The Role of Administrative Reform in

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The Role of Administrative Reform in Koreas
Economic Development
Jin PARK, Ph.D. KDI School of Public Policy and
Management

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Introduction of KDI and KDIS
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PARK, Jin (? ?)1991 Ph.D. in
economics, Univ. of Pennsylvania19921998
Research fellow, KDI (???????)19982001
Director, Administrative Reform Team,
Ministry of Planning and Budget (?????
)20012004 Professor, Associate Dean, KDI
SchoolCurrentlyProfessor, KDI SchoolDirector,
Center for Conflict Resolution and Negotiation of
KDI School Member, Presidential Commission on
Policy Planning(???????????? ??)
Presenter
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Table of Contents

• I. Administrative Support for Economic Growth
• during 60s 70s
• II. Transition of Government for the Growing
  Market Economy after the economic Crisis

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• I. Administrative Support for Economic Growth
• during 60s 70s

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Capability for Development

• Political leaders
• Endowed resources
• Means to organize the resources

- Willingness to response to social needs -
Capacity to set the right visions and strategies
- Ability to build bureaucracy to implement the
strategies
- Ability to mobilize the resources - Capacity to
generate and implement right policies to achieve
the visions set by the political leaders
What is the role of the administration system in
Koreas early economic development?
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Three areas

• 1. Organizational Build-up
• - Concentration of information
• - Checking by the President
• - RD
• 2. Personnel Management
• - Recruiting and training for civil servants
• - Job placement and promotion
• - Guiding Principles
• 3. Anti-Corruption
• - Evaluation and incentives
• - Monitoring Scheme

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1.1 Organizational Build-up Concentration of
information

• Presidential Office
• - President PARK had three senior economic
  advisers - 1 (General economic issues), 2
  (Heavy and Chemical Industry), 3 (Tourism
  promotion, temporarily since 1972)
• Economic Planning Board (EPB, 19611994)
• - Planning Bureau from Ministry of
  Reconstruction
• - Budget Bureau from Ministry of Finance
• - Statistics Bureau from Ministry of Interior
  
• - Foreign Capital Bureau (new establishment
  in 1961)

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1-2. Organizational Build-up Checking by the
President

• Monthly Economic Report Meeting (1963)
• - Format EPB reports to the President
• - Participants President, EPB and other
  relevant Ministers, Bank of Korea, Major
  Banks, Private Firms, Economists
• - Role Discuss current economic issues
• anecdote Feb. 5th, 1971 (Tong-Il rice for
  green revolution)
• Monthly Trade and Export Promotion Meeting
  (1965)
• - Format Ministry of Commerce and Industry
  reports to the President
• - Participants President, MOCI and other
  relevant Ministries Private Firms and Major
  Banks
• - Role Check the export performance and
  discuss export promotion
• Export Day (Nov. 30th) 0.1 billion of
  export in 1964 (284 b, 05)

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1-3. Organizational Build-up RD

• Korea Institute for Science and Technology (KIST,
  1963) Korea Development Institute (KDI, 1971)
• - Start of government-funded research
  institutes
• - Attracted many scientists in the advanced
  countries with higher salary and other
  benefits (minimize brain-drain)
• KDI research fellow in the early 1970s
  was offered an apartment, a car with a
  chauffeur, an office, two RAs and one secretary.
• - Government played an important role in
  making a network between the industry and the
  government-funded research institutes

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2-1. Personnel management Recruiting and
Training for Civil Servants

• Recruiting System
• - Since 1963, the entrance exam for civil
  servants became an appointment exam, which was
  just a qualifying test before. Different
  entrance exam for 5th degree, 7th degree, 9th
  degree
• - Top graduates from best universities joined
  government such as EPB and Bank of Korea. (No
  nepotism)
• Training System
• - Massive retraining program started 1961
  (influenced by the military)
• average annual trainees 136 (4960)
  gtgtgt 3,000 (6180)
• - Central Officials Training Institute was
  newly established in 1961 based on former
  National Officials Training Institute
• In 1963, Officials Training Law was
  enacted to enforce training.
• - During 1970s, mental was emphasized with the
  start of the Saemaul Movement.

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2-2. Personnel management Placement and
Promotion for career civil servants

• Two purposes Dissemination and Incentive
• - Presidential Office After serving 23
  years at the Office, those elite officials were
  sent back to their home Ministries with a
  promotion.
• - EPB Many EPB members became vice Ministers
  and Ministers of the other Ministries.
• Technocrats were respected.
• - Up to the Assistant Minister level, career
  civil servants completely filled the
  positions. In fact, most of vice-Ministers and
  many of Ministers were from career civil
  servants.
• Since 1999, an open system was
  introduced so that 20 of director-generals
  should be appointed by open competition.
• - Ratio of Ministers with career military
  background 38.3 in the non-economic
  Ministries 14.9 in economy-related Ministries
  (0 in Ministry of Finance)

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2-3. Personnel management Guiding principles

• Evaluation criteria
• - Result oriented rather than process-oriented
  administration
• Sometimes, quality of the performance
  and democracy was sacrificed due to
  so-called Bulldozer administration geared only
  to the target. (e.g. collapse of apartment,
  export without profits)
• - The target was very simple. e.g. 10
  billion export, 1,000 GDP/capita by 1980.
• Administration vs. Legislation
• - Political influence on the economic
  decision making process was minimized by the
  President. (The other side of the coin of the
  underdeveloped democracy.)
• Legislation has gained a power since KIM
  Dae-Jung Administration (19982003).

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3-1. Anti-Corruption Evaluation and Incentives

• Corruption has been an important issue in Korea,
  but not that serious enough to endanger the
  development potential.
• Evaluation system
• - Result-based evaluation system with very
  simple target decreased the possibility of
  corruption.
• Especially, when the target is export,
  one has to go through international
  competition to prove oneself.
• Incentives
• - Technocrats had many opportunity to serve
  in the related areas after their retirement.
  So it is to their benefits to stay clean.
• During mid 1980s, 150 out of 470 EPB
  retirees are working for private firms and 196
  out of 311 are working for banking sectors.
• Of course, this created conflict of
  interest issue, and it is now regulated by
  the government.

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3-2. Anti-Corruption Monitoring Scheme

• - Mutual check and balance among intelligence
  agencies
• - Although not as strong as it is now, a
  monitoring scheme by news media and the
  scholars was working.
• - The President himself was very clean.

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• II. Transition of Government for the Growing
  Market Economy after Economic Crisis

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Koreas Economic Development Model

• Government-led growth
• High savings rate, active investment
• Export-orientation
• low wage, work ethic
• Market friendly strategy (WB, 1993)
• Economic development before democracy

Is this a right model in Korea in 1990s?
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Growth Decomposition of S. Korea
19711980 19811990 1991 2000

()
8.6 1.0 7.6 4.6 2.5 2.1 3.0 1.4 0.7 0.9
7.4 -1.0 8.4 5.6 3.2 2.4 2.8 1.4 0.8 0.6
6.1 -0.7 6.8 3.4 1.5 1.9 3.4 1.5 0.7 1.2
Real growth rate Irregular factors Pot. growth
rate(AB) Factor inputs(A) Labor Capital TF
Productivity(B) Economies of Scale Resource
allocation Technological prog.
Is Government intervention effective for tech.
progress?
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Consequences of Governments Intervention
Development of a market economy was seriously
hindered.
The government became increasingly bloated and
unresponsive to demands for reform.
The economy was hampered by collusive ties
between government and businesses, arbitrary
regulations and corruption.

• Government intervention is at first effective,
  but as private sector grows, it is not effective
  and even hampers economic growth.

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Crisis and Reforms

• Korea suffered the economic crisis in 1997
  because it did not transform the government and
  its role when it had to.

- To start a new as a government that sets an
example for other sectors of the society to
follow. - To start a government that truly
serves the public gtgtgt The government reform had
to be implemented with utmost priority.
the need to establish a firm foundation
upon which to rebuild the economy
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Efforts for Government Reform after the Crisis
Efforts of previous Administrations
Efforts after the crisis
The reform drive was almost unprecedented in
its comprehensiveness, proceeding simultaneously
on all fronts, Including both central and local
governments, public enterprises, and
quasi-government organizations. The
only exceptions were the political and judiciary
divisions.
Past attempts were partial in nature, whether
they focused on government reorganization, priva
tization, or deregulation.
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Korean Governments Transition
Open Economic System Government as a Fair
Coordinator
Frequent Intervention and Over-regulation
of the Private Sector
Rapid Economic Growth through
Government Intervention
1960s
1980s
Since 1997
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New Role of the government

• The role of the Korean government has changed
  from an active leader and planner of economic
  activities to a fair coordinator and regulator of
  the economy, permitting greater reliance on
  private initiative.
• From rowing to steering. (David Osborne)

To maximize private sector autonomy and
initiative, government intervention and
regulation has been sharply reduced, superfluous
government functions has been abolished, reduced,
or transferred to the private sector.
The governments role in protecting the weak,
establishing a social safety net, market
supervision and environmental protection, among
others, has been substantially strengthened.
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Lessons Learned

• Lesson 1 Strong political foundation and support
  are critical
• Lesson 2 Maintaining consistency is a crucial
  factor for success
• Lesson 3 Breaking up some myths is important for
  winning peoples support in the early stage
• Lesson 4 Finding a right time for important
  issues may influence the whole process of reform
• Lesson 5 Introducing new systems for reform
  doesnt matter much what matters is how to
  implement them and how to make them deep-rooted

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Lessons Learned - continued

• Lesson 6 Reform agenda needs to be placed on the
  short list of the top leader
• Lesson 7 Reformers should be well aware of the
  true nature of the reform process
• Lesson 8 Reforming the culture is more important
  and takes more time than reforming laws and
  regulations.
• Lesson 9 There should be a balance between
  efficiency and better service

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The innovator makes enemies of all those who
prospered under the old order, and only
lukewarm support is forthcoming from those who
would prosper under the new.


--- Machiavelli
Thank you