The paper 'Government-Business Relationship' is a perfect example of a Macro and Microeconomics Essay. Since the 1950s, the state has played an important role in many countries in restoring the economy or in developing through industrialization. In particular, the government plays a crucial supporting role in promoting international trade relationships of businesses through policies that either encourage or discourage trade. While some governments have adopted import-substituting policies in order to protect domestic industries, others have followed liberal trade policies to boost exports and develop international competitiveness. The economy can be a bureaucracy dominated one to promote either individuals or corporatism or business-dominated ones, also to promote individuals or corporate.
In this paper, I will discuss the government-business relationships in South Korea and New Zealand, two countries that are crucially dependent on international trade but with a very different government-business relationship, and the effect on the welfare of the people. At the end of the Japanese rule, World War II and the Korean War over 1950-53, South Korea was left with a damaged industrial sector and a very weak economy as a result of which it had come to be dependent on American aid.
However, South Korea had a strong industrial, entrepreneurial, and technological base developed during the colonial era. Besides, South Korea had earlier engaged in significant land reforms and high educational standards that came to its aid in reconstruction and industrialization. Over the 1960s, South Korea, under the military rule of Park Chung Hee, “ restoration of political order” and “ promotion of economic growth” was taken up as the prime objective (Kohli, 2004, p288). This was achieved through what Kohli (2004) called “ cohesive collusion” between the government and businesses, often termed as the Korea Inc (p386).
The aim was to develop the economy through export-promotion and outward-orientation of the economy and in particular industries like automobiles, electronics, and textiles. Export-orientation was deemed essential as the domestic economy was small and the import-substitution possibilities in these industries were near complete. The business sector of the country was then dominated by family-owned large business houses, called chaebols, which have since then grown to be major global players in different sectors. The most successful of these chaebols were Hyundai, Daewoo, LG, and Samsung.
The state was transformed from a militarist, top-down, authoritative state to the cohesive-capitalist state. The apex of the state was controlled by a centralized structure composed of military associates of Park but in close association with the business leaders. While the state-directed import substitution in heavy industries and carried the automobile and electronic industries beyond the assembly stage. On the other hand, export promotion in other industries where it had the advantage of low costs was also directed through favorable trade policies of the government (Amsden, 1992, p 198). The bureaucracy was expanded in the Japanese model with the export division being the most crucial one.
The educated and professional bureaucracy was specially geared towards the economic aspects of administration. As American aid declines, the Park government worked towards normalizing relations with Japan so that it could develop trade relations in the region. Japanese businessmen who had historical relations with Korean businesses encouraged this move as they realized that they could benefit from the low labor costs and significant technological prowess of Korean businesses.
Western businesses, too, saw similar benefits from developing trading relations with South Korea and increased investments in this small country during the 1960s and 1970s. Such international trade and investment relations were supported by government policies that reduced tariff rates and encouraged foreign investments through preferential treatment. In particular, the chaebols were rewarded with import licenses on the basis of the achievement of export targets. Besides trade policies, the government also directed investment flows. Private banks were nationalized and bank credit was directed along with government priorities.
The financial sector was highly regulated, with the money and bond market restricted to a few instruments and discouragement of the auction market (Noland, 2005, p3).
Amsden, Alice H, Asia’s Next Giant: South Korea and Late Industrialization, Oxford University Press, 1992
Easton, B H, The Commercialization of New Zealand, Auckland University Press, 2002
Gilbert, Neil, Transformation of the Welfare State, The Silent Surrender of Public responsibility, Oxford University Press, 2002
Jagmohan, Soul and Structure of Governance in India, Allied Publishers, 2005
Kalinowski, Thomas and Hyekung Cho, The Political Economy of Financial Liberalization in South Korea: State, Big Business, and Foreign Investors, Asian Survey, March/April 2009
Kang, David C, Crony Capitalism: Corruption and Development in South Korea and the Philippines, Cambridge University Press, 2002
Kohli, Atul, State-directed Development: Political Power and Industrialization in the Global Periphery, Cambridge University Press, 2004
Noland, Marcus, From Player to Referee? The State and the South Korean Economy, Institute for International Economics, September 27, 2005, http://www.iie.com/publications/papers/noland0905a.pdf
Organization for Economic Cooperation and Development (OECD), Trade and Structural Adjustment: Embracing Globalization, OECD Publishing, 2005
Regnier, Philippe, Small business and industrialisation in South Korea, Asia Pacific Journal of Management, Vol 9 No 1, 1992
Salonen, Tapio, Welfare State changes in New Zealand: A View from Swedish perspective, 2007, http://web.auckland.ac.nz/uoa/fms/default/uoa/about/research/units/publicpolicygroup/docs/ArticleTapio.pdf