A Concise History of Korean

Economic Development

Shreejana Gnawali, PhD

 Content
• Economic Development from 1948 to 1961
• Economic Take-Off
• Big Business and the State
• Social Transformation
• A Maturing Economy
• After 1996
Economic Development from
1948 to 1961
Korea in 1950s

 1945: Liberated from Japanese colony

 1948: Separated into Two Koreas
 1950: Korean War (3 years)
Initial Condition of Korean Social Economic and Political Context

 Low Industrial Technology

 Poor Natural Resources
 Largest Recipient of Foreign Aid
 High Government Corruption
 Political Volatility
 Threat of Renewed War with North Korea
 Purely Agriculture Based Economy
 High Absolute Poverty
 Economic Situation in the 1950s

Three Lows Three Highs

• Economic Growth • High Inflation

• Food Self- • High

sufficiency Unemployment

• Political Stability • High Population

Growth
Korea in Late 1950s
Yi Sǔng-man, also known as the first President after
Korean War (1948 – 1960), created the Economic
Development Council and began to draw up plans for long-
term socioeconomic development.

 Two fundamental changes took place that

contributed enormously to the country’s
socioeconomic takeoff:
a. Education Development Plan
b. Land Reform
Educational Development Plan
 Establishment of the National University System
 Expansion of primary and secondary education
 Creation of the Korean Educational Development
Institute
 Implementation of the School Lunch Program
 Introduction of vocational education
 Establishment of the Korean Science Foundation

- By 1960, 96% of all children of primary school age were

attending school.
- Highly successful adult literacy programs were carried out by
both state and private groups.
- As a result, South Korea, in 1961, had the best-educated work
force of any country with a comparable income level.
To sum up, Yi Sǔng-man's educational development plan helped Korea
as:

Increased access to education: The plan focused on expanding access to education,

particularly in rural areas, by establishing new schools and improving existing ones. This
helped to increase the overall literacy rate.

Developed a skilled workforce: The plan also aimed to develop a skilled workforce by
introducing vocational education programs and expanding higher education
opportunities.

Promoted social mobility: The educational development plan helped to promote social
mobility by providing educational opportunities to people from all social backgrounds.
This helped to reduce the influence of traditional social hierarchies and promote greater
equality in the society.

Encouraged innovation: The plan encouraged innovation by investing in scientific

research and promoting the development of new technologies. This helped to create new
industries and jobs and stimulated the country's economic growth.

Improved international competitiveness: The educational development plan also

helped to improve Korea's international competitiveness by producing a highly skilled
workforce and promoting technological innovation.
Land reform: A critical component for Korea’s post war
development strategy

 Land reform, carried out in 1950 on the eve of the Korean

War, which limited property holdings to 7.5 acres (3
hectares).
 In 1944, 3 percent of landowners owned 64 percent, but
in 1956 the top 6 percent owned only 18 percent; tenancy had
virtually disappeared.
 Traditional peasants became small entrepreneurial farmers,
and many landowners invested in business or established
schools.
 Land reform brought stability to the countryside and
redirected much of the capital and entrepreneurial energy of
the old landlord class toward commerce, industry, and
education.
Land reform helped Korea:
Redistributed land ownership: The land reform redistributed land ownership, which
helped to address social and economic inequality in the countryside.
Encouraged agricultural productivity: Small farmers were able to work on their own
land, which encouraged them to invest in improving their farms and increasing their
productivity. This led to an increase in agricultural output and helped to boost the
country's food security.
Created a class of small landowners: The land reform created a new class of small
landowners who were able to accumulate wealth and become more financially
independent. This helped to stimulate the economy and promote socioeconomic
development in rural areas.
Provided a foundation for industrialization: The land reform created a stable
agricultural sector, which provided a foundation for industrialization. With increased
agricultural productivity, the country was able to produce more food and feed a growing
urban population, freeing up labor for industrial activities.
Increased political stability: The land reform helped to increase political stability in the
country by addressing the grievances of rural people and reducing the influence of the
landlord class. This helped to build support for the government and promote social
harmony.
Economic Take-Off
 South Korea’s “economic
miracle” began under the
military government of General
Park Chung Hee (Pak Chǒng-
hǔi), who came to power in a
coup in May 1961.
Several steps were taken to direct toward economic growth in
Park Chung Hee administration :

 The development of five-year economic plans

 the redirection of the economy from import
substitution to exported-oriented industrial
development
 State control over credits
 The state nationalized all commercial banks,
then provided low interest loans to businesses
according to the needs of economic plans.

 Initiated First Five-Year Development Plan to be

the point of economic take-off.
 Most historians regard the First Five-Year Development
Plan to be the point of economic take-off.
 Launched in 1962, it called for a 7.1 percent economic
growth rate for 1962–1966, by encouraging the
development of light industries for export.
 Despite skepticism by many American advisors that it
was unrealistic, the target was exceeded with the
economic growth rate averaging 8.9 percent, initiating
South Korea on its path to rapid industrialization.
 Exports grew 29 percent a year, manufacturing 15
percent a year.
 A Second Five-Year Plan, 1967–1971, followed, which
gave greater emphasis to attracting direct foreign
investment and improving the basic infrastructure
Economic Development Strategy
1. Labor intensive : Extensive use of labor rather than
capital or technology

2. Export Oriented: Prioritizing exports over domestic

consumption

3. Urban Oriented: Promote urbanization and

industrialization to drive economic growth and development

4. Strengthened relationship with USA and

normalized relationship with Japan: Sent 300,000
Korean troops to support the Americans in Vietnam in
exchange to receive lucrative contracts to supply Korean goods;
Japan supplied foreign technology (technology transfer), Korea
used Japanese model as imitation

5. Growth First
 Major Economic Indicators
1960 1970 1990 2000
GNP Growth Rate 2.3 10.0 9.5 8.5

GNP/capita(US$) 85 250 5,210 10,841

Industrial Agriculture 36.0 26.6 8.7 4.9

Structure
Manufacturing 14.7 22.5 29.8 29.8

Investment Ratio to GNP 11.6 26.3 37.1 28.8

Domestic Saving to GNP 5.0 14.8 36.2 32.3

Population Growth Rate 2.9 1.9 1.0 0.8

Export(US$ billion) 0.03 0.84 65.0 172.3

Import(US$ billion) 0.34 1.98 69.8 160.5

Source: Chung Ki Whan, Ph.D., Research Director Korea Rural Economic Institute
 Big Business and the State…

• After 1961, Korean government worked closely with selected

business entrepreneurs to achieve development goals.
• The state nationalized all commercial banks, then provided low
interest loans to businesses according to the needs of economic
plans.
• Poured credit into a few companies to develop industries targeted
for development.
• The state constantly monitored chaebŏls to determine if they
were using their support efficiently.
• Government did not allow any chaebŏl to achieve a monopoly
but rather encouraged competition among several in each
industrial sector to keep them efficient.
Big Business (chaebŏls)
• The chaebŏls were essentially family-run
businesses.
• Family members held the top managerial positions
with second tier offices staffed by those with school
or hometown ties to them.
• Control was kept in the family by low inheritance
taxes and marriage networks.
• Among 50 largest chaebŏls in 1983, only ten
predated 1945.
• A majority were established in the 1950s and
1960s. Most were well established by 1980.
Big Business (chaebŏls)

• Samsung, founded by Lee Byung Chull

• Hyundai founded by Chung Ju-yung

• Lucky-Goldstar founded by Koo In-hwoi

• Daewoo founded by Kim Woo-choong,

• Ssangyoung founded by Kim Sung Kon

 Samsung
 Samsung was founded as a grocery trading store on March 1, 1938, by Lee
Byung-Chull.
 He started his business in Daegu, Korea, trading noodles and other goods
produced in and around the city and exporting them to China and its
provinces.
 In the 1950s, he established the Cheil Sugar Refinery and the Cheil Textile
Company.
 He developed a close relationship with the Rhee regime, which provided
him with profitable import licenses in return for contributions to Rhee’s
Liberal Party. Later he established an important working relationship with
the new military government, Park Chung Hee
 In the late 1960s, Lee made electronics his prime focus.
 By the early 1980s, Samsung was one the world’s largest manufacturers of
TV sets.
 In the mid-1980s, it moved into the semiconductor business promoted by the
government.
Hyundai
 The most successful of these was Hyundai, founded by Chung Ju-
yung (Chŏng Chu-yŏng), who started out with a construction
company that worked for the U.S. Army and the Korean
government.
 He came to the attention of the Park regime for his ability to
complete tasks, such as a bridge over the Han River, ahead of
schedule.
 After 1965, Hyundai Construction received many contracts to
build in Southeast Asia during the Vietnam War, and in the Middle
East in the 1970s.
 Chung established Hyundai Motors in 1967 to build the first South
Korean car, which became known as the Pony.
 He established Hyundai Shipbuilding and Heavy Industries
in 1973 in response to the HCI initiative.
 Later in the early 1980s, Hyundai entered the electronics industry
and became in time the largest of the chaebǒls.
Lucky-
Goldstar
 Lucky-Goldstar was originally founded by Koo In-hwoi
(Ku In-hoe) as Lucky Chemical Company in 1947, the
country’s major toothpaste manufacturer.
 In the 1960s, he went into the electronics business under
the Goldstar label.
 In 1995, the Lucky-Goldstar company changed its name
to LG, eventually becoming one of the world’s largest
consumer electronics firms.
 Daewoo
• Founded in 22 March 1967 by Kim Woo-choong.
• In the 1980s and early 1990s, the Daewoo Group also
produced consumer electronics,
computers, telecommunication products, construction
equipment, buildings, and musical instruments.
• Declared bankruptcy on 1 November 1999, with debts
of about US$50B
• Later the Daewoo was reorganized into three separate
parts: Daewoo Corporation, Daewoo Engineering &
Construction and Daewoo International Corporation.
 SsangYong (Twin Dragons)

• Founded in 1954 by Kim Sung Kon

• Ssangyoung (Twin Dragons) was
another older chaebǒl, originating in the
late colonial period as a textile
manufacturer.
• Under Park, its owner Kim Sung Kon
(Kim Sŏng-gŏn) branched out into
many industries, including trading,
construction, and automobiles,
becoming one of the six
largest chaebŏls in the 1970s and
1980s.
Social Transformation
• Urbanization
• Millions of Koreans left their rural homes to find work in the urban
areas.
• Saemaul Undong
• Park launched the New Village (Saemaǔl) Movement in the
winter of 1971–1972 to promote rural development.

• Decline in the birth rate

• Cutting the birthrate was essential for fast economic growth and
modernization.
• Educational development and improvement
in health standard
• Secondary education became close to universal in the late 1980s, and higher
education enrollments reached the levels of developed countries by the 1990s
Urbanization

• Millions of Koreans left their rural homes to find

work in the urban areas.
• Parents sent their kids to the cities to get a better
education.
• In 1960, farmers made up 61 percent of the
population which fell down to 51 percent
in 1970, and to 38 percent in 1980.
• Farmers suffered from low prices for their crops,
prices set by the state to keep food relatively
cheap.
New Village (Saemaǔl) Movement

• Park launched the New Village

(Saemaǔl) Movement in the winter
of 1971–1972 to promote rural
development.
• Improve infrastructure in rural South
Korea, bringing modernized facilities
such as irrigation systems, bridges and
roads in rural communities.
• Living environment improvement and
income generate programs under the
principle of self help cooperation and
diligence.
Decline in the birth rate
• The government worked with the Planned Parenthood Federation
of Korea and introduced various family planning initiatives,
including Mother's Clubs for Family Planning and oral
contraceptives.
•
The state carried out major family planning campaigns and began a
female sterilization campaign in the 1980s.
•
By the early 1990s, the birth rate had fallen to replacement level
and below.
•
The country's shift to smaller families was also a result of
urbanization, a growing middle class, and better education for
women.
 Educational Development and Improvement in Health Standard

• Educational development also proceeded rapidly

throughout the period from 1961–1996
• Secondary education became close to universal in the
late 1980s, and higher education enrollments reached
the levels of developed countries by the 1990s
• Women entering the professional and managerial
careers was still low
• Infant mortality rates was dropped matching those of
most European countries by 1996
 A Maturing Economy
• On October 26, 1979, President Park Chung Hee was assassinated.
• A period of political turmoil followed, compounded by the 1979 oil
price hikes, a bad rice harvest, and an alarming 44 percent inflation
rate, resulting in the economy contracting 6 percent in 1980.
• But the economy quickly recovered. The 1980s saw high rates of
GDP growth, peaking in the years 1986–1988, at 12 percent annually
the highest in the world. After that the growth rate slowed down, but
the economy continued to expand through 1996 at an average rate of
7 percent.
• Chun Doo Hwan, another military man who had served as president
from 1980 to 1988, continued Park’s developmental policies for the
most part.
• Exports diversified and shifted to medium and high tech goods,
industry becoming more capital and less labor intensive. Textiles
exports declined in relative terms in the 1980s, replaced by consumer
electronics, computers, and semi-conductors as lead exports.
 Democratization
• From 1987, economic development was impacted
by democratization.
• The era of strong-armed governments was over
• The years 1987, 1988, and 1989 saw widespread
strikes and soaring membership in militant, non-
government affiliated labor unions.
• Increase in wages and purchasing power
• For example, restrictions on foreign travel were
ended in 1988, resulting in a surge of overseas
tourism by the new middle class.
After 1996

• South Korea joined OECD 1996

• Asian financial crisis in 1997
• South Korea entered a period of slower growth
after 2000
• Ranked highest in the world in health standards and
educational attainment by 2017
• The country grow into a major exporter of
entertainment