The Government Reform for

Economic Development and its Strategies

Jin PARK, Ph.D.

KDI School 1 Korea’s Economic Development and
KDI School of Public Policy and Management
 Introduction of KDI and KDIS

KDI
Gvt-funded (50%) research inst. in economic policy (1971~)
- Mission: Economic Policy advice (economic planning in the past)
- Covers all areas of economy with around 60 Ph.D.s and 80 Masters

KDI School

1. Graduate School (’98~) for Master degree in Public Policy and MBA
2. Teaches in English and 100% scholarship for international students
3. Annually admits 270 people with diverse composition
- international (20%), Korean civil serants(25%), Corporation(40%),
General students(15%) (www.kdischool.ac.kr)

KDI School 2 Korea’s Economic Development and

 Presenter: PARK, Jin

1991 : Ph.D. in economics, U. of Pennsylvania

1992~1998 : Research fellow, KDI
1998~2001 : Director, Administrative Reform Team,
Ministry of Planning and Budget
2001~2004 : Associate Professor, Associate Dean, KDI School
Currently
Professor, KDI School
President, Korea Institute for Future Strategies

Area of teaching and research

Government Reform,
Conflict Resolution and Negotiation,
Comparative Economic Systems

KDI School Korea’s Economic Development and

 Topics of Today

 The Role of the Government Reform in the

Economic Development

 Strategies for Government Reform

KDI School 4 Korea’s Economic Development and

 Capability for Development

• Political leaders
• - Willingness to response to social needs
• - Capacity to set the right visions and strategies
• - Ability to build bureaucracy to implement the strategies

• Endowed resources

• Means to organize the resources

• - Ability to mobilize the resources
• - Capacity to generate and implement right policies to achieve
the visions set by the political leaders

•What is the role of the Government Reform in Korea’s

early economic development? 5
 1. Political leadership
* Monthly Economic Report Meeting (1963~) by President
- Format: EPB reports to the President
- Participants: President, EPB and other relevant Ministers,
Bank of Korea, Major Banks, Private Firms, Economists
- Role: Discuss current economic issues

* Monthly Trade and Export Promotion Meeting (1965~) by President

- Format: Ministry of Commerce and Industry reports to the President
- Participants: President, MOCI and other relevant Ministries
Private Firms and Major Banks
- Role: Check the export performance and discuss export promotion
* Export Day (Nov. 30th): 0.1 billion $ of export in 1964 (284 b$, ’05)
6
 2. Concentration of information

• Presidential Office
- President PARK had three senior economic advisers
- 1 (General economic issues),
2 (Heavy and Chemical Industry),
3 (Tourism promotion, temporarily since 1972)
• Economic Planning Board (EPB, 1961~1994) that combines
the following units:
- Planning Bureau from Ministry of Reconstruction
- Budget Bureau from Ministry of Finance
- Statistics Bureau from Ministry of Interior
- Foreign Capital Bureau (new establishment in 1961) 7
 3. R&D

• Korea Institute for Science and Technology (KIST, 1963~)

Korea Development Institute (KDI, 1971~) along with others
- Start of government-funded research institutes
- Attracted many scientists in the advanced countries with
higher salary and other benefits (minimize brain-drain)
* KDI research fellow in the early 1970s was offered: an apartment, a car with a
chauffeur, an office, two RAs and one secretary.

- Government played an important role in making a network

between the industry and the government-funded research
institutes

8
 4. Anti-Corruption

• Corruption has been an important issue in Korea, but not that serious enough to
endanger the development potential.
• Incentives for civil servants
- Technocrats had many opportunity to serve in the related areas after
their retirement. So it is to their benefits to stay clean.
* During mid 1980s, 150 out of 470 EPB retirees are working for
private firms and 196 out of 311 are working for banking sectors.
* Of course, this created ‘conflict of interest’ issue, and it is now
regulated by the government.
• Monitoring
- Mutual check and balance among intelligence agencies
- Although not as strong as it is now, a monitoring scheme by news
media and the scholars was working.
• President PARK Chung-Hee himself was very clean.
9
 5. Utilize Civil Servants

• Recruiting System
- Since 1963, the entrance exam for civil servants became an
appointment exam, which was just a qualifying test before.
* Different entrance exam for 5th degree, 7th degree, 9th degree
* Since 1999, an open system was introduced so that 20% of
director-g enerals should be appointed by open competition.
- Top graduates from best universities joined government such as
EPB and Bank of Korea. (No nepotism)
• Technocrats were respected.
- Up to the Assistant Minister level, career civil servants completely
filled the positions. In fact, 80% of vice-Ministers and 50% Ministers were
from career civil servants. It is still the case.
- Ratio of Ministers with career military background (’62~’79):
38.3% in the non-economic Ministries
14.9% in economy-related Ministries (0% in Ministry of Finance)
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 Korea’s Economic Development Model

 Government-led growth

 High savings rate, active investment

 Export-orientation

 low wage, work ethic

 Market friendly strategy (WB, 1993)

 Economic development before democracy

Is this a right model in Korea in 1990s?

KDI School 11 Korea’s Economic Development and

 Growth Decomposition of S. Korea

(%) 1971~1980 1981~1990 1991~ 2000

Real growth rate 7.4 8.6 6.1

Irregular factors -1.0 1.0 -0.7
Pot. growth rate(A+B) 8.4 7.6 6.8
Factor inputs(A) 5.6 4.6 3.4
Labor 3.2 2.5 1.5
Capital 2.4 2.1 1.9
TF Productivity(B) 2.8 3.0 3.4
Economies of Scale 1.4
1.4 1.5
Resource allocation 0.7
0.8 0.7
eTchnological prog.
0.6 0.9 1.2

Is Government intervention effective for tech. progress?

KDI School 12 Korea’s Economic Development and
 Growth Decomposition of S. Korea

(%) 1971~1980 1981~1990 1991~ 2000

Real growth rate 7.4 8.6 6.1

Irregular factors -1.0 1.0 -0.7
Pot. growth rate(A+B) 8.4 7.6 6.8
Factor inputs(A) 5.6 4.6 3.4
Labor 3.2 2.5 1.5
Capital 2.4 2.1 1.9
TF Productivity(B) 2.8 3.0 3.4
Economies of Scale 1.4
1.4 1.5
Resource allocation 0.7
0.8 0.7
eTchnological prog.
0.6 0.9 1.2

Is Government intervention effective for tech. progress?

KDI School 13 Korea’s Economic Development and
 Changes in the growth environments

 Resource mobilization is no more critical.

: planning is less important.

 Technology and innovation drives a growth.

: the role of market and private sector grows

 Good business environment is very important

for economic growth.

: the gov is the most important environment.

KDI School 14 Korea’s Economic Development and

 Background of economic crisis
The roles of Korean gov in the 60s ~ 70s

1) planner and a resource mobilizer

2) Insurer : lowers the risks of firms and banks

3) Producer

4) Regulator, facilitator

During 80s ~ 1997 (economic crisis)

The gov. stopped 1) planning and resource

mobilizing but continued the insurer’s roles.

>>> Firms underestimated their risks.

KDI School 15 Korea’s Economic Development and
 New Role of the Korean government

• The role of the Korean government has changed from an active leader and planner of
economic activities to a fair coordinator and regulator of the economy, permitting
greater reliance on private initiative.
• From rowing to steering. (David Osborne)

To maximize private sector autonomy and initiative, government intervention

and regulation has been sharply reduced, superfluous government functions
has been abolished, reduced, or transferred to the private sector.

The government’s role in protecting the weak, establishing a social safety

net, market supervision and environmental protection, among others,
has been substantially strengthened.

KDI School 16 Korea’s Economic Development and

 Section 2:
conditions for the success of the reform
Based on Korea’s experience during
KIM (1998~2003), ROH (2003~2008)

① Presidential Leadership

② Institutional arrangement

③ Plan with vision and strategies

④ Implementation
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① Presidential Leadership for Reform

i) president’s strong will to reform

-Kim: strong will after economic crisis, but co-habitant government
was a problem. (case of Ministry restructuring)
-Roh: show strong will through establishing new institutions and
series of cabinet workshops

ii) appointment of innovative figures as heads of public

organizations
-Kim: didn’t seriously concerned reform-mindedness.
(An example: evaluation of CEOs of SOEs)
-Roh: reflected the reform accomplishment

iii) shape favorable political conditions

-Both Kim and Roh failed
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② Institutional arrangement
: 6 conditions for a good reform leading organization

•Comparison of reform-leading organizations

Und er Presid en t Kim Und er Presid en t Roh
PBC M PB M OGAH A PCGID
Und er th e p resid en t O X X O
Full-tim e an d p erm an en t O O O X

Focus on Refo rm O X X O
Org an izatio n al Flexib ility O X X ∆
M ix w ith Private an d O ∆ X O
Pub lic

W orkin g relatio n w ith - - X X

th e oth er org an izatio n s 19
③ Reform Plan: vision and Strategies

i) A clear objective
-Kim: overcome financial crisis
-Roh: better performance > input reduction
but give up ‘small government’ easily

ii) Have a widely shared blueprint

-Kim: Top 100 National Agenda but no priority or strategy
(example: vision report in 1998)
-Roh: “Government Innovation Roadmap”, but spend too much
time for formulating plan.
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④ Implementation of Reform

i) Periodical examination and evaluation

-Kim: did examination not evaluation
-Roh: emphasis on evaluation, maybe too much?

ii) Legal background

-Kim: didn’t care much so towards the end of the term, the driving
force became weak.
-Roh: know the importance of legal support

iii) Education and Training

-Kim: didn’t care much due to budget cuts after the crisis
-Roh: valued the role of training
“innovation starts here” by COTI
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 5 Directions of government reform in
Korea
① Efficiency
② Decentralization
③ Transparency
④ Quality of policy and service
⑤ Public participation
• Recommendation for the government reform

- Need to form favorable political environment

- Establish good reform driver

- Prepare reform plan when the president has power to

implement it

- Strategically prioritize the reform directions:

organizational restructuring,
reform on the internal operation
service to the people

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 • “The innovator makes enemies of all those who prospered under the old
• order, and only lukewarm support is forthcoming from those who would
• prosper under the new.”
--- Machiavelli

•Thank you
•KDI School 24 •Becoming the Core-Knowledge Hub