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A tale of two countries

May 11, 2003 Success, Sunday Nation

In 1963, two countries in different parts of the globe emerged from turmoil and entered a new era of hope. Country A had just freed itself from the yoke of colonial rule and was breathing the fresh, heady air of self-determination. Country B was coming out of a debilitating war with an aggressive neighbour. Both countries were mired in grinding poverty, with little or no industrialisation to speak of. Both had similar, very low, per capita income levels. Each set out determinedly to transform itself.

Country A had a good start, focusing on developing large-scale agriculture and essential agro-processing industries. It produced well-thought-out economic plans to guide its progress. It produced an enabling environment for its instinctively entrepreneurial citizens, who took to business with great gusto. It enjoyed several years of strong economic growth, and appeared poised for long-term success.

Then, slowly, everything began to unravel. Its leaders began dipping their hands in the national till; corruption began to grow insidiously. Its development plans became increasingly unfocused and increasingly irrelevant. Ethnic politics began to dominate discourse in the country. It received huge amounts of foreign aid, but squandered most of it. Patronage and cronyism grew unchecked. By the dawn of 2003, 40 years later, country A was on its knees: 50 per cent of its once-hopeful people were below the poverty line; income per capita was still amongst the lowest in the world; and it was an international pariah, much reviled for the greed of its leaders.

Country B also had a good start in the 1960s, investing first in basic industry, then in more sophisticated products. Country B had to overcome the fact that it had little by way of natural resources. It formed a series of strong governments that worked closely with private enterprise to target specific growth areas. Knowing its own market had limited capacity, it targeted export growth. It emphasised education and research. It instilled discipline in its workforce. It used foreign aid wisely and judiciously. It recorded average annual economic growth rates of over 8 per cent throughout the 1970s and 1980s. By 2003, it was a modern miracle. It was no longer a ‘developing’ country; it enjoyed a per capita income close to that of European nations with centuries of growth behind them.

If you haven’t guessed already, country A is our own Kenya; country B is South Korea.

South Korea represents what we could have been. The transformation from backward agrarian nation to information-age industrial giant in 40 years is no pipe dream; the Koreans did it. Their achievements are awe-inspiring. For example, 68% of South Koreans are connected to a broadband Internet service today, compared to 8% in Western Europe. It has 25 million fixed telephone lines, and nearly 30 million mobile connections. We have no broadband connectivity to speak of, and a pathetic 300,000 landlines.

The burning question for Kenyans is: how did the Koreans do it?

First and foremost: they planned for it. Koreans did not rely on chance or good fortune, nor on the vagaries of untrammelled markets. They thought things through; they had a strategy. After the Korean War, the South Korean government used American aid specifically on infrastructure: a nationwide network of primary and secondary schools; modern roads and a modern communication network. When take-off came, Korea had a well-educated young workforce and a modern infrastructure to provide a solid foundation for growth.

Government and business leaders worked together to target specific industries for development. A series of five-year economic plans were devised to do this. An Economic Planning Board was created to act as the nerve-centre of economic development. It was staffed by technocrats renowned for their intellect and business acumen. The first plan targeted textiles and light manufacturing, followed in the 1970s by heavy industries such as steel and chemicals. In the 1980s, the emphasis moved to automobiles and electronics. Today, Koreans focus on high-technology areas such as microelectronics, bioengineering, optics and aerospace.

Throughout, the Korean government has played a central and intelligent role in the proceedings. It has directed credit, introduced temporary import restrictions, and sponsored specific industries. It has promoted the importation of raw materials and technology at the expense of consumer goods. It has encouraged savings and investment over consumption.

A second major determinant was the Korean population itself. Korea’s major factor of production is not its natural resources (it is a mountainous and poorly endowed nation). Rather, it is the nature of its people. Koreans are unusually disciplined and hard working, even by Eastern standards. This is no empty virtue: it translates into serious competitive advantage. In shipbuilding, for example, a large crude-oil carrier takes about 30 months to complete by international standards; Korean yards can finish the job in a mere 18 months.

The discipline extends to saving. From the 1980s onwards, once a certain income level had been reached, Koreans were saving well over 30 per cent of their income, second in the world behind Taiwan. This allowed for a very high rate of domestic capital formation and a reduced dependence on foreign inflows.

Koreans emphasise education and knowledge, and place great value on its acquisition. Literacy levels are extremely high. Almost 40 per cent of high-school graduates enter college each year. It has a very highly developed university system, with particularly aggressive investments in engineering. The country has over 100 regular universities and colleges, and an additional hundred technical colleges. Korean companies over a certain size are required to provide training as a matter of law. Most senior managers hold advanced degrees and doctorates. Research and development is given great emphasis, both at company and country level; over 3 per cent of Korea’s income is invested in research.

In short, Korea had a strategy, and it had the people to deliver it. It applied intellectual resources and developed a competitive position. Importantly, however, this strategy was not a rigid one; it adapted to changing times and changing markets. The Economic Planning Board, for example, had its powers significantly reduced in the 1990s as the need for devolution of decision-making was recognised. When wealth brought wage inflation in its train in the 1980s, Korea’s international cost advantage was eroded; it gradually moved its competitive emphasis to high technology and away from price leadership.

Korea’s path was not always an easy one. The Asian financial crisis of 1997-98 exposed long-standing weaknesses such as high debt/equity ratios, lack of efficiency in the chaebol (corporate conglomerate) structure, and an undisciplined financial structure. But look at Korea’s reaction: immediate restructuring and bold reforms allowed the country to record double-digit growth again in just two years.

Kenya took the low road. We emphasised self-gain over national well-being. We appointed herders, touts and mechanics to guide our economy. We made cheap crooks and swindlers our role models. We forgot about knowledge. And ultimately, we got what we deserved.

Now, we have another chance. We must look at Korea with keen eyes, not envious ones. We must think for ourselves. We must put the right people in the right places. We must plan and deliver.

Let’s grant ourselves another ‘independence’ from the past. Let’s start again.

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