Korea’s Economic Modernization Yong Yoon, PhD 30 Jan. 2013
Korea Economic Development Policy Experience • The Korean government has set explicit goals for national development in which the private sector has been instrumental. • 1960s: Export-promotion strategy • 1970s: HCI Drive, and Saemaul Undong • 1980s: Automobile/electronics/household appliances, etc. (adv. Technology) • 1990s: IT & Communication Leader, Cinema • 2000s: Cultural leader (‘Hallyu’) 4
The First Five-Year Economic Development Plan (1962 – 1966) The first plan sought to benefit the textile industry and make Korea self-sufficient. At the time, Korea’s status was as a capital poor, inadequate saving, and predominantly U.S.-financed state, in need of independence.
The Second Five-Year Economic Development Plan (1967 – 1971) • The second five year plan sought to modernize the industrial structureto make Korea more competitive in the world market, which was incorporated into all future five year plans. • Fears also prevailed that the U.S. would no longer provide military defense for Korea. Plan promoted self-sustaining economic development (encourage import-substituting industries).
The Third Five-Year Economic Development Plan (1972 – 1976) Pres. Park implemented the third five-year plan which was referred to as the Heavy Chemical Industrialization Plan (HCI Plan) and, also, the "Big Push". To fund the HCI, the government borrowed heavily from foreign countries (not foreign direct investment, so that it could direct its project). Plan aimed at building an export-oriented industrial structure.
The Fourth Five-Year Economic Development Plan (1977 – 1981) Development of industries that can effectively compete internationally in industrial export markets (promote technology and improve efficiency. ) Plan to achieve self-sustaining economy. Promote equity through social development.
The Fifth Five-Year Economic Development Plan (1982 – 1986) Establish foundation for price stability, improve quality of life, restructure government’s functions and improve technology. Move concentration from the heavy and chemical industries, to technology-intensive industries.
The Sixth Five-Year Economic Development Plan (1987 – 1991) Emphases were placed on Research and Development and Manpower Training. Establish socio-economic systems, promote creative potential and initiative. Industrial restructuring and technological improvement. Improve national welfare through balanced growth and income distribution.
The Seventh Five-Year Economic Development Plan (1992 – 1996) • Promote high-technology fields, such as microelectronics, new materials, fine chemicals, bioengineering, optics and aerospace. • Promote economy through self-regulation and orderly competition. • Management innovation and establishment of sound work and civic ethics.
Korea War (1953) Seoul 2003
Changes in Employment Structure Changes in GDP Structure Service Sector Agriculture / Fisheries Service Sector Agriculture / Fisheries 1960 36.8 47.3 Manufacturing 15.9 Manufacturing Agriculture / Fisheries Agriculture / Fisheries 2002 Manufacturing Manufacturing Service Sector Service Sector Changes in Industrial Structure 13
Agriculture to Manufacturing / Light Industry to Heavy and Chemical Industry Semiconductor, Mobile Phone, DTV, Display, Automobile, Ship-building, etc. Wig Textile Automobile Semiconductor 84.8% HCI Product (ICT, 27.6%) 50% Light Industry Product 12.4% Agricultural Product 2.8% 1980 1990 2003 1960 1970 1999 Changes in Export Commodity Profile 14
Some history Leaders of the past 16
King Sejong the Great (世宗大王, 세종대왕) • South Korea's national language is Hangeul introduced in 1446 under King Sejong of the Choson dynasty. 17
The Song of the Dragon Flying to Heaven (龍飛御天歌, 용비어천가) A tree whose roots are deep: in the wind does not shake; its flowers have luminance; its fruit, fragrance. Water whose fountainhead is far away; in drought does not dry; it flows and becomes a stream; and to the sea it surely reaches 18
Shin Saimdang (申師任堂, 신사임당) • On June 23, 2009, the Bank of Korea released the 50,000 Won note. 19
Coins (up till 2006) 무궁화 이순신 거북선 22
In January 1876, following the Meiji Restoration, Japan employed gunboat diplomacy to pressure Korea to sign the Treaty of Ganghwa [강화도조약], an unequal treaty, which opened three Korean ports to Japanese trade and granted extraterritorial rights to Japanese citizens. Korea was under Japanese rule as part of Japan's 35-year imperialist expansion (29 Aug. 1910 to 15 Aug. 1945). Japanese Rule (일제시대) 23
North and South Korea • The unconditional surrender of Japan, combined with fundamental shifts in global politics and ideology, led to the division of Korea into two occupation zones effectively starting on September 8, 1945, with the United States administering the southern half of the peninsula and the Soviet Union taking over the area north of the 38th parallel. • The Korean War (25 June 1950 – 27 July 1953) was a war between the Republic of Korea (supported primarily by the USA, with contributions from allied nations under the aegis of the United Nations) and the Democratic People's Republic of Korea (supported by the People's Republic of China, with military and material aid from the Soviet Union). 24
Recent leaders Presidents of Korea 26
Yi Seungman (李承晩, 이승만) • Yi Seungman or Syngman Rhee (1875–1965) was the first president of South Korea. His presidency, from August 1948 to April 1960. 28
Kim Gu (金九, 김구) • What if? 29
Park Chung-hee (朴正熙, 박정희) • Park Chung-hee (1917–1979) was a Republic of Korea Army general and the President of South Korea from 1961 to 1979. • He has been credited with the industrialization and rapid economic growth of South Korea through export-oriented industrialization. 30
The Economic Policy of Park Chung-hee • Park had seen the development of Manchukuo based on Japanese investment in infrastructure and heavy industries when he was an officer in the Manchukuo imperial army. • Intending to acquire money and technology for South Korea via Japanese grants and soft loans, Park normalized diplomatic relations with Japan in 1965 (Treaty on Basic Relations between Japan and the Republic of Korea). • Beginning of Chaebols (Korean conglomerates). 31
Korea’s Economic Take-off(The Miracle on the Han River) • "(When visiting Korea), I recall seeing a billboard in the Korean language (near the airport) that was roughly translated to me by my taxi driver as 'export or die.'...” • "I heard from the bureaucrats that the president would never cancel a meeting with the business community to receive a visiting dignitary. He knew early on that Korean success would depend on unleashing the potential of the private sector." 32
Export-Promotion Strategy (1960’s) • “Export contests!” • Monthly/Annual Meetings led by Pres. with ministry officials, business leaders, scholars • Evaluation/Coordination/Re-alignment/Signaling • Incentives: Tax benefits (lower rates, exemption); Credit allocation (“policy loans”, low interest rates); Entry barriers (licensing, FX); etc. • Rise of the Chaebol (Korean large corporations, e.g. Samsung, Hyundai, LG, etc). • Annual Export Growth jumps from 3% (1950s) +> 30% (1960s) +> 40% (1970s) 33
Institution Building • Creation of economic development agencies • Economic Planning Board (EPB) • Ministry of Trade and Industry (MTI) • Ministry of Finance (MoF) foreign aid 1953 1973 34
Economic Planning Board (EPB) • EPB (1961-94) • “Super ministry” modeled after Japanese MITI in charge of both planning and budgeting.. • Preparing Five-year EDPs and annual EMPs • Coordinating economic polices • Head of EPB holding the post of Deputy Prime Minister and chairing Economic Ministerial Meetings • Allocating domestic and external resources for economic development.
Other Institutions • Ministry of Finance (1948-94) • Financial market, monetary policy, tax policy, treasury. • Ministry of Finance and Economy (1995-) • EPB and MOF merged to produce MOFE. • “Planning” effectively abandoned . • In 1998, transferred budgeting, prudential regulation, and monetary policy to MPB, FSC, and BoK, respectively. • Still in charge of coordinating economic policies. • Ministry of Planning and Budget (1998-) • Responsible for central government budgeting. • Increasing its role in long-term planning and policy coordination with the introduction of MTEF.
Economic Growth in 1970’s Promotion of Heavy and Chemical Industries (‘73-‘79)<Shipbuilding, steel, automobiles, machinery and petrochemicals> • Gradual weakening of competitiveness of labor-intensive light industries: • Protectionism and world-wide stagnation caused by the first oil crisis. • Rapid wage increase and fierce competition from other developing countries. • Fast-forward petrochemical industry development in the aftermath of the fall of Vietnam and U.S. pullout. • Transform industry to become more capital-intensive and reduce C/A deficit. • National-defense related industries also encouraged. • Successful firms in 1960s “selected” to lead HCI industries. 37
Chun Doo-hwan (全斗煥, 전두환) • President from 1980-1988 • After his inauguration, Chun clamped down on out-of-school tutoring and banned individual instruction or tutoring. • In 1981, Chun enacted the "Care and Custody" legislation. • In the winter of 1984, before declaring a moratorium on the Korean economy, Chun visited Japan and requested a loan for $6 billion. • Later he passed the 3S Policy (Sex, Screen, Sports). Chun tried to appeal to the citizens in order to ensure the success of the 1988 Seoul Olympics preparations : e.g. forming a pro-baseball and pro-soccer team, starting the broadcast of color TV throughout the nation, lessening censorship on sexually suggestive dramas and movies making school uniforms voluntary, etc. • In 1981, Chun held a large-scale festival called "Korean Breeze", but it was largely ignored by the population. 38
Sustained economic growth and stability enabled people to pay more attention to human rights, to care for individual freedom, and to demand a full-fledged democracy. Demands for freedom from every corner of Korean society culminated in a democratization movement in 1987. One of the first reform movements was the free labor movement. Yet it was translated into incessant labor disputes, a reaction to the oppressed labor movement in the 1960’s and 1970’s. Korea’s declaration of democratization in June 1987 paved the way for accelerated political democracy and market liberalization during the Roh Tae-woo regime (1988-1992). Democratization 39
Roh Tae-woo (盧泰愚, 노태우) • Roh Tae-woo (born December 4, 1932) is a former ROK Army general and politician. • He was President of South Korea from 1988–1993. 42
Slowdown in Economic Growth : 1989-1993 • The late 1980s saw Korea’s export competitiveness deteriorate due to rising labor costs, rising domestic interest rates, and a sharply appreciating won (the won rose against the US dollar by 18% in 1988 alone). • The trade surplus of the later 1980’s dwindled to practically nothing in 1989 and was followed by progressively larger deficits in the 1990’s. • Labor policy helped strengthen union’s influence and favored wage increases: tremendous wage hikes (11% annually during 1989-91) far exceeded the rise in productivity. • Increased financial costs, excessive administrative regulations on business activities, and low social overhead capital investment were typical of the period, which gradually afflicted industrial and firm competitiveness and entrepreneurship.
Kim Young-sam (金泳三, 김영삼) • Served as Korea’s (first civilian) President from 1993 to 1998. • He presided over a massive anti-corruption campaign, the arrest of his two predecessors, and initiated an internationalization policy called Segyehwa 세계화 ( lit. Globalization). • Acceleration of liberalization! 44
Economic Deregulation • Deregulation • land use (1990) • import liberalization (1992) • open stock market to foreigners (1992) • open domestic capital market (1994) • deregulate loan financing in foreign market (1994)
Integration into the World imports exports 47
Kim Dae-jung (김대중) • Kim Dae-jung (1925-2009) was President of South Korea from 1998 to 2003, and the 2000 Nobel Peace Prize recipient (for the Sunshine policy) • He successfully shepherded South Korea's economic recovery from the 1997/8 economic crisis; brought in a new era of economic transparency ; and fostered a greater role of South Korea in the world stage (including the FIFA World Cup 2002, jointly hosted by Korea and Japan). 49