Two Success Stories

The Horatio Algers of the developing world are South Korea and Taiwan. Until the end of World War II, both countries were exploited colonies of Japan; they lacked natural resources and had almost no industrial base. Moreover, South Korea suffered a devastating war between 1950 and 1953, while Taiwan was shaken by the Communist takeover of the Chinese mainland and the subsequent arrival of 2 million of Chiang Kai-shek's followers.

Nonetheless, South Korea and Taiwan have both made rapid strides toward building developed economies. They were assisted by massive amounts of public and private aid, loans and investment, mainly from the U.S. and Japan: $7 billion in Korea and over $2 billion in Taiwan. Their bustling cities have a dynamic middle class of entrepreneurs, small businessmen and civil servants. Peasant proprietors are thriving in the countryside. Per capita G.N.P. has risen to $660 in Taiwan, $380 in Korea--fourth and fifth highest in Asia after Japan, Singapore and Hong Kong.

The labels "Made in Taiwan" and "Made in Korea" on textiles, transistor radios, television sets and wigs are known throughout the world. In Taiwan and Korea, manufactured goods comprise 66% and 75% respectively of each country's exports, compared with 5% for most developing countries. Saudi Arabia turned to Taiwanese contractors for its rural electrification and road-building programs, and South Koreans are helping Iran untangle a nearly paralyzing transportation bottleneck. Taiwan even has its own foreign aid program called "Operation Vanguard," which sponsors agricultural, industrial and medical projects in 21 other developing nations.

Both governments have efficiently mobilized their major asset, a hard-working population, by offering material rewards and improved living standards. South Korea coupled land reform, through which nearly all agricultural acreage became the property of its cultivators, with a policy that allowed food prices to rise enough so that farmers were encouraged to work hard to increase output. As a result, peasants earn more than urban factory workers--an average $139 per month, compared with $133 for factory workers--and produce more rice per acre than the industrious Japanese. In Taiwan, government-sponsored rural associations give each farmer access to credit, warehousing, marketing and procurement services and the latest advances in agronomy.

Through tax incentives and guarantees, South Korea and Taiwan have encouraged local investors to support labor-intensive industries that earn foreign exchange. Two years ago, the lure of higher income prompted Han Chang Soo to quit a secure $120-a-month job with the Korean tax department. He raised $70,000, rented a small plant in Seoul, hired 20 workers, bought some used machinery and began manufacturing large-headed roofing nails; this year his sales--mostly exports to the U.S. --will reach $200,000.

Both nations have invested heavily in research and development. They have even been able to woo home scientists who had studied and worked abroad. "What goes on around the world is a war of brains. We have no choice but to plunge into it for our own survival and future prosperity," says Ahn Young Ok, 43. A $16,000-a-year DuPont engineer in Delaware, Ahn took a pay cut to return to Seoul, where he is now a top official in the Korean Institute of Science and Technology.

Because of the worldwide recession, the economies of the two countries have slowed considerably in the past year; both have trade deficits and mounting debts. Yet these difficulties are probably temporary. A long-range problem may be unrest created by harsh working conditions, especially in the factories: hours are long (averaging 48 a week in Korea, 54 a week in Taiwan), pay is low ($50 per month starting wages in Korea, $35 in Taiwan), and unions, insofar as they exist, have little power to combat managerial excesses. But this is typical of all countries in the early stages of industrialization. "There is criticism that we are exploiting labor with low wages," says Korean Deputy Prime Minister Nam Duck Woo. "But in my view, the first stage is getting the economy going; the next stage is to consider [social] welfare. First growth and efficiency, then equity."

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