On top of the market saturation in the 1970s the global economy had generally begun to slow down after the post World War boom. Fuelling this recession in the more developed economies was the OPEC oil crisis in 1973, where there was a sudden and extremely large increase in oil prices set by the OPEC nations as the announced they would stop exportation of oil to nations that supported Israel in its conflict with Syria and Egypt. After failed negotiations, they raised the prices. The Western developed nations dependence on petroleum meant that this increase was extremely inflationary in their economies ans suppressive to economic activity. The workforce demanded wage increases due to such high inflation and oil prices and the Western Banks suffered in this recession with very little borrowing, so they sought new markets where they could find those eager to borrow, and this started the economic boom development of NICs countries such s South Korea and Singapore, where the companies would not have to increase wage rates. This investment into these NICs by Western banks that attracted the troubled firms in manufacturing industries producing in developed countries, who desperately needed to find a way to produce at lower costs. The NICs with cheaper land, labour and fewer wage laws restricting working hours satisfied the criteria required by consumer industries such as Dyson and Ford.
The rise in manufacturing industries in South Korea was experienced before many other Southern Pacific Asian economies, South Korea’s optimal location allowed companies to exploit cheaper land and labour costs, as well as access to new global markets in wealthier Asian economies such as Japan. The post World War Two ties between the USA and South Korea were a dominant factor in its successful and rapid development as a first generation Asian Tiger economy and a manufacturing industry boom. South Korea had been kept occupied by the USA after the end of the Second World War, during the Cold War and as a result was not a Communist, Centrally Planned economy, making it far more suited for Western investment than other Southern Asian countries that were influenced by Russia and China. Also a lot of aid had been given to South Korea by the USA resulting in good infrastructure. On top of cheap labour, the Southern Pacific countries were also rich in raw materials, and with South Koreas strategic positioning this made it even more suited and attractive to the manufacturing industry. Iron ore and coal were readily imported from Australia, Oil from Burundi and technology was adapted from Japan. Another great physical advantage for South Korea was its coastline as a peninsula which meant it had many deep Water ports allowing the use of super oil and ore carriers.
Re-locating production to areas for over all lower costs, meant that the companies had to give up the huge working force they already had employed in Western countries, such as Ford in the USA. This had a negative effect in the already struggling Western economies, causing unemployment to rise further still, but also resulted in a loss of experience and skill in their workforce. South Korea, although home to a wealth of ready to work young men, was potentially lacking in the skill and experience required to ensure the consumer products were still produced to the same standard. The workforce in South Korea was previously employed mainly in agriculture. However the work ethic and very different attitudes and morals of the Koreans, and many other Asian countries resulted in huge efficiency gains. Emphasis in these cultures was placed strongly on hard work, loyalty to the company they were employed by, making the labour, once trained and experienced even better quality than the Western more expensive workforce.
The reason behind South Korea’s sustained success as an exporting economy of manufactured consumer goods, and its continued rise in economic development was the role of the government and global development and monetary organisations that helped South Korea re-adjust its economy in able to support the investment that it was receiving. High growth was achieved due to the total control over all aspects of the economy by the military governments, who implemented a series of five year plans to aid South Korea to reach its full economic potential. Growth was obtained through the adoption of being an export driven economy, which suited South Korea with its small domestic market and poor natural resources. The policies of the five year plans involved devaluing the Korean Won in order to make it exports cheaper, and thus increase demand in foreign markets, increased interest rates in an attempt to increase consumers and businesses owners capital assets, and consumer confidence. A much more liberal attitude to trade was also adopted, allowing the freer movement of goods and materials, getting rid of import and export duties and taxes. By 1971 this policy had increased exports by 36%, and GNP by 8% per annum, this was further furled by the global growth of lager Multi-National Corporations in tandem with South Koreas growth, which encouraged foreign direct investment to continue flooding into the country. Companies such as Sony, and Nissan both exploited South Koreas resources. South Korea, with its proximity to Japan, an already developed and technologically innovative economy, was an ideal location for international electronics and high-tech industries. Initially South Korea produced huge amounts of transistor radios, but now is the world’s fifth largest producer of electronic goods, exporting Telecommunications equipment, and producing as many T.V.s and Japan itself. South Korea is also home to LG, a global electronics giant.
Although this rise in manufacturing industries in South Korea, due to the market saturation and economic problems in the Western developed economies during the 1970s, was over all a positive thing for the country and allowed its economy to begin development and play the significant role it now does in the world trade, it has had many consequences, both positive and negative. South Koreas development and economic boom was reliant on Western based Companies and the success of the Asian economic region around. As a result, in 1997 when there was a general depression and collapse of the South Eastern Asian economies, possibly due to excessive economic growth, the South Korean economy suffered badly too. Banks were overextended and had to be bailed out by the International Monetary Fund, who then took control of the economy in South Korea, and many other effected countries and set up a recovery scheme whereby, to receive the financial aid it required, South Korea had to adopted and implement Structural Adjustment Policies which involved Macro-economic stabilisation, deflationary fiscal policy; increasing tax and reducing government expenditure, and more realistic market-based exchange rates; devaluation of the currency.
Another major effect has been pollution from the huge amounts of energy being consumed by the factories for the manufacturing industries. The pollution problem was made especially severe in the 1970s when South Korea decided to produce predominantly heavy industrial goods and chemicals which caused severe and some irreversible damage to water bodies and air quality. Air pollution escalated due to the government relaxing emission laws to encourage the secondary sector growth and foreign investment. This resulted in higher levels of sulphur dioxide and nitrous dioxide from burning oils and fuels to produced energy and electricity for the production plants. Water pollution occurred especially with the switch to the production of chemicals and the heavy industry as toxic waste was released and dumped into rivers and the ocean. An attempt was made by the government to clean large water stores like the Han Gang river, however rural and marine areas remain and continue to be polluted.
Congestion is a serious problem that has arisen from the increase in manufacturing industries in NICs, as more jobs became available in the areas where the MNCs decided to locate this attracted in migration from both other regions of South Korea and from other neighbouring nations. This has caused rural-urban migration at alarming rates especially to the capital Seoul and Pusan, and naturally deep port in the south. As a result urbanisation had occurred, increasing the percentage of South Korea that is classified as urban; since the 1960s the figure has jumped from 28%-75%. Over population has also become a problem, causing suburban slums, housing shortages and a fall in the quality of life in urban areas. Seoul has seen a population increase since the 1970s from 2.4 million to 10.6 million. House prices had increased due to enormous demand at a rate of 20% per annum.
Singapore is another NIC, where there has been a massive increase in manufacturing industries. The main industries are electronics; similarly to South Korea, petroleum refining, oil and drilling equipment, processed food and ship and container production and repair. Singapore attracted the manufacturing industries as they looked to relocate away from the developed Western economies in search of cheaper production. The reasons for the rise in manufacturing in Singapore are its natural and deep port, allowing the MNCs access to easy trading and also raw materials from other South Pacific countries.
The population of Singapore is of a similar calibre to that of South Korea and many other Asian countries; hard work is a way of life and education is of great importance, thus resulting in a skilled, easily trained, flexible workforce that is well motivated and efficient. This however, meant that Singapore could not necessarily compete with other Asian Tiger economies with regards to a cheap labour force. However it was able to supple the other essential ingredient that many consumer industries required; the highly skilled technical labour force, with smaller scale but more intensive electrical production. The Singaporean government ensured this advantaged was maintained by providing free training in government institutes, in the hope to further improve productivity within their labour force.
Consequences of the rapid economic growth and rise in manufacturing industries in Singapore was the eventual stall of companies, as the benefit of the highly skilled labour force began to become insignificant as other nations workforces were soon able to be trained to the same, if not higher standards, and still remain cheaper to employ. Thus MNCs were no longer attracted to locate production in Singapore, and chose other countries such as Taiwan instead. Due to Singapore’s reliance on the inward investment from these industries, this had a substantial effect on the economy.
There were many factors that contributed to the rise in manufacturing industries in NICs, however it can be concluded that the two most important were the effect that the Fordist approach to industry which was widely adopted in the USA and Western Europe had after a sustained period of time. Market saturation and thus the need for a cheaper way of production, fuelled the shift to the NICs such as South Korea. The OPEC oil crisis and the subsequent downturn of the Western economies also played a very influential role in further forcing the manufacturing industries to relocate. They could no longer afford to produce in the Western countries as inflation was too high and higher wages were being demanded just as they had needed desperately to lower costs.
There were obvious positive consequences of the increase in the secondary sector for the NICs economies, as it proved to be the start of the growth of the Asian Tiger economies, and has had a knock-on effect with all manufacturing consumer industries based in developed countries who have relocated to NICs and resulted in economic growth and development. However due to the short time scale over which the shift occurred, and the huge pattern that has followed of investment and huge scale production within these nations, many negative effects have been encountered. Pollution, over population and congestion have been major social and environmental costs that most of the NIC economies have had to pay. The positive effect of human development that usually happens as a result of economic development has also not occurred on such a large scale, possibly due to the rate at which these economies have grown, causing huge population growth and urbanisation resulting in decreased quality of life in cities. Rural areas also suffer as they remain involved in agricultural production as they do not attract the MNCs, this causes huge disparities in wealth and equality within the nations. The rapid economic growth as a result of the increase in manufacturing industries in NICs can be seen to be unsustainable, and result in economic collapse, as seen in South Korea, however these economies can re-stabilise and continue a similar but more sustainable route of economic growth.
