SILLY question? Read on and the answer will be like lightning over a dark landscape.
We were not the only country in Asia where the US army left — or were sold by its entrepreneurial soldiers on the black market — thousands of its all-terrain, hardy vehicle, the Willys Quad (for its four-wheel drive), which got to be called Jeep, for GP, or “General Purpose” vehicle. Filipino entrepreneurs refurbished these vehicles for public transport, its body altered to accommodate up to even 14 passengers much than the four-pax military version.
Five years after World War 2 ended, the US was in another major war where it used Jeepneys — the Korean War of 1950-1953. After the war, as in the Philippines, the US left a huge number of of the same kind of Jeeps.
A Korean auto mechanic, Choi Mu-seong, and his three brothers managed to buy hundreds of these Jeeps, and modified them to also become public transport vehicles, in this case as taxicabs. The vehicle was called “Sibal,” Korean for “beginning.” And indeed it was the beginning of Korea’s automobile industry which is now the fifth largest in the world.
With Sibal’s modest success in selling 3,000 Sibals from 1955 to 1959, and with the Koreans’ experience in that industry, other companies, including the so-called chaebols (that country’s version of conglomerates which the government supported heavily), got into car assembly, and later manufacturing production.
How did the Koreans’ “jeepneys” evolve within less than a generation into such advanced cars as Kia and Hyundai, and now the electric Ioniq 5, competing not just with Japanese brands but those of the US and Europe as well, while ours didn’t, to become what fellow columnist here Ben Kritz call “fossils in the streets,” mocking it as “some kind of sacred representation of the national spirit.”
Because of government. The overarching explanation is that Korea adopted what is called “industrial policy” that mobilized government resources and regulatory power to develop its automobile industry. These involved requiring state banks to extend cheap loans to car manufactures, government’s close supervision of automobile manufacturers’ operations to resolve whatever problems they encountered, and even from in the 1980s, the banning of imported Japanese vehicles to give the space to capture the local market.
Over the years, Korea undertook several detailed programs to develop its automobile industry, among them: the 1964 Automobile Industry Protection Act and Automobile Industry Comprehensive Promotion Plan, the first program to support the fledgling industry; the 1965 3-Year Automobile Localization Plan with the goal of achieving 90 percent local content by 1967; the 1969 Basic Plan for Automobile Industry Promotion Plan; the 1974 Automobile Industry Promotion Plan which set the goal of manufacturing half a million vehicles to be built annually; and the 1987 Automobile Industry Rationalization Plan.
Last year the Korean government announced a plan to boost domestic automakers’ electric vehicle production to 3.3 million units by 2030 and increase their global market share to 12 percent.
In our case, jeepney manufacturers (which was mainly Sarao and Francisco Motors) were left on their own, with absolutely no government support or program whatsoever to develop these infant companies, where they developed a level of expertise in, into modern car manufacturers. But of course, with the US as our former colonizer, we were flooded with so many American cars, which the jeepney makers could not compete and at all which some say even discouraged the development of a national railway system. Jeepneys indeed through the decades survived basically unchanged. It’s a free market.
Our economists, mostly graduates of US Ivy League universities, have embraced wholeheartedly to this day the US dogma that a country can develop only with free trade with the least government involvement as long as inflation and government deficits (which also cause inflation) are contained. That framework obviously hasn’t worked, not just in the case of the automobile industry but in most other industries.
Our columnist Kritz is maybe right in saying that jeepneys are “some kind of sacred representation of the national spirit.” But that spirit, I would say, is actually the elite’s ideology of “free-markets forever,” since of course their control of assets — many captured through outright grabbing of lands during the colonial period — allows them control of free markets, and damn if the place, i.e, the nation, develops or not.
University of Cambridge economist Ha-Joon Chang, a Korean, has written several books debunking the myth of free markets as the sole requirement for a nation’s development. Among these is his Kicking Away the Ladder: Development Strategy in Historical Perspective. Its title refers to his account that industrialized nations such as the US and European countries grew because of such policies called industrial policy and trade protectionism. But after they had become rich their ideologues and economists declare that such policies should be eschewed (kick away) by underdeveloped nations.
He wrote an excellent piece on Korea’s economic growth in October last year in The Guardian newspaper entitled “From carbs to cars: How South Korea’s success shows entrepreneurship is a team game” which used that country’s automobile industry as the case study for his thesis.
Excerpts from Ha-Joon Chang piece:
“The Hyundai group’s main business was originally construction, but it started to move into higher-productivity industries in the late 1960s. Automobiles was the first of those ventures in a joint enterprise with Ford to assemble the Cortina car, developed by Ford UK, using mostly imported parts. In 1973, however, Hyundai announced that it was going to sever its relationship with Ford and produce its own locally designed car — the Pony. In the first full year of production, 1976, HMC produced just over 10,000 Pony cars — 0.5 percent of what Ford produced that year. When Ecuador imported Hyundai cars in June 1976, the Korean nation was jubilant.
The fact that Ecuador bought only five Pony cars was dismissed as a minor detail; what mattered was that foreigners wanted to buy cars from Korea, a nation of people who were then famous for producing wigs, stitched garments, stuffed toys — namely, things that require cheap labor.
Despite this inauspicious beginning, Hyundai grew at an incredible pace in the following years. In 1986, it made a spectacular entrance into the US market with its Excel model (an upgraded version of the Pony), which was named as one of the 10 most notable products of the year by the US business magazine Fortune. In 2009, Hyundai produced more cars than Ford did.
How was this possible? When people hear about this kind of incredible corporate success, they immediately think of the visionary entrepreneur behind it — Bill Gates, Elon Musk and the like.
And indeed, behind the success of Hyundai there were two, not just one, visionary entrepreneurs — Chung Ju-yung, the founder of the Hyundai group, and his younger brother, Chung Se-yung, who led HMC between 1967 and 1996.
Important as these corporate leaders were, when you look more closely, Hyundai’s success story is not just — or not even mainly — about the individual brilliance of the heroic entrepreneurs. First, there were the production-line workers, engineers, research scientists and professional managers who worked long hours, mastering imported advanced technologies.
And then there was the government. The Korean government created the space for the Hyundai and other carmakers to ‘grow up’ by banning the import of all automobiles until 1988 and the import of Japanese cars until 1998. This of course meant Korean consumers putting up with inferior domestic cars for decades, but, without that protection, Korean carmakers could not have survived and grown. Until the early 1990s, the Korean government made sure that Hyundai and other firms in strategic hi-tech industries, especially export-oriented ones, had access to highly subsidiezd credits.
This was accomplished through tight banking regulations, which mandated prioritizing lending to productive enterprises (over house mortgage loans or consumer loans), and state ownership of the banking sector. Using its regulatory and financial powers, the Korean government also put explicit and implicit pressure on Hyundai and other companies (foreign as well as national ones) to increase the ‘local content’ of their products so that domestic car-parts industries would develop.
But, you may ask, isn’t Hyundai’s story an exception in a world of heroic entrepreneurs? The answer is that it is not.
Even the US — a country that is so proud of its ‘free enterprise’ system — has actually not been an exception to the collective nature of modern entrepreneurship. It is the country that invented the theory of “infant industry protection” and erected a high wall of protectionism to create the space for its young companies to grow, protected from superior foreign, especially British, producers in the 19th and early 20th century.
More importantly, during the post-Second World War period, the US government critically helped its corporations by developing foundational technologies through public funding. Through the National Institutes of Health, the US government has conducted and funded research in pharmaceutical and bioengineering. The computer, the semiconductor, the internet, the GPS system, the touchscreen and many other foundational technologies of the information age were first developed through “defense research” programs of the US military. Without these technologies, there would have been no IBM, no Intel, no Apple and no Silicon Valley.”
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