Korea’s Development Path

Kang, Kyung ShikKang, Kyung Shik

1. 1. Why Korea?? One of the poorest in the world 12th largest e

conomy in 50 yrs Per capita income: $87 in ’62 surpassed $10,0

00 in ’95 Portion of agriculture to GDP: 46.5% 5.5% Portion of manufacturing to GDP: 11% 37% Portion of trade to GDP: 16% 70% Succeed in overcoming poverty, but financial cr

isis in the process of democratization and economic opening

2. Basis for development 2-1 Nat’l division & choice of political system

2-2 Destruction of system & economic facilities

2-3 Zeal for education

2-4 military coup and political stability

2-5 Favorable external environment

2-1 National development & choice of political system

S. Korea separately forms free democratic gov’t and capitalist economy amid chaos following the ’45 independence

Intense S-N Korea competition in military, economy

S. Korea’s per-capita income in 1960s half of N. Korea 25 times more in 2000

Reasons for the gap lie in different political systems Private property ownership + meritocracy vs. principle of “do

what can be done and distribute as needed”

2-2 Destruction of system & economic facilities

Manufacturing plants destroyed during Korean War (‘50-‘53)

Farming land reform and war destroy traditional society

Massive migration and social flexibility

Remove barriers to social mobility

Overall downgrade and same starting point

Transform into thoroughly competition-driven society

2-3 Zeal for education

Delay drafting of univ students during Korean War Increase i

n univ students and universities, backbone for fast-paced growth

from 1960s on

Passion for education, and overseas study, especially to U.S. su

pply high-caliber manpower

Education during mandatory military service, at workplace and t

hrough national “saemaul” (new town) campaign

Education as ticket to wealth, social climb and power

2-4 Military coup & political stability

Aggressive seek economic development for 18 yrs

Economic setback since switch to single 5-yr presidential term

outbreak of ’97 financial crisis

Mexico: one party, 6-yr single term

Advanced countries: Despite ruling party changes, continue re

forms as in Australia and New Zealand

2-5 Favorable external environment

Cold War necessitates assistance ahead of economic reasons

Favorable environment (GATT launch, World Bank, IMF & A

DB assistance)

U.S. aid, utilization of preferential tariffs & other mechanisms

Diplomatic ties with Japan and modeling after the Japanese ec

onomy

3. Overcoming poverty: challenges & policy response

3-1 End vicious cycle of extreme poverty

3-2 Export drive, int’l orientation for develop

ment

3-3 Gov’t-led development

3-4 Industrialization strategy

End cycle of low incomelow savingslow growthlow inco

me

Dependence of U.S. aid: aid on the decrease

Mindset of devoid of hope: self depreciation

Creating atmosphere for “can-do” spirit

3-1 End vicious cycle of extreme poverty

3-2 Export drive, int’l orientation for development

Strategy to substitute exports failed in early 1960s

Adjustment of monetary, foreign exchange policies in mid-196

0s

Choose to target external market rather than internal market

Switch capital resource from domestic savings to FDI/foreign

borrowing (N. Korea adheres to self-reliance, market closure)

3-3 Gov’t-led development

Lack of high-caliber entrepreneur or corporations

Gov’t maps out business plan, provides low-interest capital, res

tricts exports for domestic market share, tax breaks, and constr

ucts SOC with gov’t budget

Pool gov’t resources: selective choice & focus

Gov’t-private sector united: success goes to businesses, risk sh

ouldered by gov’tdrives entrepreneurial energy

3-4 Industrialization strategy

Focus on labor-intensive industries with export competitivene

ss(e.g. textile, shoes, plywood, shoes, wigs)

Narrow gap in urban & rural areas: increase food production

& national “new town” movement

Fast-forward petrochemical industry development in the after

math of the fall of Vietnam and U.S. pullout

4. Task: implementation & management

4-1 Establish Economic Planning Board

4-2 Implement 5-yr Development Plan

4-3 Fast resolution to problems

4-4 Presidential leadership

4-1 Establish Economic Planning Board

Launch gov’t body for overall management of economic planning & policymaking

Centralize planning, budgeting and foreign borrowing into one body

Statistics, inflation, and science & technology included EPB head as deputy Prime Minister for coordination among ec

onomic ministries DPM exercises strong leadership and coordination at economi

c ministers’ meeting Reports directly to president on economic issues (bypasses Pri

me Minister)

4-2 5-yr economic development plan

Acts as banner that economic development is first priority on n

at’l agenda

Pool nat’l resources for economy and means for gathering Kor

ean people’s united efforts, energy

Starts as economic plan, develops into socioeconomic plan an

d then as indicative plan

Differs from planned economy (e.g. construction of Seoul-Pus

an highway, petrochemical industry development)

4-3 Fast resolution to problems

President’s frequent visits to construction sites

President chairs monthly economic monitoring meetings

Monthly export meetings, addresses difficulties faced by industries

Quarterly monitoring of major projects

Task force teams for major projects

4-4 Presidential leadership

Awareness as public figure, strong sense of historical mission

Capacity to identify and utilize high-caliber manpower (Employs experts & technocrats, key coup members retreat)

Nat’l land development: tends like gardening, President himself maps out the construction plan for Seoul-Pusan highway

Decision-making style: listens to attendants before reaching conclusion, thorough execution

5 Crises & responses in development process

Early stage: excessive motivation, lack of U.S. attention lead to failure diplomatic ties with Japan and dispatch of troops to U.S.-Vietnam war improve Korea-U.S. relations

Excessive investment: exit troubled companies, 8.3 emergency measures

First oil shock: threat for nat’l bankruptcytakes part in Middle East construction boom

End of Vietnam war, U.S. pulloutseek petrochemical development

6. Shortcomings in compressed growth

Economic difficiency: ‘picking the winner’ approach goes against market economy, undermines free competition

Simple, small economy: challenges in developing into complex, larger economy

Concentrated power at Office of President: National Assembly as auxiliary body

Political stability: difficult to attain in democratic system with singular terms

Oct. 26 and 2nd oil shock: policy shift for stabilization

7. Conclusion: problem solving capacity as key

Small, open economy: ability to adapt to chang

es

Businesses, gov’t need fast, decisive adaptabili

ty to changes

Strong political leadership Forming social c

onsensus through problem solving ability, impl

ementation key to success