South Koreans use the term ‘the Miracle at the Han River’ to describe their economic growth since the Korean War. In the 1960s, South Korea’s Gross Domestic Product (GDP) per capita equalled that of poorer countries in Africa and Asia. Today, it’s GDP at official exchange rate (OER) is US $1.151 trillion, ranking it as the world’s 12th largest economy; its unemployment sits at 3.2%; and, its Human Development (HDI)[1] ranks 12th in the world (US 2013). Indeed, why wouldn’t such a growth trajectory take on a supernatural descriptor? What’s more, in the 1960s few could have predicted such an ascent given that the Republic of Korea (ROK) lacked an abundance of natural resources, land mass or population size – frequently used indicators to forecast power potential (Organski 1968, 340). This has led researchers to question why South Korea was able to grow at such a remarkable pace, while other potential risers were not. For instance, Egypt, with a larger abundance of profitable natural resources, a larger land mass and nearly twice the population size, has had sluggish growth during that same time. Egypt’s GDP (OER) is US $255 billion; its unemployment is 12.5% or 130th in the world; and, its HDI ranking is 112th. Immanuel Wallerstein’s World System Analysis[2] provides a theoretical framework to consider such growth and development inequalities. He argues an essential organizing characteristic of the modern capitalist world economy is the division of labour. Wallerstein argues systemic power structures institutionalize structural divisions in labour and amplify core-periphery relations. This essay will consider the role of strong state machineries[3] for developmental growth in such a system. Through a comparative analysis of Egypt and South Korea, this essay will demonstrate that nationalistic state intervention is necessary for economic development[4].
Wallerstein’s focus is the analysis of the modern world economy, characterized by capitalism. Two basic features are of note in a capitalist world-economy: the division of labour between core, semi-periphery and periphery states and the endless accumulation of capital. The distinction between core, semi-periphery and periphery is the degree of profitability of the production process (“World” 2004, 28). Core areas feature advanced and complex economic activities; production processes are controlled by quasi-monopolies. Peripheral areas produce staple goods and export raw materials; peripheral processes here are not controlled by quasi-monopolies and thus are actually competitive. Semi-peripheral areas are economically mixed. For Wallerstein, in a system characterized by division of labour and endless accumulation of capital, the net result is unequal exchange, whereby periphery states exchange weak, competitive products for strong, quasi-monopolized core-like products (“World” 2004, 24). Thus, surplus value continually moves from the periphery to the core in order to maximize capital. This is a defining feature of the capitalist world economy.
Wallerstein contends that states can move up and down in such a hierarchical system. Certainly, South Korea is one such example. In the 1960s, South Korea was a poor, agrarian periphery economy. Today, it is close to the core as a member of the Organization for Economic Cooperation and Development. So what conditions allowed for such prosperity? List-Jensen contends a coupling of exogenous factors, such as controls on foreign investment and interaction with international markets, and endogenous factors, such as strong state machineries along with a developmental statist ideology, were necessary conditions for South Korean growth. What is implicit in this argument is the importance of exogenous and endogenous nationalistic state intervention strategies[5] for developmental growth. Almost immediately after President Park Chung-hee took leadership in 1961, South Korea began its ascent on the developmental ladder. Chung-hee’s regime implemented five-year macroeconomic intervention strategies designed to capitalize on comparative advantages. In the 1960s, ROK state macroeconomic policy focused on export-oriented industrialization and expansion of key industries and infrastructure. In the 1970s, this policy shifted toward heavier and heavier industries and chemical products. In the 1980s, the state focused on social welfare, the stabilization of key sectors and the promotion of private initiatives (List-Jensen 2008, 15). In that time, exports jumped from US $40.9 million in 1962 to US $10 billion in 1977 to US $76 billion in 1993.
This economic success was in part due to the state, which was able to craft “efficient, coherent, and consistent economic policies, and to implement them effectively” (List-Jensen 2008, 12). In the 60s and 70s – ROK’s development phase – the state planned and invested in new industries and sectors before deploying stabilization policies to overcome external shocks and facilitate growth (List-Jensen 2008, 15). In this sense, nationalistic economic policy favouring nascent national industries over internationally developed quasi-monopolies allowed South Korea to insulate itself from the pressures of unequal exchange. Indeed, “state planners, not the free markets determined the direction of economic activity” (List-Jensen 2008, 12). Such policies allowed South Korea to develop core-like production processes. Today, ROK is one of the top five producers of ships, automobiles, electronics and steel. Only 6.2% of its labour force is involved in agriculture accounting for just 2.7% of its GDP (US 2013). All this happened in just a generation. Yet, none of it would have been possible without nationalistic state intervention.
In Egypt, the governments of Anwar Sadat (1970-1981) and Hosni Mubarak (1981-2011) were unable to transition the Egyptian economy toward advanced industrial processes as was done in South Korea. The Egyptian economy is based on peripheral production processes. For instance, of it’s labour force, 32% is based in agriculture, which makes up 14.7% of its GDP. Egypt exports some advanced products, such as refined petroleum, but much of its export industry focuses on raw materials or light industries, such as crude oil, textiles, cotton and food (US 2013). What’s more, even though Egypt has proven oil reserves, it imports 157,300 barrels a day (b/d) of refined petroleum, while exporting just 21,000 b/d of petroleum and 83,000 b/d of unrefined crude oil (OPEC 2012, 54-57). Thus, this exchange is unequal considering refined petroleum sells at a higher price than crude oil in international markets. Wallerstein argues refining raw materials and similar advanced production processes are controlled by core economies. In this sense, the US, Canada and Western Europe control 39.2% of the world’s refinery capacity (OPEC 2012, 38). As such, even though the raw materials exist in periphery countries, such as Egypt, the advanced industrial capacity controlled at the core ensures surplus value trickles back to those in the core.