The Republic of Korea's growth rate averaged nearly 6 per cent in 1981-85, jumping to 10-12 per cent a year in 1986-87. Inflation was cut from 26 per cent in 1980 to around 3 per cent in mid-1987.The author of the following monograph, Dr Alice Amsden, argues that much of the recovery in growth and in inflation had to do with the structural soundness of the industrialization effort of the 1970s. Another large part had to do with exogenous factors - the world economic recovery and an improvement in Korea's terms of trade (at a time when the terms of trade of other industrializing countries continued to deteriorate). The role played by macroeconomic policy was initially much the same as in the past - driving away recession with expansionary measures and devaluation to spur exports.Rising productivity was the critical factor. Part of the productivity rise went for increases in real wages, which contained social unrest, and part went for a lower growth rate of unit labour costs. An improved cost position helped firms to export, thereby necessitating a lower devaluation of the currency than otherwise.In 1983, however, at a time when price increases in Korea were already well below historical levels, the government, in concert with the IMF, tightened the fiscal and monetary screws. The stated objective was to prepare the macroeconomic environment for the comprehensive programme of economic liberalization that was just getting underway.The successes of this tightening were threefold. First, long term debt as a per cent of total debt rose sharply. Second, savings as a per cent of GNP rose from 23 per cent in 1982 to .28 per cent in 1984. The current account deficit, therefore, was unusually low in 1984. Third, inflation was eliminated.Dr Amsden argues that the case for sweeping economic liberalization cannot be based on an impartial reading of Korean economic history. Direct intervention and subsidies have always played a crucial role in economic policy. In conjunction with a highly politicized process of industrial licensing and long-term credit allocation, subsidies have been used to guide economic behaviour, export targeting providing the government with a device to discipline subsidy recipients, (a device absent in so many other countries where subsidies are also king). It is true that Korea has relied on foreign markets to absorb its exports, and it has also used the market mechanism under certain conditions to discipline firms. But is has never embraced the market mechanism as a rule of thumb.