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2016 | OriginalPaper | Buchkapitel

6. Advantages of Backwardness and Linkage Effects: The Steel Industry in Asia

verfasst von : Hajime Sato

Erschienen in: Varieties and Alternatives of Catching-up

Verlag: Palgrave Macmillan UK

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Abstract

This chapter looks at the steel industries in several Asian countries which have tended to be designated as nationally strategic industries. Examining the diverse development patterns, this chapter finds that the steel industries in latecomer Asian countries typically started growing through backward linkage effects from the growth of steel-user industries. Once the countries successfully utilized the advantages of backwardness in introducing steel production, the industry contributed to the formation and strengthening of the development inducement mechanism in society. The chapter also discusses how even the steel industry, which was once a symbol of national industrialization, is strongly and increasingly affected by the power of globalization in the twenty-first century by examining linkage effects and the (dis)advantages of backwardness.

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Vorheriges Kapitel The Catch-Up Process in the Korean Steel Industry

Nächstes Kapitel ‘Catch-Down’ Innovation in Developing Countries

For a comprehensive account of the debates over the East Asian miracle, crisis, and recovery, see, for example, Chang (2006).

Lin argues that the introduction of the integrated steelworks in South Korea in the early 1970s was a comparative advantage-following strategy, suggesting that the capital-intensiveness of the industry had become relatively low by then, while Chang insists that it was a choice that defied and challenged its comparative advantage at that time. See the debate between them in Lin (2012, Chap. 2).

These ideas were widely discussed in the 1970s and 1980s, after seminal work by Schumacher (1973). Recently, Marukawa (2016) revisited the ideas and proposed a new concept, ‘catch-down innovations’, which can accommodate not only intermediate and appropriate technologies that are mainly concerned with supply-side conditions, but also technologies that are adopted and developed to serve specific social consumption patterns of developing countries.

See, for example, D’Costa (1999) and Kawabata (2012) for a detailed account of technological developments in iron and steel production.

Driven by scale economies, BOFs and EAFs replaced OHFs from the late 1950s; HSMs superseded pull-over mills, especially from the 1950s; mammoth BFs with more than 2,000 cubic square meters of inner volume began to prevail in the 1960s; and CC machines were actively introduced from the 1970s.

The figures are gathered from Kawabata (2005, Chap. 1) and other recent news reports regarding steel projects in Asian countries. Note that initial investment is a rough, approximate value, especially for integrated steelworks, because the parties responsible for land and infrastructure costs, and their levels of required commitment, differ across projects. Also see D’Costa (1999, pp. 152–3), which gives a list of greenfield investment costs in the USA in the 1980s.

One corollary of the differences in minimum efficient scale is that there are certain appropriate matches among processes. For example, for an EAF firm, it is technologically difficult to integrate a large BF, but a rolling firm with HSMs can consider adding BFs and BOFs later in its upstream processes.

Figures for steel production in this chapter are taken or calculated from World Steel Association (various issues), unless otherwise indicated.

Shin argued that ‘the Gerschenkronian strategy of establishing “bigger and bigger” plants with the latest technologies was effective’ (Shin 1996, p. 141), provided that the technology reached maturity, so that innovation in product and process was rather slow, that plants incorporated these technologies and that the trend of innovation focused on mainly enhancing scale economies. He found that these conditions held for the steel industry, especially after World War II, implying that the Gerschenkronian strategy of introducing state-of-the-art integrated steelworks with large BFs was worth attempting because of the technological trend in steel production. Watanabe (1978, p. 405), studying the steel and petrochemical industries of South Korea, also pointed out that ‘in the case of those heavy and chemical industries whose technologies have to a considerable extent been standardized, technical assistance is relatively easy and the cost of introduction is relatively cheap’.

For a full and critical account of the developmental state approach, see Fine (2013), for example.

For example, in addition to Howell et al. (1988) and Amsden (1989), Enos and Park (1988), Juhn (1990), Auty (1991), Stern et al. (1995), Shin (1996) and D’Costa (1999) examined various political, economic, and historical factors which worked in and around the South Korean steel industry and pointed out the important role of the state and institutions in developing the industry, mostly through focusing on the miraculous development of the state-owned sole integrated firm, POSCO. Note that, interestingly, Stern et al. (1995) consider that it would be misleading to attribute the development of industries other than steel in South Korea to the role of industrial policy.

Amsden (1989) argues that, first, POSCO was able to enjoy the scale economies of mass production by relying not only on domestic demand but also on exports, which were encouraged by government policy. Second, as the steel industry itself earned foreign money, it was enabled to upgrade by importing additional foreign technologies. Third, exports imposed a pressure to upgrade technologically by exposing the firm to international markets. Note that even though POSCO exported its products to some extent from the very start, its establishment was driven mainly by domestic demand. Watanabe (1978, p. 394) argues that domestic ‘demand pressure for input materials for the rolled steel products sector caused the government to decide in 1970 to begin’ the establishment of POSCO.

The power of dispersion and sensitivity dispersion indices are often used as proxies for backward linkage and forward linkage effects, respectively, in input–output analyses. However, here, following the original usage of Rasmussen, the former is interpreted as indicating the linkage effects between the economic system as a whole and the industry of concern, when demand for the economic system as a whole increased, and the latter as indicating the linkage effects between the economic system as a whole and the industry, when demand for the industry increased.

There are some caveats when looking at the calculated values. First, input and output analysis per se involves various assumptions, such as constant returns to scale, that are unlikely to hold in the case of manufacturing industries; second, the index of sensitivity dispersion assumes that there is a 1 unit increase in final demand for each sector, which does not reflect the actual demand structure. In addition, here the sector includes non-ferrous metal products, although their share in the sector is relatively small compared to that of iron and steel products.

Also, in China, after introducing modern state-of-the-art technology for Baosteel in 1985, many integrated steelworks have flourished, especially from the late 1990s. Middle-sized state-owned firms and private firms have played a major role in the country’s explosive growth by quickly responding to the increase in demand (Sugimoto 2008).

These firms have not been fully successful because the technical quality of their products has often been reported to be variable and unacceptable. Also, the price of scrap has been widely fluctuating, and the supply and demand of natural gas have been tight.

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Titel: Advantages of Backwardness and Linkage Effects: The Steel Industry in Asia
verfasst von: Hajime Sato
Verlag: Palgrave Macmillan UK
Buch: Varieties and Alternatives of Catching-up
Print ISBN: 978-1-137-59779-3

Electronic ISBN: 978-1-137-59780-9

Copyright-Jahr: 2016
DOI: https://doi.org/10.1057/978-1-137-59780-9_6

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