Aid and state transition in Ghana and South Korea

Abstract

This paper examines the questions of why and how foreign assistance was utilised successfully in South Korea but less so in Ghana, with a focus on the role of aid in the process of state building and state transition in these two countries. As multiple policy makers and scholars have noted, in 1957 South Korea and Ghana shared similar levels of GDP per capita, yet South Korea then achieved rapid economic development and democracy in one generation, while Ghana suffered from slow development and a general deterioration of the standard of living. In this study I adopt a comparative historical research method to explain the divergent paths of these two countries, with a special focus on the impact of foreign assistance on state transitions. I argue that contextual factors – including the effect of the colonial legacy in each of these two regions in shaping modern states, and the specific characteristics of foreign assistance intervention – provide useful insights in explaining the differential impact of aid on state building and state transition in Ghana and in South Korea.

Keywords:

• Ghana
• South Korea
• foreign aid
• state transition
• state building

Introduction

This paper deals with the questions of why and how foreign assistance was utilised successfully in South Korea but less so in Ghana, with a focus on the role of aid in the process of state building and state transition in these two countries. While not obvious cases for structured comparison, the sharply contrasting development records of the two countries has motivated scholars as well as policy makers to search for plausible explanations.¹ The paper builds on and critically assesses this comparison using a comparative historical approach.

At independence in 1957 Ghana – with a robust peasant economy, a prosperous middle class and a relatively sound economic and social infrastructure – was widely recognised as a model case to lead African development. However, it was not long before the country began to experience a series of economic troubles and political chaos, including military coups. Today Ghana is an aid-dependent nation and one of the World Bank’s heavily indebted poor countries (HIPCs). South Korea, on the other hand, which had about the same annual per capita GDP as Ghana in 1957, achieved transformation from being one of the poorest and most aid-dependent countries to becoming the 13th largest economy in the world, with a trade volume of over US$1 trillion per year. In addition, in joining the Development Assistance Committee (DAC) of the Organisation of Economic Co-operation and Development (OECD) in 2010, South Korea became the first member of OECD DAC with a long previous history as an aid recipient.

Recognising that the state in South Korea played a critical role in achieving economic development by taking the lead within the private sector and becoming remarkably successful in developing and implementing various policies and plans, while the Ghanaian state still has a long way to go before it can become a fully effective developmental state, in this article I deal with the following questions. Why was South Korea able to succeed in establishing a developmental state while Ghana struggled? Has foreign aid facilitated or hampered state transition? Was aid necessary to the transition, or did South Korea create a developmental state in spite of aid? I argue that factors such as the effects of colonial legacies, international contexts (including the cold war environment that produced strong US support for South Korea) and differences in aid the policy regime – for instance, South Korea received much bilateral aid from the USA in grants, while much of Ghana’s aid came through multilateral institutions with conditionality – provide some useful insights to explain aid’s different impact on state building and state transition in these two countries.

The colonial legacy to Ghana’s and South Korea’s modern state

The colonial experience left long-lasting impacts on the institution-building processes in both Ghana and South Korea following independence in 1957 and 1945, respectively. In what follows, I examine the nature of the state and politics inherited by the two countries from their colonial past.

Ghana

Ghanaian politics during most of the post-independence era can be characterised as the zero-sum nature of power relations, the personalisation of politics, corruption, inefficiency and mismanagement.² Indeed, as many have pointed out, the absence of a modern state has been at the centre of Africa’s sluggish development, and the origins of such a problematic, ineffective state go back to the pre-colonial as well as the colonial period. Ghana is no exception.

Even though there were numerous small states in the region as early as the 12th century,³ it was not until the development of the Asante Empire in the 18th century that a powerful, centralised state came into being in Ghana.⁴ However, over time the empire became too large and suffered from a weak structure, namely limited capability in controlling provincial regions.⁵ The fragile nature of the state structure, in conjunction with the incompetence of the Asante kings and the advancement of the British, led to the collapse of the empire.⁶ The colonisation of Ghana began with trade between the people of Ghana (then known as the Gold Coast) and the Europeans, and, after centuries of trade with the Africans, the Portuguese in 1491 began to build the first European settlement in the region.⁷ Gradually the British replaced the Portuguese and other Europeans in the region and by the mid-1840s Britain had established the governing power in Ghana either by co-opting the local chiefs or through military conquest. The Asante fought the British tenaciously but, after their defeat in the Yaa Asantewaa war in 1900, the Asante kingdom was completely decimated.⁸

The effect of colonialism on the formation of the Ghanaian state was no different from that in other former British colonies. With no serious attempts to introduce modern institutions, the colonial state was largely exploitative, repressive, discriminatory and highly authoritarian. The British colonial era did little to introduce a modern state in Ghana; instead the main goal of the colonial state was to exploit the natural resources of the colonies and to expand markets for the industrial goods produced by the Western powers. In addition, the British colonial state was largely isolated from African society, worked mainly to support its own interests, and frequently relied on repression as the governing mechanism. For instance, the colonial power actively developed the mining industry, but Ghanaians were completely excluded, as foreign (expatriate) mining companies dominated the industry, a practice that largely continued throughout the post-independence period. Indeed, the neglect of industrialisation, over-dependence on the cocoa crop and the dominance of expatriates in sectors such as mining, banking and foreign trade characterised the Ghanaian economic structure during the colonial era.

Further, in adopting indirect rule, the British did not disregard Ghana’s traditional rulers; instead they recognised to some degree their power over the people and land, thus contributing to the problem of dual sovereignty. Instead of removing the traditional ruling system by introducing a modern state and political system, they allowed traditional politics to coexist with the colonial state. As a result, after independence many Ghanaians were torn between their role as a member of the new state or as a member of an ethnic group with roots predating the colonial era.⁹ Ghanaian leaders of the post-independence era further failed to carry out political reform to construct a more effective state sector with a more developmental orientation. Foreign aid in Ghana, as is explained later, failed to bring about – or to some extent delayed – the needed political reform.

South Korea

Many attempts have been made to explain the miraculous growth of South Korea and that of the other Asian tigers, or ‘the four little dragons’.¹⁰ Most studies have highlighted the effective role of the state in guiding or leading the economy in South Korea. However, many of the studies have limitations in explaining the historical origins of the South Korean ‘developmental state’.¹¹ In what follows we trace the development of a modern state in South Korea, focusing on the legacy of Japanese colonial rule.

Unlike many newly independent countries in Africa, South Korea (and indeed Korea as a whole) has a long history as a unified nation-state that goes back at least to the 10th century, to the Goryeo period (918–1392). Thus, before Japanese occupation a centralised state institution had ruled the peninsula for roughly a millennium with considerable international independence. In addition, unlike Ghana and other African countries with diverse ethnic groups, Korean society is predominantly composed of a single ethnic group, contributing to a high level of nationalism and social stability.¹² During the Chosun era (1392–1910), the last kingdom before the advance of the Japanese in 1910, the Korean political system was monarchical and patrimonial in nature, characterised by a highly inflexible, classified social system with slaves at the lowest social stratum. It was primarily the Japanese who introduced the modern state to Korea – against the will of the Korean people, of course – and replaced the traditional monarchical state with a modern, cabinet-style government. Obviously the colonial government was ruled by the Japanese. In particular, the governor-general, usually a military officer, headed the colonial state and held almost absolute power and authority, and the state was highly repressive and centralised. However, comparative analysis suggests that the experience of Japanese colonialism in Korea was fundamentally different from that of British colonialism in Ghana. While the British were rather inattentive to the ‘modernisation’ in Ghana and strongly maintained a policy of segregation, the Japanese tried to build a little Tokyo in Seoul, implementing a series of modernisation projects based on their own domestic experiences. These included the construction of modern infrastructure such as roads and railways, and the provision of universal education to Koreans, especially at the primary level. Although this modernisation was largely intended to consolidate Japanese rule in Korea and involved attempts to eradicate local culture and turn Koreans into Japanese, Japanese rule nevertheless contributed to building Korea’s modern infrastructure.

In particular, the Japanese introduced an effective, disciplined government bureaucracy in the country. Even though Korea had a long tradition of government bureaucracy and a civil service examination system, these, according to Kohli, were far from effective and modern bureaucracy became institutionalised in Korea only because of Japanese rule.¹³ A significant number of Koreans was trained and employed by the Japanese colonial government and, although most Korean officials worked at lower government levels, many moved up the bureaucratic hierarchy over time. That said, it would be problematic to conclude that the South Korean developmental state was solely (or even mainly) attributable to Japanese rule. As explained below, it was the internal dynamics of South Korean politics, especially the leadership of Park Chung Hee, which induced the emergence of an effective developmental state. We have thus far highlighted the differences in the nature and capacity of the newly independent Ghanaian and South Korean states as one key contextual factor that may promote a better understanding of the effect of aid on politics and states in these countries.

The politics of foreign assistance in Ghana and South Korea

As articulated by Leftwich, development is an ‘inescapably political’ process that requires the central role of the state.¹⁴ Foreign aid should also be understood as a political process, because aid packages, especially structural adjustment loans, often inevitably involve profound changes in the use, production and distribution of resources or, in other words, the politics of recipient countries.

Many scholars have further highlighted the importance of an ‘effective state’ in achieving growth and development as well as aid success. In general the state is responsible for making and implementing policies to achieve growth, and often the capacity and commitment of the state in devising and enforcing these policies are critical to the pace and extent of development in a country. How, then, can state effectiveness be achieved in its absence? In what ways does foreign aid help or hinder state reform? In what follows, through a comparative case study of Ghana and South Korea, we discuss the impact of aid on domestic politics and state transformation.

Ghana

Suggesting that the combination of rent seeking, low state capacity and the dominance of ideology (rather than economic efficiency) in the process of economic policy making largely explains the poor performance of African economies, Van de Walle defined African politics as characterised by neo-patrimonial regimes.¹⁵ According to this author, African neo-patrimonial regimes involve clientelism, access to state resources, the centralisation of power and hybrid regimes (meaning that neo-patrimonial states coexist with the formal trappings of the modern state). Ghanaian politics largely embodies these characteristics of neo-patrimonial regimes and, from the early years of Nkrumah government (1957–66), a state-oriented patronage leadership network has been the key characteristic of its politics. As the structural weakness of the state became evident with access to the state and resources blocked, the people began to search for an alternate route, namely personal ties with patrons. According to Chazan, the development of patrimonialism in Ghana may be viewed as a ‘utilitarian outgrowth’, where mobility is severely constrained and ‘the notion of obedience to higher authority was deeply embedded in the traditions of many Ghanaian societies’.¹⁶ More importantly, under such a patrimonial political regime, the state fails to represent and support the public good (or general will), including national development; rather, it becomes a political tool of the ruling class. Furthermore, in these political regimes government offices are largely politicised in the sense that they are widely considered as rewards for clients granted by the ruling elites, namely, patrons. In other words, the absence of an effective Weberian state and bureaucracy was at the centre of Ghana’s fall.

Throughout its recent history Ghana has experienced frequent military coups, causing a vicious cycle of political chaos and economic instability. Even though military regimes came to rule by force criticising the ill management of the existing government, both civilian and military regimes in Ghana all failed to reform the Ghanaian economy and achieve sustainable development and build an effective state. By the mid-1960s the Ghanaian economy was beginning to show signs of trouble, with a falling GDP growth rate (Table 1) and a sharp reduction in foreign reserves. However, it was not until 1983 that Ghana actively adopted foreign aid from the international financial institutions (IFIs) and implemented fundamental economic reform towards a market-friendly, neoclassical economy.¹⁷ Indeed, Ghana had maintained a highly suspicious attitude towards foreign aid – especially during the Nkrumah years – and foreign aid, along with other kinds of foreign capital, was largely viewed as inimical to a national ideology of economic independence and a socialist society. Why, then, did Ghana begin to receive larger amounts of aid in 1983, especially from the IMF and the World Bank? The simple answer is that Ghana had little choice but to seek for help from these IFIs.¹⁸

Table 1. Major economic indicators for Ghana and South Korea, selected years.

Year	GDP (constant 2000 US$ million)		GDP growth (annual %)		GDP per capita (constant 2000 US$)		GDP per capita growth (%)
	Ghana	South Korea	Ghana	South Korea	Ghana	South Korea	Ghana	South Korea
1961	1967.24	30,356.299	3.43	4.94	282.716	1180.010	0.22	2.28
1964	2185.555	36,643.076	2.21	7.56	287.167	1316.349	−0.63	4.87
1967	2186.366	46,089.969	3.08	6.10	268.254	1541.546	1.00	3.68
1970	2552.423	63,643.235	9.72	8.34	293.996	1993.648	7.23	6.06
1973	2694.293	80,627.951	2.88	12.03	285.543	2375.962	−0.04	9.82
1976	2432.027	101,238.555	−3.53	10.57	240.342	2824.027	−5.40	8.82
1979	2630.301	129,963.323	−2.51	6.78	246.644	3462.549	−4.37	5.18
1982	2373.570	145,875.768	−6.92	7.33	204.183	3709.398	−9.96	5.68
1985	2586.447	186,569.643	5.09	6.80	200.936	4572.113	1.75	5.76
1988	3011.867	253,698.106	5.63	10.64	214.965	6044.029	2.82	9.59
1991	3443.142	323,368.202	5.28	9.39	226.282	7473.611	2.36	8.38
1994	3873.943	394,387.464	3.30	8.54	234.006	8872.010	0.50	7.57
1997	4395.924	482,107.174	4.20	4.65	246.198	10,491.082	1.71	3.67
2000	4982.849	533,384.028	3.70	8.49	259.991	11,346.665	1.27	7.58
2003	5696.959	610,885.293	5.20	2.80	276.405	12,764.272	2.67	2.29
2006	6778.672	698,799.258	6.40	5.18	305.751	14,446.359	3.85	4.67
2009	8137.279	753,760.393	3.99	0.32	341.552	15,325.940	1.55	-0.16
2011	10,053.617	830,523.428	14.39	3.63	402.695	16,684.213	11.76	2.87

Source: World Bank database (http://databank.worldbank.org/data/home.aspx); World Development Indicators (WDI); and Global Development Finance (GDF).

As shown in Table 1, Ghana’s economy began to crumble in the late 1960s, and the years from 1972 to 1983 were ‘the black years’, a decade of deep economic downturn, acute balance of payments problems and extreme political instability; Ghana experienced five different administrations and frequent military coups in less than 12 years. On the other hand, the South Korean economy experienced miraculous level of growth over the same period (see Table 1). It was in such a crisis situation that the Rawlings administration finally decided to embark on an economic recovery programme (ERP) supported by the World Bank, the IMF, and other donor agencies. Highlighting macroeconomic stability and the logic of the neoclassical market economy, the ERP in Ghana supported liberalisation of the external trade and financial sector regimes, the phasing out of price controls, measures to improve the financial performance of many state-owned enterprises, and the introduction of more competition.¹⁹ In short, Structural Adjustment Programs (SAPs) in Ghana highlighted stabilisation of prices, mainly through balanced budgets, market liberalisation, and public sector reform, all of which were aimed at creating a market-friendly environment.²⁰ SAPs have been widely imposed as a form of aid conditionality in Ghana, similarly to other IMF and World Bank fund-recipient countries.

Assessments of the impact of foreign aid on the Ghanaian economic reform have been mixed. While some (including the World Bank and the IMF) have lauded a significant and positive role of aid in Ghana, others have been less enthusiastic.²¹ One thing is clear: unlike South Korea, where foreign aid was successfully used for sustainable development, aid in Ghana has been accompanied by a dramatic rise in external debt and aid dependency. Ghana’s external debt jumped from US$1067 million in 1977 to $3287 million in 1987 and reached $7510 million in 1999.²² The IMF’s share of Ghana’s total debt service was significant: 31% in 1987, 29% in 1995 and 13.7% in 1999.²³ Eventually, in 2001, Ghana joined the World Bank’s and IMF’s HIPCs and became eligible for enhanced debt relief, and since that period, aid from bilateral donors (mostly in the form of grants) increased considerably in relation to multilateral aid. Furthermore, in spite of a series of SAPs, there has been little change in Ghana’s economic structure, which dates back to the colonial era: the Ghanaian economy still depends heavily on the exports of primary industries (namely, cocoa and mining) and the import of essential goods. Obviously such a drastic increase in external debt, together with other side-effects of reform,²⁴ has played a role in further weakening political legitimacy and creating political uncertainty in Ghana. More specifically I argue that foreign aid in Ghana has failed to bring about political reform and stimulate state transition; rather, it has played a role in delaying the needed political reform by consolidating the existing authoritarian, patrimonial regimes. As a result, the speed and degree of state transition in Ghana has been less than satisfactory. In what follows I elaborate further on these points.

Above all, aid, more specifically the structural economic reform of the IMF and the World Bank, has contributed to political uncertainty in Ghana and played a role in justifying the continuation of authoritarian rule, especially during Rawlings’ Provisional National Defence Council (PNDC) era (1981–92). It seems that, compared with many other recipient countries, internal resistance against reform was far from explosive in Ghana as a broad social consensus for change was created in the country – thanks mainly to the severity of the economic troubles.²⁵ Yet this does not necessarily mean that the reform process has been smooth all along. For instance, following the IMF’s and the World Bank’s ‘advice’, a series of politically costly reform measures, including a massive devaluation of the cedi, drastic cutbacks in both the public and private sector, and the introduction of more liberal economic management, were implemented. Indeed, throughout Rawlings’ PNDC era the Ghanaian government had to step back time and again from its economic reform because of a volatile political environment caused by anti-reform forces, including urban workers and civil servants. There were coup attempts and labour strikes throughout the Rawlings period, creating a very precarious political environment. One cautionary note: many of those protests and insurgencies were anti-government rather than anti-reform in nature, because, as mentioned, SAPs itself were not a popularly contested issue in Ghana. Nevertheless, the survival of the Rawlings administration was made possible only through ‘intimidation, coercion, and co-optation’. More importantly it is evident that foreign aid, more specifically the reform package of the IFIs, was frequently adopted and used by the government as a justifying logic for prolonging authoritarian rule in the country.

Also, as Whitfield notes, foreign aid further consolidated elite rule because the Rawlings administration needed to embrace the existing national elite in order to gain political support for reform.²⁶ On 31 December 1981 Rawlings and his Marxist supporters had taken over the state through a military coup, toppling the democratically elected, civilian Limann administration. Promising a transformation of Ghanaian society in a socialist direction, the Rawlings administration implemented a series of revolutionary policies, which involved anti-Western propaganda, anti-middle class actions and direct attacks on the Ghanaian business class. Thus, originally the Rawlings administration’s support base mainly included workers, students, the army ranks and the intellectual left. However, with the introduction of SAPs in 1983, the Rawlings government had little choice but to form an alliance with traditional ruling elites,²⁷ as it was evident that its original allies would not be supportive of the reform. In fact, Rawlings suppressed and expelled his former allies, namely those leftist supporters who still favoured socialist economic policies. A significant portion of aid was of course used to secure political support from this traditional ruling class. More importantly, these national elites were the main beneficiaries of the existing patrimonial regime and of SAPs; consequently they had little incentive to support political reforms. For instance, despite donor pressure for decentralisation, little progress was made in this field simply because there was limited support from the powerful central bureaucracy.²⁸

As seen in Figure 1, aid to Ghana has been predominantly provided through multilateral channels, namely the IFIs,²⁹ indicating that loans were the dominant form of Ghana’s overseas development assistance (ODA); it was not until after the 2000s that the type of aid began to shift from loan to grant financing. Also, as indicated in Figure 1, net ODA, excluding debt relief, shows a much more gradual increase, suggesting that a significant portion of ODA was spent in the form of debt relief. With a heavy dependence on aid and rising debt together with aid conditionality, foreign aid has become a powerful political actor in Ghana, playing a critical role in the decision-making process.³⁰ Because of this enormous external debt, economic policy and many other plans in Ghana have been created largely to meet donor conditionality and requirements rather than to reflect dynamics created by the internal Ghanaian political process.³¹ In addition, through various ‘consultative meetings’, donors have involved themselves directly in the economic policy-making process of the country. Like the Ghanaian state they, too, have paid little attention to the voice of Ghanaian civil society in decision making. In this sense centralised decision making, a key feature of Ghanaian politics, was further consolidated with the introduction of foreign aid, especially of SAPs.

Figure 1. ODA to Ghana, 1969–2011 (US$ million in current prices).

Source: Author’s computation based on data extracted from the OECD.Stat dataset.

Such intervention by donors in the process of Ghanaian policy making has further challenged state capacity, legitimacy and effectiveness in Ghana. For instance, in explaining Ghana’s continued dependence on the World Bank and IMF (despite the less than outstanding results), Whitfield refers to the problem of policy rent, meaning that the government has turned donor conditionality to its advantage and become addicted to donor finance for its survival.³² The problem of moral hazard is also evident in Ghana, as aid continued to be allocated despite noncompliance by the government,³³ further exacerbating aid dependency and contributing to the continuation of patrimonial politics by creating rents for the ruling elites. In addition, other widely recognised side-effects of aid on state capacity – including the unnecessarily complicated paperwork, endless meetings with donors and the problem of bypassing the central government – all apply to Ghana. In short, Ghana’s aid policy regime, characterised as the dominance of loans through the IFIs with strong conditionality, has played a role in maintaining patrimonial regimes and failed to stimulate a swift transition to an effective, developmental state.

South Korea

As discussed, the key features of South Korea’s modern state, with an effective bureaucracy, originated during the Japanese occupation era, and over time the country made the transition to a development-oriented and effective state. In particular, it should be noted that this state transition took place in spite of foreign assistance. In other words, the negative impact of foreign assistance on state capacity and legitimacy was rather limited in South Korea, unlike in Ghana and many other African countries.

An in-depth discussion of how and why South Korea was able to introduce a developmental state is beyond the scope of this paper. Here, we merely highlight the fact that the transition was largely the result of the dynamics of domestic politics and, more importantly, transpired regardless of South Korea’s heavy reliance on aid. It was only after the rise of the Park Chung Hee regime (1962–79) that the state became developmental in nature,³⁴and one critical factor explaining the rise of, or transition to, a developmental state was his leadership. Coming to power through a military coup in May 1960, Park placed growth near the top of the regime’s priorities. In addition to a leadership committed to national development, other contextual factors – including the existence of the Japanese model, sound local entrepreneurs, Confucianism, the threat from North Korea, strong US support and an effective bureaucracy – played a significant role in South Korea’s rise to a developmental state. However, again, without committed political leadership, these potentially beneficial factors would not have been effectively utilised for state transition. In other words, the emergence of the developmental state was mainly the outcome of the internal dynamics of South Korean politics. Having said this, it is important to note that the South Korean state that Park inherited from the Syngman Rhee era (1948–60) was relatively effective, with a sound basic bureaucratic structure of government, and a relatively strong national identity and integration. In addition, despite the high inflation and instability of the economy during Rhee’s term, South Korea had been quite successful in rebuilding its infrastructure, essential for further industrial development. In particular, despite the country’s heavy reliance on aid, foreign aid in South Korea did not seriously threaten state legitimacy and capacity even during the Rhee era when the country was in dire need of US support. We argue that the way in which aid was managed and utilised guaranteed relative autonomy for the South Korean government and, by doing so, allowed aid to contribute indirectly to state transition. In what follows this point is further elaborated.

Unlike Ghana, where aid flows did not achieve their full scale until decades after the country’s independence, South Korea relied heavily on aid from the very beginning. After its independence from Japanese power in 1945 the country was under a US trusteeship for about three years. Starting from this occupation era, South Korea received substantial foreign assistance totalling $10,550.1 million between 1945 and 1990 (Table 2).³⁵ In addition, unlike Ghana, where multilateral donors played a significant role in providing foreign aid, bilateral aid throughout the period was the dominant form of ODA for South Korea, accounting for 92.4% of the total (Table 2). In particular, foreign aid from the USA and Japan accounted for almost 90% of the country’s total ODA. From 1945 until the end of the 1950s (or roughly throughout the period of the Rhee government), the USA was the leading (and almost the only!) donor, and it is worth noting that most US aid to Korea during this period was provided as grants (Table 3).

Table 2. Official development assistance to South Korea, 1945–99 (US$ millions).

Year		1945–60	1961–75	1976–90	1991–99	Total
Aid modality	Grant	3045.6	1990.0	750.4	1202.5	6997.5
	(Ratio, %)	(98.3)	(50.7)	(21.4)	(54.0)	(54.8)
	Loan	52.3	1942.4	2760.4	1023.7	5778.8
	(Ratio, %)	(1.7)	(49.3)	(78.6)	(46.0)	(45.2)
Donors	Bilateral	2518.4	3777.3	3312.2	2200.0	11,807.9
	(Ratio, %)	(81.3)	(95.8)	(94.3)	(98.8)	(92.4)
	Multilateral	579.5	164.1	198.6	26.2	968.4
	(Ratio, %)	(18.7)	(4.2)	(5.7)	(0.2)	(7.6)
Total		3097.9	3941.4	3510.8	2226.2	12,776.3
(Ratio, %)		(100.0)	(100.0)	(100.0)	(100.0)	(100.0)

Source: Korea International Cooperation Agency (KOICA), Development Assistance and Cooperation, 74.

Table 3. Bilateral aid to South Korea from the USA and Japan, 1945–99 (US$ millions).

Country		1945–60	1961–75	1976–90	1991–99	Total
USA	Grant	2464.7	1524.0	16.0	0.2	4004.9 (72.3)
	Loan	52.3	982.1	496.0	7.0	1537.4 (27.7)
	Total	2517.0	2506.1	512.0	7.2	5542.3 (100.0)
Japan	Grant	—	335.1	267.6	750.6	1353.3 (26.8)
	Loan	—	744.8	1943.2	1010.5	3698.5 (73.2)
	Total	—	1079.9	2210.8	1761.1	5051.8 (100.0)

Source: Korea International Cooperation Agency (KOICA), Development Assistance and Cooperation, 75.

Throughout most of the Rhee era foreign aid (including food aid) came largely in the form of humanitarian and emergency relief, and aid served to meet various national challenges, including widespread poverty and war reparations.³⁶ As is argued elsewhere, foreign aid during the Rhee era was successful in the sense that it made a substantial contribution to preventing massive starvation or the outbreak of epidemics. By 1956 three years after the armistice, South Korean economic development had recovered to its pre-war level.³⁷ In this sense foreign aid, particularly US humanitarian and emergency aid, played a role in securing state legitimacy and political stability by forestalling potential social unrest.

It is important to note that differences in aid policy regime played a key role in producing the various political ramifications of the impact of aid on state transition in Ghana and South Korea. First of all, a favourable international contextual factor, namely the cold war setting and the vital geostrategic importance of South Korea to the USA as a bulwark against communist expansion resulted in heavy inflows of US grant aid throughout the Rhee period. In this sense, although the Korean people suffered enormously as a consequence of the Cold War – the rivalry between the two superpowers led to the Korean War (1950–53) and the division of the country – South Korea has been one of the largest beneficiaries of said Cold War thanks to strong and committed US support and foreign aid. In addition, the USA provided aid in the form of grants, which explains why South Korea was not burdened with a serious debt issue when Park started the nationwide development movement in the early 1960s. As aid came predominantly via a bilateral channel, South Korea did not have to deal with numerous donors or complicated administrative systems; this helped to minimise the administrative cost of foreign aid. Lastly, unlike in Ghana, aid did not continue; beginning in the late 1950s and motivated mainly by its rising internal problems, including a deteriorating economy and unfavourable public opinion on foreign aid, the USA made a unilateral announcement to drastically cut its grant aid in favour of loans. In 1957 the USA had provided $383 million in aid to South Korea but, by 1961, this had declined to $154 million.³⁸ Having been highly dependent on US aid, the reduction was a shock for many Koreans, but it certainly played a part in preventing serious moral hazard and pressured the government to reduce its reliance on US aid and devise an effective national development strategy.

Obviously, as a predominant donor, the USA intervened in, and extended strong influence over, the management of aid in South Korea. That said, it is important to note that the country’s aid management system guaranteed relative ownership for the South Korean government. Even though the content of US aid was largely decided by the Americans, its ultimate uses and beneficiaries, as well as actual delivery, were largely determined within the framework of the economic policies of the South Korean government.³⁹ This suggests that, unlike in Ghana and many other aid-dependent countries, donor intervention in South Korea in the policy-making process and in politics was not so intense as to critically challenge state legitimacy and the central power of the government. Figure 2, illustrating the aid-management mechanism in operation around 1949–51, when aid from the USA was channelled through the US Economic Cooperation Agency (ECA), shows the US intervention in the process, particularly in the examination of budget plans submitted by the South Korean government (specifically, by the Office of the Prime Minister). However, it was the South Korean government through which actual distribution of aid goods (mainly to local businesses) was made. In addition, the ownership of the South Korean government in the use and management of aid increased over time, especially after the outbreak of the Korean War.

Figure 2. South Korean government–ECA operation mechanism for foreign aid.

Source: Kim, “Foreign Aid and Economic Development,” 269.

Again, besides domestic political factors including effective leadership, the legacy of the colonial state and sound bureaucracy, the cold war milieu played a critical role in allowing and increasing relative ownership by the South Korean government. Proposing that aid played a part in the enhancement of state power in South Korea, Woo, for instance has highlighted how, thanks to the cold war context, South Korea (and Taiwan) were able to escape the abuses that might arise from a quasi-colonial situation.⁴⁰ In particular, the Korean War further enhanced the geopolitical importance of South Korea and provided the country with expanded legitimacy in seeking international support and assistance. That said, it is also important to note that South Korean leaders effectively took advantage of such a favourable geopolitical situation to further increase the country’s negotiating capital vis-à-vis the USA. After the armistice, for instance, the Rhee government strongly urged the need for increased foreign aid and more active participation in decision-making processes regarding aid management, emphasising the symbolic and geopolitical importance of South Korea as the vanguard of the international anti-communist struggle. Indeed, throughout the Rhee era the South Korean government frequently challenged the USA over aid policies. For instance, despite lukewarm support, if not outright opposition, by the USA, which put stability before all other aid purposes, the Rhee government went through active reconstruction efforts using aid funds.⁴¹ Such policies proved to be effective as the country recovered fast from the devastation of the war and South Korea’s effective usage of aid, in turn, further motivated donors to provide full support for the Korean government, producing a positive nexus between aid and enhancement of state effectiveness in the country.

On 16 May 1960 Park Chung Hee led a military coup and seized power, overthrowing the fragile Jang Myun government. He made ‘development’ the national goal and actively began to initiate state-led economic development. During the Park period in particular the nature of aid changed to development assistance, and foreign aid – along with other kinds of foreign resources – was effectively used to finance various national development projects. For instance, Park announced in 1961 the First Five-Year Economic Development Plan (1962–66), the aim of which was to reform South Korea’s industrial structure towards manufacturing and heavy and chemical industries, an endeavour that relied significantly on aid to fund investment. In response to the sharp reduction in US aid, the Park government actively sought to attract foreign resources and searched for other donor agencies. In 1965, despite popular protests, Park normalised diplomatic relations with Japan and invited assistance; by the mid-1970s Japan had replaced the USA and had become the country’s leading donor. It is important to note that, unlike US aid, most of which was provided in grants, during the Park era aid from Japan was in the form of loans. However, while aid loans led to a debt trap in Ghana, foreign loans during the Park era did not lead to the accumulation of a high level of national debt, thanks mainly to the success of Park’s export-led industrialisation drive.

In particular, throughout the Park era, aid and other kinds of foreign resources was centrally managed by the Resource Mobilization Office of the Economic Planning Board (EPB). The EPB was an autonomous government organisation with full powers in economic policy making; donor intervention in aid management and policy making was limited. In fact, the Park government preferred bilateral loans to multilateral ones, calculating it easier to restrict donor intervention under bilateral loans than under those from IFIs. In particular, a large proportion of Japanese public loans to South Korea were given as a reparation fund, so no strict conditionality was attached. Thus far, we have highlighted that the side-effects of aid on political institutions and the development of an effective state were limited in South Korea, focusing on the main features of the aid policy regime. We have demonstrated that donor involvement in domestic politics and in the policy-making process in South Korea was not intense – particularly in comparison with Ghana and other African countries.

Conclusion: lessons from the South Korean case

In this paper we have examined the impact of aid on politics and on the state sector of two recipient countries: Ghana and South Korea. In Ghana foreign aid has failed to bring about an effective state sector; furthermore, aid has, to some extent, delayed political reform by consolidating the existing power structure and features of African politics. In contrast, South Korea’s heavy reliance on aid did not induce a serious deterioration of state legitimacy and capacity.

In 1992 Ghana began a democratic transition and the country has made strides toward consolidating democracy since then. Despite recent economic and political progress, however, the Ghanaian state is still far from effectively developmental, and patrimonialism remains a dominant feature of politics.⁴² Are any lessons from the Korean experience applicable to Ghana today?

Above all, the South Korean case demonstrates that the way aid agencies intervene in management determines the impact aid has on domestic politics. In particular, as was highlighted, aid intervention in South Korea in the domestic policy-making process was less dominant than in Ghana, which allowed for some ownership by the Korean government in the use of aid funds, even during the Rhee era when the country was heavily dependent on US aid. Specific features of aid intervention, including the existence of a single dominant donor (the USA during the Rhee era, Japan during the Park era), a limited number of multilateral agencies, the provision of aid in grants during the Rhee period, and aid channelled through a local centralised management system, all contributed to minimising the negative side-effects of aid on domestic politics in Korea. We believe these points have important policy implications for effective donor intervention and aid management. Having made this point, it is important to note that the rise of the South Korean developmental state resulted largely from the dynamics of internal political processes. As shown in the case of Ghana, the concept of building a sound state sector through external force (aid included) seems to be largely misguided and lacks strong evidence of success. More importantly, it is vital for donors to recognise that the development of an effective state sector can be achieved only through dynamic internal political processes and by finding ways to minimise the side-effects of aid intervention on domestic politics.

Notes on contributor

Jiyoung Kim is an Assistant professor in the Department of Political Science & International Relations, Soongsil University, Seoul. Her research interests include diverse issues in international development cooperation and comparative political economy in East Asia and Africa.

Notes

1. See, for example, Werlin, “Ghana and South Korea: Explaining Development Disparities”; Werlin, “Ghana and South Korea: Lessons”; Kalu and Kim, “State–Business Relations”; and Afesorgbor, Can Ghana Copy and Implement?

2. Chazan, An Anatomy of Ghanaian Politics.

3. Many of them were involved in gold trading with Europeans and Arabic countries.

4. For the political history of Ghana, the paper relies mainly on Boahen, Ghana; Kimble, A Political History of Ghana; and Amamoo, Ghana.

5. Such a limited state capability in controlling the periphery was the prevalent problem of traditional African states and was largely attributable to low population density. Herbst, States and Power in Africa.

6. Boahen, Ghana.

7. Indeed, the slave trade was most active in Ghana and, although slavery had been in existence for centuries, the discovery of America in 1492 further boosted the trade. The rapid growth of sugar, cotton and tobacco plantations in the south of the USA gave rise to the increased demand for slave labour. Amamoo, Ghana.

8. Ibid.

9. Ray, Ghana.

10. This expression refers to Hong Kong, Taiwan, Singapore and South Korea and is borrowed from the title of a book by Vogel, The Four Little Dragons.

11. Kohli is an important exception. In his comparative study of Korea, Brazil, India and Nigeria he provides the historical background of modern politics and states for these countries. He developed the concept of the ‘capitalist-cohesive state’ to describe the nature of the South Korean state. Kohli, State-directed Development.

12. According to fractionalisation data on South Korea, as of 1990, Koreans made up the dominant ethnic group, accounting for 99.9% of the population. Ghana, on the other hand, has numerous ethnic groups, including, as of 1983, Ewe (11.9%); Ga-Adangme (7.8%); Other Ghana (7.5%); Gurma (3.3%); and Yoruba (1.3%). The full dataset is available at http://www.nsd.uib.no/macrodataguide/set.html?id=16&sub=1.

13. Kohli, State-directed Development.

14. Leftwich, States of Development, 5 (emphasis added).

15. Van der Walle, African Economies.

16. Chazan, An Anatomy of Ghanaian Politics, 84.

17. Official Development Assistance (ODA) to Ghana rose rapidly after this period, from US$40.9 million in 1973 to $190.81 million in 1980, $715.53 million in 1989, $1.4 billion in 2004 and $1.8 billion (a record high) in 2011. Data extracted from the OECD.Stat dataset.

18. In fact, Ghana sought assistance from socialist countries, including the USSR, which turned down its request and advised the country to seek help from the IFIs.

19. For more specific information on the Ghanaian ERP, see Akonor, Africa and IMF Conditionality, chap. 4.

20. SAPs refer to a set of comprehensive neoclassical economic policies designed by the World Bank and the IMF for the purpose of reforming a country’s economic structure to make more market-friendly.

21. For positive assessments of Ghanaian reform, see, for instance, Tsikata, “Ghana”; and Callaghy, “Lost between State and Market.” For less enthusiastic views, see, for instance, Killick, The Developmental Effectiveness; Killick, Development Economics in Action; Konadu-Agyemang, IMF and World Bank Sponsored Structural Adjustment Programs; and Akonor, Africa and IMF Conditionality.

22. Konadu-Agyemang and Takyi, “Structural Adjustment Programs,” 29.

23. Ibid.

24. These include an increase in the cost of living (caused by devaluation of the Ghanaian currency), a sharp rise in the unemployment rate (mainly as a result of massive cutbacks in government and the private sector), and drastic cuts in social services. For more specifics on these side-effects of SAPs, see ibid, among others.

25. Toye, “Interest Group Politics”; Dzorgbo, Ghana in Search of Development; and Leechor, “Ghana.”

26. Whitfield, “Trustees of Development.”

27. These include: top professionals in the arts and sciences; the top echelon of the military; top and eminent persons in business and commerce; senior administrators in the public and civil service, including union leaders; senior journalists; senior members of the clergy; holders of government office; senior politicians; and important traditional rulers. Akonor, Africa and IMF Conditionality, 49.

28. Haruna, “From a Developmental to a Managerial Paradigm.”

29. It was only after the mid-2000s that aid from bilateral donors increased considerably in relation to multilateral aid. The rising proportion of bilateral aid largely reflects an increase in bilateral grants after Ghana’s adoption of enhanced debt relief under the HIPC Initiative of the World Bank and the IMF in 2001.

30. Konadu-Agyemang, IMF and World Bank Sponsored Structural Adjustment Programs; and Akonor, Africa and IMF Conditionality.

31. Konadu-Agyemang, IMF and World Bank Sponsored Structural Adjustment Programns; and Akonor, Africa and IMF Conditionality.

32. Whitfield, “Trustees of Development.”

33. During the PNDC era the Ghanaian government was at times noncompliant with SAPs, mainly because of strong protests and political instability. Akonor, Africa and IMF Conditionality.

34. Jones and Sakong, Government, Business, and Entrepreneurship; and Kohli, State-directed Development.

35. This figure, however, does not include military assistance to South Korea. If this is added, the total amount of aid increases drastically.

36. For information about aid to South Korea, including the aid management system, see Kim, “Foreign Aid and Economic Development.”

37. Ibid.

38. KOICA, Development Assistance and Cooperation, 55.

39. Mason et al., The Economic and Social Modernization, 193.

40. Woo, Race to the Swift.

41. See Kim, “Foreign Aid and Economic Development,” for further discussion of South Korea’s aid management policy regime.

42. See, for example, OECD DAC, Definitions and Guidance.