The South Korean experience in economic development

Abstract

In the three decades following the end of the World War II, many countries in Africa, Asia, and Latin America declared independence from their former colonial masters. These countries have since tended to follow two broadly different development models: centrally controlled socialism (or sometimes totalitarianism) versus a market economy for economic development. Foreign aid from the wealthy Western countries to poor countries has continued for the last six decades, influenced strongly by theoretical frameworks of development economics (e.g., Myrdal 1957; Hirschman 1958). However, development in most of these countries has failed, and most are still under a vicious cycle of economic poverty-poverty leads to little purchasing power, malnourishment, poor housing, poor health, little education, low agricultural and economic productivity, low income, and poverty, each reinforcing the others (Martinussen 1997). Meanwhile the economic gap between rich countries and poor countries has widened, not narrowed (UNDP 1999). Only a few nations in East Asia (e.g., Malaysia, South Korea, and Taiwan) have made impressive economic development. What went wrong? Why have noble ideas of foreign aid not worked well for most countries? Why has development worked well in a few? Complex situations across the world have provided many examples to provide material for the controversies and debates over development models, the role of international agencies such as World Bank, and the governing capacity of the developing countries themselves (see chapter 1). Korea, formerly a colony of Japan, has had a rather more successful experience. This chapter provides an assessment of and explanation for the successful economic development of South Korea since the 1960s. Korea was once one of the newly independent poor countries in the world, poorer in the 1950s than India and the Philippines. Its problems included a very high and increasing population density, exacerbated by the mountainous terrain, which severely limits agricultural area, and quite meager national resources. Nevertheless, it has been able to accomplish quite successful development, certainly by comparison to most other countries that have emerged from colonialism. Korea was traditionally a monarchy. It was governed subsequently by imperialist Japan from 1910 to 1945. According to agreements between the United States and Russia at the end of the World War II, the Korean peninsula was divided into South and North Korea. South Korea was placed under trust governance by U.S. troops and North Korea by the Russian army for the period 1945-48. South Korea, like other poor developing countries, experienced huge political turmoil during the trust governance. The confusions between old values and newly imported values (monarchy versus republic government), ideological conflicts (pro-United States versus pro-Soviet Union), and economic ideology (capitalism versus socialism) had generated serious social problems among Koreans (Cumings 1981; Merrill 1989). Political assassinations and labor strikes were frequent. Under the supervision of the United Nations, general elections were held for congress and the presidency to establish the first republic government in South Korea in 1948. However, the unrest continued during the First Republic. The Korean War broke out in 1950 and ended in 1953 with a truce treaty between the United States, China, and North Korea. More than six million Koreans were killed or captured by opposite sides during this war, and much of the existing industrial infrastructure was destroyed (Steinberg 1989). During and after the Korean War, Korea was governed by the notoriously corrupt and ineffectual First Republic, fashioned in large part by the United States and headed by a very strong president. A student-led civilian uprising in 1960 toppled this government. The Second Republic was established after general elections during the same year. The new republic adopted the British parliamentary system, in which small political parties set up a coalition government, based on the belief that the concentrated presidential power of the first republic was the source of corruption and impotent government. The changes in the political system, however, could not make by themselves a politically stable and economically growing nation. During the Second Republic (1960-61), there were more than two thousand demonstrations by students and labor union members asking for rapid reforms, involving some 900,000 participants (Steinberg 1989:55). The civilian government was not able to provide strong governing power to handle diverse demands from the people. In 1961, the Second Republic was toppled by a military coup led by General Park Chung-Hee, who argued that the action had to be undertaken in order to purify a corrupt government and save the country from the continuing threat of North Korea. General Park became the president after organizing his own political party and changing the national constitution in 1963. Park was a strong president until he died in 1979, surviving several reelections and a change of constitution. He introduced systematic economic and social planning, and the implementation of these programs continued from 1962 until today under his strong leadership. His selected programs were forcefully implemented, and they resulted in impressive economic development. By the beginning of the twenty-first century, South Korea had become one of the rich OECD member countries, making globally competitive industrial goods and exporting them to the global market. The World Bank named Korea as one of the "high performing Asian economies (HPAEs)" (World Bank 1993). Clearly Koreans under Park had broken the vicious circle of economic poverty and achieved significant economic development. But how did they do it, since many other countries were trying to do the same thing during the same time and most failed? In this chapter, I try to explain how South Korea was successful in its development. First, I give a snapshot of economic development in Korea, and explain that development broadly from the three most important aspects: (1) the domestic situation, focusing on historical nationalism and Confucian cultural factors, (2) the international political economy, and (3) the development and implementation of appropriate policies (figure 7.1). Finally, I explore some new challenges under the growing trend of globalization. Each of these factors appears to me to be critical in understanding successful versus unsuccessful development, and as such helps explain the general failure of both the broad brush investment approach to development (that is, the Domar or the Rostow approach) described in chapters 2 and 3 and, perhaps, the general failure of globalization and neoliberal economics occurring today to raise the standard of living of the average person. The importance of the cultural domestic situation may explain why an economic policy from a successful case may not work well in other countries. Successful economic policies are probably attributable largely to each country's unique historical and cultural circumstances, and this provides unique challenges for policy making and implementation. My discussion of the international political economy helps to explain the external environment to which a country must adapt as it generates and implements economic development plans. Finally, I discuss the critical role of government as an active agent in initiating development programs, and how government can handle possible challenges in implementing successful programs. © 2007 by the University of New Mexico Press. All rights reserved.