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Economic Development of South Korea Thomas Madea Gerrith Andrikus Friday, 6 December 2013 Geography 410 Word Count:


List of cited sources is in the last two pages of this paper

Introduction In 1957, Ghana and South Korea had about the same annual per capita GDP. This does not mean that Ghana was ever considered a developed country. On the contrary, it was South Korea that was as poor as Ghana. Ghanas per capita income in 1957 was US$490 while South Koreas per capita income was US$491 (Werlin, p.205). However, today we no longer see South Korea as a poor country. Even by 1987, Ghanas per capita GDP had fallen to $400 while South Koreas was over $2000 (Werlin, p.205). South Korea has become one of the Four Asian Tigers (Park, p.272-4), a nickname that shows how much the country has leaped from poverty to prosperity within a matter of decades. In this paper, whenever I write South Korea, it is in reference to the current Republic of Korea that has existed after its independence in 1948, with Syngman Rhee as the first president. Any mention of Korea by itself would be in reference to the two Koreas, whether in historical context or in the future scenario of a reunified Korea. On the background section of the paper, I will give the definition of economic development and share some numerical statistics in order to display the economic growth of South Korea in real terms. Afterwards, on the research investigation section, I will elaborate on how South Korea gained its economic growth during the decades (from the 1960s until today), and what kind of possible scenario await its economy in the future. I do realize that in discussing the prospect of economic prospect of reunified Korea, the sources and investigations I have will be rather hypothetical. Hence, I will draw in comparisons and contrasts to another recently-reunified country that also had similar capitalist v. communist division around two decades ago, which is Germany.

Background At first glance, South Koreas leap from ashes and rubble into a haven of modernity is not unique. Even the United States started out in the 18th century as a cash-strapped country that had to experiment with different forms of taxations and laws before turning into the developed country it is today. However, as stated before, South Koreas economy was at one point on par with Ghana, a country located in the sub-Saharan Africa. It was even poorer than most Latin American countries (Kim, p. 73). Therefore, the transformation it has had from a very poor country into the highly-modernized economy that we can see today is a case study worth looking into. In order to discuss in detail the economic development of South Korea, there needs to be a clear definition of what the term economic development actually means. Various scholars interpret it differently. Thus, for this paper I choose to adopt Goldsteins definition of the term, which is The combined process of capital accumulation, rising per capita incomes (with consequent falling birthrates), the increasing of skills in the population, the adoption of new technological styles, and other related social and economic changes (Goldstein, p.577). Now it seemed that it was a long time ago that the Korean people were ever free from wars. By war, I am referring to full-blown invasion and bloodshed incurred from fighting foreign sources (instead of the silent Korean war that still continues until this very day). Therefore, it is not strange that the South Korean economy started out as poor as Ghana in the 1950s. In 1962, total imports amounted to $422 million while exports came to 55 million (Salter, p.87). By 2001, total imports were $160.4 billion while exports rached $172.3 billion (Salter, p.90).

In terms of natural resources, South Korea has always had very few of them. Due to its mountainous terrain, only around 20% of its land is arable for farm use, which are mostly located in the lower ends of river valleys (Jackson, p.12). In terms of mineral deposits, the country only produces coal and tungsten (Salter, p.93). Even then, it still has much less mineral deposits in comparison to North Korea, which has plenty of coal, gold, and even up to 50% of the worlds magnesium (Raum, p.16). This meant that even as an agricultural/natural resource-based economy, South Korea never had much to offer to the rest of the world in the first place. This is where the paradox of natural resources comes along. Due to its lack of natural resources, the only way that South Korea could lift itself up from the brink of poverty was by focusing on its human capital (Salter, p.93). Now let us take a look at its political system. Though South Korea has nominally always been a democratic country, the truth is that it has not always been a true democracy. According to Robert Dahl, true democracies are those that provide basic political opportunities for its citizens, such as in matters pertaining to effective participation, equality in voting, or inclusion of adults (Dahl, p.126-127). There are thus six criteria of what consists a true democracy, namely: elected officials; free, fair and frequent elections; freedom of expression; freedom of press; freedom to assemble; and inclusive citizenship (Dahl, p.221-222). Prior to the Sixth Republic in 1987, South Korea was definitely not what most unbiased observers would call a true democracy (Savada). The country was, at best, what we would call an illiberal democracy (or a half-hearted democracy). Indeed, basic democratic tenets such as free elections and private ownership were allowed. Nonetheless, most of the countrys leaders,

especially in the 1960s, came from a long line of military background who ruled the country with strong control (List-Jensen, p.4-5). How does this relate to the economic development? The connection can be seen in the fact that economic development of a country is strongly influenced by the governments policies. In the late 1960s, the already-poor South Korea suffered heavy economic decline due to overinvestment and unstable market changes. Then, the military regime installed the Korean version of the bureaucratic-authoritarian regime (Yushin) in 1972, which imposed severe restrictions on the political activities of the popular sector, especially the labor movement (Park, p.277). Though authoritarianism have taken root even as early as early 1960s, it was not until 1972 that the government became visibly authoritarian. The Yushin government under Park Chung-hee enabled the countrys economy to grow rapidly. Realizing that his administration is filled with military people who lacked experience in economy, he asked economic advisers for help. Under Yushin government, the country shifted its focus from a heavily agriculture-based into an intensive manufacturing-based economy that exports a lot of its products, thus bringing in revenue from outside the country (Savada).

Research Investigation Part 1: A Glance into the Past The rapid growth of South Korean economy can be attributed to several factors, which will be elaborated in no chronological order. The first factor is the Confucian work ethic that started to gain roots in South Korea and other post-colonial Asian countries. Ornatowski postulates in his article on the connection between economic growth and Confucian work ethics: from the early 1980s Confucian values such as respect for authority, frugality, a meritocratic examination system, and sacrifice for the common welfare began to be cited as some of the common factors in the outstanding economic success of Korea, Taiwan, Hong Kong and Singapore (Ornatowski). The second factor is the series of educational reforms implemented since the Syngman Rhees government. With each successive governments, the South Korean people realized the need to invest more time and money into their education. Rhees government passed Basic Education Law that made it compulsory for students to attend the first six years of school (Sorensen, p.16). This law also gave out mass-literacy campaigns, especially for adults who had never received formal schooling. By the 1960s, almost all illiteracy has been eradicated. Then, during the authoritarian government era from 1963 to 1979, centralized state exams were implemented in order to establish control over what is taught at school (Sorensen, p.17-18). These centralized state exams end up becoming what is today known as the rigorous university entrance exams, where high school students have to spend hours of study at night dedicated in cram schools to get to their university of choice (Sorensen, p.28-30). The result of these educational reforms is a nearly 100% literate population with the necessary set of skills to compete in the global workforce.

The third factor is the fact that foreign development assistance continually poured in from the developed countries during the Cold War, especially the United States and its allies. Initially, this assistance came primarily in form of military and reconstruction aids, which served to prevent the spillover of communist sentiments from North Korea (Kim, p.71-72). At the time, Soviet Union and China were still supporting North Korea generously (Raum, p.12). The fourth factor is the industrialization of South Korea, which was the shift from an agriculture-based economy into a manufacturing-based economy that is export-oriented. This change occurred during the Yushin government (Savada). During the industrialization of South Korea, there was internationalization of companies which started from Samsung-Tesco which is a combined name of the South Korean company Samsung with the British company Tesco. Eventually, this internationalization of South Korean companies adopted by other retailers and companies including Hyundai, LG, and Kia (Coe, p.61-63). The fifth factor is by involving the rural sectors of the society that are still continuing with their agriculture focus. Though the country has industrialized for the last three decades (thus leaving the agriculture behind), the government has never abandoned the farmers completely. This is because the rural sectors, who work most of the countrys farms, have been the backbone of the countrys food storage. By involving the agriculture sector, there is a significant decrease in reliance of South Korea on foreign countries for its supply of food (Salter, p.77-79).

Research Investigation Part 2: Future economic growth in the case of Korean reunification In order to discuss the future prospects of South Korean economic development, it is inevitable that we discuss the topic of post-reunification Korea. This is because it will only be a matter of time before the communist regime in the North finally falls. The Berlin Wall fell in 198. With its fall, it set up a domino effect where one by one, political systems change dramatically. Some countries democratize, such as former Soviet countries. Some declared independence from one another, such as the Yugoslavian countries. And some even reunite into the way it was before Cold War, such as in the case of Germany. Yes, Germany. Once the strongest country in Europe, it was one of the major belligerents in both World Wars before becoming a pawn to play between the winners of World War II: the Soviet Union get to control the East side, while the United States and its allies get to control the West side. What was firstly a mutual partnership between the former Allies became a formal division, when in 1949 (only a year after the establishment of South Korea) Germany was formally partitioned into two: East Germany and West Germany. Similar to Koreas case, Germanys division was a facet of Cold War, and though there were far fewer casualties in Germanys case, the division was still real and imposing (Tsutsui, p.185-86). After the two Germanys reunified in 1990 starting with the fall of Berlin wall, the obvious thing happened: throngs of people migrated from the poorer Eastern to the richer Western part of the country, looking for better opportunities (Bennett, p.101).

The reunification of Germany was generally peaceful. Nonetheless, there was one thing that proved hard for the reunified Germany today: Former East Germany is a major liability costing the economy 100 billion annually (Berg). There are several other factors how Eastern Germany is bogging down the rest of the country: Unemployment is higher in the eastern Germany due to less-skilled workforce. Companies in the eastern Germany are small and lack capital The cost of reunification consume around 4% of Germanys GDP annually.

(Berg) Now let us return to the case of South Korea. It is inevitable that in discussing the future outlook of South Koreas economy, we have to look into the reunification process, whether it is going to be through the collapse of the communist regime (comparable to the Germanys case above) or through the gradual absorption of North Korea...where the process happens slowly so that the North does not collapse and the overall costs of reunification are kept to a minimum (Hart-Landsberg, p.50). Hart-Landsbergs article The Promise and Perils of Korean Reunification has argued that the gradual absorption is the likelier case. Since the South Korean government has larger economical and political clout between the two regimes, it will be the South Korean administration that would head this new reunified Korea (Hart-Landsberg, p.50-1). When the North Korean government no longer proves effective, the North would be absorbed back into its much-wealthier South, making the entire Korean peninsula a whole country again.

How would this reunification affect the economic development of South Korea? Badly. The general public of South Korea would not view the reunification with North Korea as a good thing, particularly because there is absolutely no economic benefit to be gained from such reunification. Although the Korean case and German case share many similarities in division and potential reunification process, I do observe that there is one significant difference between the two reunification cases. That difference is the duration of the division itself. As of today, the two Koreas have been divided for more than 60 years (and counting). This is starkly different from Germanys division which only took place within one and a half generation. This means that most of the people with fond memories of pre-Cold War Korea have already been deceased, leaving todays Korean population on both North and South totally unaware of what life was like when Korea was still a whole country. Theoretically, they could always read history books or talk to their grandparents about what pre-Cold War Korea was like before the formal division. However, this would be akin to todays American youths who try to find out what life was like during the Vietnam belongs to dusty and ancient artifacts in the museum, not the present. There are several issues that the reunified Korea will have to adjust to in order to stabilize its economic growth in post-reunification Korea. The first issue is its unskilled workforce. Despite the 99% literacy rate in North Korea, there are so little set of skills that the average North Korean citizen can offer for the reunified Korea. Regardless of whatever subject the North Koreans have studied at school, their main

focus of study was only in the Kim Il Sung & Kim Jong Il biographies, math, and Korean language (Raum, p.26). This means that although it is true that North Korea has plenty of labor workforce who would potentially be willing to work for South Korean companies with less salary than their fellow countrymen, it is perhaps not in the best interests of the South Korean companies to hire workforce whose sets of skills and knowledge are mostly limited to Kim Il Sung-based politics, math, and manual labor. The second issue is the heavy taxation that the country would need from the richer Southerners to support the healthcare, education, and other welfare stuff of the Northerners. In education, the heavily indoctrinated Northerners would need to re-learn the fact that in this brand new reunified Korea, there is no danger in refusal to become politically active. In healthcare, the malnourished and underfed Northerners would be more prone to illness, especially when exposed to the fast-food that are more readily available in Southern cities. The third issue can be found in the national security. Predictably, in the newly-reunified Korea, there would indeed be Northerners who would never find themselves fitting into a capitalist society, especially those who were used to belong to the North Korean Army. Thus, they would see themselves yearning for the past. Such inability to fit in could pose a national security threat. As their political views would no longer be favorable to the ruling Southern-led government, they could turn to violence or similar means to transmit their message (Bennett, p.100-101).


Conclusion The sheer rapidity of South Korean economic growth in the past makes its case study highly relevant, because what has occurred in South Korea should also be emulated by other similarly resource-poor countries in the world, albeit in their own terms. By taking a page out of the past Korean economic growth, other countries could understand how progress can be adopted by any underdeveloped war-torn countries around the globe. The other aspect of the study that is highly relevant (especially for South Korean and American people) is what the reunified Korean economy would look like once it finally happens. Whether we like it or not, inevitably the reunification will happen. Some, such as HartLandsberg, has postulated that it is a very slow process that is already happening at this very moment, albeit gradually. The economic costs of this reunification will affect not just the economy of the Korean peninsula alone, but also that of the United States, who has made commitment to keeping stability in the region. Though the reunification is predicted to run slowly and painfully, there will be a significant amount of American peoples tax money that would be involved in guarding the stability in the Korean peninsula, since South Korea is a close US ally (Bennett, p.101-2). Thus, I do believe that we Americans need to wake up to the fact that whatever happens to Korean economy is relevant not only for the Korean people, but also to our economy as well. It is only by raising awareness and learning the best approach to the situation that we could establish stability in a new world where there is no longer two, but one, Korea.


Sources Cited

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