access to new technology. Much of this effort required the growth of consumer
demand to be deliberately suppressed. For example, colour TVs were first
marketed abroad and domestic sales were not allowed until 1980, as was true
of phonographs and portable telephones. In May 1973 Korea shifted from
general export promotion to the targeting of heavy and chemical industries
(HCI). These industries included steel, heavy machinery, automobiles, indus-
trial electronics, shipbuilding and metals. Cheap credit was targeted to these
preferred sectors (Harvie and Lee, 2003).
The socialist system (the USSR, Maoist China, Eastern Europe until 1989
and a few others) promoted an even more extreme form of industrial growth.
Investment in China in 1981 was 28 per cent of GDP, which was then more
than twice that of other developing countries; 80 per cent of this total went to
heavy industry. Between 1952 and 1978 industrial output grew by 11.5 per
cent per annum, the share of industry in GDP rose from 18 per cent to over 40
per cent (heavy industry accounting for half of the total), and that of agricul-
ture fell from 51 per cent to 28 per cent. The growth of heavy industry was
reflected in the creation of new industries such as electricity generating equip-
ment,chemical fertilizer and motor cars (Nolan,1995; Naughton, 2007).
While South Korea used extensive government intervention to guide the
market, in China the state abolished the market. Resources were allocated
according to a central plan whereby firms were given instructions to produce
so many tonnes or units of output utilizing a certain quantity of inputs. The
very success of diversification eventually overwhelmed planning. Central
planners in Beijing identified 600 different varieties of industrial product while
in the USSR in the 1970s there were 60,000 separate commodities (Naughton,
2007:62). The communist planned economy produced waste on a grand scale.
The system abolished production for profit (a key socialist criticism of the
174 Patterns and Determinants of Economic Growth
Box 8.2 From socialist industrialization to socialist
deindustrializationStructural change does not always happen patiently and relentlessly in the same
direction. One example is that of Russia in the late 1980s. Russia experienced
what has been described as ‘explosive’ deindustrialization. Between 1989 and
1991 national income fell by 34 per cent, comparable to that of the US or
Germany between 1929 and 1932 during the Great Depression. National income
(which was measured differently to GDP in socialist Russia) then fell by another
30 per cent in 1992, 10 per cent in 1993 and 25 per cent in 1994. In 1994 alone
the output of the machine-building industry fell by more than 40 per cent
(Nolan,1995:295). This collapse Nolan blames on the disintegration of the state
and Communist Party and the consequent inability of planners to ensure the flow
of inputs and outputs throughout the USSR’s wide mutually interdependent
state-owned industrial sector. ‘The process was substantially the result of
appalling policy errors by the Soviet leadership’ (1995:298).