After Japan, covered in Part 1 of this series, we cover the spectacular story of South Korea’s journey to development from a colonized and later war-ravaged agrarian country in the 1940s and 1950s to a global economic power by 2000. In 2016, it became the eleventh largest economy in the world in terms of GDP, and is today one of the most technologically advanced nations.
The ancient traditions of Confucianism, Buddhism and Shamanism define Korea’s way of life and consciousness, and have sustained through modern times, although close ties with US have also resulted in growth of Christianity from 8% to 29% of the population between 1950 to 2010.
Right from 676 until its partition in 1945, Korea remained unified thus being one of the oldest continuously unified states. In this entire period, only three dynasties ruled over Korea providing extraordinary historical continuity. The second and third ruling dynasties did so for over five centuries each, thus being among the longest ruling dynasties in history.
Additionally, the two dynastic changes which took place also happened without major upheavals and institutions were carried over from one rule to the next. Such a remarkable historical continuity along with Confucianism’s looking-at-the-past approach has helped create a strong historical consciousness among the Koreans and been a boon to them for achieving progress by taking pride in their heritage.
Colonization by Japan, US military rule, and war
After winning wars against China and Russia, Japan annexed Korea in 1910. The colonization invoked a sense of patriotism among the Koreans. Resisting having to assimilate Japanese culture, the Koreans carried out a peaceful movement for independence in 1919. The movement failed but the feelings of patriotism thrived and helped the Koreans build an armed struggle in Manchuria and set up a provisional government in Shanghai.
Unified Korea attained liberation from Japan in 1945. But liberation came with the partition of the country into North and South Korea, the former being taken over by the Soviet Union while South Korea was brought under US administration. A similar partition was witnessed in post-war Germany.
Both opposing Korean governments considered themselves to be the government of the whole of Korean Peninsula, and both saw the division as temporary. Just as South Korea was initiating reforms, it faced an invasion from North Korea in 1950. A US-led United Nations force intervened to defend the South and later Chinese forces intervened on behalf of North Korea. The war lasted for three years and ravaged both countries, taking lives of millions. Fighting ended in 1953, with an armistice that approximately restored the original boundaries between North and South Korea.
According to the book Korea’s path of Development in Retrospect, one way of looking at its path is decade wise:
- 1950s: Post-war reconstruction
- 1960s: Ground work for self-supporting economy
- 1970s: Upgrading industrial structure and rural development
- 1980s: Liberalizing and opening up the economy
- 1990s: Globalization and structural adjustment
Under Japanese rule, land surveys and registration had been carried out which had created a modern system of property rights but there were no measures for protecting smaller farmers which led to disparity in land holdings. For correcting this, once Korea gained independence, it brought in a Farmland reform act in 1949 and revised it in 1950. Land was purchased from landlords at pre-set rates and sold to the farmers at below market rates.
Steps to establish a market economy had already started under the US military rule. Properties annexed by Japan were sold and private ownership of property was established. All Japanese-owned properties were converted to private assets by 1958. This greatly reduced income inequalities. This brought in a perception of equal opportunity which in turn made Koreans, irrespective of economic status, focus on education. This has paid huge dividends in the form of creating a highly trained workforce that quickly propelled Korea to its goals.
In 1948, Syngman Rhee, a Christian convert, was elected President with US backing. The invasion by North Korea in June 1950 was a major setback in which millions of lives were lost and 42–44% of manufacturing facilities and 40–60% of power-generating capacity were destroyed. Post-war development efforts had to focus on rebuilding infrastructure and rehabilitation and livelihood for its citizens. The only recourse was foreign aid most of which came from the US.
Rhee ruled for over a decade and tried to consolidate power through increased authoritarianism. This led to protests and he was ousted in 1960 after a student-led uprising. The Constitution was amended to bring in a bicameral system of Parliament. Rhee’s successor was a unstable coalition government led by Chang Myon, another Christian, that people soon lost trust in.
The fragile government was brought down in 1961 by a military coup led by Major General Park Chung-Hee, a Korean Buddhist, who was elected President in 1963. Park was trained by the Japanese Imperial Army and often expressed his admiration for Japan’s rapid modernization after the Meiji Restoration of 1867. When he took over, South Korea was still largely a third-world economy.
In the 1960s, the government intervention in the banking and monetary sectors involved taking control of commercial banks as well as the central bank and sharing investment risk with private companies through provision of low-cost credit. Supply of ‘growth funds’ was prioritized over controlling prices and inflation. After 1965, interest rates were increased and tax reforms carried out. This encouraged savings and revenues. These were supplemented by funds from abroad. Foreign capital inflows came from many countries including West Germany.
Park, who was criticized by some as a ‘ruthless military dictator’ in the later years of his rule, put into action the first Five-Year Plan in 1962. The focus was industrialization. During the first and second Five-Year Plans, the government invested in new industries: chemicals, petrochemicals, steel, cement, fertilizers, ship building, and oil refineries.
It promoted exports but restricted imports to cut down on fiscal deficits. The export incentive mechanism put in place included exchange-rate adjustment, subsidizing exports, providing export credits and easing tariffs on interim inputs of products to be exported. The approach helped attain a steady and progressive growth in exports.
A lot of ideas were borrowed from Japan’s developmental model such as copying Japan’s Ministry of International Trade and Industry (MITI) and the ‘keiretsu’ (set of companies with interlocking business relationships and shareholdings). Government-corporate cooperation on expanding South Korean exports helped lead to the growth of some South Korean companies into today’s giant Korean conglomerates, the ‘chaebols’.
Despite the interim nosedive due to paucity of funds, the success in the manufacturing sector helped guide growth. In 1970, steel mills were set up which began to produce steel in 1973 and South Korea soon became the fourth largest steel producing country. It witnessed unprecedented economic growth in the 1970s. At this time, it also faced two oil shocks. After the second oil shock of the 1979s, it responded by restructuring its economy.
Meanwhile, villages were given free cement and steel to build their own infrastructure. Villages that used these effectively were given more. This novel method propelled many villages to develop. Steel was also used for developing many steel-based industries like automobiles, ship-building, construction, and electronics.
In 1995, South Korea became a member of the WTO. Hit by the foreign exchange crisis in 1997, it had to borrow from the IMF. It then focused on restructuring its industrial policies and corporate management systems.
In 2001, its foreign reserves surged remarkably. It chose to pay off its IMF loans before the deadline. By now, South Korea had become a global power. It had become a global leader in the semi-conductor industry. Through a revolution in its IT industry, it had also become an IT power. It also became an important entity in the cultural revolution through bringing Korean sensibilities into the world of music and drama.
Even today, South Korea spends a much higher proportion of its GDP on R&D when compared with both the US and Japan which are considered as innovation leaders.
After development, democratization
Park who had taken over in 1961 was assassinated in 1979. General Choon Du-hwan usurped power through a coup. He declared military rule in May 1980. He was elected President in an indirect election in September 1980.
A new Constitution was brought in. This was the fifth one since 1948 and the country became the Fifth Republic. This Constitution maintained the Presidential system but allowed each President just one 7-year term. But the indirect election system remained.
On June 29, 1987, the government’s presidential nominee Roh Tae-woo gave in to the demands and announced the June 29 Declaration, which called for the holding of direct presidential elections and restoration of civil rights. In October 1987, a revised Constitution was approved by a national referendum and direct elections for a new president were held in December, bringing the Fifth Republic to a close.
Currently, South Korea is in its Sixth Republic phase. After Roh Tae-woo, Kim Young-Sam became the President in 1993 and remained until 1998, followed by Kim Dae-jung until 2003. The next two Presidents include Lee Myung-bak till 2013 and Park Geun-hye till 2017. Since 2017, President Moon jae-in has been in power.
In terms of economic development, South Korea achieved the impossible within a short span of 26 years (1961 to 1987), even though a few problems remain to this day such as the rural-urban divide, income inequalities, and pollution. But the overall picture is spectacular.
The authors of the book Korea’s path of Development in Retrospect state, ‘Korea is considered a unique case of an aid recipient having successfully turned into an advanced country in terms of full-scale economic transformation and democratization in the latter half of the 20th century. Korea’s rapid development has been dubbed ‘the Miracle on the Han River’.
Korea’s story is yet another example that there are multiple pathways to prosperity and modernisation, not just liberal, Western-style democracy. Often, what seems like authoritarianism to the outside world delivers the focus and stability required for rapid progress. The one indispensable ingredient is civilizationally-rooted, fiercely nationalist and pragmatic leaders. Equally noteworthy in South Korea’s case is that while contributing their all for national economic goals, citizens continued their struggle against autocratic excesses and full democratization became a reality after 1987.
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