Development Ideas: A Study in Comparative Capitalism

Development Ideas A study in comparative capitalism

Diane Colman

A thesis submitted for the degree of Doctor of Philosophy at The University of New South Wales March 2015

Abstract

This thesis compares the meaning and practice of capitalist development in its two very distinct forms – manufacturing and agrarian doctrines. The comparison relies upon a particular understanding of the original idea of development which unites the spontaneous development of capitalism with intentional development strategies and emphasises two distinct frameworks, or doctrines, that development policy has taken. Both doctrines are ‘western’ in their origin, emerging from the nineteenth century industrial revolution, and both have sought to deal with circumstances in which unemployment and a resultant social disorder threaten the further development of capitalism. At this time, a manufacturing doctrine was embraced by state policy makers whose intention was to transform the negative impacts of the spontaneous process of competition through further industrialisation in general. Similarly, when changes occur in the international production of agriculture, the effects on society can be severe. Unemployment in towns and in rural areas forced state officials to construct programs for re-attaching the unemployed to vacant or under-utilised landholdings. This form of development concerns a state policy of agrarian development. The ideas and practices of development in South Korea, as an exemplar of a manufacturing doctrine of development will be compared with those of Papua New Guinea which, during the late colonial period at least, was affected by an agrarian development doctrine.

The intentional development paradigm of the developmental state thesis has as its centrepiece the combined mobilisation of both public and private capacity to meet welldefined, long-term, national development goals. While these ideas have been applied to the implementation of a manufacturing development doctrine in East Asia and elsewhere, the food and agriculture sector dominates most developing economies in terms of employment and incomes. Growth of this sector is, therefore, essential for the overall process of socioeconomic development in developing countries. Renewed attention by international financial institutions and donor countries has focused aid and investment policies on agriculture as the engine of pro-poor growth. The key implication of this study is that developmental ideas can be utilised just as effectively in any type of developmental endeavour, whether it be a manufacturing or agrarian development doctrine. The developmental emphasis on the vital role of the government as trustee for the development of society in the national interest must therefore be recognised as the most important part of any international development doctrine.

Table of Contents

Acknowledgements

v

Abbreviations

ix

Tables and Figures

xi

Chapter 1

Introduction

1

Comparative development policy

1

Development and non-development

6

Development’s meanings

7

Research Strategy

8

Organisation of the thesis

10

Chapter 2

Chapter 3

Framing the Idea of Development Introduction

17

The invention of the idea of development

20

Distinct doctrines of development

23

The manufacturing doctrine of development

24

The agrarian doctrine of development

26

The developmental state framework

29

Conclusion

36

Liberation, Partition and War South Korea 1945 to 1960

Chapter 4

Introduction

39

The hermit kingdom

40

Japanese imperialism

42

Liberation, partition and war

47

Import substitution and underdevelopment

50

Conclusion

55

Export Promotion, Rapid Growth and Crisis South Korea 1961 to 1979 Introduction

59

i

Table of contents

Chapter 5

Export promotion, rapid growth, crisis and recovery

61

The ‘Big Push’ into heavy industrial manufacturing

69

Conclusion

75

From NIC to Developed Country Status South Korea 1980 to 2014

Chapter 6

Introduction

79

Stabilisation and Liberalisation

80

Globalisation, Crisis and Rapid Recovery

88

The knowledge-based economy

96

Conclusion

97

War, Restoration and Uniform Development Papua New Guinea 1945 to 1963

Chapter 7

Introduction

103

Early colonial development

104

Post-war policy uncertainty

107

Uniform Development

112

Conclusion

121

Accelerated Development, Independence and Rebellion Papua New Guinea 1964 to 1989

Chapter 8

Introduction

127

Accelerated Development

130

From self-government to independent nation

137

Post-independence instability and crisis

140

Conclusion

148

Spontaneous Development, Growth and Decay Papua New Guinea 1990 to 2014

ii

Introduction

153

Consolidation of crisis

155

Corruption, compensation and continuing crisis

162

Conclusion

173

Table of contents

Chapter 9

Conclusion Introduction

177

Developmentalism and agricultural development

178

Manufacturing development doctrine – South Korea

180

Agrarian development doctrine – Papua New Guinea

186

Revitalisation of the importance of agriculture in development

194

Bibliography Primary sources

199

Theses and other unpublished material

205

Secondary sources

206

News articles

242

iii

iv

Acknowledgements

This research has benefited greatly from the guidance and support of my supervisory team. I would like to begin by thanking Professor Gavin Kitching who was my research supervisor at the outset of this project, sending me on my expedition to discover the development ideas in South Korea and Papua New Guinea. Gavin provided invaluable guidance and direction for my project, sharing his expertise and experience. Above all, I am grateful to Gavin for his unique insight into the discipline.

Dr Elizabeth Thurbon also made a major contribution to my understanding of the South Korean developmental state as well as accepting the role as my supervisor upon Gavin’s retirement. Liz’s gentle and insightful approach, her friendship and support were a most welcome contribution to my research. Equally, Michael Johnson, for whom I tutored at UNSW, provided guidance to keep me on track when my supervisor was away for extended periods.

His considerable experience in development practice made the ideas about

development come to life.

Of absolute importance to getting this thesis over the line has been Dr Scott MacWilliam from the ANU. At Gavin’s request, Scott very kindly offered to provide socalled informal supervision, but in reality provided the greatest direction to tighten up the thesis, providing a focus to the argument that has made all the difference. That it is down to Scott that this thesis reached the final submission stage is unquestionable. To Scott, I am eternally grateful.

Lastly, I would like to thank Dr Jo-Anne Pemberton for coming on board late in the piece when I was seemingly unable to find a supervisor at UNSW to bring me to the end. While she modestly considers her contribution to be small, I really would not have been able to complete my thesis to submission if she had not agreed to accept the role as my official supervisor.

In Papua New Guinea, my research was affiliated with the National Research Institute (NRI) in Waigani. I am grateful to the NRI for the assistance provided in obtaining a visa, providing accommodation and a place in the library to use the computer and escape the heat

v

Acknowledgements

of the day. I am especially grateful that this led me to the head librarian, Ena Gimumu, who became my guide, my great friend, my wantok. Ena took me to the places I needed to go. She walked with me, arranged for someone to drive me, took me in the PMV or got someone else to walk me over to wherever I had to go. She told me what everyone was saying, she told me what everyone was thinking and told me how things worked in PNG. She shared her wisdom and shared her family when I was missing mine. While Ena is no longer physically with us, she remains at the forefront of my mind whenever my thoughts turn to PNG, which has been often as is inevitable in writing up this thesis. I remember her beautiful smile, her constant concern for my safety and especially her love.

I would also like to acknowledge the contribution made by a number of people in Papua New Guinea. Initially, I took the very providential opportunity of flying to Brisbane to meet Sir Bernard Narakobi, a prominent and influential former leader, who is considered to be one of the founding fathers of Papua New Guinea’s Independence and remains the country’s most important nationalist as author of The Melanesian Way. He was stopping over to speak at a conference on his return to retirement in PNG following his tenure as the Ambassador to New Zealand and was not only kind enough to agree to an interview but gave up much of his valuable time to discuss my thesis in length when it was in its infancy.

I also networked with a number of PNG academics, including Danny Aloi and Dr Lawrence Sause from the School of Business Administration at the University of Papua New Guinea, both specialising in Public Policy, as well as researchers Dr Ray Anere and Dr Alphonse Gelu at the NRI. I would especially like to thank Danny Aloi for his collegiality, talking to me at length about the impact of development in PNG and, most importantly, arranging a number of meetings with high ranking public servants. I spoke with the First Secretary of the Department of Personnel Management, Jim McPherson, a long-term PNG public servant, from as far back as the pre-independence days of the kiap. He was kind enough to invite me to his eclectic home where he is father to six children from a variety of backgrounds across the country. I attended a focus group with the staff of the Task Force for Government and Administrative Reform, which included the now late Sir Barry Holloway, a prominent Australian ex-pat who was a member of the first PNG parliament and who had also been in PNG since the kiap days, as well as John Nilkare, a prominent businessman, former MP and former leader of the National Advancement Party, and five staff members, all young women, who were very forthcoming with ideas and opinions. I also spoke with Sir

vi

Acknowledgements

Paul Songo, head of the Public Sector Reform Management Unit and adviser to the Department of Prime Minister and NEC, who has been in high-level public sector positions since Independence. Ignatius Kadiko, the Deputy Secretary Policy and Research in the Department of Commerce and Industry also kindly came and met with me at the University of PNG even though he was very ill with the flu. I also spoke with Planning & Development Manager, Gabriel Pakio from the Department of Culture and Tourism. I met with Shadraach Himata, Manager Exploration Coordination and Joseph Lasark, Senior Geologist at the Mineral Resources Authority. I also attended the swanky new offices of Mining Haus to meet with Kepsey Puiye, Acting Director Petroleum Division and Ian Marru, coordinator for the huge LNG project and Assistant Director Petroleum Policy Division of the Department of Petroleum and Energy. I am indebted to all these people for their contribution to my thinking on development in PNG.

Lastly, I would like to thank my family who have always been there for me when I need them. Firstly, my mother, Pam Colman, for her unwavering support by way of caring for my kids when I had a million things on my plate. I certainly never could have done it without my mum. Finally, I wish to acknowledge my two beautiful daughter’s, Tarraleah and Rianna, who have grown along with this research project. They give me more love than I ever could have hoped for.

vii

viii

Abbreviations

ADB

Asian Development Bank

ANGAU

Australian New Guinea Administrative Unit

ANU

Australian National University

AU$

Australian Dollar

AusAID

Australian Agency for International Development

BCL

Bougainville Copper Limited

CACC

Central Agencies Coordination

CPC

Constitutional Planning Committee

DAL

Department of Agriculture and Livestock

DASF

Department of Agriculture, Stock and Fisheries

DNPM

Department of National Planning and Monitoring

DPM

Department of Prime Minister

ECP

Enhanced Cooperation Program

EDF

Electoral Development Fund

EMCC

Economic Ministers Consultation Committee

EPB

Economic Planning Board

EU

European Union

FAO

Food and Agriculture Organisation of the United Nations

FDI

Foreign Direct Investment

FKTU

Federation of Korean Trade Unions

GDP

Gross Domestic product

GNI

Gross National Income

GNP

Gross National Product

IBRD

World Bank International Bank for Reconstruction and Development

IFI

International Financial Institutions

ix

Abbreviations

x

ILG

Incorporated Land Groups

IMF

International Monetary Fund

ISI

Import Substitution Industrialisation

K

Papua New Guinea Kina

LG

Lucky Goldstar

MITI

Ministry of International Trade and Industry

MOFE

Ministry of Finance and Economy

MP

Member of Parliament

MRSF

Mineral Resources Stabilisation Fund

MTDS

Medium Term Development Strategy

MTFS

Medium Term Fiscal Strategy

NEC

National Executive Council

NIC

Newly Industrialised Country

NRI

National Research Institute

OECD

Organisation for Economic Cooperation and Development

PIP

Public Investment Program

PM

Prime Minister

PNG

Papua New Guinea

PSRMU

Public Sector Reform Management Unit

ROK

Republic of South Korea

SABL

Special Agricultural and Business Leases

UN

United Nations

UNDP

United Nations Development Program

UNHDI

United Nations Human Development Index

UNICEF

United Nations Children’s Fund

US

United States of America

US$

United States Dollar

Tables and Figures

Figure 3.1

Map of the Korean Peninsula

38

Table 3.2

US Economic Aid Received by Korea

53

Table 4.1

Net Borrowing, Direct Investment, and Export Earnings, 1966-1971

67

Table 4.2

Key Economic Indicators for the South Korean Economy, 1953–1980

75

Table 5.1

Presidents of the Republic of Korea

100

Table 5.2

South Korea Human Development Index

101

Figure 6.1

Map of Papua New Guinea

102

Chart 8.1

Estimated 1995 Cash Income of PNG Rural Population

159

Chart 8.2

PNG Budget support, project aid and GDP per capita

164

Chart 8.3

PNG GDP Annual Growth Rate

167

Table 8.4

Changes of Prime Minister 1975-2014

174

Table 8.5

PNG Human Development Index

175

xi

xii

Chapter One

Introduction

Comparative development policy

During the twentieth century, and particularly after World War II, development was an especially powerful idea shaping public policy. In some countries and circumstances, that power remains. Making development happen and/or bringing development were regularly espoused as the central objective(s) of governments in industrial and non-industrial countries. Changing the latter towards the former became a principal indicator of whether a country was becoming developed.

The process by which change occurred in countries undergoing development resulted in numerous comparative studies (Gerschenkron, 1951; Rostow, 1960; Landes, 1969; Hirschman, 1971; Skocpol, 1979). This literature was given a major impetus by an intense debate which erupted after the publication of Chalmers Johnson’s study of twentieth century Japan, and especially what he described as the central government agency, the Ministry of International Trade and Industry (MITI). Johnson’s thesis, discussed in greater detail in Chapter Two, described Japan’s industrialisation as the expression of a developmental state in operation. Such a state, which Johnson stressed was a particular form of the capitalist state and not a socialist state, had the ability to oversee and direct the expansion of an industrial manufacturing economy while maintaining political order (Johnson, 1982:viii; cf World Bank, 1993 objection then Stiglitz, 1996 softening). Subsequently, descriptions utilising the idea of the developmental state were extended to other countries in East Asia, South America and North America (Amsden, 1989; Deyo, 1987; Minns, 2001; Sikkink, 1991; Wade, 1990; Woo, 1991).

However, in the burgeoning and often controversial literature on development, less attention has been paid to countries which remained primarily agricultural, where the bulk of the population continue to live on smallholdings in the countryside. When these countries have come in for attention, it is mainly through consideration of the effects of colonialism and neo-colonialism, which are widely regarded as exploitative, parasitic, nondevelopmental, even anti-development. Colonial powers and neo-colonial powers, it is

1

Chapter 1

claimed, have not been interested in policies to bring development, but rather concerned to either exploit the people and other natural resources, or to use the colony for militarystrategic purposes. Such regimes, it is claimed are, at best, non-developmental (Frank, 1967; Amin, 1974; Wallerstein, 1974; Easterly, 2006; Moyo, 2009).

Rather than replicating the country focus of many studies of development, which invariably leads to little more than comparative national descriptions of doubtful merit (Acemoglu & Robinson, 2012), this thesis uses two countries to illustrate the meanings which have been attached to development. The principal object of examination is the idea of development itself as it has been applied to policies directing the process of change. South Korea and Papua New Guinea after World War II and into the first years of the twenty-first century provide the empirical basis for a comparative study of an idea and the public policy outcomes.

This attention to the idea of development draws some if its inspiration from one outcome of a 2010 G20 Summit held in Seoul, South Korea. The Seoul Development Consensus for Shared Growth established principles and guidelines for international collaboration. The principle purpose of the Consensus was to construct means by which G20 nations and international agencies could promote economic growth and progress towards achieving the Millennium Development Goals in ‘less developed countries’. A prominent statement in the Consensus emphasised that: “there is no ‘one-size-fits-all’ formula for development success and that developing countries must take the lead in designing and implementing development strategies tailored to their individual needs and circumstances” (G20, 2010:2). In short, if there is to be development as a common universal objective, it must have national referents.

There is an equally important basis for reconsidering the idea of development as the Millennium Development Goals are being renewed by the Sustainable Development Goals at the United Nations in September 2015. The emphasis on ‘sustainable development’ has also renewed an emphasis on national development programs rather than relying on market-driven development as the basis for cooperation between international partners and developing countries. Drawing upon this conclusion, while acknowledging the universality of the idea of development, a central objective of the study is to describe and explain what development has meant in the cases of South Korea and Papua New Guinea. In so doing, it is intended that the

2

Introduction

study will enlarge and extend the idea of development by joining what is common and what is particular in its application to two seemingly different countries.

This study is particularly relevant given the growing prominence of Asian countries, including South Korea, in regional economic and diplomatic relations, including direct foreign investment, joint ventures and increasing aid programs. Asian development strategies have become more and more influential on those making policy recommendations for South Pacific Islands countries, such as those from two of the largest sources of aid to PNG, the Asian Development Bank (Hughes, 1998:38-50), and AusAID, with statements such as, “the Pacific can learn from the East Asian approach to growth” (AusAID, 2006:63). As the largest of the South Pacific Island countries, Papua New Guinea features prominently in such discussions and government planners are clearly influenced by these.

PNG’s current medium-term development plan states the “strategy of substantial public investments is an approach consistent with that of successful developing countries of East Asia, where rapid rates of development and large public investments were largely selffinanced due to the tax revenues generated” (Department of National Planning & Monitoring, 2010:140).

Helen Hughes, who wrote extensively on development and aid, drew

comparisons between Pacific Island countries and a number of countries in Asia, highlighting that these countries experienced much more rapid growth than Pacific countries. To account for this, she judged that “withdrawing US aid turned Taiwan and South Korea into economic ‘tigers’” (Hughes, 2003:1). While such a reductionist and a-historical statement could be considered disingenuous at best, it clearly shows that Papua New Guinea and South Korea have been considered for comparison in the past. What this study seeks to do, though, is not to compare the countries, but to examine and explain the ideas and practices of development that have informed public policy in these two countries since the end of the Second World War.

In some respects public policy for South Korea and Papua New Guinea seem to have little in common. However, as this study will emphasise, in both, capitalism reigns almost unchallenged. In both, there have been periods in which state officials have acted to make development happen to deal with the negative processes inherent in capitalism’s constant drive for accumulation. In the case of South Korea the dominance of accumulation has largely been taken for granted when the country is ranked among those where policy to bring

3

Chapter 1

about change has been explained by the description developmental state. The close presence of, and threats from, socialist North Korea has made it particularly easy to downplay capitalism as a dominant feature of South Korea’s political economy. However, the defence of South Korea against threats from the north is not simply political-strategic, but also a means for securing accumulation in the former country. In particular, for South Korea, and for the other countries where policy has been explained in substantial measure by reference to the developmental state form, capitalism is associated with industrial manufacturing production, particularly for export, with private firms holding a dominant position.

For Papua New Guinea, the appearance is that capitalism remains less certain and public policy ambiguous in its purpose. In part the ambiguity arises because a majority of the population live upon smallholdings, producing for immediate consumption as well as locally and internationally marketed agricultural produce. Even as these households have continued to increase their consumption of commercialised goods, food, clothing, housing and electronics, including mobile phones, they continue to be described as living subsistence (ie non-capitalist) lifestyles (Garnaut & Namaliu, 2010:7; for contra argument see MacWilliam, 2013). That is, policy is not driven by any intent to make PNG a manufacturing powerhouse, with the population urbanising, as has happened in South Korea and other developed countries.

However in neither country, whatever challenges to the dominance of accumulation arise, these are not either pre-capitalist or socialist, and development as policy assumes the continuation of the external authority of capital over production and consumption. This is as true for Papua New Guinea as for South Korea, and so policy for both countries meets what Chalmers Johnson considered one of the principal criteria for the developmental state, that it is as a form of the capitalist state.

While there has been some early twenty-first century attraction for South Korean development among PNG officials, this has amounted to little more than pronouncements. 1

1

South Korea and PNG are cooperating in the areas of development assistance and environmental protection through the Korea-PIF (Pacific Islands Forum) foreign ministers’ talks. Prime Minister Peter O’Neill and then South Korean President Lee Myung-Bak held a summit in Hawaii on the sidelines of the APEC summit in November 2011, where both undertook to strengthen energy and resources cooperation, providing access to Korean technologies in further joint venture projects. O'Neill supported South Korea's efforts to assist Papua New Guinea with its social and economic development, and indicated that his government “looked forward to

4

Introduction

Most government enthusiasm and support continues to be for the extractive resource industries, with some elementary down-stream processing prior to export.

Here, major

international firms have been predominant. While agricultural exports also remain important, this produce, too, leaves PNG after only minimal processing.

Although soon after

Independence Papua New Guineans took over most of the plantations operated previously by expatriates, indigenous businessmen and women have not made any major subsequent moves into manufacturing.

Unlike South Korea, where government policy has, at different

moments, placed considerable emphasis on pushing the most important domestic firms, the chaebol, or large business conglomerates, into manufacturing for exports and domestic consumption, in PNG the emphasis has instead been against such moves. One consequence has been that Papua New Guineans who have accumulated through agriculture, commerce or simply plundering state assets have also turned their attentions to investments overseas, including in Australia.

However in PNG it has not always been thus, with development and its anti-thesis non- development, explained in more detail below, particularly prominent in a cyclic manner since WWII. Although mineral exports have been central since before World War II, only shifting in importance from gold and copper to oil and natural gas, agriculture too has been subject to quite distinct policy regimes. One of these, which occurred under colonial rule from the early 1950s to the mid-1960s, fits the profile of a developmental state. Under Australian Government Minister for Territories (Sir) Paul Hasluck, the colonial administration followed an agrarian doctrine of development.

Intended to retain the

attachment of the bulk of the population to smallholdings in the countryside, while lifting living standards and increasing production, colonial policy was implemented using a developmental state structure. Production and export of three crops, coffee, cocoa and copra, increased substantially, once post-war reconstruction of damaged villages, roads and bridges was completed. While there was some rebuilding of plantations, and even expansion into the Highlands for large-holding coffee growing, the most significant increases were of household production on a few hectares, at most. But this moment did not last, and provides an opportunity to elaborate on the antithesis of development, non-development, which is also apparent at specific moments in South Korea’s post-World War II history. learning first-hand about Seoul's economic development experience and know-how” (Post Courier, 16 May 2012).

5

Chapter 1

Development and non-development

The mid-1960s turn against the agrarian doctrine of development in PNG draws attention to a second feature of the public policy for development. As the developmental state is a form of the capitalist state, the spontaneous process of accumulation manifested in the competition between capitals and the incessant `chase across the globe’ for sources of profits (Marx & Engels, 1888; Bryan, 1995) is also always present as an external authority over planned or intended change. That is, there is a constant tension between two dimensions of development, what is spontaneous and what intended.

When late colonial officials

coordinated and supervised the expansion of smallholder production of crops for domestic and international markets, demand and hence prices in these markets were governed by factors not all of which were determinable by the administration. When prices for crops rose sharply, smallholders expanded production at a much faster rate than officials could erect quality and other production controls. When prices subsequently fell sharply and disorder, an opposition to development plans, rose in the countryside, officials scrambled to devise means of keeping the momentum of smallholder expansion going.

But it has not only been in Papua New Guinea that the cycle of development and nondevelopment has occurred. Upon Liberation and Partition in 1945, the US Administration acted to quell widespread rural unrest, redistributing land formerly held by the Japanese to create a new class of small-holder farmers in South Korea. After the Korean War, President Syngman Rhee followed this up by redistributing, to even more small farmers, the large estates of local landlords as, again, rural unrest was threatening stability and order. Such stability was not to last, as unemployment, underemployment and inflation saw the 1960s begin with violent student protests, providing the impetus for a military take-over. Such cyclical and reactive unemployment was to be the catalyst for changes in government as well as changes in public policy throughout the next three decades, as international and domestic factors impacted and exacerbated labour disputes and regional inequalities.

The Asian

Financial Crisis provided another moment when a challenge to development policy was especially pronounced (see Chapter Five) and a threat arose from domestic as well as international conditions.

6

Introduction

Development’s meanings

The comparison constructed here relies upon a particular understanding of the idea of development which emphasises two distinct frameworks, or doctrines, that development policy has taken. “Doctrines of development are understood through a distinction between intentional development and the immanent process of capitalist development” (Cowen & Shenton", 1998a:49). Such an understanding of development targets the balance between internationally driven ‘spontaneous’ processes of development and ‘intentional’ development under the trusteeship of the state, with the agenda of setting unemployed resources, especially people, to work in a creative, systematic way.

Both the development doctrines under

consideration are `western’ in their origins, in that Europe of the nineteenth century provided the circumstances in which development doctrines were invented (Cowen and Shenton, 1996:i). 2

Both sought to deal with particular circumstances where unemployment and

disorder threatened the further development of capitalism. So analytical focus comes to the concept of state trusteeship, and the multiple paths this process may follow in creating and pursuing ‘development’. A manufacturing doctrine was embraced by state policy-makers who intended that the negatives of the spontaneous process of accumulation would be transformed by a further expansion of factories, in particular, and industrialisation in general. In early nineteenth century Europe, war and the initial advance of industrial production created large numbers of unemployed and under-employed which, in turn, led to disorder, including in major urban centres (Thompson, 1980; Foster, 1977).

Development was

invented to make productive that which had become unproductive or under-utilised. Similarly when changes occurred in the international production of food crops, including wheat, the effects on domestic agriculture could be severe in some European countries. Unemployment in towns and in rural areas forced state officials to construct programs for reattaching the unemployed to vacant or under-utilised landholdings. This form of intentional

2

For objections to Cowen & Shenton see Stuart Corbridge `Book Review of Doctrines of Development’ The

Journal of Development Studies v33, no. 5, 1997, pp.729-731; Ed Brown Review article on Doctrines of Development `Deconstructing development: alternative perspectives on the history of an idea’ Journal of Historical Geography v.22, no.3, 1996, pp.333-339; Kevin Hewison `Book Review of Doctrines of Development’ Journal of Sociology v.34, no.1, March 1998, pp.93-94. However each of these are reviews and the criticisms are asserted rather than well-documented.

7

Chapter 1

development was to occur through state policy which embraced an agrarian doctrine of development.

As will be shown, both these forms of development, agrarian and manufacturing, have been prominent in South Korea. While each has been inspired by and taken specific, local directions, state policy to bring development has in each case been driven by the same features of the idea of development which have been present since it was invented. Chapter Two outlines the central common features present in the idea of development, as well as its anti-thesis, non-development. The primary organising insight that comes from this chapter is that intentional development under state trusteeship can take an industrial and/or an agrarian form. In simple terms, this opens up a distinction between South Korea as the industrial bow of development and Papua New Guinea as the agrarian bow.

But beneath that structure is

the historical process of how states get to these development doctrines, in which contingency lies embedded within intentionality.

Research Strategy

In order to inform this study, a selection of scholarly accounts on the South Korean developmental state will be drawn upon, including those by Amsden, Woo, Cumings, Wade, Cho, Kim and Song. Examination will also be made of publications by leading figures in the development process, including Park Chung Hee’s The Country, the Revolution, and I. Due to constraints with the Korean language, examination of government policy documents will necessarily be via secondary scholarly sources. There is much already written on South Korea’s economic development; the different agenda here, though, is to interrogate these sources in a way that brings state trusteeship to the forefront of analysis.

It will become

implicit in the empirical chapters on South Korea, and made explicit in the concluding chapter, that there is a subtle but significant point of difference with the ‘developmental state’ literature.

This difference shows that the way the South Korean state managed its

developmental role has to be understood as a balance of external and internal forces. These empirical chapters show that the concept of trusteeship is much broader and more subtle than much of the developmental state literature’s conception of state capacity, autonomy and embeddedness.

8

Introduction

The research into the Papua New Guinean development experience addresses a much less-widely covered analytical question and, accordingly, concentrates on government policy documents and publications, UNDP, World Bank and IMF country specific publications, as well as scholarly accounts. These chapters trace a doctrine of development coming via Australia’s colonial trusteeship role, where the ideas behind ‘doctrines of development’ were initially understood and given a local twist (ref MacWilliam, 2013:17-40 and Wright, 1999). This lineage of state policy in PNG has been discussed before, but the empirical chapters on PNG take a different approach in that they explain the process by which the state sought by various means, and against continuous barriers, to pursue a smallholder agriculture path to development, driven by an agenda of community and employment. The primary sources examined in these empirical chapters are drawn into a narrative that features the issues of trusteeship, and the debates about this process.

The theoretical framework presented in this thesis, therefore, provides important insights into how development ideas, and the context in which they are practiced, affect development policy choices. Such a framework seems particularly useful to grasp the very nature of the internal and external constraints to sustaining long term intentional development programs for the benefit of the nation as a whole. 3

Such a methodology means that

objections to comparative analysis of such seemingly unlikely candidates as South Korea and Papua New Guinea lose force under closer scrutiny. Indeed, it is because these two countries are so different in a variety of ways, but also similar in some crucial respects, that they are of specific value for comparative analysis: both are capitalist states, both are late developers, both embarked on a state building project following independence from colonial rule, both championed development as the state’s highest priority. Johnson himself provides a most unlikely comparison; that of Japan and the ancient Republic of Venice. While he cites a number of similarities, he also lists a number of differences (Johnson, 1995:22).

The

differences between Papua New Guinea and South Korea, therefore, are not obstacles to 3

While PNG and South Korea are very well represented in the literature on development, such

representation is confined to completely different branches of the field, with South Korea being compared with other developmental states and other Asian states, and PNG being compared with other states considered to be failed or failing states, such as those in sub-Saharan Africa, or with other Pacific Island states. Interestingly, though, Papua New Guinea is often compared with Botswana and, in turn, Botswana is often compared with South Korea.

9

Chapter 1

comparison; they are the basis for comparison. By comparing a manufacturing doctrine of development with an agrarian development doctrine important insights can be gained into the central role of ideas on the role of the state as trustee for intentional development of the nation as a whole.

Organisation of the thesis

South Korea can be seen as an especially successful instance, even exemplar of, a developmental state. The resulting argument regarding the development ideas and practices of the South Korean political elite explains the spectacular economic performance of South Korea, discussed in the next three chapters, from a shaky start upon liberation in 1948, through the military regimes of the 1960s and 1970s, democratic opening from the late 1980s, crisis in the 1990s, to the solid, high-tech economy of today. Chapter Three begins the study of the development ideas in South Korea with an initial focus on the historical context, explaining the ideas, institutions and cultural norms that were instrumental in the stability of the Yi dynasty, which ruled for over 500 years. Such elements include a long history of centralised state control and a Confucian-based ethic of authoritarian paternalism in the ruling groups. The chapter then provides a retrospective assessment of colonial industrialisation under the Japanese from 1910 to 1945, finding that, while this exploitative relationship resulted in the systematic under-development of Korea, it was also instrumental in incorporating Korea into the international economy. The imperial Japanese developmental state brought industrial transformation to the peninsula through the interplay of a strong state working in concert with the private sector.

With some of the major pre-conditions of

developmental ideas established, the study turns to detailing the first post-war phase of development policy formulation in post-Liberation South Korea, initially by the United States administration and then under its inaugural leader, Syngman Rhee. While this era of import substitution remains a much maligned period of South Korean economic history, this analysis shows that there was a method in Rhee’s ‘madness.’ 4

The 1950s was important for

understanding how South Korea began developing a strong state structure of its own, using the military, political, and financial backing of the United States.

While land reform

provided stability in the period immediately prior to and after the Korean War, the inability of Rhee and his short-lived successor to deal with the rapid inflation and mass unemployment of 4

By the end of his Presidency, a very aged Syngman Rhee had become “increasingly recalcitrant and senile” (John Muccio US Ambassador to the ROK, quoted in Woo, 1989:62).

10

Introduction

this period of state-captured, stalled development led to widespread social unrest, causing political and economic instability.

It is these conditions that gave rise to the much-studied era of state-led rapid growth of the 1960s and 1970s, with which Chapter Four is concerned. This chapter evaluates how the ideas of the developmental state were effectively utilised under General Park Chung Hee to mobilise a transformative project with export-led industrialisation at its core. Following the military coup of 1961, there was a transformation from the predatory state that was a legacy of Rhee’s state-building project, into a very effective mechanism for promoting stateled capitalist development. Rapid industrialisation was a strategic necessity due to the hostile security environment and the phasing out of US military aid. With a small domestic market, low savings rate and no interest from private international investors, production for export seemed the most sensible course to raise the investible surplus. Industrial planning to direct investment in the expansion of strategic industries was to be devised and directed by a talented economic bureaucracy that had the capacity to implement industrial policy autonomously from the legislature. With domestic firms the private agent of public policy, a close collaboration was necessary, cultivating a highly collusive relationship between the state and big business, guided by firm bureaucratic control of industrial financing and strict labour control. Throughout the 1960s, the resultant rapid economic growth and industrial deepening, largely financed through aid and state-secured foreign loans, led to a rapid rise in urban incomes. While industrial improvements also led to increased agricultural outputs, by 1970, rural incomes began to lag behind. In order to quell rural unrest, rural development policies were implemented, such as the Samauel Undong (New Village) Movement which involved public funding for private construction of rural housing, schools and roads, as well as increased prices for agricultural produce, particularly rice. In addition to rural inequality, regional inequalities also emerged, and were particularly hard felt when the economy was rocked by the second oil shock of 1979, leading, again to widespread unemployment and labour unrest that was to be the catalyst for change. The assassination of Park led to further disorder, spreading right across the country, in turn, leading to the installation of another military strongman, General Chun Doo-hwan, and, a significant change in development ideas.

The final chapter on South Korea, Chapter Five, critically examines the transition in South Korea’s development ideas and practice, from the beginning of economic and political

11

Chapter 1

liberalisation in the 1980s, through to the current political economy. Rapid recovery for economic and political stability was the major objective of the Chun regime. A shift in power in the economic bureaucracy also saw a shift in development ideas, and the implementation of structural adjustment, stabilisation measures and the gradual liberalisation of trade and finance. Mounting international and domestic pressure leading to political transition left the role of the state in maintaining economic and political stability undefined, as violent labour disputes and rural unrest gripped the country in the late 1980s. The chapter then explains the rapid financial liberalisation of the 1990s which culminated in the South Korean economy being devastated by the 1997 Asian Financial Crisis, which was again to be the catalyst for change. The recovery effort meant the state, again, had a central role in restructuring the economy – a transition to a new South Korean limited developmental state has been affected whereby the public sector remains able to continue exercising a significant degree of influence on the economic policymaking agenda. These three chapters on the South Korean development ideas and practices show that, while the internationally influential development ideas outlined in chapter two have been adopted over time in South Korea, the distinctive state-led capitalism prevalent in East Asia has run parallel to these ideas. This suggests that although the economic and political conditions on which the developmental state was based have changed over time, developmental ideas and practices, which had been a crucial feature of South Korea’s political economy since the 1960s, continue to resonate.

The study then turns to an examination of the implementation of an agrarian doctrine of development by analysing the development ideas found in Papua New Guinea. Such ideas are examined in the following three chapters which seek to explain the development ideas and practices in PNG, both indigenous and introduced, from the period when intentional development planning began after the Second World War.

Chapter Six charts the

development ideas and practices of the Australian colonial state. It begins by explaining the development of the separate colonies of Papua and New Guinea during the plantation era before war came to the Pacific in order to provide the critical context for demonstrating the significant change in development policy. The discussion then details the colonial response to the devastation of the Second World War before providing an in depth analysis of the policy of ‘uniform development’ implemented by Paul Hasluck, the Minister for Territories from 1951 to 1963. The focus of this policy was ‘securing village life’ for the indigenous population of Papua New Guinea by promoting smallholder agriculture for both immediate consumption and export markets. Living standards were improved and the majority of Papua

12

Introduction

New Guineans remain in rural areas, producing for immediate consumption, local and international markets to this day. The analysis presented in this chapter draws the conclusion that the policy of uniform development was an agrarian doctrine of development which intentionally pre-empted the detrimental effects of the spontaneous development of capitalism, especially that relating to the exploitative nature of wage labour on plantations and the anticipated problems of rapid urbansiation.

Such development, however, proved to be much slower than had been hoped and ideas then turned to how the pace of development could be increased. Chapter Seven, therefore, examines the change in ideas embodied in the policy of ‘accelerated development’ from 1963, through the transition to self-government and then on into the early independence era. As the United Nations development focus was heavily skewed towards preparing the country for self-government, the policy of accelerated development emphasised those sectors of the economy that had the greatest potential for rapid expansion. This meant a change in concentration from smallholder agriculture to the rehabilitation and expansion of the plantation agricultural sector that the previous policy had eschewed as not in the interests of the majority of Papua New Guineans. Such concerns over the possibility for the negative effects of development to arise were to be addressed through the evenness of service provision throughout the country. This meant that initially, development was to continue to have an agrarian focus, but this focus changed dramatically with the discovery of vast mineral deposits, so that government efforts and resources were concentrated on bringing industrial capitalism in the form of large mining ventures as the most effective path to a rapid growth in revenue. While it was intended that mining revenue would be directed to funding for rural development projects, capacity constraints in the form of skilled manpower and financial capital meant such projects never got underway. The developmentalism of the Hasluck era through an agrarian development doctrine began to unravel as conditions changed against such an intentional development paradigm. Bureaucratic incapacity and the grave macro-economic concerns post-independence, through to the Bougainville revolt of the late 1980s were to have a significant impact on development policy-making.

The severe downturn of the 1990s, right through to the large energy resource projects of today are then discussed in detail in Chapter Eight. While over 80% of the population continue to live in rural areas, living conditions have worsened as government service provision has stagnated. The only form of ‘development funds’ provided to most rural areas

13

Chapter 1

comes through local MP’s slush funds with the sole benefit of shoring up support in an exceedingly unstable political system. The public service has been highly politicised, with frequent changes of departmental heads, leading to a breakdown in service provision and accountability. The perception and actuality of corruption has become all encompassing. The industrial sector in the form of resource extraction with some elementary processing now dominates the economy. The domination of the economy by external capital without a concomitant intentional development program with an agrarian focus means that the prospects for development remain improbable for the vast majority of Papua New Guineans living in rural areas.

The final chapter in this thesis, Chapter Nine, details the unique contribution of this study to the literature on development in general, and on the developmental state in particular. In order to better understand the importance of the extension of the idea of development and the developmental state to deal with agricultural development, the case study of a manufacturing development doctrine in the process of industrialisation in South Korea is summarised. The application of an agrarian doctrine detailed in the empirical chapters on development ideas in Papua New Guinea is then summarised. The importance of this study to contemporary ideas on development forms the final conclusion that developmental ideas can be utilised as effectively for development policy focused on the agricultural sector as it has been for industrial development.

14

Introduction

15

16

Chapter 2

Framing the idea of development

Introduction

The devastation and destruction of the Second World War and the decolonisation period that followed brought international attention to the problem of world poverty. The idea that ‘developed’ countries should bring ‘development’ to ‘underdeveloped’ countries to confront this problem became a central concern of global cooperation after 1945. Since then, a multitude of development schemes have been introduced to remedy the problem, yet pervasive poverty continues to exist. The failure of the benefits of development to materialise for extensive sections of the populations in underdeveloped countries has led to an almost continuous revision of ideas on what form development programs should take, how they should be best implemented and by whom. Much of the debate on development ideas has focused on the role of the state versus the role of the market, with a simple binary emerging on whether development should proceed guided by one or the other, with the ‘guiding (but invisible) hand’ of the market dominating international policy-making. Development continues to be a highly contested term and the construct is expressed in various discursive ways at both a global and local level, with an enhanced emphasis of late on economic empowerment and sustainability.

This enhanced emphasis

recognises the need to anticipate the effects of development and to ensure measures are put in place to address them. Such an approach combines a reliance on the market mechanism, but includes a role for the state in the economy in correcting market and non-market imperfections that may impact the well-being of future generations.

The analytical agenda is therefore shifting from the simple dichotomy between market and state as respectively good and bad. The state is now seen more positively, if cautiously so (Fine, 2007:121). Given the previous stance on state minimalism, however, there has been considerable confusion as to precisely what development role the state should play, given its now continuing importance. While the rekindled development role of the state has its intellectual foundations in the political

17

Chapter 2 dimensions of the developmental state literature, considerable reductionism is involved. For the role of the state to be addressed more positively by the new consensus, the issue arises of how it is to relate to the developmental state literature.

Such calls for reconsideration of the idea of the developmental state received a boost amid the continuing turmoil of global economic disorder.

The widespread

effects of the global financial crisis of 2008/2009 and the continuing struggle to find effective recovery strategies resulted in the introduction of government-led economic stimulus packages in many advanced economies. These ideas had a flow-on effect in development policy-thinking, with the G20 agreeing on the Seoul Development Consensus for Shared Growth in 2010. While the pursuit of economic growth within capitalism remains at the centre of this revised vision for global development cooperation, state intervention has been reframed as vital to ensuring the structure of the economy is capable of meeting individual country’s development priorities. The relative robustness of the economies of the East in what is being touted as the “Asian century” has revived interest in the East Asian pathway to successful late development, a paradigm referred to as “the developmental state.”

Yet, confusion remains on precisely what form the role of the developmental state in the economy should take in the international political economy of today. Such confusion rests on how priorities should be determined, and how changes in society should be managed during the development process. Because development appears as both means and goal, the goal is most unwittingly assumed to be present at the outset of the process of development itself. The intention of this chapter is to unravel some of the confusion about development by opening its scope through a reconsideration of the idea of development in its historical context. Rather than being an invention of the post-1945 international order, the idea of development had been invented to deal with the problem of social disorder in nineteenth-century Europe. It was here that development was meant to construct order out of the social disorders of rapid urban migration, poverty and unemployment.

The key feature of the original

idea of development was that such development should proceed through the exercise of a trusteeship for society.

18

Framing the idea of development The intent to act on behalf of another, trusteeship, has been a powerful force in the formation of development policy, both in its original nineteenth-century invocation and for the leaders of the developmental states of East Asia. In both these situations, development ideas, as this chapter will show, rested upon the intent to develop through the exercise of trusteeship in the interests of the nation as a whole. Trusteeship is the intent which is expressed, by one source of agency, to develop the capacities of another. It is what binds the process of development to the intent to develop. This chapter reviews the ideas of the Saint-Simonians, Comte, List and Mill with the purpose of revealing how a theory of trusteeship was built into the construction of the idea of development.

Beginning with the Saint Simonians, the chapter traces the emergence of the idea of development, which they invented as a way to counter urban unemployment and poverty that was part of the process of industrialisation in Europe. Leading SaintSimonian, August Comte recognised the cyclical nature of the spontaneous development of capitalism and the social and political disorder it brought. Comte sought to resolve such problems of disorder through intentional development. As the poor did not have the capacity to develop their own capabilities, the intent to develop needed to be exercised through the exercise of a trusteeship over society. Freidrich List extended this idea, from an intentional ordering of society, to a theory of national development. Subsequently, John Stuart Mill extended the idea of trusteeship inhered in the state to the role of the colonial administration in intentional colonial development. When such ideas to bring intentional development are attached to the agency of the state, the intention to develop becomes a doctrine of development. The exercise of trusteeship through official policy and practice led to the establishment of two very distinctive doctrines of development - a manufacturing doctrine and an agrarian doctrine.

In nineteenth century Europe, the competition derived from the spontaneous development of industrial production created large numbers of unemployed and under-employed which, in turn, led to disorder, including in major urban centres. A manufacturing doctrine was formulated by state policy-makers with the intention that these negative aspects of spontaneous development would be transformed by a further expansion of factories, in particular, and industrialisation in general.

The

19

Chapter 2 constructivist idea of development also received renewed emphasis when the progress of industrial capital was seen to be faltering in Britain towards the end of the nineteenth century. Development reappeared at the head of debate over how state policy towards labour and industry in Britain and the new colonial empire in Africa should be conducted. It was determined that families should be settled on small acreages in order to mitigate the social unrest inherent in spontaneous urban development.

Such state development policies were informed by an agrarian

doctrine of development.

It is striking that in the period in which development was invented and in the years of the renewed turn to development ideas at the turn of the century that the idea of development carried with it a constructivist belief and a conviction for trusteeship. The aim of both development doctrines was to make productive that which had become unproductive or under-utilised.

Such an aim is clear in the national

development policies and programs implemented by the East Asian developmental states.

The chapter, therefore, analyses the key ideas of Chalmers Johnson’s

developmental state thesis. Many elements of the nineteenth and twentieth century antecedents are clearly discernible in the developmental state model, including an understanding that the state is acting as trustee for the development of the nation as well as the implementation of intentional development programs designed to avoid or deal with the disorder that is inherent in the economic transformation of the nation. The chapter concludes with a revisitation of the ideas of the Seoul Consensus, considering it in light of the key issues of constructive developmental intent and trusteeship.

The invention of the idea of development

The conceptual roots of the modern idea of development had its origins amid the turmoil and fear of revolution following the transition to early industrial capitalism in Europe in the first half of the nineteenth century.

The idea of

‘development’ began with the Saint-Simonians, French political and social activists concerned with greater freedom, equality and justice, who sought to counter the unemployment and poverty produced as a result of capitalist development. August Comte, one of their leading advocates, writing in the 1830s and 40s, understood the

20

Framing the idea of development uneven growth that was a consequence of the spontaneous development of capitalism and sought to bring order through an intentional process of development, which was designed to resolve the disorder of progress. Such ideas entered into state practice in Europe in the mid-nineteenth century as policies were developed to deal with the surplus labour and resultant poverty of rapid urbanisation. As the poor did not have the capacity to make their own choices, the process of development was to be determined on their behalf. This meant that the intention to develop the capacities of the poor would be achieved through the exercise of a trusteeship over society.

For the Saint-Simonians, then, development was a unity of the spontaneous and the intentional. The spontaneous, imminent process of the development of capitalism and its associated disorder came to be known as the ‘external’ of development, and the intention to develop embraced the ‘internal’ of development, the possibility of an autonomous capacity of society to realise its potential. Such a recognition of the unity of spontaneous and intentional development did not represent an objection to the positive or desirable consequences of growth, including improved living standards. Development was not framed to supplant the external authority of capital. Equally, Comte rejected the idea that a new social order demanded the destruction of all social institutions (Cowen & Shenton, 1996:33).

The idea of

development was specifically formed to deal with the conditions, such as unemployment, poverty and disorder, which arise as part of the imminent process of development. This meant that the purpose of intentional development was to make productive that which had become unproductive or under-utilised because of growth’s negative consequences. Development became the means whereby society would be intentionally transformed by those who were entrusted with its future by evaluating its past.

Such transformation would have national referents, as only those with the capacity to effectively utilise land, labour and capital in the interests of society as a whole should be entrusted with the capacity to decide where society’s resources should be invested (Cowen & Shenton, 1996:i-25).

“The Comtean postitivist

solution to the squandering of productive force through unemployment was pivoted upon the creation of development agencies staffed by moralised experts” (Cowen & Shenton, 1998:131). Comte did not seek recourse in an “unhistorical, imaginatively

21

Chapter 2 reconstituted agrarian past” (quoted in Cowen & Shenton, 1996:22). Those with the necessary knowledge and experience could evaluate the past to establish effective policy for the future.

For Comte, the destructive and negative consequences of

progress could be resisted by bringing scientific knowledge to manage the process of development through positive development polices (Cowen & Shenton, 1998:125). This meant a distinctive role was established for ‘experts’ in development to act as trustee for the development of the whole of society, in the interests of society, utilising all the available resources of society.

German economist, Freidrich List, writing in 1841, extended the Saint Simonian idea of development from the intentional ordering of society to a theory of national development. Argentine Saint-Simonian Esteban Echeverría wrote in 1837, “… every people, every society, has its laws or conditions peculiar to its existence, which arise from their customs, their history, their social state, their physical, intellectual and moral necessities … Normal, true progress means that a people moves toward the development and exercise of its activity with those conditions peculiar to its existence” (quoted in Cowen & Shenton, 1996:77). For List, this meant that development should have national referents. Heavily influenced by his observation of the rapid industrial transition of the United States of America, development for List was about “transforming the unemployed power of the nation into a material capital, into instruments of value, and productive of income” (quoted in Cowen & Shenton, 1996:154). List believed this established the true relationship between the individual and the nation, by which both simultaneously realised their developmental potential through the development of each other (Cowen & Shenton, 1996:154).

List,

therefore, intended that the role of the agent of development in exercising its trusteeship should be the development of the whole of society in the national interest.

While John Stuart Mill, writing in mid-nineteenth century Britain, believed in the freedom of the individual from state control, he did not extend such freedom to all individuals and all societies.

Mill was also influenced by Comte’s ideas of

development, extending the idea of trusteeship to the colonial state. He considered that development could only occur where the conditions of development were already present. Mill believed that development could not happen spontaneously in societies bound by ‘custom’ and that such societies needed to be governed externally through

22

Framing the idea of development the exercise of trusteeship in order to create the conditions under which ‘education’, ‘choice’ and ‘individuality’ might occur. “Societies in which the conditions were not present had to be guided by those from societies in which such conditions were already extant” (Cowen & Shenton, 1997:39). Consequently, for Mill, the European colonial powers had a duty and obligation to act as trustee for the development of the colonies which they ruled, in the best interests of the colonised peoples. The aim of such policy was to mediate the spontaneous development of capitalism in order to ensure progress without the poverty and disorder that had been experienced in the European centres of industrialisation and thereby secure the basis for social and political order (Cowen & Shenton, 1998:127).

Distinct doctrines of development

The idea of development extended throughout much of Europe’s political elite and had become fairly well entrenched by the end of the nineteenth century so that the modern, advanced capitalist economy, with its vastly increased material living standards, represented the desirable form of social and economic existence for others to follow. Development was clearly understood to involve a transition from one sort of economy and society (usually agrarian) to another (usually industrial). Dissatisfaction with the results of the immanent development of capitalism, including poverty, unemployment, regional imbalance and a perceived loss of national productive force, gave rise to entreaties for their redress. Appeals to correct for the disorders of capitalist development, when attached to state power, became what Cowen and Shenton call doctrines of development (1998:50).

“An intention to

develop becomes a doctrine of development when it (the intention, DC) is attached, or when it is pleaded that it (the intention DC) be attached, to the agency of the state to become an expression of state policy (Cowen & Shenton, 1998:xviii)

While

emergent military and economic powerhouses in the West used intentional planning and investment activities to ‘catch up’ to the example presented by industrial revolution Britain, colonial powers took on a trusteeship role to develop the capacities of their colonies in absence of the conditions for capitalism to develop spontaneously. These two important, but different aims of the exercise of trusteeship through official policy and practice led to the establishment of two very distinctive doctrines of development.

23

Chapter 2

The agrarian development doctrine was used by those with state power to prescribe an intentional development policy to redress the urban bias of spontaneous capitalist development. Such policies were implemented in an attempt to “confront, compensate and pre-empt” (Cowen & Shenton, 1998:50) the negative effects of capitalist development by settling families on small-farms in the countryside. Equally, the manufacturing development doctrine informed state policy to maintain social and political order in an industrialising economy through constructive intentional development programs. Such programs sought to oversee and direct the further expansion of industry, particularly in the manufacturing sector, in order to transform the negative effects of the spontaneous process of competition. It is clear then, that the idea of development cannot simply be reduced to some essential distinction between the development of industry as opposed to the development pf agriculture. Both of these development doctrines sought to use the power entrusted in the state to bring intentional development to provide the benefits of development, including higher living standards, increased consumption and greater well-being, while minimising the negative effects of the spontaneous, immanent process of capitalist development.

The manufacturing doctrine of development

Joseph Schumpeter’s theory of economic development, presented initially in 1909, was a general theory that attempted to comprehend economic development within a general account of how and why development proceeded and how limits to the process of capitalist development arose out of development itself (Cowen & Shenton, 1996:373). Schumpeter’s work sought to contend with the theories being advanced in the late-nineteenth and early-twentieth century by those who were part of what has come to be known as the Austrian school of economics, such as Carl Menger, Ludwig von Mises and Friedrich Hayek. For adherents of the Austrian tradition, the value of goods and services were to be premised upon the subjective choice of individuals rather than any social construction of what the common good might be.

Schumpeter sought to renew the emphasis on society and the social

relationships of exchange as the foundation of value in capitalist society (Cowen & Shenton, 1996:379).

24

Framing the idea of development

For Schumpeter, development was a process whose driving force, the entrepreneur, was one which was internally and immanently restrained by the supervisor of development. In Schumpeter’s view, this supervisor was the morallyacting banker. Schumpeter’s idea of development was one in which the destructive propensity of the unrestrained will to develop of the entrepreneur was to be restrained by the pivotal role of the banker as mediator. This meant the agency of development consisted of the coalition between the banker and the entrepreneur. This development coalition was the means whereby the immanent spontaneity of economic growth was given direction by the phenomenon of credit-money. As the agent of intentional development, trusteeship was invested in the banker to ensure that investment was directed to the development of productive force to ensure a balance between the old and the new forces in the economic system.

In this way, the development of

capitalism could be organised for the benefit of national society.

As such,

Schumpeter’s theory is a crucial moment in the transformation of nineteenth-century ideas of development into mid-twentieth century development theory (Cowen & Shenton, 1996:378, 412, 422).

Alexander Gershenkron, in his essays on European late industrialisation, had also made much of the sponsorship of industrialisation by investment bankers. Gerschenkron’s argument was that it was belief in intended development which formed the pervasive ideology of a common policy of industrialisation.

But

Gerschenkron also made the distinct qualification of the role of the banker as the instrument of development in countries that were typified by extensive industrial backwardness. Rather, Gerschenkron showed how the intense involvement of the state, through the direction of investment and a close alliance among government, finance, and industry, could speed up the development process in order for latecomers to ‘catch up’ with the West (Gerschenkron, 1951:14).

Albert Hirschmann also

supported a strong interventionist role for the state in countries that sought strength and security through industrialisation in the instability of the post-war order. Hirschmann stressed the fact that underdeveloped countries were focusing on the development process at such a late stage means that their development could not be spontaneous as it was in countries in which it first occurred, but needed to be a more intentional process. For Hirschmann, a strong and committed central government was

25

Chapter 2 inevitably the key actor in coordinating a national developmental project (Hirschmann, 1958:8).

The formulation of state policy to direct investment to intentionally increase national productivity, while seeking to overcome the attendant negative aspects of such development, combines what is both intentional and immanent in such an industrial ‘catch up’ process. Such a combination, thereby, forms the basis of a doctrine of development. As the further expansion of factories was the emphasis of intentional state action to transform the negative aspects of industrial development, state policy in these late industrialising countries was framed as a manufacturing doctrine of development. The major agency for implementing such a manufacturing development doctrine was through the mechanism of a ‘developmental state’.

Much of what has come to represent the ideal developmental state has been constructed in accordance with the principles initiated by Schumpeter and clarified by Gerschenkron and Hirschmann. In so far as rapid industrialisation has followed from the intent to develop, it is the post-1945 example of East Asia which has come to represent an ideal model of the developmental state. Such ‘developmental states’ followed the Western route to development through industrialisation with a strong commitment to development in the national interest.

There may be distinctions

between the different policy instruments implemented in the developmental states of East Asia, all of which are held to be the internal process of capitalist development. But, in all these countries, the external sources of authority were the international market for capital, presenting a general theory for bridging intent and the internal process of development. Seen this way, the ‘developmental state’ framework, as presented below, is not essentially different from that of Schumpeter and Gerschenkron, and indeed, the nineteenth century antecedents of the internal and the external of development.

The agrarian doctrine of development

As shown above, the idea of development continued to be adapted and amended in industrialising countries, which utilised the idea in formulating development doctrines aimed at catching up with the advanced manufacturing

26

Framing the idea of development metropolitan economies. The idea of development also travelled back and forth between metropolitan countries and their colonies, linking conditions in each other. Urban poverty and rural unemployment in Britain, as well as its declining international industrial advantage, impelled new thinking about investing in the expansion of colonial markets.

For some influential officials, including British

Colonial Secretary Joseph Chamberlain, state-sponsored development at home became contingent upon constructive development of the colonies. In Chamberlain’s view, British colonies had to be constructively developed in order to provide both outlets for British investment and markets for British goods in order to meet the British ‘national needs’ of industrial expansion and employment. After the 1906 electoral defeat of the Government in which he held his post, Chamberlain’s constructive doctrine of imperial development ceased to hold any influence in official British development doctrine.

The antipathy toward intentional development lasted into the inter-war years. However, during this period, circumstances, including war and economic turmoil, also began to change in favour of a new phase of developmental intent, which had a strong Fabian influence. In response to the unemployment and poverty associated with British industrial decline, Fabian Beatrice Webb theorised that both capital and labour were to be administered ‘in trust for the community’ by scientific experts in the employ of the state in order to ensure that production was capitalised on a moral basis (Cowen & Shenton, 1996:275-85).

Such developmental ideas were to become

influential in the formation of late colonial development policy as well as for states emerging from colonisation in the post-war period.

An especially influential

transformation in development thought was clearly expressed in relation to conditions in Africa, whereby the focus of colonial development policy shifted from furthering the interests of the metropole to the advancement and protection of native interests (MacWilliam, 2013:21).

After World War I, the growing conflict over land and labour between indigenous Africans and European and Indian settlers forced the British Government to clearly state the basis of its colonial policy. A 1923 White Paper, known as the Devonshire Declaration after the British noble who headed an investigative mission to Kenya, provided direction for policy-makers. The central principle set out in the

27

Chapter 2 Declaration was that British policy for land and labour in its colonial territories should be formulated to ensure the ‘paramountcy of native interests’. The White paper concluded that both Europeans and Indians were only to be allowed to advance to the extent that ‘native interests’ were not damaged. This effectively blocked Indian capital from moving into large holding agriculture and restrained the further expansion of the holdings of European settlers. Crucially, it was not development that was rejected, but, specifically, the large-scale and the foreign development. The idea subsequently travelled widely, including, as will be shown in chapter six, into Australian policy for Papua New Guinea (MacWilliam, 2013:21-2).

At its annual conference in 1925, the British Labour Party adopted the Fabian sense of trusteeship into its colonial policy which aimed ‘to socialise’ rather than ‘to smash’ the British Empire. This new trusteeship aimed to provide a moral basis for continuing colonialism and for colonial development. Such justification of retention of colonies was premised in the claim by leading Fabian Sidney Olivier that Britain had established its African colonies in order to secure resources which would have been appropriated by other powers and to protect Africans “from destruction and exploitation” (quoted in MacWilliam, 2013:22).

This renewed idea of colonial

trusteeship brought the matter of land ownership and distribution in Britain and the colonies to the forefront of development ideas. Indigenous land rights were to be protected and secured as the basis for colonial development. This would provide the basis for security and protect indigenous peoples from oppression and exploitation by capitalism. At the same time, by securing indigenous ‘peasants’ upon land in the colonies, they would no longer be available to be used as a source of cheap labour to undercut the wages and conditions of workers in the industrialised metropolitan countries, including Britain (MacWilliam, 2013:22-3).

In this way, Fabian

colonialism provided a moral basis for imperial and colonial development, which was premised on the positivist idea of the trusteeship of development on behalf of the indigenous peasant. The peasant for the Fabians had the subjective potential for improvement in productive effort. But that potential was seen as realisable only though state administration (Cowen & Shenton, 1998:52a).

Fabian colonialism also implanted a very strong agrarian orientation at the centre of intentional development programs for metropolitan and colonial

28

Framing the idea of development development. Schemes to compensate for mass unemployment and urban poverty in Britain focused on the settling of households on rural smallholdings. Such ideas extended to colonial schemes which emphasised smallholding agriculture where households neither employed nor sold their labour in order to deal with disorder and the threat of revolution.

This emphasis on smallholder agriculture subsequently

became especially significant in making productive that which had become unproductive during the military conflict in World War II (MacWilliam, 2013:23). The formulation of British colonial policy, as well as for Australian colonial policy, to intentionally increase agricultural production in order to deal with the devastation of war and then to overcome the conflict of competition inherent in spontaneous capitalist development combines what is both intentional and immanent in such a development process. Such a combination, thereby, forms the basis of a constructive doctrine of development. As the further expansion of smallholder agriculture was the emphasis of intentional state action to transform the negative aspects of exploitative wage employment, colonial policy in the late colonial period was framed as an agrarian doctrine of development. As development policy focused on constructing a basis for economic transformation, such a policy was not just ameliorative, but is considered to be developmental.

The developmental state framework

Following the success of the Marshall Plan to rebuild the European economy after the devastation of the Second World War, a framework emerged for international cooperation for development with the reframed ‘developed’ countries taking responsibility for circumventing the constraints to development of ‘underdeveloped’ areas.

In most instances, the former colonial power assumed

responsibility as the major bilateral donor and investor, and were usually the principal trade partner. The role of the state in stimulating development through the provision of widespread access to health and education services, employment creation, importsubstituting growth and market planning was considered an essential element of development and that too was a reflection of trends in the advanced economies in the post-war period which largely prioritised Keynesian goals such as full employment and the alleviation of abject poverty (Turner, 1980:21). Failure for the benefits of development to materialise for widespread sections of the populations in ‘developing’

29

Chapter 2 countries have since led to a revolving door of new policy paradigms seeking to provide ‘the’ model for ‘successful’ economic development.

Much debate by

academics and policy-makers has focused on the role of the state with some specific objections to the idea of trusteeship for development.

The main objection to the exercise of trusteeship in development is that it is often associated with colonialism, particularly in Africa.

In the contemporary

literature on development, such objections to colonial trusteeship are associated with William Easterly and Dambisa Moyo. For both of these analysts, trusteeship has failed as a capitalist practice. Moyo considers the concept of trusteeship in terms of international aid programs, conflating aid with intentionality in “that aid is an active and deliberate policy aimed at development” (2009:49).

Rather than bringing

development, for Moyo, aid “perpetuates underdevelopment” as it fosters “corrupt governments (which) interfere with the rule of law, the establishment of transparent civil institutions and the protection of civil liberties, making both domestic and foreign investment in poor countries unattractive” (Moyo, 2009:49).

While not

explicitly reverting to intentionality or trusteeship, Moyo does, however, place the state at the centre of development plans as “perhaps nowhere is the role of government more crucial – as a strategist, as a coordinator and even, to some extent, as a financier – than in poor developing countries” (2009:74). In order to remedy the vicious cycle of aid dependency, Moyo proposes that governments implement a number of plans designed to replace aid funding with various sources of private capital, with Chinese investment at the top of her list.

However, in a direct attack on intentional development programs, William Easterley (2006:5) advocates that “the right plan is to have no plan” as “the poor help themselves.” To support such assertions, he cites China, India, Hong Kong, South Korea, Singapore and Taiwan as exemplars of the saliency of such claims, explaining their transformation over the last four decades as due to “the efforts of many decentralised agents participating in markets without significant Western assistance as a share of their income, with some efforts by their own governments and without the West telling them what to do” (Easterly, 2006:23). Similarly to the response made to claims made by Hughes, cited in Chapter One, such contentions are extremely deterministic and, as the plethora of studies on the developmental states in East Asia

30

Framing the idea of development show, completely erroneous.

Easterley, does, however, advocate “homegrown

development” accompanied by “the borrowing of ideas, institutions, and technology from the West” (2006:318), and Moyo makes the prescient statement, as far as the following discussion is concerned, that “what it needs, and what is lacking, is political will” (2009:148).

Such ideas are clearly influenced by the developmental state

literature which has at its heart the intent to develop through the exercise of trusteeship in the interests of the nation as a whole.

Chalmers Johnson (1982) is widely credited with coining the term ‘developmental state’, explicitly characterising Japanese industrial policy-making as a form of a capitalist developmental state. His intention was to introduce the idea of the capitalist developmental state in order to “call attention to the differences, not the similarities, between the capitalist economies of the United States and Britain, on the one hand, and Japan and it’s emulators elsewhere in East Asia, on the other” (Johnson, 1999:32).

This means that Johnson’s developmental state thesis

represented a study in comparative capitalism rather than any ‘third way’ or as a rejection of the external authority of capital.

Johnson “invoked the concept of

‘developmental state’ to characterise the role the Japanese state played in Japan’s extraordinary and unexpected post-war enrichment” (Johnson, 1999:34). According to Johnson’s developmental state thesis, the Japanese, faced with the reality of a world dominated by Western powers, developed a system of political economy that was unique to their situation. Leaders used economic development as a way to combat Western imperialism and ensure national survival (Woo-Cummings, 1999:6). Linking its intent to develop with elements of spontaneous development, the chosen design of development included a deliberate combination of state action and use of the market economy. A manufacturing doctrine of development was introduced to ensure the rapid industrialisation of the Japanese economy in order to ‘catch up’ with the West.

That Japan became the world’s second largest economy by 1978 is

testament to the Japanese developmental state’s ability to achieve its goals.

Above all else, Johnson considered that it was the consistent and continuous commitment to achieving its development priorities that proved the major factor in Japan’s accomplishment (Johnson, 1999:56).

The basis of the state’s ability to

maintain this commitment and ensure its policies were implemented was the

31

Chapter 2 institution of an effective developmental state. In his seminal work on the Japanese developmental state, Johnson outlined what he called a ‘sketchy’ developmental state model. The first element of this model is the existence of a small, inexpensive, but elite bureaucracy staffed by the best managerial talent available in the system. Element two is a political system in which this elite bureaucracy is given sufficient scope to take initiative and operate effectively. The third element of the model is the perfection of market-conforming methods of state intervention in the economy; that is, effective management of the market.

The final element of the model is a

developmental pilot organisation like the Ministry of Trade and Industry (MITI). But Johnson qualifies his model building by concluding that the history of rapid industrialisation in Japan reveals that for all its borrowing from abroad, the political genius of the Japanese developmental state rests in the identification and use of its own political assets (Johnson, 1982, 315-23).

It is very clear that one of these important political assets was the situational nationalism in which the Japanese leadership formulated the intent to develop. As Johnson states, “overcoming the depression required economic development, war preparation and war fighting required economic development, post-war reconstruction required economic development, and independence from US aid required economic development” (1982:308). Like Hirschman, then, Johnson places the ‘binding agent’ of East Asian development in both the context of ‘late development’ and the East Asian setting of reactive nationalism that grew from war and imperialism.

The

Japanese, therefore, formed the intent to develop specifically with the goal of catching-up and keeping-up with advanced industrialised countries in the name of national security. As Amsden (1989:55) has noted, the developmental state thesis provides “evidence for the proposition that if and when late industrialisation arrives, the driving force behind it is a strong interventionist state. The need to intervene is greater than in the past because the curses of backwardness are greater.” In the postwar period, all available resources were to be mobilised to increase industrial productive capacity.

For Woo-Cummings (1999:29), the essence of the

developmental state is the commitment to government policy to improve the general economic welfare of the national population.

The state inevitably took on a

trusteeship role to ensure development occurred in the national interest. Johnson

32

Framing the idea of development (1982:314) insists that successful capitalist developmental states have been quasirevolutionary regimes carrying out social projects endorsed by society.

That the Japanese state was able to implement its intentional policies to guide development and mediate capital was due to its high level of bureaucratic capacity. The Japanese bureaucratic tradition has meritocratic recruitment via elite universities as its main pillar. The exclusion of political appointments at the higher levels, the long term career paths, plus a common elite educational experience combine to produce an unusually committed, cohesive and competent officialdom with a strong sense of identity and capacity for collective action. Such high level technocratic and managerial talent provided the bureaucracy with the means “to identify and choose the industries to be developed”, decide on “the best means of rapidly developing the chosen industries” and “to supervise competition in these designated strategic sectors in order to guarantee their economic health and effectiveness” (Johnson, 1982:315). Robert Wade (2004:297) explicitly articulates the links between states and markets. For Wade, the East Asian economic model rests on ‘governed markets’ that develop from a ‘synergistic’ connection between a public system and a mostly market system. Government actions to constrain and accelerate the competitive process, is a necessary condition for a dynamic capitalist economy. Amsden emphasises that the East Asian states created competitiveness through “pervasive intervention” (1994:627).

As Bruce Cumings (1979:119) has noted, however, many other late industrialising countries have also intervened in their economies without such a synergistic connection. In line with Schumpeter’s ideas, however, the agency of development in the Japanese developmental model was formed through a coalition between the entrepreneurial class, the Japanese business conglomerates, the zaibatsu, and the state. This growth coalition created the desire of enterprises, the zaibatsu, to act in a way that included them in the implementation of the state’s intentional developmental purposes. Such a desire was formed though bureaucratic control of investment for industrial expansion and through the provision of incentives and rewards for performance in meeting specified targets. “Finance is the tie that binds the state to the industrialists in the developmental state” (Woo-Cumings, 1999:10), so that Johnson argues that state control of finance was the most important, if not the

33

Chapter 2 defining aspect of the developmental state (Johnson, 1987:154). The state guided investment into strategic industries so that business management became the private agency of public purpose, striving to meet targets in order to continue with their own expansionary interests.

Such targets were able to be set with long-term timeframes as the bureaucracy was able to operate largely autonomously from the political process. The government takes seriously its role in ensuring ongoing legitimacy for its developmental project, and takes responsibility for “fend(ing) off the numerous interests groups in the society, which, if catered to, would distort the priorities of the developmental state” (Johnson, 1982:315). The developmental state thesis shows there is a clear recognition of the need to establish and maintain ‘order’ as a key aspect of development. Political and social stability was essential for a long term developmental project to be implemented and sustained. Johnson believes this occurs when the “state substitutes itself for society and legitimates itself through some political project such as social revolution or economic development” (1995:67). Such trusteeship for the economic development of society as a whole provides the stability necessary for long-term strategic planning in developmental states while the possibilities of policy capture by interest groups are minimised.

With such an important, intricate and long-term task, it is also essential that the state appoints a developmental pilot agency to coordinate the development functions of all departments. Such an agency, MITI in the Japanese case, is charged with directing the economic transformation, and has wide reaching powers to allocate resources, direct the flow of credit, and formulate economic plans.

The key

characteristics of the pilot organisation recommended by Johnson are “its small size, its indirect control of government funds, its ‘think tank’ functions, its vertical bureaus for the implementation of industrial policy at the micro level, and its internal democracy” (1982:320).

These attributes in themselves do not guarantee an

autonomous bureaucracy insulated from pluralistic pressures, but they do lay the foundation for that strong sense of national ‘mission’ that so clearly differentiates the elite bureaucracy in Japan and elsewhere in East Asia.

34

Framing the idea of development Johnson’s developmental state thesis has been adapted and extended to interrogate the development trajectories of a myriad of countries, including newly industrialising countries and developing countries throughout the world. While much of the literature on the developmental state involves comparative studies, these are generally comparisons of developmental states with other developmental states, or with states from Latin America, or, more recently, with those in the developed world. This study, however, seeks to extend the developmental state literature by comparing two very different types of developmental doctrines – a manufacturing developmental doctrine and an agrarian developmental doctrine. This is particularly innovative given the developmental state paradigm has only very recently been extended to consideration of agrarian development. While the institution of land reforms have long been considered in the developmental state literature to have been instrumental in eliminating opposition to and freeing up labour and capital for state-led industrialisation that were crucial to the ‘success’ of the developmental state, consideration of developmentalism in agrarian societies remains an emerging field.

As scholars and policy-makers consider new ideas for development in Africa, the developmental state thesis has grown in importance and influence. Given the largely agrarian population in these countries, ‘the agrarian question’ has become very prominent in the literature on development and is now being considered in light of the developmental state. Such consideration, however, remains largely confined to the need for agrarian reform to kick start the industrial sector. As indicated by Sam Moyo however, “the purpose of agrarian reform remains to create the conditions for a rise in agricultural productivity such that the raw materials and wage-goods needs of a growing manufacturing sector can be met, while labour is released” (2010:286). So the application of the developmental state thesis to agrarian development has been limited. However, Scott MacWilliam (2013) has most recently published a study of late colonial development in Papua New Guinea where he seeks to extend the developmental state literature to the development policies and practices of Australia’s post-war colonial trusteeship. MacWilliam, too, utilises the framework of Cowen and Shenton’s Doctrines of Development, and this study of development doctrines is deeply influenced by his work. MacWilliam (2013:244) completed his study by indicating that a major comparative question arises – should the late colonial state in PNG be categorised as a developmental state? While only half a dozen pages are

35

Chapter 2 devoted to this question, MacWilliam’s hope that his work might “encourage others to consider whether during at least a major part of the post-war years in and for PNG the appellation developmental state is appropriate” (2013:248) has been, in part, the catalyst for this comparative study.

Conclusion

While the Seoul Consensus identifies the nine “key pillars” for critical reform 1, by and large these consist of a set of policy prescriptions that fail to capture the spirit of the developmental state when understood through the lens of the original idea of development. The Seoul Consensus acknowledges that rather than the free market, Asian countries, including South Korea, succeeded in developing their economies through policies such as infrastructure development, subsidising exports, using money supply, exchange rates and financial regulations and state-run enterprises. But many developing countries have followed interventionist policies before with limited, if any, success. It is important, therefore, to examine the agency of the developmental states in constructing and implementing intentional development programs. Such an analytical concern should lead to an understanding of how these states were able to maintain order throughout the prodigious transformation of their societies.

Such a framework for analysis focuses on the external political and economic conditions that provided the critical context for how policy priorities emerged and the constraints that the developmental leadership had to face when mobilising resources to meet their developmental intent for the long term transformation of their societies. That such intent could be considered developmental is an important distinction that needs to be considered when contemplating the implementation of development plans in line with the Seoul Consensus. Rather than the palliative, welfarist intent of much international effort in the name of development, it is essential that development policies are implemented with the constructivist intent to make productive what is unproductive. Such constructuivst policies must be formulated and implemented by 1

“These areas are: infrastructure, private investment and job creation, human resource development, trade, financial inclusion, growth with resilience, food security, domestic resource mobilization and knowledge sharing” (Seoul Development Consensus for Shared Growth G20 Summit 2010)

36

Framing the idea of development those with the capacity to act in a trusteeship role in the iinterests of the nation as a whole. Only then can a development policy or program be considered developmental.

The following three chapters trace the distinctive development ideas and practices implemented in South Korea following its liberation from Japanese imperialism after the Second World War when the nation-building process began right up until contemporary times.

The subsequent three chapters examine the

development ideas and practices implemented in Papua New Guinea over the same period, in the late Australian colonial era and since independence. These chapters examine how development proceeded in these two countries separately and demonstrate the impact of internal as well as external influences on the development process.

As indicated by the analysis of the idea of development in this chapter,

development represents profound social change that brings disorder before a new order is established. It is important therefore, that analysis of development in these two distinct countries concentrates on the different processes by which change occurred as their leadership endeavored to bring development to these underdeveloped countries in the long era of international cooperation to do just that.

37

Figure 3.1

38

Chapter 3

Liberation, Partition and War South Korea 1945 to 1960 Introduction

This chapter begins the study of the development ideas in South Korea which nominally commenced with the declaration of the independent Republic of Korea in 1948 under the inaugural presidency of Syngman Rhee. While Rhee’s leadership is generally associated with a period of ineffective import substitution, closer scrutiny of the historical record shows this was rather a reactive and pragmatic development policy than a hard ideological stance. It is important, therefore, to situate the ideas of the Rhee regime in their historical perspective in order to fully illuminate the origins and veracity of such ideas as well as the contemporaneous influences on such development policy. Both the international and domestic influences on development policy in South Korea have their origin in the geostrategic importance of the Korean peninsula, an importance that has considerable implications for its ability to exert control over its political and economic direction.

Ancien regime Korea, often referred to as the ‘hermit kingdom’, while politically and socially stable for hundreds of years, found itself incapable or unwilling to institute the far reaching societal change necessary to defend itself from foreign influence and control. This transformation was to take place with the brutal modernisation polices of the Japanese imperial period from 1910, which, while incorporating formerly isolated Korea into the world capitalist system, exacted a heavy toll on the Korean population, including poverty, displacement and persecution.

While liberation from the Japanese in 1945 raised

expectations of the freedom for the Korean people to control their own political and economic destiny, this was not to be, as the geo-strategic importance of the peninsula in the ensuing Cold War super power rivalry led to further occupation, partition and war. The South Korea that emerged in 1953 following this unparalleled instability was broken, but not beaten, as the pendulum of power swung in Rhee’s favour.

While it is obvious that

throughout the period from 1945 to 1960, the critical impetus for change was the impact of international actors and conditions, at the same time, the domestic capacity of the Korean leadership to formulate and implement its own development doctrine proved an essential

39

Chapter 3

element in bringing about change that was to have far-reaching implications for subsequent periods of rapid economic growth. The importance of the Rhee regime in establishing the foundations for such growth, therefore, lies not in its macroeconomic achievements or the changes in the structures of the economy it induced, but in the government structure it created.

This chapter therefore, generally follows a chronological order in order to explain the distinctive characteristics of development in Korea across time.

Within each discrete

historical period, however, the organising theme is the ideas and practices of development that dominated that period and the actors that produced them. The period of rule under the late Yi dynasty is discussed first to establish a benchmark of non-capitalist existence for the later wrenching changes to the political economy of the peninsula.

Then the Japanese

imperium is considered for the purpose of assessing what has come to be called modernisation, which took place in the period from 1910 to 1945. The period of occupation by the US administration, the partition of the peninsula into two separate states in 1948, and the subsequent Korean War from 1950 to 1953 is then assessed in terms of the effects these had on development policy and practice in the South. Finally the regime of Syngman Rhee is discussed in relation to its major protagonist, the US AID administration. The chapter ends with a discussion of the inability of the Rhee regime to deal with the rapid inflation and mass unemployment of this period of state-captured, stalled development which led to widespread social unrest, causing political and economic instability, which was to prove the catalyst in 1961 for the most significant change in South Korea’s development trajectory.

The hermit kingdom – prelude to colonial development

As mentioned above, while the nation-state of South Korea formally begins on 15 August 1948 with the establishment of the Republic of Korea, the origins of the Korean nation are said to date back thousands of years. The area south of the Han river was relatively isolated so that it initially developed independently from the rest of the Asian continent. According to legend, the first Korean kingdom was founded in 2333 BC with two more kingdoms being established soon after. The three kingdoms were unified under one king in 668. A stratified class system arose with a clear distinction between the ruling class, which consisted of elite scholar-officials, and a subordinate population.

40

During the Yi

Liberation, Partition and War

dynasty1, which was founded in 1392 and continued right up until the Japanese annexation in 1910, the yangban class, the literati which essentially made up the aristocratic elite, was entered into by passing the higher civil-service examinations, open only to those with the wealth and privilege to have received the necessary level of education. The yangban class directed the economy, government and culture.

Social and political status was largely

determined by birth and lineage. 2 The Confucian stress on the family reinforced the idea that people in positions of authority or occupying superior status positions commanded respect (Song, 1990:29-36).

There was no clear institutionalised system of private property during the Yi dynasty. Traditionally, most land was considered crown land which was assigned to government officials who utilised the output of the tenants farming the land for their own purposes as well as to pay taxes to the king. Peasants had traditional rights to their tenanted land so that it remained in the family from generation to generation (Amsden, 1989:53). Senior government officials were also rewarded for their loyalty to the king with grants of land. This meant that towards the end of the Yi dynasty, the yangban class owned most of the private land (Song, 1990:34) as well as holding all the important government offices. This provided the yangban class with considerable power in opposition to the ruling dynasty as well as the peasantry. Although peasant rebellions and threats of foreign invasion in the 1860s stimulated urgent calls for reform from some western-educated yangban, the traditional system was incapable of allowing a major shift in the balance of power toward strong central and dynastic leadership (Amsden, 1989:30).

As far as trade was concerned, the Yi Dynasty instituted an isolationist policy. Borders and ports were open only to the Chinese, with foreign trade being chiefly conducted by the government for political rather than economic reasons. Korea became widely known as the ‘hermit kingdom’ as it was largely closed off to the rest of the world. Coupled with the very low status afforded the merchant classand the limitations of the poor monetary system, this meant that development of commercial activity was severely 1

Also referred to as the Choson dynasty. The dynasty was established by General Yi Sŏng-gye In traditional Korean society, social status was ordered with “scholars or government officials at the top, followed by farmers, as the backbone of the agrarian society, artisans, as producers of useful goods, and, lastly, merchants, as unproductive profit-takers” (Song, 1990:50).

2

41

Chapter 3

constrained (Song, 1990:29-36). Korea was coerced by Japan to sign a commerce treaty in 1876, the Treaty of Ganghwa, which forcibly opened its ports and natural resources to Japan, the United States and other countries, an attempt to separate Korea from the Chinese sphere of influence. Japan continued its gunboat diplomacy on Korea which was seen as geostrategically essential in its power rivalry with China and Russia. After Japan defeated Russia in the Russo-Japanese War of 1904-1905, the peace treaty acknowledged Japan’s paramount political, military, and economic interest in Korea. The US and Britain also acknowledged Japanese interests in Korea, and Korea became a Japanese protectorate after the Korean cabinet was forced to sign the Eulsa Agreement in 1905 (Hart-Landsberg, 1998:52).

The Korean leadership’s concern for and capacity to modernise its pre-capitalist economy at the beginning of the twentieth century was hindered by the factors that were largely responsible for the remarkable stability of the Yi Dynasty (1392-1910). While Korea had a centralised government with a well-educated bureaucracy and considerable capacity for control of the population, governments were weak in terms of the ability to raise revenue and mobilise resources for development and defence.

The yangban class maintained its

concentration of wealth and power through the privileges of office, landholding and the utilisation of Confucian customs for the legitimation of status and economic interests (Amsden, 1989:29). Korea’s annexation by the Japanese would change all of this. With the defeat of insurgents and the dissolution of the Korean army, Emperor Sunjong was to be the last ruler of the Yi Dynasty, as, on 22 August 1910, Japan effectively annexed Korea with the signing of the Japan-Korea Annexation Treaty (Hart-Landsberg, 1998:53).

Japanese imperialism

Korea, the closest and most important of Japan’s colonies, became heavily integrated into the Japanese economic structure, initially through the expansion of agricultural production, then as a site of light manufacturing dominated by Japanese firms, and, eventually as the Japanese war machine geared up, heavy and chemical industrialisation. The nature of the Japanese political economy ensured that the government would take a prominent role in every stage of this integration, so the largely ineffective, weak dynastic apparatus was immediately replaced with a strong Japanese imperial administration.

42

Liberation, Partition and War

From 1910 to 1920, agricultural production in Korea essentially substituted for the diminishing Japanese agricultural sector, a consequence of Japan’s rapid industrialisation (Cumings, 1984:8).

Immediately following its annexation, the Japanese imperial

administration initiated land reforms in order to establish Korea as a supplier of food and raw materials to the metropole. A comprehensive land survey was conducted from 1910 to 1918, mapping all existing plots and registering ownership under a system of private property, making possible one of the key elements of the capitalist colonial economy. While this survey helped to confirm the position of some members of the existing Korean landowner class – yangban who co-operated with the Japanese imperial authorities – many farmers, whose families had farmed the same land for generations, had their land confiscated. The Japanese imperial government, became Korea’s largest landholder with approximately 40 per cent of the total land area, with the rest remaining in the hands of a small number of landlords, about four percent of the rural population, made up of yangban collaborators (Hart-Landsberg, 1998:45-52).

While the Japanese land survey was a critical step in creating a land-less working class which would become important as a labour-force in later stages of the imperial modernisation project, such dispossession of large sections of Korea’s agrarian society, with only 14 percent of farmers remaining as owner-cultivators, led to a loss of livelihood and widespread poverty. Those remaining on the land as tenants fared little better, losing half their main crop in rent to landlords or the government. Competition to acquire tenants’ leases meant rents escalated, so, with little alternative means available, exploitation of the masses increased rapidly.

While greater irrigation, fertiliser and farm machinery increased rice

production, Korean per capita consumption actually fell by approximately 62 percent (HartLandsberg, 1998:52). While Korea became a net exporter of rice, this was clearly at the expense of large sections of the population. Faced with starvation, the peasants rose up and yangban resistance leaders seized the opportunity to press their anti-colonial struggle further.

Amid the political and social unrest sweeping the country, a small group of resistance leaders in Seoul made a declaration of independence in 1919, a historical event that was to become known as the March 1st Movement. The Japanese imperial government however, gave a clear indication of how militarily powerful it had quickly become.

Huge

demonstrations throughout the country were brutally oppressed with thousands being killed on the streets, tens of thousands imprisoned and the destruction of churches, temples, schools

43

Chapter 3

and homes, forcing many to flee the country. Resistance to Japanese imperialism continued to be fought by those leaders in exile and would be instrumental in fulfilling leadership roles in the post-Liberation era. A Provisional Government of the Republic of Korea was established on 13 April 1919 by Koreans living in Manchuria, China, Siberia and the United States with Syngman Rhee as its first president. 3 These resistance leaders pressed for foreign assistance to liberate Korea from its Japanese masters, pacing the corridors of power to further their cause. But, as history clearly demonstrates, they were not to prevail. As more and more farmland was taken over by the Japanese, many were forced by hunger or politics to leave Korea, with over a million having header to the frontiers of China and Russia by 1944 (Hart-Landsberg, 1998:56).

As Japan rapidly industrialised, Japanese interest in Korea followed a similar pattern and eventually also turned to industrialisation. Japanese governments pursued highly interventionist financial and industrial policies to extract as much from Korean land, labour and resources as they could (Pirie, 2008:60). The Japanese built railroads, highways, schools, and hospitals and established a modern system of administration in order to facilitate this. A sophisticated financial system had been established in Korea and had expanded to include the central Bank of Chosen, the Agriculture and Industrial Bank, commercial banks for deposits and local financial cooperatives and mutual credit corporations for small loans for productive purposes (Woo, 1989:27). This financial system was to prove a very effective institutional apparatus for the mediation of Japanese capital in the colony as developmental ideas turned to industrialisation.

Initially, during the 1920s, industrialisation focused on labour-intensive, low skilled manufacturing industries such as textiles and food processing in the southern regions. Much of this manufacturing was under the ownership and control of Japanese businessmen. 3

Syngman Rhee was one of the leading members in the western-educated US group which, under his

conservative, pro-United States leadership, insisted on following a political strategy based on winning Western support for international recognition of Korean independence, despite repeated failure. Yi Tong-hwi, a leader of the Siberian-Manchurian group who advocated a more militaristic nationalism, finally broke away and formed the Korean Communist Party which joined with the Chinese communists to repel the Japanese from 1932 to 1941. He was joined by Kim Il Sung, who was later to become the leader of North Korea and established his reputation as a liberation fighter in the Second Army during the Japanese occupation of Manchuria (Hart-Landsberg, 1998:56).

44

Liberation, Partition and War

However, after the 1919 uprising a small number of Korean capitalists were deliberately cultivated to further collaboration (Amsden, 1989:33). Nevertheless, there was quantifiably very little involvement of Korean capitalists in the industrial sector. Virtually all industries were owned either by Japan-based corporations or by Japanese corporations in Korea. While a small number of Korean firms were involved in the light industry phase, with a share of 12.3% of paid up capital in the 1930s, this quickly declined as the Japanese imperial government pursued highly interventionist financial and industrial policies in order to ensure that capital flowed to strategically important industries and firms - the move into heavy industry was the sole prevail of the huge Japanese zaibatsu. The collaboration of Japanese big business and the imperial government provided the necessary impetus for the building of hydroelectric power stations in the north in 1926, then leading to the construction of a huge fertiliser plant in 1927 (Woo, 1991:38). .

In 1930, Korea provided 8 percent of Japan’s total supplies of iron and steel materials, expanding so rapidly that by 1944, Korea was supplying Japan with 37 percent of its iron ore imports (Woo, 1991:38). Following the Japanese conquest of Manchuria in 1931, investment in Korea also accelerated. The imperial governments “offered big business the two most fundamental preconditions in business engagement and practice: guarantee of political stability and of government investment in infrastructure necessary for industrialisation – political and social overhead, so to speak” (Woo, 1991:32). By 1939 Korea accounted for 34 percent of all Japanese exports, becoming its largest market, with 95 percent of all Korean exports going to Japan and 80 percent of imports into Korea being sourced from Japan. Japanese intervention in the Korean industrial transformation was such that between 1911 and 1938, the Korean economy grew at a rate that was even faster than Japan’s. Manufacturing rose to approximately 18 percent of GNP by 1931 and to 40 percent by 1939 (Hart-Landsberg, 1998:53). However, by 1942, Korean capital constituted only 1.5 percent of the total capital invested in Korean industries. Korean entrepreneurs were charged interest rates 25 percent higher than their Japanese counterparts, so it was difficult for Korean enterprises to emerge (Pirie, 2008:62). As Woo (1991:66) argues, Japanese imperialism led to the birth of capitalism without any significant bourgeoisie in Korea.

As the Korean economy was transformed from an agricultural to an industrial one, Korea’s industrial labour force also grew rapidly. There were approximately 385,000 factory workers in 1932. This number rose to nearly 600,000 in 1936 and reached 700,000 in 1940

45

Chapter 3

after the Japanese launched the Sino-Japanese War in 1937 and decided to mobilise the entire country for war. After entering the Second World War in 1941, Japan siphoned off more of Korea’s resources with maximum impact. By 1943, the number of workers in Korea exceeded 1.3 million (Hart-Landsberg, 1998:54). This was still not enough to absorb the excess labour created by the alienation of traditional farmlands, so that by this time, an estimated 10% or more of the Korean population was living outside of Korea, with more than a million working in Japan as unskilled labour, miners and agricultural labourers (Amsden, 1989: 34-35). As would be expected, Japanese planners carried out their industrialisation policies with little regard for the well-being of Korean workers. Wages in 1935 were 50 percent lower than they had been in 1927. The normal industrial day was lengthened over the same period from twelve to sixteen hours. In addition, the rates for industrial accidents, diseases and death were very high with health and safety considerations non-existent (HartLandsberg, 1998:54).

The Japanese colonial project required the construction not only of a colonial government capable of playing a prominent economic role, but also of pervasive security/policing networks to support government-led accumulation. In order to facilitate such effective economic exploitation and political control, the Japanese constructed a highly repressive, efficient, modern government in Korea. The Japanese imperial regime in Korea exercised an exceptionally extensive and highly intensive form of control over all aspects of social and economic life as it worked to bring about its planned annexation to convert Korea into a prefecture of Japan. To exercise such control there was a major expansion of the Korean civil service. By 1940, civil servants numbered over 100,000 4 (Pirie, 2008:61). Top positions were invariably occupied by Japanese, with only 354 to 442 Koreans occupying high level positions between 1915 and 1942. Koreans, however, worked at the lower levels as secondary technical and administrative personnel, with the number of Korean junior officials increasing from 15,543 to 29,998 in the same period. In 1938 the government also began to enlist Korean youths in the Japanese army as volunteers, and in 1943 as conscripts 5 (Song, 1990:242).

4

To place these figures in perspective, in India the civil service under British rule comprised less than 2,000 officers immediately prior to decolonisation (Pirie, 2008:61). 5 For example, Park Chung Hee, the leader of South Korea from 1961 to 1979 graduated from both the Japanese military academy in Manchukuo and the Cadet Academy in Tokyo (Song, 1990:242).

46

Liberation, Partition and War

A policy of assimilation was introduced whereby Koreans would be integrated into the dominant Japanese culture. In 1938, the Japanese issued a decree making it illegal to use the Korean language in schools, public meetings, or publications. The following year, Koreans were ordered to adopt Japanese names. Under the slogan, “Japan and Korean Oneness”, the Japanese sought to make Koreans forget their culturally distinct past. Worship at Shinto shrines became mandatory, and every attempt at preserving Korean identity was discouraged (Hart-Landsberg, 1998:61). The Japanese governor-general suspended all Korean newspapers, disbanded all Korean political organisations, and made public gatherings illegal. Resistance was met with force as the number of military and civilian police rose from 6,200 in 1910 to 20,800 in 1922. By 1941, there were more than 60,000 police, or one for every 400 Koreans (Hart-Landsberg, 1998:51). The sheer size and composition of this militarised government clearly demonstrates that, ultimately, the Japanese ideas and practices of development in Korea rested on extensive political, social and economic repression, as was the case throughout the Japanese empire. Yet, according to Woo (1991:38), it was more accentuated in Korea than elsewhere, in part because the populace proved particularly recalcitrant, and in part due to both the suddenness and magnitude of change.

The exploitative relationship between colony and colonised in the period of Japanese imperialism saw the systematic underdevelopment of Korea for the benefit of Japan. This was done through the interplay of a highly interventionist government, directed industrial financing, and a zaibatsu concentrated private sector all combining to bring about industrial transformation. While such development was not spontaneous, the Japanese imperium did not implement an intentional doctrine of development to resolve the problems of surplus labour and subsequent poverty of large numbers of the Korean population. A large repressive government apparatus was instead used to resolve the disorder associated with this potent case of capitalist underdevelopment.

Liberation, partition and war

The dropping of the atomic bombs on Hiroshima and Nagasaki in August 1945 heralded the end of the Second World War and the end of Japanese imperialism in Korea with the unconditional Japanese surrender on 15 August 1945. It did not mean the end to foreign influence over the process of development in Korea. The Russians entered Korea in the same month, marching towards Seoul from the north. The Japanese government

47

Chapter 3

approached the conservative Korean nationalists under Yo Un-hyong in a last ditch attempt to influence a post-independence government that might be as least anti-Japanese as was possible. However, keen to ensure the broadest political support base possible, Yo enlisted the help of those on both sides of the political spectrum and they established the Committee for the Preparation of Korean Independence. The prisons were emptied of the 30,000 mostly political prisoners and tens of thousands were released from youth and labour camps. People’s committees, functioning as basic units of government, were established throughout the country. On 6 September 1945, several hundred activists met in Seoul and established the Korean People’s Republic. They elected fifty-five leaders to staff the interim administration, including Syngman Rhee from the right and Kim Il Sung on the left (HartLandsberg, 1998:65).

Yet all this effort by Korean revolutionaries to establish a new Korean government was to be in vain, as what was to become an intense Cold War rivalry began in earnest. The Yalta power sharing agreement in the form of an international trusteeship for Korea turned into an all-out division of the country. Russian forces halted at the 38th parallel. United States forces arrived in Seoul to receive the official Japanese surrender on 9 September 1945, and effectively from that day forward, the country was divided in two. In the north, Russia recognised the People’s Republic almost immediately, land was redistributed to the peasants, major industries were nationalised and labour rights were introduced (Cumings, 1981:382). This was not to be the case in the south.

The United States force occupying the south of the peninsula, concerned with the leftist leanings of the people’s committees, refused to recognise the People’s Republic. They, instead, supported the reinstitution of the structure and the Korean personnel of the former Japanese Imperial Government to govern their zone. Strikes were banned and anything to do with the revolutionary People’s Republic was outlawed in December 1945 (Hart-Landsberg, 1998:90). The swift suppression by US forces of a bloody uprising in 1946 caused the recalcitrant remnants of the People’s Republic to be finally and irrevocably destroyed in the south.

An American alliance was formed with political sympathisers in the Korean

Democratic Party, largely made up of the last vestiges of the privileged class of yangban landowners, who swung behind the conservative alternative in the form of the anti-

48

Liberation, Partition and War

communist returned exile Syngman Rhee 6 (Hart-Landsberg, 1998:73).

On 15 August 1948,

the US military occupation handed power to the Republic of Korea with Syngman Rhee as the inaugural president of the south. Kim Il Sung was elected as the first Prime Minister of the Democratic People’s Republic of Korea in the north on 9 September 1948 and the official division of the Korean peninsula was complete (see Map 1 below).

Following division, most of the large industrial complexes developed under the Japanese now lay in the north. The south, as had been the case under the Japanese, was mainly agricultural, with some light industry in textiles and agricultural processing. Political stability was important in the quasi-revolutionary circumstances following the division of the peninsula. Peasant protests and labour unrest in reaction to land redistribution being carried out by the communist government in the north needed to be addressed. In order to do so, the US occupation authorities, and the Korean leadership it installed, needed to quickly dispel unrest in the countryside where the majority of the population lived. Former Japanese land was distributed in 1947 to the tenant farmers and a ceiling was placed on rents of other land held by Korean landlords (World Bank, 1993:161). This initial measure was followed up by the new government of the Republic established in 1948 under Syngman Rhee which promulgated the Agrarian Reform Act of 1949, involving further redistribution of farm land among Korean landlords and tenants (Lee, 1968:51). While Korean landlords were few in number they were the most powerful class in South Korea and, by now, nominally supported the opposition rather than Rhee. Ostensibly to free up scarce resources for Rhee’s preference for an Import Substitution Industrialisation program, landholdings were limited to three chongbo (hectares) and any land in excess of this was compulsorily acquired by the government. This land was then distributed among the landless tenants, representing approximately 40 percent of the total farm households, and small farm owners, effectively eliminating tenancy and raising about one million people to the level of small landowners, creating a new class of independent family proprietors (Lee, 1968:53). Full ownership was only 13.8 percent in 1945, but rose to 73.6 percent by 1960 (Steinberg, 1985:11).

6

Syngman Rhee, who was to become the first President of the Republic of Korea, was a renowned campaigner for reform and was jailed by the Emperor for life in 1899 for agitating for change to a constitutional monarchy. While he was in prison he wrote The Spirit of Independence, which was designed to awaken Koreans to the modern world and transform Korea in order to defend its independence. Suddenly released in 1904 with the outbreak of the Russo-Japanese War, Rhee fled to America where he was to remain in exile until Korea was liberated from the Japanese in 1945 (Rhee, 2001:xi-xii).

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Chapter 3

These far reaching land reforms had the effect of dissipating the power and influence of the land-owning class in South Korea, contributing to a considerably more equal distribution of income in the agricultural sector which made up the bulk of the economy at this time. This had the desired effect of eliminating the source of political instability in the countryside. Land redistribution contributed to the legitimacy of Rhee’s government and provided the resources for widespread participation in education.

The significant

redistribution of the pattern of land possession led to an erosion of the traditional status of landlords that had formed the framework of Korean society prior to the Japanese annexation. While investment of residual resources in industrial enterprises was the intended outcome, the absence of widespread industrial development under Rhee’s leadership meant that education and employment in the civil service largely became the only avenues for the maintenance or advancement of social status (Lee, 1968:53). This private investment in education contributed greatly to the expansion of the human capital necessary for the next phase in Korea’s development, discussed in chapter four.

While reunification negotiations continued, border conflicts eventually escalated into war from June 1950 until July 1953. The three years of fighting in the Korean War left over one million people dead, destroyed 80 percent of industrial and infrastructure facilities and destroyed more than half the dwellings. As a direct consequence, South Korea became one of the poorest countries in the world (Song, 1990:42). Even in 1960, after the damage inflicted during the war had been substantially repaired, South Korea’s per capita GNP was still only US$80 in current prices (Song, 1990:57).

Import substitution, foreign aid maximisation and underdevelopment

Following the Korean War, with Cold War containment policies ensuring US forces were firmly entrenched in South Korea, the ability to influence and direct development policy swung in Rhee’s favour. While South Korea remained heavily dependent on US aid, Rhee’s ability as a statesman saw him exploit America’s support for a strong containment state with the capacity to withstand the communist threat not only from the north, but from within South Korea as well. Although US officials provided considerable advice, and US financial and military support remained vital to South Korea’s survival, Rhee had a pervasive influence over all aspects of the political economy as he concentrated on establishing the institutions of government and maintaining his support base. While the US regional development strategy

50

Liberation, Partition and War

centred on Japan as the hub with South Korea as a market for Japanese goods under open trade and export promotion, Rhee saw this as neo-colonialist, choosing an import substitution industrialisation (ISI) strategy instead (Woo, 1991:48). Such development policies were the fashionable direction in many countries during the first decades after the Second World War, with a strong role for government in stimulating economic growth.

The US strategy for South Korea was based on the idea of exploiting its comparative advantage in agriculture, revitalising its role as a supplier of food to Japan, as had been its predominate role in the colonial economic structure. Such a strategy obscured the fact that Korea had only managed to be a food surplus economy by forced Japanese rice procurement through drastically curtailing domestic consumption, a situation that Rhee most certainly did not wish repeated. Rhee’s economic policies, were, instead, aimed at establishing selfreliance for South Korea, and especially insulating Korea from the foreign influence of Japan. For half a century in exile, Rhee's single-minded focus had been upon transforming Korea into a ‘modern’ nation capable of defending itself from imperialism (Rhee, 2001:3). This most certainly did not entail re-establishing South Korea as merely a market for Japanese manufactured goods through the US policy of aid coordination designed to reinvigorate Japanese industry at the centre of a regional trading network. According to Rhee:

What [aid coordination] means is that [Korean] recovery is slowed as we are expected to buy more from Japan, and accordingly to use less to build up our own productive facilities. This has an immediate effect of once more placing our economy at the mercy of the Japanese (Rhee to Eisenhower, 24 July 1954, quoted in Woo, 1989:57).

Rhee’s ISI was, therefore, a defensive industrialisation designed to resist Japanese dominance of the regional economy as he considered it made infinitely more sense to build South Korean industries than to purchase Japanese goods (Woo, 1991:54). Rather than adopting an ideological stance against South Korea’s subordinate position in the international economy, Rhee sought a pragmatic approach that would see South Korea take its place alongside the other capitalist economies in the region. Certainly, Rhee had no consideration of disengaging from the international capitalist system – he had long been an advocate for Korean modernisation and engagement with the world and from the outset had been a firm advocate for establishing a capitalist economy in South Korea. US aid policy during the

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Chapter 3

1950s also restricted aid-subsidised products to domestic consumption, essentially prohibiting aid recipients to adopt an export-led economic strategy (Kang, 2001:47). In addition, Rhee did not want foreign aid concentrated in agriculture as former landlords formed his major opposition in parliament. With workers and peasants having been placated by the land redistribution, the rural sector was largely ignored. Despite these factors, the agricultural sector grew by 4.1 percent during this period, even though rice production, the mainstay of the agricultural sector, remained relatively constant (Steinberg, 1985:25).

While Rhee succeeded in channelling US project aid preponderantly into manufacturing, transportation and electric power, economic development was modest. As Woo (1991:59) says, “Rhee’s major achievement lay elsewhere – state building.” Under Rhee, there was no cohesive development policy, other than the initial reconstruction of factories and facilities destroyed in the war. Rhee’s principal policy goals were state building and the transfer of power and resources to the conservative Korean political elite. The majority of resources for this state building were provided through US aid which funded the establishment of a huge repressive government apparatus with 240,000 civil servants and 600,000 military personnel as the logic of containment called for a forward defence state capable of staving off the threat from within as well as from without – and that meant a “strong state” (Woo, 1991:47).

“Containment as Truman and Archeson conceived of it was not primarily military, but rather founded on a developmental theory that assumed a direct correlation between political stability – absence of communism – and economic growth. This remained essentially true throughout the 1950s with America pouring in $1 billion a year in combined military and economic aid to prop up the war-devastated country as it joined power and plenty in a Cold War developmental effort” (Woo, 1991:50). The modest economic growth that took place in the Rhee era, therefore, was clearly the result of large-scale foreign assistance rather than implementation of any positive economic plan or mobilization of domestic resources. Almost completely dependent on donor support for food and consumption goods, as well as raw materials and military assistance, South Korean policy stressed the maximization of foreign assistance to bolster South Korea’s security, to finance reconstruction, and to build a powerful state structure.

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Foreign assistance amounted to “more than half the total resources available for capital accumulation in every year from 1955 to 1962” (Steinberg, 1985:25). In 1956, for instance, economic aid was more than $326 million, military aid more than $400 million, and $300 million covered the costs for US troops in South Korea (Woo, 1991:46), (see table 3.2 below). This aid provided finance for the expanded role of the South Korean government. US aid accounted for 70% of all government spending in the 1950s and 75% of total fixed capital formation between 1953 and 1960 (Kang, 2001:47). However, US grain surpluses, mostly wheat and rice, made up a large proportion of this, limiting US aid as a source of accumulation other than revenues generated through the government selling the grain on the local market.

Much of the aid provided by the US was in fact welfare and continued to

contribute to the under development of South Korea. In order to maximise the limited revenues raised by the South Korean government selling US grains, foreign exchange rates were kept artificially high, effectively discouraging exports. While the government was to supply the majority of capital for local business interests, the government’s role in economic activity was greatly limited to mediating between business groups and foreign aid projects. While the Korean economy grew by an average of 4.5 percent per annum between 1953 and 1962 (Pirie, 2008:70), such a result was significantly lower than expectations considering the massive input of US aid and the very low base from which it started.

Table: 3.2 US Economic Aid Received by Korea (in US$1,000) Year

Total Value

Year

Total Value

1951

106,542

1956

326,705

1952

161,327

1957

382,892

1953

194,107

1958

321,272

1954

153,925

1959

222,204

1955

236,707

1960

245,393

(Source: Woo, 1989:46).

So, while Korean entrepreneurship emerged under Rhee, it was restricted to importsubstituting industries designed to restore destroyed industry and was deeply mired in rentseeking activities, competing through bribery and corruption in order to secure favours from the government. Rhee set about establishing personal alliances with select business leaders

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Chapter 3

by giving them previously Japanese-owned enterprises and extending them business loans that amounted to gifts in the hyperinflationary economic conditions. Former Japanese vested enterprises were gradually auctioned off at bargain basement prices to small-time businessmen with government connections, who now claimed ownership of some 3,551 factories, operating plants, infrastructure and inventory7 (Woo, 1991:67). Entrepreneurial or management ability was not a necessary condition of government largesse, as business owners became deeply enmeshed in rent-seeking activity. Government procurement and infrastructure projects provided exaggerated profits to these select firms with no detrimental consequences for failure as long as the business group remained a staunch political ally. This meant a business class had emerged whose accumulation predicated on a collusive relationship with the political leadership.

This relationship was important for securing

procurement and infrastructure projects, financed through government institutions and US aid. While such projects prevented total economic collapse, this model of governmentbusiness relations began to unravel with the decline in US aid from 1958 onwards (Pirie, 2008:63).

As reconstruction projects came to an end, the economy stagnated. Rhee found it harder to maintain the support of both the South Korean bourgeoisie and the rest of the population, as well as the US aid administrators. Differences over objectives, with Rhee directing aid funds to shore up political support and the US seeking to lower the cost of an effective military command, mandated a phased reduction in aid levels and structural adjustment programs designed to rein in government expenditure. Between 1957 and 1961, US economic aid to South Korea fell from $382 million to $192 million per annum (Pirie, 2008:66) (also see table 1 below). Rhee’s major political asset, in the form of backing by the US, appeared to be in decline at a time when US aid provided the margin of survival for many South Koreans. The Presidency had been strengthened at the expense of the National Assembly after Rhee corruptly pushed through an amendment that allowed for direct election of the President in 1952. While labour volatility had been rising in reaction to worsening employment situations towards the end of the 1950s, in 1960, a reported 9,000 of 15,000 college graduates were unable to find work causing widespread student demonstrations (Amsden, 1989:221) which fanned the flames of change. Following Rhee’s re-election in 7

Samsung founder, Yi Pyong-chol, was said to have built his fortune via these means. Initially a landowner, small trader and owner of a small rice mill, by the end of the 1950s, he was a formidable chaebol leader, owning huge sugar and textiles factories (Woo, 1989:68).

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Liberation, Partition and War

1960 for a fourth term despite the heavy defeat of his political party in the assembly, studentprotests broke out at what was widely considered to be a rigged result.

Protests escalated

when a number of demonstrators in Masan were shot by police. Rhee was forced to resign on 26 April 1960 when protestors converged on the presidential palace.

In response, the

National Assembly instituted a Prime Ministerial system with Chang Myon at the head of a bi-cameral parliament consisting of a House of Commons and a Senate. The period of parliamentary rule was to be short-lived as labour conflicts increased sharply, weakening the government’s ability to manage the economy, which deteriorated to a state of almost total collapse. Growing disaffection with continuous social unrest led to the emergence of a new leadership. Military strongman, General Park Chung-hee led a coup d'état on 16 May 1961. He was able to capitalise on the instability created by an indecisive government and demands from the new-found power of student protestors for political and economic reform (Fowler, 1999:266).

Conclusion

This chapter has shown that the development policies and practices followed in South Korea have been heavily influenced by both exogenous and endogenous forces. External influence over the whole peninsula began with the forced opening and then annexation of Korea by the Japanese in 1910. The period under the rule of the harsh and oppressive Japanese colonial state was to prove a significant catalyst for change, not just from a noncapitalist economy to an economy that was firmly integrated into the Japanese and, therefore, the international economy. The modernisation and exploitative policies of the Japanese transformed class relations in Korea, creating a large landless labour force with little regard to their well-being. In the absence of development policies designed to deal with the poverty and displacement of the expansion of government-guided capitalism, the Japanese built a huge and repressive government apparatus with the strength to suppress any dissent and disorder. The Japanese imperial period, therefore, brought about a strong sense of injustice and collective struggle among Koreans, feeding into the development of an effective and reactive nationalism that was to become an important aspect of the developmental state that was to come in South Korea. The drive to develop in a nationalistic construct that predicates development as an imperative for national survival and independence from foreign influence is one of the important pre-conditions for the establishment of a developmental state as outlined by Chalmers Johnson (discussed in chapter two).

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Chapter 3

International actors were again responsible for the wrenching changes that were to come to Korea following liberation from the Japanese in 1945, with the Cold War superpowers competing for power and influence in the geo-strategic fault line that the Korean peninsula was to become. With the US administering what was to become South Korea, events over the border in the Russian administered north were to have important domestic political implications in the south. The land reforms instituted by the US occupying force and then followed up by Syngman Rhee were significant instances of policy instruments specifically designed to remedy the widespread disaffection and unrest throughout the countryside in response to the imposition of partition and reinstatement of the state apparatus formerly in place under the Japanese.

The creation of a large class of smallholder

landowners, placating the peasants for some time, was also to be instrumental in the abolition of the former large landowner class, which had been the only real challenge to the power and authority of the government to act independently of class interests.

The partition of Korea, the subsequent civil war, and the continuing threat from the communist north were also instrumental in creating the critical context for continuing military and economic support of South Korea by the United States of America, as well as the perceived necessity of industrialisation for security purposes. The need to build and maintain a strong containment state in South Korea provided the opportunity for Syngman Rhee to reestablish and grow a large and powerful public sector. Such a government structure was built using US aid as the only source of accumulation that war torn, unstable and economically bereft South Korea could attract under the circumstances. It is testament to the capacity of Rhee and his supporters to direct aid flows for their own political purposes despite the considerable influence wielded by the US aid administration.

This large and powerful

government structure concentrated on spending and lending, building its capacity to keep order as well as building coalitions with local business interests in order to foster continuing political support. Such a government provided the framework for the strong and autonomous developmental state that was to come in the next phase of South Korea’s development trajectory and, again, provided one of the most important pre-conditions as outlined in Johnson’s developmental state thesis.

It is also evident from the discussion in this chapter that, while the capitalist class developed under the Rhee regime was largely unproductive and deeply mired in rent-seeking

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behaviour at the expense of effective long-term development, Rhee’s reactive ISI strategy was the main action that ensured such South Korean capitalists were able to establish themselves at all. Rhee’s active resistance of US regional policy that would undoubtedly have established South Korea as a source of agricultural and other low cost commodities while becoming dependent on a supply of increasingly costly manufactured goods from Japan, while nationalist in nature, was not necessarily in the interests of South Korean society as a whole. While it would take the next phase of development (to be discussed in the following chapter) for these capitalists to become a major force in the transformation of the South Korean economy, their emergence under the Rhee regime was instrumental in setting the foundations for what Amsden (2014:81) calls “securing the home market” – that is, productive assets and firms in the hands of South Korean nationals rather than foreign nationals. By 1960, however, such a capitalist class remained nascent, and heavily reliant on the government for access to very scarce capital. This meant that another of the conditions Johnson considered necessary for the establishment of a developmental state was in evidence in South Korea by 1960 – a limited, weak and cooperative bourgeoisie reliant on the government for capital.

As has been demonstrated by the explanation of the particular development ideas in South Korea presented in this chapter, by 1960, some of the important pre-conditions for the establishment of a developmental state were in evidence in this deeply afflicted country. While development intent was evident, this was seriously constrained as the most important element of developmentalism was clearly absent – state commitment to act as trustee to implement development policy in the interests of the whole of society. What was in evidence, however, was a strong and committed central government, a weak and cooperative business sector and a situational nationalism that required rapid economic development in order to combat imperialism and other external threats to ensure national survival.

It is these

conditions that gave rise to the South Korean developmental state that sustained the long boom of the 1960s and 1970s with which the following chapter is concerned.

57

58

Chapter 4

Export Promotion, Rapid Growth and Crisis South Korea 1961-1979

Introduction

The coup d’état by General Park Chung-hee in 1961 brought a dramatic change in development ideas in South Korea.

A new military government was consolidated by

declaring martial law and the revolutionary committee that had directed the coup installed itself as the Supreme Council for National Reconstruction. High-ranking military officers were appointed to head key ministries and to direct the administration. Park announced that:

Priority one of my duties at this moment is to drive poverty away from this chronically poor country, and I believe this is the only way to win the struggle against Communism (General Park Chung-hee, quoted in Shin, 1970:vii).

While partially an appeal to validate the coup and to quell unrest, Park also distinctly joined South Korea’s strategic interests directly with its economic capacity, and made national economic development the highest priority of the government he led.

His aim was to

demonstrate his intention that the government he led would act as trustee for development in the national interest which would be in the interests of society as a whole. As South Korea had limited natural resources, a low savings rate and a small domestic market, an outward looking strategy was adopted and intentional development policy was framed to bring about rapid manufacturing industrialisation. The major objective was to significantly increase the level of exports in order to establish an industrial economy, independent of declining foreign aid from the United States of America.

Park was much less hostile to the Japanese administrative model than had been his predecessor, Syngman Rhee (discussed in the previous chapter), saying that, “The case of the Meiji imperial restoration will be of great help to the performance of our own revolution. My interest in this direction remains strong and constant” (Park, quoted in Amsden, 1989:52). Park took on the distinctive ideas of Japanese developmentalism (discussed in detail in

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Chapter 4

chapter 2) and set about establishing a South Korean developmental state that could lead the country in promoting the rapid expansion of exports. This government-guided development project would see the economy transform from a largely impoverished agrarian economy to a substantially urbanised manufacturing economy in the 1960s and 1970s.

While the

government was to be a significant actor in this transformation, a national bourgeoisie was to be the driving force of the manufacturing sector – South Korea was to build its fledgling capitalist economy to ensure its protection from the communist North.

This chapter will explain the development of the capitalist economy in South Korea during the 1960s and 1970s. It is divided into two parts. The first part explains the actions the Park government took in establishing a South Korean developmental state in the 1960s. In order to ensure the productive capacity of the economy was increased and directed toward the benefit the nation as a whole, intentional development policies were formulated and implemented, The rent-seeking capitalist class that had developed under Rhee (discussed in the previous chapter) were brought under the influence of the government through strong coercive action and firm bureaucratic control of finance. A developmental pilot agency, the Economic Planning Board, was established to oversee the implementation of economic planning in specifically targeted industries to ensure government priorities were met. Living standards rose considerably by the end of the 1960s as the labour-intensive light manufacturing sector expanded rapidly and economic growth averaged over 9% for the decade. While the transformation of the economy was well underway, internal structural issues coupled with changes to external market conditions led to balance of payments issues and widespread business failures so that the high investment strategy was heading for crisis by 1970. Rising unemployment led to frequent labour disputes, the consequent disorder providing fuel for a stronger challenge by opposition groups to the Park government’s economic credentials.

The second section explains the recessionary pressures of the global politicaleconomy and the impact these had on changing the direction of developmental ideas in South Korea in the 1970s. With South Korea heavily integrated into the US economy, the US reaction to its own economic downturn had flow-on effects in South Korea. This was compounded by the 1973 oil crisis and the economy contracted, causing inflation, widespread unemployment and accompanying political unrest. In order to bring stability to the nation, and to get the long-term development project back on track, the ‘Big Push’ into heavy and

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Export promotion, rapid growth and crisis

chemical industries began. The economy was diversified from light industry to achieve growth targets in the newly established steel, shipbuilding and electronics industries. Significant unrest had also broken out in rural areas as rural incomes and living standards had not kept pace with those of urban residents. So, agriculture was also targeted with beneficial results.

Both rural and urban sectors showed strong growth and the South Korean

developmental project was back on track. But the second oil shock in 1979 was to have dire consequences, for the country at large, but for Park in particular, as his orders for the brutal military suppression of widespread student demonstrations led to his assassination.

Export promotion, rapid growth, crisis and recovery

The developmental state instituted by Park demonstrated a remarkable ability to transform itself from the predatory state that was a legacy of Rhee’s state-building project (discussed in the previous chapter) into a very effective mechanism for promoting government-led capitalist development. Park’s response to reduced US aid (see previous chapter) involved a radical transformation in the economic structure.

Internally, he

consolidated and centralised economic and political power; externally, he shifted economic policy to an export promotion program. Park did this partly because the import substitution policy implemented under Rhee (discussed in the previous chapter) had obviously failed and he owed nothing to the interests supporting that program, and, in part, because South Korea remained reliant upon the US for defence and investment. In Washington, the Eisenhower era of big military budgets and support for the Rhee type anti-communism had given way to the developmental energy and dynamism of a new generation of American internationalists informed by economist W.W. Rostow’s theory of stages of economic growth. 1 The thrust of the new aid policy was that South Korea would have to “take off” on a sustained basis, financed by a more effective mobilisation of South Korean domestic savings, with the shortfall made up not by the United States alone, but by Japan as well (Woo, 1991:74).

The phasing out of US military aid in the face of the strategic threat posed by a hostile North Korea meant that security was the paramount concern for the new South Korean 1

The Stages of Economic Growth: A Non-Communist Manifesto. Cambridge: Cambridge University Press. Rostow was head of Policy and Planning at the US State Department at this time and had considerable influence on US aid policy to South Korea. His theory on the stages of growth for developing countrieswas internationally influential. For a good account of the exchange of ideas from US officials in South Korea with Rostow, see Woo, 1991, chapter 4.

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Chapter 4

leadership. Park Chung-hee had been a lieutenant in the Kwantung Army who’s leaders had been the architects of industrialisation in Japan’s Manchurian territory before the end of the Second World War (Woo, 1991:40).

So when South Korea’s new military leaders

entertained the notion of economic development, they thought of a rich nation and a strong army, and wartime Japan came to their minds. They were, therefore, fully aware that if South Korea was to adequately defend itself from the North, it would need to industrialise, and it would need to do so rapidly. Indeed, according to Michell (1988:18) a major factor in the acceptance of Park Chung-hee’s coup, even by convinced democrats, was that they wanted national development more than they wanted democracy. In presenting his vision for the South Korean nation, Park (quoted in Woo, 1991:ix) said:

Just as an individual must protect himself, so a nation must consider security and survival as indispensable.

When a

nation’s survival is at stake, politics, economy, culture, everything should be organised and mobilised for that single purpose.

This means that the objective of South Korea’s developmental state, the government’s highest priority, was continuous industrial transformation in the name of national security. Park and his officers’ wartime experience meant they believed that the Japanese pattern of manufacturing industrialisation had been highly effective, and that its success was based on close collaboration between the government and the zaibatsu (large diversified business groups). Therefore, one of the most essential tasks of Park’s developmental state was to construct a productive national bourgeoisie that could carry out the government’s manufacturing project without the state becoming captured by such business interests. Mainly from peasant origins, and as evidenced by the rampant corruption under Rhee, the military leadership were inherently suspicious of the wealthy and were heavily influenced by Korean tradition that placed commerce at the bottom of the social scale (discussed in chapter 3). This meant that such a development partnership was not clearly articulated from the outset.

When the Park regime took power, its goal initially seemed to be not just insulation from private capital, but complete dominance over it. Criminal trials and confiscation were threatened and the leaders of industry were marched through the street in ignominy as corrupt

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Export promotion, rapid growth and crisis

parasites.

This soon changed as Park realised that he needed to harness private

entrepreneurship and managerial expertise to achieve his economic goals. Park summoned the ten major business leaders and struck a deal. In exchange for exempting them from criminal prosecution and respecting their properties no matter how obtained, business “paid” fines levied on them by establishing manufacturing firms, the chaebol, and then donating shares to the government.

“In retrospect, this deal had the quality of an historical

compromise; in any case, it occasioned the launching of ‘Korea Inc’. “Henceforth, state and big business would share the same destiny: prosper or perish” (Woo, 1991:84).

At the same time, the Park regime set about transforming the institutions of government to ensure South Korea’s economic revolution would be implemented. The most important public sector reform initiative was the establishment of the Economic Planning Board (EPB) in 1961. Consistent with its Japanese equivalent, this developmental pilot agency was headed by the Deputy Prime Minister and staffed by bureaucrats known for their high intellectual capability and educational background in business and economics. Charged with directing South Korea’s economic transformation, the Board was granted considerable power and autonomy by the Executive and had wide reaching powers to allocate resources, direct the flow of credit, and formulate economic plans. This meant the EPB was able to design and carry out development policies relatively consistently without the pressures of short-term interests of politicians and other interest groups, such as there were. The EPB also coordinated the economic functions of other government ministries. Economic policy was implemented through a series of five-year plans that began in 1962, progressing through successive years as the long-term economic transformation rolled on.

The government

rewarded good performance in targeted sectors with further licenses to expand, thus furthering the development of the chaebol into the large diversified business groups of the Japanese ‘model’ (Amsden, 1989:14). Therefore, the discipline exercised by the government, through the EPB, and the rise of big business, were interactive. In 1961 Park’s government also extended government control over business by nationalising the banks and merging the agricultural cooperative movement with the agricultural bank.

The government's direct

control over all institutional credit further extended its command over the business community (Woo, 1991:131).

So, in order to achieve its goal of transforming South Korea into a manufacturing economy, the government used its relatively strong power to both discipline and support

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Chapter 4

private capital. Although the government was to remain the main source of investment capital for another 20 years, after Park’s coup, access to official credit became dependent on firms’ ability to meet economic efficiency criteria, not simply exploit political connections 2 (Pirie, 2008:63). In South Korea, aid and foreign exchange were channelled directly through the bureaucratic apparatus. This gave the South Korean government an invaluable source of leverage over the capital starved private sector. At the same time, the government was dependent on local business to implement its manufacturing development policies (Evans, 1992:158). By forming a close relationship with a small number of select firms, assuming the majority of risk by providing and guaranteeing low-interest loans, providing the necessary infrastructure, allowing tax exemptions and imposing strict performance targets, the South Korean government was able to support the development of the chaebol into businesses that were capable of competing internationally in the targeted key industries (Pirie, 2008:73). The close cooperation between the bureaucracy and business made it possible for the government to maintain a consistent set of goals and to work through the bureaucracy to implement them in a systematic way in line with its rolling five-year plans.

The First Five-Year Economic Development Plan (1962-1966) provided the impetus for restructuring of the essentially agrarian economy, and took the initial steps towards developing a manufacturing industrial structure that would not be overly dependent on foreign resources. Extensive investment in infrastructure was promoted, emphasising roads, schools and electrification projects with a view to the expansion of key industries. These industries included areas of import substitution, such as fertilisers, cement, oil refining and synthetic fibres, as well as those geared for export. These included clothing, textiles and footwear as well as plywood products, in which the administration assessed South Korea could develop an internationally competitive advantage. Government investment focused on the construction of manufacturing parks and supporting infrastructure such as access roads, electricity and water supply, forming the basis of its strategy of attracting private export industry and foreign capital to supplement the shortage of domestic savings (Kim & Gallent, 1997:424).

The promotion of labour-intensive light industries for export was the key

component of the initial stages of the export-led growth strategy. This meant that increased trade created greater demand for low skilled labour which, in turn, helped raise the incomes of the poor (Rowen, 1998:346). 22

64

As had been the case under Rhee as discussed in the previous chapter.

Export promotion, rapid growth and crisis

There was, however, more to the government’s developmental strategy than a commitment to raising living standards.

Spreading the benefits of growth assisted in

reducing opposition to the adoption of policies that may necessitate short-term costs for longterm benefits. To ensure that workers and trade unions remained fully compliant, however, the Park government enacted various labour laws and restricted unionism in the workplace. The Federation of Korean Trade Unions (FKTU), the sole national body of trade unions, was restructured to include only those unions which represented the government’s position, constraining the ability of workers to have their interests represented (Kwon, 1997:11). For the Park government, the nation’s security and its aspirations to create a powerful, independent state was contingent upon the export-led development project, securing strong economic growth in order to raise the domestic investible surplus.

Such policies were

integral to the achievement of average annual rates of output growth of 9.6 percent and export growth of 42.1 per cent between 1963 and 1970 (Pirie, 2008:70).

During this time, foreign aid continued to be an important source of foreign capital for South Korea’s development program.

Total combined aid from the US, Japan and

international financial institutions gave South Korea in the midpoint year of 1960 a per capita assistance figure of $600 over three decades. To put these figures in perspective, South Korean GNP in 1965 was about $100 in current dollar terms (Woo-Cumings, 1989:328). In addition, the total economic and military aid that South Korea received as payment for partaking in the Vietnam War came to more than one billion dollars (Woo-Cumings, 1989:329). This aid helped to stabilise the South Korean economy, society and government and it boosted investor confidence. Continuing aid was vital to funding the manufacturing exports project, and as the US reduced its aid program, other sources of capital needed to be found.

In addition to foreign aid, of equal, if not greater, importance was access to technological know-how from both the United States and, following Park’s move to normalise relations in 1965, from Japan. Much of the technology transfer from the United States from 1945 to 1965 had come through US tied aid and benefited South Korea in that it was not subject to the usual profit-maximising goals of corporate foreign direct investment (FDI) (Amsden, 1989:232). After 1965, South Korea was rapidly re-integrated into the Japanese-dominated regional economy.

The principal mechanism through which this

65

Chapter 4

integration took place was inter-firm collaborative arrangements. It was through such arrangements that South Korean firms gained access – at a price – to the technology necessary to sustain a prolonged period of rapid growth. These networks of production were vital in shaping the long-term development of the South Korean economy (Pirie, 2008:68).

Around the same time as the normalisation treaty was signed with Japan events in Vietnam were conspiring to present an equally important source of opportunity for South Korean policy makers. As US involvement in the Vietnam War escalated, Park was quick to offer troops to assist in the anti-communist crusade, in return, of course, for considerable financial support from the US (Pirie, 2008:66). The total economic and military aid that South Korea received as payment for commitment to the Vietnam War came to more than $1 billion from 1965-1972 (Woo-Cumings, 1989:329). As a direct result of South Korea’s military engagement in Vietnam, South Korean goods were afforded preferential access to US markets so that between 1964 and 1968 South Korean exports to the United States grew dramatically by 232 per cent (Pirie, 2008:66). The Vietnam War also provided a captive market in South Vietnam in which South Korean firms could take their first steps as exporters of manufactured products. The real value of these exports was not only monetary but also in the foundations they helped to establish for the government’s industrial deepening drive (Pirie, 2008:67).

The Second Five-Year Economic Development Plan (1967-1971) built on the industry established as a result of the first plan and emphasised South Korea’s progression upwards on the manufacturing industrialisation ladder.

The main goal stressed modernising the

manufacturing structure and the rapid building of import substitution industries, which included chemical, machinery and steel. In 1968, the government invested heavily in the establishment of the Pohang Iron and Steel Company (POSCO), which would become instrumental in supplying South Korea’s domestic firms that arose as part of its manufacturing industrial deepening. A public-private partnership between the government and South Korean firm TaeguTec, POSCO’s first steelworks in Pohang was financed by the Japanese government as a consequence of the normalisation of relations between the two countries, and technical assistance was provided by Nippon Steel (Kim & Gallent, 1997:426). While economic development was supported by a number of such public corporations in such areas as utilities, chemicals, fertilisers and other heavy industries, the government also recognised that private sector entrepreneurship and managerial expertise would be

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Export promotion, rapid growth and crisis

instrumental in achieving its economic goals. The resulting economic system incorporated elements of both state capitalism and free enterprise with the bureaucracy guiding private industry through a series of export and production targets, utilising the control of credit, currency controls and interest rate regulation.

While nationalist concerns may somewhat explain South Korea’s avoidance of FDI, preferring instead selective foreign investment inducement via concessional loans through aid programs, for Woo (1991) the relative absence in South Korea of foreign direct investment can be traced to more obvious reasons.

Being a resource-poor country, South Korea

seemingly had little to offer multi-national companies. Domestic political instability and, combined with it, the precarious peace with North Korea, deterred potential investors (Woo, 1991:100). So, as US aid contracted, South Korea began to finance its development through overseas borrowings. As can be seen from table 4.1, FDI was, in comparison to loans, small, not even 5 percent of loans until 1969. In 1970, foreign direct investment climbed up to match almost 15 percent of borrowings, and 11 percent in 1971. But loans really remained the main recourse for mobilising foreign capital (Woo, 1991:101).

Table 4.1

Net Borrowing, Direct Investment, and Export Earnings, 1966-1971 (in US$ million)

Net

Direct

Total

Exports

Capital

Borrowing

Investment

1966

218.2

2.2

220.4

250.3

0.88

1967

419.8

19.9

439.7

323.2

1.37

1968

533.2

24.2

557.4

455.4

1.22

1969

499.2

28.2

527.4

622.5

0.85

1970

420.0

61.4

481.4

835.2

0.58

1971

395.3

45.2

440.5

1067.6

0.41

Flows/Export

Source: (Woo, 1991:101).

In order to facilitate this method of raising capital, interest rates at South Korean banks were more than doubled, increasing the appeal to international investors of extending

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Chapter 4

loans to South Korea. While the chaebol rapidly expanded, production increased and exports rose, no limits on foreign borrowing were enforced by the government and foreign debt skyrocketed, nearly doubling from 1966 to 1967, and continuing to rise as the decade progressed. A rapid increase in debt service requirements resulted. By 1969, thirty firms had become bankrupt, necessitating a government bail-out. The IMF then required the South Korean government to limit foreign loans to short terms of one to three years and the growth rate of foreign debt slowed by 25% in 1970 and 30% in 1971 (Amsden, 1979:94-95).

By then, however, US economic policy had changed from its regional focus on strategic interests and it began to introduce measures to balance the trade deficit with its Asian allies. Importantly for South Korea, these included restrictions on textile imports. The South Korean textile industry accounted for around 38 percent of all exports in 1969/70. The imposition of restrictions on exports to the US market was to have a heavy toll. The Bank of South Korea predicted some 30,000-35,000 job losses in the textile sector and 60,000 job losses across all industries in the South Korean economy as a direct result of these restrictions (Kim, 2014:116-136).

At the same the US began to wind down its commitment to Vietnam, impacting another important South Korean market. The growth rate of GNP slowed considerably, from 13.8% in 1969 to 7.6% in 1970. Stabilisation measures were, therefore, introduced with further insistence of the IMF backed by pressure from the US. To stimulate exports, the government introduced a currency devaluation of 12% in 1971. This immediately caused a sharp increase in the cost of foreign debt financing and the number of bankruptcies climbed to 200. The head of the Federation of Korean Industrialists began pushing the government to take action, threatening a collective tax boycott if a resolution was not forthcoming. At the same time, student and labour unrest began to increase, with over 1,600 reported disputes in 1971, a level which would not be reached again until 1980 (discussed in the next chapter). In August 1971, the government decided to take action in the form of emergency measures to erase all informal debts in order to ensure savings were invested in the formal sector rather than on the curb, interest rates were cut and the government sponsored a massive debt rollover for heavily indebted firms (Amsden, 1989:96-98; Woo, 1991:10-117).

South Korean business was thereby resuscitated, with the government firmly in control of the direction the economy would take. Although GNP grew slowly, exports

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Export promotion, rapid growth and crisis

increased by 48% (Frank et.al 1975:22) and the economy began to get back on track, with some qualified confidence. Therefore, a convergence of the impact of national economic structures, international factors and the domestic responses to them required the introduction of new development strategies to bring economic and political stability. While the growth paradigm was to remain, the way to revive South Korea’s rapid manufacturing industrialisation project was to change. The ‘Big Push’ of the heavy and chemical industries strategy for the remainder of the 1970s was to begin.

The ‘big push’ into heavy industrial manufacturing

The 1971 economic downturn in South Korea was accompanied by the withdrawal of 20,000 US troops from the peninsula, with plans for a phased withdrawal of the remaining US military forces within five years. With the US under Nixon determined to disengage in Vietnam as well, the South Korean leadership no longer had the leverage to negotiate a more favourable outcome.

It appeared that South Korea would be on its own in a hostile

environment. For the Park government, the need for rapid industrialisation to meet South Korea’s security needs became more urgent than ever. Opposition to the regime began to gain traction, with Park’s party failing to gain the two-thirds majority required to pass legislation, hampering its ability to set the agenda for South Korea. Coupled with the violent labour unrest and widespread civil disobedience, this was to prove the catalyst for instituting a fully-fledged authoritarian regime in South Korea. Park and his supporters pushed through the Yushin constitution in 1972, which allowed for one-third of the Assembly to be appointed and ceased direct election of the President (Michell, 1988:19). Park’s position as leader of South Korea was thereby confirmed for the foreseeable future. The economic backbone and symbolism of the yushin system was the program of the ‘Big Push’. Rather than curtail investments in response to previous balance of payments issues, the government believed further export expansion would be the key to increased economic growth, so it pushed ahead on its course of rapid expansion of heavy and chemical industries (Woo, 1991:128).

Expansion of these sectors was an essential element of the Third Five-Year Economic Development Plan (1972-1976), a heavy and chemical industries push with its themes of greater economic and military self-sufficiency. Six industries were officially targeted for rapid growth; iron and steel, transport machinery, petrochemicals, machine building, ship building and electronics (Woo, 1991:128). Export promotion zones that allowed duty free

69

Chapter 4

imports of raw materials for processing into final goods for duty free export were designated in Masan and Iri in order to attract foreign investment and facilitate improved technical knowledge of local firms through technology transfer in the promoted industries (Warr, 2007:2). A large-scale electronics complex was also developed in Kumi in 1973 contributing to the expansion of the electronics export sector. Overall, during the 1970s, heavy industries accounted for around 80% of all manufacturing investment. Industrial production grew by about 25% annually, exports increased by an average of 45% per year, and GDP per capita increased five-fold (Kim & Gallent, 1997:424).

The Pohang steelworks began to produce its first steel plate for sale to the domestic market in 1972. Over the next seven years, the government’s commitment to expanding the steel sector saw 40% of all loans to the heavy industrial manufacturing sector going to steel. South Korea’s annual overall steel-making capacity multiplied fourteen-fold, and the steel rolling capacity went up sevenfold (Woo, 1991:134).

The EPB also simultaneously

calibrated the expansion of the ship building industry with that in steel. The government resuscitated and expanded Taehan Shipbuilding Corporation with a 1 billion won investment. The company was then supported through a fund that compensated for price differentials from foreign vessels, a special interest rate of 5% per annum for shipbuilding (payable in 15 years), substitution of government guaranteed loans for mortgages and tariff exemption of raw materials for export (Woo, 1991:136). By 1975, 80 percent of all thick steel plates produced in South Korea were directed to shipbuilding.

In addition, the government

concentrated the electronics industry in one huge complex to facilitate communications and technological transfer in order to meet the ‘$10 billion in Exports by 1980’ campaign. The chaebol and the multinational partners were encouraged to invest through a package of incentives and securities which included exemption of tariffs on imported raw materials, exemption of corporate and income taxes for five years, and a 50 percent reduction in taxes for the subsequent three years. This government-led campaign and the subsequent influx of Japanese capital were critical in not only meeting the $10 billion goal, but actually surpassing it (Woo, 1991:146).

While the direction of the economy changed, steering into heavy industry, the means for financing the rapid increase of exports from the newly targeted sectors largely remained the same, despite the debt crisis of 1971. The enormous dependency on overseas borrowing for investment capital meant that the first oil crisis in 1973 caused a considerable setback in

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Export promotion, rapid growth and crisis

South Korea’s fiscal stability. The quadrupling of world oil prices impacted hard as South Korea relied on oil for 60% of all its energy consumption. By this stage, South Korean businesses were heavily involved in Middle East construction projects, so they were able to recycle international earnings from these to buy some oil. But the government was so concerned about the severe threat to growth that it responded with the policy decision to fully absorb the oil price increases, through currency devaluation, more export and more borrowing. In 1974 the cost of imports rose by 62% and the current account deficit rose to an historical high of 11%.

To finance the deficit, the government depleted its foreign

reserves and borrowed abroad. Between 1973 and 1974 South Korea’s total foreign debt rose by 42% (Amsden, 1989:98). A further Middle Eastern construction boom from 1976 brought in a large influx of oil dollars (Song, 1990:235) to also help boost investment in the manufacturing sector. Inflationary import prices also provided the impetus for domestic manufacturers to transfer investments into export industry, further increasing export earnings. Wages for factory workers began to rise as the Middle East construction boom drained willing workers abroad. As a result, the wage differential between skilled and unskilled labour widened. Income and wealth distribution between urban and rural residents became a great concern. At the same time, high prices for imported food and poor crop yields also brought the government’s attention to the rural economy.

The large manufacturing complexes and production facilities required for the government’s export push required large tracts of land. The government procured this land from farmers, bulldozing it to install roads, harbours, water and electricity, providing the infrastructure necessary for the chaebol to establish their manufacturing bases (Lee, J., 1994:371). This caused considerable concern regarding efficient land usage and the scarcity of arable land which makes up only one fifth of the country, fuelling popular discontent and demanding a political response.

The South Korean government therefore instituted the

National Land Use and Management Law tightly constraining or prohibiting urban development on approximately 75 percent of the total land area (Hoffman & Struyk, 1994:458-459). These measures, along with the Samauel Undong (New Village) Movement, were designed to resolve the growing disparity in living standards between urban and rural citizens. Samauel Undong involved a collaborative self-help approach to rural development where the government provided materials for the community to build its own projects.

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An important by-product of the expansion of government assistance in rural areas was the massive construction, improvement, paving, and expansion of the rural road network. The IBRD provided over $350 million and the ADB over $100 million for road and highway construction and improvement. Along with the expansion of the rural road system came the increase in farm income because of the change in policy on the higher pricing of rice and barley (Steinberg, 1985:15). The program then focused on group farming, common seed beds, livestock production, forestation, and even joint marketing and factories.

The

development of improved machinery elsewhere fed back to agriculture and had a substantial impact on farming practices (Kim & Gallent, 1997:424).

Agricultural output and

productivity grew substantially (Song, 1990:14). Figures on income distribution while badly flawed, show that the creation of urban employment in manufacturing, followed by later subsidies and development in agriculture, lowered the percentage of the population in poverty from 40% in 1960 to 10% in 1975 (Steinberg, 1985:viii). The South Korean government pushed on with its development plans.

Government resolve to further economic autonomy was accelerated as the relationship with the US further eroded (Woo, 1991:128). A major rift in South Korea-US relations occurred as the ‘Koreagate’ scandal unfolded from 1976-1978. This scandal involved the uncovering of significant inducements being paid by the South Korean CIA through business intermediaries to a number of US Congressman. Such payments were made in an attempt to alter Nixon’s decision to withdraw US troops from South Korea and went right back to 1971. When Jimmy Carter came to the US Presidency in 1977, the scandal provided the catalyst for an announcement that all US troops would be immediately withdrawn from South Korea. US-South Korea relations were at an all time low and a rapid growth in the capacity to sustain its own defence further hardened the resolve of South Korean policy-makers to ensure its development program was effectively implemented in an even greater effort at attaining autonomy in an increasingly interconnected world.

Capitalising on the gains from the previous efforts to improve technological knowhow, the Fourth Five-Year Economic Development Plan (1977-1981) was designed to improve competitiveness in world export markets. In addition to concentrating on increasing employment and strengthening key industries, such as iron and steel, machinery and shipbuilding through improved efficiency and more effective management systems, strategic investment shifted to the technologically advanced and skilled labour-intensive electronics

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Export promotion, rapid growth and crisis

industry

which

moved

towards

production

of

semiconductors,

computers

and

telecommunication equipment (Kim & Gallent, 1997:424). The government established a research institute for product development and encouraged joint ventures in order to “promote higher value-added products embodying a greater level of skill and technology” (Amsden, 1989:82).

Japanese companies at reached the point of looking for sites for

outsourcing some of their operations and increased their investment in South Korean join ventures so that value-added in electronics quadrupled from 1977-1979 to 4% of GNP and 11.3% total manufacturing (Woo, 1991:145). Overall, the economy had grown substantially, as indicated by table 4.2 below, with exports growing from $55 million in $1.6 billion in 1971 to $17.5 billion in 1979 and per capita GNP of $1,605 in 1979, up from $278 in 1971. Suppression of labour movements, however, became more problematic in the movement to higher skilled employment, but labour unrest remained placated as long jobs remained secure in firms that were rapidly expanding over time. But a more highly educated workforce eventually began to clamour for democratic reform as the importance of the growth coalition between the government and the chaebol appeared to lessen as economic development reached higher and higher levels.

Table 4.2 Key Economic Indicators for the Korean Economy, 1953–1979

Year

Per Capita GNP

Exports

1953

$67

Negligible

1962

$87

$55 million

%annual change: 1953–1962

0.7%

—

1971

$278

$1.6 billion

%annual change: 1962–1971

13.8%

39.1%

1979

$1,605

$17.5 billion

%annual change: 1971–1979

6.1%

36.4%

Source: Korean Ministry of Finance and Economy, Seoul, 1994. Note: All figures in adjusted U.S. dollars (Ungson et.al, 1997:8).

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Chapter 4

Despite the rapid growth in factory employment as a result of the South Korean economic development model, not all regions benefited equally, with these differences being more harshly felt during periods of economic recession. The second oil shock in 1979 again dealt a heavy blow to South Korea, particularly in the shipbuilding sector, and the economy contracted by more than 5 percent (Pirie, 2008:75). Again, the government took steps to absorb the increased oil prices through currency devaluation, but, this time, the recession, inflation and increased unemployment were to cause widespread social and political unrest. The authoritarianism of the Park regime could only be sustained while the economy continued to grow. During this economic downturn, political agitation began in earnest in South Korea. When Opposition leader Kim Young Sam was ejected from parliament on 4 October 1979 after saying he would start a movement to overthrow the Park regime, largescale student protests broke out in Pusan and Masan. These riots were repressed, as was the usual practice, with at least five protestors killed and 500 arrested. These demonstrations, however, were much larger and more widely supported than previous ones, and Park declared martial law for the region. Believing that the extent of support for the protests required a conciliatory approach, the head of the South Korean CIA got into a heated argument with Park and an army chief who wanted to take a hardline. When Park declined his advice and authorised a crackdown, the CIA head shot both the army chief and Park, assassinating him on the night of 26 October 1979, bringing an end to a presidency that had lasted almost two decades (Fowler, 1999:266).

In the vacuum that followed Park’s assassination, the General Assembly instigated a brief period of parliamentary rule. The Prime Minister, Choi Kyu-hah, was appointed the defacto head of state and then elected as interim President by the electoral college on 8 December 1979. While the civilian government pursued democratic liberalisation, military hardliners clamped down, declaring martial law over the whole mainland. While a peaceful student protest in April 1980 to mark the twenty year anniversary of the student revolution that led to Rhee’s overthrow, although massive and widespread, was restrained, the labour movement was beginning to rumble and widespread violent riots began to break out, calling for democracy, labour reforms and eventually, the removal of martial law. But military hardliners were to have their way. On 17 May 1980, General Chun Doo-hwan and his forces arrested the protest leaders and forced President Choi and his Cabinet to declare martial law over the entire country, returning the Republic of Korea to direct military rule. A huge protest against this new military strongman was then initiated in Gwangju in the country’s

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Export promotion, rapid growth and crisis

south, leading to a week-long siege. General Chun responded with a massacre that killed hundreds, perhaps thousands of Gwangju's citizens (Fowler, 1999:267).

Conclusion

During the period of Park Chung-hee’s leadership, the South Korean economy was rapidly transformed from a principally agrarian economy to a newly industrialising economy. This transformation occurred as a result of intentional development policies being implemented over the long term by a developmental state, making South Korea one of the fastest growing economies in the world during the 1960s and 1970s. This developmental state, which, as Johnson (1982:viii) stresses, was a capitalist state, had the ability to oversee and direct the expansion of the manufacturing economy while maintaining political order through its intentional development policies and its effective capacity.

South Korea’s

economic development processes during this period could generally be described as following a government-led, export promotion strategy.

The government was actively

involved in almost every important aspect of economic decision-making and the private sector followed the signals given by the government. The government-led order was able to provide relative stability despite the fluctuations of the spontaneous market order. By using its considerable power to increase the productive capacity of large and important sectors of the national economy, successive South Korean governments and administrations acted in accordance with the idea of developmental trusteeship so that economic transformation would benefit society as a whole.

The major motivation for instituting the idea of developmentalism in South Korea was the hostile international environment, with a heavily armed, communist government posing a significant threat to the country’s stability, just over the border in North Korea. Previous security guarantees by the United States of America became less reliable as Cold War tensions in the region eased, and US aid policy was revised to promote the self-reliance of its allies, both economically and strategically. The Park government determined that an exportoriented manufacturing program with rapid growth as the main goal would be the most effective way of building South Korea’s prosperity so that it could protect itself.

The

domestic market and domestic firms were too small and underdeveloped to attract the necessary international capital and technology to build a manufacturing base.

It was

75

Chapter 4

therefore necessary for the government to undertake a significant interventionist role in order to promote rapid development of a manufacturing economy.

The interventionist role of the government in South Korea was governed by the Economic Planning Board, which had the capacity and authority to plan, coordinate and implement development policy. Long term plans were able to be implemented with the development budget substantially insulated from the short-term interests of electoral and parliamentary politics. To build the manufacturing economy, the government maintained close and extensive interactions with business. Clearly, though, the government was the assertive leader, with the chaebol cooperating in the implementation of national development policies in order to gain the scarce capital required for expansion of their business interests. Large public and private investment was substantially funded through extensive governmentguaranteed loans as South Korea remained an unattractive prospect to international investors. The normalisation of relations with Japan in the mid-1960s did, however, provide South Korea with an additional source of much-needed technology transfer as well as financial backing for its push into heavy industry.

Yet structural problems, especially in ensuring fiscal stability given the large overseas borrowing and subsequent debt-servicing problems had not been effectively accounted for. This meant that the negative aspects of the emphasis of continuous expansion of factories required crisis measures to be taken, demonstrating that intentionality has limitations. Widespread business failure, unemployment and consequential unrest threatened both economic and political stability. Such internal problems were exacerbated by the oil crisis of 1973. While the IMF intervened, the government was able to stabilise the economy, bringing it quickly back to growth. These cyclical and reactive negative effects were also a major property of exposure to international market forces in an economy heavily reliant on export markets. Getting the balance right between the spontaneous and the intentional is a fine line that requires constant vigilance and adjustment.

The hugely negative impact of external conditions were to be the catalyst for changes in public policy in South Korea throughout the next decade. US protectionist measures and further troop withdrawals were to be the major catalyst for the push into heavy and chemical industries as the 1970s progressed. The government’s intentions as trustee for society was seriously called into question. International and domestic factors impacted and exacerbated

76

Export promotion, rapid growth and crisis

labour disputes and regional inequalities. While efforts were made to bring stability to both urban and rural areas through intentional development policy, the economic downturn caused by the oil crisis of 1979 created pervasive and damaging unrest that the repressive capacity of the state could no longer suppress and a regime change was the final result. Amid such political and turmoil, the new military government was to seek a new direction for economic stability in South Korea.

77

78

Chapter 5

From NIC to Developed Country Status South Korea 1980 to 2014

Introduction

This chapter critically examines the transition in South Korea’s development ideas and practice from the beginning of economic and political liberalisation in the 1980s, through to the current political economy. The argument is presented in three sections. The first section explains the first moves towards liberalisation in the 1980s when the regime of General Chun Doo-hwan introduced structural adjustments and comprehensive stabilisation measures as the nation’s main policy direction. The new policies were less-industry specific and followed an economic liberalisation policy based on a private sector guided, marketrational economic system. That is, the government emphasised the primacy of spontaneous development for economic growth. Under mounting international pressure, mostly from its major trade partner, the United States, more serious moves towards trade liberalisation were made during the mid-1980s. In the late 1980s, the government of General Roh Tae-woo pursued democratisation, ending more than three decades of authoritarian military rule. The political transition involved considerable confusion as to the continuing role of the government in the economy as the pervasive developmental state was wound back, and the political stability it prioritised as a major factor in its pursuit of maximum economic growth became more problematic. Rampant and violent labour disputes and rural unrest led to wage rises far in excess of productivity growth, impacting economic growth and international competiveness.

The second section analyses the rapid opening of the South Korean economy, particularly in terms of financial liberalisation, and the consequences of this during the 1990s. The government of Kim Young-sam, the first civilian administration for three decades, promised a ‘New Korea through change and reform’ with a focus on ‘globalisation’ through further liberalisation and internationalisation of the economy. Intentional development lost its primacy. The transition to an open economy happened very quickly, so that spontaneous

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development occurred without the necessary intentional institutional capacity building, particularly in the financial sector. The negatives of the international market were not anticipated, so that South Korea was particularly badly hit by the Asian Financial Crisis in late 1997.

The final section of this chapter explains the return of developmentalism to the South Korean political economy. In direct contrast to many other economies affected by the crisis, South Korea recovered very quickly, returning to high levels of growth from 1999. The government took a pivotal role in restructuring the economy – the developmental state, albeit in a revised and limited form – was back. South Korea’s economic performance once again stimulated broad international discussion, this time as a model for overcoming financial crisis. The role of the government in guiding the economy has well and truly become entrenched with the move towards sustainability revitalising its raison d’etre. A Five-Year Plan for Green Growth from 2009-2013 was implemented, echoing the strategic approach to achieve rapid growth in the 1960s and 70s - the leadership provided the vision of “low carbon, green growth” and the bureaucracy plays an active role in ensuring targets are met. The new South Korean limited developmental state has been legitimised again in the political economy of the nation for the foreseeable future.

Stabilisation and liberalisation

From the 1980s, South Korea’s development formula based on a comprehensive developmental state, a tight alliance between governments and the chaebol, and repressive government policies toward labour began to face increasing challenges from several quarters. Although the developmental state had brought two decades of phenomenal economic growth, challenges to this paradigm were particularly focused on the uncertainties of the boom-bust cycle it seemed to signify.

The political climate meant that Chun sought popular support

through the adoption of an economic policy distinct from his predecessor, while, at the same time, international political conditions also became an important impetus for change. Internally, the industrial strategies of the Park regime had helped produce a small group of exceptionally wealthy chaebol, which became an important voice demanding that the government reduce its control of the economy. Additionally, the move into heavy industrial and high tech production had also brought relatively well-educated workers into large factories, providing fertile ground for labour union mobilisation as workers demanded wage

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increases and labour disputes rose as relaxed labour laws allowed greater freedom of organisation.

Liberalisation of the agricultural sector, particularly on price control and

reduced rice subsidies and the importation of US grain surpluses, led to income disparities for rural workers and farmers. They, too, began to organise as a political force and eventually joined with urban workers and students in widespread protests.

The fleeting glimmer of hope for democratic reform and the brutal suppression through the Gwangju massacre (discussed in the previous chapter) ensured continuing opposition to Chun’s regime so that, in order to gain some semblance of legitimacy for his military regime, he promised to usher in a new era of economic growth and social justice. This included both popular appeals and economic liberalisation.

Following his official

inauguration as President through the electoral college on 25 February 1981 (see table 5.1 at the end of this chapter), a new constitution was introduced limiting the presidency to a single seven year term and allowing for parliamentary elections the following month. Although seeking the same path to legitimacy as previous president Park Chung-hee by obtaining public support through economic delivery, Chun sought to distance himself from the former leader by adopting an economic policy distinct from the past.

In many respects, the

conditions for a change to the ideas of neo-liberalism becoming the dominant ideas for the South Korean economy were clearly in place by this time.

By the time of Chun’s presidency, the economic bureaucracy had begun to consider that the financial limits of government-led development practice in South Korea had proven unstainable in the long-term and the global political and ideological climate favoured neoliberal reform. Chun’s key economic advisors, on whose advice he relied heavily, promoted the ideas of the ‘free market’ and blamed the previous regime’s over-investment in heavy manufacturing industries for the crisis of 1979-1980 (Kim, 1997:172). Chun announced South Korea’s Fifth Five-Year Economic and Social Development Plan (1982-1986) which sought to shift the emphasis away from heavy and chemical industries to technologyintensive industries, such as computers, semiconductors, telecommunication equipment, biotechnology, the aerospace industry and consumer electronics, such as televisions and home entertainment systems. More attention was to be devoted to building high-technology products in greater demand on the world market.

Public investment in research and

development increased substantially and manpower training in targeted industries was heavily promoted (Kim & Gallent, 1997:425).

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While Chun sought domestic legitimacy through a return to rapid growth and a show of support for democratic reform, he also sought international legitimacy through the repairing of South Korea’s relationship with the US which had declined following the Koreagate scandal and US troop withdrawal (discussed in the previous chapter). Fortuitously for Chun, the decade-long détente between the US and the USSR had begun to dissolve in the late 1970s and the reigniting of Cold War tensions highly influenced US relations with South Korea. The overriding opposition to communism again became the primary focus of US foreign policy, with President Reagan’s US triumphalism celebrating South Korea as a bastion of resistance to communism. In 1981, Chun was Reagan’s first official guest in the White House and Reagan clearly demonstrated his support of Chun by a reciprocal visit to Seoul in 1983. This strong show of support from the US proved an essential element in providing Chun’s authoritarian regime with the legitimacy it needed in the face of the democracy movement and a strong opposition. While US policy continued to advocate democracy, and Reagan’s ‘quiet diplomacy’ pushed for democratisation and liberalisation behind closed doors, publicly, such confirmation of the power of Chun’s regime through increased US military support made further movement for democracy very difficult (Williams, 2010:70).

However, continuing US military support naturally came at a cost and the US agenda of international trade and financial liberalisation meant that Chun was under considerable pressure to de-regulate the South Korean economy with particular emphasis on opening up the financial sector to US firms.

While the economy had continued to grow, there had been

no internal pressure for financial reform so that the private financial sector in South Korea had not been well developed during the previous periods of fast growth. But with the economic downturn in the late 70s and early 80s, reform became a priority for a number of Chun’s key economic advisors, such as Kim Chae Ik, Kang Kyong Shik and Kim Chin Ho. Thus, Chun promoted “Economic Stabilisation and Economic Liberalisation” as his main economic policy (Kim, 1997:174). Financial liberalisation began in 1981 with the gradual privatisation of five of the six government-owned banks, but with the important proviso that the chaebol were specifically prohibited from owning commercial banks (Mishkin 2008:8990). While the bureaucracy continued to direct bank management and tightly prioritise lending to strategic sectors as it had done in the past, at the same time, the EPB significantly reduced government-guaranteed loans to the chaebol as economic policy became more

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regulatory and less directly interventionist, providing a finite time limit of three years on subsidised loans for targeted sectors. Interest rates were also gradually liberalised and by 1990, government-subsidised loans had declined as a proportion of overall bank lending (Pirie, 2008:82).

As technological upgrading was key to meeting national priorities of the shift to hightech industries, the long-established opposition to foreign direct investment (FDI) also became less attractive to policy-makers.

FDI was now seen as a key component

in

technology transfer and all but a limited list of protected industries was opened up for FDI approval in 1984. In practice, however, the prospect of foreign ownership of large sections of the economy remained unacceptable, not only to domestic capital, but, importantly, to the economic bureaucracy, so that FDI continued to be limited in many sectors. In order to fund technical upgrade through sources other than the government-controlled sources, in 1985, South Korean firms were permitted to raise capital abroad by issuing convertible bonds (Kim and Hwang, 2000:269). The chaebol continued to expand and dominate the economy, even after government subsidies were drastically reduced. As the chaebol became more and more successful, many business leaders began to question whether economic development as a national priority was still warranted. The autonomy of the government to implement its longterm plans for the economy became increasingly eroded as the chaebol grew in size and influence, seeking to influence the policy agenda to advance their own demands.

The economy began to recover by the middle of the 1980s with the onset of what Song (1990:57) terms the ‘three lows’ – low oil prices, a lower dollar and low interest rates. By this time, the reignited Cold War security environment had simmered down. Gorbachev had come to power in the USSR and the security threat posed by the Soviet Union had dissipated. With a growing trade deficit between the United States and several East Asian nations, including Japan, South Korea and Taiwan, the US was no longer willing to make concessions to its allies once they had attained relative prosperity. From 1985, the US applied intense pressure on South Korea to liberalise its market (Amsden, 1994a:116). An essential element of this was considered to be the necessity for a winding back of the comprehensive developmental state which was seen to be responsible for the distortion of economic incentives and all-encompassing rent seeking by the chaebol in line with the dominant neo-liberal development paradigm of the time.

The market and increased

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competition were strongly advocated as the most efficient ways to provide goods and services as well as being the best ways to stimulate growth and employment.

Such deregulation policies strongly influenced pro-reform policymakers in South Korea calling for the reduction of many of the traditional elements of the developmental state. The comprehensive developmental state was increasingly perceived as performing roles the private sector was willing and able to provide, so a reassessment of its goals and functions was required. One of the most important reforms of the Chun era was the transition of the centre of economic policy-making from the powerful Economic Planning Board (EPB) to the Ministry of Finance and Economy (MOFE). This change signified a diametric shift in development ideas in South Korea as power for policy-making shifted from the traditional stronghold of Park-era bureaucrats who continued to advocate a comprehensive interventionist role for the South Korean developmental state, to the finance ministries, whose predominantly Western-educated bureaucrats pursued more pro-market, or neo-liberal policies.

This meant that many of the EPB’s developmental policy instruments were

abandoned as the 1980s wore on, significantly reducing the government’s capacity to intervene in the economy. This weakening of government power was accompanied by a parallel rise in the influence of the chaebol (Hundt, 2005:5-6) as they rapidly expanded using international capital in the form of private market loans without the stabilising effects of intentional government.

The favourable international market, particularly for low-cost electronic goods, provided an export boom for South Korea, with the chaebol benefiting the most. By 1987, the share of sales from the five largest chaebol comprised 75.2 percent of manufacturing GDP. As the chaebol gained prominence in the economy, business leaders began to vie for more political influence. Heads of big companies became more visible and influential in economic policy-making and were increasingly voicing their collective demands on the government.

Reports of collusive deals between politicians and the large chaebol further

fuelled public belief that the chaebol had become a powerful group that was capable of manipulating the government. In the political arena, a small number of the chaebol’s owners and upper-level managers began to enter politics (Kim, 1997:182).

The nature of the relationship between the chaebol and the government began to change as the chaebol initiated investment according to their own priorities and those of the

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multinational companies they were partnered with rather than according to the long-term strategic goals of the government. This was assisted by rapidly expanding investments in the non-banking financial sector. By the mid 1980s, eight of the ten largest chaebol owned at least one non-banking financial institution, such as insurance, securities and short-term finance companies.

In some instances this investment was significant with Daewoo

increasing its investment from 7 percent of total assets in 1980 to 38.7 percent in 1988, and Samsung more than doubling its share from 21 percent in 1980 to 44.9 percent in 1988 (Kim, 1997:189). At the same time, the chaebol began to invest their capital in speculative land deals, causing real estate prices to skyrocket, making it very difficult for average middle-class families to own their own home. In short, what was happening internationally also began to occur in South Korea as finance and investment regulations were liberalised.

This land speculation also had a detrimental effect on farmers and rural incomes as land prices rose sharply (up to 41 percent by 1987) and non-farmer ownership of tenant farmland increased to 63 percent in 1985.

Farming incomes were hard hit by trade

liberalisation as the agricultural open door policy forced prices down. Under this policy, cheap grain imports from the US increased and price supports for agricultural producers decreased. Large-scale farming where crops could be produced more cheaply and efficiently was promoted as the agricultural labour force contracted. “In the early 1970s, a farm family could meet almost 100 percent of household expenses by farming 0.5 to 1 hectare, but by 1985 such small plots of land only met 59.8 percent of expenses. Many farmers had to rent extra land to augment their incomes.

The percentage of rented farmland among total

farmland rose from 21 percent in 1980 to 30.5 percent in 1985. The percentage of farm households renting some of their land among total farm households expanded rapidly from 37.1 percent in 1980 to 64.7 percent in 1985” (Matles Savada & Shaw, 1990:169).

The necessity to purchase modern farm machinery contributed to farm families accumulating higher debts, averaging about US$4,620 in 1987. Farmers’ relative earnings also began to decline, with average household earnings of about US$12,000 in 1988 in comparison to an urban family’s average income of about US$15,000, a comparative decline from 84.7 percent in 1985 to just 79.1 percent in 1987 (Honma & Hayami, 2009:8). As more and more agricultural products became scheduled for import liberalisation, and as large-scale corruption by the President’s brother, Chun Kyong-hwan, caused the Saemaul Undong initiative (discussed in the previous chapter) to deteriorate, in 1987 the traditionally

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conservative farmers began to organise to protest against foreign demands and to demand further protection from the government. While rural residents made up less than a quarter of South Korea’s voters, they elected almost half of the National Assembly and therefore brought considerable weight to their campaign (Honma & Hayami, 2009:22).

While the farmers took to the streets in protest, they were more than matched in force by urban workers who had again begun to agitate for change in the middle of the 1980s. Responding to decades of repressive labour policies that continued to ensure low wages and poor working conditions, the labour movement became more volatile in its demand for change. The labour movement targeted both the government and the capitalists as it viewed the government’s preferential support of selected capitalists as related to political corruption, and criticized the growth coalition between the government and the chaebol for its exclusivity and bias in terms of the allocation of resources (Park 2005:860). Chun’s opening up of South Korea to foreign direct investment caused even greater regional inequalities, and labour began to organise underground in defiance of restrictions on unions.

As the government proceeded with its liberalisation reforms, uncertainty as to the role of the government in the economy also began to rise. The government oscillated between support for the capitalists and support for labour, due to uncertainty over how to placate voters when pressure from the chaebol was for reform.

Labour, however, pressed the

government for welfare reforms and wanted the government to control and limit the increasing power of the chaebol, seeking a more equal distribution of wealth and social inclusion. As the industrial upgrading of the South Korean economy deepened, more and more relatively well-educated workers were brought into large factories, providing ideal conditions for labour union mobilisation so that union membership grew significantly. The government gave ground to some of these demands in 1987 and repealed union restrictions, allowing unions to organise across factories and across industries, so that collective bargaining became unrestricted for the first time since the 1960s. The labour movement took off dramatically with the number of strikes and lockouts skyrocketing from 276 cases in 1986 to 3,617 cases in 1987. Nearly 7 million work days were lost in 1987, compared to 72,000 in the previous year (Kim, 1997:203-209).

At the same time, students, professors, journalists and other intellectuals, particularly the political opposition, roused by the great injustice done to the workers, again organised

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large pro-democracy protests, calling for reform and anti-corruption measures. Many of these protests were led by the minjung (people’s) movement that included college students, blue-collar labour unions, peasants, and the urban poor. The opposition, led by Kim Dae Jung and Kim Young Sam began to agitate for direct presidential elections following an impressive result in the 1985 parliamentary elections and political unrest gripped South Korea from 1986. Democratisation efforts across the globe, particularly in the Philippines, had also raised the expectations of South Koreans.

As widespread pro-democracy

demonstrations erupted throughout South Korea, the US publicly made it clear that Chun could not count on its continued support if he suppressed such uprisings (Williams, 2010:71).

Protests in support of reform began to intensify in line with Chun’s efforts to delay and were to come to a head when on 10 June 1987 Chun announced his nomination of retired general Roh Tae Woo for succession once his seven year term as president was to expire. This was the final straw and strikes were carried out throughout the country leading to the Great Worker’s Struggle, which, at its height, involved over one million workers, about one third of the entire workforce, and affected the majority of industry in South Korea. By now, Chun was unwilling to resort to his usual heavy-handed violent crackdown in the face of continued public pressure from the US and with the eyes of the world upon South Korea with the upcoming 1988 Seoul Olympics.

Instead, Roh pronounced the Declaration of

Democratization and Reforms which included constitutional revision for direct presidential elections, political amnesty, the restoration of political dissidents’ civil rights, and freedom of the press (Woo, 2014:1). Political leaders from both the old regime and pro-democracy groups accepted the proposal and, effectively marginalized the influence of the minjung movement. Based on the declaration, both Roh and the opposition leaders worked to rewrite the constitution by creating an eight-member working group; the National Assembly approved the new constitution in October 1987. The political compromise and the new constitution eliminated the military’s justification for political intervention, bringing political stability as it facilitated the first democratic presidential election in South Korea in 16 years being held in December 1987.

Although Roh was duly elected as the pro-democracy

opposition forces of the ‘two Kims’ split the vote, his inauguration did not take effect until the end of Chun’s seven-year tenure and he officially became the President on 25 February 1988 (Woo, 2014:1).

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Roh quickly sought to dissociate himself from his predecessor, especially given his military background, announcing in his inaugural address: "The day when freedom and human rights could be slighted in the name of economic growth and national security has ended" (quoted in Kleiner, 2001:241). “With Roh’s electoral victory, the military hard-liners did not openly intervene in civilian politics, as they regarded Roh as their best choice” (Woo, 2014:1). Although a quasi-military and quasi-civilian government, and not seen by many as democratic given Roh’s involvement in the Gwangju massacre, Roh’s presidency provided a slow but stable transition to a full civilian regime (Woo, 2014:1). While political stability was maintained, however, industrial unrest continued under the more open political conditions and the pressures created by long-deferred improvements in wages and working conditions. In 1988 labour laws were further amended to make the establishment of labour unions much easier and government intervention in the industrial arena ceased. With little experience in such disputes, the chaebol had little choice than to make substantial concessions to the demands of a much better organised labour force that had suddenly gained control of the situation. In 1988 the number of unions increased from 4,000 to more than 5,700 and in 1989 the former representative of government interests, the FKTU began to hold rallies to press for “economic democracy.” Workers gained over 20 percent wage increases in many large factories at this time, with obvious consequences for productivity and competition. Fortunately the South Korean economy continued to benefit from favourable international conditions, and, while industrial unrest continued, South Korea entered the 1990s in reasonably robust shape as its economic, political and social transition continued.

While the pervasive interventionist role of the government in the economy was being rolled back, the government continued to have an important transitional role and was vital in driving the political transformation that was taking place. While some liberalisation had occurred it had been gradual, measured and the important role of the economic bureaucracy remained firmly embedded as a major actor in the national economy.

Globalisation, crisis and rapid recovery

By the 1990s, South Korea had joined the ranks of the so-called ‘tiger economies’ known for their rapid growth and increasingly high standard of living, becoming a member of the OECD in 1996. It appeared that Korea had managed its ‘catch-up’ project and was on its way to developed country status, providing the impetus for the dismantling of the

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developmental state apparatus. An elected civil government was in power for the first time since Park’s 1961 coup, the balance between the government and the chaebol tipped in favour of business as they grew larger and larger and the finance sector was substantially deregulated.

However, the Asian economic crisis hit the South Korean economy hard.

Despite the massive increases in urban land prices, it was not to be a property bubble that burst over the South Korean economy, but an industrial capacity bubble. The chaebol borrowed heavily to finance high-risk investments in intense competition with each other to expand to become the top ranking firms, with some developing debt to equity ratios of more than 20 to 1. When some of the countries in Southeast Asia began collapsing in the second half of 1997, the combination of chaebol difficulties and Southeast Asian devaluations triggered a panic in South Korea among creditors and a struggle to recover debts (Wade, 2004:xxxii). Three chaebol defaulted on their debts in the first half of 1997 and by late 1997, the won had collapsed. South Korea’s foreign reserves were severely depleted, and to prevent a total collapse of the economy, the government obtained one of the biggest ever emergency loans from the IMF. This was accompanied by the condition of introduction of IMF ‘good governance’ measures, which essentially meant further liberalisation of the economy (Wade, 2004:xxxiii).

The resumption of the collapse in May 1998, however, turned the government away from the IMF strategy and to re-introduce a government-led economic stimulus policy. Public funds, amounting to 20 percent of GDP, were used to buy out bad-loans, finance bank mergers and bring down interest rates. Strict regulation of the finance industry became the business of the government again, with government appointed bank executives provided with a mandate to approve loans to the chaebol. This allowed the government to again attain a balance in the government-business relationship, and enabled intervention to ensure largescale restructuring of the corporate and banking sectors.

As Wade (2004:xxxiv) says

“Governing the market was back in good currency in Asia, although it was not described as such.” Growth rates of 10% in 1999 and 9% in 2000 demonstrated the effectiveness of a resurgent developmental state so that by mid-2001, the government had repaid all the emergency IMF loans (Wade, 2004:xxxiv). The South Korean economy was back on track.

The end of the Cold War meant the possibility of a new regional security situation as both China and Russia normalised relations with South Korea, inter-Korean relations improved with the signing of non-aggression and de-nuclearisation pacts in the early 1990s,

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and both North and South Korea were admitted to the United Nations. This dampening down of the security threat from the North provided critical context for calls that government-led development was no longer necessary as well as a restructuring of the military. South Korea’s economic and political developments were also changing the South Korea-US alliance during President George Bush’s first term. There was now a shared commitment to political values in a region that was becoming increasingly important economically (Heo and Ruhrig, 2010:167). Roh honoured his commitment to democratic transition - legal and civil rights were strengthened, direct presidential elections were implemented and the absolute power of the president was curtailed. While democratisation required Roh to demonstrate a higher degree of commitment to liberalisation than his unelected predecessor, so that, in 1990, a managed floating exchange rate system was adopted and direct foreign investment in the South Korean stock market was permitted in 1992, the ability to intervene heavily in the economy was retained, particularly in times of economic downturn via sectoral rationalisation programs (Thurbon, 2001:242).

The ambitious goal of the Seventh Five-Year Economic

and Social Development Plan (1992-1996), was to establish South Korea as an advanced industrialised country by 2000 (Kim & Gallent, 1997:426) and policy loans directed at further high-tech upgrades continued. As Roh’s term came to an end, parliamentary rule by the National Assembly finally became a reality. Veteran pro-democracy opposition leader Kim Young Sam shifted across to the ruling party and was elected president in 1993, ushering in a dramatic change in economic ideas.

The main thrust of Kim Young-sam’s economic policy was Segyehwa – globalisation. This policy marked a shift from ‘administrative-guided’ to ‘full throttle’ liberalisation in South Korea (Dalla and Khatkhate, cited in Thurbon, 2001:243). At the same time, US foreign policy aggressively targeted the opening up of the East Asian tiger economies to American goods and investment, especially in financial services industries (Cumings, 1998:51). While developmental ideas within the economic bureaucracy had been waning for some time, under Kim, the government’s developmental institutions began to be completely dismantled as the new leader whole-heartedly embraced the free-market rhetoric of liberalisation. Under Kim’s Plan for the “New Economy”, the government explicitly sought to end government ‘guidance’ of the private sector, and set about liberalising the allocation of funds in the domestic economy.

While some elements of the economic bureaucracy

continued with a cautious approach to financial liberalisation, ensuring policy instruments remained for administrative guidance, they were eventually overruled as the leader and

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international actors pushed hard for reform and the chaebol expanded their activities rapidly as such guidance was undermined .

The traditional practices of administrative guidance of the economy were abandoned in favour of the new policy of rapid liberalisation of the financial sector. In 1994, the Kim administration announced the termination of all government-guaranteed loans by 1997, and abolished the practice of five-year planning which had provided the framework for policy coordination in South Korea since 1962. In the same year, under pressure from the US and the IMF, steps were taken to liberalise both the inflow and outflow of capital. Multilateral trade negotiations such as GATT and the government’s aim to induce more competition in the domestic market also fostered a gradual opening of the service sector. The IMF had strongly advocated that South Korea make inflation control its top policy priority, and to therefore allow appreciation of the won and interest rate rises to relieve inflationary build-up (Kim & Hwang, 2000:269).

As bureaucratic resistance to rapid liberalisation continued, particularly from the Ministry of Finance and Economy (MOFE), the Kim government decided to campaign hard for South Korea’s entrance to the Organisation for Economic Cooperation and Development (OECD). In preparation for membership, South Korea increased the pace of its removal of restrictions on foreign capital movements. Banks then began to borrow abroad without significant oversight.

The combination of an A1 rating from International ratings agency,

Moody’s, the previous long-term policy of government guarantees, and the high-interest rate policy while other OECD countries were pursuing low interest-rate policies to combat recession made South Korea very attractive for portfolio investment by foreign banks, mutual funds and hedge funds. South Korea very quickly began to build up a very sizeable foreign debt, moving from 13% to 30% of GDP between 1993 and 1996 (Adelman, n.d.:1).

To

boost South Korea’s OECD application, in 1996 Kim abolished the Economic Planning Board (EPB), which had been the locus of ‘administrative guidance’ dealing the final blow to South Korea’s strategic approach to economic coordination (Cumings, 1998:54).

Kim promoted his reforms as a battle against the establishment, trying to reign in the chaebol and to expand sources of government financing to small-medium enterprises (SMEs) in an attempt to gain the support of the rapidly expanding middle-class.

These were,

however, effectively undermined as the new environment opened up opportunities for the

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chaebol to find alternative sources of capital. While the chaebol were not permitted to own commercial banks, they were permitted to own merchant banks, so that they could work around the government regulated commercial banking system and potentially borrow as much as they liked for whatever purpose they wanted. In 1990, there were only six merchant banks operating in South Korea, all of them foreign affiliated. By 1997, there were thirty merchant banks, 16 of which were owned by the chaebol. The merchant banks channelled vast amounts of funds to their chaebol owners. By this time, the chaebol also controlled a large proportion of non-bank financial institutions, with over 30% of non-bank financial institution assets held by the large conglomerates. Credit issued by financial institutions expanded rapidly, growing at an annual rate of 20% from 1992 to 1997. Domestic credit quadrupled from 1988 to 1997 and credit as a share of GDP rose from around 100% to 200% of GDP (Mishkin 2008:89-90). The average debt-equity ratio for the manufacturing sector reached nearly 400% in 1997, double the OECD average, and the average ratio for the top 30 chaebol exceeded 500% (Adelman, n.d.:1).

Kim also made popular appeals, as well as considering the changing security environment, by making further reforms to the military with a large-scale reshuffling of top military leadership posts. In doing so, he purged the South Korean military of officers belonging to the Hanahoe faction, culminating in the prosecution of both Chun and Roh “for the 1979 coup, conspiracy, massive killings in the Kwangju pro-democracy uprisings, and rampant corruption” (Woo, 2014:1). Riding on a wave of popularity for holding two military dictators to account, Kim proudly announced in 1996 that South Korea had come of age as an advanced economy as it was accepted as a fully-fledged member of the OECD (Cumings, 1998:52). But all was not well.

The industrial workers’ unions considered the pursuit of OECD membership to be premature. They thought the opening of the domestic market before the country was ready to be extremely reckless. They were dismayed that this was progressing while the promised goal of achieving social justice, an integral part of the government’s segyehwa policy which had gained their support for Kim, was not. Such concerns seemed to be well founded as the appreciating won impacted heavily on South Korean competitiveness, slowing exports and earnings in key sectors of the economy and eventually, overall economic growth. As the chaebol had such significant foreign-currency debt, the appreciation meant a severe erosion of nett worth.

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dwindling of foreign exchange reserves. Contrary to prior policy practice however, the government did nothing to address the growing imbalance in the capital account (Thurbon, 2001:250). For the first time in decades, the country saw massive unemployment, jumping to 7 percent in 1988. Hundreds of thousands of South Korean workers occupied the streets of Seoul in protest for weeks in early 1997 as civil workers’ unions withdrew their support for South Korea’s first civilian president in more than three decades. At the end of 1997, crisis struck as the won depreciated by 47% in three months.

Some of the largest chaebol

(including Hanbo Steel) became insolvent and defaulted on their loan repayments. Frightened foreign investors took flight and South Korea too became a victim of the Asian Financial Crisis afflicting the region (Kim & Hwang, 2000:269).

Having relinquished a number of key tools for disciplining capital, including control of access to finance, and for implementing stabilisation or ‘rationalisation’ programs to deal effectively with economic downturn, the South Korean government was unable to halt the fall and was forced to seek external assistance. The IMF agreed to a huge bailout but attached a wide-ranging set of policy conditions to the emergency loan. “In return for the $57 billion package, the IMF demanded drastic restructuring. South Korea had to ‘restructure and recapitalize the financial sector and make it more transparent, market-oriented, and better supervised’. “It would have to lift ceilings on foreign investment in South Korean firms from 26 percent to 50 per cent, facilitate foreign mergers and acquisitions, open domestic markets—especially the capital and auto markets—and create flexibilities in the labour market that would allow enormous layoffs. The government would create revenue by raising taxes and interest rates, and cutting budgets. Large financial institutions should now be audited by internationally recognized firms, and the vastly diversified chaebôl should stop inter-subsidiary loan guarantees and other kinds of internal deals” (Cumings, 1998:53-54).

The crisis and recovery package coincided with the end of Kim Young-sam’s presidency and in February 1998, opposition leader Kim Dae-jung took office (see table 5.1 at the end of this chapter). This momentous occasion marked the first time government had passed peacefully from the ruling conservative government to a liberal-democratic opposition party (Kwon, 82010:1), but there was no time for celebration. The new President Kim made unequivocal the anti-chaebol tone of the restructuring policy in his inaugural address: “the economic crisis in South Korea was due to the collusive relationship between the government and business, the government-controlled financial sector, and the octopus-like over expansion

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of the big business conglomerates” (quoted in Chun et al, 2004:27). The conditions imposed by the IMF restricted the South Korean government’s macroeconomic policies even further.

A drastic neoliberal restructuring program meant that the South Korean government no longer had effective control over macroeconomic variables. Unemployment rates soared, growth rates turned negative, and long-term stability of the economy was in deep doubt. (Chon et al. 2004:23). As Mikesell points out, “the restrictive macroeconomic policies required by the IMF have resulted in high interest rates and a reduction in consumer purchasing power and business credit, which in turn have caused recession, low investment, and unemployment” and the crisis took off again in mid-1998 as further South-East Asian economies collapsed (quoted in Chun et al, 2004:24). Again, workers took to the streets in their thousands, chanting their opposition to the austerity measures and wearing headbands saying “Down with IMF trusteeship!” (Cumings, 1998:62). The crisis was so widespread and so devastating that a broad national consensus readily emerged regarding a dire need to carry out a comprehensive and fundamental reassessment of South Korea’s entire developmental experience and trajectory. To both ordinary citizens and policy makers in South Korea, economic reform and restructuring loomed as an extremely urgent task that could no longer be ignored or postponed. As a result, the new Kim government set about restructuring major dimension of the economy and introduced a comprehensive strategy for recovery with the economic bureaucracy at the helm (Chon et.al, 2004:23). For the first time in South Korean history, welfare reforms came to be appreciated as an institutional means to keep the democracy and market economy sustainable (Yoon, 2009:334).

Key dimensions of the strategy included: the government closed or merged insolvent financial institutions and strengthened the capital base of viable ones, writing off nonperforming loans and recapitalizing financial institutions.

Two commercial banks were

nationalised then sold to foreign investors. The government committed almost $50 billion in additional public funds to recapitalization, deposit protection, and the purchase of nonperforming assets.

Stability returned to the financial markets and with it, investor

confidence (Chon at al., 2004:24). Corporate restructuring was next as Kim announced his “Big Deals” policy. This was a policy of encouraging, if not forcing, large business groups to swap their subsidiaries for specialization. The corporate swapping among the chaebol was intended to reduce their overcapacity and encourage specialization based on international competitiveness.

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Eight ‘strategic’ industries were targeted and a blueprint for better

From NIC to developed country status

performance was imposed upon the chaebol. The economic bureaucracy were again charged with directing the restructuring and recovery efforts, completely re-legitimising the administrative guidance so essential to the developmental state of the past. The corporate restructuring policy of the Kim Dae-jung government replicated some of most important characteristics of a typical developmental state in that “the government directs an alliance of business groups, banks and government agencies, using positive and negative instruments to achieve desired economic outcomes such as involving local capital in export industries” (O’Hearn quoted in Chon et al. 2004:28). These measures proved to be highly effective so that the South Korean economy quickly rebounded, returning to growth well before the 1990s came to an end. Not surprisingly, observers (Stiglitz, 1999) have cited South Korea as an example of economic restructuring and recovery for other countries to consider.

The 1990s had seen the dissolution of developmental ideas within the government, combined with the dismantling of the government’s developmental institutions, which contributed directly to the government’s rapid and uncontrolled approach to financial liberalisation, culminating in the financial crisis of 1997. The growth of the chaebol also meant that their strength grew, so that the government’s position in the economy by comparison had changed. The economic bureaucracy began to find it more difficult to exercise control over the chaebol, so that its continuing role as trustee in the national interest began to unravel. The strong, autonomous government of the developmental coalition no longer remained highly effective in guiding the economic process with consistent developmental objectives. At the same time, the dominance of the neo-liberal paradigm, both domestically and internationally, assisted proponents of reform in the battle for ideas about the role of the South Korean government. In particular, the proponents of reform - who included the IMF, the US government, the chaebols and, increasingly, the chiefly USeducated MOFE bureaucrats, arguing that the government should be relegated to a supervisory role, through which it would facilitate the development of the economy as a whole, rather than be involved in sectoral industrial policies (Weiss, 2003:62).

This

amounted to the de-legitimation of the government’s role in the national economy (Hundt, 2005:3).

Yet, Hewison & Robison (2006:xvi), point to a paradox in the enforcement of the recovery package whereby the liberalisation agenda provided critical context for the South Korean government, particularly the economic bureaucracy, to regain a legitimate role in the

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economy. The crisis was an opportunity for it to re-emerge as the mediator between domestic and global forces. The points towards the explanation that the developmental state retains its legitimacy through continually reinventing itself, evolving over time to meet domestic and international transformation, thereby reinforcing its role as the pre-eminent institution with the capacity and resources to mobilise and maintain an effective long-term development endeavour.

The knowledge-based economy

In 2000 the South Korean government announced a grand “three-year strategy” for the development of a knowledge-based economy (Kwon, 2010:106). Kim had been well regarded at the beginning of his presidency due to his effective handling of the economic crisis, and through his Sunshine Policy of normalising relations with North Korea, for which he was awarded the Nobel Peace Prize (Yang, 2001:31). But, like many South Korean leaders before him, by the end of his term his credibility had been weakened by corruption cases and a high density of strong interest groups challenging the government’s direction in guiding the economy (Kwon, 2010:90). Nevertheless, the ruling party was returned to the presidency in 2003 with the election of Roh Moo-Hyun on the key promise of balanced economic growth. Roh, too, suffered the same fate as Kim. While promising to usher in a new period of parliamentary reform to address political instability, due to ingrained political regionalism and corruption, his Presidency was plagued with difficulty. Roh continued with Kim’s policy towards North Korea, despite its nuclear testing, leading to pro-unification trends. The once-only five-year term plagued successive Presidents with political instability as leadership transitions and opposition manoeuvring made it difficult to focus on longerterm goals.

Lee Myung-Bak, from the leading conservative opposition party, was inaugurated as President in 2008.

Lee is a former Hyundai CEO, and the ideational heritage of the South

Korean developmental state continued to resonate in his pledge to double per capita income to $40,000 within a decade. His major platform was a new ‘green economy’ initiative and cooperative R&D projects were created to ensure South Korea becomes the world leader in renewable energy projects. This made inherent sense as South Korea is the tenth largest energy consumer in the world and imported 97 percent of its total energy needs. Over 80 percent of energy comes from fossil fuels and three quarters of South Korea’s industrial

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From NIC to developed country status

output requires high energy consumption, making it very sensitive to energy price fluctuations. It was imperative, therefore, that the country adopt a low-carbon, energyefficient strategy as a way to create a new engine for growth (Choi, 2014:3). The global financial crisis from 2008 had little impact on South Korea, unemployment stayed well below 4% and the economy only contracted very briefly. But the chaebol have become an even more powerful political force as exports have grown enormously, amounting to more than half of all GDP throughout the period. Lee also took a harsher stance towards North Korea, accusing the previous governments of appeasement, and reaffirmed the alliance with the US. He completed his presidency a controversial and divisive figure.

In 2013, South Korea’s first female president, Park Geun-Hye was inaugurated, retaining the leadership for the conservative party. Park is the daughter of General Park Chung-hee, a divisive figure in South Korea, either despised as a brutal military dictator, or lauded as the hero of the country’s economic miracle. As has become the norm in political campaigns, Park was elected on a promise to curb the power of big business, help small business, fight government corruption and close the gap between the rich and the poor (Klug, 2012:1).

Conclusion

Over the past three decades from the 1980s, the South Korean economy has again showed remarkable growth, despite a number of setbacks. The Asian financial crisis of 1997 was widely depicted as the final showdown in the clash of capitalisms (Frankel 1998; IMF 1998; Goldstein 1998), signalling the demise of the so-called ‘East Asian model’ of developmental capitalism, and relegating South Korea’s development to be merely ‘crony capitalism’ that could not stand the test of time. However, when South Korea rebounded quickly and effectively after it had been particularly hard-hit, reaching double digit growth figures and getting unemployment and inflation under control, South Korea, again, was in high demand as a case study for economic restructuring and recovery. As the country rode out the global financial crisis a decade later, in 2008/2009, many leaders around the world looked to South Korea, and the other robust Asian economies and their distinctive government-led capitalism for guidance. This chapter has shown that while South Korea introduced liberalisation reforms in the 1980s, these reforms did not translate into a reduction in the scope of government intervention in economic management in general, reflecting a

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change in government tactics rather than a fundamental rethinking of the strategic role of the government in the economy. The idea that the government had ultimate responsibility for ensuring maintaining and building the economy in trust for the people of South Korea remained a potent force. In the 1990s, however, this was to change as neo-liberal ideas became extremely influential both internally with President Kim Young-Sam and among some of the leadership of the economic bureaucracy, as well as internationally, particularly the United States and the IMF. This meant that the active role of the government in the allocation of financial resources to strategically designated ends was no longer considered necessary or desirable. The synergy between the spontaneous and the intentional was no longer considered an ideal form of the capitalist economy in South Korea. The rapid liberalisation of the economy, particularly the financial sector, led to a rapid decline in the government’s willingness and, belatedly, its ability to intervene to make adjustments when necessary, with dire consequences. As the post-crisis period demonstrates, however, it was possible for the government to regain an active role in the economy, as both the leadership and the administration played a dynamic role in the resolution of the crisis. While a liberalisation reform agenda continued to be carried out, the South Korean government was able to redefine its position in the national political economy, and remains able to continue exercising a significant degree of influence on the policymaking agenda. In short, the developmental institutions that serve society at one point in time may need to be reformed to retain their effectiveness in the long term. Institutions and policies obviously need to change with the changing circumstances that the continual spontaneous development of capitalism bring to bear. But the continuity of the idea of the role of the state to continually act as national trustee by anticipating such changes and implementing intentional development policies to deal with them remains crucial. The South Korea of today is the world’s 14th largest economic power (World Bank, 2014) and is recognised as a global force in the production of automobiles, petrochemicals, electronics, shipbuilding, textiles, and steel. Such South Korean companies as Samsung, Hyundai and LG have become household names and the nation is home to 17 of Fortune 500’s world’s biggest companies. It is a global innovator in consumer electronics and now leads the world in internet access. South Korea has also shown a corresponding gradual improvement in terms of human development as indicated by the UNDP Human Development Index (see table 5.3 at the end of this chapter) with a ranking of 82 in 1990 to a current ranking of 12. There has been a gradual improvement in all indicators, including life expectancy from 64 years in 1975 to 80.7 in 2013, adult literacy from 88% in 1970 to

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universal literacy, school enrolment from 75% in 1987 to 100%, as well as a considerable rise in per capita income from just $2000 in 1990 to now over $28,000 per year. This suggests that although globalisation undermines the economic and political conditions on which the developmental state was based, there is no indication that developmental ideas, which have been a crucial feature of South Korea’s industrialisation process since the 1960s, have actually weakened. Despite a convergence in national economic policies toward a more open economy, there still remain unique domestic responses to globalisation according to different national economic ideas and practices.

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Table 5.1 Presidents of the Republic of Korea Republic

President

Dates in Office

First

Rhee Syngman

20.7.1948 – 20.4.1960

Elected

Second

Yun Bo-seon

13.8.1960 – 22.3.1962

Elected

Third

Park Chung-hee

17.12.1963 – 26.10.1979

Military Coup

Fourth

Park Chung-hee

17.12.1963 – 26.10.1979

Electoral College

Choi Kya-hah

8.12.1979 – 16.8.1980

Electoral College

Chun Doo-hwan

1.9.1980 – 24.2.1988

Military Coup

Fifth

Chun Doo-hwan

1.9.1980 – 24.2.1988

Electoral College

Sixth

Roh Tae-woo

25.2.1988 – 24.2.1993

Elected

Kim Young-sam

25.2.1993 – 24.7.1998

Elected

Kim Dae-Jung

25.2.1998 – 24.2.2003

Elected

Roh Moo-hyun

25.7.2003 – 24.2.2008

Elected

Lee Myung-Bak

25.2.2008 – 24.2. 2013

Elected

Park Guen-hye

25.2.2013 incumbent to

Elected

2018

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How position achieved

From NIC to developed country status

Table 5.2 Human Development Index South Korea Year

Ranking

HDI

Life Expectancy

2013

12

0.909

80.7

Adult Literacy

Enrolment

GDP per capita 28,231

2012 2011

15

0.897

80.6

100

28,230

2010

12

0.877

79.8

100

29,518

2009

26

0.937

79.2

98.5

24,801

2008

26

0.921

77.9

96

22,029

2006/07

26

0.912

77.3

98

95

20,499

2005

28

0.901

77

97.9

93

17,971

2004

28

0.888

75.4

97.9

92

16,950

2003

30

0.879

75.2

97.9

91

15,090

2002

27

0.882

74.9

97.8

90

17,380

2001

27

0.875

74.9

97.6

90

15,712

2000

31

0.854

72.6

97.5

90

13,478

1999

30

0.852

72.4

97.2

90

13,590

1998

30

0.894

71.7

98

83

11,594

1997

32

0.890

71.5

97.9

82

10,656

1996

29

0.886

71.3

97.6

81

9,710

1995

31

0.882

71.1

97.4

79

9,250

1994

32

0.859

70.4

96.8

9.3*

8,320

1993

33

0.872

70.1

96.3

8.8*

6,733

1992

34

0.871

70.1

96.3

8.8*

6,117

1991

35

0.884

70.1

94.7

6.6*

5,680

1990

82/130

0.789

70

90

1987

70

2,000 75

1985 1976

470

1975

64

1970

88

1960

54

Source: UNHDR Various Years

* Mean number of years educated

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Figure 6.1 Map of Papua New Guinea

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Chapter 6

War, Restoration, and Uniform Development Papua New Guinea 1945 – 1963

Introduction

This thesis now turns to the study of the development ideas and practices in Papua New Guinea.

The principal object of this examination is to illustrate how in other

circumstances, specifically in Papua New Guinea, the idea of development took other forms. In understanding the process of change, I am relying on a very particular understanding of the modern idea of development which unites the spontaneous development of capitalism with intentional development strategies (see Chapter 2).

As previously noted, the idea of

intentional development has been applied to development practice in two very distinct forms – manufacturing and agrarian doctrines. The previous chapters of the study focused on state policy guided by a manufacturing doctrine in the case of South Korea. That case study showed how policy-makers implemented strategies to rapidly and continuously expand and upgrade the industrial sector in order to transform the negative impacts of the global market as well as mitigating important domestic factors. The next three chapters in this study will focus on examining state policy that sought to implement an agrarian doctrine of development, a policy that was advocated and implemented in Papua New Guinea. Such a policy concentrated on pre-empting the negative effects of unemployment and poverty through the attachment of the population to vacant or under-utilised small-holdings. The idea was to intentionally focus government resources to increase output of immediately consumed and locally and internationally marketed crops. The priority, therefore focused on the goal of improved living standards for the indigenous population through improved agriculture while maintaining the external authority of capital (see chapter two).

This first chapter in the study of Papua New Guinea charts the development ideas and practices of the Australian late colonial state, from the end of the Second World War in 1945, right through Paul Hasluck’s period as the Minister for Territories until 1963. The emphasis on the extent and significance of the major break with former thought about the colony that the late colonial idea of development represented necessitates an outline of the earlier,

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displaced idea of development which initially influenced colonial officials and policy. The first part of this chapter, therefore, begins with a brief history of the construction of the colonies of Papua and New Guinea during the period when colonial authority was established in different forms; by the British and then Australia in Papua and by Germany in New Guinea. It then touches briefly on the inter-war years, when both colonies came under Australian control, but with New Guinea being governed separately under mandate of the League of Nations. During these early colonial periods, policy resoundingly favoured the development of the colonies for the benefit of European settlers, with land and labour programs paying little attention to indigenous conditions, or oscillating between concern for the local people and collaboration with European interests. While the aim to raise revenue to make the colonies self-sustaining was somewhat achieved, this was due to the discovery of rich gold deposits, rather than the settler plantation agriculture that the colonial administration had largely promoted.

The second part of the chapter explains the uncertainty of development and development policy in the immediate post-war period. After the unsettling experiences of the Second World War, growing unrest in the form of ‘cargo cults’ forced the administration to rethink its policies.

After the necessary post-war replanting of gardens to ensure food

security, an agrarian development doctrine was introduced with its intended purpose to retain the attachment of the bulk of the population to smallholdings in the countryside, while lifting living standards and increasing production. The third section of this chapter explains how colonial policy, under the leadership of Hasluck, was to have far-reaching success, with the bulk of the population still living in their rural villages, supplementing farming of immediately consumed crops with cash-cropping. Agriculture, especially produced by local villagers on small acreages, expanded rapidly in the mid-1950s, with the coordination and supervision of the colonial administration. With its intentional thrust to make productive that which was unproductive in order to avoid the detrimental effects of the spontaneous growth of capitalism in Papua New Guinea, Hasluck’s policy of ‘uniform development’ shares some of the developmental characteristics so apparent in the industrial policies of South Korea.

Early colonial development

The Colony of Queensland annexed the south eastern part of the island of New Guinea and in 1884 a British protectorate was proclaimed over the southern coast and its

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adjacent islands, leading to full annexation as British New Guinea in 1888 and finally being taken over by Australia as its colony, the Territory of Papua, in 1906. Corresponding with this, the northeast of the island was colonised by Germany in 1884, with the German Neu Guinea Kompanie administering the territory. The initial ideas of development in both the German and British territories of New Guinea and Papua stemmed from the basis of the presumption of the right of private European capitalists to accumulate wealth from the colonies. According to Albert Hahl, in charge of the German colony from 1896 until 1914, the primary goal of the Kompagnie was the promotion of European trade interests and the development of European plantation agriculture (Firth, 1978:30). Efforts by traders and planters in the islands to establish a coconut industry proved successful, especially on the Gazelle Peninsula (Connell, 1997:15). Such success was assisted by the willingness of the Tolai people to engage in trade copra, having produced coconut products for trade prior to the arrival of the Germans (Gupta, 1992:58). Before the First World War broke out 85,000 acres of land stood under cultivation, employing some 20,000 indentured indigenous workers. A head tax had been introduced in 1907 to stimulate greater supplies of labour and an extensive road network and agricultural research stations were founded. Indigenous production, mainly by the Tolai, accounted for almost half the copra export (Amarshi, 1979:21-24). The German colonial era was to come to an abrupt end, however, when Australia captured German New Guinea in 1914, leading to it becoming governed by Australia under a League of Nations mandate when the war ended.

As for the British territory of Papua, it was primarily of strategic importance to Australia so that initially, the imperative for European economic expansion was downplayed. William MacGregor, in charge of administering Papua from 1888 to 1905, initially favoured the introduction of European enterprise which would have no detrimental effect on indigenous interests. At odds with British and Australian business interests, however, he subsequently attempted to alienate large tracts for plantation development with limited success. By the end of his administrative period only 3,000 acres of land had been alienated for European agriculture (Gupta, 1992:57).

In 1906, however, the administration was

transferred to Australia and a clear policy of the encouragement of European plantations was formulated, particularly copra plantations. These plantations were to be established using private capital and Papuan labour.

There was then a consequent rapid increase in

development of plantation agriculture so that by 1914 there were 230 plantations covering 43,000 acres and employing 11,000 indentured workers (Amarshi, 1979:15).

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Following the First World War, Australia gained possession of German New Guinea, although the territories continued to be administered as separate entities. Australian policy aimed to make New Guinea financially self-reliant through the spontaneous development of private capital. An expropriation board, set up in 1920, seized all German assets which were then sold to Australian ex-servicemen on generous terms. Lacking capital, however, these former soldiers found themselves heavily indebted to the large Australian trading houses, particularly Burns Philp and W.R. Carpenter.

Many smallholders were ruined by the

Depression and these companies acquired their properties. By 1940 the planted acreage was almost double that of 1920, with the two major companies owning two-thirds of the plantations throughout the colony (Reed, cited in Amarshi, 1979:23).

It was gold, however, that allowed the New Guinea administration to become selfsufficient as large deposits were discovered in the Wau-Bulolo region from 1926. In the same year over 7,000 indentured labourers were employed on the goldfields. By 1932, gold accounted for over half of New Guinea’s exports and royalties from mining accounted for a quarter of government revenue during the period 1932-1940 (Gupta, 1992:60). In New Guinea, government policy firmly focused on securing a more reliable labour supply for plantations and mines, through ensuring an alternative source of income was not available to compete with wage labour, and through pushing further into the frontier to bring greater parts of the country under administrative control.

Meanwhile, post-war in Papua, with an initial improved labour supply due to the introduction of a head tax similar to that in New Guinea, and some recovery in prices, the acreage under cultivation expanded to 62,000 by 1920. But capital remained scarce and labour supply was a pressing issue. With a shortage of labour, low commodity prices and high shipping costs, indigenous agriculture was encouraged as the administration fostered the development of village plantations through the group planting of cash groups. As with expatriate plantations, however, these, too, had limited success (MacWilliam, 2013:26). By the time war came to the territories, the economies of Papua and New Guinea were firmly established on the periphery of world capitalism. They were classic exploitative colonial export-oriented economies based on plantations and mining. Such an exploitative structure encouraged capital accumulation by international, mainly Australian merchant capital, while persistently discouraging domestic capital accumulation of a kind that promotes the economic

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development of the indigenous population. Forced labour through alienation of land and head taxes was creating a partial proletariat with little opportunity for alternative employment. Manufacturing was limited to elementary mineral processing and the first stage of processing of copra, coffee and cocoa which required little technological input. Urban centres remained small, and the majority of the population remained in rural areas. The discovery of gold and the continuing labour shortages had encouraged the integration of the entire population and geographical areas of Papua and New Guinea into a single political unit. The experiences of the Depression and the War, both in Australia and the colonies, and subsequent plans for post-war reconstruction ended the dominance of encouraging spontaneous development, with a new emphasis on rescuing and extending capitalist development in Papua New Guinea.

Post-war policy uncertainty

The devastating effects of the Second World War in Papua New Guinea created the conditions for a crystallisation of colonial development ideas with a greater emphasis on the welfare of indigenous peoples. While such ideas had existed in the early colonial and interwar period, the war-time disruption of the colonial economy provided a catalyst for the changing significance of intentional development policies.

As international concern for

colonised and de-colonising peoples grew, and as the damaging effects of the Depression had deeply affected both Australia and its colony, Australian officials began to place particular emphasis on redefining Australia’s colonial authority. Factors important in shaping the postwar economy were the merger of the two colonies, the much greater degree of government intervention in the economy and the incorporation of the populous Highlands region into the commercial sector. The early post-war years brought an immediate increase in financial assistance, but war damage and a shortage of materials, shipping and skilled labour all slowed the pace of development. While Australian officials had rejected the development model advocated in the Japanese-formulated Greater East Asia Co-Prosperity Sphere as exploitative (c.f corresponding rejection by the South Korean leadership discussed in chapter 3), the home grown colonial strategy of ‘positive Australianism’ was in the process of being defined for constructive use in Papua New Guinea.

The idea of ‘positive Australianism’ was first publicly expressed by Dr HV Evatt, the Minister of External Affairs, in 1944 in the context of Australian and New Zealand

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consultation over reforms to international trusteeship conditions in the colonies. A treaty signed between the two nations included a chapter on the peoples of the Pacific, specifying that “the main purpose of the trust is the welfare of the native peoples and their social, economic and political development” (quoted in MacWilliam, 2013:27). The United Nations charter also directed all future policy towards “progressive development towards selfgovernment or independence as may be appropriate to the particular circumstances of the territory” (Article 76, quoted in Downs, 1980:3). This meant a dramatic shift in policy from merely protecting the Indigenous people from the detrimental effects of the expansion of capitalism in the territory, towards an intentional development doctrine whereby the trusteeship arrangements were to be reformed to make development happen for the benefit of the Indigenous peoples. In 1945, Eddie Ward, Minister for External Territories in the Labor government expressed his party’s fundamental desire to carry out reform in its trusteeship responsibilities to Papua New Guinea when he told Parliament that:

Apart from the debt of gratitude that the people of Australia owe… [my] Government regards it as its bounden duty to further … the advancement of the natives … [this] can be achieved only by providing facilities for better health, better education and for greater participation by the natives in the wealth of their country and eventually its government (Ward, quoted in Downs, 1980:14).

In addition, with the strategic importance of Papua New Guinea resonating more strongly than ever, military advice from Australian General Thomas Blamey was that the best means for securing the cooperation of the local people in future security threats would be an accelerated program of economic development and a rapid improvement in their health, education and welfare (MacWilliam, 2013:36). So there was a convergence of international and domestic concerns for the welfare of the local people with the strategic interests of Australia. Australia retained strategic control of Papua New Guinea and committed to the principles of trusteeship in both the new spirit of the time and its firm declaration on behalf of non-self-governing territories that Australia had made (Downs, 1980:3).

During and immediately following the War, the territories were administered by the military under the Australian New Guinea Administrative Unit (ANGAU). During this period, communication, district administration and health services were expanded. Transfer

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to civil control occurred gradually until the entire country became governed by the appointed civil administrator, Colonel Jack Murray. Australian grants to the colonial administration greatly increased, from $A95,000 (£42,500) in 1940, to $A505,480 in 1945-46 and $A4,037,346 in 1946-47 (Amarshi,1979:37).

Initial efforts included concentration on

reconstruction of war-damaged infrastructure, including roads, airfields, wharves and administrative buildings. Central authority over the entire territory proved difficult, and Murray concentrated on re-establishing and expanding district administration which he then relied upon to implement development policy. While policy direction generally favoured increasing indigenous participation in commercial agriculture, detailed planning and the specifics of policy were demonstrably absent as the Australian government concentrated on rebuilding the Australian economy. Much effort was equally required in Papua New Guinea to remedy the appalling conditions that war had brought. Basic health services were given a high priority. District officers concentrated on repatriation of the more than 55,000 local people who had worked for the military, restoration of village life, including re-establishing food gardens and constructing housing, and the payment of war damage claims that had been legislated by the Australian parliament (Downs, 1980:30).

While the idea was that economic development in the territory was to be guided by the primacy of native interests, there was considerable uncertainty as to precisely how priorities were to be determined and what parts of the agricultural sector were to be rehabilitated or developed. Many expatriate planters sought to return to their pre-war large holdings, but, in 1945, the Australian Labor government had introduced legislation that effectively cancelled all indentured labour contracts, had raised the minimum wage, reduced the working week and increased rations, raising the cost of labour by 100-150% over the prewar level (Mair, cited in Amarshi, 1979:39). The number of indigenous labourers fell from 34,000 in 1945, to just 4,100 in 1946 (MacWilliam, 2013:57). Thus, coupled with ill health, the necessity for replanting food crops, and the return of labourers to rural and remote villages, the pre-war labour shortages had increased significantly. Rehabilitation of European plantations was therefore, not afforded significant priority.

The health of the population continued to be of significant concern so that a Nutrition Survey was commissioned in 1947. The main objective of this survey was to establish the type and level of native food being grown and consumed with a view to determining priorities in the production of food. However, the Survey also sought “to ascertain whether it

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would be possible and desirable to recommend a policy of native agriculture which could combine production of ‘cash’ and native food crops without detriment to the latter” (CoA, 1950:13). This indicates that while the administration necessarily concentrated on rectifying the worst ravages of war on the indigenous population, thinking about what form development that was paramount to native interests would take was suggesting the possibility for expanding indigenous agriculture. However, no recommendations were made on what form this expansion would take, that is indigenous plantations or smallholder agriculture.

By 1948, many of the priorities for post-war reconstruction and rehabilitation had been completed. “Most of the villages disturbed by war have been rebuilt, the natives settled and the gardens re-established on pre-war levels … It is only the European establishments and that part of the native economy which is dependent on imports that has not reached prewar levels” (ToPNG, 1948:11-12). There were calls for the increased production of crops to supply unmet demand in Australia, so that PNG could be integrated into the Australian market. At the same time, major shortages of food crops on international markets encouraged officials in Papua New Guinea to look to export markets beyond Australia.

While

uncertainty on what crops to produce, and for whom, the idea of by whom had, seemingly, been firmly established. With this in mind, a development strategy was formulated by Australian bureaucrats in Port Moresby in 1948 for the Territory of Papua and New Guinea. It began from the basic principle that the territory could “be developed primarily for the advantage of the local inhabitants … with the limit of non-native development determined by the welfare of natives generally” (ToPNG, 1948:13). Agriculture was central to the country’s development policy, with the transition from immediately consumed to commercial agriculture envisaged and encouraged for the indigenous population. The aims of this policy were to increase export and domestic marketing of food crops, reduce food imports and expand as well as diversify agricultural production for immediate consumption. At the same time, it was intended that this would be supplemented by European-developed forestry and mining projects that would provide revenues for the colonial administration (ToPNG, 1948:135, 190). Eventual industrial development was envisaged, but it was argued that there was no prospect of this for many years with the country’s needs for manufactured goods being principally met by Australia (ToPNG, 1948:40).

But with a poorly funded

administration, limited capital and labour, progress was very slow.

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While intentional development programs focused on indigenous smallholders, spontaneous development due to high world prices and a contract for copra with the British Ministry of Food led to the rapid resuscitation of many large holdings. Public support for indigenous cocoa growers also led to the rapid expansion of the holdings of some indigenous planters as good returns from cash crops encouraged private investment. This meant that the seemingly firmly established idea of whom intentional development programs would support became less certain.

Efforts to encourage and supervise indigenous growers had been

important in propelling the development of an indigenous bourgeoisie, particularly in the already advanced areas where European plantations had previously been established. As part of the general drive against extending plantations and increasing wage labour meant that indigenous large holdings would also need to be restrained (MacWilliam, 2013:66).

Amid this background, and with pressure exerted from commercial elements in Australia, the Administration averted its policy discouraging the alienation of indigenousowned land to allow some half dozen coffee plantations to be spontaneously acquired in the recently contacted Highlands area with its abundant population and fertile valleys. By the time of the first United Nations visiting mission in 1950, economic development was in its infancy, political development minimal, and social changes, particularly education and literacy, virtually non-existent. Indigenous household production for immediate consumption had seen a major expansion, participation in the cash economy was less extensive. While indigenous growers producing for the export market in already advanced areas had substantially increased living standards, most expansion in other areas was oriented around the supply of food to administrative stations. The Mission’s report of the need for political advancement and education were to become recurrent issues (Connell, 1997:18).

With

intentional development practice not keeping up with the pace of the process of spontaneous development, increased agricultural production in the colony was concentrated in the highlands and the islands, creating a situation of uneven development. With little opportunity for alternative sources of cash income, and with post-war reconstruction demand high, by the mid-1950s, the number of indigenous workers in wage employment had increased to over 48,000. Labour militancy over working conditions increased and began to prove difficult to quell (MacWilliam, 2013:58).

While the administration focused its efforts on establishing law and order across the entire territory, unemployment and limited access to consumer goods led to the formation of

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a growing sense of inequality in some parts of the colony. Such perceptions of inequality were manifested in the cultivation and proliferation of what scholars call a “cargo mentality,” “cargo thinking,” or “cargoism”, mostly in relatively backward areas of the colony. Such ‘cargo cults’ challenged the authority of the colonial administration, and threatened to undermine its development plans. The location of these cults, therefore, played a role in shaping colonial development policy. The modernising mission promoted by the colonial authorities advocated hard work as a prerequisite for development. Through such hard work and Christian ritual, people sought to access the knowledge that had led to Europeans’ wealth and power. However, the limited availability of material, educational and organisational resources meant that the goal of living like the Europeans proved unattainable for some. Cargo cultism developed in a number of areas in Papua New Guinea, mainly as a response to the unattainability of this goal. As abundant cargoes arrived on ships and aircraft without the appearance of hard work on behalf of those bringing it in, it became increasingly difficult to counteract the influence of cult leaders and encourage increased household productivity as the best avenue for increasing indigenous living standards. These cults brought the attention of the administration to the unevenness of development in the territory and highlighted the need for the construction of a more precise official direction for late colonial development – the policy of uniform development.

Uniform development

As the government in Australia changed in 1949 from Chifley’s Labor to Menzies’ Liberal-Country Party coalition, a change in Minister to Percy Spender was met with anticipation from the plantation owners in Papua New Guinea. Spender increased the emphasis on the role of private capital in development of the colony. But such emphasis was merely a means of obtaining additional resources to supplement Australian government funding for the colony. Development policy continued to focus on the pursuit of indigenous welfare goals. Like his predecessor, Spender left the implementation of development policy, such as it was, to the administration, only visiting the Territory once. In 1951, however, a new Minister for Territories was appointed, ending the considerable disinterest of the Australian government in the detailed implementation of development policy in Papua New Guinea. Paul Hasluck came to the Ministry with extensive experience at the international political-administrative level, including as a participant at major meetings on post-war development. He had worked in the Department of External Affairs on the formation of the

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United Nations, particularly the trusteeship protocols, making him a much more knowledgeable and interested Minister than his predecessors. He was to remain in the portfolio until 1963.

By the time Hasluck took office, there had been a significant increase in funding for the colony in 1950-51 to over £8.7 million (MacWilliam, 2013:83).

He first visited the

Territory in 1951, his unfavourable impressions and his own political views heavily influencing the political and administrative changes he made. He immediately called for the removal of Murray who was replaced with DM Cleland, and set about obtaining increased funding for Papua New Guinea. Such a request for increased funding was justified on the basis of PNG’s strategic importance for Australia, international trusteeship obligations and the inability to fund development from private local capital. In 1951-52, the grant-in-aid subsequently rose to £10.5 million (MacWilliam, 2013:83). While Hasluck followed Murray in favouring the establishment of a PNG development fund, this was unable to be secured so that the development budget continued to operate on the short-term budgetary cycles. He was, however, successful in ensuring annual grants-in-aid continued to increase, so that by 1963 when Hasluck left office, they were a substantial £40 million (MacWilliam, 2013:84).

Hasluck was to have a profound effect on development policy in Papua New Guinea. His experience with Indigenous Australian policy greatly influenced his ideas on development in Australia’s colonial territory, particularly his advocacy of the necessity for trusteeship to advance the interests of indigenous peoples. For Hasluck, the “impoverishment and decay of Aboriginal life” arising from the failure of ‘protection’ policies required a new approach of intentional development. Faced with the prior situation of “decline and decay”, intentional development required assimilation so as to bring the assumed ‘benefits’ of citizenship to Indigenous Australians. Assimilation as a form of intentional development was structured against the perception that immanent development had undermined existing forms of indigenous community (Wright, 2002:60).

As noted by MacWilliam, in contrasting

Hasluck’s views on Indigenous affairs in Australia with his Papua New Guinea policy, in the former “assimilation required trusteeship, where the indigenous population were in the minority” whilst in the latter, “the paramountcy of native interests required trusteeship where the indigenous population were in the majority” (MacWilliam, 1997:81). Informing both was Hasluck’s attachment to the modern ameliorative idea of development, especially seeking to avoid the negative effects of transference of labour from rural to urban settings. Hasluck’s

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ideas were based on his observations about the consequences of the nineteenth century industrial revolution, “such as depressed labour, slum dwellings, and class enmities, [that] followed actions that were regarded as worthy steps of economic progress …” arguing that “we overlook the possibility that sometimes there may be decline and decay” (Hasluck, quoted in Wright, 2002:59). Economic progress naturally refers to the immanent process of capitalist development, whilst the idea that social change needs to be critically assessed as to whether it represents an advance on some prior existing state, referred to intentional development.

Hasluck’s distaste for proletarianisation came to dominate his approach to colonial policy, as he utilised the power of the administration to attempt to control the speed and direction of development. The provision of welfare was secured through measures that maintained the attachment of indigenous households to their land and, in turn, maintained their community.

The primary directive informing policy was an anticipation of the

possibility of indigenous unemployment. Hasluck accepted that “one of the accompaniments of change would be the growth of an urban proletariat” so “we … have to be sure that they do not expose themselves to the hazards of the wage-earner, including that of unemployment, before they are ready” (Hasluck, quoted in Wright, 2002:61). The point of policy, therefore, was to exercise state power to control the speed in which capitalist development tended towards this eventuality.

Land and labour policy therefore were to be exercised as

mechanisms for keeping the indigenous population in the countryside.

As Hasluck

explained:

We have to contemplate in the long term the problems that may be set up by the early creation of a landless, urban proletariat. Our concern with such an eventuality is not repressive in intention but is one which pays regard to the risks to which the individual and the group will be exposed in the course of the transition. We have to be careful that they do not lose their social anchorage in the village before we can be sure that they find an equally safe social anchorage … as wage-earners in the town (Hasluck, 1956:1).

Colonial policy for Papua New Guinea, therefore, concentrated on encouraging household producers by ensuring the population remained attached to their land through the expansion of small-holder agriculture.

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administration was to institute land and labour policies that supported the expansion of small-farm agriculture and the provision of services, agricultural extension programs and the establishment of processing and marketing facilities. In order to assist in the insertion of indigenous households into the capital-labour relations, administration-directed schemes for the production of immediately consumed crops, and then domestically marketed and export commodities were introduced. These included small-holder cooperatives and land settlement programs. Central to this was the strengthened capacity of the colonial state, with Hasluck calling for “a fundamental re-organisation and a building up of strength and efficiency of the Administration, so that it could make that policy effective in action” (Hasluck quoted in Wright, 2002:63).

Hasluck set about centralising colonial authority and ensuring

all administrative action served to meet the goals of colonial development policy. Any departure from Hasluck’s views regarding the social limits to progress was dismissed as unacceptable. Hasluck’s position was clear:

The village is … regarded as the main centre of native organisation … It affords the best setting in which social, economic and political advancement can take place. Therefore the preservation of the village and the continued attachment of natives to their villages are regarded as so important that native labour policy should serve those ends (Hasluck, quoted in Wright, 2002:65).

For Hasluck, a community of small property owners, or “capitalism without a proletariat” was the ideal form of intentional development. “Changing from village subsistence gardening to cash cropping, forming a native peasantry that, as long as families work as families, will not be a major employer of wage-earning labour” (Hasluck, quoted in Wright, 2002:65). Village life was therefore to be secured, not as a harkening back to the stability of the past, but rather, in opposition to the anticipated instability of the immanent development of capitalism. Hasluck’s attraction to the modern idea of development is clear.

Equally, Hasluck’s plans to centralise

development policy referred to a developmentalist model for ensuring an ordered application of an agrarian doctrine of development.

Hasluck’s development ideas were implemented through the policy of ‘uniform development’, whereby economically marginal areas were to be given

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greater attention in order to make development more even across the country. An important aspect of this was extending colonial authority to all areas of the country, particularly the more populous areas of the Central Highlands and the headwaters of the Sepik River. The establishment of law and order was seen as the basis for uniform development and a homogenous society. In line with this, the expansion of education was also seen as necessary.

Hasluck advocated the establishment of

hundreds more schools in conjunction with the church missions, as many as necessary to provide universal primary education. He considered that the spread of the English language as well as mission teaching “would lead to unity, universal communication and then to ‘modernisation.’”

Increased health services were also a priority as

Hasluck accepted that good health was a prerequisite of all other programs of advancement (Downs, 1980:94).

Hasluck’s policy was assisted by an increased international demand for a number of agricultural commodities.

From the 1950s, the Korean War fuelled

international demand for agricultural produce. With important extension services provided by the administration, household production of all the major export crops, with the exception of rubber, expanded quickly. So smallholder agriculture focused on copra, coffee and cocoa, and later tea, pyrethrum and oil palm (Amarshi, 1979:41). The copra industry recovered as the price guarantees provided by a deal with the British Food corporation after the war had ensured stability. Cocoa prices also rose during the Korean War leading to inter-planting of cacao with coconut palms also being successfully implemented, as well as further inter-planting with subsistence crops, for food in addition to keeping the kunai weeds under control (Gupta, 1992:61).

These developments were connected with the emergence of more intensive disputes involving land in the Gazelle as well as to the opening of the Highlands to labour recruiters. However, as the Highlands coffee plantations recorded good returns on investments as 1952 saw a world coffee shortage, greater outside interest was attracted. European settlers began clamouring for land alienation policy to open up and the interest of land speculators grew. While restrictions remained preventing further ownership of land by large plantation firms, individual European owneroccupiers were encouraged to settle as they were seen “as essential for the development of new export crops and as models for the people to emulate” (Downs,

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1980:94). Decision-making was decentralised to the district level. A brief ‘land rush’ took place in the Eastern Highlands, resulting in the alienation of dozens of agricultural properties in Goroka, totalling 3,550 acres between 1952 and 1954, a tenfold increase over the acreage alienated during the previous three years. The amount of land leased to Europeans in the years 1952-1954 was also high, with 13,109 acres in the central highlands coming under leasehold to European settlers. By 1955, there were 76 European large holdings across the Highlands (Stewart, 1992:23), despite official government policy towards protecting customary ownership of land.

As large numbers of Highlanders migrated to coastal and islands regions as wage-labourers, the preferred agrarian doctrine of development was seemingly coming under threat. It became increasingly clear to Hasluck that resolution to the issue of protecting indigenous land rights was necessary. The establishment of the Land Development Board in 1954 brought such land speculation under some control with agricultural leases being limited to 178 for the entire country during the decade of 1954-1964 (Wright, 2002:71). At the same time, renewed efforts were being made to direct administrative activity to promoting household expansion of coffee-growing in the Highlands. Seeds were made available, assistance was provided in suitable site selection, establishment of nurseries, training on planting, mulching, shading, fertilising, harvesting and processing (MacWilliam, 2013:121).

While the first

indigenous plantings began in the Asaro valley in 1952, the smallholder industry really began to take off in 1954, when growth in this sector was spectacular. Coffee prices remained buoyant to 1957, but then began to fall sharply. However:

Plantings by indigenes soon exceeded those of Europeans so that by 19611962 over 60 percent of all coffee acreage and about 43 percent of the output was under indigenous control. On the assumption that in most cases ‘native’ coffee units are one quarter of an acre (and the average is probably less than this) a large number of ‘native’ families obtained a cash income from coffee production after only 8 years of planned extension effort (Cartledge, quoted in Stewart, 1992:28).

Exports from the agricultural sector rose to A$19.6 million in 1954-55. However, the value of food imports had increased from A$9.4million in 1954-55 (Amarshi, 14979:42) to

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A$41.6 million by 1960 (Gupta,1992:63). Throughout the period, therefore, roughly half of the export receipts from agriculture were used to finance food imports, a situation that the policy of uniform development had attempted to avoid with its promotion of food crops to be grown side-by-side with cash crops. So, commercialised consumption and production was under-cutting previous so-called subsistence existence, but such capitalisation had developed without landlessness as Hasluck had wanted. Intentional development exists as a unity with spontaneous, and both are subject to the external authority of capital. Development in late colonial PNG was never mercantilist as there were no barriers placed on imports. Indeed Hasluck acknowledged that some aspects of colonial policy, such as administrative officials providing rice for indigenes who worked at administration stations and equalising rice prices across the country regardless of distance, acted to increase rice consumption and imports. So, while there was a substantial increase in the numbers of indigenous villagers working their own land as small-holder cash-croppers, the increase in indigenous standards of living remained contingent upon continuing government support. That is, smallholders were not self-employed. They existed under a scheme of smallholder agriculture that is an agrarian doctrine of development. While living standards rose, uniform development had proceeded more gradually than expected or desired. Hasluck’s agenda became increasingly concerned with the acceleration of uniform development.

Political development was also seen as important, the UN mandate of moving to selfgovernment taken seriously by Hasluck and many others in the colony. Consent to the administrative union of Papua and New Guinea had been obtained from the UN in 1946 and in 1951 a single legislative council for both territories was instituted. As the people of Papua New Guinea had no national organisation of their own that could be adapted to a democratic representative institution, it was thought that home rule should be introduced gradually by teaching popular representation in a legislative council that would initially be dominated by public officials.

This was a means by which the administration introduced some

representation of indigenes and settlers, but also to maintain some control in order to check the power of the settlers. The people were to be encouraged to accept the Legislative Council as their own national parliament. The Council established in 1951 had twenty-eight members consisting of sixteen senior government officers, three members representing the Christian missions, three members representing the planters and business interests, and three indigenous members to represent the people of the country; all directly appointed by the Governor General on the Minister’s recommendation. In addition, three Europeans were

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elected to represent three electorates: the whole of Papua, the mainland of New Guinea and one to represent all the people in the islands (Downs, 9801:94).

The first PNG nationals appointed to the Council had little knowledge of representative government, and were to take a backseat to the numerical dominance of administrative officials. There was no move to democratise the Council, or extend the franchise for the few elected representatives to the indigenous population, but the administrative officials were above all to block the settler representatives from seizing power. Local government in rural villages was to be the training ground for political participation until uniform development was achieved with the more advanced communities expected to wait for the others to catch up. Local government was also to be dominated by administrative officials in order to keep the emerging indigenous bourgeoisie at the margins of state power. This meant that experience in local government did not provide adequate preparation for a role as a member of the national parliament, tending to entrench rather than reduce parochial attitudes. Elected settler members also mostly brought a strong commercial bias in their attitudes to labour, land and taxes that was not necessarily in line with indigenous interests (Downs, 1980:94-95).

As discussed in the previous section, after World War II, colonial rule continued to be challenged by ‘cargo cults’. As these cults usually emerged in economically marginalised areas, the colonial administration felt compelled to provide greater attention to the uniformity of development.

Also as previously noted, parts of the colony had not yet been fully

encompassed by colonial authority. So the extension of colonial rule to these areas was given priority.

In this way, Administration resources could be spread more widely among

populations which were not as commercially or politically advanced as others (MacWilliam, 2013:93). The establishment of law and order and the promotion of welfare measures to those most in need was designed to ensure a uniformity of development to assist in the selfdetermination of all the indigenous people, rather than allowing for the inevitability of political and economic dominance by those from already advanced areas in a self-governing country. With this in mind, Hasluck stated:

I have made it an aim of our policy that people in the outlying areas ... have to be brought up to a level of education comparable with that of the natives of Port Moresby and New Britain so they are not left behind in the eventual

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progress towards self-government and placed in a position of subservience to the more fortunate of their fellow countrymen (Hasluck, 1955, quoted in MacWilliam, 2013:95).

In addition, the UN mission continued to urge the Australian Government to have “constantly in view the need to qualify the people to take over responsible positions” (UN Trusteeship Council, quoted in Downs, 1980:129). As such, Hasluck became particularly concerned that the number of schools and teachers should be increased as rapidly as possible. A plan for universal primary education was made, although this goal became more remote with increases in the school-age population as well as problems attracting qualified teachers, but by 1960, primary education had developed sufficiently to require a need to expand education at the secondary level.

The administrative capital in Port Moresby grew at a considerable average annual rate of 30% from 1945 to 1963, as employment prospects increased and the urban minimum wage rose (Gupta, 1992:62 & Amarshi, 1979:44).

However, until 1958, the public service was

entirely comprised of expatriate officers. While an auxiliary division of the civil service had been created in 1955, this comprised un-skilled support workers only and it was not until 1959 that indigenous people could transfer or be appointed to clerical and administrative positions in the third and second division (Gupta, 1992:28). These measures all had the combined effect of holding back the political participation of an indigenous elite until the colonial authorities considered development was even enough for people from a wide range of areas to have opportunities to effectively participate in a self-governing country. This was seen as a way of protecting the continuing development of smallholder production to ensure development would eventually become uniform.

While the participation of indigenous households in the cash economy had increased significantly, the gradualism of the policy of uniform development was making limited progress towards the ultimate objective of trusteeship which was a substantial degree of selfsufficiency and self-government for Papua New Guineans. Hasluck’s reluctance to work to a timetable for political achievement had become the focus of considerable criticism. In 1960, upon his return from an official visit to London, where he was probably influenced by British Prime Minister Harold Macmillan who had recently toured Africa, Prime Minister Robert Menzies remarked:

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… whereas at one time many of us might have thought that it was better to go slowly in granting independence so that all the conditions existed for a wise exercise of self-government, I think the prevailing school of thought today is that if in doubt you should go sooner rather than later. I belong to that school of thought myself now … (Menzies, quoted in Downs, 1980:215).

Later in the same year, the United Nations, which had come to be heavily influenced by newly independent African and Asian countries, passed a resolution that combined both trust and non-self-governing territories together and called for the abolition of both through the granting of self-determination (Downs, 1980:219). The pressure to accelerate political development also meant a concomitant call for accelerating economic development and in 1961 Hasluck presented the Australian Parliament with Papua New Guinea’s First Five Year Plan for Educational, Social and Economic Advancement of Papua and New Guinea. The plan continued to take a broad approach although it set out targets for economic production and the provision of government services, continuing to prioritise indigenous small-holding agriculture, with some consideration of fisheries potential, but no mention of the manufacturing sector.

He did, however, call for a survey of the Papua New Guinean

economy by the International Bank for Reconstruction and Development (IBRD, later the World Bank). It was no surprise, however, when the report of the visiting UN Mission in 1962, headed by British diplomat Sir Hugh Foot, was particularly scathing, criticising Australia for failing to formulate and implement a detailed plan for self-government (Connell, 1997:21).

Conclusion

In the post-war period, Australian colonial officials in Papua New Guinea pursued an agrarian doctrine of development. In the years immediately following the end of the war, colonial ideas on development of the Territory were characterised by considerable uncertainty.

While major shortages of food crops in international markets focused the

attention of the administration on expanding agricultural production, there was considerable uncertainty as to the form such expansion would take. Substantial pressure for government assistance in the rebuilding of plantations formed part of this uncertainty. The destruction of the war, particularly the devastating effects on the health and living standards of the

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indigenous population, however, served to concentrate administrative efforts on ‘native interests’, a priority that affected future policy. The terms of the United Nations Trusteeship were also important for a focus on the interests of the indigenous population.

Substantive shortages of funding and personnel meant that the intentional development efforts of the administration that followed post-war reconstruction were not spread evenly across the colony. This led to unrest and challenges to colonial authority through the advent of ‘cargo cults’ in a number of the less-advanced areas. This served to distillate the priorities of the new Minister, Paul Hasluck, who instituted the intentional development policy of ‘uniform development’ from 1951, preferring to promote smallholder agriculture as a way of securing the interests of the indigenous population. The policy of uniform development was an agrarian doctrine of development that was pre-emptive and aimed at improving living standards through increased production and consumption of produce for immediate consumption and for markets, domestic and international. Such a doctrine was developmental as intentional development policy was implemented to make productive that which was unproductive or underutilised. This policy entailed uniform and gradual development to restrain the forces of unequal development, in particular, the exploitation of labour inherent in the plantation system. Hasluck centralised administrative implementation of this policy to ensure government policy was adhered to so that priorities could be met. Hasluck kept a tight rein on the colonial administration to ensure his policies were implemented despite the constant objections of interference and marginalising settler representatives in the Legislative Council.

The developmental nature of Australian colonialism was apparent from the relatively small percentage of alienated land and the large proportion of Papua New Guineans who continued to maintain village life through smallholder agriculture, both for subsistence and for commercial gain. Most indigenous villagers grew enough immediately consumed foods, although this was clearly supplemented by imported food as commercialisation through the earning of cash incomes changed consumption patterns. The higher volumes of aid in the post-war period were aimed at uniform development and the spread of primary education and basic health services, reflective of the developmental aims of late Australian colonialism which sought to bring into production as much of the country as possible. Certainly, colonial development policy from 1951 to 1963 had considerable success. Production and export of three crops; coffee, cocoa and copra, increased substantially, with the most significant

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increases being in household production on small acreages held under customary title. Nevertheless, development remained highly contingent upon ongoing government support.

But the process, in the end, turned out to be much slower than was hoped for. While the Minister and the administration had come to this conclusion by 1961, international pressure also become more pressing as the UN mission called for greater effort in preparing Papua New Guinea for self-government. An educated indigenous elite had begun to develop, particularly in the most socially and economically advanced regions of Papua New Guinea. However, the gradualism inherent in the policy of uniform development, which insisted on holding back the more advanced regions until the others were brought up to standard, locked them out of responsible roles in government, both in the civil service and the legislative council, in all but a tokenistic way. While the colonial administration acted in good faith as trustee for indigenous Papua New Guinean society, it was, undoubtedly, a paternalistic form of trusteeship that some sections of society began to resent and challenge. Nevertheless, the policy of uniform development had also sought to ensure commercial and large holder interests would not have the opportunity to challenge the scheme of smallholder production.

By the early 1960s, both the Australian government and international ideas informing development policy had been revised to take account of the changing realities of the rapid decolonisation of the ‘Third World’.

The impetus for preparation for self-government

became more pressing and ideas turned to accelerating the pace of both economic and political development. It is important to note that ideas on accelerating development could only be considered due to the foundations of a stable rural economy with substantial indigenous participation that had been established under the uniform development policy. Such development had only been effective due to the centralisation of policy-making, resource allocation and implementation decision-making, essential elements of any developmental endevour. The authority of the colonial state had been firmly entrenched through limitations to participation of both European commercial interests and an emergent indigenous bourgeoisie in the institutions of government.

An intentional agrarian

development doctrine had been implemented, to bring development to the least developed areas of Papua New Guinea, further expanding colonial authority over the territory. This policy also encouraged and supported the spontaneous development of smallholder agriculture, while restraining the expansion of plantations in order to pre-emptively ameliorate the negative effects that wage labour would bring. These developmental ideas,

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with the colonial state as the major driver of development, were to continue to resonate as the Australian Government turned its attention to accelerating the pace of development in PNG.

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Accelerated Development, Independence and Rebellion Papua New Guinea 1964-1989

Introduction

As explained in the previous chapter, the agrarian development doctrine implemented by the Australian colonial administration in Papua New Guinea through its policy of ‘uniform development’ had proven effective in many ways. The majority of the population had been settled on smallholdings and the output of the key export crops of copra, coffee and cocoa had significantly increased. Production of immediately consumed crops had also expanded and living standards had risen in many areas where development opportunities had previously been infrequent. At the same time, any challenge to the administration’s continuing emphasis on development of smallholdings had been effectively blocked through continuing administrative control of the political system. In these important ways, the policy of uniform development had been developmental and had made the smallholder agricultural sector more productive. However, both internal and external pressure began to mount over the slow rate at which growth was proceeding, leading to a reconsideration of the policy of uniform development.

From 1964, a policy of ‘accelerated development’ was articulated, with its main purpose a rapid increase in the pace of economic and political development with the aim of preparing Papua New Guinea for self-government as quickly as possible. It was considered that this ultimate objective of colonial trusteeship could only be obtained with a substantial degree of economic self-sufficiency. This meant the prior development policy direction that gave primacy to smallholder agriculture also came under considerable pressure. That the vast majority of the population lived in the countryside and relied completely on this sector for their livelihood began to call into question the continuing commitment to trusteeship on behalf of the people of Papua New Guinea. Further development of the most productive sectors was to provide the advantages for indigenous entrepreneurs in the most advanced regions and districts. As the transition to self-government and independence accelerated, power and influence gravitated towards an indigenous commercial and educated elite. While

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universal franchise meant that the interests of smallholders remained important electorally, these were to come into conflict with the interests of the indigenous capitalist class as they gained a greater hold on political power. The direction of development policy became increasingly uncertain. Promotion of the resources sector in order to increase economic growth and raise revenue for development of the country also became central to colonial policy.

Many of the negative aspects of spontaneous development, such as inequality,

unemployment, poverty and disorder, became apparent as the government was increasingly incapable of implementing intentional development policies that anticipated or dealt with these. While successive governments remained committed, at least rhetorically, to rural development, their role as trustee for development in the interests of the nation as a whole was increasingly circumscribed.

Inevitably, with limited capacity to act free of class

interests, the impending threat of disorder was unable to be averted as the country descended into a political crisis that was to have a profound effect on the nation-building process.

This chapter initially shows how the policy of accelerated development substantially changed the idea of development for Papua New Guinea. The need to obtain greater financial assistance to increase the developmental capacity of the colonial administration was increasingly recognised in PNG and Australia. This led to an unintended shift away from an agrarian doctrine of intentional development with smallholder agriculture as its centrepiece.

The policy of accelerated development, instead, gave spontaneous

development a renewed importance with a particular emphasis on attracting foreign investment in the most productive economic sectors in order to gain the greatest immediate return. The initial focus for rapid economic growth was on the plantation sector, which saw the emphasis on smallholdings come under challenge by the spontaneous expansion of large commercial holdings. The administration also expanded considerably, with a corresponding increase in foreign experts, particularly concentrated in the capital, Port Moresby. Indigenous wage employment also increased substantially as a result.

The competition

between economic interests and demand for greater political representation created tensions in the society and the rapid movement to self-government and independence served to focus these tensions.

The demand for faster growth in the 1960s also coincided with the discovery of vast mineral deposits on Bougainville, just as international demand for such commodities began to boom. The existence of immense mineral wealth in Papua New Guinea was to change

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everything. Development policy became heavily focused on bringing these minerals into production. The increased revenue that would result was considered the fastest and most effective route to bring the colony to the point of self-sufficiency as early as possible. Investment in the agricultural sector declined as a result. At the same time, large-scale mining development set another form of capitalist development against the existing terms that favoured agriculture, both small and large holdings. The tensions this created were to have a significant impact on the structure of government adopted at independence as well as farreaching consequences for economic and political stability well into the future.

The indigenous attachment to development as an idea and objective of state policy remained powerful through the independence era and beyond. The next section of this chapter demonstrates the continuing power of the idea of development and the understanding of the role of the government in bringing development to the constituencies throughout the nation. That the effective developmentalism of the uniform development era had ‘secured village life’ for the majority of the population meant that local circumstances remained the driving force of electoral politics in the independence era. These local circumstances made the task of shaping development policy to bring accelerated economic growth difficult. The influence of newly prominent international ideas on development also made the direction of policy uncertain. Underneath this uncertainty over development policy also lay a major struggle for state power between sections of the new indigenous elite which also affected the political formation of the nation-state. Local and parochial demands and the establishment of provincial governments in order to deal with separatist and secessionist demands came to the fore and increased uncertainty over development policy.

Yet one aim of independent

development policy was very clear – the rapid increase in the proportion of commercial properties under local ownership and control.

By the mid-1980s, this objective had largely been achieved, with most of the agricultural and commercial sectors in the hands of indigenous owners and local firms. The expansion of indigenous business interests and their capacity for political influence had given a major boost to the position of indigenous capital. Tussles over the power and direction of state resources between the competing arms of government continued to create uncertainly over development policy. The final section of this chapter explains the politicisation and corporatisation of the public service and the implications of these actions for the autonomy and competence of the public sector in general, and the delivery of services in support of

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rural development in the agricultural sector specifically. While the majority of the population remained in the countryside on smallholdings, the resources sector became the major focus of government investment, creating serious implications for a conflict of priorities.

The

interests of multinational mining companies and local smallholders came into considerable conflict, causing widespread disaffection with mining development and the role of government in development. This conflict was to culminate in the Bougainville crisis of 1988/89, with disastrous and long-lasting effects for the nation as a whole.

Economic

uncertainty, social instability and political disorder threatened not just the continuation of foreign investment in the economy, but, more importantly, the administrative capacity to expand smallholder agriculture further.

Accelerated Development

By the late 1950s it had become clear that the gradualism inherent in the policy of uniform development was unable to meet both internal and international expectations for more rapid economic growth and major political reform. In recognition of this, the Minister for Territories, Paul Hasluck, indicated that the colonial administration needed to increase its role in bringing development in order to speed up the process of development. Such an increased role required a substantial increase in administrative funding for the Territory. In order to support his claim for increased funding, Hasluck arranged for the Australian Government to commission a World Bank study “to make recommendations to assist it in planning a development program for the Territory of Papua and New Guinea designed to stimulate economic growth and raise the standard of living of the people” (IBRD, 1964:26). The new direction was not intended to be a break with uniform development, but to accelerate what already existed. The World Bank report of 1964 seemingly supported this idea. It established two basic objectives – “stimulation of production” and “the advancement of the indigenous people” (IBRD, 1964:26-27), concluding that “(t)he ultimate aim of economic development should be to bring the Territory to a stage of economic viability with self-sustaining economic growth” (54). That the advice provided by the World Bank would encourage the end of the policy of uniform development was therefore unanticipated. The catalyst for this change, however, was to be found in the detail of how such goals should be achieved.

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In order to accelerate development, the World Bank Report urged a redirection of effort toward the most advanced areas of the economy. It was considered that accelerated development in these areas could occur without creating poverty in other areas, given the major improvements that were already evident in the smallholder agricultural sector. While advocating change, the Report, acknowledged such policy was only possible due to the achievements of the uniform development policy:

By 1962, native participation in commercial production reached impressive levels. They held nearly 50% of the area in coconuts and produced about 25% of the copra production. They controlled 60% of the land in coffee and produced over 40% of the coffee output. They farmed 17% of the cocoa areas and produced some-what less than 25% of all cocoa (IBRD, 1964:82-83).

While acknowledging such foundations for further development, it was, however, concluded that existing production was insufficient to meet the goal of self-sufficiency required for advancement to self-government.

The World Bank proposed three “broad

principles or policies” to further expand production and advance “the indigenous people” as quickly as possible (IBRD, 1964:83). The first principle was that government “expenditures and manpower should be concentrated in areas and on activities where the prospective return is highest” (IBRD, 1964:35). The second principle was that the “standards of Administration services and facilities should be related to Territory conditions, if the maximum numbers of people are to benefit from the money spent on the program” (IBRD, 1964:36). The most important aspect of this related to wage levels for administrative officials, a point that is discussed below. The third principle required “a shift in emphasis toward policies giving greater responsibilities to the people” (IBRD, 1964:37). That which Hasluck had specifically precluded in his uniform development policy as inimical to development in the interests of the majority of the population was now encouraged – government support which favoured the rapid expansion of already advanced sectors and regions and the means for those more economically and educationally advanced indigenous people to realise their ambitions through political influence.

With a change in Australian political leadership after the departure of Hasluck from 1963, the colonial administration seized the terms of the World Bank report to further a renewed agenda for the colony. Development policy was reframed in terms of ‘accelerated

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development’ and the administration became much more in favour of promoting Australian plantation and other commercial interests. The revival of the plantation sector was seen as the quickest way to meet the aim of rapid economic growth. Such growth was needed in order to quickly raise the level of locally sourced revenue to replace Australian government funding of the colony, thus making it self-sufficient. This represented a continuation of the emphasis on the agricultural sector as the engine of growth in PNG, but also demonstrated a shift in emphasis to encouraging and supporting private investment in the sector. Approximately 70 percent of the more than one million acres of land previously alienated for expatriate plantations remained undeveloped in 1962 (IBRD, 1964:74).

While village

production of commercial crops continued to be supported, considerable focus was to be given to revitalising these plantations.

As the push for accelerated development greatly impacted the pace at which selfgovernment was advocated, political reform was also accelerated so that in 1964, a House of Assembly was formed that included representatives elected on the basis of universal adult suffrage. With the population overwhelmingly rural, most representatives were from rural villages where the interests of their constituents remained tied to household production. Extension of the franchise, therefore, continued the previous ‘bias’ towards rural development, tying the ambitions of the ‘new’ leadership to rural smallholders. At the same time, the House also contained ten official members, who continued to dominate proceedings (Downs, 1980:306). But the ambitions of a new indigenous leadership with interests distinct from rural villagers continued to be advanced. According to Henry ToRobert, in his final year at Sydney University in 1965:

(Among) the present indigenous members of the House of Assembly, we find a fair proportion of teachers and ex-government servants representing coastal electorates… The way is being paved for an educated elite leadership … most of the present indigenous parliamentarians … expect and hope for an eventual take-over by an educated elite group (ToRobert quoted in Downs, 1980:280).

Such an educated elite group was very small in Papua New Guinea as only about 1 or 2% of the adult indigenous population had completed primary school, and at most, a few hundred had completed a full secondary education (IBRD, 1967:36). This necessitated a rapid inflow of skilled and semi-skilled expatriate managerial expertise to support the goal of

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a rapid increase in economic growth. A Central Planning Office was established and Papua New Guinea’s first five-year economic plan was published in 1968. A major boost in public revenues and Australian investment followed. Commonwealth grants increased from $56 million to $78 million between 1964 and 1968, while locally levied revenue jumped from $28 million to $50 million (Downs, 1980:320, 289, 397). The size of the public service exploded, from less than 4,000 in 1960 to over 20,000 by the end of the decade (Turner, 1990:12). While two thirds of the public service employees were Papua New Guineans, expatriates continued to occupy the middle and upper level posts. As trained locals began to move up the ranks, friction began to develop.

Such agitation came to a head when the Australian

Government decided in 1964 to end equal salaries in line with the World Bank’s recommendation for local standards in service provision. The implementation of a dual salary structure in the public service, under which indigenous wages were set at some 30 to 50 per cent of Australian wages, rallied workers against the government. Initially they organised a discussion forum called the Bully Beef Club and came to be supported by students in secondary and tertiary education, who would be considered potential public servants (Gupta, 1992:29).

A nascent sense of anti-colonial nationalism began to be

presented that would coalesce as the transition to self-government proceeded apace.

In order to further increase investment, the Papua and New Guinea Development Bank was established in 1967.

One of the major projects that the Development Bank

facilitated was the palm oil project which began in 1967 as a joint venture between the colonial administration and major international agribusiness firm, Harrisons and Crossfield (MacWilliam, 2013:168). This resulted in a huge increase in new plantings of oil palm, both by indigenous planters and by those involved in the joint venture, with 10.8 million and 20 million acres respectively by 1973 (Downs, 1980:324).

With the rapid increase in

agricultural output, exports increased from $41 million in 1964 to $70 million in 1968, and over $100 million by 1971 (Downs, 1980:323). As the Australian government delivered more resources, boosting employment and income and increasing public investment in infrastructure, market demand was stimulated, resulting in expansion of local commerce, manufacturing and construction. Much of this spontaneous development occurred in and around the major urban centres leading to a rapid increase in urban populations. By 1971, 10% of the indigenous population now lived in towns. This rapid urbanisation was as a result of the increase in wage employment under the accelerated development program, particularly in the public sector, but also in association with mining. A downturn in the rate of growth in

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wage employment in the early 1970s coincided with a downturn in prices for agricultural commodities, which, in turn, reduced rural incomes and demand for urban goods and services. Both urban and rural unemployment increased (MacWilliam, 2013:214). As the colonial state moved towards the transference of power and responsibility, the accelerated development policy appeared to have overlooked the most fundamental aspect of the idea of intentional development – the need to anticipate and deal with the negative effects of the spontaneous development of capitalism.

It is clear then, that the late colonial development policy of accelerated development increased economic growth in the 1960s. The population had increased from about 1.9 million in 1960 to nearly 2.5 million in 1970 (Downs, 1980:319) with better health care, increased consumption and generally higher standards of living. However, such economic expansion had seen these benefits much less evenly distributed geographically than they had been under the uniform development policy. The aspirations of the growing indigenous capitalist class to further expand their holdings was to be the catalyst for considerable unrest and a growing micro-nationalism where these aspirations came up against the interests of foreign commercial interests, both in agriculture and mining. This micro-nationalist struggle was to centre firmly on the rights and ownership of land.

This is highlighted by the

experience on the Gazelle Peninsula.

Tolai entrepreneurs had been most pro-active in capitalising on the economic opportunities presented by successive colonial development policies, those of the Germans and the Australians. By 1959, Tolai income from copra was ten times higher than before the war and cacao plantings on village landholdings became widespread. Projects to increase cocoa production and quality became a resounding success by 1967/68, with fermentary production exceeding 16 million pounds of dry cocoa from nearly 3 million cacao trees (Downs, 1980:332). However, increased population and previous alienation of land created a clash of class interests as both smallholders and indigenous plantation owners sought to access the limited available land to expand production of immediately consumed food crops as well as marketed produce.. Claims for government and other alienated inactive land were pressed. Tolais began squatting on land, clearing and planting it in direct defiance of colonial legislation. While the plantation owners, mostly the large conglomerate, Carpenters, were to prevail in retaining title, the Tolai members elected to the House of Assembly were to be among the most ardent nationalists as well as an aspiring indigenous capitalist class. Such

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concerns over ownership and usage rights of land were to become an ongoing struggle for the remainder of the colonial era and well into the future for independent Papua New Guinea, particularly as development policy began to centre more and more on large-scale mining projects.

While the expansion of the agricultural sector was an important part of development policy for the colonial administration to meet its aims of rapid economic growth, such growth had not gone far enough in meeting the objective of self-sufficiency. While exports had raised revenues, imports also rose considerably, from 70 million in 1964, to $145 million in 1968 (Downs, 1980:322) so that foreign reserves were in serious deficit. The government therefore focused its attention on the industrial sector where international demand for minerals had grown as the East Asian newly industrialised countries began to take off. A large copper deposit had been discovered at Panguna on the island of Bougainville in 1964, just as the colonial government began to focus on rapidly increasing the pace of development. Bringing the mine at Panguna into production became the centrepiece of the Australian government’s efforts to bring rapid growth in order to meet the objective of budgetary selfsufficiency. This mine, too, however, was to be the catalyst for the rise of a secessionist movement that was to resonate substantially in both the economic and political development of Papua New Guinea. Resistance from landowners began almost immediately after initial exploration in the area in 1964. As the spearhead of the policy of accelerated development, much compromise was needed to ensure construction of the mine proceeded despite such opposition. In 1966, the Assembly provided a guarantee that foreign capital invested in PNG would be safe from expropriation (Downs, 1980:289). Such a political guarantee, along with Australian government grants and loans, provided the necessary conditions for private capital inflow and the mining venture at Panguna went ahead as planned. 1 Compensation was paid, 1

In 1967, a partnership in the mine was established between the colonial administration, with a 20% share, and

the joint venture partners, Australian companies, now known by their familiar names, Rio Tinto and BHP, holding an 80% stake in the project. Leases covering the mine site, access roads and a tailings disposal site were negotiated and a complex and highly contentious system of compensation to affected landowners was gradually developed. A royalties agreement provided for payment of 1.25% of the value of exports, of which five per cent was to be distributed amongst landowners and 95 per cent paid to the government. In 1971, the joint venture partners floated their stake in the mine in PNG and Australia, which resulted in 9,000 Papua New Guineans taking up a total of one million shares in the publicly listed company owning and operating the mine that was to become known as Bougainville Copper Limited (BCL). This firm was by far the largest business

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assurances made and opponents dealt with, but unrest persisted as the moves toward selfgovernment continued.

The lead-up to the 1968 election saw, from the members of the Bully Beef Club, the formation of Papua New Guinea’s first major political party, the Papua and New Guinea Union (Pangu) Pati, and growing demands for early independence. While efforts were made to rouse a nascent nationalism, the dominant interest of voters in the 1968 election remained focused on which candidate could best secure development for their area (Turner, 1990:14). Indeed, according to Pangu Pati leader, Michael Somare:

“Throughout the campaign I stressed all the main points of the Pangu platform: national unity, one country and national language. Many of the questions that came from the crowd, though, dealt with purely local issues such as schools, hospitals and roads” (Somare, 1975:54).

Such a local focus to national politics showed the continuing weight of village development upon the political framework, so that even while the administration began turning toward the industrial sector through mining projects, rural development was retained as a powerful idea for much of the population. Independence was not a priority for the majority of voters, with many, particularly in the Highlands, actively resistant to further political change. However, when the Australian Labor Party, led by Gough Whitlam, came to power in Australia in 1972, parliament agreed on a timely Australian withdrawal. In 1972 Papua New Guinea’s third national elections unexpectedly brought to office a coalition government headed by Pangu Pati’s Michael Somare. According to Somare (1975:97), “As chief minister, I saw my task as that of building Papua New Guinea into a nation and leading it to self-government and independence.”

While economic issues were of considerable

concern, political developments remained as the top priority of government. With Australia, the United Nations and the PNG leadership united in a common cause, Papua New Guinea progressed to self-government in 1973 as planned.

operating in PNG, with over $130 million in paid up capital in 1973. By this time, 20% of the shares were owned by PNG government-owned Investment Corporation, over 26% by private shareholders and the rest, the controlling share, was owned by Rio Tinto (Downs, 1980:340-362).

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From self-government to independent nation

In his first speech as leader of the coalition government in 1973, Chief Minister Somare indicated the general direction that an independent PNG development policy might take. He said:

I wanted to make a break with the Australian development policies of the past. I wanted to develop principles underlining the fact that the only good reason for government is promotion of the welfare of the people (Somare, 1975:108).

While the actual word ‘trusteeship’ had been discontinued from the discourse of development with the move away from colonialism, the idea clearly remained. Development continued as a powerful idea for the new leadership, an idea that included a vital role for government and with the interests of society as a whole at its centre. In order to guide the formulation of development policy, the Somare Government established a set of economic and social objectives known as the Eight Point Improvement Plan, or the Eight National Aims. These Aims were based on the recommendations of a World Bank and UNDP sponsored mission, headed by Michael Faber from the University of East Anglia, which produced a Report on Development Strategies for Papua New Guinea (hereafter the Faber Report) in 1973. Taking account of the negative effects of the accelerated development policy, Faber and his team strongly opposed policies that simply produced the fastest rate of economic growth. Instead, in line with influential development ideas at the time, emphasis was placed on the need for improved welfare and better distribution of welfare services and income opportunities.

An important part of the Faber Report argued “that a slower rate of economic growth, or no growth at all, was called for if there were to be an increase in human welfare and happiness” (Somare, 1975:108). The concentration of the late-colonial policy on growth was to be replaced by a reframing of the meaning of development to encompass a complex set of social and welfare goals. The Eight Aims included “increased indigenous control of the economy, more equitable distribution of wealth, rural development, indigenisation of business activity, self-reliance” and greater government intervention in order to achieve these priorities (May, 2004:15). As the Panguna mine had come into production in 1972 and copper exports came on line, state revenues increased and foreign exchange reserves moved

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into a positive position in 1973. Such increased revenues made possible the expansion of the public sector as the driver of economic development. This was accompanied by a rapid change in high level personnel, from foreign experts and managers to local officers. In 1974, the government published the final draft of its Strategies for Nationhood: Programmes & Performance. This provided the framework for development in line with the Eight Aims, it was up to “each Minister and his departmental head” to develop plans for individual departments and programs (Cabinet Committee on Planning, 1974:iii). Given the constraints of limited qualified and experienced ministers, departmental heads and departmental staff, such a strategy was inevitably fraught with tension. Localisation of positions in the public service had necessarily reduced the continuity and quality of experienced advice available to Ministers (Somare, 1975:145). Major disputes over the direction that development policy should take had, by then, become apparent. Papuan secessionists had unilaterally declared independence from New Guinea, the Member for Manus had threatened to invite the Soviet Union to occupy the naval base on the island, there were threats from the Gazelle Peninsula to ‘take a separate road to development’ and Bougainville’s leaders were threatening to secede from Papua New Guinea (Sundhaussen, 1977:312). Somare was correspondingly forced to compromise in order to bring his highest priority of taking Papua New Guinea to independence to fruition.

Somare’s coalition government was dependent upon the continuing support of even these most radical Members to not just ensure the nation-building project went ahead, but, equally importantly, to maintain a parliamentary majority. The major effort of the parliament of the self-government years therefore concentrated on the development of a “home-grown constitution” (Somare, 1975:98) as an essential element in proceeding to independence. The major radical nationalists were locked into this process by their inclusion on the Constitutional Planning Committee (CPC). The CPC, headed by Father John Momis from Bougainville, became a powerful institution, determining the direction of development policy, the structure of the new governing institutions, and ultimately, where state power would be held in the new independent nation. One of the issues of fundamental importance to the development of a philosophy behind the new state related to the transfer of land ownership from expatriates to indigenes.

As discussed previously, tussles between owners and would-be owners of large holdings and household smallholdings had broken out, particularly on the Gazelle Peninsula.

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These continued into the self-governing period, and became further complicated by the departure of European planters due to uncertainty in the transition period. The government passed several pieces of legislation to deal with these matters, the combined outcome of which provided that land could only be taken over with the sanction of the state. This meant that the ownership and occupation rights of both large and smallholdings “were now dependent on state power and made subject to the holders of this power, the indigenes who held national executive and administrative authority” (MacWilliam, 2013:224). Determining exactly who would benefit from the redistribution of plantations was, therefore, contingent upon the holding of such power. The development ‘philosophy’ being considered by the CPC was therefore, crucial. Largely incorporating the Eight Aims, under the National Goals and Directive Principles, development was to be implemented using ‘Papua New Guinean ways’ advocating small-scale production using local material and local markets (O’Collins, 1993:73).

This meant that the long-standing commitment to the development of village

agriculture remained a pillar of the development ideas of the government Somare led, citing as the third aim, after increasing indigenous control and equality:

Decentralisation of economic activity, planning and government spending, with emphasis on agricultural development, village industry, better internal trade, and more spending channelled to local and area bodies (Cabinet Committee on Planning, 1974:x).

This is clearly resonant of the focus of past colonial development policy on smallholder agriculture, and was intended to demonstrate the new government’s commitment to its role as trustee for the majority of the population who remained on smallholdings in rural villages.

Such a direction, of course, did not sit well with the indigenous capitalist class,

who sought to use state power in order to further their separate class interests. It is important, therefore, to note the particular emphasis on decentralisation in the third aim quoted above. As noted previously, separatism had become a major issue for the Somare-led government as it worked towards establishing an all-inclusive nation-state. The composition of the CPC, particularly Momis from Bougainville, and John Kaputin from Rabaul, played a significant role in checking such separatism. While both Kaputin and Momis continued to be associated with separatist and secessionist movements on the Gazelle Peninsula and Bougainville respectively, “the Committee’s deliberations kept attention focused on how the national state could be constructed to include – rather than exclude – representatives from all areas which

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had been part of the colonial territory” (MacWilliam, 2013:228). The CPC recommended decentralisation and the establishment of provincial governments so as to meet competing demands for greater political power over economic decisions in their own areas. Such demands were particularly poignant in the case of Bougainville given that, following a renegotiation of the revenue agreement, the mine at Panguna accounted for more than half the total of all exports and 20% of revenue. The reliance on the revenue derived from the mine meant that the representatives from Bougainville had considerable power in having their demands met. In 1974, Bougainville was to be treated as a special case with legal status given to the Bougainville Interim Provincial Government.

While the spontaneous development of the mining sector was having a positive effect on budgetary self-sufficiency, its negative effects were also being felt. Minimum urban wage levels also increased in the period of self-government as the booming mining sector, both in PNG and Australia, impacted competitiveness of the economy. Simultaneously, the global economy was hit by the first oil shock which affected inflation in many countries, including PNG. The rate of inflation in the country rose 23% in 1974. Protests in the streets of Port Moresby, coupled with the Papua Besena succession movement, saw the government take a pragmatic approach to calming unrest, increasing urban wages by a whopping 29%. This meant that while the ratio of the urban to rural minimum wage was 1.36 in 1972, by 1975 it had jumped to 2.65, a level that was to prevail throughout the 1970s (Turner, 1990:70). As economic conditions unsettled the government, Somare continued to work hard to bring the competing factions together in order to ensure his ultimate goal of bringing the new nation into being. On 16 September 1975, in the face of some opposition from leaders in the Highlands who feared economic and political domination by the better educated coastals, and considerable delay by Father Momis in finalising the constitution, Papua New Guinea achieved independence (May, 2004:15).

Post-independence instability and crisis

Following the establishment of the Independence government, a National Planning Office was created and the National Development Strategy, 1976-1985 was devised. While continuing to advocate the Eight Aims, two main objectives were outlined: to increase the availability of goods and services; and, to reduce inequality in access to these goods and services, particularly in rural areas. Given the majority of voters in the upcoming 1977

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election lived in rural villages, priority was to be given to increasing access to the cash economy through government expenditure in the areas of: •

agricultural production for the domestic food market;

•

production of cash crops for export markets;

•

provision of transport, trading and other services; and

•

small-scale rural manufacturing, ranging from artefacts to agricultural implements (Mawuli, et.al, 2006:10).

It was clear, then, that the focus on rural smallholders continued to dominate development thinking in the post-independence government. But the realisation of such ambitions was to be frustrated as the agencies charged with implementing these strategies, having just gone through a process of rapid indigenisation of high level positions, did not have adequately trained and experienced manpower to carry out the government’s mandate effectively (Denoon, 2012:129). In addition, when the new currency, the PNG kina, was introduced in 1975, a hard currency policy was adopted with exchange rates pegged to the AU$ in order to continue to attract foreign investment in the resources sector, also translating to correspondingly higher export prices for the agricultural sector. Minerals prices also fell in 1976 and Australia announced a cut in budgetary aid, which made up 40% of all government expenditure at the time. As foreign reserves fell, expenditure was cut, so that funds were directed to ongoing costs and most intentional development projects were unable to go ahead (Denoon, 2012:131).

Despite the uncertainties of the independence period, intentional development programs that had increased the productive capacity of smallholders in the colonial period had created the basis for spontaneous development in the agricultural sector.

Oil palm

plantings had grown to maturity so palm oil came into production (Gupta, 1992:65). A boom in coffee prices following a severe frost in Brazil in 1975 saw a rapid increase in coffee production, transforming living standards for many smallholders in the Highlands. Conspicuous consumption demonstrated commercial success, with increased purchasing of imported goods such as motor vehicles, furniture, clothing, store-bought food. But once prices fell again from 1977, living standards were threatened and the prospect of underemployment, unemployment and impoverishment became increasingly of concern to policy-makers and advisors alike (MacWilliam, 2013:218-219). Squatter settlements had

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become evident in all major towns, low incomes were common and jobs were in short supply (Amarshi, 1979:49).

Such obvious negative effects of the spontaneous development process clearly required the government’s intentional rural development policies to be implemented. But the attention of the government continued to be engaged on immediate political concerns rather than the formulation of means for increasing smallholder production and consumption. By 1975, Momis and Kaputin had begun to publicly attack Somare for his opposition to their demands for the establishment of provincial government. Indeed, the representatives of the regions with the greatest input into the wealth of the nation were those seeking to capture a greater share of power in determining policy over that wealth for themselves. As violence in Bougainville threatened to spill over with secessionist attacks on government property, Somare acted to bring stability to the newly formed nation.

In 1977 the provincial

government system was extended to all areas, bringing into being a third layer of governance in a country where capacity was already stretched beyond its limits. Nineteen provinces were created, each with their own parliament, administration and development priorities. The formation of provincial governments was to substantially blur the line between business and government as opportunities opened up for ambitious capitalists to capture state resources to further their own interests.

Efforts to further such ambitions began immediately following the formation of provincial governments, particularly in those provinces where the capitalist class was considerably advanced.

The transfer of development responsibilities from the central

government provided the justification for the formation of business arms formally connected to the institutions of provincial governments in order to raise revenue for provision of a range of services. These business arms took the form of Development Corporations and were established ostensibly to provide development opportunities for local people. However, these were formed in the provinces where the indigenous capital class held most control. Development Corporations were established as a way to ensure plantations being vacated by expatriates would remain in forms of centralised and concentrated property in the face of demands for land redistribution by households.

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The most successful of these was the

Accelerated development, independence and rebellion

Bougainville Development Corporation 2, which was to be utilised to channel royalties from the Panguna mine into developmental opportunities for the whole province. The Corporation initially owned and operated service industries around the mine, then branched out into owning and operating a lime mine, plantations, and the marketing and exporting of smallholder cocoa.

In a matter of years, it extended its operations beyond the North

Solomons to shipping and manufacturing in Port Moresby. In 1986, however, the directors privatised the corporation by acquiring all the issued shares themselves (MacWilliam, 2013:236). Such blurring of the lines between business and government was possible as the directors and their supporters maintained a stranglehold on both the provincial assembly and the offices of the provincial administration, holding office as both directors and politicians. Concerns being raised about conflicts of interests and corruption were coming more and more out into the open.

The development agenda had been captured by the interests of local and international, especially mining, capital. The ability of the central government to act as trustee to bring development for the benefit of the nation as a whole had been seriously circumscribed. The meaning of the development policy aim of redistribution foreshadowed in the Faber Report and adopted by leading indigenous politicians, had been hijacked by the indigenous capitalist class. Rather than allocating further smallholdings to the growing rural population, control over expatriate plantations and commercial properties had been transferred to an increasingly wealthy and powerful indigenous capitalist class. Rather than meeting the aim of equality, much power remained in the hands of the few who controlled land or services, or who had gained positions of influence in the government bureaucracy. Although it was Somare’s belief that “black masters should not merely replace white masters” (1975:108), power had gravitated very quickly towards a newly educated and commercially ambitious elite. While the discourse of development continued to focus on equality and a need to break with the distorting policies of the past, by the end of the 1970s, inequality within and between rural areas was both entrenched and increasing as the process of spontaneous development favoured those who had achieved some degree of economic success, “concentrating wealth and experience in the hands of a developing class of rural entrepreneurs” (Barnett, 1979:778, quoted in Connell, 1997:223).

2

Significantly BDC was one of the few development corporations formed which was not initially to take over plantations, although this was a later objective.

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Following the second global oil crisis in 1979, the PNG economy performed poorly over the 1979 to 1984 period, retracting at an average of -1.4% annually over the period (Gupta, 1992:65).

This recession brought balance-of-payments problems that spending

cutbacks could not remedy, necessitating substantial new borrowings from foreign banks. The amount of public sector debt ballooned from K235 million in 1976 to K879 million by the end of 1985. When private debt was included, largely that incurred in the construction of a new copper mine on the Ok Tedi river, Papua New Guinean debt amounted to 100% of GDP (Turner, 1990:39). With a bailout necessary, the IMF, the World Bank and Australian advisors pushed the line that a fundamental change in development thinking was required – with particular emphasis on the role of growth in any development strategy. Such a shift in development ideas was evident in 1984 with the publication of a Medium Term Development Strategy and the subsequent National Public Expenditure Plan in 1985 3, which both announced that future economic development policy would concentrate on economic growth and the creation of productive work opportunities. The change of government from Somare to Paias Wingti through a vote of no confidence 4 at the end of 1985 did not disrupt adherence to this new growth ideology, as Wingti had been Deputy Prime Minister and Minister for National Planning and Development under Somare, and Julius Chan continued as Finance Minister. Such a change in government instead came with the parochialism engendered by growing inequality as Papua Besena and Highlands MPs joined forces in a grand coalition to wrest power from Somare who had been reinstated as Prime Minister at the 1982 elections.

Supported by recommendations from a report by academics from the ANU (Goodman et.al., 1985:19), the subsequent National Development Plan 1986-1990 directly focused on economic growth and employment creation. The Plan also signalled a major shift in the development paradigm from state-led development to state-facilitated growth of income as a means to development. The role of government in the economy shifted further towards creating the best environment for the spontaneous development of the economy rather than being the provider of intentional development projects. The government strategy that rapid growth through the private sector was necessary became pervasive (Mawuli, et.al, 2006:8-9). While this included international pressure to privatise statutory authorities and state-owned enterprises, the public sector remained the largest formal sector employer and provided the 3

These were subsumed by the National Development Plan 1986-1990 Julius Chan had ousted Somare in a vote of no confidence in 1980. Such votes of no confidence were to become a defining feature of PNG politics as fractious and shifting coalitions became increasingly difficult to discipline. This ‘disorderly democracy’ is discussed in greater detail in the following chapter.

4

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only real opportunities for the absorption of the growing educated labour force. This meant that neither the government nor the bureaucracy showed any real commitment to privatisation, corporatisation or downsizing of the public sector throughout the 1980s – except as part of an ongoing power struggle between elites. The highly organised labour movement in the public sector resisted reform, and while real minimum wages declined by about 10% during the 1980s, the wages of parliamentarians, the army, police and skilled workers

increased,

exacerbating

inequalities,

particularly

in

urban

areas

where

unemployment increased. While a growth in employment opportunities was supported as essential, the gap between the needs and aspirations of the educated ruling elite and those of the majority of the people continuing to live in rural villages widened. Allegations of widespread corruption became more and more vocal.

Such allegations of corruption increased in saliency as the 1987 election approached. Decision-making processes, including those regarding economic growth and related development areas became more and more politicised. Such politicisation of the public service was an instrumental element in the power struggle over the resources of the state between the executive and bureaucratic arms of government, particularly where experienced technocrats had the capacity to withstand the interference of inexperienced ministers. The restructuring of the public sector under Wingti, particularly breaking the power and autonomy of the Public Services Commission which “could ignore the Government of the day” (Cochrane, quoted in Turner & Kavanamur, 2009:13), saw the political appointment and the subsequent frequent changeover of departmental heads, general managers of statutory authorities and directors of state-owned enterprises as personal connections became the major determinant of occupation of such positions. The ability of the bureaucracy to implement policy and programs in line with stated objectives was further eroded as priorities changed with the priorities of the shifting political coalitions in the increasingly unstable parliamentary system, including frequent power struggles between central and provincial governments. 5

These issues had a profound effect on policy-making and project implementation in the agricultural sector. The effectiveness of the Department of Agriculture and Livestock 5

In 1984, the governments of Enga, Manus and Simbu provinces were suspended by the central government for

financial mismanagement (Turner, 1990:127).

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(DAL) had begun to be eroded following independence. 6

Cutbacks in funding for

agricultural support had led to increasingly endemic service delivery failure. Corporatisation of marketing and service delivery functions was seen as a solution to such failure (McKillop at al, 2009:60) as well as serving the purpose of subverting the ability of agricultural technocrats to set the agenda for rural development in opposition to the political imperatives of the parliamentary leadership. Industry corporations were established in key agricultural industries, including coffee, cocoa, coconut, oil palm and livestock, taking over marketing, extension and research services from the central and provincial governments. The role of the DAL and its power to influence development policy-making become subsequently limited (McKillop at al, 2009:61) and its officers became concentrated in Port Moresby, far removed from the rural household farmers they serviced. This meant that the interests of smallholder farming families, the largest proportion of the rural population, were no longer being protected or advanced through government institutions. The erosion of the major instrument for implementation of intentional development policy in the interests of the majority of the rural population in Papua New Guinea indicated the developmentalist ideas of the past were no longer a priority of government.

As agricultural export prices again fell in the late 1980s, the standard of living in rural areas consequently declined (McGregor & Bourke, 2009:272). With more than 80% of the population residing in rural areas, this meant the decline in the well-being of the majority of Papua New Guineans. While the hard kina policy focused on stabilising urban living costs in order to placate the most vocal and conspicuous of those affected by the growing inequality of the government’s concentration on growth of GDP through resources development, there was no concomitant growth in urban employment for unemployed or underemployed rural workers to take up. While urban unemployment increased, from 9% in 1980 to 35% in 1990 as the increase in the working-age population failed to be absorbed by spontaneous capitalist expansion, much of the population remained in the countryside in increasingly difficult circumstances as rural unemployment rose over the same period from 21% to 38% (McKillop et.al., 2009:65). 7

According to Millett (1993:9), “(t)he movement away from self-

employment produced almost twice as much unemployment as wage employment.” The focus on job creation thorough foreign investment in the resources and forestry sectors was 6

Note that many agricultural programs had become the responsibility of provincial governments under the decentralisation policy. 7 These figures are estimates only as most employment remains in the informal sector which is difficult to quantify.

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proving completely ineffective. Of every ten people joining the monetised labour force, only one went into wage employment, six became self-employed, and three became unemployed. In both urban and rural areas, a lack of employment was linked to a rapid increase in crime.

As the agricultural sector had stagnated due to low world prices, an over-valued kina and a lack of extension services to increase productivity, for many of the people continuing to live in rural villages, the only opportunities to become involved in wage earning positions were those jobs associated with mining developments. The preoccupation with one particular form of economic growth meant the further expansion of mining regardless of the high investment costs or environmental consequences, initiating a mineral prospecting boom from the mid-1980s.

Ensuring part government ownership in addition to mining revenues

remained firmly on the agenda, as the government, no matter who was in power, secured shareholdings in all subsequent resource developments. 8 Many of the PNG leadership and their advisors were becoming more concerned that the heavy reliance on a handful of large mining projects would render Papua New Guinea even more vulnerable to fluctuations in commodity prices. But they did not anticipate the force of discontent over a range of economic, social and environmental problems that led to interruptions at Ok Tedi and the cessation of the Panguna mine as ongoing disputes over the equitable distribution of resource developments descended into all-out revolt.

The Bougainville crisis, which led to the closure of the Panguna mine in 1989, was to prove a major encumbrance to the economic and social development of the country as a whole. The subsequent long-term civil conflict between the Bougainville Revolutionary Army (BRA) and PNG forces placed a strain on government revenues as well as causing a sharp increase in expenditure due to security concerns, with the expectation of a swift resolution proving elusive. The Panguna mine, at its closure, was generating some 35% of total exports, 15% of government revenues and accounted for 8% of GDP. During the period of the Bougainville conflict, government spending increased dramatically. Defence spending rose from K40 million in 1988 to K92 million in 1991, and from 4.3 to 7.7 per cent of total government expenditure (May, 2001:155). While partly attributed to this increased military spending, public expenditures were also outlaid on the development of several new mines 8

Adding to the 20% equity in Panguna and Ok Tedi, the PNG government took up 20% in the gold mine at Misima in 1986, 22.5% in the Kutuba, Gobe and Moran oilfields in 1992, and 30% in the Lihir gold mine in 1995 (Curtin, 2009:345). Individual shareholding by indigenes has never been quantified, in part because share registers are not only held locally.

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designed to replace and increase the loss of revenue from the Panguna mine. The destruction of the conflict and the loss of livelihood due to the mine closure was severely compounded by the subsequent closure of 15,800 smallholder cocoa blocks and 111 cocoa estates (McKillop et.al, 2009:66) in the important cocoa-growing province of Bougainville – widespread poverty in both the townships and rural areas was the inevitable outcome.

Conclusion

In the final decade of the colonial administration in Papua New Guinea, a policy of accelerated development was implemented.

This policy was to have far-reaching

implications for the formation of the independent nation state it aimed to bring about. While the agricultural sector as the mainstay of the economy continued to be a major focus of development policy, such policy emphasised the most advanced sectors and shifted focus to the largely expatriate-owned plantation sector. This policy shift also coincided with the discovery of a large mineral deposit in Bougainville just at a time when international demand for industrial inputs had intensified. The aim to increase budgetary self-sufficiency through rapid economic growth in order to accelerate the move toward self-government seemingly accorded with Australia’s trusteeship obligations. Yet, the policy of accelerated development also produced a corresponding challenge to the spirit of such trusteeship.

Rather than

bringing development in the interests of society as a whole, wealth became increasingly concentrated in the indigenous capitalist class and power gravitated towards a small educated indigenous elite.

When political power transferred to an indigenous leadership, the clash of class interests originating from the accelerated development policy created uncertainty in the formulation and implementation of development policy.

The Somare-led government

favoured a move away from rapid economic growth as the basis of development policy, instead seeing redistribution with an emphasis on village agriculture as the foundation for building a nation with equality at its core. Clearly, the idea of the government acting as trustee for development in the interests of society as a whole continued to resonate. But such ideals were unable to be translated into a development doctrine that could increase living standards throughout the countryside as political struggles over the direction of government resources and the distribution of the benefits of development spilled over into separatist and secessionist demands.

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The formation of the provincial government system provided

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considerable opportunity for local elites, both capitalists and the salariat, to capture the development agenda to further support their dominance of the provincial political economy.

At the same time, the minerals sector continued to attract increasing international attention and the PNG government persisted in ensuring it took up a stake in any development, despite the large burden on the government’s resources of financing these shares. While rhetorically, rural development remained the highest priority of successive governments, the need to increase mining royalties in order to fund rural development projects continued to qualify such priorities. Yet, mining and agriculture, whether plantation or village smallholdings, are antithetical as both require the use of traditional lands and, with the majority of government resources being directed to the resources sector, rural development plans were unable to be implemented. In addition, the corporatisation of the major agricultural sectors meant that the actual implementation of intentional development policy designed to lift the living standards of the majority of the population was not implemented. Coupled with the erosion of the policy-making influence of the bureaucracy through the politicisation of public sector appointments, development in rural areas, amid increasing population growth, continued to decline. While the intent to develop the nation remained, what the interests of society as a whole were had become disputed among indigenes, some of whom were bolstered by international advice.

Rural incomes and lifestyles became widely perceived as inadequate and worsening, producing considerable frustration. Unequal access to services, vast differences in incomes and conspicuously disparate standards of living sharpened the focus on the need for intentional development. But the meaning of development became the sharp focus of dispute as the emerging indigenous capitalist class sought the policy means to increase accumulation while others sought policy focused on welfare and egalitarianism. Nevertheless, the demand for development did not lead to substantial rural-urban migration as the continuing attachment of the majority of people to their land and the access to the benefits of traditional village life this affords, meant that the costs and uncertainties of living remained much less in rural areas due to the foundation established under the agrarian developmental policies of the past. The government-sponsored efforts at intentional development in rural areas had proved largely unsuccessful, while the spontaneous development of large-scale mining was to have a profound effect on development policy and practice for the foreseeable future. The focus on revenue creation created a framework for further mineral agreements and initiated a

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prospecting boom.

As the instability inherent in the international market increasingly

impacted the stability of the new nation, the mineral resources sector became viewed as the critical engine of growth. Consequently, the agricultural sector lagged, as the focus of change moved from distribution to growth and “in the minds of most Papua New Guinean ‘grassroots’ or village people, mining has become the way to gain wealth rapidly and to ensure that dreams of ‘development’ and ‘modernity’ come true” (Filer & Macintyre, 2006:216). This close look at development policies of the past has shown that such ideas should be viewed with caution as the spontaneous development of capitalism inevitably includes significant negative effects. The resolution to the violence, poverty and disorder of the Bougainville crisis would require a huge developmental effort as the nation moved forward into the modern era. With more than 80% of the population living in rural areas, consideration that such a developmental effort should follow an agrarian development doctrine was paramount.

In 1989, the Namaliu government released the 1990 Medium Term Development Strategy (MTDS) in which it sought to redefine the role and institutions of government to improve rural living standards. The key priorities were health, education, infrastructure and the private sector. Agriculture was placed in the private sector, which was to be ‘the engine of growth’ for productive enterprise. Again, it appeared that an understanding that the government must bring development as trustee for the good of the majority of citizens had returned. Government involvement in the agricultural sector, however, was to be restricted to facilitating access to services and monitoring the commercial activities of government-owned enterprises (Bourke & Harwood, 2009:439. While the intent to develop remained, without a connection to state development policy that would improve agricultural productivity, a developmental doctrine was not put in play. The idea of development had come to be understood as giving primacy to spontaneous development. As with most development policy documents produced in PNG since independence, such statements of intent were couched in terms populating the discourse of an international consensus on development thinking at the time in order to ensure legitimacy for project aid from bilateral donors, particularly Australia, and the international financial institutions. This was further bolstered by the electoral necessity to demonstrate support for voter concerns as rural smallholders were the dominant force at the ballot box. Whether any real intent existed or not was to be a moot point as the Bougainville crisis redirected the government’s attention to securing internal security. The discourse of ‘crisis’ was to come to typify the 1990s in Papua New

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Guinea as political and economic turmoil had wide ranging effects on a society still waiting for the promised transformation of village life to be delivered by their government and its aid partners. It is to this consolidation of economic and political crisis that the next chapter will turn.

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Spontaneous Development, Growth and Decay Papua New Guinea 1990 - 2014

Introduction

As shown in the previous two chapters, the majority of Papua New Guineans remained living on smallholdings throughout the countryside, producing for immediate consumption, local markets and for export. By 1990, the agricultural sector accounted for about 25% of GDP, but provided the main source of livelihood for over 70% of the population. As the stability of the country became threatened by political and economic crises, the shift in focus away from agriculture towards the mining sector, already gaining prominence since the 1960s, was to become absolutely entrenched. Equally, the shift away from intentional to spontaneous development became completely antithetical to the interests of the majority of the Papua New Guinean population. While a need to increase employment opportunities continued to be recognised, mining and agriculture have continued to be considered the only prospects for the majority of the population.

The development of

manufacturing remains constrained by a lack of skilled manpower and relatively high wage levels, driven by the booming resources sector as well as government policy opposed to anything which seems to be ‘rent-seeking’ import substitution. While rural development has consistently appeared as the top priority in all planning documents, an agrarian doctrine of development has largely disappeared as intentional government policy in Papua New Guinea. With the bulk of the population residing in rural areas, this has meant the decline in the wellbeing of the majority of Papua New Guineans. The role of the government as trustees and their capacity to direct development had become seriously constrained.

This chapter will begin by discussing the effects of the fiscal crisis that had resulted from the ongoing conflict in Bougainville on development policy and practice in Papua New Guinea and, in turn, the effect these had on the agricultural sector which had the greatest impact for the majority of the population. The crisis required a bailout by the IMF and the World Bank, conditional upon the implementation of structural adjustment programs. Deregulation of the capital account, including floating the currency, wasto have wide-ranging

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affects. While the agricultural sector eventually saw strong growth from the mid-1990s due to a confluence of some aspects of macro-economic policy and a recovery in world prices, agriculture actually became a less important part of macro-economic policy with each succeeding MTDS plan, a result of its failure to be seen as a rapid enough ‘engine of growth’ (Allen, 2009:439) by the leadership and their multinational partners. PNG policymakers encouraged reform to further increase direct foreign investment with a major export-focus as the role of the state as a facilitator of spontaneous development became further entrenched throughout the decade. Such reforms led to further erosion of the effectiveness of the public service, eroding the ability of the government to exercise its role as trustee for society through the institutions of state. Such ineffectiveness served to sharpen parochial interests, contributing to the enlargement of the power struggle between levels of government, as provincial governments received the blame for service delivery failure. Calls for the further devolution of responsibilities to the local government level became more strident and difficult to resist, despite capacity at that level being even more restricted. By the end of the 1990s, the legitimacy of the state and its continuing claims as the agent of development had been lost as conceptualisations of government and development became synonymous with corruption throughout all levels of PNG society. Constitutional, political and legitimacy crises added to and heightened the country’s economic problems.

The second section of this chapter explains the development policy ideas published by successive governments, which continued to focus on rural development. Such rhetorical commitment, however, was not demonstrated in practice as the spontaneous development of multinational resources extraction projects continued to dominate the economy.

The

disconnect between the responsibility of the state as trustee to bring development for the benefit of society became almost complete. The notable exception was at election time as the majority of the population actively participated in the various layers of democracy in a bid to ‘get their man in’ so development would come their way. Government, both the legislature and the bureaucracy, became typified by a lack of resources and a declining ability to play an active role in directing and restructuring the national economy. The discourse of state failure levelled at Papua New Guinea became pervasive.

Nevertheless, the resources sector

continued to attract significant foreign investment. Increasingly larger and larger resource developments have produced spectacular growth in GDP. At the same time, the remaining economic sectors have stagnated.

The nexus between the role of the state in bringing

intentional development in order to prevent the inevitable negative effects of this spontaneous

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development of capitalism is no longer in existence. The idea that development in the interests of the nation as a whole requires a synthesis of the intentional and spontaneous is no longer obvious, either rhetorically or in practice in Papua New Guinea.

Consolidation of crisis

As discussed in the previous chapter, the Bougainville crisis led to vast increases in military spending and a crippling loss of revenue. Public investment in further mineral developments, in order to replace the lost revenue, then led to a balance of payments crisis precipitated by a heavy public debt burden. The situation was exacerbated by a drastic decline in agricultural commodity prices, and in early 1990, a rescue package was negotiated with the World Bank and the IMF. A structural adjustment program was a condition of the loan. But by July 1990, the Ok Tedi mine unexpectedly posted a profit of more than K24 million (Filer & Imbun, 2009:91) and a new resources boom, including the exploitation of the Kutubu oil field, increased exports. This provided the context to resist implementing the structural adjustments and PNG officials abandoned the program.

But the decline in

bureaucratic effectiveness and control due to politicisation of office (discussed in the previous chapter) caused government expenditure to increase faster than revenues (Duncan, 2001:3). The budget deficit began to deteriorate even more rapidly in 1991, and continued to worsen throughout the decade as did other macro-economic criteria, including inflation and interest rates (Chand & Yala, 2009:46).

Wingti was returned to the office of Prime Minister in the 1992 election (see table 8.4 at the end of this chapter). In a bid to bring rising unemployment under control, in the same year, the Minimum Wage Board introduced a significant reduction in urban minimum wages, unifying them with rural standards and abolishing indexation. Government expenditure was cut, most notably to village services and local government funding, and the kina was devalued by 10% (AIDAB, 1994:74).

Such cuts meant that investment in increasing

productivity in the rural sector upon which the majority of the population relied declined even further.

In a political system with three layers of governance, responsibility for the

subsequent systemic failure to bring development to the large number of rural constituencies throughout the nation was continually deflected by the national government. Wingti squarely directed the liability for the development malaise on provincial governments in a continuation of his strident opposition to this level of governance. He appointed a bipartisan select

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committee to conduct a review in late 1992, which led to the suspension of several provincial governments.

One of the major service failures blamed on provincial governments was in the education sector as, despite comparatively high expenditure as a proportion of GDP, levels of educational attainment remained low. Over 50% of the population over the age of 10 reportedly had no schooling at all, and almost a further 20% had only completed grades one to five in 1990. In eight provinces 80% or more of the population had no schooling (AIDAB, 1994:64). In order to resolve this issue, in the 1993 budget the government abolished primary and secondary school fees at all government schools (AIDAB, 1994:67), most of which were located in urban areas, further exacerbating the opportunity gap for rural areas. The Australian aid agency reported in 1994 that:

Poorly trained and motivated staff; weak or non-existent flow of technical information to extension agents; unavailability of transport for supervision or for field operations, blockages in the flow of textbooks and school supplies; lack of maintenance for schools and aid posts; and medical equipment in short supply are some of the common management problems experienced by many provinces (AIDAB, 1994:155).

As improving living standards in rural areas had become almost entirely a provincial responsibility, with declining levels of national funding and a disconnect between policymakers and those tasked with the responsibility of implementing programs, services rapidly declined. The central role of government as trustee for development of society as a whole had clearly receded from development practice. This is not to say that the leadership did not understand the extent of the situation for the majority of the population. According to Finance Minister, Julius Chan:

The crisis is not one of high inflation, or lack of foreign exchange to pay for essential imported capital goods, spare parts or consumption items. The crisis is one of low growth in all sectors of the economy not directly linked with mining and petroleum – the sectors which support the mass of the population. This manifests itself in extremely low rural incomes and high rates of urban

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unemployment. Real per capita income in 1992 is lower than it was in 1979 (Chan, 1992).

This situation clearly called for a doctrine of development, whether agrarian, manufacturing or some other form in which intentional development would exert authority over the dominant spontaneous development. . Yet the idea of development no longer included intentional development. The continuing focus on attracting foreign capital to the resources sector rather than investing in the sector that deal with unemployment, impoverishment and disorder showed that non-development had become the principal influence upon development ideas in Papua New Guinea. The idea of a pivotal role of government in bringing intentional development in order to avoid or counter these negative aspects of spontaneous development appeared to have been lost. Rather, further spontaneous development, with the private sector as the driving force, dominated development strategies.

In line with such strategies, the World Bank advocated reforms stressing privatisation, liberalisation and foreign investment. The PNG government continued with its strategy of earlier years, producing expansionary deficit-financed budgets, with expenditure to purchase resource equity being the major feature. Foreign exchange reserves declined steadily despite the minerals boom. This was in large part due to the liberalisation of exchange control regulations in 1992, under which firms were able to move 500,000 kina without reference to the Bank of Papua New Guinea. By the end of 1993, public debt had increased rapidly, the deficit reached a high of 5.6% of GDP and foreign reserves were at a level that made foreign loans impossible to service. Such a crisis necessitated a major bailout by the World Bank and the IMF in 1994 in the form of a A$550 million loan accompanied by another structural adjustment program. By August 1994, the customary shifting scenario of a no-confidence vote had brought finance minister Julius Chan back to the Prime Minister’s chair (see table 8.4 at the end of this chapter). With the major focus of the international reform package being on reducing constraints to foreign investment, international pressure to liberalise the economy meant that one of the first major efforts to bring the fiscal crisis under control was the deregulation of foreign exchange controls. This saw the floating of the kina in an attempt to lift foreign reserves and ensure debts would be serviced. As a result, the kina gradually depreciated from near parity with the US dollar to $US0.72 by mid-1997 (Stein 1991:7). However, the pain in urban and rural areas caused by increased prices for imported goods and

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rising inflation resulted in resistance to the implementation of many of the other conditionalities, including reform to the system of land ownership.

International pressure to restructure the system of registration of land title had been a feature of Papua New Guinean political-economic systems since first colonisation.

When

the World Bank’s structural adjustment program included land reform conditionality in the form of its “Land Mobilisation Project”,local opposition became pronounced Popular concerns over the issue of land mobilisation, particularly for multinational developments, had been fraught with tension throughout Papua New Guinea’s history, with the extensive ongoing civil unrest in Bougainville a poignant example.

Tensions were heightened with

rumours of a World Bank takeover of all PNG land, causing a considerable nationalist backlash with organised demonstrations in the capital. The protests, which included destruction of public and private property, led to the land reform program being abandoned (NLDT, 2007:2). A World Bank mission visited in 1996 but left in a pique after acrimonious exchanges with PNG officials. Payment of the second tranche of the loan was postponed (May, 2001:315). By then, however, the economy had begun to recover.

While the fall in the value of the currency had disadvantaged urban residents who depended on wages and imported food and rural households that relied on remittances from urban relatives, it provided a considerable advantage for rural cash-crop exporters and domestic food marketers. With improved prices for export crops, the agricultural sector grew strongly in the mid-late 1990s (Allen, 2009:439). This was particularly the case for coffee producing smallholders, who made up at least 70% of households in the Highlands. Severe frost devastated crops in Brazil in the mid-1990s creating a supply scarcity that saw a near tripling of world coffee prices, the highest since 1986. Additionally, as import prices became prohibitive, local fresh food markets multiplied, so that this sector provided cash incomes for more households than any other activity. By the mid-1990s, 90% of rural villagers derived some income from the sale of fresh food. More than half of the rural population received cash for coffee, 35% for betel nut, 27% for cocoa and 17% for copra. This spontaneous expansion, however, was confined to those regions where these industries had already been established, so that the benefits of growth in agriculture were, again, unevenly distributed. While 18% of the rural population lived in areas where average annual cash income from agriculture was greater than K150 per person, more than a third of the rural population lived in locations earning an average of less than K20 per person (see chart 8.1) (Allen, Bourke &

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McGregor, 2009:285-288). Such unequal development contributed to the growing tribal unrest, violence and crime that had begun to become endemic to some regions of PNG, particularly centred on the Highlands.

35

Cash Income (kina millions)

30

Chart 8.1: Estimated 1995 cash income of the rural population from the six most important agricultural commodities

25 20

Coffee

15

Fresh Food Cocoa

10 5 0

Such inequality was also exacerbated by by a series of natural disasters in the 1990s, including the volcanic eruption in Rabaul in 1994, widespread frosts in the Highlands in 1997, and the devastating drought of 1997-98. The inability of the government to make an effective assessment of the unfolding drought problem or to mount a coordinated response escalated into a crisis situation, requiring international assistance, primarily from Australia, to provide food and water to remote regions where people had died.

Each province was

required to set up its own relief operations, and many people called on clan members for assistance by purchasing imported food them or accommodating them in urban settlements. From this time, DAL policy-makers began to focus on the issue of food security in an attempt to obtain international support for its efforts to regain control of the agricultural sector. Politicisation of the crisis in an election year also saw national politicians weighing in to ‘deliver relief’ with a total of K1 million being directly allocated to all MPs on a pro rata basis based on the population of their electorates without making any assessment of need and completely free of any accountability measures (Allen, Bourke & McGregor, 2009:325-338). Any recognition that the representatives of the state should act as trustees in the interests of society as a whole, with a particular emphasis on helping the most vulnerable, was clearly

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absent. State resources were, rather, distributed in accordance with the objective of securing ongoing support for individual MPs as rural voters remained a vital electoral force.

Such patronage politics had, by then, become endemic to the PNG political system, as the dwindling development budget became more and more politicised.

Political office

became increasingly connected to economic and social advancement, making the imperative to deliver directly to voters more and more vital. The 1995 provincial government reforms, despite the avowed intention to ‘bring government closer to the people’ had led to further politicisation of the development budget when power over allocation of District Support grants was transferred to national parliamentarians. As the capacity of the bureaucracy to implement development policy became increasingly circumscribed, due to insecurity of office, inappropriate appointments and a lack of resources, there became a complete disconnect between national policy-makers, provincial policy-makers, local-level policymakers and those living and working in rural areas.

As international project aid and

conditional loans became the only real development funds available, while politicians freely dispersed ever increasing Electoral Development Funds to their supporters, the formulation of national development plans became increasingly constructed primarily by international advisers.

The 1997-2002 MTDS, framed during the fiscal crisis, emphasised small government with the state in a facilitation role rather than a development leader. As had been the case for some time, it was principally designed to ensure donor funding and underscored adherence to the structural adjustment program; rationalising state agencies, devolving decision-making to provincial governments, promoting the private sector as the engine for growth, and focusing resources on service provision. Priorities included, health, education, transport infrastructure, access to credit facilities, training and research, and effective regulation of commercial activity (Mawuli, et.al, 2006:6).

Although the National Planning Office had been re-

established in 1991 as a division of the Department of Finance, gradual shifts in thinking in international development ideas regarding the necessity for coordination of donor development programs eventually saw it evolve into the Department of National Planning and Monitoring by 1999. As the core development idea of ‘good governance’ began to take hold in PNG, a project funded jointly by AusAid and UNDP Capacity 21 was launched to build the Department’s capacity to develop and implement a decentralised development planning structure (GoPNG, 2000:6).

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This had limited success, however, due to the

Instability, growth and decay

constraints of the volatile political environment and lack of initial departmental capacity, so that little progress was made (GoPNG, 2000:7).

The negative results of the spontaneous development of the resources sector also continued to have serious consequences for stability in Papua New Guinea as further political and economic crises ensued. The continuing conflict in Bougainville, which had allegedly claimed some twenty thousand lives, led to the Sandline Affair in 1996-97, when Prime Minister Julius Chan attempted to hire mercenaries to recapture the mine following a failed military invasion of the island. This subsequently resulted in commander of the PNG defence forces, Brigadier-General Jerry Singirok, ordering the detaining of the mercenaries upon their arrival in PNG and the surrounding of parliament until Chan was forced to resign in order to avoid a military coup.

A general ceasefire on the island then began with peace talks

eventually resulting in the signing of the Lincoln Agreement between the new Prime Minister, Bill Skate’s government and the BRA in 1998, with the deployment of international peace keeping forces which eventually withdrew completely in 2003 (Chand, 2010:7).

Despite this monumental achievement, the Skate Government was inherently unstable, with three deputy Prime Ministers in two years, and increasing cronyism in the public service, severely impacting ongoing service delivery and stalling further development of the rural economy. But, more troubling for fiscal stability, the independence of the Central Bank and the judiciary appeared to have been seriously compromised. Personal scandals, including secretly taped footage of Skate bragging of bribery and intimidation, juxtaposed against increasing poverty and crime, led to grave threats of another popular revolt and the alarming possibility of another military intervention in parliament.

Investor confidence

plummeted as a result. Parliament was adjourned for seven months in order to avoid a noconfidence vote but by June 1999, a further fiscal crisis was looming with the treasury facing bankruptcy. The value of the kina dropped to an all-time low of US$0.34 with the Central Bank powerless to stop the outflow of foreign currency. In an act of desperation, Skate granted diplomatic recognition to Taiwan in return for a promise of US$2.3 billion in grants and loans from the Taiwanese Government, despite the capacity to affect regional stability

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(Chand, 2010:8). 1 The whole saga ended with the inevitable ousting in a vote of no confidence when Skate was finally forced to reconvene parliament (see table 8.4 below).

The period from 1990 to 1999 had, therefore, been characterised by economic and political crisis in PNG, creating significant instability and disorder. While rural development continued to be recognised in development planning as essential to ensuring the well-being of the majority of the population, the focus of public investment on expanding the minerals sector in order to increase revenue, attract foreign investment and ensure a supply of foreign reserves meant that little funds were made available for planned rural development. While cash-cropping for export and local marketing expanded during this period due to market forces, it did not expand enough to take account of the increase in population, which had grown to over five million by the end of the century, an average annual growth rate of 2.7% from 1980 to 2000. This large rural population continued to demand development and expected their elected representatives to deliver such development. The high turnover of MPs in the ‘first past the post’ electoral system meant local needs remained an important electoral force. According to former finance minister Julius Chan, “Each Member has a strong commitment to directly benefit his immediate electorate – much more so than in, say, Australia, where only a minority of seats are considered 'marginal'” (quoted in Dorney, 1999:8). The shifting parliamentary coalitions eventually came to settle in behind Mekere Morauta (see table 8.4 at the end of this chapter), former governor of the Reserve Bank. Morauta’s anti-corruption focus dovetailed with the international development discourse that emphasised transparency and accountability as ‘good governance’ was considered the most important aspect of the government’s role in the economy. As the idea of ‘poverty reduction’ became the main focus for foreign aid projects, the development of the rural economy, where more than 80% of the population continued to live, continued its prominence in national development planning.

Corruption, compensation and continuing crisis

The final section of this chapter discusses the complete breakdown in the connection between the state as trustee for the development of society as the discourse of corruption inherent in the ‘good governance’ agenda became all pervasive. 1

Such a breakdown is

Whether any payments were ever made remains a matter of conjecture with credible rumours still circulating of a secret Singaporean bank account.

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highlighted by the stark inequality that has resulted from the entrenchment of the resources sector as the ‘engine of growth’ in Papua New Guinea over several decades, despite adherence of policy-makers to the rhetoric of the ‘sustainable human development’ framework of the World Bank and the United Nations. Governments continued to produce plans designed to deal with the established problems of achieving diversification of the economy and improved service delivery – inadequate infrastructure, an inefficient public sector, entrenched corruption and a serious law and order problem. As international events began to change the emphasis of aid delivery from economic interests to security imperatives, concerns over increasing regional conflicts spread to the characterisation of PNG as a ‘failed state’.

Despite international protestations of state failure, a flurry of development policyassociated documents were prepared as the prospect of a new millennium fostered a renewed spirit of optimism in PNG. Kumul 2020, Preparing Papua New Guinea for Prosperity in the 21st Century was presented by the Planning the New Century Committee whose vision for the future clearly revisited the National Goals and Directive Principles of the Constitution, advocating national sovereignty and self-reliance as the highest priorities.

It called for

greater government regulation of foreign direct investment, particularly in relation to development of natural resources, to ensure it is directed towards nationally formulated social and economic goals (PNCC, 1998:13). The new, anti-corruption Prime Minister, Mekere Morauta, in power from 1999 to 2002, promised a new beginning for Papua New Guinea. He developed a program called the ‘date with destiny’ to provide a strong sense of leadership, stability in the political system and to improve the economic standing of the country (Gelu, 2006:7). The National Program for Reconstruction and Development: The Road Map for Our Future was prepared by the Department of National Planning and Monitoring in 2001. Designed to bring together the state and civil-society in a process of development cooperation, it emphasised three guiding principles: rationalisation of state resources to focus on core functions and priority activities; the formation of public-private partnerships; and the mobilisation of the resources of all Papua New Guineans – land, labour and skills – as the principle means of improving living standards (Mawuli, et.al, 2006:7). By then, budget support from the Australian government had been completely withdrawn. While project aid had increased over time, this increase was significantly less than the decline in budget support, directly affecting PNG’s revenue situation (see chart 8.2 below). This meant that much of the budget had to be allocated to recurring expenditures with the amount made

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available for development priorities very limited. Private investment also remains low as investment funds are usually placed in offshore share portfolios, or in Australian real estate.

Chart 8.2 Budget support, project aid and GDP per capita

Note: the right hand axis is for budget support and project aid, the left hand axis is for GDP per capita. Source: Government of PNG budget documents, various years, cited in (Chand, 2010:102)

Morauta drew down the last of the Mineral Resources Stabilisation Fund (MRSF) and the DNPM prepared The Development Charter Program 2001, a key initiative of the 2001 Public Investment Program designed to meet donor requirements due to a continuing reliance on project aid rather than domestic funding for developmental outlays (Chand, 2010:7). This mapped out core activities in order to develop a ‘partnership’ between the government of PNG and major aid donors to bring projects into action. Such a ‘partnership’ however, merely entailed the delivery of aid projects by the donors. In practice, poverty reduction had become a donor responsibility while the PNG government concentrated on ensuring the conditions for multinational capital investment in the resources sector remained stable. An understanding of the role of government in bringing development in the national interest remained merely as a rhetorical exercise. Indeed, according to former MP Anthony Siaguru:

It is something we lack in my country. It is not a matter of governance as such. It is the basic identity of the people with the national interest that we lack, or rather, a political

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Instability, growth and decay

system that affects that identity, and it is its absence which, by my reckoning, makes it difficult to have good governance in Papua New Guinea…The electorate grumbles…but the electorate is held captive (Siaguru, 2001:13)

Yet some government departments, or at least some public servants, continued to attempt to influence the government development agenda on behalf of rural smallholders. The DAL launched a new agricultural development strategy called Horizon 2002-2012, noting that most agricultural sector industries had declined or stagnated due to inadequate infrastructure, ineffective marketing, both public and private, and ineffective research and extension services. The proposal to arrest this decline included more centralised control of agriculture and increased government spending. Not surprisingly, the government responded negatively, so that comprehensive rural development planning was not implemented (Bourke & Harwood, 2009:439).

An important aspect of rural development, however, continued to be the international push for ‘freeing up’ customary land for development. PNG’s Land Act incorporated a socalled ‘lease-lease-back scheme’ which enabled “the State to lease customary land from the customary landowners and then lease it back to these same landowners, or to other persons or organisations of which they approve (i.e. commercial entities, normally foreign) for periods of up to 99 years” (Filer, 2011:3). However, issues relating to safeguards against customary claims for compensation remained difficult so that only some 6,000 hectares had been converted for use as Special Agricultural and Business Leases (SABLs).

Within these

constraints, however, the oil palm industry began to use the scheme to expand operations beyond the estates previously established on state-owned land. By the end of 2000 a further 10,401 hectares had been converted as oil palm ‘mini-estates’, expanding to the still modest amount of 32,000 hectares by 2010 (Filer, 2011:3).

In 2001, the Morauta government

initiated another land reform program, again drawing a strong reaction from the public. When four student protestors were shot dead by the police, this attempt at land reform was also hurriedly dumped (NLDT, 2007:2), along with Morauta at the general election held the following year in 2002 (see table 8.4 at the end of this chapter).

The electoral process in Papua New Guinea was also considered to be a major contributing factor to the government’s inability to implement a long term development plan

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in the national interest. The local nature of voters’ interests meant that voting patterns were also local in nature.

The first-past-the-post electoral system and the large numbers of

candidates standing in each electorate meant that the majority of MPs were elected with a small proportion of the vote, leading to a high turnover of office. The need to form coalitions in order to form government also creates a fluidity to the leadership, leading to frequent votes of no confidence. Not only does such parliamentary behaviour distract the parliament’s attention from the more important tasks of debating and legislating policy, it also poses a serious constraint on the country’s political leaders, who must continuously maintain the loyalty of their party members and the support of their coalition partners, or risk losing office (May, 2003:6). Taken in conjunction with the high turnover of MPs at election time, this has produced a system strongly inimical to rational long-term policy-making and particularly prone to politicians seeking short-term advantage (May, 2004:15). Such short-term politics makes the holding of office even more important, so that elections had become marred by violence and corruption, an indication of the negative aspects of unequal development and underdevelopment. There were a reported 100 deaths as a result of violence connected with the 2002 elections (Standish, 2003:42).

Morauta had introduced a number of legislative

changes designed to bring greater political and policy stability. Despite the 2002 electoral violence, the effects of these changes brought greater security of office for the leadership as well as central bank independence and a revival of the financial sector. Somare, who again came to the Prime Ministership in the 2002 elections, retained office for the full five-year term, regaining office in 2007, and only being replaced due to illness in 2011. Such a long term in leadership was unprecedented in PNG politics (see table 8.4).

While internal stability reinvigorated foreign investment and led to further large developments, including the Napa Napa oil refinery in 2004, favourable external conditions also led to significant improvements in PNG’s terms of trade. The economy expanded due to the boom in commodity prices driven by the demand from rapidly developing China and India, with PNG well located to supply the resources needed for the industrialisation of these countries, as well as the provision of a vital energy supply to Japan. Growth in GDP steadily increased over the last decade (see chart 8.3 below).

While the global financial crisis

depressed commodity prices in late 2008, there was little effect on PNG’s economy as demand continued at a fast growing pace with a number of additional large projects coming on line as well as expectations of large injections of revenue from the LNG project which produced its first exports in May 2014. GDP grew by a record 11% in 2011 and public debt

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Instability, growth and decay

declined to around 28% of GDP and the budget recorded several consecutive surpluses (Chand, 2010:1).

Translating these large increases in public revenue into tangible

improvements in the living standards of the majority of Papua New Guineans remains at the forefront of development policy-making.

Yet intentional development policy that is

anticipatory of the negative benefits of growth in the resources sector through making the smallholder agricultural sector that supports the bulk of the population remains absent.

Chart 8.3 GDP Annual Growth Rate

12 10 8 6 4 2 0 -2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

-4

Source: Trading Economics http://www.tradingeconomics.com/papua-new-guinea/gdp-growth-annual

The fluidity of political processes meant that, although an MTDS addressing the theme of “recovery and development” reached the final draft stage for the 2003-2007 period, it did not reach the implementation stage, eventually being superseded by the subsequent plan. The 2005-2010 MTDS, however, picked up similar themes and strategies. Goals focused on export-led growth, good governance, rural development, human development and poverty reduction (Mawuli, et.al, 2006:5).

Funding for implementation was allocated

through the Medium Term Fiscal Strategy (MTFS) and the Medium Term Debt Strategy, with the second MTFS (2008–2012) mandating a 40/60 split for mining revenues between debt repayment and investment. Priorities for expenditure were to focus on “basic healthcare, primary education, transportation infrastructure, agricultural development, and law and

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order” (Chand, 2010:5). In his foreword to the MTDS 2005-2010, Acting Minister for National Planning, Moi Avei, wrote:

Since Independence, successive governments have prepared many worthy development plans and strategies that have promised to realise our national vision, as enshrined in our Constitution. While the plans and strategies were often soundly based, they have not been translated into results on the ground, and as a consequence, our nation is well short of achieving the national vision. In real terms, the plans of the past represent little more than an historical record of good intentions.

The initial priority of this MTDS was to create appropriate infrastructure for growth and development. An important part of this was Somare’s District Treasury initiative which began to be rolled out in 2004 and continued after his re-election in 2007. The program, involved the construction of modern treasury offices, staff houses, banking and postal services in all 86 districts throughout the provinces of Papua New Guinea. Services were set up in 52 districts but some of these were plagued by problems, such as power outages and security problems so that some of them appear to have become moribund. Progress on the roll out was halted as political imperatives intervened with the change of the Finance Ministry in 2006, so that the K50 million District Services Improvement Program complementing the roll-out failed to go ahead (Hiambohn, 2010).

As with previous plans, a very limited number of development projects actually reached the implementation stage, except those involving international capital, which were generally skewed to provide the maximum benefit to the foreign company with little benefit accruing to those in the affected rural areas.

Conversion of customary land suddenly

escalated significantly from 2003 in what Filer calls the ‘new land grab’. Almost five million hectares of customary land, that is 11% of Papua New Guinea’s total land area, was passed into the control of mostly foreign and multinational corporate interests from July 2003 to January 2011 by the government using the lease-lease-back mechanism to issue SABLs directly to private companies rather than going through the Incorporated Land Groups (ILGs) (Filer, 2011:2). While these leases were required to be made for agricultural development purpose only, the main purpose of these large-scale land leases was for logging (Filer, 2011:6) with authorisation being given to clear about two million hectares of native forest in

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Instability, growth and decay

existing SABLs, much of which is claimed to be of outstanding biological and cultural significance (Korugl, 2011).

Filer’s case study of the Baina Agro-Forestry Project supports assertions of rampant corruption where the landowner company which purported to represent a number of ILGs in the area had “collected their certificates of registration ‘for safekeeping’, but instead of just keeping them safe, had negotiated the lease of all their land to the State without consulting the group executives or securing their participation as shareholders in the company which had now been granted a 40-year lease over their land” (Filer, 2011:10). The development was to include transport and communications infrastructure to support the establishment of an oil palm plantation in the area. However, while K4.9 million worth of logs were harvested and exported in 2007 and the logging company quickly departed, “the Woitape people still lack road access to Port Moresby, while the fate of the oil palm seedlings and the new telephone lines is unknown” (Filer, 2011:11). A share in the proceeds of the logging project has also not been distributed, no tax returns have been filed and no other documents have been submitted to the Investment Promotion Authority (Filer, 2011:11).

While this demonstrates that often none of the benefits of ‘development’ accrue to the local landowners, certainly the detrimental effects have been severely felt. In a recent PNG Supreme court ruling awarding compensation against a Malaysian company of K225.5 million for illegal logging, the court stated, “The logging operation has completely destroyed the lives of the people and has had great impact especially on women and children.” It cited the environmental effects from the logging including erosion, flooding, loss of food gardens, and a decline in hunting animals (Hance, 2011). Land issues continue to be a considerable cause of conflict in Papua New Guinea as the local landowners suffer the negative effects of such capitalist development without realising any of the positive benefits.

Rather than

implementing development programs that would make their land more productive, such negative effects have destroyed its productive capacity along with the landowners’ livelihoods.

The history of various governments’ relations to landowners in the vicinity of mining projects has also been fraught with contention. While the Bougainville crisis is the worst manifestation of this contention, tribal warfare over land disputes related to resource development remains a common occurrence. More than thirty people in Enga Province were

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reportedly killed in 2011 in tribal fighting sparked by land issues, where combatants were engaged in guerrilla-type tactics using high powered weapons which include rifles and grenades (Poiya, 2011).

While laws prohibiting tribal warfare have proven largely

unenforceable so that it continues to be an ongoing problem, particularly in the Highlands, resource developments have been the most prevalent sites for conflict relating to claims of landowners with the significance of access to any benefits that may accrue. While the Bougainville crisis demonstrates the most extreme outcome of a land dispute, its poor handling by successive governments, and subsequent difficulties encountered by landowners in various other projects, including the Porgera mine, the Kutubu and Moran oil projects, the Hides gas project, and the Ok Tedi mine, has meant the trust and confidence of the rural population in the government, including their own Member, to bring development that would benefit them has been severely eroded.

Considerable international pressure has been applied to the Papua New Guinean government to further ‘good governance’ aid conditionalities. Usually these come in the form of institution building, strengthening and education programs, but at times IFIs have taken a more coercive approach, including the World Bank suspending a loan and cancelling its forestry reform project in 2005. Even greater direct intervention to address corruption was proposed by Australia, PNGs largest aid donor, as the discourse of state failure became ever more prominent. The Enhanced Cooperation Program (ECP) was designed to “promote sound economic management and growth in PNG, to help improve the law and order situation and ensure the integrity of national security systems” (AusAid 2004). This involved the placement of 100 Australian police on patrol and 45 Australian officials in direct placements in departments concerned with finance and criminal justice, including the prosecution of corrupt officials and politicians.

Initial opposition by Prime Minister Somare and Foreign Minister Namaliu were nullified when Australia made the ECP a condition of future aid receipts and it was implemented in late 2004. However, police officers were recalled and other officials diverted to advisory positions in May 2005 when the Supreme Court of PNG ruled that Australia’s demand for immunity from prosecution for Australian personnel was unconstitutional, equating to a breach of PNG sovereignty. Yet the crime and violence that are a clear representation of the disorder that results from the negative effects of the spontaneous development of capitalism remain. The idea of development therefore, continued to hold

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Instability, growth and decay

great importance to both the government and constituents in Papua New Guinea.

A

development plan continued to be an essential element of leadership. With the resources sector booming, demonstrating a commitment to bringing development to rural areas became more pressing for ensuring order in the country.

Amid great fanfare, Michael Somare announced the launching of the Papua New Guinea Vision 2050 on 18 November 2009, declaring the day a national holiday to celebrate his government’s delivery of a plan to make PNG a “richer, safer and healthier country by 2050”. He called the document “a gift from the Government to the people,” and called it the most significant instrument since the adoption of the national constitution in 1975. The ‘vision’ for Papua New Guinea was “We will be a Smart, Wise, Fair, Healthy and Happy Society by 2050.” The mission statement indicated that PNG “will be ranked in the top 50 countries in the United Nations Human Development Index by 2050, creating opportunities for personal and national advancement through economic growth, smart innovative ideas, quality service and ensuring a fair and equitable distribution of benefits in a safe and secure environment for all citizens” (NSPT, 2009:30). The Human Development Index (HDI) is compiled by the United Nations Development Program (UNDP) to measure and compare human development across countries, combining four indicators of development:

1.

Life expectancy at birth

2.

Adult literacy rate

3.

Gross combined school enrolment ratio

4.

GDP per capita in purchasing power parity measured in US dollars

In the 2009 Report, PNG was ranked 148th of 182 countries, by 2013, it had slipped down to be ranked 157 (see table 8.5 at the end of this chapter). PNG’s HDI ranking has gradually deteriorated over time as its development efforts have failed to match those of other developing nations. While it progressed from the low human development category to the medium category from 1995, measured by a HDI ranking of at least 0.500, PNG’s HDI progress stalled at that point, with it slipping back into the low human development category. There is obviously still a very long way to go to meet this lofty aspiration and it seems that Papua New Guinea will be reliant upon foreign assistance for its development projects for a very long time to come. While the intent to develop remains a powerful aspect of the discourse of government in Papua New Guinea, such an intent has not been translated into a

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development doctrine that includes deliberate action through government institutions to make the rural sector more productive in order to raise the living standards of the majority of citizens. The positive effects of the spontaneous development of the resources of sector, including strong growth in GDP, continue to be accompanied by the negative effects of a stagnating rural economy, resulting in unemployment, underemployment, poverty, crime and civil unrest.

In 2011, Somare, then seventy-five years old and suffering from ill-health in hospital in Singapore following major heart surgery, was replaced as prime minister by former treasurer Peter O’Neill, the member for the Southern Highlands constituency where the multi-billion kina LNG project was underway.

This project is the largest development

project ever undertaken in the country, and was predicted to double the size of the economy as it came on line in 2014. As with the Panguna mine coming into production at a pivotal juncture in PNG’s development project, the capacity of the government and, most importantly, the bureaucracy, to translate this large windfall into public investment to generate higher standards of living for the majority of Papua New Guineans who live in the countryside remains questionable. The assistance of Australia, both technical and in terms of aid funding, is a high priority, with O’Neill making efforts to rekindle a close and cooperative relationship with the Australian government.

Returned as Prime Minister following the 2012 general election, O’Neill launched The National Strategy for Responsible Sustainable Development in 2014. It was noted that PNG’s population from 3 million in 1980 has doubled over a 25 year period as it stands at 7.3 million today. Population sustainability is part of the strategy which also includes biodiversity, tuna resources, major river systems, culture and heritage, rain forest and mineral and petroleum resources. Clearly influenced by contemporary international development ideas, the strategy was well received by the UNDP and other stakeholders, with the firm qualification that there needs to be more leadership and guidance from the top to local levels in order to get it rolling. Time, capacity and a strong sense of national purpose of course, remain of the essence. Such an intent to develop has, of course, been a major feature of the political discourse in Papua New Guinea with limited implementation. With resource prices falling by the end of 2014, the inevitable boom and bust cycle of the international market will stretch PNG’s investment capacity just as it has since independence.

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Instability, growth and decay

Conclusion

The idea of development has retained its power in Papua New Guinea as is demonstrated by the continuing attachment to the idea of local development by the majority of the population living in rural areas.

Such an attachment resonates in successive

development planning documents over many decades in Papua New Guinea as governments continue to attempt to demonstrate a commitment to development as a basis for domestic and international legitimacy.

Yet such commitment to the idea of rural development, the

continual reiteration of the intent to develop this sector which continues to provide a livelihood for the vast majority of the population has not translated into developmental action. Despite a rhetorical commitment over many years to development planning that emphasises rural development with a particular focus on smallholder agriculture, the Papua New Guinean economy remains largely reliant on multi-national resource extraction ventures in the mining, petroleum and gas sectors. These development activities, whilst contributing the positive benefit of growth in GDP, have not led to employment or service opportunities for the vast majority of Papua New Guineans.

The underemployment, unemployment and stagnation that results from the boom and bust cycle of the market mechanism is the manifestation of the spontaneous development of the resources sector. The unity of spontaneous and intentional, and also of positives and negatives, in the development process has not been effected by successive governments. Any ideas about building on the previous development of smallholder agriculture, to make productive that which is unproductive or under-utilised, were abandoned all but rhetorically, as all available resources, including heavy borrowings, were poured into bringing alternative mineral development projects on line to boost revenue.

Fiscal crises reinforced the

spontaneous development of the resources sector as the major driver of economic growth. While the role of the government in formulating and implementing development policy is essential, ideas on what that role entails have changed over time.

The capacity of

governments and the state bureaucracy to set achievable goals and mobilise all their limited resources in order to ensure priorities are met remain key to ensuring the living standards of the population are improved.

Trusteeship. the central idea of development that the

government must act in the best interests of society as a whole has completely disappeared from development practice in Papua New Guinea.

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Table 8.4 Changes of Prime Minister 1975 to 22014 Prime Minister Michael Somare

Dates in Office Sep 1975 – Aug 1977

How position achieved Chief Minister from self-

Party Pangu Pati

government, became Prime Minister at independence Michael Somare

Aug 1977 – Mar 1980

General Election

Pangu Pati

Julius Chan

March 1980 – Aug 1982

Vote of No Confidence

People’s Democratic Movement

Michael Somare

Aug 1982 – Nov 1985

General Election

Pangu Pati

Paias Wingti

Nov 1985 – Aug 1987

Vote of No Confidence

People’s Democratic Movement

Aug 1987 – Jul 1988

General Election

Rabbie Namaliu

Jul 1988 - 1992

Vote of no Confidence

National Alliance

Paias Wingti

Jul 1992- Aug 1994

General Election

People’s Democratic Movement

Julius Chan

Aug 1994- Jul 1997

Vote of no confidence

Minority Party

Bill Skate

Jul 1997-Jul 1998

General Election

People’s National Congress

Mekere Morauta

Jul 1999-Aug 2002

Vote of no confidence

National Alliance

Michael Somare

Aug 2002-Aug 2011

General Election

National Alliance

Peter O’Neill

Aug 2011 – Jul 2012

Disputed

People’s National Congress

Jul 2012 incumbent

General Election

Various Sources

174

Instability, growth and decay Table 8.5 Human Development Index – Papua New Guinea

Year

Ranking

HDI

Life Expectancy

Adult Literacy

Enrolment

GDP per capita

2013

157

0.491

63.1

60.6

60

2,386

2012

155

0.490

62.4

60.2

58

2,453

2011

153

0.466

62.8

60.1

54.9

2,271

2010

137

0.435

61.6

59.6

54.9

2,227

2009

148

0.541

60.7

57.8

40.7

2,084

2008

145

0.530

56.9

57.3

40.7

2,563

2006/07

139

0.523

55.7

57.3

41

2,543

2005

137

0.523

55.3

57.3

41

2,619

2004

133

0.542

57.4

64.6

41

2,270

2003

132

0.548

57

64.6

41

2,570

2002

133

0.535

56.7

63.9

38

2,280

2001

122

0.534

56.2

63.9

39

2,367

2000

133

0.542

58.3

63.2

37

2,359

1999

129

0.570

57.9

73.7

37

2,654

1998

129

0.507

56.8

72.2

37

2,500

1997

128

0.525

56.4

71.2

38

2,821

1996

126

0.504

56

70.5

35

2,530

1995

126

0.503

55.8

69.7

34

2,410

1994

129

0.408

55.3

65.3

1*

1,550

1993

129

0.318

54.9

52

0.9*

1,785

1992

116

0.321

54.9

52

0.9*

1,834

1991

117

0.353

54.9

46.7

0.9*

1,960

1990

39/130

0.471

55

45

1987

55

1985

43

490 49

1970 1960

700

45

1976 1975

1,843

32 41

175

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Chapter 9

Conclusion

Introduction

As described in chapter two of this study, the modern idea of development was invented in the early nineteenth century to deal with conditions of unemployment and disorder in rapidly industrialising Western Europe. This idea was incorporated into state policy that combined both what is external and spontaneous with what is internal and intended in the development of capitalism in order to benefit the nation as a whole. Such ideas combined state power and national capitalists in a long-term project to increase living standards to that of an advanced capitalist economy. The transformative project was to be carried out by trustees who would act through the state to bring development, which is the unity of the spontaneous and the intentional, in the interests of society as a whole where the over-riding authority is capital. The idea subsequently disseminated widely; to Japan in the late nineteenth century during the Meiji restoration, and to other East Asian states, including South Korea following liberation and the devastation of war in the mid-twentieth century. The idea also extended to Australia at this time, where it was reformed when formulating strategy for administering Australia’s colony of Papua and its trusteeship in the UN Trust Territory of New Guinea. In the case of South Korea, state policy-makers embraced a manufacturing doctrine of intentional development whereas in Papua and New Guinea, Australian policy-makers and subsequently, albeit briefly, the indigenous leadership, opted for an agrarian development doctrine. Both of these development strategies were forms of capitalist development and included a significant role for the state in constructing and implementing intentional development policies designed to boost employment and ensure stability. By taking a retrospective historical perspective to the development ideas in these two countries with particular emphasis on the role of the state in both industrial and agricultural development, this study expands and challenges the developmental state literature beyond its contribution to explaining manufacturing industrialisation to provide an explanation of the vital role of the state in rural development.

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Chapter 9

This concluding chapter will detail the unique contribution of this study to the literature on development in general, and on the developmental state in particular. It will then provide a summary of the arguments and empirical detail presented in the two case studies.

The idea of the developmental state was initially formulated to deal with

manufacturing industrialisation in Japan and then extended to other countries including South Korea.

In order to better understand the importance of the extension of the idea of

development and the developmental state to deal with agricultural development, it is important to explain in detail the earlier characterisation. Where better to start than with South Korea because of the most recent framing of the idea of development in the Seoul Consensus where both the universality and particularity, especially national characteristics of development policy, were emphasised. While the renewed emphasis on the vital role of the state in bringing intentional development is clear from this study, the question of what form such a developmental state should take has not been considered. Although the pattern for all of the developmental states has been for development to be a precursor to subsequent democratic enlargement, Japan, the etatist European countries, and the recent democratisation of South Korea all suggest that developmentalism and political democracy are compatible if not necessary. Wade (2004:xliii), too agrees with this assessment, considering that the case of Taiwan also shows how governments can impart directional thrust to the economy even when subject to real democratic accountability and in conditions of a globalised world economy.

Certainly, the burgeoning literature on building democratic developmental states

in Africa demonstrate widespread support for the idea. The chapter finally concludes the study with educated speculation on the importance of this study to contemporary ideas on development.

Developmentalism and agricultural development

The pursuit of new ideas on development has inevitably focused attention on explanations for how countries have become economically advanced. A large body of this attention has recently focused on the economic transformations that have taken place in East Asia and elsewhere, where the comparatively rare example of countries that have managed the incalculable task of lifting the vast majority of their population to today’s relative affluence has been considered highly instructive.

Notwithstanding some lingering

disagreements, there is a broad consensus that the unparalleled growth of these economies is fundamentally due to activist intentional development policies of the state, a perspective

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Conclusion

distinguished as the ‘developmental state’ thesis. The principle concern of the considerable academic attention to the developmental state has focused on manufacturing or industrial transformation in countries with substantial urban populations and extensive wage labour employment. Where the agricultural sector has been considered by some developmental state scholars, this has been in the context of the contribution that agrarian reform made to creating conditions conducive to the emergence of a strong developmental state. Yet the concerns of both manufacturing and agrarian development doctrines remain the same. Both seek to support and accelerate the spontaneous development of capitalism by making productive those sectors of the economy that were or had become unproductive. In this way, these development doctrines inform agents, in this case trustees, to use state actions to avoid or resolve the problems of disorder and poverty that come with widespread unemployment and social unrest that is a negative consequence of spontaneous development.

This study shows that extending the developmental state thesis to explanations of rural development doctrine enlarges the idea of development in a significant direction. When many countries still grappling with development have very substantial rural populations, this enlargement suggests possibilities for development that are excluded by confining the practice of development to increasing urban manufacturing. By analysing these two differing development doctrines, that is, one manufacturing industrialisation, and the other an agrarian, or rural development doctrine, this study shows that the expression of trusteeship inherent in the idea of the developmental state thesis is equally as applicable and effective to rural, predominantly agricultural, development programs as it is to development programs with an urban, manufacturing bias. As Johnson fervently asserts, a developmental state is one form of a capitalist state and therefore such ideas could extend to other capitalist states. But Johnson does not consider the possibility of agricultural development.

Johnson’s

developmental state is limited by the empirical focus of his study on Japan and others who have taken up the developmental state idea have also been trapped by this focus on industrial development (see chapter 2). This study breaks this empirical barrier to ask what about agricultural development? In this sense this study follows Cowen and Shenton who note the Enlightenment origins of the original idea of development included agricultural development which was extended to the African colonial experience in the nineteenth and twentieth centuries (see chapter 2). Developmentalism takes as its starting point the external authority of capital but considers that although the market and accumulation are fundamental forces of the economy, at times it can produce pressing socio-economic issues that affect the society.

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As such, where the operation of the market includes negative impacts such as unemployment, governments and administrations may play an active and essential role to govern and guide the market toward attainment of the goal of socio-economic development in the interests of the whole of society. This means that development is a unity of the intentional and the spontaneous. Developmental states implement policy that balances the productive capacity of important sectors of the national economy in order to mediate between international markets and global competition for capital and domestic actors. The thesis argues that such forms of development should extend to both industrial and agrarian development doctrines.

Manufacturing industrial development doctrine – the case of South Korea

The South Korean case study illustrates how development policy and practice has been heavily influenced by exogenous and endogenous forces. The Japanese imperial period that integrated Korea into the international economy contemporaneously implanted the ideas on the essential role of the state in economic development. Japan also subsequently provided an exemplar for the South Korean developmental state that was to come. As the geo-strategic importance of Korea in the Cold War conflict saw South Korea become a ward of the United States, with heavy aid flows to the war-devastated country, the influence of the US in economic and development policy-making was also pervasive. US development assistance focused on South Korea’s seeming comparative advantage in agricultural production, with its aim to support the Japanese economy through revitalising South Korea’s role as a supplier of food to Japanese industrial workers. With this in mind, efforts were made to support the expansion of agriculture in conjunction with US market fluctuations.

Following the entrenchment of South Korean importance to the US regional agenda following the civil war, President Syngman Rhee managed to channel significant US aid into the re-establishment of a large and powerful state structure and the establishment of private South Korean business interests, mainly in construction and light manufacturing, through an import substitution strategy. The goal of the Rhee-led government’s development strategy was establishing self-reliance for South Korea and to avoid a return to a subordinate position in the Japanese-led regional economy. The ability of Rhee’s government to bring about such development practice was predicated on the assurance of the power of the state through land reforms that had created a large class of smallholder landowners, placating rural unrest and abolishing the large landowner class that had posed the only real internal challenge to his

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government’s authority. Such land reforms are regularly cited in the academic literature as an important pre-condition for the establishment of a developmental state.

Although such efforts were effective in building the economy while US aid continued to be funnelled into reconstruction projects, a huge drop in economic assistance from the US saw the aid budget slashed in half as the 1950s came to an end. The expansion of capitalism in South Korea at this time did not reach the majority of the people who remained on smallholdings in rural areas. Rather than using the role of trustee in implementing national developmental programs, Rhee sought to bolster his own political support through allocating the benefits of large US aid receipts to a small group of business interests and expanding the suppressive capacity of the state to deal with dissent. Yet such state suppression was not enough, as opposition to corruption boiled over throughout the countryside. While Rhee implemented intentional development policies to make some sectors of society productive, the effectiveness of such policies was clearly limited. These limitations were both internal, in that intentional development ensured ongoing electoral funding via selected business owners, but not electoral success as corruption caused considerable disaffection, and by external factors, whereby a reduction in the source of ongoing funding for intentional development, that is US aid, had not been accounted for.

Whereas violent political unrest due to

widespread unemployment brought about the end to the Rhee regime in 1960, the development ideas that he implemented during the course of his presidency, that is the ISI push and state-building, set the foundations for the effective developmental state that was to come. These included a strong bureaucracy, a weak and cooperative business sector and a sense of nationalism that encouraged rapid economic development in order to ensure emerging national independence. It is these three important conditions that gave rise to the South Korean developmental state that sustained the socio-economic transformations of the 1960s and 1970s.

The 1961 military coup d’état by General Park Chung Hee began a major transition in South Korean development ideas. The strategic environment, with a hostile power just over the northern border and declining US military and financial support, provided the impetus for the idea that rapid, export-oriented industrialisation was essential to build self-reliance for national security.

As Johnson asserts, a state’s first priority will define its essence, so the

Park regime set about restructuring the already formidable state apparatus into an effective developmental state in the fashion of the Japanese precursor. The legacy of the Japanese

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strategy involving close collaboration between big capital and the state in successively targeting industries meant that while the government was inevitably to be a significant actor in this transition, Park was all too aware that a capitalist economy required capitalists. So those select businessmen who had benefited under the Rhee regime were co-opted into the government-led industrial project by first being disciplined and then by implementing strict controls over the financial sector to ensure that businesses were directed toward (more) productive rather than speculative non-productive activities. This meant the private sector remained heavily reliant on the government to expand their companies in the targeted industries, building the huge business conglomerates, the chaebol.

The policy-making

mechanism was reorganised, privileging the economic planning ministries, particularly the EPB, which was to be the developmental pilot agency that implemented targeted economic planning in successive five-year increments and built a powerful, professional, committed and competent bureaucracy to ensure state-determined priorities were met. Such plans were to be implemented with a long-term vision for the economy, largely autonomous from political interference.

While corruption was not completely stamped out, rewards and

incentives were only provided to those business leaders who were able to meet strict targets and performance criteria. Through these effective developmental institutions, the South Korean developmental state was able to mobilise its economic, political and social resources to implement its commitment to accelerating economic growth and export earnings in order to raise South Korea’s capacity to protect itself in a hostile global environment. The state took on the role of trustee for society, by mediating between this global environment and the national economy to ensure the political stability that was seen as essential to long-term economic planning. Such political stability was to be predicated upon the inclusion of the population in the benefits of economic growth through the rapid increase in wage employment in the new factories established in strategic locations.

Such employment

resulted in higher living standards and rapid urbanisation, with inputs into agriculture in order to support this. Agricultural productivity increased, freeing up labour for the factories, and food prices were kept low to allow urban wages to be maintained at as low a level as necessary to produce low cost goods. This is essentially where the academic literature on the developmental state completes its concerns with agrarian development. The capital account was also strictly controlled in order to keep the cost of finance at a level that would sustain long-term investment and minimise risk. This is what Amsden (1989:52)) called ‘getting the prices wrong’ in order to ensure economic growth, political stability, low unemployment, higher living standards and to create profitable investment opportunities.

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contributed to what Amsden (2014:81) most recently called “securing the home market” – that is, ensuring productive assets and firms were in the hands of South Korean nationals rather than foreign nationals. By the end of the 1960s, the South Korean economy had in place the indispensable conditions for effective implementation of intentional development programs; a developmental state that could exploit its external conditions and harness the productive capacity of domestic sectors; a reasonably well developed and committed national capitalist class to carry out its programs; and a global political structure that allowed South Korea access to the important US market, particularly as war in Vietnam drove demand. Light industry, such as textiles and secondary processing of primary goods expanded, the economy began to boom, with double-digit economic growth and higher living standards for the workers who fuelled it.

The South Korean intentional development program showed

significant results, dispelling unrest by creating widespread employment opportunities and keeping the effects of inflation at bay. Yet there were limitations to the government’s intentional development policy which called into question its effectiveness as trustee for society. External factors had important domestic implications that necessitated a change in intentional development policy to deal with the negative impacts of the operation of global capitalist forces.

As the Cold War conflict took its toll on the US economy, the US commitment to Vietnam began to wind down and troops began to be withdrawn from South Korea.

A

devaluation of the US$ and increased US protectionism in the textile industry to bring its large trade deficit into balance halted South Korea’s phenomenal industrial expansion and foreign investors and lenders quickly lost confidence. The impact of such external factors, along with the 1973 oil shock, saw South Korean industrial policy take a major turn. Widespread political unrest, in both urban and rural areas, called for a new direction in order to resolve the problems of rising unemployment, inflation and associated poverty. The remedy for the social and economic woes in the demise of light industry was the South Korean ‘Big Push’ into heavy and chemical industries to reconfigure and restore the productive capacity of the national economy . Diversification of the economy was to proceed through targeted growth in new industries, including steel, shipbuilding, and electronics. Again, the bureaucracy developed and implemented intentional development plans in conjunction with the chaebol, devaluing the currency and borrowing heavily to finance rapid industrial expansion. The economy returned to strong growth, employment increased, greater

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skills meant higher wages, and again, state-led intentional development policy had staved off the domestic problems caused by the inherent instability of the global economic system. A return to effective developmental trusteeship whereby development was understood as a synergy between the spontaneous and the intentional in the national interest was also clearly demonstrated.

At the same time, the Saemaul Undong or New Village Movement, was rolled out in the 1970s as the rural-urban income divide had increased significantly due to the urban bias of the industrial development doctrine. Park sought to build a popular base in the electorallyinfluential rural areas by stimulating the agricultural sector, as well as to create incentives for rural populations to remain in the countryside as the industrial sector stagnated. This rural development campaign resulted in dramatic changes to the village environment, such as the advent of paved roads, new and renovated housing, piped water, electricity and community halls. Extension services were provided to increase yields in rice crops and procurement prices for rice rose so that rural incomes surpassed depleted urban incomes in 1974. Such efforts at agrarian developmentalism have received recent attention by academic and policy analysts seeking to improve rural development policy. But such programs in South Korea were limited as intentional development programs continued to prioritise the industrial manufacturing sector.

While village infrastructure was improved, income generation

schemes which attempted to build up light industry for off-farm employment in the countryside failed to curb the rural exodus to the cities.

While rural unrest was abated for

some time, this was not to last as the government ended its high rice price policy when the industrial sector took off again, returning to its bias towards supporting urban-industrial workers. The second oil shock in 1979 caused a significant contraction in the economy with particularly dire consequences for workers and those seeking to enter the workforce as unemployment increased dramatically. Student protests spread far and wide and the resultant violent military suppression led to the assassination of Park Chung Hee. Again, external factors had significant consequences for domestic stability but the intentional development policies had not effectively anticipated the impact of the inherent instability in international markets. New development ideas were sought to deal with what appeared to be a structural weakness in the heavily regulated South Korean economy.

While military rule continued into the 1980s, the new leadership introduced stabilisation measures designed to deal with the social and political unrest caused by the

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severe economic shocks. These included some serious moves toward trade liberalisation under mounting pressure from the United States, still South Korea’s major trading partner. Of equal, if not greater, importance was the political transition that occurred as the new decade saw the democratisation of the South Korean polity.

This transition caused

considerable confusion regarding the continuing role of the state in the economy, and the interventionist powers of the all-encompassing developmental state began to be rolled back. The role of government as trustee for national development through the implementation of intentional development policy was relinquished. Unrest became widespread, both within the industrial workforce and in the rural areas, leading to significant wage rises that impacted international competiveness just at a time when the economy was opening to international market forces. The solution was the rapid liberalisation of the economy with a particular focus on the financial sector which had previously been tightly controlled by the state as the internationally influential neo-liberalist ideas became more prominent within the economic bureaucracy in South Korea. While this qualified South Korea for OECD membership, the abolition of the EPB, South Korea’s developmental pilot agency, and the dismantling of state capacity to intervene to make adjustments when necessary had dire consequences as the economy was severely affected by the Asian Financial Crisis in the late 1990s.

However, such a catastrophic economic downturn provided the catalyst for the long-held ideas about the role of the state in guiding the economy through the strategic allocation of resources and provision of a long-term vision of national prosperity to again be legitimised as part of a democratic South Korea. The economic bureaucracy swung into action to implement policy that would make productive that which had become unproductive. The industrial sector and the chaebol were consolidated under government guidance, and then dramatically expanded, providing the increase in the highly skilled labour force that had propelled its previous rapid economic growth. The essential role of government as trustee for national development was revised to take account of new circumstances, both internal, particularly the transition to democracy, and external, as South Korea’s competitive position in the international economy was reaffirmed.

While internationally influential development ideas have been adopted in South Korea over time, the developmental state, which had been a crucial feature of South Korea’s industrialisation process since the 1960s, regained and maintained its capacity to implement intentional development policies designed to deal with its own unique domestic situation.

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Intentional development of the industrial sector through policy that supported securing the home market emphasises the importance of nationally-owned companies in generating employment and accumulating technology and skills in developing countries.

As the

democratic South Korean leadership turn its considerable transformational capacity to issues relating to the transition from a manufacturing to a services economy, including important development issues relating to regional and gender inequalities, it is evident that developmental capitalism remains equally as relevant to the infinite tasks of promoting ever higher levels of national competitiveness and prosperity. While policies may vary, what remains essential to developmentalism is the overarching role of government as trustee of develoment as it implements intentional programs to mitigate the negative affects of the relentless immanent development of capitalism. That such developmentalism need not be confined to industrialisation was then considered in the context of its application to an agrarian development doctrine to show that an effective developmental state can use its capacity for any type of intentional development project.

Agrarian development doctrine – the case of Papua New Guinea

The need for post-war reconstruction and bolstering the country as a forward-defence strategy saw the extension of intentional development ideas to Papua and New Guinea. While the post-war era began without challenge to the authority of the Australian colonial government, there was some uncertainty as to the continuing role of expatriate plantations and commercial interests in the economy. Development efforts focused on rehabilitating the land and the people who had suffered from the devastating effects of war. Such efforts were informed by the concern that the interests of the native people were paramount with a new emphasis upon development ideas regarding extending development in Papua New Guinea. This new emphasis meant that development plans were to be framed as an intentional process with the Australian administration carrying out development responsibilities through the exercise of trusteeship, both formally and in practice as the colonial power in Papua and as part of the UN mandate in New Guinea. From the 1950s, a policy of uniform development was pursued. The uniform development policy utilised developmental ideas of mobilising state resources, both financial and administrative, to build a productive colonial economy in Papua New Guinea. Such policy centred entirely on an agrarian doctrine of development.

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The colonial administration was able to implement the uniform development policy largely autonomously from political imperatives in Australia. While capacity constraints existed, the administration was able to utilise all available expert and experienced personnel to effectively frame and implement policy in a considerable developmental effort to bring more and more areas of PNG into the capitalist economy. It was considered that the role of government was essential in allocating resources to rural communities. Such state-led rural development occurs, as in PNG, within the context of capitalism and private farming. Instead of relying solely on market forces to gradually transform rural production and the village environment, the colonial state carried out rural development programs in order to achieve its goals.

Such development programs required a high level of bureaucratic and popular

mobilisation.

The main aim of the policy of uniform development was ‘securing village life’ in order to provide the basis for economic and social security for the large proportion of the population living in rural areas. The means for achieving this goal centred on the provision of government services to improve living standards through increased production of produce for immediate consumption and for markets, both domestic and international. The goal of increased production was premised by considerable administrative involvement in the planning, coordination and implementation of projects and programs. An agricultural plan was produced which sought to maximise yields and services to small farmers. A high degree of state-assistance was provided to rural communities and a high degree of administrative control was exercised over the marketing of agricultural commodities.

The colonial

government clearly acted in a developmental way, implementing intentional programs to make productive that which was unproductive - land and labour - through the exercise of trusteeship for the benefit of the people of Papua New Guinea as a whole.

As a result of implementation of the uniform development policy, production and export of three crops; coffee, cocoa and copra, increased substantially, with the most significant increases being in household production on small acreages held under customary title. In this way, intentional agricultural development was designed to both extend and advance capitalist development through state investment, provision of extension and agricultural research services as well as establishing health and education facilities in more and more areas of the largely-populated interior.

At the same time, the policy strictly

favoured small-scale self-employment in order to avoid the exploitative effects of wage

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labour and dislocation from large-scale alienation of customary land.

As such, the

spontaneous elements of agricultural development, particularly the rehabilitation of the plantations of the pre-war era by either expatriate or indigenous owners and the expansion of indigenous business interests in the already advanced regions, was restrained by administrative officials in order to allow the rest of the country to gradually develop in a uniform way to avoid the negative effects of uneven development. The agrarian focus of intentional development in Papua New Guinea ensured that a substantial proportion of the population remained in rural areas, secured on smallholdings, with improved living standards due to increased capacity to produce crops for immediate consumption and increased access to cash incomes through production of commercial crops for export. Agriculture became the largest sector of the economy, both in terms of employment and export earnings.

While the implementation of uniform development proved effective in a number of areas, the policy came under challenge as the gradualism inherent in the policy meant the rate of growth was much slower than was being sought. Much of this challenge came from international agencies, particularly the United Nations and the World Bank, which urged the Australian administration to accelerate its efforts in preparing PNG for self-government. By then, the Australian administration had come to the same conclusion, seeking greater public and private investment in the territory to quicken the pace of its effective agrarian developmental program. The development of indigenous agriculture and the extension of government services to more and more rural areas had secured village life for many Papua New Guineans. The 1960s then saw a shift in development ideas to the policy of accelerated development in order to maximise economic growth. Under the accelerated development policy, the primacy of intentional development gave way to the primacy of spontaneous development, but many of the effects of the earlier emphasis upon smallholder agriculture remained.

While the foundations of a primarily rural economy with substantial indigenous participation was acknowledged, the increased international attention to the idea of selfdetermination for indigenous peoples increased the need to accelerate economic growth to ensure PNG would be ready for self-government more quickly than the administration had anticipated. The recommendations of the World Bank to focus attention on areas of the economy with the greatest potential for rapid growth were accepted by the colonial administration which implemented the policy of accelerated development as its major

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program for PNG in the 1960s.

Policy then focused government support on the rapid

expansion of already advanced sectors and regions rather than intentionally developing those where economic growth and improvement in living standards had not been as substantial. This meant that such policy was framed through a shift in the relationship between spontaneous and intentional development, as well as a shift away from smallholder agriculture as the focus of intentional development. The continuing role of the colonial government as developmental trustee became seriously constrained by both internal and external actors.

In line with influential international development ideas of the time, the process of accelerated development was to be supported by a substantial expansion of the role of the colonial administration in directing and managing rapid growth of the economy to enable PNG to become self-sufficient.

The Australian government substantially increased the

administrative budget for Papua New Guinea and a large influx of expatriate managers and technocrats followed. The role of the colonial administration changed significantly from being the primary driver of intentional development to a focus on fostering a rapid increase in spontaneous development, particularly through the encouragement of private foreign investment, mostly from Australia. Policy continued to have an agrarian bias but focused on revitalising the formally expatriate-owned plantations in order to maximise economic growth and expand revenues to minimise continuing budget funding from Australia.

With

substantial government support through the expanded Department of Agriculture, including extension services, research and direct investment in joint ventures, the plantation sector in the form of large agribusiness enterprises expanded rapidly. The power and influence of the owners and operators of these plantations expanded with it, challenging the colonial state’s capacity to provide continuing support for smallholders.

At the same time, support for inclusion of those regions where participation in the monetary economy was at the lowest levels was largely discontinued as resources were focused on areas which would bring the most rapid growth. The prior focus of development policy on smallholders, however, continued to resonate with Department of Agriculture officials and smallholder agriculture also expanded in the most advanced areas, particularly in the newly-promoted oil palm sector where indigenous growers supplied the nucleus estates.

Uneven development became increasingly distinct as already advanced regions

advanced even further. Such uneven development became even more pronounced as the

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discovery of vast deposits of copper and gold at Panguna in Bougainville and the prospecting boom that ensued brought a new era of internationally-driven spontaneous development to Papua New Guinea just as self-government moves accelerated. Although the majority of the population remained in the smallholder agricultural sector, the new mining boom had a significant impact on the direction of development policy which refocused on rapid economic growth through the industrial resource-extraction sector. Uncertainty regarding the future direction of development reigned.

Such a change in priorities at this pivotal moment of Papua New Guinea’s economic and political development was to have far-reaching effects. The potential for large injections of revenue and a huge boost to the export sector was hailed as a great boon in reaching the goal of budgetary sustainability as the push for independence from both international sources and a newly awakening nationalism among educated indigenes accelerated political development along with accelerated development of the economy. Bringing the Panguna mine into production became the main focus of the colonial administration in the final years before self-government.

While the managers and technocrats in the Department of

Agriculture were largely left to plan and implement the rapid expansion of agricultural crops, most public and private investment as well as skilled manpower were poured into the Panguna project.

This, and subsequent mining developments changed even further the

relationship between spontaneous development and the formulation of intentional development policies.

As the country proceeded through self-government to independence in the 1970s and control of government was transferred to an indigenous elite, ideas on the form national development should take were reframed in terms of resistance to foreign control of the economy through self-reliance. Substantially influenced by the ideas presented by a joint World Bank-UN mission, the late-colonial focus on growth as the major driver of development was replaced with a set of socio-economic objectives that centred on equitable distribution of wealth through rural development. But a major battle between the competing interests of the educated indigenous elite that formed the government of the newlyindependent state of Papua New Guinea took place, especially over land and whether the largeholdings being vacated by expats would pass to indigenous capital or be broken up into smallholdings.

While the internationally-driven spontaneous development shifted to the

industrial sector in the form of extractive industries, the importance of the agricultural sector

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continued to be recognised in intentional development policies, with sights set on gradual, balanced rural development to incorporate the entire population in a national economy. The idea was to raise revenue through the booming mining sector to redistribute to rural areas through the expansion of services and investment in rural enterprises, particularly in smallholder agriculture and the development of small business. Such development was intended to increase the productive capacity of land and labour throughout the nation. This would also assist in achieving the goal of self-reliance and an agreement was made with Australia for a planned and predictable reduction in budgetary aid. Yet such plans were cut short as capacity constraints in the form of skilled manpower and reduced revenues seriously circumscribed the effectiveness of such intentionality.

The downturn in the international economy caused by the first oil shock in the early 1970s brought considerable economic uncertainty and double digit inflation, followed by urban unrest.

This led the government to prioritise the pursuit of stability as its most

important objective.

Attention was focused on strict control of expenditure with little

concern for the setting and monitoring of targets for either the public or private sector. The rapid localisation of the bureaucracy also saw a rapid decline in the capacity of the state to formulate, coordinate and implement policy. A significant consequence of this was the increased recourse to mining projects and mining activity in PNG which depended on international capital, technology and knowhow – completely undermining any effort at selfreliance, whether real or rhetorical. To compound this, the booming mining sector continued to create pressures for a high exchange rate and a high wage policy. This squeezed the plantation agricultural sector and adversely affected the smallholder agricultural sector on which the majority of Paua New Guineans continued to rely, as price competitiveness became a serious deterrent to investment and growth. So while rural development was said to be the main priority, in practice, this was not the case as monetary policy had a definite industrial and urban bias. Services to rural areas, including in education and health, commenced a rapid and inexorable decline. With little public investment in rural areas, the idea of intentional development, except rhetorically, had fallen by the wayside. Redistribution as a development goal was really never put into practice – the focus in practice remained firmly on growth of the mining sector in order to raise revenue for ongoing expenditure with any of the limited funds available for public investment going towards infrastructure projects to attract greater international investment in further mining projects. Uneven development proceeded, along

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with all the negative effects that intentional development programs anticipated, but without implementing such programs to mitigate these. At the same time, the uncertainty of the transition to self-government and independence had caused considerable international capital flight in other sectors so that indigenous interests in the more advanced areas had taken over many commercial businesses and large agricultural holdings. This solidified the formation of an influential rural elite with growing economic and political power. The expansion of mining interests, particularly the use and subsequent abuse of large tracts of customary lands, came into conflict with the aspirations for expansion of advancing indigenous agricultural interests. Such conflict, along with conflict over the equitable distribution of mining profits, led to political and social unrest, secessionist movements and eventually outright rebellion. In order to ensure the nation did not disintegrate before it even began, the system of government at independence included provincial governments along with central and local government. This, too, was to be the source of much political and economic turmoil, along with the political instability of grand coalition-governments, shifting loyalties and insecurity of office as political power struggles ensued in a multi-layered democratic system. This further exacerbated capacity constraints due to a shortage of administrative, technocratic and managerial talent and reduced revenues as Australian budget support wound down and the second oil shock hit at the end of the 1970s. This was accompanied by the Bougainville rebellion, leading to the closure of the Panguna mine, which accounted for half of all revenues at the time. It was clear that reliance on international financial institutions and Australian aid would continue to be a feature of the PNG economy for some time. Subsequent ideas on the role of the state in economic development in PNG were heavily influenced by the prevailing international development ideas as the state itself was seen as the major impediment to development which should spontaneously spread throughout the nation as a whole. Basically, the state was out and the market was in. This meant that the role of the state in leading, guiding and sharing in the investment in the rural sector had gone from uncertain to no longer required before an effective intentional development program could be implemented. Since then, while the PNG bureaucracy and its international advisers continued to formulate development strategies, plans and programs that always retain rural development, particularly small-scale private business, firmly at the centre of all and any of these, the role of the state in implementing an intentional development program through public investment, service provision and coordination is no longer an idea that exists in practice. Government is characterised by instability of office, so all efforts are geared towards holding office rather

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than long-term development of the nation as a whole. Long-term national development plans are not implemented as public spending on anything other than mining infrastructure is required to be reduced. The only ‘rural development funds’ available are in the form of slush funds allocated to MPs ‘invested’ at their sole discretion with limited accountability and absolutely no corresponding performance criteria attached. The developmental paradigm of making productive that which is unproductive ceased to be a priority. The bureaucracy has become highly politicised and inherently unstable so that its capacity to deliver nationally directed development programs and monitor the use or abuse of government funds has been seriously circumscribed, both due to lack of technocratic and managerial capacity and a high turnover of office. Both the perception and actuality of corruption has become all pervasive. The role of the state, whether the cabinet, parliament or the bureaucracy, in acting as trustee for the development of society as a whole is no longer in evidence in Papua New Guinea. Rather, the resources of the state have been captured in an attempt to shore up ongoing support, particularly by the cabinet, with limited results.

Equally, rather than the state acting in concert with home-grown business to bring about national development goals, international capital dominates the highest performing sectors with limited long-term development accruing to the local and national population. The agricultural sector, particularly the smallholder sector, has been able to build upon the foundations established when developmentalist ideas of the late colonial period mandated a significant role for the state in guiding, planning, investing and providing vital services to rural areas as currency devaluations have made their produce more competitive, both locally and internationally. However, the instability inherent in international agricultural markets, the growing effects of climate change, and the environmental degradation of large-scale mining projects continue to have devastating effects as the cycle of boom and bust is not countered through intentional development programs to deal with the inevitable unemployment, poverty and disorder that accompanies a downturn.

The focus of successive international development programs has been on mitigating the problems of poor governance through the various ideas prevalent at the time, including deregulation, privatisation, decentralisation, transparency and capacity building. None of these recognise the vital role of the government as trustee for the most vulnerable members of society let alone the development of the nation as whole.

It is clear that the

developmentalism of the late colonial period has faded into the past in Papua New Guinea.

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The state is no longer intervening in the agricultural sector, which sustains the majority of the population, to ‘get the prices wrong’ to increase productivity and raise living standards to ensure stability and the security of village life. Early efforts at the promotion of indigenous business in rural areas through an agrarian intentional development doctrine has been replaced with ideas relating to providing the right conditions for attracting international capital to the resources sector and licensing international firms in the forestry and fisheries sectors. Such lack of ownership of productive assets, and the failure to transfer technology and training, has meant that Papua New Guineans have failed to ‘secure the home market’ in these sectors. This is not the case for agriculture, where the majority of capital assets, in particular, the ownership of land, remains firmly in the hands of home-grown enterprises. There seems to be some potential for increasing agricultural productivity. The possibility of post-war development policies intended to ‘secure village life’ for development for the majority of Papua New Guineans. Such potential for increased productive capacity in the rural economy showed that developmentalism could be effectively utilised as an agrarian doctrine of intentional development, if and when rural development is determined to be the highest priority of the state. The reinstatement of the role of trustees acting through the state to bring development that combines the spontaneous with the intentional in the national interest is paramount to such effectiveness.

Revitalisation of the importance of agriculture in development

A substantial proportion of the world’s poorest households reside in the countryside, relying on agriculture as their main source of livelihood. Vulnerability to disruptions in this sector, either due to crop failures, environmental issues, fluctuations in international markets or a lack of capacity to remain competitive, have widespread implications for the well-being of the majority of the people living in developing countries. Such vulnerabilities can lead to unemployment, dislocation, poverty and famine on a large scale. This means that for the majority of developing countries, it is vital that the agricultural sector becomes increasingly productive and profitable. Recognition of this has meant that concerns for world agriculture have, therefore, reappeared at the top of the international development policy agenda.

As international financial institutions and donor countries focus aid and investment policies on poverty reduction in developing countries, the fact that the vast majority of the poor and hungry live in rural areas has meant that renewed attention has turned to agriculture

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as the engine of pro-poor growth.

As the food and agriculture sector dominates most

developing economies in terms of employment and incomes, growth of this sector is essential for the overall process of socio-economic development in developing countries.

As

household labour is employed on smallholdings and plantations in this sector means it has the greatest potential for growth in cash incomes with the added potential for significant flow-on effects to other economic sectors, particularly in rural areas. This means that agriculture is the most important sector for sustaining growth and reducing poverty in developing countries.

As the Millenium Development Goals are renewed by the Sustainable

Development Goals at the United Nations in September 2015, the targeting of sectors for propoor and sustainable growth through intentional development programs rather than relying on market-driven, spontaneous development is being promoted as the basis for development cooperation between international partners and developing countries.

An integral part of the new Sustainable Development Goals includes a push for international cooperation on environmental concerns, so the renewed emphasis on ‘sustainable development’ includes a much greater focus on protection of the global commons and the sustainable use of land in developing countries. There has also been a growing importance of processed agricultural products in the world economy, both in terms of bio-fuel production as alternative energy sources are sought as conscious efforts to combat climate change gain momentum, and in terms of food for the rapidly industrialising countries of Asia with their huge urban populations. The recent food-price crisis has shown that stability in world agricultural markets is not only vital to the prospects for development of the large rural populations in developing countries, but is also an essential element in any development plan, as stability in supply and affordability of food is important in ensuring labour stability in countries with large urban populations.

Accelerating growth in the

agricultural sector is therefore important for national development as well as for ensuring stability in the world economy as a whole. The sustainable development goals of ending hunger, achieving food security and improving nutrition therefore have the promotion of sustainable agriculture at the top of the agenda.

In order for developing countries to implement a sustained increase in agricultural production, improvements in productivity and in efficiency are key factors.

Such

improvements necessarily require equitable access to land, access to finance, access to highyielding technologies and stable prices for existing and increased production. This means

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that if developing countries are to stimulate rural development in the current global environment, then the government is necessarily a key player in framing, implementing, supporting and monitoring intentional agrarian development programs.

The reliance of

developing countries on international financial institutions and donor countries for technical assistance, financing and expertise has meant that governments in these countries are very receptive to international development policy. The developmental emphasis on the vital role of the government as trustee for the development of society as a whole must therefore be recognised as the most important part of any international development doctrine.

Such recognition has received a major boost in recent times, with the G20’s Seoul Consensus and its new emphasis on increased infrastructure investment as a shared responsibility of both the public and private sectors. As the G20 meets in July to negotiate a new global agreement on financing for sustainable development, its President says, “2015 will be a year where the G20 will focus its efforts on ensuring inclusive and robust growth through collective action. This can be formulated as the three I’s: Inclusiveness, Implementation, and Investment for Growth” (G20, 2015). Such ideas clearly have their origins in the intentional development paradigm of the developmental state thesis which has as its centrepiece the combined mobilisation of both public and private capacity to meet welldefined, long-term, national development goals. The key implication of this study is that such developmental ideas can be utilised just as effectively in any type of developmental endeavour, whether it be a manufacturing or agrarian development doctrine.

The

developmental emphasis on the vital role of the government as trustee for the future development of capitalism must therefore be recognised as the most important part of any international development doctrine.

196

Conclusion

197

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