35.3.7: South Korea’s Economic Growth

Political Regime After the Korean War

Following the armistice that ended the Korean War fighting, South Korea experienced political turmoil under the autocratic leadership of Syngman Rhee. Throughout his rule, Rhee took additional steps to cement his control of government. In 1952, still in the midst of the Korean War, he pushed through constitutional amendments, which made the presidency a directly elected position. To do this, he declared martial law, arresting opposing members of parliament, demonstrators, and anti-government groups. He was subsequently elected by a wide margin. In the 1954 elections, Rhee regained control of parliament and thereupon pushed through an amendment to exempt himself from the eight-year term limit and was once again re-elected in 1956. Soon after, his administration arrested members of the opposing party and executed its leader after accusing him of being a North Korean spy.

The administration became increasingly repressive while dominating the political arena and in 1958, sought to amend the National Security Law to tighten government control over all levels of administration, including the local units. These measures caused much outrage among the people, but despite public outcry, Rhee’s administration rigged the 1960 presidential elections and won by a landslide. On the election day, however, protests by students and citizens against the irregularities of the election burst out in the city of Masan. Initially these protests were quelled with force by local police, but when the body of a student was found floating in the harbor of Masan, the whole country was enraged and protests spread nationwide. On April 19, students from various universities and schools rallied and marched in protest in the Seoul streets in what would be called the April Revolution. The government declared martial law, called in the army, and suppressed the crowds with open fire. Subsequent protests throughout the country shook the government and after an escalated protest, Rhee submitted his official resignation and fled into exile.

A period of political instability followed, broken by General Park Chung-hee’s May 16 coup against the weak and ineffectual government the next year. Park took over as president, overseeing rapid export-led economic growth as well as implementing political repression. He was heavily criticized as a ruthless military dictator, who in 1972 extended his rule by creating a new constitution that gave the president sweeping (almost dictatorial) powers and permitted him to run for an unlimited number of six-year terms.

Park was assassinated in 1979, re-introducing political turmoil as the previously suppressed opposition leaders all campaigned to run for president in the sudden political void. In 1979 came the Coup d’état of December Twelfth led by General Chun Doo-hwan. Following the coup d’état, Chun Doo-hwan planned to rise to power through several measures. On May 17, he forced the Cabinet to expand martial law to the whole country (it had previously not applied to the island of Jejudo). The expanded martial law closed universities, banned political activities, and further curtailed the press. Chun’s assumption of the presidency triggered nationwide protests demanding democracy.

Chun and his government held South Korea under a despotic rule until 1987, when a Seoul National University student, Park Jong-chul, was tortured to death. On June 10, the Catholic Priests Association for Justice revealed the incident, igniting the June Democracy Movement around the country. Eventually, Chun’s party, the Democratic Justice Party, and its leader, Roh Tae-woo announced the June 29 Declaration, which included the direct election of the president. Roh went on to win the election by a narrow margin. Since then South Korea has engaged in consistent democratization efforts.

May 16 coup, Major General Park Chung-hee (right), author unknown. Park was one of a group of military leaders pushing for the depoliticization of the military. Under Park’s authoritarian rule, the South Korean economy began its miraculous growth.

Economic Growth

Following the Korean War, South Korea remained one of the poorest countries in the world for over a decade. In 1960, its gross domestic product per capita was $79, lower than that of some sub-Saharan countries. At the beginning of the 1960s, the government formulated a five-year economic development plan, although it was unable to act on it prior to the April Revolution. The hwan (South Korean currency) lost half of its value against the dollar between fall 1960 and spring 1961.

Park’s administration started by announcing its five-year economic development plan based on an export-oriented industrialization policy. Top priority was placed on the growth of a self-reliant economy and modernization. “Development First, Unification Later” became the slogan of the times and the economy grew rapidly with vast improvements in industrial structure, especially in the basic and heavy chemical industries. Capital was needed for such developments, so the Park regime used the influx of foreign aid from Japan and the United States to provide loans to export businesses, with preferential treatment in obtaining low-interest bank loans and tax benefits. Cooperating with the government, these businesses would later become chaebols, business conglomerates that are typically global multinationals and own numerous international enterprises controlled by a chairman with power over all the operations.

Relations with Japan were normalized by the Korea-Japan treaty ratified in 1965. The treaty brought Japanese funds in the form of loans and compensation for the damages suffered during the colonial era without an official apology from the Japanese government, sparking much protest across the nation. The government also kept close ties with the United States and continued to receive large amounts of aid. A status of forces agreement was concluded in 1966. Soon thereafter, Korea joined the Vietnam War. Economic and technological growth during this period improved the standard of living, which expanded opportunities for education. Workers with higher education were absorbed by the rapidly growing industrial and commercial sectors, and urban population surged. Construction of the Gyeongbu Expressway was completed and linked Seoul to the nation’s southeastern region and the port cities of Incheon and Busan.

South Korean citizens perform a card stunt for President Park Chung-hee on South Korean Army day, October 1, 1973. Photo by Baek Jong-sik. Unlike in most other countries, the incredible economic growth in South Korean did not go hand in hand with democratization. Despite the authoritarian regime, South Korea’s tiger economy soared at an annual average of 10% for over 30 years in a period of rapid transformation called the Miracle on the Han River. A long legacy of openness and focus in innovation made it successful.

Despite the immense economic growth, however, the standard of living for city laborers and farmers was still low. Laborers were working for low wages to increase the price competitiveness for the export-oriented economy plan and farmers were in near poverty as the government controlled prices. As the rural economy steadily lost ground and caused dissent among the farmers, however, the government decided to implement measures to increase farm productivity and income by instituting the Saemauel Movement (“New Village Movement”) in 1971. The movement’s goal was to improve the quality of rural life, modernize both rural and urban societies, and narrow the income gap between them.

Despite social and political unrest, the economy continued to flourish under the authoritarian rule with the export-based industrialization policy. The first two five-year economic development plans were successful and the 3rd and 4th five-year plans focused on expanding the heavy and chemical industries, raising the capability for steel production and oil refining. As most of the development had come from foreign capital, most of the profit went back to repaying the loans and interests. In the 1980s, tight monetary laws and low interest rates contributed to price stability and helped the economy boom with notable growth in the electronics, semi-conductor, and automobile industries. The country opened up to foreign investments and GDP rose as Korean exports increased. This rapid economic growth, however, widened the gap between the rich and the poor, the urban and rural regions, and also exacerbated inter-regional conflicts. These dissensions, added to the hard-line measures taken against opposition to the government, fed intense rural and student movements, which had grown since the beginning of the republic.

In the first half of the 1990s, in already democratic South Korea, the economy continued a stable and strong growth. Things changed quickly in 1997 with the Asian Financial Crisis. By 1997, the IMF had approved a USD $21 billion loan, that would be part of a USD $58.4 billion bailout plan. By January 1998, the government had shut down a third of Korea’s merchant banks. Actions by the South Korean government and debt swaps by international lenders contained the country’s financial problems. Much of South Korea’s recovery from the Asian Financial Crisis can be attributed to labor adjustments (i.e. a dynamic and productive labor market with flexible wage rates) and alternative funding sources.

The Miracle on the Han River

In the 2000s, Korea’s economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. These economic reforms helped it maintain one of Asia’s few expanding economies. South Korea’s mixed economy ranks 11th nominal and 13th purchasing power parity GDP in the world, identifying it as one of the G-20 major economies. South Korea is the most industrialized member of the OECDE with a high-income economy and massive investments in education bringing the country from mass illiteracy to a major international technological powerhouse. The country’s national economy benefits from a highly skilled workforce, and South Koreans are among the most educated societies in the world with one of the highest percentage of individuals holding a tertiary education degree. The South Korean economy continues to be heavily dependent on international trade and in 2014, the country was the 5th largest exporter and 7th largest importer in the world. The incredible economic development from the early 1960s to the late 1990s and becoming  one of the fastest-growing developed countries in the 2000s has compelled South Koreans to refer to this growth as the Miracle on the Han River. South Korea was also one of the few developed countries that were able to avoid a recession during the global financial crisis of 2007-2008.

Attributions

• South Korea’s Economic Growth
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  • “Miracle on the Han River.” https://en.wikipedia.org/wiki/Miracle_on_the_Han_River. Wikipedia CC BY-SA 3.0.
  • “Economy of South Korea.” https://en.wikipedia.org/wiki/Economy_of_South_Korea. Wikipedia CC BY-SA 3.0.
  • “May 16 coup.” https://en.wikipedia.org/wiki/May_16_coup. Wikipedia CC BY-SA 3.0.
  • “Chaebol.” https://en.wikipedia.org/wiki/Chaebol. Wikipedia CC BY-SA 3.0.
  • “April Revolution.” https://en.wikipedia.org/wiki/April_Revolution. Wikipedia CC BY-SA 3.0.
  • “Coup d’état of December Twelfth.” https://en.wikipedia.org/wiki/Coup_d%27%C3%A9tat_of_December_Twelfth. Wikipedia CC BY-SA 3.0.
  • “South Korea.” https://en.wikipedia.org/wiki/South_Korea. Wikipedia CC BY-SA 3.0.
  • “June 29 Declaration.” https://en.wikipedia.org/wiki/June_29_Declaration. Wikipedia CC BY-SA 3.0.
  • “June Struggle.” https://en.wikipedia.org/wiki/June_Struggle. Wikipedia CC BY-SA 3.0.
  • “1024px-Card_Stunt_for_Park_Chung-hee.jpg.” https://en.wikipedia.org/wiki/History_of_South_Korea#/media/File:Card_Stunt_for_Park_Chung-hee.jpg. Wikipedia Public domain.
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