South Korea

INTRODUCTION

In 1953, South Korea was as a beleagured and corrupt democratic state in economic ruins. Beginning in 1953 and lasting until 1961, the United States invested 4.3 billion dollars into South Korea. It was a symbolic investment with the aim of curbing communism and preserving democracy, South Korea’s weak President Chang, however, was unable to use the financing to preserve his reign and the Korean democracy. The overthrow of President Chang in a coup in 1961 would mark a hiatus in South Korea’s short lived democracy. The period that followed, under the authoritarian rule of former Major General Park Chung Hee, was one of incredible economic growth yet democratic stagnation. The growth of the South Korean domestic economy under the efficiency of Park’s authoritarianism led to dramatic changes in Korea’s economic system. With natural resources on the Korean peninsula scarce, South Korea required the importation of the vast majority of its raw materials. In order for South Korea to purchase the materials it needed, Park implemented an, “outward looking developmental strategy, therefore a large volume of exports.” As South Korea subsidized its light industries to fuel industrial growth, the system began to take advantage of its cheap labor to make its products globally competitive. During the first decade of Park’s reign, Korea’s GNP doubled from 3,071 billion in 1962 to 6,962 billion in 1971. Park’s obsessions with economic growth and the end of corruption drove him to develop South Korea’s infrastructure in a way, drastically different, than the development of other third world authoritarian states (most notably no nationalization, a feature of most developmental states). Park saw the value of the entrepreneurial spirit and its correlative value to economic success. His strict demand for the individual entrepreneur to achieve remains an intricate value in Korean society. South Korea industrialized with the guidance and financial assistance of the government but under the control of Korea's corporate structure "chaebols" the system would prosper. As South Korea developed an educated, middleclass, and entrepreneurial citizenry, its economic growth rate and GDP began to soar. South Korea sacrificed many of its cheap labor components in favor of increased wages to support a middle-class that could drive its domestic economy. Accordingly, South Korea’s income distribution in 1981 was more reasonable than most other developing nations with the top 20 percent controlling 42.2 percent of the money and the bottom 20 percent controlling 19.7 percent. By 1986, South Korea had the highest economic growth rate in the world and was able to save significant portions of its GNP. As South Korea developed its middleclass, its increasingly educated population became more equipped to handle technological development. The technological development of Korea’s industries helped fuel its second period of rapid economic growth in the 1990s. Today, South Korea is a first world country, ranking 11th in the world in GDP and 30th in GDP per capita.

Scott Levin

PARK'S KOREA

Before the end of World War II, Japan ruled over Korea. Japan’s economic policies were primarily made to benefit Japan. As a result, Japan did not pay attention to the well being of Korea’s economy. This led to an uneven distribution of industry between northern and southern Korea. Japan focused industry in northern Korea because the north had more natural resources and they were in a better physical location to benefit Japan. [1]

In 1948, Korea was split into North and South Korea. North Korea was significantly better off as a result of Japanese rule. South Korea on the other hand was one of the worst off countries in Asia. The country relied heavily on aid from the United States and Japan.

This aid was far from sufficient for the country to live above poverty and the conditions were not conducive for economic growth. Since South Korea had a lack of natural resources, it relied heavily on imports of raw goods for production.

[2]

In 1961, Park Chung Hee took over as leader of South Korea. He took many political liberties to give himself power. He inserted a democratic voting system with the condition that he wouldn’t run for office next term. He was elected president in 1963. He then went on to run for office multiple times. At the time, the president was limited to two terms of four years in office. He had the constitution changed to allow him to serve more terms. He also declared a state of emergency to give him more authority over people. His rule is recognized as being authoritarian. [3][4]

Park’s political liberties were driven by his desire to not be reliant on foreign aid. His economic policies were targeting his goal of increasing exports and production. He had three main policies.

1. To export and produce more, the businesses needed to import the raw materials. To give businesses an incentive to import, Park got rid of tariffs on raw materials business say will be used to produce goods for exports.
2. Production quotas were set in place for businesses. If a business met the quota it received a tax break. This tax break gave businesses two options. They could take the money and invest it in their company. This increase in capital goods increases spending in the economy and starts a multiplier effect. Another option is for a business to use the tax break and decrease the price of the goods being produced. This could make their goods more competitive in the global market.
3. The third policy was a simple decrease in taxes for businesses. The tariffs and production tax breaks were on top of this tax break.

After two failed assassination attempts, Park was shot by the director of the South Korean equivalent of the CIA, KCIA. He died in 1979.

Parks rule is best summed up by Britannica:

“The military leadership that emerged in the early 1960s and led the country for a quarter century may have been autocratic and, at times, repressive, but its pragmatic and flexible commitment to economic development resulted in what became known as the ‘miracle on the Han River.’” 12/13/07

Charlie Umberger

1980's to Crisis

1980's

By the late 1970’s to the early 1980’s the economy was changing for the worse. Korea initiated a comprehensive stabilization program designed to “control excess liquidity, realign credit priorities, eliminate price distortions, and promote competition.” However, unforeseen circumstances like the second oil shock and the assassination of President Park Chung Hee in 1979 pushed the Korean economy into turmoil. “Korea's economic performance in 1980 was the worst in more than 20 years as the economy contracted by 5.2 %, with the wholesale price soaring more than 38 %, and the current account deficit reaching US$5.3 billion.” [5]

To address the excess liquidity problem Korea decided to undergo rationalization within their industry. Companies were ordered to consolidate and merge in order to make larger companies. The power-generation equipment industry and automobile industry merged together to form the Korea Heavy Industrial Company in August 1980.

"Between 1984-1987, further rationalization of industries took place in shipping and overseas construction. The rationalization program entailed reducing the number of firms through mergers, reducing their shipping capacity or calling off deficit-ridden overseas construction projects, and lowering tax and financial burdens in the process." [6]

1990s

Ryan Daniel