Forewords
South Korea is an East Asian nation located in the southern part of the Korea Peninsula. Prior to 1948, the South and North Korea were one nation under different occupying forces. The forces of the United States occupied the south while the Union of Soviet Socialist Republics (USSR) occupied the north. However, in 1948 after the World War II, the nation of South Korea was established, and the two parts were partitioned. This partition caused unbalanced economic units. This was because North Korea controlled majority of the natural resources and heavy industries which were created during the time in which Japanese occupied and controlled the Korea Peninsula. Whereas South Korea deals mainly on the agricultural resources and has large labor forces (Frank, Kim, and Westphal 6-24; “South Korea”).
Despite the political and economic upheaval that has taken place in South Korea along with the numerous dictators that have ruled the country since 1960. South Korea is one of the nations in the world with the most unprecedented economic, social and political developments. Of course, the economic development in this East Asian country can be understood by properly studying the policies and events that led to them. This paper encompasses the events that resulted to the rapid economic, social and political development in South Korea irrespective of the upheavals and the turmoil that took place in the history of the nation.
Overview: Economic, Social, and Political Developments
The growth as evidenced in South Korean history is simply unprecedented, and it is often referred to the "Miracle on the Han River.” The Han River is the main river that runs through Seoul, the capital of the country (“Economy”). Heo et al. reported that South Korea was devastated by the Korean War, which took place between 1950 and 1953. In the 1950s. This country was considered one of the poorest and undeveloped nations on the globe with a GDP and per capita of $1.5 billion and $70 respectively in 1954.
Gulati pointed out that the South Korea, as well as other Four Tiger nations such as Taiwan, experienced relatively higher growth rate during the colonial period between 1910 and 1945 under Japanese rule. The country's economic growth is even higher than that of India under the British Rule. Korea experienced a growth rate of 10 percent a year in manufacturing during the period of 1910-1940. Thus from the report, it is quite obvious that South Korea is not new to the high rate of economic growth (Gulati 161-172).
Furthermore, from the period of 1962, the government brought up strategies and policies for industrialization, a notable one among such plan is the five-year economic plan of 1962. Successful implementation of these economic plans made South Korea was declared as 13th largest economy in the world by 2007 as its GDP and per capita rose from the aforementioned figure to $949.7 billion and $19,424 respectively. Such a remarkable development had never been recorded in the history of the world.
The growth in the nation was remarkable during period of 1980s to 1990s. The East Asian nation which was formally an exporter of mostly textiles and shoes became one of the World's major producers. It emerged as exporters of top notch automobiles, electronics, and shipbuilding, high-technology products like mobile phones, semiconductors and digital monitors. Growth flourished during the regime of the military dictator, Park Chung-hee as his government encouraged growth of large, internationally competitive companies through tax incentives and easy financing. As a result, family conglomerates, known as chaebol were the top corporation during the regime (“Economy”). It is quite remarkable that South Korea made such a tremendous advancement in the economy, polity as well as social development irrespective of the upheavals. Gulati asserted that the growth strategy of South Korea, as well as the other "Four Tigers." resulted from certain unique historical and geopolitical factors. The study went further to argue that the colonial government had established the requisite infrastructure and international linkages that made the initiation of the export-oriented industrialization (EOI) strategy possible (Gulati 161-172). Pundy pointed out that in 1960, South Korea’s GDP per capita was barely twice that of sub-Saharan Africa’s. It jumped to about 24 times the GDP per capita of a typical sub-Saharan African nation in 2005 showing the tremendous economic growth that took place in the country in the course of time (Pundy 72-96).
South Korea under Park Chung Hee’s Military Rule
Syngman Ree was not able to produce significant economic development in South Korea after the Korean War even though he was heavily aided by the United States. He was forced out and replaced by Chang Myon after nationwide protests in 1960. Myon had a moderate government and implemented liberalizing reforms, but it was devoid of economic development. In 1991, Park Chung Hee led a military coup that overthrew the civilian government of Chang Myon.
Frank, Kim, and Westphal pointed out that in the early 1960s between 1961 and 1963, the military government was anxious to bring the economy back to life. Therefore, they adopted a set of fiscal and monetary policies that would cause expansion. The policies resulted to inflation that rose to 15 percent per annum in 1963. Unlikely at the same time, the policy resulted to increase growth. A lot of economic reforms such as the tax and budget reforms, a reform of the foreign exchange control system and a currency reform were enacted by the military government (Frank, Kim and Westphal 6-24).The approaches taken by the South Korean military government to bring about growth can be categorized as follows (Heo et al.).
The Statistics Approach
Heo et al., argued that the so-called statist approach to South Korea's economic development is a development paradigm led by the government. The strategy holds that state autonomy is important in order for economic performance to be successful. This is very much important when policy shift takes place because new growth coalition may result from the new incentives that drive the policy shifts leading to different winners and losers. The major reason, why state autonomy is such a crucial factor is because the government economic policies that are designed and implemented. In addition, it is important for the government to also cooperate with the dominant social forces such as the chaebol irrespective of the importance of state autonomy. This is important because the dominant social forces and the state may have a conflict of interest since the social forces strives to influence policy making about to the economy so as to meet their interests. But the state aims at strengthening its autonomy in order to implement industrialization policies effectively. Such collaboration is a major feature that characterized President Park's regime and resulted to an unprecedented economic growth during the military regime of the dictator.
Export-Oriented Industrialization
Irrespective of this fact that the government does its best to protect the nation's domestic industries, the government also aimed at ensuring that the economy competes favorably in the international markets. The export-oriented strategy that was put in place by the government during the Park's administration revealed that the major goal of the government was to liberalize the economy. This was the pathway to meet up with the international market standards and compete favorably.
The five-year economic plan of the government of 1962 was designed to orchestrate the export-oriented industrialization policy and strengthen the foundation of the economy. This was facilitated by the fact that the decrease in the U.S. aid. Therefore, the government strove to assist the basic industries and also made investments into the economic and social infrastructure. The next five-year economic plan was centered on boosting the nation's export as the plan stressed on developing industries for both export promotion and import substitution (Pundy 72-96).By the end of the 1960s, import substitution quality reached international standards and came to an end while the export-oriented industrialization greatly impacted the industrial structure. Frank, Kim, and Westphal pointed out that the export of goods overshot the original goal by 1968 with a rapid increase of both commodity and service exports. Furthermore, the commodity export target of $550 million set for 1971 was already exceeded by 1969 and 1971 commodity export soared high to $1.132 billion (Frank, Kim and Westphal 6-24)
.Government Business Ties & Control of the Financial Sector
South Korea implemented export-oriented growth policy effectively. The government controlled the financial sector by ensuring that industries based on export are given preferences and also to ensure that domestic savings take place. Secondly, the government aimed at stabilizing exports by managing exchange rate. In order to achieve this, the government went as far as owing the main banks and also purchasing bank stocks. This boosted the state autonomy and made the government has control over credit allocation and with its control over credit allocation, the government was able to reduce interest rates. This served as a catalyst that resulted to a significant boost in the economy.
Growth during the Chun Doo-Hwan Administration
The administration of President Park came to an end on October 26, 1979. He was assassinated by the director of the Korean Central Intelligence Agency (KCIA) (currently known as the National Intelligence Service), named, KIM Jae-kyu. The assassination of the South Korean strongman created a great vacuum, instability and confusion in the country. Koreans expected a democratic government but were taken aback when the Major General Chun Doo-whan took the power. It is imperative to consider that prior to President Chun's election a new constitution had already been approved. The president was allowed to stay in the office for only one seven-year term (Heo et al.; “South Korea”; Yu;). Following the protest against the government, troops were sent by the authorities to subdue the masses, and this resulted to 200 deaths and 800 injuries. President Chun's administration faced a number of economic problems as soon as he took office. Inflation was high due to the 1979 oil shock, and this put the economy into threat. The economic structure of the previous administration which invested heavily on heavy chemical industry and was based on chaebol and this resulted to a profound economic problem in the nation. As the president, Chun enacted various policies and measures to address these concerns that worked a few of the measures are outlined below.
Control of Inflation
Inflation in the Park's regime reached a dangerous level and even though the administration recognized it they did not want to slow down growth. Since the administration was centered on growth, it did nothing about controlling inflation. During the Chun regime, the government focused on reducing inflation in order to ensure stability in social and economic structure of the nation. The government laid down policies to control inflation having realized the aftermath of inflation in the nation if left unchecked such as reduced export and growth. Some of the strategies and policies adopted by the administration to combat inflation included the adoption of a tight fiscal policy such as the reduction of credit, increase in interest rates and freezing of the government expenditure. This resulted to the stability of prices through the period of the Chun administration (Heo et al., 2010).
Restructuring Of the Economy
Additionally, the "rear-rearing businesses" policy was put in place enhance the economic condition of the nation. To the economy, the government reorganized businesses deemed unprofitable through strategies like acquisition, merger and legal management. Tax policies that were created to help industries based on export were removed or cut down in some cases in order to ensure that the government does not directly intervene in the economy. The main emphasis of the government in this regime was on enhancing economic infrastructures and the business environment. Credit allocation policy was also changed and before a chaebol invested in a new business, government approval was required (Heo et al.).
New Economic Policies
The Chun administration successfully controlled inflation and changed the government’s role in credit allocation and the economy at large. Economic growth resumed and reached 8.7 percent during the administration. Heo et al., noted that the strong autonomy of the state during the Chun administration was the only reason, why the economic policy measures adopted by the government worked. In addition, a friendly environment for economic growth and recovery was made possible by the "three lows" in economic conditions, namely: low oil prices, low-interest rates, and low exchange rates. More so, the administration made the economy more liberalized. Additionally, higher education was expanded at this time and at the same time the government made investments into indigenous research and development by establishing the National Research and Development Program (Pundy 72-96).
South Korea’s Democratic Reform and Economic Growth
Irrespective of the economic success during the Chun administration, it was disgusted by the masses because of its immense authoritarian rule and human right abuse. Continuous protests took place due to the human right abuse until the government announced its transition from military to democracy in 1987. It would, therefore, ensure a direct election of the president, guarantee of the human rights and freedom of speech, local autonomy and freedom for political parties. In October of the same year, Roh Tae Woo was elected, and the new constitution took effect the following year. Irrespective of the fact that Roh was elected in the democratic regime, his administration still has some military elements and was largely influenced by the former president Chun Doo Whan.
The administration centered on equity and balance. This caused improvement in the social welfare system via housing policies and a national healthcare plan. Up to 200,000 homes were built, and wealth redistribution strategies were also adopted. The public investment bounced back and led to made balance of payments go worse. Frequent strikes led to increasing in wages for labor workers by up to 21.1% in 1989 which caused inflation, reduced international competitiveness and economic growth. The Roh administration was not with much success and in December 1992; he was succeeded by Kim Young-sam, who was the first civilian president chosen through direct election.
The new president politically neutralized the military and retired the Hanahoe members with an aim to have complete control over the military. He also brought up corruption cases of the past two presidents with his anti-corruption campaign which led to the arrest of his predecessors, Chun and Roh (" South Korea”). The regime also aimed at democratizing the political system and therefore adopted local autonomy that curbed the involvement and interference of the central government in local policy making. This went a long way to causing exceptional political and democratic development in the nation (Heo and Tan 379-398).
.The Kim administration adopted the real-name financial transaction policy in order to cut down the ties between politics and business and ensure that the financial transaction is made more transparent. In tandem, the real-name property ownership policy was also adopted. Thus, administration ensured that high-ranking public officials disclose their financial assets and many other policies were put in place by the administration. This included liberalization of the foreign exchange rate, foreign direct investment, and insurance which resulted to increase in foreign capital flow as well as other benefits.
The country experienced economic crisis in 1997. This began with the increase in foreign debt to up to 24 percent of the GNP. Short term debts of about 350 percent of the foreign exchange reserves made the debts even riskier, and the debt to equity ratio of the 30 largest chaebol was 400 percent. The financial problem reached a crescendo that became uncontrollable and the country had to run to the IMF for help and was forced to accept the $57 billion bailout from the IMF. (Heo and Tan 379-398; Yu). The post-crisis administrations of Kim Dae-Jung attempted to restore the economy back to form, but this was not with much success. However, the fourth civilian president Roh Moo-Hyun was able to restore the economy. He also dealt with the myopic policies adopted by his predecessor in order to recover from the financial crisis. During this administration, the Korean government successfully increased its foreign exchange reserve from $20.4 billion in 1997 to $206.1 billion in 2006 that was the fifth highest in the world. (Heo et al.; Heo and Tan 379-398). Economic growth reduced during the period of 2003 to 2005 to 4%. But with the various policies implemented during the post-crisis administrations, the South Korean economy recovered its growth rate to 5.1% (“Economy”). With its economic reforms and development, South Korea has attained a significant and notable position in the world's economy. This is the 12th largest economy in the world and 11th largest by purchasing power. South Korea is the 3rd biggest economy in Asia and the fourth largest by purchasing power.
Conclusion
The paper examined the rapid economic development that took place in South Korea since the Korean War and the various factors that orchestrated and catalyzed them. Various administrations of South Korean dictators including Park Chung Hee and Chun Doo Hwan employed different policies and strategies which resulted to the development in all aspects of the economy. It is imperative to consider that South Korea not only experienced economic development but also it experienced social and political development. Irrespective of the fact that the economy suffered a financial crisis in 1997 and ran to the IMF for help, it still recovered and got back to track. South Korea’s economy growth, popularly renowned as the “miracle on the Han River” is indeed an unprecedented economic growth which transformed the one-time extremely poor country into an economic giant.
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