South Korea – A Role Model For The Developing Nation

South Korea – A Role Model For The Developing Nation
During the 1988 Seoul Olympics, visitors from worldwide had the opportunity to witness the prosperous and modernized Seoul city. Hardly for anyone can imagine that thirty-five years ago Seoul was just a place with

ashes and rubbles. For all South Koreans, the transformation from post war ruined land to a well-developed nation was considered their national pride. During the 30 years recovery span, the Gross National Product (GNP) raised from $100 in 1960 to astonishing $2800 in 1987 (Eckert). Also, the per capita income had increased from $700 in 1976 to $1624 in just three years (Eckert). Many economists and scholars were very surprised by such achievement as they considered such transformation as “The Miracle on the Han River”.

As of today, many developing countries began to view South Korea as their role model: “Korea is now regarded as an economic model to be emulated by other nations”. (Steinberg 124) However, such tremendous achievement would never happened without president Park Chung Hee’s establishment of a solid government guidance system, precise foreign policy decision and efficient use of compare advantages of the country. His thinking and ideological approach were very similar to the Japanese colonial government in Korea. As of today, although many Koreans disagree with President Park’s dictatorship, however, his contribution in modeling the strong Korean economy had always been admired. Thus, he was addressed as the “father of Korean economy.”

On May 16, 1961, when general Park’s overthrown the new popular elected government. By the time he assumed the power, the United States government was uncertain what had taken place in South Korea. There were suspicions that South Korea might have fallen to a crypto-communist. After his succession overthrown the previous government, Park took his first step in building a solid network to control his people by established a military style supervision system [Guide Capitalism]. He appointed retired military staff to serve as local government leaders thus his command will be carried from top officials from the central government to the local officials in every single township. After consolidate his central power, Park also began to introduce his new economic development. He established three powerful agencies to support his development plans: The Economic Planning Board (EPB), The Ministry of Trade and Industry (MTI), and The Ministry of Finance (MoF). His development plan began with obtaining control of the enterprises across the nation. The government persecuted business leaders who were profiting from the corruption in the South Korean government. Twenty-four leading businessman were arrested. The leader of Samsung, Lee Byung Chull avoided the persecution because he was out of the country at the time. After Lee returned to Korea he met with Park and agree to follow Park’s economic developing program. Lee and other business leaders ended up with paying fines to keep their businesses. After obtained control of large enterprises, Park began to ensure his government’s dominance of financial sectors by nationalized all the banks from South Korea. The government was able to supervise the transaction flow from every bank in the country and it has the authority to set the interest rates. The government even had power to intervene all commercial loans induced from foreign banks. Park then established the Office of National Tax Administration (ONTA). This is an agency to insure that the flow of expenditures and profits distribute to the approved sectors. The agency also had the authority to shut a business down if such firm violated the official guidelines and regulations. Park also established the fourth agency, Korean Central Intelligence Agency (KCIA), which is responsible when discovered any worker, began to demonstrate his/her suspicion towards the labour law he/she will be putdown by the police and other security forces. Park’s thinking and ideological orientation was decidedly Stalinist. However his predilection for central planning and autocratic control probably came from his experiences in the Japanese army. The Japanese army had no sympathy for notions of free markets and in Manchukuo undertook a Stalinist-style development program.

Park’s style of governance emphasised on military control that can be traced from the Japanese colonial period where Japanese colonial government also relied on its military power to govern Koreans. When the Japanese occupation began in 1904, Japanese government have stationed troops in Korea. These troops served as peacekeeper in Korea and as punisher to ensure Koreans would follow instructions given by the Japanese colonial government. Similar to president Park’s centralized banking system, the government took full control of the Korean currency and introduced Japanese banking into Korea to protect the Japanese enterprises to invest in Korea. They established the Oriental Development Company (ODC) to sell low interest loads to the Japan businesses in Korea to help these companies to grow. The colonial government also took away the military, imperial and untitled land in Korea and distribute them to the Japanese enterprises in Korea (total of 380,926 acres). In order to ensure the tax revenue, the Japanese took land survey and established property fixed taxes. In addition, similar to Park’s military government, the colonial government established also had its police system (Seirei) to govern Koreans. Seirei’s responsibility included regulating local court, ensure the operation of tax system and provide surveillance of communities. The idea of Park’s military surveillant government, centralized financial and commercial sectors are very similar to the plans that Japanese colonial government implemented.

The establishment of foreign relation played a very significant role during President Park’s regime:

“The influence of foreign powers in shaping the country’s economy has been extraordinary. Korea’s crucial geopolitical position at the crossroads of northeast Asia has brought the peninsula into intimate and sustained contract with the two most dynamic and expansive economies of the twentieth century, Japan and the United States”. (Eckert 389)

Over the years, there had been continues debate related to the co-operation between South Korea-U.S-Japan. Many Koreans claim that the Korean economy can still maintain a stable growth even without outside assistance. However, it is obvious that President Park’s export strategy had indeed became a boost for the Korean economy. Since the Korean War ended in 1953, the Korean peninsula suffered the humongous damage that cast by the war. Since then, because of the help from the U.S, which provided large amount of economic assistance, the First republic was able to rebuild. Between 1946 and 1976, the U.S supplied a total of $12.6 billion economic and military assistance to Korea (Eckert). Also, the U.S government had financed about 70% of South Korea’s imports and 80% of fixed capital in transportation, manufacturing and electric power (Eckert). It also helped with the growth of textile industry that in the 1950’s the average growth of textile industry reached to 24% per year (Eckert). During the second republic, the U.S government also provided significant help to Park’s government. For example, it helped to establish the Korea Development Institute (KDI) and Korea Institute of Science and Technology (KIST) in order to provide trainings to Korean economic and industrial technocrats. In addition, the U.S AID Mission in South Korea had also taken a role in tutoring president Park in economics and served as his economic advisor at that time. The most important is that U.S military led Koreans to participate in the Vietnam War and brought to the Koreans with unexpected economic bonanza. During the war, Korean military have received a huge amount of foreign exchange (estimate $660 million to $926 million) from U.S compensation to participate in the war, which accounted for 20% of foreign exchange and 4.4% of GNP in 1970 (Eckert). Not only the military had benefit by the war, business sectors also received huge revenue during the war. For example, the private businesses (Chaebols) such as the founder of Hanjin — Cho Chung-Hun, who set up a land and marine transport company in South Vietnam. His company assumed the responsibility of the operation from U.S army and received huge amount of profit from the service. Similarly, another chaebol Hyundai, was able to benefit though the Vietnam War by serving as a major contractor for the U.S army in South Vietnam. The company later was able to grow and expand their international construction business in Middle East countries. Between 1974 and 1979, the top ten chaebols were able to earn estimated revenue of $22 billion (Eckert). Such “construction export” had also benefit the Korean government where the foreign reserved had grown from $2,961 million into $4,937 million between 1976 and 1978 (Eckert). On the other hand, Japan had also played a significant role in the economic growth during Park’s era. In 1965, President Park established the controversial normalization relationship with Japanese government. Japanese brought in a total of $1.4 billion investment over ten years which accounted for more than half of the total foreign investment in Korea (Eckert).
President Park’s efficient use of comparative advantage of the nation was another important factor for the rise of the South Korean economy. In the beginning of 1960’s, president Park began with a series of five years plans for his re-construction plan. He began with focusing on the light industry for the first and second five years plans. Park chose his investments priority into industries that had short capital turnover and require manpower instead of heavy machinery. This is because he understands that Korea had great comparative advantage in labour force but has fairly short capital and poor technology. Then, during the early 1970’s, Park’s government witnessed the U.S force retreat from the Korean peninsula and he also noticed that the relationship between United States and People’s Republic of China had been vastly improved. Park’s government felt the urgency to develop their own self-reliant military support thus he began to his Heavy and Chemical Industry (HCI) plan.

“Park government felt that it could no longer rely completely on the United States for its supply of sophisticated arms for its defence. It also believed that if it could manufacture arms, it could also export them.” (Steinberg 136)

In order to achieve the industrialization in South Korea, Park began to invest extensive funds to develop heavy, chemical and defence industry such as production of steel, machinery, automobile, electronic, and shipbuilding. As a result, the outputs of heavy chemical industry have changed from 28.6% of total production in 1962 into 56.8% in 1986 (Eckert). Such dramatic change provided a clear path for Korea marching towards a semi-advanced nation.

On the other hand, the Japanese colonial government also took advantage of Korean labour force during their occupation in Korea. The Meiji restoration had not only re-shaped the Japanese political structure but also helped with the development of economy. The average income in Japan increased and Japanese enterprises began to seek for cheaper labour elsewhere. These enterprises then began to recruit cheap labours from Korea to work in Japan. Also, during the occupation period, the rice production in Korea was also relatively cheaper than Japan. The Japanese colonial government thus recruited a large amount of tenants to participate in rice production and ship these rice back to Japan.

“It was thus Japanese colonialism that ultimately laid the foundations for a modern transformation of the economy. To appreciate how far reaching they were, one need only compare photographs of Seoul in the late Choson period with similar photographs taken in the mid-1930’s”. (Eckert 190)

In conclusion, the result of Korean economy transform was astonishing. The total export increased from less than $30 million in 1960 into huge $47,280 million in 1987 (Eckert); and $41, 020 million import accounted in 1987, which occupied 75% of the GNP (Eckert). Also, the total employment rate climbed from 30.6% in 1964 to 52.4% in 1985 (Eckert). These numbers provided a strong evidence of how successful Korean economy has transformed under President Park Chung Hee’s era. Meanwhile, his strategies can also be traced from the Japanese colonial period. As of today, Korea became a role model for many developing countries from the Third world. President Park Chung Hee indeed was a nation hero who changed the South Korea from devastation to a prosperous nation after the Korean War. As it states in the World Bank Report:

“ [Park] has transformed (South) Korea from one of the poorest developing countries, which heavily dependence on agriculture and a weak balance of payments financial almost entirely by foreign grates, to a semi-industrialized middle income nation with an increasingly strong external payment position and the prospect of eliminating the current account deficit in the next 5-10 years” (Koh 34)

Work Cited
Eckert, Lee, Lew, Robinson, Wagner, Korea Old and New: A History, Harvard University Press, Cambridge, Massachusetts 1990
Gills B.K Korea Versus Korea: A Case of Contested Legitimacy, Routledge, New York, London 1996
Koh, B.C The Foreign Policy Systems of North and South Korea, University of California Press, Berkeley, L.A, London ,1984
Peattie, Mark R. Japanese Attitudes Toward Colonialism 1895-1945 (Essay),
Steinberg, David I. The Republic of Korea: Economic and Social Change, Western Press, Boulder and London, 1989
A Comparative Study of South and North Korea, National Unification Board, Seoul, Korea, 1988
A Handbook of Korea, The Korean Overseas Culture and Information Service, Seoul, Korea