By Eva Cheng
South Korean President Kim Young-sam justifies the ongoing attacks on the democratic rights of the country's workers on the basis that they must make sacrifices to bolster the "competitiveness" of South Korean products. He suggests that South Korea's staggering trade deficits could be corrected by squeezing yet more from workers. This is a myth.
Kim argues that if workers' pay is reduced, South Korean products would become cheaper and more saleable, especially overseas. He argues that this reduces the trade deficit by ending "inadequate" exports.
He also accuses South Koreans of consuming too many imported goods, and launched a campaign at the end of last year (copying a similar effort in 1990) to guilt-trip them — in the "national interest" — into minimising purchases of foreign products. This, he claimed, would cut the trade deficit — which was US$20 billion last year, double 1995's — from the import end as well.
In fact, big conglomerates — chaebols — account for the bulk of South Korea's production and exports, but employ a much smaller share of the work force. In 1994, firms with more than 300 workers employed only 28.5% of the work force. Since Seoul's push away from labour-intensive industries in 1973, wages have accounted for a decreasing and marginal share of the costs of production for export.
The costs of importing capital equipment, parts and technology, mainly from Japan, carry far greater weight. In the late 1980s, 35-80% of South Korea's earnings from key exports — VCRs, colour TVs and computers — went to parts and 90% of imports came from Japan. This is in addition to substantial royalty payments for technology.
Trade deficits with Japan have continually worsened, increasing from $2.8 billion to $8.7 billion in the decade to 1991. The rebuilding of South Korea's economy since the Korean War and the major restructuring since the early 1970s were structured around the needs of Japan.
Japan was Korea's colonial master between 1910 and 1945 and the United States' main collaborator in the creation of South Korea as the bastion of anticommunism in Asia. To this end, the US opened its markets to South Korea and by 1968 absorbed 52% of South Korea's exports.
That reliance fell significantly between 1973 and 1980, when the Middle East market was booming, but increased again from 26% in 1980 to 40% in 1986. Due to its own balance of payments crisis, the US stepped up measures to reduce the deficits with South Korea in 1988, but is still taking roughly a quarter of South Korean exports.
Due to the high imported content in South Korea's production for export, the country has almost always had a trade deficit. It recorded its first surplus in 1986, but quickly slipped back into deficit.
Its heavy reliance on external borrowing to finance investment worsened the balance of payment gap. External debt rose from $35 billion in 1990 to more than $50 billion in 1994. Debt servicing soaked up 7-11% of export earnings during this period.
Japan has been less willing to sell its latest technology to South Korea since the late 1980s, when South Korean products were increasingly competing with its own.
This has dealt a blow to South Korea's ability to upgrade the quality of its more sophisticated products. For example, the sale of Hyundai cars has stagnated since 1988, largely due to the inability to upgrade engine design, which Mitsubishi traditionally supplied.
South Korea's export growth plunged from 36% in 1987 to 3% in 1990, while the proportion of export-oriented manufacturers making a loss increased from 5.3% to 16%.
Moreover, profits can decline while sales are growing: the top 30 chaebols suffered a 78% dive in net profits in the first half of 1996, though sales grew 20%. A key reason is South Korea's deteriorating terms of trade, prompted by a big drop in the prices of key exports.
The "economic miracle" of South Korea has been trumpeted with little regard to the structural weakness of its economy, namely its heavy dependence on Japan and the US. Squeezing workers' wages and strangling their democratic rights will not correct this situation.
Since consumer goods account for only 10% of South Korean imports, the anti-import campaign will also do little to correct the imbalance of payments.