PARK CHUNG-HEE AND THE ECONOMY OF SOUTH KOREA

South Korea is one of the countries in East Asia with rapid economic growth.
Occupied by Japan during World War II and devastated by Korean War in 1950s,
South Korea was able to develop their economic impressively. Many products
from the industries of South Korea, especially electronics and automotives, can be
found across the globe easily. Many scholars also consider South Korea as the one
of the successful developmental state.
South Korea has transformed into a major industrial countries. In 2005, besides
being a leader in high-speed internet access, a semiconductor memory, flat screen
monitors, mobile phones, South Korea also ranked first in shipbuilding, the third
in the production of tires, the fourth in synthetic fibres, automotive fifth, and sixth
in the steel industry. The country also ranks 12th in nominal GDP, low
unemployment, and a relatively equitable in income distribution.1
The economic growth of South Korea since independence and after the severe
damage that caused by the Korean War is an example of the success of the
national economic development of the most remarkable in the world. From the
lowest point in 1953, the Republic of Korea has reached a so-called "economic
miracle on the Han River" (Hanjhong, 1989). After the end of the Korean War in
1953, income per capita was only USD 67, lower than before the war and one of
the lowest incomes in the world. 40% of the infrastructure has been destroyed,
which is more than 40% were the industrial sector. Agricultural production is 27%
lower than before the war, so without the help of many people outside, South
Korea are starving. 2
Since the South Korea began their economic reconstruction in 1962, its economy
has grown to become one of the fastest in the world. The economic transformation
of South Korea was spectacular. In less than 30 years, South Korea developed

1
www.asianinfo.org/asianinfo/korea/economy.htm.
2
Steinberg, David I. 1989. The Republic of Korea: Economic Transformation and Social Change.
Westview Point. Boulder and London.
rapidly from an agricultural country to industrial and commercial country. South
Korea is currently regarded as an economic model to compete with the other
countries. The radical economic growth of South Korea began during the
government of General Park Chung-Hee, who got into power in a military coup in
1961. Park Chung-Hee, then governed the South Korea and established his
authoritarian regime. According to some scholars, his policies that made South
Korea has a substantial economic growth in a relatively short time reflected
developmental state. This paper will attempt to give brief review of the Park’s
policies in laying the foundations of the economic development in South Korea.

Park Chung-Hee
South Korea's economic success is inseparable from the role of the President Park
Chung-Hee. He put the foundation for the economic development of South Korea.
Park Chung-Hee began his military career in the Japanese colonial army. The
military regime in Korea emerged following the military coup by Major General
Park Chung-Hee assisted by his colleague Colonel Kim Jong-Pil on 16 May 1961,
against the civilian government Yun Po-Son who also his colleague when
overthrow the notoriously corrupt and authoritarian Syngman Rhee government.
After the coup, as part of the consolidation of political power, Park concentrated
all the power of social, political, and economic under his command. As a former
Military General, President Park keen for stability, economic development, and
strengthen national defence. He did not know the principles of democracy or
democratic way of life. Park argued that democracy will not only bring the slow
economic progress but also the social segregation and undermine national defence.
According to Park, the best democracy is “limited democracy” that restricts civil
liberties, freedom of speech and the press. He was very close to the bureaucracy
and the military leadership ala Japan in the Meiji period, which under the
leadership of a strong military pushing military modernization and economic
development through “ishin” ideology or revitalization. 3
Park Chung-Hee
established a government that relies on the strength that comes from the military,
3
Nahm, Andrew C. 1993. Introduction to Korean History and Culture. Hollym International. Seoul.
bureaucrats, and technocrats. Therefore, the South Korean regime under Park
Chung-Hee called Bureaucratic Authoritarian Regime. President Park was one of
the foundation stone of strong military-dominated government in Asia.
In order to meet the demands to address the urged economics basic needs, the
military government under Park Chung-Hee took some important steps. First,
open up diplomatic relations with Japan for inviting foreign direct investments
flows and economic aid from the country. Second, take a stand to succumb for
pressures from the U.S. (primarily to gain political support and recognition) and
receive advice from the group of technocrats to promote the export enterprises,
especially export manufacturing industrial products (Kuntjoro-Jakti, 1995).
Woo-Cumings (1999) noted that the Developmental state is neither democratic
nor authoritarian state, which means state still has strong rule along with
democracy. In the case of South Korea, the developmental policy of South Korea
under Park Chung-Hee indicates the dominance of state (ruler) as the most
decisive toward industrial relations as well. On the other hand, emerging
democratic forces exacerbated the pressure of the people's to the policies of Park
Chung-Hee. To maintain the stability of his programs, Park Chung-Hee chose
repressive political line. Park Chung-Hee shut off all potential opposition. Thus,
Park Chung-Hee felt the need to conduct a fundamental change to bring down
political opponents. Then on 6 December 1971, on the pretext of securing the
state from the demonstrations, the president with the support of the military
declared a state of martial law, dissolved the National Assembly, closed all of the
university which used as the basis of demonstrations, banned all political activity,
and in October 1972 issued a decree president of what became known as the
Yushin Constitution. This Constitution was intended to strengthen the dictatorship
of Park Chung-Hee. Through this system, indirectly elected president by the
National Unification Council formed manipulative and specifically tasked to elect
the president. The President is also authorized to appoint a third member of the
House of Representatives that allows the president to control the legislature
directly. Authoritarian Park Chung-Hee had the support from the bureaucracy, the
military and police (Yi, 2006).
Overholt (2011) implied that the success of South Korea under Park Chung-Hee is
an original creation. Park was able to demonstrate his guidance that combined
with technology, knowledge management, and economic stimulus. The initial
decision of South Korea was different from Japan which chose military
disarmament, Park Chung-Hee prefer to shift the balance from military to
economic priorities while maintaining a military and strengthening its industrial
base as well.
Park Chung-Hee was a fanatical egalitarian (Overholt, 2011). He implemented the
education-based egalitarianism. He preferred to close the best schools rather than
to allow the emergence of a permanent narrow path to elite status. In the long-run,
the consequences of Park’s egalitarianism have been good for economic growth
and democracy. His education-based egalitarianism created a broad educated
workforce, which created a broad market that creating a domestic market in
maximum possible size. It also created a society where democracy could prosper,
because an educated citizenry could understand the issues and an egalitarian
middle class society would vote based on widely shared interests.

Economic Planning Board (EPB)

The role of the state in promoting economic growth in South Korea is the
directing and creating the conditions that allow for capital investment, production,
and exports. While Japan has the Ministry of International Trade and Industry
(MITI) to create that kind of conditions through the guidance for developmental
programs (Johnson, 1982), South Korea also has The Economic Planning Board
(EPB) that established in June 1961. EPB chaired by Deputy Prime Minister who
responsible for the Five-Years Development Plan. The programs of the Five-
Years Development Plan organized in four phases beginning in 1962. The first
and second directed to the construction industry. The third phase (1972-1976) to
create a balance between the development of industry and agriculture, and the
fourth stage (1977-1981) is an independent economic development and equitable
distribution of the development’s results.
 Table 1. Five Year Plans of South Korea During Era of Park Chung-Hee

Year Five Year Plan

1962-1966 The goal was to build a self-reliant industrial structure.

1967-1971 The goal was to modernize the industrial structure and to build
import substitution industries.
1972-1976 The goal was to build an export-oriented industrial structure by
promoting heavy and chemical industries.
1977-1981 The goal was to promote development of industries that can
effectively compete internationally in industrial export markets.
Source : http://internationalbusiness.wikia.com

Planning, budgeting and implementation of these plans by the Ministry of Trade

and Industry, Ministry of Finance, Ministry of Building, Ministry of
Transportation, Ministry of Communication, and Ministry of Agriculture and
Fisheries under the supervision of EPB. EPB launched targets for all of the most
important economic variables including investment, consumption, savings, output
levels, imports and exports, as well as detailed allocations by industry sectors.
EPB along with ministries have the authority to change taxes, tariffs, subsidies,
the tariffs of general purposes, control the prices of certain goods, and also change
the import licenses, investment licenses, the use of foreign exchange and
establishment of the license for a new business without requiring the approval of
the National Assembly.
EPB has enormous power, including the control of commercial banks. The state is
the largest shareholder of the banks that is powerful in determining the policies of
the banks. EPB has the power not only to maintain but also suppressing the South
Korean national bourgeoisie. EPB also organizes detailed information about
international markets and its changes and submit the report to the export
companies.
The Dawn of Industrialization Policies
According to Whan (2005), at the beginning, Park Chung-Hee realized the society
of South Korea can not be separated from Confucianism since many centuries.
The virtues such as compliance of the children to the family, understanding that
the state is a moral agent who is active in the development, respecting each
hierarchical society, emphasizes self-development and education, as well as
attention to the social harmony well implemented by the People of South Korea.
Later, Park realized that Confucianism did not give the solution to the economic
stagnation after the Korean War. He then implemented the modernisation of South
Korea through economic industrialization and export expansion that directed by
the state. Kwon (2008) stated Park Chung-Hee who brought a clear direction to
the policy paradigm of South Korea that he called national renaissance through
modernisation.
Kim (1997) noted that one of the developmental state policies of President Park
was the implementation of systematic transfer of technology in order to
industrialize. Advanced industrial technologies from the West acquired. The
smooth transfer of technology from the West and abroad South Korea ensured by
the government. At the same time, the government of South Korea established the
system of learning and diffusion of the transferred technology as well. Kwon
(2008) argued that the motivation behind the transfer of technology policy was
motivated by a serious concern for national survival and driven strongly by the
desire to put South Korea equal with other developed countries in the West.

Export-Oriented Industrialization (EOI) Policies

The history of the industry in Korea has been going on since the Japanese colonial
period in Korea. Many industries established to sustain the Japanese economy.
South Korea benefited from the legacy of Japan in the form of infrastructure
facilities such as roads, railways, electricity, irrigation, educated labour in
management and the industry, and a number of plants that are able to provide a
base for the light industry although limited in term of number and strength. South
Korea already has the social and economic base that is strong enough and
sufficient to restart the program of import substitution and industrialization.
Under the strong U.S. pressure, the Japanese were forced to sell its factories at a
relatively cheap price to the South Korean entrepreneurs. During the
administration of President Syngman Rhee, the process of industrialization that
based on import substitution industries began to rise. Slowly South Korea's
traditional industries that have lived since the colonial era such as textiles,
refining flour and sugar mills also grow together. At this time, the chaebol began
to raise capital. However, the corrupt Rhee government devastated the South
Korean economy.
Many Scholars defined the chaebol in South Korea similar with Zaibatsu in Japan.
Kang (1989) stated that South Korean conglomerates called chaebol. They cover
broad range of services, aggressively perform hybrid pricing, and establish both
financial and trade relationships between various firms within the group so that
synergy is maximized. Ungson et. al. (1997) defined the chaebol as business
group consisting of large companies that are owned and managed by family
members or relatives in many diversified business areas. In fact, the chaebol can
be seen as the financial clique consisting of varied corporate enterprises engaged
in diverse businesses and typically owned and controlled by one or two
interrelated family groups. The traditional characteristics of chaebol are : family
control and management that follow the Confucian tradition; entrepreneurial
orientation with a clear-cut vision, solid political skills, active pursuit of the
business, keen insight, and good fortune; paternalistic leadership with centralized
decision making and authority to ensure tight controls; centralized planning and
coordination to ensure the effectiveness of resources allocation through the
various enterprises; close relations between business-government on mutually
beneficial relationship; and the importance of school ties which support the career.
(Ungson et.al., 1997)
President Park has chosen the path of maximizing capital concentration through
supporting the big businesses (Kang, 1989). The government actively directing
the private sector, particularly the chaebol, to realize the development agenda that
drawn up by the government in the form of the development of manufacturing
industries such as electronics, automobiles, and semiconductors. Some
government-backed industrial products geared to the export market because it has
no domestic market. The government provides various facilities in terms of credit
for the exporters. The government also regulates credit allocation that adapted to
the growth of economics and industrial sectors. Those sectors generally prioritized
to get the credit allocation. The South Korean government also obtain foreign
loans from both Japan and the United States.
South Korea's export success of the first occurred in the export of light industrial
products such as textiles and apparel, electronic components, plywood, wigs, and
intermediate goods (products of chemical, petroleum, paper, and steel) that took
place in the period of 1964-1974. South Korea's success during this period is
supported by the development of the world’s economy that growth incredible
through the industry, so that South Korea did not encounter significant difficulties
to sell its products, moreover South Korea got references to enter American
domestic market.

Heavy Chemical Industry (HCI) Policies

South Korea entered the stage of development of the industry that is referred as
deepening process during the second half of the 1970s. At this time, there was a
change on the industry orientation from light industry to heavy industry. In 1973,
the government gave priority to the development of heavy and chemical industries,
such as shipbuilding, machinery, steel, automobiles, and petro chemicals. Firstly,
because there were limitations in exporting light industrial products that highly
dependent on cheap labour which started to scarce at that time. Second, there is a
change in the structure of imports. The rapid development in the use of imported
intermediate materials to finished goods for exports affected balance of payments.
The plan for heavy and chemical industry development was the efforts of South
Korea to make the industry more sustainable. Great plan supported by the
President Park Chung-Hee, Ministry of Trade and Industry (MTI), and a number
of large national firms (chaebol) implemented regardless of the challenges of the
technocrats. This plan actually got the support from the military and it is closely
related to its contribution to the military-industrial in the future.
The chaebol received interest-free loans to establish a factory for export activity. 4
For example, Hyundai tasked to develop the automotive sector. Daewoo who is a
specialist in the field of textile instructed to handle the manufacture machine tools,
build ships and cars. Park imposing construction of a number of basic industries
include steel industry, one of which is the Pohang Steel Company (POSCO).
Unfortunately, this policy is hampered by a number of external difficulties, such
as the oil crisis and recession of the world economy. A surge in domestic inflation
and the development of South Korea's exports are also in danger. However, South
Korea still lucky because the construction sector gained enormous business
opportunities, especially with the ongoing economic development in the oil-rich
countries in the Middle East. Most industries in South Korea benefited immensely
from Foreign Direct Investment flows and the transfer of technology from Japan,
which began since reopening diplomatic relations between the two countries.

Saemaul Undong Movement

Saemaul Undong Movement is one the famous legacies of Park Chung-Hee.
Saemaul Undong is a movement that aims to develop and modernize the rural
areas. The goal is to evoke the spirit of independence and self-help to create a new
village movement, and to force cooperation or mutual assistance in order to
improve the lives of local people.
The history of Saemaul Undong began when the government of South Korea
under the President Park Chung-Hee introduced the concept in 1971 when South
Korea faces problems due to rural-urban disparity in development priorities that
always emphasized export-oriented industrialization (Sumarto, 2006). The success
economic development of South Korea actually causes social problems. At that
time, there was a gap in the rate of growth in compared to the industrial sector.
When there was economic growth, the gap between the income of farm

4
http://www.hamline.edu/apakabar/basisdata/1996/05/10/0024.html
households and the income of urban communities became greater. This resulted in
an exodus of rural youth to urban areas, leaving the village without adequate skills
and creating population pressures in urban areas.
Mochtar (1996) noted that to reduce the economic gap between the villager and
the urban communities, President Park launched the New Society Movement with
purpose as enlightenment of the rural people through the "new public education"
to change the shape of the views and behaviour of traditional ties and rural
poverty trap, helped develop the craft and thrift, spirit of cooperation and self-help,
and modernize rural communities.
In addition to preventing disproportionate tendency between urban industry and
rural farm, this concept seeks to enlarge the channel-development of the rural
agricultural economy as well. The movement begins with an inventory of local
assets that are rarely used and processed into something that can improve the local
living standards and increase the benefits of citizens. Another essence of Saemaul
Undong is a form of development from below based on the local initiatives and
local participation. The project was realized through the establishment of the local
cooperation that guided by the local initiatives, the utilization of local labour,
materials and skills.
Saemaul Undong operated through three stages. In the initial phase, the
environmental improvements carried out in the various rural areas, especially
involving physical facilities. The next stage is to improve basic infrastructure, and
the last stage is to expand employment opportunities of agricultural and non-
agricultural work in addition to other activities that can increase the income and
welfare of local residents. In 1973, the government made the Village Cooperative
Scheme (VCS) to expand the scope of the Saemaul’s project area. A village can
form a partnership or a unit of production along with the neighbouring village.
New community projects generate modernization of village public housing,
construction of roads and drains, construction of sanitation systems, and provide
knowledge of science and technology for rural communities, rural industries, and
marketing facilities. New community movements provide favourable outcomes
for rural areas, as well as urban areas. This national movement is a way to
maintain the spirit of cooperation and unity.
Table 2. The Development of Saemaul Undong

Stage Priority Projects Characteristics

1.Foundation and • Improving living • Launching and
Groundwork environments: igniting the campaign.
(1970-1973) Expanding roads inside • Government-initiated
villages, constructing activities.
common laundry facilities, • Top priority on
improving roofs, kitchens, and improving living
fences. environment.
• Increasing income:
Expanding agricultural roads,
improving farmland and
seeds, division of labour.
• Attitude reform:
Fostering diligence and
frugality, and a cooperative
atmosphere.
2. Proliferation • Increasing income: • Expanding program
(1974-1976) Straightening rice field ridges, scope and functions.
consolidating creeks, • Increasing income and
encouraging combined changing attitudes.
farming, operating common • Earning national
working places, identifying understanding and
non-agricultural income consensus.
sources.
• Attitude reform:
Attitude changes through
Saemaul education and public
relations activities
• Improving living conditions:
Improving housing and water
supply systems, operating
village centers.
3. Energetic • Rural areas: • Larger units of
Implementation Encouraging the construction implementation by
(1977-1979) of more modern housing, developing linkages
 encouraging growth of among villages in the
special-purpose plants, same region.
running industrial facilities to • Economies of scale.
combine agriculture and • Appearance of distinct
manufacturing. unit characteristics.
• Urban areas:
Paving alleys, cleaning,
establishing order.
•Corporations and factories:
Enhancing productivity,
conserving materials,
promoting sound labor-
management.
•Relations.
4. Overhaul • Social atmosphere: • Reborn as a private
(1980-1989) Kindness, order, selflessness, sector-organization.
Cooperation. • Enhancing the role
• Economic development: division between
Combined farming, government and
distribution improvement, private sectors.
credit union activities. • Escape from inactivity
•Environmental activities: and contraction.
Cleanliness, developing parks
throughout the country,
building better access roads.
5. Autonomous • Sound atmosphere: • Reinforcing the basis
Growth Developing traditional of autonomy and self-
(1990-1998) culture, emphasizing hard reliance.
work, sound lifestyles, • Meeting the need for
recovery of moral ethics. liberalization and
• Economic stability: localization.
Economic recovery, urban- •Efforts to overcome
rural direct trade, diligence economic crisis.
and frugality.
• Living environment:
Cultivating better community
environments, emphasizing
autonomous living.
Source : The National Council of Saemaul Undong Movement in Korea (1999).
Although various scholars argued that it is very difficult to define Saemaul
Undong due to the constant changes in its scope and agenda, most of them agree
that Saemaul Undong is a form of community development program. Reed (2010)
implied that at the beginning, the scope of Semaul Undong rather conventional
integrated community development program with the aim of improving the
physical environment of villages, introducing new attitudes and skills, and
increasing incomes through small-scale self-help projects introduced by
government agents and implemented through village cooperation before President
Park expand the scope of Saemaul Undong that encompass the entire spectrum of
the government’s rural development policies and programs, including the income-
increasing policy initiatives after seeing the early positive response by the
villagers. The success’ factor of Semaul Undong was built on the combination of
cooperation at the village level with mobilization and direction from an
authoritarian government.
Park (2009) stated that the main focus of Saemaul Undong in the initial phase
from 1970 to 1979 exclusively on activities that performed in rural areas. In short,
Saemaul Undong was a community-based integrated rural development program.
Although different interpretations existed regarding how to define the objectives
of Saemaul Undong, most agreed that the aim was to generate economic, social
and attitudinal improvements. The most broadly accepted objectives are (a)
income generation, (b) living environment and basic rural infrastructure
improvement, and (c) capacity-building and attitudinal change.
Since the introduction of Saemaul Undong, in 1978 there were 706 factories were
built in rural areas that almost entirely received government subsidies as the form
of incentives. Government investments only as a supplement in relation to the
organization and mobilization of resources. Irwan (1989) found that during 1970-
1979, the income of farmers increased by 9.5% per year. Saemaul movement also
created jobs and increased investment in rural areas. In the 1960's the rate of
investment only 10% and increased to 20% after the implementation of Saemaul
movement.
Conclusion

Figure 1. The GDP of South Korea During the Era of Park Chung-Hee
(Billions of USD)

Source : http://www.tradingeconomics.com

The impressive economic progress of South Korea that run until this time has
been started from the economic policies that undertaken by Park Chung-Hee. The
rapid growth of GDP from USD 2,746 Billion in 1963 to USD 37,926 Billion can
be seen as a mark of the success of the economics of South Korea. The country
was able to build its industrial strength so powerful although not backed by
adequate resources. This fact suggests that the success of South Korea's economic
development lies in the ability of human beings, especially in leadership related to
strategy of the policy that implemented. The Government recognizes the
importance of basic industries that will be the catalyst for the growth of other
downstream industries. South Korea's economic miracle has been achieved until
this time is certainly not only because of the government factor but also because
of the support of South Korean society itself. Working culture, high working ethic
and devotion to the domestic products made domestically produced products of
South Korea consumed by the domestic and international market.
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