Modern Korean Economy: 1948–2008 Written by Yongjin Park
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UNDERSTANDING KOREA SERIES No. 1 Hangeul Written by Lee Ji-young Understanding Korea No. 8 No. 2 Early Printings in Korea outh Korea is known for its rapid and continuous economic ECONOMY ECONOMY KOREAN MODERN Written by Ok Young Jung Sgrowth in the latter half of the 20th century. After liberation from Japanese colonial rule in 1945 and the Korean War About the series No. 3 Korean Confucianism: Tradition and Modernity (1950‒53), Korea has seen its per capita GDP shooting up from Written by Edward Y. J. Chung just US$290 in 1960 to an amazing US$28,384 in 2010. The Understanding Korea Series aims to share a variety MODERN KOREAN of original and fascinating aspects of Korea with those This book looks at the country’s modern economic overseas who are engaged in education or are deeply No. 4 Seoul development starting from the end of the Korean War, the Written by Park Moon-ho interested in Korean culture. economic problems Korea faced after the conflict, efforts to solve ECONOMY No. 5 A Cultural History of the Korean House these problems, and the results produced. It will also describe 1948–2008 Written by Jeon BongHee changes in economic policy objectives from liberation from Japanese colonial rule in 1945 through today in detail. No. 6 Korea’s Religious Places Written by Mark Peterson Yongjin Park No. 7 Geography of Korea Written by Kwon Sangcheol, Kim Jonghyuk, Lee Eui-Han, Jung Chi-Young No. 8 Modern Korean Economy: 1948–2008 Written by Yongjin Park ISBN 979-11-5866-427-5 Not for sale Cover Photo The night view of Seoul © gettyimages Korea Cover Design Jung Hyun-young, Cynthia Fernandez Modern Korean Economy Understanding Korea No. 8 MODERN KOREAN ECONOMY 1948–2008 Written by Yongjin Park Translated by Seongbak (Jamie) Jin Understanding Korea Series No. 8 Modern Korean Economy: 1948-2008 Published in October 2018 Published by The Academy of Korean Studies The Academy of Korean Studies 323 Haogae-ro, Bundang-gu, Seongnam-si, Gyeonggi-do, 13455, Korea Phone: 82-31-739-9712 Fax: 82-31-739-9719 Homepage: www.aks.ac.kr Copyright © 2018 The Academy of Korean Studies All Rights Reserved. This work was supported by the Center for International Affairs in the Academy of Korean Studies (AKS-2013-T-02). ISBN: 979-11-5866-427-5 03320 Edited and designed by Seoul Selection Printed in the Republic of Korea Contents 7 Foreword Chapter Three 8 Introduction 84 HEAVY INDUSTRIALIZATION POLICY AND KOREA’S ECONOMY IN THE 1970S Chapter One 86 Announcement of the Heavy and Chemical Industrialization Policy 21 ECONOMIC DEVELOPMENT STRATEGIES AFTER LIBERATION AND RESULTS 92 Support Policy for Heavy and Chemical Industries 98 Outcome and Legacy of Heavy and Chemical Industries 21 Korea’s Post-liberation Economy 120 Promotion of Capital Markets 26 Distribution of Vested Properties, Aid, and Agricultural Land Reform 128 Oil Shocks and the Middle East Construction Boom 34 Economic Policy Basis after the Korean War 132 Emergence of Gangnam and Boom in Real Estate Speculation 48 Results of the Rhee Administration’s Economic Policy 137 Labor Market and Labor Policy of the Park Administration Chapter Two 147 Concluding Remarks 50 DAWN OF PARK CHUNG-HEE’S ERA: LAUNCH OF THE EXPORT-LED ECONOMIC SYSTEM Chapter Four 150 THE 1980S: SEEKING GRADUAL OPENING AND 52 Establishment of Economic Development Plans TRANSITIONING INTO A MARKET ECONOMY 54 Financial Control Policy 152 Changes in Macroeconomic Policy Objectives and Structural 62 Pro-export Policy Adjustment of the Heavy and Chemical Industries 64 Dispatched Mine Workers and Nurses 161 The Plaza Accord and Economic Boom from the ‘Three Lows’ 68 Economic Effects of Diplomatic Normalization between Korea and 164 Expansion of the Chaebol System and the Struggle between Japan and the Vietnam War Government and Business 74 Results of Pro-export Policy 173 Financial Liberalization 79 Growth of the Chaebol System 187 Revival of the Labor Movement and the Widening Gap between Corporations and SMEs 195 The Real Estate Bubble and the ‘Plan to Build Two Million Housing Units’ 7 FOREWORD Chapter Five The Academy of Korean Studies has helped scholars and students research 200 GLOBALIZATION, MARKET OPENING, AND the history and culture of Korea internationally for the past four decades. THE ASIAN FINANCIAL CRISIS This in turn has contributed to Korea gaining increasing attention over- 202 Implementation of the Real-Name Financial Transaction System seas. However, as there are not many Korean Studies resources suitable for foreigners, we have recognized the necessity of publishing books that 205 Joining the OECD and Opening Korea’s Markets contain extensive and accurate knowledge about Korea. We hope to pro- 212 Financial Liberalization and the Rise in Chaebols’ Financial Control vide various institutions abroad with suitable materials in order to nurture 215 Aggressive Chaebol Investment and Worsening Profitability future generations of Korean Studies scholars. 218 The 1997 Foreign Exchange Crisis The Center for International Affairs at the Academy of Korean Studies is charged with the task of promoting a better understanding of Korea. Chapter Six The center publishes the Understanding Korea Series, which are books 234 POST-CRISIS ECONOMY customized for foreigners. They provide unique information about 236 Macroeconomic Recovery and Structural Changes Korean culture and society for those who are deeply interested in diverse 239 Expansion of Credit Card Supply and Venture Promotion Policy aspects of the country. 245 Continuing Low Growth and Low Employment The eighth book in the series isModern Korean Economy: 1948–2008. It introduces a variety of views on the Korean economy at an introduc- 248 Consolidation of the Chaebol System tory level to ensure that foreigners are able to approach the subject of 251 Deepening Income Inequality Korea’s economic growth, from the end of Japanese colonial rule to the most recent economic developments, in a more interesting way. We hope 254 CONCLUSION that this book will be used by foreigners overseas as a resource for better understanding of Korea. 257 Endnotes We would like to extend our appreciation to Professor Yongjin Park for 275 References writing the manuscript and to Ms. Seongbak (Jamie) Jin for translating it. We are also grateful to our staff members for their efforts in publishing this book. Center for International Affairs Academy of Korean Studies 8 9 INTRODUCTION In 1960, the per capita GDPs of Kenya (US$210.36) and Thailand (US$200.45) were slightly lower than Korea’s (US$290); India, South Korea (this book uses the terms “South Korea” and “Korea” whose recent high growth has received global attention along with interchangeably) is known for its rapid and continuous economic Brazil’s, had a per capita GDP (US$137.71) that was half of Korea’s. growth in the latter half of the 20th century. The country’s economy The per capita GDP of South American nations including Argentina was impoverished after liberation from Japanese colonial rule in (US$1,159.48), Chile (US$779.21), and Mexico (US$908.61) were 1945 and the Korean War, which ran from 1950 to 1953. Since the far higher than that of Korea. The income levels of developed econo- mid-1950s, however, Korea has seen continuous and rapid eco- mies at the time like the US (US$2,896.34), Britain (US$2,058.62), nomic growth with per capita GDP shooting up from just US$290 and France (US$1,943.60) were two to three times greater than that in 1960 to an amazing US$28,384 in 2010. Remarkable by any of South American countries, which were then considered middle standard, this achievement was only attainable through consistent income. Yet the economic conditions of these countries have greatly annual growth of 9.5 percent for 50 years. changed over the past 50 years. Kenya has seen little development, Compared to countries with similar level of economic develop- and India too has long suffered from underdevelopment. After the ment in the 1960s, Korea’s development over the period is unrivaled. debt crisis of the mid-1980s, Argentina, Chile, and Mexico experi- enced slowing growth, and only recently did India and these South American countries start to grow rapidly. Korea, on the other hand, started out with a paltry per capita income but grew rapidly over the $30,000 past 50 years. In 2013, the GDP per capita (based on purchasing $25,000 power parity or PPP) was US$33,140, according to data from the Argentina $20,000 Chile World Bank. This was similar to the rates of Spain (US$32,103), and $15,000 India Italy (US$34,303). $10,000 Kenya Korea, however, is not the only country to achieve this level of Korea (South) $5,000 economic growth; Japan and Taiwan also saw similar success. The Mexico industrialization experiences of these three Northeast Asian coun- $0 tries led to the formation of the East Asian economic model, which 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 stresses direct economic intervention by an authoritarian govern- Figure 0-1 PPP-adjusted GDP per capita ment. China and select countries in Southeast Asia (e.g., Indonesia, Source: Penn World Table. 10 11 $40,000 Compared to Japan, Taiwan is more similar to Korea in many $35,000 aspects, including modern history and economic conditions. Both China $30,000 Japan countries are often referred to as two of the four “Asian tigers,” the $25,000 Taiwan others being Hong Kong and Singapore. Yet a significant difference $20,000 Korea separates Korea and Taiwan. Modern Taiwan jump-started its path $15,000 Malaysia to development with a great influx of human resources, as nearly $10,000 Indonesia two million Kuomintang soldiers, landowners, entrepreneurs, $5,000 Vietnam $0 and political elites came to the island nation after their loss to the 0 4 8 2 6 0 4 8 2 6 0 4 8 6 6 6 7 7 8 8 8 9 9 0 0 0 Chinese Communist Party in 1949.