Economic History of South Korea

Harvie and Mosayeb (3) and Indexmundi (1) pointed out that South Korea was one of the poorest countries in the globe in 1952 though it experienced slow economic growth from the middle of 1950s, but the gross domestic product (GDP) per capita of this country was comparable with African and Asian developing countries.

In addition, Harvie and Mosayeb (3) stated that the economy of this country was heavily reliant upon assistance from the USA though the government concentrated more on the investment in education to develop skilled labor force and help the country achieving an implausible record of growth and global integration to become a high-tech and largely industrialized regime.

After liberation from Japan’s colonial rule, North Korea had mainly maintained trade relation with socialist countries and faced financial hardship after collapse of the Communist; on the other hand, South Korea had joined the trillion-dollar club of world economies due to inspiring economic growth by promoting indigenous industrial firms and maintaining good trade relationship with the USA (Indexmundi 1).

However, Harvie and Mosayeb (3) stated that the establishment of growth and development strategy (1962 to 1971) played a vital role to develop national economy to achieve the status of NIC and the implementation of this strategy influenced government, banks and investors to develop relationship with entrepreneurs to use properly the foreign direct investment and other funds in industrial sectors.

According to the view of Harvie and Mosayeb (3), growth strategy was successful because the average annual growth rate increased by 4.4%, per capita boosted by $204 and exports increased by $1092 million from 1962 to 1971.

They further added that this country had faced a number of economic challenges in 1970s because of sectoral imbalance between light and heavy industrial segments, introduction of HCI promotion strategy, loophole in the export oriented industrialization program, mismanagement and lack of confidence in top-management, and falling exports from this country.

However, the economic growth slowed from 1976 to 1978 due to reduction of export, oil price hike, domestic political crisis, and instability in labor market though the government saved the national economy by taking effective measure in 1890s, for instance, new government concentrated on the economic stabilization and liberalization by opening market, promoting small companies and restructuring integrated trade policy.

Economic Philosophies of South Korea & Influential Economists

Ciobanu and Ciulu (2) argued that the economic philosophy that majority of South Koreans follow is the Walrasian Equilibrium, the economic theory that amalgamates as:

Without emphasizing the conceptual framework of lucrative economic balance;
It is more essential to inspire imbalances caused for economic development and growth while a stagnation balance would involuntarily arrive.

Without any doubt, under capitalism, such economic philosophy looks like an essential factor that entails within an extended area as a common feature of progression of human race and majority of South Korean economic actors have aligned with this philosophy.

Although in real life practice, the Walrasian equilibrium has evidenced as a vulgarized form of economic philosophy and applied impudently in the disturbed or imbalanced development and failed to prove its efficiencies, but carried irrevocable imbalance.

Due to integration of such economic philosophies, the South Korean economy has shaped in a complex nature by unpredictable growth policy linking with a selection of growth driven economic forces with random temperament of assorted factors those seriously effects on the market without any indication.

The economic philosophies of Debreu, the Nobel economist of 1983, also has a greater influence in the South Korean economy who kept his efforts to bring balance under the limited resources, the over-demand has treated as the gap of net demand along with overall resources, the net demand has pointed out by the gaps of consumption and production.

Debreu argued that in the market while the net demand would be equal to the total resources, then the over-demand tends to zero and the market would gain perfect equilibrium and it is essential for the South Korean economy to overcome dependency on the external factors.

Ciobanu and Ciulu (3) also added that the economist Boltzmann’s philosophy has some influence in the South Korean economy where the parameters characterize the system setting with realistically unevenness with the aim to make certain that the economy has gained highest degree of growth.

The economy of South Korean has fashioned with a command system, where the state functions as a decision-maker, allocates financial capital and controls over the consumption of natural resources without influencing the market; thus, it may categorize as a partially centralized economy, but the corporations enjoy full autonomy balancing with external and internal variables.

Important Economic Events that took place in the history of South Korea

The position of this country in the period of 1960s and 1980s has already discussed in section of economic history of South Korea; however, this part concentrates more on the position of this country on Asian financial crisis in 1997, the role of IMF and economic reforms, Inter-Korean Economic Relations and so on.

Asian Financial crisis in 1997

Manyin (6) expressed that economic crisis in 1997 was an influential event in the country’s history; conversely, Indexmundi (1) stated that economic downturn of 1997-98 exposed venerable weaknesses in South Korea’s growth model including high debt/equity ratios along with massive short-term foreign borrowing because of investors lost confidence in the economy and capital fled.

In addition, Indexmundi (1) reported that GDP plunged by 6.7% in 1998, which was one of the most influential factors of national economy as this country entered into a severe recession because of GDP reduction; however, the following figure demonstrates the actual condition of economy in 1998 –

*Figure 1: – ROK Real GDP Growth, 1995-2004. Source: Manyin (7).*

On the other hand, Manyin (7) pointed out that Asian financial crisis created unemployment problem along with increase in the real interest rates because of the rise in the inflation rate, which was influenced the government to take loan and other financial support from International Monetary Fund.

However, this crisis created negative impression among many South Koreans about the US trade policy and the role of IMF, as many actions of IMF was contentious, for instance, asking high interest-rate to recover was notorious (60% paid-up interest rate), which is comparatively higher in normal financial situation; thus, this economic event was great influence on political factors (Manyin 7).

Economic Reform

According to the report of Manyin, IMF has played a significant role in Asian financial crisis to recover economy of South Korea by providing financial packages, balancing growth of business, and giving suggestion to the policy makers on time; therefore, GDP grew by more than 10% within the fiscal year 1999 though this growth slowed in 2001.

As the GDP fall again, it raised few questions regarding the performance of IMF, for example, whether its resources were adequate to cope up the situation as the government of ROK spent only $140.0 billion to bailout ailing banks and mutual funds in accordance with the IMF’s suggestion while it should require 60% of the national GDP to save economy.

At the same time, South Korea has opened its doors to foreign investors, which allowed foreign companies to become shareholder of local industries; therefore, it raised many other related questions, for instance –

Whether rescue package creates any moral hazard or not;
To what extent, the contagion of financial crises can be stopped successfully;
To what extent it could reform the external environment;
To what extent it ensures accountability to develop the concept of transparency

It is important to mention that the South Koreans should concentrate not only on the economic in global economy, but they need to consider the actual share of the foreigner in stock marker while US entrepreneurs hold 40% of share of the industry by taking advantages of the open market.

South Korea’s Increased Economic Integration with China

According to the following figure, South Korea increased business collaboration with China and Japan from in 2002 to strengthen national economy and most importantly, China surpassed the US in case of exports of raw materials from South Korea to produce finished goods at low cost, and this trade relationship helped ROK recover from slow growth of economy (Manyin 11).

*Figure 2: – ROK Trade with the US, China, and Japan. Source: Manyin (11).*

Improved Inter-Korean Economic Relations

It has already addressed that Asian recession changed the mind of South Koreans regarding IMF, which helped the policy maker to develop the inter-Korean relations; therefore, Inter-Korean trade has increased by more than 80% since 2001; however, trade relationship with North Korea involved some advantages and disadvantages, such as –

Inter-Korean economic relations are undermining the US foreign policy and it would negatively affect inflow of FDI;
However, South Korean Government believed that North Korea would keep its promise by curtailing its nuclear program as resolving the ongoing North Korean nuclear crisis is a prerequisite condition of relationship development.

Economic Policy That South Korea Follows and its Reason

Duisburg (13) mentioned that due to global financial crisis in 2008, South Korea evidenced economic shocks connecting with higher inflationary pressure than ever, as disputed foreign exchange reserve and GDP reduced by 4.3%, stock exchange index decreased by 31.4%, export reduced by 34% and unemployment increased by 28%, which demonstrates a terrific economic condition of the country.

From the viewpoint of economic policy analysis, it is a failure of the existing economic philosophy that South Korea has put into practice; however, there is no reason to support the system that would bring economic stability or sustainable growth for the country.

Moreover, the political economy of South Korea with higher degree of US dependency, presence of US military is not at all supportive by the citizens of sovereign State; rather it is much important for South Korea to improve its economic cooperation with Asian emerging nations.

Lee (3) stated that the overall economic progress of South Korea has rooted from three sources, first one is its military intervention along with US army in Vietnam War, second one is female sex labor for both military prostitution and so-called domestic prostitution and the third one is exploitation of illegally migrated labors.

Due to collaboration with US military, they supported to promote economic interest of South Korea and gathering resources for industrialization, industrialization supported by migrant labor resources while militarization and industrialization jointly explored prostitution, as a major contributor in the GDP growth.

Suggested Changes, Necessity and Way of Implementation

The concurrent movement of “Occupy Wall Street” and its influence globally has proven the lesser sustainability, inequality of the capitalism at the core of its system where 99% of the resources have accumulated to the 1% corporate owners and the distressed people are protesting against the state.

The State efforts to pump the economy by enhanced governmental spending and bailout have proved their disqualification to bring balance in the economy.

The academia and the Keynesian economists have failed to identify or prescribe any remedy to overcome the crisis and no hopes yet shown from 2008 to 2011. However, it has already evidenced that the capitalism in the US and European market has already integrated so many attributes of socialism like social securities that proven the poverty of the system.

Marx and Engels (7) pointed out that the modern capitalist society has involved with irrevocable conflicts due to the ownership of production means and unequal distribution of resources leads to resource accumulation to the capitalist or so-called corporate bodies.

At the same time, the capitalist exploitation had no limit until the market collapse due to over production, war for market accusation, which has no remedy without redistribution of the resources. Thus, this paper would suggest the economic reformation in the social ownership under “State Governance” and equal distribution of the resources among the people, which states the political economy of Karl Marx.

At this context, the changes required for South Korea is to come out from the neocolonial political economy of the US integration, remove US army from the country, and emphasis on the reunification both Korea, enhance regional economic cooperation among the Asian emerging countries.

It is also essential for South Korea to change the economic philosophy of open economy experiencing the North Korean planned economy to protect local industries from the aggression of multinationals that periodically destroyed internal resources.

Does South Korea follow its own Economic Policies/ Philosophies

There are two ministries in South Korea named “Ministry of Knowledge Economy” and “Ministry of Strategy and Finance” along with their subordinate economic research institutes to address national and economic policies, there are also sufficient national scholars and talents, but none of them has any liberty to follow their own economic policies aimed to national interest.

The governmental agencies and local economic researchers are working with policy maters under huge pressure of IMF, World Bank and other development agencies to integrate their prescribed policies of liberalization to open the Korean market for Americanization, thus South Korea has no opportunity follow its own economic policy.

Yoon (4) pointed out that the activities of IMF during Asian financial crisis in South Korea looks like a puppet of the USA and urged to trade liberalization with capital market opening for US and western Multinationals without safeguarding the national interest that was long demand of US Department of Treasury, but local authorities were not willing to do so.

IMF and World Bank forced the government if they do not obey such condition, none will provide any financial support to overcome the crisis, and as a result, government was bound to call for a special parliamentary session to pass law for opening the market and trade liberalization.

However, this country is under process to abolish it long philosophical heritage and destroy social, cultural, and religion traditions due to the South Korea’s membership in WTO and integration of globalization.

Historical Shape of SK Economy, Other Internal & External Influences

Kyu (4) pointed out that both the educational and financial development of South Korean have been originated from the perception of South Korean history and cultural, which long rooted from the Chinese philosophy of Confucianism during the reign of “Three Kingdoms” from 57 BC to 935 AD and the philosophy of Buddhism integrated during the Koryo Kingdom (918-1392).

Such integration of spiritual or cultural philosophy fashioned the South Korean State and society to structure its economy, education and political system with the principles of Buddhism and Confucianism with strong influence and privileges of the ruling class and with the class interest of the economic elites of that era.

Lee and McNulty (36) argued that majority of the South Koreans follow the economic the philosophy to keep harmony of life rather than conflict as a tradition of Confucianism; in addition, it conceptualized the cosmological standards that assumed the universe as the coordination of harmony linking dissimilar temperament of diverse elements.

This philosophy explored the belief that all changes of the universe caused as a friction between the extraterrestrial and spiritual forces of ‘Yin’ and ‘Yang’, while the first one indicates ‘shaded and female element’ as well as second one points to ‘sunny and male elements’.

‘Yin’ and ‘Yang’ are absolutely against each other, but cannot survive or sustain without each other and figured with a circle alienated into two segments along with a whirlpool balanced in an equilibrium point.

Due to cultural and religion heritage of Buddhism, the majority of South Korean people uphold the teaching of Siddhartha and aligned towards nondiscrimination considering race, class, color and wealth, all people have the opportunity to become ‘Buddha’ without discrimination, thus, people implied cultural propensity on the way to egalitarianism, all these philosophical factors extremely influenced South Korean Economy.

Ciobanu and Ciulu (5) identified that the underlying driving force of the economic phenomenon of South Korea has amalgamated with the policies both external and internal factors while the features of wealth accretion in the country has evidenced as growth resources were decomposing with moderately balanced extent of internal and external channels. On the other hand, the wealth accretion system facilitated the industries of South Korean to run faster depending upon “two feet” like –

One is internal driver.
Another is external driver.

Ciobanu and Ciulu (5) reported that both drivers mutually generated advantageous situation for the local economy and it was not depending upon single outlet, for instance, during the Asian financial crisis, the real export growth rate of South Korea has significantly reduced, but a real investment environment has developed due to positive action of the policy makers to increase FDI.

Works Cited

Ciobanu, Ioan, and Ciulu, Ruxandra. Secrets of the South-Korean Economic Miracle. 2010. Web.

Duisburg, Werner Pascha. South Korea’s economic policy response to the global economic crisis – a comparative perspective. 2010. Web.

Harvie, Carles. and Mosayeb Pahalvani. Sources of Economic growth in South Korea: an application of the ArDL analysis in the presense of structural breaks – 1980-2005. 2006. Web.

Indexmundi. South Korea Economy – overview. 2011. Web.

Indexmundi. South Korea GDP (purchasing power parity). 2011. Web.

Kyu, Lee Jeong. Educational Fever and South Korean Higher Education. 2006. Web.

Lee, Ho-Chul & McNulty, Mary Patricia. Korea’s Economic Crisis and Cultural Transition toward Individualism. 2003. Web.

Lee, Jin-Kyung. “Understanding South Korean Economic Growth through the eyes of Militarism, Sex Work and Migrant Labour.” Journal of International Women’s Studies 12.4 (2011): 1-12. Web.

Manyin, Mark. South Korea-U.S. Economic Relations: Cooperation, Friction, and Future Prospects. 2004. Web.

Yoon, Hyun. The Changing Role of the IMF Evidence from Korea’s Crisis: Asian Perspective. 2005. Web.

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Economic History of South Korea

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Introduction