This Year as a Turning Point for Defense Industry - (6) The 1980s: A Period of Challenges for Defense Industry

The first defense industry exhibition since the founding of the nation, the Korea Defense Equipment Exhibition (KODEX 1981), was held at the Korea International Exhibition Center from September 25 to October 5, 1981, organized by the Defense Industry Association under the supervision of the Ministry of National Defense.

[Kim Min-wook, Editor-in-Chief of Monthly Defense and Technology] South Korea's defense industry underwent significant changes amid political transformations such as the death of President Park Chung-hee in 1979 and the rise of the Chun Doo-hwan government in the early 1980s. The situation during the Chun Doo-hwan administration was markedly different from the 1970s, and research has identified three major factors that influenced defense policy. First, since the Chun Doo-hwan government needed to gain legitimacy from the United States, it could not strongly pursue independent development policies such as missile development.

Second, with the inauguration of U.S. President Ronald Reagan in 1981, who promised firm security guarantees to allies including adherence to the Korea-U.S. Mutual Defense Treaty, halting the withdrawal of U.S. forces from South Korea, and providing defense technology, the sense of urgency and awareness regarding self-reliant national defense were diminished.

Third, the Chun Doo-hwan government prioritized economic stabilization and social welfare over national security or economic growth, resulting in a reduction of defense spending to below 6% of GNP.

Summarizing the defense industry policy of the Chun Doo-hwan government in the 1980s, the policy focus shifted from strong government-led initiatives to emphasizing a civilian-led defense industry. As the will to foster the defense industry declined, it was treated on the same level as general industries. Although there was recognition of the need to establish a foundation for producing high-precision weapons and some achievements were made, overseas procurement to accelerate weapon system deployment was still prevalent.

This environmental change brought significant shifts in defense promotion policies, including the suspension of the Defense Industry Promotion Expansion Conference after the 5th meeting, prioritizing economic efficiency in weapon system acquisition, reduction of policy privileges for defense contractors, and relative decreases in defense budgets.

These factors led to a decline in defense industry operating rates, management pressures, reduced motivation for participation, contraction of domestic development, and stagnation of the domestic defense industry base.

▲ Economic Deterioration and Defense Industry Standing Alone = Entering the 1980s, worsening economic conditions such as exchange rates, interest rates, and oil price increases severely curtailed production activities of domestic companies. These adverse factors were no exception for the defense industry. Coupled with repayment issues from overlapping investments and bankruptcies of some companies, the defense sector faced a decline in overall volume and operating rates.

The Agency for Defense Development also reduced about 900 scientists mainly in missile development between 1980 and 1982, and defense R&D spending dropped from about 3.5% in the 1970s to 1.2?1.4%. This restructuring and mass departure of researchers significantly weakened the R&D foundation.

In 1980, defense industry promotion policy shifted from direct presidential control to being centered on the Ministry of National Defense and the Ministry of Commerce and Industry. The approach moved from full support to encouraging companies’ self-sustainability based on economic efficiency, transitioning from a monopoly production system to a limited competition system.

Related agencies were also drastically downsized: the Ministry of National Defense’s Defense Industry Vice Minister merged with the Logistics Vice Minister, the Defense Industry Departments 1, 2, and 3 were consolidated into a single Defense Industry Bureau, and the Ministry of Commerce and Industry’s Defense Industry Bureau was significantly reduced to a defense section within the Machinery Industry Bureau. Furthermore, the Defense Industry Promotion Expansion Conference disappeared, and the national priority for defense industry promotion became no different from other industrial development, causing a decline in motivation among defense companies, especially contractors.

Although repeated institutional and structural improvements had somewhat solidified defense operations and company support structures, realistically, the defense industry was still at a foundational stage unable to stand alone solely on company efforts. Since the defense industry operates under a state monopoly purchasing system, rapid market-driven growth was difficult to expect, while government expectations for defense industry development remained high.

Amid the economic threats caused by the oil shock, to boost the defense management motivation of member companies, it was necessary for the sole purchaser?the state?to guarantee appropriate profits for companies and ensure they were not financially pressured by loan repayments.

▲ Support to Promote Research and Development = In the early 1980s, two major issues dominated the defense industry: anxiety due to policy changes in defense industry promotion and concerns about quality management of defense materials, including performance and reliability. As the government, the purchaser, no longer prioritized domestic products, competition with imported materials became inevitable, with quality being the central and most visible aspect of this competition.

The Defense Industry Promotion Fund was also established around this time. Based on the Special Measures Act on the Defense Industry, in 1980 the Ministry of National Defense launched a loan support program for defense contractors with government contributions of 30 billion won, and by the end of 2006, the loan amount reached 141.7 billion won. The fund served as one of the government’s policy funds to maintain and develop the defense industry, mainly facilitating the promotion of domestic parts production and securing raw material supply.

However, following the Government Innovation and Decentralization Committee’s policy to consolidate government funds and the enactment of the Defense Acquisition Program Act, the fund was abolished from 2007 and converted into a secondary interest subsidy program under the Defense Acquisition Program Administration’s general account. It has since continued to operate to improve management conditions and strengthen the sustainable growth foundation for defense industry companies, including small and medium-sized and venture enterprises in the defense sector.

This content was produced with the assistance of AI translation services.