Essay on Global market

Submitted By ljdragon
Words: 821
Pages: 4

15.223 Global Markets, National Policies and the Competitive Advantages of Firms
State-Led Development – South Korea and Singapore
[Development by Government Leading] The economic development model that was begun by government leaded by president Park Chung Hee, which is very unique that government and corporate were co-worked. That is, government made plan and gathered resource and distributed but corporate executed the plan. If corporate made a failure, government took it so corporate could drove the plan strongly without big risk. On the other hand, if the plan was executed successfully, the corporate was able to get another big jump based on this success. 1) President Park launched a heavy and chemical industry policy, specially targeting six industries such as steel, shipbuilding, machinery, electronics, non-steel metal, and petroleum and chemical. Most of Korean “chaebol” was formed by government support. Banks lent money to chaebol with very low interest compare to market interest. If banks had loss from these activities, Central Bank supported these losses. Korean government has supported chaebol and corporates with lowering corporate tax, the fare of electronics compare to foreign country and giving special favors such as concession to gain enormous profit. Although this kind of government leading development had had lots of side effects, it was indispensable to develop economic in some aspects. On the other hand, Singapore also has promoted its economy by government leaded by Lee Kuan Yew prime minister. In terms of economic developing by government, Singapore and Korea have same model, but Singapore owned almost corporate (“Singapore Inc.”) that drove economic development which is different from Korea. Singapore maintained tight control over its economy while concentrating on six policies: investment in the state, active encouragement of foreign investment, a pro-business environment, free trade, a tight monetary policy, and high savings. Since having a great development, Singapore prepared Biomedical Science as the next big thing. Also, People Action’s Party (PAP) of Singapore has advocated a liberal immigration policy to offset the country’s falling birth rates and support its booming economy although which recently has also side effect with strains on infrastructure, inflation, and rising income inequality, public opinion turned against this policy.2) With these policies, Singapore has developed almost double in terms of GDP growth for a recent decade.
[Financial Crisis in 1997] While joining OECD, Korea administration launched a five-year financial liberalization plan to meet the requirement. One of the most important things was that the capital account was further liberalized. Many firms borrowed short term foreign loan because of the lacking of credibility and stringent long-term foreign borrowing requirements. As a result, foreign debt grew at 33.6% per annum between 1994 and 1996, compared with 17.8% per annum between 1979 and 1985 and short-term debt more than doubled to $98 billion at the end of September 1997 from 1993, consisting of more than half of Korea’s external liabilities. As a result, the Hanbo steel, one of the top 30 chaebol, became the first major conglomerate to go bankrupt and almost half of chaebol was bankrupt which deteriorated banking sector because of the cozy relations between politics and economics and lack of ability to control flux of foreign currency. Large prospective (not current) deficits led to crashes in 1997. (Table1)
On the other hand, Singapore did not have “Financial Crisis in 1997” because Singapore did not have big ratio of bad loan over government revenue