Steel Composition In Korea : A Case Study Pohang (POSCO) Steel Development Project – South Korea 1967 The growth of South Korea since the 1960s was widely considered as a miracle, part of the regional economic success and phenomenon dubbed the Four Asian Tigers, along with Taiwan, Hong Kong & Singapore.
This sharp growth was largely due to the developmental strategies and projects South Korea adopted, particularly under the reign of the former President of South Korea – Park Chung-Hee’s (Park) dictatorship. Such development strategies were targeted to secondary industries, focusing on manufacturing, infrastructure and achieving economic growth in terms of GDP (Chaudhuri, 1961).
After the split of the Korean Peninsula, the North region was geographically endowed with more resources than South. South Korea, therefore, relied heavily on providing military support for the United States during the Vietnam war in exchange for monetary support (Song, 2011).
When the United States dismissed the aid in 1959, South Korea constructed several developmental plans. Under Park’s economic regime, South Korea began the transformation into the influential technological force it is today. The private market economy was heavily state supervised; large corporations were asked by the military government to participate in the economic reconstruction aligned with Park’s agenda (Chaudhuri, 1961).
This cultivated a unique environment to foster South Korea’s development economically. A crucial point and differentiator of Park’s economic reform was to refine Korea’s export strategy instead of pushing for import substitution, which was the norm for developing countries.
Top priority was given to the steel-related projects under Park’s initiative. The Pohang development project on steel in 1969 was a vital factor in South Korea’s economic development project. Formerly named Pohang Iron & Steel Co (now known as POSCO), the company was privatized in 2000 and was renamed in 2002. Originally, the South Korean government created the state-owned steel firm in 1968.
It was directly funded by the government as part of Park’s Five Year Development Plan. POSCO’s ability to generate internal funds enhanced as the government nurtured the industry (Dong & Cheol, 2017). This report will further elaborate on the direct and indirect impacts of POSCO in contributing to South Korea’s development, and further clarify the linkages between the Pohang Project and South Korea’s economic growth.
During South Korea’s developmental stage, steel was a vital input in various sectors of production (Lee, 2017). Following the construction of steel mills in 1970, the production capacity in Pohang has increased by four-fold in 1983 (Lee, 2017). It is important to note that the success of Pohang’s steel production was largely credited to the protectionist measures the South Korean government undertook, such as providing benefits in terms of foreign loans, taxation, finance and technological development.
The steel industry itself faced high barriers to entry. And its capital-intensive process was prioritized under economic development (Dong & Cheol, 2017). In creating a protected bubble within which the Pohang project could be nurtured and grown along a patient timeline, this laid out strong foundations for success.
In particular, South Korean proposals on technologies relating to setting up an integrated steel mill were rebuffed by 10 Western countries and 5 International Financial Organizations, which considered them ‘economically infeasible’ (Chaudhuri, 1996). However, the Pohang Project independently developed such technologies, leading it to become the world-class steel maker with an output per person of 880 tons in 1992, just behind the first in the world – Japan (Dong & Cheol, 2017).
The technological advancement in steel production strengthened the public faith and commitment to the state’s developmental strategy, as South Korea reaped the growth benefits from lower costs of production and costs per unit. On a global scale, South Korea replaced competitors and became the world’s largest steel producer in 1998 (Yoo, 1990).
The financial crisis of 1988 is a point to note as both South Korea’s economy and the steel industry boomed in the late 1980s. The proportion of steel manufacturing increased from 13.6 % of GDP in 1960 to 30.6 % in 1980, whilst the GDP per capita leapt from 158 USD in 1960 to 1704 USD by 1980 (Yoo, 1990).
Although the Pohang Project itself does not dominate the steel manufacturing industry, given the strong dominance and support of the Project, its immense contributions to South Korea’s steel industry are undeniable. The rising trend of urbanisation and the boom in construction further led to increased derived demand for steel, whilst the rural to urban migration flows provided the labour supply necessary for South Korea have competitively low costs of Individual Final Report: Pohang (POSCO) Steel Development Project – South Korea 1967 production.
This directly boosted South Korea’s overall price competitiveness and competitive supply model, resulting in clear gains in international competitiveness in the steel exporting industry, and the subsequent increases in GDP per capita (Song 2011).
Whilst the growth in GDP cannot be solely credited to the Pohang Project, the Project was a vital test case for the government to implement their industrial strategy wider, establishing the foundations for South Korea’s wave of intensified development in terms of infrastructure, education and technological advancements (Dong & Cheol, 2017).
The Pohang Project, and the foundations for South Korea’s economic growth it established, was itself a product of export promoting policies in the 1960s, which had similar benefits to other industries that all helped increase GDP per capita. However, the simultaneous growth between both the steel industry and GDP per capita shows the strong correlation and implied causation between the two in economic development.
Following the success of the first steel mill in the Pohang Project. Furthermore, the Project next established a university and research institute to further align themselves with the developmental objectives of the government. Moreoever, particularly the education and workforce investment planks of the strategy. The broader implications of the Pohang Project were more indirect as it branched out to connect with other government priorities in creating job and education opportunities.
Through the success of the Pohang project in reducing per unit cost, its expansion led to the establishment of an independent research and development system, comprising Pohang University of Science and Technology (POSTECH) and the Research Institute of Science and Technology (RIST).
Not only did this benefit the Pohang project internally, but it also provided the opportunity for the South Korean population to receive an education that directly translates into skill sets and occupations that benefits their country through driving economic output and reducing inequality (Dong & Cheol, 2017). It marked the beginning of the second wave of South Korea’s development, transitioning from a steel manufacturing focus to more secondary and tertiary industries and social objectives of nurturing the population by improving their living standards and literacy levels (Dong & Cheol, 2017).
The idea of developing talent intrinsically through a university supported by the enterprise originates from the success of the first steel mill project. As the Pohang Project developed a second steel mill project which focused on acquiring and developing technologies and talent that are standardized in developed nations (Song, 2011), it was argued by Song that this formed the first Korean enterprise to construct a ‘Triangular R&D cooperation system’, as it connected a university, a research institute and an enterprise.
The South Korean government fostered an environment for POSCO to succeed in the steel industry, and in return, POSCO fostered an environment with the values of entrepreneurship and leadership, guiding the local population in increasing their wellbeing and improving inequality within the nation.
Although this impact is indirect and difficult to quantify, the opportunity to receive an education despite gender and household class was vital for the development of South Korea, given the backwardness in gender equality (Park, 1993). The ability for POSCO to engage with households through opportunities of employment and education increased household well-being by allowing households to conduct joint decisions (Song, 1990).
To conclude, the success of the Pohang Project was largely credited to the support from the South Korean government as it undertook a strategy that systematically approached the development of industrial sectors within the nation, from protecting to fostering their growth.
The Pohang project provided the foundations for South Korea to transform into a global economic power through developing, and then furthering, a global comparative advantage in steel production, increasingly so as POSCO self-developed technologies instead of attempting to transfer and incorporate global practices which would have been vastly expensive and less effective.
This lowered production costs and allowed POSCO to subsequently expand into the Pohang University of Science and Technology (POSTECH) and the Research Institute of Science and Technology (RIST). The positive chain of events and upward development cycle is finally evident through education’s vital role in any society’s prospects for development. In addition, it also equipped the nation with the technological knowhow and capital to further its miraculous growth.
Steel Composition In Korea : A Case Study
Written by Irene So
Business Development Associate at London Blockchain Labs, President of KCL BAME in the City, BA International Development at King’s College London.
Steel Composition In Korea : A Case Study Bibliography
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