South Korea has evolved as a nation to rank its self on the 19th position in global competitiveness1. It lies below the 38th parallel on the Korean peninsula. It is mountainous in the east; in the west and south are many harbors on the mainland and offshore islands.
Some geographic and demographic data are shown on Table 1 below. Korea has made major strides from a peasant economy to an industrial nation. This transition took place mostly after the Korean war of 1950. The Government was actively involved in its industrialisation but presently it is taking more of a supportive role to develop and spur innovation in the existing industry clusters and seeking to create other clusters.
This paper seeks to highlight the evolution of the shipbuilding industry in South Korea. We would show the government intervention, the role of IFCs and economic factors that have contributed to make South Korea the world leader in shipbuilding. This leadership position has changed over the years and before South Korea, was Japan. We would also state the steps South Korea is taking to maintain its leadership position, despite the threats posed by emerging shipbuilding countries such as China and Poland. This paper will close with strong recommendations on how the South Korean shipbuilding cluster could further increase its global competitiveness and maintain its leadership position in the global ship building industry.
1Global Competitive Report 2009-2010
Brief History
South Korea has its existence after World War II, by the 1945 agreement reached by the Allies at the Potsdam Conference, making the 38th parallel the official boundary between a northern zone of the Korean peninsula to be taken over by the U.S.S.R and a southern zone to be controlled by U.S. forces. Syngman Rhee became president of South Korea in 1948. He was elected by the national assembly, that adopted a republican constitution and has been known as the first president of South Korea.
On June 25, 1950, North Korean Communist forces launched a massive surprise attack on South Korea, quickly overrunning the capital, Seoul. By Sept. 30, UN forces were in complete control of South Korea. Cease-fire negotiations dragged on for two years before an armistice was finally signed at Panmunjom, on July 27, 1953.
In June 2000, President Kim Dae Jung met with North Korea's president, Kim Jong Il, in Pyongyang. The summit marked the first-ever meeting of the countries' leaders. Kim Dae Jung won the Nobel Peace Prize in Oct. 2000 for his Sunshine Policy, which included initiating peace and reconciliation with North Korea.
Roh Moo Hyun of the ruling Millennium Democratic Party was elected president in February 2003. Many South Koreans had begun to resent U.S. influence over their country. In March 2004, the conservative national assembly wanted to impeach Roh, on the premise that he had violated election laws. More than 70% of the public, however, condemned the move; the constitutional court dismissed the impeachment in May, and Roh was reinstated as president.
Researchers led by Hwang Woo-suk stunned the world in May 2005, when they announced they had devised a new procedure to produce human stem cell lines from a cloned human embryo. The country's reign as the leader in the field of cloning was brief. In Jan. 2006, a Seoul National University panel reported that Hwang had fabricated evidence for his cloning research. His downfall was a blow to the entire nation. Indeed, he had become a national hero and had received millions in research money from the government.
Prime Minister Lee Hae Chan resigned under pressure in March 2006, after facing intense criticism for playing golf rather than dealing with a national railway workers' strike. He was replaced by Han Duck Soo.
1.1 NATIONAL ECONOMIC PERFORMANCE
Two regime shifts divide the economic history of Korea during the past six centuries into three distinct periods:
1) Malthusian stagnation period up to 1910, when Japan annexed Korea;
2) The colonial period from 1910-45, when the country engaged modern economic growth and
3) The post colonial decades, when living standards improved rapidly in South Korea. The dramatic evolution of living standards in Korea presents one of the most convincing pieces of evidence to show that institutions - particularly the government - matter for economic growth.
Dealing with the post-colonial chaos with economic aid, the U.S. military government privatized properties previously owned by the Japanese government and civilians. The first South Korean government, under Rhee, carried out a significant land reform, making land distribution more egalitarian among South Koreans. Then the Korean War broke out in 1950 and lasted for three years, killing one and half million people and destroying about a quarter of capital stock.
After the war, South Korean policymakers set upon stimulating economic growth by promoting indigenous industrial firms. The government selected firms in targeted industries and gave them privileges to buy foreign currencies and to borrow funds from banks at special preferential rates. There was huge foreign capital borrowing to cover for the shortfall in savings. It also erected tariff barriers and imposed a prohibition on manufacturing imports, hoping that the protection would give local producers a chance to improve productivity through learning-by-doing and importing advanced technologies. Under the policy, known as import-substitution industrialization (ISI), entrepreneurs seemed more interested in maximizing and perpetuating favors by bribing bureaucrats and politicians. However, this behavior, dubbed as directly unproductive profit-seeking activities (DUP), caused efficiency to drop and living standards to stagnate, giving room to the collapse of the First Republic in April 1960.
The military coup led by General Park Chung Hee overthrew the short-lived Second Republic in May 1961, making a shift to a strategy of stimulating growth through export promotion (EP hereafter), although ISI was not altogether abandoned. Under EP, policymakers gave various types of favors - low interest loans being the most important - to exporting firms according to their export performance. As the qualification for the special treatment was quantifiable and objective, the room for DUP became significantly smaller and efficiency took on the rise. Another advantage of EP over ISI was that it accelerated productivity advances by placing firms under the discipline of export markets and by widening the contact with the developed world: efficiency growth was significantly faster in export industries than in the rest of the economy. In the decade following the shift to EP, per capita output doubled, and South Korea became an industrialized country: from 1960/62 to 1973/75 the share of agriculture in GDP fell by 20% to 25%, while the share of manufacturing rose from 9 percent to 27 percent. The transition from a labour intensive agricultural economy to a manufacturing economy required huge capital investments. South Korea was forced to make huge foreign borrowings which was paid back in due course as its economy recorded positive GDPs,
The government intervened heavily in the financial markets, asking banks to provide low interest loans to chaebols - conglomerates of businesses owned by a single family - selected for the task of developing different sectors of HCI (Human-Computer Interaction). Successfully expanding the capital-intensive industries more rapidly than the rest of the economy, the HCI drive generated multiple symptoms of distortion, including rapidly slowing growth, worsening inflation and accumulation of non-performing loans.
Again the ISI ended with a regime shift, triggered by Park Chung Hee's assassination in 1979. In the 1980s, the succeeding leadership made systematic attempts to sort out the unwelcome legacy of the HCI drive by de-regulating trade and financial sectors. In the 1990s, liberalization of capital account followed, causing rapid accumulation of short-term external debts. This, together with a highly leveraged corporate sector and the banking sector destabilized by the financial repression, provided the background of the financial crisis from Southeast Asia in 1997. The crisis provided a strong momentum for corporate and financial sector reform as local demand rose while foreign exports dropped.
After the policy shift in the early 1960s, the South Korean per capita output grew at an unusually rapid rate of 7 percent per year, a growth performance paralleled only by Taiwan and two city-states, Hong Kong and Singapore. The portion of South Koreans enjoying the benefits of the growth increased more rapidly from the end of 1970s, when the rising trend in the Gini coefficient (which measures the inequality of income distribution) since the colonial period was reversed. The growth was attributable far more to increased use of productive inputs -- physical capital in particular -- than to productivity advances. The rapid capital accumulation was driven by an increasingly high savings rate due to a falling dependency ratio, rapidly falling mortality during the colonial period. The high growth was also aided by accumulation of human capital, which started with the introduction of modern education under the Japanese rule. Finally, the South Korean developmental state, as symbolized by Park Chung Hee, a former officer of the Japanese Imperial army, was closely modelled upon the colonial system of government. In short, South Korea grew on the shoulders of the colonial achievement, rather than emerging out of the ashes left by the Korean War, as is sometimes asserted.
South Korea was ranked 19th in the global competitive report of 2009-2010 falling down six places against its 13th position in 2008-2009.
The decline is attributable to deteriorations in three categories that were already of concern. First, the country ranks 118th with respect to labor market flexibility. The business community's discontent about the difficulty of hiring and firing employees (108th) is particularly pronounced and mirrored by Korea's low rank in the World Bank's doing Business rigidity of employment index (92nd). This leads companies to resort extensively to temporary employment, thus creating precarious working conditions and giving rise to tensions-Korea ranks third to last for the quality of relations between employers and workers. A major labor law reform bill aimed at increasing flexibility while providing a better safety net exists, but it has yet to be approved by the parliament. A second area of concern is the financial market, particularly the banking sector. Despite the waves of consolidation and restructuring, the sector has undergone since 1997, banks are still very much seen as unsound (90th).Third, Korea ranks a low 53rd with respect to the quality of its institutions. Survey data show a general dissatisfaction with the government, as reflected in the mediocre level of trust in politicians (67th), the perceived opacity of policymaking (100th), and the burden of red tape (98th). Yet Korea continues to be characterized by a number of strengths, which drive its overall productivity and keep it placed in the top 20 of the rankings. Specifically, Korea has world-class infrastructure (17th), strong macroeconomic stability (11th), and an excellent higher educational system (16th), while it remains one of the world's innovation powerhouses (11th in the innovation pillar). Its current population (2008) stands at 48.4 Million, GDP USD947 Billions and GDP per capita USD19,504.51.
