South Korean Workers and the Middle East Construction Boom in the 1970s

Transcription

1 South Korean Workers and the Middle East Construction Boom in the 1970s SHIM Ui-Sup Abstract In 1973, as the Middle East was in the midst of conflict, the region s oil producing nations declared their reserves to be a weapon and the first oil shock ensued. The resulting spike in global oil prices allowed the region s oil producers to proceed with infrastructure-centered economic development. South Korea became an active participant in the consequent construction boom, winning contracts, exporting construction services, gaining investment capital for development and resolving energy supply problems. The outflow of construction workers to the Middle East construction sites contributed in a major way to South Korean economic growth and the country s balance of trade. However, these same forces also led to some negative consequences as the construction boom induced wage hikes in South Korea proper, thus making South Korean construction companies less competitive. As construction of social overhead capital (SOC) in the oil producing countries of the Middle East reached its final stages, demand for foreign workers declined. At the same time, the Gulf States began to pursue a strategy of reducing excess dependency on foreign workers and implemented a localization policy that aimed to utilize domestic workers in developmental projects. Due to these factors, the large outflow of construction workers to the Middle East abated and disappeared, becoming a stage in Korean history. Keywords: Middle East construction boom, Middle East construction market, overseas construction, Korean construction workers Shim Ui-Sup the Emeritus Professor at Myongji University, received his PhD from Konkuk University, with a thesis titled "An analysis of the economic effects of the overseas construction industry: The case of Korea. He served as President of the Korea Association of Middle East Studies, and the Asian Federation of Middle East Studies Associations. He is the author of many articles, books, and book chapters. His major publications include Korean Construction in the Middle East (Bubmunsa, 1984); Korea s overseas construction in the Middle East, in Middle East in the Cooperation between USA and USSR: Middle East Review 1990 (Institute of Developing Economies (Tokyo), 1990); and "Korean workers in the Gulf States during the construction boom, in Annals of the Japan Association for Middle East Studies (AJAMES No. 8, 1993). shimuisup@hanmail.net Journal of Contemporary Korean Studies Vol. 2, No. 1 (June 2015) : 37~ National Museum of Korean Contemporary History, Korea

2 Introduction Overseas construction projects played a highly significant role in South Korea s economic miracle. South Korea s advance from a country flattened by the Korean War to part of the developed world included both crisis and opportunity. The mobilization of Korean troops in the Vietnam War, the overseas construction boom, and the rise of information technology were notable for impacting favorably on Korea s economic advance. Conversely, the division of the country followed by the Korean War, the energy crisis the country faced early in its development as well as Korea s excessive dependence on foreign markets, and the financial crisis of the late 1990s brought adverse consequences. However, it was the wisdom of the people and the leadership exercised by the government that permitted the country to take advantage of both crisis and opportunity. Overseas construction projects are a prime example of this, playing a crucial role in the acquisition of foreign capital, in the resolution of energy supply problems, and in the expansion of understanding of the importance of globalization and economic openness. In the early 1970s the South Korean economy faced challenges due to a scarcity of energy and capital, and was burdened with the problem of high unemployment. It was overseas construction projects that allowed for such issues to be solved simultaneously. The Korean passion for education ensured that a cheap, but comparatively highly skilled workforce, which included a large army of well-disciplined ex-servicemen, was available. By contrast oil-producing nations in the Middle East, while rich in capital due to an influx of petro-dollars, lacked manpower. This situation presented a golden and unrepeatable opportunity in South Korea's economic history. A secure supply of energy was a crucial issue for the industrialization of South Korea, a country with no oil reserves of its own. Hence the government put in place policies aimed at supporting overseas construction projects. South Koreans at home and abroad were also in a position to aid such endeavors with enthusiastic support and through the use of their skills. The Middle East proved to be a stepping stone for South Korea's construction industry to make a leap into the general global construction market. The experience of managers and workers overseas also aided the modernization of the South Korean economy and raised the general level of understanding about the forces of globalization. At the physical level, if it was the overseas construction boom that enabled the Korean construction industry to gain a foothold in the world construction market, then the experiences gained from working in the Middle East played a crucial role in improving understanding of globalization at the ideational level. With this in mind, a discussion of how these opportunities by those working in the construction 38 Journal of Contemporary Korean Studies 2(1) 2015

3 industry were utilized, as well as how such opportunities presented themselves in the first place and how they ultimately disappeared, will be attempted. First, as background, Part Two will discuss the Middle Eastern construction market, while Part Three will discuss those sent to the Middle East. Part Four, prior to my concluding remarks, will describe the construction boom and how it ultimately came to an end. The Middle East Construction Market: Supply and Demand for Labor The Middle East construction market The Middle East can include both the states of the Middle East itself and the states of North Africa. Indeed, it can be defined in many different ways. In this article, the Middle East will generally be taken to be oil rich nations such as the Gulf Cooperation Council (GCC) states, 1 Iraq, Iran, etcetera. The main economic features of the GCC states in the 1970s can be summed up as follows. One, as a set of economic arrangements dependent on oil, thus highly sensitive to shifts in the global oil price. These states competitively pursued economic development plans on the basis of massive oil revenue, with massive construction projects being a crucial element therein. Two, an economic system reliant on foreign labor. Low populations meant that the pursuit of competitive, multifaceted developmental projects was highly reliant on the importation of foreign labor. Furthermore, a set of socio-economic arrangements that largely excluded women from economic activities meant that there was a shortage of economically active members in the population (i.e. when the elderly, women, and children are excluded from economic activities). Three, the establishment and implementation of economic plans that sought to reduce reliance on the petroleum sector via economic diversification policies. It was to achieve these aims that initial investments were made in the construction of manufacturing facilities back in the 1970s. Four, these states were leaders in the Middle Eastern economic boom of the 1970s. Capital markets were opened and imports were heavily relied upon to support this boom. The 1973 Oil Shock was a period of crisis for the Western world, but it proved to be a great opportunity for the oil-producing states of the Gulf. This was because the latter SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 39

4 were able to pursue development premised upon massive oil revenues. The Middle East found itself in a remarkably fortunate position, being able to acquire capital and absorptive capacity, the prerequisites for economic development. In this regard, the Oil Shock provided the first opportunity, but the second was lacking due to a scarcity of labor and fundamental socio-economic institutions. Thus, the first priority for the Gulf States in their pursuit of economic development was the renovation and expansion of social overhead capital (SOC). These aims required massive amounts of capital and labor power. Hence the oil-producing states of the Middle East established developmental plans and began the importation of foreign expertise and manpower. 2 It was at this time that energy-poor South Korea resolved to utilize the Oil Shock as an opportunity. South Korea was reliant on energy imports, and unemployment issues and capital shortages were blighting the economy. Hence, it was decided to deploy South Korean labor in the Middle East construction market in order to resolve these issues and provide financing for heavy and chemical industry-led industrialization at home. It was in this context that South Korea came to participate in the physical infrastructure-centered construction boom in the Gulf States of Saudi Arabia, Kuwait, Iran, and Iraq. South Korean companies mainly won contracts to build buildings, apartments, roads, port facilities, power facilities and telecoms infrastructure. Korean involvement in the Middle East construction market began in October 1973 with Samwhan Corporation winning a 24 million USD contract to build a 163 kilometer motorway between Al Ular and Qaibal in Saudi Arabia. Following this, South Korean companies staked out a singular position within the civil engineering and construction industries as a provider of massive amounts of essential manpower. The country showed itself a formidable player, both as a source of labor power and in terms of winning contracts, becoming the seventh largest construction service provider in the region. 3 Table 1. Regional trends in overseas construction contracts won Unit: Million USD Middle East Southeast Asia Pacific Other Total Journal of Contemporary Korean Studies 2(1) 2015

5 1976 2, , , , , , , , , , , , ,392 1, , , , , ,502 Total(%) 67,439(91.8) 5,196(7.1) 194(0.3) 823(1.1) 73,467(100.0) Source: Shim (2007, 178) Table 2. Contracts won by South Korean construction companies in the 1970s by type Unit: Million USD Total (%) Road ,087 2, Port 479 1, , Other ,420 1,299 2,156 5, Civil-Engineering-Subtotal 1,112 1,448 1,571 2,019 1,679 3,739 11, Building ,022 4,979 2,979 3,852 13,685 Plant , ,236 Electric & Telecom ,671 Services Source: Overseas Construction Association (1984) South Korea was, in very short order, able to become a major player in the Middle Eastern construction market of the 1970s. The present article divides the boom period into two sub-periods: the peak period or mini-boom (May 1978 to June 1979); and the longer boom period ( June 1975 to June 1979). In the former period, South Korea was the number one exporter of construction services to the SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 41

6 region, while in the latter, it was the fifth largest (Table 3). Table 3. Ranking of countries supplying construction services by market share Unit: Million USD Top-ten rank Contract awards Market share (%) mid-boom boom mid-boom boom mid-boom boom Korea 1 5 4,667 9, Italy 2 3 3,529 10, West Germany 3 1 3,327 18, Japan 4 2 2,662 17, France 5 6 1,324 7, United Kingdom , USA , Switzerland , Belgium , Netherlands , Others 4,878 21, Total 21, , Note: Mid-boom (May 1978 to June 1979), boom ( June 1975 to June 1979). Source: Engineering News Record (1979). For details, see Shim (1993). Other statistics demonstrate that in the seven year period between 1976 and 1982 (around the time of the Middle East construction boom), South Korean contractors won 55.8 million USD worth of contracts, around 85.2 percent of all contracts tendered. A look at the percentage of different types of contracts won reveals that of the 85.2 percent of contracts won, labor-intensive, technically undemanding civil engineering and construction projects made up a full 38.7 percent and 36.5 percent of all projects during the period. These figures, if seen in terms of comparative advantage, 4 yield index scores of 164 and 150, respectively. This demonstrates both the competitiveness and dominance in certain sectors of Korean contractors within the Middle Eastern construction market during the boom. 42 Journal of Contemporary Korean Studies 2(1) 2015

7 Table 4. South Korean market share in the Middle Eastern construction market by sector ( ) A. Orders awarded in the M. East B. Orders received by Korean firms C. Revealed comparative advantage (B/A) Civil Engineering 72,250 (24.4) 20,335 (36.5) 150 Building 88,000 (29.7) 27,187 (48.7) 164 Plant 99,890 (33.7) 5,507 ( 9.9) 29 Electricity & Communication 27,510 ( 9.3) 2,546 ( 4.6) 49 Services 8,370 ( 2.8) 185 ( 0.3) 11 Total 296,020 (100.0) 55,780 (100.0) Note: Calculated using raw data from the records of the International Contractors Association of Korea. Source: For details, see Shim (1993). Thus, the Middle Eastern construction market of the 1970s was characterized by labor-intensive civil engineering and construction projects. As stated above, the Gulf States lacked workers and needed to import necessary labor power, while Korean companies did not find themselves in competition with companies from more advanced countries who relied more on technology than on labor. Moreover, because many of the projects were large in scale, the Gulf States frequently paid advances, while private contracts and subcontracting were the principal tendering methods. Construction funds were usually given in the form of cash and thus the margin was usually around 5 to 10 percent (Shim and Choe 1988, 269). Demand for Labor in the Middle Eastern Construction Market 1) The Middle Eastern labor market The labor market of the Middle East is divided into the oil-rich states, the demand side, and the poorer Arab states, which possess little or no oil, i.e. the supply side. Not only are oil producing states of the Gulf sparsely populated, the role of women in the economy is also limited. Thus, excluding soldiers, civil servants, and students, at the time of the boom only 50 percent of the population was employed in either commerce or agriculture. Hence, it is no surprise that demand for foreign labor was high when these states economies grew. For instance, in Saudi Arabia, a state where foreign labor SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 43

8 was much in demand, a full 40 percent of workers were foreigners during the boom. The major source of labor power within the Middle East itself were workers from poor Arab states such as Egypt and Yemen, as well as displaced Palestinians, migrants from the increasingly unstable Lebanon, and workers from Jordan looking for better job opportunities. Workers came in many forms, from humble laborers to highlyskilled technicians. Outside the area, the main supplies of labor came from Asian states including South Korea, India, Pakistan, Thailand, the Philippines, and Indonesia. Saudi Arabia, Libya, and Iraq were the largest importers of workers and it was Egyptians and Yemeni nationals who made up the bulk of the migrant workforce. Palestinians and Egyptians mainly went to the Gulf States, while the United Arab Emirates (UAE) played host to workers from neighboring Arab states and Asian migrant workers. Lebanese workers went equally to all the oil-rich states in the region, while roughly 30 percent of Jordan s workforce went to Saudi Arabia and neighboring states. Low populations were a major impediment to economic growth and social change in the oil-producing states of the Middle East. This is because a small population means a small consumer market and an inadequate supply of labor for the industrial sector. There was also the problem of human resource quality. A large population of non-economic active women and children resulted in a low labor market participation rate and consequent low employment rate. Furthermore, low-wage labor created a lower class in the labor market, and a poorer class in society. The introduction of farmers and members of nomadic tribes into the industrial labor market was difficult, thus leading to a labor market in the region universally characterized by distortion and shortage. The oil-producing states of the region decided to import labor power in order to resolve this problem; these workers were to be used in the construction of SOC. As a result of the implementation of such policies, there was a massive influx of foreign workers into the construction sectors of these countries. In 1975, the indigenous population as a percentage of the total population in oilproducing states of the Middle East was as follows: Kuwait (48.4 percent), Qatar (41.2 percent), UAE (41.3 percent), Bahrain (79.3 percent), and Saudi Arabia (74.6 percent). The percentage of workers of foreign origin in the labor force was as follows: Kuwait (69.4 percent), Qatar (81.1 percent), UAE (84.8 percent), Bahrain (39.6 percent), and Saudi Arabia (42.5 percent). The top employer of migrant workers in the region was Saudi Arabia, followed by Kuwait and the UAE. Saudi Arabia had a foreigner population of 1,565,000 and its foreign worker population totaled 773, Journal of Contemporary Korean Studies 2(1) 2015

9 people, while the country s total population at the time was around 4,593, As noted above, Saudi Arabia was the leading importer of labor in the region because its economy was the largest and it spent the most on construction. Conversely, Kuwait s population was smaller in size, and it pursued a higher number of development projects and hence needed to make use of a comparatively larger amount of foreign labor. As a result, the percentage of foreign laborers in its population figures is strikingly large. Kuwait is frequently used as a case study because its migrant labor population was highest amongst the GCC states throughout the 1970s. Its foreign worker population grew from 391,266 in 1970 to 522,749 in The Arab to non- Arab ratio barely changed in these five years, standing at 79.9 to 20.1 in 1970, and 80.1 to 19.8 in Roughly 40 percent of migrant workers were from Palestine and Jordan, with most of the rest of the foreign workforce being from Iraq, Egypt, and Lebanon (Shim 2008, 62). 6 Indeed, as noted above, the GCC states had low populations, and this was a challenge, but another was that the distribution of the working population was concentrated in traditional industries, making it difficult to mobilize the required amount of labor for large economic development projects. Kuwait is a representative example of this: according to the Kuwait Census in 1975 (Shim 1993), the sector that employed the highest proportion of legal working age Kuwaitis was the agricultural and mining industries, with 5,762 Kuwaiti native workers (89.7 percent) and 6,611 migrant workers (11.3 percent) engaged in these sectors. Conversely, migrant workers dominated the construction (30,500; 94.5 percent of total workers) and manufacturing (22,209; 90.6 percent of total workers) sectors, with a total of 298,415 foreign workers employed in Kuwait (70.8 percent of the entire workforce). 2) Economic development projects and demand for labor As the oil-producing states of the Middle East acquired development funds, they began full-scale economic development and with this, an expansion of SOC became necessary. The demand for construction manpower could not be met by domestic workers alone. As a result, as noted above, foreign workers from non-oil producing Arab states migrated to the newly enriched oil-producing states. In 1972, just before the spike in oil prices, i.e. prior to the start of development projects, the Arab foreign worker population of the oil-producing states of the Middle East was around 800,000 people (Birks and Sinclair 1978, 28). By 1975, that number had doubled, not only due to rises in the indigenous population but also because of a massive influx of migrant laborers. Ambitious economic development plans required SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 45

10 a lot of manpower and the Arab labor market thus entered a period of transition. The demand for manpower in all sectors for the expansion and operation of SOC grew rapidly. As a result, from 1975 to the early 1980s, there was a steep rise in the population of the Arab world. In 1975, around 16 million foreign workers found employment in the nine Arab oil-producing states of the Middle East (Algeria, Bahrain, Iraq, Kuwait, Libya, Oman, Qatar, Saudi Arabia and the UAE) (Shim 1988, ). From the late 1970s, the flow of workers from other Arab states began to slow down comparatively, while the number of workers coming from other Asian nations especially India, Pakistan, Sri Lanka, Bangladesh, Myanmar, China, Indonesia, Thailand, the Philippines, South Korea, and Malaysia began to increase. For the ten year period from 1973 to 1983, there was a great increase in demand for foreign workers because of the economic boom. The percentage of foreign workers in the workforce of the GCC states rose from 37 percent in 1975 to 65 percent in However, infrastructure projects were largely completed by the early 1980s, and thus most migrant workers employed in the construction and construction support sector returned home no longer needed in their host country. Korean Workers Overseas and in the Gulf Overview of Korean workers overseas For the ten years before the start of the construction boom in the Middle East in 1974, the number of Korean workers going abroad to work reached 79,340 per year (Shim 2008, ). During that period, because of special war procurements for the Vietnam War, as many as 28,860 Korean workers (36.4 percent of Korean workers overseas) went to Southeast Asia. The second highest proportion of workers overseas was sailors: 27,178 sailors, or a full 34.3 percent of the total Korean workers overseas. However, at this time, there were only 164 workers in the Middle East, specifically in Iran. Excluding the special war procurements of South Vietnam and sailors, 9,248 nurses (11.7 percent) and 5,318 miners (6.7 percent) comprised the bulk of those working overseas. Hence, before the serious outflows of workers to the Middle East, most Korean 46 Journal of Contemporary Korean Studies 2(1) 2015

11 migrant workers were concentrated in Southeast Asia due to the special war procurements in South Vietnam, with nursing and miners being the next most numerous amongst workers going abroad. A glance at the history of South Korea s outbound labor migrations allows one to observe the following peculiarities. At the early stages, the developed world, principally the United States and West Germany, were the major destinations of outbound workers. The main push factor was the lack of job opportunities at home, while the major pull factor was the promise of a better job with better pay. As demand for labor increased in host countries, relatively cheap labor from abroad became favored. This was not so much South Korea taking advantage of new opportunities accorded by the opening of a new market, but rather the utilization of opportunities presented due to the new possibility of moving labor around the world. Subsequently it was the Middle Eastern construction market that became the major destination for South Korean labor. These employment opportunities proved to be rather different from those offered in the developed world in a number of aspects. Not only was the demand for labor larger, work was concentrated in the construction sector and the working conditions were often harsh. Nonetheless, these conditions did not deter and opportunities were taken up enthusiastically. Furthermore, the oil-producing countries of the Gulf were developing countries. However, compared to the comparatively low wages offered in developed countries, the Gulf States were prepared to pay higher salaries, and thus workers were especially eager to obtain employment there. Another notable peculiarity was the concentration of workers within particular sectors. Indeed, as noted above, in the early stages nursing and mining were higher level types of work available in the developed world. Though mining is technical work, recent college graduates formed the bulk of those going overseas to work in mines, and thus it was mainly skilled workers who went abroad. At the same time, it was construction personnel and the companies that employed them who were the main actors in the Middle East construction boom of the 1970s. Indeed, from 1974, with the mass outflow of workers to the Middle East, the region s workforce was dominated by civil engineering-related and constructionrelated workers. The flow of South Korean workers outbound for overseas construction projects began in earnest in 1975 and rapidly accelerated, so that by late 1981, there were 200,000 South Korean workers in at least sixty countries. Their remittances contributed 0.7 percent to GDP growth in that year. However, around 70 percent SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 47

12 of these workers were based in Saudi Arabia, thus there was a great concentration of South Korean workers in a very specific region. Excluding the Middle East, most workers headed to other parts of Asia. While from around 1978 to 1979, most of the rest of the world became off limits to would-be South Korean migrant workers. At the same time, around 40 percent of these workers were employed in the civil engineering/construction sector, with 10 to 20 percent of workers employed as simple labor, freight (truck) drivers, maintenance personnel, or as sailors. Hence, it is clear that there was a high concentration of workers in the construction sector in the late seventies. Overseas construction and construction labor outflows As stated above, South Korean construction workers began moving to the Middle East in 1975, with Korean contractors sending 3,931 workers in that year alone. By early 1980, there were 100,000 workers involved in construction projects in the Middle East labor outflows had increased dramatically and quickly. The numbers involved reached their apex in late 1982, when a total of 160,002 South Korean construction workers were employed in projects in the Middle East. The number then began to decline slowly, with 150,115 South Korean construction workers still working in the Middle East in late However, by late 1985, the number had declined to 91,013, and by late 1987, this number had steeply declined to a mere 39,658 (Table 5). These workers were, as mentioned before, concentrated heavily in Saudi Arabia. There was a high concentration of workers in construction-related occupations such as construction itself as well as in civil engineering, transport, maintenance and simple labor, and nursing. Hence, there was both a heavy regional and occupational bias to this phenomenon. The outflow of workers to the Gulf also exerted significant influence on the South Korean labor market. This can be seen in a comparison of the wages paid to construction workers domestically and overseas. In the early stages of the outflow, in 1974, the average monthly salary of a foreign-resident construction worker was 113 USD, 3.24 times higher than that of a domestically-employed construction worker. This rose 3.65 times in 1975, thus increasing the speed of the outflow of construction workers to the Middle East. 8 However, with the passage of time, this pay differential narrowed, and with that the outflow slowed. Moreover, overseas construction contractors in the Middle East 48 Journal of Contemporary Korean Studies 2(1) 2015

13 came to be less favorably inclined toward South Korean workers. Though both South Korean and other foreign contractors recognized the high productivity of Korean workers, they began to favor native workers or workers from poorer parts of the Third World when hiring for unskilled positions. This not only reflected the need to remain competitive internationally, but was also the result of contractors actively seeking to utilize labor already adapted to conditions on the ground. Table 5. Foreign construction workers in the Middle East Total Sub-total South Korean Workers South Korean contractors ,931 3,931 3, ,182 16,182 16, ,344 38,344 38,344 (As of November 30, 1987) Other foreign contractors Third country workers employed by South Korean contractors ,284 67,071 66, ,102 94,297 92,480 1, , , ,967 3,451 5, , , ,724 3,832 14, , , ,075 4,803 29, , , ,050 6,477 36, ,726 83,161 75,823 7,338 27, ,798 59,483 51,880 7,603 26,315 Source: Korean Overseas Development Corporation (February 1988) The South Korean Construction Boom in the Middle East and its End Characteristics of the Middle East labor market The GCC region was lacking in skilled labor and thus had to import a lot of skilled manpower from overseas. First, in the early 1970s, it was from poor Arab states like SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 49

14 Yemen, Egypt, Jordan, and Palestine from which workers came; these workers did not face a language barrier and were eager to work in order to improve their often desperate economic circumstances. From 1973 onward, with the construction boom beginning, things began to change. Each of the oil-rich states in the region began to pursue their own competitive development plan and required large amounts of foreign labor. Thus, not only were workers from poorer Arab states in the region in high demand, but Pakistanis and Kelarites from India also began to flood into the GCC states. At first, the construction market of the Gulf was characterized, above all, by the flexibility of labor conditions for employers. Wages were low, 9 it was easy to fire workers, and worker efficiency was high; workers were easy to deal with and obedient. This was the epitome of a natural buyer s manpower market, the labor market was in a state of perfect competition. The second feature of this market was the fear of potential social and political radicalization amongst poor Arab migrant workers. Fears that radical leftists amongst workers might propagate anti-monarchist ideology amongst the indigenous populations of the richer Gulf States were reported on at the time. The third feature of this market was the appeal of Asian workers, who did not have the historical links and geographical closeness of Arab migrant workers. The de- Arabization of the migrant workforce as a result of the massive inflow of Asian workers was not feared either. Asian workers were locked into strict contracts which stipulated that if violated (including violations against Islamic ethics) the workers could be dealt with according to Islamic custom, expelled and even barred from any further re-entry. The fourth feature of this market was the emphasis on infrastructure projects demanding the importation of vast amounts of labor. The pursuit of policies that encouraged foreign workers to come to the Gulf to work, and their collective accommodation and management on-site meant that there was little fear of their presence causing excess social or cultural disruption. Because workers were there in order to earn a wage, once they had more or less achieved their initial goal, rather than remaining in the harsh working environment and in what was a highly rigid Islamic society, they returned home. The causes of the massive outflow of South Korean workers to the Gulf The supply of workers for South Korean construction companies working in the Gulf 50 Journal of Contemporary Korean Studies 2(1) 2015

15 was premised upon using high quality Korean labor power while offering the lowest cost structure by tending and utilizing a schedule compression strategy. This enabled South Korean companies to dominate the market, with a cheaper workforce than what more advanced countries could offer and a high level of productivity. However, South Korean competitiveness was limited to the civil engineering and construction sectors. Other sub-sectors within construction including management, engineering, operations, and technology were dominated by more competitive firms from more advanced countries. Table 6. Average wage and productivity by nationality and occupation Thailand Bangladesh India Pakistan Philippines Sri Lanka Third country average South Korean Unit: USD Average productivity of third country worker Simple labor Skilled labor Truck Driver Maintenance Supervisor Manager , Average Note: Productivity = (Third country average wage) / (Korean average wage) Source: Overseas Construction Association (1984, 80). Indeed, more than anything else, it was high productivity which gave South Korean companies their edge. While lower wages was a factor behind the comparatively high productivity, labor discipline was also important. As can be seen in Table 6, South Korean workers were found to be as much as twelve times more productive than Southern Asian workers, with Southern Asians recording productivity scores of 78 compared to for South Korean workers. This is the figure for 1984, a time when South Korea s competitive edge was being lost in the face of competition, and yet the difference in relative productivity is strikingly large. It is not unreasonable to infer that the relative productivity of the South Korean workers in this region would have been far higher back in the 1970s when Korean companies were dominant in the market. SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 51

16 The following are the main reasons for this large productivity gap. First, most of the projects were in labor-intensive construction and civil engineering, for which South Korea possessed a ready supply of cheap labor. Thus, rather than using indigenous workers or third-country workers, South Koreans were favored. This is because, from the point of view of South Korean companies, it is obviously much more efficient to use people who speak the same language and are from the same culture. Furthermore, workers were housed in work camps together, thus reducing travel times to sites and allowing for the maximum utilization of technical staff. Second, most construction workers were ex-servicemen and thus accustomed to a highly disciplined environment. Having spent years in military fatigues, South Korean construction workers were all too familiar with how to work in teams, and with the irregular nature of the construction work and how projects worked in practice. Thus, they were able to participate actively in project fulfillment and this raised productivity. Third, the use of schedule compression bore fruit. Managers and technicians were actively involved in the process of reducing management costs. The let s live well idea was employed in the workplace, workers did overtime and utilized firelight in order to work at night. This enabled schedule compression. Fourth, the movement of workers and the utilization of facilities also enabled the cutting of costs. Rather than recruit new workers in South Korea for newly-won contracts, where possible, companies sought to deploy their existing workforces on new projects once existing construction projects had been completed. This not only enabled companies to cut the recruitment and transport costs associated with new workers, but also meant that workers gained experience that allowed for reductions in personnel and management costs. Furthermore, construction costs could also be lowered thanks to the reuse of existing equipment. Equipment was reused and deployed at multiple locations. The end of the boom The outflow of Korean labor to the Gulf lasted for around ten years, from 1975 into the early 1980s. The reasons for the end of the boom can be summarized as follows. First, foreign labor made a huge contribution to construction project-centered economic development projects in the Middle East. However, the size of the labor inflow was a cause for concern amongst the oil-rich states of the Gulf. 10 States like 52 Journal of Contemporary Korean Studies 2(1) 2015

17 Kuwait at one point played host to migrant laborer populations that made up 90 percent of their total population, and the trend was an upward one. It became necessary to discuss what to do about such large migrant laborer populations and reexamine issues like reunifying the families of migrant workers. As South Korean contractors lost their earlier advantage as suppliers of cheap labor, their market presence became more passive. States like India, Pakistan and the Philippines in Asia, and poorer, non-oil rich states of the Gulf like Yemen began entering the labor market more aggressively, becoming major competitors. Second, with the decline in global oil prices and consequent reduction in oil revenues, as well as at least partial satisfaction of SOC construction demand, the demand for labor on the scale of the previous decade disappeared. Though economically larger oil-producing states such as Saudi Arabia, UAE, and Libya continued to increase the migrant laborer populations throughout the period from 1975 to 1985, smaller states such as Bahrain, Kuwait, and Qatar reduced theirs (Shim 2008, 42). 11 Third, the outflow of workers to the Gulf also had a significant impact on South Korea s domestic labor market. As noted above, this is evident from a comparison of construction work wages in the period. 12 At the beginning of the boom in the Middle East, back in 1974, wages offered in the Gulf were 3.24 times higher than those offered domestically; this figure rose to 3.65 times the following year, thus inducing further outbound migration to oil-rich Gulf States. However, after this gap peaked in 1975, it continually narrowed, and as the boom was coming to a close from 1982 to 1983, contractors in the Gulf paid a mere 1.53 times more than domestic contractors (Shim 2008, 33). Fourth, not only did this dampen the allure of the Gulf as a destination for wouldbe migrant workers, but it also led to less interest in South Koreans as potential migrant workers. While employers recognized the high levels of productivity that South Korean workers had offered, they began to prefer the use of indigenous sources of labor or laborers from other nations with lower wage levels for non-skilled work. This was due both to issues of international competitiveness and also the result of attempts to adapt to conditions within the Middle East i.e. the attempt to utilize as much as possible local sources of labor. It was during the period from 1983 to 1984 that the boom finally started to end. In 1984, at Saudi Arabian construction sites, Korean workers were by far the highest paid. The next highest paid were Philippine migrant workers, paid on average 787 USD per month, while the least well paid were Sri Lankans, who received on average SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 53

18 438 USD per month. The average wage for non-korean migrant construction workers in Saudi Arabia was 613 USD per month. South Korean migrant construction workers by comparison were paid 1,129 USD per month on average. Hence, the average third country migrant construction worker received only 54 percent of their South Korean peers (Kim and Choe 1985, 59). Fifth, the twin forces of localization (pursued by multiple states in the Middle East) and the higher efficiencies successfully made by local contractors further strengthened the above-noted trends. Only 10 percent of contracts were won by Arab contractors in 1981, but by 1985, this number had risen to 50 percent (Shim 2007, 5). Arab states introduced a variety of measures to protect their own construction companies, including a 30 percent mandatory minimum on the value of contracts going to domestic providers and a quota for the employment of domestic laborers. They also raised the level of participation by domestic contractors in large construction projects, gave preferential bidding rights to domestic contractors in tendering processes, and gave domestic providers preferential rights to purchase construction materials and equipment (Shim 2007, 5). In addition to all of this, Gulf States began to place restrictions on the creation of joint-venture entities, reduced advanced payments made for future construction projects, delayed previously agreed major payments for projects, and raised the cost of the tendering process for foreign companies by levying additional taxes. Such measures helped to lower the relative competitiveness of foreign contractors vis-à-vis their domestic competitors. Conclusion South Korea s entry into the Middle East construction market not only provided balance to a system hitherto dominated by Western contractors, but also contributed substantially to the modernization of South Korean construction companies, and to their establishment as global players in the construction market. Furthermore, the 1970s Middle East construction-related labor migrations made up a significant portion of outbound labor migrations from South Korea. South Korean workers and contractors came to hold a dominant position during the boom, and are still well thought of today by many in the Gulf. The early outflow of Korean migrant workers to the Gulf was the result of a mutually complementary relationship. The Korean side supplied Gulf States with large quantities of workers to be used on labor-intense projects, while the Gulf States 54 Journal of Contemporary Korean Studies 2(1) 2015

19 supplied the Korean side with capital. However, after a decade, the boom was to end. During the beginning of the boom, the outflow of workers to the Gulf reduced unemployment, and the inflow of foreign exchange from migrant worker remittances boosted South Korea s balance of trade and thus its economy. However, migrant worker salaries also led to an increase in domestic wage rates and a consequent loss of competitiveness amongst South Korean contractors in the Gulf. The initially large differential in wages between the Gulf construction market and South Korea s domestic wage levels disappeared and the Gulf lost its previous allure. While the number of construction contracts continued to increase and Korean workers continued to have high levels of productivity, even for Korean contractors, hiring Korean workers ceased to be a competitive option. This is because migrant workers from other countries such as India, Vietnam, Thailand, and the Philippines were just so much cheaper to hire. Moreover, while the oil-rich states of the Gulf had heavily utilized migrant workers during the boom, in the 1980s, as they grappled with many negative social effects of this policy, they began to institute regulatory curbs on the use of migrant labor. Social problems that arose from the influx of migrant laborers included increased crime, friction with employers, and the overstaying of work visas. Economically, as the construction of SOC was completed, demand for migrant labor decreased. Additionally, with the decline in oil revenues, development plans were scaled back. Furthermore, efforts were made to decrease excess dependence on migrant labor by Gulf States with the institution of localization policies. It was for these reasons that the construction boom ultimately ended. Notes 1. Gulf Co-operation Council (GCC) or the Cooperation Council of the Arab States of the Gulf consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE. 2. The major economic development plans implemented by the Gulf during this time include the following: Saudi Arabia (2nd Five Year Plan, 1975/76~79/80), Iran (5th Five Year Plan, 1973/74~77/78), Kuwait (New Five Year Plan, 1976~80), UAE (Abu Dhabi, Third Stage Development Project, 1977~79), Iraq (4th Five Year Plan, 1976~80), Libya (New Economic Plan, 1976~80). 3. The six countries that won a higher value of contracts in dollar terms are as follows: the United Kingdom, the United States of America, France, Italy, Germany and the Netherlands. Note that they are all developed countries. SHIM South Korean Workers and the Middle East Construction Boom in the 1970s 55

20 4. (Revealed comparative advantage)=orders received by Korean firms/orders awarded in the Middle East. 5. For details see: Birks and Sinclair (1978). 6. For details see: Shim (1992). 7. See the Overseas Workforce Factsheet ( July 20, 1987) in Korean for specific information. 8. From then on, the gap in wages between domestically employed and Middle East-based overseas construction workers declined continually. By the end of the boom, in the 1982 to 1983 period, South Korean construction workers in the Middle East were paid a mere 1.53 times what their domestically-based peers commanded, and this figure declined to a mere 1.16 times by 1987 thus the market lost its allure. 9. Low wages were maintained by sending workers home after between two and three years, rather than increasing their wages, and replacing them with new workers. 10. See the following: Serageldin, Socknat, Birks, Li, and Sinclair (1983). 11. For details see: Serageldin, Socknat, Birks, Li, and Sinclair (1983). 12. See the following: Shim and Choe (1988). References Birks, J. Stace and Clive A. Sinclair Country Case Studies: Kuwait, Qatar, Libya, UAE, Bahrain, and Saudi Arabia. International Migration Project Working Papers Durham University. Kim, Su-gon and Don-gil Choe Analysis on Economic Effect of Overseas Workers. Seoul: Korea Development Institute. Korean Overseas Development Corporation ( July 20), 1988 (February 5). Overseas Worker Factsheet. Overseas Construction Association Overseas Construction Civilian White Paper. Serageldin, Ismail, James A. Socknat, Stace Birks, Bob Li, and Clive A. Sinclair Manpower and International Labor Migration in the Middle East and North Africa. Oxford University Press. Shim, Ui-Sup Korean Workers in the Gulf States during the Construction Boom. Paper presented at the 1992 Annual Conference of the Japanese Association for Middle East Studies. Kobe University, Tokyo, May Korean Workers in the Gulf States during the Construction Boom. Annals of the Japan Association for Middle East Studies (AJAMES) 8: South Korea s Overseas Construction Projects. Seoul: Myongji University Press Korean Labor Migration. Seoul: Myongji University Press. Shim, Ui-Sup and Don-gil Choe Changes in the Middle East Construction Market and the Issue of Labor Migration. Korean Middle East Research Association Journal 9: U.S. Arrogance costs firms billion in lost jobs Engineering News Record, November Journal of Contemporary Korean Studies 2(1) 2015