Inequality and Corruption: The Role of Land Reform in Korea, Taiwan, and the Philippines



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Korea

In Korea, the leveling effect of land reform was further intensified by the Korean War (1950-53). The war destroyed a substantial share of industrial and commercial properties. The complete dissolution of the landed elite and the rapid expansion of education created an unusually egalitarian society with high social mobility. As land reform made education affordable to more people, enrollment in primary, secondary, and tertiary education increased twice, eight times, and ten times, respectively, in ten years (Kwon 1984).

It is true that Korean chaebols, or family-controlled conglomerates, grew over time and economic concentration by chaebols and collusion between government and business increased until the financial crisis of 1997. This may partly explain Korea’s higher corruption than Taiwan’s. There were important differences from the Philippine case, however. Korean chaebols were small until the 1960s, although their size and market power grew with the export-led industrialization that started in the mid-1960s and the heavy and chemical industries drive during the 1970s. Even though chaebols’ economic power grew exponentially in the 1970s and 1980s, they still did not have the direct political influence visible in the Philippines. Their relatively humble social origin is also contrasted with the Philippine conglomerates, which are largely from wealthy landlord families. As of 1985, about 38 percent of the top fifty chaebol owners came from poor farm families or small merchant families, and only one-quarter originated from the landlord or big-business families (Koo 2007; Jones & Sakong 1980: 210-257). In addition, despite growth of the chaebol, overall income inequality did not increase substantially.

There was considerable corruption between the incipient chaebols and the political elite starting from the 1950s. The sale of vested properties, formerly Japanese-owned industrial properties, typically favored the politically well-connected as well as interim plant managers. The Rhee government set the price of the properties much lower than the market value and offered the new owners generous installment plans. In return for their windfall gains, the new owners of these properties provided kickbacks to Rhee’s Liberal Party. Vested properties provided the initial base for many chaebols (Lim 2003: 42). The import substitution industrialization policy pursued by the Rhee government also provided opportunities for corruption and rent-seeking as in the Philippines.

Creation and distribution of rents was common not only under Syngman Rhee’s regime, but also under Park Chung-hee and Chun Doo-hwan’s rule. Under Park Chung-hee and Chun Doo-hwan, the most important forms of rents were allocation of low-interest-rate domestic and foreign loans. The government favored chaebol firms and exporters in the distribution of rents in return for their political contributions and export performance, and often protected their monopoly by restricting entry of other firms in specific industries.

There were substantial differences in the importance of rent-seeking and patronage between import substitution and export-oriented industrialization strategies, however. Under an import substitution policy, government protection and favors were decisive for the profitability of businesses. Under an export-oriented policy, however, firms had to compete in foreign markets. Although various forms of favors and subsidies helped the firms to compete in foreign markets, productivity and competitiveness became increasingly important. In order to promote exports, the government had to discipline the chaebols with favors based on export performance rather than clientelistic criteria. The transition from import substitution to export-oriented industrialization as well as implementation of coherent EOI policies did not face much resistance from the vested interests because of their political weakness when compared to the Philippines (Mo & Weingast 2013).

The absence of powerful economic interests also provided favorable conditions for the establishment of a meritocratic and coherent bureaucracy in Korea. Korea’s meritocratic bureaucracy was not established overnight but developed gradually over time. Previous developmental state literature is misleading by erroneously contrasting Syngman Rhee’s reliance on patronage and Park’s establishment of a meritocracy in bureaucratic recruitment (for example, Kim 1987: 101-108; Evans 1995: 51-52). By 1960, about 80 percent of high-level civil servants, including Grade II (director general), Grade III-A (director), and Grade III-B (section chief), had been promoted from within the bureaucracy (Bark 1961: 206; Kang 2002: 70-71). New appointments at the Grade III-B level were increasingly recruited through highly competitive higher civil service examination (Haengsi) rather than special appointments. Table 6 shows an overall trend of increasing proportion of Haengsi and decreasing proportion of special appointment in the Grade III-B recruitment. While Haengsi represented only a small fraction of new recruits during the first few years of state building, the proportion of Haengsi among the new recruits increased a lot during the later years of the Rhee period, and it continued to rise through Park and post-Park period.


[Table 6 about here]
When the new state was established in 1948, it needed to recruit a large number of civil servants and it was inevitable to recruit the bulk of them from among the Korean officials of the American Military Government (1945-48), many of whom had been officials of the Japanese colonial government. It was hard to recruit a large number of officials through Haengsi and to train them when there was urgent need to fill a large number of positions. Also, the pool of university-educated people was too small to expand Haengsi rapidly in the early years (Kang 2002: 69).

In addition, civil service examinations for Grade V-B (lowest level) were first administered in 1960 after the April 19 Student Revolution. The short-lived democratic government led by Prime Minister Chang Myon felt pressures from university students, and the government tried to absorb them through civil service examinations (Lee 1996: 111-112). Thus, meritocracy in bureaucratic recruitment and promotion developed through the late years of Rhee (1953-60), Chang (1960-61), Park (1961-79), and post-Park periods. Although there were patronage appointments, the demand for patronage jobs was not as great as in the Philippines.5



The gradual development of a meritocratic bureaucracy led to a gradual improvement in control of bureaucratic corruption. Table 7 shows that the annual number of public officials indicted for corruption (bribery and embezzlement) was roughly constant from the 1950s through the 2000s except for a slight decline in the 1980s and a surge in the 1990s. But it is important to control for the size of bureaucracy as well as the overall effectiveness of prosecution. The ratio of the number of public officials indicted for corruption to the number of all people indicted for any crime (Ratio A) has steadily declined over time from 0.2% in the 1950s to 0.02% in the 2000s. The ratio of the number of public officials indicted for corruption to the number of public officials indicted for any crime (Ratio B) has also steadily declined from 36.8% in the 1950s to 4.0% in the 2000s. This indicates that bureaucratic corruption has steadily and gradually declined in Korea.
[Table 7 about here]
Korea’s electoral democracy encountered the same problem of vote buying and high election costs as the Philippines did. Vote-buying practices became common as early as in the 1950s and were visible as late as the 1990s. But with relatively equal distribution of income and an increasingly large middle class, the demand for clientelism and vote buying was not as substantial as in the Philippines. In particular, Korea has been successful in curbing vote-buying practices and other election irregularities since the 1990s. While more than 10 percent of voters indicated their experience of receiving gifts, entertainment, or cash in the 1990s, that percentage dropped to around one or two percent in recent elections, according to post-election voter surveys conducted by Korea’s National Election Commission. With the decline of clientelism and the development of programmatic party competition, anti-corruption reforms were introduced and corrupt politicians have been punished, including two former authoritarian presidents and family members of the democratically elected presidents. Although high election costs have been a big concern since as early as the 1960s, some studies indicate that election costs were not as high as in the Philippines.6 Moreover, the trend of top-level political donations shows a declining trend of high-level political corruption since the mid- or late 1990s.

  1. Taiwan

When Taiwan was liberated from Japanese colonial rule in 1945, it came under the control of Chiang Kai-shek's Kuomintang (KMT). Most Taiwanese welcomed the reinstitution of Chinese rule, but they soon were disappointed and outraged about rampant corruption and looting by the military government headed by Chen Yi, the first governor-general. Taiwanese resentment over corruption and oppression led to the February 28 uprising in 1947. After the KMT was defeated by the Communists on the mainland and fled to Taiwan, martial law was declared in May 1949. The authoritarian rule of the KMT party state lasted for 38 years until the lifting of martial law and beginning of gradual democratization in 1987.

The KMT’s defeat on the mainland as well as the February 28 incident provided Chiang Kai-shek with some bitter lessons. The KMT regime carried out a far-reaching land reform (1949-53), which gave the regime autonomous space from societal interests. In Taiwan, large enterprises in strategic sectors were state-owned and the SMEs dominated the private sector. Thus, with the dissolution of the landlord class, there were no powerful private interests that could exert strong influence on the government. The fact that political leadership of the KMT came from mainland China, while businesses were mostly run by indigenous people, also contributed to the insulation of the state from private interests. Chiang also launched a comprehensive reform program of the party, and many KMT officials considered corrupt or disloyal resigned, were forced out of the party or failed to come to Taiwan altogether. Thus, the regime was relatively free from not just corrupt officials but also rent-seeking landlords and warlords. During the authoritarian era, the formerly-corrupt KMT transformed itself to a relatively clean and coherent party and established a developmental state with a meritocratic bureaucracy on Taiwan.

The Examination Yuan recruited civil servants through civil service examinations, and the percentage of government employees who had passed civil service examination steadily increased from 10.8 percent in 1954 to 25.8 percent in 1962 to 35.5 percent in 1972 to 45.3 percent in 1980 (Clark 2000). The university system in Taiwan supplied a steady stream of graduates to fill positions at the lower level of the government bureaucracy (Ho 1987).

Since Taiwan’s authoritarian regime largely limited elections for public office at the local level, political clientelim and electoral corruption were initially limited to the local level. With the gradual democratic transition, clientelism and vote buying practices spread to the national level. Because of low levels of inequality and poverty, however, clientelism and vote buying did not develop to such an extreme level as in the Philippines. With vigorous anti-corruption and anti-vote buying prosecution, most clientelist networks centered on local factions have disintegrated (Wang & Kurzman 2007). Unlike in the Philippines, vote buying and clientelistic politics did not appeal to most middle class voters, and programmatic party competition developed over time.7 With programmatic competition, corrupt politicians have been prosecuted or punished at the polls. After the KMT lost power in 2000, partly because of its corrupt image, the party introduced serious anti-corruption reforms such as the pledge to not nominate corrupt politicians as candidates for public office. When the DPP government was involved in corruption scandals, even the first lady was not exempt from prosecution and the DPP lost general elections and had to transfer power back to the KMT in 2008.


8. CONCLUSION

At the time of independence after World War II, Korea, Taiwan, and the Philippines were all poor nations with high levels of inequality and corruption. Sweeping land reforms in Korea and Taiwan around 1950 dissolved the landed elite and produced an unusually equal initial distribution of income and wealth, while in the Philippines failed land reform maintained the power of the landed oligarchy and high inequality. Different levels of inequality as well as class structures in these countries, due to success or failure of land reform, significantly influenced subsequent levels of corruption.

This study makes significant contributions to the literature on corruption. First, it provides convincing evidence on the causal effect of inequality on corruption, which was previously identified in some cross-national studies (Easterly 2007; You & Khagram 2005). It does so by employing a historical comparative case study in which land reform was exogenous; success or failure of land reform was not determined by corruption but exogenous factors such as external communist threat and US pressures. As a result, it is able to show how land reform, by affecting inequality in wealth and income, influenced corruption.

I recognize that causal direction may work both ways and find some evidence of a reinforcing relationship between inequality and corruption in the case of the Philippines. But I find evidence from Korea and Taiwan that (changes in) inequality can affect (changes in) corruption over time.

Second, this study further finds evidence on causal mechanisms from inequality to corruption. High inequality increases redistributive pressures, which in turn give the rich stronger incentives to capture the policy-making and implementation processes. Under conditions of high inequality economic and political elites have incentives to develop clientelism rather than programmatic competition that could encourage the development of leftist parties, and the large poor population is vulnerable to clientelism because of the collective action problem. The historical experiences of the three countries are consistent with the proposed causal mechanisms.

The landed oligarchy in the highly-unequal Philippines had strong incentives to buy political influence and capture the state to protect their interests. Because of continuous popular demand for land reform, the politicians repeatedly promised land reform and the landlords increasingly relied on political corruption and capture to prevent or water down genuine reforms. In Korea and Taiwan, there were no powerful landed interests that had the incentives and capability to capture the state after the land reform. Thus, land reform opened the space for greater state autonomy.

Although there were clientelism and vote-buying in all the three countries, the prevalence of vote-buying and the associated costs of election campaigns were highest in the Philippines where both elites and masses had stronger incentives to engage in clientelistic exchanges. The high proportion of the poor in the Philippines still provides a fertile ground for clientelism, while programmatic competition has gradually developed in Korea and Taiwan. These incentives were visible in patterns of bureaucratic recruitment as well. In the Philippines, the role of competitive exams in bureaucratic recruitment declined over time as patronage appointments increased. In Korea and Taiwan, the role of competitive exams increased over time.

Third, this study adds evidence to the causal mechanism of “inequality → higher corruption → lower growth” suggested by You and Khagram (2005) and Easterly (2007). Many empirical studies found the negative causal effect of inequality on economic growth, and various causal mechanisms were suggested. My study indicates that corruption is likely to be an important channel through which inequality adversely affects economic growth.

Fourth, the findings of this study suggest that the effect of democracy on corruption may vary depending on inequality and economic development, while confirming that there is no simple relationship between democracy and corruption. Recent studies of democratization show that democracies are less likely to survive at higher levels of inequality (Boix 2003). High corruption and difficulty of controlling corruption in such countries may be an obstacle to democratic consolidation.

Last but not least, the findings on the gradual development of meritocratic bureaucracies in Korea and Taiwan and the role of land reform shed new lights on the origin of developmental states in these countries. In particular, the conventional view that credits Park Chung-hee for establishing a meritocratic bureaucracy as a core of a developmental state in Korea is questioned. The role of land reform in the establishment of developmental states in East Asia needs to be explored further.


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