Steel Industry—Korea
The steel industry has been the backbone of economic development in much of the world. Both North and South Korea, since their independence in 1945 from Japan, have pursued an economic development strategy centered on heavy industrialization, including steel. There are two distinct steelmaking technologies: the larger, more expensive, integrated blast furnace–based units that use iron ore and coal and the smaller electric furnaces that melt and purify scrap to extract steel. Both technologies are found in both countries.
North Korea adopted a self-reliant (juche) socialist approach with central planning and a high rate of investment. The Five Year Plan of 1957–1961 radically altered the structure of the economy in favor of heavy industry. Endowed with iron ore and coal, North Korea adopted blast furnace technologies (such as the Bessemer and Open Hearth); provided by China and the Soviet Union, these were small-scale and already obsolete. North Korea's steel production was estimated to be under 7 million tons in 1995, approximately 300 kilograms per capita.
Devoid of raw materials and an industrial foundation, capitalist South Korea pursued a more open, albeit selective economic development strategy. It first pushed light industry exports, such as textiles, garments, and footwear and then pursued a strategy of heavy industrialization beginning in 1973. The government established the Pohang Iron and Steel Company (POSCO) in 1968, constructing two world-class integrated plants at Pohang (1970–1983) and Kwangyang (1982–1992). The former received Japanese technological and financial assistance, while the latter relied principally on European technologies. By the late 1990s, POSCO had become the world's largest steel company, displacing long-established Nippon Steel of Japan. Privately-owned electric furnaces contributed roughly 40 percent of South Korea's total output of 41 million tons in 1999.
While both Korean governments violated free market principles in fostering their respective industry, South Korean steel became internationally competitive. It imported inexpensive, high quality raw materials and modern technologies. Low wages, sound industrial training, and government subsidies contributed to competitiveness and a per capita output of nearly 912 kilograms by 2000. Exports defrayed import costs and created the basis for technological learning in a virtuous cycle. North Korea, however, with its isolationist policy, was already stagnating in the late 1970s. It failed to take advantage of expanding global markets and modern technologies. The collapse of the Soviet Union, its ally and coal source, cut off supplies of vital raw materials.
The South Korean economy and its steel industry expanded without interruption, except during the 1970s oil crisis. Along with POSCO, private firms such as Hanbo Steel invested heavily in new technologies. However, the cozy relationship between chaebol (highly diversified, family-owned conglomerates) and government in South Korea had created a vast network of indebtedness. The Asian financial crisis of 1997 pushed many chaebols, including Hanbo, into bankruptcy. As globalization pushes national firms to become more competitive, many South Korean firms will witness reorganization, perhaps privatization, and some foreign ownership. The thawing of relations in the post–Cold War era and the economic maturity of South Korea suggests the possibility of complementing the North's market and raw materials with the South's capital and superior technologies. The proposed unification could usher in a new regional dynamic with an even more powerful, united Korean steel industry.
Further Reading
Amsden, Alice H. (1990) Asia's Next Giant: South Korea and Late Industrialization. New York: Oxford University Press.
Chung, Joseph Sang-hoon. (1974) The North Korean Economy: Structure and Development. Stanford, CA: Hoover Institution Press, Stanford University.
D'Costa, Anthony P. (1999) The Global Restructuring of the Steel Industry: Innovations, Institutions, and Industrial Change. London: Routledge.
Eberstadt, Nicolas. (1999) The End of North Korea. Washington, DC: American Enterprise Institute Press.
Lee, Hyong-Seog. (1997) "A Comparative Cost Analysis for an Integrated Steel Works for North Korea by Economic Cooperation between South and North Korea in Iron and Steel Industry." Ph.D. diss., Cornell University.
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