Would Korea Have Developed Following World Bank?

♠ Posted by Emmanuel in ,,, at 8/17/2012 11:45:00 AM
Although more than a few colleagues tend to view the World Bank in quite a negative light no matter what they do, I have come to a more ambivalent position. (Newer readers should note potential conflicts of interest since they gave me not-insubstantial prize a few years back when I was still a PhD student.) Yes, their policies tend to follow what's in vogue among American elites. Yes, their policies too have in the past been less than considerate of the particular circumstances of developing nations in attempting to transplant foreign models of development. But ultimately, I do not think that more sinister motives attributed to them hold. Rather, "America knows best" has often been combined with off-target advice for mixed results in more than a few circumstances.

Which brings me to today's post. While proctoring exams, I've had more time to read Kim Chung-yum's firsthand account in From Despair to Hope: Economic Policymaking in Korea: 1945-1979. Although it's common knowledge that the West didn't rate South Korea's chances for becoming a development success after the Korean conflict, what's starkly evident is how World Bank personnel readily lumped it in as another case of overreach. While the Pohang Iron and Steel Company (POSCO) eventually became regarded as the world's most efficient steel producer in the world, it bears remembering that it could not even avail of any lending whatsoever from the US or the World Bank at first:
[The] KISA [Korean International Steel Association] conducted negotiations with the World Bank, the Export-Import Bank of the United States (EX-IM) and other creditors from the UK, West Germany, Italy, and France, to secure financing. However, there was little progress in the negotiations. 
The world frowned upon developing countries that sought to construct an integrated steel and iron mill. At an annual general meeting of the IMF and the World Bank, this view was made clear by Eugene Black, the President of the World Bank (1949-1963), when he said (to paraphrase): “There are three myths in a developing country. The first is construction of expressways, the second is construction of an integrated steel and iron mill, and the third is construction of a monument for the head of state” [pp. 159-160].
And speaking of expressways, it should come as no surprise either that the World Bank didn't think much of them despite paving the way for South Korea's success. As ever, the best way to silence DC-based bigwigs is through success:
In light of the IBRD’s reluctance to assist in the construction of expressways, Korea pressed ahead anyway with the construction of the Seoul-Busan Expressway, the Daejeon-Jeonju section of the Honam Expressway, and the Shingal-Saemal section of the Yeongdong Expressway with its own financial resources. After Korea showed it was able to build the Seoul-Busan Expressway with its own financial and technological resources at half the time and a fraction of the cost, the IBRD began to rethink the economic feasibility of expressways in Korea [p. 312].
Other agencies also dispensed bad advice. USAID didn't help matters by far underestimating the energy requirements of South Korea:
The electricity shortage of 1967 was due to underinvestment. The initial investment proposed in the First Electric Power Development Plan had been reduced based on the recommendations of a US research team (Thomas Research Team) commissioned by US AID to conduct a study of Korea’s electricity requirements in September 1964. The study conducted by the research team concluded that the electricity demand forecasted in the First Five-Year Electric Power Development Plan during period of 1962 and 1966 was too high, recommending to the Korean government and USOM to lower the projections. As such, the downward revisions to the initial investment plans reduced electricity capacity by 224,000 KW [p. 152]. 
It's interesting to see how sceptical the World Bank was of South Korea at the outset. I do this not to poke fun at World Bank advice, but to again reinforce the point that the World Bank is ultimately just another source of input and finance among others. Ultimately, developing countries are responsible for their own development or otherwise, generally well-intentioned outsiders notwithstanding.