The Politics of Developmentalism. The Midas States of Mexico, South Korea and Taiwan (Minns, 2006)

The Politics of
Developmentalism
The Midas States of Mexico, South Korea and Taiwan
John Minns
International Political Economy Series
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FOREIGN DIRECT INVESTMENT IN THREE REGIONS OF THE SOUTH AT
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THE SOUTH IN INTERNATIONAL ECONOMIC REGIMES
Whose Globalization?
John Minns
THE POLITICS OF DEVELOPMENTALISM
The Midas States of Mexico, South Korea and Taiwan
Lars Rudebeck, Olle Törnquist and Virgilio Rojas (editors)
DEMOCRATIZATION IN THE THIRD WORLD
Concrete Cases in Comparative and Theoretical Perspective
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The Politics of
Developmentalism
The Midas States of Mexico, South Korea
and Taiwan
John Minns
School of Social Sciences
Australia National University, Australia
© John Minns 2006
All rights reserved. No reproduction, copy or transmission of this
publication may be made without written permission.
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work in accordance with the Copyright, Designs and Patents Act 1988.
First published 2006 by
PALGRAVE MACMILLAN
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ISBN-13: 978–1–4039–8611–5 hardback
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Library of Congress Cataloging-in-Publication Data
Minns, John, 1956-
The politics of developmentalism : the Midas states of Mexico,
South Korea, and Taiwan / John Minns.
p. cm. – (International political economy series)
Includes bibliographical references and index.
ISBN 1–4039–8611–8 (cloth)
1. Industrialization–Mexico. 2. Industrialization–Korea (South)
3. Industrialization–Taiwan. I. Title. II. International political economy series
(Palgrave Macmillan (Firm))
HC135.M665 2006
338.9–dc22 2005044630
10 9 8 7 6 5 4 3 2 1
15 14 13 12 11 10 09 08 07 06
Printed and bound in Great Britain by
Antony Rowe Ltd, Chippenham and Eastbourne
For my father Bob Minns and
to the memory of my mother Margaret Minns
This page intentionally left blank
Contents
Lists of Acronyms viii
Preface and Acknowledgements xii
Chapter 1 Newly Industrialising Countries and the State 1

Chapter 2 The Autonomy of Developmentalist States 25
Chapter 3 Mexico: from Revolution to ‘Perfect Dictatorship’ 56
Chapter 4 Mexico: Uncontrolled Mobilisation and the Retreat
from Developmentalism 88
Chapter 5 South Korea: Devastation and Development 118
Chapter 6 The South Korean ‘Miracle’ in Decline 150
Chapter 7 Taiwan: the Migrant State 181
Chapter 8 Taiwan: on the Edge of the Descent 212
Chapter 9 The Rise and Fall of the Midas States 231
Notes 245
Bibliography 276
Index 303
vii
List of Acronyms
General
EPRs Effective Protection Rates

ESRs Effective Subsidy Rates
FDI Foreign Direct Investment
GDP Gross Domestic Product
GNP Gross National Product
IDB Industrial Development Bulletin
IMF International Monetary Fund
ISI Import Substitution Industrialisation
NICs Newly Industrialising Countries
OECD Organisation for Economic Cooperation and Develop-
ment
PRC People’s Republic of China
SMEs Small and Medium Enterprises
WHO World Health Organisation
Mexico
CANACINTRA Cámara Nacional de la Industria de Transformación

CCE Consejo Coordinadora Empresarial
CCI Central Campesina Independiente
CCM Confederación Campesina Mexicana
CD Corriente Democrática
CGT Confederación General de Trabajadores
CIOAC Central Campesina Independiente
CMHN Consejo Mexicano de Hombres de Negocios
CNC Confederación Nacional Campesina
CNOP Confederación Nacional de Organizaciones Populares
COM Casa del Obrero Mundial
CONAMUP Coordinadora Nacional del Movimiento Urbano Popular
CONASUPO Compañía Nacional de Subsistencias Populares
CONCAMIN Confederación de Cámeras de Industria
CONCANACO Confederación de Cámeras Nacionales de Comercio
COPARMEX Confederación Patronal de la República Mexicana
viii
List of Acronyms ix
COSEI Coalición Obrera Campesina Estudiantil del Istmo

CROM Confederación Regional Obrera Mexicana
CSUM Confederación Sindical Unitaria de México
CTM Confederación de Trabajadores de México
CUD Coordinadora Única de Damnificados
CUT Confederación Única de Trabajadores
DINA Diesel Nacional
EZLN Ejército Zapatista de Liberación Nacional
FAT Frente Auténtico del Trabajo
FDN Frente Democrático Nacional
FSTDF Federación Sindical de Trabajadores del Distrito
Federal
IMSS Instituto Mexicano de Seguridad Social
ISSSTE Instituto de Seguridad y Servicios Sociales de los
Trabajadores del Estado
MRM Movimiento Revolucionario del Magisterio
MSF Movimiento Sindical Ferrocarrilero
NAFIN Nacional Financiera
NAFTA North American Free Trade Agreement
PAN Partido Acción Nacional
PARM Partido Auténtico de la Revolución Mexicana
PASCO Pan-American Sulphur Company
PCM Partido Comunista Mexicano
PEMEX Petróleos Mexicanos
PFCRN Partido del Frente Cardenista de Reconstrucción Nacional
PL Partido Laborista
PMS Partido Mexicano Socialista
PNR Partido Nacional Revolutionario
PPS Partido Popular Socialista
PRD Partido de la Revolución Democrática
PRI Partido Revolucionario Institucional
PRM Partido de la Revolución Mexicana
PSUM Partido Socialista Unificado de Mexico
SNE Sindicato Nacional de Electricistas
SNTE Sindicato Nacional de Trabajadores de la Educación
SNTMMSRM Sindicato Nacional de Trabajadores Mineros, Metalurgicos
y Similares de la República Mexicana
STFRM Sindicato de Trabajadores Ferrocarrileros de la República
Mexicana
STPRM Sindicato de Trabajadores Petroleros de la Républica
Mexicana
x List of Acronyms
SUTERM Sindicato Unico de Trabajadores Electricistas de la

República Mexicana
TAMSA Tubos de Acero de México
TD Tendencia Democrática
UNAM Universidad Nacional Autónoma de México
UOI Unidad Obrera Independiente,
Korea
CGWU Chonggye Garment Workers’ Union

CPKI Committee for the Preparation of Korean Independence
DJP Democratic Justice Party
DRP Democratic Republican Party
EPB Economic Planning Board
FEZs Free Export Zones
FKI Federation of Korean Industry
FKTU Federation of Korean Trade Unions
GTCs General Trading Companies
HCIP Heavy and Chemical Industry Plan
HHI Hyundai Heavy Industries
JOC Young Christian Workers
KCIA Korean Central Intelligence Agency
KCTU Korean Confederation of Trade Unions
KDP Korea Democratic Party
KSE Korean Stock Exchange
NBFIs Non-bank financial institutions
NDP New Democratic Party
ONTA Office of National Tax Administration
PDP Peace and Democracy Party
POSCO Pohang Iron and Steel Corporation
ROK Republic of Korea
UIM Urban Industrial Mission
UNP Unification National Party
UPP United People’s Party
USAMGIK US Army Military Government in Korea
Taiwan
CEPD Council for Economic Planning and Development

CFL China Federation of Labor
List of Acronyms xi
CIECD Council on International Economic Co-operation and

Development
CUSA Council on US Aid
CY Control Yuan
DPP Democratic Progressive Party
EPC Economic Planning Council
EPDC Economic Planning and Development Council
EY Executive Yuan
FEC Financial and Economic Committee
GSMC Grace Semiconductor Manufacturing Corporation
JCRR Joint Commission on Rural Reconstruction
KMT Kuomintang
LY Legislative Yuan
MOEA Ministry of Economic Affairs
ROC Republic of China
TEPU Taiwan Environmental Protection Union
TPB Taiwan Production Board
Preface and Acknowledgements
The dramatic industrial transformation of a small number of countries

since the Second World War has provoked a variety of responses.
For some observers, the appearance of these Newly Industrialising
Countries (NICs) has been a verification of their faith in the ability of
world capitalism to raise the incomes of the poor. That these transfor-
mations have often been based on the uprooting of millions of people,
extremely low wages and sweatshop conditions has been seen, in this
view, as a temporary condition – merely the birth pangs of modernity.
This generally optimistic, pro-capitalist outlook has been soured by two
factors. The first is the rarity of the NICs – the limitation of the eco-
nomic ‘miracles’ to relatively small sections of the world’s population.
The second is that each of them has, at different times and to different
degrees, disappointed its supporters – ceasing to post high growth rates
and even suffering major economic crises. Their rankings in the global
hierarchy of economic power have fallen as a result.
On the other hand, various radical theorists were committed to the
view that world capitalism could do nothing but continue to under-
develop countries such as Mexico was in 1940, Taiwan in 1949 or
South Korea in 1961. One response from this perspective has been to
deny that any real transformation has happened at all. But the evi-
dence of major change – in the form of large industrial workforces,
urbanisation, and increases in the relative and absolute size of their
manufacturing sectors – has continued to accumulate.
These theoretical difficulties posed by the NICs have suggested the
need for an analysis which emphasises their peculiarities – those indi-
vidual attributes which may have made a degree of industrialisation
possible – and the specific contexts in which they were able to under-
take that process. There have been numerous valuable studies of the
industrialisation of Mexico, South Korea and Taiwan. Broader theoreti-
cal work has followed with various models being suggested. Most have
been based either on neo-classical economic theory or on neo-statist
analysis.
This book takes the view that the industrialisation of Mexico, South
Korea and Taiwan is not a vindication of the neo-classical world view,
but a repudiation of it. The model outlined here revolves around the
nature of the state in each and the ways in which the class structure of
xii
Preface abd Acknowledgements xiii
these societies contributed to an unusually rapid form of industrialisa-

tion. Just as the development of capitalism in Europe, North America
and Japan was the product of classes and class struggle, so too is the
transformation of the more recently industrialising countries.
Moreover, the economic ‘miracles’ have not and, it will be suggested
here, cannot continue indefinitely. Rapid economic transformation of
the kind that Mexico, South Korea and Taiwan have experienced is
possible in the capitalist world system. But it is likely to be far more
rare than neo-liberalism might suggest. Each instance of it has turned
out to be more limited than its proponents claimed. Ultimately, the
industrialisation of each of the first generation of NICs has ceased to be
as rapid or ‘miraculous’ as once thought.
I owe many people debts of gratitude for their support in the time it
has taken to produce this book. Foremost among these are two of my
teachers and mentors, Professor Michael Pearson and Dr Jim Levy.
Both nurtured my interest in questions associated with development
and underdevelopment in the Third World. Their encouragement,
example and, on occasion, patience, was indispensable.
The friendly efficiency of Jen Nelson at Palgrave Macmillan has made
the process of submission, review and editing of the manuscript rapid
and pleasant. The enthusiastic response of Professor Tim Shaw, as
editor of the International Political Economy series encouraged me to
continue and make the substantial cuts needed to make the book fit to
publish.
On a more personal level, and above all, I must thank my partner,
Sophie Singh, whose love and encouragement has kept me going.
Finally, I would like to thank my father, Bob, who laboured so hard to
see his children succeed, and my late mother, Margaret Minns, who
had great confidence that I could undertake this work, but sadly did
not live to see it completed.
John Minns
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1
Newly Industrialising Countries
and the State
King Midas had the power to turn everything he touched to gold.

A similar touch was apparently possessed by the states of South Korea,
Taiwan and Mexico for at least several decades. They were among a
very select group of Third World nations which, since the Second
World War, made the transition from primarily agricultural economies
to industrialised ones. In each case the state, rather than private busi-
ness, was both driver and engine of growth. If there was a ‘Midas
touch’, it was the state which had it.
The first argument of this book is that the abilities of these Newly
Industrialising Countries (NICs) derived from historical trajectories
which left the state in an unusually dominant position relative to the
social classes of each. On the basis of this dominance, they were able to
focus all available resources on key development projects. Furthermore,
such a focus enabled them to position their economies in world capital
and commodity markets to greater advantage than was the case for
most Third World countries. A necessary condition of this advant-
ageous alliance with world capitalism was the domestic supremacy of
the Midas states. Although the Mexican, South Korean and Taiwanese
states all enjoyed such dominance, its nature, forms and origins were
different in each case. Each of these states employed correspondingly
different methods to achieve their industrialisation objectives.
There was, of course, a less fortunate side to the newly-acquired
powers of Midas. His children, food and everything else turned to gold
when touched. So that which brought him wealth also threatened to
destroy him. In the end, Midas was forced to sacrifice his alchemistic
abilities in return for mere survival. In the same way, the states of these
three NICs found that their very success in transforming their societies
undermined the precious peculiarity which enabled them to do so in
1
2 The Politics of Developmentalism
the first place. As industrialisation proceeded, their freedom of

manoeuvre and relative independence from the main social classes of
their countries was eroded.
With industrialisation, the Midas states faced new demands from
private capital demanding more control over their investments, from
middle class groups demanding more democracy and from working
classes no longer content with rapid but very inequitable economic
growth. Under these conditions, political and economic concessions by
the state were the price for avoiding social explosions. After – usually
tumultuous – periods of transition, each state was forced to change its
strategy – and to cease leading a ‘miracle’ economy as it once had. In
the process of losing its powers, the internal composition and structure
of the state itself was also transformed.
Thus there are ascending and descending phases of the Midas states.
In the ascending phase, policies to promote rapid growth are linked to
high levels of state autonomy. The descending phase is characterised
by a thorough reorientation of economic strategy, involving a decline
in the level of state intervention and slower growth as the state’s
autonomy is eroded. The Midas state model may well have implica-
tions beyond these three examples. These three cases studied are good
tests of the model.
All enjoyed high growth rates and quite broadly-based industrialisa-
tion over at least several decades. Their spurts of growth were not
flashes in the pan. Industrialisation and economic development has
also been rapid in other developing economies. But in some cases, it is
too early to tell how sustained this growth will be. In others, growth
has been rather narrowly based. Each of the three NICs selected has
a substantial population and market. Their economic growth is not
that of a city-state, an entrepôt or a financial crossroads, as is the case
with Hong Kong or Singapore, where it is necessary to see the local
economy as an adjunct of a larger hinterland.
The choice of these three countries allows examination of a range of
development policies, strategies and abilities. A tendency of the last
two decades in popular commentary has been to consider the NIC
phenomenon as an entirely Asian one. Often it is forgotten that in the
1960s and 1970s, theorists marvelled at the Mexican economic
‘miracle’ and strained to discover the secrets of its success. Also, since
much of the recent discussion about the NICs has centred on East Asia,
there has been some return to the introduction of cultural elements –
especially neo-Confucianism – as central to explanations of rapid eco-
nomic growth. Apart from the disturbing tendency here to equate or
Newly Industrialising Countries and the State 3
conflate all East Asian cultures, the argument has little explanatory
power outside the regions which may have been affected by neo-
Confucianism. As one Korean theorist has noted: ‘the “developmental”
conception mires itself in a unique East Asian configuration, attribut-
ing too much similarity to Japan, South Korea, and Taiwan…’1 The
introduction of Mexico as a case study may prevent us from becoming
mired in this way and, in particular, suggest comparisons beyond the
question of culture.
Finally, a great deal of effort has been expended, especially by eco-
nomists, on attempting to discover the precise policy ‘mix’ which led
to success for the NICs – in order that it might be repeated elsewhere.
Not surprisingly, proponents of various policies have discovered in
particular NICs, those policies which seem to validate their views. Yet
the policies pursued by the Mexican, South Korean and Taiwanese
states were quite different from each other, and for a considerable time
they all led to success. Clearly, government policy is important and
some policies would have made development impossible. But compar-
ing three NICs which took different policy paths to development
allows the analysis to go beyond the question of state policy and,
instead, to look at the nature of the state itself, why it chose the poli-
cies it did and how it was able to carry them out with uncommon and
single-minded ruthlessness.
The notion of ‘development’
The term ‘development’ is fraught with difficulty. It seems to imply

some form of progressive change. Yet what is progressive for some is
not for others. It is far from clear that the changes which took place in
Mexico, South Korea and Taiwan since the Second World War were
welcomed by all in those societies. Indeed in many, perhaps most,
cases since the first industrial revolution in eighteenth and nineteenth
century England, economic transformation has initially meant higher
standards of living for a minority while much larger numbers experi-
enced increased hardship. Economic growth in largely agricultural
countries has involved a transfer of resources: from the countryside to
the cities, from agriculture to industry, from some social classes to
others. In Mexico especially this process has seen rural dwellers
become poorer. Most of those who were forced off the land and drawn
to the shantytowns around the cities found conditions there as
appalling as those they had fled. Even in South Korea and Taiwan,
where early land reforms improved the material condition of many
farmers, the economic ‘miracles’ of the 1960s and 1970s were accom-
panied by the creation of a highly exploited factory workforce often
made up of young women. What ‘development’ means or should
mean is deeply contested. But, whether for good or ill, life in these
three countries has been profoundly transformed by the process
described by this difficult and inadequate term. Our aim is to discover
how that transformation happened.
Since the Second World War, development theory has been domi-
nated by two debates. The first, raging most fiercely from the 1950s to
the late 1970s, was between theories of modernisation and theories of
dependency. The second, between neo-liberalism and neo-statism was,
to some degree, derived from these earlier controversies. The change
in the terms of the argument was in part a response to a perceived
impasse in the earlier debate. In part it also reflected the decline
during the 1970s of what was known as ‘Third Worldism’. But this
shift in the terrain of the argument was also a response to the deve-
lopment of the NICs themselves, whose emergence posed major theo-
retical challenges for all who had concerned themselves with
development in poor countries.
Modernisation and dependency
Central to the modernisation framework is the notion of stages of

development – that between the traditional and the fully modern
are a number of points common to all societies undergoing the tran-
sition between them. Understanding the characteristics of these
stages was not simply a matter of noting what had happened – it was
a practical guide for developing countries in defining their objectives
at each stage and dealing with the obstacles to moving to the next.
The theory was diffusionist – linkages between advanced capitalist
societies and others would speed the process of modernisation.
Integration in the world capitalist economy should therefore be an
objective for poor countries – modernisation was determinedly and
optimistically pro-capitalist.
In contrast, the dependency theorists – known as dependistas in recog-
nition of the largely Latin American origins of the school – saw capital-
ism as the root cause of the problems of what eventually became known
– rightly or wrongly – as the ‘Third World’. One of the great strengths of
dependency theory was its ability to view the present state of underde-
veloped countries both from the perspective of the totality of the world
economy and with an historical approach. Poverty was seen as part of
an historical process by which capitalist countries incorporated other

regions into the capitalist system and so ‘underdeveloped’ them. But if,
as the dependistas claim, greater integration into the world economy
leads to greater dependence and therefore a process of underdevelop-
ment, then the emergence of the NICs becomes completely incompre-
hensible. Cardoso and Faletto have pointed out that, on this score,
history has prepared a ‘trap for pessimists’.2 South Korea, Taiwan and
Mexico all industrialised in the 1960s and 1970s in the context of an
increasing volume of trade with the advanced economies. If integration
in the world economy was to mean inevitable underdevelopment, then
in all of Latin America, Venezuela, with its dependence on oil exports,
rather than relatively isolated areas such as the Brazilian northeast,
should be the most underdeveloped.3 In Asia, highly export-dependent
Taiwan and South Korea should have been underdeveloping since the
1960s while a more autarchic economy such as Afghanistan would be
spared that fate. In fact, the opposite is the case.
A great strength of dependency theory has been its insistence on
considering the context of the world economy in analysis of Third
World countries. But, at times, the complexity of the local class forces
and their role in choosing a relationship to the international environ-
ment has been crudely downgraded. Despite some exceptions, a ten-
dency to reduce local class struggle to a reflection of international
pressures remains. One of the indications of this is a fairly cavalier
treatment of the concept of class and a tendency to confuse it with
‘elite’, ‘strata’ or ‘sector’.4 So dependency theory spawned a kind of
internationally-oriented determinism in which the options for local
classes are severely limited. Curiously, for a theory which set out to
attack the optimistic determinism of the modernisation theorists, it
has produced its own form of determinism in response.
Neo-liberalism and neo-statism
By the 1980s, it seemed that the dependency and modernisation per-

spectives had fought each other to a standstill. An impasse had appar-
ently been reached in development theory. Moreover, modernisation
theory had been shaped in important ways by the Cold War, depen-
dency theory by sympathy for the Third World. Both of these consider-
ations began to recede in significance to many Western intellectuals in
the 1980s. However, a new debate – on the relative importance of
states and markets in the process of economic development – soon
took its place. Although both sides added the prefix ‘neo’ to describe
their positions, the debate was not new. It echoes through economic
controversies – especially those about ‘late’ development – since at
least the 1830s with the arguments made against adulation of the free
market by protectionist economists such as the German, Friedrich List
and the American, Henry C. Carey.5
Neo-liberalism
Until the 1970s most conservative, pro-Western theorists had no
objection to a degree of government planning and state economic
intervention. Indeed it was one of the few things which many of the
modernisation theorists and some of the dependistas had in common.
This broad consensus on the need for development planning and state
intervention was challenged in the 1980s by those who called them-
selves neo-liberals. They argued that economic resources are allocated
most efficiently when decisions – and especially prices – are left to the
market. High levels of government intervention could only distort
natural prices and the comparative advantages of various branches
of production in each country and so would reduce the ability to
produce wealth. The argument was applied to both rich and poor
countries. In the former, Reagan, Thatcher and many others carried
out at least some of the neo-liberal prescriptions. In developing coun-
tries the argument was promoted even more vigourously by the World
Bank and the International Monetary Fund (IMF) whose neo-liberal
missionary zeal was facilitated by the great explosion of Third World
debt of the late 1970s and early 1980s.
By 1982, Mexico had failed to make its debt repayments and
was forced to submit to IMF intervention. Thus the main period of
Mexican economic success had passed before the neo-liberal argu-
ment became the orthodoxy among many Western economists, the
IMF and the World Bank. But because of its continued industrial tri-
umphs in the 1980s, East Asia was a crucial testing ground for neo-
liberalism. In 1993, the World Bank produced the most influential of
neo-liberal accounts: The East Asian Miracle: Economic Growth and
Public Policy.6 The difficulty, however, for neo-liberals in their ana-
lysis of the East Asian NICs, was that it was abundantly clear that
massive state intervention was involved in each – whether it occurred
via direct state ownership, high protective tariffs, state control of
finance or state planning. Neo-liberal analysis has tended to fall back
on the proposition that state action in East Asia merely ‘simulated’
market conditions at a time when no developed markets existed. 7
This argument immediately attracted criticism. Commenting on the
World Bank report, Jene Kwon made a point since repeated many
times. The report suggested that:
If government is to deserve any credit, it only does so because its

myriad interventions (in pricing, interest rates, wages, bank credit,
monetary and fiscal policy, protection of domestic industries, export
promotion and subsidies and industrial policies, and so forth) must
have, by some magical coincidence, jelled into a neo-classical
formulation.8
In other words, the neo-liberal position suggested that even when state
intervention happened and was successful, it was really something else.
The invisible hand of the market was somehow temporarily operating
through the very visible one of the state. But if states are so ineffectual
in properly distributing economic resources, why was it that, in these
East Asian cases, they apparently possessed such acumen? In fact, these
states did not intervene only to correct minor distortions in markets.
Nor did they operate simply to liberate private business from non-
market constraints. They did so with the conscious intention to indus-
trialise and were prepared to radically alter the operations of the
market to achieve that end. They were not anti-business, but they were
willing to discipline and, on occasion, trample on the rights of private
business to achieve industrialisation. Moreover, they openly declared
this to be their aim – evidence which the neo-liberals consistently
ignored.
Neo-statism
Partly in reaction to the rise of neo-liberal theory, and partly to that of
the East Asian NICs themselves, a neo-statist position began to form in
the mid-1980s. The thrust of this view was to argue for a new emphasis
on the role of the state by political scientists and developmental eco-
nomists. In particular, following work by Chalmers Johnson on Japan,
the neo-statists emphasised the importance of a particular kind of state
– a developmentalist state – in economic growth in late developing
countries.9 Under certain circumstances, states, whether to maintain
domestic political control or because of the external threats they face,
may be forced to initiate economic development. In doing so they con-
sciously distort market rationality. Rather than simply allow their
countries to be subject to the laws of comparative advantage, the state
in successful late industrialisers such as Taiwan and South Korea and,
in an earlier period, Mexico, constrains market ‘rationality’ in order to
promote rapid industrialisation. The strongest empirical examples sup-

porting the arguments of the neo-statists were Taiwan, South Korea
and Japan.
Developmentalist states are necessary in poor countries, according
to the neo-statist perspective, because of their extreme shortage of
capital and because of the enormous advantages in technology and
scale of production enjoyed by their competitors – those countries
which have already been industrialised. The developmentalist state
must concentrate scarce capital and maximise whatever small advant-
ages the late developer possesses. Therefore, a ‘congenital characteris-
tic of twentieth-century late industrialization [was] a greater degree of
state intervention’.10
Neo-statism provides an important starting point for understanding
the success of the NICs. It is the contention of this book that not only
are the neo-liberals wrong in their analysis of the modern NICs, they
are wrong in relation to many other late developing countries, includ-
ing those of nineteenth century Europe and Japan. Later chapters on
Mexico, South Korea and Taiwan will detail the enormous importance
of state intervention and the conscious limitation of market forces in
the interests of rapid industrialisation in these countries during the
ascending phases of their development.
During the 1980s, the conception of the developmentalist state
replaced modernisation and dependency as the dominant paradigm
competing with the neo-liberal framework. But as the decade wore on,
all of the East Asian nations started to behave less like developmental-
ist states. They became less interventionist, began to sell state assets
and to loosen trade and investment controls. Secondly, no other deve-
loping countries such as China or Malaysia have adopted such high
levels of state intervention as did South Korea, Taiwan and Mexico.
Questions were immediately posed which the neo-statist position was
not easily able to answer. Why did the successful NICs decide to shed
the statist powers which had apparently worked so well for them? Why
didn’t other states, having witnessed the progress of their predecessors,
decide to use the same methods? By the late 1980s, the shine had worn
off the neo-statist position as well.
The model of the Midas states developed in this book builds, in
part, upon much of the neo-statist case. However, it also does so with
an emphasis on the significance of class and class conflict to an
understanding of the dynamics of the state in capitalist society. Such
an emphasis adds several new dimensions to the neo-statist position:
an appreciation of the varied forms of state historically created by
differing class configurations, and an awareness of the dynamics of

the NIC state and its changing powers and possibilities as the balance
of class forces shifts.
Numerous theorists have contributed to the literature on the nature
of industrialisation and its historic importance. One of the most
important and pathbreaking is Alexander Gerschenkron. Among the
huge body of work on the ‘rise of the West’ and industrialisation in
Europe, his is distinguished by its systematic attempt to compare
industrial development in different periods; specifically, to compare
early and late industrialisation. His Economic Backwardness in Historical
Perspective made an attempt to understand the changes in the industri-
alisation process by linking them to the organising principles of ‘back-
wardness’ and the ‘lateness’ of development; that is, how long after
English industrialisation the industrial development being studied took
place and in how ‘backward’ a region.11 The relevance of this compari-
son of early and late development in the nineteenth century to an
analysis of the post-Second World War NICs is obvious. The NICs
industrialised in circumstances which could be considered very late
and very ‘backward’ by Gerschenkron’s standard. Moreover, even a pre-
liminary glance at their development suggests that it took a very dif-
ferent course and used different means from the industrial countries
which preceded them.
A key element of Gerschenkron’s analysis was that the later develop-
ers of the nineteenth century faced an already economically powerful
Britain. For them, the path to industrialisation taken by Britain was
blocked by this simple fact. Much greater centralisation of capital and
conscious coordination of the accumulation process was required for
them to face the British challenge and catch up. For Gerschenkron,
variation from the British pattern of industrialisation was a necessity
for those countries whose industrialisation followed it. Rather than a
single path to industrialisation, the actual route taken was related to
the degree of economic, political and social ‘backwardness’ at the time
of the ‘spurt’ of industrial growth.
In other words, the size of the gap between the already developed
country or countries and those on the verge of industrialisation deter-
mined the new course that the late developer would take. In particular,
what can be seen as prerequisites in the British case – a long-term
build-up of capital, a potential industrial labour force, entrepreneurial
ability, a credit system and many others – did not usually develop in
the same way or were not present in the same measure as they
had been in Britain in the middle to late eighteenth century. Therefore
substitutes had to be found for them. The more ‘backward’ the

economy, the greater the importance of such substitutions.
According to Gerschenkron, six general changes mark an industrial
spurt as relative ‘backwardness’ increases. The more ‘backward’ a
country is at the time of its spurt of growth, the faster the spurt; the
greater the concentration on large-scale production; the greater the
stress on producer goods; the heavier the pressure on the consumption
levels of the population; the greater the part played by special institu-
tional factors such as banks or the state; the less likely that agriculture
will play any major part in the process.12 Of these six, we are most con-
cerned here with the institutional means which late developers might
employ.
England
The state played an important facilitative role in England’s industrial

revolution but its direct part in capital accumulation was much more
limited. It facilitated industrialisation in three ways. The state created
a system of financial and political stability conducive to industrial
entrepreneurship. Secondly, over several centuries preceding the
industrial revolution, it helped to speed the development of capitalist
agriculture. Thirdly, the British state carved out and maintained an
empire which provided both sources of raw materials and markets for
British industry.
The so-called ‘financial revolution’ of the 1690s created a recognis-
ably modern capitalist structure of finance and fiscal management. By
the end of that decade, the Bank of England had been established,
there was a de facto gold standard, a market in mortgages existed, the
stock exchange became important, marine and fire insurance had
been created and a financial press was being published.13 A measure of
the degree of financial stability provided by the British state was the
ease with which it was able to raise loans. Through the wars of the
eighteenth and early nineteenth centuries the British government was
able to find substantial credit easily on the basis of its reputation for
stability and fiscal rectitude.
A second long-term means by which the British state helped to create
the pre-conditions for industrialisation was its encouragement of market-
driven agriculture. Above all the enclosure of common land was a major
force in the growth in the number of gentry farmers and ‘improving’
landlords with a capitalist orientation and, eventually, cash to spare. By
1700 around 70% of England was already enclosed.14 But enclosure was
not a conscious attempt to stimulate industrialisation – it began several

centuries before the first factories were established. It did, however, speed
the breakdown of pre-capitalist relationships in the countryside. It even-
tually created – with much misery – a dispossessed labour force of former
small farmers which could be turned into an industrial proletariat.
Enclosure also promoted the rise of a class of capitalist farmers with
savings, some of which found their way into industry. All of this had a
crucial bearing on the emergence of Britain as the first industrial nation,
but it was not calculated government intervention aimed at achieving
industrialisation.
The third area in which the British state had a significant impact on
economic development was its construction of an empire. But those
who began the small manufacturing establishments associated with
industrialisation in this period were not in foreign trade. Indeed they
were a world apart socially and economically from the great merchant
monopolists who were most associated with intercontinental trade.15
They tended to start their enterprises with small outlays of capital and
funded themselves primarily by reinvesting profits or through family
and local connections.16
Direct government investment in industry was minimal. Even infra-
structural projects such as turnpikes and canals were developed by
private interests. Nevertheless, the lack of direct government involve-
ment does not prove that laissez-faire was a pre-condition for industri-
alisation. The reason is that the British model was not followed by later
industrialisers in the nineteenth century. As we shall see, it could not
have been.
France
Whereas in Britain the controllers of the industrialisation process

were the industrial entrepreneurs themselves, in France and espe-
cially Germany, banks played a far more important role. The brothers
Péreire, the figures behind the famous Crédit Mobilier, pioneered a
new kind of banking from 1852. Supported for a time by Louis
Bonaparte, the Emperor Napoleon III, it was no longer designed, as
were the old banks, merely to provide short-term credit; the Crédit
Mobilier was pledged to the industrialisation of the country. In doing
so it found itself in a bitter struggle with the old banks – particularly
the Rothschilds. The Emperor, eventually finding that he needed the
support of the old financial establishment, refused to allow it to raise
further capital in 1862–63 and it collapsed in 1867. Nevertheless, by
the time of its demise it had already forced its competitors to adopt
its own methods. It had created the first universal bank – a type soon
copied in Germany and elsewhere in continental Europe.
The Crédit Mobilier was the kind of institutional ‘substitute’ claimed
by Gerschenkron to be necessary in late industrialisation. It is, of
course, not inevitable that such substitutes will be found or, if found,
that they will be developed and used to the degree necessary to ensure
a major ‘spurt’ of industrial growth. Indeed, the absence of an institu-
tional lever for growth such as the Crédit Mobilier before 1852 may
have postponed France’s industrial spurt and made it less intense when
it did occur. Lacking the means to attract savings into large-scale
investments, the French economy, according to Tom Kemp: ‘tended to
be slowed to a snail’s pace, leaving the country as a whole still largely
in the grip of an “eighteenth century” economy of small units and
archaic techniques’.17
Britain’s first stage of industrialisation in the eighteenth century did
not require a Crédit Mobilier. But the larger scale of enterprise in the
nineteenth century demanded greater outlays of capital. If it was to
succeed, some new arrangement had to be found. This is not to say
that a conscious search occurred in France for an institution such as
the Crédit Mobilier as a means to industrialise. But it found in the gov-
ernment of Louis Bonaparte a supporter who could see its potential as
a counter to the Bank of France and other established bankers who
were unfriendly to the regime. In the end, the Crédit Mobilier itself had
only a slight direct influence on industrialisation. The main outlets for
its investment were public works and railways. Nevertheless, it forced
its competitors to look to investment banking and thereby pointed the
way to the future for later industrialising countries.
Gerschenkron’s thesis also seems, at least temporarily, sustained by
the role of the state in the 1850s. The French state, for a short time,
also provided a great spur to industrialisation under the Bonapartist
regime after 1851. State spending rose by 50% between 1852 and 1855
before levelling off.18 The new government forged ahead with railway
construction after years of prevarication by previous regimes. Ninety
thousand miles of track were laid between 1852 and 1857.19 The
government was prepared to risk deficit financing to develop industry.
But soon it was to move away from its interventionist role. A free trade
treaty with England in 1860 – the Cobden–Chevalier Treaty – signalled
the retreat. Nevertheless, Gerschenkron’s most important insight – that
late development requires new forms and methods in order to succeed
– seems to fit the French case quite well.
Germany
In the case of German industrialisation, there is indeed a dramatic

‘spurt’ of the type anticipated by the Gerschenkron model. Although
there had been a slow but important development of manufacturing in
a number of German states from the end of the Napoleonic Wars, the
critical period from which we can date such a qualitative breakthrough
is around the late 1830s and early 1840s – the point at which large
scale railroad construction began to fuel a boom in heavy industry.
From then, industrialisation proceeded very rapidly indeed. The
momentum built up was sufficient to allow German industry to grow
continuously through the international recession of 1849 and to
further strengthen its heavy industrial base in the 1850s.
The German ‘spurt’ was based on heavy industry, not as in England,
on the production of light consumer goods. Cotton textiles, the
‘leading edge’ industry of the English industrial revolution had no
chance to play the same role in Germany. After 1815, when restrictions
imposed by Napoleon’s Continental system were lifted, cheap British
cotton textiles flooded into Europe and virtually destroyed the embry-
onic Prussian and Saxon industries. Facing such competition, late-
comers such as the German states had little choice but to emphasise
heavy industry if they were to industrialise. In fact, it was the German
railways which led the industrial advance. By the 1840s Germany had
the second most extensive railway network in Europe, with more than
twice as much track as France. Railways in turn stimulated other heavy
industry – iron and steel, mining and engineering – in some areas even
outstripping their English counterparts. The pace of German develop-
ment and the rapidity with which it could catch up with Britain in
some areas should not be surprising. Germany had the great advantage
of being able to ‘borrow’ technology from Britain.
The capital requirements of heavy and relatively high-technology
industries were vastly greater than those of the English textile industry
in its critical period of development in the late eighteenth century. As
such it was rare that an individual entrepreneur alone could finance
such undertakings. The only recourse for prospective industrialists was
the banks, not merely for short-term loans as in the English case, but
for long-term capital requirements. In the 1840s and 1850s new banks
were formed with the express purpose of providing these funds. The
Crédit Mobilier was their model. Its form of aggressive, industrially-
oriented banking, now taken up on a large scale in Germany, shocked
both British and French observers.
The long-term credit provided by these banks to industry made them

partners in management. In many cases, they purchased large blocks of
securities and, to minimise their risks, then sought seats on the board.
German industrial capitalism had developed foundations fundamen-
tally different from those of both Britain and France. What the Crédit
Mobilier had merely hinted at as a possibility in France came to fruition
in Germany.
Participation by the banks also changed the structure of industrial
capital. Bankers’ instincts were to limit industrial competition in areas
in which they were involved by facilitating mergers and cartels. The
severe recession which struck the newly unified Germany in 1873
intensified the process – prompting many banks themselves to merge
for protection. Because of the banks’ close connections with industry,
cartelisation and concentration of industrial companies was advanced
still further.
The German credit banks and their part in industrial growth is a key
difference between the British and German industrial revolutions.
But just as the Crédit Mobilier had presaged future developments in
Germany, so German industrialisation brought forth its own innova-
tion which would become more important in later years and in other
countries. This was the conscious involvement of the state in stimulat-
ing, protecting and, in some cases, owning and controlling industry.
Whereas the English state has often been compared to the ‘night-
watchman’ – guarding business but not usually interfering with it, the
German states were involved at a much higher level. The pressure of
international competition drew the German states into a greater role in
industry in the critical period of the 1830s and 1840s. The Prussian
state set up metal and engineering plants and factories to produce
woolen cloth. It had its own shipping line and, in an attempt to reduce
Prussia’s trade imbalance, even involved itself in the manufacture of
luxury goods.
The Prussian state owned and operated nearly all the collieries in the
Saar and several in Upper Silesia and produced about 20% of all the
coal mined within its borders. It also had extensive salt mines and a
virtual monopoly on salt production. Similarly, the Bavarian state
owned two coalmines, ironworks, saltworks and even porcelain facto-
ries in the mid-nineteenth century. Many other enterprises were joint
ventures between governments and private businesses.
But even this understates the level of state direction of industry in
the early critical phase in the 1830s and 1840s since public officials
were often involved in closely overseeing business in which there was
no state investment. In some areas they made day-to-day decisions

such as whether to allow new seams to be opened in mines. Further-
more, state credit was important to a range of enterprises – giving
governments additional leverage and control.
In the railway industry – the most important for German industriali-
sation – state involvement was pivotal. From the 1830s and 1840s rail-
ways in some states – Baden, Wurttemburg and Bavaria – were entirely
built by governments. In Prussia, the Diet, seeking political concessions
from the King in the 1840s, refused to vote for the necessary bond-
raising that would have established government-owned railways.
Nevertheless, the Prussian state still guaranteed the profits of private
railway companies and invested heavily itself.
German governments did not plan industrial development in a
rigorous way. On the other hand nor did they have any objection in
principle to state involvement or adhere to any serious laissez-faire
prejudices. Part of the interest of states in industrialisation was for
reasons of defence. Railways and shipyards attracted state support
partly for strategic and administrative reasons. Following the 1873
depression, German unification and the intensification of competition
between the major European powers, the German state moved to even
more aggressive intervention – nationalising railways and directing
private investment more strictly. But probably the most important
form of state involvement was the tariff. Before the spurt of the 1830s
and 1840s, German tariffs were generally low. Industrialisation, espe-
cially railway development, created pressure for tariff protection
as entrepreneurs saw the new opportunities opened up in industries
supplying the railways. The tariff law of 1844 was a decisive turning
point. Before it, coke-fired bar iron had entered Germany duty-free.
Afterwards it attracted a duty of 68%. With the recession of the 1870s,
levels of protection rose sharply, and even more than direct state
ownership or partnerships it became the main form of government
intervention in the economy.
Russia
Russia’s economic spurt in the 1890s – four to five decades after

Germany’s had begun – took place in a Europe where industrialisation
had already changed the balance of power between states. A new hier-
archy had been established – based as much on levels of industrial
development as on military prowess. Indeed the connection between
the two was obvious. The military imperative had become clear to
Russia’s rulers in the Crimean War of 1853–56. Humiliating defeat at

the hands of Britain, France and Turkey prompted a massive attempt to
catch up with the West. When, in 1878, Russia became estranged from
Germany – the leading industrial power on the continent, its own
industrialisation became even more urgent.
Russian industrialisation also took place in a state which, in the
1890s, was far more economically ‘backward’ than Germany had
been in the 1840s. Agriculture was much less efficient than in France,
Germany or Britain. Indeed, serfdom had only been formally abol-
ished a scant few decades earlier in 1861. This fact, and because it
was to happen half a century after that of Germany, meant that the
attempt to imitate and catch up to the West required enormous
efforts and different means. Yet the Russian rate of industrial deve-
lopment outpaced all of its predecessors for a time. Industrial output
had been increasing for decades and, in the second half of the 1880s
rose by an annual average of 6.1%. But the turning point, a genuine
‘spurt’ in Gerschenkron’s sense, was the 1890s. Industrial output
grew by an average of about 8% over the decade, faster than in any
other industrial nation at the time.
Furthermore the industries created were more concentrated than was
the case in even the most advanced of the older industrial nations.
Russia had attained a greater level of industrial concentration (though
not output) by 1900 than existed in Germany or the United States. As
in Germany, the driving force of heavy industry was the construction
of railways. Russia had the world’s fifth most extensive railways in
1890. By 1900 only the United States had a larger network. By that
time, the railroads employed 400,000 people.
Even more than in Germany, it was the state which was the motor
of industrialisation – especially in the part it played in building the
railways. Whereas in the 1860s and 1870s about 80% of railway devel-
opment was done by private capitalists (though often with state
support), from the 1880s, the Tsarist state shouldered most of the
burden. For several decades afterwards, the railways consistently lost
money, but the losses were absorbed by the state. In addition to the
demand created by the railways, the metal industry prospered as a
result of substantial state orders for arsenals and naval dockyards.
A further way in which the Russian state contributed to industrialisa-
tion was through a tough tariff regime. The move away from a free
trade policy began with the tariff rise of 1877. Tariffs were increased by
about one-third. Further rises in tariffs in 1881 and 1882 followed.
Then in 1891, a ‘monster tariff’ was introduced. The result was that
where tariff revenue had amounted to 12.8% of the total value of

imports between 1869–76, the ratio rose to 28.3% between 1885 and
1890 and then to 33% in the 1890s. After the 1891 tariff only 14 pro-
ducts were allowed free entry into Russia – and for these there was little
demand in any case. By that time Russian tariffs exceeded any others
in Europe.
Whether via railway construction, tariff protection, preferential
purchasing policies, subsidies or the provision of credit, it was the
state which played the decisive part in the industrial spurt of
the 1890s. This policy of government-sponsored industrialisation
was implemented by powerful Finance Ministers from the time of
M.K. Reutern (1862–78) but became especially pronounced under
I.A. Vyshnegradskii (1887–92) and above all under the famous Count
Sergei Witte (1892–1903). What became known as the ‘Witte system’
was premised on the shortage of domestic capital capable of the task
of rapid industrialisation. The government therefore encouraged
foreign investment and in order to attract it worked to achieve a
stable rouble (eventually in 1897 a gold standard). To achieve this in
turn required tariff protection to minimise non-essential imports.
A favourable trade balance also required promotion of exports –
inevitably in the Russia of the nineteenth century this meant mostly
grain exports – and the severe exploitation of the peasantry to
obtain the grain for export.
Witte’s idea was that the system would work by using state finance
to build railways, which would in turn stimulate the development of
heavy industry paid for by large-scale injections of foreign capital.
Heavy industry would, in time, feed into the development of light
industries. Eventually, progress in light industry would help to advance
the efficiency of agriculture by providing the means to mechanise it.20
The shortage of capital in Russia was such that domestic capital
could not possibly play the leading role. But foreign capital found
the state-led program very much to its liking. Foreign capital
invested in Russia increased almost six times during the 1890s. 21
Much of this was in the areas which required the largest injections
of capital to begin production – heavy industry. Domestic capitalists
were largely left to light industry. The Witte system appeared to
work in the 1890s – at least in terms of its objective of rapid indus-
trialisation. But it contained a number of inherent weaknesses which
ultimately made it unsustainable. Large amounts of state investment
had to be drawn from somewhere. The only possible source of
foreign exchange was grain exports. The major source of state
revenue had to be taxation of the mass of the population – mostly

the peasants. High taxes on the peasants were designed both to force
them to produce and export grain and to increase the income of the
state, which it then used to fund industrialisation.
Witte’s predecessor as Finance Minister, Vyshnegradskii, established
the dictum: ‘let us starve but export’ and that remained the policy
through the 1890s.22 But it was the peasants, not the Tsar’s Ministers,
who were likely to starve. The ending of serfdom in 1861 did not
provide the peasants with land. Even those who could secure it had to
make hefty payments to do so. By the 1890s there existed a massive
peasantry with very little purchasing power. Such a population could
not provide a market for industrial goods and could not invest in agri-
cultural improvements to any substantial extent. Thus in the 1890s
the state was demanding much more from a peasant agriculture which
had not significantly improved its efficiency. The result was inevi-
table. Although the decade is usually seen as one of economic
progress, the living standards of peasants actually fell.23 By 1900, they
were exhausted and by 1905 in full scale rebellion. In the first decade
of the twentieth century, it was clear that the state could no longer
sustain the industrialisation effort. It was forced to retreat. Some of
the vacuum left by its partial withdrawal from large scale investment
was taken up by private banks. However, the Russian banks were
much weaker than the German investment banks on which they were
modelled. The spurt of industrial growth was over for the time being.
As the state withdrew under pressure, growth rates slowed.
But it was not simply willpower or singlemindness that was lacking.
State policy during the great push of the 1890s illustrates that, under
intense international military pressure, the state was capable of gener-
ating both and being extraordinarily ruthless. What was missing, in
the end, was the ability of the state to proceed with its plans despite
the opposition of major class forces in Russian society.
Japan
Military pressure was also central to the Japanese industrialisation

drive. The visits to Japan by the American, Commodore Perry, in
1853 and 1854 marked the beginning of the Western push to ‘open’
the country. By 1858 the Shogun had been forced to sign treaties
opening five ports and giving various rights, including that of ex-
traterritoriality, to foreigners. To underline the threat, British and
American warships bombarded Shimonoseki and Kagoshima in 1862
and 1863. The Japanese also had before them the example of China
in the Opium Wars of the 1840s to remind them of the fate of a non-
industrial country challenged by the expansionist Western powers.
Japanese feudalism was rapidly breaking up by the 1850s. There were
some signs of economic development and the wider spread of market
relationships – though not yet industrialisation. The merchant class
(chonin) were increasing their wealth and influence and the traditional
feudal lords (daimyo) were often heavily in debt to them. Significantly,
the militarised samurai class was in disarray. During the Tokugawa
period, there had been little conflict, hence the samurai were without
function. By the middle of the nineteenth century most had given up
their hereditary servants; many were impoverished. Nevertheless, they
still constituted about 7% of the population.
The combination of a decaying feudal structure, the threat from
the West and the existence of a disaffected section of the population
who were also well-schooled in the art of war was explosive. Between
1864 and 1868 civil war raged and the Tokugawa Shogun was over-
thrown. Although the anti-Tokugawa forces had fought under the
traditionalist banner of the restoration of the power of the 16-year-
old Emperor, renamed Meiji (‘enlightened rule’), the government
they formed was keenly aware of the need for a major renovation of
Japanese society in the face of the dire peril posed by the West. Its
slogan ‘rich nation, strong army’ pithily summarised their aims. In
addition, the new regime, led by young samurai such as the first
Prime Minister, Ito Hirobumi, had come to power on the basis of a
rebellion led by the samurai and was sensitive to the dangers posed
by this class of largely unemployed yet armed and dangerous men.
Indeed General Saigo, the leader of the army that destroyed the
Shogunate, left the government and went to war against it in protest
at one of the Meiji government reforms – its abolition of stipends for
the samurai. The defeat of this revolt – the Satsuma rebellion –
removed a key obstacle to the creation of a modern capitalist society.
The need for rapid economic expansion to provide occupations for at
least some of the disaffected samurai and prevent further upheaval
added to the pressures on the Meiji government.
This new government immediately set out to modernise in order to
meet the Western threat and maintain domestic stability. As well as
ending the feudal rights of the samurai it decreed peasant emancipa-
tion. The most commercially-minded elements of Japanese society
were given its full backing. Trading houses were encouraged to branch
out into banking and, especially, industrial production. Eventually
they formed the great zaibatsu (money-cliques), including the four

biggest – Mitsui, Mitsubishi, Sumitomo and Yasuda. The government
immediately built a close relationship with these banks and heavily
influenced their investment decisions.
Private business, even with the most generous support from the
state, could not establish industry with the necessary speed. So in all
the areas where it was deficient, the state stepped in. The clearest
example was the establishment of factories directly owned and con-
trolled by the state. These included some involved in cotton spinning,
shipbuilding, tile and cement works, sugar refining and brewing. A
major area of state involvement was the manufacture of armaments.
State-owned enterprises were not designed to carry out the industriali-
sation project in its entirety. Rather they were ‘model’ factories, meant
to stimulate other private projects. Nevertheless, in the 1880s the
government carried out about 40% of total capital formation.24 By
1897, government factories accounted for 56% of the total number of
factories, 88% of factory employees and 75% of the horsepower used in
industry.25
A major state initiative was to import Western technology on a large
scale in order to overcome the enormous technical gaps between
Japanese and foreign industries. By the end of the nineteenth century,
40–50% of the budget of the Ministry of Industry was spent on the
salaries of foreign technicians. Technological help, along with various
other financial subsidies offered to private investors, meant most
industries in the late nineteenth century owed their existence to state
support. Although foreign investment was permitted, it was primarily
in the form of portfolio investment. At no point did the government
allow foreign investors to directly control any section of the economy.
From the 1880s many state factories were privatised – so that by
1912, only 12% of factory workers were employed by the state.26 But it
had never been the intention of the Meiji rulers to establish a state-
owned system. Rather, they were prepared for the state to bear the
early costs in order to break through and begin to industrialise. In any
case, the many direct and indirect subsidies to the zaibatsu, which con-
tinued after the 1880s, were more important forms of state promotion
of industry. Even after this period of privatisation, the government
remained committed to industry – especially heavy industry – because
of its importance to Japanese imperial ambitions. In 1894 and 1895,
Japan successfully waged war against China, and in 1904 and 1905
against Russia. Private capital developed very quickly. But it was
invested on a large scale only after the state had overcome the initial
problems of technological backwardness and lack of incentive. In all,

the state, driven by external military threat and then by imperialist
ambitions, played a major part in the rapid industrial transformation
of Japan.
Gerschenkron’s model, especially that aspect which relates to the
importance of institutional ‘substitutes’ in late development, seems to
fit well the course of nineteenth century ‘late’ industrialisation.
Lacking many of the ‘prerequisites’ for industrialisation that England
already possessed by the late eighteenth century, German and French
industrialisation in the nineteenth century required much greater cen-
tralisation. The instrument used to achieve this centralisation was the
banking system – although the German states also played a significant
role.
Japan’s economic spurt after 1868 and Russia’s in the 1890s –
coming later than those of France and Germany and taking place in
still more ‘backward’ countries – required even greater centralisation.
Investment banks alone would not do. The state played a leading role
in each. It was neither ‘nightwatchman’ – protecting the economy but
not intervening in it – nor a parasite simply feeding off economic
activity. The state had to be the organiser, a mobiliser of scarce
resources and a motivator. England stands at one end on a scale of
state intervention, Russia and Japan at the other. Between them are
France and the German states. With few exceptions, those economies
which began to industrialise later still – especially since World War
Two – relied even more heavily on state initiative.
Because industrialisation happened extremely unevenly, some
regions and countries find themselves in competition with others
whose industries are more developed. By the nineteenth century the
connection between industrialisation and war-making ability was well
understood by rulers. Serious rivalry for world supremacy between
Britain, easily the most industrialised power, and France was over by
1815, with France utterly defeated. Although Prussia had been Britain’s
ally in the Napoleonic Wars, it was obvious by the 1830s and 1840s
that none of the German states could match British industry, and still
less its Navy. Tsars Alexander II, Alexander III and Nicholas II had
before them the example of the Ottomans, a once grand empire fallen
into decay and unable to maintain a place at the table of the great
powers. The first and last of these three Tsars suffered military defeat at
the hands of industrial powers. The Meiji rulers had the even more
shocking example of China – effectively carved up by Europeans in the
1840s. The experience of the Ottomans and of China showed that vast
populations and heroic military traditions alone would no longer

prevail in warfare. Military power was clearly related to both the
wealth of states and to the level of industrial development they had
achieved.
Industrialisation changed the balance of state power within only a
few decades. The rise of Germany is a prime example. Early in the
industrialisation process there – by 1862 when Bismarck became Prime
Minister of Prussia – this state was still regarded as the weakest of the
five great European powers. By 1871, it had won three wars and led a
unified Germany that was home to the greatest military and industrial
power on the continent. Similarly, Japan, which feared suffering the
fate of China, comprehensively defeated that huge empire in 1894–95
– less than three decades after the Meiji state began to industrialise. In
one decade more, it humiliated the Tsarist empire as well.
Serious military threats prompt urgent action. A slow, gradual
industrialisation based on the incremental accumulation of capital
and the accretion of entrepreneurial and technical skills is not
enough to meet such threats. In any case, in late developing societies,
the bourgeoisie which might otherwise lead industrialisation may
well be content to establish a connection with foreign capital and
play second fiddle to it, acting as compradors in their own country. In
no case could the English experience be replicated – where small
entrepreneurs and small banks were the principal actors in a slowly
maturing industrial revolution.
The industrialisation process was never nationally autarchic in the
nineteenth century. Russia was heavily reliant on foreign capital.
Moreover, one of the advantages of Gerschenkronian ‘backwardness’ is
the ability to begin industrial development with the highest levels of
imported technology. Germany, Russia and Japan all consciously
strove to import technology (and technologists) from more developed
countries. And usually it was the most highly evolved technology and
capital equipment available in the world which was sought. Apart from
its obvious advantages in efficiency such technology had another
important benefit to late developers. The most modern techniques in
nineteenth century heavy industry required lower levels of operator
skill than older techniques. Thus modern technology also helped to
solve the problem of shortage of suitable labour in non-industrial or
newly industrialising countries. The dependista tradition has never
satisfactorily explained the importance of international example, tech-
nology and capital in the transformation of the nineteenth century
late developers.
But while late development in the nineteenth century was not

autarchic, nor did it easily hand control of the process to foreigners.
The tariff, subsidy, state ownership, and state-controlled finance all
attempted to maintain the dominance of nationals in industry. To use
the language of modernisation theory, the state did not prevent all
‘linkages’ with the world economy. But it tried to control them and, as
with the attempts to attract French capital to Russia and to import
technology to Russia and Japan, even to create them. Here we find a
new role for the state of the late developer – as intermediary between
the domestic and world markets, between local and foreign capital. It
must interact with world capital in order for its country to progress.
But to allow foreign capital simply to colonise it would defeat what
was, in the minds of German, Japanese and Russian statesmen, the
whole purpose of late industrialisation. Tsarist Russia, with its heavy
industry almost completely under the control of foreign banks and
industrialists was the least successful of these efforts. Japan, which
restricted foreign capital greatly and never allowed it to dominate, was
the most successful.
In none of the nineteenth century cases where the state played a
significant role – Germany, Russia and Japan – was it actually con-
trolled by capitalists. What is important here is less the class of the
titular aristocrats at the heads of these states – the Kaiser, Tsar and
Emperor – than their key government ministers during the main
period of development. In each case they too were drawn from back-
grounds in feudal elite classes. Sergei Witte and the main ministers of
his time were all hereditary members of pre-capitalist elite classes, so
too were Otto von Bismarck and Ito Hirobumi. All saw their inter-
national competitors employing capitalist methods and sought to
emulate them. Although they came from non-capitalist classes them-
selves, they were not necessarily anti-capitalist. For them, state in-
tervention was pragmatic not ideological. It was designed to force the
pace of industrialisation, not to create a state-controlled economy for
all time. Thus, when they had achieved their objectives, they were
content to let private capitalists take over industry.
Finally, late industrialisation was not a gradual process of diffusion
as suggested by modernisation theory nor a simple creation by the
state of market conditions in which private capitalists could take the
lead. It was a conscious effort and one that could fail more easily than
it might succeed. Because it involved large-scale transfers of resources
from some sections of society to others, it always provoked opposition.
The Tsarist attempt was brought to an end by mass resistance, first by
peasants and, ultimately by workers and peasants in the great revolt of

1917. The Japanese state was able to control the process longer and
managed to survive. Thus it had correspondingly greater success in
industrialisation. Differential success here is not simply a matter of the
level of repression which can be employed. The Tsars did not shrink
from the use of violence any more than did the Meiji leadership.
The question now becomes: if the state is central to late develop-
ment, what are the salient features of those states which are able to
lead such development successfully? The pressure of international
competition is felt by all states. In the nineteenth century some suc-
cumbed and became the Third World of the twentieth century. Others
led an industrialisation process and avoided that fate. The nature of
the latter will now be the centre of our investigations.
2
The Autonomy of
Developmentalistist States
Resistance to state intervention
Beginning with Gerschenkron, and continuing with neo-statist theo-

rists, the idea that substantial economic intervention by what has been
called a ‘developmentalist state’ is central to late industrialisation has
become common. The lesson has been generalised to include the post-
World War Two NICs. Indeed, some suggest that all states – those of
already industrialised societies as well as those of the Third World and
the NICs – play a much greater role in economic life in modern capital-
ism than in the past, despite neo-liberal ideology and the alleged
effects of globalisation. Preparation for war and the imposition of
domestic order are roles shared by all states at all times to varying
degrees. But as economic success has become a greater source of mili-
tary strength and domestic legitimacy, the state’s economic role has
been increased.
But states in late developing societies face particular difficulties. One
of Gerschenkron’s six differences between early and late development is
the suggestion that the later development takes place, the heavier will
be the pressure on the consumption levels of the population.1 This is
consistent with the other differences which he notes. Late develop-
ment, in Gerschenkron’s model, produces a greater emphasis on capital
goods industries, on ‘bigness’ in production and therefore requires
larger outlays of investment capital. Whether the institutional forms
which mobilise these funds are banks or the state, initially they must be
mobilised at the expense of some section of the population. Further-
more, late developers have not usually gone through the long process of
small scale accumulation of funds in developing capitalist agriculture as
in England. Hence, it is likely that there will be a shortage of potential
25
middle class investors in industry or depositors in large banks. State

investment funds must be raised from taxes. Doing so usually means
transferring resources from non-industrial, primarily agricultural sectors
of the economy to industry. Resistance from small farmers and
landowners is therefore very likely.
An example of this is Meiji Japan. In the 1870s and 1880s, 80–85%
of the government’s revenue came from land taxes.2 Commonly a
third of the value of the farmer’s crop was taken by taxes. As a result
many small farmers found themselves in debt and lost their land. Debt
caused by government taxes, high prices and the new policy of con-
scription introduced by the Meiji government produced rural revolt on
a massive scale. In the first few years of its rule, there were 180 riots in
the countryside. In 1873, 300,000 people rioted in one province alone
against government policies and 4,590 buildings were destroyed or
damaged.3
In Tsarist Russia, modernising reforms such as the 1861 emancipa-
tion imposed even heavier economic burdens on the peasantry.
The costs of tax and redemption payments contributed to lower
living standards, poorer health and landlessness. Among other indi-
cators of the increasing burden on the peasants, especially from the
1870s, was the decrease in the consumption of alcohol and the rejec-
tion of larger number of peasants for military service on the grounds
of poor physical health or physique, despite the lowering of entry
requirements.4
Also, most of those involved in the new industries are themselves
reluctant participants. The workers who labour in them are usually only
recently torn from the land, often under extreme economic pressure,
occasionally as a result of physical force. Moreover, in the early stages of
industrialisation they are not used to close supervision, are normally
paid very low wages and are accorded few if any rights to protest or
organise themselves collectively. In the Japanese textile industry – a key
one during the early years of the Meiji era – wages were about one-tenth
the British level and strikes had already begun to break out by the mid-
1880s. The Russian workers’ movement was even more rebellious.
Organisation among workers in the last two decades of the nineteenth
century fed into the two great revolutions of 1905 and 1917.
Landed classes are also likely to resist an industrialisation program
which shifts wealth to the cities and is likely to contribute to a decline
in their social status and political power. Even the private capitalists,
who are often the eventual beneficiaries of state-led industrialisation,
commonly object to it. It may require that they give up lucrative rent-
The Autonomy of Developmentalistist States 27
seeking activity or comprador-like connections, and invest in industries

which may not show profits for years. Thus states which seriously
pursue late industrialisation might well find themselves besieged on all
sides by social forces opposed to their strategies.
Despite rural and urban worker resistance, the Meiji authorities never
lost control. Nor were they forced to change seriously their plans for
industrialisation. In contrast, by the beginning of the twentieth
century the Tsarist state was in full retreat from the Witte policy of
the 1890s. Ito Hirobumi and the Japanese state were able to overcome
the opposition and press forward with industrialisation, while the state
machine of Tsar Nicholas II was not.
The question now becomes: what is it that enables some states, for a
considerable period, to pursue industrialisation against the wishes of so
many in their societies? Since most authoritarian states, the Tsarist
state and many others in the Third World today fail to do so, state
repression alone is not a sufficient explanation. Nor does it appear that
the precise policies adopted by each government are the key to their
success as is suggested by the neo-liberal position. The ability of a state
to overcome resistance to its policies is not a matter of technical ability
or policy choice but of the historically determined structural abilities of
the state and its connections with the broader society.
The question is not what policies might be pursued by a develop-
mentalist state, but what form of state might be capable of being
developmentalist. At issue is not only the background and motiva-
tions of the people who occupy positions of power within it but also
the nature of the links between the state and the broader society of
which it is a part. Discussion of the nature of developmentalist states
must centre on two aspects of the states themselves: their ability to
remain insulated from social pressures which might militate against
industrialisation; and their internal cohesion, efficiency and strength
of purpose. The first of these questions – the extent to which the state
is insulated from social pressures – has often been referred to as its
degree of relative autonomy.
State autonomy in theory
Nearly all theoretical frameworks which attempt an analysis of state

power accord the state at least some degree of autonomy from other
forces in society. Liberal and pluralist paradigms deal with the democ-
ratic state as a structure or site which responds to competing interests.
Power is dispersed between interest groups and, under democratic con-
ditions, no single one of them is able to control it completely. The

result is that, over time, power and wealth are dispersed. The state is
controlled by interest groups, but because of the multiplicity of them
and because no single one can ever gain a monopoly of political
power, the state also has a degree of autonomy.
Despite profound differences with the pluralist and liberal perspec-
tives, most Marxist theorists share at least one element of this view:
that forces external to the state push and prod it to take action in their
interests and against the interests of other groups. Moreover, most
Marxists would agree that there is competition amongst various groups
for access to state power. However, at that point the two perspectives
part company. The claim, often implicit, by liberal/pluralist theorists
that no single group can gain permanent control over the state sug-
gests that groups compete on roughly equal terms over long periods.
Marxists argue, on the other hand, that in a capitalist society, capital
has an immense advantage in such a competition and is able to exert
far more pressure on the state than other social forces.
State autonomy in theory: Marx
The insistence by Marxists that the state in capitalist society is a capi-

talist state rather than a neutral one, has led to a general perception
that Marxism, amongst all approaches to state power, grants the state
the least autonomy. But in fact, the idea that the capitalist state has
some autonomy – and more in some circumstances than in others – is
present throughout much of Marx’s (and Engels’) actual historical and
political analyses.
The caricature which has often been presented to dismiss Marxism in
discussions of state action usually relies on a famous quotation from
the Manifesto of the Communist Party: ‘The executive of the modern
state is but a committee for managing the common affairs of the whole
bourgeoisie’.5 If we were to take this as the final and complete position
of Marx and Engels on the state, then indeed, Marxist analysis of state
behaviour would simply be a matter of discovering the class interest of
the bourgeoisie in every action and policy of the state. Actually, the
thinking of Marx and Engels on this point is considerably more
complex – as has been illustrated by the excellent textual study by the
American Marxist, Hal Draper.6
In contrast to feudalism, capitalist societies usually exhibit a division
between the people holding direct political power and those with the
greatest economic power. The feudal aristocracy held state power at all
levels. Feudal state power and economic dominance based on owner-
ship of land and rights to labour were mutually reinforcing. But in

developed capitalist societies, capitalists rather rarely personally hold
high political office. This division between political and economic
functions reflects central aspects of the capitalist system. Firstly, even
in conditions in which there is a high concentration of capital, capital-
ists are in competition with each other to some degree. Disastrous con-
sequences – losing everything – may, at times, follow failure in this
competition. Exclusive control of the state machine could give an indi-
vidual capitalist or group of capitalists an enormous advantage over
competitors. Therefore, a non-participant in the conflict is more likely
to be trusted by the class as a whole. Although state leaders may well
be induced by fair means or foul to favour one capitalist or group of
them over others, this is likely to lead to agitation to replace them and
consequent instability. The professional politician is the result – skilled
at manoeuvring between different sections of the economically domi-
nant class or classes and capable of appealing to the subaltern classes as
well. To be fully effective, the personnel of the state require a degree of
independence. Hence the attitude of Marx and Engels to that master of
political manoeuvre, Disraeli:
This change in leadership amounts to a complete, and perhaps to

the final transformation of the Tory party – Disraeli may congratu-
late himself on his emancipation from the landed humbugs.
Whatever be our opinion of the man, who is said to despise the aris-
tocracy, to hate the bourgeoisie, and not to like the people; he is
unquestionably the ablest member of the present Parliament, while
the flexibility of his character enables him, the better to accommo-
date himself to the changing wants of society.7
Secondly, and linked to the preceding point, capital needs a degree of

long-term planning which is difficult, if not impossible, for individual
capitalists or companies, constantly concerned with their immediate
profits and perhaps solvency, to undertake. Such planning might mean
that immediate sacrifices are required for the stability of the system as
a whole or even that entire sections of the capitalist class must them-
selves be sacrificed for the good of the whole class. In some cases this
may involve restraining capitalists from particularly harmful forms of
exploitation of the workforce.8 Marx wrote of the British Factory Acts
of the nineteenth century that they:
are the negative expression of the same greed. These acts curb the
passion of capital for a limitless draining of labour-power, by forcibly
limiting the working-day by state regulations, made by a state that is

ruled by capitalist and landlord.9
In other words, to pursue the enduring interests of the British capitalist

class – the preservation of a supply of labour power – the state was
compelled to prevent capitalists from exploiting it in the way they
would wish. The long-term interests of the capitalist system as a whole
sometimes require short-term sacrifices and these can only be ensured
by an apparatus which stands outside the immediate competitive
struggle of each capitalist against all. To individual capitalists at any
particular time, the state may appear to be a parasite, drawing taxes
from and imposing restrictions on them but providing little in return.
The need for a level of social services, protective legislation and a
myriad of other state activities which can underpin and strengthen
capital accumulation might easily escape the attention of the capitalist
whose eyes are fixed resolutely on profit and loss. In an analogy drawn
from Shakespeare’s The Tempest and used by Draper, the state is
Caliban to the bourgeoisie’s Prospero. Caliban is in service to Prospero
but has his own independent dreams. On the other hand, Prospero is
suspicious and doubtful of his servant. But ultimately he cannot do
without him.10
Finally, modern political democracy relies on the notion that the
masses of people actually control the destiny of society. For the state to
appear to stand above all grubby questions of material self-interest it
cannot also be obviously staffed by the rich themselves. The separation
of economic from political power provides the illusion that, since the
rich have only one vote like everyone else, the state is neutral between
social classes and therefore deserves consent from the citizenry. States
which are directly presided over by an individual capitalist, or a politi-
cian who uses state power to turn himself/herself into one, might have
to rely heavily on expensive, and possibly eventually ineffective,
repression.
So capitalist states are linked to the capitalist class in a partnership,
but the concerns of each partner may vary. Moreover, the state may
hold the whip-hand in the relationship. All of this discussion revolves
around what we might call ‘normal’ situations of state autonomy.
But, in addition to the ‘normal’ situation of state autonomy in
advanced capitalism, certain circumstances – especially where the
capitalist class is not yet in a situation of clear social and political
dominance – may allow the state to operate in an even more
autonomous fashion. For the most part, Marx and Engels believed
that these situations would be historically transitory – moments in

history which threw up exceptionally autonomous states.
‘Exceptional’ state autonomy in the nineteenth century
Britain
The first such instance is that of the British bourgeoisie of the nine-
teenth century and its compromise with the aristocracy which pre-
ceded it as a ruling class. An early division was established whereby
members of the aristocracy continued to hold important state office
long after the economic power of their own class had dwindled. The
old ruling class remained capable of fighting a rearguard action in
which they attempted to hold on to the state administration – even
though they now operated it in the interests of the bourgeoisie.
In part, this reflected a timidity of the bourgeoisie; a sense of inferi-
ority in the face of an older, more experienced and sophisticated
propertied class. Engels records his astonishment at this:
In England, the bourgeoisie never held undivided sway. Even the

victory of 1832 left the landed aristocracy in almost exclusive pos-
session of all the leading Government offices…. The English bour-
geoisie are, up to the present day, so deeply penetrated by a sense of
their social inferiority that they keep up, at their own expense and
that of the nation, an ornamental caste of drones to represent the
nation worthily at all state functions; and they consider themselves
highly honoured whenever one of themselves is found worthy of
admission into this select and privileged body….11
Another element which caused this division of the political and the
economic between propertied classes related to a struggle within the
bourgeoisie itself – between its older rentier section and the newer and
more dynamic manufacturers. In the end, to the exasperation of Marx
and Engels, the aristocracy held on to important positions within the
state. The bourgeoisie which had conquered markets all over the globe
could not, or did not want to, completely conquer Westminster.
France
Another, and the best known, set of circumstances in which Marx,
and later Engels, dealt with the concept of state autonomy was
during the coming to power and the early reign of Louis Bonaparte.
Marx’s analysis of the French situation was that the Restoration
Monarchy, occupied by the House of Bourbon, which ruled France

until 1830, represented landed interests. That which followed, the
‘July Monarchy’ of Louis Philippe of the House of Orléans, was ori-
ented towards the interests of financiers and industrialists. The July
Monarchy was finally brought down by the wave of revolutions
which swept Europe in 1848. In June of that year, a further revolu-
tionary upsurge of the Paris working class took place. Fifty thousand
workers took up arms in Paris, 1,500 of them were killed and about
12,000 arrested. The rising was smashed by 25,000 regular troops
and 12,000 of the notorious gardes mobiles – the troops of the new
bourgeois government. The conclusion of this turmoil saw Louis
Bonaparte elected as Prince-President for a non-renewable four-year
term. In the following two years, a complex series of political
manoeuvres allowed Bonaparte to stage a coup in late 1851. The next
year he was crowned Emperor Napoleon III. For Marx, the rise of
Bonaparte represented the seizure of power by an individual rather
than a class:
France therefore seems to have escaped the despotism of a class only

to fall back beneath the despotism of an individual and, what is more,
beneath the authority of an individual without authority. The strug-
gle seems to be settled in such a way that all classes, equally impotent
and equally mute, fall on their knees before the rifle butt.12
Thus we have a dramatic separation of political from economic power:

the loss of direct control of their state by the ruling classes of French
society. From Marx’s writings on Bonaparte we can distil a number of
elements which seem central to his understanding of the phenome-
non. The first was the enormous fear, sharpened by the June insurrec-
tion, which the ruling classes had of the workers of Paris. Having
experienced this threat once, the wealthy were prepared to sacrifice
direct political power so long as whoever held it could guarantee
‘order’. At one point, Bonaparte came into conflict with the bourgeois
representatives in the National Assembly. But the mass of the bour-
geoisie outside the chamber, demanding ‘tranquility’ above all, broke
with their own parliamentarians and allowed Bonaparte to strengthen
his position. Rather than fight him, the bourgeoisie permitted
Bonaparte to take over the army.
A second reason why Bonaparte was able to seize power was the dis-
unity between the main sections of the ruling class: landed interests on
one side and financial and industrial ones on the other. Although
ongoing conflicts over material interests were involved in the division,

it was expressed through different historic allegiances to noble houses:
the landowners supporting the Bourbons; the financial and industrial
sections, the Orléanists. They could not rule together but an open
contest between them might open the door to instability and a return
to the ‘June Days’ of working class revolt, a result which both groups of
the propertied feared more than anything.
A third basis for Bonapartism was the mass support of the French
peasantry. Although his regime may appear to have been completely
‘suspended in mid-air’, it was not: ‘Bonaparte represents a class, and
the most numerous class of French society at that, the small-holding
peasants’, wrote Marx.13 However, while the peasantry might support a
Bonapartist state they could not control it; their conditions of exis-
tence made them permanently incapable of ruling society. They
needed a figure such as Bonaparte as their champion:
The smallholding peasants form a vast mass, the members of which

live in similar conditions but without entering into manifold rela-
tions with one another. Their mode of production isolates them
from one another instead of bringing them into mutual inter-
course…. Each individual peasant family is almost self-sufficient; it
itself directly produces the major part of its consumption and thus
acquires its means of life more through exchange with nature than
in intercourse with society. In this way, the great mass of the French
nation is formed by the simple addition of homologous magnitudes,
much as the potatoes in a sack form a sack of potatoes.14
A fourth basis for Bonaparte’s power was his leadership of an organisa-

tion of armed adventurers, mercenaries, declassed elements and thugs
– the storm troopers of the day. ‘But above all, Bonaparte looks on
himself as the chief of the Society of 10 December, as the representa-
tive of the lumpenproletariat to which he himself, his entourage, his
government and his army belong…’.15
A fifth element of the Bonapartist phenomenon was the weakness of
the working class and its inability to impose its will on the situation
following the defeats of June. Besides, having seen many of their
number slaughtered by the bourgeois republic in June, the Parisian
poor were in no mood to sacrifice themselves again to save that same
republic from Bonaparte. A lesser point which Marx makes here is that
Bonaparte consciously set out to appeal to the workers, peasants and
the poor, on occasion doing so as their protector and saviour from the
wealthy. Indeed he had produced a small book titled The Extinction of

Pauperism and was considered by some as a kind of Saint-Simonian
socialist.16 It is commonly suggested that Marx’s conception of
Bonapartism is where there is an equilibrium between the bourgeoisie
and the working class. This is a misconception. Although the bour-
geoisie’s fear of allowing the working class to re-enter the political
arena may cause it to leave power in the hands of a Bonaparte or a
Bismarck, this does not constitute an equilibrium. On the contrary, as
Poulantzas points out, the working class in France had ‘disappeared
from the scene’ and played no direct role at all in events after June
1848.17 In other words, for Marx, Bonapartism did not require a
balance between classes – it could exist on the basis of the smashing of
the power of one or more of them.
A sixth factor which Marx seems to suggest helped to sustain
Bonapartism was the great size of the French state itself:
This executive power with its enormous bureaucratic and military

organization, with its ingenious state machinery, embracing wide
strata, with a host of officials numbering half a million, besides an
army of another half million, this appalling parasitic body which
enmeshes the body of French society like a net and chokes all its
pores, sprang up in the days of the absolute monarchy, with the
decay of the feudal system, which it helped to hasten.18
Such a state had its own inertia; its payroll alone could buy the support
of many thousands for the figure at its head quite independently of the
ruling classes – at least for a time. Under Bonaparte, ‘the state seem[s]
to have made itself completely independent. As against civil society,
the state machine has consolidated its position so thoroughly that the
chief of the Society of December 10 suffices for its head…’.19 And a key
element of that state was the army, of which Bonaparte had made
himself the head – ‘raised on the shield by a drunken soldiery, which
he has bought with liquor and sausages’.
At one point, Marx even suggests that the Bonapartist state might
cut itself free of all classes, at least for a time. In February 1858, he
agrees that previous regimes in France had rested on the army. But in
these cases, although the army was crucial for the existence of the gov-
ernment, the state power still served a ‘specific social interest’.20 For a
time, Marx thought that under Bonaparte:
the interest of the army itself is to predominate. The army is no

longer to maintain the rule of one part of the people over another
part of the people. The army is to maintain its own rule, person-
ated by its own dynasty, over the French people in general. It is to
represent the State in antagonism to the society.21
Such a situation was dangerous, however, for Bonaparte. Resting on

the army alone meant that he could easily be overthrown by it:
‘Bonaparte is … aware of the dangerous character of the experiment he
tries. In proclaiming himself the chief of the Praetorians, he declares
every Praetorian chief his competitor’.22 Whether or not Bonaparte did,
in fact, become completely independent of the classes of French
society for a time, the point here is that Marx was prepared to concede
that such a situation could emerge.
Germany
Apart from Bonaparte, the other great political figure of continental
Europe for much of the mature lives of Marx and Engels was Otto von
Bismarck, Prime Minister of Prussia from 1862 and, finally, Chancellor
of a united Germany. Marx and Engels cut their political teeth in the
left wing of the German revolutionary democratic movement of the
1840s. The key demands of that movement were essentially bourgeois:
national unification and some form of representative parliamentary
government, with universal suffrage as one of the more advanced
demands. Yet in the revolutionary year of 1848, the German liberals,
with the developing urban bourgeoisie at their core, were terrified by
mass upheaval. They abandoned these demands and embraced the
most reactionary, aristocratic and anti-democratic forces in German
society. Ironically, by the 1870s, German unification and a wider suf-
frage than anywhere else in Europe had been brought about in large
measure by Bismarck, a member of the Prussian Junker class of mili-
tarised landowners who were the most hostile to liberal reform. It was
doubly ironic in that Bismarck had established his personal reputation,
at least until 1866, as the scourge of the liberals.
Once again, the capitalist class had refused to carry out a program
of reforms which, in the long-term, might suit their interests more
than anyone. As in Meiji Japan, and to a lesser extent France under
Napoleon III and the Russia of the last three Romanovs, modernisa-
tion was carried out by human material shaped by a pre-modern
class. It was not only a revolution from above, but one carried out by
those who might have been most expected to resist it. In their com-
ments on these events in Germany, Marx, and especially Engels,
began to generalise their concept of Bonapartism. In their writings,
three factors appear to underpin the Bonapartist – or relatively
autonomous – position of Bismarck in Germany. The first was the

cowardice of the bourgeoisie in refusing to press forward with its own
demands and come into conflict with the old order. When, in 1866,
Bismarck introduced, or allowed to be introduced, universal (male)
suffrage, Engels commented:
….Bonapartism really is the true religion of the modern bourgeoisie.

It is becoming increasingly clear to me that the bourgeoisie does not
possess the qualities required to rule directly itself, and that there-
fore, unless there is an oligarchy as here in England capable of
taking over, for good pay, the management of state and society in
the interest of the bourgeoisie, a Bonapartist semi-dictatorship is the
normal form; it promotes the great material interests of the bour-
geoisie, but allows it no share in the government itself. Conversely,
this dictatorship itself is in turn compelled unwillingly to adopt the
material interests of the bourgeoisie.23
This timidity was a product of the fright it had received in the revolu-
tion of 1848. When the German businessman had to decide which he
valued more, democracy or property, it was always democratic reform
which took second place. The aristocrats who controlled the state,
including the army, were in the end the ultimate guarantors of stability
and respect for property.
A second basis for Bismarck’s independence from the rising bourgeoisie
was his ability to manoeuvre between classes, appealing to and using one
against the other. His basic tactic was to play off the old order from which
he had sprung against the rising bourgeoisie and, occasionally, to threaten
the bourgeoisie with working class discontent.24
This strategy could only work because both aristocracy and bour-
geoisie were propertied classes who could co-exist – albeit with some
tension between them. The prosperity of either was not dependent on
the total impoverishment of the other. Furthermore, the bourgeoisie
could affect some aristocratic styles of life while the Junkers could
assimilate bourgeois habits and even take up business.25 Finally, both
of these classes were united on a series of important aims: an expan-
sionist foreign policy, economic development and industrialisation.
When Bismarck found himself dangerously isolated from both sections
of the propertied classes, war or the threat of it could consolidate
his position, as it did in successful campaigns against Austria in 1866
and again in 1870 and 1871 against France. But to maintain such
autonomous power, Bismarck had to be able to partially separate
himself from his own class background and do the things which by
upbringing and instinct he despised. In the late 1860s, he was
sufficiently flexible to become almost a liberal. He wrote: ‘Only chance
decides whether conditions make the same man a White or a Red’.26
State autonomy in Marx
Thus for Marx and Engels there appear to be broadly two sets of cir-
cumstances where state autonomy exists: a ‘normal’ form which the
operation of an advanced capitalist state requires in order to do the job
for the capitalist class. This form appears because of the internally com-
petitive nature of this class, its inability for any section of it to formu-
late a long-term strategy for the class as a whole, and because of the
advantages of a degree of state autonomy in winning the consent of
the masses to be governed by it.
In addition there are exceptional circumstances in which the state
acquires a much greater degree of autonomy. However, there is no
single way in which state autonomy can be created. The specific bases
for it vary with the historical circumstances. Among them are:
(i) the specific nature of the division in the bourgeoisie – whether, for
example, it is between landowners and industrialists or industrialists
and rentiers; or the political ways in which that division is expressed,
for example, between Orléanists or Bourbons, Whigs or Tories;
(ii) the nature of the pre-capitalist ruling class, its size, degree of
control of the state and especially the army, whether it will
accept ‘taking over, for good pay, the management of state and
society in the interest of the bourgeoisie’, how easily it can assim-
ilate bourgeois habits or accommodate itself to a capitalist
economy, the degree to which it shares goals and interests with
the bourgeoisie;
(iii) the size, degree of organisation and militancy of the working
class, whether it has a revolutionary history and the extent of the
bourgeoisie’s fear of it;
(iv) the support for a Bonaparte of a mass class such as the peasantry
which is intrinsically incapable of taking power itself;
(v) the size and social weight of the state machine;
(vi) the transfer of the allegiance of the army from a ruling class to a
Bonapartist group or individual;
(vii) the presence of an extra-state armed force not under the control
of one of the major classes.
There is no theory of state autonomy in Marx or Engels and we cannot

regard this as a completed list. Different circumstances could well
throw up other foundations for Bonapartism. However, it is clear that
they regarded the phenomenon as intrinsically limited in two ways. In
the first place, a state could break free of direct control by the capitalist
class, but it could not, for long, be dismissive of the need to accumu-
late capital. By the nineteenth century the condition for military
success, imperial grandeur, or even national survival was a thorough
and successful industrialisation, a rule which Britain and Germany
demonstrated in a positive way and Hapsburg Austria and Romanov
Russia in a negative one. Indeed, although Marx and Engels give little
attention to it, both Bonapartist and Bismarckian states were more
interventionist in their economies – they took more of the burden of
capital accumulation on themselves than did the British state at a com-
parable level of industrialisation. Besides, domestic legitimacy in the
late nineteenth century, especially under conditions of universal suf-
frage, increasingly relied on providing employment in industry. A state
which consistently undermined capital accumulation also eroded its
domestic support.
But this need to accumulate capital contributes to a second limita-
tion on a Bonapartist regime. By creating conditions in which the cap-
italist mode of production could thrive, the state inevitably augments
the social power of the bourgeoisie – whatever its intentions:
he [Bonaparte] is somebody solely due to the fact that he has broken

the political power of this middle class and daily breaks it anew.
Consequently, he looks on himself as the adversary of the political
and literary power of the middle class. But by protecting its material
power, he generates its political power anew.27
Having adapted to the need to modernise in a capitalist sense, the state

promotes the economic power of the capitalists. As a result the capital-
ist class will eventually overcome their timidity and seek political
power to match their economic strength. Furthermore, although Marx
and Engels do not mention this specifically as an element of the
Bonapartist dynamic they identify, further development of industry
must create a larger and potentially more powerful working class. To
the extent that a Bonaparte might find support in the peasantry, that
basis too will be undermined by the growth of industry and the decline
of the rural smallholder. Thus there is a permanent contradiction
at the core of Bonapartism. The conditions of its success are also,
ultimately, the conditions of its decline. Bonapartism contains the

seeds of its own destruction.28 This implies that not only are specially
autonomous regimes eventually likely to fall, but that during their
existence, they are in a constant process of change as the class or
classes whose power they usurped gradually gain in strength and
confidence.
State autonomy and development: the nineteenth century
The preceding discussion of Bonapartism makes it clear that further

theoretical work on exceptional forms of state autonomy does not
require eschewing a Marxist class perspective. On the contrary, the
constellation of social classes, their strengths and weaknesses, their his-
torical development and experiences, their levels of organisation, inter-
nal cohesion, fears and ambitions are central to understanding the
phenomenon.
Marx and Engels did not apply the concept of Bonapartism to an
analysis of the forms of late economic development. On the other
hand, Gerschenkron, although dealing exclusively with forms of late
development, used neither the concept of Bonapartist state autonomy
nor the class analysis on which it is based. Yet a brief survey of nine-
teenth century development suggests the usefulness of marrying the
two approaches. Some form of state autonomy seems crucial to the
ability of the state to overcome the resistance of the many forces
which might oppose industrial development. But both the degrees of
autonomy and its forms differ in various late developing countries.
Understanding these differences and forms might contribute to an
explanation of both the means which a late developing state employs
to industrialise, and the likelihood of its success. Bonaparte’s interven-
tion in the economy was the least extensive of the cases studied. In
the Gerschenkronian framework this suggests that France was less
‘backward’ than the others in the nineteenth century. This is true in
comparison to Russia and Japan. But it is not true in relation to
Germany. Also, France’s economic development was less spectacular –
the ‘spurt’ is not nearly as dramatic as in Germany, Russia or Japan. A
possible element of the explanation is that after a short time,
Bonaparte’s state enjoyed much less freedom of action than either the
German states or the Japanese one. Bonaparte’s Bonapartism was,
ironically, quite weak. He was not a representative of an old ruling
class but owed his position largely to his ability to manoeuvre
between the classes and to the support of the army. He offended the
financial bourgeoisie by his brief flirtation with the Crédit Mobilier but
thereafter obediently carried out the economic policy the bourgeoisie
wanted – especially the 1860 trade treaty with Britain. The complete
rift between the state power and the ‘specific social interest’ of a major
class that Marx had seen as a possibility in 1858 was healed.29 In polit-
ical matters, Bonaparte began to feel the pressure of the Orléanist
elites – the rising capitalist class – at about the same time. A series of
liberal reforms in November 1860 was designed as a concession to
them:
As the danger from the ‘reds’ receded, the Orléanists soon demon-
strated that they had relinquished none of their aspirations to
political pre-eminence within the framework of a liberal parlia-
mentary system. Even before the issuing of the decrees of
24 November, 1860, there had been signs that they were chafing
under the restrictions imposed by the constitution.30
Such was the pressure that Bonaparte reformed the system himself to
allow the bourgeoisie more political powers ‘before a day dawned
when they would be extorted from him’.31 Bonaparte enjoyed only a
moderate degree of freedom of action in economic matters, and that
for less than a decade: 1851–60. His economic intervention was
limited; the great industrialising push by the state was relatively weak
and short-lived.
Bismarck and, before him, the rulers of the states of northern
Germany, came from established social classes. Although they were
old, pre-industrial classes, they nevertheless provided some firm foun-
dation for state power. With that as a solid base, Bismarck could
manoeuvre between them and the rising bourgeoisie. Moreover, with
their military backgrounds, especially in the case of the Prussian
Junkers, they understood the need for industrial progress as the key to
a powerful army. The enormous state railway appropriations – the
foundation of German industrialisation – could never have been
passed by the German Diets or agreed to by their Princes without a
consciousness on the part of these old classes of the military threat.
Nor could the high tariffs which they pursued have been accepted by
landowners who had nothing to gain economically from them.
The Romanovs were also closely bound up with an established aristo-
cratic class, and one bitter at the humiliating settlement of 1856 which
their military and industrial weakness had forced them to accept. From
Alexander II, the Tsars made some attempt to use the state machine to
spur industrial development autonomously – that is, without the ini-

tiative of the bourgeoisie. But the preceding economic development of
Russian society was, on the whole, very much weaker than in northern
Germany. As a result the state effort required to industrialise rapidly
was much greater than in Germany. Since the resources for this could
only be found by virtually starving the peasants, fierce resistance was
to be expected. Moreover, the great push soon provided the material
basis for a powerful working class movement. Although the Tsarist
state was highly repressive, its strength relative to the great mass of the
peasantry and the newly emerging working class was much less than in
Germany or in France, especially when measured against the vastly
greater task it faced. Since the domestic bourgeoisie in Russia was also
very weak, the state relied heavily on attracting foreign capital. Finally,
the state’s close connections with the great landowners prevented any
serious policy of land redistribution which might have improved the
productivity of agriculture, and peasant living standards. The Russian
state needed more autonomy than the German states to lead a success-
ful industrialisation drive, but it had less. Thus Tsarist economic policy
until the late 1890s was closely linked to the nature of the state, the
threats it felt and the strengths and weaknesses of the main classes of
Russian society. So, too, the collapse of the state’s efforts to industri-
alise after that point illustrates the limits of its autonomy. It could
sustain the great push for only a short time: not nearly long enough
for an industrialisation program to provide it with the military where-
withal to hold its own in the war of 1904–05, and still less to defend
itself effectively between 1914 and 1917.
Japan provides yet another variant. The group of young samurai
who took state power in 1868 were not themselves landowners. They
too felt the pressure of military competition to industrialise; it was a
key motivation of the Restoration. But they faced far fewer obstacles
and had much greater autonomy than did the Tsars. Tokugawa Japan
had been based on a highly centralised state from which the large
landowners were excluded. Indeed, ‘a politically powerful landed
upper class simply did not exist in Tokugawa Japan’.32 Thus the Meiji
state did not have to confront this potential block to its attempts to
modernise. Furthermore, the civil war which brought the new gov-
ernment to power was not a product of peasant rebellion. Peasant
opposition, while serious before and after 1868, was able to be con-
tained. Groups excluded from political power under the Tokugawa
Shogunate – indeed most of society – remained excluded. In 1881,
ex-samurai and their families made up 5.3% of the population. Yet
they held 40.7% of official government posts. At the very top of the
state bureaucracy their dominance was overwhelming. In 1885, there
were 88 ex-samurai among the 93 highest ranking officials. But while
the Meiji government ministers and bureaucrats personally had
samurai backgrounds, this was a class whose real basis for existence –
permanent internal warfare between the clan-based upper aristocracy
– had long since been eroded. Many samurai realised that they must
change – the government showed it was more than capable of ending
the feudal dreams of those who did not do so in defeating the
Satsuma rebellion. So the personnel of the new state were not
beholden to other classes in society, nor were they bound to their
own old class interests, which had disappeared. The heritage of that
class was to be retained only for ceremonial and ideological purposes.
Thus the new state was in a supremely commanding position – the
most autonomous of any of the nineteenth century industrialising
states.
None of this is intended to suggest that state autonomy is the only
variable in understanding the basis of the strategies and successes, or
otherwise, of late developers. The existing level of development before
the industrialisation push, the way international economic and mili-
tary competition impinges on a late developer and many other factors
come into play. But the form and extent of state autonomy is a crucial
feature – a key historico-political element in each.
State autonomy and development: the NICs
The concept of state autonomy has now become an important focus of

research into the NICs. For some, the notion is implicit although the
term ‘autonomy’ is not used. Yoo, for example, writes of South Korea
that:
In general, South Korean technocrats and bureaucrats have not had

strong vested interests in the welfare of specific social classes or
sectors or industries of the economy. Their choice of policies was
guided by considerations of overall economic performance….33
In other cases, ‘autonomy’ is explicitly used as a central organising

concept to explain the abilities of developmentalist states by many theo-
rists including Haggard and Moon, Leftwich, Yahya, Alschuler, Önis,
Riggs, White and Wade, Weiss and Hobson, Hamilton, Skocpol and
Trimberger.34 For some of these the key to developmental success is a
high degree of autonomy of the state from dominant classes.35 For

others, it is also important to consider the ability of the state to hold off
challenges from the working class and the peasantry in the process of
industrialisation.36 Autonomy from both enables developmentalist states
to carry out policies such as land reform, a transfer of resources from
countryside to city and from agriculture to industry, low real wages,
state-directed investment for expansion rather than immediate profit,
restriction of investment in speculative activity and the use of subsidies
and protection for industrial growth rather than simple rent-seeking.
A common distinction is that states might possess and employ either
despotic or infrastructural power. Despotic power, following Michael
Mann, involves the ability of a state to use force to extract resources
from society. Such states do not intervene in the economy to reorganise
it or to create conditions under which accumulation might take place
most effectively and rapidly. In the end they are merely parasitic, stand-
ing aloof and taking their means of sustenance from society but giving
nothing back. In the longer term they are unstable because they weaken
the productive systems on which they depend. They eventually fail to
withstand external threats as a result, or they face rebellion from
within. On the other hand, states which possess infrastructural power
do not stand aloof; they use their network of connections to the
broader society both to extract the resources the state needs to survive
in competition with other states and to organise productive activity
more effectively, and/or provide the institutional settings in which cap-
italist production thrives.37 In a similar vein, Yahya makes the distinc-
tion between a ‘benevolent’ or developmentalist state and a predatory
one which merely extracts wealth to the point where it undermines eco-
nomic growth.38 Thus the autonomy of successful developmentalist
states does not suggest isolation from society but an intense engage-
ment with it. The relative autonomy of a developmentalist state is used
for interventionist purposes.
Some theorists who use the idea of the relative autonomy of the state
in their work on the NICs have argued that the state’s abilities should
not be seen as a power used against business. Instead they emphasise
business-state cooperation, and institutions which link the common
interests of each. Ziya Önis, for example, suggests that the two central
features of developmentalist states are a high degree of bureaucratic
autonomy and public-private cooperation.39 Similarly, Richard Doner
argues that coalitional arrangements between public and private
sectors are the central elements in the success of developmentalist
states, a view he and others call ‘institutionalism’.40
The point that the state and private capital can cooperate, and that
each benefit from the collaboration, is important and well-made. But
this relationship in the NICs has not been one of equality. There are
important moments when the state has disciplined capital and forced
it into a course of action which the capitalists did not want to take and
which, left alone, they would have avoided. In all three of our case
studies (South Korea, Mexico and Taiwan) there are instances where
the state has threatened, disciplined, bullied, punished, and even
destroyed sections of capital in order to bend them to its will. Once the
ability and willingness to use this power is demonstrated clearly, it has
to be threatened less; capitals get the message. Then the strength of the
state vis-à-vis capital may be obscured and the relationship between
them may appear more consensual than it is. Therefore it is in the
moments of major conflict that the real balance of power between the
state and capital is best revealed.
It is important to understand that for theorists employing the
concept, relative autonomy is an important, but not the only, condi-
tion for effective state intervention. Haggard and Moon, for example,
argue that there are two dimensions of state power: autonomy and
capacity.41 In other words, the state must itself be internally organised
in such a way that it can project its power effectively. The model of the
developmentalist state suggested by Leftwich is more elaborate. It has
six elements: (i) a determined developmentalist elite; (ii) relative
autonomy; (iii) a powerful, competent and insulated economic bureau-
cracy; (iv) a weak and subordinated civil society; (v) the effective man-
agement of non-state economic interests; (vi) the use of repression, the
search for legitimacy and the need for good economic performance.42
However, it seems that (i) and (iii) are essentially identical, as are (ii),
(iv) and (v), while (vi) involves the means which developmentalist
states may use to stay in power. Thus the definition resolves itself into
an element internal to the state – the cohesiveness and motivations of
the state elite – and one which involves its relative power vis-à-vis
other social forces: autonomy.
The degree of industrial success which the NICs have had is unusual
by Third World standards. One way of understanding the origins of
that peculiar success involves a direct examination of the NIC states.
Another strategy is to look at the extent to which autonomy is pos-
sessed by those states which have had much less developmental
success. In contrast to the NICs, most Third World states are not able
to operate in an autonomous, developmental manner to the same
degree. The greater contemporary strength and reach of the advanced
capitalist centres is such that comprador and rentier groups opposed to

industrialisation policies will be much stronger than those which faced
nineteenth century late-developing states. As Rueschemeyer and Evans
point out:
The dominant class is likely to include a tightly-knit set of oligopo-

lists, some of whose primary interests are transnational rather than
local, and an equally tightly-knit agrarian elite, whose interests are
as much patrimonial in character as they are profit-oriented.43
As a result, a high degree of state autonomy in the contemporary Third

World is quite uncommon. John Lie compares Pakistan with South
Korea in terms of the ability of the state to impose policies not
favoured by large landlords and a few large capitalists:
In the late 1960s, 43 families controlled over half of the total assets
of non-financial firms… In spite of many similarities, what distin-
guished the late 1960s Pakistan from 1970s South Korea was state
power over capitalists. In Pakistan, large landlords and large capital-
ists combined to challenge and to temper state power. Hence the
state was unable to discipline capital or to pursue export-oriented
production.44
The failure of many Third World states to implement serious land

reform programs is another pointer to their inability or unwillingness to
confront powerful landowners – in part because of the social and politi-
cal weight of the latter, but also because of the myriad connections
between this class and the state itself. The failure of the Indian state to
conduct very extensive land reform contrasts sharply with the land
reforms of South Korea and Taiwan which were extremely thorough.
Such a contrast points to differential degrees of state autonomy.45 The
Mexican state, another which played a major developmental role, also
carried out an early and major distribution of land – to an extent almost
inconceivable in India.
The mechanisms by which states are bound to the policies of domi-
nant Third World classes may not always be obvious. ‘Clientalism’ is
one of the mechanisms which has been much discussed in this respect.
Especially in South East Asia, clientalism has often been a means by
which business interests, often ethnically Chinese, pressure politicians
and state bureaucrats without themselves playing a public political role
and incurring indigenous resentment. MacIntyre makes this point
about Southeast Asian state bureaucracies in contrast with those of

South Korea and Taiwan:
In terms of the degree to which economic policy makers are insu-

lated from contending societal pressures, Indonesia is the country
which appears to come nearest to South Korean or Taiwanese expe-
rience… However… economic policy-making processes in Indonesia
could scarcely be described as being insulated in the fashion of
Taiwan or South Korea. The most obvious difference is the pervasive
importance of patrimonial or clientalistic links between government
figures and business people.46
Although the Third World state may be strong in the sense that it
absorbs a significant part of social wealth and is capable of using great
force against its domestic opponents, typically it maintains little
autonomy from dominant groups or is even effectively fused with
them.
The limits of state autonomy
Several groups of theorists of developmentalist states have combined

the concept of state autonomy with great hostility to Marxism arguing
that Marxist theory imposes unnecessary theoretical limits on the
autonomy of states. Theda Skocpol, for example, claims that in
Marxism it is impossible to conceive of a fundamental conflict of inter-
est between the state and dominant classes and therefore Marxist ideas
of ‘relative autonomy’ miss the point.47 In the end, she says, in a
Marxist framework, states are still measured by the class structures or
modes of production of which they are a part.48 Thus for Marxists and
neo-Marxists: ‘Many possible forms of autonomous state action are
thus ruled out by definitional fiat’.49 Similarly, Linda Weiss and John
Hobson rely on the notion of relative autonomy to analyse the East
Asian NICs but suggest that the Marxist concept of state power is
reductionist.50
Certainly, in a Marxist framework, it is true that, to survive, the state
must undertake capital accumulation on a scale comparable to its rivals.
But that does not mean, as Marx’s work on Louis Bonaparte and others
shows, that the state must follow the lead of the capitalist class itself.
Especially in an underdeveloped country, capitalists may be interested in
short-term profit-taking rather than the long-term accumulation neces-
sary for the survival of the state. The best long-term interests of the capi-
talist class (although they may not realise it), as well as the survival of
the state in a competitive system, are sometimes served by not attempt-
ing to immediately maximise profit but, instead, by maximising the
accumulation of capital. Private capitalists, for the reasons outlined
earlier in this chapter, are often in the worst position to see this or carry
it out. This is especially the case in underdeveloped economies as
Rueschemeyer and Evans point out:
The difficulties created by leaving accumulation in the hands of

private decision makers disciplined only by the market increase dra-
matically as market structures deviate from ideal typical standards…
In Third World countries, where smaller markets and imported tech-
nology make oligopolies even more pervasive, the decisions of even
the most carefully calculating profit maximizers may not mesh into
an optimal strategy for industrialization.51
However, a certain kind of state can develop something like an optimal

strategy for industrialisation. It does so for its own purposes, not to
please the capitalists. But the consequence – even though unintended –
is eventually to strengthen the capitalist class.
Theda Skocpol and other non-Marxists such as Ellen Kay
Trimberger emphasise the autonomy of the state from the need to
accumulate capital.52 Yet the actual trajectory of the NICs illustrates
the many ties that bind the developmentalist state to capital accumu-
lation. In the modern capitalist world, the ultimate basis for the exis-
tence of states is the ability of the society of which they are a part to
generate an economic surplus. Short of some form of socialist pro-
duction, this surplus must be generated by wage labour in a capitalist
fashion. Nation states which persistently block the production of this
surplus and halt the accumulation process face huge penalties and, in
some cases, ultimate destruction – either through external military
competition, or because stagnation is likely to lead to loss of domes-
tic legitimacy and internal upheaval, or both. The penalty for failure
to develop a modern industrial base was as severe, or perhaps more
so, for Park Chung-hee of Korea, Díaz Ordaz of Mexico and Chiang
Kai-shek of Taiwan as it once was for Bismarck, Ito Hirobumi, Louis
Bonaparte and Nicholas II. Perhaps none of them aimed to develop a
stronger capitalism; but that was a possible consequence of their
struggle for survival in a developing world capitalist system.
Secondly, quite apart from military challenges, the world capitalist
market ultimately places limits on the autonomy of all states. For
example, failure to produce export goods competitively or to pay inter-

national creditors quickly undercuts the funding base of the state itself
by reducing export income or by raising the cost or halting the avail-
ability of future loans. So, as in Mexico, even where military competi-
tion is not the main force driving a state to industrialise, the stability
of the state still depends on its ability to industrialise.
This is not to suggest that there is an inherent structural mechanism
which prevents the state becoming completely autonomous from the
capitalist class. Nor is there any which prevents it temporarily becom-
ing autonomous from the requirement to accumulate capital. ‘Demo-
cratic Kampuchea’ between 1975 and 1978 appears to have done both.
But the consequences were severe. In the long-term, at least while
world capitalism exists, states which block the accumulation process
must become weaker and either succumb to international pressure or
corrode internally – a future any state elite will normally try to avoid.
So developmentalist states may have a high degree of autonomy from
the classes of their societies, but they have very little autonomy from
the requirement to accumulate capital. Indeed, they are slaves to accu-
mulation. In one sense such states are strong and independent, in
another they are extremely weak and are thus driven to take the
difficult and uncertain path of rapid accumulation.
This raises the question of how states, which are normally anchored
in class relationships domestically, are also shaped by and deal with
international pressures. The fundamental unit of analysis of the
dependista perspective is the world-system which essentially creates a
role for the state as part of the periphery, semi-periphery or core;
metropolis or satellite. Some of the limitations of this perspective have
already been dealt with. An additional problem is that it has little
room for states which consciously set out to change their own position
in the world-system – developmentalist states. Yet the world-system
obviously does make an impact on the developmentalist state and its
choice of strategies as well.
The analyses of Mexico, South Korea and Taiwan which follow will
show how the successful developmentalist state uses its relatively
greater degree of domestic autonomy to mediate between the domes-
tic and international economies. The Midas states both insulate local
capital from its domestic competitors and arm it in international com-
petition. At times, such states create a domestic monopoly for local
business through protection; at others they force that same business
into vigorous competition in the world market. Autarchic develop-
ment – ‘delinking’ from the international system – is not a long-term
option, since the need to import modern technology and the location
of mass markets in developed economies require such links. But, in
the case of the Midas regimes, it is the state which forges these links.
The export orientation adopted, especially by Taiwan and South
Korea, did not emerge from the logic of the world market itself, as the
neo-liberal analysis suggests. Indeed, the push to export posed a
serious problem for companies which had grown up behind tariff
walls and were oriented towards the domestic market.53 The export
strategy was a conscious effort, initiated by these states, which
induced – or even drove – often unwilling firms to venture far from
home.54 But in doing so, the state helped to prepare them and
provided them with great competitive advantages.
Similarly, the Midas states – in the period when they still retained
their domestic autonomy – were able to deal with the shocks which the
international economic system delivered to them. While some devel-
oping economies were further marginalised or even devastated by
world recessions, these states used them to their advantage. A pointer
to their loss of state autonomy is when they were no longer capable of
doing so.
The dynamics and decline of relative autonomy
State autonomy depends on the strengths and weaknesses of social

classes. But neither strength nor weakness is forever. Some classes grow
numerically and in wealth, organisational coordination, sophistication
and confidence. Others decline. Changes in all of these attributes are
especially marked during periods of rapid industrialisation; the private
capitalist class, the working class and some sections of the urban
middle class tend to gain the basis for greater social power, while the
peasantry declines as a force. The degree of autonomy of the state
changes correspondingly.
Developmentalist states which, as we have seen, require autonomy,
find that their own success undermines them. Eventual decline is built
in. Industrialisation strengthens the bourgeoisie, the working class and
the ‘new’ middle class. Business mounts a challenge from one direction;
typically, they refuse to be told by state planners how to dispose of the
money they consider to be rightly theirs, or to accept direction from
planners, bureaucrats and politicians. The working class is not prepared
to be exploited to the same degree and is now in a position to do some-
thing about it, especially by resisting the low-wage strategies which lie
‘beneath the miracles’.55 Often the ‘new’ middle class – whose rise is
associated with the expansion of higher education and of technical and

bureaucratic positions – plays a part in campaigns for greater democracy.
The state cannot sustain the same degree of control it once had (in what
we might call its ascending phase) in the face of the emergence and
strengthening of these challenges. It is not inevitable that these forces
will win the battles that now take place with the old state elite. But the
terrain on which they fight becomes more favourable for them, and less
so for the old state machine.
With its freedom of action more limited by these growing social
constraints, the state is now less able to make ‘miracles’. It enters the
descending phase of the Midas phenomenon. Forced to give up their
Midas touch, these exceptional cases of state autonomy come to an
end, and, after social upheaval and turmoil, a more ‘normal’ capital-
ist relationship ensues, especially between the state and capital. This
does not necessarily mean economic collapse – although serious
crises occurred in two of the three cases studied. But it almost cer-
tainly means an end to the earlier, highly focussed state policy which
drove the miracles, and a reduced ability of the state to deal with
international shocks.
This model of developmentalist state dynamics is an amendment
to the statist and neo-statist positions which have made a great con-
tribution in correctly emphasising, against the neo-liberals, the
importance of state intervention to the success of the NICs. But the
work of these theorists – Alice Amsden (on Korea and Taiwan),
Chalmers Johnson (on Japan), Robert Wade (on Taiwan) and Nora
Hamilton (on Mexico) – establishes a picture of the operation of the
developmentalist state, but not a clear idea of its dynamics.56 Though
lacking an explicit notion of the developmentalist state, that was the
implication of Gerschenkron’s work as well. Their models of the state
have not yet explained why the ‘miracles’ should ever end.57
But, in fact, they do end. We have seen Mexico and, more recently,
South Korea close to economic collapse. They and the Taiwanese state
have all undertaken a major retreat from developmentalism. The
precise and immediate international events which provoke economic
collapses in former ‘miracle’ economies – the ‘Asian’ currency crisis of
1997 or the collapse of the oil boom in the late 1970s and early 1980s –
cannot be predicted within this model. But there are systematic, under-
lying causes for why these states are weakened to the point where they
can no longer manage such external shocks in their descending phases.
A second element of these dynamics concerns the period of transi-
tion between ascending and descending phases – the apogee of the
development. Here there is a point where the strength of the state and
the challenges to it are close to being balanced. The state has not yet
begun its full-scale retreat, yet it is unable to continue ruling in the
old way. Also, the forces ranged against it are not all pushing in the
same direction. The state elite may attempt to shore up their position
by satisfying first one demand, only to face a contradictory demand
from another quarter. So this transitional period typically involves
incoherence in policy: vacillation between repression and reforms,
between dirigiste and liberal economic measures, between democratic
concessions and authoritarian controls.
A third feature of the dynamics of the developmentalist state con-
cerns the composition of the state elite. So far, we have used the term
‘the state’ as a shorthand to indicate the combination of a series of
publicly funded bureaucratic, military and similar institutions, as well
as the political leadership which asserts general control of them and
sovereignty over the country as a whole. We assume a hierarchical
structure with some form of executive exercising broad ultimate
(though not necessarily immediate) power over most of its institutions.
Some such institutions may have a degree of autonomy from the exec-
utive themselves; for example, the judiciary and elements of the
bureaucracy whose inertia, technical expertise or professional pride
make them less than totally responsive to outside direction. Although
we continue to use the term ‘the state’ it is important not to assume a
commonality of interests and views within it – even within the elites
which are in charge of each of its components.
As pointed out by several theorists of the successful developmental-
ist state, one of its important attributes is the cohesion of these state
elites – the extent to which they are united on central developmental
goals.58 If state policy is pulled in different directions by various ele-
ments of the state elite and motivated by different aims, its effective-
ness will be at least minimised. The emergence of an elite which is
coherent with regard to development policy as well as being moti-
vated and disciplined is a feature common to all the Midas states
studied. In all three cases the state elite – or a significant section of it –
exhibited these qualities in the ascending phases of the NICs studied
here.
What makes these people orient in this way? Firstly, all were cut
off from other, sometimes earlier, paths to personal advancement,
either by the simple absence of other routes, or as a result of cata-
clysmic social and political change which closed other routes to
them. All were deeply committed to some form of nationalism,
whether anti-communist nationalism as in Taiwan and South Korea

or the more populist nationalism of Mexico. Thirdly, because they
were cut off from other means of social advancement they tended to
orient towards the state as the vehicle for their own, and therefore
their country’s progress. Finally, all realised that their survival as a
state elite depended on the economic progress which their countries
were able to achieve.
Within the state elite two distinct sections are important. The first is
a highly political element who owe their positions to connections with
the political executive of the state or with the ruling political party.
Serving or former army officers may be important in this group, and
were so in Taiwan and South Korea, although it also contained impor-
tant civilian members. The second is a techno-bureaucratic group
whose position in the elite depends on their expertise in managing,
planning and coordinating the developmental project. The key techno-
bureaucratic groups are located in the economic and planning sections
of the state bureaucracy. Typically they are better educationally
qualified than the political elite. However, the division between these
two elements is not always sharp, nor is it impermeable. At some stages
in the life of the developmentalist state there is a great deal of traffic
between them; a feature quite rare in advanced capitalist democra-
cies.59 One important point of differentiation between these elites is
the nature of the connections they have with the broader society. The
political state elite may have a base in the army or in the political party
of government, or, having begun with a base in the former, it may
create the latter. The techno-bureaucratic group is more likely to have
closer connections with private business. Because of their separate
origins and external linkages, the balance between these two sections
of the state elite changes in the evolution of the Midas state. In the
early part of the ascending phase, the political element is clearly domi-
nant. As industrialisation takes place this balance is altered. Modern
industry and a more complex economy require a higher level of tech-
nical sophistication. The techno-bureaucratic element of the state
therefore grows in importance as a result. Since this group is more
closely connected on a day-to-day level with private firms, the growth
of private capital also enhances the position of the techno-bureaucrats
within the state. Moreover, the causal chain also runs in the opposite
direction. As the techno-bureaucrats extend their influence they
become a pressure group within the state urging it to turn over more of
its functions to private business. The forces working on the state to
limit its autonomy and push it into a descending phase are now also
felt internally as well as from external pressure groups. So changes in

the composition of the state elite and increasing conflict between its
sections are an indication of the point which the state has reached in
its Midas curve of ascending and descending development. The politi-
cal elite represents its origins and past, the techno-bureaucratic elite its
future.
Growing pressures on the state associated with the decline of its
autonomy exacerbate these differences and open up other divisions –
even within each of the two groupings mentioned. Mass pressure for
democracy or a militant workers’ movement might split open previ-
ously closely knit groupings, dividing them into hard-liners and soft-
liners, between traditionalists and reformers and in many other ways.
In the early ascending phases of the developmentalist states such
divisions are relatively minor because external pressures are more
easily contained. Later, as the pressure builds, they may become
central to political events.
Forms of state autonomy
The debate on state autonomy within Marxism and also between

Marxists and state theorists such as Skocpol, Evans, Trimberger, Weiss
and Hobson has been one about whether and how much autonomy
exists for particular states. This quantitative dimension is important,
and indeed, as is argued above, is a central variable in the rise and
decline of developmentalist states.
But there is another dimension to the question. As we have seen, the
autonomy of the European late industrialisers and of Japan each
emerged in quite different ways, and was therefore based on locally
specific configurations of classes. We have already seen the differential
developmental abilities of the French, German, Russian and Japanese
states in the nineteenth century and traced these, in part, to varying
strengths and weaknesses of social classes. As a result, we cannot
simply position each on a single linear scale of degrees of state auton-
omy. Since we are dealing with different class configurations we must
see them as different forms of autonomy. Thus, in addition to measur-
ing different degrees of autonomy, we must introduce a qualitative
element. A high-level of autonomy from the capitalist class but a low
level of autonomy from a landowning one does not allow the state to
pursue the same policies were the situation to be reversed. Strong
autonomy from the working class but weak autonomy from the capi-
talists produces different state abilities yet again. A large, potentially
rebellious peasantry is likely to force the state to make concessions

different from those required by a powerful bourgeoisie. Given the
various classes and fractions of classes involved, there are many such
possible combinations of class strength and weakness in any specific
case of ‘exceptional’ autonomy. Thus states are not only autonomous
to different extents, they are autonomous in different ways. These
forms of autonomy are a product of the historical trajectory of classes
and the state rather than an act of free choice of the state elite, who act
within the constraints imposed by such forms. Moreover, since the
abilities of a developmentalist state vary with the form of autonomy it
possesses, we can expect forms of state autonomy to be closely related
to the specific developmental strategies and public policies which each
state pursues.
Thus an ontology of the developmentalist state and its public
policy requires a phylogeny – a study of the evolution of each state’s
form of autonomy. Development, then, is not merely a technical
problem of policy choice, but an historical one of the emergence or
otherwise of these structures or forms of state autonomy. The research
agenda which flows from this model involves an investigation of the
forms and emergence of state autonomy and the creation of a typol-
ogy of the developmentalist state based on these, bearing in mind the
dynamics dealt with above: that each form of autonomy is itself
subject to transformation over time.
Propositions
We are now in a position to connect strands from a number of quite

different theoretical traditions in a new synthesis. These include the
essential insights of Gerschenkron on the importance of state interven-
tion in late development, the neo-statist position which deals with the
relative autonomy of the developmentalist state, and the Marxist
emphasis on the centrality of class interest, class conflict and the
configuration of social classes to an understanding of social structure
and change. The model advanced here – called for convenience the
‘Midas state’ model – involves firstly approaching the NIC states as
developmentalist states which use their relative autonomy to intervene
regularly and heavily to transform the economic and social structure of
their countries and their relative position in the world-system.
Secondly, the model suggests the need for a typology of the develop-
mentalist state based on the form of autonomy it possesses. Each form
of state autonomy is related to the abilities of the state in various areas
and therefore to the developmental strategy pursued. Thirdly, the

Midas state model posits an ascending and a descending phase of the
developmentalist state’s autonomy. The eventual decline of the state as
a Midas state is built in to its earlier success. With that, the develop-
mental effort of the state and the control which it once exerted is
diminished. The Midas touch is eventually lost. Fourthly, within this
model, in the transition between ascending and descending phases, an
interval of policy confusion and oscillation between state strategies is
likely to take place. Finally, the composition of the state elite changes
with the movement of the Midas state through these phases, with a
political state elite losing and a techno-bureaucratic one gaining in
prominence and influence.
3
Mexico: from Revolution to
‘Perfect Dictatorship’
As it prepared to become the first Third World country to host the

1968 Olympic Games, Mexico was widely considered to be a ‘miracle’
economy. That assessment is now often forgotten because of its more
recent poor economic performance. But, in fact, the intensity and
duration of economic growth in Mexico was remarkable. Between 1940
and 1980, it recorded an annual average growth of gross domestic
product (GDP) of over 6%; an achievement matched by very few
advanced or developing countries over that period. Moreover, this high
rate of growth took place in apparently sustainable circumstances;
until the 1970s, inflation remained below 5%.
Per capita income rose at an average of 3% between 1940 and 1954
and at 3.3% between 1955 and 1972.1 The value of manufacturing
output reached 28% of GDP in 1977; a level similar to that of highly
industrialised countries.2 Manufacturing also came to contribute cru-
cially to the country’s export income – rising from a mere 3% of export
value in 1940 to 12.6% in the late 1950s, to over 40% in the early
1970s.3
The highest growth rates in manufacturing were posted by heavy
industry – especially the capital goods sector. The steel, chemical,
machinery and transport equipment industries all grew significantly
faster than the economy as a whole. As might be expected in a situa-
tion where such capital-intensive industries led the way, labour pro-
ductivity rose very fast – at least until 1975.4 This rapid growth was
largely fuelled by a major increase in the mobilisation of internal
resources. The proportion of GDP being invested more than doubled –
from 9% to 20% between 1940 and 1960.5
Up to the eve of the 1968 Olympics this economic growth was
still combined with an imposing political stability. Since the 1920s the
56
Mexico: from Revolution to ‘Perfect Dictatorship’ 57
military have been kept on the political sideline. Alone in Latin

America, Mexico can boast that it has had no successful military coup
d’etat since 1920. Indeed, although elections had been held on sched-
ule since 1920, only one party, the Partido Revolucionario Institucional
(PRI), had ever formed a government at the national level between
1929 and 2000.6
But rapid industrial development did not benefit all Mexicans
equally. In the early 1970s, after three decades of rapid growth, Mexico
had one of the most unequal distributions of income in the world. In
1975, more than 35 million people, 65% of the population, were
described by the World Health Organisation (WHO) as having a food
intake below the minimum requirement.7 Between 1958 and 1977 –
the core period of the ‘miracle’ – the share of national income going to
the poorest fifth of households was halved.8 Economic development
has been harsh, even cruel, for many Mexicans. But it has occurred at a
pace and over such a sustained period that Mexican industrialisation
must be considered unusual.
The developmentalist state in action, 1940–70
The driving force in industrial expansion in Mexico was the state. Its
average share of total investment between 1940 and 1975 was 39.2%,
reaching a high point of 45.6% in 1973.9 Central to state investment
were a wide range of government business enterprises, a key state
financial institution, Nacional Financiera (NAFIN), and the Bank of
Mexico. State-owned corporations dominated many areas of the
economy between the 1950s and the early 1980s. By 1978, the
29 state-owned corporations in the top 100 businesses held 68.3% of
the total capital of that group. Amongst the top 50 companies the
state was even more predominant; the assets of the 17 state-owned
companies among them represented 71.5% of the total assets of the
group.10 State companies included strategically placed manufacturing
giants such as the steel company Altos Hornos de México and others
involved in the production of petrochemicals, copper, fertilisers, elec-
tric power, truck manufacturing, newsprint and much else. Petróleos
Mexicanos (PEMEX) – the state-owned oil company – became the
largest corporation in Latin America.
As well as its own direct investments, the state effectively forced
private financial capital into public enterprises. From the 1950s,
financial institutions could meet their reserve requirements either by
lodging cash with the Bank of Mexico – in which case they earned no
interest – or by buying interest-paying government bonds or issues of

public enterprises which paid dividends. Obviously, most chose the
latter courses and thus found themselves effectively investing in public
companies. Private domestic and foreign capital was also voluntarily
drawn into joint industrial ventures with the state, but in two-thirds of
such cases, the government maintained control through a majority
shareholding.11
Such a high level of state investment tended to concentrate on
both financial and industrial capital. State policy favoured larger
enterprises and only the biggest private companies could either
compete with the state or gain from its immense power. NAFIN
played a major part in this process of concentration. By 1960, half of
its credits and securities were in just ten firms in which NAFIN was a
majority shareholder and another 20% was in state firms. 12 In the
1970s, two banking groups controlled 72% of the total resources of
the private sector and 51% of the total capital reserves of the
economy as a whole.13 At the end of the developmental period in the
early 1980s, Mexico had a level of industrial concentration similar to
or higher than most advanced economies; just 0.82% of firms
accounted for 64.3% of total production.14
Heavy state intervention and policies designed to produce rapid
industrial growth began in 1936–37 with tariff changes which strongly
protected domestic industry. Then the oil industry was nationalised in
1938.15 Use of the state to promote industrialisation intensified in 1954
and 1955 with sweeping tax exemptions for targeted industries, still
broader protection and a ‘Law of New and Necessary Industries’
designed to encourage strategically central sectors.16
This state intervention and ownership, begun in the 1930s and
continued until the early 1980s, might be expected to have alienated
private capital. Indeed, there were important conflicts between
domestic capitalists and state political and technocratic leaders. But
private business also benefited enormously from the Mexican state’s
emphasis on industrial expansion. The state subsidised large-scale
private capital by maintaining low prices for state-produced goods –
especially oil – but also steel, chemicals and other capital and inter-
mediate goods. Had the state maintained market prices for these
goods it would have shown a budget surplus for every year between
1965 and 1980. Instead, as a result of such subsidies, it was running a
budget deficit of about 20% of GDP by the end of the period. The
very size of the state made many sections of the domestically-
oriented private bourgeoisie dependent on it for contracts and, more
broadly, on the demand that it created. Private capital also gained

from state financing and government investment in joint ventures
and from tariff protection. So, until the 1980s, business challenges to
the governing party were rare and weak. Most businesspeople stayed
out of politics or became members of the PRI. A poll of business
leaders in the 1980s found that only 17% of industrialists and 22% of
company presidents admitted membership of a political party. Of
these, three-quarters were members of the PRI.17
Despite the huge investments undertaken and the subsidies provided
to the industry, the Mexican state was one of the lowest taxing in Latin
America throughout most of its long period of economic expansion.
Only Honduras and Guatemala had a lower ratio of tax to gross
national product (GNP) than Mexico in the two decades after 1940.
Brazilian government revenue as a percentage of GNP was nearly three
times that of Mexico in 1965.18 The Mexican state maintained a highly
interventionist approach but did so while draining relatively few
resources from elsewhere in society. This was possible because, until
the 1970s, state spending was highly focussed on industrial develop-
ment. Between 1940 and 1975, the industry and infrastructure share of
total public spending never fell below 56%.19 Relatively small amounts
went to education, health and other social services or, crucially, to the
military.
From the 1930s to the 1970s, the Mexican state developed a peculiar
ability to contain popular demands for higher wages and improved
living standards even while profits boomed. Furthermore, although it
used many forms of violence against its internal opponents, the levels
of repression it employed were, for the most part, much lower than
other Latin American countries in the same period. More often than
not it was able to undermine mass opposition before it became a major
threat. This ability to concentrate scarce capital resources on industrial
development, while simultaneously containing popular demands was a
crucial element of Mexican state-led growth.
In Latin America, only Costa Rica and Panama spent less on the mil-
itary as a proportion of their GNPs than did Mexico.20 Indeed, on a per
capita basis, both the numbers of the military and the military budget
were amongst the lowest in the world. Elsewhere, the military has
often intervened when there have been major disputes between or
within elite groups or in the context of a serious challenge from subal-
tern classes. In Mexico it hasn’t done so because such divisions have
been contained and thus there were no obvious supporters for it to
play a directly political role.
The state and foreign capital
Mexico’s 3,200 kilometre border with the US has meant that relations
with the world’s most powerful state and economy have been central
to its history and recent economic development. Mexican nationalism
remains a powerful force in its politics; few Mexicans have forgotten
that the US annexed half of their national territory. Mexican economic
plans have inevitably had to take account of the proximity to and con-
nection with the most powerful economy in the world. Throughout
much of the nineteenth century the relationship was a classic one of
dependency.
The revolution of 1910–20 and its aftermath transformed the situa-
tion. It almost completely halted foreign investment, except in the oil
industry. Then the Depression of the 1930s caused international
capital flows to dry up anyway.21 In 1938, Mexican President Lázaro
Cárdenas nationalised the US and British-owned oil industry, suggest-
ing to foreign capitalists that the regime might be serious about some
of its socialist rhetoric.
But after World War Two, Mexican governments, beginning with that
of Miguel Alemán (1946 to 1952), actively sought foreign – primarily US
– capital investment, especially in manufacturing. As successive admin-
istrations created excellent conditions for rapid accumulation, foreign
capital flowed in. In the two decades after the war, the total value of
foreign direct investment (FDI) in manufacturing increased five-fold.22
By 1972, 32% of the largest 500 firms were foreign affiliates.23 By the
mid-1970s, foreign capital accounted for 36% of the income of the
largest 400 companies and nearly half of the industrial product of
the largest 290.24 This investment was concentrated in the north of
the country – although only a small proportion of it was actually in the
border region. In 1964, the Border Industrialisation Program was estab-
lished allowing assembly plants to be set up there – the maquiladoras.
Components were imported for the maquiladoras duty-free and finished
goods taxed only on the value added.
Nor was post-war industrialisation in Mexico autarchic in terms of
trade volumes and patterns. Between 1950 and 1976, the ratio of
foreign merchandise trade to GDP was always relatively high – ranging
between 17.3% and 21.4%.25 The US has been the destination for
60–80% of Mexico’s exports throughout the post-war period.26
The PRI has frequently launched verbal assaults on US imperialism –
but largely for the purposes of strengthening its revolutionary nation-
alist credentials at home. Usually, the US State Department accepted
that this was meant for domestic political reasons and was seldom
backed by serious action. Alone in Latin America, the Mexican govern-
ment refused to break off ties with Cuba.27 But its policy here was
typical of its hypocritical position in relation to the US. Two flights
were allowed each week between Mexico City and Havana during the
1960s but, to keep the US happy, the CIA was allowed to record and
photograph all travellers to Cuba.28 Other points of conflict between
the US and Mexico were attitudes to the Sandinista government in
Nicaragua, the armed struggle in El Salvador and the Allende govern-
ment in Chile. The Mexican government strongly supported Allende in
the early 1970s and provided as much as US$200 million in aid for the
Sandinistas.29
The rhetoric of nationalism was politically valuable to the PRI, but
it never allowed this to undermine its strategy since the 1940s of col-
laboration with US capital – involving an inflow of US investment and
access to the US market. On the other hand, neither was foreign
capital simply allowed to do as it pleased – to operate purely according
to market laws or to ‘diffuse’ throughout the host country. On the
contrary, it was quite highly regulated, channelled into sectors which
the Mexican state decided matched its industrialisation plans, and
forced to make space both for the domestic bourgeoisie and for public
enterprises.
The tacit understanding, until the 1980s, was that the Mexican state
would welcome US capital but would still aggressively make space for
the local bourgeoisie and for state enterprises and maintain some
measure of control. In 1944, President Avila Camacho began a
‘Mexicanisation’ program; a policy which continued until the late
1980s. It required all firms operating in the country to have at least
51% Mexican ownership. Where Mexican private capitalists could not
raise the 51% investment required, the state provided it. There was an
even tougher line on banking; no foreign banks were allowed to
operate in Mexico from the 1940s until the 1980s.
Until the early 1970s, there was a steady stream of nationalisations
and ‘Mexicanisations’ of foreign enterprises. The production of basic
petrochemical products was reserved for the state in 1958. Shortly
after, the maximum level of foreign ownership in secondary petro-
chemical production was set at 40%. In 1960, the two remaining
foreign companies involved in electrical power generation were nation-
alised. This was closely followed by the requirement that all new
mining operations were to be 66% Mexican-owned.30 An important
example of this process was the ‘Mexicanisation’ of the US copper
giant, Anaconda, whose Cananea mine was ‘Mexicanised’ in 1971 with

money supplied by NAFIN. Two years later NAFIN did the same with
the US firm, John Deere.31
Even when there was no question of public ownership, the Mexican
state still refused to allow foreign companies to shape the economy.
In 1960, the government of President López Mateos intervened in
automobile manufacturing after deciding that Ford and General
Motors were using Mexico as a site for the lowest value-added produc-
tion in the industry – assembly. In an attempt to create a more
broadly-based industry, the government insisted that 60% by weight
of the components of passenger cars assembled locally be manufac-
tured in Mexico. Ford and GM at first claimed that this would be
unworkable. But the government stood its ground and the companies
eventually agreed.32 The state had at its disposal such a wide range of
inducements and sanctions that it had considerable leverage even
over these multinational giants.
The firm position which the Mexican state took in relation to foreign
capital was also illustrated in the 1965 conflict between it and the
American-owned Pan-American Sulphur Company (PASCO). By this
time, Mexico was the world’s biggest producer of sulphur and PASCO
dominated the industry. Concerned that Mexican sulphur should be
conserved for future domestic use, the government limited leases and
imposed a cap on exports. PASCO demanded an end to the limitations.
The response was sharp and clear – all sulphur exports were immedi-
ately halted by the government. Then the company was ‘Mexicanised’;
66% of PASCO was bought out by domestic and state capital.33
Despite this high-level of state interference, US capital continued to
pour across the border. It did so because the Mexican state had created
an investment environment which returned extremely high rates of
profit. On average, between the end of the Second World War and
the 1980s, rates of return for US investors in Mexico were about
50% higher than they could obtain in the US.34 The autonomy of the
Mexican state enabled it both to cooperate with foreign capital for
mutual benefit while still maintaining enough domestic strength to
stand up to it when necessary.
Origins of state autonomy: the Revolution, 1910–20
The unusual abilities of the Mexican state to play a powerful develop-

mental role over a prolonged period were derived from its origins in
the revolution which began in 1910 against the dictatorship of
Porfirio Díaz. Díaz came to power in 1876 and his long rule, known as
the Porfiriato, left Mexico with severe social tensions. In the country-
side, just 834 hacendados (owners of large estates – haciendas) con-
trolled over 80% of the inhabited communities of Mexico. Traditional
collective and semi-collective landowning communities – the ejidos
and pueblos libres – had been pushed to the margins of society by
large-scale capitalist farming – the latifundios.
A small bourgeoisie engaged in manufacturing was established
around Monterrey and Puebla in the north. But the economically dom-
inant class were the latifundistas, the richest of whom were also con-
centrated in the northern part of the country. Díaz had built around
him a state elite known as the científicos. After such a long period of
dictatorship, strains had developed in the relationship between Díaz
and this group on the one hand and the agrarian and manufacturing
bourgeoisie of the north, who felt excluded from political power, on
the other. A small, but increasingly restive, working class was also
extremely alienated from the regime. An important strike at the
Cananea copper mine in 1906, then owned by a US company, broke
out against management’s discrimination in favour of anglo workers.
The strike was eventually smashed with the help of US forces. The
following year, textile workers at Río Blanco struck for better wages and
the right to form a union. Influenced by anarchism, each strike had
insurrectionary overtones.
The dictatorship was being challenged by peasants and workers in
what many thought would be a revolution from below, yet it was also
alienated from the wealthy classes of Mexican society. With his regime
increasingly isolated and under pressure, Díaz decided on a gesture of
reform. In deference to the rising power of the northern commercial
classes, he raised hopes that the presidential elections of 1910 would be
relatively open. But as the election approached, he reneged and moved
to ensure yet another term for himself.
In those elections Franscisco I. Madero, from a family of northern
landowners with mining and industrial interests, stood against Díaz on
the platform of universal, effective suffrage and no re-election. Madero
and his supporters aimed at a reform from above which might head off
a revolution from below. Such hopes were dashed when Díaz was
returned to the Presidential palace and Madero was jailed. Later, in
exile, Madero’s plan was expanded; he suggested that some lands
should be returned to the peasants. Although he certainly never
intended it, the peasants began to arm themselves and take land by
force. The revolution had begun.
With masses of peasants mobilised, the regime was easily over-

thrown in just a few months. The peasants had joined the revolution
to fight for land above all. But Madero, soon the new President, wanted
the preservation of the old economic order. He dropped the land ques-
tion and attempted to disarm the peasant armies. Emiliano Zapata, the
great peasant leader of southern Mexico, now attempted to continue
the social dimension of the revolution. He issued a program demand-
ing land for the peasants, including the seizure of the land of the
Catholic Church, and the nationalisation of the property of counter-
revolutionaries. Moreover, having lost faith in Madero, he called for it
to be done with guns in hand. Madero himself was considered weak –
especially by the US ambassador – who backed a coup against him by
General Victoriano Huerta in which the new president was assassi-
nated. Huerta immediately faced two opponents: the revolutionary
peasant armies, known as the Conventionists and led by Zapata and
Franscisco Villa, and those forces controlled by the bourgeois groups
which had originally supported Madero – the Constitutionalists – led
by Venustiano Carranza.
When Huerta was defeated, the battle between these two elements –
bourgeois and peasant – became the main axis of struggle – the third
civil war in four years. The peasants, both villistas and zapatistas, with
the cooperation of some of the anarchist workers of the Casa del Obrero
Mundia (COM), or House of the World Worker elected their own
interim President in October 1914 – the first of three Conventionist
Presidents. Militarily, it seemed that they would win the struggle.
Indeed the peasant armies occupied Mexico City in December 1914.
But from that point the uneasy alliance between peasants and
workers began to break down. The peasant leadership had not put
forward a plan radical enough for the workers, and the anarchist-
influenced worker activists found little in common with the deeply
religious peasants occupying the capital. In truth, the peasant rank and
file did not want to rule Mexico, nor to remain in control of the cities.
Above all they wanted land and the sooner they returned to it the
better. The peasants, like those who had supported Louis Bonaparte,
although they constituted the ‘most numerous class’, were incapable of
ruling society.
The critical turning point in the revolution was the decision by one
of Carranza’s key generals, Alvaro Obregón, to seek an alliance with
the anarchist workers of the COM against the peasant forces. Obregón
gave the COM a school and a press, both of which had been taken
from the church. Carranza initiated a decree recognising the rights of
labour. In 1915, during an electrical workers’ strike, Obregón put the

company under union control. Promised major changes in working
conditions and in the right to organise, the COM agreed to the
alliance. It organised 7,000–10,000 workers – the six ‘Red Battalions’ –
from around Mexico City to fight alongside Carranza’s army against
the peasant forces.35 They also became active propagandists for
Obregón and Carranza in the cities.
The organised working class had now become a major support for the
new regime of Carranza and a means of defeating the peasants – the real
force which had made the revolution. The importance of the workers’
movement in the formation of the government was recognised in the
revolutionary constitution of 1917. It gave workers rights to strike,
boycott, and organise, decreed a minimum wage and the 8-hour day,
set health and safety standards and even required employers to pay
strikers for time lost in legal strikes. Until the October revolution in
Russia later that year, it was the most pro-labour legal framework that
had ever been introduced. The revolution, for all its faults, had brought
the masses into action and therefore produced a genuine striving for a
better and more egalitarian society. But Carranza and Obregón did not
keep their bargain with the working class. High inflation undermined
wages, food was short in Mexico City and unemployment rose, con-
tributing to strikes led by the COM in 1915 and 1916. Government
repression quickly followed. The Red Battalions were disarmed, martial
law declared in August 1916, the strikes smashed and the COM declared
illegal.
The anarchists in Mexico represented the most militant section of
the working class at this time. But their principles, emphasising absten-
tion from political activity and absolute opposition to taking state
power, were incapable of dealing with the complex political situation
of revolutionary Mexico. Above all, they could not imagine a scenario
where they might take power themselves in alliance with the revolu-
tionary peasantry. Instead, the majority of the COM entered the disas-
trous pact with the bourgeois Constitutionalists against the peasants.
When, too late, they took action alone against their former allies and
were defeated in 1916, the anarchist movement was fatally weakened.
A more reformist grouping, the Confederación Regional Obrera Mexicana
(CROM) under the leadership of Luís Morones, took their place in
1919. In the same year, what remained of the peasant revolution
ended with the assassination of Zapata.
Morones and the CROM supported Obregón in the overthrow and
assassination of Carranza in 1920 and again when Obregón was
challenged by General Adolfo de la Huerta in 1923. Some sections of

the labour movement supported de la Huerta as did two-thirds of the
army. Obregón had learnt the lesson of the Red Battalions – con-
trolled mass mobilisation could make the difference in the struggle
for power. He called on peasant and worker militias for help. In
response, the peasant organisation – the Partido Nacional Agrarista –
armed 6,000 men. The CROM and its political arm, the Partido
Laborista (PL), put many thousands under arms. CROM support
tipped the balance for Obregón in a major conflict which involved
months of fighting and left 20,000 dead.
In return for backing Obregón, the CROM received government aid
in enrolling members and in wiping out the remaining anarchist ele-
ments of the movement. Moreover, within a few years, the CROM
bureaucracy was rewarded with major government posts. It soon con-
trolled the Ministry of Labour, Industry and Commerce, and the
juntas de conciliación y arbitraje – a federal system which arbitrated and
effectively determined the outcome of labour disputes.
So, by the early 1920s, there were already three instances – the ‘Red
Battalions’ in 1915, the overthrow of Carranza in 1920 and the
defence of Obregón in 1923 – when the mobilisation of workers had
been crucial to the outcome and to the formation or maintenance of
state power. The last two of these were mobilisations carried out in
an extremely controlled fashion by reformist bureaucrats, rather than
upsurges of the rank and file. Mass mobilisation and revolutionary
rhetoric were built in to the fabric of the new state, but that state had
no intention of handing over power to the workers or building a
socialist society. Indeed, the workers’ leaders themselves did not
desire such an outcome. The more conservative of the revolutionary
generals and politicians, Carranza, and even more Obregón, had suc-
cessfully manoeuvred between classes to raise themselves to power,
first with the help of first the peasantry, and then of the working
class. When the chance of either of these classes seizing power had
receded, it became possible to construct new, highly bureaucratic
organisations whose leaders would support the state by controlling
mass mobilisations and by undermining genuine resistance to the
regime.
The power of the old oligarchy of capitalists, landowners and the
Church, which had been dominant under the Porfiriato, had already
been broken by the revolutionary masses. In addition, the sheer feroc-
ity of the struggles – between one and two million were killed from a
population of 15 million – destroyed much of the structures of local
capitalist power. The small urban bourgeoisie, probably already inca-

pable of leading any serious industrial development, was weakened
even further. The mass and popular aspects of the revolution didn’t
end capitalism, but they did undercut the political power of the capi-
talist class. In this way, those who controlled the new state found
themselves in an exceptionally strong position vis-à-vis all other social
classes. The revolution was bourgeois in its outcome, but it took place
in the context of a very weak bourgeoisie and brought, for the first
time and on a mass scale, workers and peasants into politics. Thus the
relative autonomy of the Mexican state developed a peculiar twist –
one where bureaucratic mass organisations were necessary to the state
and, indeed, became central to the party which controlled it.
Consolidating the revolutionary state, 1920–40
Although the revolution was over, the regime was still far from stable
in the 1920s. The CROM and the PL had emerged as a virtual arm of
government, but Morones was not yet entirely in control of the
working class. The anarchist Condeferación General de Trabajadores
(CGT) still held the allegiance of many powerful sections of workers.
Strikes amongst railroad workers, petroleum workers and streetcar
workers between 1919 and 1925 were influenced by the CGT.
However, the crushing of those strikes helped to consolidate the
regime and, increasingly positioned the CROM as the major organisa-
tion of the working class. Furthermore, the government positions occu-
pied by Morones and other CROM leaders helped them to defeat rivals
such as the CGT.36
A second source of instability was the highly militarised nature of
Mexican society in the wake of the revolution. During the fighting, the
Constitutionalist army had been controlled by 11 divisional generals,
each operating with considerable autonomy in his own region. After
the victory, these commanders and their entourages became the effec-
tive governmental power in much of the country. The rebellion of de
la Huerta, supported as it was by most of the army, illustrated the
dangers. As Marx noted in relation to Louis Bonaparte, those who
come to power on the basis of army support are likely to find their
future adversaries within that same army: ‘In proclaiming himself the
chief of the Praetorians, he declares every Praetorian chief his competi-
tor’.37 Obregón ordered the execution of all leaders who supported de
la Huerta. Then he cut the military budget and tried to separate the
remaining revolutionary generals from the army by providing them
with opportunities in business and in political office as state governors

and in other high posts.38 But the incident emphasised the importance
to the regime of mass organisations of workers and peasants loyal to it.
The army alone could not be relied on.
A further indication of the shaky nature of the state in the 1920s was
the cristero rebellion. Between 1926 and 1929, these Catholic forces
opposed to the strongly anti-clerical elements of the revolution and
the Constitution of 1917 battled the government in large parts of
central and western Mexico. In 1928, Obregón himself was assassinated
by a cristero fanatic.39 Finally, the crash of 1929 and the subsequent
Depression, following the enormous economic dislocation already
caused by the revolution, increased the peril facing the government.
After Obregón’s first term as President, a close ally, Plutarco Elías
Calles, succeeded him in 1924 and ruled until 1928. It was during this
time that the CROM and its leader Morones became a central prop of
government. As well as having control of the Ministry of Labour,
Industry and Commerce, he was appointed to a key post as head of the
Department of Military Manufacturing and Provisions and put in
charge of the oil industry. Other cromistas were given high government
bureaucratic positions and CROM officials made up 11 of the 58 sena-
tors and 40 of 272 congressmen.40 Such power presented the CROM
bureaucrats with vast opportunities to enrich themselves and to dis-
pense patronage. Furthermore, CROM control of the juntas de concil-
iación enabled it to support unions affiliated to it and to disadvantage
others. It maintained its own force of strike-breakers ready to smash
militancy which it did not control.41
But the power of the CROM – although central to the stability and
even the existence of the state – was also a threat to it. Tension
between Morones and Calles began to develop until, in 1928, an open
split took place. The CROM needed state patronage as much as the
state needed the support of a major union grouping. Cut off from gov-
ernment backing, unions began to disaffiliate from the CROM. In
1929, the most important section left it – the Federación Sindical de
Trabajadores del Distrito Federal (FSTDF) – a grouping of unions in and
around Mexico City involving many workers in small workplaces,
street vendors and others. Led by Fidel Velázquez and four other
officials – los cinco lobitos (the four little wolves) – they were largely
dependent on state largesse. Velázquez was soon to become central to
the union movement and to the Mexican state for more than five
decades. These leaders now had the support of the new President,
Emilio Portes Gil. He and the following two Presidents, Pascual Ortiz
Rubio and Abelardo L. Rodríguez were effectively puppets of Calles, the

big boss (Jefe Máximo) in a period known as the Maximato. Behind the
scenes, Calles effectively determined which unions and union officials
would be favoured.
The significance of the rise and fall of the CROM is that it illustrated
the real relationship between the state and the union leaders. The
union bureaucracy needed the state for support against competitors in
the working class, for patronage and to maintain their own organisa-
tions intact. The state needed mass organisation of the sort that the
union officials commanded. But the state leaders were not wedded to
any particular group of union bureaucrats. They could pick and choose
between individuals, unions and federations. Since there were always
plenty of career-minded opportunists in the bureaucracy, whenever
necessary the state leaders could split a group of them away and sup-
plant the formerly dominant section. The state leadership could
choose which of many bureaucracies to which it might orient. But the
union leaders could orient to only one state. Their dependence on it is
illustrated by the fate of the CROM. Within a couple of months after
Calles and Portes Gil withdrew their support, it entered a rapid decline.
By the early 1930s, four union federations existed: the CROM, the
CGT, the purified CROM (CROM depurada) led by Vicente Lombardo
Toledano, and the Confederación Sindical Unitaria de México (CSUM)
organised by the Communist Party. All placed great importance on
obtaining state support. The CSUM, although it contained many of the
most militant workers, also became virtually uncritical of the state as a
consequence of the popular front strategy imposed by the Comintern.
The person to emerge as the leading figure following this reshuffling of
the union bureaucracy was Vicente Lombardo Toledano, a radical
CROM official who left it to form the CROM depurada. The new organ-
isation was seen as more militant and less corrupt than the old
Morones clique. By 1933, Lombardo had succeeded in uniting several
union federations into a new, much larger one with himself as its
general secretary and including Fidel Velázquez in its leadership.
The reshuffling of the union movement in this way coincided with
yet another split in the state elite. Expecting to be the power behind
the Presidency yet again, Calles supported Lázaro Cárdenas as Pre-
sidential candidate in 1934. But, contrary to expectations, Cárdenas set
out to build his own, independent base of support premised on a
radical, even socialist, image and a closer relationship with the peasant
and worker organisations. Besides, by 1934 the Mexican economy was
recovering from the Depression and worker militancy was beginning to
revive; from just 11 strikes in 1931 to 202 in 1934 to 674 in 1936.42 A

wave of left-wing radicalisation was taking place which might pose
problems for a regime whose revolutionary credentials were looking
rather faded. Cárdenas and his close supporters thought to ride the
wave of militancy – the better to avoid being engulfed by it.
This approach threatened the power which Calles had carefully accu-
mulated over more than a decade. A confrontation within the official
revolutionary elite was inevitable and the key ally for Cárdenas was
now Lombardo and his new union federation. In late 1935, Lombardo
and the Communist Party organised a demonstration of 80,000 in
support of Cárdenas. Mass support like this enabled Cárdenas to carry
out a purge of Calles supporters in the ruling party and the govern-
ment. Congress expelled 17 Deputies and five Senators. The governors
of ten states were prosecuted.43 Calles was forced into exile in 1936.
Cárdenas had triumphed in the intra-elite battle with the help of
Lombardo’s unions. A further consolidation of these unions under the
leadership of Lombardo took place the following year. The new
Confederación de Trabajadores de México (CTM) was not merely closely
allied with Cárdenas, it became a constituent part of his political party.
By 1941 it had 1.3 million members.
The approach of Cárdenas to the labour movement was summed up
by his intervention in a series of strikes in Monterrey in February 1936.
When the workers’ strikes were recognised as legal the employers
began a lockout. In response, Cárdenas issued a 14 point manifesto,
one of the key documents on which his radical and pro-labour reputa-
tion came to be based. On the one hand, Cárdenas warned the capital-
ists that the state would not permit them to prosecute the class struggle
independently and that any attempt to do so would result in them
losing everything. To the workers, Cárdenas proposed a single union
federation and the exclusion of ‘minority groups’. But this unity was
not to mean that the workers themselves were allowed to be the agents
of their own liberation. That place was to be reserved for the state: ‘The
government is arbiter and regulator of social problems’.44
Between 1934 and 1940, under the Presidency of Cárdenas, the
developmental nature of the Mexican state took its final shape based
on this central role in overseeing clashes between classes and
between domestic and foreign capital. In 1937 and 1938, a dispute
involving the state, labour and foreign capital illustrated perfectly the
dynamics of the new relationship between each of these elements.
Strikes in the oil industry – mostly owned by British and US interests
– brought in the junta de conciliación which found that management
had the ability to pay the workers. Eventually, the Supreme Court
agreed. The reluctance of the companies to do so finally convinced
Cárdenas to nationalise them in March 1938.
This action intensified both class and nationalist consciousness in
the working class as a whole and amongst the oil workers in particular.
As soon as the nationalisation decree was issued, workers seized
oil fields, refineries, gas stations, tug boats, pipelines and company
offices.45 They did so partly to prevent management sabotage, but also
as part of a widespread demand that the industry be put under
workers’ control. The nationalisation also encouraged workers in the
industry to pursue their wage demands. In response, Cárdenas issued
another 14 point list to the oil workers’ union, the Sindicato de
Trabajadores Petroleros de la Républica Mexicana (STPRM) – demanding
wage cuts, sackings and making it clear that control of the new state
company – Petróleos Mexicanos (PEMEX) – would remain in the hands
of management. Strikes were banned. Nevertheless, 6,000 union
members voted both to stop work and to leave the CTM.46 Now
Lombardo and the CTM proved their usefulness to the government. He
accused the workers of being ‘counter-revolutionary’ and agents of
the former foreign owners.47 The army was sent in to break the strike at
a refinery in Mexico City. The oil workers were beaten in a newly
nationalised industry as a result of the joint efforts of the government
and the CTM.
The strikes in Monterrey in 1936 and in the oil industry in 1937 and
1938 showed that the Mexican state, under Cárdenas and after,
was capable of strong action against both domestic and foreign capital-
ists on occasion and of an impressive line in radical rhetoric. But it was
also dedicated to the preservation of an economic and social order
which precluded any move to workers’ democracy or socialism. The
CTM, under Lombardo and later under Velázquez, was a crucial mech-
anism preventing disruptions to that order. Moreover, its participation
in the government added a populist and pro-labour veneer to the
regime.
The peasantry had borne the brunt of the fighting in the revolution,
but, in the end, its aspirations for an equal share of the land were dis-
appointed. Zapata was assassinated in 1919. Villa was forced to agree
to retire from politics in 1920. He too was assassinated in 1923. Never-
theless, the Constitution of 1917 had recognised the importance of
the peasantry to the revolution in Article 27, which gave legal recog-
nition to an institution known as the ejido. This consisted of commu-
nally-held lands allotted to the heads of families, usually for only one
lifetime. Then the land would be reassigned, mostly to the eldest son
of the family, with the agreement of the local community. The user of
the land was not the owner; it could not be sold, rented or mortgaged.
Constitutionally, ejidal land belonged to the nation rather than to
those who farmed it.
Despite the existence of the ejido and of a series of land redistributions
in the 1920s, by the time Cárdenas came to the presidency, two-thirds
of rural dwellers were still without land. While the peasantry were of
declining importance as a political force compared to the urban
working class, they nevertheless made up over two-thirds of the popula-
tion. In the attempt to build a strong state with mass support, Cárdenas
could not ignore them. In 1937 he initiated a land reform, limiting each
farmer to 150 hectares of irrigated or 300 hectares of non-irrigated land.
He also ended many of the exceptions which large landowners had used
to evade earlier land reforms.48 Whereas all the Presidents since 1920
had redistributed a combined 26 million acres of land, Cárdenas alone
redistributed 29 million acres. By the end of his term, about one-third
of the population had received land in the reform. The bulk of the
arable land of Mexico had now been redistributed. Most was distributed
in the form of ejidos. Since this land could not be used as collateral for
loans, ejidal farmers faced a chronic shortage of capital for seed or to
make improvements. Accordingly, Cárdenas established a National
Bank of Ejidal Credit to provide them with some limited funds. For col-
lateral, the Bank retained the right to buy farmers’ crops at fixed prices.
By 1940, half the rural population lived on ejidos and they produced
roughly the same proportion of Mexico’s farm products.49
The major peasant organisation, the Confederación Campesina
Mexicana (CCM), had lobbied for Cárdenas as presidential candidate in
1934 and supported him against Calles after his election. In office,
Cárdenas moved to formalise the relationship with the peasantry in
the same way as was already happening with the working class. In
1938, he established the Confederación Nacional Campesina (CNC), the
National Confederation of Peasants, as a constituent part of his politi-
cal party. The CNC adopted a militant agrarian populist rhetoric –
agrarismo – declaring itself in favour of the socialisation of the land.
But this was to take place under government control and tutelage.
Cárdenas refused to allow Toledano or other labour leaders to under-
take the organisation of the peasants. The peasant and worker sections
of the party were to remain distinct.60
In an echo of the revolution, peasant militias were formed, with gov-
ernment support, to fight ‘white guards’ in the countryside. Cárdenas
declared that the peasants must be armed. The CNC, like the CTM, was
to be used as a counterweight to elite resistance to the state. By the end
of the Cárdenas presidency, virtually all that remained of the hacen-
dado class had been abolished. Operating in the same way as the CTM
did with the working class, the CNC was designed to undermine
peasant rebelliousness which might get out of hand or be directed at
the state.
The ruling party takes shape

Calles was the first to realise the importance of a mass political party to
the stability of the regime. In 1929, he set up the National
Revolutionary Party, Partido Nacional Revolutionario (PNR), the official
party of the revolution. The pressing problem at that time was the cen-
tralisation of political power in an environment in which the local
powerbases of regional caudillos still threatened any incumbent of the
Presidential palace. Initially, the PNR was a party of parties – incorpo-
rating dozens of smaller groupings with some claim to the heritage of
the revolution, but mostly with purely local followings. As a result of
the formation of the PNR, the number of registered parties fell from 51
in 1929 to just four in 1933.51
Cárdenas then reorganised it as the Party of the Mexican Revolution,
Partido de la Revolución Mexicana (PRM) in March, 1938 with the radical
slogan: ‘For a workers’ democracy’. Although there was significant con-
tinuity in the politics and operation of the party, the change was more
than just in name, program or rhetoric. The PRM now had four sectors.
The first was labour – comprising the CTM, CGT and CROM. The
peasant sector was the CNC. The military made up the third sector.
The fourth – the National Confederation of Popular Organisations,
Confederación Nacional de Organizaciones Populares (CNOP) – was for
small businesspeople, state employees, housewives, tenant associations
and anyone else who didn’t fit into one of the other sectors. Big busi-
ness had no official place in the party but individual businesspeople
could join the CNOP. The sectors were to be vast organisations
through which the party leadership reached down into the masses,
organising support for the state and neutralising opposition. This divi-
sion of the party into sectors also served to keep the peasants and
workers separate, reducing the likelihood that a worker-peasant
alliance of the type that had been destroyed in 1915 would form once
again. Membership of either the CNC or one of the labour federations
– of which the CTM was the most important – automatically made one
a member of the party as well. In 1946, the military sector was
disbanded in an attempt to present the party as a civilian organisation

distinct from the old revolutionary generals of the civil war period.
Such was the domestic political strength of the party by then that
the generals accepted their permanent exclusion from politics with
little protest. At the same time, the name was again changed – to the
Institutional Revolutionary Party, Partido Revolucionario Institucional
(PRI) – its current name.
The labour sector was tightly under the control of the CTM bureau-
cracy which, in turn, was under the even tighter control of CTM
Secretary-General, Fidel Velázquez. The ossified and unresponsive
nature of this bureaucracy is perhaps best illustrated by the length of
his tenure. Velázquez was in substantial control of the union by the
early 1940s. He remained its leader until his death at the age of 97 in
1997.
At its formation in 1929, the stronghold of the party was the agrar-
ian sector. The Cárdenas reforms, which distributed land to hundreds
of thousands of peasants, made the ejido a solid base of support. But as
Mexico began to industrialise, the CNC became less important than
the other two. Nevertheless, all ejidatarios were automatically members
of the CNC and therefore of the PRI as well.52 The CNC played a
significant part in dampening discontent in rural Mexico and in dis-
pensing patronage in the form of land grants, seeds, bank credit and
jobs to selected supporters of the PRI – all lubricating the vast political
machine.53
By 1940, at the end of the Cárdenas period, the PRI had basically
assumed the shape which it maintained for at least the next 30 years;
capable of directing and, to a large extent, fusing with a state dedicated
to development. As a result of the changes made by Cárdenas, the PRI
developed tentacles which reached into virtually every corner of
Mexican society. Hardly any workplace, village, street, shantytown
block or university department lacked some form of PRI presence or
organisation. Party membership reached a claimed 14 million by the
1980s. Its size and sectoral organisation enabled it to co-opt potential
opponents in the trade unions, peasant organisations, tenant and
municipal organisations. For the politically ambitious, the PRI was
almost the only route to advancement; whether at federal, state or local
level. The PRI elite essentially was the state elite. The party enabled
Mexico to become, as Mario Vargas Llosa once put it, ‘the perfect dicta-
torship’.54 Most importantly, it provided a social basis for rapid industri-
alisation – enabling state policy makers to ensure stability in the course
of a painful and inequitable process of economic transformation.
Cárdenas and the developmentalist state
Mexican state autonomy was built in stages. The mass and radical
nature of the revolution created the first precondition for this auton-
omy by smashing the political, and to a certain extent, the social
power of the agrarian and industrial bourgeoisie. But the peasantry
which had been the main force in doing so, could not hold power. Its
own defeat was achieved with the help of the organised working class.
However the workers, because of the disastrous alliance their organisa-
tions made against the revolutionary peasants in 1915 and also as a
result of the weaknesses of their leaders’ anarchist politics, were never
in a position to seize state power. Thus the regime that emerged at the
end of the revolution already had significant autonomy from the
classes of Mexican society.
But the confidence and potential power of all classes can recover
over time as the memory of previous defeats fades and a new genera-
tion emerges. By the early 1930s both the bourgeoisie and the working
class showed signs of an increasing combativity, while peasant resent-
ment at the lack of progress in land reform was on the rise. The auton-
omy of the state was under threat as a result. The Cárdenas Presidency
represented a successful attempt to rebuild that autonomy by reinvigo-
rating the mass institutions of peasants and workers and drawing their
bureaucratic leaderships into close collaboration with the state. The
mechanism for achieving this was the party which Cárdenas reorgan-
ised. Its mass institutions could then be used as a lever against the
bourgeoisie, both foreign and domestic, and as a crucial means of
undermining resistance to the state and its plans. By 1940, a peculiar,
yet enduring, form of Mexican state autonomy had been created.
Maintaining state autonomy: 1940–70
Dealing with the private bourgeoisie

The reaction from private capital to the nationalisations and radical
rhetoric of the Cárdenas years caused some capital flight and a sagging
economy around 1938. Accordingly, the next two presidents, Manuel
Avila Camacho and Miguel Alemán Valdés, began a partial retreat from
cardenismo. Compensation for the foreign oil companies nationalised
in 1938 was agreed and efforts were made to reassure the bourgeoisie
that their property was safe. Land redistribution slowed to a crawl.
However, foreign capital especially, was still restricted and prevented
from attaining a dominant position. In 1944, an Emergency Decree
limited new foreign investment to a minority position – the ‘Mexican-

isation’ drive. In 1958, foreign companies were required to divest their
holdings in communications. The following year, foreign-owned power
and light companies were nationalised. In the 1960s, local content
schemes were imposed on foreign car manufacturers and ‘Mexican-
isation’ extended to mining and petrochemicals. What became known
as alemanismo emphasised the creation of a good business environment
and cut back on the redistributive aspects and revolutionary rhetoric of
the past, but preserved a central role for the state.
Domestic capital was divided over the continuing dirigiste approach.
In the north, especially around the city of Monterrey, capital was
quite closely connected with US companies and, to some extent, ori-
ented to the US market. What became known as the ‘Monterrey
Group’ coexisted uneasily with PRI governments throughout the post-
war period. These norteños felt that they had developed industry
without much aid from the state. By and large, they simply wanted it
to leave them alone, but, until the 1980s, they never felt politically
confident to challenge it.
On the other hand, in the sprawling industrial areas around Mexico
City, many domestic capitalists were very content with the regime.
They saw the advantages of an activist, protectionist, but low-taxing
state, channelling resources to their industries through NAFIN while
using its mass organisations to control wage demands and to ensure
social stability. This faction of capitalists – dubbed the ‘New Group’ –
produced primarily for the domestic market, were often reliant on the
state for contracts and lacked close ties with the private banks.55
In 1942, they formed the Cámara Nacional de la Industria de Trans-
formación (CANACINTRA), which remained generally supportive of the
PRI for the next 40 years. A cleavage had been created in the private
bourgeoisie, which, as was the case with Louis Bonaparte, helped to
sustain the regime.
Dealing with the peasants

Government policy after Cárdenas was firmly oriented to industriali-
sation; the ejido was left to stagnate and urban industry absorbed the
bulk of the available credit. But the government’s industrialisation
program in the post-war period, especially during the shift to a verti-
cal Import Substitution Industrialisation (ISI) strategy – an attempt to
deepen industrialisation – required significant imports of capital goods
and technology. The only way to raise the foreign exchange required
for this was to increase agricultural exports. Thus, as the industrialisa-
tion drive progressed, government policy came to favour larger capi-

talist farming over the mass of small farmers and ejiditarios. After
Cárdenas, the following five presidents concentrated funds for agricul-
ture on irrigated, capital-intensive operations producing cattle, fruit
and vegetables for the US market.56 By the early 1980s, 85% of all
credit provided to agriculturalists went to the wealthiest 0.5% of
landowners.57 At first these boosts to commercial agriculture led to
steady growth in the sector; the value of agricultural output grew at an
annual average of 5.7% between 1940 and 1955 – only slightly less
than the dynamic industrial sector. However, eventually, the rate of
growth of agriculture slowed down significantly – to just 1.5% by the
late 1960s.58
Under Cárdenas, 30% of ejidatarios received some government credit.
By 1960, only 14% had access to such credit.59 Government policies
supporting commercial agriculture caused further decline of the ejidos –
many of which became unsustainable. By the 1980s, 80% of ejidatarios
were unable to live on the proceeds of their plots alone and only 40%
could earn even half their income from farming.60 Between 1950 and
1980, millions of peasants were forced to leave their farms or ejidos and
hire themselves out as paid, often seasonal, labourers. In that period,
the rural proletariat increased from 31.7% to 51% of the agricultural
workforce.61 As commercial agriculture became more capital-intensive
in the 1950s, even this option was closed to many rural dwellers.
Between 1950 and 1960, the average number of days worked by land-
less labourers fell from 190 to 100 annually.62 The only possibility for
many was to move to the cities – creating both a cheap labour force
and huge shantytowns.
The concentration of landholdings soon began to reach Porfirian
proportions. By 1970, the 2% of farms of more than 1,000 hectares
covered 76% of the arable land while the 51% which were under five
hectares accounted for just 0.6% of it. And of this 51%, half were of
less than one hectare – well below the possibility of providing subsis-
tence.63 Given the enormous hardships experienced by most in rural
post-war Mexico, the truly significant fact was the relatively small scale
of the struggles which did erupt – at least until the late 1960s. Rural
protests still occurred at the local level but did not threaten the PRI.
The party, through the CNC, seemed capable of containing outbreaks
of anger against the big landowners and the government.
A number of independent regionally-based peasant organisations
were created and at least one federation of them was formed – the
Central Campesina Independiente (CCI) – founded in 1963 and affiliated
with the Communist Party. But, until the late 1960s, such organisa-
tions found it difficult to gain a firm foothold because of the activities
of the CNC and the PRI. Affiliation to the opposition might mean
farmers who were already heavily in debt being cut off from credit and
forced into bankruptcy. The dozens of small advantages associated
with adherence to the ‘official’ peasants’ organisation were lost to
those who came out openly in support of its critics. In the words of a
common Mexican adage, the regime understood the importance of
‘giving the centavo to save the peso’. It had a deeply rooted mass
organisation which enabled it to know the most politically effective
way to spend those few centavos it allocated to the peasants.
Dealing with the working class

The romantic image of the revolutionary peasant, to which many on
the political left still look for inspiration, seems oddly mismatched
with post-war industrial Mexico. By the late 1970s, over 70% of the
labour force worked in secondary industry and services. The peasantry
were in decline numerically and as a political force in post-war Mexico.
The growth of the urban working class was the most likely threat to
the state’s plans for industrialisation. The most powerful central union
federation – the CTM – had over two and a half million members by
the 1970s and boasted over 11,000 union affiliates. Moreover, its mem-
bership was concentrated in the crucial industries driving economic
growth: manufacturing, transport, mining and petroleum. In Mexican
conditions, these workers had the relatively rare advantage of a steady
job with an assured income and various fringe benefits.
In the post-war period, many CTM unions began to operate their
own business ventures and, in some cases, were reliant on government
contracts or funding. The most notorious case was that of the oil
workers’ union – the Sindicato de Trabajadores Petroleros de la Républica
Mexicana (STPRM). After four decades of such business activities, it was
estimated that the union was taking in two billion pesos annually.64 It
collected 2.5% of its members’ wages directly from the national oil
company, PEMEX, a 2% commission on all contracts entered into with
firms outside PEMEX, as well as income from hundreds of its own busi-
nesses. Many of these businesses supplied work or labour to PEMEX.
Obviously, the opportunities for its leaders to enrich themselves were
immense. Its dominating figure, Joaquin Hernández Galicia, known as
La Quina, was accused of personally embezzling US$34 million.65 The
union itself employed non-union contract workers in its enterprises.
Such a huge economic empire meant that an enormous bureaucracy
could be created. By the late 1980s, the STPRM had one paid official for
every 75 full union members.66
The CTM, and unions such as the STPRM, were a major part of
‘stabilising development’ – the official description of Mexican eco-
nomic growth in the 1950s and 1960s. They supported the govern-
ment and were supported by it, while doing their utmost to undermine
serious resistance to the regime and genuine militant movements in
the working class. One of the ways they did so was by the claúsula de
exclusión – an exclusion clause generally added to Mexican labour con-
tracts. It obliged an employer to sack any worker who was expelled
from the legally-recognised union.67
We have already seen how a union bureaucracy closely aligned with
the state came to emerge in various stages – through the unlikely
avenue of the anarchists of the Casa del Obrero Mundial, then through
the more clearly opportunistic CROM of Morones, and eventually, as a
constituent part of the ruling party, in the CTM of Lombardo. At the
end of the Second World War, this bureaucracy went through a further
series of transformations. The first was induced by the Cold War
climate that soon affected Mexican politics. The socialist-sounding
Lombardo and his followers and Communist Party militants in impor-
tant unions became targets for more politically conservative officials.
In the CTM, anti-communists such as Fidel Velázquez began to cam-
paign against Lombardists and Communists. In addition, Lombardo
had already begun to form another political party – the Partido
Popular. Two key points about the party that made it dangerous for the
PRI were that it proposed to unite the peasants and the workers within
the same organisational framework and that Lombardo made a point
of saying that the new party would not be a servile appendage of the
government.68 Reflecting the Cold War climate, the slogan of the CTM
was changed in 1947 from ‘For a society without classes’ to ‘For the
independence of Mexico’. President Miguel Alemán was named by
the union as ‘obrero número uno de la patria’ – worker number one of
the fatherland.69
The second transformation resulted from the weakening of the CTM
bureaucracy itself. Real wages fell during the war, and the CTM’s inac-
tion caused several important unions to split from it. One of the most
significant was the petroleum workers’ union – the STPRM. In 1946,
both Velázquez and Lombardo had tried and failed to end a mass strike
by the oil workers. The union voted to leave the CTM. At several points
the Mexican army was sent in to occupy the oil installations. A major
strike followed in which the soldiers again seized plants and President
Alemán openly intervened, with the help of Velázquez and Lombardo,

in support of a change in the leadership of the union. When their can-
didate won, the STPRM rejoined the CTM.70 But the militant forces in
the union rallied and succeeded in getting one of their number elected
as General Secretary. The danger for the government was not simply an
outbreak of struggle by the STPRM – but that the petroleros would form
the core of a new labour federation opposed to the CTM. In fact they
were attempting to do so along with the Sindicato Nacional de
Trabajadores Mineros, Metalurgicos y Similares de la República Mexicana –
Miners and Metallurgical Workers Union (SNTMMSRM), and the
railway workers, the Sindicato de Trabajadores Ferrocarrileros de la
República Mexicana (STFRM).71 Between them, these represented the
most powerful groups of workers in the country. The possibility of
their independence from the government was a major threat to it.
Accordingly, the next convention of the union was stacked with police
and government employees disguised as STPRM delegates. A pro-
government candidate was elected and the union affiliated once again
with the CTM.
A similar procedure – known as a charrazo – direct government inter-
vention in the affairs of the union to change its leadership – was used
in the case of the railway workers, the STFRM.72 The union was big –
claiming 75,000 members – and strategically important. Moreover, it
had its own proud revolutionary nationalist history; its members had
played an important part in the revolution. The STFRM had already
begun to play an oppositional role in the CTM and in 1947 had organ-
ised a new union federation – Confederación Única de Trabajadores – the
Sole Confederation of Workers (CUT).73 The following year, the gov-
ernment introduced a number of provocative changes to the railway
workers’ contract with the aim of weakening the STFRM and lessening
its ability to lead an anti-government coalition of unions.74
On 14 October, 1948, pro-government railway workers and police
disguised as workers stormed the headquarters of the STFRM. Mean-
while, troops occupied four other local union offices in Mexico City
and a number of leaders were arrested. In this situation of violence and
government intimidation, a supporter of the government – Jesús Díaz
de León – was elected Secretary-General of the STFRM.75 The following
year, a rail accident became the pretext for the completion of the char-
razo. Two workers, under torture by police, ‘confessed’ that a militant
leader of the STFRM – Valentín Campa – had organised the ‘sabotage’.
Campa was sentenced to eight years in prison and served four.76 After
the charrazo, the railway workers’ union became a loyal supporter of
the PRI; its top officials regularly spending periods as federal deputies
or senators. With the defeat of the militants in the STFRM, the CUT fell
apart and the CTM was back in control.
Another charrazo was organised in the Miners and Metallurgical
Workers Union – (SNTMMSRM) in 1950. Alemán’s supporters – many
employed by the Ministry of Labour – took control of the credentials
committee for the union’s conference. By excluding many legitimate
delegations, they secured the election of a close supporter of the gov-
ernment. The new leadership expelled the left and suspended many of
the most important and militant local branches.77 The charrazos in
these unions in the late 1940s established a new level of state control
over the labour movement; using all the resources of the state to
support one faction against another. As a result there were virtually no
important strikes for ten years – a crucial result for the next period of
Mexican industrialisation.
It took until 1958, with an outbreak of militancy in the teachers’
union – the Sindicato Nacional de Trabajadores de la Educación (SNTE) –
for another significant threat to the PRI to emerge. A campaign for a
wage rise, made possible in part by a division amongst the union’s
bureaucracy, led to the formation of a rank and file organisation called
the Movimiento Revolucionario del Magisterio (MRM) – the teachers’ revo-
lutionary movement.78 In this case, the government, under President
Ruiz Cortines, realising that the SNTE was not in control of the rank
and file, opened direct negotiations with the MRM and awarded a
significant pay rise. But the attempt to form similar opposition move-
ments in other unions was met with repression. Railway workers,
recovering from the charrazo of a decade earlier, held strikes during
1958 and 1959 – mainly over wages – and the old leadership was
ousted. This time, the government used both the carrot and the stick.
It conceded a pay rise, then it imprisoned the new leaders and sacked
20,000 workers until the union was back under its control.79
The autonomy of the Mexican state was not a fixed quantity. It was a
dynamic relationship which depended on the ability of the state to
resist, undermine or in other ways prevent, the pressure of the major
classes on it. At various points this autonomy was challenged – espe-
cially in the late 1940s and, to a lesser extent in the late 1950s – by
groups of militant workers. But each time, the PRI was able successfully
to bring the labour movement back under its domination. Although it
was fully prepared to use force, the maintenance of control would not
have been possible by repression alone; it had to be combined with the
support of a ‘friendly’ bureaucracy.
That bureaucracy – known as charros (cowboys) – was closely tied to

the state at many levels. Typically, important charros could occupy
local, state or national political office at the same time as they held
union positions.80 Fidel Velázquez served as a Federal Senator for two
six-year terms while Secretary-General of the CTM. At the workplace
level, the bureaucratic structure of patronage, rewards for loyalty and
obedience and punishment for those who opposed the leadership was
replicated on a smaller scale. The local union steward or delegate – the
delegado de planta – was not usually elected by the rank and file but
appointed by the union officials and brought in from the outside –
often when the plant was first opened. Frequently, they received a
share of union dues. Such delegates’ loyalties were to the officials
above them rather than to the workers they supposedly represented.
Yet the bureaucracy was relatively inclusive; charismatic and talented
leaders who emerged spontaneously would often receive an offer to
join it – with all the material rewards that this involved. Those who
refused often found themselves persecuted by management or even by
the police. The major unions and the CTM were also said to have
armies of thugs at their disposal to attack opponents or, on occasion,
wildcat strikers. La Quina of the petroleros built a paramilitary organisa-
tion of 3,000 men to deal with those who opposed him.81
Yet, despite all of the apparatus of repression and corruption at their
disposal, to maintain control the union bureaucracies still needed to be
able to point to real advantages which workers gained from union
membership. Their aim was not necessarily to stop all struggle – but
rather to limit it in intensity, duration and scope and to direct it
through channels sanctioned by the state. For this reason, the hege-
mony of the PRI and the union bureaucracy was contingent on a high-
level of economic growth. The expansion of the economy made
possible slowly rising real wages, allowing the union bureaucrats to
claim some victories without endangering the developmental plans of
the government. And without the union bureaucracy, the PRI would
have lost one of its main institutional supports.
Real wages fell sharply during the Second World War; indeed, the real
value of wages didn’t reach the 1939 level until 1969. Nevertheless,
after the war, they rose constantly – although much more slowly than
profits – until 1975.82 Moreover, economic expansion allowed the state
and the union bureaucracy to provide many benefits such as workers’
health programs, housing and credit facilities for union members.
Economic development was crucial for the legitimacy of the PRI in a
broad ideological sense. The successful growth of Mexican industry
supported its claim that it was the party which could ensure the
country’s national economic integrity and independence. Economic
expansion was also necessary to maintain the structures of bureaucratic
union control without which the state’s sole weapon, as in many other
less ‘perfect’ dictatorships, would have been only the blunt one of
repression.
The party of institutionalised patronage
One reaction to the emergence of the caudillos as regional powerbro-

kers in revolutionary Mexico was the establishment of a highly cen-
tralised and powerful Presidency. Congress was relatively weak,
routinely approving laws nearly all of which were initiated by the
President. The office of the President can also choose and remove gov-
ernment ministers, state prosecutors and most government employees.
A further consequence of the revolution and its aftermath was the
entrenching, after the assassination of Obregón in 1928, of the princi-
ple barring re-election for the President, state governors and members
of Congress. In particular, the fact that the President’s six-year term
(the sexenio) is fixed and non-renewable has led to some peculiar
features of the Mexican system.83
Firstly, the careers of most middle and high-level state officials are
linked to an even higher official or a politician – who tend to assemble
their teams (equipos) – of officials and experts and move with them
through different positions. These top officials are, in turn, often
linked to the President and his immediate supporters. Thus towards the
end of each sexenio a very high proportion of officials move on to a dif-
ferent job along with their patron. Their own futures depend on the
prospects of their boss in the following sexenio. At the middle and
higher levels such patrons were members of the PRI or its predecessor
organisations. Thus the personnel who make up the state apparatus
found that their career prospects were tightly bound up with the top
leadership of the PRI. Each new President brought his own equipo in
the form of loyal ministers and top bureaucrats. Each of these had, in
turn, an equipo to install in their new posts as well.
The sexenio has enormous importance in the patron-client networks
of the Mexican state. It means that there is a constant turnover of per-
sonnel in bureaucratic and political positions. A rapid and thorough
rotation in power circulates the elites and therefore, for decades,
encouraged the disaffected and dissidents to remain loyal to the party.
The next sexenio might always bring advancement. It also meant that
new and talented people could be brought into the regime with each
electoral cycle. Thus, the amalgamated machine of the PRI and the
Mexican state could be an inclusive bureaucracy, constantly drawing in
new, ambitious people every six years. Some of those came as leaders of
the mass organisations. Many entered as highly educated graduates or
even professors – especially of the Universidad Nacional Autónoma de
México (UNAM).
Since PRI candidates always won, the real hurdle for those seeking
elected office was to be nominated by the party. In this, the higher
officials made the key decisions. At the national level, the President had
the major say. So, as well as remaining inclusive and open to new talent,
the machine constantly rebuilt an upwardly-directed loyalty towards its
top leadership. Such was the importance accorded to the internal cohe-
sion of the PRI and the state that PRI candidates – especially those for
President – were always publicly supported ‘unanimously’ by the party –
whatever machinations preceded their destape (unveiling).
Elections have been held on schedule since 1920 – formally a better
record than most of Europe and all of the Third World and the other
NICs. They were extremely valuable for the PRI in that they con-
tributed to its revolutionary legitimacy yet, until the 1980s, were most
unlikely to lead to its removal. Elections also provided the constitu-
tional mechanism for the sexenio turnover and reshuffling of state
elites. Moreover, they gave the mass constituent organisations of the
PRI – the CNC, CTM and CNOP – an incentive to build and maintain
their networks and actively campaign for the party in an attempt to
maximise voter turnout.
This is not to say that elections were conducted fairly. Indeed, vote
rigging was a well-developed skill in the PRI. The fact that vote tallies
were not immediately declared after counting gave local officials ample
time to adjust the results. Until 1988, the PRI’s vote in Presidential
elections always ranged between 77% and 99%.84 Opposition candi-
dates were systematically bullied and sometimes discriminated against
in highly creative ways. During the 1992 election for the governorship
of Michoacán, the opposition mayor of Morelia was forced to set up
his office in a tent in the street because a PRI-affiliated union of street
vendors had occupied the Town Hall. After two weeks, the PRI gover-
nor of the state got the union to leave voluntarily – just one day before
the election. The local media on election day used the incident to
point out that citizens could only trust the PRI to manage social
conflict.85 At times, serious political violence – even murder – was used
to ensure that opposition parties did not establish a foothold.
The picture of the PRI and the state bureaucracy that has emerged so
far might suggest that official positions were sinecures where lazy, well-
connected but untalented people might thrive. In fact, the state’s
leaders were well aware that the entire structure held together only on
condition that it presided over a high-level of economic growth.
Without that, workers’ wages would not rise fast enough to hold the
PRI’s mass organisations together or to continue the flow of patronage
through the many channels they had carved. The need for capital
accumulation was systemic – it disciplined the entire machinery of
state – including the PRI. The result was that inefficient officials were
not usually tolerated, there was great pressure to perform and sacking
often quickly followed failure to do so. So the PRI developed as an ideal
political machine for a capitalist developmentalist state. It was highly
centralised and motivated to perform. And it created loyalty and group
cohesion within what came to be known as the ‘revolutionary family’.
Yet it constantly drew in many of the most talented and the best edu-
cated as well as those leaders who might emerge spontaneously from
the working class or the peasantry through the mass organisations of
which the PRI was made up.
Relative autonomy
Path one: pre-emptive mobilisation

The involvement of the state was crucial to Mexican industrialisation;
a process whose scale and duration has been rare in the Third World.
In the main period of dirigiste development – 1940–70 – the state was
able to gather together extremely scarce resources and focus them
efficiently on the key tasks of capital accumulation. It sometimes did
so against the wishes and immediate interests of private capitalists, and
always against the interests of the working class and the peasantry. The
mechanisms of growth included state enterprise as well as the use of
macroeconomic tools to direct and control private business.
By 1940, the state in Mexico had an unusually high degree of auton-
omy – both from the private bourgeoisie and from the subaltern
classes. This autonomy emerged in stages. The first of these was the
effective banishment of the bourgeoisie from the possibility of political
power. The social objectives of the revolutionary peasantry put paid to
the kind of landlord control of state and society which persisted in
most of the Third World. The industrial and commercial bourgeoisie
similarly felt unable to take control. In any case, they were divided
about whether to support the regime.
The inability of the peasantry to take state power in 1915 and the
political weaknesses and tactical failures of the organisations of the
working class at that time left control of society in the hands of a few
of the revolutionary generals. They were committed to national capi-
talist economic development but nevertheless owed their power to a
mass revolution. That contradiction led to the peculiar form of state
autonomy which was, once again in stages, shaped and consolidated
between the conclusion of the revolution and 1940. The army – the
prop of so many regimes in the Third World – was soon shifted away
from the centre of state power.
Instead of armed force alone, between 1915 – when the Casa del
Obrero Mundial made its deal with Obregón – and the end of the
Cárdenas presidency in 1940, Mexico’s rulers often had to rely on the
controlled mobilisation of peasants and, increasingly, of workers to
secure their state power. Mass organisations of peasants and workers
were built and dominated by bureaucrats who were closely integrated
with the state machine. However, unlike many apparently similar
organisations elsewhere (the legal trade union federations in South
Korea and Taiwan for example), these were not merely artificial
creations of the state; they had a real background in struggle and there-
fore the capacity both to mobilise and, when necessary, to demobilise
masses of people.
These organisations – the CTM and the CNC in particular – gave
Mexican state autonomy its peculiar character. Their existence held the
private bourgeoisie at bay – who continued to feel that a direct chal-
lenge to the PRI would cause it to unleash mass struggle against them.
Like Louis Bonaparte, the PRI could guarantee order and threaten
disorder. On the other hand, these mass organisations were highly
bureaucratic and their leaderships were committed to the preservation
of the existing state power – both because of their nationalist ideology
and because their personal material interests were protected and
advanced through their service to the state.
The difference between these bureaucracies and those of the many
other trade unions around the world is that they were born out of a
revolution. Then, in post-revolutionary Mexico, which had experi-
enced such intense periods of mass struggle, the survival of the state
depended on institutionalising arrangements for controlling, divert-
ing, undermining and limiting further mass mobilisation. Some
channels through which popular discontent could flow had to be
constructed or those who held state power could not have done so
for long. Without such channels, the state’s leaders could not have
extracted from workers and peasants the great sacrifices necessary to

industrialise rapidly. This form of state autonomy was not absolute –
it was challenged in every decade of PRI hegemony by upsurges of
class struggle. But, until the 1970s at least, the state was able to
defeat, undermine or divert these challenges and maintain its control
of the economy and society. Moreover, its strong position at home
gave the state the confidence to impose restrictions on foreign capital
designed to maximise domestic capital accumulation.
The Bonapartist position of the Mexican state was based on the polit-
ical weaknesses of all classes of Mexican society, but it was not an
autonomy of isolation. Because of the importance of bureaucratic mass
organisations to it, the continuing stability of the state depended on its
ability to provide, through these mass organisations, certain small –
but nevertheless real – material benefits. Without some wage rises in
the post-war period the CTM would have fallen apart or been sup-
planted by other unions. At some points – such as the late 1940s – the
danger of this happening was very real. Without some social benefits
available through membership, the CNC could not have prevented the
outbreak of more serious disturbances in the countryside. Without eco-
nomic growth, these inducements would have required eating into
profits far more seriously. The centavos could only be provided so long
as the pesos were being generated. So, for the survival of its mass organ-
isations, and therefore its own survival as well, the state needed to
force the pace of growth; it was obliged to be developmentalist. Then,
in turn, its mass organisations gave it the ability to be so.
4
Mexico: Uncontrolled Mobilisation
and the Retreat from
Developmentalism
For decades, both Mexico’s boom and the PRI’s electoral success
seemed unstoppable. In the 1960s and through much of the 1970s, it
appeared that Mexico might be the first Third World country since
the Second World War to get close to First World levels of industrial-
isation and living standards. In the 15 years to 1981, its real GDP rose
by a cumulative 66%. Thus the collapse, when it came, was very hard
indeed. In the seven years after 1981, real GDP actually fell by 16%.1
In 1982, Mexico became the first Latin American country to default
on its huge foreign debt, heralding a decade of debt crisis and IMF
restructuring. Mexico had gone from being amongst the most
acclaimed, to one of the most discredited, economic performers in
the world.
The Mexican boom was made possible by the autonomy of the
Mexican state. In its ascending phase, this autonomy was maintained
through political structures linking the state with bureaucratic mass
organisations. Early signs of the erosion of this autonomy and of
increasing pressure on these political structures began to appear in
the late 1960s. From the 1970s, there were unmistakable signs of
panic in the ‘revolutionary family’ of the PRI; public policy swung
from one extreme to another as they attempted to maintain control.
But each oscillation failed to satisfy the social class it was intended to
placate – while it enraged others even more. Attempts by the state in
the 1970s to spend its way out of trouble only exacerbated the eco-
nomic situation. Finally, in the early 1980s, the Mexican state gave
up its developmentalist role altogether and allowed its economic and
social policy to be largely dictated by domestic and foreign capital
and the IMF.
88
Mexico: Uncontrolled Mobilisation and the Retreat from Developmentalism 89
In part, this, the descending phase of the PRI state, was a product of
its own success in transforming Mexican society. The working class,
expanded by industrialisation, had much greater social weight than
before 1940. Much of it was unwilling to meekly follow the dictates of
PRI union officials. Workers began to challenge the union bureaucra-
cies which anchored the rigid system of state control. The ejidal peas-
antry, once the stronghold of the PRI, had declined numerically. But
even here, because of the neglect of their needs by successive adminis-
trations in favour of commercial agriculture, they too had become
restive by the late 1960s. Though now much less powerful than the
urban working class, many peasants deserted the PRI; in a few cases
they took up arms against it. A new, educated middle class had also
emerged. There were many inducements – including careers in the
state bureaucracy – for this section of the middle class to support the
regime and most continued to do so. But some, at least, were moved to
protest the lack of democracy and the manifestly unequal nature of the
Mexican boom. In this, the students led the way – their protests in the
late 1960s sparking more open defiance of the regime from others.
While workers’ wages continued to rise slowly until 1975, Mexican
society became much less egalitarian. About 70% of the population
experienced a decline in their share of national income between 1950
and 1970.2 In 1958, the richest 5% of the population was 22 times
wealthier than the poorest 10%. By 1970, it was 39 times wealthier.3
Unionised workers employed in manufacturing, mining and the oil
industries did best – although their wages lagged far behind the rate at
which profits grew. But the boom led to extreme poverty for many
others. Many peasants were forced to leave their land. Others who sur-
vived on it did so in increasing poverty. Industrial development was
capital-intensive and unable to absorb the potential labour force being
created by migration to the cities and by natural increase. Hence the
number of shantytown dwellers and the underemployed in the cities –
marginal to the main economy – rose swiftly and became an obvious
feature of every sizeable Mexican town.4 Eventually, even sections of
the bourgeoisie began to work up the courage to fitfully oppose some
aspects of the regime. Whereas, in the preceding three decades, the PRI
had great power to determine the direction of Mexican society, during
the 1970s it seemed surrounded by ever stronger enemies to which it
felt forced to make concessions. Its economic policies began to be
driven by very short-term political imperatives rather than longer-term
developmentalist aims.
The rise of an independent labour movement
Central to the erosion of state autonomy was the difficult, halting and
partial – but nevertheless powerful – emergence of an independent
labour movement. Sections of the working class had resisted the
bureaucratic domination of the PRI and its attendant trade union
bureaucracies in every decade since the revolution. But each of these
efforts resulted in the victory of the state and an even tighter govern-
ment control. However, a small number of breaches were made in the
bureaucratic wall of the CTM in the 1960s. In the following decade,
the trickle became a flood.
The first way in which these new, independent forms of worker
organisation were expressed was through the formation of opposition
groupings or reform groupings inside established PRI-aligned unions.
The foremost example of this type was the Tendencia Democrática (TD),
a reform movement which began in the Sindicato Unico de Trabajadores
Electricistas de la República Mexicana (SUTERM), the strategically
powerful electrical workers union. The railway workers, defeated by
the charrazos and government repression in 1948–49 and 1958–59,
again threw up an opposition group inside STFRM – the Movimiento
Sindical Ferrocarrilero (MSF) – led by Demetrio Vallejo, a key organiser
of the strikes in the late 1950s.
In many other cases, independent unions were formed or split away
from the CTM. Those who worked in auto manufacturing led the way.
Along with other major industries, domestic and foreign auto compa-
nies had been pushed by government policy into the vertical phase of
ISI and thus, into higher value-added production. It had become
crucial to the newly-industrialising Mexican economy. The auto indus-
try’s share of GDP rose from 3.6% in 1965 to 6.9% in 1975 and the
value of its production increased at an average annual rate of over 15%
in the same period. Productivity increased massively – the average
number of vehicles produced per worker rose by 50% between 1965
and 1975.5 As a result, auto workers were amongst the first to develop a
consciousness of their great bargaining power.
Truck workers at the state-run diesel manufacturer, Diesel Nacional
(DINA), in Ciudad Sahagún were the first to break away from the CTM
in 1961. By the early 1970s, the trickle away from it had grown into a
flood of proportions alarming to the PRI. Volkswagen workers in
Puebla left the CTM in 1972 as did Nissan workers in Cuernavaca in
1974. Those at Ford and General Motors stayed in the official unions
but campaigned for more democracy and autonomy.6 By 1975, workers
in five of the seven main firms which manufactured vehicles had won
control over their local unions.7 Similar movements, some locally-
based, others embracing whole industries, began elsewhere. Workers’
commissions, operating free of the control of the union bureaucracy,
were set up in the aviation and other industries. The dead hand of the
old bureaucracy could not as easily prevent struggles as in the past.
Over 3,600 unofficial strikes took place between 1973 and 1976.
Two bodies emerged attempting to unite workers opposed to charro
control: the Frente Auténtico del Trabajo (FAT), a group originally
influenced by Christian social thought, and, although its claim to inde-
pendence was much less strong, Unidad Obrera Independiente (UOI), a
coalition organised by a well-known labour-lawyer, Juan Ortega
Arenas. The FAT, originally formed in 1960, was heavily involved in
the new union at Nissan and Ortega Arenas was active both there and
at Volkswagen. These new federations had the effect of generalising
local disputes into an overall oppositional framework. Workers’ dissat-
isfaction about pay, conditions and authoritarian control by the union
bosses was turning into overt opposition to the CTM. In the Mexican
context this amounted to a highly political opposition to the regime as
a whole. The car industry illustrates the dilemma for the PRI – its devel-
opmental success had created forces which were beginning to under-
mine the structure of the regime. Whereas many previous union
reform movements in Mexico had been simply attempts by one group
of potential officials to take over from an incumbent group, the new
movement was based on militant strike action on the ground and, in
many cases, a desire to break altogether with the CTM bureaucracy
rather than become a part of it.
The struggle was between the new workers’ organisations on the one
side and the government and its tame union bureaucracies on the
other. One of the clearest examples of this was at Spicer, an axle manu-
facturer, in 1975. After a push by workers to form an independent
union, the Miners and Metallurgical Workers’ Union (SNTMMSRM),
with the support of management and the government, began to move
its own supporters into the plant to replace the existing long-term
casual workers. A 121-day strike ensued. In the end, the workers lost,
but such was the optimism of the times that they returned to work
under the slogan – ‘Create one, two, seven hundred Spicers’.8
That exuberant spirit is captured by the progress of a new organisa-
tion – Tendencia Democrática (TD). Beginning in the electrical workers’
union, TD was soon challenged by the Sindicato Nacional de Electricistas
(SNE) – a charro union allied to the CTM and the PRI. Predictably, the
official Committee of Conciliation and Arbitration found in favour of

SNE in 1971 and the government announced that it would recognise
only the SNE as the representative of the electricity workers. Conflict
with the charro bureaucracy and the government began in earnest.9
Tendencia Democrática became the leader of a national organisation for
democracy in all unions and quickly linked itself with opposition
groups of oil workers, railway workers, teachers, steel workers and uni-
versity workers.10 In 1972, it organised demonstrations for union
democracy in over 40 cities. In 1975, it held protests throughout the
country, mobilising tens of thousands of people. In November 1975,
TD led a demonstration of 150,000 in Mexico City to support the
democratic union movement.11 In a series of struggles in which Fidel
Velázquez intervened, charro leaders introduced scabs to break electri-
cal workers’ strikes and the government used troops to occupy plants,
TD was eventually defeated – its members finally dissolving the organi-
sation in November 1977. By 1978, most of the dissident unions
belonging to the TD had been repressed.
But the credibility of the charro unions and of the government could
not easily recover. The CTM was forced to lead some strikes – especially
in the early 1980s. And after the upsurges of the 1970s, the class strug-
gle could not be so easily diverted into official channels, contained or
bought off cheaply as in the past. The 1980s saw mass demonstrations
of up to 150,000 people against government austerity, sackings and
low wages, sometimes led by coalitions of up to 150 unions and other
popular organisations.12 The independent unions of the 1970s had
mixed success and many did not survive. But as a result of their emer-
gence and their struggles, the government was, for the first time since
the 1920s, in serious danger of losing control.
The restive peasantry
Organising and reorganising the urban working class was the key
problem for the Mexican state since the revolution. After the dust had
settled from the Cárdenas reforms, the countryside was relatively quiet.
In one election after another, rural Mexico solidly supported the PRI.
But the slowing of the agrarian reform program increased peasant dis-
content. In the 1960s, very little land was distributed and that was
mostly of poorer quality – less than 6% of it was irrigated.13 The gov-
ernment was clearly favouring large-scale, capitalist farmers, even
issuing certificates of inviolability protecting them from future expro-
priation.14 As most agricultural credit went to these larger farmers as
well, the minifundistas (small farmers) and the ejiditarios were increas-
ingly marginalised. Class tensions in the countryside, which had last
exploded in 1910, were being resurrected. Desperation led peasants to
seize land on their own account in the late 1960s. In several areas,
armed guerrilla movements sprang up and began to clash with govern-
ment troops. Two armed, peasant uprisings took place in the state of
Guerrero. In the early 1970s, rural guerrillas in the mountains of that
state tied up 10,000 troops for a year.15
These armed struggles were merely the tip of the iceberg of peasant
discontent. An independent peasant movement began to form in place
of the declining local CNC organisations controlled by the PRI.16 Land
invasions reached major proportions; in 1975 and 1976, land was
invaded on a large-scale in Sinaloa, Oaxaca, Chiapas, Veracruz, the
Federal District, the Yucatán and Sonora. After 1976, the government
increasingly resorted to repression to deal with the problem – the army
being used to clear peasants from invaded land.
The official CNC organisations could not easily back the land inva-
sions against government policy – and therefore quickly lost support.
In their place, new, independent peasant organisations were formed.
The Communist Party-aligned Central Campesina Independiente
(CIOAC), founded in 1963, has already been mentioned. Of the many
others, the most important, the Coordinadora Nacional Plan de Ayala
(CNPA), was set up in 1979 to unite a large number of diverse groups.
Significantly, it argued for the agrarian program which Zapata formu-
lated in 1911. The unmet demands of the Mexican peasants had finally
brought them back to the point where their movement began. As with
the working class, the decades-long grip which the PRI had on the
peasantry was weakening.
Coordinadoras, coaliciones, corrientes
Great turning points are sometimes initiated by insignificant events.

The explosive opposition building up to the PRI was touched off by
such an incident – a minor fight between students in Mexico City in
July 1968. The PRI Mayor overreacted and sent in the granaderos – a
paramilitary riot police – who behaved brutally. Another clash between
students and police happened later that month on 26 July, the
anniversary of Castro’s attack on the Moncada. More demonstrations
against the government followed. The following month, the students
of UNAM organised a demonstration of 500,000 calling for democracy;
it was the biggest gathering in Mexico since the revolution. The
Olympics – Mexico’s boast to the world that it had become a modern

country – were approaching and in mid-September, President Díaz
Ordaz ordered 10,000 troops to seize UNAM and oust students who
were occupying it and threatening to disrupt the Games. Then, on
2 October, another demonstration at the Plaza de las Tres Culturas in
the historic district of Tlatelolco in Mexico City was set upon by the
authorities. At least 2,000 people were arrested. The government
admitted that 49 were killed. The New York Times correspondent
present said that 200 was more likely. Later estimates put the death toll
between 350 and 500.17
The massacre at Tlatelolco produced a national convulsion. The
legitimacy of the PRI was shattered. It had murdered its critics rather
than attempting to incorporate them as it had mostly done in the
past. For those who had hoped that the system might be reformed,
the event caused immense frustration; it now seemed that the
regime would never change.18 The importance of the massacre to the
diverse movement gathering against the government was enormous.
The state was being challenged by emerging forces which would
no longer permit it to rule in the old way. Moreover, these new
forces would not easily be diverted into official channels via the
PRI’s constituent mass organisations.
After 2 October 1968, a large number of social movements in some
way opposed to the PRI sprang up. Some of these were based on the
millions in the major cities who made up the ‘informal sector’. Left
behind by the Mexican boom, these people eked out a living by part-
time or occasional work or through small-scale enterprises such as
street vending. For the most part unorganised by the PRI, they often
felt alienated from the political system. Yet they constituted a large
part of the population in the cities; one estimate was that the informal
sector made up 35.5% of the income-earning population in Mexico
City in 1979.19
Throughout the 1970s, new grass-roots coalitions and networks (co-
ordinadoras), often begun by radical students, attempted to organise
people in this sector and to link them to independent workers’ and
students’ organisations. The best known was the Coordinadora Nacional
del Movimiento Urbano Popular – Coordinating Committee of the Urban
Popular Movement (CONAMUP) – founded in 1981.20 Radical students
in Juchitán formed a grass-roots activist group Coalición Obrera
Campesina Estudiantil del Istmo – Worker, Peasant, Student Coalition of
the Isthmus (COSEI) – which pushed for municipal democracy, land
redistribution, wage rises and improved benefits for workers. The coali-
tion had considerable success – going on to win local office for some
periods in the 1980s and 1990s.21
The earthquake of 1985, the response to which revealed corruption
and inefficiency in the government, led to the formation of the
Coordinadora Unica de Damnificados – Coordinating Body of Earthquake
Victims (CUD). This coordinadora produced the internationally-known
agitprop street theatre of ‘Superbarrio Gómez’. Sections of the popula-
tion which had known only the stage-managed official mobilisations
of the PRI were being drawn into mass politics for the first time.
Also threatening the PRI ascendancy were new dissident currents
emerging within it. The internal discipline of the PRI was being
shaken. One of the demands articulated in the mid-1960s was for open
primary elections in order to eliminate the nepotistic and authoritarian
way in which the PRI’s top leadership determined who was to become
a party candidate. Such attempts came to nothing and, in some cases,
led to sections splitting from the party and forming local independent
opposition groups.
Internal dissent accumulated in the PRI in the 1960s and 1970s. But
such was the tightness of the party’s control mechanisms and its
emphasis on unity that the explosion did not take place until 1986,
with the formation of Corriente Democrática – Democratic Current (CD).
Its two leading members, Cuauhtémoc Cárdenas and Porfirio Muñoz
Ledo, had been important figures in the party. Both felt the pressure of
the movement against the government and urged greater democracy,
a shift away from the neo-liberal agenda of the PRI in the 1980s and a
return to cardenismo – the (somewhat mythologised) populist and
redistributive politics of Lázaro Cárdenas in the 1930s.22 This neo-
cardenismo had enormous mass appeal and an opposition electoral
front – the Frente Democrático Nacional (FDN) – was born. Cuauhtémoc
Cárdenas, running for President in 1988 with this new and untried
organisation behind him received an official 31.29% of the vote, com-
pared to the PRI’s 50.03%. These results were almost certainly rigged; it
is quite likely that Cuauhtémoc actually won the election. The fragility
of the PRI’s electoral support was now apparent to all. It had lost its
ability to manipulate mass organisations and turn that control into
votes from workers and peasants. Now, only corrupt electoral practices
were keeping it in power.
1968 was the watershed – the end of the ascending, developmentalist
phase of the Mexican state. After 1968, the state was unable to manage
either the economy or society generally as it had before – everyone
seemed to be in revolt against it. Of course, in many countries there was
a radicalisation in 1968 which changed the way that political parties did
business. The difference in Mexico was that the ruling party itself relied
to such a high degree on controlled mobilisation. Now there was mobili-
sation aplenty – but the PRI did not control it at all. Furthermore, the
PRI had relied on this control to force the pace of industrialisation and
bring the country to NIC status. That ability was now also lost. Sustained
economic growth had not, in the end, prevented social disorder – in fact,
by strengthening the social forces which would ultimately limit its
autonomy and thus prevent the state operating in the old way, eco-
nomic expansion did the opposite. After the Tlatelolco massacre, the
PRI did not immediately fall from power. It tried to rebuild its own cred-
ibility and that of the mass organisations which had enabled it to
manage society. It did restore order, but at a very high political cost. And
in doing so it increasingly relied on force and electoral rorting.
Policy incoherence in the descending phase
Echeverría and the ‘farmers’ and workers’ government’

The shock of Tlatelolco led the new President in 1970, Luis Echeverría
Alvarez, to distance himself from the previous government and from
his own role as Secretario de Gobernación in suppressing the 1968
student movement. Determined to rebuild links with the students, he
adopted a stridently anti-imperialist, tercermundista (Third Worldist)
rhetoric.23 But this was largely window-dressing – talk was cheap.
A more substantial reorientation in economic policy was desperately
needed to arrest the decay of the PRI’s mass organisations and to stop
the rise of new opposition movements. Echeverría began to turn away
from his predecessors’ post-war policies of fast growth funded by high
rates of exploitation of labour, low wages and low social spending. His
new program changed the public strategy of the regime from ‘stabilis-
ing development’ to ‘shared development’. It was an attempt to rebuild
the legitimacy of the party and the system in the eyes of its mass base
by sharply increased spending on social welfare, by allowing some
wage rises and by making land and credit available to the peasantry.
He vowed to bring Mexico back under an agrarista and obrerista
(farmers’ and workers’) government.
There was to be an expansionary fiscal policy which would increase
the funds available to state-owned companies in order to expand
employment. He also determined to increase the size of the state and
parastatal bureaucracy to provide greater opportunity for the educated
middle class – overall, public sector employment grew by 60% under
Echeverría.24 Some wage rises would not be opposed by the govern-

ment and there was to be an increase in government-supplied credit
for the ejido.
These massive new expenditures were not, as in the past, closely
targeted at areas of greatest potential capital accumulation. They were
essentially redistributive. Economic policy was now being driven by
political necessity. Government spending increased by an annual
average of 14.1% during Echeverría’s term – almost double that of the
preceding sexenio of Díaz Ordaz and three times that of the growth of
the economy.25 In the four years before Echeverría became President,
government expenditure as a percentage of GDP had averaged 21%.26
In 1970 it rose a little – to 23.6%. Then, over the next five years, gov-
ernment spending rose dramatically – to 36.6% of GDP by 1975.27
The state and parastatal sectors’ share of total investment also rose
fast – from 35.5% in 1970 to 46.2% in 1975.28
Echeverría conceded union demands for a 40-hour week and a 33%
pay rise for workers in the maquiladoras.29 Overall, wages in industry
were allowed to rise by 17% in 1974, by 22% in 1975 and by 16–23%
in 1976.30 In the electrical industry, where Tendencia Democrática posed
the greatest threat to PRI and charro control, wages were allowed to rise
even faster than in other sectors. Funding for the workers’ health pro-
grams of the Instituto Mexicano de Seguridad Social – the Mexican
Institute of Social Security and Social Services (IMSS) – and the Instituto
de Seguridad y Servicios Sociales de los Trabajadores del Estado – the
Institute of Insurance and Social Services of the Workers of the State
(ISSSTE) – was also considerably expanded.
As part of an olive branch now offered to the militant forces emerging
within the working class, Echeverría began to distance himself from the
CTM bureaucracy and even to allow the legal registration of some of
the new, independent unions. But by 1973, with inflation on the rise,
Echeverría needed the CTM once again to rein in the militancy and
restrain wage rises; the breach with Velázquez was healed. Nevertheless,
a number of independent unions were able to establish themselves
in the meantime – especially those associated with the UOI of Ortega
Arenas. For the urban poor, the government expanded Compañía
Nacional de Subsistencias Populares (CONASUPO) – the National Company
of Popular Goods – a chain of state-owned stores which sold basic food
and other goods at subsidised prices.
The peasant base of the PRI was courted with an increase in public
funding to agriculture – its share of total public spending nearly
doubled between 1971 and 1975.31 Land reform was put back on the
agenda and more land distributed to small farmers than at any time
since the Cárdenas era. Echeverría promised that 1973 would be the
‘year of the campesinos’ (peasants) and that the government would
provide land grants, credit and water for irrigation. Near the end of his
term, he made the spectacular gesture of expropriating and redistribut-
ing 100,000 hectares of very rich farmland in the Yacqui and Mayo
valleys in the northwestern state of Sonora. Then, on the very last day
of his Presidency, Echeverría distributed another 500,000 hectares
across the country.
Most of these moves meant major increases in public spending.
As a result, the Federal deficit of 1976 was 15 times as large as in
1971. 32 By the second half of the sexenio, the government was
facing the consequences: severe inflationary problems and the need
to borrow much larger amounts abroad. Inflation reached 10% for
the first time in 20 years. 33 Through the 1940s, 1950s and 1960s,
Mexican economic growth was largely debt-free. But foreign public
and publicly-guaranteed debt during the Echeverría sexenio rose
nearly 500% – to over US$18 billion. The net flow of foreign public
debt as a percentage of GDP rose from 1% to 6%. More importantly,
the Mexican economy was much less able to repay the debt –
the ratio of net flow of foreign public debt to current account
income was 11.6% in 1971. In 1976, it reached an unsustainable
62%.34
Higher inflation was a direct consequence of increased government
spending, which was, in turn, motivated by the need to build the
bases of the regime. So too, the massive increase in state debt in the
first half of the 1970s was directly related to this need by the govern-
ment to spend its way out of political trouble. It is true that foreign
finance, awash with petrodollars, became more easily available in the
Echeverría period. But nothing compelled the PRI government to
borrow so heavily abroad except the desperation which it felt at the
erosion of its major pillars of support.
Echeverría and the ‘democratic opening’

The huge democracy demonstrations of 1968 proved that many –
perhaps most – Mexicans, had come to believe that the government
was effectively a dictatorship. Brutal repression on 2 October reinforced
that belief. With its legitimacy in tatters, the PRI desperately needed to
restore faith in the whole system over which it presided. Echeverría
embarked on an apertura democrática – a democratic opening. There
was a selective release of political prisoners and some dissidents were
brought into state positions. The Partido Comunista Mexicano – Mexican

Communist Party (PCM) – was permitted legal registration. The plan
for electoral reform was to institute a dual voting system for the
Chamber of Deputies which would give the opposition a better chance
of winning seats in the Chamber.
But neither Echeverría’s redistributive economic strategy nor his
apertura democrática rebuilt the PRI’s mass organisations or its legiti-
macy. In part this was because the reforms were simply too little and
too late. Electoral changes had not been implemented in time for the
1976 Presidential elections and the PRI candidate, José López Portillo,
had to suffer the embarrassment of running in the absence of any
major opposition candidate. The wage increases allowed by Echeverría
were soon eaten up by higher inflation; real wages began to decline in
1975 for the first time since the Second World War.35 Echeverría
resisted pressure to devalue the peso – which would have meant a
further wage cut. Then he did so on the last day of his presidency, the
first time there had been a devaluation since 1954.36
Concessions offered to the independent unions between 1970 and
1973 allowed a breathing space in which some could develop. But as
wage rises began to push at the limits which the government was pre-
pared to allow, Echeverría closed ranks again with the CTM. Moreover,
the government itself engaged in the brutal use of police and troops to
smash strikes such as those of the electrical workers and at Spicer.
Despite this, strike levels peaked in the last three years of his term.
Neither Echeverría’s brief flirtation with the militants nor his repres-
sion of them prevented the rise of struggle outside the state’s preferred
and controlled channels.
The agrarista component of the Echeverría program also fell short of
what was necessary to assuage rural discontent. Despite increased gov-
ernment investment, agricultural output grew at an annual average of
only 1.6% between 1970 and 1976. Between 1975 and 1976, it actually
fell.37 However, the agrarista rhetoric of the Echeverría regime spurred
further land invasions. Echeverría was caught between two classes; he
needed to rebuild the confidence of the peasantry in the PRI but could
not afford to alienate agricultural capital. In April 1976 he said that he
supported ‘neither invasions nor latifundios’ – a position guaranteed to
satisfy no one.38 Land was redistributed, but the amounts involved
were not nearly enough to make a major impact on landlessness. Nor
were they enough to calm rural protests. Guerrilla activity in the coun-
tryside continued and increased between 1972 and 1976 and new
peasant organisations grew outside the CNC.
While Echeverría’s redistributive policies were too half-hearted to

rebuild the mass base of the PRI, the land redistributions, wage rises
and increased social spending he did undertake – as well as his populist
rhetoric – enraged the bourgeoisie, urban and rural. Large sections of
capital which had either supported the PRI or at least been prepared to
tolerate it, now moved into virulent opposition to the regime. They
saw Echeverría’s social spending as fiscal recklessness and his
confiscation of landed property as a move toward communism. Their
immediate reaction was to take their capital out of the Mexican
economy, reducing investment by 20% between 1971 and 1974.39
The urban working class, especially, had been strengthened by the
long economic boom. But so too had all sections of capital. By the
1970s, the social weight of the agricultural bourgeoisie had declined
compared to that of the urban industrial capitalists. But, especially in
the north, they were much stronger and better organised than were
their predecessors – the latifundistas of 1936–38 – during the Cárdenas
redistributions.40 A strike by commercial farmers (the ‘tractor strike’)
in Hermosillo, Sonora in 1975 made it clear that a powerful agricul-
tural bourgeoisie had emerged in Mexico – especially in the North
West – and it was determined that the state would not be permitted to
interfere with its property.41 Moreover, these rural capitalists were
now closely linked to the industrialists of the Monterrey Group – the
section of the bourgeoisie most hostile to the PRI.
The Monterrey bourgeoisie began to see itself as the leading force
opposed to echeverrismo. It set up the Consejo Coordinadora Empresarial –
Entrepreneurial Coordinating Council (CCE) – to oppose Echeverría. It
was the first time since the 1930s that any significant section of the
bourgeoisie had felt confident enough to openly challenge the regime.
When the large commercial farmers resisted echeverrismo with tractor
strikes in 1975 and 1976 they were supported with a mass campaign
by the CCE. It was clear that should the government make further
incursions into the rights of private property by expropriating land or
by sanctioning land invasions or strikes it would now be met with
determined economic and political resistance from the bourgeoisie.
Bourgeois hostility to echeverrismo grew to enormous proportions.
When Eugenio Garza Sada, the elder of the ‘Monterrey Group’,
was killed in an attempted kidnapping by a leftist terrorist group,
Monterrey Group leaders publicly blamed the President and his
left-wing rhetoric.
Antagonising the bourgeoisie had immediate economic conse-
quences – an investment strike and a worsening outlook for the
economy. Now international capital began to play a greater part as

well. In 1976, Mexico’s growing foreign debt caused international
bankers to stop the flow of funds. The IMF offered a US$1 billion loan
in return for a three year austerity program. In October of that year,
the government agreed. No one talked of a ‘miracle’ anymore;
Mexico’s descent into economic crisis had begun.
Echeverría’s attempt to rebuild the Bonapartist machine that had
ruled for decades failed because the revived mass forces the state faced
– especially the urban working class – were now too strong to be
bought off with a mere centavo. Whereas, for different reasons, all
social classes in the past had been weak compared to the state, the
balance had been reversed by the time Echeverría took the oath of
office. Like Cárdenas, Echeverría attempted mass mobilisation of the
militant workers and peasants. But unlike him, Echeverría could not
control the mobilisation. He ended up with the worst of both worlds.
Worse, the PRI had failed politically but in the process it abandoned
the ruthless yet coherent policy of capital accumulation employed by
administrations since Cárdenas. Thus it helped to plunge the country
into economic crisis. Echeverría’s was the first of two Presidencies of
transition between the ascending and descending phases of the devel-
opmentalist state – years in which the state’s leaders attempted to
respond to the increasingly pressing and contradictory demands of the
society around them, but failed miserably to do so.
López Portillo and the ‘Alliance for Production’

Whereas Echeverría’s sexenio – and especially his first three years –
represented a major attempt to regain mass support, that of his
successor, José López Portillo, began with an effort to placate the
bourgeoisie. The IMF stabilisation plan and the hostility of business
to the government budget deficits of the Echeverría years caused
López Portillo to implement a more conservative fiscal policy. Real
government expenditures were cut by 12.3%.42 After just one year in
office, his spending cuts had brought down the public sector deficit
as a proportion of GDP by more than 3%, reduced inflation from
27% to 20% and cut the current account deficit in half. 43 The
government clamped down on wage increases, but allowed prices to
rise – nearly 150 basic items were freed from price controls.44
Almost immediately on taking office, López Portillo formed a pact
with business labelled the ‘Alliance for Production’. Under the terms of
the Alliance, the private sector promised to create 800,000 jobs and, in
return, it would receive various state financial rewards. In a further
move to win the confidence of capital, López Portillo immediately

announced a halt to the agrarian reform program. He did not return
land already expropriated by Echeverría, but compensation was negoti-
ated. Capitalist landed property was safe and the big ranchers and
other agrarian capitalists were relieved.
With government spending cut, an end to the confiscation of private
capitalist land and more public funds directed their way, private busi-
ness approved of the new government. According to Pedro Sánchez
Mejorada, a leading Mexican businessman, López Portillo made
‘a magnificent impression’ on business for the first year or two of his
Presidency.45 The compliments were returned. When the Monterrey
Group pledged its cooperation with the President, he publicly praised
these old enemies of his party as ‘profoundly nationalist’.46
In the early years of the sexenio, the workers’ struggle was muted by
the shock of the IMF plan of 1976. High rates of inflation eroded real
wages, which fell by 36% between 1978 and 1980, fuelling further
anger.47 Soon the number of strikes began to rise. Once again, many of
these were strikes against management and also against the oficialista
union leaderships so vital for the hegemony of the PRI. Early in 1978,
a new confederation of 70 unions was formed, independent of the
CTM.48 In 1980, over 4,000, increasingly bitter, labour disputes were
reported.49 The movement that had appeared in 1968 and developed
through the Echeverría sexenio had only paused for breath for a year or
two in the middle of the 1970s.
The López Portillo government was, like that of Echeverría, caught
between the Scylla of business hostility and the Charybdis of rising
working class discontent. Under pressure, López Portillo began to shift
back to economic populism. His first budget in 1977 cut the deficit
from 64.07 to 61.13 billion pesos. The next two increased it and, by
1980, the swing back to large-scale spending was complete – with a
deficit of 133.68 billion pesos – more than double that of three years
before.50 López Portillo no longer made a ‘magnificent impression’ on
the bourgeoisie.
Increased state spending was designed to recreate rapid growth – the
only circumstances under which both the bourgeoisie would continue
to invest and working class living standards could be allowed to rise
significantly. This combination was a different one from that which
had succeeded during the long boom – when workers’ wages and other
benefits were allowed to rise only very slowly. Some magic element
had to be added to make the new formula work. By 1977, López
Portillo and his administration believed that they had found it in
Mexico’s huge oil resources.
López Portillo and the politics of Mexican oil

López Portillo saw in oil the source of government revenues enormous
enough to solve his government’s difficulties. His appointee as
Secretary-General of PEMEX, Jorge Díaz Serrano, was brought before
the Chamber of Deputies in 1977 to make a speech which argued that
in oil lay the solution to all the country’s problems.51 The pressing
political problems facing the government pushed it to attempt to
develop the industry at breakneck pace. In the same year as Díaz
Serrano’s speech to the Chamber, a plan for oil production was
adopted with targets rivalling in optimism those of Stalin in the 1930s
and 1940s. It called for the doubling of crude production and the
tripling in output of basic petrochemicals in just six years.52
For a time it looked as if oil might indeed be the magic ingredient for
which the PRI was searching. As a result of extensive exploration,
Mexico’s proven reserves of oil were quickly doubled – to 40 billion
barrels in 1978–79. In 1980, they were increased further to 50 billion
barrels.53 Revenues from oil production rose from US$340 million in
1976 to US$12 billion in 1980.54 The share of oil in Mexico’s exports
rose from 43.9% in 1979 to 75% in 1981.55 PEMEX taxes increased
from 5% to 24.9% of the Federal government’s tax revenue in the first
five years of the López Portillo sexenio.56
Based on these early successes and the increased state revenue they
brought, López Portillo announced in 1979 an equally ambitious
‘Global Development Plan’, designed to run until 1982. The Plan called
for 8% annual growth in GNP and for the public sector to play the
main role based on its new oil revenues. For a time it appeared that the
new Plan was not overly ambitious at all. In 1980 and 1981, GNP
growth averaged 8.2% – the highest rate ever. The state was indeed the
driving force; government spending increased 26.8% in that period
and spending by the parastatal sector rose 22%.57 State spending
created new jobs – over four million between 1977 and 1981 – more
than double the growth in the labour force. Oil revenues allowed
Mexico to pay the last installment on its debt to the IMF by 1979 –
ahead of time. It seemed as if the Mexican ‘miracle’ might be restarted.
Oil production did not come without cost. Had the expansion of
the industry been funded largely out of export income, the program
might have been sustainable in the longer-term. But political consid-
erations ruled out such a cautious approach. The crash program actu-
ally planned could only happen on the basis of massive foreign
borrowing. Foreign capital was readily available since holders of
Eurodollars were desperately looking for outlets and by effectively
using its oil reserves as collateral, Mexico was easily able to get loans.
The future Minister of Finance, Jesús Silva Herzog, said in 1980 that:
‘The money seeks us out and at times it has been difficult to choose
the best offer’.58 Although oil revenues were flowing, the inflow of
loans was even greater. Mexico quickly began to build a major current
account deficit – in 1978 it hit 68.9% of GDP, by 1979, an unsustain-
able 80.9%.59 The massive amounts of capital equipment PEMEX pur-
chased were largely imported – making the current account deficit
even worse. In 1981 alone, PEMEX bought US$2 billion worth of
equipment from the US.60
Foreign debt grew to a staggering US$80 billion by late 1982 and
public debt made up US$58 billion of that.61 It was, at that time, the
largest per capita debt in the developing world. Debt levels rose in
many developing countries in this period – especially in Latin America.
But even by those standards, Mexico’s debt was uncommonly high. By
the end of the López Portillo administration in 1982, foreign debt
amounted to 87% of Mexican GDP, compared to 75% in Chile, 60% in
Argentina and 26% in Brazil.62 PEMEX’s share in the public foreign
debt rose from 11.3% in 1976 to 29.2% in 1981. Furthermore, the
collateral which PEMEX could provide in the form of future oil produc-
tion was used by other parts of the state to access loans. Almost every
Ministry in the government took the opportunity to gain extra funds.
A high debt strategy such as this was extremely risky. It depended on
two major factors remaining advantageous for Mexico: high oil prices
and low interest rates. Until 1980, the oil price seemed likely to go
even higher, rising from US$12.57 per barrel in 1976 to US$30.93 per
barrel in 1980.63 But in May–June 1981, it fell sharply and state income
plummeted by six billion below the expected level in 1981.64 In
the first six months of 1982, the lower oil price reduced Mexico’s
income by US$10 billion.65
The second reason why the oil plan was a massive gamble was its
reliance on stable world interest rates. By the late 1970s, although the
US economy had begun to recover from the recession of the earlier part
of that decade, inflation was a persistent problem. To control it, Paul
Volcker, Chairman of the US Federal Reserve, increased interest rates;
the prime rate charged by US banks went from 12.7% in 1979 to 18.9%
in 1981.66 Debt servicing now became impossible for the Mexican state
and parastate institutions. The timing was disastrous. The huge invest-
ment required to increase oil production as rapidly as planned by Díaz
Serrano meant that oil exports did not even begin to contribute net
income to the country until 1981. At that precise moment, the price
softened. López Portillo simultaneously lost both of his wagers – on
high oil prices and on low interest rates. By the middle of 1982,
Mexico was being refused all new loans. In August of that year, Finance
Minister Herzog flew to the US to tell the banks that Mexico could not
pay the US$10 billion due on its public sector debt. The savage crisis
into which the country was now plunged made previous economic
difficulties seem minor by comparison.
Domestic political pressures on the regime alone did not determine
that Mexico would have its crisis in 1982. Had oil prices remained
higher or interest rates stayed lower for longer, the disaster might have
been less severe and would have been postponed. But that would also
have been the case had the López Portillo government chosen a more
prudent rate of oil industry expansion and a less risky program of
foreign borrowing. From 1970 to 1982, two administrations opted for a
rate of economic growth about 30% above the historic average. The
reason is clear – it seemed to them that faster growth was the only way
that a governing party under siege on all sides could hold power. And
to them, the governing party virtually was the state. Without it,
uncontrolled social struggles would lead to chaos. So Echeverría and
López Portillo each took the risks associated with massively increased
state spending. Echeverría drove the economy toward IMF-imposed
austerity, López Portillo catapulted it into bankruptcy.
The danger that the whole ‘revolutionary family’ sensed was an out-
break of mass struggles which, in the past, they had always been
confident they could control. Fidel Velázquez, as head of the CTM, was
in a better position than most to feel the pressure. Even in 1982, as the
debt crisis deepened, he argued that major cutbacks in government
spending would be disastrous because the CTM leadership would be
unable to maintain control of the workers: ‘If we change tactics or
abandon the workers to their luck, employers won’t have time to
realize what will happen: imagine a mob let loose on the streets, out of
control’.67 After oil prices softened in 1981, although it was clear to
everyone that they would not soon recover, López Portillo continued a
relatively high-level of government spending in the full knowledge
that it would exacerbate debt and deficit problems.
Furthermore, since the PRI was committed to the maintenance of a
capitalist system, it also felt the pressure of the private bourgeoisie;
which after the first couple of years made its own judgement about
López Portillo. Capital flight continued – especially after 1979. One
estimate suggests that, throughout the Echeverría and López Portillo
sexenios, US$53.4 billion fled the country – representing 60% of the
total increase in the external debt, public and private, in that period.68
López Portillo and the banks

The action that demonstrates, perhaps better than anything, the erratic
nature of policy in this period of transition was the decision by López
Portillo in the last few months of his term in office, to nationalise the
entire banking system of Mexico. In his State of the Union Address on
1 September 1982, just three months before formally relinquishing
office he declared that:
In the last two or three years … a group of Mexicans … supported

and advised by the private banks, has stolen more money from our
country than the empires that have exploited us since the begin-
ning of history… They’ve robbed us… but they will not rob us
again… The revolution will speed up; the state will no longer be
intimidated by pressure groups.69
The new austerity program imposed by the IMF as a result of the 1982
default had seriously wounded López Portillo. His plan to achieve rapid
growth and some redistribution was in tatters. The bank nationalisa-
tion was his attempt at a master stroke which would re-establish his
populist credentials. It was a desperate move. In the ascending phase of
Mexico’s development, state direction and patronage favoured the
largest firms. Thus, by 1982, Mexico had a highly concentrated indus-
trial structure. The banks were a central part of this system and had
major interests in most industries.70 Nationalising them put virtually
all financial capital and, indeed, 75–85% of all capital, under the
control of the state.71 Almost as stunning as the decision to nationalise
was the new manager of the state banking system who López Portillo
installed. He was the left-wing intellectual – Carlos Tello Macías – who
had co-authored a book with Rolando Cordera – a leader of the Partido
Socialista Unificado de Mexico (PSUM) – the name the Communist Party
had adopted at that time.72
López Portillo argued that bank nationalisation was necessary to end
capital flight. But above all other considerations, it was a desperate
attempt by the government to regain political ground with its base.
Interviewed anonymously, a senior state official said that before all else:
‘The President was thinking of the interests of the political system… He
convinced us that it [bank nationalisation] was necessary for political
reasons’.73 The emergency atmosphere which surrounded the decision
can be gauged by the manner of its making. López Portillo announced it
to the Cabinet a mere 12 hours before the State of the Nation address
and then asked for the resignation of anyone who objected.74
Bank nationalisation did succeed in rallying support for the Pre-

sident for a time. Within days of the action, the PRI organised a
massive rally of 300,000 in the zócalo (central plaza) of Mexico City
where the president thanked the crowd for supporting this ‘profoundly
revolutionary measure’.75 That this was, in fact, a desperate short-term
political manoeuvre rather than a ‘revolutionary measure’ can be seen
from the series of government decisions which followed it. The first
question was who would be appointed to the boards of the newly
nationalised banks. Tello, a well-known left-populist, gave the new
Bank of Mexico management a radical appearance. But then the con-
servatives inside the state machine, especially those linked with
Finance Minister Herzog got their way. In many cases the new manage-
ments looked like the old – indeed, often the former directors of the
private banks were simply re-appointed to the new state ones.76
The second indication that the government would not seriously
impinge on the rights of capital generally was the decision by López
Portillo not to impose exchange controls. As Tello himself argued, the
nationalisation could not possibly work properly and guarantee a
greater degree of government control of the economic system unless
restrictions were imposed on the movement of capital. Large-scale
investors would simply move their funds to banks across the border.
But Tello did not get his way.
In any case, the incoming President, Miguel de la Madrid, was
known to have opposed the nationalisation and had sought support
from private capitalists before his election on that basis. Under his
Presidency, non-bank financial institutions, which had largely been
owned by the private banks before nationalisation were transferred
back to the private sector – leading inevitably to the development of a
parallel banking sector which siphoned funds from and undermined
the nationalised banks. As a result, total financing provided by these
non-bank institutions increased more than seven times as a proportion
of GDP between 1980 and 1988.77 Indeed, deregulation of financial
markets began within months of bank nationalisation. In his inaugural
address on 1 December, 1982, Miguel de la Madrid attacked the
‘financial populism’ of the final stages of his predecessor’s presidency
and pledged himself to ‘realism’ in economic policy.78
The point here is that bank nationalisation did not represent a
serious return by the Mexican state to the dirigiste developmentalism
of previous decades. Paradoxically, it signalled the last, pathetic gasp
of a state which no longer had the capacity to be developmentalist.
The death agonies of that type of state produced wild swings as it
tried to recreate its old base in circumstances where such a thing

could not be done. Bank nationalisation has to be seen as one of
these swings. Despite these oscillations in policy, the overall direc-
tion of the state was toward deregulation and acceptance of its impo-
tence. The Presidency of Miguel de la Madrid reinforced this trend,
even though he left the bank nationalisation partly intact. Finally in
March 1989, a major financial liberalisation took place which
removed all state controls on credit and the preferential credit
schemes which had once been crucial tools for the state’s develop-
ment efforts during the boom. In early 1990, President Carlos Salinas
de Gotari proposed a constitutional amendment to privatise the
banks once again. It passed Congress easily.
The two Presidencies between 1970 and 1982 give the appearance of
impetuosity in policy. Echeverría began with a left-sounding program,
drifted back to the right and ended with the leftist flourish of land
confiscation. López Portillo began on the right, drifted to the left and
again ended with a left flourish – bank nationalisation. Major upheavals
in established government attitudes – such as the confiscation of capi-
talist land, temporary support for independent unions, the breakneck
pace of the oil industry plan and bank nationalisation – all suggest two
administrations making policy under pressure and on the run. It is a
picture consistent with a period of rapidly declining state autonomy
and frantic attempts to satisfy first one class, then another. But after
1982, Mexican administrations gave up the attempt and became more
‘normal’ governments which do not balance between the classes or
attempt controlled mobilisations of the workers and peasants in order
to get their way with the bourgeoisie. Instead, they responded largely to
the bourgeoisie – domestic and foreign.
The changing state bureaucracy
These pressures on the state were reflected inside the state machine itself.
In its ascending phase – from 1940 to 1970 – the old PRI oligarchy
running the Mexican state was dominated by the leaders of mass bureau-
cratic organisations – oficialista trade union leaders, agrarista leaders of
the CNC and local party caciques (bosses) who would bring out the vote,
dispense and receive patronage. Their positions of privilege were derived
from their political role in the party and the state. Dubbed the políticos,
they were the local ward bosses of the country – managing the discon-
tents of the people and providing the controlled mobilisation that the
system needed by assuring attendance at rallies and meetings.79
But industrialisation created the need for a more technically

sophisticated state bureaucracy. By the late 1960s and early 1970s, a
new breed of PRI bureaucrat was becoming prominent. These, the
técnicos, were almost always university-trained – commonly in
the disciplines of economics or science. Indeed they were often
recruited at university – especially UNAM – by professors active in
the PRI and sometimes working in the state bureaucracy as well as in
academe. 80 Because it was a bureaucracy where rapid economic
growth, and therefore bureaucratic competence, were keenly sought,
high-levels of education were increasingly valued from the time of
Cárdenas. Amongst agency heads who began their careers in his
sexenio, fully 65% had tertiary qualifications. By the López Mateos
sexenio (1958–64) the proportion with tertiary degrees had risen to
85%. In the de la Madrid administration, 100% had such qualifi-
cations.81 The de la Madrid cabinet also reflected the growing impor-
tance of this highly educated PRI elite. Of 11 cabinet ministers, nine
had degrees from UNAM, six had taught at UNAM and one had been
its rector. Eight had postgraduate degrees from outside Mexico; four
of these were technocratic degrees in economics and business
administration.82
The políticos were by no means all poorly educated either. Many had
also been recruited at UNAM. But the preferred training for técnicos
since the 1950s was in economics, accounting, engineering and archi-
tecture. Educated políticos tended to have a law or social science degree
and often then spent some time within the PRI apparatus, in electoral
politics or in the mass organisations of the party.83 Técnicos still needed
to be politically active in the PRI and loyal to it in order to succeed. But
they were much less connected to the PRI’s mass organisations.84 Even
amongst elected politicians, the route taken by políticos to high office
has been in long-term decline. The políticos had emerged in stages
along with the Bonapartist state up to 1940. They represented its
origins. The técnicos represented what the state was becoming. Because
they had fewer connections to the mass constituent organisations of
the PRI – except the CNOP, which eventually effectively became their
own grouping – the técnicos felt the pressure of the working class and
peasantry less and were not as likely to support concessions to them.
Instead, their technical roles more commonly put them in touch with
sections of the bourgeoisie. In summary, the técnicos were highly
focussed on the need of business to make profits while políticos were
more mindful of the need to maintain a political structure that made
such profits possible.
In the period of transition between 1970 and 1982, the conflict

between políticos and técnicos intensified. Less sensitive to the need to
maintain the mass organisations, the técnicos were more likely to be
fiscal conservatives. The pressures on the state now resonated within it.
As the political difficulties of the transitional presidencies increased,
every demand made by a force external to the state found an echo in
the halls of bureaucratic and political power. In this internal struggle,
it was the técnicos who, over time, would gain the upper hand. Their
growing power hindered Echeverría’s expanded spending program and
forced him to compromise. The pressure of private capitalists opposed
to his left turn was then reflected in the more conservative, less pop-
ulist economic policy under Lopéz Portillo, argued for strongly by neo-
liberal técnicos such as Julio Rodolfo Moctezuma Cid. At this time,
there was still opposition from políticos like Carlos Tello Macías, then at
the Ministry of Programming and Budget, who were bitterly opposed
to budget cuts.85 The use of oil revenues also generated serious internal
conflicts. The Ministry of Patrimony and Industrial Development was
for increased state investment, rural development and social expendi-
ture. The Treasury and the Bank of Mexico – strongholds of the técnicos
– were for deregulation and reduced state spending and intervention.86
A similar internal battle was waged over bank nationalisation.87 Here
the major struggle was between Tello and Herzog. Increasingly bitter
divisions in the state during the transitional period, where once a high
degree of discipline had prevailed, were in part a consequence, in part
a cause, of inconsistent government policy. But the broadest cause was
the gathering of forces external to the state, which were now breaking
apart its unity. The de la Madrid administration enshrined the final
victory of the técnicos. Although they have been effectively in control
of state policy since 1982, it was a state which no longer had any
policy other than that dictated by domestic capital and the foreign
banks.
Autonomy lost: the state after the 1982 crisis
Between 1982 and 2000, under de la Madrid and the following two PRI
presidents – Salinas and Ernesto Zedillo Ponce de León – the state was
no longer searching for a way back to the relative autonomy it had lost;
it had basically surrendered to private capital. With extraordinary rapid-
ity it dismantled all the mechanisms of state control – its leverage over
investment, finance, credit and trade – which it had once used to direct
the ‘miracle’. Domestic capitalists were well pleased with the de la
Madrid administration. It took an even tougher approach to peasant

demands than López Portillo and dropped the ‘land to the tiller’
rhetoric of the past.88 A new agrarian law reform made major conces-
sions to large-scale rural interests, although it caused a walkout from the
Chamber of Deputies of 44 PRI delegates associated with the CNC.89
But the bourgeoisie had been shocked by the bank nationalisations.
That and their gradual development of a sense of their own impor-
tance in the national economy, led some sections of them to organise
politically against the PRI. Many moved to support the Partido Acción
Nacional – the National Action Party (PAN). The PAN was created in
1939 by Manuel Gómez Morín, a university professor, as a conservative
party designed to appeal to the middle class professional.90 But the
elimination of the military section of the PRI by Avila Camacho in
the 1940s and its developmentalist orientation meant that it, rather
than the PAN, tended to recruit the educated, modernising elite of
post-war Mexico.91 As a result the PAN made little progress, only man-
aging to increase its share of the congressional vote from 8.7% to
14.2% between 1952 and 1970.
The PAN’s chance came with the leftist rhetoric, land invasions and
budget deficits of the early Echeverría years. Its congressional electoral
support rose to 16.3% in 1973. But the subsequent retreat from echever-
rismo and the early reassurances to business by López Portillo saw the
PAN once again lose support in 1976. Business tended to stay clear of
direct involvement with politics, knowing that the PRI was likely to
continue to win elections and that it was more than capable of taking
revenge against its opponents. Then the bank nationalisations of 1982
built the PAN substantially. Business people began to support it on a
large-scale. The degree to which capitalists were prepared openly to
back the PAN depended, in large measure, on the extent of their ties
with and reliance on the government and, to a certain extent, on their
regional location.
The Confederación de Cámeras de Industria (CONCAMIN) and Cámara
Nacional de la Industria de Transformación (CANACINTRA) wanted a halt
to nationalisation, but their approach was to quietly lobby the PRI. The
harder line Consejo Coordinadora Empresial (CCE), the Confederación
Patronal de la República Mexicana (COPARMEX) and some sections of
the Confederación de Cámeras Nacionales de Comercio (CONCANACO) –
all based in the north – wanted a party more clearly aligned with busi-
ness to be a real alternative in electoral politics.92 For the first time the
PAN looked like a serious force, especially in the north – the richest
part of the country.
Under de la Madrid and Salinas, the PRI won back some business
support. Also, business felt somewhat constrained from attacking the
governing party by the fear that the working class and land-hungry
peasantry might be unleashed against them once again. There was still
a sense that the PRI might be best able to control the masses and main-
tain order. But many of those who had joined the PAN after the bank
nationalisations remained – believing that the PRI could not be trusted
and might ‘go crazy’ again.93 Although the PAN presented itself as a
broad coalition of forces wanting greater democracy and pluralism,
business had now become its key pillar.
Presidents de la Madrid (1982–88), Salinas (1988–94) and Zedillo
(1994–2000) moved the PRI closer than ever to business interests.
Three ‘pacts’ in 1983, 1987 and 1988 introduced income policies
which reduced wages and firmly put a neo-liberal economic agenda in
place.94 Since inflation averaged 88% per year between 1982 and 1988,
there were desperate workers’ struggle for wage rises to keep pace. In
1983 the largest wave of strikes for wage rises in Mexican history,
involving both the official and the independent unions, took place.95
The full force of the state was now used against the working class. In
a major increase in the level of repression, during the de la Madrid
sexenio, police or troops were used against strikers at DINA (1983),
URAMEX (1983), TELMEX (1984), SICARSTA (1985), Renault (1986),
Luz y Fuerza (1987), Ford (1987) and Aeroméxico (1988).96 The govern-
ment also employed strategic insolvency to break labour contracts or
they allowed it to be used by private companies. With this method, the
company would declare itself bankrupt and close down, sacking the
workforce. A few weeks later it would reopen and demand a new and
harsher labour contract; the strategy was used at Aeroméxico (1980 and
1988), Mexicana (1982 and 1987), TELMEX (1984 and 1987), CLFC
(1987) and Ford at Cuautitlán.97 Almost no strikes were given legal
authority; between 1983 and 1988 the government approved only
1.8% of strike petitions filed in Federal jurisdiction.98
Under de la Madrid, central government expenditures were cut from
27.1% of GDP in 1982 to 17.1% in 1988.99 Education and health
funding were badly hit, falling by a cumulative 29.6% and 23.3%
respectively during his sexenio.100 The austerity program introduced
was even tougher than that of other Latin American countries also
working to IMF requirements. The de la Madrid administration auc-
tioned off 34% of the newly nationalised banks to the private sector,
and made sure that private bankers kept most of the management of
those that remained state-owned.101 Privatisation of virtually the whole
huge state sector was undertaken with extraordinary haste. Between

the beginning of the de la Madrid sexenio and 1991, the number of
state-owned enterprises fell from 1,155 to 269.102 The process cost an
estimated 200,000 jobs.103 Mexicanisation was forgotten; foreign inter-
ests were allowed to buy 100% of former state-owned companies. The
1980s were a boom time for foreign investors in Mexico. Foreign
investment increased from $10 billion in 1980 to over $50 billion in
1992.104
As a result of sackings, austerity and government repression,
Mexican workers’ buying power dropped during the 1980s by more
than 60%. Their position relative to workers in the US became very
much worse; the ratio of US to Mexican wages went from 4.4 to 1 in
1975, to 10.4 to 1 in 1985.105 The real value of wages had dropped in
every year of the de la Madrid sexenio and the minimum wage in 1988
bought about half of what it did even the year before.106
Under Salinas, one of the great achievements of the revolution for
the peasants was finally dismantled; Article 27 of the 1917 Con-
stitution was amended to permit the sale and purchase of ejidal
land.107 The effect of all of these government policies made life
extremely difficult for most Mexicans and devastating for the really
poor. Even commentators from the World Bank, sympathetic to trade
liberalisation and government deregulation, were forced to admit that
malnutrition had become a much more serious problem in the 1980s –
especially amongst the rural poor.108 But it was a bonanza for domestic
capital as well as foreign investors. The combination of lower wages
and windfall profits for business as a result of privatisation meant that
the business share of GNP rose from 48% to 65% during the 1980s.109
This pro-business offensive led by the PRI took the wind out of the
PAN’s sails. It was almost impossible to help business more than the
PRI was already doing in the 1980s. Although the PAN continued to
propagandise about the lack of democracy, their balance sheets mat-
tered much more to private capital. And their balance sheets were
much healthier. Business became less enthusiastic about supporting
the PAN and, having reached 17.5% of the vote in the congressional
elections of 1982, its share of the vote then stagnated for the rest of the
decade, despite the extremely harsh conditions most Mexicans were
facing.
A second reason why the PAN could make little progress in the 1980s
has to do with the emergence of the electoral front led by Cuauhtémoc
Cárdenas and the eventual formation of the Partido de la Revolución
Democrática (PRD).110 As mentioned above, in a rigged election for
President, Cárdenas got an official 31.29% of the vote – and, in fact,

probably actually won. His neo-cardenismo had great appeal to former
supporters of the PRI disappointed with its new neo-liberal agenda. For
a time they were more likely to support the PRD than switch to the
PAN. The success of Cárdenas, and the poor performance of the PAN in
that election convinced many in big business that support for the PRI
was still their best option at that time. The 1988 elections also sig-
nalled a major increase in the direct influence which business had
within the PRI. Indeed, some said that the party had added a fourth
sector – business. High profile businessmen, perhaps aware of the tide
of support for the PRD, came out to back the PRI. Some ran as candi-
dates – 35 PRI deputies associated with major business groups took
their seats in the 1988–91 legislature.111 The PRI was becoming less
identified with the mass organisations and more with business.
The Salinas administration continued all of the pro-business trends
associated with de la Madrid. In 1989, his government announced that
the state-owned Cananea copper mine was bankrupt, then reopened it
under a tougher labour contract. It declared as illegal, strikes at a beer
plant in Modelo in 1989 and at Ford in 1989 and 1990, then allowed
sackings and the mass use of strike-breakers at each. At Tubos de Acero
de México (TAMSA) in 1990, police were sent to remove strikers from
the plant. During a strike in 1992 at Volkswagen, all 15,000 unionists
were sacked with the agreement of the government.112
The distinctive innovation of Salinas on behalf of capital was the
entry of Mexico into the North American Free Trade Agreement
(NAFTA). The técnicos, in total control of the PRI after 1982, signalled
their intention to open the Mexican economy to the world by accept-
ing the IMF stabilisation plan in 1982 and then by joining GATT in
1986. But Salinas surprised many when he announced in 1990 his
intention of negotiating a free trade treaty with the US.113 It was, after
all, a complete break with the revolutionary nationalist rhetoric on
which the PRI had always traded. NAFTA further transformed the way
in which the Mexican state, in its ascending phase, invited, but also
attempted to manage, foreign capital inflow. In that developmentalist
phase it had kept foreign business out of some strategic areas such as
power generation, oil and most mining and demanded Mexican partic-
ipation in investment. The NAFTA agreement, signed eventually in
1993, gives much freer access to Mexico for US exporters and investors.
Foreign capital in the 1980s and 1990s began to take advantage of the
PRI’s retreat from its economic nationalism – increasingly turning their
production in Mexico into export-oriented enclaves taking advantage
of low wages. The agreement, therefore, was seen by many Mexicans as

a betrayal of their national interest – the imposition of a new form of
dependency. It was also opposed as a symbol of the neo-liberal eco-
nomic changes which had brought great hardship to most. On New
Year’s Day 1994, the day in which the agreement came into operation,
the Zapatista Army of National Liberation – Ejército Zapatista de
Liberación Nacional (EZLN) – seized half a dozen municipalities in the
southern state of Chiapas in protest at the lack of land available for
the indigenous people of the region and, significantly, at the NAFTA
treaty. Largely as a result of its opposition to NAFTA and the economic
direction of the PRI, the EZLN attracted great sympathy from urban
workers who had never lived in the countryside.
The transformation of the PRI and the state that it ran can be gauged
from the process by which NAFTA was established. In the negotiations
before 1994, Mexican business leaders played a major part – in some
cases actually leading the formal discussions for the Mexican side.114
The Mexican bourgeoisie had entered the state directly and had done
so through the PRI. They publicly lauded its approach. The multibil-
lionaire media owner, Emilio Azcarraga, said that he had done so well
as a result of the Salinas administration that he was willing to give
US$75 million to the PRI.115
As well as its direct access to the halls of power through the PRI, by
the 1990s, Mexico’s bourgeoisie was also much better organised and
less divided over their approach to the state than in the past. The CCE
came to include representatives from Mexico’s seven major business
associations. One, the Mexican Businessmen’s Council, Consejo
Mexicano de Hombres de Negocios (CMHN) was limited to the 40 top bil-
lionaires in the country, who, by the mid-1990s, controlled, between
them, around 27% of the nation’s economy.116 The CMHN was
increasingly closely linked with Presidents Salinas and Zedillo. So by
the time of the signing of the NAFTA treaty, the PRI had transformed
itself purely into a party of big business. In doing so it disillusioned its
middle and lower level cadres and lost many of its supporters.117 In
some cases there seemed little point in staying in the PRI when it
offered basically the same economic and social program as the PAN but
was much more tainted by charges that it was undemocratic and
corrupt.118 Ironically, having eroded its mass base, the PRI was of less
value to the bourgeoisie. By the late 1990s, business was once again
turning to the PAN – the party whose history was more to its liking,
which did not carry the baggage of long-term corruption and ballot-
rigging and, most importantly, had not suffered the opprobrium of
introducing changes in the previous 20 years which made most

Mexicans poorer.119 In the year 2000, the PAN candidate, Vicente Fox,
a former Coca Cola executive, was elected President of Mexico. The
71-year rule of the PRI was over.
The decline of pre-emptive mobilisation
In its ascending phase, the PRI-dominated state used bureaucratic mass

organisations of workers and peasants in two ways. The first was to
show urban and rural capital why it, the PRI, was needed. The masses
could be unleashed or restrained; only the PRI could decide which. The
second was to undermine any independent resistance from the workers
and peasants themselves. The crucial ability it possessed in each case
was control of the masses. It began to lose that control in the late
1960s. The core of the crisis for the Mexican state was the rebellious-
ness of the urban working class, although student demonstrations in
1968 had helped to spark broader struggles and the constant demands
of the campesinos and the urban poor were also serious difficulties.
In Mexico, the great challenge to the developmentalist state came
from below because the stability of the state, from the time of the revo-
lution, was based on bureaucratic organisations of the masses. The
quarter from which instability appeared for the Mexican state was the
same quarter in which its earlier stability had been based. Independent
unions, strikes and peasant uprisings disrupted the bureaucratic mass
organisations and therefore undermined the state’s autonomy.
Business, on the other hand, was not nearly as much of a problem.
During Mexico’s boom and the state’s ascending developmentalist
phase, business largely stayed out of politics. It only appeared as an
important oppositional force after the bank nationalisations of 1982.
Even then it partly withdrew from the attempt to create a party more
organically linked to it when the PRI began wholeheartedly to support
a pro-business agenda under Miguel de la Madrid. Only after the PRI
had lost these pillars of stability – the ability of its mass organisations
to control the class struggle – did the majority of the bourgeoisie
decide that it would back a new party to control the state.
Between 1970 and 1982, a sense of crisis and impending political
instability haunted those who administered the Mexican state. Their
responses to it gave the appearance of incompetence. But these politi-
cians and officials in the Echeverría and López Portillo governments
were often the same ones who, earlier, had successfully administered
the boom. The appearance of incompetence comes from their frenzied
attempts to do the impossible – satisfy the increased, yet contradictory

demands of the major social classes of Mexican society, who each
used the greater social strength they had developed by the 1970s to
attempt to advance their interests. Associated with these pressures,
and exacerbating the bitterness with which they were fought out, was
the transformation of the personnel of the state machine. Those most
connected with the mass organisations were gradually replaced by
those more responsive to the needs of big private business.
After 1982, the complete victory of the latter corresponded to the
shift of the PRI and the state into unconditional support for the imme-
diate requirements of capital. The PRI of the 1980s had already lost its
capacity to control mobilisation. But its huge size and entrenched posi-
tion gave it a certain political inertia. Its usefulness to the bourgeoisie
in carrying out a massive transfer of wealth in their favour also helped
to keep it in power for a time. But it was no longer a developmentalist
state operating with a significant degree of autonomy. In this, its
descending phase, the state simply relied on support from capital and,
in turn, used repression against workers and peasants. It would only be
a matter of time before the political party which had built the modern
Mexican state was removed from control of it.
5
South Korea: Devastation and
Development
Introduction
South Korea, along with other rapidly growing economies in East Asia,
was dubbed a ‘miracle’ by many with an ideological axe to grind –
especially by those who advocated export-oriented policies and the
‘discipline’ of the world market. The ‘miracle’ was given official
approval with the publication of The East Asian Miracle: Economic
Growth and Public Policy, by the World Bank in 1993.1 Even compared
with other NICs, the transition of South Korea was spectacular. Its GDP
per capita in 1960 was about the same as the Congo. Until the early
1960s, per capita income lagged behind many African countries –
including Ghana and Kenya – and behind most in Latin America.2 The
Philippines at this time was considered by many as a nearly unreach-
able role model for Korea.3 Over the following 30 years, South Korean
growth easily outstripped all of Latin America and Africa. By 1992 it
was the third biggest producer of colour TV sets and the second biggest
of videocassette recorders and microwave ovens.4 In 1996 it joined the
Organisation for Economic Cooperation and Development (OECD) –
the first of the Asian ‘tigers’ to be admitted – and became the twelfth
largest economy in the world.
An average annual growth rate of GNP of about 10% between 1965
and 1980 laid the foundations for this spectacular success. In that
period, South Korean GNP multiplied 20 times, per capita GNP
increased 16 times and per capita consumption rose 12 times.5 South
Korean social structure was dramatically transformed as a result. The
proportion of the population living in rural areas dropped from 56% in
1965 to 17% in 1988.6 South Korea became an urbanised, industrialised
nation. Educational levels of the population rose dramatically. Even in
118
South Korea: Devastation and Development 119
1970, only 28.1% of high school-age teenagers attended school;

by 1990, 86.8% did so.7 Massive industrialisation also altered the
country’s place in the world. Hyundai, Daewoo, Samsung, Goldstar
and other South Korean brands became household words. The Fortune
list of the top 500 private, non-oil companies in 1986 included ten
from South Korea and only ten from all other developing countries
combined.8
This dramatic transformation took place despite, rather than
because of, the natural wealth available to Koreans. The country lacks
most mineral resources and must import oil. Of course, rapid industri-
alisation came at a price – paid for, most obviously, by a highly-
exploited working class. And this form of development brought with
it terrible pollution – according to one source Seoul is the world’s
second most polluted city – after Mexico City.9 It sometimes created
shoddy and dangerous infrastructure. The ‘miracle’ gave South Korea a
higher industrial accident rate than any other industrialised or rapidly
industrialising country.10
The transformation of this country had its ugly, jerry-built and even
tragic side. But it was a rare and spectacular transformation nonethe-
less. Only with the Asian financial crisis in mid-1997 was widespread
confidence in South Korea’s future growth dented.
State intervention in the economy
State planning
South Korea presented itself to the world as a proudly capitalist
country. But it was the state which was the truly dynamic capitalist.
State discipline over the market was ubiquitous. Elements of its opera-
tions resembled the old Eastern bloc more closely than the strictures of
Adam Smith. The state allocated resources for investment. It decreed
price controls. It imposed controls on capital movement – especially
for off-shore investment. It shared risks and underwrote research and
development. The state and its economic instrumentalities initiated
every industrial drive or shift in economic emphasis in the 1960s and
1970s. In the early 1960s it embarked on Import Substitution Indust-
rialisation (ISI) to produce goods which had previously been imported:
cement, fertilisers, synthetic fibres, refined oil and its derivatives. In
the mid-1960s, the state made exports the major emphasis. Then in
1973, it was again the state which initiated the shift in emphasis from
light manufacturing to heavy industry – including large-scale car and
steel production. The fourth of its five-year plans (1977–81) led South
Korea into the electronics industry on a major scale – especially the

production of computers and semi-conductors.
The apparatus of planning

One of the first acts of the new Park government after the coup which
brought it to power in 1961 was to establish the Economic Planning
Board (EPB), which became the driving force and bureaucratic coordi-
nator of Korean economic planning. It immediately drew up a Five
Year Plan which proclaimed its own role as ‘constructing the basis for
an autonomous national economy’.11 The EPB was given serious politi-
cal influence – from December 1963, its head automatically held the
rank of Deputy Prime Minister.
Such a highly centralised economic bureaucracy meant that eco-
nomic determinations were always infused with political motivations.
The EPB under Park was given privileged access to the highest levels of
politics. It reported directly to Cabinet and to Park and thus had clear
political support which it could use to advantage within the broader
state bureaucracy. This high-level of centralisation also made for great
speed in decision-making. The 1971 Law on Restraining Real Estate
Investment was said to have emanated from a 24 hour study. The 1973
Law on Price Stability was prepared in just three days.12 The Pre-
sidential Emergency Decree issued on 14 January 1974, in response to
the international oil price crisis, was issued three weeks after a study
was commissioned.13
State control of finance

The key muscle available to the South Korean state in the 1960s, 70s
and 80s to back its planning instruments was its near total control of
banking and other sources of credit. Rhee had denationalised
banking in the 1950s to please the US. 14 Yet, despite its continuing
need for US support, five months after the coup the Park government
nationalised them again. Then, to further strengthen direct political
control of the banking system, in May 1962 Park amended the Bank
of Korea Act to make the bank more compliant in carrying out
government decisions. The Bank was to fall within the field of
responsibilities of the Ministry of Finance with little pretence of inde-
pendence. By 1970, the government controlled 96.4% of the
country’s financial assets.15
State control of finance allowed EPB planners and, on occasion, the
President himself, to distribute resources to areas of industry deemed vital
to industrial development. It enabled the government to favour some
firms – usually the giant chaebol – and to discipline those which failed to
perform satisfactorily within the parameters of the government’s plan.
Most industry was to remain in private hands. The chaebol were to
keep their assets – often under the control of a single family. But their
growth and profits were reliant on government approval. To follow the
plan meant a drip-feed of government finance. To stray from it was to
risk immediate bankruptcy. Bank loans were used both to punish and
to reward private capital in this way and to shape the future of indus-
trial development. So-called ‘policy loans’ – where finance was offered
on the basis of adherence to government plans predominated between
the 1960s and the mid-1980s.
This mix – of private ownership of most industry combined with
state control of finance – was already reflected in the First Five Year
Plan (1961–65). Between 62% and 65% of total planned investments
were to be made by the chaebol. But an average 56% of their funding
was to come from government sources.16 Government finance was not
only cheap, for a time it was essentially free. Some observers claim that
the real interest rates available to the chaebol remained negative until
1980.17 The Korean chaebol were especially reliant on external finance.
Throughout their existence – as was made painfully clear in the
financial crisis of 1997 – the chaebol raised comparatively little of their
funds from retained earnings or by selling equity. In the ten years from
1963 to 1973, they generated only 20% of their funds in this way com-
pared with 65% and 32.6% for US and Japanese firms respectively in
various periods of their post-World War Two expansion.18
Credit provided by the government became increasingly important
to the economy as it expanded. The ratio of credit to GNP increased
from 15.8% in 1963 to 38.7% in 1973.19 Even this figure understates
the centrality of credit to the Korean ‘miracle’ since credit was more
important in the crucial manufacturing sector than it was in the
economy as a whole. The ratio of bank loans to value added in manu-
facturing averaged 55% for the period 1963–73.20 Furthermore,
reflecting their privileged access to loans, the chaebol developed a
much higher debt-equity ratio than smaller firms.
This easy availability of cheap state finance allowed the chaebol to
expand production rapidly without too much concern for immediate
profitability. State-guaranteed lending also had a profound effect on
company ownership structures. Because it cannot easily raise the neces-
sary finance for large-scale expansion, the family-owned firm in
modern industrialised economies usually gives way to publicly-listed
companies with diverse ownership. Since they could borrow freely
from the government, the South Korean chaebol were able to maintain
their largely family-based structures yet expand enormously.
Government-provided finance was allocated strictly to designated
sectors. Businesses in the sectors considered crucial to the govern-
ment’s economic plan and especially those involved in exports were
most favoured. Between 50% and 70% of domestic loans were allo-
cated in this way under the Park regime, whose planners constantly
intervened in the state-run banking system to ensure that these sectors
received disproportionately privileged financing.21 Loans raised over-
seas were also subject to strict state control. In this case, control also
meant government guarantee. The Law Guaranteeing Foreign Loans of
July 1962 meant that domestic banks became the guarantors of exter-
nal finance. But although government-owned commercial banks
provided such guarantees, approval for the loans was still required
from the heart of the planning apparatus – the EPB.
The economic liberalisation of 1965

Some observers have argued that the early dirigiste policies of the Park
regime were fundamentally altered by a partial economic liberalisa-
tion which took place in September 1965. The exchange rate was
devalued, commercial lending rates were raised and certain imports
deregulated. In a sense these reforms did mark a watershed – but not
one which heralded the beginning of a new period of laissez-faire in
allocation of credit. The reform had the effect of increasing domestic
deposit rates and thus creating a large gap between foreign and
domestic interest rates – as much as 20%. When the exchange rate
and domestic inflation were factored in, the real cost of borrowing
abroad was negative.22 It led to a stampede for foreign loans. But these
loans were still subject to government approval and were guaranteed
by it. In fact, this apparent liberalisation turned foreign borrowing
into a new weapon of government policy. Furthermore, the increase
in domestic interest rates attracted money to the state-controlled
banking sector giving it, and therefore the EPB and the government,
greater resources to allocate to priority areas. What appeared to be a
market-oriented move actually had the effect of increasing the sources
of finance for industrial expansion while also enlarging the power of
the South Korean state.
Although some tariff barriers came down, many remained and
proved a formidable obstacle. Liberalisation happened to the extent
that the former positive list system – in which only listed goods were
permitted entry – was changed to a negative list system in July 1967.
But even then, there were restrictions on 42.9% of all import cate-
gories.23 The number of items subject to the ‘Provisional Special
Customs Duties Law’ rose from 587 to 2,702 during 1965.24 In any case
the impact of liberalisation was limited by extremely tight foreign
exchange controls which made it difficult for Koreans to buy foreign
goods whether they attracted tariffs or not. Overall, tariff protection
continued at a high-level. Even in 1990, protection redistributed 13%
of GNP – about 60% of which went to the manufacturing sector.25
Contrary to the neo-liberal account, the 1965 reforms were the prelude
to another round of rapid industrial expansion still firmly under state
control.26 Finally, whatever element of financial liberalisation took
place in 1965 was clearly ended by the Presidential Emergency Decree
for Economic Stability and Growth of 3 August, 1972.
The Presidential Emergency Decree, 1972

The Decree, described by an advisor to Park as an ‘unprecedented
move in a free economy’ was a state response to the increasing
indebtedness of the chaebol, which had borrowed heavily on both
foreign and domestic markets.27 Essentially the Decree cancelled all
debts and credits between businesses and private moneylenders – the
curb market – and replaced them with new contracts.
Here was yet another example of the South Korean state intervening
heavily to save and build big business whatever the situation in the
market. Private moneylenders and savers were the losers, the chaebol
the winners. In an extraordinary interference with private contracts,
the government at a stroke declared a moratorium on all private loans
incurred by businesses. Loans over 3 million won were forcibly
rescheduled for payment over five years after a three year grace period
at below the current interest rate. Loans made by large stockholders or
executives to their companies were mandatorily converted into
stocks.28
By relieving the chaebol of their massive burden of debt incurred
during the previous round of expansion, the Decree paved the way for
another such round – the Heavy and Chemical Industry Plan which
began in 1973.
The Heavy and Chemical Industry Plan (HCIP)

In the early 1970s, domestic as well as geopolitical factors forced the
government to undertake a major shift in economic strategy. This
period marked a shift away from the earlier emphasis on light manu-
facturing and towards heavy and chemical industries – largely designed
for export. The reasons for the shift were both economic and political.
South Korea’s first phase of export growth was dependent on its com-
parative advantage in cheap labour. Labour-intensive industries such as
plywood, textiles, apparel and wigs made up the bulk of its exports. By
the early 1970s, domestic wage pressures and greater competition from
other low wage economies had eroded much of the country’s advan-
tage in light, labour-intensive manufacturing. Also, in the developed
countries, barriers were beginning to be constructed against textiles
and footwear from sources such as South Korea.
Geopolitical factors were even more important. In the early 1970s
President Nixon withdrew a US combat division (totalling 24,000 men)
from duty in South Korea. Later, President Carter declared his inten-
tion to withdraw the rest by the end of the decade. The US defeat in
Vietnam and the consequent reluctance of the American public to
have their troops involved in distant wars was seen by Park and the
South Korean military as a sign of US unreliability. Heavy industry was
to provide the basis for defence self-reliance should the US cease to
provide a shield against the ever-present threat from the north. As a
result, the industries selected for special emphasis in the Heavy and
Chemical Industry Plan (HCIP) were largely defence-related: steel and
petrochemicals, non-ferrous metals, electronics and shipbuilding.
The push to heavy industrialisation was also motivated by domestic
political considerations. Park had only narrowly won the 1971 election
amidst charges of widespread electoral fraud. His response was to issue
a Declaration of Emergency, proclaim martial law, close the universi-
ties for a time, ban political activity and impose press censorship. He
introduced the Yushin Constitution of 1972, a turn towards more open
authoritarianism, and justified it by the threat from the north and by
this bold proposal for rapid growth in industrial power. Industrial
growth meant greater national prestige and held out the prospect of
higher living standards eventually. Heavy industry would translate,
Park hoped, into political legitimacy.
In May 1973, Park created the Heavy and Chemical Industry
Promotion Committee and the Planning Council. The Council
bypassed the EPB which had been unenthusiastic about the HCIP.
They were not alone; most economic specialists, the World Bank, and
the US and Japanese governments thought the push into heavy indus-
try far too ambitious. That the HCIP was an initiative of the central
political element of the state machine can be seen from the way in
which it was controlled and monitored. Park did not trust even the
bureaucracy which he had installed and which had organised industri-
alisation to that point. He kept a situation-room next to his office in

the Presidential palace, the Blue House, to keep in touch with the
progress of every aspect of the plan. He pushed for quick solutions,
constantly phoning ministers urging them to push ahead faster.29 As a
result of these new plans and the state’s preferential loans policy, more
than three-quarters of total manufacturing investment in the late
1970s was undertaken in heavy and chemical industries although they
accounted for only 50% of manufacturing output.30
Although the HCIP was inflationary and led to problems of greater
debt, it dramatically transformed the South Korean economy and
created the basis for the next vast export drive. Also, because it greatly
increased the demand of the chaebol for finance to fulfil the plan, the
HCIP made them even more dependent on the state – for a time.
State-supported concentration of capital

The initial promise of the military coup of 1961 was to promote small
and medium businesses in order to avoid the ‘illicit’ accumulation of
wealth by the rent-seeking monopolists of the Rhee period. At first, it
is clear that Park was quite suspicious of big business.31 The new
regime attempted to develop popular support by a campaign against
corruption and the ‘illicit accumulation of wealth’. It initiated a
Government Audit Report on Illicit Wealth as a result of which 44
tycoons were investigated and 27 – including the founders of
Samsung, Samho and Washin – were eventually arrested and charged
with ‘illicit accumulation’.32 It was even suggested that their wealth
might be confiscated.
But the state sector simply did not have the personnel or the experi-
ence to carry out rapid industrial expansion alone. Nor could small
business lead the development of heavy industry. So the government’s
planned forced march to rapid industrialisation could not take place
except within the framework of big business. Park, therefore, quickly
shifted back to promotion of the chaebol and abandoned his early
emphasis on small and medium enterprises. The 1961 ‘war’ on the
bourgeoisie soon gave way to close cooperation with it. Besides, in
1961, business had neither the desire nor the ability to assert itself
against the holders of state power.
The government made a deal. Charges against the chaebol leaders
were dropped, their enterprises were not confiscated, but 27 of them
were forced to pay fines.33 It might appear that the thesis that the Park
regime caved in to business and therefore had no real freedom of
action in relation to the capitalist class. Certainly the government’s
autonomy was limited. But the fact that it took the action in the first
place makes it clear that Park and his fellow military men were pre-
pared to stand up to business if they felt that their interests and those
of the new state elite they were creating could be furthered. Having
shown that it could take coercive action against the chaebol, the state
had established its likely dominance in any future test of strength.
That power was reinforced within three months when it nationalised
the banks and began to use its financial control to direct the chaebols’
strategies for expansion.
The effect of the state’s support for industrial concentration was that,
whereas in 1963 small and medium businesses produced 58.5% of the
total output in manufacturing, by 1971 their share had plummeted to
27.7%.34 In order to achieve economies of scale the government often
restricted the number of firms allowed to enter an industry – usually to
only two. The chaebol came to be one of the most concentrated forms
of capital anywhere in the world.
State mediation of foreign capital
Foreign aid
It might be tempting to see South Korean development as largely a
creation, for Cold War purposes, of the US in the 1950s and 1960s. It
is true that foreign aid, overwhelmingly from the US, was vital for
the Rhee government in the 1950s and was quite important in the
early years of the Park regime. Thereafter, it played a fairly small
part. However, even in the 1950s, aid contributed little to industrial-
isation. About 75% of all aid between 1953 and 1960 went on
general imports for relief purposes and for curbing inflation. The
remaining 25% was used for industrial and social overhead construc-
tion. But little of this went to manufacturing. By the end of the Rhee
period in 1959, foreign aid imports accounted for only 6.5% of
capital investment in manufacturing.35
Rhee relied on US aid, but used it, often corruptly, to survive politi-
cally – with little thought to industrial development. In contrast, Park
was scathing about the reliance of the Rhee government on aid – a
habit he saw as weak and a distraction from the main goal of govern-
ment – rapid development.36 In any case, foreign aid declined sharply
in the 1960s, forcing the chaebols and state planners alike to look else-
where – increasingly to foreign banks to fund expansion. To the extent
that aid did provide cash it tended to further strengthen the position
of the state vis-à-vis the capitalist and other social classes. Aid, after all,
was paid to the government – giving it extra funds to distribute as

it saw fit. The Rhee regime used the aid to distribute largesse to its
political supporters. Park used (by then declining) aid funds for the
purposes of development.
Foreign loans
Capital was in very short supply in South Korea in the early 1960s.
Thus significant and rapid industrial expansion would have been
impossible without foreign capital. As mentioned above, to speed up
the inflow of foreign loans, the Park government passed the Law
Guaranteeing Repayment for Loans in July 1962. The law was designed
to induce foreign loans for the First Five Year Plan. Loans would have
to be approved by the Minister of Finance as well as the Governors of
the Bank of Korea and the Korea Reconstruction Bank and then the
Cabinet and National Assembly.37 Both principle and interest on
foreign loans approved in this way would be guaranteed by the state.38
Because of these state guarantees, the inflow of foreign loans to the
chaebols accelerated. By the early 1970s foreign borrowing accounted
for between 18.4% and 36.6% of gross investment.39 As long as these
arrangements stayed in place, increased capital inflow could only take
place via the South Korean state. It had established itself as the vital
mediator and conduit between domestic and international capital. At
this stage, every new linkage between them, rather than undermining
the domestic power of the state, actually strengthened it.
Foreign investment
The Park regime, and to a lesser extent its successors in the 1980s,
understood the need for foreign capital and technology in order to
build a modern industrial society. But South Korea was not to be
simply a site for foreign capital accumulation, an off-shore adjunct to
more advanced economies. On the contrary, Foreign Direct Investment
(FDI) was carefully limited and regulated and care was taken to prevent
it from crowding out local firms.
The Park regime’s main interest in foreign investment was as a
source of technology transfer. But ownership of the industrial base of
the economy was to remain in Korean hands. Despite the Foreign
Capital Inducement Law of 1965 the government continued to limit
foreign access. It insisted on screening all FDI closely in order to limit
competition with Korean firms. In 1966, amendments to the law, and
further amendments in 1971 and 1973, restricted foreign investment
to export-oriented and heavy-chemical industry sectors and set the
ceiling for foreign equity holdings at 50%. The EPB had the right of
final approval for all foreign investment.
In Free Export Zones (FEZs), such as that at Masan, 100% foreign
ownership was allowed, along with tax and other concessions. But
these enclaves were not typical of the South Korean government’s
relationship with foreign capital. 40 In fact foreign capital in the
FEZs was only about 10% of all FDI by 1975. 41 More important,
FDI remained only a small part of the total capital inflow to South
Korea – 3.7% between 1967 and 1971 and 7.9% between 1972 and
1976. 42 Between 1964 and 1973, FDI accounted for only 5% of all
gross investment in manufacturing and 1% of total gross domestic
capital formation.43
By 1974, foreign firms accounted for only 2.9% of GNP (9.9% of
manufacturing) and 1.4% of total employment (7.6% of manufactur-
ing) – one of the lowest levels in East Asia.44 A survey of US multina-
tionals in 66 countries showed South Korea in the early 1980s had
one of lowest shares of wholly US-owned subsidiaries.45 By the end of
Park’s government in 1979, FDI in South Korea was much less
significant than in comparable NICs. It represented only about 3% of
Korean GDP – about half the level in Argentina, Mexico or Brazil and
significantly less than Thailand, Turkey or Colombia.46
State export targets and promotion

The South Korean ‘miracle’ depended heavily on loans raised in the
world market yet guaranteed and controlled by the state. The
second connection with the world-system – a heavy emphasis on
exports – was also mediated by the state. From an early stage the
Park government was obsessed with the promotion of exports. Even
by the early 1960s, it was clear that growth through ISI, would be
quickly exhausted. The Korean market was simply too small and
impoverished and the resource base of the country too meagre to
allow otherwise.
Suchul ipguk (nation building through exports) became a favourite
motto of Park’s Presidency and exports were seen as the key to self-
sufficiency. Exports became an obligation rather than a choice for the
private sector. Businessmen were expected to maximise exports rather
than profits – which were relegated to a secondary objective. Imports
were often subject to quotas and high tariffs, but those which were to
be inputs for export industries were not burdened by such restrictions.
The former head of the Industrial Policy Division of the Korea
Development Institute and Fair Trade Commissioner at the EPB
summed up the virtually militarised system by which exports were

promoted by state agencies:
Under President Park’s government, larger Korean firms were

assigned annual ‘export targets’ by officials in the Ministry of Trade
and Industry. The export targets were seen by firms as virtual
‘orders’ or assigned ‘missions’.47
The success of the export push was only partly-based on planning and
the state’s driving will. In at least the first phase, 1965–73, South
Korean exporters enjoyed a propitious international situation. The
long post-war boom in the advanced Western economies and Japan
provided expanding markets. Protectionist walls against relatively
small economies such as South Korea were not yet seen as necessary.
The Vietnam War provided further opportunities. Finally, as a low
wage economy at that time, South Korea still had a strong comparative
advantage in labour-intensive goods. But all of this provided only the
opportunity. To take it meant forcing private businesses to do what
they otherwise would not – make the maximisation of exports rather
than short-term profits the centrepiece of their business strategies.
In return for pursuing the export goals of the government, business
was well rewarded. Between 1961 and 1972 exporters got a 50% tax cut
on their export earnings.48 Interest rates on loans for investment to
boost exports were maintained at a low 6% per annum. Subsidised
credit was easily available for any exporter – in the main the larger
firms.49 In effect, the government was operating a regime of multiple
interest rates. Until 1981 loans meant to produce exports were
provided at rates of 6–10%, whereas general loans had rates of
17–23%.50
In the mid-1970s, the government introduced a system of General
Trading Companies (GTCs) to further promote exports. Samsung was
the first in 1975 – by the following year 13 had been established. The
ten largest GTCs accounted for 13.6% of Korea’s exports in 1976. By
1983 the share of these ten had increased to 51.3% of total exports.51
GTCs were given direct cash subsidies by the government on the basis
of their export volumes. The government was then able to continually
pressure them to increase exports by periodically raising the minimum
export requirement to qualify as a GTC and therefore retain all the
benefits such status brought with it.
Perhaps the most important factor of all in promoting exports was a
subjective one – the knowledge of exporters that the government
would back them in whatever risks they took in attempting to break

into export markets. The chaebol could be confident that export incen-
tives would remain in place as long as the regime survived. They also
knew that the regime was capable of punishing those firms which
failed to adopt an export orientation.
Stabilising development
While export promotion in the early phase to 1973 might be seen

as relatively easy for the government to achieve because of the
favourable external situation, the same cannot be said about the
rest of the 1970s. These were difficult years for developing countries
to break into new world markets with manufactured goods. The oil
price shocks, two recessions and rising interest rates should have
caused an economy such as Korea’s – without oil, based on exports
and with a high-level of international borrowing – to stagnate.
But on each occasion the government stepped in vigorously,
using aggressive international borrowing and bailing out troubled
firms.
The first stabilisation was required even before the 1973–74 reces-
sion. Reaching the limits of the first and easier stage of export develop-
ment – which relied on low wages in manufacturing – Korean GNP
growth fell from 13.8% in 1969 to 7.6% in 1970.52 Government inter-
vention was dramatic. It reduced domestic interest rates and rescued
companies in trouble – simply refusing to allow sizeable businesses to
go bust. By 1973, the economy was back on track with GNP growth of
14.1% and export growth of 73%.53
Government intervention was equally important in response to the
second shock – the oil price rises and recession of 1973–74. This so-
called ‘Second Stabilisation’ began in January 1974 – again with efforts
to expand domestic credit and maintain growth. To finance this, the
government borrowed abroad more heavily and ran down its foreign
reserve holdings. The result was that at a time when most other non-
oil producing countries were experiencing serious recession, the South
Korean economy continued to post very healthy growth rates – 7.7%
growth of GNP in 1974, 6.9% in 1975 and an extraordinary 14.4% in
1976.
The ‘Third Stabilisation’ of 1980 was an attempt to resolve the most
serious economic crisis for Korea since the 1950s. Under the impact of
a second world recession and another oil price rise, GNP growth fell to
minus 5.2%. Yet by pursuing the same vigorous expansionist policies
and, as in previous stabilisations, by preventing large-scale insolvency,

growth climbed again to 6.2% in 1981.
State subsidies
The Korean state in the 1960s and 1970s provided a broad range of
subsidies to the chaebol. In order to slow wage rises, food prices were
controlled and subsidised. Although grain prices were formally set by
the market, the government was able to manipulate the price by
announcing its own – usually below market-level – purchase price at
the beginning of the harvest. This announcement would usually have
the effect of reducing the market price. In addition, the government
could force farmers to sell to it. Finally, it could dump its stored grain
supply on the market – again lowering prices.54
Incentives were provided to new investors in industries targeted by
the five year plans. These included total exemption from tax for three
years, a 50% cut in corporate tax for the following two years, dis-
counted rates for government services and a wide array of other
benefits. Government aid also took regulatory, non-monetary forms.
Assistance to the shipbuilding company – Hyundai Heavy Industries
(HHI) – is an important example. HHI began building its first ship in
March 1973. It immediately experienced difficulty with cancellation of
orders. The government, which owned the only oil refinery in South
Korea, responded by demanding that all crude deliveries be in Korean-
owned vessels – those of the Hyundai Merchant Marine Company –
whose ships were supplied by HHI. One decade later, HHI was the
world’s largest shipbuilder.55
State ownership
Park made his emphasis on the retention of private ownership of

industry obvious in the First Five Year Plan in 1962. 56 After all, the
chaebol, although completely reliant on state support, were a living
example of the regime’s abhorrence of communism. As we have
seen, state control of finance was nearly total in the 1960s and
1970s. But, for practical as well as ideological reasons, the bulk of
businesses were to remain in private hands. A few non-financial
businesses, however, remained state-owned. Public enterprise did
increase somewhat – from 6.98% to 9.07% of GDP between 1963 and
1972. 57 Public enterprises that remained of some importance
included the Korea Highway Corporation, the Korea Electric Power
Corporation, the Korea Trade Promotion Corporation, the Korea
Broadcasting Corporation, the Korea Tourism Corporation and the

Korea Land Promotion Corporation.58
The Rhee government had privatised some public firms – essentially
as a subsidy to its political supporters in the business community. For
different reasons, the Park regime also privatised firms. It used public
enterprise to break through into new areas of industry or infrastruc-
tural development and thus to reduce the risks associated with trail-
blazing for private firms.59 Some firms privatised under Park – Saenara
Motors, Korea Machinery, Taihan Transportation and Korean Air –
were of considerable size. During the Park period at least 20 of the top
50 chaebols acquired public enterprises more than once.60 But this was
more than a handout to private business. As we shall see, those chaebol
which benefited from privatisation were expected to perform well.
One state-owned company which remained extremely important
was the Pohang Iron and Steel Corporation (POSCO). No chaebol could
gather the funds necessary for establishing steel production on a large-
scale. So the state took on the responsibility itself – a task which
appeared to be beyond it. A World Bank team in the 1960s concluded
that an integrated steel mill in Korea was not viable. The South Korean
government had attempted to find a foreign partner in steel through-
out the 1960s. Negotiations took place with a German company in
1962 and with the World Bank in 1967. All had failed because the
South Korean planners wanted a huge plant – and that was not consid-
ered feasible by the prospective partners. The state went ahead alone
and established POSCO in 1968. POSCO not only became viable, pro-
viding cheap steel as a crucial subsidy to domestic manufacturers, it
was actually exporting steel-making technology to the US by 1986.
This extraordinary performance was made possible by massive govern-
ment financing with long-term, low-interest loans and reduced charges
for railroads, ports, water and gas.61
Penalising poor performers
State support for private business was, as we have seen, central to

industrialisation in the 1960s and 1970s. But government largesse was
linked to the demand that firms cooperate in meeting the targets set by
state planners in production and exports. The rewards for those which
conformed and performed well were considerable. But so was the
penalty for those which did not. As government finance was the main
kind available to Korean firms and since they generally found them-
selves with high debt-equity ratios, even the threat of the withdrawal
of finance was serious. Should finance actually be withdrawn, these

companies would almost certainly collapse. When that happened, the
government would step in to distribute the assets of the fallen
company to others.
Examples of the government’s ruthlessness include: the carmaker
Shinjin, whose assets the government, as the banker, transferred to
Daewoo Motors; Asia Motors, which was allowed to go bankrupt; the
Taihan group, whose failed consumer electronics division was tran-
ferred to Daewoo Electronics; and the construction firms Kyungnam
and Samho, which were merged into Daewoo and taken over by
Daelim Engineering respectively.62 At least one – the Kukje-ICC con-
glomerate – the seventh largest chaebol, was deliberately bankrupted by
the state after it proved recalcitrant.
The Ministry of Trade and Industry sometimes disconnected electric-
ity or cut off other basic infrastructure to firms which failed to meet
government targets.63 The Office of National Tax Administration
(ONTA) was described as the ‘ultimate control agency of the gov-
ernment’.64 Complex and often ambiguous tax laws give the state con-
siderable discretion in deciding whether there was a breach of the law.
Even the threat of an audit was often enough to discipline firms; some
had been driven to bankruptcy by an actual audit.65
Disciplining firms to maximise exports was made easier by the GTC
system introduced in 1972. The considerable benefits to be had as a
GTC could only be gained through the acquisition of a GTC license,
which had to be renewed every year. Those deemed not to have
exported enough were simply unable to renew them.66
Relative state autonomy
How was the Park regime able to succeed in this massive industrial
transformation of South Korea? Certainly it was an authoritarian state
– but no more so than many others in developing countries. Its dirigiste
policy orientation was also fairly common. What was not common was
the capacity of the state to undertake these policies consistently with,
at first, little effective challenge from the main classes of South Korean
society. The state possessed a high degree of autonomy domestically.
Such autonomy enabled it to mobilise resources for industrialisation
rapidly and to focus them within the parameters of coherent plans for
several decades. This domestic strength then allowed it to mediate the
relationship between South Korean capital and international invest-
ment capital and markets. South Korean companies could not do as
they liked in the international marketplace, nor would the state allow
foreign companies and banks to undermine its national development
goals.
This high degree of state autonomy is clear in the record of economic
planning and progress during the 1960s and 1970s. The specific form of
autonomy that existed can only be uncovered by an understanding of
the historical trajectory of the South Korean state and its relationships
with the social classes of South Korea. That analysis must begin in Yi
dynasty Korea.
Japanese colonialism
The Yi dynasty state in Korea (1392–1910) intervened in the
economy, but with the primary goal of raising revenue to sustain
itself. It was a parasitic state with no intention of fostering economic
growth. Moreover, it had many of the classic elements of high feudal-
ism – a weak central state competing, often unsuccessfully, with the
aristocratic landowners – the yangban – for a fairly stagnant pool of
surplus. There were important changes during the long Yi period but
there is no evidence, as there is in Japan under the Tokugawa, that a
proto-capitalist system was beginning to develop.
The Japanese state which colonised Korea in 1910 was quite differ-
ent. Committed to development under the slogan ‘rich nation, strong
army’, it was already 15 years into a program of colonial expansion
designed to strengthen its economy and strategic position. Japanese
colonialism attempted to turn the Korean peninsula into an adjunct of
the Japanese military/industrial machine. Korea was to supply rice to
the Japanese market and, by keeping food prices low there, minimise
wage rises in Japanese industry.
Several scholars have attempted to trace the South Korean ‘miracle’
to the legacy of the period of Japanese colonialism between 1910 and
1945.67 It is true that, under the Japanese, colonial Korea maintained a
relatively rapid rate of economic growth – an annual average of 4%
increase in GDP and nearly 11% in manufacturing – albeit from a very
low base.68 However, this perception of the colonial roots of Korean
economic growth must be balanced by other considerations. Firstly,
industrial development under the Japanese was always unequivocally
designed to serve as an adjunct to the home economy. Korean busi-
nesspeople and Korean capital played only a small role. By 1938, local
capital made up just 12.3% of the total industrial capital of Korea.69
Furthermore, because of their orientation to Manchuria, manufac-
turing gradually shifted to northern Korea under the Japanese. 70 By
the end of the colonial period, the north had 86% of Korea’s heavy
industry.71 The south was left as a largely agricultural region,
intended to provide cheap rice as a subsidy to the Japanese economy.
In any case, north or south, only 5.4% of Korean workers were
employed in manufacturing in 1940.72
While individuals may have gained some entrepreneurial experience
before 1945, the business organisations they built were very largely
born in the 1950s and 1960s. Only one of the top ten business groups
(commonly known in Korea as the ‘chaebol’) that existed in 1983, was
formed under the Japanese. Of the top 50, only six were started in the
colonial period.73 Although in the last two decades before colonialism,
some factories and three Korean banks had been established by
yangban, these fledgling indigenous capitalist enterprises were cut short
by the Japanese occupation. Company regulations passed in 1910
made the formation of new corporations subject to official approval –
which was seldom given to Koreans. Although these prohibitions were
repealed in 1920, it remained a Japanese policy to allow only the devel-
opment of small-scale Korean companies which could not pose a
competitive threat to Japanese business.
Furthermore, apart from the important exception of the army,
Japanese colonial institutions provided few opportunities for Koreans
to develop the bureaucratic skills necessary for the management of a
modern industrial state. In the colonial government no Korean ever
held the highest bureaucratic rank (Shinnin) and even in 1942, when
Japanese manpower was stretched to the limit by the demands of war,
Koreans made up only 18% of the next two ranks (Chokunin and
Sonnin).74
Japanese colonialism did play a role in later South Korean industri-
alisation. But it was primarily a negative one. Along with other ele-
ments in Korea’s historical trajectory, it helped to remove or,
inadvertently, to discredit, pre-industrial social groups and structures
which could have been obstacles to rapid capitalist growth. It weak-
ened these old structures. But it did not create new, industrially-
oriented ones. The Japanese abolished the political power of the
yangban class while allowing them to maintain some of their eco-
nomic interests in the land – that part not taken over directly by the
Japanese themselves. The yangban had no access to the apex of power
in colonial society. They had lost some of their wealth and prestige as
well. Thus a certain ‘levelling’ of Korean class structure had taken
place – with the very top of the pyramid removed. Traditional aristo-
cratic privilege was trimmed, but the development of an indigenous
bourgeois power which might take its place was also inhibited. The
colonial power uprooted much of the old without creating solid
foundations for the new system.
The privileged classes – old and new – were stultified by the colonial
power. But they nevertheless owed whatever position they had
retained or gained to Japanese toleration. They earned that toleration
by collaboration. Thus they were politically compromised in fiercely
nationalistic Korea. The label of collaborator was applied both to the
privileged and to the lower ranks of the colonial state staffed by
Koreans. By 1941 there was one policeman for every 40 Koreans.75 That
suggests both a high-level of repression and a significant number of
Korean collaborators.
The weakening of the yangban and the restrictions placed on the
development of an indigenous bourgeoisie created considerable room
for manoeuvre for the post-colonial state. That a defeated colonial
power should leave behind a major power vacuum is certainly not
unique to Korea. Elsewhere, elite social forces – variously comprador,
bourgeois nationalist, Stalinist or pre-capitalist in character – eventu-
ally emerged to fill the gap. All of these were possibilities in Korea in
1945. What made Korea different, and eventually shaped the form that
state autonomy took there, was the battering which all such potential
forces took in the terrible maelstrom which engulfed Korea in the eight
years following the Japanese departure.
Independence and uprising

The power vacuum in Korea in late 1945 was, inevitably, complicated
by the Cold War. In the immediate aftermath of liberation, a
Committee for the Preparation of Korean Independence (CPKI) was
established before US troops arrived. Political prisoners of the Japanese –
many of them leftists – were released. People’s Committees – local
branches of the CPKI – were established; 145 of them existed by the end
of August 1945.76 The manner in which the Pacific War ended – with
the very sudden surrender of Japan before Allied troops arrived in many
of the territories it had occupied – meant that left-wing nationalists
faced no repressive forces which might have contained them. Moreover,
most of the conservative establishment had been collaborators and were
therefore politically discredited.
A powerful left-nationalist surge culminated in the declaration of a
People’s Republic on 6 September 1945. That finally prompted the con-
servative forces to regroup; the Korea Democratic Party (KDP) was
formed by a merger of various right-wing groups. Backed by landowners
and businessmen, often with personal records of collaboration, they

elected as their leaders two exiled figures who, because of their unques-
tioned backgrounds of opposition to the Japanese, were politically
saleable – Syngman Rhee and Kim Ku.
Despite the intense popular feeling for independence, in late 1945
the US still planned to turn Korea into a four-nation trusteeship. By
campaigning against such an outcome Rhee built a base somewhat
independent of the landowner and business interests which had
bankrolled him in the beginning. He formed a National Society for the
Rapid Realization of Korean Independence – known as the ‘National
Society’. By April 1946 it had more than a million members. This
popular base provided Rhee with a lever to extract more resources
and support from business – which was painfully aware of its own
collaborationist past and weak political position.
Outside these elite circles millions had responded to the liberation
by joining radical peasant organisations and labour unions. Long pent-
up nationalist feeling and anger at the collaboration of much of the
ruling stratum of Korean society exploded in attacks on government
authority – especially the police, and in the growth of militant trade
union and peasant organisation. A People’s Republic Movement, led by
Lyuh Woon-hyung, established a provisional government in Seoul and
built a structure of People’s Committees by the time the Americans
landed. At one point, about half of all Korean counties were governed
by the People’s Committees. Trade union organisation grew dramati-
cally. The National Council of Labour Unions (Chun Pyung), built in
close association with the Choson Communist Party, already claimed
574,475 members in August 1945.77 The upheavals of 1945 and 1946
produced demands for economic improvements for workers and peas-
ants, the purging of collaborators, independence and the transfer of
power from the remnants of the quisling state to the people. They cul-
minated in 1946 in what became known as the Autumn Harvest
Risings. Massive peasant riots shook the countryside, the insurgents
targeting landlords and police; more than 200 policemen were killed.78
In many cases, workers took over factories and contracted out manage-
rial positions to those with experience and expertise and shared the
profits among themselves. In South Cholla, 42 of its 50 factories were
already operating in this way just two months after the Japanese sur-
render. Over a quarter of a million workers were involved in a general
strike in September 1946.
The risings were monumental in scale – so was their defeat. The US
Army Military Government in Korea (USAMGIK), along with the
remnants of the colonial state apparatus and the Korean right-wing

fought back ferociously. The American Director of the Department
of Transportation in Korea gave an account of the repression
unleashed by US occupation forces:
We went into that situation just like we would go into battle. We

were to break that thing up and we didn’t have time to worry if a
few innocent people got hurt. We set up concentration camps
outside of town and held strikers there when the jails got too full. It
was war. We recognised it as war. And that is the way we fought it.79
The number of insurrectionists killed is not known – possibly there

were more than 1,000. As many as 30,000 were arrested, including over
11,000 trade unionists.80 The leadership of Chun Pyung were either
forced to flee to the north or were arrested. As a result of this battering,
union membership was reduced from over half a million to just 2,465
in a few years.81 The US military commander, General Hodge, made it
more difficult for a bona fide union movement to be revived by sup-
porting the formation of a tame union body, the General Con-
federation of Korean Labor Unions (No Chong) – led by Kim Ku and
Hong Yoon-ok. It could get money from employers, bank on police
support and hire thugs to smash the militants of Chun Pyung. After the
defeat of the risings, genuine peasant and worker organisations simply
did not exist on any scale.
Land reform – the end of the landed elite

Although the peasant and worker upsurge of 1945 and 1946 was
roundly defeated, it gave the US occupation authorities cause for
serious thought. Future peasant unrest could be the basis for a revived
Communist Party in the south. North Korea’s land reform began in
1946. If the southern regime smashed the peasants while in the north
they were given land, then the Communists would be an irresistible
pole of political attraction. Long-term stability required land reform.
Besides, decisions had to be made about the future of large landhold-
ings which had belonged to Japanese owners. Thus the USAMGIK
began the land reform in 1947, breaking up and distributing formerly
Japanese-owned land under its control.
Land reform was also favoured by Rhee. In the manoeuvring follow-
ing liberation, his main opponents, apart from the left – which in any
case had ceased to be a major obstacle by the end of 1946 – were sec-
tions of the land-owning class, who, of course, opposed reform. The
happy coincidence for Rhee was that land reform could strike a blow
against his rivals while falling in line with US policy and, perhaps,
building support for himself amongst the peasants.
Land reform legislation was finally adopted in 1950 and land began
to be distributed in that year. With reform, 70% of the eligible land
was redistributed. Over half of the south’s two million rural house-
holds benefited.82 A three chongbo limit on paddy holdings was
decreed (about 7.35 acres). In fact, very few households came close to
this upper limit. The countryside came to be dominated by very small
farms.83 Land reform was possible because of the already feeble condi-
tion of the land-owning class at the time of liberation. The reforms
weakened them even further – eventually removing the old land-
owners from political calculations. Another potential limitation on
the power of a future developmentalist state had been removed.
War
Whatever chance the workers and peasants might have had to rebuild
their leftist organisations following the savage defeats of 1946 disap-
peared amidst the growing tension between the regimes in the north
and south and their superpower backers. Finally, in the south, the
purging of the left was completed by the war which broke out in June
1950. In terms of its effects on this relatively small country, the Korean
War was one of the most destructive ever fought in modern times. The
four million killed over its three year duration included two million
civilians who suffered particularly because, for the first year, the war
was fought on extremely fluid battle lines. It swept up and down
almost the entire peninsula until the lines stabilised around the
38th parallel – the only region to escape the ravages of battle was the
Pusan perimeter in the south east.
Nearly one million South Korean civilians and 320,000 South
Korean soldiers were killed – all this in a population not much above
20 million. About 25% of people of the south became refugees.84 Five
million were forced to live on relief.85 Physical damage due to the war
has been estimated at almost the equivalent of the total GNP in the
year before it began. Seoul was one of the worst hit areas as it
changed hands four times during the conflict. There, over 80% of
industry, public utilities and transport and over half the dwellings
were destroyed.86 Nationwide, 68% of industry was in ruins and
industrial production was halved by 1951. There was a slight recovery
by the end of the war – but still 43% of manufacturing facilities, 41%
of electricity generating capacity and 50% of coal mines had been
taken out of action.87 In short, the war wiped out much of the
already scant infrastructure and productive capacity which Korea
possessed.
Furthermore, it completed the destruction of the left – forcing many
radicals to flee to the north. Those who did not were likely to be tar-
geted by the Rhee regime. Executions of leftists and those who sympa-
thised with the north were common. The Republic of Korea forces
routinely murdered potential political opponents before they retreated
southward. Then, on retaking territory, they would kill those sus-
pected of collaboration with the communist troops. One report sug-
gests that 29,000 were slaughtered in Seoul alone.88 Within a year of
the outbreak of the war, neither workers nor peasants in the south
were left with organisations which could seriously claim to represent
their class interests.
The indigenous bourgeoisie, small and weak as it was in 1950, found
that much of its capital stock was destroyed. On the other hand, war is
a state-run activity. The long, vicious fighting immensely strengthened
the position of the state in South Korean society. The bourgeoisie’s
hopes of recovering the wealth it had seen reduced to rubble rested
with the state. State contracts, state finance and the state’s role in
doling out foreign aid, combined with their own originally weak posi-
tion, all made South Korean capitalists uncommonly dependent on
state support. In short, the war had the effect of further stripping polit-
ical power and influence from both elite and subaltern social classes.
In summary, by the end of the war in 1953, South Korea had
undergone major social transformations which, taken together, con-
tributed to a highly unusual situation in an underdeveloped country.
The landowning class, commonly dominant in such countries, had
lost first its prestige, then its political power and finally the core of its
wealth – the land itself – as a result of colonial occupation, the taint
of collaboration, war and land reform.
The nascent bourgeoisie, although stifled by the Japanese, were nev-
ertheless, in most cases, pathetically collaborationist – grateful for
whatever concessions their masters allowed them. Branded as collabo-
rators, they, like the landowners, could not pretend to lead the nation.
They saw their businesses occupied by workers. Then, when they
thought they had been delivered from danger, much of their wealth
was destroyed in the most destructive of wars. The best opportunities
to make money in the 1950s involved obtaining privileged access to
foreign aid – typically to buy aid goods cheap and sell them dear. But
that required state support. Reliant on state largesse to recoup their for-
tunes, the bourgeoisie could not summon the political self-confidence

and organisation to seize and use the machinery of state. In any case,
they saw no reason to do so as long as Rhee was prepared to provide
protection, channel foreign aid and contracts towards them and allow
rent-seeking activity to thrive. It would be an exaggeration to claim, as
some do, that the state created the bourgeoisie.89 However, the feeble
bourgeoisie could only first survive the challenge from the masses and
then prosper because of its political connections – its links with the
state.
The peasantry was a force to be reckoned with after liberation. But its
organisations were shattered in 1946. Then land reform removed its
central complaint. In any case, the peasants needed the support of an
urban class to impose their will on the situation. The small but power-
ful working class might have fitted the bill. But its ability to organise
was also broken by the defeats of 1946 and then buried during the
1950–53 war. It would be nearly two decades before workers again
began to organise independently and make serious demands on capital
and the state.
Thus, by 1953, the domestic external obstacles to the state over
which Rhee presided had been removed. The state did indeed
possess a high degree of insulation or autonomy. If external imped-
iments were the only consideration, Rhee could have adopted a
developmentalist approach with little opposition. But what his state
lacked for the rest of the decade was the internal coherence and
motivation to use its autonomy and embark on a major program of
industrialisation.
Rhee stayed in power after 1953 courtesy of US assistance and
because no domestic forces were capable of unseating him. He
rewarded his business supporters but expected little from them in
economic performance. In the few years after the Korean War, the
economic situation was especially conducive to his political survival.
The war, the large American troop presence and the inflow of US aid
all contributed to a booming economy for a time. GNP growth hit a
post-war peak of 7.7% in 1957. Then the boom began to run out.
American aid was cut after 1958, limiting the flow of funds through
government to business. Effective demand in the domestic market was
seriously limited by its small size and great poverty. GNP growth fell
to 5.2% in 1958, to 3.9% in 1959 and to 1.9% in 1960.90 What indus-
trial production existed began to close down. A survey conducted in
1959 reported that the number of factories operating in South Korea
was 56% lower than in the colonial period and only one-quarter of
these were operating at full capacity. By 1960, in the area around

Seoul, about 90% of the mines and 80% of the factories had closed.91
Yet Rhee, unlike Park in future crises, was unable or unwilling to
intervene decisively. Rhee and his close circle of supporters had cap-
tured government. But they lacked firm agreement amongst them-
selves about what to do with it except to reward themselves. They
certainly did not have the internal discipline to take the harsh mea-
sures and great risks associated with rapid industrialisation. No
serious economic plan was ever implemented during the Rhee
period. 92 Economic downturn and lack of developmental progress
weakened Rhee’s originally strong position. The bourgeoisie ceased
to actively support him. Political repression under Rhee culminated
in April 1960 when students protesting against crooked elections
were killed by police. More student protest demonstrations followed.
Rhee called out the army. For the first time it refused to intervene
and the government fell. The new interim government, led by
Chang Myon was intrinsically unstable. The students were not a
large or powerful enough group to sustain a government in power
for long. In any case, it was internally divided and faced 2,000
student demonstrations in its first year. In May 1961, the army
moved. General Park Chung-hee led the new regime – at first an
openly military one, then dressed in civilian clothes. It was under
Park, from 1961 until his assassination in 1979, that the great spurt
of industrialisation began.
The army: the origins of state coherence and motivation

Military involvement in politics is not uncommon. Altogether the mil-
itary intervened in about two-thirds of the more than 100 non-
Western states between 1945 and 1976.93 But after the coups they are
usually neither able nor motivated to stimulate rapid economic
growth. Military involvement alone is not the key to economic devel-
opment. Indeed the military may well construct a parasitic state which
simply draws resources from the productive sections of society and
therefore weakens them. Or it may allow or encourage unproductive
rent-seeking behaviour in return for political support from elites.
But the officers in control after the coup in South Korea were different
in many ways from most of those who have led hundreds of Third
World governments since the Second World War. Whereas the main
social classes of South Korea had been politically enfeebled by the histor-
ical trajectory described above, the army emerged during the 1950s as a
cohered and motivated body. Its absolute size made it a very powerful
force. At the end of the Korean War, the Republic of Korea (ROK) army
numbered 600,000 – the fourth largest outside the Soviet bloc.
The war necessitated rapid recruitment of officers and men. The
number of officers required simply could not be found in privileged
circles. More importantly, it was an extremely bloody affair; the South
Korean military forces suffered more than 40% casualties.94 Therefore,
promotion of those who survived was rapid. Officers, even of high
rank, usually had lower middle class origins – literate, but by no means
privileged. They despised the left and the communism which they had
fought. On the other hand, their relatively humble origins meant that
they had few social connections with any elite grouping. They were
free of links to social classes which might hamper a military regime in
undertaking a program of rapid economic growth. In that sense they
were quite different from the officer corps of many poor countries who
often come from privileged classes or who develop personal (and some-
times financial) links with such classes during their tenure as senior
officers.
At the time of the coup and in the early days of his Presidency, Park
exemplified this background. He had little but disdain for landowners
and big business and viewed the Rhee regime as a cosy and corrupt
arrangement between politicians and business which had operated
against the interests of the nation. The ‘revolution’ of 16 May 1961, in
which he had taken power, was designed to end all of that. For Park, the
‘leading forces’ of the future would be soldiers, students and intellectu-
als – not chaebol owners or bankers. The army had developed a strong
ethos opposed to the pursuit of purely personal gain – something which
they saw businessmen doing freely in the 1950s. In their view a disci-
plined, selfless, nationalist force was required. Its key tasks would be
national defence and economic development. In his published work
Park frequently made this connection between the army, nationalism
and national development. Just as frequently he contrasted military
selflessness with the pursuit of private profit:
Patriotism and national self-awakening are rooted deeply in the

hearts of the revolutionary troops who risked their careers and their
lives to save democracy in Korea. The soldier is the shield of the
people, the son of the people.95
We must take a great leap forward toward economic growth, and
a social and economic order which will give priority to the public
interest over the selfish pursuit of private profit at the expense of
the people in this Communist threatened nation.96
Links to the capitalist class or to the old landowners might have been
generated quickly once the military came to power had not the same
historical trajectory which strengthened the armed forces simultaneously
politically weakened or, in the case of the landowners, obliterated the
elites.
A second important difference between the South Korean military
and most others was that the former faced the long-term, serious
military threat posed by North Korea. The military, more than any
other group in society, were in a position to understand, feel and
perhaps even exaggerate, the danger poised just a short tank drive
from their capital. It focussed their minds on the urgent tasks of eco-
nomic development as a basis for military defence. This threat and
the memory of the immense slaughter of 1950–53 maintained a high
degree of unity and discipline in their ranks. Until 1979, there were
no serious internal factional disputes, no suggestions of a second
coup by disgruntled officers or public disputes about the direction of
policy. Despite democratic window dressing – with former generals
running for office as civilians – a central group of senior officers
remained at the core of the state. Even a decade and a half after the
coup, 66% of the Cabinet and 22% of the National Assembly were
military men. 97 After Park’s assassination in 1979, the Presidential
palace was occupied by former generals until 1992.
Maintaining state autonomy
The civilian mask

Having come to power as soldiers, Park and his fellow putschists
immediately felt it useful to shed their uniforms in favour of civilian
garb. One reason for doing so was to court the continued good grace
of the US – which would look more favourably on a regime which
had at least the trappings of democracy. A more important impetus
for civilianisation of the coup was the difficulty of maintaining legit-
imacy for the military once it entered the political arena. The nega-
tive reasons for mass support or neutrality towards it – the failings of
the Rhee regime – had disappeared. The idea that the military stands
above politics and is impartial and fair can also begin to disintegrate
once they actually hold political power. In the Korean case – where
their domestic opponents were quite weak – the military had nothing
to lose by donning a civilian mask and contesting elections.
Therefore General Park, as head of the Supreme Council for National
Reconstruction, decided to hold open elections. The military created
and sponsored a civilian party – the Democratic Republican Party

(DRP) – to contest the elections. In 1963, the ‘civilian’ Park Chung-hee
narrowly won the Presidency and the DRP won two-thirds of seats in
the legislature. But there was little risk in this course of action. Had
they lost, the military would have been easily able to revert to more
forceful methods of rule. The DRP was successful again in both the
1967 and 1971 elections.
But the transformation of the military regime into an apparently
civilian one didn’t change its basic dynamic. Many government min-
istries were staffed by retired army generals and colonels. In the wings,
the soldiers still in uniform guaranteed that no parliamentary or extra-
parliamentary attempt to throw them out would succeed. And the
most senior officers quickly found much in common with technocrats
in the bureaucracies. Both supported a top-down approach to state
management of the economy. Military and former military officers of
whatever rank knew that their long-term rule (and, as they saw it, the
very survival of their country) depended on economic growth.
Mechanisms of control
That the Park regime, on coming to power in 1961, felt itself to be in a
strong position vis-à-vis the capitalist class can be seen from its ‘war’ on
the bourgeoisie and on its ‘illicit accumulation of wealth’. That it was
able to go further and take over the commercial banks which had been
sold to the chaebol illustrates both its own strength and the bour-
geoisie’s weakness. It was able to maintain this position of strength in
the first place because its economic strategy was stunningly successful.
The state made the chaebol rich. In the first two Five Year Plans –
1962–66 and 1967–71 – the real growth rate averaged 9% per annum.
In the period 1972–79, it was higher still – averaging 10% per year.
During the first two plans, real growth of exports averaged 40% – an
enormous rate of increase.98 In the second place, state control of
finance and a multitude of other benefits and incentives served as a
reminder to the chaebol that they could be bankrupted as well as
enriched if they refused to cooperate. Cooperation meant following
government economic strategy and allowing the generals and former
generals to keep control.
The military after 1961 restructured the state-business relationship.
Whereas under Rhee, the relationship enriched individuals on both
sides through rent-seeking and corruption, Park Chung-hee used
business weakness to impose a coherent economic strategy. Although
corruption remained, it was not at the centre of the relationship as it
had been in the 1950s. Business needed the state even more after the
coup. The chaebol were growing but still insecure. At this stage of deve-
lopment, they could easily fall as well as rise. Of the top ten chaebol in
the mid-1960s, four had not been in the top ten in the late 1950s.99
The student upsurge which toppled Rhee in 1960 briefly gave the
working class a chance to assert itself after the great repression of the
previous decade and a half. Once again workers went on strike on a
significant scale.100 New unions were formed and took up political as
well as economic demands. But this wave of labour activity collapsed
quickly after the 16 May coup. Park almost immediately decreed the
dissolution of unions. Within a few months, however, it became clear
that there was an advantage in allowing a tame union organisation to
exist. The General Confederation of Korean Labor Unions (No Chong)
had, after all, been virtually an arm of government under Rhee since
the destruction of Chun Pyung in the 1940s. So the Federation of
Korean Trade Unions (FKTU) was formed almost overnight with Park’s
backing. Most of its officials were more concerned to stamp out rank
and file (wildcat) action than to advance their members’ interests; the
FKTU became an important means by which the state controlled the
growing industrial working class in the 1960s and 1970s.
Perhaps the most powerful instrument of state control of opposi-
tion in the working class and in society as a whole was the Korean
Central Intelligence Agency (KCIA). Created in 1961, its range of
operations was much broader than intelligence gathering. It was
simultaneously a secret police force, a monitor and executor of eco-
nomic planning and a coordinator of different sections of the state
bureaucracy. One of its first acts was to discipline the bureaucrats and
bend them to the will of their new military masters by screening
41,000 government employees. Of these 1,863 of them were found to
have been involved in ‘anti-revolutionary’ activities. 101 The KCIA
infiltrated hundreds of agents into factories. They uncovered agita-
tors and opponents of the official FKTU leadership and of the regime.
Local police were also authorised to monitor labour. Police, KCIA and
Army staff frequently coordinated their efforts in this area and the
KCIA played a major role in FKTU elections.
State repression, already heavy in the 1960s, became even greater
in the 1970s. In 1971, a Special Act for National Security was intro-
duced – under it all forms of industrial action were made subject to
government approval. In 1972, Park introduced the Yushin Con-
stitution – a turn towards heavy state repression of all forms of
opposition. Violence by police and privately employed thugs – the
kusadae – against labour organisers became more prevalent. Even

work practices inside the factory were shaped by militaristic disci-
pline. Employees were often required to have short hair cuts and
wear uniforms with their rank indicated by the shape of name tags
on the breast pocket. 102 Slogans such as ‘industrial warrior’, ‘indus-
trial fighting line’, ‘constructing while fighting’, ‘export war’, and
‘occupation of the ten-billion dollar export hill’ were commonly
posted around factories. 103 Companies often recruited retired army
officers as field managers. Hyundai hired more than 80 of these in
1977 alone. 104 Faced with all of these forces of repression, the
working class in the 1960s and 1970s was as yet unable to offer
significant resistance to the Park regime’s economic plans.
Repression and censorship extended throughout society: on cam-
puses, in the press and in churches. In 1975, a free speech campaign
at two newspapers – Tonga Ilbo and Choson Ilbo – led to the mass
sacking of editors and journalists. Even a 1973 article about the poor
quality of local instant noodles was suppressed by the KCIA.105 A
Seoul National University Professor, Ch’oe Chong-gil, was abducted,
tortured and murdered in the early 1970s. But most South Koreans
had no knowledge of this until 15 years later.106
A further limited and, in this case at least, generally unsuccessful
attempt to maintain ideological control over both workers and small
farmers was the saemaul undong (New Community Movement). The
Movement was a government-sponsored move to encourage people
to improve their villages by undertaking collective tasks of rebuild-
ing, improvement and beautification. Fences were to be repaired,
thatch roofs replaced with tiles and so on. Most projects were to be
carried out at village level but the initiative came from government
ministries, starting with the EPB, which supported and planned each
of them. In industry, the factory saemaul were supposed to motivate
workers to achieve greater production in the war against commu-
nism. In city and country, these campaigns were accompanied by
moral and ideological indoctrination – ironically reminiscent of the
Chinese Cultural Revolution. But this attempt to mobilise masses of
workers and farmers behind the government had little effect.
Although the saemaul had some of the features of organisation from
below, in fact it was organised very tightly from the top down.
Initiatives of the saemaul resembled the planning of industry – with
the same centralised, autonomous state directives.
By the end of the Park regime in 1979, the saemaul had failed in its
purpose. It did not prevent increasing disillusionment with the gov-
ernment. The remnants of the saemaul were later taken over by Chun
Kyung-hwan – known as Little Chun – the brother of the president
who succeeded Park. He gained a reputation for thuggery and corrup-
tion – skimming saemaul funds for his own use. 107 Unlike the situa-
tion in Mexico, mass organisation such as the saemaul was never a
major means by which the regime established or maintained its legit-
imacy and control. It was artificial with no genuine roots in the
Korean population. By 1984, the saemaul was virtually dead.
Relative autonomy and public policy
Path two – from devastation

Against this background, it is clear that the South Korean state had a
high degree of relative autonomy. But the form which that autonomy
took and the manner of its coming into being also played a part in
determining the strategy adopted by the state. South Korean state
autonomy came about through the extreme weakening of the major
classes of Korean society in the period to 1953. The Rhee regime,
lacking a cohesive state apparatus, used that autonomy for purposes
other than industrial growth. Park’s coup added a tightly-knit group
which felt driven to make it happen. The public policy of the regime
was shaped by this peculiar background. The problem of the concen-
tration of land ownership, a burning one in many underdeveloped
countries, was quickly solved as a result of the weakness of the old
landowning class. But this was already fundamentally resolved by
1961. Thereafter Park’s interventionist policy was (i) private ownership
of industry; (ii) state control of finance; (iii) state planning and tight
state control of private industrial expansion; and (iv) maintenance of a
low wage economy during expansion.
Low wages were possible because the working class needed a genera-
tion of industrial expansion before it could develop the confidence to
openly fight for its rights with any significant success. It might be pos-
sible to see the fact that the state left industry in private ownership as a
sign of its insecurity and weakness. On the contrary, it is an indication
of the state’s great strength relative to the private capitalist class in the
1960s and 1970s. Capital could be securely left in the hands of the
chaebol owners because Park knew that their formal ownership of it did
not give them discretion over its use. State directives about the use of
their resources would be followed by the chaebol – just as if they were
managers of publicly-owned enterprises. Rigorous planning could be
undertaken in a largely privately-owned system because the owners –
for two decades after 1961 – lacked the self-confidence to challenge the
direction of state policy.
Although the state made private business richer than it could have
dreamed in 1961, their immediate interests were not always the
same. Instant profit-taking conflicted with long-term industrialisa-
tion, rent-seeking with strategic development. But when their objec-
tives diverged, the state always had its way. To maintain this position
of dominance over 20 years and through the enormous growth of the
chaebol, the state needed control over the blood supply of Korean
business – finance.
Just as state autonomy was the result of a lengthy process of strug-
gle – both a domestic class struggle and the effects of a global strug-
gle fought out on Korean soil – so also was the particular form which
capital accumulation took under Park based on the outcome of this
struggle. The Park regime’s blend of public policy was closely linked
causally to the specific configuration of classes with which it was
presented by the preceding historical trajectory.
6
The South Korean ‘Miracle’ in
Decline
Introduction
In 1988, South Korea hosted the Olympic Games in Seoul. The govern-
ment bid for and planned the Games as a message to the international
community that South Korea was a modern, industrialised and demo-
cratic country. But well before the opening ceremony, the South
Korean ‘miracle’ had already begun to unravel.
Massive labour unrest broke out in 1987 and continued for the rest
of the decade. In that same year, a militant democracy movement
emerged on the streets which forced major concessions from the
regime. Within a year of the Olympics, GNP growth was cut in half.
The powerhouses of the boom – the chaebol – were becoming bold
enough to challenge the prerogatives of the state. Conflicts between
state and chaebol over policy became common; in contrast to the Park
era, now the state did not always win them. State economic and social
policy lost its coherence, swinging, sometimes wildly, between one
extreme and another. The key to understanding these changes lies in
the erosion of state autonomy which had been central to the ascending
phase of South Korea’s economic growth. The very success of the South
Korean ‘Midas’ state now began to undermine the basis of its power.
The rise of the working class
The most important reason why the South Korean state was no longer
able to carry out its plans for industrial development with anything
like the old certainty or focus was its inability to control the burgeon-
ing working class movement. Militant organisations of the working
class had been destroyed in the first half of the 1950s and repressed for
150
The South Korean ‘Miracle’ in Decline 151
the rest of that decade and the next by the methods of a police state:
intensive spying in factories, legal restrictions on association, dismissal,
imprisonment and torture of activists.
But the sheer pace of industrialisation in the 1960s, 1970s and 1980s
created wage workers so fast that the mechanisms of repression eventu-
ally could not deal with them. The proportion of wage and salary
workers in the workforce increased from 31.5% in 1963 to 54.2% in
1985.1 The industrial workforce alone rose from 10% of the labour
force in 1965 to 23% in 1983. The service component of the workforce
increased from 31% to 47% in the same period. Farm labour fell from
65% of the workforce in the early 1960s to 38% in the early 1980s.2
From the first economic plans of the Park regime until the late
1980s, cheap labour was a crucial ingredient in the strategy of the
chaebol and the government. In that period South Korean wages were
far below comparable countries. Until the wages ‘explosion’ of
1987–90, the hourly rate of Korean manufacturing workers was just
75% that of the Taiwanese level and 80% of that which prevailed in
Hong Kong.3 Low wages, of course, gave South Korea a huge advantage
over First World producers. Manufacturing wages were just 11% of the
US level and 14% that of Japan.4 The hours worked by South Koreans
actually rose as the industrialisation drive progressed – from 50.5 to
54.3 hours per week between 1975 and 1983 – giving them the longest
working week and the highest rate of industrial accidents in the world
at that time.5
This newly created industrial workforce began to exercise its great
potential power during the early 1970s. The first stirrings began in the
‘leading edge’ industry of Korean industrialisation – textiles and gar-
ments. In the Peace Market area east of downtown Seoul, over 20,000
women garment workers – mostly aged between 14 and 24 – laboured in
more than 1,000 shops under appalling conditions. They worked for an
average 15 hours per day, sometimes in ‘rooms’ with only three feet
between floor and ceiling, so that they were unable to stand upright.
Their daily wage was about the equivalent of the price of a cup of coffee.6
The Peace Market was, and remains, the symbolic starting place of the
South Korean labour movement. It came to prominence in 1970, after
worker activists there appealed to the Office of Labour Affairs for the
enforcement of legal minimum standards of working conditions. Their
appeals were ignored and they demonstrated, only to be beaten by police.
When a second demonstration was also set upon by the police, a 22-year-
old male worker, Chun Tae-il, poured petrol over himself and set it alight
in protest.7 The suicide drew enormous sympathy from workers across the
country and from radical students and other opponents of the regime.
Lee So-sun, the mother of Chun Tae-il, became the most prominent
leader of the first union at the Peace Market – the Chonggye Garment
Workers’ Union (CGWU). It existed under conditions of illegality and
continual harassment from the authorities.
The union office and a small room on the roof of the Peace Market
used to provide workers with training in basic literacy and in union
organising were frequently attacked and closed by the police.8 Lee So-
sun was arrested and charged as a communist. At one point, when
police again attacked the union office, the workers, mostly young
women, fought back and drove them away. They agreed to leave the
building if Lee So-sun was freed. The police broke the deal – beating
and arresting them and jailing eight of their number.9 Despite the
repression, the CGWU survived until forcibly dissolved by government
edict in January 1981.10 The CGWU achieved some better conditions
for its members – including shorter working hours – but its great
importance lay in the example it set for others. Throughout the 1970s
and early 1980s, in a series of tumultuous labour struggles, workers
threw themselves against the repressive edifice of state power and thus
challenged the industrialisation strategy chosen by the Park regime.
Many of these disputes revolved around questions of union democ-
racy. Since the FKTU was so clearly in the pay of management and
government, replacing existing union leaders became central. That
struggles should take this direction was, at first, inevitable. The forma-
tion of independent unions was illegal and subject to state attack, as
the CGWU experience had shown. One important dispute, in which
the question of union democracy was paramount, was at the Dong-il
Textile Company in Inchon beginning in 1972. Then, and again in the
1976 and 1978 local union elections, a militant woman defeated a
male candidate backed by management. After a long battle involving
sit-ins, public demonstrations, strikes, sackings and broad public
support for the workers, the Dong-il women finally achieved some
measure of union democracy. Through numerous disputes such as this
in the 1970s, the basis of a union movement independent of govern-
ment control was being laid. Between 1970 and 1979, 46% of major
industrial disputes concerned questions of the freedom of labour to
organise.11 In virtually all of these struggles, the workers’ actions were
illegal.
Because of the pervasiveness of government intervention in indus-
trial matters, disputes such as these immediately had broader political
implications. One well-known clash of this kind took place in 1979 at
the YH Trading Company, a needlework business specialising in

wig-making in the eastern suburbs of Seoul. After sackings at the plant,
the women workers there set up their own union. It began a sit-down
demonstration. When the company shut down part of the factory and
brought in police, the workers moved their protest to the headquarters
of the opposition New Democratic Party (NDP). After two days there,
1,000 police attacked and ejected them. Workers and NDP members
were injured and one woman worker was killed. The incident put the
regime under great pressure. Even the US State Department described
the police action as ‘brutal and excessive’.12
Disputes such as these attracted huge public sympathy – both
because of the savageness of the government and because the workers
frequently looked for outside help. Often they found it amongst stu-
dents, the developing broader movement for democracy and amongst
some sections of the Christian churches. A powerful front opposed to
the regime was being formed. An important point of intersection
between the workers’ movement and these broader forces was what
became known as minjung thought.
In Korea, old notions of popular democracy and nationalist egalitar-
ianism, summed up by the word minjung, played a crucial role in the
workers’ movement of the 1970s and 1980s. Minjung literally means
‘people’, but it has connotations of the popular, national will and of
an oppressed community. Minjung thought looked back to an ide-
alised, nationally united and largely rural past, as well as forward to a
just future. It was aimed at rallying workers but revered the poor,
including the small proprietor, as a whole. It is nationalist – but not
only nationalist. It is a struggle against oppression partly expressed in
cultural terms. Minjung found a resonance amongst industrial workers,
but it was also widely discussed on university campuses. Minjung
forms of sociology, literature, theology and art were developed. On
university campuses in the 1980s, it was common to see students per-
forming revived peasant music, dance and drama.13 Shamanist rituals
– considered the native ‘folk’ religion of the Korean masses – were
often performed at demonstrations. In one sense, under the condi-
tions of a police state, minjung cultural opposition was safer than
opposition expressed in other, especially Marxist terms.14 However, it
was not much safer. Its adherents could still easily find themselves
arrested, tortured and imprisoned.
Minjung ideas appealed to workers with little working class tradition,
with only a short history as workers and with strong collective memo-
ries of the countryside. By the mid-1980s, large sections of the working
class had considerable experience of their own in battles against

employers and the state and the appeal of a populist ideology with its
roots in rural rebellion declined. Cultural methods of transmitting a
political message, however, continued. But they became more explic-
itly steeped in the experience of the working class. A working class lit-
erature developed, often encouraged by student activists who help set
up small publishing houses for the purpose. Korean workers had begun
to outgrow minjung. By the 1990s, its influence was very much weaker.
Religion and religious institutions played an important part –
although a transitory one – in the Korean working class movement
in its early stages. Minjung thought provided a point of intersection
between working class resistance to the regime and the beliefs of
some Korean Christians. Two organisations in particular – the
Catholic group, Young Christian Workers (JOC) and the Protestant,
Urban Industrial Mission (UIM) – began to involve themselves in the
welfare of factory workers during the 1960s. Lessons in labour law
and union organising were combined with classes in scripture. Some
clergy even took factory jobs as part of their mission. At first they
offered legal courses, with the support of the labour department of
the government, in how to run a union within the FKTU official
structure. But they rapidly became associated with some of the most
important disputes of the 1970s. About 20% of new unions formed
in that decade were assisted by the UIM. 15 By the mid-1970s, the
tame FKTU hierarchy spent a great deal of time attacking both
church groups, claiming they were ‘impure’ forces in Korean society.
Being associated with either could cost workers their jobs or even
earn a visit from the police. In response, workers’ groups linked with
the JOC or the UIM were forced into a semi-underground existence,
meeting late at night, at irregular times and places.16
The Christian churches provided social bonds for people who had
been removed from a network of family and friends by the process of
industrialisation. Young rural migrants, working long hours in factories
far from their homes, experienced extreme isolation. Many found
themselves housed in factory dormitories, closely supervised by man-
agement and frequently shifted between dorms in order to prevent the
growth of networks of resistance. These isolated, uprooted workers
were searching for companionship, solidarity and shelter from a brutal
and intrusive management as much as they were looking for a religious
belief system.17
Finally, the church provided those who wanted to organise a union
with some resources and with a degree of ‘cover’ – a site to organise
which, for a time at least, remained just on the safe side of the law and
its enforcers – a vital legal window in the early period. Under church
influence, about 40,000 workers were organised into unions at around
100 enterprises during the late 1960s.18 Many of the activists who went
on to found the large independent unions of the late 1980s and unite
them in the Korean Confederation of Trade Unions (KCTU) in the
1990s got their original experience here.
Yet during the 1980s, church influence on the labour movement
waned. Just as its attraction in an earlier period was to a recently dislo-
cated workforce, so when workers became more settled, they could form
social bonds in their own community without the church. Also, the
growth of the labour movement began to create a different sense of com-
munity – a community of worker activists. Finally, increasing confronta-
tion, on broad political and as well as economic questions, between the
new unions and the state radicalised unionists further. Activists shifting
leftward, some influenced by Marxism, often found the church too mild.
The assassination of Park
By the late 1970s, the pressure on the regime from various opposition
sources, but especially from the growing working class, had reached the
point where the unity between key state actors began to crack. In the
National Assembly elections of December 1978, the opposition NDP
won the majority of contested seats. Park was able to keep control only
because of his own direct appointments. An attempt to throw the leader
of the opposition, Kim Young-sam, out of the National Assembly caused
riots in the streets – especially in the industrial city of Pusan, his home-
town. The YH strike, connecting as it did, the parliamentary and legal
opposition with a militant strike by workers, also proved a crucial
turning point. Nation-wide protests in support of the YH workers left
the regime unsure whether to employ even greater repression or to
make concessions.
Disagreements over how to respond to this troubling new instability
began to develop within the previously solid military group at the core
of the state machine. In the end, it was the head of the KCIA, one of
the most trusted of Park’s henchmen, who shot him dead at a dinner
party in October 1979. The political crisis created by the assassination
briefly gave the working class greater space in which to organise.
Strikes for economic demands and for the right to form independent,
democratic unions increased. But this brief liberal interlude was ended
by the coup led by Chun Doo-hwan in May 1980.
In the city of Kwangju, capital of the home province of opposition

leader Kim Dae-jung, virtually the whole population – with students in
the lead – rose in opposition. Troops were sent and, in the resulting mas-
sacre of 18 May 1980, the government claimed that 200 citizens were
killed. The opposition said that up to 2,000 died.19 The Chun regime,
having begun with brutal force, continued a policy of harsh repression.
It cracked down on labour organisations. Thousands of activists were
removed from union positions, others were sacked and blacklisted.
Between 1980 and 1983, all autonomous unions were destroyed, 500
news reporters and 80 professors were sacked and 500 politicians either
arrested or banned from taking part in politics.20 The repression of the
early 1980s, however, was a sign of the increased resistance which had
developed to a regime now desperate to survive.21
The upsurge of the late 1980s
Struggles, often by women workers, in the 1970s had begun the

process of developing an autonomous labour movement and broad
support for it. Great economic inequalities were becoming evident in
the industrialisation process. This, and the authoritarianism of the
state, especially after the imposition of the Yushin constitution,
caused many streams of opposition to converge. By the time of Park’s
assassination, the point of convergence was this new labour move-
ment. In the 1980s, the industrial structure of South Korea had
already begun to change. Under the impact of the HCIP, large-scale
engineering, car manufacturing, shipbuilding, steel making and other
heavy industry had begun to supplant light manufacturing, especially
textiles and garments. The new plants were much larger than before
and were staffed predominantly by male workers. The centre of the
industrial struggle began to shift.
Various pressures building on the regime, including the rise of
working class resistance, pushed the government into an abrupt rever-
sal of position on the structure of the state and the question of democ-
racy. An announcement in June 1987 by Roh Tae-woo, the chairman
of the ruling Democratic Justice Party (DJP), that the next President
would be directly elected was the catalyst for the great workers’
upheaval of 1987. The signs of an industrial upsurge were already
present before Roh’s volte-face. Long before the declaration, there were
already sporadic but explosive outbreaks of action across the country.
In April 1980, 3,500 coal miners at Sabuk in Kangwon province rioted
and took control of the town for several days. Their fury was directed
at the officials of the FKTU, who had done a deal with management.
The leaders of this virtual insurrection were eventually jailed and
martial law was declared in the area. In 1982, 650, mostly women,
workers at the Wounpoong Industrial Company organised a sit-in to
protest sackings and the use of kusadae thugs. Plain clothes police
dragged out 250 and put 58 in hospital. The next day tear gas was used
to remove the rest of the workers.22
In late 1983 and 1984, Chun loosened the controls on opposition
activity somewhat. The relaxation only encouraged another wave of
struggles. Even when the brief political abertura ended and Chun
shifted back to full-scale repression, the movement continued. There
was now a layer of working class activists who had fought in an
underground manner for a decade or more, been victimised and, in
many cases, beaten and jailed. They constituted an experienced and
politically sophisticated cadre who knew how to organise and to
appeal for support. Solidarity strikes and demonstrations were
becoming common as a result. In one of the most important dis-
putes of this period, at Daewoo Apparel in the Kuro Industrial Park
in June 1985, a strike that began as a protest at the arrest of three
union leaders spread to other plants. Solidarity demonstrations were
organised outside the gates of the factory for the ten days of the
strike. Finally, a huge police assault and the sacking of 2,000 workers
ended the struggle. But the pattern – of large-scale, militant and
determined industrial action defending union rights and receiving
broad support – was established.23
Two things were politically important in the many disputes such as
these in the few years before June 1987. Firstly, they involved conflict
with the state at several levels. Secondly, they attracted broad popular
support. Confrontation with the state was inevitable since nearly all
strikes were illegal and many, perhaps 40% of the total, involved vio-
lence.24 Government restrictions on union activity had served to
restrict and postpone industrial action. But they also made it more
political, and even insurrectionary when it happened. Clashes with
police were almost routine. Since public demonstrations and sit-ins
were an important tool of union organising, state bans on protests and,
once again, the intervention of the police followed. And there was an
ongoing conflict between the new militant activists and the FKTU
officials, who operated virtually as an arm of the authorities.
Secondly, despite the fact that these disputes involved confrontation
with the state at all these levels, or perhaps because they did so, they
were widely supported by most South Koreans in the late 1980s. A
survey conducted in 1987 found that 56.9% of people believed that the
bosses were responsible for labour disputes. Another 18.7% blamed the
government. Only 6.6% blamed the unions.25 Fully 72.6% of industrial
workers blamed management and another 11.9% blamed the govern-
ment. Only 3.5% blamed the unions. Just 8.5% of all respondents
blamed radical movements (the main argument used by the govern-
ment) and only 6% of industrial workers did so.26 Even areas of the
workforce which were not highly unionised and had not been heavily
involved in the action also tended to support the militants. Amongst
clerical workers, 58.8% blamed the bosses and 17.6% blamed the gov-
ernment. Only 8.1% blamed the unions.27 Thus the key tools of politi-
cal control which the state had used since at least 1961 were being
challenged regularly in the streets and the factories. And the militants
were being (at least) passively supported by most of the population. As
these challenges mounted on a number of fronts, the effectiveness of
state controls was undermined.
After the democracy declaration in June 1987, a dramatic working
class upsurge took place that changed forever the balance of forces in
the conflict between the state and its growing number of opponents.
Roh’s limited liberalisation opened the floodgates for an enormous
wave of struggle, the like of which had not been seen in Korea since
1946. Liberalisation was not meant by the government to allow union
organisation to develop. It was strictly limited to the question of direct
elections for President. Nevertheless, it seemed to be a visible chink in
the armour of the regime and thus gave workers greater confidence to
defy both it and their employers. Pent-up bitterness poured out of the
new struggles. At a strike at Daewoo Motors, the workers forced the
company presidents and vice-presidents to kneel in front of them in
disgrace. The same happened to executives of many other companies.28
As well as demands for wage rises and improvements in working condi-
tions, typically workers struck for the right to organise their own
union, an end to the FKTU presence and the return of workers vic-
timised for union activities in the past. In what became known as the
‘hot summer’ of 1987, more than 3,700 labour conflicts took place
between July and September.29 Between that summer and late 1989,
there were more than 7,100 disputes and the number of unions rose
from 2,725 to 7,358.30
Moreover, most of these disputes were taking place in the heart of the
beast – within the chaebol and in the largest plants. The 109 day strike at
Hyundai Heavy Industries, finally ended only by a full-scale police attack,
was reported to have cost the company 454.5 billion won (US$700
million).31 In the car industry, then undertaking a massive export drive,

strikes averaged 27 days in 1988; at Daewoo it was 90 days.32 Genuine
union organisation spread rapidly. The first autonomous union at
Hyundai was formed in July 1987 by just 120 workers. Within a week it
had 1,400 members and after a month workers from 13 companies in the
Hyundai group had joined.33 Between July and September alone 1,060
new unions were organised.34 Whatever credibility the leaders of the
state-controlled FKTU unions had was seriously damaged. On some occa-
sions, these officials were forced to manoeuvre to support the workers’
demands. On others, they were swept aside and new leaders elected or,
in some cases, illegal unions formed. Nearly half of the presidents of
enterprise unions resigned.
For the most part, the strikes were not centrally coordinated. There
were a few city-wide organisations, such as the Inchon Free Workers
Association. But usually, strikes spread by example. A higher level of
solidarity action than before was also made possible by the fact that
the strike wave included the great industrial estates such as Ulsan,
Changwon, Masan, Okpo and Guro, where many large factories were
concentrated in close proximity. Radical workers referred to the Masan-
Changwon complex in 1987–88 as a ‘liberated zone’.35 Efforts to estab-
lish regional labour councils and to link workers in the same chaebol
eventually led to the attempt to form a national, independent union
federation to counter the FKTU. A National Alliance of Trade Unions
was formed on 22 January 1990. It was illegal and almost its entire
leadership was immediately arrested. Nevertheless the drive to form a
genuine national union movement continued.
Managements were forced to grant substantial pay increases. Wages
now began to rise sharply in industry generally and especially in heavy
industry. The result was a major change in industrial strategy on the
parts of both management and the state. Because of working class pres-
sure, South Korea was rapidly losing its competitive advantage of low
wages in a range of products.
As well as the internal pressures on wages, two other international
factors intervened to force a change in industrial strategy. The first was
the construction of protectionist barriers to the US market. Although
not primarily aimed at South Korea, growing protectionism in the US
during the 1980s undercut the export goals of the regime.36 Secondly,
competitors, especially in textile production and cheap electronics
manufacture began to multiply. China and the Philippines, among
others, could offer much lower wages to investors than could South
Korea, especially after the strike wave of 1987–90.
The middle classes
Industrialisation created a powerful, and potentially insurrectionary

working class. It also changed the nature of the middle class in Korean
society – both the ‘old’ middle class of petty proprietors and the ‘new’
middle class of technical experts, middle level management and profes-
sionals. The small peasant proprietor declined rapidly as a proportion
of the population. But the number of urban small proprietors – such as
shopkeepers and small contractors – increased. The non-farm self-
employed – mostly small retailers or small businesspeople in services –
increased between 1955 and 1985 from 7.5% to 21% of the labour
force.37 An even greater increase took place in the numbers of the ‘new’
middle class – who were needed to staff the huge bureaucracies of the
state and business and to provide technical expertise. The proportion
of professional, managerial and white collar workers (not including
sales employees) increased from 4.8% to 17.1% of the workforce
Following the need for more professionally trained people, the
numbers of tertiary-level students also rose rapidly in the 1960s and
1970s. As the industrialisation push developed, significant numbers
from both sections of the middle class moved into varying degrees of
opposition to the regime. The most volatile and radical were the stu-
dents. It was students who led the revolution of 1960 which brought
down the Rhee regime. During the following decade, sporadic protest
actions continued on university campuses – especially against the nor-
malisation of relations with Japan in 1965. In the 1970s, a mass radical
student movement began to form and to move into violent opposition
to the Park government. Repression was severe. Police were stationed
on university campuses in the 1970s and early 1980s. Professors and
students who expressed oppositionist sentiments were expelled or
arrested. From the 1970s, small numbers of students, some of them
Christian activists in the UIM or the JOC, involved themselves in the
independent workers movement. Some students became involved in
teaching in workers’ schools – such as the one run by the CGWU.39
Some took blue collar jobs with the aim of mobilising workers and
forming trade unions, falsifying their background in order to escape
detection. In the 1970s and 1980s, an estimated 3,000 students took
jobs in industry with this in mind.40 In one year alone, 1985–86, the
police claimed to have unmasked 671 such agitators.41 The penalty for
being discovered was severe. In 1986, a woman student, Kwon In-sook,
was found working in a factory. She was arrested, sexually assaulted
and tortured with electric shocks. She attempted suicide. Finally, she
was sentenced to a year and a half in jail for lying on her employment
application.
The government often blamed industrial stoppages on these ‘dis-
guised workers’. That was certainly an exaggeration. However, the stu-
dents did play an important role in generalising the lessons of workers’
struggle. Since the press was tightly controlled, it was sometimes
student leaflets and rallies which spread the word of the growing
working class militancy and so took resistance to the regime beyond
the factory or the factory district. In October, 1984, a series of student
demonstrations in and around Seoul demanded free trade unions,
guaranteed minimum wages and other basic working conditions.42 At
the Daewoo Apparel strike mentioned above, students demonstrated in
support – often clashing with the police.43
The brief period of liberalisation under Chun from late 1983 also
gave radical students a chance to regroup. As a result of the University
Autonomy Measure of December 1983, police forces were removed
from campus grounds and some expelled professors allowed to
return.44 Experienced student activists, freed from prison, could now
rebuild the networks of resistance which had been crushed in Chun’s
coup in 1980. In 1984, they managed to form a National Alliance of
Students, with student associations from 42 universities represented.45
Throughout the 1970s and 1980s, the students were consistently the
most left-wing element of the democracy movement and the section of
it which most clearly oriented itself to the working class in an attempt
to overthrow the regime. In the midst of many such struggles, close
links were built between radical students and the developing workers’
movement, some of which remain today.
From the second half of the 1970s and into the 1980s, a broad
middle class reform movement began to develop. For most of this time
it existed in an uneasy alliance with radical minjung theorists, worker
activists and revolutionary students. A range of issues concerned many
in the middle class. First, there was the high priority given to the
chaebol, which some small businesspeople saw as unfair. Also, in the
late 1970s, inflation rose as a consequence of massive government
spending on the big push into heavy industry. High rates of inflation
eroded middle class savings. And escalating real estate prices began to
take the prospect of home ownership from the grasp of many.46
Yet even relatively mild oppositionists were constrained by the
nature of the authoritarian state they faced. Excluded from access to
the corridors of power and prevented from undertaking public protests
in the streets, many of them gravitated towards others similarly

excluded – the more radical movements of workers and students.
Therefore, by the late 1980s there was great sympathy from middle
class people for demonstrations against the regime – especially when
they involved the demand for democracy. Attitude surveys conducted
in the middle of that decade showed that the middle classes had strong
sympathies for demonstrations by workers, slum dwellers and
students.47 In the late 1980s, farmers also followed the lead of the
workers’ movement and began a series of major protests against a
government irrigation tax. A total of 178 farmers’ protests were
recorded in nearly half of South Korean counties between July 1987
and February 1989.48
In 1984, two national groups were formed: the Council of People
Democracy Group (Min-min-Hyup) and the National Council of
Democracy and Reunification (Kukmin Hoei). These were merged in
1985 into Democracy-Reunification-People-Alliance (People’s Alliance
– Mintong’ryun – for short).49 At a parliamentary level, these groups sup-
ported the NDP, whose success in the 1985 National Assembly election
in winning 30% of the seats made it the premier opposition party.50
Middle class concerns in South Korea in the 1970s and 1980s did
not challenge the existence of the chaebol in the way that many in
the workers’ and students’ movements did. They did, however, ques-
tion the special connection between the chaebol and the state. What
was, in the 1960s and for much of the 1970s, seen by many as a pro-
ductive relationship and the key to economic development, was
increasingly thought of, under the Chun and Roh governments, as
corrupt and disgraceful. Even mild protest groups were under pres-
sure to take more militant action in the 1980s by two forces: the
intransigence and brutality of the Chun regime and the gathering of
more radical opposition forces which were challenging the regime on
the streets and in the factories. In 1986 alone, the government itself
estimated that 1,700 protest demonstrations took place.51
On 13 April 1987, Chun announced that he would not accept con-
stitutional revision – the direct election of the President – during his
term. This meant that the next president would be chosen by the
Chun regime itself. Hopes for a smooth transition to democracy
were dashed and the regime continued to use barbaric force. The
sexual torture of a female student activist by police in Inchon out-
raged many. Then the torture and murder of a Seoul National
University student, Park Jong-Chul, by National Police in Seoul
seemed to galvanise the opposition.52 In May 1987, the Headquarters
of the National Movement for a Democratic Constitution was estab-

lished to coordinate the push for democratic rights. It launched a
series of massive marches beginning on 10 June 1987, which
involved millions of Koreans. Although they included students,
workers and middle class people, the Korean media dubbed it a
‘middle-class revolution’. Whatever its precise class composition, it
was clearly the largest movement of protest and opposition in
Korean history. The choice facing President Chun and Chairman
Roh was whether to repeat the 1980 Kwangju massacre on an even
greater scale and risk revolution or to make concessions. It was these
marches which finally convinced them that concessions had to be
made. The June democracy declaration was the result.
The opposition splits – and comes to power
Until the democracy declaration, an uneasy alliance had been develop-

ing between the middle class opposition and the growing working class
movement. The closest point of intersection between the two was
the radical student movement, which was, in social background, of the
middle class although much of it was politically-oriented to the
working class. The most powerful element, by far, of the opposition
was the workers’ movement. But it produced no political expression –
no party which could challenge for power at the level of the state as a
whole. Therefore, the field was left open to quite socially conservative
politicians, above all the ‘two Kims’ – Kim Young-sam and Kim Dae-
jung – to take advantage of the erosion of the legitimacy of the regime.
Neither wanted to associate with the radical elements of the broad
opposition movement. Each had his base in small and medium busi-
ness and in the middle class generally and each was attempting to
build links to the chaebol.
Regional loyalties – an important factor in Korean politics – also
played a part in the constituencies of these opposition leaders. Both
the Park and the Chun governments had discriminated against the
Cholla provinces in favour of their home province – Kyoungsang. Both
economic development and key positions in the state at national level
bypassed the Cholla provinces which accordingly harboured feelings of
resentment and oppression. The core of support for Kim Dae-jung was
in Cholla. Kim Young-sam’s base was in Kyoungsang.
After the democracy declaration, all of these fundamental differences
between components of the opposition began to express themselves.
The milder middle class democracy activists were placated by Roh’s
concessions. Even more importantly, since the democracy declaration

had set off a huge wave of workers’ strikes, the material interests of
some of the middle class – those who employed labour – were imper-
iled. The workers’ offensive hastened the inevitable rupturing of the
class alliance of the period up to June 1987. The democracy declaration
also allowed regional and personal rivalries between the leading oppo-
sitionists to become more visible. Unable to agree on a joint candidate
for President, the two Kims both ran, splitting the vote and allowing
Roh Tae-woo to become President in 1988. But he managed to do so
with just 36% of the popular vote. It was the bickering of the opposi-
tion, rather than the credibility of his own party, which had lifted him
to office.
The Roh Presidency involved liberalisation at some levels, but a
continuation and even intensification of repression at others. Greater
press freedom was allowed. Some 1,492 periodicals and newspapers
were newly registered between June 1987 and April 1989.53 But the
Roh government cracked down even harder on labour. One estimate
suggests that, under Roh, more than three times as many unionists
were arrested as under Chun.54 By the middle of July 1990, there were
1,400 political prisoners in South Korea. More than half of these were
workers or labour activists.55 The new, independent Trade Union
Congress was declared illegal and its leaders arrested while 300 intel-
ligence agents were deployed in factories.56 Roh was making conces-
sions to the middle class at the same time as launching a major
assault on workers.
Meanwhile, Kim Dae-jung’s Peace and Democracy Party (PDP)
became the leading opposition party at the 1988 National Assembly
election – weakening Kim Young-sam’s forces and credibility. Now, in
a number of covert meetings, some of the leaders of the chaebol began
to urge Kim Young-sam to deal with the old ruling party. The result
was the formation of the ‘Grand Coalition’ in 1990 – a merger of Kim
Young-sam’s party with the government party and another small con-
servative party to form the Democratic Liberal Party. The new party
could boast more than two-thirds of the seats in the National
Assembly.
The Grand Coalition can be seen in a number of ways: as an act of
treachery by an ambitious Kim Young-sam or as a final breakup of the
middle class/working class alliance for democracy that formed in the
period before the democracy declaration of June 1987. It was each of
these. It was also a desperate act on the part of the core of the military
which had controlled state power since Park’s coup in 1961. Weakened
by strikes, demonstrations and protests over nearly two decades, they

lacked any legitimacy amongst broad sections of the population. Even
the increasing use of force could not be a long-term solution for them.
So they decided to deal with one of their opponents – albeit the most
conservative of them.
After the Grand Coalition was formed, a further power struggle
began within it. The old military ruling bloc was preserved but with
less control than before. Kim Young-sam was careful to distance
himself from his new political partners since, by this time, the wrong-
doing of the military was being judicially investigated. It was clear to
all in the new ruling party that a credible candidate for the next
Presidential campaign could not come from the military core of the old
regime. Besides, the major concern of this military core was no longer
to remain at the centre of power but to save itself from prosecution
and jail under the next government. It was in this context that Kim
Young-sam was chosen as the coalition’s candidate for the 1992 presi-
dential election. Even though the military were not happy with the
choice – and Roh and others resigned from the coalition as a result –
they had no serious alternative. In 1992, Kim Young-sam became
the first President since 1961 whose political career did not begin in
the military. The final humiliation for the officers who had run the
state for so long was the arrest of Chun and Roh in 1995 and the sen-
tence of death imposed on them in 1996 for abuses of power. Although
they were later pardoned by President Kim Young-sam, it was clear that
the military no longer had a reserved place at the head of the table of
state power. The popular opposition movement which had developed
in the 1970s and 1980s had succeeded in this at least.
The bourgeoisie
Throughout the 1970s and until the democracy declaration of 1987,

opposition to the Park and Chun regimes grew among many sections
of South Korean society. But the social group which had been
strengthened most by industrialisation in those years – the big bour-
geoisie in control of the chaebol – played no significant part in the
democratic movement.57 In part, this was because militant workers’
organisations and radical student groups were so central to it. The
chaebol could hardly join a movement which was cheering the strikes
and sit-ins besieging their factories. The state was still the guarantor
of low wages and a controlled workforce. While the chaebol did not
agree with the aims of the democracy movement and especially of its
radical components, they did have their own – often bitter – com-
plaints about the government. Beginning in the 1970s, and then with
greater force in the 1980s, the chaebol began to demand greater
freedom from the many restrictions which the statist model of
economic development had imposed on them.
While the chaebol often disagreed with state policy in the 1960s and
1970s, it was only in the late 1970s that they began to develop the
political and social weight, and the self-confidence, to dare to resist it.
As they did so, the state retreated step by step, giving up more and
more of the levers of control which had been the basis of the economic
miracle. An early indicator of this shift in state policy was the way in
which the state dealt with the economic crisis of 1980. As a result of
higher international interest rates, the recession in the industrialised
economies and the political shock created by the assassination of Park,
the South Korean economy turned down sharply. Real GNP fell by
5.2% in 1980, inflation hit 29% and the current account deficit rose
alarmingly.58 In the world recession of 1973–74, the government had
responded with massive spending programs, plans for industrial expan-
sion and the conquest of new markets. In contrast, in 1980, it cut the
government budget and introduced a degree of deregulation.59 In the
1990s, the retreat of the state continued. The chaebol were given a freer
hand to dispose of their capital and raise finance as and where they
saw fit. The developmentalism of the state was withering away.
One of the main reasons for this change in the balance of power
between the state and the chaebol was simply the enormous growth of
the latter in the 1960s and 1970s. As the major chaebol came to so com-
pletely dominate the South Korean economy, it became almost impos-
sible for the state to allow them to falter – because to do so would
mean major dislocation for the country.60 The chaebol grew to such
proportions because of state support. But once large, it became difficult
to arrest their growth. Credit allocation, for example, shows a bias for
size. That is, banks and investors are more likely to favour large firms as
better risks than small ones. Since credit expands business further, in
an economy such as South Korea, which was and is heavily reliant on
credit, the process of industrial concentration is difficult to stop.
This was despite several attempts by the Chun and Roh governments
to restructure the chaebol and restrain their growth. Chun attempted to
direct more finance to small and medium enterprises. But the scheme
was wrecked by the acquisition of large slices of the financial institu-
tions by the chaebol themselves – which had the effect of directing an
even greater share of the available finance to the chaebol. After 1988,
the Roh government attempted to restrict the chaebol to their core

firms, trying to direct credit to only three core businesses in each
group. Some of the biggest chaebol managed to subvert the plan by
siphoning credit from the core businesses to others in the group.61
While the policy of both governments was to force them to split into
smaller and more flexible units, in practice the chaebol increased their
control over the economy as a whole by strengthening their grip on its
key sectors.62 In some cases, such as that of Samsung, chaebol cut the
number of subsidiaries, but by divesting themselves of the least
profitable and then expanding into new growth areas, still managed to
expand the overall size of their businesses.63 This apparently unstop-
pable growth and concentration of the chaebol continued after 1992
despite the early policy of President Kim Young-sam to break them
up.64 No government since the 1980s has been able to discipline or
restructure the chaebol. Their sheer size, diversity, increasing control of
finance and importance to the economy as a whole has fundamentally
altered the balance between them and the state.
A second reason why the state began to lose its ability to control the
chaebol by the 1980s was the much greater global reach of their activi-
ties and the intertwining of their networks with foreign corporations. A
case in point is car production. By 1980, Korean car companies had
already begun to link up with American manufacturers. In August
1980, the new President, Chun Doo-hwan, announced a reorganisation
of heavy industry designed to restrict competition amongst Korean
producers and maximise economies of scale. As part of this plan
Hyundai and Daewoo were ordered to exchange equity such that each
would have a monopoly in its own area. Hyundai was to take over car
production and Daewoo would concentrate on power generation. The
founder/owners of each – Chung Ju-yung (Hyundai) and Kim Woo-
chung (Daewoo) were instructed to work out such an exchange within
a week. Both were reluctant, but had no choice except to agree.
General Motors, however, had a joint venture in place with the auto-
motive arm of Daewoo. GM management told Chun Doo-hwan per-
sonally that his plan wasn’t satisfactory. This time, the government
retreated – its rationalisation plans derailed.65 As similar linkages
between South Korean and foreign companies began to expand in the
1980s, the state was to find it increasingly difficult to impose its will.
Beginning in the early part of that decade, the chaebol began to
invest outside South Korea. Growing protectionism in the advanced
countries made the old strategy of producing at home and exporting
difficult for industries such as electronics and textiles. And after 1987,
working class militancy had forced up wages to the point where some
industries were barely viable in South Korea. North America was the
destination for most Korean overseas investment in the early 1980s. By
1992, Southeast Asia had caught up to it. This suggests that the earlier
outflow of investment capital was related to attempts to overcome pro-
tectionism in the US market. Later, overseas investment was being
driven by higher wages in South Korea and the search for low wage
economies. By the end of 1994, Korean companies had begun 2,650
projects overseas, involving investments of US$4.2 billion.66 Globalisa-
tion (segyehwa) even became an important political slogan of the Kim
Young-sam government during the 1990s.67 As a significant part of
their operations were located outside the country, the chaebol were
simply not prepared to accept South Korean state control. The domes-
tic political consequence of segyehwa was to further weaken the ability
of the South Korean state to direct chaebol investment, to plan an
industrial strategy or to limit the sources and amounts of finance for
the chaebol.
Another factor speeding the interpenetration of Korean and foreign
capital was the opening of Korea to capital inflows. In the 1960s and
for most of the 1970s, foreign direct investment, when it was allowed
at all, was tightly regulated. This began to change in the 1980s. The
expansion of heavy industry under the HCIP created great pressures to
import high-technology equipment and processes. Often foreign
investment capital came with them. Measures to liberalise capital
inflows began in 1981 with foreign securities firms allowed to open
offices in Korea. At this stage, still only very limited foreign invest-
ments were allowed on the Korean Stock Exchange (KSE). But through-
out the decade, the obstacles to foreign investment were gradually
dismantled. The amount which required approval by the government’s
Foreign Investment Deliberation Committee was gradually raised.68 In
1992, foreigners were allowed direct access to the stock market. At that
stage foreigners owned only 4.1% of stocks listed on the KSE. Four
years later they owned 11.6% of listed stocks.69
Just as the barriers to foreign capital were lowered in the 1980s, so
were many of those which restricted imports. Average tariff rates fell
from 31.7% in 1982 to 21.9% in 1984.70 The import liberalisation ratio
(the ratio of types of goods allowed to be imported without state per-
mission to the total number of types actually imported) rose from
68.6% in 1980 to 87.7% in 1985.71 Lowering the barriers to the import
of goods and capital further weakened the controls available to the
state.
The major means by which the state controlled the operations of

the chaebol in the 1960s and 1970s was control of finance. Thus an
important indication of the changing relationship between state
and chaebol in the 1980s was the privatisation of banks and non-
bank financial institutions. Denationalisation began under Chun in
1981 with the sale of Hanil Bank. By 1983, the state had divested
itself of all five major government-owned commercial banks.
Insurance and other finance companies, many of which were
already owned by the chaebol themselves, were given a freer hand.
Non-bank financial institutions (NBFIs), now quite deregulated
under Chun, became key financial players, absorbing 51.3% of all
deposits by 1987.72
Despite the 1983 privatisation, the government had not fully given
up control of the banks at this stage. It kept strong oversight and reg-
ulatory powers – setting rates and adjudicating policy loans. And it
attempted to prevent the chaebol from completely acquiring the
banks themselves by setting a 10% ceiling on the shares of each
stockholder.73 The government was worried that completely deregu-
lating interest rates, in circumstances where most businesses were
highly leveraged, would lead to widespread bankruptcies. Therefore,
most of these restrictions remained in force until they were gradually
removed in the late 1980s and early 1990s – especially with a major
liberalisation of interest rates in 1988.
Financial liberalisation and denationalisation of banks and NBFIs
was touted by Chun as a means by which the near monopolistic
power of the chaebol could be lessened. But ironically, after their sale
the chaebol emerged as major owners of these institutions. Despite
the 10% legal limit on bank ownership, the ten largest chaebol effec-
tively held up to 52% of all bank shares as a result of their control
over NBFIs and by the simple ruse of registering bank shares in the
names of family members of the chaebol owners.74 As a result, finance
tended to flow even more strongly to the chaebol themselves –
increasing their size and power further. Indeed, economic concentra-
tion doubled in less than five years after the privatisation.75 Although
the privatisation of banks did not at first lead to a total loss of state
control over finance, it did reduce the leverage of the state over the
chaebol since they could now turn to foreign lenders at home and
abroad. Foreign banks were allowed some access to the Korean
market in 1981 and restrictions on their operations were also gradu-
ally loosened. US banks and finance companies got permission in
1985 to expand operations in South Korea.76 In 1992 a further liberal-
isation of finance, the ‘1993–97 Financial Sector Reform Plan’,

allowed much greater foreign participation and began to remove the
remaining controls on the movement of capital. By the middle of
the 1990s, the domestic financial system was, in all essentials,
deregulated.
One of the major effects of the liberalisation of finance during the
1980s and 1990s was increasing indebtedness of the chaebol. They were
already highly leveraged in the 1960s and 1970s. But at least then their
loans were regulated and only approved by the state for specific pur-
poses associated with the Five-Year Plan of the time. During the 1980s
and 1990s, chaebol borrowing became truly out of control. The chaebol
had become geared to expansion through credit. Then, from the late
1980s and especially in the 1990s, they took full advantage of their
new freedom from state restrictions on borrowing. Between 1992 and
1996, overseas funds loaned to South Korea rose by 158%. In the same
period, lending by banks from the developed countries to other devel-
oping countries rose only 44%.77 By March 1998, some estimates put
chaebol indebtedness at an impossible US$600–700 billion.78 In many
cases the chaebol used their enormous interlinked property holdings as
collateral and loans were granted on this rather than on the merit of
the investment plan. The complicated structure of the chaebol enabled
them to disguise poor performance and the real level of their debt in
order to continue to attract loans. Moreover, as state restrictions were
removed, a larger proportion of chaebol debt became short-term –
making their financial positions increasingly insecure. The situation of
the economy as a whole became more precarious as a result. Whereas
short-term debt had made up 34% of South Korea’s total external debt
in 1992, it constituted 63% of it by late 1996. By the middle of the
following year, the country’s short-term debt amounted to more than
three times its reserves.79 By 1997, Korea had the highest proportion of
short-term debt of any country in Asia, Latin America or Eastern
Europe.80
This shift to short-term debt reflected the decline of long-term plan-
ning by the state and of its ability to impose such plans on the chaebol.
From the fifth Five-Year Plan (1982–86) there was an increasing
emphasis in the planning documents on removing state controls and
encouraging market competition. By the sixth plan (1987–91) it had
become the key objective.81 The chaebol were no longer prepared to
accept state planning and, with their great size, importance to the
South Korean economy, independence in financing and global sweep,
could not be made to do so. Chung Ju-yung, founder of Hyundai, told
a joint meeting of President Roh’s Democratic Justice Party (DJP) and

the Federation of Korean Industry (FKI) in October 1988 that:
In the past [we] recognized that it was appropriate for the bureau-
cratic elite to direct [our companies]. But the passion that entrepre-
neurs feel in regard to the development of [their] companies is
strong, and the era of desktop policy-making by the bureaucracy is
over. If bureaucrats interfere in company management by drawing
up excessively detailed plans, the result will only be to impede
company development.82
The government of Kim Young-sam, from 1992, was also committed to

giving the chaebol a much freer hand. In a final blow to the old, power-
ful state apparatus which had organised, guided and controlled the
chaebol, Kim announced the total abolition of the EPB as part of his
government’s bid to join the OECD.
As the machinery of planning was weakened in the 1980s and largely
dismantled in the 1990s, chaebol investment became much less
focussed on the great national project of industrialisation. Short-term
profit-taking, rather than long-term capital accumulation, increasingly
came to dominate their activities. Company expenditure on research
and development fell sharply in the 1980s and spending on plant
modernisation and new equipment also declined. Writing in 1996, a
former Minister of Labour, Governor of the Korea Development Bank
and Vice-Minister at the EPB, the Ministry of Finance and the Ministry
of Construction claimed that the chaebol ‘have become reluctant to
build more new production facilities. They prefer to invest in service
industries such as the leisure industry or they avoid investment alto-
gether’.83
Without state discipline, a great deal of chaebol investment was diverted
to speculative areas, especially the Seoul real estate market and arbitrage
money lending – exploiting the difference in rates between bank loans
and the curb (unofficial) market. By 1988, only 10% of the vacant land
owned by the top 30 chaebol was earmarked for plant construction.84
Most of the rest, it seems, was held for speculation. By 1990, these same
chaebol held US$15 billion in real estate at home and abroad.85 To appre-
ciate the scale of these activities it is useful to mention one estimate
which suggests that capital gains from real estate speculation in 1988 and
the first half of 1989 were 2.2 times the South Korean GNP.86
The decline of state planning allowed much of the surplus available
for investment to be diverted to essentially unproductive fields. In the
process, the public perception of the chaebol also changed. Once seen
by many as the leaders of the nation’s development, by the late 1980s,
the chaebol were increasingly perceived as mere rentiers, symbols of
flagging growth and greed. Since all governments in the 1980s and the
1990s failed to curb these trends on the part of the chaebol, they too
lost the legitimacy with which economic growth had once provided
them.87
Corruption
Links between the chaebol and the South Korean state were always
tainted by corruption to some degree. But the scale and, in important
ways, the nature of the corruption changed in the governments to
follow Park. Chun was probably the most corrupt. Charges brought
against him in 1995 revealed that he had accepted bribes
of US$273.35 million and accumulated a political slush fund of
US$890 million during his seven year Presidency.88 Most notorious
was the Ilhae Foundation, established by Chun supposedly to collect
funds for the families of 18 South Korean officials killed in a 1983
bomb blast in Rangoon. In fact, Ilhae acted as a conduit for bribes
from businessmen. It eventually amassed about US$90 million.89
Chun, and after him Roh, systematically demanded large amounts
from business – both for personal use and for the support of their
political apparatus. Chun’s wife had her own organisation – the
Saesedae Foundation – to demand money for the same purposes. His
younger brother, Chun Kyung-hwan, was later found guilty of
embezzling huge sums from the Saemaul Undong movement.90 Rorts
continued into the 1990s. The Hanbo scandal during the tenure of
Kim Young-sam showed the President’s son to have used his connec-
tions to arrange US$6 billion in commercially non-viable loans for a
steel firm with which he was connected.91 Also, various state bodies
in the 1980s and 1990s frequently demanded that business make
contributions towards special projects – such as the preparations for
the Olympics in 1988. These kinds of taxes in 1983 amounted to
7.79% of corporate value added. The official corporate tax was only
5.21% of value added.92 According to a FKI survey (admittedly not an
entirely unbiased view) in 1986 these ‘unofficial taxes’ amounted to
more than 1% of total sales and about 7% of the total labour costs of
the chaebol.93
Money from the chaebol was demanded with menaces. Failure to pay
could mean savage government reprisals. Yang Chung Mo, the chair-
man of the Kukje group, at one time the seventh largest chaebol,
claimed that the government had turned against him after he had
refused to ‘donate’ as much as required to the Ilhae Foundation.94
Kukje was broken up in February 1985 and parts of it handed over to
other chaebol as a result.95
Corruption under Park was different in two other senses from that
which took place under his successors. Firstly, there was a different
purpose. Park demanded money to establish his political party.
Corruption later was much more directed to personal enrichment.96
Secondly, Chun and Roh especially, allowed those below them to take
bribes on a large-scale whereas Park had kept a fairly tight control on
his officials. During the Chun and Roh governments, a dozen minis-
ters, a similar number of senior military officers, half a dozen presiden-
tial advisers, the chief justice of the Supreme Court, the speaker of the
National Assembly, the chief of the National Police Administration, the
mayor of Seoul and many others were charged with corruption.97
Under Chun and Roh the entire state, no longer focussed on industrial
expansion, had begun to degenerate into a simply parasitic body. With
the loss of this focus, its internal discipline weakened and individuals
within it were much freer to pursue their self-interest. Institutional
decay had set in.
This new, entirely parasitic aspect of the state’s operations naturally
antagonised the chaebol. In the Park era, they had received enormous
benefits from the support of a developmentalist state. As the state
ceased to operate in a developmentalist way, yet still demanded con-
siderable resources from them, the chaebol leaders began to object to its
exactions. Moreover, since the balance of power between the state and
the chaebol had shifted by the 1980s and 1990s, the chaebol felt bold
enough to protest in a way they would never have dared in the 1960s
and 1970s. In 1988, the founder of Hyundai, Chung Ju-yung told a
National Assembly committee that he and other businessmen had
been forced to give large sums to the Ilhae foundation. The alternative
was to endure government reprisals.98 Throughout the 1980s and
1990s, business became increasingly candid about the demands made
on them and critical of governments and their meddling.
Public antagonism between chaebol and state in the 1980s and 1990s
altered the perception of the relationship between the two in the
minds of ordinary Koreans. In the 1960s and 1970s, they could be seen
to be in a partnership aimed at building a new, modern Korea. By the
1980s they each seemed to have corrupted each other: the state by
chaebol money, the chaebol by being allowed by the state to become
greedy speculators rather than the pioneers of a glittering, wealthy
future.99 These perceptions represented a blow to the legitimacy of

both state and capital and to the alliance between them.
The changing bureaucracy
Under Park, the key personnel directing the state – at both political
and bureaucratic levels – were serving and former military officers.
Even towards the end of the Park presidency, in 1975, 66% of the
Cabinet and 22% of the National Assembly had a background in the
military.100 This military/political group, accustomed to command and
motivated by strong nationalist sentiments, had a strong predisposi-
tion to state control of economic affairs. Non-military technocrats
played an important – but still subordinate – part. At first, because it
came to power on the back of a military coup, the Chun government
reinforced the power of the military within the state apparatus. In
1982, over half the members of the National Assembly were former
military officers.101 At lower levels as well, the influence of the military
initially increased under Chun. After the 1980s coup, Chun cleaned
out many sections of the state which he believed could not be trusted.
About 5,000 low-level government bureaucrats were sacked and
replaced.102 Under the precarious conditions of a government which
owed its existence to a recent coup, Chun needed to consolidate his
support within the state and reward his base – the military – at the
expense of other elements of the state machine.
But, from that point, the make-up of the South Korean state began to
change. Moving into positions of great power in the late 1980s and
1990s and gradually displacing the military core were non-military
technocrats. Some at the highest levels of the bureaucracy boasted
doctorates from US universities. Committed to a market-based system
and the loosening of state discipline over the chaebol, they gradually
displaced the older statist bureaucrats of military background or those
who owed their positions to the military. An indication of the transfor-
mation is that under the influence of the new technocrats, the EPB,
once the heartland of state control and planning, became a base for
supporters of free-market reforms during the 1980s. Dr Rha Woong-bae,
Deputy Prime Minister (and therefore the head of the EPB) under Roh,
was one such.103 Following him in these positions was Cho Soon, who
argued that government intervention caused distortions in the indus-
trial structure, discouraged saving and retarded financial entrepreneur-
ship.104 When the planning team Cho had led was removed, they were
replaced by bureaucrats still more committed to the removal of state
controls and even more favourable to the chaebol.105 The administration

of Kim Young-sam, who was elected to the presidency in 1992, largely
completed the change to a civilian, technocratic bureaucracy.
This transformation of the state’s personnel was both cause and
effect of the wider changes taking place in the relationship between
the state and capital. Technocratic liberals fitted better in a state which
did not and, probably could not, control business. Once they had
gained a foothold in the state apparatus, this new breed of bureaucrat
consolidated the shift already under way. By the 1980s, the develop-
mentalist state of the previous two decades was being undermined
from within as well as challenged from without.
The bourgeoisie dabbles in politics
In the Park era, the chaebol funded Park’s political operation but played
little or no role in it, preferring to concentrate on the business of
making money. In any case, their direct intervention in political
matters against the top leadership would not have been tolerated. By
the late 1980s this was changing. The chairman of the FKI and head of
Lucky-Goldstar, speaking after the October 1988 joint meeting
between the ruling DJP and the FKI, said that: ‘in the future [we] will
collect all political funds openly within the business community, and
[we] will distribute [these funds] only to those parties supporting a free
market economy’.106 No businessman would have dared to say such a
thing ten years earlier.
The clearest indication that the bourgeoisie would no longer stand
aside from politics was the formation of a political party by Chung Ju-
yung, the founder of Hyundai. By the early 1990s, although officially
in retirement, Chung was furious at what he saw as gross interference
by the state in his affairs. The catalyst was an attempt by the govern-
ment to extract US$181 million in taxes from the Hyundai group. He
was also outraged that his son, Mong Hun, had been arrested by the
Roh regime and held in prison for nearly four months.107 When Chung
formed the Unification National Party (UNP) – later changed to the
United People’s Party (UPP) – it was a signal that a section of the bour-
geoisie, at least, was no longer prepared to accept whatever their politi-
cal masters decided and that the state was no longer omnipotent.108
Chung decided to run in the 1992 Presidential campaign against
Kim Young-sam. He was able to pour huge funds into the campaign
and mobilise tens of thousands of Hyundai employees as campaign
workers. Despite this, the results for the Hyundai boss were poor. He
received just 16.1% of the vote, compared to 42% for Kim Young-sam
and 34% for Kim Dae-jung.109 The electorate was as unprepared to
accept the chaebol leader as they were to accept the old military rulers.
Chung failed, but the fact that he tried at all illustrates a major change
in the attitude of the chaebol to the political elite.
Policy incoherence in the descending phase
As the autonomy which the Korean state enjoyed in the 1960s and
1970s was eroded in the 1980s, it seemed to its political leaders that
they faced pressure from all sides. Overall, the direction of policy was
to move away from state intervention in economic matters and to
allow the chaebol much greater freedom. But the immense pressures
on the state pushed it to policies designed, in the short-term, to
satisfy the various social groups making demands on it. Often these
policies were contradictory and at times they swung, within a short
period, between one approach and its opposite. Such inconsistencies
can best be explained as the actions of a developmentalist state in
serious decline, desperately trying to maintain control in the face of
mounting opposition.
One such series of oscillations in policy concerned the question of
democratic reform. The assassination of Park in 1979 represented a
response by some within the military bloc to placate the growing
opposition to the regime – evidenced by the success of the NDP in the
National Assembly elections of December 1978, the widespread
support for the YH strikers, and anti-government riots in Pusan and
elsewhere.110 The Chun coup in 1980 sent policy in exactly the oppo-
site direction. It underlined the victory of those in the military who
wanted to respond with a return to ruthless repression. The new gov-
ernment attempted to wipe out all opposition to it, closing down
independent unions, critical newspapers and sending 20,000 of those
it described as ‘hooligans, racketeers and gamblers’ to re-education
camps.111 By 1984, these same hardliners had also begun to bend and
Chun allowed a short relaxation of the repression. Yet in April 1987,
he shifted back to a tough policy with the announcement that there
would be no concession on a key demand of the opposition – the
direct election of the president. In just two months the storm of
protest pushed the regime in the opposite direction yet again. Roh’s
declaration in June 1987 promising democratic change was the result.
Yet even this was combined with continuing repression of the labour
movement: the use of troops and national police in industrial rela-
tions and the illegality of genuine unions. Such lurches from repres-
sion to reform and back again reflect the immense and growing pres-
sures on those holding state power in the 1980s. They could not rule
as in the past with a reasonably long-term, consistent approach.
Instead policy became increasingly piecemeal and short-term as they
searched, ultimately unsuccessfully, for a way to maintain themselves
in power.
The regime’s approach to large-scale capital illustrates the same
inconsistencies as its approach to the popular movements of the
1980s. The group around Chun believed that big business had
become too powerful. Even before the 1980 coup, they were making
attempts to reduce the size of the chaebol.112 Then Chun’s new gov-
ernment required them to report all of their landholdings and, in a
bid to curb real estate speculation, to sell land unrelated to their
main businesses. Moreover, chaebol were required to sell minor lines
of business. Some finance was to be directed away from the largest
firms and towards smaller ones. But this attempt to limit the size and
speculative activities of the chaebol was spectacularly unsuccessful.
Business concentration, the near monopoly of bank loans enjoyed by
the chaebol and unproductive speculation increased markedly under
his and the following Presidency.
What appears odd is that these attempts to reclaim the role of pat-
rimonial regulator of business, ran directly counter to the main
thrust of government policy expressed in the Five-Year Plans of the
1980s, which was to lessen regulation. The reason for this apparent
contradiction was that Chun was moving to limit the social power of
the chaebol and thus revert to the arrangement whereby they took
orders without complaint from their masters in control of the
state.113 He believed that this could be achieved by breaking them up
into smaller and, hopefully, more compliant units. Chun saw liberal-
isation and the reduction of government protection as a way of
taming business. Thrown into the rough waters of the international
market without the guarantees the state had once provided them the
chaebol would be forced to change their monopolistic ways. 114
Whereas once the state had stood between South Korean and foreign
capital as a buffer for the chaebol, now it relied on international busi-
ness to rein in the ambitions of these same chaebol. By themselves,
the Chun and Roh governments could neither punish nor reward the
chaebol adequately.115
Another reason for the anti-chaebol measures of the 1980s by Chun
and Roh was the pressure from the popular movement. Chun needed
to defuse anger at his regime generated by its harsh repression – espe-

cially of the Kwangju uprising. He planned to do so by a populist cam-
paign against the chaebol. For a time in the early 1980s, newspapers
were allowed, even encouraged, to print stories about monopolistic
abuses by the chaebol.116 The most famous South Korean capitalist
of all, Hyundai’s Chung Ju-yung, became the major public target of
both governments in the 1980s and their leading bourgeois critic.
Throughout the 1980s, the government attempted to undermine him
and to force him from his position as FKI chairman – the public leader-
ship of South Korean business. Yet, for ten years, he stubbornly resisted
all pressure to quit.117
How can this falling out of thieves – the state and the chaebol –
during the Chun and Roh governments be interpreted? Superficially
it may appear to indicate an even stronger state. But it is clear that
the direction of policy over the decade, taken as a whole, was for the
state to retreat. What was happening in the anti-chaebol campaigns of
the 1980s was merely the first symptom of the weakening of the
state. They were a response by a beleaguered state elite, a series of
heavy-handed actions where previously the merest suggestion or nod
would have the chaebol rushing to carry out the state’s wishes. All of
these manoeuvres were the signs of a regime losing its earlier auton-
omy – but one which had not accepted this loss. Nor did it yet have
the means to conduct relations with capital or the mass of the popu-
lation in ways more typical of an advanced capitalist country.
Therefore, it zigzagged – adopting a course which was at one moment
anti-business, while at the next it gave business whatever it wanted.
At some points it pursued a populist anti-chaebol approach, at others
it embraced the same businessmen it had abused. It veered uncer-
tainly between reform and repression of the mass movement with
short-term political gain – or even survival – always high on its
agenda.
This period of transition, when the state was rapidly losing auton-
omy and alternating between contradictory policies in several areas
gave it the public appearance of indecision and instability. The rule of
Chun and Roh was no more authoritarian than was Park’s at various
points. But these later presidents seemed much more arbitrary and
unsure. The ground was moving from under the state apparatus. Roh
himself expressed this uncertainty and insecurity of the 1980s: ‘The old
political, economic and social systems and orders started to crumble
and we have had to grapple with the formidable task of building new
systems and orders to replace them’.118
The decline of state autonomy and the crisis of 1997
Chey Jong-hyon, then chairman of the FKI and head of the Sunkyong
chaebol told the Korean Business Weekly, in June 1993 that: ‘The decade
of the 1960s can be considered as the period of our economic infancy.
The 70s and 80s were the adolescent years and the 90s mark a crossing
into maturity’.119 However, the ‘maturity’ which the chaebol strove for
and attained in the 1990s was a mixed blessing. It is not so easy to cast
off one’s background and the ‘mature’ chaebol were seriously marked
by their childhood and adolescence. They had vastly reduced their
dependence on the patrimonial state – but the basic structure of their
businesses was still a product of its tutelage.
The chaebol were created by massive state support and on the basis of
a high-level of borrowings. It could hardly have been otherwise in the
circumstances of extreme capital shortage in the 1960s. Rapid business
growth was linked to access to credit, which was, in turn, either pro-
vided by or guaranteed by the state. Relaxation of state discipline over
the chaebol and the winding back of the state’s role as credit provider
did not change their need to borrow. In fact, because state controls on
overseas and domestic borrowing were removed or relaxed, chaebol
debt and debt-equity ratios increased.
The debt-equity ratio of the ten largest chaebol grew from 356% in
1979 to 464% in 1985.120 Although these ratios declined in the late
1980s, they rose again in the 1990s. The average debt-equity ratio of
the top 30 chaebol, (other than the banking and finance sector) was
450% by December 1997. Also, because state support had created a
highly concentrated structure dominated by relatively few firms, a
high-level of indebtedness amongst the top chaebol could have a dev-
astating effect on the national economy if even one of them was to
falter under the weight of borrowings. By the time of the 1997
financial crisis, the four largest chaebol – Hyundai, LG, Samsung and
Daewoo – accounted for more than half of the country’s debt.121 The
debt was also largely short-term and, in contrast to the Mexican debt
crisis of 1982, largely private rather than contracted by government.122
Furthermore, by 1997, the scale of chaebol debt had begun to affect
the domestic banks. In the first half of that year, ten of the Korean
commercial banks posted losses. At the end of the year they held an
estimated US$4.2 billion in bad loans.123
The catalysts for the 1997 crisis were a change in the export conditions
for Korean firms and a broader loss of international confidence in the
‘new’ Asian economies. In the first half of the 1990s, Korean export
growth – especially in steel, cars and semiconductors – was able to con-

tinue because of the strength of the Japanese yen. That meant that
Korean exports were more competitive in markets where they competed
with Japanese goods. But the apparent inability of the Japanese economy
to recover during the 1990s pushed the yen down, and thus cut into the
growth of Korean export revenue. The decline in export conditions
would not have been disastrous except for the huge levels of borrowings
undertaken by the chaebol. By 1996, the 20 largest chaebol were showing
returns below the cost of the capital they had borrowed.124
The ensuing crisis put an end to talk of the South Korean economic
‘miracle’. Average incomes were halved between August and September of
1997 and, in the aftermath of the crisis, more than one-quarter of the
chaebol collapsed.125 In 1998, the top five chaebol alone sacked over
80,000 workers. South Korea’s unemployment rate rose from 3.1% in
December 1997 to 8.5% in January 1999.126 Ironically, an economy
which had just joined the OECD and which once had neo-liberals
enthusing about its strategy of export-led growth now required the largest
IMF bail-out in history: US$57 billion in December 1997 with another
US$10 billion to follow. Any remaining hint that a developmentalist state
still existed in South Korea was ended by the IMF conditions: the almost
complete opening of the Korean market to foreign goods and investors,
the removal of virtually all state controls on business borrowing and a
change in the law to facilitate hundreds of thousands of sackings
throughout industry.
In November 1997, South Korea had a GNP of almost US$500 billion
and per capita GNP of about US$11,000. It was ranked as the eleventh
industrial economy in the world. Two months later, its estimated GNP
had crashed to US$312 billion, its GNP per capita to US$6,600. It
dropped to seventeenth place, behind India and that other tarnished
NIC – Mexico.127 GDP declined by 5.8% and investment in equipment
plunged by 38.7% in 1998.128 Korea’s banks and NBFIs held 118 trillion
won in ‘problem loans’.129 The total short-term foreign debt amounted
to an impossible US$80.2 billion by December 1997.130
International pressures were building on Korea to liberalise in the
1990s. But domestic classes and fragments of classes had their own
reasons for challenging the power of the state. In different ways,
workers, sections of the middle classes and the bourgeoisie did so.
Their demands are openly expressed in South Korea throughout the
1980s and even earlier. US and other international pressure may well
have played a part in tearing down whatever was left of the kind of
state over which Park presided. But the job had already been largely
carried out by Koreans themselves.
7
Taiwan: the Migrant State
Introduction
Unlike Mexico and South Korea, Taiwan has never hosted an Olympic
Games, and is very unlikely to do so. But Taiwan, or the Republic of
China (ROC), as its government calls it, has had the most intense,
long-term and stable economic growth of the three. Between 1965 and
1988, real GNP grew at an annual average of 9%.1 The value of manu-
facturing increased from 15.6% of GDP in 1955 to a peak of 37.6% in
1985.2
Taiwan managed this transition with few of the natural resources
such as coal, iron or other minerals most useful for manufacturing
industry and with no oil deposits. Its economic progress was only
temporarily slowed by two oil shocks – 1973–74 and 1979–80.
Moreover, it grew despite the uncertainty associated with its forced
withdrawal from the United Nations and diplomatic de-recognition
by its two largest trading partners – Japan and the US – in 1972 and
1979 respectively.
Furthermore, Taiwan, more than any of the NICs, has been proposed
as an example of rapid economic growth combined with increasing
equality.3 In marked contrast to Mexico in particular, most measures of
equality improved in Taiwan during its development. The ratio of the
income of the richest 20% of households to the poorest 20% fell from
20.47 in 1953, to 11.56 in 1961 to 4.17 in 1980.4
Taiwan has been the most difficult of cases for world-systems and
dependency theorists. It achieved significant industrialisation yet was,
in one sense, the most ‘dependent’ of any peripheral economy, with a
very high ratio of foreign trade to GNP. Its ‘trade dependency’ (the
sum of its exports plus its imports divided by GDP) was extraordinarily
181
high, passing 100% in 1979 and remaining there almost every year
through the 1980s.5 Taiwan’s two leading trading partners are the
world’s largest capitalist economies. It has been popular with neo-liber-
als and foreign investors. For 15 years it depended heavily on foreign
aid from the US and it still relies on US arms and military support
despite the ending of formal diplomatic relations between the two
countries. If ever a country was to suffer underdevelopment as a result
of integration in the world capitalist system, Taiwan must be it.
Taiwanese economic growth has also been a major field on which
neo-liberals and neo-statists have done battle. For neo-liberals it is a
shining example of virtuous, export-oriented growth, driven by the
market rather than the state.6 But while the precise form of dirigiste
control was very different in Taiwan from Mexico and Korea, its extent
and the effect of state involvement in economic growth was possibly
even greater than in these other NICs.7
The developmentalist state in action, 1949–90s
From 1949, the Taiwanese state used all the means at its disposal to
spur industrialisation. It maintained a very large state production
sector which controlled the ‘commanding heights’ of the economy –
upstream and strategic industries such as petrochemicals and steel.
Most banking and finance was state-owned. Four-year plans, with
precise sectoral and economy-wide targets, operated from 1953. The
state targeted industries for special assistance and imposed local
content requirements on foreign investors. It created the infrastructure
deemed necessary for industry. High tariffs and quantitative import
controls were established and operated, especially in the early phase of
industrialisation.
State investment, state ownership
State companies concentrated on, although were not confined to,

large, capital-intensive industries. In the 1950s the state owned and
operated enterprises in the fuel, chemical, mining, metal processing,
textile, fertiliser and food processing industries. In the case of glass,
cement and plastics, the state first developed the industries and then
handed them over to private businessmen.8 Public sector importers
were allowed to exchange the new Taiwan dollar at a more
favourable exchange rate than was available to those in the private
sector.9 In short, Taiwanese industrialisation owed more to state-
Taiwan: the Migrant State 183
owned companies than did any other economy whose government

called itself capitalist.
Even in the 1970s, when the public share of fixed investment had
declined from its earlier peak, the state sector still played a more
important part in Taiwan’s economy than was the case in most other
‘market’ economies. A comparative estimate for the 1974–77 period
shows that the contribution of the public sector to GDP in Taiwan was
140% that of the average of the industrial economies as a whole and
160% that of the developing countries.10
Through the 1950s and the first half of the 1960s, industrial produc-
tion and services by state-owned and managed bodies amounted to
approximately half of the total output of the economy.11 Then,
between 1965 and 1981, private industrial production grew faster; the
state share was reduced to about 20% of total output by the end of this
period. However, this still represented an extremely significant part of
total production – especially since it was concentrated in capital-inten-
sive, upstream industries such as China Petroleum, Taiwan Power, and
BES Engineering – without which many of the smaller-scale private
businesses could not have survived. Moreover, although the state pro-
duction sector did decline relative to the private sector after the mid-
1960s, the state compensated in other areas – particularly by increasing
its general expenditure and by enormous outlays on infrastructure.
Between 1961 and 1981, government spending as a proportion of GNP
rose from 21.4% to 27.5%.12
The degree of state ownership in Taiwan was much greater than
commonly perceived overseas. Closely allied to the US in a Cold War
environment, the Taiwanese government was caught between the
actual statist means they were using to achieve their aims and
the need to be seen as champions of the free market. Thus their
planning and other economic documents often make no mention
of the fact that many of the industries they deal with were largely
state-owned.13
State control of finance
Government-controlled finance was used both to direct economic

development and to promote state-owned enterprises. The task was
made easier because the Taiwanese state owned the bulk of financial
institutions until liberalisation measures began to be introduced in
1989. The dominance of government-owned banks in Taiwan during
most of its industrialisation was such that state or province-owned
banks controlled 94.3% of total bank assets in 1964. In 1979, the four
private banks took only 4% of total deposits.14
State finance and state industry reinforced each other. Relative to
their output, public enterprises received seven times as much finance
from government banks as did private enterprises in the 1950s and
twice as much in the 1960s.15 Lack of finance for private firms was one
of the factors keeping the average firm small and mostly free of debt to
either domestic or foreign banks. Almost all of their financing came
from their own savings or from family and other private networks.
Conservative banking practice also tended to keep private firms small.
Banks typically refrained from commitment to longer-term projects
and put a great deal of emphasis on the ability of the potential
borrower to provide collateral.
Planning
From 1953 until the 1990s, the Taiwanese state undertook detailed
economic planning, formulating targets for industry sectors and
assessing previous outcomes. Moreover, the targets for overall eco-
nomic growth listed in these plans were usually met – and even
exceeded. The only exception was the target for GNP growth in
1973–75 (a plan shortened because of the recession and oil crisis of
that period). Even then the growth rate of 6% was still very high and
not much below the targeted 7%. But on other occasions, economic
performance massively exceeded the targets. For example, the
1965–68 plan aimed for 7% growth, 9.9% eventuated. The 1969–72
growth objective was 7%, a target easily passed by an actual perfor-
mance of 11.6%.16 The first development plan – 1953–56 – called the
‘Plan for Economic Rehabilitation’ – assigned most resources to
agriculture, fertilisers and textiles. 17 The Second Plan – 1958–61 –
explicitly stated the government’s intention to guide private invest-
ments so that they flowed into areas of which it approved.18 Targets
were established for exports in various categories.
Targeting industries
Individual industries were selected for special protection, subsidies and

other forms of state assistance. In the 1950s, preferential credit was
used by the state to promote specific industries and even individual
firms. While this method of infant industry promotion later declined
overall, it remained important in certain areas such as machine tools
and, later, in the late 1970s, high-technology electronics.19 Another

method used to direct the economy was state control of the allocation
of foreign exchange. It was rationed with quotas established by com-
modity category. In 1951–53, the government approved only 20% of
the foreign exchange requested by importers.20 Priority went to those
importing capital and intermediate goods for the further development
of manufacturing.
The textile industry was the first major target for selective state
support. In the early 1950s, the state chose textiles as an appropriate
industry for Taiwan and consciously set out to create an ideal environ-
ment for its expansion. High tariffs on imported textiles encouraged
import substitution. Subsidies – which were often funded by foreign
aid – provided much of the initial working capital.21 Indeed, so great
was the level of government intervention in early textile production
that market allocation of resources was almost completely replaced by
planning. As well as tariffs and quantitative restrictions on the import
of yarn and finished products, a government agency directly supplied
raw cotton to the spinning mills, advanced the working capital require-
ments and then bought up all production at both spinning and
weaving stages.22 The response to this government manipulation was a
massive increase in textile production; between 1951 and 1954, pro-
duction of cotton yarn rose by 200% and of woollen yarn by over
400%. By mid-1953, Taiwan was more than self-sufficient in both yarn
and cloth.23
In 1954, state planners decided that the natural-fibre textile industry
should be encouraged to diversify. Moreover, the state-owned chemical
industry had developed to the point where it could supply inputs for
synthetic fibres. The government then oversaw the construction of a
rayon textile industry – acting as an intermediary to bring together an
American company with several local textile producers to form the
China Man-Made Fibre Corporation in 1957.24 A similar selection by
the state of an appropriate industry took place in the case of plastics.
The government established the first plastics factory producing
polyvinyl chloride (PVC) in the 1950s and then handed it over to Y.C.
Wang, a local businessman thought to have entrepreneurial ability.
Wang went on to lead Formosa Plastics – the country’s largest private
corporation.25
It is true that infant industry selection did not always work. In the
1950s and 1960s, the government made a push into automobile pro-
duction; the first firms beginning with assembling knockdown kits
under license from foreign companies. Tariffs and import quotas were
used to help the domestic assemblers; five had emerged by the end of
the 1960s.26 But the auto industry never succeeded in generating the
economies of scale necessary for modern production and it remained
marginal to Taiwan’s economic development.
While the particular industries singled out for major state organisation
and support changed over time – with textiles and auto production later
being de-emphasised – the method of selective promotion did not. For
example, in the great push into the semiconductor industry in the 1980s,
the state initiated the original project, trained the key personnel, acquired
the technology from an overseas company and itself produced and mar-
keted the first products. It then passed some of this capacity to private
companies, but continued to initiate every subsequent development of
new forms of semiconductor technology.27
Overall, the planners had considerable sway over the direction of
investment and even over production quality. In one well-known
incident in the 1950s, the chief economic planner oversaw the
destruction, at a public demonstration, of 20,000 light bulbs consid-
ered to be of poor quality. He then threatened to liberalise imports if
the quality did not improve.28 The incident suggests something of
the power that the planning machinery had at its disposal. Yet, while
state-owned enterprises, and a few large private firms in sectors con-
sidered crucial for development, were heavily regulated in this way,
most small private businesses were left alone by the government –
receiving neither hindrance nor favours. They tended to remain small
or medium-sized, developing independently and almost out of sight
of the state development bodies.
Squeezing agriculture
Some of the finance for the early development of Taiwanese manufac-

turing industry came from foreign sources – especially in the form of
aid. But the government also ran a conscious policy of squeezing agri-
culture to extract the resources for industrial investment. Various
mechanisms were employed to achieve this. The simplest was the
‘hidden rice tax’, by which land taxes in the 1950s could be paid to
the government in rice at prices considerably below market level.29 The
government also enforced other compulsory purchases at these lower
prices. A system whereby farmers were able to barter rice for fertiliser –
of which the government was the sole supplier – also worked to drain
resources from agriculture since the terms of the barter were set at
highly disadvantageous rates for farmers.
The state also operated an exchange rate regime which worked to

transfer resources to industry. Until 1958 the exchange rate was over-
valued so that the major exports – at that time primarily agricultural
ones – were disadvantaged and imports – largely of the capital and
intermediate goods required for industrialisation – benefited manufac-
turing. Furthermore, multiple exchange rates operated such that some
exports – such as rice and sugar – were even further disadvantaged.30
Quantitative import controls and tariffs also raised the prices of manu-
factured consumer goods while industrialists benefited both through
the higher costs of their products sold on the domestic market and
through the lower costs of equipment and other inputs to industry.
The outflow of capital from agriculture to industry in the early stages
of ISI made up the bulk of industrial investment; indeed it was esti-
mated at 75% of total capital formation between 1951–55 and 40%
between 1956 and 1960.31 Although the system was a huge burden on
farmers, it succeeded in its aim; manufacturing production doubled
State mediation of foreign capital
Taiwan has developed a reputation of welcoming foreign investment.

Indeed, it has actively sought it over the whole period since 1949. But,
while offering numerous inducements, the Taiwanese state imposed
quite strict conditions on foreign investors. In some industries, local
content requirements were employed to prevent foreign companies
using Taiwan as a site for the lowest valued-added segments of their
production. Usually, the government encouraged joint ventures with
local firms and put ceilings on the profits which could be remitted,
especially in the first years after the investment was made. Legislation
passed in 1954 made it possible for foreign investors to remit up to
15% of the total sum invested in foreign exchange but application to
do so could only be made two years after the original investment.33
As a result of such restrictions and because of the conscious pro-
motion of local – especially state-owned – enterprises, foreign
capital financed only about 5% of domestic capital formation by
the second half of the 1960s. 34 Even as late as 1990 there were no
foreign companies in Taiwan’s top ten enterprises and only three in
the top 25.35
Overseas finance, like all private finance in Taiwan, also found it
difficult to get a foothold until recently. It was totally excluded until
1969.36 Although some overseas banks opened branches in Taiwan in
the middle and late 1970s, they failed to gain a large share of the
market. Smaller private business tended to limit their borrowing
anyway and state firms borrowed from local state banks. The foreign
bankers were left only those loans which local banks had refused.37
Import substitution and export orientation
State promotion of import substituting industries in the 1950s was

extremely successful. By 1957, the process of substituting domestic
production for imports had largely been completed. The share of con-
sumer goods in Taiwan’s total imports had fallen to 7% and imported
consumer goods supplied only 5% of domestic consumption.38 In some
areas of production – such as textiles – the domestic market was satu-
rated to the point where no further expansion was possible.39 An
industrial survey of 1959 showed many plants turning out far less than
they were able; those producing simple manufactures were using only
one-quarter to two-thirds of their capacity.40 The narrow domestic
market had now become an obstacle to further development.
The government’s response was to restructure industry, pushing
firms in its selected areas towards vertical integration and greater
economies of scale and limiting the entry of competitors. It also
began to encourage exporting. A concessional export credit scheme
was introduced and the levers of state control which had previously
been used to encourage ISI were now gradually turned to export pro-
motion. Between 1958 and 1961 numerous changes were made to
encourage exports, the New Taiwan dollar was gradually devalued,
the multiple exchange rate system dismantled and some import
restrictions were lifted. Tax rebates were introduced for customs
duties paid on imports that contributed to exports. The government
encouraged the formation of export cartels.
The effect was soon felt. Exports amounted to only 10% of GDP in
1952 and just 12% in 1962. But they reached 39% of GDP a decade
later – a very high rate by any measure.41 The success of the export
drive meant that Taiwan’s balance of trade could improve despite the
ending of US aid in 1965. Moreover, its manufacturing sector was
being driven by exports by the end of that decade. However, the turn
towards exports was pragmatic rather than ideological. Taiwanese plan-
ners had no reason to dismantle all of the apparatus of ISI. In some
sectors, import substitution remained the strategy, and tariffs and
other import controls were still consciously used to develop domestic
industries.
Foreign aid
One major controversy about Taiwanese economic development

concerns the role of US aid. Especially after the outbreak of the
Korean War in 1950, Taiwan was a key part of US perimeter
defence. Over the 1950s as a whole, non-military aid amounted to
about 6% of Taiwan’s GNP and nearly 40% of gross investment. Of
non-military aid, 19% went to finance the import of capital goods
(machinery and tools) and another 38% bought intermediate goods
for manufacturing (mainly cotton, yarn, ores, metals and fertiliser).
Most of the remainder paid for consumer goods – mainly food. 42
Between 1951 and 1963, US aid financed almost one-third of all
domestic investments. 43 Military aid was even larger. It was crucial
for building and maintaining Taiwan’s huge armed forces. Per
capita, Taiwan had and still has one of the world’s largest militaries,
with more than half a million men under arms – 14% of the male
population – in 1952. 44 Defence expenditure was 65.8% of govern-
ment spending and 12.9% of GNP in 1955. Despite the rapid
growth of the economy, the military shares declined only slightly
over the next ten years – to 62.3% and 11.4% respectively. 45
Non-military aid in the 1950s and early 1960s also overcame some
of the constraints imposed by lack of foreign exchange and helped
to keep inflation rates low – both major problems in the early stage
of ISI.
However, care needs to be taken in assigning to aid the major
place in the rapid industrialisation of Taiwan. For a start, the non-
military part of US aid ceased in 1965, a time when the Taiwanese
export program was only just beginning. The cessation of aid coin-
cided with only a very small and temporary drop in the growth rate
of GDP.46 It is certainly true that the large transfers of both military
and non-military aid money enabled the Taiwanese government to
release funds for development which otherwise would have been
committed. But other countries have been major recipients of US
aid and not used it to the same purpose or with such strong deve-
lopmental effects. However, aid was channelled through the state.
As a result, it reinforced several aspects of the special kind of state
which governed Taiwan after 1949. Although American aid officials
were very keen to promote private business, the effect of the aid
they dispensed was to strengthen the state – giving it resources to
intervene and fortifying its position in relation to the already weak
private sector.
‘Pseudo’ liberalisation, 1958–61
A second major controversy about Taiwan in the 1950s and 1960s con-
cerns the importance of a series of changes in government economic
policy between 1958 and 1961. Neo-liberal theorists such as Ho and
Myers argue that these represented an end to government interference
and that the subsequent economic ‘miracle’ of Taiwan was market-
led.47 Others, such as Wade and Amsden, argue both that the founda-
tions of Taiwanese industry were laid before the ‘reforms’ and that, in
any case, massive state intervention in the economy continued. Alice
Amsden goes as far as to call this the period of ‘pseudo-liberalisation’.48
It is certainly true that, because of the exhaustion of the ISI strategy
in many sectors, the Taiwanese state changed direction around 1958.
From that time, the multiple exchange rate system was dismantled in a
three-stage process with a single rate finally being established in August
1959.49 At about the same time, the government began to expand the
list of allowed imports. Within the state these changes were driven by
economic technocrats such as K.Y. Yin – at one time the Minister of
Economic Affairs and the chairman of the influential Foreign Exchange
and Trade Control Commission from 1958 to 1963.50 There was also
strenuous resistance. However, the technocrats had the backing of
powerful American aid officials. In late December 1959, Wesley
Haraldson, an official of the US AID mission, proposed an eight-point
liberalising program of action. The most controversial was point eight
which called for the sale of state enterprises to the private sector.51 K.Y.
Yin extended the program to 19-points and dubbed it the ‘Accelerated
Economic Growth Program’.
But while the government’s grip was loosened in some areas it was
tightened in others. Rather than simply letting go, the state – including
the technocrats arguing for these changes – were determined vigor-
ously to push the economy in another direction. It is true that some
import restrictions were lifted – although not as completely or rapidly
as the original program had proposed. But the combination of those
important import controls which were retained and increased subsidies
to producers in other areas left the system still strongly protected –
although different elements of it now benefited as a result.52
By calculating overall Effective Protection Rates (EPRs) and Effec-
tive Subsidy Rates (ESRs), Alam shows that, despite the supposed lib-
eralisation, Taiwan had not introduced even an approximately
neutral incentives regime in the 1960s. 53 And with the extensive
development of import-competing sectors over the previous decade,
Taiwanese industry was far better able to cope with those imports
which did penetrate.
Following the 1958–61 reforms, the state intensified its efforts to
channel resources into heavy industry; the third Four-Year Plan
(1961–64) spelled out this objective. The fourth Four-Year Plan went
even further in this direction. On the basis of the development of
upstream heavy industries, new export products – primarily of light
manufactures – were to be expanded. The state was to retain the
leading role in heavy industry, the private sector in light, export-ori-
ented manufacturing. 54 That part of the reform program which
called for the sale of public enterprises was simply not implemented
to any significant extent. Indeed, according to some analysts, direct
government ownership in and management of productive enter-
prises actually increased after the completion of the reform. 55 By
1980, the six largest industrial public enterprises had sales equal to
the 50 largest private ones. Of the largest ten industrial concerns,
seven were publicly-owned.56
Through the 1960s and after, the state continued to identify weak-
nesses in the industrial structure of Taiwan and to look for ways of
repairing them. A clear indication that this remained the intention
both of the political leadership and of most of the technocrats can
be seen in the response of the government to perceived bottlenecks
in the economy in the early 1970s – a full decade after the govern-
ment had, according to neo-liberal accounts, relaxed its control.
Concerned that industrial growth would slow because of a lack of
infrastructure and of some key upstream industries, the government
initiated the ‘Ten Major Development Projects’ – all slated for com-
pletion by 1979. These included transport systems such as a massive
north-south freeway, the electrification of the rail system and a new
international airport. State production of energy, intermediate and
capital inputs for industry was also given a huge boost with a
nuclear power plant, an integrated steel mill, a giant shipyard, a
naptha-cracking plant for the state-run China Petroleum Company
and the expansion of existing petrochemical plants. 57 All were
completed by 1979, then another 12 projects, costing a further
US$7 billion and designed to be completed by the end of the 1980s,
were announced. 58 None of these indicate a government which had
long since stepped back from a direct and major role in economic
development. While the growth in exports came largely from the
products of private firms, the public sector maintained the upstream
production that underpinned their success.
Nor was the export orientation adopted in the 1960s a simple matter
of removing statist obstacles to the market and to private business. On
the contrary, various means were used to reduce the risk by paying sub-
sidies to successful exporters in the form of tax concessions, by allocat-
ing preferential credit to export industries and by encouraging export
cartels which could subsidise exports with higher domestic prices.
From July 1957, the Bank of Taiwan began providing cheap loans to
manufacturers on condition that they develop markets abroad.
These loans were at interest rates of 6% per year in foreign currencies
and 11.88% in local currency – much cheaper than the rates for
non-exporters of 19.8% to 22.3%.59
The state’s involvement in higher-technology investments – espe-
cially in semiconductors and electronics – was crucial for the great
export success of these sectors.60 In the late 1970s and 1980s, the state
developed an even greater role as a result of the push into these sectors
– in which the private sector had failed to invest. As a result, in 1988,
the government and other public entities contributed 33.3% of gross
capital formation and in 1994, 46.1%.61
Similarly, while the state continued to seek overseas capital and
opened its first export processing zone in 1965, it retained its role as
a gatekeeper – carefully screening foreign investment. In 1962, just
one year after the ‘reforms’ were complete the government judged
that some of the incoming – especially Japanese – investment would
not easily develop into higher value-added production. Accordingly,
it imposed local content requirements on televisions, automobiles,
diesel engines, refrigerators, air conditioners and other goods – with
an escalating proportion of the total product to be made up of
locally-produced components.62
Perhaps most interesting about the ‘reforms’ is that, unlike those in
Korea and Mexico in the 1980s, they were not a product of lobbying
by sections of the private bourgeoisie. Private business was only asked
what they thought of the proposals after the 19-point program had
already been developed and approved by the government. Not until
1961 were major business leaders invited to attend a conference
where they were asked to put their position.63 Moreover, the event
was not repeated; no institutional forms of government-business
collaboration were put in place. At this point, the balance of forces
was such that the private bourgeoisie was still in no position to
demand – or even strongly suggest – any major alterations to the
state’s economic policy. Instead, the pressures for some change
emerged within the state bureaucracy itself and the battles over
whether it would proceed were fought out there. But that fight was
never about whether or not the state was to play a major role in eco-
nomic development – this was accepted on all sides – although there
was a real need to conceal the level of actual state involvement from
US officials. The catalysts for the dispute were the shortages of
foreign exchange, the impending withdrawal of US aid and the
unused capacity of many industries producing for the limited domes-
tic market. This argument was about what kind of role the state was
to play – one which sheltered domestic industries or one which led
them in the conquest of export markets. The question of whether the
state or the market should lead the way was never at issue.
Managing external shocks
The capacity of the Taiwanese state to promote development can be

measured by its ability to withstand adverse external shocks. In
the early 1970s, it received two serious jolts in quick succession – one
political, the other economic. Just 150 kilometres from the Chinese
mainland, Taiwan has, since 1949, felt vulnerable to the government
of the People’s Republic of China – a government which it refused to
concede had sovereignty over the mainland. The Cold War provided
Taiwan with a high degree of international protection. But the
vagaries of international politics turned against the ROC in the early
1970s. US relations with China began to thaw. In 1971, Kissinger
made a secret visit to Beijing and, in the same year, the ROC was
forced to withdraw from both its permanent ‘China’ seat on the
Security Council of the United Nations – a position which had
increasingly appeared ridiculous – and from the UN as a whole.64
At the same time, Japan – its second most important trading partner
– de-recognised Taiwan. With the US making more friendly noises
towards China, the island’s position looked grim. Some of the
best educated Taiwanese emigrated to the US. So too did many busi-
nesspeople – who took their capital with them. Foreign trade and
investment slowed.65
Taiwan’s exports were facing protectionist threats, especially in the
US. Its wages were rising faster than its competitors, other NICs were
moving into the same markets. Then, in this already difficult and
uncertain situation, the recession and oil crisis of 1973–74 hit. Taiwan
was, and still is, completely dependent on imported oil for petrol and
for its petrochemical and plastics industries – key parts of its economic
structure. The quadrupling of oil prices and rising prices of imported
intermediate and capital goods had an immediate and devastating

effect. Worse, since the Taiwanese economy was so dependent on
exports, the world recession had a greater impact on it than on most
countries. Real GNP grew at only 1.12% in 1974.66 Inflation, which had
been running at less than 2% since 1961, hit 40%. The trade deficit
climbed to US$1,000 million.67
Most governments responded to this, the first great coordinated
world recession since the 1930s, with cutbacks in government spend-
ing. Not so the Taiwanese, which deepened the involvement of the
state. The sixth Four-Year Plan (1973–76) renewed state support for
exports – now including electrical machinery, computer terminals and
peripherals, and continued the ‘Ten Major Development Projects’
already begun. While most governments cut their more ambitious pro-
jects in order to rein in spending and control inflation, the Taiwanese
government brought inflation down by huge rises in interest rates
combined with increased government spending on industry. The
overall effect was to considerably boost the government’s part in pro-
duction and in domestic capital formation. Growth very quickly
returned to high-levels. In 1975, while only a few of the state projects
were coming on-line, GNP growth picked up to 4.24%. In 1976, as
more of these projects began, GNP rose a massive 13.48% – the highest
ever recorded in Taiwan to that point.68 Inflation fell to around 3% for
the rest of the decade and fast export growth once again brought the
balance of payments into surplus.69
The shock of the early 1970s prompted the planners to prepare for
similar events in future – especially for the possibility of price rises in
imported industrial intermediate products. The Six-Year Plan of
1976–81 accordingly emphasised the need to construct greater capacity
in heavy and chemical industries. Partly as a result, the second oil price
shock of 1979 and 1980 and the recession to follow had much less
severe effects on Taiwan than the first. Growth rates fell but not by
nearly as much. With this second oil shock and recession, the govern-
ment also took the opportunity to steer the economy further towards
non-energy intensive production in semiconductors, computers,
telecommunications, robotics and biotechnology – directions which
have been increasingly reflected in the structure of industry and
exports ever since.70
In summary, the Taiwanese state from 1949 until well into the 1990s
vigourously planned and intervened in the process of economic deve-
lopment. It owned and operated its own industries – especially in the
important upstream sectors of the economy. When the state changed
tack in the late 1950s and began to promote an export orientation, it

did so with the same robustness as it had used in protecting domestic
industry in the ISI phase. It carefully controlled the gateway between
international and domestic capital – ensuring that local capital accu-
mulation took precedence. Its willingness to intervene forcefully in the
economy was particularly clearly illustrated by the state’s response to
the dual economic and political crises of the early 1970s.
Origins of state autonomy
As with the Mexican and South Korean states, the form of auton-
omy which the Taiwanese state possessed was unique. So too, this
form of state autonomy corresponded to singular public policies
and a distinctive path of industrial development.
Colonialism
Taiwan – once better known in the West by the Portuguese name of

Formosa – has had a series of colonial masters. Between 1624 and 1661,
the Dutch maintained a colonial regime on the island. It was incorpo-
rated by the Qing dynasty in 1684 – which, however, showed little
interest in occupying or bringing it under military control. It remained
a loose dependency until, as a consequence of the Sino-Japanese war,
Taiwan was ceded to Japan by the Treaty of Shimonoseki in 1895.
Japan’s own industrialisation had been rapid after the Meiji Rest-
oration of 1868. However, one of the great weaknesses of its economic
structure was its small-scale agriculture. This limited improvements in
farm productivity and the relatively high cost of food for a burgeoning
urban workforce threatened to push wages up and hinder further
industrialisation. Consequently, the Japanese saw Taiwan first and
foremost as a source of cheap agricultural products to subsidise their
own industrial development. Rice and sugar were the key crops of
interest, and other tropical products were also grown. Industrial
growth in the early colonial period was almost entirely related to food
processing – especially sugar refining.
Diversification of Taiwanese industry took place in the mid-1930s as
Japan began its preparation for a war in the Pacific. Some textile pro-
duction was shifted to Taiwan and the production of fertiliser was
increased. The most serious efforts were made to expand production
which was directly related to the military. These attempts to turn
Taiwan into an industrial adjunct of Japan required the development
of a good infrastructure – including railways, ports and the expansion

of irrigation. The overall result was that manufacturing grew by an
annual average (in real terms) of more than 6% between 1912 and
1940 and by more than 7% in the 1930s.71 By this time, Taiwan was
the biggest trader in the region after Japan – although virtually all of its
trade was with its coloniser.
Between them, the big four Japanese zaibatsu – Mitsui, Mitsubishi,
Yasuda and Sumitomo – had a stake in nearly all the larger industrial
and commercial concerns in Taiwan. Indeed, almost all medium and
large businesses were owned by Japanese. In 1941, more than 90% of
corporations with paid-up capital of over 200,000 yen were Japanese-
owned. Taiwanese entrepreneurs mostly operated very small busi-
nesses. The few large Taiwanese capitalists who did exist – including
the five famous ‘collaborator-entrepreneurs’, as they were later called –
were not purely an urban bourgeoisie. They combined landlordism
with business operations.72 Japanese policy was to discourage the for-
mation of sizeable Taiwanese businesses. Indeed, by law, until 1924,
Taiwanese were prohibited from organising corporations or operating
them without Japanese participation.73 So although significant eco-
nomic development took place, no large, wealthy Taiwanese capitalist
class emerged – a fact which became of great significance after 1945.
The absence of a powerful Taiwanese elite was also clear at a politi-
cal level. In the colonial state apparatus, Taiwanese were virtually
unrepresented. At the upper levels especially, Japanese held all the
key posts. After the First World War, the Japanese formed a local
council – however it had only a consultative function and, in any
case, no Taiwanese were on it until 1921. 74 Only one-sixth of
Taiwan’s police force was made up of Taiwanese and none was above
the rank of captain.75
The militarisation of the Japanese government in the 1930s changed
its approach to Taiwan – with a new attempt to make the culture of the
island more thoroughly Japanese. A decree was issued requiring people
to change their names to Japanese forms and to use the Japanese lan-
guage. All non-Japanese publications were banned in 1937.76 The gov-
ernment in Tokyo also encouraged Japanese migration to Taiwan; by
1940, 312,386 Japanese were residents there, often making up the
management and skilled workforce of the large firms.77
Despite the distortions introduced in its economic system by becom-
ing an adjunct to the Japanese economy, the colonial experience does
appear to have given Taiwan an industrial start missing from most
other colonies. By 1945, it was probably more developed economically
than any province on the mainland.78 In the later stages of the war, US
bombing significantly reduced the island’s capital stock. So too, the
repatriation of Japanese technical experts, managers and business-
people undermined the economy – to the point where production in
1945–46 was only about half its peak level during the colonial period.79
However, some important transformations had taken place in industry,
infrastructure and education; at the end of the war about 71% of
primary school-age children in Taiwan were in school.80
Moreover, the Taiwanese economy had been deliberately planned by
the Japanese. Government control and direction were the norm.81 But
while relatively modern structures in business and government had
been created, very few Taiwanese had the experience of being in
control of them. The departure of the Japanese left a vacuum at the top
of Taiwanese society; it was soon filled by yet another colonising
power.
Retrocession and repression
On 25 October 1945, Taiwan was handed over to the nominal govern-

ment of China, under the Kuomintang (KMT) of Chiang Kai-shek. He
appointed Chen Yi, a former governor of Fujian Province, as
Administrator-General. For the KMT, Taiwan was little more than a
provincial backwater – to be plundered to line the pockets of party
officials or to help pay for the war it was losing against the Chinese
Communist Party. Accordingly, Chen pursued a policy of harsh repres-
sion. Of 316 higher level officials in the provincial government only 17
were Taiwanese and some of these were Taiwanese who had moved to
the mainland long before and returned with the KMT – the so-called
‘half-mountain’ people.82 Japanese, and certain Taiwanese property was
confiscated by the new government. The six banks operating during
the colonial period were put under government control, although
Taiwanese investors were allowed to keep minority shareholdings.
Thus the KMT state had direct control of the financial sector from the
beginning.83
On 27 February 1947, an incident began which illustrated the isolation
of this KMT-controlled state from the mass of Taiwanese. In a park in
central Taipei, government agents, enforcing the state monopoly on
tobacco and wine, accosted a woman selling unlicensed cigarettes,
confiscating them, her cash and knocking her down. When a crowd gath-
ered to protest, police fired into them, killing at least one Taiwanese.84 On
the following day – the twenty-eighth – a demonstration marched in
protest to Chen Yi’s headquarters. His guards machine-gunned the crowd,

killing some and sparking off a general uprising against the mainland
officials. The insurgents seized the Taiwan Broadcasting Station and
spread news of the rebellion across the island. The rebels quickly found
themselves in almost complete control. The American consul in Taiwan
said later that: ‘For about the first week in March, we saw no armed
Chinese on the streets of Taipei, and the Formosans seemed to control
every city because Chen Yi had too few troops to suppress the massive
demonstrations’.85 In most cities and towns the populace simply took
over. Organised Taiwanese students patrolled the streets to prevent
looting and arrested anyone associated with the regime.
An ad hoc ‘Committee of Settlement’, comprised mostly of conserv-
ative Taiwanese notables, was established and Chen Yi agreed to nego-
tiate with it. All of the Committee’s demands were mild – none
demanded separation from China. Chen strung out the negotiations
while he waited for troop reinforcements from the mainland. They
began to arrive at Keelung on the night of 8 March, first using
machine-gun fire to clear the docks. Then began a reign of terror as
the KMT troops massacred everyone they could find who was
remotely connected with the uprising. In an attempt to destroy the
leadership of any potential future rebellion, they also killed much of
the Taiwanese intelligentsia and even many who simply looked well-
to-do.86 Those among the actual or potential leadership of Taiwanese
society who escaped the massacres fled abroad, others simply learned
that to challenge the KMT was to risk death.
Stories of resistance to the KMT during the massacres were passed
down through generations of Taiwanese – although mention of them
could never, until recently, be made in public, or appear in print. One
concerned the legend of a Taipei bus driver who, ordered to drive KMT
troops to Hualien, where he knew they would conduct a massacre, told
his female conductor to get off after giving her a note to his wife. He
then drove them and himself over a cliff.87
The death toll of what became known as the 2–28 incident (after the
date of the beginning of the uprising) is unclear. Several sources say
that 20,000 people were killed.88 In 1991–92, an official government
investigation was finally held into the episode. Its report – running to
12 volumes – estimated that between 18,000 and 28,000 died. It also
admitted that only one victim – a prominent Taiwanese intellectual –
was actually tried before being executed.89 Some private estimates have
put the death toll as high as 100,000.90 The 2–28 incident left the
Taiwanese population in a position of total powerlessness in relation to
the state which had been imposed on them. For decades, it remained a
traumatic memory in relations between the Taiwanese and the
Mainlander population.
The nature of the KMT state
With the war against the Communist Party on the mainland going
badly for the KMT, Chiang Kai-shek began to prepare a retreat to
Taiwan. In late 1948 he despatched his son – Chiang Ching-kuo – to
the island along with Chen Cheng, an important KMT official. When
final defeat came the following year, the KMT fled to Taiwan with as
much of its army and as many supporters as it could salvage. In 1945,
Taiwan had a population of approximately six million. By 1950, more
than one and a half million more had arrived from the mainland. Most
knew nothing of Taiwan and had no family or other connections
there. Their only social ties and means of material support lay within
the KMT.
Chiang had already laid the legislative basis for dictatorial govern-
ment with the passing of the ‘Temporary Provisions Effective During
the Period of Communist Rebellion’ in May 1948. Suspending even
the pretence of democratic government, this became the legal basis of
KMT rule on Taiwan and remained so into the 1980s.91 Taiwan was
designated a combat zone; martial law remained in force until 1987.
The KMT was already highly centralised, with massive power in the
hands of the leader. Further changes to the party structure in a
‘reform’ launched in July 1950 and designed to eliminate the faction-
alism which had been rife on the mainland made it even more so.
Moreover, the party made it clear that it would control the army – not
the other way around. Only one political party was to be allowed,
although non-party candidates were permitted to stand in local and
provincial elections.
Despite its centralisation, the KMT was designed to be a mass party –
with party cells in farmers’ associations, labour unions, professional
associations, student and youth groups. By the end of the 1980s, it
had nearly three million members – about 13% of the population.92
Although some Taiwanese were encouraged to join the party after the
early 1950s, they remained in lower-level positions. For decades, those
who had come with Chiang from the mainland remained in firm
control.
The KMT not only brought with it a party and state structure, it
also tried to recreate the institutions of mainland government – not
in exile (since it saw Taiwan as part of China) but in temporary

retreat. The five Yuan (chamber) structure of government which had
been established by the KMT’s founder, Sun Yat-sen, in the 1920s was
now set up in Taipei. In this structure, the Legislative Yuan (LY) and
the Executive Yuan (EY) were the key bodies. The LY was elected in
1947 on the mainland – its members coming from 30 provinces of
China, of which Taiwan was only one. Since, after 1949, elections
could no longer be held in the other 29, those elected in 1947
remained members of the LY. Until they were finally retired in 1992,
the ageing KMT cadre of the 1940s dominated the main legislative
chamber of government.
In addition, a subordinate provincial government was established to
manage affairs in Taiwan itself. From the early 1950s, limited elections
were held for this and for local councils. But candidates were very care-
fully screened and the elections ‘supervised’ by KMT officials and
higher government authorities. Organised opposition parties were out-
lawed under the provisions of marital law. The KMT monopoly of
political power was so complete that party and state were virtually
identical.
Government economic intervention was part of the KMT’s ideologi-
cal heritage. Sun Yat-sen had suggested the need for strong govern-
ment control within the context of a free-market economy. The third
of his ‘Three People’s Principles’ – the ‘Principle of People’s Livelihood’
(minsheng zhuyi) – advocated the regulation of capital and equalisation
of land tenure. But a role for free enterprise was to be preserved and
the class struggle was abhorred. Government ownership was to be
pursued to the extent necessary to ensure the people’s basic needs. The
doctrine is a mixture of vaguely socialist ideas, statist planning and tra-
ditional Confucianism.93 Since it incorporates both free-market and
government control – it is highly adaptable. A government can expand
either element in practice and still claim adherence to Sunist philoso-
phy. In Taiwan, the KMT used this ideological flexibility to publicly
support the notion of a private sector – especially for the benefit of US
ears – while, in practice, it heavily directed resources to state-owned
firms.94
The terrible shock of defeat on the mainland and the realisation that
Taiwan was indeed its last refuge – that there was nowhere else to
retreat – produced a new political will. The party was forced to assess
the reasons for its loss to the communists; it identified two as central.
The first was its failure to undertake a thorough land reform. The
second was its inability to control inflation.
Land reform
The equalisation of land rights formed an important part of Sun Yat-

sen’s thought.95 But on the mainland, the large landowners had con-
sistently blocked any KMT attempt to carry it out. In its soul-searching
after 1949, the KMT leadership admitted that the Communist Party
land reform program had been the major part of its appeal to the
peasantry. A painful self-criticism took place at high-levels. In addi-
tion, the KMT in the early 1950s was by no means sure that Taiwan
would be a secure base. It faced a hostile population – especially after
the massacres of 2–28 – and a menacing mainland government. It was
concerned that, without land reform, the loss on the mainland might
be repeated. Chen Cheng later recalled that in the early 1950s, ‘the
villages on this island were showing signs of unrest and instability. It
was feared that the Communists might take advantage of the rapidly
deteriorating condition to fish in troubled waters’.96
Landlessness and land shortage were serious problems in Taiwan.
In 1949, 36.1% of all farmers were tenants and another 6.7% were
farm hands. Most leases were verbal and could be terminated by
landlords at any time.97 Rents averaged 50% of the yield of the land
and could even be as high as 70%.98 Whereas, on the mainland, the
rural ruling class had blocked reform, no such constraint existed in
Taiwan. KMT personnel owned no agricultural land in Taiwan, they
had few personal connections with Taiwanese landlords and cared for
their interests even less. Thus the government proceeded with a thor-
ough land reform in Taiwan which it could never have undertaken
on the mainland.
In addition, land reform was strongly supported by the Americans.
The Sino-American Joint Commission on Rural Reconstruction (JCRR),
composed of American officials and, quite high-level ROC officials and
technocrats, played a major part in working out the details.99 The
reform took place in three stages.100 The first was the compulsory
reduction of rents. Then public land was to be sold to the farmers.
Finally, in 1953, landlords were forced to sell their land over 3 chia
(1 chia = 0.97 hectares = 2.4 acres) to the state.101
Landlords were paid most of the purchase price in bonds issued by
the Bank of Taiwan and repayable in 20 installments over ten years at
an interest rate of only 4% or in stock in one of four government
enterprises.102 By having to accept bonds as payment, the landlords
were, in effect, being forced to lend sizeable sums to the government
at very low, in fact negative, real interest rates. Those who accepted
stock in government enterprises usually immediately liquidated it at

low prices. More than 98% of the ordinary landlords and over 90% of
the big landlords sold their shares in one lot or in several. Most were
sold at prices well below par value.103 The landlords, however, did not
become industrialists – most went back to farming. Only 20% of the
ordinary landlords and less than 30% of the large landlords had
changed their occupation by the time the land reform was com-
pleted.104 The landed class had been abolished and along with it, the
possibility that it might be an impediment to the industrial plans of
the new state. Moreover, with very few exceptions, it did not turn the
landed class into an industrial capitalist one. The ability to carry out
the land reform illustrated the great autonomy which the state
already possessed from the local ruling class. With its success, state
autonomy became even more marked.
Although the reform didn’t transform large farmers into industri-
alists, it did help develop industrial capital in several ways. Firstly,
by forcing landed wealth into government stocks and bonds, it
enlarged the funds available to the government for use in public
enterprises. Secondly, it resulted in greater agricultural output and
made it possible for the government to increase the outflow of
capital from agriculture to industry. Some 37% of the total culti-
vated area of Taiwan was distributed under the program. 105 Because
of the new land and opportunities available to them, formerly
tenant farmers now had a greater incentive to be productive.
Furthermore, although many more small farmers became landown-
ers, the scale of farming remained approximately the same as before
the reform – since landlords had previously leased their land in
small lots anyway. 106 Farmers now put savings into improvements
in their land; investment in agriculture rose immediately, doubling
between 1950 and 1955. 107 Yields increased, so that whereas one
hectare was able to support 8.44 persons before the reform, it could
maintain 14.2 persons after it. 108 Agricultural production grew at
an annual average of 4.4% between 1954 and 1967. By 1960, rice
yields per hectare were higher than anywhere else in Asia except
Japan.109
Farmers’ incomes rose accordingly; between the conclusion of the
land reform and 1968, the income of the average owner-farmer
increased 230%.110 As a result, farmers’ savings could be siphoned off
by banks, government taxes, compulsory rice purchases and through
the fertiliser-rice barter scheme to contribute to domestic capital for-
mation. Increased agricultural production provided a surplus for export
and the foreign exchange earned in this way could be used to buy
capital equipment and intermediates for industrial production.
Although the farmers were squeezed by the government strategy of
shifting resources from agriculture to industry, most of them gained
sufficiently from the land reform program to dampen their protests.
Under the rent reduction program, 44.5% of all farm families benefited,
120,000 farm families bought public land and 224,000 tenant families
(39.5% of all farm families) gained land from the land-to-the-tiller
program.111 With the conclusion of the reform, more than 80% of the
farming population worked their own land. By redistributing rural
wealth in this way, land reform lessened the high-levels of inequality
that other NICs experienced during the industrialisation process.112 The
KMT was able to carry through the reform in Taiwan, in contrast to its
poor effort on the mainland, because of the great autonomy the state
enjoyed on the island. Having achieved a successful reform and thus
avoided the potential opposition which a landlord class might mount to
the siphoning of resources from agriculture to industry, the new state’s
autonomy was even greater.
Inflation
The second major element of the KMT’s assessment of the reasons

for the debacle on the mainland was the rampant inflation which it
had allowed to develop there. It was determined to avoid the same
mistake on Taiwan. In the early and mid-1950s, high inflation con-
tinued in Taiwan. Foreign aid funds helped to bring it under control.
But the major contributor to the low inflation rates which charac-
terised Taiwanese development from that point on was the policy of
the government in setting interest rates very high – a curious strat-
egy, one would think, for a state bent on rapid industrialisation. But
high interest rates were maintained until the 1990s. They had effects
other than controlling inflation. Firstly, they tended to encourage
savings. The share of gross domestic savings in GNP averaged
24.93% between 1951 and 1988 – one of the highest rates in the
world.113 As a result, Taiwanese business needed a much lower rate of
foreign borrowing than other developing countries. Secondly, they
tended to keep those businesses small which lacked privileged access
to credit. Since only the state sector and a small number of private
sector firms had such access, the Taiwanese industrial structure – in
marked contrast to that of Korea – was characterised by the existence
of a very large number of small and medium-sized private firms.
Ethnicity
The indigenous people of Taiwan are of Malayo-Polynesian back-

ground and now make up about 1% of the population. Beginning
about 1,000 years ago, but particularly from the fourteenth to the
seventeenth centuries, people from mainland China – especially from
Fujian and Guangdong provinces – began to move there. They forced
the indigenes into the interior and an increasingly marginal existence.
The main Taiwanese language is a variant of the dialect spoken south
of the Min River in Fujian Province in mainland China. Taiwanese
who originally came from there are called Minnan jen (people from
south of the Min) and the dialect Minnan hua (south of the Min
speech). About 12% of the population speak Hakka – a form of
Hokkien – as their first language. Around 14% – those who came to
Taiwan after 1945 – spoke Mandarin as their first language. Mandarin
and the local Taiwanese languages are mutually unintelligible. The
breakdown of the population is usually given as 85% Taiwanese, 14%
Mainlander and 1% Aborigine.
While there was resentment at Japanese overlordship, it seldom
translated into a demand for separation from Japan or unification with
China. Also, by 1945 Taiwan was relatively economically developed
compared to elsewhere in China. It had a high rate of literacy and sub-
stantial public infrastructure. The transition from domination by Japan
to domination by the mainland government did not seem to many
Taiwanese as liberation. The rag-tag – and highly repressive – forces
with which the KMT moved to take Taiwan back after 1945 hardly
changed their minds.
The defeated KMT army which arrived en masse after 1949 reinforced
the impression that Taiwan was being put under the control of a bar-
barous group. The KMT elite came into exile. But so did the army rank
and file – mostly illiterate and poor. The soldiers, ill-equipped, ragged
and filthy, some barely boys, others old men, were poorly provided for
by their leaders. They wandered around the cities looking for food and
shelter. The police shooed them away from the better parts of town. A
popular slogan began to appear on walls – ‘Dogs go and pigs come’ –
indicating that the Taiwanese saw little difference between their old
and new colonisers.114
Although the Taiwanese had no clear sense of nationhood and
indeed, were divided ethnically amongst themselves, they soon united
to the extent that most opposed the Mainlanders. This complex sense
of a negative unity and identification is captured by the recollection of
the Hakka writer, Tai Kuo-hui, when faced with a hostile mob during
the 2–28 incident. Unable to prove that he was not a Mainlander
because he could not speak Fujianese, he resorted to singing the
Japanese national anthem to show that he was not from the Chinese
mainland.115
As for the KMT, for the most part, it did not need deep roots in the
local population or mass support since it had brought not only an
entire state apparatus with it, but a support base of one and a half
million people as well. The new state did sometimes try to work
through Taiwanese powerbrokers such as wealthy or influential fam-
ilies. But even these limited and mostly local links were carefully
selected. In order to have influence with the Taiwanese people, the
family concerned had to have a significant reputation and networks
– but not a reputation so pre-eminent or connections so widespread
as to threaten the hegemony of the KMT. The family background
could not have been too close to the pre-Republican Qing dynasty,
nor too pro-Japanese. Very few Taiwanese families met all of these
conditions.116
Another source of political middlemen with some connection to the
Taiwanese population were the ‘half-mountain people’ – those who
had left Taiwan for the mainland some time before, often during the
Japanese colonial period. Few of them were from the Taiwanese elite –
otherwise they would not have left the island. And while they were
better able to communicate with the Taiwanese and had contacts,
none had any serious support. Many were simply assigned positions in
the KMT state or in the management of the state enterprises which the
KMT took over. The KMT eventually did begin to ‘Taiwanise’ itself later
in the 1950s. But until the late 1980s, Mainlanders still dominated its
top levels.117
A degree of political isolation from the Taiwanese also provided the
KMT with a means of keeping the supporters and the army it had
brought with it in order. Mainlanders were encouraged to think of
themselves as the representatives of the higher culture of China.
Although Taiwan, in this mythology, was part of the same culture, it
was clearly on the fringes of it; the Mainlanders came from its heart-
land. Most of the Mainlanders, especially the large numbers of poor
soldiers, were neither wealthy nor influential. Now they were encour-
aged by the KMT to believe not only that they were superior to the
majority of the population, but that, should the Taiwanese rule the
island, the Mainlanders would be thrown out.118 A siege mentality –
based not only on the threat from the Communists, but from the
Taiwanese as well, was consciously promoted by the KMT within its

own constituency. Furthermore, the Mainlanders had no property in
Taiwan and no jobs. They were entirely reliant on the KMT state for
their livelihoods. The industrial strategy of building a large state sector
was based on more than Sunist ideology; it had an immediate purpose
in providing employment for the KMT’s Mainlander support base.
Similarly, interest rates and other policies which tended to keep private
business small retarded the growth of the Taiwanese business class and
postponed any challenge which it might mount to the KMT’s pre-
eminence. No challenge was likely from émigré Mainlander business
either. Only a few entrepreneurs came to Taiwan. Those that did
tended to be the most dependent on the KMT. They became even more
so in the new, unfamiliar environment.119
The autonomy of the KMT state was, first of all, a product of its emi-
gration from the mainland. But this autonomy was then strengthened
and maintained by the regime’s manipulation of ethnic divisions over
the next 50 years. Until the early 1990s, the ancestral origins of one’s
father were recorded on identity cards, which had to be carried by all
people over 15 years of age. Even when social contact became more
common between Taiwanese and Mainlanders, new acquaintances
would often still be ‘placed’ as one or the other on the basis of their
accent, customs, likes and dislikes.120
Shortly after its emigration, the government set up a national
Mandarin (guoyu) Promotion Committee. Japanese language newspa-
pers were taken over and converted to Mandarin.121 In 1953 the gov-
ernment imposed Mandarin as the language of instruction in all
schools; the use of other dialects in the schoolyard was a punishable
offence.122 In 1964, it passed a law outlawing the use of Taiwanese lan-
guages in official settings at all and began a campaign to emphasise the
grace of Mandarin and the vulgarity of Taiwanese. When television
was introduced to Taiwan, programs in Taiwanese proved most
popular – a clear threat to the Mainlander ascendancy. Accordingly, in
1972, the government banned the broadcast of more than one hour in
Taiwanese each day, and that had to be broken into two segments – at
lunch and at night. In 1976, all television was required to be in
Mandarin within one year.123
Another element of the KMT’s cultural policy was the glorification of
all things ‘Chinese’ and the attempt to instil a Chinese nationalism
rather than a Taiwanese one in the population. The policy had a
number of motivations. Firstly, the ROC’s insistence that it remained
the legitimate government of China demanded that it preserve
Chinese culture against the supposed attempt by the Communists to

destroy it.124 The message was that the Chinese Communists were
‘unChinese’ and that only the KMT held the heritage of a 5,000 year
civilisation. Thus cultural artifacts brought from the mainland and
installed in the many museums built in Taiwan – such as the National
Palace Museum – were important ideological weapons of the regime.125
A second reason for the official adulation of Chinese culture was that it
served to remind the Mainlander population in Taiwan of their cul-
tural superiority and of Taiwanese backwardness. The relegation by
neglect of specifically Taiwanese history and culture corresponded to
the secondary political status which the Taiwanese were allotted in the
regime after 1949.
The Taiwanese education system was also enlisted to inculcate a
sense of the importance of China rather than Taiwan. For many years
students were required to memorise mainland railway stations as they
existed before 1949. In the schools, the national flag, the KMT party
song and the leaders – Chiang Kai-shek and Sun Yat-sen – were all ven-
erated. Sunism became a compulsory part of the school curriculum.
The primacy of China over Taiwan was even evoked in the naming of
places on the island. City streets in Taipei were named after places on
the mainland. Indeed, there was even an attempt to have their relative
positions in China reflected in Taipei. Thus names from the southern
part of China were used to rename streets in the southern part of the
city, the names of peripheral regions such as Tibet, and others in
Mongolia and elsewhere assigned to outskirts of the city.126 The map of
Taipei became a map of China. After the death of Chiang in 1975, a
massive square and mausoleum was built near the centre of Taipei.
Many have pointed out its peculiar similarity to Tiananmen Square.127
Policy, industrial structure and the form of state autonomy
The economic policy pursued by the state and the particular form of its
autonomy are linked in crucial ways. Since it was, at first, an émigré
state, determined to militarily regain the mainland, it needed to
promote the rapid development of heavy, upstream industries. It also
had to provide a living for the Mainlanders who came with it to
Taiwan. State-owned industries were appropriate on both counts. The
KMT had already inherited Japanese colonial businesses – by far
the biggest on the island. Just as importantly, the autonomy of the
state was based on the subjugation of the Taiwanese population. If
private Taiwanese businesses were allowed to grow into industrial
giants, they might threaten the freedom of action which the regime
required and KMT dominance. For all of these reasons, state ownership
was emphasised and private business mostly neglected entirely, or
subjected to policies likely to restrain its growth.
There were a few exceptions to this rule. A number of the ‘collaborator-
entrepreneurs’ from the colonial period – still an influential group in
Taiwanese society in the 1950s – were permitted to buy into important
industries – such as Taiwan Cement. But, even here, the KMT remained
suspicious, exercising close state control over them. Another group of the
tiny Taiwanese bourgeoisie which managed to find a favoured place at
the table were those in industries of direct importance to the military. Lin
Tingshen of the Tatung Group and Tang Chuanzong of the Tang Eng
Ironworks – both manufacturers of metal products – succeeded in creat-
ing quite large firms.128 However, most Taiwanese businesses stayed small
and the state was content to see them remain so. Meanwhile, Main-
landers controlled the commanding heights of the economy through the
state industries. The industrial division of labour reflected the ethnic one
which the KMT had manipulated to its political advantage.
By the early 1990s, there were approximately 700,000 small and
medium enterprises (SMEs) in Taiwan – an extraordinary number in a
population of only around 20 million people. They made up 98% of
the total number of businesses and employed 70% of the total work-
force.129 The SMEs of Taiwan have sometimes been seen as heroic
‘guerrilla capitalists’, operating purely according to the market with
little state interference and, in this Ayn Randist world, as the major
contributors to Taiwan’s economic success. It is true that many of the
SMEs operated at arms length from the state, often avoiding taxes,
without keeping records, or possessing government permits to operate.
Frequently, contracts with other firms are entered into with nothing
put in writing. Typically, the owners of SMEs viewed the state with sus-
picion, particularly as a result of its mainland origins. However, the
fortunes of these ‘guerrillas’ were inextricably linked to the larger state
and private – including foreign – firms. A case study of the footwear
industry in 1998 revealed that there were three tiers. The top consisted
of relatively large factories with an average of 140 workers which did
the most capital-intensive operations. Subcontracting from these larger
firms were a much larger number of workshops with, on average,
20 workers. The lowest tier consisted of individual households doing
still smaller tasks.130 All of these, in turn, were sandwiched between the
huge, largely state-owned, petrochemical companies which supplied
the raw materials and intermediates and the multinational retailers –
such as J.C. Penny and Nike – which bought the finished products.131
Similar examples can be found in the plastics industries and in elec-
tronic assembly – where SMEs fill the gap between large companies.
The ‘guerrillas’ operate as auxiliaries to the regular big battalions. This
is one of the reasons why SMEs predominate in the export market.
Depending on how the SMEs are defined, they contribute between 65%
and 71.8% of total export earnings. Often they export finished prod-
ucts under contract to foreign retailers. The upstream industries which
provided the raw materials and intermediate products and perhaps add
most value often disappear from view.132
Part of the reason for the small-scale of much private business in
Taiwan was the success of the land reform of the early 1950s. Farm
incomes rose but plots remained small. Some of this extra income was
used to buy labour-saving equipment, freeing farm labour. Many
farming families also used it to set up small manufacturing enterprises.
In only a short time, farm families were earning more from these ven-
tures than from the land. Non-farm income for rural households was
already 79% of their total household income in 1966, rising to 89% a
decade later.133
But, undoubtedly, the major reason for the small average size of
Taiwanese private businesses is the deliberate policy choice of the state
which channeled resources – foreign aid until the mid-1960s and then
bank credit – into the public sector. This did not prevent the prolifera-
tion of private businesses. Indeed, the KMT regime had no reason to
fear the development of a large number of small Taiwanese businesses.
But, it did restrict their expansion. The high interest rate policy also
discouraged borrowing. Between 1951 and 1987, 64.34% of private
enterprises were financed entirely from internal company sources.
Many of the rest were largely financed by the surplus from house-
holds.134 Relative to their overall output, the state sector was favoured
twice as much as private firms in getting loans. In the 1965–87 period,
public firms were given loans of NT$0.2211 for each dollar of final
output; private firms received only NT$0.1154.135
Around 1970, sections of the KMT’s economic bureaucracy, led by
Finance Minister, K.T. Li, voiced concerns about the restrictions on the
private sector and argued that for further industrial deepening to
occur, private undertakings in heavy petrochemical industry should be
allowed and the banking system opened up to private domestic owner-
ship. But the KMT leadership and the managers of the state-owned
enterprises, concerned about the emergence of a large private capitalist
class, vetoed the moves.136 Instead, until the late 1980s, the Taiwanese
state consistently opted for direct state-ownership and, to a lesser

extent, joint-ventures with state equity participation, as alternatives to
the development of large domestically-owned private firms.
The banking sector was particularly protected as a state preserve.
Although many economic technocrats argued that local private
capital should be permitted to form financial institutions, only one
such firm was allowed into any area of finance in each of the first
four decades of KMT rule in Taiwan.137 Indeed, the government pre-
ferred banks operated by foreigners and the overseas Chinese to those
set up by Taiwanese businesspeople. The latter were much more
likely to become a threat to the domestic hegemony of the KMT.
To an extent, private business compensated for its relatively small
size on a world scale by the formation of a dense system of business
networks. These connections – guanxi – have led to the formation of
linked companies – guanxiqiye. They may be formed on the basis of
the family linkages of their owners, native-place affinity and even
common family names or birth dates.138 Guanxiqiye substitute, to
some extent, for the economies of scale enjoyed by larger enterprises.
As the industrialisation of Taiwan continued, some of the top guanx-
iqiye became very significant in its economy. By 1988, the sales of the
top 100 guanxiqiye accounted for 34% of GNP. In 1991, the revenues
of the top ten guanxiqiye represented just over 10% of GNP.139 The
guanxiqiye have not become as central to the economy or as powerful
as the chaebol of Korea. But, especially from the 1980s, they became a
significant factor for the KMT to take into account. Moreover, the
main guanxiqiye remained ethnically segregated between a minority of
Mainlander companies and the majority of Taiwanese ones. An
exhaustive study in the 1980s of the most important guanxiqiye
showed that, overwhelmingly, they still did not invest across the
ethnic divide in each other’s business groups.140
Meanwhile, Mainlander dominance of the state sector continued
and, despite some privatisation in the late 1980s and 1990s, the sector
remained extremely powerful. In 1992, 60 state-owned firms still
accounted for 15% of aggregate capital.141
Relative autonomy
Path three: migration

In Mexico and South Korea, the autonomy of the state emerged largely
through domestic upheavals. In both cases extremely destructive civil
wars reduced the ability of the major social classes to take and hold
state power. In Taiwan, state autonomy was based on the fact that the
social roots of the state were formed on the mainland and then severed
with its migration across the Strait. The possibility of any challenge to
the émigré state was ended with 2–28, a situation then maintained
through repression and the manipulation of ethnic divisions. The par-
ticular policy settings used by the state to industrialise Taiwan were
chosen on the basis of this autonomy and designed to preserve it.
The KMT – the leadership of which was the state – was already ide-
ologically open to a statist path before it arrived on Taiwan. But then
the breaking of the party from its elite base on the mainland, the
inheritance of Japanese businesses and the weakness of local forces of
opposition made that path practical. The danger posed by the
People’s Republic and the consequent need for rapid heavy industri-
alisation made it even more attractive. Furthermore, the preservation
of state autonomy required the stunting of the growth of the private
bourgeoisie. The bourgeoisie on Taiwan was already weak in 1949.
Deliberate political choices made by the KMT state were designed to
keep it so. The economy which resulted – a massive, state-owned,
industrial sector alongside a large number of small and medium
private businesses – closely reflected the form of autonomy of the
Taiwanese state.
8
Taiwan: on the Edge of the Descent
Introduction
Because of its origins in the class structure of another society, the form
of autonomy which the KMT state possessed in relation to Taiwanese
society was a particularly strong one. Until the 1980s, it was capable of
resisting challenges to it which emerged from the newly industrialised
society it had created. Even then, the retreat of the state was a partial
one. There was no sudden collapse of the regime or imprisonment of
its former leaders, no fire-sale of public assets or the near-total removal
of state controls. The turn in development policy which began to take
place in the 1980s and 1990s was gradual. Even in the late 1990s, the
Taiwanese state retained important economic levers which other NICs
had abandoned. Those levers, and some of the unintended conse-
quences of its earlier developmental strategy enabled it to withstand
several more external shocks – in particular the 1997 fiscal crisis which
laid low many of the rapidly growing Southeast and East Asian
economies. The ascending phase of this developmentalist state state
was a long one; its retreat from developmentalism has been carefully
managed. However, since the 1997 crisis, the early signs of a sharp
descending phase have become apparent.
The rise of opposition
The working class

As elsewhere, industrial transformation in Taiwan dramatically changed
the class structure of society. By 1980, nearly two-thirds of its workforce
were wage and salary earners.1 After taking over the island in 1945, the
KMT already had a battery of repressive legislation and considerable
212
Taiwan: on the Edge of the Descent 213
experience in smashing Communist-influenced unions on the mainland.

The special law of 1947 – ‘Measures for the Handling of Labor Disputes
during the Period of National Mobilization and Suppression of Rebellion’
– was also implemented in Taiwan and remained in effect until the mid-
1980s. It removed the right to strike and gave the government extensive
powers to intervene in disputes. Martial law, in force until 1987, was also
employed to prevent independent union organisation and strikes.2
Under it, independent union activists routinely had their phones tapped
and movements monitored by secret police, intelligence services and
even KMT party branches.3
Ironically, in view of this anti-union stance, Taiwan has, since 1949,
had the highest proportion of its workforce in unions of any of the
Asian NICs.4 The reason was that the KMT organised its own unions. In
1935, it set up the China Federation of Labor (CFL) as an attempt to
undercut Communist unions. All unions were required to be part of
the CFL.5 The KMT encouraged its cadres to found unions and to dom-
inate their leadership.
As with the Legislative Yuan (LY), all members of the CFL Congress
elected on the mainland continued to serve after 1949. In the mid-
1970s the election of supplementary members to replace those who
had died or failed to escape from China was permitted. But surviving
members of the CFL retained their seats. Union elections were ‘guided’
by authorities – usually the municipal or county government. Even in
1990, all officials of CFL unions at county level and above were
members of the KMT.6 So it is not surprising that, until 1986, strikes
were few in number and of short duration. Between 1964 and 1974,
just 909 labour disputes – not all of them strikes – were reported.7
Relatively few worker-days were lost in each stoppage; a high of
857 per stoppage between 1966 and 1970, falling to just 75 between
1971 and 1975.8 The most common cause of dispute was the attempt
to obtain unpaid allowances or wages. In marked contrast to the devel-
opment of labour militancy in Mexico and South Korea, these were
rarely large-scale actions and were usually quickly settled with little
need for government intervention.9
The low level of industrial struggle in Taiwan was not only a
product of repression. The most important factor limiting the devel-
opment of working class militancy was the distinctive feature of
Taiwanese industrial expansion – the proliferation of small firms. By
1971, 68% of firms employed fewer than 20 workers.10 By the 1980s,
90% of firms employed fewer than 30 workers. An estimated 80% of
the wage workforce were to be found in such small firms. 11
Moreover, many of these were family-owned and often employed

family members before hiring anyone else. Kinship between
employer and worker personalised the relationship and slowed down
the development of class consciousness.
A second important factor having the same effect was the develop-
ment of substantial, decentralised, rural manufacturing. Unusual for a
rapid industrialisation, rural employment grew as rapidly as urban for
much of the period of expansion.12 Land reform provided the capital
for the establishment of small manufacturing enterprises in the coun-
tryside and so many workers kept a foot in the small-farmer class. Even
when former farmers or their children moved to the city, they would
often move back, sometimes with industrial skills, to use in local man-
ufacturing enterprises. Many more of those who did not return to their
villages could still harbour hopes of doing so. A study of small factories
in the village of Liu Ts’o, showed that young villagers trained in urban
industry often returned to their village and provided labour and skills.
In these small factories:
the male workers’ expectation of becoming capitalists and free

workers with higher income and social status was an important
stimulus… The distinction between capitalists and workers in most
small-scale in-village factories in Liu Ts’o is not clear cut; …everyone
wants to establish his own business.13
Moreover, the sense of injustice at increasing levels of inequality that

was present in both Mexico and South Korea, was less pronounced in
Taiwan. The very fact that so many small businesses were set up
and that manufacturing was dispersed – both spatially and in terms of
ownership – lessened inequality during the industrial transformation.
Another reason for the limitation of class polarisation in Taiwan was
the success – for a long period – of the KMT’s attempt to divide the
population along ethnic lines. The division tended to keep Taiwanese
and Mainlander workers separate and to cause each to identify with
capitalists on their own side of the divide.
A few official unions were captured by independent activists and
others not aligned with the KMT were set up. By 1988, a total of about
100 small independent unions had appeared.14 The largest ‘captured’
union – the Petroleum Workers Union – had 23,000 members; seven
others had between 260 and 3,000 members.15 The number of work-
days lost in strikes rose in the three years following the opening, by the
government, of a process of limited democratisation in 1986. Worker
militancy was a small part of the pressure – along with a rapidly tight-
ening labour market – which pushed manufacturing wages up by 60%
between 1986 and 1989.16 But at the high point in 1989, there were
still only 15,672 worker-days on strike and that dropped to just 23 days
in 1991.17 The independent labour movement was, and remains, a
minor factor both in industrial relations and in politics. In the move-
ments for democratic change which emerged in the 1980s, it played
only a marginal part.
The peasantry and the middle class
Although the industrialisation of Taiwan was, in part, based on a gov-

ernment strategy of extracting resources from the farmers, their
protests at this course of action were muted, first of all, by land reform.
Rural incomes rose and created amongst farmers an attitude of, at least,
compliance. Moreover, few farmers came to rely entirely on farming
for their living – most turned either to setting up small manufacturing
businesses or working in them. In 1956, around 60% of farmers were
already farming on a part-time basis only. The proportion of part-
timers rose to 69.8% in 1970 as new employment opportunities
emerged outside farming and improved technology meant that less
labour was required in agriculture. By 1988, only 10.3% of those who
worked the land were full-time farmers.18 Moreover, non-agricultural
income was more important than agricultural earnings for most
farming families by the early 1970s. By 1988, 62.2% of farm household
income came from non-agricultural sources.19 The creation of these
other sources of income ameliorated the discontent which might
otherwise have erupted in the countryside.
A serious challenge to the KMT – and indeed to the whole form of
industrialisation which took place in Taiwan – was the emergence of
an environmental movement. Taipei is one of the most polluted cities
in the world. The uncontrolled and unlicensed nature of many manu-
facturing establishments meant that environmental safety was forgot-
ten.20 In the early 1980s, a few environmental protests began; ten were
reported in 1981.21 Then, between 1983 and 1987, 382 environmental
protests, many of them violent, took place as people began to question
the costs of economic growth.22
Within a short time after the lifting of martial law in 1987, a series of
movements attempting to protect the environment were formed:
the New Environment Foundation, Taiwan Greenpeace, the Taiwan
Environmental Protection Union (TEPU) and the Homemakers’ Union
Environmental Protection Foundation.23 All were dominated by acade-

mics. Since then the movement has broadened – especially in opposi-
tion to the building of further nuclear power plants – and become a
significant part of the opposition to the KMT.
The challenge to ethnic subordination
The dominant position of the KMT state required the continued weak-
ness of local Taiwanese society. Mainlander ethnic supremacy was a
crucial part of this equation. Neither the working class created by
industrialisation nor the peasantry squeezed by it were able to chal-
lenge the state very effectively. Instead a cultural movement which
crossed the class boundaries of ethnic Taiwanese emerged to voice the
multiple discontents produced by KMT rule.
Anticipating more openly political movements, this cultural oppo-
sition to the KMT made its first appearance in literature. A trend,
known as xiang tu (native literature) appeared in the mid-1970s. It
was based on stimulating a sense of loyalty to Taiwan – a challenge to
the Sinocentric obsession of the state. Where officially approved liter-
ature had concentrated on tales of the mainland and on the elite,
xiang tu focussed on the life experiences of the common people of
Taiwan. Taiwanese history also began to be written – reflecting the
growth in ‘Taiwanese consciousness’.24 Other cultural forms of resis-
tance sprouted. A modern dance company – Yun-men (Cloud Gate)
performed work based on Taiwanese legends and history. 25 A rock
group – Hei Ming-dai (Blacklist) – established itself by singing only in
Taiwanese.26 These ‘nativist’ trends soon began to merge with the
rising tide of political dissatisfaction.
New magazines and newspapers began to appear written in
Taiwanese and Hakka – that alone was enough to establish them as
oppositional. A club restricted to authors using Taiwanese languages
was established. An important breakthrough came with the change in
editorial policy of a major publishing house – tzuli paohsi (The
Independence Newspaper Group) – which claimed to take a ‘Taiwanese
perspective’.27
The discussion of Taiwanese identity was given a boost by democ-
ratic reforms beginning in 1986. In the 1990s, pirate radio stations –
usually broadcasting in Fujianese or Hakka – became extremely
important in cohering the opposition around the need for further
reform and a sense of Taiwanese ethnicity. More than 20 such sta-
tions sprang up in 1994 alone. The most radical of them – the Voice of
Taiwan – regularly had 20,000–30,000 listeners; surveys showed that

half a million had tuned in to it.28 Such stations served as meeting
places for many disparate elements of the opposition – environmen-
talists, champions of Taiwanese culture and aspiring opposition
politicians.
It was still possible for a visitor to Taiwan to write in 1981 that:
Pride simply in being Taiwanese is rare, at least in the urban areas

where mainlander values are most pervasive… Most Taiwanese… are
willing to grant many of the status claims made by mainlanders and
to see themselves as participants in a ‘lower’ culture.29
The cultural transformation which took place from the mid-1970s to

the early 1990s was so profound that, ten years later, no observer could
get this impression.
The movement for democracy
The earliest published critique of KMT ideas was drawn up by a

Professor of Law at National Taiwan University – Peng Ming-min – and
two students in 1964. This ‘Declaration of Taiwanese Self-Salvation’
argued that Taiwan had to think of itself as more than an adjunct of
the mainland. All three authors were arrested and imprisoned. Peng
fled to the US and continued to develop support for his views amongst
Taiwanese students there. Such was the repressive atmosphere in
Taiwan that it was not until early 1971 that a further, tentative, argu-
ment for reform was made – by a University Magazine group – which
called for greater protection of human rights, the rule of law, and
improved social welfare. It carefully avoided more direct questions
associated with the repression of the regime – such as the issue of polit-
ical prisoners.30 Later that year, 15 well-known intellectuals, both
Mainlanders and Taiwanese, issued a proposal for major democratic
reforms in the magazine, The Intellectual.31
Between 1971 and 1977, an opposition group of politicians and candi-
dates for political office began to cohere. At this stage it was not a party –
martial law prevented the formation of one. Taiwanese politicians not
linked to the KMT had been able to run for office and had done so –
especially in local government elections – during the 1950s and 1960s.32
Few were elected to national or provincial posts, largely because of their
lack of resources, organisation and the fact that the press always sup-
ported the KMT. But the gradual emergence of a sense of Taiwanese
identity and the accumulation of discontent meant that these electoral

oppositionists – known as the tang-wai (people outside the party) – began
to attract more support. They were helped by an international factor –
the normalisation of relations between Washington and Beijing. Since
the KMT’s legitimacy was largely based on the notion that it was the real
government of China, the fact that most of the world did not believe it
to be so, damaged its domestic prestige.33 At the local elections in 1977,
the KMT lost ground to tang-wai candidates.34 In the same year, this
loose grouping of oppositionists won 34% of the vote in the elections for
the Taiwan Provincial Assembly.35
The growing opposition began to have an effect inside the KMT. One
popular figure, Hsu Hsin-liang, left the party and ran as a tang-wai for a
local county magistrate’s position in November 1977. Afraid that the
KMT would rig the ballot, 10,000 of Hsu’s supporters gathered in the
town of Chung-li to object to the paper ballots being used. A riot –
since known as the ‘Chung-li incident’ – ensued. It was the first politi-
cal protest on the streets since the 1940s.36 Emboldened by the support
they were receiving, tang-wai began to organise more broadly and
openly. In early 1979, they held a series of public lectures and rallies
across the island. Late that year, they formed a journal named Formosa
(Mei-li Tao). Since the ban on political parties other than the KMT was
still in force, the tang-wai opened offices for Formosa which actually
served as the headquarters for tang-wai activists.37
The two years between the 1977 elections and the formation of
Formosa had sharpened the conflict between the KMT and its oppo-
nents. A violent collision between them was inevitable. It came at a
rally to mark International Human Rights Day organised by Formosa in
Kaohsiung on 10 December 1979. Attacked by the police, the demon-
strators fought back; authorities claimed 183 police were injured. The
following day, 14 opposition leaders and 100 other supporters of
Formosa were arrested. Eight were convicted and sentenced to jail for
between 12 years and life. But it was too late for repression to stop the
opposition. Since the jailed Kaohsiung defendants couldn’t stand for
office, their attorneys and relatives did – and were elected.38
On the death of Chiang Kai-shek in 1975, his son, Prime Minister
Chiang Ching-kuo, took over the party leadership and, in 1978, the
Presidency – a post to which he was re-elected in 1984. Although
the regime replied with repression to the ‘Kaohsiung incident’ of 1979,
the election of the relatives and lawyers of the imprisoned made a deep
impression on Chiang Ching-kuo.39 He began a slow process of reform
and began to promote Taiwanese inside the party and the state.
Included in the ‘Taiwanisation’ of the party was an agricultural eco-

nomist trained in the US, Lee Teng-hui, who Chiang Ching-kuo chose
as his Vice-President.
But the reforms were happening at a snail’s pace. In 1982, some of
the tang-wai suggested defying the ban and establishing an opposi-
tion party.40 The tang-wai themselves had begun to polarise into
moderate and radical factions – with the radicals grouped around the
journal The Movement (Xin Chaoliu) promoting mass extra-parliamen-
tary action.41 Encouraged by the people’s power movement in the
Philippines and the mass democracy movement in Korea, the radicals
won the day; the tang-wai defied the law and set up the Democratic
Progressive Party (DPP) on 28 September 1986. Chiang Ching-kuo
decided not to prosecute it.
With an initial membership of about 70,000 the party was over-
whelmingly Taiwanese. The two factions continued inside it; the mod-
erate Formosa Faction (Meilitao hsi) and the more radical New Tide
Faction (Hsin ch’aoliu hsi). The formation of the DPP increased the
pressure for democratic change. Chiang Ching-kuo began to quicken
the pace of reform, releasing six of the eight Kaohsiung prisoners and
23 other political prisoners. Martial law was ended in 1987. His sudden
death in January 1988 put an end to the Chiang dynasty – a break with
the continuity of KMT politics on the mainland. The end of martial
law gave space to the newly emerging forces in Taiwanese society.
Between 1986 and mid-1992, the number of registered political parties
rose from three to 69, of daily newspapers from 31 to 246 and of maga-
zines from 3,354 to 4,356.42 Only three of the new parties had any real
support: the DPP, the Labour Party (Kung tang) which had split from
the DPP a year after its formation and the Workers’ Party (Laokung
tang). But membership of both the Workers’ Party and the Labour Party
was no more than a few thousand each.43 The lifting of martial law
also increased the number and militancy of demonstrations around
many issues; within a year public protests were occurring at the rate of
two per day.44
While the various forces of opposition were undermining the posi-
tion of the KMT in Taiwanese society, it was also beginning to weaken
internally. Through the 1980s and 1990s, the party’s vaunted central-
ism began to collapse. Some KMT candidates had their own support
groups and wanted little to do with headquarters – in part because of
the increasing unpopularity of the party. In 1992, the leadership
attempted to prevent the nomination of some prominent dissidents as
KMT candidates. The move only made the dissidents more popular.
In the new, more democratic conditions, a party made up largely of

Mainlanders had no chance of electoral success. So the KMT attempted
to save itself in the 1980s by recruiting more Taiwanese members. By
the middle of that decade more than 70% of its membership were
Taiwanese. Vice-President, and then with the death of Chiang Ching-
kuo, President, Lee Teng-hui was Taiwanese. Between 1986 and 1993,
the parliamentary bodies became largely Taiwanese.
Moreover, the democratic reforms under Chiang Ching-kuo and
Lee had created great internal disunity and conflict inside the KMT.
During Lee’s Presidency, a ‘main current’ (chu liu) supported the
reforms and Lee, while a powerful ‘secondary current’ (fei chu liu) had
the support of many influential Mainlanders in the KMT apparatus
and throughout the state. The latter included more than a few
younger bureaucrats and politicians who believed that their career
prospects would be damaged by the Taiwanisation of the state and
party. In a sense, the party had the worst of both worlds – it had
diluted the strong support it had from Mainlanders while not being
able to match the DPP’s ‘Taiwan first’ stance. In December 1994, the
DPP won the election for mayor of Taipei – an important post in a
Mainlander stronghold. The KMT was becoming weaker – although
its vast financial and organisational resources and the popularity of
Lee Teng-hui – slowed the decline. With Lee gone, the DPP’s Chen
Shui-bian took the presidency from the KMT in the 2000 election.
The bourgeoisie and the state
The private bourgeoisie of Taiwan, from 1949 until the 1980s, had few
channels to the state apparatus through which it could influence
policy. The alien origins of the state and the ethnic divide which the
KMT perpetuated kept the bourgeoisie at arms length. State industrial
strategy and the ideology of Sunism stunted the expansion of private
capital and made political and bureaucratic leaders suspicious of collu-
sion with it. Indeed, some observers have talked of the KMT state’s
‘inherent distrust of capitalists’.45 Even those technocrats, often trained
in the US, who supported the development of private capital had to be
careful about forging too close a connection with it. Such approaches
were viewed as a potentially corrupt relationship and were subject to
surveillance by the party and even by state security organs. Even very
important bureaucrats such as K.Y. Yin and K.T. Li were censured by
the Control Yuan (CY) on several occasions for suspected corruption in
their attempts to cultivate new enterprises.46
The first organised involvement of business in politics did not take

place until 1983, with the formation of a caucus in the LY known as
the Thirteen Knights (Shisan Taibao). These were KMT legislators with
business backgrounds or connections to private business.47 But direct
involvement in politics was still a risky course for business people to
take. The limits of their influence were such that it was still possible to
write in 1988 that: ‘Although its trade associations can approach the
government on economic matters, the bourgeoisie has no political
organizations at its disposal, and most businessmen do not dare
become involved in politics directly’.48
But this situation was changing as a result of several factors. Firstly,
the death of Chiang Ching-kuo seemed to begin a break from many
of the old KMT traditions, including the exclusion of business.49 Also,
the growing Taiwanisation of the KMT and the state, exemplified by
the rise of Lee Teng-hui, made it possible to establish a closer rela-
tionship between the state and local capital.50 Most importantly,
democratisation provided an opening for business to involve itself in
politics. With the formation of the DPP and its immediate success in
winning a substantial proportion of the votes in elections, KMT can-
didates had to campaign more seriously. That required money; elec-
tion campaigns became expensive. Business financial backing was
now a necessity for many aspiring and sitting politicians. By the 1990
presidential election, business was much more heavily involved in
supporting candidates than ever before. One method by which busi-
ness pressed its interests was by setting up political ‘research founda-
tions’ for individual politicians – the money from which would be
used for general campaigning.51
In the battle between the ‘main current’ and the ‘secondary current’
under Lee’s Presidency, each side was backed by different business groups.
The Hualong Conglomerate sponsored the Democracy Foundation on
behalf of Guan Zhong, the leader of the ‘secondary current’. Another
major conglomerate – the Evergreen Foundation – sponsored President
Lee’s Institute for National Policy Research.52 Another indication of the
growing influence of business groups over politics was the activity of the
Steel Club – a group of private businesses involved in the steel industry.
When, in 1988, the government sent a proposal to the LY to reduce tariffs
on steel, legislators linked to the Steel Club not only managed to defeat it –
but to actually increase the tariff.53 Where once, the private bourgeoisie
had very little influence on the state, by the late 1980s some businesses
and business groups had extremely privileged access to state power, and
constantly meddled on questions of its policy and personnel.
The economic bureaucracy
Between 1949 and the 1980s, the Taiwanese state appears uncom-
monly cohesive, competent and clear about its developmental objec-
tives. The economic bureaucracy especially, was comprised of many
talented and skilled technocrats. How could this be the same state that
wallowed in corruption and nepotism on the mainland? Gold has sug-
gested that the most corrupt elements of the KMT did not follow
Chiang to Taiwan – believing that he was likely to be pursued and
defeated there by the Communist Party.54 This seems only a partial
explanation at best. Two other factors are perhaps more important.
The first is that the state as a whole on Taiwan, having been cut off
from its class base on the mainland, had lost those links to the private
wealth that had corrupted it. Both the party and the state on Taiwan
had a high degree of internal financial independence – the salaries of
state officials could be funded from state-owned businesses and the
KMT rapidly built up a huge business empire of its own. By 1992, the
KMT itself was the sixth largest guanxiqiye.55 This availability of funds
meant that it did not have to rely on private capitalist or landed wealth
as, to an extent, it had been forced to on the mainland.
Even more important was the sense of permanent siege which
enveloped the KMT state in exile. This was a state which had been
given a second chance at life – but, in 1949, that life still hung by a
thread. In case it needed reminding of its precarious position, the PRC
attacked the off-shore island of Tachen in 1954. In 1958, it began a
massive bombardment of the island of Quemoy, firing 57,000 shells on
the first day.56 The efficiency with which the key political decision-
makers in the KMT regime went about renovating the machinery of
state reflects a sense of urgency produced by this obvious danger.
The economic bureaucracy was particularly well-qualified. They
tended to have high levels of education, often holding degrees from
abroad – particularly from the US.57 Unlike the KMT leadership
overall, most came from the areas of greatest Western influence in
China.58 They were relatively young; in 1952, the average age of the
top economic bureaucrats was 38.59 Moreover, because of the urgency
which the KMT felt to avoid the problems of inflation and land
hunger which had beset them on the mainland, the economic
bureaucracies responsible for these areas were given high priority and
considerable resources. They were insulated from pressures from
other parts of the state – even including the powerful army – and
from pressures arising from Taiwanese society. The salaries paid in
some sections of the economic bureaucracy were as much as five

times the normal civil service rate.60
Some key parts of the economic bureaucracy established shortly after
1949 were the Joint (Chinese-US) Commission on Rural Reconstruction
(JCRR) – the key body planning and implementing land reform – and
the Taiwan Production Board (TPB) – which was responsible for over-
seeing state enterprises and the disposal of Japanese businesses.
The TPB was divided into five divisions – the first of which was respon-
sible for industrial planning. Eventually, an Industrial Development
Commission was established as a subsidiary of this first division.61
Another extremely influential bureaucratic body was the Council on
US Aid (CUSA), first established on the mainland in 1948. As aid
wound down, it was reorganised into the Council on International
Economic Co-operation and Development (CIECD) in 1963, reflecting
the need to find and deal with new sources of overseas capital. It also
played an important part in economic planning.62
Various other bodies were set up from the 1970s. The most sign-
ificant of these were the Economic Planning Council (EPC), established
in 1973, and then an even more potent body – the Financial and
Economic Committee (FEC) – set up in 1974 in the wake of the reces-
sion and oil crisis. The FEC was an informal but very powerful group
including the Minister of Economic Affairs (MOEA), the Minister of
Finance, the Chief Comptroller, the Secretary-General of the Executive
Yuan (Cabinet) and the governor of the Central Bank – who was the
convenor. Its recommendations went directly to the Premier. The FEC
and the EPC were later merged into a super-ministry – the Economic
Planning and Development Council (EPDC) – headed by the governor
of the Central Bank of China.63 Another body which had a mandate to
make development plans for the private sector was the Industrial
Development Bureau (IDB) under the MOEA.
The structure was complex but two generalisations about it can be
made. The first is that all of these bodies developed policy and then
reported upwards to a higher level of the state. None of them included
institutions which sought the advice or interests of private business.
Indeed, no private business interests were represented anywhere
within this entire structure. Secondly, reflecting the priorities of the
regime, the bodies associated with the implementation of macroeco-
nomic policy, land reform and the dispersal of aid were the most pow-
erful inside the bureaucracy as a whole. The JCRR and CUSA both had
very strong political backing. Because of the regime’s obsession with
controlling inflation, the Central Bank of China was also extremely
powerful. The governor of the Central Bank of China also ran the
EPDC and, until 1979, was directly appointed for a five-year term with
no limit on renewal. He was responsible only to the President – not to
the LY, the Cabinet, the Premier or to the Ministry of Finance. Indeed
he was a member of cabinet.64
In contrast to these immensely strong arms of the state concerned
with macroeconomic policy, the planning elements of the bureau-
cracy – especially in the CIECD – had far less power. The CIECD acted
more like a coordinating body than a super-planning body such as
Korea’s Economic Planning Board (EPB). Other bodies – such as the
IDB – also played a part – fragmenting the whole planning process.65
The weaker position of the planning technocrats in the economic
apparatus reflects the low priority given by the state to private indus-
try and the suspicion with which it was viewed. Because of this rela-
tively weaker position the planning bureaucracies were not capable of
establishing long-term links with private business. Instead the state
relied primarily on its direct ownership of large sections of the indus-
trial structure and on strategically placed upstream industries to force
the pace of development.
The aloofness of the planning elements of the bureaucracy and
their relatively weak position inside it meant that the pressure from
private enterprise for market-oriented reforms was not reflected as
strongly inside the Taiwanese state as it was in the Mexican and
Korean periods of transition. Certainly, there were divisions in the
bureaucracy from an early stage. One group – dubbed the ‘conserva-
tives’ – wanted an even greater reliance on state-owned industry and
a more closed economy. They had the support of some of the politi-
cal leadership – especially those who gave priority to recapturing the
mainland – and of some of the military and the managers of state-
owned enterprises. Another current – known as the ‘developmental-
ists’ believed in directing and encouraging private investment in key
areas – such as textiles in the early period of development.66 They
had championed the limited reforms of 1958–61. Their most promi-
nent political supporter was Chen Cheng himself. The key planning
technocrats of this group were K.Y. Yin and K.T. Li who each held a
number of important posts. But while these technocrats were in
favour of the development of the private sector they were not sup-
porters of laissez-faire. They wanted a careful selection of those
private and state industries which, they believed, would best develop
Taiwan rapidly. To do this, they believed, would require state inter-
vention – including protection from imports, state allocation of
credit and other resources. Nor did they wish to see an end to the
large state industrial sector.67 ‘Developmentalists’ they certainly were.
‘Economic liberals’ they were not.
The changes of 1958–61 reflected an internal bureaucratic battle over
how to resolve the problems of market saturation and lack of foreign
exchange. The export orientation which followed was the culmination
of this battle – not a product of private capitalist pressure. Not until the
1980s did the pressure begin to build on the KMT state to step back
from its dirigiste approach. When they did appear, these pressures had
the most obvious effect at the level of the political, rather than the
bureaucratic apparatus.
The retreat from developmentalism
Beginning in the late 1980s, the state began to divest itself of some of
the controls which it established after 1949. It did so slowly and hesi-
tantly. The retreat from developmentalism was still incomplete at the
time of the 1997 financial crisis which swept much of Asia. What has
been described here as the transitional period between the ascending
and descending phases of the developmentalist state was, at that time,
not yet concluded. Since then, however, the autonomy of the state
has been further eroded. Consequently, its ability to manage future
economic and political shocks has been much weakened.
The retreat from developmentalism in Taiwan came late compared
to the other NICs. The conscious promotion of strategic industries
continued throughout the 1980s. Even near the end of that decade,
the Council for Economic Planning and Development (CEPD) began
a Six Year Plan – the National Development Plan – which targeted
ten industries for priority development: telecommunications, infor-
mation, consumer electronics, semiconductors, precision machinery
and automation, aerospace, advanced materials, certain chemicals
and pharmaceutical products, medical technology and pollution
control.68 However, while public expenditure was actually increased
in this Six Year Plan, there was growing opposition to it based on the
argument that these public expenditures would ‘crowd out’ private
investment.69 Eventually, it was cut back significantly.
The first clear signs of a major turn away from statist methods came
with the 1989 decision to privatise three state-owned banks and to lift
the ban on private banks. The Banking Law of that year also lifted
ceiling and floor limits on interest rates for deposits and loans.70 One
of the results of the deregulation was an increase in property and stock
market speculation which led to several corrective crashes. In 1989,

Taiwan’s stock market had the second largest turnover of any – after
New York but ahead of Tokyo and London. An estimated quarter of the
population were playing the market.71
Moreover, although in the past, the government had talked free
trade but quietly pursued statist development, now it began genuine
liberalising reforms. In response to the US Trade Act of 1988, Taiwan
cut subsidies and tariffs. Whereas the average nominal tariff rate was
over 40% for most of the period of Taiwan’s development, in 1992,
after the tariff reduction plan had been implemented, it was
just 4.2%, a level comparable to developed countries. Many other
non-tariff barriers were also lifted.72
Why did the state make these changes to a formula for development
which had been so singularly successful to that point? There were
several ways in which the pressure of various classes – especially of the
Taiwanese bourgeoisie – had gradually transformed the state in the
1980s and 1990s. Firstly, the opening up of the political and electoral
processes broke down strict KMT control. Since elected officials could
succeed without the party’s resources, they began to gain their own
autonomy from it. But, just as they won freedom from the KMT appa-
ratus, they lost it to the wealthy backers they needed instead. The
erosion of the ethnic divide inside the KMT also made much closer
links between private wealth and political power possible. By the
1990s, private capital had colonised the KMT. As Kau put it in 1996: ‘In
recent years, big business groups [are found] behind every elected
official or representative…’.73 Many of these groups wanted privatisa-
tion of public companies with which they competed or in order to buy
up state assets cheaply.
The entry of private wealth into the KMT broke down much of its
internal discipline. At a constitutional level this was already expressed
in the 1988 Party Charter, which dropped the term ‘democratic cen-
tralism’ for the first time. The Charter continued to call the party ‘revo-
lutionary’, however Lee Teng-hui explained that this was only in
remembrance of its revolutionary past.74 At its 1993 Congress, the term
‘revolutionary’ went as well. This was only an expression of the fact
that the KMT centre could no longer exercise the authority it once had
over its members; the party had become Balkanised. By the mid-1990s,
its LY members were divided between more than a dozen factions
representing different interest groups.75 At a local level the factions and
sub-factions were even more numerous. Under these conditions, a
focussed developmentalist strategy became impossible.
The second reason for the reduced abilities of the state is related to
the increasing internationalisation of Taiwanese capital. A labour short-
age was already emerging in the manufacturing sector in the late 1970s.
By the mid-1980s, it was severe enough to put serious upward pressure
on labour costs.76 Then the small wave of strikes in 1988 and 1989 con-
solidated wage rises and entrenched other benefits for workers. By 1989,
the average textile wage in Taiwan was five times that which prevailed
in Thailand, ten times that of China and 13 times the level of
Sri Lanka.77 Also, increasing environmental protests discouraged some
polluting industries from further investment. The liberalisation of
finance made the outflow of investment easier.
The result was that many Taiwanese firms relocated to Southeast
Asia and China. Between 1987 and 1992, Taiwanese investment in
China increased from 80 (pledged) cases to more than 10,000.
Total Taiwanese investment in China in that period rose from
US$100 million to US$9 billion. 78 By this time, Taiwan had over-
taken Japan as the second-largest source of FDI in China (after
Hong Kong). The PRC authorities put the figure for Taiwanese
investment in 1996 at US$24.3 billion.79
Liberalisation had aided the flow of Taiwanese capital from the
island. Once relocated, Taiwanese capitalists were less likely to accept
government direction – and therefore reinforced the trend away from
state control. One indication of this was the mixed success of attempts
by the KMT to restrict very large investments overseas – especially in
China. It worried that Taiwanese industry would become ‘hollowed
out’ as a result and that too much exposure of Taiwanese business to
the mainland would give the PRC authorities a lever to use against it.
The KMT government in the 1990s opposed very large investments
such as the US$7 billion petrochemical complex proposed by Formosa
Plastics, first for Fujian and then for a Yangtse River site.80 The govern-
ment won that battle in 1991 – forcing the conglomerate to cancel
its plans. But Formosa Plastics, once very nearly a creation of the
Taiwanese state, would not accept direction from it forever. It then
decided to spend US$5 billion on a petrochemical zone in Ningbo in
Chekiang, China.81
The warnings which the government gave Taiwanese business
against investment in high-technology industries on the mainland
have also increasingly fallen on deaf ears. In November 2000, the
Taiwanese Company, Grace Semiconductor Manufacturing Corpora-
tion (GSMC), began its partnership in a US$1.6 billion fabrication
plant in Shanghai.82
1997: a crisis postponed?
While most other economies in Asia – including Korea – struck

major problems as a result of the 1997 currency crisis, Taiwan was
relatively slightly affected. The New Taiwan dollar fell – but only by
a total of 20% during the year. Growth remained steady at 6% and
inflation at about 1%.83 Taiwan was immediately praised as a model
of an efficient economy with a conservative and well-managed
banking sector, whose numerous ‘guerrilla’ capitalists were able to
adapt quickly to changes in market conditions.84 There is, however,
another interpretation possible.
One reason why Taiwan was not as vulnerable to the 1997 crisis as
Korea and other Asian economies was that the retreat from its earlier
developmentalist approach was not yet complete in 1997. As in the
other Midas states, the period of transition between ascending and
descending phases involved a number of oscillations in policy rather
than a wholesale dismantling of the earlier approach. One example
of this oscillation was the fate of the six-year National Development
Plan mentioned above. Originally the plan had a vast budget of
US$310 billion. By 1993, that had been cut by 40% and a third of all
of its projects axed.85 The privatisation program was also erratic.
While the policy of privatising most of the then 122 state-owned
firms was formulated in 1989, only 22 of these were actually selected
for privatisation. By mid-1997, when the financial crisis hit, just six
had actually become private firms.86
Another reason why Taiwan was able to weather the 1997 storm was
that the legacy of state developmentalism was still to be found in the
ledger books of business. Elsewhere in Asia, private companies had
been allowed to expand by taking out huge loans. As mentioned
earlier, the top 30 Korean chaebol had an average debt-equity ratio of
450% by late 1997. Taiwan’s large companies had much smaller debt-
equity ratios. China Steel, for example, had a debt-equity ratio of less
than 50%. In contrast, the ratio for Korea’s steel-maker – POSCO – was
five times that level.87 High debt-equity ratios affected Thailand,
Indonesia and elsewhere.
Many of these loans in East and Southeast Asia were taken out from
foreign banks. And those local banks which were exposed found that a
high proportion of their loans were non-performing by 1997. In
Taiwan this was not the case. At the start of the 1997 crisis, non-
performing loans represented less than 1.5% of total bank assets in
Taiwan – a very controllable level. The same ratio in Thailand was
30%. Even as non-performing loans accumulated in Taiwan as the

crisis dragged on, it never rose above 7.5% – less than half the level of
Japan and less than anywhere else in Asia.88 The result of low debt-
equity levels and a low rate of non-performing loans was that private
industrial firms and banks could absorb the shock of the 1997 crisis
with only slightly reduced growth. Large-scale bankruptcies were
avoided. The success in pulling through the 1997 crisis even led to a
temporary revival of the popularity of the KMT. It succeeded in
winning back the cherished mayoralty of Taipei.89
The reason that private companies and banks found themselves in
this enviable position has less to do with their own good management
than with the earlier state controls which had prevented them from
expanding on the basis of debt. As The Economist was forced to admit:
For anything but the biggest companies… bank loans were simply
unavailable. Instead, smaller firms turned to friends and family, and
to the so-called ‘kerb market’… the price was steep (often three
times the official interest rate, which was itself higher than the
regional average), so companies borrowed as little as they could and
paid it back quickly. The legacy of this credit shortage is that
Taiwan’s firms have one of the lowest debt-to-equity ratios in Asia.90
Ironically, the reason for these limitations was the fear of the KMT
that the development of a large private bourgeoisie would limit its
autonomy. In restraining the expansion of the bourgeoisie it unwit-
tingly helped it to survive better than many of its competitors in the
region.
However, the legacy of developmentalism cannot last forever, espe-
cially since the state continued to shed its controls over economic
activity. By 1999, 25 private banks had been established. In marked
contrast to the state banks, many lent for property and stock market
speculation. Massive oversupply in residential property resulted. As a
result of the boom in lending for property speculation, Taiwan,
which has one of the highest rates of home ownership in Asia, soon
had nearly 1 million unsold homes.91 Between 1997 and 1999, the
volume of stocks purchased on margin tripled. Many of the buyers
were companies who had taken out loans to rescue their balance
sheets through stock speculation.92
Inevitably, property and stock prices began to fall, causing a wave
of bankruptcies in late 1998 and creating the early stages of a
banking crisis – even though overall economic growth still seemed
healthy at 5% in that year. 93 But much of that growth was now

being bought with borrowed money. Taiwan had become a much
more highly leveraged economy – private debt as a share of GDP was
about 180% by 1999. 94 Thirty large and highly leveraged private
companies came close to bankruptcy largely as a result of their inter-
ests in property and stocks. Since some had close political connec-
tions to the KMT and in order to avoid a general collapse, the
government decided to rescue them by pressuring banks to roll over
their loans. 95 It took over two banks itself. As the difficulties of the
major companies increased in 1999 and 2000, some have tried to
stave off collapse by buying into or starting banks themselves. This
was exactly the practice that made the financial structure of several
other Asian economies much weaker in the lead-up to the crisis of
1997.96
Meanwhile, although the privatisation program has not taken place
as rapidly as neo-liberals might have wanted, it has continued.97 The
‘commanding heights’ are being surrendered to a private industrial
structure which is itself already shaky.
Nevertheless, the Taiwanese economy under Chen has performed
reasonably well. However, it seems that by giving up many of its
controls, this Midas state has now entered its descending phase. If
that is so, then it is unlikely to withstand external shocks of the
future as well as it has in the past. The exact source of these shocks
is, of course, impossible to predict. However there are two obvious
forms which they may take. The first is a deep recession in the West
– particularly in the US economy on which Taiwan is so reliant for
markets. With its extreme export reliance, Taiwan is enormously vul-
nerable either to a slowdown or to a rise in protectionism in the US.
A second possible shock is an increase in tension across the Taiwan
Straits. It may be that big business responds to such tensions by
fleeing Taiwan. The state no longer has the range of controls it once
had to prevent business from doing so, nor has it the ability to offer
sufficient inducements to persuade it to stay. In the first half of the
1970s, the Taiwanese state responded to very serious problems in its
international position, including de-recognition by most countries,
and to a world recession, with vigour. It managed these joint crises
and continued very rapid growth. It successfully dealt with eco-
nomic problems in the early 1980s and survived the 1997 crisis. It
now appears that the Taiwanese state will not be able to respond to
external shocks adequately in the future. If that is so, then the
Taiwanese economic ‘miracle’ is over.
9
The Rise and Fall of the Midas
States
The tilted playing field
The gap between the advanced capitalist societies and those in which
most of the world’s population live continues to widen. Of course,
many millions of poor people live in the richest countries. But one is
much more likely to be poor in some countries rather than others. The
gap in income between the fifth of the world’s population living in the
richest countries and the fifth living in the poorest was 11 to one in
1913, 30 to one in 1960, 60 to one in 1990 and 74 to one in 1997.1 The
world market simply does not deal kindly with underdeveloped coun-
tries. The industrial transformations of Mexico, South Korea and Taiwan
are incomplete. Although the first two of these were admitted to the
OECD in the 1990s, all three are still the poor relations of the advanced
capitalist countries. However, compared to most underdeveloped coun-
tries, they have indeed undergone massive industrial growth – a fact
which makes them unusual in the Third World.
In any attempt to understand how these transformations took place,
the neo-liberal position has little to offer. It can hardly ignore the very
high levels of state intervention in all three NICs – some aspects of
which have been outlined in this book. Therefore, its proponents
resort to extremely convoluted logic to claim the NIC phenomenon –
especially in East Asia – as a vindication of the market. Leroy Jones is
typical of this position. Responding to Alice Amsden’s suggestion that
the Korean state consciously ‘got prices wrong’, he writes: ‘I would
argue that what the government often did was to get prices right where
the imperfectly developed market mechanism got them wrong’.2 In
this argument, state intervention to alter the market mechanism
becomes a triumph – of the market!
231
From the point of view of many people in underdeveloped countries

and of the poor in the advanced economies, the greatest imperfection
of the market is precisely that it works to reward those with an already
dominant position in it – the most developed countries, the rich, the
powerful, the buyers of labour power rather than its sellers. It is clear
that the difficulties which late developing capitals face in breaking
through in this tilted playing field of world competition can only be
overcome – as Gerschenkron suggested in relation to nineteenth
century industrialisation – by special, non-market devices. By the
late nineteenth century, the state was the most important of these. The
neo-statist theorists have correctly shown that the same was the case
with the NICs in the twentieth century.
The cases dealt with in this study have pointed to peculiarities in the
nature of state power and its connections to the broader society. In
each, groups controlling the state enjoyed considerable autonomy
from the social classes of their countries for a time. That autonomy
allowed each of them to pursue ruthless strategies of industrialisation.
Autonomy enabled them to overcome the objections of pre-capitalist
landlords, comprador capitalists, workers and peasants. These develop-
mentalist state elites should not be treated as the heroes of the story.
They were undemocratic, repressive and, to varying degrees, brutal. But
their ability to ride roughshod over the wishes of all classes when nec-
essary meant that they could focus resources on industrialisation and
yet survive in control of the state. That was, and still is, a rare ability in
the underdeveloped world.
Origins and forms of state autonomy
Not all forms of autonomy are the same. On the contrary, each of the
Midas states developed a specific autonomy in the sense that the
configuration of social classes surrounding the state and the state’s
relationship to each was unique. This study has identified three dis-
tinct forms of state autonomy. Pre-emptive mobilisation underpinned
state autonomy in Mexico, the devastation of the power of all classes
was central to it in Korea, the migration of the entire state from the
mainland was the key in Taiwan.
None of these types of state autonomy, of course, exist in a pure
form. Both the Korean and the Taiwanese states, for example, devel-
oped or attempted to develop mass organisations designed to co-opt
sections of the population. The Korean saemaul was one such attempt,
the ‘Taiwanisation’ of the KMT was another. But neither of these were
The Rise and Fall of the Midas States 233
as important to the stability of the state as the PRI and its mass organi-
sations in Mexico. Similarly, the devastation which the 2–28 incident –
and even more the Mexican Revolution – inflicted on major social
classes, weakening them in relation to the state, suggests similarities
with the Korean situation. But, again, the degree of destruction of the
power both of elite and subaltern classes in Korea was far greater than
in the other two. In Korea, the complete inability of any class to bend
the state to its will or block its initiatives through most of the industri-
alisation process left the state in a virtually impregnable position. It
was indeed a case in which ‘all classes, equally impotent and equally
mute, fall on their knees before the rifle butt’.3
State autonomy in all three cases has important common features.
One is some form of cataclysmic disruption of the ruling class of the
old society. In Mexico, it was a popular revolution led by the peasantry
which destroyed the political, and to some extent, the social, power of
the large land-owning class and the urban bourgeoisie. In Korea, colo-
nialism, insurrection, war and land reform did the same. In Taiwan,
colonialism, massacre, ethnic subjugation and land reform had this
effect as well. Marx noted that, in Louis Bonaparte’s France, the force
of the revolution of 1848 undercut the political power of the bour-
geoisie for a time. In the three Midas situations examined here, the
destruction of bourgeois and landowner political power was even
greater and, therefore, so too was the state’s degree of autonomy.
A second similarity is that, in each case, the state was reconstructed
on a new basis; its leading personnel had few organic links to the cap-
italist or other elite classes. Yet they were committed to rapid capital
accumulation because their survival in control of the state required it.
In all three states, these groupings needed rapid economic growth to
forestall future domestic challenges. Lacking a solid class base of their
own, their hold on power depended on the efficiency with which they
used it. In addition, in two of them – South Korea and Taiwan – the
threats to their positions were also external military ones. Like
Bismarck, Ito and, to a lesser extent, Nicolas II, Park and Chiang
understood the importance of industrial development to military
power.
At some point in their existence, those in control of all three Midas
states derived from the army and relied heavily on it to retain state
power – as did Bonaparte and Ito for a time. However, only in South
Korea did the army continue as a central part of the state elite. In
Mexico and Taiwan, the military was soon pushed to the margins of
politics or out of it altogether.
The division between sections of the ruling class that Marx refers to
as central to the power of Bonaparte was not crucial to the autonomy
of any of the Midas states – although such a division did develop in the
private bourgeoisies of Mexico and Taiwan. The Mexican bourgeoisie
was divided, to an extent, on the basis of varying degrees of depen-
dence on the state. Taiwanese capitalists were segregated on the basis
of ethnicity. But these divisions were largely a product of the industrial
strategies adopted by the state in each case, rather than a cause of
its autonomy in the way that the great pre-existing split between
Orléanists and Bourbons was for Bonaparte’s state.
A further similarity between all of the Midas states and the France of
Louis Bonaparte is that the size and social weight of the state machine
made it a force to be reckoned with. The Mexican state was first
swollen by the revolution. South Korea and Taiwan developed huge
state machines because of the wars which each fought. Moreover, the
little island of Taiwan had imposed on it a state which was constructed
in and for a much larger society.
For one reason or another, the subaltern classes were also incapable
of taking state power in the crucial periods of the development of the
Midas states. To some degree each state relied on the support, or at
least the indifference, of the peasantry. Land reform in all three not
only further weakened the large landowners, it won some peasant
support for the states which carried it out. Peasant revolution was
crucial in Mexico in destroying landowner power and the Porfirian
regime – both prerequisites for the PRI’s eventual domination over
society. From time to time thereafter, the PRI – especially under
Cárdenas and Echeverría – felt the need to shore up peasant support by
distributing more land – although with varying degrees of resolve. In
South Korea and Taiwan, land reform came from above. Although
peasant support was less important to these regimes than it was in
Mexico, the reforms did have the effect of keeping the peasants rela-
tively quiet as the state shifted resources from them to industry. In all
three cases, Marx’s generally uncomplimentary assessment of the
ability of the peasantry to take state power themselves seems justified.
This is most clearly the case in Mexico, when, having conquered the
country, the peasant leaders did not know what to do with it.
On the other hand, the proletariat – which Marx certainly thought
was capable of taking power – also failed to do so for various reasons.
In all three cases, it was small relative to other classes in the crucial
periods when the Midas states were formed – reflecting the fact that
these were then primarily non-industrial economies. Nevertheless, in
two of the three examples, the working class did foreshadow the possi-
bility of its own power – in Mexico in 1915 and 1916 and in Korea in
1945 and 1946. In the former, the failure was one of politics – the deci-
sion of the workers’ main leaders to ally with Carranza and Obregón
rather than with the peasantry. In the latter, whatever the politics
involved, the working class was simply massively outgunned by the
combined forces of the US military and the Korean right.
The state in capitalist society always offers its ability to control the
working class as an inducement for the bourgeoisie to support it. In sit-
uations of ‘exceptional’ state autonomy this can be an important basis
for the survival of that form of state. The threat of working class disor-
der – a repeat of the ‘June Days’ in Paris – helped maintain bourgeois
toleration of Bonaparte. His mild tack to the left, like Bismarck’s flirta-
tion with Lassalle, was, in part, designed to remind capitalists of the
dangers they faced should they try to take power themselves. In
Mexico, the PRI went much further than Bonaparte or Bismarck,
openly threatening the bourgeoisie with mobilisations of workers and
peasants – although always being careful to keep them on a short
leash. In Taiwan and South Korea, the form of dominance of the state
was such that there was no need to threaten the bourgeoisie with the
power of other classes. Thus this element of Bonapartist autonomy is
absent in these two cases.
Forms of state autonomy and development policy
The nature of state autonomy in the Midas states, as in the nineteenth

century examples described by Marx, is such that it cannot be grasped
in quantitative terms alone. Since the configuration of classes is differ-
ent in each case, we must think in terms of varied forms of state auton-
omy – varieties whose description and categorisation is based on the
relationships between different classes and between each of them and
the state. Why is this notion – of qualitatively different forms of state
autonomy – useful? In the first place, the examination of these three
cases suggests that the form of state autonomy which exists in each is
closely related to the policy which each state uses – the developmental
model it follows in its industrialisation drive.
The autonomy of the Taiwanese émigré state was based on its origins
in China proper and on the ethnic divide it perpetuated between
Taiwanese and Mainlanders. Three crucial policy directions followed:
land reform; the construction of a large state enterprise sector con-
trolled by Mainlanders; and the attempt to keep the, mostly Taiwanese,
private capitalist sector small and weak. State industries provided a

privileged place for many Mainlanders. State control of these key
industries enabled the planners to determine how the economy devel-
oped overall. Detailed planning of private industry by the state was
limited. Although the state controlled finance, it seldom used it to
promote the growth of private capital.
South Korean state autonomy was based on the extremely destruc-
tive period for all social classes between 1945 and 1953. As a result of
this devastation, land reform was easy to carry out. Then, the state
under Park was so sure of its dominance after 1961 that it could allow
the private bourgeoisie to retain legal ownership of the commanding
heights of industry and even encourage the concentration of vast
blocks of capital in a few hands. It could afford to do so because,
despite the great size of the chaebol, the state still had the power to rig-
orously plan and direct their investments and to keep them on a drip
feed of finance. Private ownership of industry in Korea was a sign of
the state’s strength relative to the bourgeoisie rather than its weakness.
Mexican state autonomy, emerging as it did from a mass revolution,
also made land reform likely. The continuation of its autonomy
required the maintenance of bureaucratic mass organisations which
could be used to deter attempts by the bourgeoisie to take their state
back. This meant that the private bourgeoisie was allowed to develop
within certain limits determined by the state. But they remained a
threatening and alien force to the PRI and could not be trusted to
control the commanding heights of the economy. Thus the state
reserved a significant number of industries for itself. In addition, those
at the top of the PRI and its huge apparatus of mass organisations had
to be rewarded. State-owned industries provided money and jobs for
this loyal bureaucracy.
In summary, the developmental model for Taiwan was state owner-
ship of the commanding heights including finance, alongside smaller-
scale private industry. For Korea, it was highly concentrated private
industry under strict state control through planning and selective pro-
vision of state finance. In Mexico, it was a mixture of state and private
business, with the private sector ultimately kept under a degree of
control by mass organisations whose leaderships were welded into the
structure of state power. Each of these models is a direct consequence
of the form of autonomy which the state possessed. (See Figure 9.1)
An approach such as this shifts the debate on economic develop-
ment in the NICs away from a concentration on policy questions.
Currently, much of the literature has been produced by the adherents
Country Mexico South Korea Taiwan

Basis of State Pre-emptive Devastation Migration
autonomy mobilisation
Developmental Mixture of state- Private business State-ownership of
model owned and private large industry.
business Policies designed
to restrict growth
of private business
Some planning of High-level of Very limited
private business planning of private planning of private
business business
State control of State control of State control of
finance finance finance
Mass organisations Ethnic separation
closely aligned with of state and
the state private business
Figure 9.1 Forms of state autonomy and developmental models
of various policy settings attempting to find positive or negative

verification of them in the development of the NICs. This tends to
present the problem as a purely technical one of getting the policy mix
right. A corollary of this approach is that those in the Third World who
have not had their economic ‘miracles’, have failed because of their
own short-sightedness, stupidity or stubborn refusal to adopt the
correct policy – and thus have only themselves to blame for their
poverty. The research approach adopted here suggests, on the contrary,
that, within a world capitalist system, the ability of the state to carry
out a determined, focussed policy – one which often tramples on the
immediate wishes and interests of all classes – is central. The circum-
stances of ‘exceptional’ state autonomy which allow this are relatively
rare – but so too are the ‘miracles’. Furthermore, the strategies which
such states have adopted owe more to their form of autonomy than to
any dispassionate evaluation and selection of policies. Thus, the
approach suggested in this study creates a bridge between the historical
trajectory of the NICs and the policies they have followed.
Bringing class back in
A second element of this approach is that it makes class analysis

central to an understanding of NIC development. Marx’s brilliant
study of Bonapartism contributed a great deal to the study of
relationships between classes and the capitalist state in general. But,

although a number of theorists have referred to the NICs as
Bonapartist, there has been no systematic use of the various ele-
ments which Marx identified in Bonapartism in the analysis of
developmentalist states.4 As this study has suggested, a closer exam-
ination of these elements may be a starting point for such a study.
This is not to say that all possible forms of state autonomy have
already been discovered by Marx. On the contrary, each form of
Bonapartist autonomy is historically specific. But such an approach
may allow development theory to be more fully based on a class
analysis. What is involved in this is not just ‘bringing the state back
in’ to our understanding of development, but ‘bringing class back in
to an understanding of the developmentalist state’.
Controlling the gate to the world system
None of the NICs nor any of the nineteenth century developing

economies industrialised in isolation from the world economy. But, for
a time at least, the Midas states were able to act as quite strict gatekeep-
ers between the domestic and international systems. The capitalists
and the states of the advanced countries were much more powerful
than the Midas states. But, the almost unassailable position of the
latter at home allowed them to negotiate with the foreigners – not on
an equal basis, but on far better terms than most weak regimes of the
developing world were able to do. With a mixture of exchange, import
and investment controls they put limits on foreign capital yet still
operated within the international system. This is not new to the recent
NICs; the Meiji rulers used their commanding position in Japanese
society to import the technologies and institutions of the West, and to
export what they could to Western markets, while closely vetting the
operations of foreign capitalists in Japan itself.
The ‘dissipating alchemy’ of the Midas states
It seems that every new economic ‘miracle’ produces a bevy of admir-

ers who extrapolate this development and confidently predict the
emergence of a new US or Japan. Most optimistic predictions of this
kind have been tempered by the crisis of 1997, just as the earlier
enthusiasm for Latin American development was brought back to earth
in 1982. The particular causes of economic collapse or the weakening
of each of the NIC ‘miracles’ vary. But there are some features in
common. Each has had a period of rapid growth in which the state has
played a major part, followed by a retreat of the state from a develop-
mentalist approach and either a serious crisis or, at least, an end to
spectacular growth. Taiwan, the strongest of the three, is likely to
encounter much great difficulties in the near future. This is not to rule
out significant periods of economic growth after the full-scale retreat
and decline of the developmentalist state. All three cases studies have
had such periods. But high-level growth and solid capital accumulation
over several decades is much less likely. And the state’s role in that
growth is vastly reduced. These are developmentalist states no more.
An explanation must be found for the ‘dissipating alchemy’ of the
Midas states, for why, in the terminology employed in this work, an
‘ascending’ phase turns into a ‘descending’ one.5 As has been sug-
gested in each of these case studies, at least part of the explanation is
that the social classes which were once weak in relation to the state
become stronger, ironically, as a result of the state’s success in indus-
trial development. However, which class presents the greatest threat
to the old state and how classes ally or fail to do so, varies from case
to case. Also, each newly strengthened class makes different demands
on the state. In Mexico and South Korea, the working class played a
central part in the erosion of the state’s autonomy. In the South
Korean case, near insurrectionary strikes drew broad forces of opposi-
tion to the government behind them. The potential that a revolu-
tionary situation might develop cracked the unity of the state elite
twice: in 1979 in the events leading to the assassination of Park, and
again in 1987 in the upheavals that led to the ‘democracy declara-
tion’ of that year. In Mexico, because the PRI state was so heavily
reliant on controlling mass mobilisation, workers’ struggles which it
could not control, especially between 1968 and 1976, struck directly
at its heart. Land invasions and other protests by the peasantry also
undermined it.
Various middle class forces – particularly students, whose numbers
were massively increased by the needs of these industrialising eco-
nomies – also played an important part in the transformations. At
times, such as at Tlatelolco and Kwangju, their activism sparked major
confrontations with the state. In Korea they also helped to build the
labour movement in its early stages.
In each of these examples, the bourgeoisie did not openly defy the
regime until later and then it did so with less conviction than did the
workers. In neither case did private capital want to risk political and
economic disorder. Eventually, however, the bourgeoisie found many
supporters within the political and bureaucratic arms of the state

apparatus. As the old developmentalist elites which had led the
‘miracles’ were removed, politicians and bureaucrats closely aligned
with private capital easily slipped into their positions.
In Taiwan, largely because of the smaller scale of industry and the
rural location of much of it, the working class has been much weaker.
Labour struggles against the KMT played a part – but only a subordi-
nate one – in the general movement of opposition to its rule. This is
one of the reasons why the retreat from developmentalism was less
hurried and less total than in the other two cases. Since the autonomy
of the KMT state had an important ethnic element, the eventual chal-
lenge to it had a cross-class dimension; coming from various quarters
of Taiwanese society without being as clearly marked by separate class
interests. Big business infiltrated the political apparatus of the KMT
itself while many ethnic Taiwanese small capitalists, workers and
middle class people joined the DPP. Yet here too, the state has now lost
most of the abilities which once enabled it to lead the industrialisation
of the island.
One aspect of the changing degree of autonomy which these states
possessed was that the growing power of the bourgeoisie was reflected
within the state itself – either in the state bureaucracy or in the politi-
cal party which governed the state – or both. More and more of the
personnel within the state championed the interests of the private
bourgeoisie and argued that it should be allowed to follow its own,
rather than the state’s will. These increasingly influential sections of
neo-liberals constituted a fifth column within the Midas states.
The transition between ascending and descending phases is far from
smooth. The older developmentalist elements within the state cling to
power and, pressured by demands on all sides, desperately try to find
solutions. The wild swings in policy that have been identified in
Mexico between 1970 and 1982 and in Korea in the 1980s are the
result. The Taiwanese state exhibited less erratic behaviour than this in
the late 1980s and 1990s because the pressures on it were less contra-
dictory – the working class was not as powerful as in the other cases –
thus the major external pressures were all moving it in similar direc-
tions – towards the interests of the private, Taiwanese bourgeoisie. But
even here, battles over questions such as privatisation of state enter-
prises and the freedom of Taiwanese business to invest in the mainland
have produced serious inconsistencies.
However, from whichever class the challenges to the state have
come, they have all ended with the installation of regimes much more
clearly aligned with and controlled by the private bourgeoisie. There

are several reasons for this. The first is that mass political parties con-
sciously aiming for workers’ power have not emerged in either of the
cases – Mexico and South Korea – where the working class has been
strongest. Secondly, the task of transforming the Midas states and
bending them to its needs is much simpler for the bourgeoisie than for
the working class. These state machines, although not substantially
under the control of the capitalist class, were nevertheless dedicated to
the accumulation of capital through the exploitation of labour. The
differences between them and the private bourgeoisie were differences
between fellow exploiters. The differences they had with workers were
far more fundamental. This is also the reason why the pressure of a
growing and more powerful working class is felt as an external threat
only and is not reflected inside the state. No pro-working class group of
bureaucrats or politicians emerges in the old structures of party or
bureaucratic power in the way that a pro-bourgeois one does.
The much greater power of the private bourgeoisie in the descent of
the Midas states spelt the death knell for many of the statist policies
which the bourgeoisie believed hampered them. The neo-liberal
approaches adopted gave them greater freedom. This freedom involves
privatisation of state enterprises, the dismantling of industrial plan-
ning and of many controls on the movement of capital and commodi-
ties. The state then allows domestic capital to operate on the basis of
profit maximisation rather than long-term capital accumulation. Two
of the more obvious signs of this are an increase in debt – especially to
foreign suppliers of finance – and an increase in the extent to which
investments have a speculative quality, with more resources being sunk
in real estate and the stock market. These were common elements in
the crises in Mexico in 1982 and in South Korea in 1997. Interestingly
the form of debt in South Korea was different to that in Mexico. In the
former, the chaebol, no longer under state discipline, took out foreign
loans – often for speculative purposes. Private capitalists did the same
in Mexico, but in this case state debt was a much greater problem. This
debt grew as a result of desperate attempts by the López Portillo and
Echeverría administrations to retain control and maintain social stabil-
ity by large-scale borrowing. Thus, the two types of debt problems
reflect elements of the distinct earlier forms of state autonomy. Both
increased speculative activity and growing foreign debt are now
present in Taiwan as well.
So there is an internal logic to developmentalist states in which a
pattern of rise and decline can be identified. The three phases of this
model of the developmentalist state – ascending, transitional and

descending – cannot, of course, be dated with absolute precision.
However, there appear to be clear turning points between these phases
in each of the case studies. In Mexico, the state began its ascending
phase with the Presidency of Lázaro Cárdenas between 1934 and 1940
and ended it with the massacre at Tlatelolco in 1968 and the beginning
of the Echeverría administration in 1970. From around this time, the
state faced greatly increased opposition. Its transitional phase, in
which the state attempted to satisfy the demands of various classes but
only succeeded in making its situation even worse, lasted from then for
the next two sexenios – until 1982. In that year, the state gave up any
serious developmental policy, surrendering to the demands of domes-
tic and international capital, privatising state-industry and removing
most restrictions on capital movement. So 1982 was the beginning of a
very rapid descending phase. The political conclusion of this descent
takes place in the year 2000 with the defeat of the PRI in the
Presidential elections of that year.
The South Korean state became a developmentalist one in 1961 with
the coup led by Park Chung-hee. Although opposition to the regime
gradually built up in the 1970s, the state was still able to control it and
rigourously plan heavy industrialisation. The end of that phase
roughly coincides with the assassination of Park in 1979, the coup by
Chun Doo-hwan in 1980 and the subsequent massacre at Kwangju.
From that time, under Chun and Roh Tae-woo, the state faced enor-
mous opposition. Its manoeuvres – alternating between repression and
reform, pro-market and dirigiste policies – were typical of a transitional
phase. Then, from about 1992, under Kim Young-sam, the chaebol were
allowed even greater freedom and the descending phase had begun. By
1997, few aspects of the developmentalist state remained. The end of
that phase and of any form of developmentalism came with the crisis
of 1997 and its savage neo-liberal aftermath.
The ascending phase in Taiwan began shortly after 1949 when the
KMT leadership decided that its stay on the island was not likely to be
a brief one. That phase ended between 1986 and 1989. In that three-
year period, the KMT allowed a limited democratisation, Chiang
Ching-kuo – the last of the old guard of the KMT – died, some state
banks were sold, banking was deregulated to an extent and subsidies
and tariffs substantially cut. These are features of the descending phase
in the other case studies. However, Taiwan’s descending phase does
not begin at this time. It too has a genuine phase of transition. The
deregulatory measures were accompanied by continued, large-scale
Mexico South Korea Taiwan

Ascending 1934–40 to 1968–70 1961 to 1979–80 1949 to 1986–89
phase
Transitional 1968–70 to 1982 1979–80 to 1992 1986–89 to
phase 1995–2000
Descending 1982 to 2000 1992 to 1997 1995–2000 and
phase beyond
Figure 9.2 Phases of the developmentalist state
public spending. Some planning continued and, until the mid-1990s,

most banks were still state-owned. Only in the second half of the 1990s
does a major retreat from developmentalism take place and a descend-
ing phase begin. The political signal of this descent was the victory of
the DPP in the Presidential race of 2000. (See Figure 9.2)
Losing control of the gate
Domestic autonomy was particularly important in determining the

abilities of the three states to withstand and respond to external shocks
of a political or economic kind. The strength of the external shock is
one factor involved. The other is the position of the Midas state in the
ascending/descending arc at the time of the shock. Thus the 1973–74
shocks delivered to South Korea and Taiwan barely halted their eco-
nomic growth. But they hurt Mexico badly. Mexico had already ended
its ascending phase, whereas the East Asian Midas states were still
undergoing it. The latter were able to respond with great vigour – press-
ing ahead in the development of heavy industries and the conquest of
new markets, while Mexico floundered. The 1980 recession damaged
all three countries – but again, in different ways. Mexico benefited
from the oil price rises of the time, but then suffered a spectacular
crash after which the state lost its major economic controls – thus
moving from a transitional to a very steep descending phase. South
Korea, at the very end of its ascending phase, also faced a serious crisis
in 1980 – although not nearly as severe as that of Mexico. Taiwan
barely felt the effects of the crash at all. The 1997 currency crisis devas-
tated South Korea, but not Taiwan. As the domestic autonomy of the
Midas states was eroded, their ability to act as the ‘gatekeeper’ to the
international system have faded as well.
The model of the Midas states presented here may be useful in
better understanding the dynamics of the three NICs examined.
Elements of it, with modification, may also be employed in research-

ing other newly industrialising societies. But all models do some vio-
lence to the complexity of reality. They remain useful only to the
extent that they direct our attention to certain important features,
patterns and dynamics of the world and organise our knowledge of it.
Hopefully, in this sense, the ideas advanced in this book have made a
contribution.
Notes
Chapter 1 Newly Industrialising Countries and the State

1 Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization,
New York: Columbia University Press, 1991, p. 5.
2 Cardoso, F. and E. Faletto, Dependency and Development in Latin America,
Berkeley: University of California Press, 1979, p. 33.
3 Booth, D., ‘Andre Gunder Frank: an introduction and appreciation’, in
Oxaal, T. Barnett and D. Booth (eds), Beyond the Sociology of Development:
Economy and Society in Latin America and Africa, London: Routledge and
Kegan Paul, 1975, p. 76.
4 Bath, C. and D. James, ‘Dependency Analysis of Latin America: Some
Criticisms, Some Suggestions’, Latin American Research Review, 11:3, 1976,
pp. 14–15.
5 List, Friedrich, The Natural System of Political Economy, London: Frank Cass,
1983/1837; Carey, Henry Charles, Principles of Political Economy, Philadelphia:
Carey, Lea & Blanchard, 1837.
6 World Bank, The East Asian Miracle: Economic Growth and Public Policy,
New York: Oxford University Press, 1993.
7 See Cho, Soon, ‘Government and Market in Economic Development’, Asian
Development Review, 12:2, 1994, p. 150; Kuznets, Paul W., ‘The Dramatic
Reversal of 1979–80: Contemporary Economic Development in Korea’,
Journal of Northeast Asian Studies, 1:3, 1982.
8 Kwon, Jene, ‘The East Asia Challenge to Neoclassical Orthodoxy’, World
Development, 22:4, 1994, p. 635.
9 Johnson, Chalmers, MITI and the Japanese miracle: the growth of industrial
policy, 1925–1975, Stanford: Stanford University Press, 1982. An important
later work is Johnson, Chalmers, Japan: Who Governs? The Rise of the
Developmental State, New York: W.W. Norton, 1995. Also see Leftwich,
Adrian, ‘Bringing Politics Back In: Towards a Model of the Developmental
State’, The Journal of Development Studies, 31:3, 1995, pp. 400–27.
10 Amsden, Alice H. and Takashi Hikino, ‘Borrowing Technology or
Innovating: An Exploration of the Two Paths to Industrial Development’, in
R. Thompson (ed.), Learning and Technological Change, New York: St Martin’s
Press, 1993, p. 260.
11 Gerschenkron, A., Economic Backwardness in Historical Perspective,
Cambridge, Mass.: The Belknap Press of Harvard University, 1962.
12 ibid., pp. 353–4.
13 Cain, P.J. and A.G. Hopkins, British Imperialism: Innovation and Expansion,
1688–1914, London: Longman, 1993, p. 60.
14 More, C., The Industrial Age: Economy and Society in Britain, 1750–1985,
London: Longman, 1989, p. 5.
15 Dobb, Maurice, Studies in the Development of Capitalism, London: Routledge
and Kegan Paul, 1946, pp. 279–80.
245
246 Notes
16 Cameron, Rondo, Banking in the Early Stages of Industrialization, New York:

Oxford University Press, 1967, pp. 36–8.
17 Kemp, Tom, Economic Forces in French History, London: Dobson Books, 1971,
p. 162.
18 See Magraw, Roger, France 1814–1915: The Bourgeois Century, London:
Fontana, 1983, p. 159.
19 ibid., p. 160.
20 Witte, Sergei, The Memoirs of Count Witte, trans. and edited by Sidney
Harcave, New York: M.E. Sharpe, Armonk, 1990, p. 77.
21 Gerschenkron, A., ‘The Rate of Industrial Growth in Russia Since 1885’,
The Journal of Economic History, Vol. 7, (Supplement), 1947, p. 149.
22 ibid., 149–50.
23 Falkus, M., The Industrialisation of Russia, 1700–1914, London: Macmillan,
1972, p. 76.
24 Maddison, Angus, Economic Growth in Japan and the USSR, London:
George Allen and Unwin, 1969, p. 14.
25 Halliday, Jon, A Political History of Japanese Capitalism, New York: Monthly
Review Press, 1975, p. 59.
26 Allen, George, A Short Economic History of Modern Japan, 2nd edn, London:
George Allen and Unwin, 1962, p. 127.
Chapter 2 The Autonomy of Developmentalist States

1 Gerschenkron, Economic Backwardness in Historical Perspective, op. cit.,
pp. 353–4.
2 Hane, Mikiso, Peasants, Rebels and Outcasts: The Underside of Modern Japan,
New York: Pantheon, 1982, p. 17.
3 ibid., pp. 21–2.
4 Mironov, Boris, ‘The Russian Peasant Commune after the Reforms of the
1860s’, in Ben Eklof and Stephen Frank (eds), The World of the Russian
Peasant: Post-Emancipation Culture and Society, Boston: Unwin Hyman, 1990,
pp. 28–9.
5 Marx, Karl and Frederick Engels, Manifesto of the Communist Party, Peking:
Foreign Languages Press, 1970, p. 33.
6 Draper, Hal, Karl Marx’s Theory of Revolution, Vol. 1, State and Bureaucracy,
New York: Monthly Review Press, 1977.
7 Marx, Karl and Frederick Engels, ‘British Politics, Disraeli, The Refugees,
Mazzini in London, Turkey’, article for the New York Daily Tribune,
22 March 1853 in Karl Marx and Frederick Engels, Collected Works, Vol. 12,
London: Lawrence and Wishart, 1975, p. 3.
8 Draper, op. cit., pp. 324–6.
9 Marx, Karl, Capital, Vol. 1, Moscow: Progress Publishers, 1954, p. 229.
10 Draper, op. cit., pp. 329–31.
11 Engels, Frederick, Socialism: Utopian and Scientific, (Introduction to the
English Edition), Peking: Foreign Languages Press, 1975, pp. 35–6.
12 Marx, Karl, The Eighteenth Brumaire of Louis Bonaparte, New York:
International Publishers, 1963, p. 121.
13 ibid., p. 123.
Notes 247
14 ibid., pp. 123–4.

15 ibid., p. 132.
16 Bonaparte, Napoleon Louis, The Extinction of Pauperism, Washington:
W.M. Morrison, 1853.
17 Poulantzas, Nicos, Political Power and Social Classes, London: New Left
Books, 1973, p. 260.
18 Marx, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 121.
19 ibid., pp. 122–3.
20 Marx, Karl, ‘The Rule of the Praetorians’, in Karl Marx and Frederick Engels,
Collected Works, Vol. 15, London: Lawrence and Wishart, 1986, p. 465.
21 ibid.
22 ibid.
23 Engels, ‘Letter to Marx, 13 April, 1866’ in Karl Marx, Frederick Engels,
Collected Works, Vol. 42, New York: International Publishers, 1987, p. 266.
24 See Engels, Frederick, The Role of Force in History: A Study of Bismarck’s Policy
of Blood and Iron, London: Lawrence and Wishart, 1968, p. 62.
25 Draper, op. cit., p. 328
26 Quoted in Taylor, A.J.P., Bismarck: The Man and the Statesman, London:
Hamish Hamilton, 1955, p. 92.
27 Marx, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 131.
28 On this point see Draper, op. cit., p. 402.
29 Marx, ‘The Rule of the Praetorians’, op. cit., p. 465.
30 McMillan, James F., Napoleon III, London: Longman, 1991, p. 65.
31 ibid., p. 66.
32 Skocpol, Theda, States and Social Revolutions: A Comparative Analysis of
France, Russia, and China, Cambridge: Cambridge University Press, 1979,
p. 102.
33 Yoo, Jung-Ho, ‘South Korea’s Manufactured Exports and Industrial
Targeting Policy’, in Shu-Chin Yang (ed.), Manufactured Exports of East Asian
Industrialising Economies: Possible Regional Cooperation, Armonk, New York
and London: Sharpe, 1994, p. 170.
34 Haggard, Stephan and Chung-in Moon, ‘The South Korean State in
the International Economy: Liberal, Dependent or Mercantile?’, in
John Gerard Ruggie, The Antinomies of Interdependence: National Welfare
and the International Division of Labor, New York: Columbia University
Press, 1983; Leftwich, Adrian, ‘Bringing Politics Back In: Towards a Model
of the Developmental State’, The Journal of Development Studies, 31:3,
1995; Yahya, Faizal, ‘The State in the Process of Economic Development:
The Case in India’, Asian Studies Review, 18:3, April 1995; Alschuler,
Lawrence, ‘Divergent Development: The Pursuit of Liberty, Equality, and
Growth in Argentina and Republic of Korea’, Journal of World-Systems
Research, 3:1, 1997; Önis, Ziya, ‘The Logic of the Developmental State’,
Comparative Politics, 24:1, October 1991; Riggs, Fred W., Thailand: The
Modernization of a Bureaucratic Polity, Honolulu: East-West Center Press,
1966; White, Gordon and Robert Wade (eds), Developmental Studies in
East Asia, Institute for Development Studies, Research Report 16, 1985;
Weiss, L. and Hobson, J., States and Economic Development, Cambridge
[UK]: Polity Press, 1995; Hamilton, Nora, ‘State-Class Alliances and
Conflicts’ in Nora Hamilton and T. Harding, Modern Mexico, Beverley
248 Notes
Hills: Sage Publications, 1986; Skocpol, States and Social Revolutions:

A Comparative Analysis of France, Russia, and China, op. cit.; Skocpol,
Theda, ‘Bringing the State Back In: Strategies of Analysis in Current
Research’, in Peter B. Evans, Dietrich Rueshemeyer and Theda Skocpol
(eds), Bringing the State Back In, Cambridge: Cambridge University Press,
1985; Trimberger, Ellen Kay, Revolution from Above: Military Bureaucrats
and Development in Japan, Turkey, Egypt and Peru, New Brunswick:
Transaction Books, 1978.
35 See Alschuler, op. cit., p. 132.
36 See Haggard, Stephan, ‘The Newly Industrializing Countries in the
International System’, World Politics, 38:2, January 1986, p. 344.
37 For this distinction in relation to the early formation of capitalist states in
Europe see Mann, Michael, States, War and Capitalism: Studies in Political
Sociology, Oxford: Blackwell, 1988; Weiss and Hobson, op. cit.; Önis, 1991,
op. cit., p. 123.
38 Yahya, op. cit., pp. 84–5.
39 Önis, op. cit., p. 114.
40 Doner, Richard, ‘Limits of State Strength: Toward an Institutional View of
Economic Development’, World Politics, 44:3, April, 1992, p. 401.
41 Haggard and Moon, op. cit., p. 141.
42 Leftwich, ‘Bringing Politics Back In: Towards a Model of the Developmental
State’, op. cit., pp. 405–8.
43 Rueschemeyer, Dietrich, and Peter Evans, ‘The State and Economic
Transformation: Toward an Analysis of the Conditions Underlying Effective
Intervention.’ in Evans, Rueschemeyer and Skocpol, op. cit., p. 45.
44 Lie, John, Han Unbound: The Political Economy of South Korea, Stanford:
Stanford University Press, 1998, p. 97.
45 Yahya, op. cit., pp. 86–7
46 MacIntyre, Andrew, ‘Business, Government and Development: Northeast
and Southeast Asian Comparisons’, in Andrew MacIntyre (ed.), Business and
Government in Industrialising Asia, Sydney: Allen and Unwin, 1994, p. 7.
47 Skocpol, States and Social Revolutions: A Comparative Analysis of France,
Russia, and China, op. cit., p. 27.
48 ibid., pp. 27–8
49 Skocpol, ‘Bringing the State Back In: Strategies of Analysis in Current
Research’, op. cit., p. 5.
50 Weiss and Hobson, op. cit., p. 91.
51 Evans, op. cit., p. 45.
52 Trimberger, op. cit., p. 4. Also see Trimberger, Ellen Kay: ‘Development as
History’, Studies in Comparative International Development, 10:2, Summer,
1975 pp. 124–8; Trimberger, Ellen Kay, ‘State Power and Modes of
Production: Implications of the Japanese Transition to Capitalism,’ Insurgent
Sociologist 7:2 March 1985.
53 Haggard, Stephan, Pathways From the Periphery, Ithaca: Cornell University
Press, 1990, p. 39.
55 In the words of Frederic Deyo. Deyo, Frederic, Beneath the Miracle: Labor
Subordination in the New Asian Industrialism, Berkeley: University of
California Press, 1989.
Notes 249
56 Amsden, Alice H. et al (eds), Taiwan’s Enterprises in Global Perspective, Armonk,

New York: M.E. Sharpe, 1992; Amsden, Alice H., Asia’s Next Giant: South Korea
and Late Industrialisation, New York, Oxford: Oxford University Press, 1989;
Johnson, MITI and the Japanese Miracle: the Growth of Industrial Policy, op. cit.;
Johnson, Japan: Who Governs? The Rise of the Developmental State, op. cit.;
Hamilton, ‘State-Class Alliances and Conflicts’, op. cit.; Wade, Robert, ‘State
Intervention in “Outward-Looking” Development: Neoclassical Theory and
Taiwanese Practice’, in Gordon White (ed.), Developmental States in East Asia,
New York: St. Martin’s Press, 1988; Wade, Robert, ‘The Visible Hand: State
and East Asia’s Economic Growth’, Current History, 92, 1993.
57 A partial exception, which deals with the changing relationship between
the state, business and labour in the case of South Korea, is Kim, Eun-mee,
Big Business, Strong State: Collusion and Conflict in South Korean Development,
1960–1990, SUNY Series in Korean Studies, Albany: State University of
New York Press, 1997.
58 Haggard, Pathways From the Periphery, op. cit., p. 43; Leftwich, ‘Bringing
Politics Back In: Towards a Model of the Developmental State’, op. cit.,
p. 409.
59 ibid., p. 405.
Chapter 3 Mexico: from Revolution to ‘Perfect

Dictatorship’
1 Chislett, W., ‘The Causes of Mexico’s Financial Crisis and the Lessons to be
Learned’, in G. Philip (ed.), Politics in Mexico, London: Croom Helm, 1985,
p. 1.
2 World Bank, World Development Report, 1979, pp. 130–1.
3 Hansen, R., The Politics of Mexican Development, Baltimore: The Johns
Hopkins Press, 1971, p. 56. Ramírez, M., ‘Mexico’s Developmental
Experience, 1950–85: Lessons and Future Prospects’, Journal of Interamerican
Studies and World Affairs, 28:2, 1986, p. 44.
4 Reynolds, C., ‘Mexican-US Interdependence: Economic and Social
Perspectives’, in C. Reynolds and C. Tello (eds), US-Mexican Relations:
Economic and Social Aspects, Stanford: Stanford University Press, 1983, p. 28.
Ramírez, op. cit., p. 50.
5 Hansen, op. cit., p. 3.
6 However, the party has had three names in that period.
7 Brachet-Márquez, Viviane, ‘Poverty and Social Programs in Mexico,
1970–1980: The Legacy of a Decade’, Latin American Research Review, 23:1,
1988, p. 221.
8 Cornelius, W., J. Gentleman and P. Smith (eds), Mexico’s Alternative Political
Futures, San Diego: Center for US-Mexican Studies, University of California,
1989, p. 5.
9 Ramírez, op. cit., p. 46.
10 Lomnitz, Larissa, ‘Horizontal and Vertical Relations and the Social Structure
of Urban Mexico’, Latin American Research Review, 17:2, 1982, pp. 61–2.
11 Bailey, J., Governing Mexico: The Statecraft of Crisis Management, New York:
St. Martin’s Press, 1988, p. 64.
250 Notes
12 Haggard, Stephan, Pathways From the Periphery, Ithaca: Cornell University

Press, 1990, p. 177.
13 Barkin, David, ‘Mexico’s Albatross, the US Economy’, in N. Hamilton and
T. Harding, Modern Mexico, Beverley Hills: Sage Publications, 1986, p. 114.
Also see Teichman, J., Policymaking in Mexico: From Boom to Crisis, Boston:
Allen and Unwin, 1988, p. 41.
14 Barkin, ‘Mexico’s Albatross, the US Economy’, op. cit., p. 109.
15 Haggard, Pathways From the Periphery, op. cit., p. 168.
16 ibid., p. 177.
17 Camp, R. (ed.), Mexico’s Political Stability: The Next Five Years, Boulder:
Westview Press, 1986, p. 46.
18 Hansen, op. cit., pp. 84, 66.
20 Hansen, op. cit., p. 69.
21 Gereffi, Gary and Peter Evans, ‘Transnational Corporations, Dependent
Development, and State Policy in the Semi-Periphery’, Latin American
Research Review, 16:3, 1981, p. 35.
22 Teichman, op. cit., p. 37.
23 Jones, E., Echeverría and the United States: Mexico’s deepening dependency,
Melbourne: Institute of Latin American Studies, Latrobe University, 1980, p. 3.
24 Cockcroft, J., Mexico: Class Formation, Capital Accumulation, and the State,
New York: Monthly Review Press, 1983, p. 157; Domínguez, J., ‘International
Reverberations of a Dynamic Political Economy’, in J. Domínguez (ed.),
Mexico’s Political Economy, Beverley Hills: Sage Publications, 1982, p. 180.
25 Domínguez, J., ‘International Reverberations of a Dynamic Political
Economy’, op. cit., p. 173.
26 ibid.
27 Vázquez, J. and L. Meyer, The United States and Mexico, Chicago: The
University of Chicago Press, 1985, pp. 175–6.
28 Riding, A., Mexico: Inside the Volcano, London: I.B.Tauris, 1987, p. 357.
29 Grayson, G., Oil and Mexican Foreign Policy, Pittsburgh: University of
Pittsburgh Press, 1988, p. 36.
30 ibid.
31 Bennett, D. and Sharpe, K., ‘The State as Banker and Entrepreneur: The Last
Resort Character of the Mexican State’s Economic Intervention,
1917–1970’, in Hewlett, S. and Weinert, R. (eds), Brazil and Mexico: Patterns
in Late Development, Philadelphia: Institute for the Study of Human Issues,
1982, p. 189.
32 Gereffi and Evans, op. cit., p. 124. Also see Middlebrook, K., ‘International
Implications of Labor Change: The Automobile Industry’, in J. Domínguez
(ed.), Mexico’s Political Economy, op. cit., p. 137.
33 Wionczek, Miguel, ‘Foreign-Owned Export-Oriented Enclave in a Rapidly
Industrializing Economy: Sulphur Mining in Mexico’, in R. Mikesell (ed.),
Foreign Investment in the Petroleum and Mineral Industries, Baltimore: The
John Hopkins Press, 1971, pp. 297–306.
34 Gereffi and Evans, op. cit., p. 150.
35 Middlebrook, Kevin J., The Paradox of Revolution: Labor, the State and
Authoritarianism in Mexico, Baltimore: The Johns Hopkins University Press,
1995, p. 19.
Notes 251
36 See Samamiego Lopez, Marco Antonio, ‘Formación y consolidación de las

organizaciones obreras en Baja California, 1920–1930’, Mexican Studies-
Estudios Mexicanos, 14:2, Summer, 1998.
37 Marx, ‘The Rule of the Praetorians’, op. cit., p. 465.
38 Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism
in Mexico, op. cit., p. 24.
39 Roxborough, Ian, Unions and Politics in Mexico: The Case of the Automobile
Industry, Cambridge: Cambridge University Press, 1984, p. 13.
40 La Botz, Dan, The Crisis of Mexican Labor, New York: Praeger, 1988,
pp. 28–9.
41 ibid., p. 29.
42 ibid., p. 58.
43 Sanderson, Steven E., Agrarian Populism and the Mexican State: The Struggle for
Land in Sonora, Berkeley: University of California Press, 1981, p. 101.
44 Ashby, op. cit., p. 34.
45 Brown, Jonathon C., ‘Acting for Themselves: Workers and the Mexican Oil
Nationalisation’, in Jonathon C. Brown, Workers’ Control in Latin America,
1930–1979, Chapel Hill: The University of North Carolina Press, 1997, p. 65.
46 La Botz, op. cit., pp. 76–8.
47 ibid., p. 78.
48 Sanderson, op. cit., p. 107.
50 Brown, Lyle C., ‘Cárdenas: Creating a Campesino Power Base for
Presidential Policy’, in George Wolfskill and Douglas Richmond (eds),
Essays on the Mexican Revolution: Revisionist Views of the Leaders, Austin:
University of Texas Press, 1979, p. 109.
51 Bruhn, Kathleen, Taking on Goliath: The Emergence of a New Left Party and the
Struggle for Democracy in Mexico, University Park, Pennsylvania: The
Pennsylvania State University Press, 1997, p. 36.
52 Story, The Mexican Ruling Party: Stability and Authority, New York: Praeger,
1986, p. 82.
53 ibid., p. 83.
54 He used this famous description in a Mexican television interview in 1990.
56 Heath, John, ‘Contradictions in Mexican Food Policy’, in G. Philip (ed.),
Politics in Mexico, London: Croom Helm, 1985, p. 102.
57 Cockcroft, op. cit., p. 170.
58 Arizpe, L., ‘The State and Uneven Agrarian Development in Mexico’, in
Philip, op. cit., p. 206.
61 Barkin, Distorted Development: Mexico in the World Economy, Boulder:
Westview Press, 1990, p. 19.
62 Hamilton, Nora, ‘State-Class Alliances and Conflicts’ in Hamilton and
Harding, op. cit., p. 97.
64 Grayson, op. cit., p. 64.
65 ibid.
66 La Botz, op. cit., p. 149.
252 Notes
67 See, for an example: Middlebrook, Kevin, ‘The Politics of Industrial

Restructuring: Transnational Firms’ Search for Flexible Production in the
Mexican Automobile Industry’, Comparative Politics, 23:3, April 1991, p. 283.
68 Gaitán Riveros, Maria Mercedes, El movimiento de los mineros durante el aleman-
ismo, Mexico City: Universidad Nacional Autónoma de México, 1987, pp. 64–5.
69 Roxborough, op. cit., p. 24.
71 ibid.
72 For further details of the charrazo in the railway workers’ union see
Middlebrook, The Paradox of Revolution: Labor, the State and Authoritarianism
in Mexico, op. cit., pp. 135–41.
75 Gaitán Riveros, op. cit., p. 61.
77 Gaitán Riveros, op. cit., pp. 91, 98.
80 Middlebrook, Kevin J., ‘Union Democratization in the Mexican Automobile
Industry: A Reappraisal’, Latin American Research Review, 24:2, 1989, p. 81.
83 Whitehead, Laurence, ‘The Peculiarities of “Transition” a la Mexicana’, in
Neil Harvey and Mónica Serrano (eds), Party Politics in ‘an Uncommon
Democracy’, London: Institute of Latin American Studies, 1994, p. 115;
Story, op. cit., p. 21.
84 Serrano, Mónica, ‘The End of Hegemonic Rule? Political Parties and the
Transformation of the Mexican Party System’, in Harvey and Serrano,
op. cit., p. 5.
85 Bruhn, op. cit., p. 236.
Chapter 4 Mexico: Uncontrolled Mobilisation and Retreat

from Developmentalism
1 ‘Mexico: from Boom to Bust’, The Economist, 11 February 1989, p. 75.
3 Chislett, op. cit., p. 2.
4 Hewlett and Weinert, op. cit., p. 5.
5 Middlebrook, ‘Union Democratization in the Mexican Automobile
Industry: A Reappraisal’, op. cit., pp. 71–9.
6 Middlebrook, ‘International Implications of Labor Change: The Automobile
Industry’, op. cit., p. 150.
7 Middlebrook, ‘Union Democratization in the Mexican Automobile
Industry: A Reappraisal’, op. cit., p. 69.
9 Brennan, op. cit., p. 61; La Botz, op. cit., p. 136.
10 Brennan, James, P., ‘Industrial Sectors and Union Politics in Latin America
Labor Movements: Light and Power Workers in Argentina and Mexico’,
Latin American Research Review, 30:1, 1995, p. 61.
Notes 253

12 ibid., p. 11.
13 Markiewicz, D., Ejido Organization in Mexico, 1934–76, Los Angeles: UCLA
Latin American Center Publications, 1980, p. 29.
14 Cesar, A., Producción Colectiva y Desarrollo Capitalista en el Agro Mexicano,
1970–1980, Amsterdam: Centro de Estudios y Documentación Latinoamericanos,
1987, p. 39.
15 Story, op. cit., p. 37.
16 Gordillo, Gustavo, Campesinos al Asalto del Cielo: de la Expropiación
Estatal a la Approciación Campesina, Mexico City: Siglo Veintiuno, 1988,
pp. 215–16.
17 Young, Dolly, ‘Mexican Literary Reactions to Tlatelolco 1968’, Latin
American Research Review, 20:2, 1985, p. 72.
18 Monsiváis, Carlos, ‘From ‘68 to Cardenismo: Toward a Chronicle of Social
Movement’, Journal of International Affairs, 43:2, Winter 1990, p. 387.
19 Lomnitz, op. cit., p. 63.
20 Carr, Barry, ‘Mexico: The Perils of Unity and the Challenge of Modern-
ization’, in Barry Carr and Steve Ellner (ed.), The Latin American Left: From
the Fall of Allende to Perestroika, Boulder: Westview Press, 1993, p. 86.
21 Rubin, Jeffrey, W., ‘Decentering the Regime: Culture and Regional Politics
in Mexico’, Latin American Research Review, 31:3, 1996, p. 105.
22 Lázaro Cárdenas was the father of Cuauhtémoc.
23 Mares, David, R., ‘Mexico’s Foreign Policy as a Middle Power: The Nicaragua
Connection, 1884–1986’, Latin American Research Review, 23:3, 1988, p. 96;
Story, op. cit., p. 36.
24 Coleman and Davis, op. cit., 1983, p. 7.
25 Newell and Rubio, op. cit., 1984, p. 134.
28 ibid.
29 Jones, op. cit., p. 15.
34 ibid., pp. 2–3.
36 Haggard, Pathways From the Periphery, op. cit., pp. 184–5.
38 Foley, Michael, W., ‘Agenda for Mobilization: The Agrarian Question and
Popular Mobilization in Contemporary Mexico’, Latin American Research
Review, Vol. 26, No. 2, 1991, p. 47.
39 Sanderson, op. cit., p. 185. Also see Haggard, Pathways From the Periphery,
op. cit., p. 185.
40 Sanderson, op. cit., p. 181.
41 Grindle, Merilee, State and Countryside: Development Policy and Agrarian
Politics in Latin America, Baltimore: Johns Hopkins University Press, 1986,
pp. 61–7.
42 Newell and Rubio, op. cit., p. 211; Story, op. cit., 1984, p. 38.
254 Notes

45 Quoted in Camp, Entrepreneurs and Politics in Twentieth-Century Mexico,
op. cit., 1989, p. 27.
50 International Monetary Fund, International Financial Statistics Yearbook,
Washington D.C., International Monetary Fund, 1983, pp. 288–9.
51 See Williams, E., ‘Petroleum and Political Change’, in J. Domínguez (ed.),
Mexico’s Political Economy, op. cit., p. 51.
53 ibid., p. 69.
57 Newell and Rubio, op. cit., 1984, pp. 219–20.
58 Quoted in Teichman, op. cit., p. 65.
61 World Bank, World Debt Tables, Vols. II and III, 1988–1989.
62 Glade, W., ‘How Will Economic Recovery be Managed?’, in Camp,
Entrepreneurs and Politics in Twentieth-Century Mexico, op. cit., p. 52.
66 Bailey, Governing Mexico: The Statecraft of Crisis Management, op. cit., p. 50.
67 Quoted in Cockcroft, op. cit., p. 260.
68 Barkin, Distorted Development: Mexico in the World Economy, op. cit., p. 58.
69 Quoted in Maxfield, Sylvia, ‘The International Political Economy of Bank
Nationalization: Mexico in Comparative Perspective’, Latin American
Research Review, 27:1, 1992, p. 75.
70 Bailey, Governing Mexico: The Statecraft of Crisis Management, op. cit.,
p. 128.
71 Camp, Entrepreneurs and Politics in Twentieth-Century Mexico, op. cit., p. 50.
73 Quoted in Teichman, op. cit., p. 137.
74 Maxfield, op. cit., p. 86.
76 Maxfield, op. cit., pp. 87, 96.
77 ibid., p. 98.
79 Centeno, op. cit., 1994, pp. 104–5.
80 Camp, Roderic Ai, ‘The National School of Economics and Public Life in
Mexico’, Latin American Research Review, 10:3, 1975, p. 138.
81 Camp, Roderic Ai, ‘The Political Technocrat in Mexico and the Survival
of the Political System’, Latin American Research Review, 20:1, 1985, p. 99.
83 Bruhn, op. cit., p. 43.
Notes 255
84 For accounts of the division between técnicos and políticos, see: Bailey,
Governing Mexico: The Statecraft of Crisis Management, op. cit., p. 33;
Cornelius, W., J. Gentleman and P. Smith, ‘The Dynamics of Political
Change in Mexico’, in W. Cornelius, J. Gentleman and P. Smith (eds),
Mexico’s Alternative Political Futures, San Diego: Center for U.S.-Mexican
Studies, University of California, 1989, p. 10; Heredia, Blanca, ‘Mexican
Business and the State: The Political Economy of a Muddled Transition’,
in Ernest Bartell and Leigh Payne (eds), Business and Democracy in Latin
America, Pittsburg: University of Pittsburgh Press, 1995 and Morris,
Stephen D., Political Reformism in Mexico, Boulder: Lynne Rienner
Publishers, 1995.
87 Maxfield, op. cit., pp. 85–6.
88 Foley, ‘Agenda for Mobilization: The Agrarian Question and Popular
Mobilization in Contemporary Mexico’, op. cit., p. 50 and pp. 60–1.
89 ibid., pp. 51–2.
90 Loaeza, Soledad, ‘Partido Acción Nacional and the Paradoxes of
Opposition’, in Harvey and Serrano, op. cit., pp. 42–5.
91 ibid., p. 45.
92 Morris, op. cit., p. 52.
93 Mizrahi, Yemille, ‘Entrepreneurs in the Opposition: Modes of Political
Participation in Chihuahua’, in Victoria E. Rodríguez and Peter M. Ward
(eds), Opposition Government in Mexico, Albuquerque: University of New
Mexico Press, 1995, p. 90.
94 Poitras, Guy and Raymond Robinson, ‘The Politics of NAFTA in
Mexico’, Journal of Interamerican Studies and World Affairs, 36:1, Spring
1994, p. 10.
95 La Botz, Dan, Mask of Democracy: Labor Suppression in Mexico Today,
Boston: South End Press, 1992, p. 84.
97 ibid.
102 Carlsen, Laura, ‘From the Many to the Few: Privatization in Mexico’,
Multinational Monitor, 12:5, May 1991.
103 Moody, Kim, Workers in a Lean World, London: Verso, 1997, p. 131.
104 Rosen, Bernard, ‘An Unfinished Revolution’, Monthly Review, 46:1,
May 1994.
105 La Botz, Mask of Democracy: Labor Suppression in Mexico Today, op. cit.,
p. viii.
106 Sparks, Samantha, ‘Mexico Faces Change’, Multinational Monitor, 9:10,
October 1988.
107 Valdés, Leonardo, ‘Partido de la Revolución Democrática: The Third
Option in Mexico’, in Harvey and Serrano, op. cit., p. 71.
256 Notes
108 Heath, John, ‘Further Analysis of the Mexican Food Crisis’, Latin
American Research Review, 27:3, 1992, p. 124.
109 Witt, Matt, ‘Mexican Labor: The Old, The New And The Democratic’,
Multinational Monitor, 12:1&2, January/February 1991.
110 The electoral front which ran Cárdenas in 1988 was made up of Corriente
Democrática (CD), which split from the PRI in 1987, plus four smaller
parties: Partido Auténtico de la Revolución Mexicana (PARM), Partido Popular
Socialista (PPS), Partido del Frente Cardenista de Reconstrucción Nacional
(PFCRN) and Partido Mexicano Socialista (PMS). Of these only CD and the
PMS went into the PRD.
112 ibid., p. 84.
113 Poitras and Robinson, op. cit., p. 8.
115 ibid., p. 82.
116 Conger, Lucy, ‘Power to the plutocrats’, Institutional Investor, February
1995, International Edition.
117 Garrido, Luis Javier, ‘Reform of the PRI: Rhetoric and Reality’ in Harvey
and Serrano, op. cit., p. 38; James Petras talks of the ‘decomposition’ of
the PRI in this period. Petras, James, The Left Strikes Back: Class Conflict in
Latin America in the Age of Neoliberalism, Boulder: Westview, 1999, pp. 38,
40.
118 Garrido, op. cit., p. 38.
119 Rich, Paul, ‘Mexican Neoliberal Nightmares: Tampico is Not Taiwan’,
Journal of Interamerican Studies and World Affairs, 37:4, Winter 1995,
pp. 178–9.
Chapter 5 South Korea: Devastation and Development

1 World Bank, The East Asian Miracle: Economic Growth and Public Policy,
New York: Oxford University Press, 1993.
2 Kim, Joon Kyung, Sang Dal Shim and Jun-Il Kim, ‘The Role of the
Government in Promoting Industrialisation and Human Capital
Accumulation in Korea’, in Takatoshi Ito and Anne O. Krueger (eds),
Growth Theories in Light of the East Asian Experience. National Bureau of
Economic Research – East Asia Seminar on Economics Series, Vol. 4, Chicago
and London: University of Chicago Press, 1995, p. 181.
3 Song, Byung-Nak, The Rise of the Korean Economy, Oxford: Oxford
University Press, 1994, p. 1.
4 Bello, Walden and Stephanie Rosenfeld, Dragons in Distress: Asia’s Miracle
Economies in Crisis, London: Penguin, 1992, p. 148.
5 Sung, Yeung Kwack, ‘The Economic Development of the Republic of
Korea, 1965–1981’, in Lau, Lawrence (ed.), Models of Development: A
Comparative Study of Economic Growth in South Korea and Taiwan, second
edition, San Francisco: ICS Press, 1990, p. 65.
6 Bello and Rosenfeld, op. cit., p. 77.
7 Organisation for Economic Co-operation and Development, OECD
Economic Surveys, 1993–1994, Korea, Paris: OECD, 1994, p. 74.
Notes 257
8 Amsden, A., Asia’s Next Giant: South Korea and Late Industrialization, New
York: Oxford University Press, 1989, p. 9.
9 Dalton, Bronwen and James Cotton, ‘New Social Movements and the
Changing Nature of Political Opposition in South Korea’, in Garry Rodan
(ed.), Political Oppositions in Industrialising Asia, London: Routledge, 1996,
p. 285.
10 Asia Monitor Resource Centre, Min-Ju, No-Jo, South Korea’s New Trade
Unions, Hong Kong: AMRC, 1987, p. 13.
11 Choi, Young-Hwan, ‘The Path to Modernization’, in Louis M. Branscomb
and Young-Hwan, Choi, Korea at the Turning Point. Innovation-Based
Strategies for Development, Westport, Connecticut; London: Praeger, 1996,
p. 14.
12 Jones, Leroy P. and Il Sakong, Government, Business and Entrepreneurship in
Economic Development: The Korean Case, Harvard University Press, 1980,
p. 60.
13 ibid., p. 61.
14 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit.,
p. 16.
15 For details of the almost complete government control of the financial
system between 1961 and 1980 see: Leudde-Neurath, Richard, ‘State
Intervention and Export-Oriented Development in South Korea’, in
Gordon White (ed.), Developmental States in East Asia, New York:
St. Martin’s Press, 1988, p. 75.
16 Chiu, Stephen Wing-Kai, The State and the Financing of Industrialisation in
East Asia: Historical Origins of Comparative Divergences, PhD, Princeton
University, 1992, p. 80.
17 Woo, Race to the Swift: State and Finance in Korean Industrialization, op. cit.,
p. 104.
18 Chiu, op. cit., p. 94. Amsden provides the following figures and time
periods for expansion using these internal sources rather than external
borrowing: 32.5% Japan (1954–67) and 65% for US (1947–63). Amsden,
Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 85.
19 Chiu, op. cit., p. 83.
20 ibid., p. 84.
21 ibid., p. 86. Sung, ‘The Economic Development of the Republic of Korea,
1965–1981’, op. cit., p. 94.
p. 77.
23 Haggard, Stephan and Chung-in Moon, ‘The State, Politics, and
Economic Development in Postwar South Korea, in Hagen Koo (ed.),
State and Society in Contemporary Korea, Ithaca and London: Cornell
University Press, 1993, p. 72.
24 Leudde-Neurath, ‘State Intervention and Export-Oriented Development
in South Korea’, op. cit., pp. 70–1.
25 Lee, ‘The Maturation and Growth of Infant Industries: The Case of
Korea’, op. cit., 1997, p. 1272.
26 For a thorough attack on the neo-liberal account, see: Leudde-Neurath,
Richard, Import Controls and Export-Oriented Development: A Reassessment
of the South Korean Case, Boulder: Westview Press, 1986; Leudde-Neurath,
258 Notes
Richard, ‘State Intervention and Foreign Direct Investment in South

Korea’, Institute for Development Studies Bulletin, 15:2, 1984.
27 Kim, Chung-yum, Policymaking on the Front Lines: Memoirs of a Korean
Practitioner, 1945–1979, Washington D.C.: World Bank, 1994, p. 68.
28 Choi, Byung-Sun, ‘Financial Policy and Big Business in Korea: The Perils
of Financial Regulation’, in Stephan Haggard et al (eds), The Politics of
Finance in Developing Countries, Cornell Studies in Political Economy,
Ithaca and London: Cornell University Press, 1993, p. 30.
29 Kim, Policymaking on the Front Lines: Memoirs of a Korean Practitioner,
1945–1979, op. cit., p. 30 and p. 120, Bello and Rosenfeld, op. cit.,
p. 56.
30 Choi, ‘Financial Policy and Big Business in Korea: The Perils of Financial
Regulation’, op. cit., p. 37. Yoo, Jung-Ho, ‘South Korea’s Manufactured
Exports and Industrial Targeting Policy’, in Shu-Chin Yang (ed.),
Manufactured Exports of East Asian Industrialising Economies: Possible
Regional Cooperation, Armonk, New York and London: Sharpe, 1994,
p. 151.
31 See for example Park, Chung Hee, Our Nation’s Path: Ideology of
Social Reconstruction, 2nd edn., Seoul, Hollym Corporation, 1970,
pp. 217–19.
32 For further details of the ‘illicit accumulation of wealth’ incident see:
Jones and Sakong, op. cit., pp. 69–70; Kim, Kyong-Dong, ‘Political Factors
in the Formation of the Entrepreneurial Elite in South Korea’, Asian
Survey, 16:5, 1976, pp. 470–1; and Lim, Timothy C., ‘Power, Capitalism
and the Authoritarian State in South Korea’, Journal of Contemporary Asia,
28:4, 1998, p. 468.
33 Chiu, op. cit., p. 147.
34 ibid., p. 102.
35 Chiu, op. cit., pp. 86–7.
36 See Park, Our Nation’s Path: Ideology of Social Reconstruction, op. cit.,
pp. 110–11.
37 In 1966, commercial banks were also allowed to raise foreign loans –
bypassing the National Assembly and Cabinet but the other required
approvals remained.
39 ibid., p. 88.
40 Stephan Haggard and Chung-in Moon, ‘The South Korean State in the
International Economy: Liberal, Dependent or Mercantile?’, in John
Gerard Ruggie, The Antinomies of Interdependence. National Welfare and the
International Division of Labor, New York: Columbia University Press,
1983, p. 150.
41 ibid.
42 Haggard and Moon, op. cit., p. 151. Sung calculates that FDI as a propor-
tion of all capital inflow was 5.5% between 1962 and 1981. Sung, ‘The
Economic Development of the Republic of Korea, 1965–1981’, op. cit.,
p. 104.
44 Leudde-Neurath, ‘State Intervention and Export-Oriented Development
in South Korea’, op. cit., p. 19; Chiu, op. cit., p. 90.
Notes 259
45 Cited in Leudde-Neurath, ‘State Intervention and Export-Oriented

Development in South Korea’, op. cit., p. 21; Haggard, Pathways From the
Periphery, op. cit., p. 199.
p. 76. Mukherjee, S., ‘Dependency Theory Revisited: South Korea’s March
towards an Independent Development’, Korea Observer, 23:1, 1992, p. 38.
47 Song, op. cit., p. 71.
p. 73.
50 Kim, Shim and Kim, op. cit., p. 184.
51 Song, op. cit., p. 100.
p. 96.
53 ibid.
54 Sung, ‘The Economic Development of the Republic of Korea, 1965–1981’,
op. cit., pp. 78–9; p. 90.
p. 278.
57 ibid., p. 78.
58 Song, op. cit., p. 117.
60 ibid., p. 102.
pp. 295–7.
62 ibid., p. 15.
63 Song, op. cit., p. 144–5.
64 Eckert, Carter, ‘The South Korean Bourgeoisie: A Class in Search of
Hegemony’, in Koo, op. cit., p. 103.
65 Song, op. cit., p. 144.
66 Kim, Shim and Kim, op. cit., p. 186 (ftn.).
67 See, for example: Kohli, Atul, ‘Japanese Colonialism and Korean
Development: A Reply’, World Development, 25:6, 1997; Eckert, Carter,
Offsprings of Empire: The Koch’ang Kims and the Colonial Origins of Korean
Capitalism, 1876–1945, Seattle: University of Washington Press, 1991;
and Eckert, Carter, ‘Total War, Industrialisation, and Social Change in
Late Colonial Korea’, in P. Duus et al (eds), The Japanese Wartime Empire,
1931–1945, Princeton: Princeton University Press, 1996.
68 Chiu, op. cit., p. 106. For further details of industrialisation under the
Japanese, see: Woo, Jung-en, Race to the Swift: State and Finance in Korean
Industrialization, op. cit., pp. 19–42.
p. 33. However, Koreans owned 47.9% of all firms.
70 Haggard, Stephan, David Kang and Chung-In Moon, ‘Japanese
Colonialism and Korean Development: A Critique’, World Development,
25:6, June 1997, p. 868.
71 Wade, L.L. and B.S. Kim, Economic Development of South Korea: The
Political Economy of Success, New York: Praeger, 1978, p. 16.
260 Notes
72 Haggard, Kang and Moon, op. cit., p. 868. Also see: Hsiao, Hsin-Huang
Michael, Government Agricultural Strategies in Taiwan and South Korea: A
Macrosociological Assessment, Nankang, Taipei, Taiwan, Republic of
China: Institute of Ethnology, Academia Sinica, 1981, pp. 76–7.
73 Haggard, Kang and Moon, op. cit., p. 876.
74 ibid., p. 873.
75 MacDonald, C., Korea: The War Before Vietnam, The Free Press: New York,
1986, p. 4.
76 Cumings, The Origins of the Korean War, Vol. 1, op. cit., 1981, p. 73.
77 ibid., p. 198, Kwon, Seung-ho and Michael O’Donnell, ‘Repression and
struggle: The state, the chaebol and independent trade unions in South
Korea’, Journal of Industrial Relations, 41:2, 1999, op. cit., p. 283.
78 Cumings, The Origins of the Korean War, Vol. 1, op. cit., p. 379.
79 quoted in Ogle, op. cit., 1990, p. 10.
80 Cumings, The Origins of the Korean War, Vol. 1, op. cit., p. 379.
82 Cole David C. and Princeton N. Lyman, Korean Development, The Interplay
of Politics and Economics, Cambridge: Harvard University Press, 1971,
p. 21.
83 For details on the landownership in the South Korean countryside before
and after reform see Hsiao, Hsin-huang Michael, ‘Development Strategies
and Class Transformation in Taiwan and South Korea: Origins and
Consequences’, Bulletin of the Institute of Ethnology, Academia Sinica, No.
61, Spring 1986, p. 190.
84 Cole and Lyman, op. cit., p. 22.
85 Rees, David, Korea: The Limited War, London: Macmillan, 1964, p. 441.
86 Reeve, W., The Republic of Korea: a Political and Economic Study, London:
Oxford University Press, 1963, p. 103.
87 Haggard, Kang and Moon, op. cit., p. 872.
88 Cumings, Bruce, The Origins of the Korean War, Vol. 2, The Roaring of
the Cataract, 1947–1950, Princeton: Princeton University Press, 1990,
pp. 699–702.
89 See, for example, Pak, Sejin, ‘Two Forces of Democratisation in Korea’,
Journal of Contemporary Asia, 28:1, 1998, p. 57.
90 World Bank, World Bank Annual Report, Washington D.C., various years.
91 Chiu, op. cit., p. 144.
92 Hsiao, ‘Development Strategies and Class Transformation in Taiwan and
South Korea: Origins and Consequences’, op. cit., p. 195.
93 Nordlinger, Eric, Soldiers in Politics: Military Coups and Governments,
Englewood Cliffs, N.J.: Prentice Hall, 1977, p. 6.
94 Wade and Kim, op. cit., p. 17.
95 Park, Our Nation’s Path: Ideology of Social Reconstruction, op. cit., p. 189.
96 ibid., p. 213.
97 Lie, John, Han Unbound: The Political Economy of South Korea, Stanford:
Stanford University Press, 1998, p. 149.
98 Bank of Korea, Economics Statistics Yearbook, Seoul: Bank of Korea, various
years.
99 Kuk, Minho, ‘The Governmental Role in the Making of Chaebol in
the Industrial Development of South Korea’, Asian Perspective, 12:1,
Spring–Summer 1988, p. 114.
Notes 261
100 Kim, Hwang-Joe, ‘The Korean Union Movement in Transition’, in

Stephen Frenkel (ed.), Organised Labor in the Asia-Pacific Region, Ithaca,
New York: ILR Press, 1993, p. 136.
102 Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 101.
103 Bae, Kyuhan, ‘Labor Strategy for Industrialisation in South Korea’, Pacific
Affairs, 62:3, Fall 1989, p. 362.
104 Kwon and O’Donnell, op. cit., p. 282.
106 ibid.
Chapter 6 The South Korean ‘Miracle’ in Decline

1 Koo, Hagen, ‘The State, Industrial Structure, and Labor Politics: Comparison
of Taiwan and South Korea’, in Hsin-huang Michael Hsiao et al (eds),
Taiwan: A Newly Industrialised State, Taipei: Department of Sociology,
National Taiwan University, 1989, p. 563.
3 ibid., p. 24.
4 ibid.
5 ibid., pp. 24–5.
6 Choi, Labor and the Authoritarian State: Labor Unions in South Korean
Manufacturing Industries, 1961–1980, op. cit., 1989, pp. 127–8.
7 Ogle, op. cit., p. 73.
8 ibid.
9 ibid., p. 74.
Manufacturing Industries, 1961–1980, op. cit., p. 127.
11 Koo, Hagen, ‘The State, Industrial Structure, and Labor Politics:
Comparison of Taiwan and South Korea’, in Hsiao, Taiwan: A Newly
Industrialised State, op. cit., p. 568.
Manufacturing Industries, 1961–1980, op. cit., p. 289–91.
13 Clark, David, ‘Growth and Limitations of Minjung Christianity in South
Korea’, in Kenneth Wells (ed.), South Korea’s Minjung Movement: The
Culture and Politics of Dissidence, Honolulu: University of Hawaii Press,
1995, p. 95.
14 Koo, Hagen, ‘The State, Minjung, and the Working Class in South Korea’,
in Hagan Koo (ed.), State and Society in Contemporary Korea, Ithaca and
London: Cornell University Press, 1993, p. 145.
15 ibid., p. 140.
17 Lee, Jeong Taik, ‘Dynamics of Labor Control and Labor Protest in the
Process of Export-Oriented Industrialisation in South Korea’, Asian
Perspectives, 12:1, 1988, p. 141.
18 ibid., p. 143.
19 Dalton, Bronwen and James Cotton, ‘New Social Movements and the
Changing Nature of Political Opposition in South Korea’, in Rodan, op. cit.,
p. 278.
262 Notes
20 Lee, ‘Dynamics of Labor Control and Labor Protest in the Process of

Export-Oriented Industrialisation in South Korea’, op. cit., pp. 150–1.
21 ibid., p. 151.
22 Launius, Michael A., ‘The State and Industrial Labor in South Korea’,
Bulletin of Concerned Asian Scholars, 16, October–December 1984, p. 7.
23 Koo, ‘The State, Minjung, and the Working Class in South Korea’, op. cit.,
pp. 150–1.
24 Kim, ‘The Korean Union Movement in Transition’, op. cit., p. 152.
25 Lim, Hy-Sop, ‘The Evolution of Social Classes and Changing Social
Attitudes’, in David L. Lindauer et al (eds), The Strains of Economic Growth:
Labor Unrest and Social Dissatisfaction in Korea, Harvard: Harvard Institute for
International Development and Korea Development Institute: Distributed
by Harvard University Press, 1997, p. 27.
26 ibid.
27 ibid.
28 Asia Monitor Resource Centre, op. cit., pp. 66–8.
p. 156; Bello and Rosenfeld, op. cit., p. 23.
30 ibid., p. 41.
31 Billet, B.L., ‘South Korea at the Crossroads: An Evolving Democracy or
Authoritarianism Revisited?’, Asian Survey, 30:3, 1990, p. 307.
33 Asia Monitor Resource Centre, op. cit., pp. 53–4.
p. 156.
35 McNally, op. cit., 1998, p. 11.
36 Lee and Tcha, op. cit., p. 225.
37 Koo, Hagen, ‘Middle Classes, Democratisation, and Class Formation: The
Case of South Korea’, Theory and Society, 20, 1991, p. 489.
38 ibid., p. 488.
p. 141.
40 Koo, H. op. cit., p. 150. Also see Pak, op. cit., p. 63.
42 Asia Monitor Resource Centre, op. cit., p. 43.
43 ibid., pp. 44–5.
44 Pak, op. cit., p. 50.
45 ibid., p. 63.
46 Amsden, Asia’s Next Giant: South Korea and Late Industrialization, op. cit., p. 101.
47 Koo, ‘Middle Classes, Democratisation, and Class Formation: The Case of
South Korea’, op. cit., p. 490.
48 Lee, Jeong Rock, ‘Social Transformation, Farmers’ Movements and Regional
Characteristics in South Korea: A Case Study on the Diffusion of Farmers’
Protests, 1987–1989’, Papers in Regional Science, 76:1, January 1997, p. 73.
49 Pak, op. cit., p. 64.
50 ibid.
51 Billet, op. cit., p. 301.
52 Kang, Wi Jo, Christ and Caesar in Modern Korea: A History of Christianity and
Politics, Albany: State University of New York Press, 1997, p. 124.
Notes 263
53 Lee, Su-Hoon, ‘Transitional Politics of Korea, 1987–1992: Activation of Civil

Society’, Pacific Affairs, 66:3, 1993, p. 357.
54 Ellperin, Juliet, ‘Tough Times for Unions’, Korea Business World, March
1993, p. 16.
55 ibid., p. 16.
57 Eckert, ‘The South Korean Bourgeoisie: A Class in Search of Hegemony’,
op. cit., p. 128.
58 Pak, Sejin, ‘Two Forces of Democratisation in Korea’, Journal of Contemporary
Asia, 28:1, 1998, p. 50; Woo, Jung-en, Race to the Swift: State and Finance in
Korean Industrialization, op. cit., p. 177.
p. 108.
op. cit., p. 104.
61 Kirk, Donald, Korean Dynasty: Hyundai and Chung Ju Yung, Hong Kong: Asia
2000; Armonk, New York: M.E. Sharpe, 1994, p. 277.
62 Douglass, Michael, ‘Social, Political and Spatial Dimensions of Korean
Industrial Transformation’, Journal of Contemporary Asia, 23:2, 1993, p. 166.
63 ‘A love-hate relationship’, Economic Report, April 1995, pp. 28–9.
64 Smith, Heather, ‘Korea’, in Ross H. McLeod and Ross Garnaut (eds), East
Asia in Crisis: From Being a Miracle to Needing One, London and New York:
Routledge, 1998, p. 71.
op. cit., p. 105.
66 Kim Yei-Tae, ‘Nation Exports Production Bases’, Economic Report, October,
1995, p. 12.
67 Lie, Han Unbound: The Political Economy of South Korea, op. cit., p. 156. Also
see Cho, M.R., ‘Large-Small Firm Networks: A Foundation for the New
Globalising Economy in South Korea’, Environment and Planning, 29:6, June
1997, p. 1091.
68 Jeong, Man-Soek, ‘Korea Looks Abroad’, Korea Business World, August 1988,
p. 12.
69 Smith, ‘Korea’, op. cit., p. 75.
70 Sung, Yeung Kwack, ‘The Economy of South Korea, 1980–1987’, in Lau,
op. cit., p. 219.
71 ibid., p. 218.
pp. 196–7.
73 ibid., p. 195.
op. cit., p. 107.
pp. 136–7.
p. 194.
77 Smith, ‘Korea’, op. cit., p. 72.
78 ibid., p. 71.
79 ibid., p. 67.
264 Notes
80 ibid.
81 Song, op. cit., p. 135.
op. cit., p. 108.
83 Lee, Hyung-Koo, The Korean Economy: Perspectives for the Twenty-First
Century, Albany: State University of New York Press, 1996, p. 32.
85 Rhee, Jong-Chan, The State and Industry in South Korea. The Limits of the
Authoritarian State, London and New York: Routledge, 1994, p. 238.
86 You, Jong-Il, ‘The Korean Model of Development and Its Environmental
Implications’, in V. Bhaskar and Andrew Glyn (eds), The North, the South
and the Environment: Ecological Constraints and the Global Economy, Tokyo;
New York and Paris: United Nations University Press; London: Earthscan,
1995, p. 163(f).
87 Douglass, op. cit., p. 167.
88 Wedeman, Andrew, ‘Looters, Rent-Scrapers, and Dividend-Collectors:
Corruption and Growth in Zaire, South Korea, and the Philippines’,
Journal of Developing Areas, 31:4, Summer 1997, pp. 466–7.
89 Kirk, op. cit., pp. 272–3.
90 ibid., p. 275.
91 Cumings, ‘The Korean Crisis and the End of “Late” Development’,
op. cit., p. 55.
pp. 198–9.
op. cit., p. 109.
94 Kirk, op. cit., p. 273, Woo, Race to the Swift: State and Finance in Korean
Industrialization, op. cit., p. 199.
95 Rhee, The State and Industry in South Korea. The Limits of the Authoritarian
State, op. cit., p. 216. In 1993, the Constitutional Court ruled that Chun
had acted illegally in the break-up of Kukje. Korean Business Weekly,
September, 1993.
96 Wedeman, op. cit., p. 468.
97 ibid., p. 467.
op. cit., p. 102.
99 Bello and Rosenfeld, op. cit., pp. 166, 47.
101 ibid., p. 123.
102 ibid.
103 Sung, ‘The Economy of South Korea, 1980–1987’, op. cit., p. 220.
104 See for example his article on these questions: Cho, Soon, ‘Government
and Market in Economic Development’, Asian Development Review, 12:2,
1994.
105 Haggard and Moon, op. cit., p. 91, Bello and Rosenfeld, op. cit., p. 74.
op. cit., p. 109.
107 Kirk, op. cit., p. 14.
108 Choi, ‘Political Cleavages in South Korea’, op. cit., p. 47.
109 Kirk, op. cit., p. 16.
Notes 265
110 Pak, op. cit., p. 49.

112 Kirk, op. cit., p. 268.
113 For more on the anti-chaebol campaign by Chun, and later Roh, see: Lee,
Yeon-ho, ‘Political aspects of South Korean state autonomy: regulating
the chaebol’, The Pacific Review, Vol. 9, No. 2, 1996, p. 156.
p. 131.
State, op. cit., p. 238.
p. 131.
117 Kirk, op. cit., p. 270.
118 Quoted in Bello and Rosenfeld, op. cit., p. 20.
119 Chey Jong-hyon, quoted in Korean Business Weekly, June 1993, p. 24.
State, op. cit., p. 204.
122 Smith, ‘Korea’, op. cit., pp. 67–72.
123 ibid., p. 77.
124 ibid., p. 67.
125 McNally, op. cit., pp. 6–7.
127 Cumings, ‘The Korean Crisis and the End of “Late” Development’,
op. cit., p. 56.
128 National Statistical Office, R.O.K., Advance Report of Major Statistics, Seoul,
December 1999; Bank of Korea, Principle Economic Indicators, Seoul, 1999.
129 ‘Problem loans’ were those more than 3 months in arrears. OECD, OECD
Economic Surveys, 1997–1998: Korea, Paris: OECD, 1998, p. 78.
130 Korea Exchange Bank, KEB Economic Review, January/February 1998,
Seoul, 1998, p. 3.
Chapter 7 Taiwan: the Migrant State

1 Lau, Lawrence, ‘The Economy of Taiwan, 1981–1988: A Time of
Passages’, in Lawrence Lau (ed.), Models of Development: A Comparative
Study of Economic Growth in South Korea and Taiwan, second edition,
San Francisco: ICS Press, 1990, p. 187.
2 Council for Economic Planning and Development, Taiwan Statistical
Data Book, Taiwan: Executive Yuan, various years.
3 See, for example: Fei, John C.H., Growth With Equity: The Taiwan Case,
New York: Published for the World Bank by Oxford University Press,
1979.
4 Myers, Ramon, ‘The Economic Development of the Republic of China on
Taiwan, 1965–1981’, in Lau, op. cit., p. 26.
5 ibid., p. 38.
6 For examples of the neo-liberal case see Ho, Samuel P.S., Economic Develop-
ment of Taiwan, 1860–1970, New Haven and London: Yale University Press,
1978; Myers, op. cit.; Galenson, Walter (ed.), Economic Growth and Structural
266 Notes
Change in Taiwan, Ithaca: Connell University Press, 1979; Kuo, Shirley et al,
The Taiwanese Success Story: Rapid Growth with Improved Distribution in the
Republic of China, 1952–79, Boulder: Westview Press, 1981.
7 For examples of the neo-statist case see Wade, Robert, Governing the
Market: Economic Theory and the Role of Government in East Asian
Industrialisation, Princeton, N.J.: Princeton University Press, 1990;
Amsden, Alice H., ‘Taiwan’s Industrialization Policies: Two Views, Two
Types of Subsidies’, in Erik Thorbecke and Henry Wan (eds), Taiwan’s
Development Experience: Lessons on Roles of Government and Market, Boston:
Kluwer Academic Publishers, 1999.
8 Wade, Robert, ‘Industrial Policy in East Asia: Does it Lead or Follow the
Market?’, in Gary Gereffi and Donald L. Wyman (eds), Manufacturing
Miracles: Paths of Industrialisation in Latin America and East Asia,
Princeton, Princeton University Press, 1990, p. 238.
9 Wade, Governing the Market: Economic Theory and the Role of Government in
East Asian Industrialisation, op. cit., p. 78.
10 Short, R.P., ‘The Role of Public Enterprises: An International Statistical
Comparison’, in Robert H. Floyd, Clive S. Gray and R.P. Short (eds),
Public Enterprise in Mixed Economies: Some Macroeconomic Aspects,
Washington, D.C.: International Monetary Fund, 1984.
11 Myers, op. cit., pp. 43–4.
12 ibid., p. 44.
13 For example, the Fifth Four Year Plan, published in 1969, announced a
major new project – a shipyard to be built in Kaohsiung – but made no
mention of the fact that it was to be state-owned and operated. See
Council for International Economic Cooperation and Development, The
Republic of China’s Fifth Four-Year Plan for Economic Development of
Taiwan, 1969–1972, CIECD, February 1969, p. 111.
14 Wade, ‘Industrial Policy in East Asia: Does it Lead or Follow the Market?’,
op. cit., p. 38.
15 Chiu, op. cit., p. 196.
16 Li, Kwoh-ting and Wan-an Yeh, ‘Economic Planning in the Republic of
China’, in Kwoh-ting Li and Tzong-shian Yu (eds), Experiences and Lessons
of Economic Development in Taiwan, Taipei: Academica Sinica, 1982,
Li and Yeh, op. cit., pp. 108–9.
18 ibid., pp. 81–2.
19 On the importance of subsidised credit to the machine tool industry see
Fransman, Martin, ‘International Competitiveness, Technical Change
and the State: The Machine Tool Industry in Taiwan and Japan’, World
Development, 14:12, December 1986, p. 1388. On the state’s turn to pro-
motion of high technology industries in the late 1970s, see: Haggard,
Pathways from the Periphery, op. cit., pp. 141–2.
21 Gold, ‘Changing Relations Between the State and the Private Sector in
Taiwan and Mainland China’, in Hsin-huang Michael Hsiao et al (eds),
Taiwan: A Newly Industrialised State, Taipei: Department of Sociology,
National Taiwan University, 1989, p. 82.
Notes 267
23 ibid.
24 ibid., p. 80.
op. cit., p. 239.
27 Meaney, Constance Squires, ‘State Policy and the Development of
Taiwan’s Semiconductor Industry’, in Joel D. Aberbach, et al (eds), The
Role of the State in Taiwan’s Development, Armonk, New York and London:
Sharpe, 1994, pp. 188–9.
29 Thorbecke, Erik, ‘The Process of Agricultural Development in Taiwan’, in
Gustav Ranis (ed.), Taiwan. From Developing to Mature Economy, Boulder,
Colo.: Westview Press, 1992, p. 28.
30 Liang, Kuo-shu and Ching-ing Hou Liang, ‘Trade and Incentive Policies
in Taiwan’ in Li and Yu, op. cit., p. 221.
31 Lee, Teng-hui, Intersectoral Capital Flows in the Economic Development of
Taiwan, 1895–1960, Ithaca: Cornell University Press, 1971, p. 29; Bello
and Rosenfeld, op. cit., p. 186.
32 Liang and Liang, op. cit., p. 221.
33 However, the 15% limit could be raised with the government’s approval –
which usually depended on foreign exchange levels. Myers, op. cit., p. 49.
35 Gereffi, Gary, ‘Big Business and the State’, in Gereffi and Wyman, op. cit.,
p. 95.
op. cit., p. 38.
37 Brainard, Lawrence J., ‘Capital Markets in Korea and Taiwan: Emerging
Opportunities for Foreign Banks’, Journal of Asian Economics, 1:1, 1990,
p. 176.
39 Ho, Economic Development of Taiwan, op. cit., p. 189.
40 Liang and Liang, op. cit., pp. 222–3.
43 Jacoby, Neil, U.S. Aid to Taiwan, New York: Praeger, 1966, p. 52.
45 ibid., p. 109.
46 Taiwan Statistical Data Book, 1985, p. 12.
47 Ho, Economic Development of Taiwan, op. cit., pp. 250–1.
48 Amsden, ‘Taiwan’s Industrialization Policies: Two Views, Two Types of
Subsidies’, op. cit., p. 95.
49 Myers, op. cit., p. 46.
50 Ho, Samuel P.S., ‘Economics, Economic Bureaucracy, and Taiwan’s
Economic Development’, Pacific Affairs, 60:2, 1988, pp. 243–6.
268 Notes
51 Haggard, Stephan and Chien-Kuo Pang, ‘The Transition to Export-Led Growth

in Taiwan’, in Joel D. Aberbach et al (eds), The Role of the State in Taiwan’s
Development, Armonk, New York and London: Sharpe, 1994, pp. 78–9.
52 Gold, Thomas, ‘Entrepreneurs, Multinationals, and the State’, in Edwin
A. Winckler and Susan Greenhalgh (eds), Contending Approaches to the Political
Economy of Taiwan, An East Gate Book, Armonk, New York and London:
Sharpe, 1988, p. 185. Also see Schive, Chi, ‘The Next Stage of Industrialisation
in Taiwan and South Korea’, in Gereffi and Wyman, op. cit., p. 271.
53 Alam, M. Shahid, Governments and Markets in Economic Development
Strategies: Lessons from Korea, Taiwan and Japan, New York: Praeger, 1989,
pp. 66–7.
54 Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., p. 185.
55 Alam, op. cit., p. 71.
op. cit., p. 47.
58 ibid.
59 ibid., p. 35.
60 Haggard and Pang, op. cit., p. 50; Amsden, ‘Taiwan’s Industrialization
Policies: Two Views, Two Types of Subsidies’, op. cit., p. 98.
61 ibid., p. 96.
63 Haggard and Pang, op. cit., p. 81.
64 Hughes, Christopher, Taiwan and Chinese Nationalism, London:
66 Bank of Taiwan, Annual Report, Taipei, 1982, p. 8.
68 Bank of Taiwan, op. cit., p. 8. GDP growth in 1976 reached 13.9% – the
highest recorded to that point or since. Taiwan Statistical Data Book, 1985.
70 ibid., p. 98.
72 Numazaki, Ichiro, ‘Networks of Taiwanese Big Business: A Preliminary
Analysis’, Modern China, 12:4, October 1986, p. 489. For details of the
main ‘collaborator-entrepreneurs’ see Gold, Thomas, ‘Colonial Origins of
Taiwanese Capitalism’, in Winckler and Greenhalgh, op. cit., pp. 109–13.
74 Gold, ‘Colonial Origins of Taiwanese Capitalism’, op. cit., p. 104.
75 ibid., p. 103.
76 Hughes, op. cit., p. 22.
77 Ho, Economic Development of Taiwan, op. cit., pp. 80–1.
78 ibid., p. 104.
79 ibid.
80 Chiu, op. cit., p. 213.
Notes 269
81 Amsden, Alice H., ‘Taiwan’s Economic History. A Case of Etatisme and a

Challenge to Dependency Theory’, Modern China, 5:3, July 1979, p. 343.
For summaries of the colonial period see Gold, State and Society in the
Taiwan Miracle, op. cit.; Ranis, Gustav, ‘Equity with Growth in Taiwan:
How “Special” is the “Special Case”?’, World Development, 6:3, 1978; Ho,
Economic Development of Taiwan, op. cit.
82 Chiu, op. cit., p. 214. In Taiwanese, the mainland is called the Tang
Mountains – hence the half-mountain people were those considered
half-mainlanders.
83 Cheng, Tun-jen, ‘Guarding the Commanding Heights: The State as
Banker in Taiwan’, Haggard, The Politics of Finance in Developing Countries,
op. cit., p. 55.
84 Mendel, D., The Politics of Formosan Nationalism, Berkeley: University of
California Press, 1970, p. 31.
85 ibid., p. 32.
86 ibid., pp. 32–5.
87 Mendel, op. cit., pp. 35–6.
88 Halbeisen, Hermann and Peter Ferdinand, ‘Domestic Political Change’,
in Peter Ferdinand (ed.), Take-off for Taiwan?, London: Royal Institute of
International Affairs, 1996, p. 4; Haggard and Pang, op. cit., p. 53.
89 Baum, Julian, ‘Unfinished Business: KMT still Evasive over Role in 1947
Massacre’, Far Eastern Economic Review, 155:11, 19 March 1992, pp. 30–1.
90 ibid., p. 31.
91 Kau, Michael Ying-mao, ‘The Power Structure in Taiwan’s Political Economy’,
Asian Survey, 36:3, March 1996, p. 288; Haggard and Pang, op. cit., p. 54.
92 Halbeisen and Ferdinand, op. cit., p. 6.
93 Hsu, Chen-kuo, ‘Ideological Reflections and the Inception of Economic
Development in Taiwan’, in Joel D. Aberbach, et al (eds), The Role of the
State in Taiwan’s Development, Armonk, New York and London: Sharpe,
1994, p. 308.
94 Hao, Paul W., ‘The Transformation of the KMT’s Ideology’, Issues and
Studies, 32:2, February, 1996, p. 7.
95 Hsiao, Tseng, The Theory and Practice of Land Reform in the Republic of
China, 2nd edn., Taipei: China Research Institute of Land Economics,
1968, p. 39.
96 Cheng, Chen, Land Reform in Taiwan, China Publishing Company, 1961,
pp. 47–8.
97 Tang, Hui-sun, Land Reform in Free China, Taipei: Chinese-American Joint
Commission on Rural Reconstruction, 1954, p. 13. The author was then
chief of the land reform division of the Joint Commission on Rural
Reconstruction (JCRR).
98 Yager, Joseph A., Transforming Agriculture in Taiwan: The Experience of the
Joint Committee on Rural Reconstruction, Ithaca: Cornell University Press,
1988, p. 101.
99 See Shen, T.H., The Sino-American Joint Commission on Rural Reconstruction,
Ithaca: Cornell University Press, 1970. The author was a member of the JCRR
from 1948 and became its chairman in 1964.
100 For an overview of the three stages of land reform, see: Koo, Anthony Y.C.,
The Role of Land Reform in Economic Development: A Case Study of Taiwan,
New York: Praeger, 1968, pp. 31–9.
270 Notes

102 Cheng, Land Reform in Taiwan, op. cit., p. 75; Tang, op. cit., p. 17.
103 Yang, 1970, p. 232.
104 ibid., p. 240.
106 Hsiao, The Theory and Practice of Land Reform in the Republic of China,
op. cit., p. 123–4.
107 Shen, op. cit., p. 65.
op. cit., p. 124.
op. cit., p. 126.
111 Yager, op. cit., p. 118.
112 Ranis, Gustav, ‘Equity with Growth in Taiwan: How “Special” is the
“Special Case”?’ op. cit., p. 401. However, there is evidence that levels
of inequality began to rise steadily in the 1980s and 1990s. See Hung,
Rudy, ‘The Great U-Turn in Taiwan: Economic Restructuring and a
Surge in Inequality’, Journal of Contemporary Asia, 26:2, May 1996,
p. 151.
113 Shea, Jia-Dong and Ya-Hwei Yang, ‘Taiwan’s Financial System and the
Allocation of Investment Funds’, in Aberbach, op. cit., p. 201.
115 ibid., p. 28.
116 Winckler, Edwin A., ‘Roles Linking State and Society’, in Emily Martin
Ahern and Hill Gates (eds), The Anthropology of Taiwanese Society,
Stanford: Stanford University Press, 1981, pp. 60–1.
118 This is a point made by Peng Ming-min after returning to Taiwan in
1992 following two decades in exile. Wachman, Alan M., Taiwan:
National Identity and Democratization, New York: M.E. Sharpe, 1994,
p. 60.
119 Winckler, Edwin A., ‘Elite Political Struggle, 1945–1985’, in Winckler and
Greenhalgh, op. cit., p. 153.
120 Wachman, op. cit., p. 57.
123 ibid., p. 107.
124 Chang, Chi-yun, Chinese Culture as a Bulwark Against Communism, Taipei:
Institute of Chinese Culture in Cooperation with Free Pacific Association,
1959, p. 4.
125 Chun, Allen, ‘From Nationalism to Nationalizing: Cultural Imagination
and State Formation in Postwar Taiwan’, in Jonathon Unger (ed.),
Chinese Nationalism, Armonk, N.Y.: M.E. Sharpe, 1996, p. 132.
126 Leitner, Helga and Petei Kang, ‘Contested Urban Landscapes of
Nationalism: The Case of Taipei’, Ecumene, 6:2, 1999, p. 221.
Notes 271
128 Chiu, op. cit., pp. 235–6.

129 Hwang, Y. Dolly, The Rise of a New World Economic Power: Postwar
Taiwan, New York; Westport, Conn. and London: Greenwood Press,
1991, p. 126.
130 Skoggard, Ian, ‘The Structure and Spirit of Development in Rural
Taiwan’, in Steve Chan, Cal Clark and Danny Lam (eds), Beyond the
Developmental State: East Asia’s Political Economies Reconsidered, New York:
St. Martin’s Press; Houndsmills, Hampshire: Macmillan Press, 1998,
p. 132.
131 ibid., pp. 132–3.
132 Chiu, op. cit., p. 174; Hwang, op. cit., p. 126.
134 Shea and Yang, 1994, op. cit., p. 206.
135 ibid., pp. 211–12.
136 Cheng, ‘Guarding the Commanding Heights: The State as Banker in
Taiwan’, op. cit., p. 68.
137 ibid., p. 74.
138 Numazaki, op. cit., pp. 501–6; Fields, Karl J., Enterprise and the State in
Korea and Taiwan, Ithaca: Cornell University Press, 1995, p. 73.
139 Fields, op. cit., p. 64.
140 Numazaki, op. cit., p. 516.
Chapter 8 Taiwan: on the Edge of the Descent

1 Koo, ‘The State, Industrial Structure, and Labor Politics: Comparison of
Taiwan and South Korea’, op. cit., p. 563.
3 Ho, Shuet-Ying, Taiwan – After a Long Silence: The Emerging New Unions of
Taiwan, Hong Kong: Asia Monitor Resource Center, 1990, p. 5.
4 Chu, Yin-wah, ‘Democracy and Organized Labor in Taiwan’, Asian
Survey, 36:5, May, 1996, p. 499.
5 Ho, Taiwan – After a Long Silence, op. cit., p. 11.
6 Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 499; Ho,
Taiwan – After a Long Silence, op. cit., p. 13.
7 Koo, ‘The State, Industrial Structure, and Labor Politics: Comparison of
Taiwan and South Korea’, op. cit., p. 567.
8 ibid., p. 567.
9 ibid., p. 568.
13 Hu, Tai-Li, My Mother-In-Law’s Village. Rural Industrialisation and Change
in Taiwan, Taipei: Institute of Ethnology, Academia Sinica, 1984, p. 94.
14 Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 500. They
called themselves Tzu-Chu-Kung-Hui – literally, ‘self-determining union’.
15 Ho, Taiwan – After a Long Silence, op. cit., p. 1.
272 Notes
17 Chu, ‘Democracy and Organized Labor in Taiwan’, op. cit., p. 502.

18 Thorbecke, Erik, ‘The Process of Agricultural Development in Taiwan’, in
Ranis, op. cit., p. 32.
19 ibid.
20 See Williams, Jack F., ‘Taiwan: Environmental Degradation’, in E.K.Y. Chen,
Jack F. Williams and Joseph Wong (eds), Taiwan: Economy, Society and
History, Hong Kong: Center of Asian Studies, University of Hong Kong,
1991.
21 Weller, Robert P. and Hsin-Huang Michael Hsiao, ‘Culture, Gender and
Community in Taiwan’s Environmental Movement’, in Arne Kalland and
Gerard Persson (ed.), Environmental Movements in Asia, Surrey, England:
Curzon Press, 1998, p. 83.
23 Weller and Hsiao, op. cit., p. 88.
24 Ren, Hai, ‘Taiwan and the Impossibility of the Chinese’, in Melissa
J. Brown, Negotiating Ethnicities in China and Taiwan, Berkeley, Institute of
East Asian Studies, University of California, 1996, p. 83.
26 ibid., p. 139.
28 Baum, Julian, ‘Radical Radio: Pirate Broadcasters Thumb Their Nose at the
KMT’, Far Eastern Economic Review, 157:45, 10 November 1994, p. 17.
29 Gates, Hill, ‘Ethnicity and Social Class’, in Emily Martin Ahern and Hill
Gates (eds), The Anthropology of Taiwanese Society, Stanford: Stanford
University Press, 1981, pp. 254–5.
30 Lo, Ming-cheng, ‘Crafting the Collective Identity: The Origin and
Transformation of Taiwanese Nationalism’, Journal of Historical Sociology,
7:2, June 1994, p. 211.
37 ibid., p. 140.
39 ibid., pp. 140–1
41 ibid., p. 40.
42 Soong, James C.Y., ‘Political Development in the Republic of China on
Taiwan, 1985–1992: An Insider’s View, in Jason C. Hu, Quiet Revolutions on
Taiwan, Republic of China, Taipei: Kwang Hwa Publishing, 1994, p. 76. The
author was the KMT provincial governor at the time.
45 Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., p. 191.
47 Kuo, op. cit., p. 92.
48 Gold, ‘Entrepreneurs, Multinationals, and the State’, op. cit., pp. 190–1.
Notes 273
49 Kuo, op. cit., pp. 91–2.

Taiwan’, op. cit., pp. 90–1.
51 Kuo, op. cit., p. 92.
52 ibid., p. 93.
53 ibid.
54 Gold, ‘Changing Relations Between the State and the Private Sector in
Taiwan and Mainland China’, op. cit., p. 73.
56 Bullard, Monte R., The Soldier and the Citizen: The Role of the Military in
Taiwan’s Development, Armonk, N.Y.: M.E. Sharpe, 1997, p. 29.
57 Liu, Alan P.L., Phoenix and the Lame Lion: Modernisation in Taiwan and
Mainland China, 1950–1980, Stanford: Hoover Institution Press, Stanford
University, 1987, pp. 50–1.
58 ibid., pp. 48–50.
59 ibid., p. 51.
60 Haggard and Pang, op. cit., p. 63. Also see Cheng, Tun-jen, Stephan Haggard
and David Kang, ‘Institutions and growth in Korea and Taiwan: the bureau-
cracy’, Journal of Development Studies, 34:6, August 1998; Fields, op. cit.,
p. 82.
61 Haggard and Pang, op. cit., p. 62. The TPB was absorbed into the Economic
Stabilization Board (ESB) in July 1953. Its functions were, in turn, decen-
tralised into the Ministries of Economic Affairs and Communications when
it was dissolved in 1958.
62 Jacoby, op. cit., p. 61.
64 Cheng, Haggard and Kang, op. cit., p. 82.
65 Chu, Yun-han, ‘The State and the Development of the Automobile Industry
in South Korea and Taiwan’, in Arbach, op. cit., p. 129.
66 Haggard and Pang, op. cit., pp. 66–9.
67 ibid., p. 69.
68 Wang, Jiann-Chyuan, ‘The Industrial Policy of Taiwan, ROC’, in Seiichi
Masuyama et al (eds), Industrial Policies in East Asia, Tokyo: Nomura
Research Institute, Institute of South East Asian Studies, 1997, pp. 76–7.
69 For an example of this, see Hsu, Chen-Min, ‘Debt Financing, Public
Investment, and Economic Growth in Taiwan’, in Takatoshi Ito and Anne
O. Krueger (eds), Growth Theories in Light of the East Asian Experience,
National Bureau of Economic Research – East Asia Seminar on Economics
Series, Vol. 4, Chicago and London: University of Chicago Press, 1995.
Taiwan’, op. cit., p. 89. Bank deregulation brought in 16 newly-licensed
private banks by June 1993. Chu, J.J., ‘Taiwan: A New Regional Centre in
the Making’, in Ky Cao (ed.), The Emerging Capital Markets of East Asia,
Studies in the Growth Economies of Asia, Vol. 1, London and New York:
71 ‘If you want to copy Taiwan’s economic model, remember to add a bit of
luck’, Economist, 7 Nov 1998.
72 Wang, ‘The Industrial Policy of Taiwan, ROC’, op. cit., p. 73.
73 Kau, op. cit., p. 302.
274 Notes
74 Hao, op. cit., p. 14.

75 Kau, op. cit., p. 294.
76 Wang, ‘The Industrial Policy of Taiwan, ROC’, op. cit., p. 71.
78 Kuo, op. cit., p. 90.
79 Hughes, op. cit., pp. 109–10. Also see Chen, Tain-Jy, Yi-Ping Chen and Ying-
Hua Ku, ‘Taiwan’s Outward Direct Investment: Has the Domestic Industry
Been Hollowed Out?’, in Nomura Research Institute; Institute of Southeast
Asian Studies (compilers), The New Wave of Foreign Direct Investment in Asia,
Tokyo; New York and London; Nomura Research Institute; Singapore:
Institute of Southeast Asian Studies, 1995, p. 89.
80 Clough, Ralph N., ‘The PRC, Taiwan, and the Overseas Chinese’, in Young
C. Kim (ed.), The Southeast Asian Miracle, New Brunswick, N.J. and London:
Transaction, 1995, p. 235.
81 ‘Formosa Plastics Plans Big Investment in China’, Chemical Week, 163:14,
4 April 2001, p. 21. On the attempts by the Taiwanese government to
restrict Taiwanese FDI in China see: Deng, Ping, ‘Taiwan’s Restriction of
Investment in China in the 1990s’, Asian Survey, 40:6, November 2000.
82 ‘Chasing The Dream To Shanghai’, Business Week, 27 November 2000,
p. 140.
83 Wade, Robert and Frank Veneroso, ‘The Asian Crisis: The High Debt Model
Versus the Wall Street-Treasury-IMF Complex’, New Left Review, 228,
March/April 1998, op. cit., p. 11 (ftn).
84 See for an example of this view – ‘The Tiger that Remains Unbowed’, Asian
Review of Business and Technology, April 1998, p. 6.
85 ‘The Dream Postponed: Taiwan’, The Economist, 7 August 1993, pp. 36–7.
86 McBeath, Gerald A., ‘Taiwan Privatizes by Fits and Starts’, Asian Survey,
37:12, December 1997, pp. 6–8.
luck’, op. cit.
88 ibid.
89 ‘Taiwan’s Siew: “We’ve Intensified Our Reforms”’, Business Week, 28 December
1998, p. 32.
luck’, op. cit.
91 ‘No domino’, The Economist, 20 March 1999, p. 76.
92 Rohwer, Jim, ‘Why Taiwan May be Next to Fall’, Fortune, 39:3, 15 February
1999, p. 98.
93 ibid.
94 ibid.
95 Taiwan’s financial system – too many debts to settle’, The Economist,
11 November 2000, p. 97.
96 ibid.
97 On the inconsistencies and difficulties in carrying out the program see:
Huang, Tien-mu Thomas, ‘Privatizing Public Enterprises in Taiwan’s
Government-Owned Banks’, International Journal of Public Administration,
23:10, October 2000.
Notes 275
Chapter 9 The Rise and Fall of the Midas States

1 United Nations Development Program, Human Development Report,
New York: Oxford University Press, 1999, p. 3.
2 Jones, Leroy P., ‘Big Business Groups in South Korea: Causation, Growth
and Policies’, in Lee-Jay Cho and Yoon-Hyung Kim (eds), Korea’s Political
Economy: An Institutional Perspective, Boulder and Oxford: Westview Press,
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3 Marx, Karl, The Eighteenth Brumaire of Louis Bonaparte, op. cit., p. 121.
4 For examples of references to several of these states as Bonapartist, see:
La Botz, The Crisis of Mexican Labor, op. cit., p. 1; Koo, ‘Middle Classes,
Democratisation, and Class Formation: The Case of South Korea’, op. cit.,
p. 502.
5 The ‘dissipating alchemy’ of the Korean state is a phrase used by
Woo Jung-en. See: Woo, Race to the Swift: State and Finance in Korean
Industrialization, op. cit., p. 202.
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Index
2–28 incident, 198, 201, 205, 211, 233 Campa, Valentín, 80

campesinos, 98, 116
agrarista, agrarismo, 72, 99, 108 Cananea copper, 63, 114
agriculture, 3, 10, 17, 18, 25, 41, 43, capital, passim
77, 89, 97, 184, 186, 187, 195, Cárdenas, Lázaro, 60, 69, 70, 71, 72,
202, 203, 215 73, 74, 75, 76, 77, 86, 92, 95, 98,
Alemán, Miguel, 60, 75, 79, 80, 81 100, 101, 109, 113, 114, 234, 242
alemanismo, 76 Cárdenas, Cuauhtémoc, 95
Alexander II, 21, 40 cardenismo, 75, 95, 114
Allende, Salvador, 61 Carey, Henry C., 6
Alliance for Production, 101 Carranza, Venustiano, 64, 65, 66, 235
Altos Hornos de México, 57 Carter, Jimmy, 124
Anaconda, 62 Casa del Obrero Mundial (COM), 64,
apertura democrática, 98, 99 65, 79, 86
Asia Motors, 133 Castro, Fidel, 93
Autumn Harvest Risings, 137 Catholic Church, 64, see also Young
Azcarraga, Emilio, 115 Christian Workers
caudillos, 73, 83
Bank of England, 10 Central Bank of China, 223, 224
Bank of France, 12 Central Campesina Independiente (CCI),
Bank of Korea, 120, 127 77, 93
Bank of Mexico, 57, 107, 110 Ch’oe Chong-gil, 147
Bank of Taiwan, 192, 201 chaebol, 121–80, 210, 228, 236, 241, 242
BES Engineering, 183 Chang Myon, 142
Bismarck, Otto von, 22, 23, 34, 35, charrazo, 80, 81, 90
36, 40, 47, 233, 235 charros, 82, 91, 92, 97
Bonaparte, Louis, 11, 12, 31, 32, 33, Chen Cheng, 199, 201, 224
34, 35, 37, 38, 39, 40, 46, 47, 64, Chen Shui-bian, 220, 230
67, 76, 86, 233, 234, 235 Chen Yi, 197, 198
Bonapartism, 12, 33, 34, 35, 36, 38, Chiang Ching-kuo, 199, 218, 219,
39,87, 101, 109, 235, 237, 238 220, 221, 242
Border Industrialisation Program, Chiang Kai-shek, 47, 197, 199, 207,
see maquiladoras 218, 222, 233
Bourbon, House of, 32, 33, 37, 234 China Federation of Labor (CFL), 213
bourgeoisie, passim China Man-Made Fibre Corporation,
185
caciques, 108 China Petroleum, 183, 191
Caliban, 30 Cho Soon, 174
Calles, Plutarco Elías, 68, 69, 70, 72, 73 Chokunin, 135
Camacho, Avila, 61, 75, 111 Chonggye Garment Workers’ Union
Cámara Nacional de la Industria de (CGWU), 152, 160
Transformación (CANACINTRA), chonin, 19
76, 111 Choson Communist Party, 137
303
304 Index
Choson Ilbo, 147 Confederación Única de Trabajadores

chu liu, 220 (CUT), 80, 81
Chun Doo-hwan, 137, 138, 146, 148, Confucianism, 2, 3, 200
151, 152, 155, 156, 157, 161, 162, Consejo Coordinadora Empresaria
163, 164, 165, 166, 167, 169, 172, (CCE), 100, 111, 115
173, 174, 176, 177, 178, 242 Consejo Mexicano de Hombres de
Chun Kyung-hwan, 148, 172 Negocios (CMHN), 115
Chun Pyung, 137, 138, 146 Constitutionalists, 64, 65, 67
Chun Tae-il, 151, 152 Continental system, 13
Chung Ju-yung, 167, 170, 173, 175, 178 Control Yuan (CY), 220
Chung-li incident, 218 Conventionists, 64
CIA, 61 Coordinadora Nacional del Movimiento
claúsula de exclusión, 79 Urbano Popular (CONAMUP), 94
clientalism, 45 Coordinadora Nacional Plan de Ayala
Coalición Obrera Campesina Estudiantil (CNPA), 93
del Istmo (COSEI), 94 Coordinadora Unica de Damnificados
Cobden–Chevalier Treaty, 12 (CUD), 95
see also 1860 trade treaty, 40 Coordinadoras, 93
Cold War, 5, 79, 126, 136, 183, 193 Cordera, Rolando, 106
collaborator-entrepreneurs, 196, 208 Corriente Democrática (CD), 95
Committee for the Preparation of corruption, 82, 95, 115, 125, 145,
Korean Independence (CPKI), 136 148, 172, 173, 220, 222
Compañía Nacional de Subsistencias Council for Economic Planning and
Populares (CONASUPO), 97 Development (CEPD), 225
comprador, 22, 27, 45, 136, 232 Council on International Economic
Confederación Campesina Mexicana Co-operation and Development
(CCM), 72 (CIECD), 223, 224
Confederación de Cámeras de Industria Council on US Aid (CUSA), 223
(CONCAMIN), 111 Crédit Mobilier, 11, 12, 13, 14, 40
Confederación de Cámeras Nacionales de Crimean War, 16
Comercio (CONCANACO), 111 cristeros, 68
Confederación de Trabajadores de
México (CTM), 70–105 Daewoo, 119, 133, 157, 158, 159,
Confederación General de Trabajadores 167, 179
(CGT), 67, 69, 73 Daewoo Apparel, 161
Confederación Nacional Campesina daimyo, 19
(CNC), 72, 73, 74, 77, 78, 84, 86, de la Huerta, Adolfo, 66, 67
87, 93, 99, 108, 111 de la Madrid, Miguel, 107, 108, 109,
Confederación Nacional de 110, 112, 113, 114, 116
Organizaciones Populares (CNOP), Declaration of Taiwanese Self-
73, 84, 109 Salvation, 217
Confederación Patronal de la República delegado de planta, 82
Mexicana (COPARMEX), 111 delinking, 48
Confederación Regional Obrera Mexicana Democracy Foundation, 221
(CROM), 65, 66, 67, 68, 69, 73, 79 Democratic Justice Party (DJP), 156,
CROM depurada, 69 171, 175
cromistas, 68 Democratic Kampuchea, 48
Confederación Sindical Unitaria de Democratic Progressive Party (DPP),
México (CSUM), 69 219, 220, 221, 240, 243
Index 305
Democratic Republican Party (DRP), 145 foreign aid, 126, 189, 203
dependency, 4, 5, 8, 60, 115, 181, 195 Foreign Capital Inducement Law, 127
dependista, 4, 5, 6, 22, 48 Foreign Direct Investment (FDI), 17,
destape, 84 20, 60, 76, 127, 128, 168, 187,
developmentalist state, passim 192, 227
Díaz de León, Jesús, 80 Foreign Investment Deliberation
Díaz Ordaz, Gustavo, 47, 94, 97 Committee, 168
Díaz, Porfirio, see porfiriato foreign trade, 11, 181
Díaz Serrano, Jorge, 103, 104 Formosa Plastics, 185, 227
Diesel Nacional (DINA), 90, 112 Fox, Vicente, 116
dirigiste, 51, 76, 85, 107, 122, 133, Free Export Zones (FEZs), 128
182, 225, 242 free trade, 12, 16, 114, 161, 226
Disraeli, Benjamin, 29 Frente Auténtico del Trabajo (FAT), 91
Dong-il Textile Company, 152 Frente Democrático Nacional (FDN), 95
Draper, Hal, 28, 30
gardes mobiles, 32
Echeverría Alvarez, Luis, 96, 97, 98, Garza Sada, Eugenio, 100
99, 100, 101, 102, 105, 108, 110, GATT, 114
111, 116, 234, 241, 242 General Motors, 62, 90, 167
echeverrismo, 100, 111 General Trading Companies (GTCs),
Economic Planning and Development 129, 133
Council (EPDC), 223 gentry farmers, 10
Economic Planning Board (EPB), 120, Gerschenkron, Alexander, 9, 10, 12,
122, 124, 128, 147, 171, 174, 224 13, 16, 21, 25, 39, 50, 54, 232
Ejército Zapatista de Liberación Nacional gold standard, 10, 17
(EZLN), 115 Goldstar (Lucky Goldstar- L.G.), 119,
ejiditarios, see ejido 175
ejido, 63, 71, 72, 74, 76, 77, 89, 93, Gómez Morín, Manuel, 111
97, 113 Government Audit Report on Illicit
enclosure, 10 Wealth, 125
Engels, Friedrich, 28, 29, 30, 31, 35, Grace Semiconductor Manufacturing
36, 37, 38, 39 Corporation (GSMC), 227
equipo, 83 granaderos, 93
Evergreen Foundation, 221 Grand Coalition, 164, 165
Executive Yuan (EY), 200, 223 Guan Zhong, 221
guanxiqiye, 210, 222
Federación Sindical de Trabajadores del
Distrito Federal (FSTDF), 68 hacendados, haciendas, 63
Federation of Korean Industry (FKI), Hakka, 204, 205, 216
171, 172, 175, 178, 179 half-mountain people, 197, 205
Federation of Korean Trade Unions Hapsburg Austria, 38
(FKTU), 146, 152, 154, 157, 158, Haraldson, Wesley, 190
159 Heavy and Chemical Industry Plan
fei chu liu, 220 (HCIP), 123, 124, 125, 156, 168
feudalism, 19, 23, 28, 34, 42, 134 Heavy and Chemical Industry
Financial and Economic Committee Promotion Committee, 124
(FEC), 223 Hei Ming-dai, 216
financial revolution, 10 Hernández Galicia, Joaquin (La Quina),
Ford, 62, 90, 112, 114 78, 82
306 Index
Hodge, John Reed, 138 Kissinger, Henry, 193

Hong Yoon-ok, 138 Korea Broadcasting Corporation, 132
Hsin ch’aoliu hsi, 219 Korea Democratic Party (KDP), 136
Hsu Hsin-liang, 218 Korea Development Institute (KDI),
Hualong Conglomerate, 221 128
Huerta, Victoriano, 64, 67 Korea Electric Power Corporation, 131
Hyundai, 119, 147, 158, 159, 167, Korea Highway Corporation, 131
170, 173, 175, 178, 179 Korea Machinery, 132
Hyundai Heavy Industries (HHI), 131, Korea Reconstruction Bank, 127
158 Korea Tourism Corporation, 132
Hyundai Merchant Marine Company, Korean Air, 132
131 Korean Central Intelligence Agency
(KCIA), 146, 147, 155
Ilhae Foundation, 172, 173 Korean Confederation of Trade
International Monetary Fund (IMF), Unions (KCTU), 155
6, 88, 101, 102, 103, 105, 106, Korean Stock Exchange (KSE), 168
112, 114, 180 Kukje-ICC, 133
Import Substitution Industrialisation Kukmin Hoei, 162
(ISI), 76, 90, 119, 128, 187, 188, Kung tang, 219
189, 190, 195 Kuomintang (KMT), 197–232, 240,
Inchon Free Workers Association, 159 242
industrial revolution, 3, 10, 13, 22 Kuro Industrial Park, 157
infrastructural power, 43 kusadae, 147, 157
Institute for National Policy Research, Kwangju uprising, 156, 163, 178, 239,
221 242
institutionalism, 43 Kwon In-sook, 160
Instituto de Seguridad y Servicios Sociales
de los Trabajadores del Estado labour, passim
(ISSSTE), 97 labour movement, passim
Instituto Mexicano de Seguridad Social laissez-faire, 11, 15, 122, 224
(IMSS), 97 land reform, 43, 45, 72, 75, 97, 138,
Ito Hirobumi, 19, 23, 27, 47, 233 139, 140, 141, 200, 201, 202, 203,
209, 214, 215, 223, 233, 234, 235,
JOC, see Young Christian Workers 236
John Deere, 62 landowners, 10, 26, 33, 35, 37, 40, 41,
Joint Commission on Rural 45, 63, 66, 72, 77, 134, 136, 137,
Reconstruction (JCRR), 201, 223 139, 140, 143, 144, 201, 202, 232,
July Monarchy, 32 234
June Days, 33, 235 Laokung tang, 219
Junkers, 35, 36, 40 latifundios, latifundistas, 63, 99, 100
junta de conciliación, 66, 70 Law Guaranteeing Foreign Loans, 122
Law Guaranteeing Repayment for
Kagoshima, bombardment of, 18 Loans, 127
Kaiser, 23 Law of New and Necessary Industries,
Kaohsiung Incident, 218 58
Kim Dae-jung, 156, 163, 164, 176 Lee So-sun, 152
Kim Ku, 137, 138 Lee Teng-hui, 219, 220, 221, 226
Kim Young-sam, 155, 163, 164, 165, Legislative Yuan (LY), 200, 213, 221,
167, 168, 171, 172, 175, 176, 242 224, 226
Index 307
Li, K.T., 209, 220, 224 Movimiento Revolucionario del

Lin Tingshen, 208 Magisterio (MRM), 81
List, Friedrich, 6 Muñoz Ledo, Porfirio, 95
Lombardo, Vicente, 69, 70, 71, 79, 80
López Mateos, Adolfo, 62, 109 Nacional Financiera (NAFIN), 57, 58,
López Portillo, José, 99, 101, 102, 103, 62, 76
104, 105, 106, 107, 108, 110, 111, NAFTA, 114, 115
116, 241 Napoleon III, see Bonaparte, Louis
los cinco lobitos, 68 Napoleonic Wars, 13, 21
Louis Philippe, 32 National Alliance of Students, 161
lumpenproletariat, 33 National Bank of Ejidal Credit, 72
Lyuh Woon-hyung, 137 National Movement for a
Democratic Constitution, 163
Madero, Franscisco I., 63, 64 National Society for the Rapid
Mandarin (guoyu) Promotion Realization of Korean
Committee, 206 Independence, 137
manufacturing, passim nationalism, 51, 52, 60, 61, 114, 143,
maquiladoras, 60, 97 206
Marx, Marxism, 28–40, 46, 53, 54, 67, neo-liberalism, 5, 6, 7, 8, 25, 27, 49,
153, 155, 233, 234, 235, 237, 238 95, 110, 112, 114, 115, 123, 191,
Maximato, 69 231, 241, 242
Measures for the Handling of Labor neo-statism, 4, 5, 7, 8, 25, 50, 54, 182,
Disputes during the Period of 232
National Mobilization and New Democratic Party (NDP), 153,
Suppression of Rebellion, 213 155, 162, 176
Meiji, 19, 20, 21, 22, 24, 26, 27, 35, New Environment Foundation, 215
41, 42, 195, 238 Newly Industrialising Countries
Mei-li Tao, 218 (NICs), 1–9, 25, 42, 43, 44, 46,
Meilitao hsi, 219 47, 50, 51, 54, 84, 96, 118, 128,
Mexicanisation, 61, 76, 113 180, 181, 182, 193, 203, 212,
Midas, 1, 2, 8, 48, 49, 50, 51, 52, 53, 213, 225, 231, 232, 236, 237,
54, 55, 150, 228, 230, 231, 232, 238, 243
233, 234, 235, 238, 239, 240, 241, Nicholas II, 21, 27, 47
243 nightwatchman state, 14, 21
middle class, passim No Chong, 138, 146
minifundistas, 93 Non-bank financial institutions
Minister of Economic Affairs (MOEA), (NBFIs), 169, 180
223 norteños, 76
Ministry of Trade and Industry, 129, 133
minjung, 153, 154, 161 Obregón, Alvaro, 64, 65, 66, 67, 68,
Min-min-Hyup, 162 83, 86, 235
Minnan hua, 204 Office of National Tax Administration
Minnan jen, 204 (ONTA), 133
minsheng zhuyi, 200 oil, 5, 50, 57, 58, 60, 68, 70, 71, 75,
Mintong’ryun, 162 78, 79, 89, 92, 102, 103, 104, 105,
modernisation, 4, 5, 6, 8, 23, 35, 171 108, 110, 114, 119, 120, 130, 131,
Mong Hun, 175 181, 184, 193, 194, 223, 243
Monterrey Group, 76, 100, 102 Olympic Games, 56, 150, 181
Morones, Luís, 65, 67, 68, 69, 79 Opium Wars, 19
308 Index
Organisation for Economic political state elite, 52, 53, 55, 176
Cooperation and Development políticos, 108, 109, 110
(OECD), 118, 171, 180, 231 Porfiriato, 63, 66
Orléans, House of, 32, 33, 37, 40, 234 Portes Gil, Emilio, 68, 69
Ortega Arenas, Juan, 91, 97 proletariat, 11, 77, 234
Ortiz Rubio, Pascual, 68 Prospero, 30
Ottomans, 21 Provisional Special Customs Duties
Law, 123
Pan-American Sulphur Company pueblos libres, 63
(PASCO), 62
Park Chung-hee, 47, 120–80, 233, Qing dynasty, 195, 205
236, 239, 242
Park Jong-Chul, 162 railways, 12, 13, 15, 16, 17, 67, 196
Partido Acción Nacional (PAN), 111, Reagan, Ronald, 6
112, 113, 114, 115, 116 Red Battalions, 65, 66
Partido Comunista Mexicano (PCM), 99 Restoration Monarchy, 31, 41
Partido de la Revolución Democrática Reutern, M.K., 17
(PRD), 113, 114 Rha Woong-bae, 174
Partido de la Revolución Mexicana Rhee, Syngman, 120, 125, 126, 127,
(PRM), 73 132, 137, 138, 139, 140, 141, 142,
Partido Laborista (PL), 66, 67 143, 144, 145, 146, 148, 160
Partido Nacional Agrarista (PNA), 66 Río Blanco strike, 63
Partido Nacional Revolutionario (PNR), Rodríguez, Abelardo L., 69
73 Roh, Tae-woo, 156–78, 242
Partido Popular (PP), 79 Romanovs, 35, 38, 40
Partido Revolucionario Institucional Rothschilds, 11
(PRI), 57, 59, 60, 61, 74–117,
233–9, 242 saemaul undong, 147, 148, 172, 232
Partido Socialista Unificado de Mexico Saenara Motors, 132
(PSUM), 106 Saesedae Foundation, 172
Peace and Democracy Party (PDP), Saigo Takamori, 19
164 Salinas de Gotari, Carlos, 108, 110,
Peace Market, 151, 152 112, 113, 114, 115
Peng Ming-min, 217 Samho, 125, 133
People’s Committees, 136, 137 Samsung, 119, 125, 129, 167, 179
People’s Republic, 136, 137, 211 samurai, 19, 41, 42
Péreire, Emile and Isaac, 11 Sánchez Mejorada, Pedro, 102
Perry, Matthew, 18 Sandinistas, 61
petrodollars, 98 Satsuma rebellion, 19, 42
Petróleos Mexicanos (PEMEX), 57, 71, segyehwa, 168
78, 103, 104 serfdom, 16, 18
petroleros, 80, 82 sexenio, 83, 84, 97, 98, 101, 102, 103,
Petroleum Workers Union, 214 109, 112, 113
Plan for Economic Rehabilitation, Shimonoseki, bombardment of, 18
184 Shimonoseki, Treaty of, 195
Planning Council, 124, 223 Shinnin, 135
pluralist, 27, 28 Shisan Taibao, 221
Pohang Iron and Steel Corporation Shogun, Shogunate, 18, 19, 41
(POSCO), 132, 228 Silva Herzog, Jesús, 104
Index 309
Sindicato de Trabajadores Ferrocarrileros Tello Macías, Carlos, 106, 110

de la República Mexicana (STFRM), Ten Major Development Projects
80, 81, 90 (Taiwan), 191, 194
Sindicato de Trabajadores Petroleros de Tendencia Democrática (TD), 90, 91,
la Républica Mexicana (STPRM), 92, 97
71, 78, 79, 80 tercermundista, 96
Sindicato Nacional de Trabajadores de la textiles, 13, 26, 63, 124, 151, 156,
Educación (SNTE), 81 167, 184, 185, 186, 188, 195, 224,
Sindicato Nacional de Trabajadores 227
Mineros, Metalurgicos y Similares de Thatcher, Margaret, 6
la República Mexicana The Intellectual, 217
(SNTMMSRM), 80, 81, 91 The Presidential Emergency Decree of
Sindicato Unico de Trabajadores 1972 (Korea), 123
Electricistas de la República Third World, 1, 4, 5, 6, 24, 25, 27, 44,
Mexicana (SUTERM), 90 45, 46, 47, 56, 84, 85, 86, 88,
Sino-American Joint Commission on 142, 231, 237
Rural Reconstruction, 201 Third Worldism, 4
Society of 10 December, 33 Three People’s Principles, 200
Sonnin, 135 Tlatelolco massacre, 94, 96, 239, 242
Special Act for National Security, 146 Tokugawa period, 19, 41, 134
Steel Club, 221 Tonga Ilbo, 147
stock exchange, 10 Tories, 29, 37
strikes, 26, 65, 67, 70, 71, 81, 90, 91, Trade Union Congress, Korea, 164
92, 99, 100, 102, 112, 114, 116, Tsars, 16, 18, 22, 23, 26, 27, 41
152, 157, 159, 164, 165, 213, 214, Tzuli paohsi, 216
227, 239
Suchul ipguk, 128 Unidad Obrera Independiente (UOI), 91,
Sun Yat-sen, 200, 201, 207 97
Superbarrio Gómez, 95 Unification National Party (UNP),
Supreme Council for National 175
Reconstruction, 144 United People’s Party (UPP), 175
Universidad Nacional Autónoma de
Taihan Transportation, 132 México (UNAM), 84, 93, 94, 109
Taiwan Environmental Protection University Autonomy Measure, 161
Union, 215 Urban Industrial Mission (UIM), 154,
Taiwan Greenpeace, 215 160
Taiwan Power, 183 US Army Military Government in
Taiwan Production Board (TPB), 223 Korea (USAMGIK), 137, 138
Tang Chuanzong, 208
Tang Eng Ironworks, 208 Vallejo, Demetrio, 90
tang-wai, 218, 219 Vargas Llosa, Mario, 74
tariffs, 6, 15, 16, 17, 23, 40, 49, 58, Velázquez, Fidel, 68, 69, 71, 74, 79,
59, 122, 123, 128, 168, 182, 185, 80, 82, 92, 97, 105
187, 188, 221, 226, 242 Vietnam War, 129
Tatung Group, 208 Villa, Franscisco, 64, 71
taxes, 18, 26, 30, 103, 172, 175, 186, villistas, 64
202, 208 Voice of Taiwan, 217
techno-bureaucratic elite, 52, 53, 55 Volcker, Paul, 104
técnicos, 109, 110, 114 Vyshnegradskii, I.A., 17, 18
310 Index
Wang, Y.C., 185 Yang Chung Mo, 172

Washin, 125 yangban, 134, 135, 136
Whigs, 37 YH Trading Company, 153, 155, 176
Witte, Sergei, 17, 18, 23, 27 Yi dynasty, 134
workers’ movement, 26, 53, 65, 153, Yin, K.Y., 190, 220, 224
161, 162, 163 Young Christian Workers (JOC), 154,
working class, passim 160
World Bank, 6, 7, 113, 118, 124, 132 Yun-men, 216
World Health Organisation (WHO), Yushin Constitution, 124, 146, 156
57
Wounpoong Industrial Company, zaibatsu, 20, 196
157 Zapata, Emiliano, 64, 65, 71, 93
zapatistas, 64
xiang tu, 216 Zedillo Ponce de León, Ernesto, 110,
Xin Chaoliu, 219 112, 115

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The Politics of

General Editor: Timothy M. Shaw, Professor of Commonwealth Governance

International Political Economy Series

Customer Services Department, Macmillan Distribution Ltd, Houndmills, Basingstoke,

Lists of Acronyms viii

Preface and Acknowledgements xii

Chapter 1 Newly Industrialising Countries and the State 1

EPRs Effective Protection Rates

CANACINTRA Cámara Nacional de la Industria de Transformación

COSEI Coalición Obrera Campesina Estudiantil del Istmo

SUTERM Sindicato Unico de Trabajadores Electricistas de la

CGWU Chonggye Garment Workers’ Union

CEPD Council for Economic Planning and Development

CIECD Council on International Economic Co-operation and

The dramatic industrial transformation of a small number of countries

these societies contributed to an unusually rapid form of industrialisa-

King Midas had the power to turn everything he touched to gold.

the ﬁrst place. As industrialisation proceeded, their freedom of

The notion of ‘development’

The term ‘development’ is fraught with difﬁculty. It seems to imply

Modernisation and dependency

Central to the modernisation framework is the notion of stages of

an historical process by which capitalist countries incorporated other

Neo-liberalism and neo-statism

By the 1980s, it seemed that the dependency and modernisation per-

If government is to deserve any credit, it only does so because its

promote rapid industrialisation. The strongest empirical examples sup-

differing class conﬁgurations, and an awareness of the dynamics of

substitutes had to be found for them. The more ‘backward’ the

The state played an important facilitative role in England’s industrial

not a conscious attempt to stimulate industrialisation – it began several

Whereas in Britain the controllers of the industrialisation process

In the case of German industrialisation, there is indeed a dramatic

The long-term credit provided by these banks to industry made them

no state investment. In some areas they made day-to-day decisions

Russia’s economic spurt in the 1890s – four to ﬁve decades after

Russia’s rulers in the Crimean War of 1853–56. Humiliating defeat at

where tariff revenue had amounted to 12.8% of the total value of

revenue had to be taxation of the mass of the population – mostly

Military pressure was also central to the Japanese industrialisation

they formed the great zaibatsu (money-cliques), including the four

problems of technological backwardness and lack of incentive. In all,

populations and heroic military traditions alone would no longer

But while late development in the nineteenth century was not

peasants and, ultimately by workers and peasants in the great revolt of

Resistance to state intervention

Beginning with Gerschenkron, and continuing with neo-statist theo-

middle class investors in industry or depositors in large banks. State

seeking activity or comprador-like connections, and invest in industries

State autonomy in theory

Nearly all theoretical frameworks which attempt an analysis of state

ditions, no single one of them is able to control it completely. The

State autonomy in theory: Marx

The insistence by Marxists that the state in capitalist society is a capi-

ship of land and rights to labour were mutually reinforcing. But in

This change in leadership amounts to a complete, and perhaps to

Secondly, and linked to the preceding point, capital needs a degree of

limiting the working-day by state regulations, made by a state that is