The South Korean economy began to grow rapidly in the 1960s, enabling it to converge with the advanced countries in per capita product. It did so as the leadership change enhanced state capacity. The government intervened pervasively in the economy, making sure that firms receiving the favors used them properly. The size of the government itself was small, but the macroeconomic policy was inflationary. The resultant inflation affected the way financial policy, the most important policy at the time, worked. The export promotion policy degenerated as the government employed non-price measures while the price incentives fell in spite of the 1964 exchange rate reform because of inflation, whereas the reform helped to check import growth. Nonetheless, exports grew rapidly, providing important dynamism for the economy. South Korea coped with the emerging balance of payments problem by normalizing its diplomatic relationship with Japan and sending troops to Vietnam.

In parallel to the centralized governance of strategic industries in Chapter 4, the lower degree and narrower scope of the perceived strategic value of labor intensive and less value-added sectors, represented by textiles, for national security and the national technology base, has shaped decentralized governance and private governance in nonstrategic sectors. In the context of sectoral structural and organization of institutions, less concerned about controlling products or services that have few applications for national security and low contribution to the national technology base, the central state introduced competition in textiles in the 1980s and devolved market coordination of quasi-state and private ownership to local governments and commerce bureaus by the early 1990s before China’s World Trade Organization accession. The cross-time sector and company case studies reveal the interacting strategic value and sectoral logics apply at the subsector. Capital-intensive and more value-added technical textiles experience more deliberate market coordination by local governments and the central state and are characterized by mixed property rights sponsored by and connected with state-run research and development institutions. Taken together the textile industry today experiences periodic overexpansion, environmental degradation, and reactive local state interventions in response to economic reverberations and central-level environmental and developmental mandates.