Extended Essay: What factors led to S. Korea’s rapid industrialization post-WWII?
Today South Korea is one of the largest economies in the world. However while other countries required decades and even a few centuries worth of industrialization, South Korea did it in less than 50 years. Many factors led to this rapid industrialization, factors that range from the spheres of politics, economics, and social.
After the events of World War II, Japan was forced to give up control of the Korean peninsula to the Allied Forces. However, the Allied Forces were not sure of whom to pass Korea on to. U.S. Colonel Dean Rusk proposed to Soviet commander Col. General Ivan Chistiakov the idea of splitting Korea at the 38th parallel. The U.S. would take control of the southern half while the Soviets occupied the northern half. The US proposed this agreement in order to contain communism and prevent the Soviet Union from occupying all of Korea. Thus Koreans were split according to their ideology. This would later lead to tensions between the two Koreas leading to the Korean War.
This war was fought in order to gain control of all of Korea and was backed by many foreign countries. Communist China and Soviet Russia supported the North, while the US supported the South. The war devastated Korea. More than three million people were killed; a little over one million were civilians. In August 1951, 44% of factory buildings and 42% of Production facilities were destroyed (Savada). By the time of the Korean Armistice Agreement in 1954, which prohibited further fighting between the Koreas, South Korea lost much of its infrastructure and industries and was one of the poorest countries in the world. This furthered Korea’s dependence on foreign aid, especially from the U.S. (Savada).
During the war, Rhee and many other high-ranking officers were suspected of corruption. Officially Rhee’s official salary was $37.50 US per month. However it is doubtful that Rhee could have lived off of that meager salary. Rhee’s regime was well known for stealing tax money and even foreign aid from other countries. The worst scandal during this war involved the newly made National Defense Corps. A few months after its creation in December 1950, thousands of Corps men froze or starved to death. After an investigation, it was found that the commander, General Kim Yun Gun, stole millions of dollars that was supposed to be used for heating, uniforms, food, etc. Incidents similar to this made Rhee unpopular.
Rhee was so unpopular that it was considered unlikely that Rhee would be reelected. However, Rhee sought to stay in power and so tried to amend the constitution. This new amendment would allow presidential election to be based on popular vote (Savada). The National Assembly rejected the amendment leading Rhee to order a mass arrest of his opponents. In July 1952, the amendment was passed and Rhee won the following election.
Later in 1960, Rhee was forced to resign. Rhee’s administration took in vast amounts of American Aid. This was the cause of the student-led April Revolution which started after allegations of rigged elections were spread (Savada). The revolution ousted Rhee and started elections for a new president. Although Rhee did not directly contribute to Korea’s economic growth, he is credited with keeping the country together after the end of the Korean War and implementing a land reform that redistributed land thus easing ethnic tensions.
Yun Posun was elected President and appointed Chang Myon, the leader of the Democratic Party, as Prime Minister. But because of Rhee’s abuse of power, the government shifted to a parliamentary system. The legislature was made bicameral with the National Assembly and House of Councilors forming the two houses of the legislature. The Assembly formed the lower house while the House of Councilors formed the upper house. The president in this system had his powers greatly reduced by the new government. One can even argue that the president was merely a figurehead. The real leader of South Korea would be the prime minister.
The new government repealed many policies that limited political expression which were enacted during the Rhee regime. This led to an increase in political activity by numerous groups, especially from leftist and student groups. During the eight months of the new government, over 2000 demonstrations were held.
Many of these demonstrations involved removing corrupt government officials. Chang’s administration obliged and led a series of purges of officials who were involved in corruption or anti-democratic activities. During those eight months, over 40,000 people were investigated. Out of those 40,000, over 2,200 government officials and 4,000 police officers were fired.
In terms of the economy, however, the government had much to work on. During Chang’s government, the won, the national currency, lost half of its value against the dollar. Unemployment and prices increased during the same time period. To solve this, the government designed a five-year economic plan. This plan would later form the basis of the first five-year economic plan proposed by Park Chung Hee, the future leader of South Korea. In light of the economic troubles, the country was facing, General Park Chung Hee overthrew the government and formed a military junta in 1961 (Kim 35).
Park Chung Hee’s administration saw South Korea begin to make a successful economic recovery. Park announced the first 5-year Economic Development Plan which would establish a self-supporting industrial economy. The plan gave Koreans a much needed psychological boost that led to increased productivity even with low wages. These plans were designed to increase wealth within the country and help bring about political stability. Despite the fact that the country could substitute all they needed with imports, it was widely recognized that such an economic policy would not help the economy improve. Because of this, South Korea’s economy shifted from heavy importation to heavy exportation during this time period.
The first of these plans was implemented in 1962-1966 (Asiatic Research Center). This plan was created with the goal of expanding the energy industry, shifting to an export based economy, reestablishing basic infrastructure, increasing agricultural productivity, neutralizing balance of payments, and promoting technological advancements (Asiatic Research Center). In other words, South Korea had to become self-sufficient if they were to be the economic powerhouse that Park envisioned. The ambitious plan helped the Korean economy grow 7.8% and also increase the GNP per capita to 125 US dollars from 83 (Asiatic Research Center).
The second plan (1967-1971) placed greater emphasis on heavy industries, specifically the steel and petrochemical industry (Amsden 81). To do this, Park relied upon the chaebol, which will be explained in detail further along. Some of the major companies that benefitted from this plan included the Pohang Iron and Steel Company (POSCO) and Hyundai. This was done in order to make South Korea more competitive globally. This mindset was used during the creation of all future five year plans. It was at this time that the major highways were built in order to facilitate transportation.
In 1972-1976, the Heavy Chemical Industrialization Plan (HCI Plan aka the “Big Push” was implemented (Reassessing the Park Chung Hee Era 19). This plan required so much money that Korea was forced to borrow from foreign countries. In 1977, the GNP per capita was 1,000 US dollars. While this was a great improvement, many problems still persisted. These problems included high price of goods, real estate speculation, a lack of necessities, and more. For the first time in years, the Korean economy worsened. However, the economy would soon resume its upward trend.
Many factors would lead to the Korean economy’s growth. However at the root of this expansion were societal and political factors. An important basis of this growth was the great emphasis on education. The state used traditional Confucian ideals to establish a compulsory public education system. This allowed Korean labor to become highly skilled while also keeping labor expenses to a minimum.
After winning the 1970 presidential election against Kim Dae-Jung, Park declared a state of emergency (Korea’s Development). This declaration was “based on the dangerous realities of the international situation”. Park then proceeded to dissolve the legislature and even suspend the constitution (Savada).
In order to give himself more power, Park drafted the Yushin Constitution. After rigging the constitutional referendum, the new constitution was approved. This new set of laws expanded the powers of the president (Korea’s Development). Most astonishing of these new powers included the ability to rule by decree and suspend constitutional freedoms. The presidential terms was increased to six years from four with no reelection limits. In short, the Yushin Constitution legalized Park’s dictatorship.
People began to become upset at Park’s regime. While the regime did bring out the growth of the South Korean economy it did so at the cost of personal freedoms. During Park’s presidency, the Korean press and media were heavily censored. After the coup in 1961, Park was responsible for shutting down 49 out of 64 dailies. Since then, Park only went further in censoring the media.
An example lies in the Dong-A newspaper in 1975. In that year, the newspaper published an article criticizing Park’s administration. The government retaliated by pressuring the newspaper’s advertisers to withdraw their contracts. Other times, Park took a more heavy handed approach. In May 1975, Park issued Emergency Measure Nine. This made it illegal to criticize the constitution or provide coverage of demonstrations against it.
The Korean Central Intelligence Agency (KCIA) was feared throughout the nation as it served to impose Park’s will upon the nation. The KCIA were granted powers of arrest and detention which allowed them to hold many of Park’s critics without trial (Savada). Park also imprisoned anyone who questioned his rule including protesters, political opponents, and journalists. These prisoners were then tortured and sometimes executed.
The KCIA were not limited by their borders, however. In many cases, the KCIA abducted South Korean citizens in foreign countries. In 1968, seventeen Koreans living abroad in West Germany were kidnapped by KCIA agents. These students were brought back to Seoul and subsequently tortured before being charged with the violation of the National Security Law (Savada). The KCIA’s unlimited power to arrest and detain people led to an atmosphere of fear and oppression. According to Park, South Korea was not ready to become democratic or free. Or as he put it, “democracy cannot be realized without an economic revolution.”
Finally the people had enough. On 16 October 1979 in Busan National University, a group of student called for the end of Park’s regime and the Yushin Constitution (Savada). This demonstrated soon moved out of the university and into the city. There students and riot police fought each other. Over the next two days, around 50,000 people gathered outside of Busan city hall, several officers were attacked, and over 400 protesters were arrested. These protests soon spread to other locations such as Kyungnam University in Masan. At its peak, the riot involved 10,000 protesters and violence only became more frequent.
Park in the meanwhile declared martial law in Busan and sought to end the riots as quickly as possible. During a banquet, Park ordered Kim Jae Gyu, a longtime friend and director of the KCIA, to suppress the protests. Gyu responded by saying that to do so would require 3,000 lives. Park retorted that he did not care if it cost 30,000 lives, it had to be done. Gyu, at this point, had enough and assassinated Park and other members of his group. Gyu was later captured, tortured, and then executed by the very organization he led.
An economic factor that brought about this expansion was the chaebol. The term chaebol refers to family operated corporate groups in South Korea. They can be compared to the US’s conglomerates and Japan’s Zaibatsu in that the chaebol have a monopoly on many different industries (Park Chung Hee Era 265). Park supported the chaebol by giving them special benefits such as exclusive contracts, tax breaks, and cheap local labor. Another important benefit that made the chaebol so successful is the fact that they were never constrained by a budget (Park Chung Hee Era 267). The government placed a high commitment on ensuring that the businesses were running. Consequently, leaders in the government supported industries were free to spend as much money as they needed.
Most chaebol businesses were started by a family group that controlled and operate the company. Some even formed alliances through marriage in order to become even more powerful or increase their standings. Today, many of the chaebol of the past have become internationally recognized companies such as Samsung and Hyundai.
The chaebol were also important parts of the government. About one-third of chaebol were high ranking officers in all three branches of the government. Experts say that ten chaebol families were responsible for 60 percent of the economy’s expansion.
Park also used foreign currency in order to bring money into the Korean economy. During Park’s regime, he sent many Korean workers overseas as a labor force. In Germany, for example, Park sent mine workers and nurses. Construction workers were sent to the Middle East to install water pipelines in deserts that would then be sent to other countries. Often, workers would be paid more in these countries than they would have in Korea. Consequently, more money was being added to the South Korean economy and people started to invest in their own companies.
Korea also received much aid from the US. One way they were able to receive aid was by participating in the Vietnam War. At the time, the US was engaged in the Cold War against Soviet Russia. The Vietnam War was just a proxy war between the two. In an effort to contain communism, the US promised to send aid to Korea if they sent soldiers. The deal was made while Rhee was in power and Korea sent 300,000 troops to Vietnam (Park Chung Hee Era). In terms of number of soldiers, South Korea was the second largest foreign presence in Vietnam. By the end of the war in 1968, South Korea gained $380 million. This money was used to fund the economic plans proposed by Park’s regime.
Two of the major chaebols that helped bring about the expansion of the South Korean economy were Samsung and Hyundai. Samsung was the largest of the chaebols at the time and was created by Lee Byung Chull. Samsung initially started as a trucking and real estate business, however it soon became bankrupt after Japan invaded Manchuria. Lee did not give up however and by 1945, at the conclusion of World War II, Samsung became one of the most powerful companies of the country. At this point in time, Samsung expanded to include domestic and internal trading along with the original trucking and real estate business.
By the beginning of the Korean War in 1950, Samsung was among the top ten trading companies in South Korea. During North Korea’s invasion, Lee escaped to Busan. From there Samsung grew even larger. The once small company expanded into different sectors including food (sugar), textile (wool), and much more. By the end of the decade, Lee controlled numerous commercial banks and insurance companies.
A few years later, Park started his coup and an anticorruption campaign. Lee, who was in Japan, feared that he would be targeted because he was the richest man in Korea. When he did return to Korea, Lee made a bargain with Park. The bargain stipulated that if Samsung was left untouched, it would carry out Park’s projects. Lee also donated much money to the government and allowed the expropriation of his bank account. The final stipulation was that Lee would also get other businessmen to promote Park and his ideas.
Through this deal, Samsung remained one of the most powerful Korean companies and continued to grow. After changing the focus of Samsung’s manufacturing to electronics, Lee had Korean engineers dismantle technology from around the world to learn how to create it. This allowed the Korean company, and consequently the South Korean nation, to enter the global market.
Hyundai, started by Chung Ju Yung, was another important chaebol that helped shape the Korean economy (Asia’s Next Giant). In 1940, Chung bought an auto repair shop that later developed relation with the U.S. military and Rhee’s administration during WWII. Hyundai won construction contracts from both during this time period. When Park came into power, he facilitated Hyundai’s growth into an international company. By the late 1960’s, Hyundai was responsible for many of Park’s projects such as the building of a large highway between Seoul and Busan, the second largest city of South Korea. Hyundai also took on projects outside of Korea such as the building of highways in Thailand and facilities in Vietnam (Asia’s Next Giant).
Hyundai also started Korea’s shipping industry. When Park started his plans to shift the Korean economy into one based on exports, he had Chung create a shipping industry. At the time, this was an ambitious project due to the fact that no one in South Korea built a ship larger than 10,000 tons. Chung was ordered to build 260,000-ton oil tankers. At first, no one would lend him any money due to the belief that what Chung was doing would be impossible. However, with considerable help from the government, not only was Hyundai able to build the ships but also find buyers when oil prices were dramatically increasing (Asia’s Next Giant)
The country hosted the 1988 Seoul Olympic Games, which provided the country with the momentum to join the ranks of semi-advanced countries. The international mass media called the country one of the four Asian tigers, along with Taiwan, Singapore, and Hong Kong. In December 1996, the country became the 29th country to join the OECD, which is largely composed of advanced countries. In 1960, South Korea’s exports amounted to US$ 32.8 million; but by 2013 they reached US$ 559.6 billion. In 1948 GDP per capita was a paltry US$ 60; whereas in 2013 it was US$ 26,205.
In 1997, the "miracle" on the Han River temporarily ended. South Korea again encountered an economic disaster in the form of the 1997 Asian Financial Crisis. Korea's reserves were severely limited with a total of only $6 billion remaining. The majority of this money was allocated for spending in the upcoming term. Kim Yong-sam, the first nonmilitary person to become president in thirty years, failed to protect the economy. President Kim Dae-jung (1998-2003) took office after Kim Yong-sam with considerable damage to repair. Kim was openly opposed to the chaebol and the current system of finance and government, and with the efforts of the citizens, a new president, and 58 billion dollars put together by the International Monetary Fund, the country paid its debts and surmounted the problem. Through such actions South Korea's financial crisis was severe but relatively brief compared to other countries that experienced similar situations.
In 1999, the G20 was established out of a group of twenty finance ministers and central bank governors and 19 countries. This group was formed to bring together established industrial and emerging-market countries from all regions of the world. South Korea acceded to the G20 in November 2010, capping a successful sixty-some years of rebuilding and modernization.
The country took the drastic step of driving poorly performing businesses out of the market and then pushed ahead with industrial restructuring. In only two years, the country regained its previous growth rate and price levels as well as a current account balance surplus. In the process, some 3.5 million people joined in the campaign to collect gold to help the government repay the fund borrowed from the IMF. A total of 227 tons of gold were collected. The world marveled at the Koran people’s voluntary participation in the determined effort to repay its national debts.
While making concerted efforts to extricate itself from the foreign exchange crisis, the country benefitted from certain ancillary effects, such as the adoption of the globalized economic and financial system. However, the restructuring process also had its dark sides. The government’s fiscal expenditure increased and the income imbalance deepened.
After overcoming the economic crisis, the South Korean economy continued to record solid growth. Nominal GDP doubled from US$504.6 billion in 2001 to US$1,049.3 billion by 2007, recording a high growth rate of 4~5% a year, except during the period of global economic crisis. In fact, during the period 2008-10, when most of the world was experiencing a devastating financial crisis, the country recorded an amazing 6.3% economic growth rate. The world’s major mass media organs referred to the country’s accomplishment as a “textbook recovery.”
By 2010, South Korea had emerged as the world’s 7th largest exporting country. From 2011 to 2013, the total volume of the country’s exports and imports stood at US$1 trillion. Thus, the country became the world’s 9th country to attain the target of US$1 trillion in annual foreign trade. The country’s foreign currency reserves stood at US$363.6 billion as of the end of December 2014, and the country is in a sufficiently stable position to cope with a foreign exchange crisis, with the percentage of its short-term foreign debts being 31.7% in 2014.
South Korea’s growth from one of the poorest countries in the world to being one of the richest is amazing in itself. Add to that the fact that this was done in less than 50 years and we are presented with a model that can serve as the basis of all other economic expansion programs.