restricted access 2. POSCO: Building an Institution
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Introduction Having been a key driving force behind the Republic of Korea’s (ROK) rapid industrialization, Pohang Iron & Steel Co. Ltd. (POSCO) is now the fifth largest steel company in the world, with an annual production capacity of 30 million tons of steel. POSCO has been widely recognized for its accomplishments , particularly as an international leader in productivity and efficiency; its global status stands on its record of achievement. In terms of return on investment, for example, the South Korean government initially spent a total of 220 billion wŏn ($863 million 1968) on the construction of POSCO. In October 2000, after POSCO was privatized, it had accumulated a total capital value of 3.9 trillion wŏn ($3.4 billion). By the end of 2004, POSCO had contributed nearly 4.8 trillion wŏn (approximately $4 billion) in taxes. Given the fact that POSCO was founded in 1968, during the early phase of the Park Chung Hee (Pak Chŏnghŭi) era less than four decades ago, POSCO’s phenomenal development represents a model case of South Korea’s rapid industrialization. It sheds light on ROKstyle development, which on one hand brought about an economic miracle within the decade of the 1970s and on the other suppressed the South Korean people’s push for democracy by rigidly guiding economic development under the state’s authoritarian Yusin system (1972–80). Park decided to build POSCO as a strategic necessity and initiated POSCO’s institution building strategy. He insisted on this even though the ROK, in that economic context, did not display a significant domestic demand for iron or have a supply of natural resources such as iron ore or coal, not to mention capital, technology, 2 POSCO: Building an Institution Seok-Man Yoon Seok-Man Yoon 44 or skilled manpower. In Park’s vision, the Republic of Korea needed a key pulling force for South Korea’s economic development—an integrated steelworks industry. For many developing countries under similar circumstances, where state-led industrialization strategies are almost inevitable and necessary , the study of the POSCO experience provides a rare opportunity to learn about South Korea’s industrial know-how. South Korean political will, government policies for nurturing corporations, and how the management strategies of the POSCO leadership created an effective institution building strategy are especially helpful. In addition, the managerial paradigm of the corporation and how it was altered according to each phase of the institution building process provides immeasurable information. By the term “institution building strategy” I mean a strategy which developing countries may choose in order to build and nurture an organization that can, by mobilizing total available resources and capacity, fulfill a specific national task.1 The purpose of this chapter is to explore POSCO’s institution building strategy, especially through the construction of Pohang Iron and Steel, as the basis for constructing other key industries in the Republic of Korea. This chapter focuses on POSCO’s leadership development, especially in its early stages, from April 1968, when Pohang Iron and Steel was founded, until February 1981, fifteen months after the assassination of President Park Chung Hee. This chapter attempts to answer three main questions: (1) What was the relationship between the President Park administration and POSCO in the implementation of the basic tasks of this institution building strategy? (2) How did the POSCO leadership cultivate the key principle of autonomy while adhering to the government’s “guidance” over the company? (3) How was POSCO affected by political change in South Korea? First, this chapter will briefly trace the historical background of the South Korean steel industry. It will review the relationship between the President Park Chung Hee government and Pak T’aejun, founder of POSCO, while examining the latter’s leadership during the first thirteen years from 1968 to 1981.2 The chapter will then analyze the characteristics of the early phase of POSCO, especially with regard to the effectiveness of its primary role, required type of leadership, and management paradigm. In conclusion, the chapter will briefly discuss the benefits and costs of a government-driven institution building strategy with respect to the POSCO case. POSCO: Building an Institution 45 Constructing Posco: Historical Background South Korea’s modern steel industry emerged as part of the Japanese munitions industry under Japanese colonialism. By the time Korea regained independence from Japan in 1945, however, the steel industry, like the rest of the peninsula, had been largely destroyed. Private capital did not exist and most of the engineers were Japanese...