Globalization and development: South Korea's uneven industrialization path

¶ … globalization been a force for development or for underdevelopment?

Globalization and Development: An Uneven Exchange

Globalization is the network of international flows of goods, services, money, information, ideas and people. It is the force that helped nations developed into economic powers, becoming players on the international stage. Globalization while an instrument of positive change in many regions of the world it has also contributed to escalating levels of income disparity, environmental degradation, the eroding of state power on the international stage and the increase in activity and sophistication of trans-national criminal organizations. This paper demonstrates how globalization and the promotion of specific economic policies is a boon to specific countries such as South Korea while other nations are increasingly marginalized. Weak nation-states are subject to the influence of non-state international actors such as trans-national corporations and criminal organizations. These external factors destabilize a nation's central government and its authority therefore hindering a country's development process.

Globalization Economic Policies

Developing nations seeking to reap the benefits of globalization require a metamorphosis of their economic policies. These nations need to industrialize in order to effectively participate in the world economy. Typically one can identify five main phases of industrial development: commodity export phase, and primary and secondary export-oriented industrialization, primary import-substituting industrialization (ISI) and secondary ISI [Gereffi 1989]. South Korea is one country the successfully implemented ISI and export-oriented strategies. South Korea already had a history of industrialization and liberal economic policies. Before the occupation Korea was mostly a poor agricultural society where private land ownership was not well established. The Japanese abolished the monarchy, commercialized agriculture, broadened exchange and established private ownership of land. The regime implemented a policy of industrialization which brought about urbanization. Seoul became a city of over one million people when at the beginning of the century it had less than 200,000 [Cumings 2005]. Japanese rule was the first to begin Korean industrialization.

After WWII, the Korean War began which also contributed to laying further foundations for South Korea's industrialization. During the Rhee administration, South Korea redistributed its land before and after the war and South Korea saw a massive increase in U.S. aid and the militarization of South Korea. The Land Reform bill helped industrialization in two fundamental ways. The leveling of incomes and wealth in the countryside provided the possibility of putting the agricultural sector through lower prices for agricultural output without causing famine [Cumings 2005]. The capital gained from land redistribution was invested in the manufacturing and commercial sectors of the economy. U.S. Aid played an important role in industrialization of South Korea. The U.S. gave almost $6 billion between 1945 and 1978. All of this economic aid provided South Korea with the foreign exchange to support rapid industrial expansion [Cumings 2005]. Foreign exchange is needed to buy equipment and the knowledge for production, raw materials and energy to fuel production. Essentially, U.S. Aid funded South Korea's industrial expansion and reconstruction after the Korean War. The Park Chung Hee military regime brought a new economic era for South Korea. His military government can be characterized as nationalistic with an economic goal of rapid development. The state did this by creating the Economic Planning Board and centralizing political power to Park's party so there would be no hindrances to their plan [Cumings 2005]. Therefore, the 1960's and 1970's saw incredible economic growth due to government policy in export-led growth and industrial diversification.

The emergence of globalization resulted in the increase of foreign direct investment (FDI). Growth had been mostly seen from the period of 1990-2003 where there was increase in equity investment, short-term and long-term loans and reinvested earnings [World Development Indicators 2003]. For instance, developed countries such as Japan had increased their FDI at least 4 times from the period of 1990-2003 while the U.S. had increased theirs threefold [World Development Indicators 2003]. In developing countries such as Brazil, its FDI had increased its FDI 23 times while China had their FDI increased 13 times [World Development Indicator 2003].

The tremendous changes propelled by globalization in the FDI of countries showed the level of success of globalization in integrating FDI as an important economic tool in countries whether developed or developing. Concurrently, the results of the FDI do not only reflect the success of globalization in terms of economic growth and numbers but rather, it also reflects in the political, economic and legal areas of countries. For instance, due to the prevalence of FDI, the quality of banking services and the access to technology of investors had been heightened in host countries [Bank for International Settlements 2004]. Monetary policies and legal protection for investors in order to encourage them to invest their capitals had also been instituted leading to the growth not only of FDI but also the mushrooming of domestic enterprises particularly small and medium enterprises due to the more favorable business condition that has resulted from it.

The success of globalization in FDI has not shown any slowdown- the prevalence of MNCs, TNCs, mergers and acquisitions and the provision for soft and hard investment in developing countries where wages are lower and the quality of products and services has not been compromised is continuing. To a significant extent, it can be considered that FDI has been successful not only in the quantity of investments made but also on the manner by which it had affected the host countries. FDI, it is argued, assists in the development of local suppliers and sales, provides Third World countries with technology so they can effectively compete with advanced countries, increases the capital stock in a country, and therefore the income of that country and FDI provides employment for laborers within the Third World [Kiely 1998]. Consequently, due to the bilateral interests between FDI and host-countries, conflicts had been minimal compared to that of trade where the complexity of tariffs is put into the center of negotiations. Hence, globalization is successful in providing an orderly means of FDI in order not only to aid in developing countries but also to increase the efficiency and profitability of MNCs and even of developed countries.

Non-State Actors and Globalization

This idea of TNCs subverting national sovereignty is well documented. For example, during the late 90s, the Clinton administration imposed economic sanctions on Khartoum, a government that was hosting Islamist militant groups. American companies that imported gum arabic opposed the economic sanctions and asked for a pass to keep importing the substance. These companies, according to Napoleoni (2003), "depended on imports of gum arabic from Gum Arabic Co. Of Khartoum, a company controlled by Osama bin Laden, of which the Sudanese government held only a 30% stake. Sudan is the largest exporter of gum arabic and U.S. importers are its biggest buyers" [Napoleoni 2003]. Non-state actors working against the interests of the nation-state is now more commonplace than ever. These actors inhibit the development and progress of weaker periphery states.

Globalization serves as a method of facilitating criminal objectives. Economic globalization makes the acquisition of "communication media, arms, capital, skills, and information" [Lizardo 2006] to non-state actors that much easier. This availability of material and coordination resources helps to equalize the international playing field between non-state actors and nation states. The relationship between terrorist organizations and transnational criminal groups is one good example of this concept. Makarenko (2002) writes, "the state as the central focus of international affairs has given way to a host of non-state actors; and, it has become increasingly evident that the greatest threat to security emanates from the rapidly evolving phenomena of terrorism and transnational organized crime (TOC)" [Makarenko 2002]. Globalization after the cold war has played a key role in bringing both sides of the spectrum together. After the end of the cold war, there was a decline in state-sponsored terrorism, opening of territorial borders, a surplus of weapons, and the expansion of the marketplace to global status [Makarenko 2002].

Despite the positive aspects to globalization, integrating markets, creating new ones, helping to diminish poverty, and spreading democracy, globalization has presented the world with new problems. As previously mentioned, globalization undermines the sovereignty of nation-states through the expansion of information, technology, finance and manufacturing. This is especially true in weak states in Africa, South Asia, and Latin America. These weak states that are unable to maintain a healthy economy must adhere to regulations set forth to them by international financial organizations. Following these regulations create new markets that these governments cannot properly monitor or control, leading to the creation of parallel economies where new forms of making legal and illegal money suddenly become attainable [Makarenko 2002]. Makarenko (2002) writes how these parallel economies are created from the implementation of liberal economic policies followed by international organizations such as the IMF and World Bank, which as a result force these periphery states to privatize and deregulate their economies. These economic programs have led to increased levels of unemployment and greater income disparities, ideal conditions for criminal organizations and terrorism.

Naturally as the world order evolves through globalization, so do criminal enterprises and terrorist organizations. These organizations have incorporated new skills and characteristics to capitalize on the new world order. They are increasingly capable of crossing national borders with ease, involving themselves in legal and illegal ventures, developing an uncanny ability to recognize new business ventures, and most importantly a growing capability to manage risks [Makarenko 2002]. Risk management, Makarenko (2002) argues, is one of the primary factors that have changed the organizational structures of these non-state actors. By seeking new allies in the post-cold war era, criminal and terrorist organizations have learned from each other. Criminal organizations incorporate the cell-structure and network emulating traditional terrorist groups and terrorists use criminal activities (such as drug trafficking, smuggling, and money-laundering) to fund their operations. Bergsen and Lizardo (2004) even mention the transformation of terrorist organizations, remarking on their shift to a more network form. Newer terrorist organizations have shifted away from professionally trained terrorists with a hierarchical structure to a more loose-based form without a clear nucleus. Globalization provides an economic infrastructure that criminals and terrorists both can exploit, such as Islamic banks, offshore accounts, and state-shell economics [Napoleoni 2003].

Conclusion

Globalization provided a method for developing countries to rapidly industrialize and subsequently advance their respective nation. Economic policies geared towards globalization such as import-substitution industrialization and export oriented policies assisted in exponentially expanding developing countries economy. These triumphs are seen in South Korea, China, and most recently Brazil. However, globalization does create problems such as the creation and empowerment of new non-state actors such as TNCs and criminal organizations. TNCs in particular are motivated by profit not enhancing the goals of their state creating conflicts of interest. Criminal organizations subvert national sovereignty and elude capture by operating across the globe and now in conjunction with other organizations. In weaker states it undermines the central government as seen now in Mexico's war against the drug cartels. This makes globalization a positive force only for advanced industrial nations and select developing countries. The rest of the world grows dependent on the major countries driving globalization.