Public Finances During the Korean Modernization Process (review)

68BOOK REVIEWS disastrous. The market serves best those with the preponderance of resources, and South Korea is not yet in that category. The empowering of the industrial labor movement via the removal of repression, and the adoption of an impartial stance by the state is long overdue. Yet the enhancement of worker wages via effective collective bargaining could seriously erode the comparative advantage of Korean exports vis-à-vis those of other NIC competitors such as Taiwan, Singapore, Mexico, and China. Given the export-led nature of Korea's economy , such a circumstance would have widespread repercussions for the entire nation. Finally, the government's virtual stranglehold over the allocation of credit gives it immense political power to manipulate all sectors of the economy, and great potential for abuse and favoritism. Yet, Kim's idea of opening the economy to more foreign direct investment would effectively transfer control over financial resources from Korean hands to those of foreigners. The potential for negative consequences from multinational corporate control over such resources is well illustrated in the development experiences of countries such as the Philippines, Chile, and South Africa. It can be a difficult and unfriendly world, even for governments and leaders with the best of intentions. Although the book is not without its flaws, it remains an insightful and important work, and a requisite addition to the library of any serious student of contemporary Korea. As long as the reader understands that it is an exercise in polemics as well as genuine scholarship—the author has a definite political agenda here—the text could be most useful in research and classroom instruction. Given the endemic turmoil in contemporary Korea, we should give our fullest attention to, if not our complete agreement with, the clearly enunciated program of democratic alternatives presented in this work. Michael A. Launius The University of Nevada at Reno Public Finances During the Korean Modernization Process, by Roy Bahl, Chuk Kyo Kim, and Chong Kee Park. Foreword by Edward S. Mason and Mahn Je Kim. Cambridge, Massachusetts, and London: Harvard University Press, for the Council on East Asian Studies, Harvard University, 1986. xxiii, 340 pp. $15.00. This book is one of the joint studies undertaken by the Harvard Institute for International Development and the Korea Development Institute investigating the economic and social modernization of Korea. It deals specifically with fiscal development from 1953 through 1975 and its distributional effects across income classes and the urban and rural division. The authors therefore address some of the important issues relating to the role played by the government during a crucial period in Korea's economic and social modernization and the distribution of costs and benefits relating to that role. The first three chapters of Public Finances During the Korean Modernization Process are descriptive in nature. The first chapter offers background information , defining the Korean public sector and describing budgetary policy; the second compares Korea's public finance practices with the so-called tradì- BOOK REVIEWS69 tional patterns generally found during the development process; and the third provides a historical description and analysis of changes in the tax structure during the period from 1953 to 1975. What clearly comes across in these chapters is that there was a radical shift in fiscal policy with the assumption of power by General Park in 1961. During the 1953-60 period the government ran a substantial deficit year after year, financing the deficit with central bank borrowing and counterpart funds from the United States. It made little attempt to either increase tax revenues or control its expenditures, as it was more interested in maximizing the inflow of foreign assistance. In 1962, however, the new government earnestly began reforming the tax system, establishing the Office of National Tax Administration, and also started to control government expenditures. As a result, for the first time since 1953 the current account (tax revenues minus government expenditures) turned into surplus in 1968. This change in fiscal policy was in part due to the realization that foreign assistance would continue to decline. Thus the years 1961 and 1962 mark a watershed in the modern Korean history that turned Korea from a dependent state into a "hard" developmental state on its...