South Korea. History and economical development

Content

1. Introduction

2. What is a Tiger Economy?

3. The way to a „Tiger Economy”
3.1 Japanese occupation (1919-45)
3.2 Soviet Union & the U.S
3.3 The Korean War (1950-1953)

4. The growth
4.1. Industrialization
4.1.1 Formation and success of South Korea
4.1.2 Limits of the “developmental state” (1979-1987)
4.2 Democratization (1987 – 1993)
4.3 New strategies (1993 – 1997)
4.3.1 Sunshine policy

5. The crisis
5.1 Economy and the financial crisis
5.2 Effects from the crisis on economy
5.3 Social consequences of the crisis
5.4 Characteristics of the South Korean labor market
5.5 Governmental reactions because of the unemployment

6. The situation during the last decade

7. Conclusion

8. Bibliography

Abstract

South Korea is a country with a very tough background. They went through occupations, dispossessions and humiliation during the last 100 years, which makes this country a really impressive example for how economies can achieve a successful position in the world.

It has positioned itself in the world system from one of the poorest countries in the world to one of the most successful ones. We will examine what South Korea values are regarding not only today´s economy globally but also nationally. We will focus on the history and development of South Korea as well as the Northeast Asian Tiger Economy. We will take a closer look at the history of the country from the very beginning of an exploited country to a rising development, throughout the time of industrialization, leading to democratization and the crisis of the state economy.

1. Introduction

This paper is part of our specialist profile - International Economics and lets us dig into the development of South Korea and its situation at the present time.

First class school system, fantastic infrastructure, successful global players. At first glance South Korea appears to be a “model state” but behind the scenes lies a torn country.

We focused intensively on the economical rise of South Korea and why this nation is an extraordinary case which shows how a country achieved to become a Tiger Economy in spite of all obstacles from the past.

The goal of this paper is to explain which phases this nation had to go through until they finally arrived at where they are now, which is an economically sturdy spot. We will figure out under which circumstances this happened. From the definition of a „Tiger Economy“, to the history of the country and finally the actual upswing of the economy.

We asked ourselves where this enormous economic upswing came from and what could have been done better.

To understand how the South Korean government and its population thinks and acts we need show their path, which means their historic background, from one of the poorest countries in the world to one of the four „Asian Tigers“.

The numerous changes of government inside the country and the different forms of government were an important part of the Korean history as you will see later on. However, one essential factor was how South Korea escaped out of the swamp.

This paper will give us an insight of South Korea and its developmental character.

2. What is a Tiger Economy?

The term Tiger Economy occurred between the 1960s and 1990s as an expression for developing countries, which transform to industrial economies extremely fast. This includes an enormous economic growth[1] and also a general rise of the standard of living of the population.

The tiger in Asian symbolism represents power, courage and strength. The term, Dragon Economy is used as a synonym. Both terms express the same business matter of facts.

The term Tiger Economy embodies the connection to a tiger getting ready to jump, which in real life expresses the fast and quick growth of developing countries which transform from their earlier stage of being to a whole new level. The term is used in reference to their highly free and developed economies. These Tiger economies are very likely to grow even higher and participate more in the economy of the global market.

Defined as the four tiger states are Hong Kong, Taiwan, Singapore and South Korea.

The four Tigers specialize in markets with competitive advantages, for instance, Hong Kong and Singapore became world leading financial centers whereas Taiwan and

South Korea already were world leaders by the 21st century in manufacturing information economy. The four Tigers function as role models for other developing countries.

There are also Tiger Cup Economies, which are dependent of Tiger Economies, these refer to the export-driven models of economic development from the Philippines, Indonesia, Malaysia and Thailand. The so called Tiger Cup Economies symbolize the freshly industrialized countries in Southeast Asia which are the future rising tigers. I would also like to point out some other groups that derived from Tiger Economies, for example there is the „Gulf Tiger“ (Dubai), the „Tatra Tiger“ (Slovakia) and the Baltic Tiger (Baltic states). Their growth is a little bit slower than the growth of the original 4 tigers.

We are not going to describe them in more detail in this paper because it is less relevant to our topic.

In this essay we are focusing on South Korea and its development.

Not just the exceptional high growth rates but also the fast industrialization of this country which makes it an extraordinary case and an advanced and high income economy.

The high dynamic of the economic upswing symbolizes once more the serious changes in the economy and the population.

Since the 1980s South Korea`s GDP rose thirteen times higher than 30 years ago. The economic output increased from $88-billion to $1.46-trillion during this time period.

South Korea focused on an export-orientated economy. It became the world’s 8th largest exporter and 10th largest importer. Just to name a few of the big export products, there are computer chips, automobiles, electronics and textiles.

With low interest rates foreign investors are likely to invest in the South Korean stock market. This gave another boost to economy and now their growth rate almost reaches 6%**. On the other hand, there is consumer inflation with means that consumer prices rose almost 4,8% (2008).

Now we will go back in time to show you what kind of economy Korea was before it became an Asian Tiger. We will show you what this country needed to go through until it finally became a successful nation. This will make things clearer for the reader in regards to understanding this complex country.

3. The way to a „Tiger Economy”

In the first part we explained the term Tiger Economy and gave a short overview about our topic in general. Now in the following part we would like to elaborate on how South Korea turned into a „Dragon Economy“ - the path of a developing country to a fully industrialized, global and advanced economy.

We will point out the key events of South Korean history and its development over the last 100 years.

Our research begins around 1900 when Japan gains control of Korea.

By the beginning of 1900 Korea fell under Japanese domination. During the early 20th century there was a big involvement from Japan on the Korean Peninsula.

In these years there was a territorial conflict between Japan and Korea. Both countries made a claim for Liancourt Rocks, a group of islands in the Japanese sea (also known as Dokdo/Tokto (Korean) or Takeshima (Japanese)).

There were two interpretations regarding who these Islands belong to. In short, South Korea stated that in 1145 the islands were referred to under a different name and were written over to the South Korean government.

On the other hand, Japan claims that the name of the islands were switched and the Japanese dealers had the right to stay there and travel there as often as they like.

This conflict was a base for South Korea to have a well-founded concern towards the rising interference and colonization from the Japanese side.

By February 1904 Korea stood under Japanese occupation which lead to militarily annexation of Takeshimas in 1905.

This big step in Korean history allowed Japan to bring in troops legally anywhere in Korea to prevent interference from a third power. Japan forced Korea to sign a row of treaties and based on the strength of Japans forces, Korea fell more and more under the domination of Japan.

Korea went through a stage of powerlessness due to the intervention of other countries.

Japan and Russia were interested in Korea, both wanted the adjacent territory for their own use. The Russo-Japanese war began in the beginning of 1904 when Japan torpedoed two Russian battleships. Russia and Japan used Korea (despite its conduct to stand neutral in this conflict) as a battleground.

In 1907 Korea was forced to disband their army by Japan and to accept this interference in regards to their internal affairs.

A Japanese official was sent to Korea to run things properly. In 1909 this Japanese official was assassinated which gave Japan an excuse to annex Korea by 1910.

3.1 Japanese occupation (1919-45)

During this time Japan used Korea as a colony for food supply for their own country.

The Japanese colonial rule also branded the Korean way of life - sometimes positively and sometimes negatively. Japan used the Korean peninsula as a low price industrial location and also as a component supplier for their own industrial structure. Because of that, the infrastructure and industrial structures grew. However, most of the companies and buildings were in the north of the country. The Japanese government also invested a lot of money in education and in the health system. It´s important to mention that they did not do this because they wanted to help Korean people. The reason behind this was their own selfishness. They tried to train them to become patriotic Japanese. There was a time where it was forbidden to use Korean writing, Korean language and also Korean names.

With all the brutality such as torture, executions, rape, killing, humiliation and loss that the Japanese brought with them, they left a country with physical and psychological pain. During the period of the Japanese occupation Koreans were continually spied on. With their surveillance and control they tried to oppress the Korean population to ensure there was no resistance on their side. Harsh punishment was the consequence of subversive behavior. For this reason, Koreans remained quiet to keep the peace in the country and for themselves. Japan attempted to make Korea part of its own nation.

Japan did bring some positive changes to Korea. For example, they pushed the population towards modernization, a better school system and advantages in technology. They built factories and railways which led to a rapidly growing urban population even though Korea was still a primarily agricultural dominated economy. However, almost every company was owned by the Japanese therefore Korean population didn't significantly benefit from the economic upswing.

Was it all worth the emotional and physical damage Japan caused?

1st of March 1919 a small group of 33 cultural and religious leaders started a peaceful demonstration in Seoul. This demonstration was the foundation to a wave of over 1500 demonstrations taking place all over the country. Over two million Koreans went to the streets demanding the ‚Proclamation of Independence‘.

The Japanese responded to the rebellions by arresting and executing them.

After almost one year passed these demonstrations seemed to work. They didn't force the Japanese colonial administration to give up their position, however it made them entirely rethink their Policy of coercion to a new conciliatory stance.

Today March 1st is a national holiday in both countries, North and South Korea.

During this time Japan prepared for war against China. Their main goal was to assimilate Koreans to force them into military duties. For the Korean population it was really hard to jump on the train of economic growth. If a Korean wanted to establish a business and get a loan they were charged interest rates 20% higher than Japanese people. Japan owned almost all of the farmland in the entire country.

Although Japan made Korea successful and by this we mean one of the most industrialized nations in Asia during those years we shouldn’t forget that the Korean population had a lot to cope with. They went through a lot of harassment but fortunately their release was not too far away.

3.2 Soviet Union & the U.S.

1945 during World War II Japan surrendered to the allies and only a few days before their capitulation the United States dropped two nuclear bombs on Hiroshima and Nagasaki which pushed Japan more and more towards admitting their defeat under the allies.

Also at the same time the Soviet Union launched an offensive against Japan and marched into Japan`s colony.

These two steps were really important to understand the Koreans way of thinking because in the first place the U.S. and Soviet Union tried to free the Korean population from the passed tortured decades. As it turns out, they were just another occupier of the Korean Peninsula.

On 15th of August 1945, after 35 years of Japanese colonial rule, humiliation and fear, the Korean Peninsula was divided into two halves at the 38th parallel. Actually, this was supposed to be a temporary solution and (unfortunately) the Korean Peninsula still hasn’t been unified.

Communist Soviet Union entered the North in August; they acted as a trustee and ruled the North. The United States occupied the South in September and controlled this region.

Through the Cold War the fronts hardened between the U.S. and the Soviet Union. So already by then there was no outlook for unity.

Neither the Soviet Union nor the US understood the other party’s point of view. They couldn't find a solution both could have lived with. The two of them stood in the way for reunification.

In both parts, North and South, the occupiers influenced the political situation.

Josef Stalin supported North Korea economically and announced Kim II-sung as chairman of the „Communistic Party Korea“. Under his leadership he called out the Democratic People`s Republic of Korea in 1948.

The United States supported South Koreas government with the assembling of their military troops.

The US military was in control of Korea`s south until 1948. After that the troops left the area, except a couple of military advisors which were supposed to stay so they could help South Korea get back on their own feet.

The allies tried to establish South Korea independence. In the beginning of 1948 the elections were barely accepted from the population and they were confronted with a lot of resistance. As a consequence, protests and Guerilla fights caused military confrontation along the borders. The differences between the North and South were more and more apparent by the influence of the occupiers. A clash of opinion was the major problem on both sides. Korea again was abused from the occupiers even if they started with a different plan. Helping and releasing this used nation was the true issue. Even though they didn't excessively exploit Korea they used the country as a battleground for their own concern.

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