Profits of doom: Transaction costs, rent-seeking, and development in South Korea and the Philippines

Why did South Korea, with a "strong" and "autonomous" state, pursue rational economic policy? Why did South Korea not become corrupt and predatory, like the Philippines? The record of developing states which intervene into their economies has generally been one of failure, with rent-seeking (unproductive redistribution of economic resources) tending to smother the gains from production. In this regard, the East Asian NICs (Newly Industrializing Countries) are surprising outliers--states which intervened in their economies with spectacular results. The conventional wisdom argues that such states were successful because they were "strong" and able to resist excessive societal demands. However, why would the state maximize collective welfare? Why wouldn't the state maximize its own, private, gain?;I juxtapose South Korea and the Philippines as examples of states which successfully and unsuccessfully intervened into their economies. I argue that a "credible commitment" by the South Korean state not to expropriate domestic capital was the central difference between it and the Philippines. I also emphasize that external security concerns are an important and overlooked factor in economic development, and provided the incentive for the South Korean state to pursue productive rather than predatory policies. This incentive also involved a strategy of creating domestic centers of power which would be costly to overturn. By focusing on the constraints and incentives that the states faced, and linking such constraints to economic policy, I provide a theoretical reason for why state intervention was pareto-improving in South Korea but not the Philippines.;This dissertation examines South Korea and the Philippines during the 1960s and 1970s. Both South Korea and the Philippines present interesting paradoxes for development theorists. State-building in South Korea occurred under conditions of a severe external threat. The direct result of a potential US withdrawal affected both the military's position within the state and its development priorities. Under Park, the abortive "Heavy and Chemical Industrialization Plan" of 1972 came as a direct result of the Nixon doctrine which reduced both actual US military deployments in Korea and also gradually ended military and economic aid to South Korea.;In contrast, the Philippines is a paradigmatic example of the rent-seeking state. In the Philippines, Ferdinand Marcos faced no external threat. Although he continually emphasized the communist threat, I will show that this was more imagined than real. Thus Marcos was free to predate upon society up to and past the point of rebellion. By using the state as a source of patronage and clientelism, Marcos undermined the domestic sources of capital accumulation and instead created a system whereby successful investment was soon nationalized or expropriated.