP.46 It is certainly true that the large transfers of both military and non-military aid money enabled the Taiwanese government to release funds for development which otherwise would have been committed. But other countries have been major recipients of US aid and not used it to the same purpose or with such strong developmental effects. However, aid was channelled through the state. As a result, it reinforced several aspects of the special kind of state which governed Taiwan after 1949. Although American aid officials were very keen to promote private business, the effect of the aid they dispensed was to strengthen the state – giving it resources to intervene and fortifying its position in relation to the already weak private sector.

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‘Pseudo’ liberalisation, 1958–61 A second major controversy about Taiwan in the 1950s and 1960s concerns the importance of a series of changes in government economic policy between 1958 and 1961. Neo-liberal theorists such as Ho and Myers argue that these represented an end to government interference and that the subsequent economic ‘miracle’ of Taiwan was marketled.47 Others, such as Wade and Amsden, argue both that the foundations of Taiwanese industry were laid before the ‘reforms’ and that, in any case, massive state intervention in the economy continued. Alice Amsden goes as far as to call this the period of ‘pseudo-liberalisation’.48 It is certainly true that, because of the exhaustion of the ISI strategy in many sectors, the Taiwanese state changed direction around 1958. From that time, the multiple exchange rate system was dismantled in a three-stage process with a single rate finally being established in August 1959.49 At about the same time, the government began to expand the list of allowed imports. Within the state these changes were driven by economic technocrats such as K.Y. Yin – at one time the Minister of Economic Affairs and the chairman of the influential Foreign Exchange and Trade Control Commission from 1958 to 1963.50 There was also strenuous resistance. However, the technocrats had the backing of powerful American aid officials. In late December 1959, Wesley Haraldson, an official of the US AID mission, proposed an eight-point liberalising program of action. The most controversial was point eight which called for the sale of state enterprises to the private sector.51 K.Y. Yin extended the program to 19-points and dubbed it the ‘Accelerated Economic Growth Program’. But while the government’s grip was loosened in some areas it was tightened in others. Rather than simply letting go, the state – including the technocrats arguing for these changes – were determined vigorously to push the economy in another direction. It is true that some import restrictions were lifted – although not as completely or rapidly as the original program had proposed. But the combination of those important import controls which were retained and increased subsidies to producers in other areas left the system still strongly protected – although different elements of it now benefited as a result.52 By calculating overall Effective Protection Rates (EPRs) and Effective Subsidy Rates (ESRs), Alam shows that, despite the supposed liberalisation, Taiwan had not introduced even an approximately neutral incentives regime in the 1960s. 53 And with the extensive development of import-competing sectors over the previous decade,

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Taiwanese industry was far better able to cope with those imports which did penetrate. Following the 1958–61 reforms, the state intensified its efforts to channel resources into heavy industry; the third Four-Year Plan (1961–64) spelled out this objective. The fourth Four-Year Plan went even further in this direction. On the basis of the development of upstream heavy industries, new export products – primarily of light manufactures – were to be expanded. The state was to retain the leading role in heavy industry, the private sector in light, export-oriented manufacturing. 54 That part of the reform program which called for the sale of public enterprises was simply not implemented to any significant extent. Indeed, according to some analysts, direct government ownership in and management of productive enterprises actually increased after the completion of the reform. 55 By 1980, the six largest industrial public enterprises had sales equal to the 50 largest private ones. Of the largest ten industrial concerns, seven were publicly-owned.56 Through the 1960s and after, the state continued to identify weaknesses in the industrial structure of Taiwan and to look for ways of repairing them. A clear indication that this remained the intention both of the political leadership and of most of the technocrats can be seen in the response of the government to perceived bottlenecks in the economy in the early 1970s – a full decade after the government had, according to neo-liberal accounts, relaxed its control. Concerned that industrial growth would slow because of a lack of infrastructure and of some key upstream industries, the government initiated the ‘Ten Major Development Projects’ – all slated for completion by 1979. These included transport systems such as a massive north-south freeway, the electrification of the rail system and a new international airport. State production of energy, intermediate and capital inputs for industry was also given a huge boost with a nuclear power plant, an integrated steel mill, a giant shipyard, a naptha-cracking plant for the state-run China Petroleum Company and the expansion of existing petrochemical plants. 57 All were completed by 1979, then another 12 projects, costing a further US$7 billion and designed to be completed by the end of the 1980s, were announced. 58 None of these indicate a government which had long since stepped back from a direct and major role in economic development. While the growth in exports came largely from the products of private firms, the public sector maintained the upstream production that underpinned their success.

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Nor was the export orientation adopted in the 1960s a simple matter of removing statist obstacles to the market and to private business. On the contrary, various means were used to reduce the risk by paying subsidies to successful exporters in the form of tax concessions, by allocating preferential credit to export industries and by encouraging export cartels which could subsidise exports with higher domestic prices. From July 1957, the Bank of Taiwan began providing cheap loans to manufacturers on condition that they develop markets abroad. These loans were at interest rates of 6% per year in foreign currencies and 11.88% in local currency – much cheaper than the rates for non-exporters of 19.8% to 22.3%.59 The state’s involvement in higher-technology investments – especially in semiconductors and electronics – was crucial for the great export success of these sectors.60 In the late 1970s and 1980s, the state developed an even greater role as a result of the push into these sectors – in which the private sector had failed to invest. As a result, in 1988, the government and other public entities contributed 33.3% of gross capital formation and in 1994, 46.1%.61 Similarly, while the state continued to seek overseas capital and opened its first export processing zone in 1965, it retained its role as a gatekeeper – carefully screening foreign investment. In 1962, just one year after the ‘reforms’ were complete the government judged that some of the incoming – especially Japanese – investment would not easily develop into higher value-added production. Accordingly, it imposed local content requirements on televisions, automobiles, diesel engines, refrigerators, air conditioners and other goods – with an escalating proportion of the total product to be made up of locally-produced components.62 Perhaps most interesting about the ‘reforms’ is that, unlike those in Korea and Mexico in the 1980s, they were not a product of lobbying by sections of the private bourgeoisie. Private business was only asked what they thought of the proposals after the 19-point program had already been developed and approved by the government. Not until 1961 were major business leaders invited to attend a conference where they were asked to put their position.63 Moreover, the event was not repeated; no institutional forms of government-business collaboration were put in place. At this point, the balance of forces was such that the private bourgeoisie was still in no position to demand – or even strongly suggest – any major alterations to the state’s economic policy. Instead, the pressures for some change emerged within the state bureaucracy itself and the battles over

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whether it would proceed were fought out there. But that fight was never about whether or not the state was to play a major role in economic development – this was accepted on all sides – although there was a real need to conceal the level of actual state involvement from US officials. The catalysts for the dispute were the shortages of foreign exchange, the impending withdrawal of US aid and the unused capacity of many industries producing for the limited domestic market. This argument was about what kind of role the state was to play – one which sheltered domestic industries or one which led them in the conquest of export markets. The question of whether the state or the market should lead the way was never at issue.

Managing external shocks The capacity of the Taiwanese state to promote development can be measured by its ability to withstand adverse external shocks. In the early 1970s, it received two serious jolts in quick succession – one political, the other economic. Just 150 kilometres from the Chinese mainland, Taiwan has, since 1949, felt vulnerable to the government of the People’s Republic of China – a government which it refused to concede had sovereignty over the mainland. The Cold War provided Taiwan with a high degree of international protection. But the vagaries of international politics turned against the ROC in the early 1970s. US relations with China began to thaw. In 1971, Kissinger made a secret visit to Beijing and, in the same year, the ROC was forced to withdraw from both its permanent ‘China’ seat on the Security Council of the United Nations – a position which had increasingly appeared ridiculous – and from the UN as a whole.64 At the same time, Japan – its second most important trading partner – de-recognised Taiwan. With the US making more friendly noises towards China, the island’s position looked grim. Some of the best educated Taiwanese emigrated to the US. So too did many businesspeople – who took their capital with them. Foreign trade and investment slowed.65 Taiwan’s exports were facing protectionist threats, especially in the US. Its wages were rising faster than its competitors, other NICs were moving into the same markets. Then, in this already difficult and uncertain situation, the recession and oil crisis of 1973–74 hit. Taiwan was, and still is, completely dependent on imported oil for petrol and for its petrochemical and plastics industries – key parts of its economic structure. The quadrupling of oil prices and rising prices of imported

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intermediate and capital goods had an immediate and devastating effect. Worse, since the Taiwanese economy was so dependent on exports, the world recession had a greater impact on it than on most countries. Real GNP grew at only 1.12% in 1974.66 Inflation, which had been running at less than 2% since 1961, hit 40%. The trade deficit climbed to US$1,000 million.67 Most governments responded to this, the first great coordinated world recession since the 1930s, with cutbacks in government spending. Not so the Taiwanese, which deepened the involvement of the state. The sixth Four-Year Plan (1973–76) renewed state support for exports – now including electrical machinery, computer terminals and peripherals, and continued the ‘Ten Major Development Projects’ already begun. While most governments cut their more ambitious projects in order to rein in spending and control inflation, the Taiwanese government brought inflation down by huge rises in interest rates combined with increased government spending on industry. The overall effect was to considerably boost the government’s part in production and in domestic capital formation. Growth very quickly returned to high-levels. In 1975, while only a few of the state projects were coming on-line, GNP growth picked up to 4.24%. In 1976, as more of these projects began, GNP rose a massive 13.48% – the highest ever recorded in Taiwan to that point.68 Inflation fell to around 3% for the rest of the decade and fast export growth once again brought the balance of payments into surplus.69 The shock of the early 1970s prompted the planners to prepare for similar events in future – especially for the possibility of price rises in imported industrial intermediate products. The Six-Year Plan of 1976–81 accordingly emphasised the need to construct greater capacity in heavy and chemical industries. Partly as a result, the second oil price shock of 1979 and 1980 and the recession to follow had much less severe effects on Taiwan than the first. Growth rates fell but not by nearly as much. With this second oil shock and recession, the government also took the opportunity to steer the economy further towards non-energy intensive production in semiconductors, computers, telecommunications, robotics and biotechnology – directions which have been increasingly reflected in the structure of industry and exports ever since.70 In summary, the Taiwanese state from 1949 until well into the 1990s vigourously planned and intervened in the process of economic development. It owned and operated its own industries – especially in the important upstream sectors of the economy. When the state changed

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tack in the late 1950s and began to promote an export orientation, it did so with the same robustness as it had used in protecting domestic industry in the ISI phase. It carefully controlled the gateway between international and domestic capital – ensuring that local capital accumulation took precedence. Its willingness to intervene forcefully in the economy was particularly clearly illustrated by the state’s response to the dual economic and political crises of the early 1970s.

Origins of state autonomy As with the Mexican and South Korean states, the form of autonomy which the Taiwanese state possessed was unique. So too, this form of state autonomy corresponded to singular public policies and a distinctive path of industrial development.

Colonialism Taiwan – once better known in the West by the Portuguese name of Formosa – has had a series of colonial masters. Between 1624 and 1661, the Dutch maintained a colonial regime on the island. It was incorporated by the Qing dynasty in 1684 – which, however, showed little interest in occupying or bringing it under military control. It remained a loose dependency until, as a consequence of the Sino-Japanese war, Taiwan was ceded to Japan by the Treaty of Shimonoseki in 1895. Japan’s own industrialisation had been rapid after the Meiji Restoration of 1868. However, one of the great weaknesses of its economic structure was its small-scale agriculture. This limited improvements in farm productivity and the relatively high cost of food for a burgeoning urban workforce threatened to push wages up and hinder further industrialisation. Consequently, the Japanese saw Taiwan first and foremost as a source of cheap agricultural products to subsidise their own industrial development. Rice and sugar were the key crops of interest, and other tropical products were also grown. Industrial growth in the early colonial period was almost entirely related to food processing – especially sugar refining. Diversification of Taiwanese industry took place in the mid-1930s as Japan began its preparation for a war in the Pacific. Some textile production was shifted to Taiwan and the production of fertiliser was increased. The most serious efforts were made to expand production which was directly related to the military. These attempts to turn Taiwan into an industrial adjunct of Japan required the development

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of a good infrastructure – including railways, ports and the expansion of irrigation. The overall result was that manufacturing grew by an annual average (in real terms) of more than 6% between 1912 and 1940 and by more than 7% in the 1930s.71 By this time, Taiwan was the biggest trader in the region after Japan – although virtually all of its trade was with its coloniser. Between them, the big four Japanese zaibatsu – Mitsui, Mitsubishi, Yasuda and Sumitomo – had a stake in nearly all the larger industrial and commercial concerns in Taiwan. Indeed, almost all medium and large businesses were owned by Japanese. In 1941, more than 90% of corporations with paid-up capital of over 200,000 yen were Japaneseowned. Taiwanese entrepreneurs mostly operated very small businesses. The few large Taiwanese capitalists who did exist – including the five famous ‘collaborator-entrepreneurs’, as they were later called – were not purely an urban bourgeoisie. They combined landlordism with business operations.72 Japanese policy was to discourage the formation of sizeable Taiwanese businesses. Indeed, by law, until 1924, Taiwanese were prohibited from organising corporations or operating them without Japanese participation.73 So although significant economic development took place, no large, wealthy Taiwanese capitalist class emerged – a fact which became of great significance after 1945. The absence of a powerful Taiwanese elite was also clear at a political level. In the colonial state apparatus, Taiwanese were virtually unrepresented. At the upper levels especially, Japanese held all the key posts. After the First World War, the Japanese formed a local council – however it had only a consultative function and, in any case, no Taiwanese were on it until 1921. 74 Only one-sixth of Taiwan’s police force was made up of Taiwanese and none was above the rank of captain.75 The militarisation of the Japanese government in the 1930s changed its approach to Taiwan – with a new attempt to make the culture of the island more thoroughly Japanese. A decree was issued requiring people to change their names to Japanese forms and to use the Japanese language. All non-Japanese publications were banned in 1937.76 The government in Tokyo also encouraged Japanese migration to Taiwan; by 1940, 312,386 Japanese were residents there, often making up the management and skilled workforce of the large firms.77 Despite the distortions introduced in its economic system by becoming an adjunct to the Japanese economy, the colonial experience does appear to have given Taiwan an industrial start missing from most other colonies. By 1945, it was probably more developed economically

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than any province on the mainland.78 In the later stages of the war, US bombing significantly reduced the island’s capital stock. So too, the repatriation of Japanese technical experts, managers and businesspeople undermined the economy – to the point where production in 1945–46 was only about half its peak level during the colonial period.79 However, some important transformations had taken place in industry, infrastructure and education; at the end of the war about 71% of primary school-age children in Taiwan were in school.80 Moreover, the Taiwanese economy had been deliberately planned by the Japanese. Government control and direction were the norm.81 But while relatively modern structures in business and government had been created, very few Taiwanese had the experience of being in control of them. The departure of the Japanese left a vacuum at the top of Taiwanese society; it was soon filled by yet another colonising power.

Retrocession and repression On 25 October 1945, Taiwan was handed over to the nominal government of China, under the Kuomintang (KMT) of Chiang Kai-shek. He appointed Chen Yi, a former governor of Fujian Province, as Administrator-General. For the KMT, Taiwan was little more than a provincial backwater – to be plundered to line the pockets of party officials or to help pay for the war it was losing against the Chinese Communist Party. Accordingly, Chen pursued a policy of harsh repression. Of 316 higher level officials in the provincial government only 17 were Taiwanese and some of these were Taiwanese who had moved to the mainland long before and returned with the KMT – the so-called ‘half-mountain’ people.82 Japanese, and certain Taiwanese property was confiscated by the new government. The six banks operating during the colonial period were put under government control, although Taiwanese investors were allowed to keep minority shareholdings. Thus the KMT state had direct control of the financial sector from the beginning.83 On 27 February 1947, an incident began which illustrated the isolation of this KMT-controlled state from the mass of Taiwanese. In a park in central Taipei, government agents, enforcing the state monopoly on tobacco and wine, accosted a woman selling unlicensed cigarettes, confiscating them, her cash and knocking her down. When a crowd gathered to protest, police fired into them, killing at least one Taiwanese.84 On the following day – the twenty-eighth – a demonstration marched in

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protest to Chen Yi’s headquarters. His guards machine-gunned the crowd, killing some and sparking off a general uprising against the mainland officials. The insurgents seized the Taiwan Broadcasting Station and spread news of the rebellion across the island. The rebels quickly found themselves in almost complete control. The American consul in Taiwan said later that: ‘For about the first week in March, we saw no armed Chinese on the streets of Taipei, and the Formosans seemed to control every city because Chen Yi had too few troops to suppress the massive demonstrations’.85 In most cities and towns the populace simply took over. Organised Taiwanese students patrolled the streets to prevent looting and arrested anyone associated with the regime. An ad hoc ‘Committee of Settlement’, comprised mostly of conservative Taiwanese notables, was established and Chen Yi agreed to negotiate with it. All of the Committee’s demands were mild – none demanded separation from China. Chen strung out the negotiations while he waited for troop reinforcements from the mainland. They began to arrive at Keelung on the night of 8 March, first using machine-gun fire to clear the docks. Then began a reign of terror as the KMT troops massacred everyone they could find who was remotely connected with the uprising. In an attempt to destroy the leadership of any potential future rebellion, they also killed much of the Taiwanese intelligentsia and even many who simply looked wellto-do.86 Those among the actual or potential leadership of Taiwanese society who escaped the massacres fled abroad, others simply learned that to challenge the KMT was to risk death. Stories of resistance to the KMT during the massacres were passed down through generations of Taiwanese – although mention of them could never, until recently, be made in public, or appear in print. One concerned the legend of a Taipei bus driver who, ordered to drive KMT troops to Hualien, where he knew they would conduct a massacre, told his female conductor to get off after giving her a note to his wife. He then drove them and himself over a cliff.87 The death toll of what became known as the 2–28 incident (after the date of the beginning of the uprising) is unclear. Several sources say that 20,000 people were killed.88 In 1991–92, an official government investigation was finally held into the episode. Its report – running to 12 volumes – estimated that between 18,000 and 28,000 died. It also admitted that only one victim – a prominent Taiwanese intellectual – was actually tried before being executed.89 Some private estimates have put the death toll as high as 100,000.90 The 2–28 incident left the Taiwanese population in a position of total powerlessness in relation to

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the state which had been imposed on them. For decades, it remained a traumatic memory in relations between the Taiwanese and the Mainlander population.

The nature of the KMT state With the war against the Communist Party on the mainland going badly for the KMT, Chiang Kai-shek began to prepare a retreat to Taiwan. In late 1948 he despatched his son – Chiang Ching-kuo – to the island along with Chen Cheng, an important KMT official. When final defeat came the following year, the KMT fled to Taiwan with as much of its army and as many supporters as it could salvage. In 1945, Taiwan had a population of approximately six million. By 1950, more than one and a half million more had arrived from the mainland. Most knew nothing of Taiwan and had no family or other connections there. Their only social ties and means of material support lay within the KMT. Chiang had already laid the legislative basis for dictatorial government with the passing of the ‘Temporary Provisions Effective During the Period of Communist Rebellion’ in May 1948. Suspending even the pretence of democratic government, this became the legal basis of KMT rule on Taiwan and remained so into the 1980s.91 Taiwan was designated a combat zone; martial law remained in force until 1987. The KMT was already highly centralised, with massive power in the hands of the leader. Further changes to the party structure in a ‘reform’ launched in July 1950 and designed to eliminate the factionalism which had been rife on the mainland made it even more so. Moreover, the party made it clear that it would control the army – not the other way around. Only one political party was to be allowed, although non-party candidates were permitted to stand in local and provincial elections. Despite its centralisation, the KMT was designed to be a mass party – with party cells in farmers’ associations, labour unions, professional associations, student and youth groups. By the end of the 1980s, it had nearly three million members – about 13% of the population.92 Although some Taiwanese were encouraged to join the party after the early 1950s, they remained in lower-level positions. For decades, those who had come with Chiang from the mainland remained in firm control. The KMT not only brought with it a party and state structure, it also tried to recreate the institutions of mainland government – not

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in exile (since it saw Taiwan as part of China) but in temporary retreat. The five Yuan (chamber) structure of government which had been established by the KMT’s founder, Sun Yat-sen, in the 1920s was now set up in Taipei. In this structure, the Legislative Yuan (LY) and the Executive Yuan (EY) were the key bodies. The LY was elected in 1947 on the mainland – its members coming from 30 provinces of China, of which Taiwan was only one. Since, after 1949, elections could no longer be held in the other 29, those elected in 1947 remained members of the LY. Until they were finally retired in 1992, the ageing KMT cadre of the 1940s dominated the main legislative chamber of government. In addition, a subordinate provincial government was established to manage affairs in Taiwan itself. From the early 1950s, limited elections were held for this and for local councils. But candidates were very carefully screened and the elections ‘supervised’ by KMT officials and higher government authorities. Organised opposition parties were outlawed under the provisions of marital law. The KMT monopoly of political power was so complete that party and state were virtually identical. Government economic intervention was part of the KMT’s ideological heritage. Sun Yat-sen had suggested the need for strong government control within the context of a free-market economy. The third of his ‘Three People’s Principles’ – the ‘Principle of People’s Livelihood’ (minsheng zhuyi) – advocated the regulation of capital and equalisation of land tenure. But a role for free enterprise was to be preserved and the class struggle was abhorred. Government ownership was to be pursued to the extent necessary to ensure the people’s basic needs. The doctrine is a mixture of vaguely socialist ideas, statist planning and traditional Confucianism.93 Since it incorporates both free-market and government control – it is highly adaptable. A government can expand either element in practice and still claim adherence to Sunist philosophy. In Taiwan, the KMT used this ideological flexibility to publicly support the notion of a private sector – especially for the benefit of US ears – while, in practice, it heavily directed resources to state-owned firms.94 The terrible shock of defeat on the mainland and the realisation that Taiwan was indeed its last refuge – that there was nowhere else to retreat – produced a new political will. The party was forced to assess the reasons for its loss to the communists; it identified two as central. The first was its failure to undertake a thorough land reform. The second was its inability to control inflation.

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Land reform The equalisation of land rights formed an important part of Sun Yatsen’s thought.95 But on the mainland, the large landowners had consistently blocked any KMT attempt to carry it out. In its soul-searching after 1949, the KMT leadership admitted that the Communist Party land reform program had been the major part of its appeal to the peasantry. A painful self-criticism took place at high-levels. In addition, the KMT in the early 1950s was by no means sure that Taiwan would be a secure base. It faced a hostile population – especially after the massacres of 2–28 – and a menacing mainland government. It was concerned that, without land reform, the loss on the mainland might be repeated. Chen Cheng later recalled that in the early 1950s, ‘the villages on this island were showing signs of unrest and instability. It was feared that the Communists might take advantage of the rapidly deteriorating condition to fish in troubled waters’.96 Landlessness and land shortage were serious problems in Taiwan. In 1949, 36.1% of all farmers were tenants and another 6.7% were farm hands. Most leases were verbal and could be terminated by landlords at any time.97 Rents averaged 50% of the yield of the land and could even be as high as 70%.98 Whereas, on the mainland, the rural ruling class had blocked reform, no such constraint existed in Taiwan. KMT personnel owned no agricultural land in Taiwan, they had few personal connections with Taiwanese landlords and cared for their interests even less. Thus the government proceeded with a thorough land reform in Taiwan which it could never have undertaken on the mainland. In addition, land reform was strongly supported by the Americans. The Sino-American Joint Commission on Rural Reconstruction (JCRR), composed of American officials and, quite high-level ROC officials and technocrats, played a major part in working out the details.99 The reform took place in three stages.100 The first was the compulsory reduction of rents. Then public land was to be sold to the farmers. Finally, in 1953, landlords were forced to sell their land over 3 chia (1 chia = 0.97 hectares = 2.4 acres) to the state.101 Landlords were paid most of the purchase price in bonds issued by the Bank of Taiwan and repayable in 20 installments over ten years at an interest rate of only 4% or in stock in one of four government enterprises.102 By having to accept bonds as payment, the landlords were, in effect, being forced to lend sizeable sums to the government at very low, in fact negative, real interest rates. Those who accepted

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stock in government enterprises usually immediately liquidated it at low prices. More than 98% of the ordinary landlords and over 90% of the big landlords sold their shares in one lot or in several. Most were sold at prices well below par value.103 The landlords, however, did not become industrialists – most went back to farming. Only 20% of the ordinary landlords and less than 30% of the large landlords had changed their occupation by the time the land reform was completed.104 The landed class had been abolished and along with it, the possibility that it might be an impediment to the industrial plans of the new state. Moreover, with very few exceptions, it did not turn the landed class into an industrial capitalist one. The ability to carry out the land reform illustrated the great autonomy which the state already possessed from the local ruling class. With its success, state autonomy became even more marked. Although the reform didn’t transform large farmers into industrialists, it did help develop industrial capital in several ways. Firstly, by forcing landed wealth into government stocks and bonds, it enlarged the funds available to the government for use in public enterprises. Secondly, it resulted in greater agricultural output and made it possible for the government to increase the outflow of capital from agriculture to industry. Some 37% of the total cultivated area of Taiwan was distributed under the program. 105 Because of the new land and opportunities available to them, formerly tenant farmers now had a greater incentive to be productive. Furthermore, although many more small farmers became landowners, the scale of farming remained approximately the same as before the reform – since landlords had previously leased their land in small lots anyway. 106 Farmers now put savings into improvements in their land; investment in agriculture rose immediately, doubling between 1950 and 1955. 107 Yields increased, so that whereas one hectare was able to support 8.44 persons before the reform, it could maintain 14.2 persons after it. 108 Agricultural production grew at an annual average of 4.4% between 1954 and 1967. By 1960, rice yields per hectare were higher than anywhere else in Asia except Japan.109 Farmers’ incomes rose accordingly; between the conclusion of the land reform and 1968, the income of the average owner-farmer increased 230%.110 As a result, farmers’ savings could be siphoned off by banks, government taxes, compulsory rice purchases and through the fertiliser-rice barter scheme to contribute to domestic capital formation. Increased agricultural production provided a surplus for export

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and the foreign exchange earned in this way could be used to buy capital equipment and intermediates for industrial production. Although the farmers were squeezed by the government strategy of shifting resources from agriculture to industry, most of them gained sufficiently from the land reform program to dampen their protests. Under the rent reduction program, 44.5% of all farm families benefited, 120,000 farm families bought public land and 224,000 tenant families (39.5% of all farm families) gained land from the land-to-the-tiller program.111 With the conclusion of the reform, more than 80% of the farming population worked their own land. By redistributing rural wealth in this way, land reform lessened the high-levels of inequality that other NICs experienced during the industrialisation process.112 The KMT was able to carry through the reform in Taiwan, in contrast to its poor effort on the mainland, because of the great autonomy the state enjoyed on the island. Having achieved a successful reform and thus avoided the potential opposition which a landlord class might mount to the siphoning of resources from agriculture to industry, the new state’s autonomy was even greater.

Inflation The second major element of the KMT’s assessment of the reasons for the debacle on the mainland was the rampant inflation which it had allowed to develop there. It was determined to avoid the same mistake on Taiwan. In the early and mid-1950s, high inflation continued in Taiwan. Foreign aid funds helped to bring it under control. But the major contributor to the low inflation rates which characterised Taiwanese development from that point on was the policy of the government in setting interest rates very high – a curious strategy, one would think, for a state bent on rapid industrialisation. But high interest rates were maintained until the 1990s. They had effects other than controlling inflation. Firstly, they tended to encourage savings. The share of gross domestic savings in GNP averaged 24.93% between 1951 and 1988 – one of the highest rates in the world.113 As a result, Taiwanese business needed a much lower rate of foreign borrowing than other developing countries. Secondly, they tended to keep those businesses small which lacked privileged access to credit. Since only the state sector and a small number of private sector firms had such access, the Taiwanese industrial structure – in marked contrast to that of Korea – was characterised by the existence of a very large number of small and medium-sized private firms.

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Ethnicity The indigenous people of Taiwan are of Malayo-Polynesian background and now make up about 1% of the population. Beginning about 1,000 years ago, but particularly from the fourteenth to the seventeenth centuries, people from mainland China – especially from Fujian and Guangdong provinces – began to move there. They forced the indigenes into the interior and an increasingly marginal existence. The main Taiwanese language is a variant of the dialect spoken south of the Min River in Fujian Province in mainland China. Taiwanese who originally came from there are called Minnan jen (people from south of the Min) and the dialect Minnan hua (south of the Min speech). About 12% of the population speak Hakka – a form of Hokkien – as their first language. Around 14% – those who came to Taiwan after 1945 – spoke Mandarin as their first language. Mandarin and the local Taiwanese languages are mutually unintelligible. The breakdown of the population is usually given as 85% Taiwanese, 14% Mainlander and 1% Aborigine. While there was resentment at Japanese overlordship, it seldom translated into a demand for separation from Japan or unification with China. Also, by 1945 Taiwan was relatively economically developed compared to elsewhere in China. It had a high rate of literacy and substantial public infrastructure. The transition from domination by Japan to domination by the mainland government did not seem to many Taiwanese as liberation. The rag-tag – and highly repressive – forces with which the KMT moved to take Taiwan back after 1945 hardly changed their minds. The defeated KMT army which arrived en masse after 1949 reinforced the impression that Taiwan was being put under the control of a barbarous group. The KMT elite came into exile. But so did the army rank and file – mostly illiterate and poor. The soldiers, ill-equipped, ragged and filthy, some barely boys, others old men, were poorly provided for by their leaders. They wandered around the cities looking for food and shelter. The police shooed them away from the better parts of town. A popular slogan began to appear on walls – ‘Dogs go and pigs come’ – indicating that the Taiwanese saw little difference between their old and new colonisers.114 Although the Taiwanese had no clear sense of nationhood and indeed, were divided ethnically amongst themselves, they soon united to the extent that most opposed the Mainlanders. This complex sense of a negative unity and identification is captured by the recollection of

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the Hakka writer, Tai Kuo-hui, when faced with a hostile mob during the 2–28 incident. Unable to prove that he was not a Mainlander because he could not speak Fujianese, he resorted to singing the Japanese national anthem to show that he was not from the Chinese mainland.115 As for the KMT, for the most part, it did not need deep roots in the local population or mass support since it had brought not only an entire state apparatus with it, but a support base of one and a half million people as well. The new state did sometimes try to work through Taiwanese powerbrokers such as wealthy or influential families. But even these limited and mostly local links were carefully selected. In order to have influence with the Taiwanese people, the family concerned had to have a significant reputation and networks – but not a reputation so pre-eminent or connections so widespread as to threaten the hegemony of the KMT. The family background could not have been too close to the pre-Republican Qing dynasty, nor too pro-Japanese. Very few Taiwanese families met all of these conditions.116 Another source of political middlemen with some connection to the Taiwanese population were the ‘half-mountain people’ – those who had left Taiwan for the mainland some time before, often during the Japanese colonial period. Few of them were from the Taiwanese elite – otherwise they would not have left the island. And while they were better able to communicate with the Taiwanese and had contacts, none had any serious support. Many were simply assigned positions in the KMT state or in the management of the state enterprises which the KMT took over. The KMT eventually did begin to ‘Taiwanise’ itself later in the 1950s. But until the late 1980s, Mainlanders still dominated its top levels.117 A degree of political isolation from the Taiwanese also provided the KMT with a means of keeping the supporters and the army it had brought with it in order. Mainlanders were encouraged to think of themselves as the representatives of the higher culture of China. Although Taiwan, in this mythology, was part of the same culture, it was clearly on the fringes of it; the Mainlanders came from its heartland. Most of the Mainlanders, especially the large numbers of poor soldiers, were neither wealthy nor influential. Now they were encouraged by the KMT to believe not only that they were superior to the majority of the population, but that, should the Taiwanese rule the island, the Mainlanders would be thrown out.118 A siege mentality – based not only on the threat from the Communists, but from the

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Taiwanese as well, was consciously promoted by the KMT within its own constituency. Furthermore, the Mainlanders had no property in Taiwan and no jobs. They were entirely reliant on the KMT state for their livelihoods. The industrial strategy of building a large state sector was based on more than Sunist ideology; it had an immediate purpose in providing employment for the KMT’s Mainlander support base. Similarly, interest rates and other policies which tended to keep private business small retarded the growth of the Taiwanese business class and postponed any challenge which it might mount to the KMT’s preeminence. No challenge was likely from émigré Mainlander business either. Only a few entrepreneurs came to Taiwan. Those that did tended to be the most dependent on the KMT. They became even more so in the new, unfamiliar environment.119 The autonomy of the KMT state was, first of all, a product of its emigration from the mainland. But this autonomy was then strengthened and maintained by the regime’s manipulation of ethnic divisions over the next 50 years. Until the early 1990s, the ancestral origins of one’s father were recorded on identity cards, which had to be carried by all people over 15 years of age. Even when social contact became more common between Taiwanese and Mainlanders, new acquaintances would often still be ‘placed’ as one or the other on the basis of their accent, customs, likes and dislikes.120 Shortly after its emigration, the government set up a national Mandarin (guoyu) Promotion Committee. Japanese language newspapers were taken over and converted to Mandarin.121 In 1953 the government imposed Mandarin as the language of instruction in all schools; the use of other dialects in the schoolyard was a punishable offence.122 In 1964, it passed a law outlawing the use of Taiwanese languages in official settings at all and began a campaign to emphasise the grace of Mandarin and the vulgarity of Taiwanese. When television was introduced to Taiwan, programs in Taiwanese proved most popular – a clear threat to the Mainlander ascendancy. Accordingly, in 1972, the government banned the broadcast of more than one hour in Taiwanese each day, and that had to be broken into two segments – at lunch and at night. In 1976, all television was required to be in Mandarin within one year.123 Another element of the KMT’s cultural policy was the glorification of all things ‘Chinese’ and the attempt to instil a Chinese nationalism rather than a Taiwanese one in the population. The policy had a number of motivations. Firstly, the ROC’s insistence that it remained the legitimate government of China demanded that it preserve

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Chinese culture against the supposed attempt by the Communists to destroy it.124 The message was that the Chinese Communists were ‘unChinese’ and that only the KMT held the heritage of a 5,000 year civilisation. Thus cultural artifacts brought from the mainland and installed in the many museums built in Taiwan – such as the National Palace Museum – were important ideological weapons of the regime.125 A second reason for the official adulation of Chinese culture was that it served to remind the Mainlander population in Taiwan of their cultural superiority and of Taiwanese backwardness. The relegation by neglect of specifically Taiwanese history and culture corresponded to the secondary political status which the Taiwanese were allotted in the regime after 1949. The Taiwanese education system was also enlisted to inculcate a sense of the importance of China rather than Taiwan. For many years students were required to memorise mainland railway stations as they existed before 1949. In the schools, the national flag, the KMT party song and the leaders – Chiang Kai-shek and Sun Yat-sen – were all venerated. Sunism became a compulsory part of the school curriculum. The primacy of China over Taiwan was even evoked in the naming of places on the island. City streets in Taipei were named after places on the mainland. Indeed, there was even an attempt to have their relative positions in China reflected in Taipei. Thus names from the southern part of China were used to rename streets in the southern part of the city, the names of peripheral regions such as Tibet, and others in Mongolia and elsewhere assigned to outskirts of the city.126 The map of Taipei became a map of China. After the death of Chiang in 1975, a massive square and mausoleum was built near the centre of Taipei. Many have pointed out its peculiar similarity to Tiananmen Square.127

Policy, industrial structure and the form of state autonomy The economic policy pursued by the state and the particular form of its autonomy are linked in crucial ways. Since it was, at first, an émigré state, determined to militarily regain the mainland, it needed to promote the rapid development of heavy, upstream industries. It also had to provide a living for the Mainlanders who came with it to Taiwan. State-owned industries were appropriate on both counts. The KMT had already inherited Japanese colonial businesses – by far the biggest on the island. Just as importantly, the autonomy of the state was based on the subjugation of the Taiwanese population. If private Taiwanese businesses were allowed to grow into industrial

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giants, they might threaten the freedom of action which the regime required and KMT dominance. For all of these reasons, state ownership was emphasised and private business mostly neglected entirely, or subjected to policies likely to restrain its growth. There were a few exceptions to this rule. A number of the ‘collaboratorentrepreneurs’ from the colonial period – still an influential group in Taiwanese society in the 1950s – were permitted to buy into important industries – such as Taiwan Cement. But, even here, the KMT remained suspicious, exercising close state control over them. Another group of the tiny Taiwanese bourgeoisie which managed to find a favoured place at the table were those in industries of direct importance to the military. Lin Tingshen of the Tatung Group and Tang Chuanzong of the Tang Eng Ironworks – both manufacturers of metal products – succeeded in creating quite large firms.128 However, most Taiwanese businesses stayed small and the state was content to see them remain so. Meanwhile, Mainlanders controlled the commanding heights of the economy through the state industries. The industrial division of labour reflected the ethnic one which the KMT had manipulated to its political advantage. By the early 1990s, there were approximately 700,000 small and medium enterprises (SMEs) in Taiwan – an extraordinary number in a population of only around 20 million people. They made up 98% of the total number of businesses and employed 70% of the total workforce.129 The SMEs of Taiwan have sometimes been seen as heroic ‘guerrilla capitalists’, operating purely according to the market with little state interference and, in this Ayn Randist world, as the major contributors to Taiwan’s economic success. It is true that many of the SMEs operated at arms length from the state, often avoiding taxes, without keeping records, or possessing government permits to operate. Frequently, contracts with other firms are entered into with nothing put in writing. Typically, the owners of SMEs viewed the state with suspicion, particularly as a result of its mainland origins. However, the fortunes of these ‘guerrillas’ were inextricably linked to the larger state and private – including foreign – firms. A case study of the footwear industry in 1998 revealed that there were three tiers. The top consisted of relatively large factories with an average of 140 workers which did the most capital-intensive operations. Subcontracting from these larger firms were a much larger number of workshops with, on average, 20 workers. The lowest tier consisted of individual households doing still smaller tasks.130 All of these, in turn, were sandwiched between the huge, largely state-owned, petrochemical companies which supplied the raw materials and intermediates and the multinational retailers –

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such as J.C. Penny and Nike – which bought the finished products.131 Similar examples can be found in the plastics industries and in electronic assembly – where SMEs fill the gap between large companies. The ‘guerrillas’ operate as auxiliaries to the regular big battalions. This is one of the reasons why SMEs predominate in the export market. Depending on how the SMEs are defined, they contribute between 65% and 71.8% of total export earnings. Often they export finished products under contract to foreign retailers. The upstream industries which provided the raw materials and intermediate products and perhaps add most value often disappear from view.132 Part of the reason for the small-scale of much private business in Taiwan was the success of the land reform of the early 1950s. Farm incomes rose but plots remained small. Some of this extra income was used to buy labour-saving equipment, freeing farm labour. Many farming families also used it to set up small manufacturing enterprises. In only a short time, farm families were earning more from these ventures than from the land. Non-farm income for rural households was already 79% of their total household income in 1966, rising to 89% a decade later.133 But, undoubtedly, the major reason for the small average size of Taiwanese private businesses is the deliberate policy choice of the state which channeled resources – foreign aid until the mid-1960s and then bank credit – into the public sector. This did not prevent the proliferation of private businesses. Indeed, the KMT regime had no reason to fear the development of a large number of small Taiwanese businesses. But, it did restrict their expansion. The high interest rate policy also discouraged borrowing. Between 1951 and 1987, 64.34% of private enterprises were financed entirely from internal company sources. Many of the rest were largely financed by the surplus from households.134 Relative to their overall output, the state sector was favoured twice as much as private firms in getting loans. In the 1965–87 period, public firms were given loans of NT$0.2211 for each dollar of final output; private firms received only NT$0.1154.135 Around 1970, sections of the KMT’s economic bureaucracy, led by Finance Minister, K.T. Li, voiced concerns about the restrictions on the private sector and argued that for further industrial deepening to occur, private undertakings in heavy petrochemical industry should be allowed and the banking system opened up to private domestic ownership. But the KMT leadership and the managers of the state-owned enterprises, concerned about the emergence of a large private capitalist class, vetoed the moves.136 Instead, until the late 1980s, the Taiwanese

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state consistently opted for direct state-ownership and, to a lesser extent, joint-ventures with state equity participation, as alternatives to the development of large domestically-owned private firms. The banking sector was particularly protected as a state preserve. Although many economic technocrats argued that local private capital should be permitted to form financial institutions, only one such firm was allowed into any area of finance in each of the first four decades of KMT rule in Taiwan.137 Indeed, the government preferred banks operated by foreigners and the overseas Chinese to those set up by Taiwanese businesspeople. The latter were much more likely to become a threat to the domestic hegemony of the KMT. To an extent, private business compensated for its relatively small size on a world scale by the formation of a dense system of business networks. These connections – guanxi – have led to the formation of linked companies – guanxiqiye. They may be formed on the basis of the family linkages of their owners, native-place affinity and even common family names or birth dates.138 Guanxiqiye substitute, to some extent, for the economies of scale enjoyed by larger enterprises. As the industrialisation of Taiwan continued, some of the top guanxiqiye became very significant in its economy. By 1988, the sales of the top 100 guanxiqiye accounted for 34% of GNP. In 1991, the revenues of the top ten guanxiqiye represented just over 10% of GNP.139 The guanxiqiye have not become as central to the economy or as powerful as the chaebol of Korea. But, especially from the 1980s, they became a significant factor for the KMT to take into account. Moreover, the main guanxiqiye remained ethnically segregated between a minority of Mainlander companies and the majority of Taiwanese ones. An exhaustive study in the 1980s of the most important guanxiqiye showed that, overwhelmingly, they still did not invest across the ethnic divide in each other’s business groups.140 Meanwhile, Mainlander dominance of the state sector continued and, despite some privatisation in the late 1980s and 1990s, the sector remained extremely powerful. In 1992, 60 state-owned firms still accounted for 15% of aggregate capital.141

Relative autonomy Path three: migration In Mexico and South Korea, the autonomy of the state emerged largely through domestic upheavals. In both cases extremely destructive civil wars reduced the ability of the major social classes to take and hold

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state power. In Taiwan, state autonomy was based on the fact that the social roots of the state were formed on the mainland and then severed with its migration across the Strait. The possibility of any challenge to the émigré state was ended with 2–28, a situation then maintained through repression and the manipulation of ethnic divisions. The particular policy settings used by the state to industrialise Taiwan were chosen on the basis of this autonomy and designed to preserve it. The KMT – the leadership of which was the state – was already ideologically open to a statist path before it arrived on Taiwan. But then the breaking of the party from its elite base on the mainland, the inheritance of Japanese businesses and the weakness of local forces of opposition made that path practical. The danger posed by the People’s Republic and the consequent need for rapid heavy industrialisation made it even more attractive. Furthermore, the preservation of state autonomy required the stunting of the growth of the private bourgeoisie. The bourgeoisie on Taiwan was already weak in 1949. Deliberate political choices made by the KMT state were designed to keep it so. The economy which resulted – a massive, state-owned, industrial sector alongside a large number of small and medium private businesses – closely reflected the form of autonomy of the Taiwanese state.

8 Taiwan: on the Edge of the Descent

Introduction Because of its origins in the class structure of another society, the form of autonomy which the KMT state possessed in relation to Taiwanese society was a particularly strong one. Until the 1980s, it was capable of resisting challenges to it which emerged from the newly industrialised society it had created. Even then, the retreat of the state was a partial one. There was no sudden collapse of the regime or imprisonment of its former leaders, no fire-sale of public assets or the near-total removal of state controls. The turn in development policy which began to take place in the 1980s and 1990s was gradual. Even in the late 1990s, the Taiwanese state retained important economic levers which other NICs had abandoned. Those levers, and some of the unintended consequences of its earlier developmental strategy enabled it to withstand several more external shocks – in particular the 1997 fiscal crisis which laid low many of the rapidly growing Southeast and East Asian economies. The ascending phase of this developmentalist state state was a long one; its retreat from developmentalism has been carefully managed. However, since the 1997 crisis, the early signs of a sharp descending phase have become apparent.

The rise of opposition The working class As elsewhere, industrial transformation in Taiwan dramatically changed the class structure of society. By 1980, nearly two-thirds of its workforce were wage and salary earners.1 After taking over the island in 1945, the KMT already had a battery of repressive legislation and considerable 212

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experience in smashing Communist-influenced unions on the mainland. The special law of 1947 – ‘Measures for the Handling of Labor Disputes during the Period of National Mobilization and Suppression of Rebellion’ – was also implemented in Taiwan and remained in effect until the mid1980s. It removed the right to strike and gave the government extensive powers to intervene in disputes. Martial law, in force until 1987, was also employed to prevent independent union organisation and strikes.2 Under it, independent union activists routinely had their phones tapped and movements monitored by secret police, intelligence services and even KMT party branches.3 Ironically, in view of this anti-union stance, Taiwan has, since 1949, had the highest proportion of its workforce in unions of any of the Asian NICs.4 The reason was that the KMT organised its own unions. In 1935, it set up the China Federation of Labor (CFL) as an attempt to undercut Communist unions. All unions were required to be part of the CFL.5 The KMT encouraged its cadres to found unions and to dominate their leadership. As with the Legislative Yuan (LY), all members of the CFL Congress elected on the mainland continued to serve after 1949. In the mid1970s the election of supplementary members to replace those who had died or failed to escape from China was permitted. But surviving members of the CFL retained their seats. Union elections were ‘guided’ by authorities – usually the municipal or county government. Even in 1990, all officials of CFL unions at county level and above were members of the KMT.6 So it is not surprising that, until 1986, strikes were few in number and of short duration. Between 1964 and 1974, just 909 labour disputes – not all of them strikes – were reported.7 Relatively few worker-days were lost in each stoppage; a high of 857 per stoppage between 1966 and 1970, falling to just 75 between 1971 and 1975.8 The most common cause of dispute was the attempt to obtain unpaid allowances or wages. In marked contrast to the development of labour militancy in Mexico and South Korea, these were rarely large-scale actions and were usually quickly settled with little need for government intervention.9 The low level of industrial struggle in Taiwan was not only a product of repression. The most important factor limiting the development of working class militancy was the distinctive feature of Taiwanese industrial expansion – the proliferation of small firms. By 1971, 68% of firms employed fewer than 20 workers.10 By the 1980s, 90% of firms employed fewer than 30 workers. An estimated 80% of the wage workforce were to be found in such small firms. 11

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Moreover, many of these were family-owned and often employed family members before hiring anyone else. Kinship between employer and worker personalised the relationship and slowed down the development of class consciousness. A second important factor having the same effect was the development of substantial, decentralised, rural manufacturing. Unusual for a rapid industrialisation, rural employment grew as rapidly as urban for much of the period of expansion.12 Land reform provided the capital for the establishment of small manufacturing enterprises in the countryside and so many workers kept a foot in the small-farmer class. Even when former farmers or their children moved to the city, they would often move back, sometimes with industrial skills, to use in local manufacturing enterprises. Many more of those who did not return to their villages could still harbour hopes of doing so. A study of small factories in the village of Liu Ts’o, showed that young villagers trained in urban industry often returned to their village and provided labour and skills. In these small factories: the male workers’ expectation of becoming capitalists and free workers with higher income and social status was an important stimulus… The distinction between capitalists and workers in most small-scale in-village factories in Liu Ts’o is not clear cut; …everyone wants to establish his own business.13 Moreover, the sense of injustice at increasing levels of inequality that was present in both Mexico and South Korea, was less pronounced in Taiwan. The very fact that so many small businesses were set up and that manufacturing was dispersed – both spatially and in terms of ownership – lessened inequality during the industrial transformation. Another reason for the limitation of class polarisation in Taiwan was the success – for a long period – of the KMT’s attempt to divide the population along ethnic lines. The division tended to keep Taiwanese and Mainlander workers separate and to cause each to identify with capitalists on their own side of the divide. A few official unions were captured by independent activists and others not aligned with the KMT were set up. By 1988, a total of about 100 small independent unions had appeared.14 The largest ‘captured’ union – the Petroleum Workers Union – had 23,000 members; seven others had between 260 and 3,000 members.15 The number of workdays lost in strikes rose in the three years following the opening, by the government, of a process of limited democratisation in 1986. Worker

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militancy was a small part of the pressure – along with a rapidly tightening labour market – which pushed manufacturing wages up by 60% between 1986 and 1989.16 But at the high point in 1989, there were still only 15,672 worker-days on strike and that dropped to just 23 days in 1991.17 The independent labour movement was, and remains, a minor factor both in industrial relations and in politics. In the movements for democratic change which emerged in the 1980s, it played only a marginal part.

The peasantry and the middle class Although the industrialisation of Taiwan was, in part, based on a government strategy of extracting resources from the farmers, their protests at this course of action were muted, first of all, by land reform. Rural incomes rose and created amongst farmers an attitude of, at least, compliance. Moreover, few farmers came to rely entirely on farming for their living – most turned either to setting up small manufacturing businesses or working in them. In 1956, around 60% of farmers were already farming on a part-time basis only. The proportion of parttimers rose to 69.8% in 1970 as new employment opportunities emerged outside farming and improved technology meant that less labour was required in agriculture. By 1988, only 10.3% of those who worked the land were full-time farmers.18 Moreover, non-agricultural income was more important than agricultural earnings for most farming families by the early 1970s. By 1988, 62.2% of farm household income came from non-agricultural sources.19 The creation of these other sources of income ameliorated the discontent which might otherwise have erupted in the countryside. A serious challenge to the KMT – and indeed to the whole form of industrialisation which took place in Taiwan – was the emergence of an environmental movement. Taipei is one of the most polluted cities in the world. The uncontrolled and unlicensed nature of many manufacturing establishments meant that environmental safety was forgotten.20 In the early 1980s, a few environmental protests began; ten were reported in 1981.21 Then, between 1983 and 1987, 382 environmental protests, many of them violent, took place as people began to question the costs of economic growth.22 Within a short time after the lifting of martial law in 1987, a series of movements attempting to protect the environment were formed: the New Environment Foundation, Taiwan Greenpeace, the Taiwan Environmental Protection Union (TEPU) and the Homemakers’ Union

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Environmental Protection Foundation.23 All were dominated by academics. Since then the movement has broadened – especially in opposition to the building of further nuclear power plants – and become a significant part of the opposition to the KMT.

The challenge to ethnic subordination The dominant position of the KMT state required the continued weakness of local Taiwanese society. Mainlander ethnic supremacy was a crucial part of this equation. Neither the working class created by industrialisation nor the peasantry squeezed by it were able to challenge the state very effectively. Instead a cultural movement which crossed the class boundaries of ethnic Taiwanese emerged to voice the multiple discontents produced by KMT rule. Anticipating more openly political movements, this cultural opposition to the KMT made its first appearance in literature. A trend, known as xiang tu (native literature) appeared in the mid-1970s. It was based on stimulating a sense of loyalty to Taiwan – a challenge to the Sinocentric obsession of the state. Where officially approved literature had concentrated on tales of the mainland and on the elite, xiang tu focussed on the life experiences of the common people of Taiwan. Taiwanese history also began to be written – reflecting the growth in ‘Taiwanese consciousness’.24 Other cultural forms of resistance sprouted. A modern dance company – Yun-men (Cloud Gate) performed work based on Taiwanese legends and history. 25 A rock group – Hei Ming-dai (Blacklist) – established itself by singing only in Taiwanese.26 These ‘nativist’ trends soon began to merge with the rising tide of political dissatisfaction. New magazines and newspapers began to appear written in Taiwanese and Hakka – that alone was enough to establish them as oppositional. A club restricted to authors using Taiwanese languages was established. An important breakthrough came with the change in editorial policy of a major publishing house – tzuli paohsi (The Independence Newspaper Group) – which claimed to take a ‘Taiwanese perspective’.27 The discussion of Taiwanese identity was given a boost by democratic reforms beginning in 1986. In the 1990s, pirate radio stations – usually broadcasting in Fujianese or Hakka – became extremely important in cohering the opposition around the need for further reform and a sense of Taiwanese ethnicity. More than 20 such stations sprang up in 1994 alone. The most radical of them – the Voice of

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Taiwan – regularly had 20,000–30,000 listeners; surveys showed that half a million had tuned in to it.28 Such stations served as meeting places for many disparate elements of the opposition – environmentalists, champions of Taiwanese culture and aspiring opposition politicians. It was still possible for a visitor to Taiwan to write in 1981 that: Pride simply in being Taiwanese is rare, at least in the urban areas where mainlander values are most pervasive… Most Taiwanese… are willing to grant many of the status claims made by mainlanders and to see themselves as participants in a ‘lower’ culture.29 The cultural transformation which took place from the mid-1970s to the early 1990s was so profound that, ten years later, no observer could get this impression.

The movement for democracy The earliest published critique of KMT ideas was drawn up by a Professor of Law at National Taiwan University – Peng Ming-min – and two students in 1964. This ‘Declaration of Taiwanese Self-Salvation’ argued that Taiwan had to think of itself as more than an adjunct of the mainland. All three authors were arrested and imprisoned. Peng fled to the US and continued to develop support for his views amongst Taiwanese students there. Such was the repressive atmosphere in Taiwan that it was not until early 1971 that a further, tentative, argument for reform was made – by a University Magazine group – which called for greater protection of human rights, the rule of law, and improved social welfare. It carefully avoided more direct questions associated with the repression of the regime – such as the issue of political prisoners.30 Later that year, 15 well-known intellectuals, both Mainlanders and Taiwanese, issued a proposal for major democratic reforms in the magazine, The Intellectual.31 Between 1971 and 1977, an opposition group of politicians and candidates for political office began to cohere. At this stage it was not a party – martial law prevented the formation of one. Taiwanese politicians not linked to the KMT had been able to run for office and had done so – especially in local government elections – during the 1950s and 1960s.32 Few were elected to national or provincial posts, largely because of their lack of resources, organisation and the fact that the press always supported the KMT. But the gradual emergence of a sense of Taiwanese

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identity and the accumulation of discontent meant that these electoral oppositionists – known as the tang-wai (people outside the party) – began to attract more support. They were helped by an international factor – the normalisation of relations between Washington and Beijing. Since the KMT’s legitimacy was largely based on the notion that it was the real government of China, the fact that most of the world did not believe it to be so, damaged its domestic prestige.33 At the local elections in 1977, the KMT lost ground to tang-wai candidates.34 In the same year, this loose grouping of oppositionists won 34% of the vote in the elections for the Taiwan Provincial Assembly.35 The growing opposition began to have an effect inside the KMT. One popular figure, Hsu Hsin-liang, left the party and ran as a tang-wai for a local county magistrate’s position in November 1977. Afraid that the KMT would rig the ballot, 10,000 of Hsu’s supporters gathered in the town of Chung-li to object to the paper ballots being used. A riot – since known as the ‘Chung-li incident’ – ensued. It was the first political protest on the streets since the 1940s.36 Emboldened by the support they were receiving, tang-wai began to organise more broadly and openly. In early 1979, they held a series of public lectures and rallies across the island. Late that year, they formed a journal named Formosa (Mei-li Tao). Since the ban on political parties other than the KMT was still in force, the tang-wai opened offices for Formosa which actually served as the headquarters for tang-wai activists.37 The two years between the 1977 elections and the formation of Formosa had sharpened the conflict between the KMT and its opponents. A violent collision between them was inevitable. It came at a rally to mark International Human Rights Day organised by Formosa in Kaohsiung on 10 December 1979. Attacked by the police, the demonstrators fought back; authorities claimed 183 police were injured. The following day, 14 opposition leaders and 100 other supporters of Formosa were arrested. Eight were convicted and sentenced to jail for between 12 years and life. But it was too late for repression to stop the opposition. Since the jailed Kaohsiung defendants couldn’t stand for office, their attorneys and relatives did – and were elected.38 On the death of Chiang Kai-shek in 1975, his son, Prime Minister Chiang Ching-kuo, took over the party leadership and, in 1978, the Presidency – a post to which he was re-elected in 1984. Although the regime replied with repression to the ‘Kaohsiung incident’ of 1979, the election of the relatives and lawyers of the imprisoned made a deep impression on Chiang Ching-kuo.39 He began a slow process of reform and began to promote Taiwanese inside the party and the state.

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Included in the ‘Taiwanisation’ of the party was an agricultural economist trained in the US, Lee Teng-hui, who Chiang Ching-kuo chose as his Vice-President. But the reforms were happening at a snail’s pace. In 1982, some of the tang-wai suggested defying the ban and establishing an opposition party.40 The tang-wai themselves had begun to polarise into moderate and radical factions – with the radicals grouped around the journal The Movement (Xin Chaoliu) promoting mass extra-parliamentary action.41 Encouraged by the people’s power movement in the Philippines and the mass democracy movement in Korea, the radicals won the day; the tang-wai defied the law and set up the Democratic Progressive Party (DPP) on 28 September 1986. Chiang Ching-kuo decided not to prosecute it. With an initial membership of about 70,000 the party was overwhelmingly Taiwanese. The two factions continued inside it; the moderate Formosa Faction (Meilitao hsi) and the more radical New Tide Faction (Hsin ch’aoliu hsi). The formation of the DPP increased the pressure for democratic change. Chiang Ching-kuo began to quicken the pace of reform, releasing six of the eight Kaohsiung prisoners and 23 other political prisoners. Martial law was ended in 1987. His sudden death in January 1988 put an end to the Chiang dynasty – a break with the continuity of KMT politics on the mainland. The end of martial law gave space to the newly emerging forces in Taiwanese society. Between 1986 and mid-1992, the number of registered political parties rose from three to 69, of daily newspapers from 31 to 246 and of magazines from 3,354 to 4,356.42 Only three of the new parties had any real support: the DPP, the Labour Party (Kung tang) which had split from the DPP a year after its formation and the Workers’ Party (Laokung tang). But membership of both the Workers’ Party and the Labour Party was no more than a few thousand each.43 The lifting of martial law also increased the number and militancy of demonstrations around many issues; within a year public protests were occurring at the rate of two per day.44 While the various forces of opposition were undermining the position of the KMT in Taiwanese society, it was also beginning to weaken internally. Through the 1980s and 1990s, the party’s vaunted centralism began to collapse. Some KMT candidates had their own support groups and wanted little to do with headquarters – in part because of the increasing unpopularity of the party. In 1992, the leadership attempted to prevent the nomination of some prominent dissidents as KMT candidates. The move only made the dissidents more popular.

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In the new, more democratic conditions, a party made up largely of Mainlanders had no chance of electoral success. So the KMT attempted to save itself in the 1980s by recruiting more Taiwanese members. By the middle of that decade more than 70% of its membership were Taiwanese. Vice-President, and then with the death of Chiang Chingkuo, President, Lee Teng-hui was Taiwanese. Between 1986 and 1993, the parliamentary bodies became largely Taiwanese. Moreover, the democratic reforms under Chiang Ching-kuo and Lee had created great internal disunity and conflict inside the KMT. During Lee’s Presidency, a ‘main current’ (chu liu) supported the reforms and Lee, while a powerful ‘secondary current’ (fei chu liu) had the support of many influential Mainlanders in the KMT apparatus and throughout the state. The latter included more than a few younger bureaucrats and politicians who believed that their career prospects would be damaged by the Taiwanisation of the state and party. In a sense, the party had the worst of both worlds – it had diluted the strong support it had from Mainlanders while not being able to match the DPP’s ‘Taiwan first’ stance. In December 1994, the DPP won the election for mayor of Taipei – an important post in a Mainlander stronghold. The KMT was becoming weaker – although its vast financial and organisational resources and the popularity of Lee Teng-hui – slowed the decline. With Lee gone, the DPP’s Chen Shui-bian took the presidency from the KMT in the 2000 election.

The bourgeoisie and the state The private bourgeoisie of Taiwan, from 1949 until the 1980s, had few channels to the state apparatus through which it could influence policy. The alien origins of the state and the ethnic divide which the KMT perpetuated kept the bourgeoisie at arms length. State industrial strategy and the ideology of Sunism stunted the expansion of private capital and made political and bureaucratic leaders suspicious of collusion with it. Indeed, some observers have talked of the KMT state’s ‘inherent distrust of capitalists’.45 Even those technocrats, often trained in the US, who supported the development of private capital had to be careful about forging too close a connection with it. Such approaches were viewed as a potentially corrupt relationship and were subject to surveillance by the party and even by state security organs. Even very important bureaucrats such as K.Y. Yin and K.T. Li were censured by the Control Yuan (CY) on several occasions for suspected corruption in their attempts to cultivate new enterprises.46

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The first organised involvement of business in politics did not take place until 1983, with the formation of a caucus in the LY known as the Thirteen Knights (Shisan Taibao). These were KMT legislators with business backgrounds or connections to private business.47 But direct involvement in politics was still a risky course for business people to take. The limits of their influence were such that it was still possible to write in 1988 that: ‘Although its trade associations can approach the government on economic matters, the bourgeoisie has no political organizations at its disposal, and most businessmen do not dare become involved in politics directly’.48 But this situation was changing as a result of several factors. Firstly, the death of Chiang Ching-kuo seemed to begin a break from many of the old KMT traditions, including the exclusion of business.49 Also, the growing Taiwanisation of the KMT and the state, exemplified by the rise of Lee Teng-hui, made it possible to establish a closer relationship between the state and local capital.50 Most importantly, democratisation provided an opening for business to involve itself in politics. With the formation of the DPP and its immediate success in winning a substantial proportion of the votes in elections, KMT candidates had to campaign more seriously. That required money; election campaigns became expensive. Business financial backing was now a necessity for many aspiring and sitting politicians. By the 1990 presidential election, business was much more heavily involved in supporting candidates than ever before. One method by which business pressed its interests was by setting up political ‘research foundations’ for individual politicians – the money from which would be used for general campaigning.51 In the battle between the ‘main current’ and the ‘secondary current’ under Lee’s Presidency, each side was backed by different business groups. The Hualong Conglomerate sponsored the Democracy Foundation on behalf of Guan Zhong, the leader of the ‘secondary current’. Another major conglomerate – the Evergreen Foundation – sponsored President Lee’s Institute for National Policy Research.52 Another indication of the growing influence of business groups over politics was the activity of the Steel Club – a group of private businesses involved in the steel industry. When, in 1988, the government sent a proposal to the LY to reduce tariffs on steel, legislators linked to the Steel Club not only managed to defeat it – but to actually increase the tariff.53 Where once, the private bourgeoisie had very little influence on the state, by the late 1980s some businesses and business groups had extremely privileged access to state power, and constantly meddled on questions of its policy and personnel.

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The economic bureaucracy Between 1949 and the 1980s, the Taiwanese state appears uncommonly cohesive, competent and clear about its developmental objectives. The economic bureaucracy especially, was comprised of many talented and skilled technocrats. How could this be the same state that wallowed in corruption and nepotism on the mainland? Gold has suggested that the most corrupt elements of the KMT did not follow Chiang to Taiwan – believing that he was likely to be pursued and defeated there by the Communist Party.54 This seems only a partial explanation at best. Two other factors are perhaps more important. The first is that the state as a whole on Taiwan, having been cut off from its class base on the mainland, had lost those links to the private wealth that had corrupted it. Both the party and the state on Taiwan had a high degree of internal financial independence – the salaries of state officials could be funded from state-owned businesses and the KMT rapidly built up a huge business empire of its own. By 1992, the KMT itself was the sixth largest guanxiqiye.55 This availability of funds meant that it did not have to rely on private capitalist or landed wealth as, to an extent, it had been forced to on the mainland. Even more important was the sense of permanent siege which enveloped the KMT state in exile. This was a state which had been given a second chance at life – but, in 1949, that life still hung by a thread. In case it needed reminding of its precarious position, the PRC attacked the off-shore island of Tachen in 1954. In 1958, it began a massive bombardment of the island of Quemoy, firing 57,000 shells on the first day.56 The efficiency with which the key political decisionmakers in the KMT regime went about renovating the machinery of state reflects a sense of urgency produced by this obvious danger. The economic bureaucracy was particularly well-qualified. They tended to have high levels of education, often holding degrees from abroad – particularly from the US.57 Unlike the KMT leadership overall, most came from the areas of greatest Western influence in China.58 They were relatively young; in 1952, the average age of the top economic bureaucrats was 38.59 Moreover, because of the urgency which the KMT felt to avoid the problems of inflation and land hunger which had beset them on the mainland, the economic bureaucracies responsible for these areas were given high priority and considerable resources. They were insulated from pressures from other parts of the state – even including the powerful army – and from pressures arising from Taiwanese society. The salaries paid in

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some sections of the economic bureaucracy were as much as five times the normal civil service rate.60 Some key parts of the economic bureaucracy established shortly after 1949 were the Joint (Chinese-US) Commission on Rural Reconstruction (JCRR) – the key body planning and implementing land reform – and the Taiwan Production Board (TPB) – which was responsible for overseeing state enterprises and the disposal of Japanese businesses. The TPB was divided into five divisions – the first of which was responsible for industrial planning. Eventually, an Industrial Development Commission was established as a subsidiary of this first division.61 Another extremely influential bureaucratic body was the Council on US Aid (CUSA), first established on the mainland in 1948. As aid wound down, it was reorganised into the Council on International Economic Co-operation and Development (CIECD) in 1963, reflecting the need to find and deal with new sources of overseas capital. It also played an important part in economic planning.62 Various other bodies were set up from the 1970s. The most significant of these were the Economic Planning Council (EPC), established in 1973, and then an even more potent body – the Financial and Economic Committee (FEC) – set up in 1974 in the wake of the recession and oil crisis. The FEC was an informal but very powerful group including the Minister of Economic Affairs (MOEA), the Minister of Finance, the Chief Comptroller, the Secretary-General of the Executive Yuan (Cabinet) and the governor of the Central Bank – who was the convenor. Its recommendations went directly to the Premier. The FEC and the EPC were later merged into a super-ministry – the Economic Planning and Development Council (EPDC) – headed by the governor of the Central Bank of China.63 Another body which had a mandate to make development plans for the private sector was the Industrial Development Bureau (IDB) under the MOEA. The structure was complex but two generalisations about it can be made. The first is that all of these bodies developed policy and then reported upwards to a higher level of the state. None of them included institutions which sought the advice or interests of private business. Indeed, no private business interests were represented anywhere within this entire structure. Secondly, reflecting the priorities of the regime, the bodies associated with the implementation of macroeconomic policy, land reform and the dispersal of aid were the most powerful inside the bureaucracy as a whole. The JCRR and CUSA both had very strong political backing. Because of the regime’s obsession with controlling inflation, the Central Bank of China was also extremely

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powerful. The governor of the Central Bank of China also ran the EPDC and, until 1979, was directly appointed for a five-year term with no limit on renewal. He was responsible only to the President – not to the LY, the Cabinet, the Premier or to the Ministry of Finance. Indeed he was a member of cabinet.64 In contrast to these immensely strong arms of the state concerned with macroeconomic policy, the planning elements of the bureaucracy – especially in the CIECD – had far less power. The CIECD acted more like a coordinating body than a super-planning body such as Korea’s Economic Planning Board (EPB). Other bodies – such as the IDB – also played a part – fragmenting the whole planning process.65 The weaker position of the planning technocrats in the economic apparatus reflects the low priority given by the state to private industry and the suspicion with which it was viewed. Because of this relatively weaker position the planning bureaucracies were not capable of establishing long-term links with private business. Instead the state relied primarily on its direct ownership of large sections of the industrial structure and on strategically placed upstream industries to force the pace of development. The aloofness of the planning elements of the bureaucracy and their relatively weak position inside it meant that the pressure from private enterprise for market-oriented reforms was not reflected as strongly inside the Taiwanese state as it was in the Mexican and Korean periods of transition. Certainly, there were divisions in the bureaucracy from an early stage. One group – dubbed the ‘conservatives’ – wanted an even greater reliance on state-owned industry and a more closed economy. They had the support of some of the political leadership – especially those who gave priority to recapturing the mainland – and of some of the military and the managers of stateowned enterprises. Another current – known as the ‘developmentalists’ believed in directing and encouraging private investment in key areas – such as textiles in the early period of development.66 They had championed the limited reforms of 1958–61. Their most prominent political supporter was Chen Cheng himself. The key planning technocrats of this group were K.Y. Yin and K.T. Li who each held a number of important posts. But while these technocrats were in favour of the development of the private sector they were not supporters of laissez-faire. They wanted a careful selection of those private and state industries which, they believed, would best develop Taiwan rapidly. To do this, they believed, would require state intervention – including protection from imports, state allocation of

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credit and other resources. Nor did they wish to see an end to the large state industrial sector.67 ‘Developmentalists’ they certainly were. ‘Economic liberals’ they were not. The changes of 1958–61 reflected an internal bureaucratic battle over how to resolve the problems of market saturation and lack of foreign exchange. The export orientation which followed was the culmination of this battle – not a product of private capitalist pressure. Not until the 1980s did the pressure begin to build on the KMT state to step back from its dirigiste approach. When they did appear, these pressures had the most obvious effect at the level of the political, rather than the bureaucratic apparatus.

The retreat from developmentalism Beginning in the late 1980s, the state began to divest itself of some of the controls which it established after 1949. It did so slowly and hesitantly. The retreat from developmentalism was still incomplete at the time of the 1997 financial crisis which swept much of Asia. What has been described here as the transitional period between the ascending and descending phases of the developmentalist state was, at that time, not yet concluded. Since then, however, the autonomy of the state has been further eroded. Consequently, its ability to manage future economic and political shocks has been much weakened. The retreat from developmentalism in Taiwan came late compared to the other NICs. The conscious promotion of strategic industries continued throughout the 1980s. Even near the end of that decade, the Council for Economic Planning and Development (CEPD) began a Six Year Plan – the National Development Plan – which targeted ten industries for priority development: telecommunications, information, consumer electronics, semiconductors, precision machinery and automation, aerospace, advanced materials, certain chemicals and pharmaceutical products, medical technology and pollution control.68 However, while public expenditure was actually increased in this Six Year Plan, there was growing opposition to it based on the argument that these public expenditures would ‘crowd out’ private investment.69 Eventually, it was cut back significantly. The first clear signs of a major turn away from statist methods came with the 1989 decision to privatise three state-owned banks and to lift the ban on private banks. The Banking Law of that year also lifted ceiling and floor limits on interest rates for deposits and loans.70 One of the results of the deregulation was an increase in property and stock

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market speculation which led to several corrective crashes. In 1989, Taiwan’s stock market had the second largest turnover of any – after New York but ahead of Tokyo and London. An estimated quarter of the population were playing the market.71 Moreover, although in the past, the government had talked free trade but quietly pursued statist development, now it began genuine liberalising reforms. In response to the US Trade Act of 1988, Taiwan cut subsidies and tariffs. Whereas the average nominal tariff rate was over 40% for most of the period of Taiwan’s development, in 1992, after the tariff reduction plan had been implemented, it was just 4.2%, a level comparable to developed countries. Many other non-tariff barriers were also lifted.72 Why did the state make these changes to a formula for development which had been so singularly successful to that point? There were several ways in which the pressure of various classes – especially of the Taiwanese bourgeoisie – had gradually transformed the state in the 1980s and 1990s. Firstly, the opening up of the political and electoral processes broke down strict KMT control. Since elected officials could succeed without the party’s resources, they began to gain their own autonomy from it. But, just as they won freedom from the KMT apparatus, they lost it to the wealthy backers they needed instead. The erosion of the ethnic divide inside the KMT also made much closer links between private wealth and political power possible. By the 1990s, private capital had colonised the KMT. As Kau put it in 1996: ‘In recent years, big business groups [are found] behind every elected official or representative…’.73 Many of these groups wanted privatisation of public companies with which they competed or in order to buy up state assets cheaply. The entry of private wealth into the KMT broke down much of its internal discipline. At a constitutional level this was already expressed in the 1988 Party Charter, which dropped the term ‘democratic centralism’ for the first time. The Charter continued to call the party ‘revolutionary’, however Lee Teng-hui explained that this was only in remembrance of its revolutionary past.74 At its 1993 Congress, the term ‘revolutionary’ went as well. This was only an expression of the fact that the KMT centre could no longer exercise the authority it once had over its members; the party had become Balkanised. By the mid-1990s, its LY members were divided between more than a dozen factions representing different interest groups.75 At a local level the factions and sub-factions were even more numerous. Under these conditions, a focussed developmentalist strategy became impossible.

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The second reason for the reduced abilities of the state is related to the increasing internationalisation of Taiwanese capital. A labour shortage was already emerging in the manufacturing sector in the late 1970s. By the mid-1980s, it was severe enough to put serious upward pressure on labour costs.76 Then the small wave of strikes in 1988 and 1989 consolidated wage rises and entrenched other benefits for workers. By 1989, the average textile wage in Taiwan was five times that which prevailed in Thailand, ten times that of China and 13 times the level of Sri Lanka.77 Also, increasing environmental protests discouraged some polluting industries from further investment. The liberalisation of finance made the outflow of investment easier. The result was that many Taiwanese firms relocated to Southeast Asia and China. Between 1987 and 1992, Taiwanese investment in China increased from 80 (pledged) cases to more than 10,000. Total Taiwanese investment in China in that period rose from US$100 million to US$9 billion. 78 By this time, Taiwan had overtaken Japan as the second-largest source of FDI in China (after Hong Kong). The PRC authorities put the figure for Taiwanese investment in 1996 at US$24.3 billion.79 Liberalisation had aided the flow of Taiwanese capital from the island. Once relocated, Taiwanese capitalists were less likely to accept government direction – and therefore reinforced the trend away from state control. One indication of this was the mixed success of attempts by the KMT to restrict very large investments overseas – especially in China. It worried that Taiwanese industry would become ‘hollowed out’ as a result and that too much exposure of Taiwanese business to the mainland would give the PRC authorities a lever to use against it. The KMT government in the 1990s opposed very large investments such as the US$7 billion petrochemical complex proposed by Formosa Plastics, first for Fujian and then for a Yangtse River site.80 The government won that battle in 1991 – forcing the conglomerate to cancel its plans. But Formosa Plastics, once very nearly a creation of the Taiwanese state, would not accept direction from it forever. It then decided to spend US$5 billion on a petrochemical zone in Ningbo in Chekiang, China.81 The warnings which the government gave Taiwanese business against investment in high-technology industries on the mainland have also increasingly fallen on deaf ears. In November 2000, the Taiwanese Company, Grace Semiconductor Manufacturing Corporation (GSMC), began its partnership in a US$1.6 billion fabrication plant in Shanghai.82

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1997: a crisis postponed? While most other economies in Asia – including Korea – struck major problems as a result of the 1997 currency crisis, Taiwan was relatively slightly affected. The New Taiwan dollar fell – but only by a total of 20% during the year. Growth remained steady at 6% and inflation at about 1%.83 Taiwan was immediately praised as a model of an efficient economy with a conservative and well-managed banking sector, whose numerous ‘guerrilla’ capitalists were able to adapt quickly to changes in market conditions.84 There is, however, another interpretation possible. One reason why Taiwan was not as vulnerable to the 1997 crisis as Korea and other Asian economies was that the retreat from its earlier developmentalist approach was not yet complete in 1997. As in the other Midas states, the period of transition between ascending and descending phases involved a number of oscillations in policy rather than a wholesale dismantling of the earlier approach. One example of this oscillation was the fate of the six-year National Development Plan mentioned above. Originally the plan had a vast budget of US$310 billion. By 1993, that had been cut by 40% and a third of all of its projects axed.85 The privatisation program was also erratic. While the policy of privatising most of the then 122 state-owned firms was formulated in 1989, only 22 of these were actually selected for privatisation. By mid-1997, when the financial crisis hit, just six had actually become private firms.86 Another reason why Taiwan was able to weather the 1997 storm was that the legacy of state developmentalism was still to be found in the ledger books of business. Elsewhere in Asia, private companies had been allowed to expand by taking out huge loans. As mentioned earlier, the top 30 Korean chaebol had an average debt-equity ratio of 450% by late 1997. Taiwan’s large companies had much smaller debtequity ratios. China Steel, for example, had a debt-equity ratio of less than 50%. In contrast, the ratio for Korea’s steel-maker – POSCO – was five times that level.87 High debt-equity ratios affected Thailand, Indonesia and elsewhere. Many of these loans in East and Southeast Asia were taken out from foreign banks. And those local banks which were exposed found that a high proportion of their loans were non-performing by 1997. In Taiwan this was not the case. At the start of the 1997 crisis, nonperforming loans represented less than 1.5% of total bank assets in Taiwan – a very controllable level. The same ratio in Thailand was

Taiwan: on the Edge of the Descent 229

30%. Even as non-performing loans accumulated in Taiwan as the crisis dragged on, it never rose above 7.5% – less than half the level of Japan and less than anywhere else in Asia.88 The result of low debtequity levels and a low rate of non-performing loans was that private industrial firms and banks could absorb the shock of the 1997 crisis with only slightly reduced growth. Large-scale bankruptcies were avoided. The success in pulling through the 1997 crisis even led to a temporary revival of the popularity of the KMT. It succeeded in winning back the cherished mayoralty of Taipei.89 The reason that private companies and banks found themselves in this enviable position has less to do with their own good management than with the earlier state controls which had prevented them from expanding on the basis of debt. As The Economist was forced to admit: For anything but the biggest companies… bank loans were simply unavailable. Instead, smaller firms turned to friends and family, and to the so-called ‘kerb market’… the price was steep (often three times the official interest rate, which was itself higher than the regional average), so companies borrowed as little as they could and paid it back quickly. The legacy of this credit shortage is that Taiwan’s firms have one of the lowest debt-to-equity ratios in Asia.90 Ironically, the reason for these limitations was the fear of the KMT that the development of a large private bourgeoisie would limit its autonomy. In restraining the expansion of the bourgeoisie it unwittingly helped it to survive better than many of its competitors in the region. However, the legacy of developmentalism cannot last forever, especially since the state continued to shed its controls over economic activity. By 1999, 25 private banks had been established. In marked contrast to the state banks, many lent for property and stock market speculation. Massive oversupply in residential property resulted. As a result of the boom in lending for property speculation, Taiwan, which has one of the highest rates of home ownership in Asia, soon had nearly 1 million unsold homes.91 Between 1997 and 1999, the volume of stocks purchased on margin tripled. Many of the buyers were companies who had taken out loans to rescue their balance sheets through stock speculation.92 Inevitably, property and stock prices began to fall, causing a wave of bankruptcies in late 1998 and creating the early stages of a banking crisis – even though overall economic growth still seemed

230 The Politics of Developmentalism

healthy at 5% in that year. 93 But much of that growth was now being bought with borrowed money. Taiwan had become a much more highly leveraged economy – private debt as a share of GDP was about 180% by 1999. 94 Thirty large and highly leveraged private companies came close to bankruptcy largely as a result of their interests in property and stocks. Since some had close political connections to the KMT and in order to avoid a general collapse, the government decided to rescue them by pressuring banks to roll over their loans. 95 It took over two banks itself. As the difficulties of the major companies increased in 1999 and 2000, some have tried to stave off collapse by buying into or starting banks themselves. This was exactly the practice that made the financial structure of several other Asian economies much weaker in the lead-up to the crisis of 1997.96 Meanwhile, although the privatisation program has not taken place as rapidly as neo-liberals might have wanted, it has continued.97 The ‘commanding heights’ are being surrendered to a private industrial structure which is itself already shaky. Nevertheless, the Taiwanese economy under Chen has performed reasonably well. However, it seems that by giving up many of its controls, this Midas state has now entered its descending phase. If that is so, then it is unlikely to withstand external shocks of the future as well as it has in the past. The exact source of these shocks is, of course, impossible to predict. However there are two obvious forms which they may take. The first is a deep recession in the West – particularly in the US economy on which Taiwan is so reliant for markets. With its extreme export reliance, Taiwan is enormously vulnerable either to a slowdown or to a rise in protectionism in the US. A second possible shock is an increase in tension across the Taiwan Straits. It may be that big business responds to such tensions by fleeing Taiwan. The state no longer has the range of controls it once had to prevent business from doing so, nor has it the ability to offer sufficient inducements to persuade it to stay. In the first half of the 1970s, the Taiwanese state responded to very serious problems in its international position, including de-recognition by most countries, and to a world recession, with vigour. It managed these joint crises and continued very rapid growth. It successfully dealt with economic problems in the early 1980s and survived the 1997 crisis. It now appears that the Taiwanese state will not be able to respond to external shocks adequately in the future. If that is so, then the Taiwanese economic ‘miracle’ is over.

9 The Rise and Fall of the Midas States

The tilted playing field The gap between the advanced capitalist societies and those in which most of the world’s population live continues to widen. Of course, many millions of poor people live in the richest countries. But one is much more likely to be poor in some countries rather than others. The gap in income between the fifth of the world’s population living in the richest countries and the fifth living in the poorest was 11 to one in 1913, 30 to one in 1960, 60 to one in 1990 and 74 to one in 1997.1 The world market simply does not deal kindly with underdeveloped countries. The industrial transformations of Mexico, South Korea and Taiwan are incomplete. Although the first two of these were admitted to the OECD in the 1990s, all three are still the poor relations of the advanced capitalist countries. However, compared to most underdeveloped countries, they have indeed undergone massive industrial growth – a fact which makes them unusual in the Third World. In any attempt to understand how these transformations took place, the neo-liberal position has little to offer. It can hardly ignore the very high levels of state intervention in all three NICs – some aspects of which have been outlined in this book. Therefore, its proponents resort to extremely convoluted logic to claim the NIC phenomenon – especially in East Asia – as a vindication of the market. Leroy Jones is typical of this position. Responding to Alice Amsden’s suggestion that the Korean state consciously ‘got prices wrong’, he writes: ‘I would argue that what the government often did was to get prices right where the imperfectly developed market mechanism got them wrong’.2 In this argument, state intervention to alter the market mechanism becomes a triumph – of the market! 231

232 The Politics of Developmentalism

From the point of view of many people in underdeveloped countries and of the poor in the advanced economies, the greatest imperfection of the market is precisely that it works to reward those with an already dominant position in it – the most developed countries, the rich, the powerful, the buyers of labour power rather than its sellers. It is clear that the difficulties which late developing capitals face in breaking through in this tilted playing field of world competition can only be overcome – as Gerschenkron suggested in relation to nineteenth century industrialisation – by special, non-market devices. By the late nineteenth century, the state was the most important of these. The neo-statist theorists have correctly shown that the same was the case with the NICs in the twentieth century. The cases dealt with in this study have pointed to peculiarities in the nature of state power and its connections to the broader society. In each, groups controlling the state enjoyed considerable autonomy from the social classes of their countries for a time. That autonomy allowed each of them to pursue ruthless strategies of industrialisation. Autonomy enabled them to overcome the objections of pre-capitalist landlords, comprador capitalists, workers and peasants. These developmentalist state elites should not be treated as the heroes of the story. They were undemocratic, repressive and, to varying degrees, brutal. But their ability to ride roughshod over the wishes of all classes when necessary meant that they could focus resources on industrialisation and yet survive in control of the state. That was, and still is, a rare ability in the underdeveloped world.

Origins and forms of state autonomy Not all forms of autonomy are the same. On the contrary, each of the Midas states developed a specific autonomy in the sense that the configuration of social classes surrounding the state and the state’s relationship to each was unique. This study has identified three distinct forms of state autonomy. Pre-emptive mobilisation underpinned state autonomy in Mexico, the devastation of the power of all classes was central to it in Korea, the migration of the entire state from the mainland was the key in Taiwan. None of these types of state autonomy, of course, exist in a pure form. Both the Korean and the Taiwanese states, for example, developed or attempted to develop mass organisations designed to co-opt sections of the population. The Korean saemaul was one such attempt, the ‘Taiwanisation’ of the KMT was another. But neither of these were

The Rise and Fall of the Midas States 233

as important to the stability of the state as the PRI and its mass organisations in Mexico. Similarly, the devastation which the 2–28 incident – and even more the Mexican Revolution – inflicted on major social classes, weakening them in relation to the state, suggests similarities with the Korean situation. But, again, the degree of destruction of the power both of elite and subaltern classes in Korea was far greater than in the other two. In Korea, the complete inability of any class to bend the state to its will or block its initiatives through most of the industrialisation process left the state in a virtually impregnable position. It was indeed a case in which ‘all classes, equally impotent and equally mute, fall on their knees before the rifle butt’.3 State autonomy in all three cases has important common features. One is some form of cataclysmic disruption of the ruling class of the old society. In Mexico, it was a popular revolution led by the peasantry which destroyed the political, and to some extent, the social, power of the large land-owning class and the urban bourgeoisie. In Korea, colonialism, insurrection, war and land reform did the same. In Taiwan, colonialism, massacre, ethnic subjugation and land reform had this effect as well. Marx noted that, in Louis Bonaparte’s France, the force of the revolution of 1848 undercut the political power of the bourgeoisie for a time. In the three Midas situations examined here, the destruction of bourgeois and landowner political power was even greater and, therefore, so too was the state’s degree of autonomy. A second similarity is that, in each case, the state was reconstructed on a new basis; its leading personnel had few organic links to the capitalist or other elite classes. Yet they were committed to rapid capital accumulation because their survival in control of the state required it. In all three states, these groupings needed rapid economic growth to forestall future domestic challenges. Lacking a solid class base of their own, their hold on power depended on the efficiency with which they used it. In addition, in two of them – South Korea and Taiwan – the threats to their positions were also external military ones. Like Bismarck, Ito and, to a lesser extent, Nicolas II, Park and Chiang understood the importance of industrial development to military power. At some point in their existence, those in control of all three Midas states derived from the army and relied heavily on it to retain state power – as did Bonaparte and Ito for a time. However, only in South Korea did the army continue as a central part of the state elite. In Mexico and Taiwan, the military was soon pushed to the margins of politics or out of it altogether.

234 The Politics of Developmentalism

The division between sections of the ruling class that Marx refers to as central to the power of Bonaparte was not crucial to the autonomy of any of the Midas states – although such a division did develop in the private bourgeoisies of Mexico and Taiwan. The Mexican bourgeoisie was divided, to an extent, on the basis of varying degrees of dependence on the state. Taiwanese capitalists were segregated on the basis of ethnicity. But these divisions were largely a product of the industrial strategies adopted by the state in each case, rather than a cause of its autonomy in the way that the great pre-existing split between Orléanists and Bourbons was for Bonaparte’s state. A further similarity between all of the Midas states and the France of Louis Bonaparte is that the size and social weight of the state machine made it a force to be reckoned with. The Mexican state was first swollen by the revolution. South Korea and Taiwan developed huge state machines because of the wars which each fought. Moreover, the little island of Taiwan had imposed on it a state which was constructed in and for a much larger society. For one reason or another, the subaltern classes were also incapable of taking state power in the crucial periods of the development of the Midas states. To some degree each state relied on the support, or at least the indifference, of the peasantry. Land reform in all three not only further weakened the large landowners, it won some peasant support for the states which carried it out. Peasant revolution was crucial in Mexico in destroying landowner power and the Porfirian regime – both prerequisites for the PRI’s eventual domination over society. From time to time thereafter, the PRI – especially under Cárdenas and Echeverría – felt the need to shore up peasant support by distributing more land – although with varying degrees of resolve. In South Korea and Taiwan, land reform came from above. Although peasant support was less important to these regimes than it was in Mexico, the reforms did have the effect of keeping the peasants relatively quiet as the state shifted resources from them to industry. In all three cases, Marx’s generally uncomplimentary assessment of the ability of the peasantry to take state power themselves seems justified. This is most clearly the case in Mexico, when, having conquered the country, the peasant leaders did not know what to do with it. On the other hand, the proletariat – which Marx certainly thought was capable of taking power – also failed to do so for various reasons. In all three cases, it was small relative to other classes in the crucial periods when the Midas states were formed – reflecting the fact that these were then primarily non-industrial economies. Nevertheless, in

The Rise and Fall of the Midas States 235

two of the three examples, the working class did foreshadow the possibility of its own power – in Mexico in 1915 and 1916 and in Korea in 1945 and 1946. In the former, the failure was one of politics – the decision of the workers’ main leaders to ally with Carranza and Obregón rather than with the peasantry. In the latter, whatever the politics involved, the working class was simply massively outgunned by the combined forces of the US military and the Korean right. The state in capitalist society always offers its ability to control the working class as an inducement for the bourgeoisie to support it. In situations of ‘exceptional’ state autonomy this can be an important basis for the survival of that form of state. The threat of working class disorder – a repeat of the ‘June Days’ in Paris – helped maintain bourgeois toleration of Bonaparte. His mild tack to the left, like Bismarck’s flirtation with Lassalle, was, in part, designed to remind capitalists of the dangers they faced should they try to take power themselves. In Mexico, the PRI went much further than Bonaparte or Bismarck, openly threatening the bourgeoisie with mobilisations of workers and peasants – although always being careful to keep them on a short leash. In Taiwan and South Korea, the form of dominance of the state was such that there was no need to threaten the bourgeoisie with the power of other classes. Thus this element of Bonapartist autonomy is absent in these two cases.

Forms of state autonomy and development policy The nature of state autonomy in the Midas states, as in the nineteenth century examples described by Marx, is such that it cannot be grasped in quantitative terms alone. Since the configuration of classes is different in each case, we must think in terms of varied forms of state autonomy – varieties whose description and categorisation is based on the relationships between different classes and between each of them and the state. Why is this notion – of qualitatively different forms of state autonomy – useful? In the first place, the examination of these three cases suggests that the form of state autonomy which exists in each is closely related to the policy which each state uses – the developmental model it follows in its industrialisation drive. The autonomy of the Taiwanese émigré state was based on its origins in China proper and on the ethnic divide it perpetuated between Taiwanese and Mainlanders. Three crucial policy directions followed: land reform; the construction of a large state enterprise sector controlled by Mainlanders; and the attempt to keep the, mostly Taiwanese,

236 The Politics of Developmentalism

private capitalist sector small and weak. State industries provided a privileged place for many Mainlanders. State control of these key industries enabled the planners to determine how the economy developed overall. Detailed planning of private industry by the state was limited. Although the state controlled finance, it seldom used it to promote the growth of private capital. South Korean state autonomy was based on the extremely destructive period for all social classes between 1945 and 1953. As a result of this devastation, land reform was easy to carry out. Then, the state under Park was so sure of its dominance after 1961 that it could allow the private bourgeoisie to retain legal ownership of the commanding heights of industry and even encourage the concentration of vast blocks of capital in a few hands. It could afford to do so because, despite the great size of the chaebol, the state still had the power to rigorously plan and direct their investments and to keep them on a drip feed of finance. Private ownership of industry in Korea was a sign of the state’s strength relative to the bourgeoisie rather than its weakness. Mexican state autonomy, emerging as it did from a mass revolution, also made land reform likely. The continuation of its autonomy required the maintenance of bureaucratic mass organisations which could be used to deter attempts by the bourgeoisie to take their state back. This meant that the private bourgeoisie was allowed to develop within certain limits determined by the state. But they remained a threatening and alien force to the PRI and could not be trusted to control the commanding heights of the economy. Thus the state reserved a significant number of industries for itself. In addition, those at the top of the PRI and its huge apparatus of mass organisations had to be rewarded. State-owned industries provided money and jobs for this loyal bureaucracy. In summary, the developmental model for Taiwan was state ownership of the commanding heights including finance, alongside smallerscale private industry. For Korea, it was highly concentrated private industry under strict state control through planning and selective provision of state finance. In Mexico, it was a mixture of state and private business, with the private sector ultimately kept under a degree of control by mass organisations whose leaderships were welded into the structure of state power. Each of these models is a direct consequence of the form of autonomy which the state possessed. (See Figure 9.1) An approach such as this shifts the debate on economic development in the NICs away from a concentration on policy questions. Currently, much of the literature has been produced by the adherents

The Rise and Fall of the Midas States 237

Country

Mexico

South Korea

Taiwan

Basis of State autonomy

Pre-emptive mobilisation

Devastation

Migration

Developmental model

Mixture of stateowned and private business

Private business

State-ownership of large industry. Policies designed to restrict growth of private business

Some planning of private business

High-level of planning of private business

Very limited planning of private business

State control of finance

State control of finance

State control of finance

Mass organisations closely aligned with the state Figure 9.1

Ethnic separation of state and private business

Forms of state autonomy and developmental models

of various policy settings attempting to find positive or negative verification of them in the development of the NICs. This tends to present the problem as a purely technical one of getting the policy mix right. A corollary of this approach is that those in the Third World who have not had their economic ‘miracles’, have failed because of their own short-sightedness, stupidity or stubborn refusal to adopt the correct policy – and thus have only themselves to blame for their poverty. The research approach adopted here suggests, on the contrary, that, within a world capitalist system, the ability of the state to carry out a determined, focussed policy – one which often tramples on the immediate wishes and interests of all classes – is central. The circumstances of ‘exceptional’ state autonomy which allow this are relatively rare – but so too are the ‘miracles’. Furthermore, the strategies which such states have adopted owe more to their form of autonomy than to any dispassionate evaluation and selection of policies. Thus, the approach suggested in this study creates a bridge between the historical trajectory of the NICs and the policies they have followed.

Bringing class back in A second element of this approach is that it makes class analysis central to an understanding of NIC development. Marx’s brilliant study of Bonapartism contributed a great deal to the study of

238 The Politics of Developmentalism

relationships between classes and the capitalist state in general. But, although a number of theorists have referred to the NICs as Bonapartist, there has been no systematic use of the various elements which Marx identified in Bonapartism in the analysis of developmentalist states.4 As this study has suggested, a closer examination of these elements may be a starting point for such a study. This is not to say that all possible forms of state autonomy have already been discovered by Marx. On the contrary, each form of Bonapartist autonomy is historically specific. But such an approach may allow development theory to be more fully based on a class analysis. What is involved in this is not just ‘bringing the state back in’ to our understanding of development, but ‘bringing class back in to an understanding of the developmentalist state’.

Controlling the gate to the world system None of the NICs nor any of the nineteenth century developing economies industrialised in isolation from the world economy. But, for a time at least, the Midas states were able to act as quite strict gatekeepers between the domestic and international systems. The capitalists and the states of the advanced countries were much more powerful than the Midas states. But, the almost unassailable position of the latter at home allowed them to negotiate with the foreigners – not on an equal basis, but on far better terms than most weak regimes of the developing world were able to do. With a mixture of exchange, import and investment controls they put limits on foreign capital yet still operated within the international system. This is not new to the recent NICs; the Meiji rulers used their commanding position in Japanese society to import the technologies and institutions of the West, and to export what they could to Western markets, while closely vetting the operations of foreign capitalists in Japan itself.

The ‘dissipating alchemy’ of the Midas states It seems that every new economic ‘miracle’ produces a bevy of admirers who extrapolate this development and confidently predict the emergence of a new US or Japan. Most optimistic predictions of this kind have been tempered by the crisis of 1997, just as the earlier enthusiasm for Latin American development was brought back to earth in 1982. The particular causes of economic collapse or the weakening of each of the NIC ‘miracles’ vary. But there are some features in

The Rise and Fall of the Midas States 239

common. Each has had a period of rapid growth in which the state has played a major part, followed by a retreat of the state from a developmentalist approach and either a serious crisis or, at least, an end to spectacular growth. Taiwan, the strongest of the three, is likely to encounter much great difficulties in the near future. This is not to rule out significant periods of economic growth after the full-scale retreat and decline of the developmentalist state. All three cases studies have had such periods. But high-level growth and solid capital accumulation over several decades is much less likely. And the state’s role in that growth is vastly reduced. These are developmentalist states no more. An explanation must be found for the ‘dissipating alchemy’ of the Midas states, for why, in the terminology employed in this work, an ‘ascending’ phase turns into a ‘descending’ one.5 As has been suggested in each of these case studies, at least part of the explanation is that the social classes which were once weak in relation to the state become stronger, ironically, as a result of the state’s success in industrial development. However, which class presents the greatest threat to the old state and how classes ally or fail to do so, varies from case to case. Also, each newly strengthened class makes different demands on the state. In Mexico and South Korea, the working class played a central part in the erosion of the state’s autonomy. In the South Korean case, near insurrectionary strikes drew broad forces of opposition to the government behind them. The potential that a revolutionary situation might develop cracked the unity of the state elite twice: in 1979 in the events leading to the assassination of Park, and again in 1987 in the upheavals that led to the ‘democracy declaration’ of that year. In Mexico, because the PRI state was so heavily reliant on controlling mass mobilisation, workers’ struggles which it could not control, especially between 1968 and 1976, struck directly at its heart. Land invasions and other protests by the peasantry also undermined it. Various middle class forces – particularly students, whose numbers were massively increased by the needs of these industrialising economies – also played an important part in the transformations. At times, such as at Tlatelolco and Kwangju, their activism sparked major confrontations with the state. In Korea they also helped to build the labour movement in its early stages. In each of these examples, the bourgeoisie did not openly defy the regime until later and then it did so with less conviction than did the workers. In neither case did private capital want to risk political and economic disorder. Eventually, however, the bourgeoisie found many

240 The Politics of Developmentalism

supporters within the political and bureaucratic arms of the state apparatus. As the old developmentalist elites which had led the ‘miracles’ were removed, politicians and bureaucrats closely aligned with private capital easily slipped into their positions. In Taiwan, largely because of the smaller scale of industry and the rural location of much of it, the working class has been much weaker. Labour struggles against the KMT played a part – but only a subordinate one – in the general movement of opposition to its rule. This is one of the reasons why the retreat from developmentalism was less hurried and less total than in the other two cases. Since the autonomy of the KMT state had an important ethnic element, the eventual challenge to it had a cross-class dimension; coming from various quarters of Taiwanese society without being as clearly marked by separate class interests. Big business infiltrated the political apparatus of the KMT itself while many ethnic Taiwanese small capitalists, workers and middle class people joined the DPP. Yet here too, the state has now lost most of the abilities which once enabled it to lead the industrialisation of the island. One aspect of the changing degree of autonomy which these states possessed was that the growing power of the bourgeoisie was reflected within the state itself – either in the state bureaucracy or in the political party which governed the state – or both. More and more of the personnel within the state championed the interests of the private bourgeoisie and argued that it should be allowed to follow its own, rather than the state’s will. These increasingly influential sections of neo-liberals constituted a fifth column within the Midas states. The transition between ascending and descending phases is far from smooth. The older developmentalist elements within the state cling to power and, pressured by demands on all sides, desperately try to find solutions. The wild swings in policy that have been identified in Mexico between 1970 and 1982 and in Korea in the 1980s are the result. The Taiwanese state exhibited less erratic behaviour than this in the late 1980s and 1990s because the pressures on it were less contradictory – the working class was not as powerful as in the other cases – thus the major external pressures were all moving it in similar directions – towards the interests of the private, Taiwanese bourgeoisie. But even here, battles over questions such as privatisation of state enterprises and the freedom of Taiwanese business to invest in the mainland have produced serious inconsistencies. However, from whichever class the challenges to the state have come, they have all ended with the installation of regimes much more

The Rise and Fall of the Midas States 241

clearly aligned with and controlled by the private bourgeoisie. There are several reasons for this. The first is that mass political parties consciously aiming for workers’ power have not emerged in either of the cases – Mexico and South Korea – where the working class has been strongest. Secondly, the task of transforming the Midas states and bending them to its needs is much simpler for the bourgeoisie than for the working class. These state machines, although not substantially under the control of the capitalist class, were nevertheless dedicated to the accumulation of capital through the exploitation of labour. The differences between them and the private bourgeoisie were differences between fellow exploiters. The differences they had with workers were far more fundamental. This is also the reason why the pressure of a growing and more powerful working class is felt as an external threat only and is not reflected inside the state. No pro-working class group of bureaucrats or politicians emerges in the old structures of party or bureaucratic power in the way that a pro-bourgeois one does. The much greater power of the private bourgeoisie in the descent of the Midas states spelt the death knell for many of the statist policies which the bourgeoisie believed hampered them. The neo-liberal approaches adopted gave them greater freedom. This freedom involves privatisation of state enterprises, the dismantling of industrial planning and of many controls on the movement of capital and commodities. The state then allows domestic capital to operate on the basis of profit maximisation rather than long-term capital accumulation. Two of the more obvious signs of this are an increase in debt – especially to foreign suppliers of finance – and an increase in the extent to which investments have a speculative quality, with more resources being sunk in real estate and the stock market. These were common elements in the crises in Mexico in 1982 and in South Korea in 1997. Interestingly the form of debt in South Korea was different to that in Mexico. In the former, the chaebol, no longer under state discipline, took out foreign loans – often for speculative purposes. Private capitalists did the same in Mexico, but in this case state debt was a much greater problem. This debt grew as a result of desperate attempts by the López Portillo and Echeverría administrations to retain control and maintain social stability by large-scale borrowing. Thus, the two types of debt problems reflect elements of the distinct earlier forms of state autonomy. Both increased speculative activity and growing foreign debt are now present in Taiwan as well. So there is an internal logic to developmentalist states in which a pattern of rise and decline can be identified. The three phases of this

242 The Politics of Developmentalism

model of the developmentalist state – ascending, transitional and descending – cannot, of course, be dated with absolute precision. However, there appear to be clear turning points between these phases in each of the case studies. In Mexico, the state began its ascending phase with the Presidency of Lázaro Cárdenas between 1934 and 1940 and ended it with the massacre at Tlatelolco in 1968 and the beginning of the Echeverría administration in 1970. From around this time, the state faced greatly increased opposition. Its transitional phase, in which the state attempted to satisfy the demands of various classes but only succeeded in making its situation even worse, lasted from then for the next two sexenios – until 1982. In that year, the state gave up any serious developmental policy, surrendering to the demands of domestic and international capital, privatising state-industry and removing most restrictions on capital movement. So 1982 was the beginning of a very rapid descending phase. The political conclusion of this descent takes place in the year 2000 with the defeat of the PRI in the Presidential elections of that year. The South Korean state became a developmentalist one in 1961 with the coup led by Park Chung-hee. Although opposition to the regime gradually built up in the 1970s, the state was still able to control it and rigourously plan heavy industrialisation. The end of that phase roughly coincides with the assassination of Park in 1979, the coup by Chun Doo-hwan in 1980 and the subsequent massacre at Kwangju. From that time, under Chun and Roh Tae-woo, the state faced enormous opposition. Its manoeuvres – alternating between repression and reform, pro-market and dirigiste policies – were typical of a transitional phase. Then, from about 1992, under Kim Young-sam, the chaebol were allowed even greater freedom and the descending phase had begun. By 1997, few aspects of the developmentalist state remained. The end of that phase and of any form of developmentalism came with the crisis of 1997 and its savage neo-liberal aftermath. The ascending phase in Taiwan began shortly after 1949 when the KMT leadership decided that its stay on the island was not likely to be a brief one. That phase ended between 1986 and 1989. In that threeyear period, the KMT allowed a limited democratisation, Chiang Ching-kuo – the last of the old guard of the KMT – died, some state banks were sold, banking was deregulated to an extent and subsidies and tariffs substantially cut. These are features of the descending phase in the other case studies. However, Taiwan’s descending phase does not begin at this time. It too has a genuine phase of transition. The deregulatory measures were accompanied by continued, large-scale

The Rise and Fall of the Midas States 243

Mexico

South Korea

Taiwan

Ascending phase

1934–40 to 1968–70

1961 to 1979–80

1949 to 1986–89

Transitional phase

1968–70 to 1982

1979–80 to 1992

1986–89 to 1995–2000

Descending phase

1982 to 2000

1992 to 1997

1995–2000 and beyond

Figure 9.2

Phases of the developmentalist state

public spending. Some planning continued and, until the mid-1990s, most banks were still state-owned. Only in the second half of the 1990s does a major retreat from developmentalism take place and a descending phase begin. The political signal of this descent was the victory of the DPP in the Presidential race of 2000. (See Figure 9.2)

Losing control of the gate Domestic autonomy was particularly important in determining the abilities of the three states to withstand and respond to external shocks of a political or economic kind. The strength of the external shock is one factor involved. The other is the position of the Midas state in the ascending/descending arc at the time of the shock. Thus the 1973–74 shocks delivered to South Korea and Taiwan barely halted their economic growth. But they hurt Mexico badly. Mexico had already ended its ascending phase, whereas the East Asian Midas states were still undergoing it. The latter were able to respond with great vigour – pressing ahead in the development of heavy industries and the conquest of new markets, while Mexico floundered. The 1980 recession damaged all three countries – but again, in different ways. Mexico benefited from the oil price rises of the time, but then suffered a spectacular crash after which the state lost its major economic controls – thus moving from a transitional to a very steep descending phase. South Korea, at the very end of its ascending phase, also faced a serious crisis in 1980 – although not nearly as severe as that of Mexico. Taiwan barely felt the effects of the crash at all. The 1997 currency crisis devastated South Korea, but not Taiwan. As the domestic autonomy of the Midas states was eroded, their ability to act as the ‘gatekeeper’ to the international system have faded as well. The model of the Midas states presented here may be useful in better understanding the dynamics of the three NICs examined.

244 The Politics of Developmentalism

Elements of it, with modification, may also be employed in researching other newly industrialising societies. But all models do some violence to the complexity of reality. They remain useful only to the extent that they direct our attention to certain important features, patterns and dynamics of the world and organise our knowledge of it. Hopefully, in this sense, the ideas advanced in this book have made a contribution.

Notes Chapter 1

Newly Industrialising Countries and the State

1 Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization, New York: Columbia University Press, 1991, p. 5. 2 Cardoso, F. and E. Faletto, Dependency and Development in Latin America, Berkeley: University of California Press, 1979, p. 33. 3 Booth, D., ‘Andre Gunder Frank: an introduction and appreciation’, in Oxaal, T. Barnett and D. Booth (eds), Beyond the Sociology of Development: Economy and Society in Latin America and Africa, London: Routledge and Kegan Paul, 1975, p. 76. 4 Bath, C. and D. James, ‘Dependency Analysis of Latin America: Some Criticisms, Some Suggestions’, Latin American Research Review, 11:3, 1976, pp. 14–15. 5 List, Friedrich, The Natural System of Political Economy, London: Frank Cass, 1983/1837; Carey, Henry Charles, Principles of Political Economy, Philadelphia: Carey, Lea & Blanchard, 1837. 6 World Bank, The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press, 1993. 7 See Cho, Soon, ‘Government and Market in Economic Development’, Asian Development Review, 12:2, 1994, p. 150; Kuznets, Paul W., ‘The Dramatic Reversal of 1979–80: Contemporary Economic Development in Korea’, Journal of Northeast Asian Studies, 1:3, 1982. 8 Kwon, Jene, ‘The East Asia Challenge to Neoclassical Orthodoxy’, World Development, 22:4, 1994, p. 635. 9 Johnson, Chalmers, MITI and the Japanese miracle: the growth of industrial policy, 1925–1975, Stanford: Stanford University Press, 1982. An important later work is Johnson, Chalmers, Japan: Who Governs? The Rise of the Developmental State, New York: W.W. Norton, 1995. Also see Leftwich, Adrian, ‘Bringing Politics Back In: Towards a Model of the Developmental State’, The Journal of Development Studies, 31:3, 1995, pp. 400–27. 10 Amsden, Alice H. and Takashi Hikino, ‘Borrowing Technology or Innovating: An Exploration of the Two Paths to Industrial Development’, in R. Thompson (ed.), Learning and Technological Change, New York: St Martin’s Press, 1993, p. 260. 11 Gerschenkron, A., Economic Backwardness in Historical Perspective, Cambridge, Mass.: The Belknap Press of Harvard University, 1962. 12 ibid., pp. 353–4. 13 Cain, P.J. and A.G. Hopkins, British Imperialism: Innovation and Expansion, 1688–1914, London: Longman, 1993, p. 60. 14 More, C., The Industrial Age: Economy and Society in Britain, 1750–1985, London: Longman, 1989, p. 5. 15 Dobb, Maurice, Studies in the Development of Capitalism, London: Routledge and Kegan Paul, 1946, pp. 279–80. 245

246 Notes 16 Cameron, Rondo, Banking in the Early Stages of Industrialization, New York: Oxford University Press, 1967, pp. 36–8. 17 Kemp, Tom, Economic Forces in French History, London: Dobson Books, 1971, p. 162. 18 See Magraw, Roger, France 1814–1915: The Bourgeois Century, London: Fontana, 1983, p. 159. 19 ibid., p. 160. 20 Witte, Sergei, The Memoirs of Count Witte, trans. and edited by Sidney Harcave, New York: M.E. Sharpe, Armonk, 1990, p. 77. 21 Gerschenkron, A., ‘The Rate of Industrial Growth in Russia Since 1885’, The Journal of Economic History, Vol. 7, (Supplement), 1947, p. 149. 22 ibid., 149–50. 23 Falkus, M., The Industrialisation of Russia, 1700–1914, London: Macmillan, 1972, p. 76. 24 Maddison, Angus, Economic Growth in Japan and the USSR, London: George Allen and Unwin, 1969, p. 14. 25 Halliday, Jon, A Political History of Japanese Capitalism, New York: Monthly Review Press, 1975, p. 59. 26 Allen, George, A Short Economic History of Modern Japan, 2nd edn, London: George Allen and Unwin, 1962, p. 127.

Chapter 2

The Autonomy of Developmentalist States

1 Gerschenkron, Economic Backwardness in Historical Perspective, op. cit., pp. 353–4. 2 Hane, Mikiso, Peasants, Rebels and Outcasts: The Underside of Modern Japan, New York: Pantheon, 1982, p. 17. 3 ibid., pp. 21–2. 4 Mironov, Boris, ‘The Russian Peasant Commune after the Reforms of the 1860s’, in Ben Eklof and Stephen Frank (eds), The World of the Russian Peasant: Post-Emancipation Culture and Society, Boston: Unwin Hyman, 1990, pp. 28–9. 5 Marx, Karl and Frederick Engels, Manifesto of the Communist Party, Peking: Foreign Languages Press, 1970, p. 33. 6 Draper, Hal, Karl Marx’s Theory of Revolution, Vol. 1, State and Bureaucracy, New York: Monthly Review Press, 1977. 7 Marx, Karl and Frederick Engels, ‘British Politics, Disraeli, The Refugees, Mazzini in London, Turkey’, article for the New York Daily Tribune, 22 March 1853 in Karl Marx and Frederick Engels, Collected Works, Vol. 12, London: Lawrence and Wishart, 1975, p. 3. 8 Draper, op. cit., pp. 324–6. 9 Marx, Karl, Capital, Vol. 1, Moscow: Progress Publishers, 1954, p. 229. 10 Draper, op. cit., pp. 329–31. 11 Engels, Frederick, Socialism: Utopian and Scientific, (Introduction to the English Edition), Peking: Foreign Languages Press, 1975, pp. 35–6. 12 Marx, Karl, The Eighteenth Brumaire of Louis Bonaparte, New York: International Publishers, 1963, p. 121. 13 ibid., p. 123.

Notes 247 14 ibid., pp. 123–4. 15 ibid., p. 132. 16 Bonaparte, Napoleon Louis, The Extinction of Pauperism, Washington: W.M. Morrison, 1853. 17 Poulantzas, Nicos, Political Power and Social Classes, London: New Left Books, 1973, p. 260. 18 Marx, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 121. 19 ibid., pp. 122–3. 20 Marx, Karl, ‘The Rule of the Praetorians’, in Karl Marx and Frederick Engels, Collected Works, Vol. 15, London: Lawrence and Wishart, 1986, p. 465. 21 ibid. 22 ibid. 23 Engels, ‘Letter to Marx, 13 April, 1866’ in Karl Marx, Frederick Engels, Collected Works, Vol. 42, New York: International Publishers, 1987, p. 266. 24 See Engels, Frederick, The Role of Force in History: A Study of Bismarck’s Policy of Blood and Iron, London: Lawrence and Wishart, 1968, p. 62. 25 Draper, op. cit., p. 328 26 Quoted in Taylor, A.J.P., Bismarck: The Man and the Statesman, London: Hamish Hamilton, 1955, p. 92. 27 Marx, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 131. 28 On this point see Draper, op. cit., p. 402. 29 Marx, ‘The Rule of the Praetorians’, op. cit., p. 465. 30 McMillan, James F., Napoleon III, London: Longman, 1991, p. 65. 31 ibid., p. 66. 32 Skocpol, Theda, States and Social Revolutions: A Comparative Analysis of France, Russia, and China, Cambridge: Cambridge University Press, 1979, p. 102. 33 Yoo, Jung-Ho, ‘South Korea’s Manufactured Exports and Industrial Targeting Policy’, in Shu-Chin Yang (ed.), Manufactured Exports of East Asian Industrialising Economies: Possible Regional Cooperation, Armonk, New York and London: Sharpe, 1994, p. 170. 34 Haggard, Stephan and Chung-in Moon, ‘The South Korean State in the International Economy: Liberal, Dependent or Mercantile?’, in John Gerard Ruggie, The Antinomies of Interdependence: National Welfare and the International Division of Labor, New York: Columbia University Press, 1983; Leftwich, Adrian, ‘Bringing Politics Back In: Towards a Model of the Developmental State’, The Journal of Development Studies, 31:3, 1995; Yahya, Faizal, ‘The State in the Process of Economic Development: The Case in India’, Asian Studies Review, 18:3, April 1995; Alschuler, Lawrence, ‘Divergent Development: The Pursuit of Liberty, Equality, and Growth in Argentina and Republic of Korea’, Journal of World-Systems Research, 3:1, 1997; Önis, Ziya, ‘The Logic of the Developmental State’, Comparative Politics, 24:1, October 1991; Riggs, Fred W., Thailand: The Modernization of a Bureaucratic Polity, Honolulu: East-West Center Press, 1966; White, Gordon and Robert Wade (eds), Developmental Studies in East Asia, Institute for Development Studies, Research Report 16, 1985; Weiss, L. and Hobson, J., States and Economic Development, Cambridge [UK]: Polity Press, 1995; Hamilton, Nora, ‘State-Class Alliances and Conflicts’ in Nora Hamilton and T. Harding, Modern Mexico, Beverley

248 Notes

35 36 37

38 39 40 41 42 43

44 45 46

47 48 49 50 51 52

53 54 55

Hills: Sage Publications, 1986; Skocpol, States and Social Revolutions: A Comparative Analysis of France, Russia, and China, op. cit.; Skocpol, Theda, ‘Bringing the State Back In: Strategies of Analysis in Current Research’, in Peter B. Evans, Dietrich Rueshemeyer and Theda Skocpol (eds), Bringing the State Back In, Cambridge: Cambridge University Press, 1985; Trimberger, Ellen Kay, Revolution from Above: Military Bureaucrats and Development in Japan, Turkey, Egypt and Peru, New Brunswick: Transaction Books, 1978. See Alschuler, op. cit., p. 132. See Haggard, Stephan, ‘The Newly Industrializing Countries in the International System’, World Politics, 38:2, January 1986, p. 344. For this distinction in relation to the early formation of capitalist states in Europe see Mann, Michael, States, War and Capitalism: Studies in Political Sociology, Oxford: Blackwell, 1988; Weiss and Hobson, op. cit.; Önis, 1991, op. cit., p. 123. Yahya, op. cit., pp. 84–5. Önis, op. cit., p. 114. Doner, Richard, ‘Limits of State Strength: Toward an Institutional View of Economic Development’, World Politics, 44:3, April, 1992, p. 401. Haggard and Moon, op. cit., p. 141. Leftwich, ‘Bringing Politics Back In: Towards a Model of the Developmental State’, op. cit., pp. 405–8. Rueschemeyer, Dietrich, and Peter Evans, ‘The State and Economic Transformation: Toward an Analysis of the Conditions Underlying Effective Intervention.’ in Evans, Rueschemeyer and Skocpol, op. cit., p. 45. Lie, John, Han Unbound: The Political Economy of South Korea, Stanford: Stanford University Press, 1998, p. 97. Yahya, op. cit., pp. 86–7 MacIntyre, Andrew, ‘Business, Government and Development: Northeast and Southeast Asian Comparisons’, in Andrew MacIntyre (ed.), Business and Government in Industrialising Asia, Sydney: Allen and Unwin, 1994, p. 7. Skocpol, States and Social Revolutions: A Comparative Analysis of France, Russia, and China, op. cit., p. 27. ibid., pp. 27–8 Skocpol, ‘Bringing the State Back In: Strategies of Analysis in Current Research’, op. cit., p. 5. Weiss and Hobson, op. cit., p. 91. Evans, op. cit., p. 45. Trimberger, op. cit., p. 4. Also see Trimberger, Ellen Kay: ‘Development as History’, Studies in Comparative International Development, 10:2, Summer, 1975 pp. 124–8; Trimberger, Ellen Kay, ‘State Power and Modes of Production: Implications of the Japanese Transition to Capitalism,’ Insurgent Sociologist 7:2 March 1985. Haggard, Stephan, Pathways From the Periphery, Ithaca: Cornell University Press, 1990, p. 39. Haggard and Moon, op. cit., p. 138. In the words of Frederic Deyo. Deyo, Frederic, Beneath the Miracle: Labor Subordination in the New Asian Industrialism, Berkeley: University of California Press, 1989.

Notes 249 56 Amsden, Alice H. et al (eds), Taiwan’s Enterprises in Global Perspective, Armonk, New York: M.E. Sharpe, 1992; Amsden, Alice H., Asia’s Next Giant: South Korea and Late Industrialisation, New York, Oxford: Oxford University Press, 1989; Johnson, MITI and the Japanese Miracle: the Growth of Industrial Policy, op. cit.; Johnson, Japan: Who Governs? The Rise of the Developmental State, op. cit.; Hamilton, ‘State-Class Alliances and Conflicts’, op. cit.; Wade, Robert, ‘State Intervention in “Outward-Looking” Development: Neoclassical Theory and Taiwanese Practice’, in Gordon White (ed.), Developmental States in East Asia, New York: St. Martin’s Press, 1988; Wade, Robert, ‘The Visible Hand: State and East Asia’s Economic Growth’, Current History, 92, 1993. 57 A partial exception, which deals with the changing relationship between the state, business and labour in the case of South Korea, is Kim, Eun-mee, Big Business, Strong State: Collusion and Conflict in South Korean Development, 1960–1990, SUNY Series in Korean Studies, Albany: State University of New York Press, 1997. 58 Haggard, Pathways From the Periphery, op. cit., p. 43; Leftwich, ‘Bringing Politics Back In: Towards a Model of the Developmental State’, op. cit., p. 409. 59 ibid., p. 405.

Chapter 3 Mexico: from Revolution to ‘Perfect Dictatorship’ 1 Chislett, W., ‘The Causes of Mexico’s Financial Crisis and the Lessons to be Learned’, in G. Philip (ed.), Politics in Mexico, London: Croom Helm, 1985, p. 1. 2 World Bank, World Development Report, 1979, pp. 130–1. 3 Hansen, R., The Politics of Mexican Development, Baltimore: The Johns Hopkins Press, 1971, p. 56. Ramírez, M., ‘Mexico’s Developmental Experience, 1950–85: Lessons and Future Prospects’, Journal of Interamerican Studies and World Affairs, 28:2, 1986, p. 44. 4 Reynolds, C., ‘Mexican-US Interdependence: Economic and Social Perspectives’, in C. Reynolds and C. Tello (eds), US-Mexican Relations: Economic and Social Aspects, Stanford: Stanford University Press, 1983, p. 28. Ramírez, op. cit., p. 50. 5 Hansen, op. cit., p. 3. 6 However, the party has had three names in that period. 7 Brachet-Márquez, Viviane, ‘Poverty and Social Programs in Mexico, 1970–1980: The Legacy of a Decade’, Latin American Research Review, 23:1, 1988, p. 221. 8 Cornelius, W., J. Gentleman and P. Smith (eds), Mexico’s Alternative Political Futures, San Diego: Center for US-Mexican Studies, University of California, 1989, p. 5. 9 Ramírez, op. cit., p. 46. 10 Lomnitz, Larissa, ‘Horizontal and Vertical Relations and the Social Structure of Urban Mexico’, Latin American Research Review, 17:2, 1982, pp. 61–2. 11 Bailey, J., Governing Mexico: The Statecraft of Crisis Management, New York: St. Martin’s Press, 1988, p. 64.

250 Notes 12 Haggard, Stephan, Pathways From the Periphery, Ithaca: Cornell University Press, 1990, p. 177. 13 Barkin, David, ‘Mexico’s Albatross, the US Economy’, in N. Hamilton and T. Harding, Modern Mexico, Beverley Hills: Sage Publications, 1986, p. 114. Also see Teichman, J., Policymaking in Mexico: From Boom to Crisis, Boston: Allen and Unwin, 1988, p. 41. 14 Barkin, ‘Mexico’s Albatross, the US Economy’, op. cit., p. 109. 15 Haggard, Pathways From the Periphery, op. cit., p. 168. 16 ibid., p. 177. 17 Camp, R. (ed.), Mexico’s Political Stability: The Next Five Years, Boulder: Westview Press, 1986, p. 46. 18 Hansen, op. cit., pp. 84, 66. 19 Ramírez, op. cit., p. 46. 20 Hansen, op. cit., p. 69. 21 Gereffi, Gary and Peter Evans, ‘Transnational Corporations, Dependent Development, and State Policy in the Semi-Periphery’, Latin American Research Review, 16:3, 1981, p. 35. 22 Teichman, op. cit., p. 37. 23 Jones, E., Echeverría and the United States: Mexico’s deepening dependency, Melbourne: Institute of Latin American Studies, Latrobe University, 1980, p. 3. 24 Cockcroft, J., Mexico: Class Formation, Capital Accumulation, and the State, New York: Monthly Review Press, 1983, p. 157; Domínguez, J., ‘International Reverberations of a Dynamic Political Economy’, in J. Domínguez (ed.), Mexico’s Political Economy, Beverley Hills: Sage Publications, 1982, p. 180. 25 Domínguez, J., ‘International Reverberations of a Dynamic Political Economy’, op. cit., p. 173. 26 ibid. 27 Vázquez, J. and L. Meyer, The United States and Mexico, Chicago: The University of Chicago Press, 1985, pp. 175–6. 28 Riding, A., Mexico: Inside the Volcano, London: I.B.Tauris, 1987, p. 357. 29 Grayson, G., Oil and Mexican Foreign Policy, Pittsburgh: University of Pittsburgh Press, 1988, p. 36. 30 ibid. 31 Bennett, D. and Sharpe, K., ‘The State as Banker and Entrepreneur: The Last Resort Character of the Mexican State’s Economic Intervention, 1917–1970’, in Hewlett, S. and Weinert, R. (eds), Brazil and Mexico: Patterns in Late Development, Philadelphia: Institute for the Study of Human Issues, 1982, p. 189. 32 Gereffi and Evans, op. cit., p. 124. Also see Middlebrook, K., ‘International Implications of Labor Change: The Automobile Industry’, in J. Domínguez (ed.), Mexico’s Political Economy, op. cit., p. 137. 33 Wionczek, Miguel, ‘Foreign-Owned Export-Oriented Enclave in a Rapidly Industrializing Economy: Sulphur Mining in Mexico’, in R. Mikesell (ed.), Foreign Investment in the Petroleum and Mineral Industries, Baltimore: The John Hopkins Press, 1971, pp. 297–306. 34 Gereffi and Evans, op. cit., p. 150. 35 Middlebrook, Kevin J., The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, Baltimore: The Johns Hopkins University Press, 1995, p. 19.

Notes 251 36 See Samamiego Lopez, Marco Antonio, ‘Formación y consolidación de las organizaciones obreras en Baja California, 1920–1930’, Mexican StudiesEstudios Mexicanos, 14:2, Summer, 1998. 37 Marx, ‘The Rule of the Praetorians’, op. cit., p. 465. 38 Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, op. cit., p. 24. 39 Roxborough, Ian, Unions and Politics in Mexico: The Case of the Automobile Industry, Cambridge: Cambridge University Press, 1984, p. 13. 40 La Botz, Dan, The Crisis of Mexican Labor, New York: Praeger, 1988, pp. 28–9. 41 ibid., p. 29. 42 ibid., p. 58. 43 Sanderson, Steven E., Agrarian Populism and the Mexican State: The Struggle for Land in Sonora, Berkeley: University of California Press, 1981, p. 101. 44 Ashby, op. cit., p. 34. 45 Brown, Jonathon C., ‘Acting for Themselves: Workers and the Mexican Oil Nationalisation’, in Jonathon C. Brown, Workers’ Control in Latin America, 1930–1979, Chapel Hill: The University of North Carolina Press, 1997, p. 65. 46 La Botz, op. cit., pp. 76–8. 47 ibid., p. 78. 48 Sanderson, op. cit., p. 107. 49 Teichman, op. cit., p. 29. 50 Brown, Lyle C., ‘Cárdenas: Creating a Campesino Power Base for Presidential Policy’, in George Wolfskill and Douglas Richmond (eds), Essays on the Mexican Revolution: Revisionist Views of the Leaders, Austin: University of Texas Press, 1979, p. 109. 51 Bruhn, Kathleen, Taking on Goliath: The Emergence of a New Left Party and the Struggle for Democracy in Mexico, University Park, Pennsylvania: The Pennsylvania State University Press, 1997, p. 36. 52 Story, The Mexican Ruling Party: Stability and Authority, New York: Praeger, 1986, p. 82. 53 ibid., p. 83. 54 He used this famous description in a Mexican television interview in 1990. 55 Haggard, Pathways From the Periphery, op. cit., p. 170. 56 Heath, John, ‘Contradictions in Mexican Food Policy’, in G. Philip (ed.), Politics in Mexico, London: Croom Helm, 1985, p. 102. 57 Cockcroft, op. cit., p. 170. 58 Arizpe, L., ‘The State and Uneven Agrarian Development in Mexico’, in Philip, op. cit., p. 206. 59 Teichman, op. cit., p. 36. 60 Cockcroft, op. cit., p. 191. 61 Barkin, Distorted Development: Mexico in the World Economy, Boulder: Westview Press, 1990, p. 19. 62 Hamilton, Nora, ‘State-Class Alliances and Conflicts’ in Hamilton and Harding, op. cit., p. 97. 63 Cockcroft, op. cit., p. 177. 64 Grayson, op. cit., p. 64. 65 ibid. 66 La Botz, op. cit., p. 149.

252 Notes 67 See, for an example: Middlebrook, Kevin, ‘The Politics of Industrial Restructuring: Transnational Firms’ Search for Flexible Production in the Mexican Automobile Industry’, Comparative Politics, 23:3, April 1991, p. 283. 68 Gaitán Riveros, Maria Mercedes, El movimiento de los mineros durante el alemanismo, Mexico City: Universidad Nacional Autónoma de México, 1987, pp. 64–5. 69 Roxborough, op. cit., p. 24. 70 La Botz, op. cit., p. 90. 71 ibid. 72 For further details of the charrazo in the railway workers’ union see Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, op. cit., pp. 135–41. 73 La Botz, op. cit., pp. 86–7. 74 Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, op. cit., p. 136. 75 Gaitán Riveros, op. cit., p. 61. 76 La Botz, op. cit., pp. 86–7. 77 Gaitán Riveros, op. cit., pp. 91, 98. 78 La Botz, op. cit., pp. 100–8. 79 Roxborough, op. cit., p. 25. 80 Middlebrook, Kevin J., ‘Union Democratization in the Mexican Automobile Industry: A Reappraisal’, Latin American Research Review, 24:2, 1989, p. 81. 81 La Botz, op. cit., p. 149. 82 Roxborough, op. cit., p. 27. 83 Whitehead, Laurence, ‘The Peculiarities of “Transition” a la Mexicana’, in Neil Harvey and Mónica Serrano (eds), Party Politics in ‘an Uncommon Democracy’, London: Institute of Latin American Studies, 1994, p. 115; Story, op. cit., p. 21. 84 Serrano, Mónica, ‘The End of Hegemonic Rule? Political Parties and the Transformation of the Mexican Party System’, in Harvey and Serrano, op. cit., p. 5. 85 Bruhn, op. cit., p. 236.

Chapter 4 Mexico: Uncontrolled Mobilisation and Retreat from Developmentalism 1 2 3 4 5 6 7 8 9 10

‘Mexico: from Boom to Bust’, The Economist, 11 February 1989, p. 75. Cockcroft, op. cit., p. 188. Chislett, op. cit., p. 2. Hewlett and Weinert, op. cit., p. 5. Middlebrook, ‘Union Democratization in the Mexican Automobile Industry: A Reappraisal’, op. cit., pp. 71–9. Middlebrook, ‘International Implications of Labor Change: The Automobile Industry’, op. cit., p. 150. Middlebrook, ‘Union Democratization in the Mexican Automobile Industry: A Reappraisal’, op. cit., p. 69. La Botz, op. cit., pp. 128–32. Brennan, op. cit., p. 61; La Botz, op. cit., p. 136. Brennan, James, P., ‘Industrial Sectors and Union Politics in Latin America Labor Movements: Light and Power Workers in Argentina and Mexico’, Latin American Research Review, 30:1, 1995, p. 61.

Notes 253 11 La Botz, op. cit., p. 138. 12 ibid., p. 11. 13 Markiewicz, D., Ejido Organization in Mexico, 1934–76, Los Angeles: UCLA Latin American Center Publications, 1980, p. 29. 14 Cesar, A., Producción Colectiva y Desarrollo Capitalista en el Agro Mexicano, 1970–1980, Amsterdam: Centro de Estudios y Documentación Latinoamericanos, 1987, p. 39. 15 Story, op. cit., p. 37. 16 Gordillo, Gustavo, Campesinos al Asalto del Cielo: de la Expropiación Estatal a la Approciación Campesina, Mexico City: Siglo Veintiuno, 1988, pp. 215–16. 17 Young, Dolly, ‘Mexican Literary Reactions to Tlatelolco 1968’, Latin American Research Review, 20:2, 1985, p. 72. 18 Monsiváis, Carlos, ‘From ‘68 to Cardenismo: Toward a Chronicle of Social Movement’, Journal of International Affairs, 43:2, Winter 1990, p. 387. 19 Lomnitz, op. cit., p. 63. 20 Carr, Barry, ‘Mexico: The Perils of Unity and the Challenge of Modernization’, in Barry Carr and Steve Ellner (ed.), The Latin American Left: From the Fall of Allende to Perestroika, Boulder: Westview Press, 1993, p. 86. 21 Rubin, Jeffrey, W., ‘Decentering the Regime: Culture and Regional Politics in Mexico’, Latin American Research Review, 31:3, 1996, p. 105. 22 Lázaro Cárdenas was the father of Cuauhtémoc. 23 Mares, David, R., ‘Mexico’s Foreign Policy as a Middle Power: The Nicaragua Connection, 1884–1986’, Latin American Research Review, 23:3, 1988, p. 96; Story, op. cit., p. 36. 24 Coleman and Davis, op. cit., 1983, p. 7. 25 Newell and Rubio, op. cit., 1984, p. 134. 26 Chislett, op. cit., p. 2. 27 Teichman, op. cit., p. 47. 28 ibid. 29 Jones, op. cit., p. 15. 30 Grayson, op. cit., p. 53. 31 Teichman, op. cit., p. 47. 32 Story, op. cit., p. 35. 33 Chislett, op. cit., p. 2. 34 ibid., pp. 2–3. 35 Roxborough, op. cit., p. 27. 36 Haggard, Pathways From the Periphery, op. cit., pp. 184–5. 37 Teichman, op. cit., p. 49. 38 Foley, Michael, W., ‘Agenda for Mobilization: The Agrarian Question and Popular Mobilization in Contemporary Mexico’, Latin American Research Review, Vol. 26, No. 2, 1991, p. 47. 39 Sanderson, op. cit., p. 185. Also see Haggard, Pathways From the Periphery, op. cit., p. 185. 40 Sanderson, op. cit., p. 181. 41 Grindle, Merilee, State and Countryside: Development Policy and Agrarian Politics in Latin America, Baltimore: Johns Hopkins University Press, 1986, pp. 61–7. 42 Newell and Rubio, op. cit., p. 211; Story, op. cit., 1984, p. 38. 43 Chislett, op. cit., p. 3.

254 Notes 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69

70 71 72 73 74 75 76 77 78 79 80 81 82 83

Story, op. cit., p. 39. Quoted in Camp, Entrepreneurs and Politics in Twentieth-Century Mexico, op. cit., 1989, p. 27. Story, op. cit., p. 38. Cockcroft, op. cit., p. 260. Teichman, op. cit., p. 84. Cockcroft, op. cit., p. 293. International Monetary Fund, International Financial Statistics Yearbook, Washington D.C., International Monetary Fund, 1983, pp. 288–9. See Williams, E., ‘Petroleum and Political Change’, in J. Domínguez (ed.), Mexico’s Political Economy, op. cit., p. 51. Teichman, op. cit., p. 60. ibid., p. 69. Grayson, op. cit., p. 27. Ramírez, op. cit., p. 54. Teichman, op. cit., p. 66. Newell and Rubio, op. cit., 1984, pp. 219–20. Quoted in Teichman, op. cit., p. 65. Newell and Rubio, op. cit., 1984, p. 217. Teichman, op. cit., p. 72. World Bank, World Debt Tables, Vols. II and III, 1988–1989. Glade, W., ‘How Will Economic Recovery be Managed?’, in Camp, Entrepreneurs and Politics in Twentieth-Century Mexico, op. cit., p. 52. Grayson, op. cit., p. 27. Teichman, op. cit., p. 120. Cockcroft, op. cit., p. 269. Bailey, Governing Mexico: The Statecraft of Crisis Management, op. cit., p. 50. Quoted in Cockcroft, op. cit., p. 260. Barkin, Distorted Development: Mexico in the World Economy, op. cit., p. 58. Quoted in Maxfield, Sylvia, ‘The International Political Economy of Bank Nationalization: Mexico in Comparative Perspective’, Latin American Research Review, 27:1, 1992, p. 75. Bailey, Governing Mexico: The Statecraft of Crisis Management, op. cit., p. 128. Camp, Entrepreneurs and Politics in Twentieth-Century Mexico, op. cit., p. 50. La Botz, op. cit., p. 4. Quoted in Teichman, op. cit., p. 137. Maxfield, op. cit., p. 86. La Botz, op. cit., p. 4. Maxfield, op. cit., pp. 87, 96. ibid., p. 98. Story, op. cit., p. 41. Centeno, op. cit., 1994, pp. 104–5. Camp, Roderic Ai, ‘The National School of Economics and Public Life in Mexico’, Latin American Research Review, 10:3, 1975, p. 138. Camp, Roderic Ai, ‘The Political Technocrat in Mexico and the Survival of the Political System’, Latin American Research Review, 20:1, 1985, p. 99. Story, op. cit., p. 129. Bruhn, op. cit., p. 43.

Notes 255 84

85 86 87 88 89 90 91 92 93

94

95 96 97 98 99 100 101 102 103 104 105 106 107

For accounts of the division between técnicos and políticos, see: Bailey, Governing Mexico: The Statecraft of Crisis Management, op. cit., p. 33; Cornelius, W., J. Gentleman and P. Smith, ‘The Dynamics of Political Change in Mexico’, in W. Cornelius, J. Gentleman and P. Smith (eds), Mexico’s Alternative Political Futures, San Diego: Center for U.S.-Mexican Studies, University of California, 1989, p. 10; Heredia, Blanca, ‘Mexican Business and the State: The Political Economy of a Muddled Transition’, in Ernest Bartell and Leigh Payne (eds), Business and Democracy in Latin America, Pittsburg: University of Pittsburgh Press, 1995 and Morris, Stephen D., Political Reformism in Mexico, Boulder: Lynne Rienner Publishers, 1995. Newell and Rubio, op. cit., 1984, p. 214. Haggard, Pathways From the Periphery, op. cit., p. 186. Maxfield, op. cit., pp. 85–6. Foley, ‘Agenda for Mobilization: The Agrarian Question and Popular Mobilization in Contemporary Mexico’, op. cit., p. 50 and pp. 60–1. ibid., pp. 51–2. Loaeza, Soledad, ‘Partido Acción Nacional and the Paradoxes of Opposition’, in Harvey and Serrano, op. cit., pp. 42–5. ibid., p. 45. Morris, op. cit., p. 52. Mizrahi, Yemille, ‘Entrepreneurs in the Opposition: Modes of Political Participation in Chihuahua’, in Victoria E. Rodríguez and Peter M. Ward (eds), Opposition Government in Mexico, Albuquerque: University of New Mexico Press, 1995, p. 90. Poitras, Guy and Raymond Robinson, ‘The Politics of NAFTA in Mexico’, Journal of Interamerican Studies and World Affairs, 36:1, Spring 1994, p. 10. La Botz, Dan, Mask of Democracy: Labor Suppression in Mexico Today, Boston: South End Press, 1992, p. 84. Morris, op. cit., p. 57. ibid. Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, op. cit., p. 261. Morris, op. cit., p. 53. Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism in Mexico, op. cit., p. 258. Morris, op. cit., p. 53. Carlsen, Laura, ‘From the Many to the Few: Privatization in Mexico’, Multinational Monitor, 12:5, May 1991. Moody, Kim, Workers in a Lean World, London: Verso, 1997, p. 131. Rosen, Bernard, ‘An Unfinished Revolution’, Monthly Review, 46:1, May 1994. La Botz, Mask of Democracy: Labor Suppression in Mexico Today, op. cit., p. viii. Sparks, Samantha, ‘Mexico Faces Change’, Multinational Monitor, 9:10, October 1988. Valdés, Leonardo, ‘Partido de la Revolución Democrática: The Third Option in Mexico’, in Harvey and Serrano, op. cit., p. 71.

256 Notes 108 109 110

111 112 113 114 115 116 117

118 119

Heath, John, ‘Further Analysis of the Mexican Food Crisis’, Latin American Research Review, 27:3, 1992, p. 124. Witt, Matt, ‘Mexican Labor: The Old, The New And The Democratic’, Multinational Monitor, 12:1&2, January/February 1991. The electoral front which ran Cárdenas in 1988 was made up of Corriente Democrática (CD), which split from the PRI in 1987, plus four smaller parties: Partido Auténtico de la Revolución Mexicana (PARM), Partido Popular Socialista (PPS), Partido del Frente Cardenista de Reconstrucción Nacional (PFCRN) and Partido Mexicano Socialista (PMS). Of these only CD and the PMS went into the PRD. Morris, op. cit., p. 82. ibid., p. 84. Poitras and Robinson, op. cit., p. 8. Morris, op. cit., p. 81. ibid., p. 82. Conger, Lucy, ‘Power to the plutocrats’, Institutional Investor, February 1995, International Edition. Garrido, Luis Javier, ‘Reform of the PRI: Rhetoric and Reality’ in Harvey and Serrano, op. cit., p. 38; James Petras talks of the ‘decomposition’ of the PRI in this period. Petras, James, The Left Strikes Back: Class Conflict in Latin America in the Age of Neoliberalism, Boulder: Westview, 1999, pp. 38, 40. Garrido, op. cit., p. 38. Rich, Paul, ‘Mexican Neoliberal Nightmares: Tampico is Not Taiwan’, Journal of Interamerican Studies and World Affairs, 37:4, Winter 1995, pp. 178–9.

Chapter 5 1 2

3 4 5

6 7

South Korea: Devastation and Development

World Bank, The East Asian Miracle: Economic Growth and Public Policy, New York: Oxford University Press, 1993. Kim, Joon Kyung, Sang Dal Shim and Jun-Il Kim, ‘The Role of the Government in Promoting Industrialisation and Human Capital Accumulation in Korea’, in Takatoshi Ito and Anne O. Krueger (eds), Growth Theories in Light of the East Asian Experience. National Bureau of Economic Research – East Asia Seminar on Economics Series, Vol. 4, Chicago and London: University of Chicago Press, 1995, p. 181. Song, Byung-Nak, The Rise of the Korean Economy, Oxford: Oxford University Press, 1994, p. 1. Bello, Walden and Stephanie Rosenfeld, Dragons in Distress: Asia’s Miracle Economies in Crisis, London: Penguin, 1992, p. 148. Sung, Yeung Kwack, ‘The Economic Development of the Republic of Korea, 1965–1981’, in Lau, Lawrence (ed.), Models of Development: A Comparative Study of Economic Growth in South Korea and Taiwan, second edition, San Francisco: ICS Press, 1990, p. 65. Bello and Rosenfeld, op. cit., p. 77. Organisation for Economic Co-operation and Development, OECD Economic Surveys, 1993–1994, Korea, Paris: OECD, 1994, p. 74.

Notes 257 8 9

10 11

12

13 14 15

16

17 18

19 20 21 22 23

24 25 26

Amsden, A., Asia’s Next Giant: South Korea and Late Industrialization, New York: Oxford University Press, 1989, p. 9. Dalton, Bronwen and James Cotton, ‘New Social Movements and the Changing Nature of Political Opposition in South Korea’, in Garry Rodan (ed.), Political Oppositions in Industrialising Asia, London: Routledge, 1996, p. 285. Asia Monitor Resource Centre, Min-Ju, No-Jo, South Korea’s New Trade Unions, Hong Kong: AMRC, 1987, p. 13. Choi, Young-Hwan, ‘The Path to Modernization’, in Louis M. Branscomb and Young-Hwan, Choi, Korea at the Turning Point. Innovation-Based Strategies for Development, Westport, Connecticut; London: Praeger, 1996, p. 14. Jones, Leroy P. and Il Sakong, Government, Business and Entrepreneurship in Economic Development: The Korean Case, Harvard University Press, 1980, p. 60. ibid., p. 61. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 16. For details of the almost complete government control of the financial system between 1961 and 1980 see: Leudde-Neurath, Richard, ‘State Intervention and Export-Oriented Development in South Korea’, in Gordon White (ed.), Developmental States in East Asia, New York: St. Martin’s Press, 1988, p. 75. Chiu, Stephen Wing-Kai, The State and the Financing of Industrialisation in East Asia: Historical Origins of Comparative Divergences, PhD, Princeton University, 1992, p. 80. Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., p. 104. Chiu, op. cit., p. 94. Amsden provides the following figures and time periods for expansion using these internal sources rather than external borrowing: 32.5% Japan (1954–67) and 65% for US (1947–63). Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 85. Chiu, op. cit., p. 83. ibid., p. 84. ibid., p. 86. Sung, ‘The Economic Development of the Republic of Korea, 1965–1981’, op. cit., p. 94. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 77. Haggard, Stephan and Chung-in Moon, ‘The State, Politics, and Economic Development in Postwar South Korea, in Hagen Koo (ed.), State and Society in Contemporary Korea, Ithaca and London: Cornell University Press, 1993, p. 72. Leudde-Neurath, ‘State Intervention and Export-Oriented Development in South Korea’, op. cit., pp. 70–1. Lee, ‘The Maturation and Growth of Infant Industries: The Case of Korea’, op. cit., 1997, p. 1272. For a thorough attack on the neo-liberal account, see: Leudde-Neurath, Richard, Import Controls and Export-Oriented Development: A Reassessment of the South Korean Case, Boulder: Westview Press, 1986; Leudde-Neurath,

258 Notes

27 28

29

30

31

32

33 34 35 36 37

38 39 40

41 42

43 44

Richard, ‘State Intervention and Foreign Direct Investment in South Korea’, Institute for Development Studies Bulletin, 15:2, 1984. Kim, Chung-yum, Policymaking on the Front Lines: Memoirs of a Korean Practitioner, 1945–1979, Washington D.C.: World Bank, 1994, p. 68. Choi, Byung-Sun, ‘Financial Policy and Big Business in Korea: The Perils of Financial Regulation’, in Stephan Haggard et al (eds), The Politics of Finance in Developing Countries, Cornell Studies in Political Economy, Ithaca and London: Cornell University Press, 1993, p. 30. Kim, Policymaking on the Front Lines: Memoirs of a Korean Practitioner, 1945–1979, op. cit., p. 30 and p. 120, Bello and Rosenfeld, op. cit., p. 56. Choi, ‘Financial Policy and Big Business in Korea: The Perils of Financial Regulation’, op. cit., p. 37. Yoo, Jung-Ho, ‘South Korea’s Manufactured Exports and Industrial Targeting Policy’, in Shu-Chin Yang (ed.), Manufactured Exports of East Asian Industrialising Economies: Possible Regional Cooperation, Armonk, New York and London: Sharpe, 1994, p. 151. See for example Park, Chung Hee, Our Nation’s Path: Ideology of Social Reconstruction, 2nd edn., Seoul, Hollym Corporation, 1970, pp. 217–19. For further details of the ‘illicit accumulation of wealth’ incident see: Jones and Sakong, op. cit., pp. 69–70; Kim, Kyong-Dong, ‘Political Factors in the Formation of the Entrepreneurial Elite in South Korea’, Asian Survey, 16:5, 1976, pp. 470–1; and Lim, Timothy C., ‘Power, Capitalism and the Authoritarian State in South Korea’, Journal of Contemporary Asia, 28:4, 1998, p. 468. Chiu, op. cit., p. 147. ibid., p. 102. Chiu, op. cit., pp. 86–7. See Park, Our Nation’s Path: Ideology of Social Reconstruction, op. cit., pp. 110–11. In 1966, commercial banks were also allowed to raise foreign loans – bypassing the National Assembly and Cabinet but the other required approvals remained. Chiu, op. cit., p. 87. ibid., p. 88. Stephan Haggard and Chung-in Moon, ‘The South Korean State in the International Economy: Liberal, Dependent or Mercantile?’, in John Gerard Ruggie, The Antinomies of Interdependence. National Welfare and the International Division of Labor, New York: Columbia University Press, 1983, p. 150. ibid. Haggard and Moon, op. cit., p. 151. Sung calculates that FDI as a proportion of all capital inflow was 5.5% between 1962 and 1981. Sung, ‘The Economic Development of the Republic of Korea, 1965–1981’, op. cit., p. 104. Chiu, op. cit., p. 90. Leudde-Neurath, ‘State Intervention and Export-Oriented Development in South Korea’, op. cit., p. 19; Chiu, op. cit., p. 90.

Notes 259 45

46

47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67

68

69 70

71

Cited in Leudde-Neurath, ‘State Intervention and Export-Oriented Development in South Korea’, op. cit., p. 21; Haggard, Pathways From the Periphery, op. cit., p. 199. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 76. Mukherjee, S., ‘Dependency Theory Revisited: South Korea’s March towards an Independent Development’, Korea Observer, 23:1, 1992, p. 38. Song, op. cit., p. 71. Bello and Rosenfeld, op. cit., p. 53. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 73. Kim, Shim and Kim, op. cit., p. 184. Song, op. cit., p. 100. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 96. ibid. Sung, ‘The Economic Development of the Republic of Korea, 1965–1981’, op. cit., pp. 78–9; p. 90. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 278. Chiu, op. cit., p. 79. ibid., p. 78. Song, op. cit., p. 117. Chiu, op. cit., p. 81. ibid., p. 102. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., pp. 295–7. ibid., p. 15. Song, op. cit., p. 144–5. Eckert, Carter, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, in Koo, op. cit., p. 103. Song, op. cit., p. 144. Kim, Shim and Kim, op. cit., p. 186 (ftn.). See, for example: Kohli, Atul, ‘Japanese Colonialism and Korean Development: A Reply’, World Development, 25:6, 1997; Eckert, Carter, Offsprings of Empire: The Koch’ang Kims and the Colonial Origins of Korean Capitalism, 1876–1945, Seattle: University of Washington Press, 1991; and Eckert, Carter, ‘Total War, Industrialisation, and Social Change in Late Colonial Korea’, in P. Duus et al (eds), The Japanese Wartime Empire, 1931–1945, Princeton: Princeton University Press, 1996. Chiu, op. cit., p. 106. For further details of industrialisation under the Japanese, see: Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization, op. cit., pp. 19–42. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 33. However, Koreans owned 47.9% of all firms. Haggard, Stephan, David Kang and Chung-In Moon, ‘Japanese Colonialism and Korean Development: A Critique’, World Development, 25:6, June 1997, p. 868. Wade, L.L. and B.S. Kim, Economic Development of South Korea: The Political Economy of Success, New York: Praeger, 1978, p. 16.

260 Notes 72

73 74 75 76 77

78 79 80 81 82

83

84 85 86 87 88

89 90 91 92 93 94 95 96 97 98 99

Haggard, Kang and Moon, op. cit., p. 868. Also see: Hsiao, Hsin-Huang Michael, Government Agricultural Strategies in Taiwan and South Korea: A Macrosociological Assessment, Nankang, Taipei, Taiwan, Republic of China: Institute of Ethnology, Academia Sinica, 1981, pp. 76–7. Haggard, Kang and Moon, op. cit., p. 876. ibid., p. 873. MacDonald, C., Korea: The War Before Vietnam, The Free Press: New York, 1986, p. 4. Cumings, The Origins of the Korean War, Vol. 1, op. cit., 1981, p. 73. ibid., p. 198, Kwon, Seung-ho and Michael O’Donnell, ‘Repression and struggle: The state, the chaebol and independent trade unions in South Korea’, Journal of Industrial Relations, 41:2, 1999, op. cit., p. 283. Cumings, The Origins of the Korean War, Vol. 1, op. cit., p. 379. quoted in Ogle, op. cit., 1990, p. 10. Cumings, The Origins of the Korean War, Vol. 1, op. cit., p. 379. Bello and Rosenfeld, op. cit., p. 30. Cole David C. and Princeton N. Lyman, Korean Development, The Interplay of Politics and Economics, Cambridge: Harvard University Press, 1971, p. 21. For details on the landownership in the South Korean countryside before and after reform see Hsiao, Hsin-huang Michael, ‘Development Strategies and Class Transformation in Taiwan and South Korea: Origins and Consequences’, Bulletin of the Institute of Ethnology, Academia Sinica, No. 61, Spring 1986, p. 190. Cole and Lyman, op. cit., p. 22. Rees, David, Korea: The Limited War, London: Macmillan, 1964, p. 441. Reeve, W., The Republic of Korea: a Political and Economic Study, London: Oxford University Press, 1963, p. 103. Haggard, Kang and Moon, op. cit., p. 872. Cumings, Bruce, The Origins of the Korean War, Vol. 2, The Roaring of the Cataract, 1947–1950, Princeton: Princeton University Press, 1990, pp. 699–702. See, for example, Pak, Sejin, ‘Two Forces of Democratisation in Korea’, Journal of Contemporary Asia, 28:1, 1998, p. 57. World Bank, World Bank Annual Report, Washington D.C., various years. Chiu, op. cit., p. 144. Hsiao, ‘Development Strategies and Class Transformation in Taiwan and South Korea: Origins and Consequences’, op. cit., p. 195. Nordlinger, Eric, Soldiers in Politics: Military Coups and Governments, Englewood Cliffs, N.J.: Prentice Hall, 1977, p. 6. Wade and Kim, op. cit., p. 17. Park, Our Nation’s Path: Ideology of Social Reconstruction, op. cit., p. 189. ibid., p. 213. Lie, John, Han Unbound: The Political Economy of South Korea, Stanford: Stanford University Press, 1998, p. 149. Bank of Korea, Economics Statistics Yearbook, Seoul: Bank of Korea, various years. Kuk, Minho, ‘The Governmental Role in the Making of Chaebol in the Industrial Development of South Korea’, Asian Perspective, 12:1, Spring–Summer 1988, p. 114.

Notes 261 100

101 102 103 104 105 106 107

Kim, Hwang-Joe, ‘The Korean Union Movement in Transition’, in Stephen Frenkel (ed.), Organised Labor in the Asia-Pacific Region, Ithaca, New York: ILR Press, 1993, p. 136. Haggard and Moon, op. cit., p. 65. Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 101. Bae, Kyuhan, ‘Labor Strategy for Industrialisation in South Korea’, Pacific Affairs, 62:3, Fall 1989, p. 362. Kwon and O’Donnell, op. cit., p. 282. Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 113. ibid. Bello and Rosenfeld, op. cit., p. 92.

Chapter 6 1

2 3 4 5 6 7 8 9 10 11

12 13

14

15 16 17

18 19

The South Korean ‘Miracle’ in Decline

Koo, Hagen, ‘The State, Industrial Structure, and Labor Politics: Comparison of Taiwan and South Korea’, in Hsin-huang Michael Hsiao et al (eds), Taiwan: A Newly Industrialised State, Taipei: Department of Sociology, National Taiwan University, 1989, p. 563. Bello and Rosenfeld, op. cit., p. 23. ibid., p. 24. ibid. ibid., pp. 24–5. Choi, Labor and the Authoritarian State: Labor Unions in South Korean Manufacturing Industries, 1961–1980, op. cit., 1989, pp. 127–8. Ogle, op. cit., p. 73. ibid. ibid., p. 74. Choi, Labor and the Authoritarian State: Labor Unions in South Korean Manufacturing Industries, 1961–1980, op. cit., p. 127. Koo, Hagen, ‘The State, Industrial Structure, and Labor Politics: Comparison of Taiwan and South Korea’, in Hsiao, Taiwan: A Newly Industrialised State, op. cit., p. 568. Choi, Labor and the Authoritarian State: Labor Unions in South Korean Manufacturing Industries, 1961–1980, op. cit., p. 289–91. Clark, David, ‘Growth and Limitations of Minjung Christianity in South Korea’, in Kenneth Wells (ed.), South Korea’s Minjung Movement: The Culture and Politics of Dissidence, Honolulu: University of Hawaii Press, 1995, p. 95. Koo, Hagen, ‘The State, Minjung, and the Working Class in South Korea’, in Hagan Koo (ed.), State and Society in Contemporary Korea, Ithaca and London: Cornell University Press, 1993, p. 145. ibid., p. 140. Ogle, op. cit., p. 89. Lee, Jeong Taik, ‘Dynamics of Labor Control and Labor Protest in the Process of Export-Oriented Industrialisation in South Korea’, Asian Perspectives, 12:1, 1988, p. 141. ibid., p. 143. Dalton, Bronwen and James Cotton, ‘New Social Movements and the Changing Nature of Political Opposition in South Korea’, in Rodan, op. cit., p. 278.

262 Notes 20 Lee, ‘Dynamics of Labor Control and Labor Protest in the Process of Export-Oriented Industrialisation in South Korea’, op. cit., pp. 150–1. 21 ibid., p. 151. 22 Launius, Michael A., ‘The State and Industrial Labor in South Korea’, Bulletin of Concerned Asian Scholars, 16, October–December 1984, p. 7. 23 Koo, ‘The State, Minjung, and the Working Class in South Korea’, op. cit., pp. 150–1. 24 Kim, ‘The Korean Union Movement in Transition’, op. cit., p. 152. 25 Lim, Hy-Sop, ‘The Evolution of Social Classes and Changing Social Attitudes’, in David L. Lindauer et al (eds), The Strains of Economic Growth: Labor Unrest and Social Dissatisfaction in Korea, Harvard: Harvard Institute for International Development and Korea Development Institute: Distributed by Harvard University Press, 1997, p. 27. 26 ibid. 27 ibid. 28 Asia Monitor Resource Centre, op. cit., pp. 66–8. 29 Koo, ‘The State, Minjung, and the Working Class in South Korea’, op. cit., p. 156; Bello and Rosenfeld, op. cit., p. 23. 30 ibid., p. 41. 31 Billet, B.L., ‘South Korea at the Crossroads: An Evolving Democracy or Authoritarianism Revisited?’, Asian Survey, 30:3, 1990, p. 307. 32 Bello and Rosenfeld, op. cit., p. 139. 33 Asia Monitor Resource Centre, op. cit., pp. 53–4. 34 Koo, ‘The State, Minjung, and the Working Class in South Korea’, op. cit., p. 156. 35 McNally, op. cit., 1998, p. 11. 36 Lee and Tcha, op. cit., p. 225. 37 Koo, Hagen, ‘Middle Classes, Democratisation, and Class Formation: The Case of South Korea’, Theory and Society, 20, 1991, p. 489. 38 ibid., p. 488. 39 Koo, ‘The State, Minjung, and the Working Class in South Korea’, op. cit., p. 141. 40 Koo, H. op. cit., p. 150. Also see Pak, op. cit., p. 63. 41 Ogle, op. cit., p. 99. 42 Asia Monitor Resource Centre, op. cit., p. 43. 43 ibid., pp. 44–5. 44 Pak, op. cit., p. 50. 45 ibid., p. 63. 46 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 101. 47 Koo, ‘Middle Classes, Democratisation, and Class Formation: The Case of South Korea’, op. cit., p. 490. 48 Lee, Jeong Rock, ‘Social Transformation, Farmers’ Movements and Regional Characteristics in South Korea: A Case Study on the Diffusion of Farmers’ Protests, 1987–1989’, Papers in Regional Science, 76:1, January 1997, p. 73. 49 Pak, op. cit., p. 64. 50 ibid. 51 Billet, op. cit., p. 301. 52 Kang, Wi Jo, Christ and Caesar in Modern Korea: A History of Christianity and Politics, Albany: State University of New York Press, 1997, p. 124.

Notes 263 53 Lee, Su-Hoon, ‘Transitional Politics of Korea, 1987–1992: Activation of Civil Society’, Pacific Affairs, 66:3, 1993, p. 357. 54 Ellperin, Juliet, ‘Tough Times for Unions’, Korea Business World, March 1993, p. 16. 55 ibid., p. 16. 56 Bello and Rosenfeld, op. cit., p. 45. 57 Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 128. 58 Pak, Sejin, ‘Two Forces of Democratisation in Korea’, Journal of Contemporary Asia, 28:1, 1998, p. 50; Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization, op. cit., p. 177. 59 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 108. 60 Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 104. 61 Kirk, Donald, Korean Dynasty: Hyundai and Chung Ju Yung, Hong Kong: Asia 2000; Armonk, New York: M.E. Sharpe, 1994, p. 277. 62 Douglass, Michael, ‘Social, Political and Spatial Dimensions of Korean Industrial Transformation’, Journal of Contemporary Asia, 23:2, 1993, p. 166. 63 ‘A love-hate relationship’, Economic Report, April 1995, pp. 28–9. 64 Smith, Heather, ‘Korea’, in Ross H. McLeod and Ross Garnaut (eds), East Asia in Crisis: From Being a Miracle to Needing One, London and New York: Routledge, 1998, p. 71. 65 Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 105. 66 Kim Yei-Tae, ‘Nation Exports Production Bases’, Economic Report, October, 1995, p. 12. 67 Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 156. Also see Cho, M.R., ‘Large-Small Firm Networks: A Foundation for the New Globalising Economy in South Korea’, Environment and Planning, 29:6, June 1997, p. 1091. 68 Jeong, Man-Soek, ‘Korea Looks Abroad’, Korea Business World, August 1988, p. 12. 69 Smith, ‘Korea’, op. cit., p. 75. 70 Sung, Yeung Kwack, ‘The Economy of South Korea, 1980–1987’, in Lau, op. cit., p. 219. 71 ibid., p. 218. 72 Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., pp. 196–7. 73 ibid., p. 195. 74 Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 107. 75 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., pp. 136–7. 76 Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., p. 194. 77 Smith, ‘Korea’, op. cit., p. 72. 78 ibid., p. 71. 79 ibid., p. 67.

264 Notes 80 81 82 83 84 85 86

87 88

89 90 91 92 93 94 95

96 97 98 99 100 101 102 103 104

105 106 107 108 109

ibid. Song, op. cit., p. 135. Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 108. Lee, Hyung-Koo, The Korean Economy: Perspectives for the Twenty-First Century, Albany: State University of New York Press, 1996, p. 32. Bello and Rosenfeld, op. cit., p. 71. Rhee, Jong-Chan, The State and Industry in South Korea. The Limits of the Authoritarian State, London and New York: Routledge, 1994, p. 238. You, Jong-Il, ‘The Korean Model of Development and Its Environmental Implications’, in V. Bhaskar and Andrew Glyn (eds), The North, the South and the Environment: Ecological Constraints and the Global Economy, Tokyo; New York and Paris: United Nations University Press; London: Earthscan, 1995, p. 163(f). Douglass, op. cit., p. 167. Wedeman, Andrew, ‘Looters, Rent-Scrapers, and Dividend-Collectors: Corruption and Growth in Zaire, South Korea, and the Philippines’, Journal of Developing Areas, 31:4, Summer 1997, pp. 466–7. Kirk, op. cit., pp. 272–3. ibid., p. 275. Cumings, ‘The Korean Crisis and the End of “Late” Development’, op. cit., p. 55. Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., pp. 198–9. Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 109. Kirk, op. cit., p. 273, Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., p. 199. Rhee, The State and Industry in South Korea. The Limits of the Authoritarian State, op. cit., p. 216. In 1993, the Constitutional Court ruled that Chun had acted illegally in the break-up of Kukje. Korean Business Weekly, September, 1993. Wedeman, op. cit., p. 468. ibid., p. 467. Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 102. Bello and Rosenfeld, op. cit., pp. 166, 47. Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 149. ibid., p. 123. ibid. Sung, ‘The Economy of South Korea, 1980–1987’, op. cit., p. 220. See for example his article on these questions: Cho, Soon, ‘Government and Market in Economic Development’, Asian Development Review, 12:2, 1994. Haggard and Moon, op. cit., p. 91, Bello and Rosenfeld, op. cit., p. 74. Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’, op. cit., p. 109. Kirk, op. cit., p. 14. Choi, ‘Political Cleavages in South Korea’, op. cit., p. 47. Kirk, op. cit., p. 16.

Notes 265 110 111 112 113

114 115 116 117 118 119 120 121 122 123 124 125 126 127 128 129 130

Pak, op. cit., p. 49. Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 123. Kirk, op. cit., p. 268. For more on the anti-chaebol campaign by Chun, and later Roh, see: Lee, Yeon-ho, ‘Political aspects of South Korean state autonomy: regulating the chaebol’, The Pacific Review, Vol. 9, No. 2, 1996, p. 156. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 131. Rhee, The State and Industry in South Korea. The Limits of the Authoritarian State, op. cit., p. 238. Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 131. Kirk, op. cit., p. 270. Quoted in Bello and Rosenfeld, op. cit., p. 20. Chey Jong-hyon, quoted in Korean Business Weekly, June 1993, p. 24. Rhee, The State and Industry in South Korea. The Limits of the Authoritarian State, op. cit., p. 204. Kwon and O’Donnell, op. cit., p. 278. Smith, ‘Korea’, op. cit., pp. 67–72. ibid., p. 77. ibid., p. 67. McNally, op. cit., pp. 6–7. Kwon and O’Donnell, op. cit., p. 279. Cumings, ‘The Korean Crisis and the End of “Late” Development’, op. cit., p. 56. National Statistical Office, R.O.K., Advance Report of Major Statistics, Seoul, December 1999; Bank of Korea, Principle Economic Indicators, Seoul, 1999. ‘Problem loans’ were those more than 3 months in arrears. OECD, OECD Economic Surveys, 1997–1998: Korea, Paris: OECD, 1998, p. 78. Korea Exchange Bank, KEB Economic Review, January/February 1998, Seoul, 1998, p. 3.

Chapter 7 1

2 3

4 5 6

Taiwan: the Migrant State

Lau, Lawrence, ‘The Economy of Taiwan, 1981–1988: A Time of Passages’, in Lawrence Lau (ed.), Models of Development: A Comparative Study of Economic Growth in South Korea and Taiwan, second edition, San Francisco: ICS Press, 1990, p. 187. Council for Economic Planning and Development, Taiwan Statistical Data Book, Taiwan: Executive Yuan, various years. See, for example: Fei, John C.H., Growth With Equity: The Taiwan Case, New York: Published for the World Bank by Oxford University Press, 1979. Myers, Ramon, ‘The Economic Development of the Republic of China on Taiwan, 1965–1981’, in Lau, op. cit., p. 26. ibid., p. 38. For examples of the neo-liberal case see Ho, Samuel P.S., Economic Development of Taiwan, 1860–1970, New Haven and London: Yale University Press, 1978; Myers, op. cit.; Galenson, Walter (ed.), Economic Growth and Structural

266 Notes

7

8

9 10

11 12 13

14 15 16

17 18 19

20 21

Change in Taiwan, Ithaca: Connell University Press, 1979; Kuo, Shirley et al, The Taiwanese Success Story: Rapid Growth with Improved Distribution in the Republic of China, 1952–79, Boulder: Westview Press, 1981. For examples of the neo-statist case see Wade, Robert, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, Princeton, N.J.: Princeton University Press, 1990; Amsden, Alice H., ‘Taiwan’s Industrialization Policies: Two Views, Two Types of Subsidies’, in Erik Thorbecke and Henry Wan (eds), Taiwan’s Development Experience: Lessons on Roles of Government and Market, Boston: Kluwer Academic Publishers, 1999. Wade, Robert, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’, in Gary Gereffi and Donald L. Wyman (eds), Manufacturing Miracles: Paths of Industrialisation in Latin America and East Asia, Princeton, Princeton University Press, 1990, p. 238. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 78. Short, R.P., ‘The Role of Public Enterprises: An International Statistical Comparison’, in Robert H. Floyd, Clive S. Gray and R.P. Short (eds), Public Enterprise in Mixed Economies: Some Macroeconomic Aspects, Washington, D.C.: International Monetary Fund, 1984. Myers, op. cit., pp. 43–4. ibid., p. 44. For example, the Fifth Four Year Plan, published in 1969, announced a major new project – a shipyard to be built in Kaohsiung – but made no mention of the fact that it was to be state-owned and operated. See Council for International Economic Cooperation and Development, The Republic of China’s Fifth Four-Year Plan for Economic Development of Taiwan, 1969–1972, CIECD, February 1969, p. 111. Wade, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’, op. cit., p. 38. Chiu, op. cit., p. 196. Li, Kwoh-ting and Wan-an Yeh, ‘Economic Planning in the Republic of China’, in Kwoh-ting Li and Tzong-shian Yu (eds), Experiences and Lessons of Economic Development in Taiwan, Taipei: Academica Sinica, 1982, Li and Yeh, op. cit., pp. 108–9. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 81. ibid., pp. 81–2. On the importance of subsidised credit to the machine tool industry see Fransman, Martin, ‘International Competitiveness, Technical Change and the State: The Machine Tool Industry in Taiwan and Japan’, World Development, 14:12, December 1986, p. 1388. On the state’s turn to promotion of high technology industries in the late 1970s, see: Haggard, Pathways from the Periphery, op. cit., pp. 141–2. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 78. Gold, ‘Changing Relations Between the State and the Private Sector in Taiwan and Mainland China’, in Hsin-huang Michael Hsiao et al (eds), Taiwan: A Newly Industrialised State, Taipei: Department of Sociology, National Taiwan University, 1989, p. 82.

Notes 267 22 23 24 25 26 27

28 29

30 31

32 33 34 35 36 37

38 39 40 41 42 43 44 45 46 47 48 49 50

Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 79. ibid. ibid., p. 80. Wade, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’, op. cit., p. 239. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 93. Meaney, Constance Squires, ‘State Policy and the Development of Taiwan’s Semiconductor Industry’, in Joel D. Aberbach, et al (eds), The Role of the State in Taiwan’s Development, Armonk, New York and London: Sharpe, 1994, pp. 188–9. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 81. Thorbecke, Erik, ‘The Process of Agricultural Development in Taiwan’, in Gustav Ranis (ed.), Taiwan. From Developing to Mature Economy, Boulder, Colo.: Westview Press, 1992, p. 28. Liang, Kuo-shu and Ching-ing Hou Liang, ‘Trade and Incentive Policies in Taiwan’ in Li and Yu, op. cit., p. 221. Lee, Teng-hui, Intersectoral Capital Flows in the Economic Development of Taiwan, 1895–1960, Ithaca: Cornell University Press, 1971, p. 29; Bello and Rosenfeld, op. cit., p. 186. Liang and Liang, op. cit., p. 221. However, the 15% limit could be raised with the government’s approval – which usually depended on foreign exchange levels. Myers, op. cit., p. 49. Haggard, Pathways From the Periphery, op. cit., p. 196. Gereffi, Gary, ‘Big Business and the State’, in Gereffi and Wyman, op. cit., p. 95. Wade, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’, op. cit., p. 38. Brainard, Lawrence J., ‘Capital Markets in Korea and Taiwan: Emerging Opportunities for Foreign Banks’, Journal of Asian Economics, 1:1, 1990, p. 176. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 78. Ho, Economic Development of Taiwan, op. cit., p. 189. Liang and Liang, op. cit., pp. 222–3. Ho, Economic Development of Taiwan, op. cit., p. 198. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 82. Jacoby, Neil, U.S. Aid to Taiwan, New York: Praeger, 1966, p. 52. Ho, Economic Development of Taiwan, op. cit., p. 107. ibid., p. 109. Taiwan Statistical Data Book, 1985, p. 12. Ho, Economic Development of Taiwan, op. cit., pp. 250–1. Amsden, ‘Taiwan’s Industrialization Policies: Two Views, Two Types of Subsidies’, op. cit., p. 95. Myers, op. cit., p. 46. Ho, Samuel P.S., ‘Economics, Economic Bureaucracy, and Taiwan’s Economic Development’, Pacific Affairs, 60:2, 1988, pp. 243–6.

268 Notes 51

52

53

54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72

73 74 75 76 77 78 79 80

Haggard, Stephan and Chien-Kuo Pang, ‘The Transition to Export-Led Growth in Taiwan’, in Joel D. Aberbach et al (eds), The Role of the State in Taiwan’s Development, Armonk, New York and London: Sharpe, 1994, pp. 78–9. Gold, Thomas, ‘Entrepreneurs, Multinationals, and the State’, in Edwin A. Winckler and Susan Greenhalgh (eds), Contending Approaches to the Political Economy of Taiwan, An East Gate Book, Armonk, New York and London: Sharpe, 1988, p. 185. Also see Schive, Chi, ‘The Next Stage of Industrialisation in Taiwan and South Korea’, in Gereffi and Wyman, op. cit., p. 271. Alam, M. Shahid, Governments and Markets in Economic Development Strategies: Lessons from Korea, Taiwan and Japan, New York: Praeger, 1989, pp. 66–7. Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., p. 185. Alam, op. cit., p. 71. Wade, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’, op. cit., p. 47. Myers, op. cit., p. 51. ibid. ibid., p. 35. Haggard and Pang, op. cit., p. 50; Amsden, ‘Taiwan’s Industrialization Policies: Two Views, Two Types of Subsidies’, op. cit., p. 98. ibid., p. 96. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 94. Haggard and Pang, op. cit., p. 81. Hughes, Christopher, Taiwan and Chinese Nationalism, London: Routledge, 1997, p. 18. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 96. Bank of Taiwan, Annual Report, Taipei, 1982, p. 8. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 96. Bank of Taiwan, op. cit., p. 8. GDP growth in 1976 reached 13.9% – the highest recorded to that point or since. Taiwan Statistical Data Book, 1985. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 97. ibid., p. 98. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 74. Numazaki, Ichiro, ‘Networks of Taiwanese Big Business: A Preliminary Analysis’, Modern China, 12:4, October 1986, p. 489. For details of the main ‘collaborator-entrepreneurs’ see Gold, Thomas, ‘Colonial Origins of Taiwanese Capitalism’, in Winckler and Greenhalgh, op. cit., pp. 109–13. Haggard, Pathways From the Periphery, op. cit., p. 128. Gold, ‘Colonial Origins of Taiwanese Capitalism’, op. cit., p. 104. ibid., p. 103. Hughes, op. cit., p. 22. Ho, Economic Development of Taiwan, op. cit., pp. 80–1. ibid., p. 104. ibid. Chiu, op. cit., p. 213.

Notes 269 81

82

83

84 85 86 87 88

89 90 91 92 93

94 95

96 97

98

99

100

Amsden, Alice H., ‘Taiwan’s Economic History. A Case of Etatisme and a Challenge to Dependency Theory’, Modern China, 5:3, July 1979, p. 343. For summaries of the colonial period see Gold, State and Society in the Taiwan Miracle, op. cit.; Ranis, Gustav, ‘Equity with Growth in Taiwan: How “Special” is the “Special Case”?’, World Development, 6:3, 1978; Ho, Economic Development of Taiwan, op. cit. Chiu, op. cit., p. 214. In Taiwanese, the mainland is called the Tang Mountains – hence the half-mountain people were those considered half-mainlanders. Cheng, Tun-jen, ‘Guarding the Commanding Heights: The State as Banker in Taiwan’, Haggard, The Politics of Finance in Developing Countries, op. cit., p. 55. Mendel, D., The Politics of Formosan Nationalism, Berkeley: University of California Press, 1970, p. 31. ibid., p. 32. ibid., pp. 32–5. Mendel, op. cit., pp. 35–6. Halbeisen, Hermann and Peter Ferdinand, ‘Domestic Political Change’, in Peter Ferdinand (ed.), Take-off for Taiwan?, London: Royal Institute of International Affairs, 1996, p. 4; Haggard and Pang, op. cit., p. 53. Baum, Julian, ‘Unfinished Business: KMT still Evasive over Role in 1947 Massacre’, Far Eastern Economic Review, 155:11, 19 March 1992, pp. 30–1. ibid., p. 31. Kau, Michael Ying-mao, ‘The Power Structure in Taiwan’s Political Economy’, Asian Survey, 36:3, March 1996, p. 288; Haggard and Pang, op. cit., p. 54. Halbeisen and Ferdinand, op. cit., p. 6. Hsu, Chen-kuo, ‘Ideological Reflections and the Inception of Economic Development in Taiwan’, in Joel D. Aberbach, et al (eds), The Role of the State in Taiwan’s Development, Armonk, New York and London: Sharpe, 1994, p. 308. Hao, Paul W., ‘The Transformation of the KMT’s Ideology’, Issues and Studies, 32:2, February, 1996, p. 7. Hsiao, Tseng, The Theory and Practice of Land Reform in the Republic of China, 2nd edn., Taipei: China Research Institute of Land Economics, 1968, p. 39. Cheng, Chen, Land Reform in Taiwan, China Publishing Company, 1961, pp. 47–8. Tang, Hui-sun, Land Reform in Free China, Taipei: Chinese-American Joint Commission on Rural Reconstruction, 1954, p. 13. The author was then chief of the land reform division of the Joint Commission on Rural Reconstruction (JCRR). Yager, Joseph A., Transforming Agriculture in Taiwan: The Experience of the Joint Committee on Rural Reconstruction, Ithaca: Cornell University Press, 1988, p. 101. See Shen, T.H., The Sino-American Joint Commission on Rural Reconstruction, Ithaca: Cornell University Press, 1970. The author was a member of the JCRR from 1948 and became its chairman in 1964. For an overview of the three stages of land reform, see: Koo, Anthony Y.C., The Role of Land Reform in Economic Development: A Case Study of Taiwan, New York: Praeger, 1968, pp. 31–9.

270 Notes 101 102 103 104 105 106 107 108 109 110 111 112

113 114 115 116

117 118

119 120 121 122 123 124

125

126 127

Ho, Economic Development of Taiwan, op. cit., p. 159. Cheng, Land Reform in Taiwan, op. cit., p. 75; Tang, op. cit., p. 17. Yang, 1970, p. 232. ibid., p. 240. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 76. Hsiao, The Theory and Practice of Land Reform in the Republic of China, op. cit., p. 123–4. Shen, op. cit., p. 65. Hsiao, The Theory and Practice of Land Reform in the Republic of China, op. cit., p. 124. Wade, Governing the Market: Economic Theory and the Role of Government in East Asian Industrialisation, op. cit., p. 76. Hsiao, The Theory and Practice of Land Reform in the Republic of China, op. cit., p. 126. Yager, op. cit., p. 118. Ranis, Gustav, ‘Equity with Growth in Taiwan: How “Special” is the “Special Case”?’ op. cit., p. 401. However, there is evidence that levels of inequality began to rise steadily in the 1980s and 1990s. See Hung, Rudy, ‘The Great U-Turn in Taiwan: Economic Restructuring and a Surge in Inequality’, Journal of Contemporary Asia, 26:2, May 1996, p. 151. Shea, Jia-Dong and Ya-Hwei Yang, ‘Taiwan’s Financial System and the Allocation of Investment Funds’, in Aberbach, op. cit., p. 201. Hughes, op. cit., p. 26. ibid., p. 28. Winckler, Edwin A., ‘Roles Linking State and Society’, in Emily Martin Ahern and Hill Gates (eds), The Anthropology of Taiwanese Society, Stanford: Stanford University Press, 1981, pp. 60–1. Halbeisen and Ferdinand, op. cit., p. 6. This is a point made by Peng Ming-min after returning to Taiwan in 1992 following two decades in exile. Wachman, Alan M., Taiwan: National Identity and Democratization, New York: M.E. Sharpe, 1994, p. 60. Winckler, Edwin A., ‘Elite Political Struggle, 1945–1985’, in Winckler and Greenhalgh, op. cit., p. 153. Wachman, op. cit., p. 57. Hughes, op. cit., p. 29. Wachman, op. cit., p. 108. ibid., p. 107. Chang, Chi-yun, Chinese Culture as a Bulwark Against Communism, Taipei: Institute of Chinese Culture in Cooperation with Free Pacific Association, 1959, p. 4. Chun, Allen, ‘From Nationalism to Nationalizing: Cultural Imagination and State Formation in Postwar Taiwan’, in Jonathon Unger (ed.), Chinese Nationalism, Armonk, N.Y.: M.E. Sharpe, 1996, p. 132. Leitner, Helga and Petei Kang, ‘Contested Urban Landscapes of Nationalism: The Case of Taipei’, Ecumene, 6:2, 1999, p. 221. Hughes, op. cit., p. 29.

Notes 271 128 129

130

131 132 133 134 135 136 137 138 139 140 141

Chiu, op. cit., pp. 235–6. Hwang, Y. Dolly, The Rise of a New World Economic Power: Postwar Taiwan, New York; Westport, Conn. and London: Greenwood Press, 1991, p. 126. Skoggard, Ian, ‘The Structure and Spirit of Development in Rural Taiwan’, in Steve Chan, Cal Clark and Danny Lam (eds), Beyond the Developmental State: East Asia’s Political Economies Reconsidered, New York: St. Martin’s Press; Houndsmills, Hampshire: Macmillan Press, 1998, p. 132. ibid., pp. 132–3. Chiu, op. cit., p. 174; Hwang, op. cit., p. 126. Myers, op. cit., p. 31. Shea and Yang, 1994, op. cit., p. 206. ibid., pp. 211–12. Cheng, ‘Guarding the Commanding Heights: The State as Banker in Taiwan’, op. cit., p. 68. ibid., p. 74. Numazaki, op. cit., pp. 501–6; Fields, Karl J., Enterprise and the State in Korea and Taiwan, Ithaca: Cornell University Press, 1995, p. 73. Fields, op. cit., p. 64. Numazaki, op. cit., p. 516. Fields, op. cit., p. 65.

Chapter 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Taiwan: on the Edge of the Descent

Koo, ‘The State, Industrial Structure, and Labor Politics: Comparison of Taiwan and South Korea’, op. cit., p. 563. Halbeisen and Ferdinand, op. cit., p. 5. Ho, Shuet-Ying, Taiwan – After a Long Silence: The Emerging New Unions of Taiwan, Hong Kong: Asia Monitor Resource Center, 1990, p. 5. Chu, Yin-wah, ‘Democracy and Organized Labor in Taiwan’, Asian Survey, 36:5, May, 1996, p. 499. Ho, Taiwan – After a Long Silence, op. cit., p. 11. Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 499; Ho, Taiwan – After a Long Silence, op. cit., p. 13. Koo, ‘The State, Industrial Structure, and Labor Politics: Comparison of Taiwan and South Korea’, op. cit., p. 567. ibid., p. 567. ibid., p. 568. Myers, op. cit., p. 31. Bello and Rosenfeld, op. cit., p. 219. Myers, op. cit., p. 31. Hu, Tai-Li, My Mother-In-Law’s Village. Rural Industrialisation and Change in Taiwan, Taipei: Institute of Ethnology, Academia Sinica, 1984, p. 94. Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 500. They called themselves Tzu-Chu-Kung-Hui – literally, ‘self-determining union’. Ho, Taiwan – After a Long Silence, op. cit., p. 1. Bello and Rosenfeld, op. cit., p. 229.

272 Notes 17 Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 502. 18 Thorbecke, Erik, ‘The Process of Agricultural Development in Taiwan’, in Ranis, op. cit., p. 32. 19 ibid. 20 See Williams, Jack F., ‘Taiwan: Environmental Degradation’, in E.K.Y. Chen, Jack F. Williams and Joseph Wong (eds), Taiwan: Economy, Society and History, Hong Kong: Center of Asian Studies, University of Hong Kong, 1991. 21 Weller, Robert P. and Hsin-Huang Michael Hsiao, ‘Culture, Gender and Community in Taiwan’s Environmental Movement’, in Arne Kalland and Gerard Persson (ed.), Environmental Movements in Asia, Surrey, England: Curzon Press, 1998, p. 83. 22 Hughes, op. cit., p. 42. 23 Weller and Hsiao, op. cit., p. 88. 24 Ren, Hai, ‘Taiwan and the Impossibility of the Chinese’, in Melissa J. Brown, Negotiating Ethnicities in China and Taiwan, Berkeley, Institute of East Asian Studies, University of California, 1996, p. 83. 25 Wachman, op. cit., p. 138. 26 ibid., p. 139. 27 Halbeisen and Ferdinand, op. cit., p. 16. 28 Baum, Julian, ‘Radical Radio: Pirate Broadcasters Thumb Their Nose at the KMT’, Far Eastern Economic Review, 157:45, 10 November 1994, p. 17. 29 Gates, Hill, ‘Ethnicity and Social Class’, in Emily Martin Ahern and Hill Gates (eds), The Anthropology of Taiwanese Society, Stanford: Stanford University Press, 1981, pp. 254–5. 30 Lo, Ming-cheng, ‘Crafting the Collective Identity: The Origin and Transformation of Taiwanese Nationalism’, Journal of Historical Sociology, 7:2, June 1994, p. 211. 31 Wachman, op. cit., p. 136. 32 Hughes, op. cit., p. 33. 33 Wachman, op. cit., p. 135. 34 Halbeisen and Ferdinand, op. cit., p. 8. 35 Hughes, op. cit., p. 38. 36 Wachman, op. cit., p. 139. 37 ibid., p. 140. 38 Wachman, op. cit., p. 140. 39 ibid., pp. 140–1 40 Hughes, op. cit., p. 41. 41 ibid., p. 40. 42 Soong, James C.Y., ‘Political Development in the Republic of China on Taiwan, 1985–1992: An Insider’s View, in Jason C. Hu, Quiet Revolutions on Taiwan, Republic of China, Taipei: Kwang Hwa Publishing, 1994, p. 76. The author was the KMT provincial governor at the time. 43 Halbeisen and Ferdinand, op. cit., p. 24. 44 Hughes, op. cit., p. 41. 45 Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., p. 191. 46 Fields, op. cit., p. 87. 47 Kuo, op. cit., p. 92. 48 Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., pp. 190–1.

Notes 273 49 Kuo, op. cit., pp. 91–2. 50 Cheng, ‘Guarding the Commanding Heights: The State as Banker in Taiwan’, op. cit., pp. 90–1. 51 Kuo, op. cit., p. 92. 52 ibid., p. 93. 53 ibid. 54 Gold, ‘Changing Relations Between the State and the Private Sector in Taiwan and Mainland China’, op. cit., p. 73. 55 Fields, op. cit., p. 65. 56 Bullard, Monte R., The Soldier and the Citizen: The Role of the Military in Taiwan’s Development, Armonk, N.Y.: M.E. Sharpe, 1997, p. 29. 57 Liu, Alan P.L., Phoenix and the Lame Lion: Modernisation in Taiwan and Mainland China, 1950–1980, Stanford: Hoover Institution Press, Stanford University, 1987, pp. 50–1. 58 ibid., pp. 48–50. 59 ibid., p. 51. 60 Haggard and Pang, op. cit., p. 63. Also see Cheng, Tun-jen, Stephan Haggard and David Kang, ‘Institutions and growth in Korea and Taiwan: the bureaucracy’, Journal of Development Studies, 34:6, August 1998; Fields, op. cit., p. 82. 61 Haggard and Pang, op. cit., p. 62. The TPB was absorbed into the Economic Stabilization Board (ESB) in July 1953. Its functions were, in turn, decentralised into the Ministries of Economic Affairs and Communications when it was dissolved in 1958. 62 Jacoby, op. cit., p. 61. 63 Myers, op. cit., p. 53. 64 Cheng, Haggard and Kang, op. cit., p. 82. 65 Chu, Yun-han, ‘The State and the Development of the Automobile Industry in South Korea and Taiwan’, in Arbach, op. cit., p. 129. 66 Haggard and Pang, op. cit., pp. 66–9. 67 ibid., p. 69. 68 Wang, Jiann-Chyuan, ‘The Industrial Policy of Taiwan, ROC’, in Seiichi Masuyama et al (eds), Industrial Policies in East Asia, Tokyo: Nomura Research Institute, Institute of South East Asian Studies, 1997, pp. 76–7. 69 For an example of this, see Hsu, Chen-Min, ‘Debt Financing, Public Investment, and Economic Growth in Taiwan’, in Takatoshi Ito and Anne O. Krueger (eds), Growth Theories in Light of the East Asian Experience, National Bureau of Economic Research – East Asia Seminar on Economics Series, Vol. 4, Chicago and London: University of Chicago Press, 1995. 70 Cheng, ‘Guarding the Commanding Heights: The State as Banker in Taiwan’, op. cit., p. 89. Bank deregulation brought in 16 newly-licensed private banks by June 1993. Chu, J.J., ‘Taiwan: A New Regional Centre in the Making’, in Ky Cao (ed.), The Emerging Capital Markets of East Asia, Studies in the Growth Economies of Asia, Vol. 1, London and New York: Routledge, 1995, p. 189. 71 ‘If you want to copy Taiwan’s economic model, remember to add a bit of luck’, Economist, 7 Nov 1998. 72 Wang, ‘The Industrial Policy of Taiwan, ROC’, op. cit., p. 73. 73 Kau, op. cit., p. 302.

274 Notes 74 75 76 77 78 79

80

81

82 83

84 85 86 87 88 89 90 91 92 93 94 95 96 97

Hao, op. cit., p. 14. Kau, op. cit., p. 294. Wang, ‘The Industrial Policy of Taiwan, ROC’, op. cit., p. 71. Bello and Rosenfeld, op. cit., p. 258. Kuo, op. cit., p. 90. Hughes, op. cit., pp. 109–10. Also see Chen, Tain-Jy, Yi-Ping Chen and YingHua Ku, ‘Taiwan’s Outward Direct Investment: Has the Domestic Industry Been Hollowed Out?’, in Nomura Research Institute; Institute of Southeast Asian Studies (compilers), The New Wave of Foreign Direct Investment in Asia, Tokyo; New York and London; Nomura Research Institute; Singapore: Institute of Southeast Asian Studies, 1995, p. 89. Clough, Ralph N., ‘The PRC, Taiwan, and the Overseas Chinese’, in Young C. Kim (ed.), The Southeast Asian Miracle, New Brunswick, N.J. and London: Transaction, 1995, p. 235. ‘Formosa Plastics Plans Big Investment in China’, Chemical Week, 163:14, 4 April 2001, p. 21. On the attempts by the Taiwanese government to restrict Taiwanese FDI in China see: Deng, Ping, ‘Taiwan’s Restriction of Investment in China in the 1990s’, Asian Survey, 40:6, November 2000. ‘Chasing The Dream To Shanghai’, Business Week, 27 November 2000, p. 140. Wade, Robert and Frank Veneroso, ‘The Asian Crisis: The High Debt Model Versus the Wall Street-Treasury-IMF Complex’, New Left Review, 228, March/April 1998, op. cit., p. 11 (ftn). See for an example of this view – ‘The Tiger that Remains Unbowed’, Asian Review of Business and Technology, April 1998, p. 6. ‘The Dream Postponed: Taiwan’, The Economist, 7 August 1993, pp. 36–7. McBeath, Gerald A., ‘Taiwan Privatizes by Fits and Starts’, Asian Survey, 37:12, December 1997, pp. 6–8. ‘If you want to copy Taiwan’s economic model, remember to add a bit of luck’, op. cit. ibid. ‘Taiwan’s Siew: “We’ve Intensified Our Reforms”’, Business Week, 28 December 1998, p. 32. ‘If you want to copy Taiwan’s economic model, remember to add a bit of luck’, op. cit. ‘No domino’, The Economist, 20 March 1999, p. 76. Rohwer, Jim, ‘Why Taiwan May be Next to Fall’, Fortune, 39:3, 15 February 1999, p. 98. ibid. ibid. Taiwan’s financial system – too many debts to settle’, The Economist, 11 November 2000, p. 97. ibid. On the inconsistencies and difficulties in carrying out the program see: Huang, Tien-mu Thomas, ‘Privatizing Public Enterprises in Taiwan’s Government-Owned Banks’, International Journal of Public Administration, 23:10, October 2000.

Notes 275

Chapter 9

The Rise and Fall of the Midas States

1 United Nations Development Program, Human Development Report, New York: Oxford University Press, 1999, p. 3. 2 Jones, Leroy P., ‘Big Business Groups in South Korea: Causation, Growth and Policies’, in Lee-Jay Cho and Yoon-Hyung Kim (eds), Korea’s Political Economy: An Institutional Perspective, Boulder and Oxford: Westview Press, 1994, p. 509. 3 Marx, Karl, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 121. 4 For examples of references to several of these states as Bonapartist, see: La Botz, The Crisis of Mexican Labor, op. cit., p. 1; Koo, ‘Middle Classes, Democratisation, and Class Formation: The Case of South Korea’, op. cit., p. 502. 5 The ‘dissipating alchemy’ of the Korean state is a phrase used by Woo Jung-en. See: Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit., p. 202.

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Index 2–28 incident, 198, 201, 205, 211, 233 agrarista, agrarismo, 72, 99, 108 agriculture, 3, 10, 17, 18, 25, 41, 43, 77, 89, 97, 184, 186, 187, 195, 202, 203, 215 Alemán, Miguel, 60, 75, 79, 80, 81 alemanismo, 76 Alexander II, 21, 40 Allende, Salvador, 61 Alliance for Production, 101 Altos Hornos de México, 57 Anaconda, 62 apertura democrática, 98, 99 Asia Motors, 133 Autumn Harvest Risings, 137 Azcarraga, Emilio, 115 Bank of England, 10 Bank of France, 12 Bank of Korea, 120, 127 Bank of Mexico, 57, 107, 110 Bank of Taiwan, 192, 201 BES Engineering, 183 Bismarck, Otto von, 22, 23, 34, 35, 36, 40, 47, 233, 235 Bonaparte, Louis, 11, 12, 31, 32, 33, 34, 35, 37, 38, 39, 40, 46, 47, 64, 67, 76, 86, 233, 234, 235 Bonapartism, 12, 33, 34, 35, 36, 38, 39,87, 101, 109, 235, 237, 238 Border Industrialisation Program, see maquiladoras Bourbon, House of, 32, 33, 37, 234 bourgeoisie, passim caciques, 108 Caliban, 30 Calles, Plutarco Elías, 68, 69, 70, 72, 73 Camacho, Avila, 61, 75, 111 Cámara Nacional de la Industria de Transformación (CANACINTRA), 76, 111

Campa, Valentín, 80 campesinos, 98, 116 Cananea copper, 63, 114 capital, passim Cárdenas, Lázaro, 60, 69, 70, 71, 72, 73, 74, 75, 76, 77, 86, 92, 95, 98, 100, 101, 109, 113, 114, 234, 242 Cárdenas, Cuauhtémoc, 95 cardenismo, 75, 95, 114 Carey, Henry C., 6 Carranza, Venustiano, 64, 65, 66, 235 Carter, Jimmy, 124 Casa del Obrero Mundial (COM), 64, 65, 79, 86 Castro, Fidel, 93 Catholic Church, 64, see also Young Christian Workers caudillos, 73, 83 Central Bank of China, 223, 224 Central Campesina Independiente (CCI), 77, 93 Ch’oe Chong-gil, 147 chaebol, 121–80, 210, 228, 236, 241, 242 Chang Myon, 142 charrazo, 80, 81, 90 charros, 82, 91, 92, 97 Chen Cheng, 199, 201, 224 Chen Shui-bian, 220, 230 Chen Yi, 197, 198 Chiang Ching-kuo, 199, 218, 219, 220, 221, 242 Chiang Kai-shek, 47, 197, 199, 207, 218, 222, 233 China Federation of Labor (CFL), 213 China Man-Made Fibre Corporation, 185 China Petroleum, 183, 191 Cho Soon, 174 Chokunin, 135 Chonggye Garment Workers’ Union (CGWU), 152, 160 chonin, 19 Choson Communist Party, 137

303

304 Index Choson Ilbo, 147 chu liu, 220 Chun Doo-hwan, 137, 138, 146, 148, 151, 152, 155, 156, 157, 161, 162, 163, 164, 165, 166, 167, 169, 172, 173, 174, 176, 177, 178, 242 Chun Kyung-hwan, 148, 172 Chun Pyung, 137, 138, 146 Chun Tae-il, 151, 152 Chung Ju-yung, 167, 170, 173, 175, 178 Chung-li incident, 218 CIA, 61 claúsula de exclusión, 79 clientalism, 45 Coalición Obrera Campesina Estudiantil del Istmo (COSEI), 94 Cobden–Chevalier Treaty, 12 see also 1860 trade treaty, 40 Cold War, 5, 79, 126, 136, 183, 193 collaborator-entrepreneurs, 196, 208 Committee for the Preparation of Korean Independence (CPKI), 136 Compañía Nacional de Subsistencias Populares (CONASUPO), 97 comprador, 22, 27, 45, 136, 232 Confederación Campesina Mexicana (CCM), 72 Confederación de Cámeras de Industria (CONCAMIN), 111 Confederación de Cámeras Nacionales de Comercio (CONCANACO), 111 Confederación de Trabajadores de México (CTM), 70–105 Confederación General de Trabajadores (CGT), 67, 69, 73 Confederación Nacional Campesina (CNC), 72, 73, 74, 77, 78, 84, 86, 87, 93, 99, 108, 111 Confederación Nacional de Organizaciones Populares (CNOP), 73, 84, 109 Confederación Patronal de la República Mexicana (COPARMEX), 111 Confederación Regional Obrera Mexicana (CROM), 65, 66, 67, 68, 69, 73, 79 CROM depurada, 69 cromistas, 68 Confederación Sindical Unitaria de México (CSUM), 69

Confederación Única de Trabajadores (CUT), 80, 81 Confucianism, 2, 3, 200 Consejo Coordinadora Empresaria (CCE), 100, 111, 115 Consejo Mexicano de Hombres de Negocios (CMHN), 115 Constitutionalists, 64, 65, 67 Continental system, 13 Control Yuan (CY), 220 Conventionists, 64 Coordinadora Nacional del Movimiento Urbano Popular (CONAMUP), 94 Coordinadora Nacional Plan de Ayala (CNPA), 93 Coordinadora Unica de Damnificados (CUD), 95 Coordinadoras, 93 Cordera, Rolando, 106 Corriente Democrática (CD), 95 corruption, 82, 95, 115, 125, 145, 148, 172, 173, 220, 222 Council for Economic Planning and Development (CEPD), 225 Council on International Economic Co-operation and Development (CIECD), 223, 224 Council on US Aid (CUSA), 223 Crédit Mobilier, 11, 12, 13, 14, 40 Crimean War, 16 cristeros, 68 Daewoo, 119, 133, 157, 158, 159, 167, 179 Daewoo Apparel, 161 daimyo, 19 de la Huerta, Adolfo, 66, 67 de la Madrid, Miguel, 107, 108, 109, 110, 112, 113, 114, 116 Declaration of Taiwanese SelfSalvation, 217 delegado de planta, 82 delinking, 48 Democracy Foundation, 221 Democratic Justice Party (DJP), 156, 171, 175 Democratic Kampuchea, 48 Democratic Progressive Party (DPP), 219, 220, 221, 240, 243

Index 305 Democratic Republican Party (DRP), 145 dependency, 4, 5, 8, 60, 115, 181, 195 dependista, 4, 5, 6, 22, 48 destape, 84 developmentalist state, passim Díaz de León, Jesús, 80 Díaz Ordaz, Gustavo, 47, 94, 97 Díaz, Porfirio, see porfiriato Díaz Serrano, Jorge, 103, 104 Diesel Nacional (DINA), 90, 112 dirigiste, 51, 76, 85, 107, 122, 133, 182, 225, 242 Disraeli, Benjamin, 29 Dong-il Textile Company, 152 Draper, Hal, 28, 30 Echeverría Alvarez, Luis, 96, 97, 98, 99, 100, 101, 102, 105, 108, 110, 111, 116, 234, 241, 242 echeverrismo, 100, 111 Economic Planning and Development Council (EPDC), 223 Economic Planning Board (EPB), 120, 122, 124, 128, 147, 171, 174, 224 Ejército Zapatista de Liberación Nacional (EZLN), 115 ejiditarios, see ejido ejido, 63, 71, 72, 74, 76, 77, 89, 93, 97, 113 enclosure, 10 Engels, Friedrich, 28, 29, 30, 31, 35, 36, 37, 38, 39 equipo, 83 Evergreen Foundation, 221 Executive Yuan (EY), 200, 223 Federación Sindical de Trabajadores del Distrito Federal (FSTDF), 68 Federation of Korean Industry (FKI), 171, 172, 175, 178, 179 Federation of Korean Trade Unions (FKTU), 146, 152, 154, 157, 158, 159 fei chu liu, 220 feudalism, 19, 23, 28, 34, 42, 134 Financial and Economic Committee (FEC), 223 financial revolution, 10 Ford, 62, 90, 112, 114

foreign aid, 126, 189, 203 Foreign Capital Inducement Law, 127 Foreign Direct Investment (FDI), 17, 20, 60, 76, 127, 128, 168, 187, 192, 227 Foreign Investment Deliberation Committee, 168 foreign trade, 11, 181 Formosa Plastics, 185, 227 Fox, Vicente, 116 Free Export Zones (FEZs), 128 free trade, 12, 16, 114, 161, 226 Frente Auténtico del Trabajo (FAT), 91 Frente Democrático Nacional (FDN), 95 gardes mobiles, 32 Garza Sada, Eugenio, 100 GATT, 114 General Motors, 62, 90, 167 General Trading Companies (GTCs), 129, 133 gentry farmers, 10 Gerschenkron, Alexander, 9, 10, 12, 13, 16, 21, 25, 39, 50, 54, 232 gold standard, 10, 17 Goldstar (Lucky Goldstar- L.G.), 119, 175 Gómez Morín, Manuel, 111 Government Audit Report on Illicit Wealth, 125 Grace Semiconductor Manufacturing Corporation (GSMC), 227 granaderos, 93 Grand Coalition, 164, 165 Guan Zhong, 221 guanxiqiye, 210, 222 hacendados, haciendas, 63 Hakka, 204, 205, 216 half-mountain people, 197, 205 Hapsburg Austria, 38 Haraldson, Wesley, 190 Heavy and Chemical Industry Plan (HCIP), 123, 124, 125, 156, 168 Heavy and Chemical Industry Promotion Committee, 124 Hei Ming-dai, 216 Hernández Galicia, Joaquin (La Quina), 78, 82

306 Index Hodge, John Reed, 138 Hong Yoon-ok, 138 Hsin ch’aoliu hsi, 219 Hsu Hsin-liang, 218 Hualong Conglomerate, 221 Huerta, Victoriano, 64, 67 Hyundai, 119, 147, 158, 159, 167, 170, 173, 175, 178, 179 Hyundai Heavy Industries (HHI), 131, 158 Hyundai Merchant Marine Company, 131 Ilhae Foundation, 172, 173 International Monetary Fund (IMF), 6, 88, 101, 102, 103, 105, 106, 112, 114, 180 Import Substitution Industrialisation (ISI), 76, 90, 119, 128, 187, 188, 189, 190, 195 Inchon Free Workers Association, 159 industrial revolution, 3, 10, 13, 22 infrastructural power, 43 Institute for National Policy Research, 221 institutionalism, 43 Instituto de Seguridad y Servicios Sociales de los Trabajadores del Estado (ISSSTE), 97 Instituto Mexicano de Seguridad Social (IMSS), 97 Ito Hirobumi, 19, 23, 27, 47, 233 JOC, see Young Christian Workers John Deere, 62 Joint Commission on Rural Reconstruction (JCRR), 201, 223 July Monarchy, 32 June Days, 33, 235 Junkers, 35, 36, 40 junta de conciliación, 66, 70 Kagoshima, bombardment of, 18 Kaiser, 23 Kaohsiung Incident, 218 Kim Dae-jung, 156, 163, 164, 176 Kim Ku, 137, 138 Kim Young-sam, 155, 163, 164, 165, 167, 168, 171, 172, 175, 176, 242

Kissinger, Henry, 193 Korea Broadcasting Corporation, 132 Korea Democratic Party (KDP), 136 Korea Development Institute (KDI), 128 Korea Electric Power Corporation, 131 Korea Highway Corporation, 131 Korea Machinery, 132 Korea Reconstruction Bank, 127 Korea Tourism Corporation, 132 Korean Air, 132 Korean Central Intelligence Agency (KCIA), 146, 147, 155 Korean Confederation of Trade Unions (KCTU), 155 Korean Stock Exchange (KSE), 168 Kukje-ICC, 133 Kukmin Hoei, 162 Kung tang, 219 Kuomintang (KMT), 197–232, 240, 242 Kuro Industrial Park, 157 kusadae, 147, 157 Kwangju uprising, 156, 163, 178, 239, 242 Kwon In-sook, 160 labour, passim labour movement, passim laissez-faire, 11, 15, 122, 224 land reform, 43, 45, 72, 75, 97, 138, 139, 140, 141, 200, 201, 202, 203, 209, 214, 215, 223, 233, 234, 235, 236 landowners, 10, 26, 33, 35, 37, 40, 41, 45, 63, 66, 72, 77, 134, 136, 137, 139, 140, 143, 144, 201, 202, 232, 234 Laokung tang, 219 latifundios, latifundistas, 63, 99, 100 Law Guaranteeing Foreign Loans, 122 Law Guaranteeing Repayment for Loans, 127 Law of New and Necessary Industries, 58 Lee So-sun, 152 Lee Teng-hui, 219, 220, 221, 226 Legislative Yuan (LY), 200, 213, 221, 224, 226

Index 307 Li, K.T., 209, 220, 224 Lin Tingshen, 208 List, Friedrich, 6 Lombardo, Vicente, 69, 70, 71, 79, 80 López Mateos, Adolfo, 62, 109 López Portillo, José, 99, 101, 102, 103, 104, 105, 106, 107, 108, 110, 111, 116, 241 los cinco lobitos, 68 Louis Philippe, 32 lumpenproletariat, 33 Lyuh Woon-hyung, 137 Madero, Franscisco I., 63, 64 Mandarin (guoyu) Promotion Committee, 206 manufacturing, passim maquiladoras, 60, 97 Marx, Marxism, 28–40, 46, 53, 54, 67, 153, 155, 233, 234, 235, 237, 238 Maximato, 69 Measures for the Handling of Labor Disputes during the Period of National Mobilization and Suppression of Rebellion, 213 Meiji, 19, 20, 21, 22, 24, 26, 27, 35, 41, 42, 195, 238 Mei-li Tao, 218 Meilitao hsi, 219 Mexicanisation, 61, 76, 113 Midas, 1, 2, 8, 48, 49, 50, 51, 52, 53, 54, 55, 150, 228, 230, 231, 232, 233, 234, 235, 238, 239, 240, 241, 243 middle class, passim minifundistas, 93 Minister of Economic Affairs (MOEA), 223 Ministry of Trade and Industry, 129, 133 minjung, 153, 154, 161 Min-min-Hyup, 162 Minnan hua, 204 Minnan jen, 204 minsheng zhuyi, 200 Mintong’ryun, 162 modernisation, 4, 5, 6, 8, 23, 35, 171 Mong Hun, 175 Monterrey Group, 76, 100, 102 Morones, Luís, 65, 67, 68, 69, 79

Movimiento Revolucionario del Magisterio (MRM), 81 Muñoz Ledo, Porfirio, 95 Nacional Financiera (NAFIN), 57, 58, 62, 76 NAFTA, 114, 115 Napoleon III, see Bonaparte, Louis Napoleonic Wars, 13, 21 National Alliance of Students, 161 National Bank of Ejidal Credit, 72 National Movement for a Democratic Constitution, 163 National Society for the Rapid Realization of Korean Independence, 137 nationalism, 51, 52, 60, 61, 114, 143, 206 neo-liberalism, 5, 6, 7, 8, 25, 27, 49, 95, 110, 112, 114, 115, 123, 191, 231, 241, 242 neo-statism, 4, 5, 7, 8, 25, 50, 54, 182, 232 New Democratic Party (NDP), 153, 155, 162, 176 New Environment Foundation, 215 Newly Industrialising Countries (NICs), 1–9, 25, 42, 43, 44, 46, 47, 50, 51, 54, 84, 96, 118, 128, 180, 181, 182, 193, 203, 212, 213, 225, 231, 232, 236, 237, 238, 243 Nicholas II, 21, 27, 47 nightwatchman state, 14, 21 No Chong, 138, 146 Non-bank financial institutions (NBFIs), 169, 180 norteños, 76 Obregón, Alvaro, 64, 65, 66, 67, 68, 83, 86, 235 Office of National Tax Administration (ONTA), 133 oil, 5, 50, 57, 58, 60, 68, 70, 71, 75, 78, 79, 89, 92, 102, 103, 104, 105, 108, 110, 114, 119, 120, 130, 131, 181, 184, 193, 194, 223, 243 Olympic Games, 56, 150, 181 Opium Wars, 19

308 Index Organisation for Economic Cooperation and Development (OECD), 118, 171, 180, 231 Orléans, House of, 32, 33, 37, 40, 234 Ortega Arenas, Juan, 91, 97 Ortiz Rubio, Pascual, 68 Ottomans, 21 Pan-American Sulphur Company (PASCO), 62 Park Chung-hee, 47, 120–80, 233, 236, 239, 242 Park Jong-Chul, 162 Partido Acción Nacional (PAN), 111, 112, 113, 114, 115, 116 Partido Comunista Mexicano (PCM), 99 Partido de la Revolución Democrática (PRD), 113, 114 Partido de la Revolución Mexicana (PRM), 73 Partido Laborista (PL), 66, 67 Partido Nacional Agrarista (PNA), 66 Partido Nacional Revolutionario (PNR), 73 Partido Popular (PP), 79 Partido Revolucionario Institucional (PRI), 57, 59, 60, 61, 74–117, 233–9, 242 Partido Socialista Unificado de Mexico (PSUM), 106 Peace and Democracy Party (PDP), 164 Peace Market, 151, 152 Peng Ming-min, 217 People’s Committees, 136, 137 People’s Republic, 136, 137, 211 Péreire, Emile and Isaac, 11 Perry, Matthew, 18 petrodollars, 98 Petróleos Mexicanos (PEMEX), 57, 71, 78, 103, 104 petroleros, 80, 82 Petroleum Workers Union, 214 Plan for Economic Rehabilitation, 184 Planning Council, 124, 223 pluralist, 27, 28 Pohang Iron and Steel Corporation (POSCO), 132, 228

political state elite, 52, 53, 55, 176 políticos, 108, 109, 110 Porfiriato, 63, 66 Portes Gil, Emilio, 68, 69 proletariat, 11, 77, 234 Prospero, 30 Provisional Special Customs Duties Law, 123 pueblos libres, 63 Qing dynasty, 195, 205 railways, 12, 13, 15, 16, 17, 67, 196 Reagan, Ronald, 6 Red Battalions, 65, 66 Restoration Monarchy, 31, 41 Reutern, M.K., 17 Rha Woong-bae, 174 Rhee, Syngman, 120, 125, 126, 127, 132, 137, 138, 139, 140, 141, 142, 143, 144, 145, 146, 148, 160 Río Blanco strike, 63 Rodríguez, Abelardo L., 69 Roh, Tae-woo, 156–78, 242 Romanovs, 35, 38, 40 Rothschilds, 11 saemaul undong, 147, 148, 172, 232 Saenara Motors, 132 Saesedae Foundation, 172 Saigo Takamori, 19 Salinas de Gotari, Carlos, 108, 110, 112, 113, 114, 115 Samho, 125, 133 Samsung, 119, 125, 129, 167, 179 samurai, 19, 41, 42 Sánchez Mejorada, Pedro, 102 Sandinistas, 61 Satsuma rebellion, 19, 42 segyehwa, 168 serfdom, 16, 18 sexenio, 83, 84, 97, 98, 101, 102, 103, 109, 112, 113 Shimonoseki, bombardment of, 18 Shimonoseki, Treaty of, 195 Shinnin, 135 Shisan Taibao, 221 Shogun, Shogunate, 18, 19, 41 Silva Herzog, Jesús, 104

Index 309 Sindicato de Trabajadores Ferrocarrileros de la República Mexicana (STFRM), 80, 81, 90 Sindicato de Trabajadores Petroleros de la Républica Mexicana (STPRM), 71, 78, 79, 80 Sindicato Nacional de Trabajadores de la Educación (SNTE), 81 Sindicato Nacional de Trabajadores Mineros, Metalurgicos y Similares de la República Mexicana (SNTMMSRM), 80, 81, 91 Sindicato Unico de Trabajadores Electricistas de la República Mexicana (SUTERM), 90 Sino-American Joint Commission on Rural Reconstruction, 201 Society of 10 December, 33 Sonnin, 135 Special Act for National Security, 146 Steel Club, 221 stock exchange, 10 strikes, 26, 65, 67, 70, 71, 81, 90, 91, 92, 99, 100, 102, 112, 114, 116, 152, 157, 159, 164, 165, 213, 214, 227, 239 Suchul ipguk, 128 Sun Yat-sen, 200, 201, 207 Superbarrio Gómez, 95 Supreme Council for National Reconstruction, 144 Taihan Transportation, 132 Taiwan Environmental Protection Union, 215 Taiwan Greenpeace, 215 Taiwan Power, 183 Taiwan Production Board (TPB), 223 Tang Chuanzong, 208 Tang Eng Ironworks, 208 tang-wai, 218, 219 tariffs, 6, 15, 16, 17, 23, 40, 49, 58, 59, 122, 123, 128, 168, 182, 185, 187, 188, 221, 226, 242 Tatung Group, 208 taxes, 18, 26, 30, 103, 172, 175, 186, 202, 208 techno-bureaucratic elite, 52, 53, 55 técnicos, 109, 110, 114

Tello Macías, Carlos, 106, 110 Ten Major Development Projects (Taiwan), 191, 194 Tendencia Democrática (TD), 90, 91, 92, 97 tercermundista, 96 textiles, 13, 26, 63, 124, 151, 156, 167, 184, 185, 186, 188, 195, 224, 227 Thatcher, Margaret, 6 The Intellectual, 217 The Presidential Emergency Decree of 1972 (Korea), 123 Third World, 1, 4, 5, 6, 24, 25, 27, 44, 45, 46, 47, 56, 84, 85, 86, 88, 142, 231, 237 Third Worldism, 4 Three People’s Principles, 200 Tlatelolco massacre, 94, 96, 239, 242 Tokugawa period, 19, 41, 134 Tonga Ilbo, 147 Tories, 29, 37 Trade Union Congress, Korea, 164 Tsars, 16, 18, 22, 23, 26, 27, 41 Tzuli paohsi, 216 Unidad Obrera Independiente (UOI), 91, 97 Unification National Party (UNP), 175 United People’s Party (UPP), 175 Universidad Nacional Autónoma de México (UNAM), 84, 93, 94, 109 University Autonomy Measure, 161 Urban Industrial Mission (UIM), 154, 160 US Army Military Government in Korea (USAMGIK), 137, 138 Vallejo, Demetrio, 90 Vargas Llosa, Mario, 74 Velázquez, Fidel, 68, 69, 71, 74, 79, 80, 82, 92, 97, 105 Vietnam War, 129 Villa, Franscisco, 64, 71 villistas, 64 Voice of Taiwan, 217 Volcker, Paul, 104 Vyshnegradskii, I.A., 17, 18

310 Index Wang, Y.C., 185 Washin, 125 Whigs, 37 Witte, Sergei, 17, 18, 23, 27 workers’ movement, 26, 53, 65, 153, 161, 162, 163 working class, passim World Bank, 6, 7, 113, 118, 124, 132 World Health Organisation (WHO), 57 Wounpoong Industrial Company, 157 xiang tu, 216 Xin Chaoliu, 219

Yang Chung Mo, 172 yangban, 134, 135, 136 YH Trading Company, 153, 155, 176 Yi dynasty, 134 Yin, K.Y., 190, 220, 224 Young Christian Workers (JOC), 154, 160 Yun-men, 216 Yushin Constitution, 124, 146, 156 zaibatsu, 20, 196 Zapata, Emiliano, 64, 65, 71, 93 zapatistas, 64 Zedillo Ponce de León, Ernesto, 110, 112, 115