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The Main Economic and Political Trends of South Korea

Free Essays of Economics
For several decades, some developing countries have been observed demonstrating economic success in the world. Young and the most advanced countries in the second half of the XX century combined in a separate group forming new industrializing states. South Korea occupies a firm place among the prosperous nations. Many experts affirm about the rapid economic growth of the Republic of Korea. Such success is connected with the transformation from the traditionally agricultural state into industrial one and high rates of GDP growth. A large number of factors, including external and internal, economic and political, subjective and objective, had an enormous effect on the rapid growth of the South Korean economy. The development strategy of the country was oriented on export to the outside world. The state had a propitious international economic climate in the second half of the XX century to promote access to external resources. In addition, effective and strong leadership in the face of authoritarian governments postponed political and democratic reforms in favor of economic development of the country. Moreover, the country experienced the attraction of technological and financial foreign investments. Finally, South Korea demonstrates cultural and ethnic homogeneity, as well as follows the strong Confucian tradition, which provides special value to devotion to the nation, hard work, success in life, and education. Thus, the aforementioned factors combined have determined the economic success of the country. The purpose of the paper is to examine the main economic and political trends and processes affecting the economic development of South Korea.

The Economic Miracle of South Korea

South Korea is considered an Asian economic tiger. The state is one of the largest manufacturers of consumer electronics and automobiles, and it controls a third of the global shipbuilding industry. The current country of automobile plants, highways, and skyscrapers was a peasant Asian province in the 60s of the XX century (Kim 34). The economic condition of South Korea in the early 1960s was considered catastrophic (Kim and Kim 12). The level of GNP per capita lagged behind not only from Mexico and Nigeria but also from Papua New Guinea (Kim and Kim 12). The situation was complicated by the absence of natural resources in the country that could be exported (Hua and Hu 23). Therefore, it is evident that in the 60s of the previous century, South Korea was an economically weak state facing numerous problems.

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The situation changed with the advent of the new government that was able to turn the country into one of the most prosperous in the region. For three decades, South Korea transformed from a developing country into an advanced one. Chowdhury argues that “during three decades of economic expansion, South Korea transformed itself from one of the world’s poorest countries to one of the richest, despite a lack of natural resources, a high population density, severe wartime devastation, and heavy defense expenditures” (42). Paine affirms that “South Korea today is the thirteenth-largest economy in the world” (223). To achieve it, the new government undertook several effective measures, namely the development of the heavy industry as forced industrialization at the expense of agriculture and a course on the export-oriented economy and its state regulation (Kim and Kim 42). More capacious industries followed after metallurgy and shipbuilding such as the automotive industry, the deployment of which began after 1976, and electronics, the era of the development of which began in the 80s (Kim and Kim 44). Due to its heavy and chemical industries, the Korean industry in a number of sectors shifted to the setting of the entire chain of the production process. This fact allowed cutting the import of raw materials and components and reducing the trade deficit. Due to these methods, South Korea was able to improve its position among other countries.

The Detailed Analysis of Changes

Changes in the country began with the revolution and the advent of a new leader. On May 16, 1961, a military coup took place in South Korea (Chowdhury 43). The leader of the revolution was Park Chung Hee who later became a president (Heo and Roehrig, South Korea Since 1980 4). He conducted a number of tough measures for the development or rather the construction of an entirely new economy. According to The Development of Modern South Korea, “there is no golden rule that posits a necessary connection between economic development and democratization” (Kim 73). Chung Hee declared war on corruption. Any corrupt actions were instantly punished. The course on industrialization was announced (Boestel, Francks, and Kim 85). Peasants were forcibly evicted to the cities (Boestel, Francks, and Kim 86). The rural poor started working in private enterprises, which produced cheap goods for export (Boestel, Francks, and Kim 86). Furthermore, Chung Hee introduced the nationalization of the banking sector. The government implemented a monetary reform and arrested the accounts of private banks in total amount for $ 87 million (Sato and Shimomura 137). Therefore, the banking system completely passed under state control. In addition, the government retained full control of the transport infrastructure, energy, and water. It can be noticed that the administration of Chung Hee made a key stake in centralized management in economic development (Sato and Shimomura 136). These actions could improve the economic situation in the country.

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It is critically important to note the introduction of planning. A five-year plan in South Korea existed until 1984. In three five-year periods, the country made an enormous leap in the economy (Paine 224). The purpose of the five-year plan was rapid industrialization, the basis for which was the maximum concentration of efforts on the creation of primarily heavy industry. In addition, the government of the country also established fixed prices for manufactured food products (Bagchi 9). It redeemed food at inflated prices from the rural population compensating for the loss on the sale of these products at the expense of the budget thus stimulating the South Korean manufacturer (Brazinsky 195). Moreover, the Republic of Korea practiced import substitution. Therefore, the attention was concentrated on the support of the South Korean manufacturer. The aim was to produce everything that people of the country can consume. The state tightly controlled prices in the domestic market making the expansion of public procurement and public funding (Bagchi 10). Additionally, to small and medium-sized businesses, the state-supported large holdings (Pinkston 62). There are about 30 large holdings in South Korea, and they control a large part of the country’s industry (Brazinsky 198). By giving government guarantee to such companies, the government pursued an aggressive policy in foreign markets promoting its manufacturer at international exhibitions. Under the heavy protectionism of the state, they showed incredible growth results (Brazinsky 199). They became the main driver of the economic miracle. In general, Chung Hee steered the country out of the crisis. Heo and Roehrig claim that “Park Chung Hee rose from a humble beginning to become the most powerful man in South Korea, beginning the country’s climb to a top-fifteen global economic power” (South Korea Since 1980 4). Chung Hee is really an iconic figure in the history of South Korea.

After the murder of Chung Hee, several presidents changed (Zhu 68). The next leaders of the country were more democratic. In The Politics of Economic Reform in South Korea, Yan Kong states that “Korea’s recent transition illustrates the role of democratization and social forces in economic policy change” (8). Nowadays, the country slightly moves to more democratic measures (Heo and Sung 919). In subsequent years, the economy of the country continued to grow, and the Republic of Korea turned from an exporter of shoes and textiles into a major manufacturer of electronics, automobiles, shipbuilding, steel and high-tech products such as digital displays, mobile phones, and semiconductors (Heo and Roehrig, South Korea’s Rise, 166). This transition is mainly connected with the process of globalization as South Korea sought to satisfy the needs of all people worldwide (Toussaint 4213). It became the foundation for the creation of a South Korean model of encouraging the growth of large, competitive companies in the international market through targeted financing and tax incentives. It, therefore, contributed to the creation of the world-famous corporations such as KIA, Samsung, and Hyundai (Heo and Roehrig, South Korea’s Rise 170). It should be noted that globalization is the road to prosperity for South Korea. Due to the economic boom in Europe, the export of South Korean products, including machinery, ships, and integrated circuits, increased sharply (Toussaint 4215). Therefore, the economic development of the country increased greatly for several decades. It can bring certain benefits for the Republic of Korea on the international market. According to Heo and Roehrig, “economic development creates the resources for a state to be more involved and influential in world affairs and helps to generate favorable attitudes among its elites and public toward being a more active foreign policy player” (South Korea Since 1980 11). Similarly, after its great economic rise, South Korea became more influential among other states.

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Since 2010 and nowadays, there is weak economic growth due to market declines in the United States, the Eurozone, and China (Choi 115). Therefore, South Korea faces the problem of a strong dependence on exports (Kong 126). Despite certain difficulties, and the economic system of the country is considered stable (Choi 116). Several decades ago, there were no investors to commit capital in South Korea; however, the situation is different currently. Moreover, South Korea also invests in other states; for example, South Korean Hyundai has a plant in the United States (Gaspar et al. 94). It is a good example of foreign direct investment. The volume of foreign trade in 2010 amounted to 75% of GDP, and revenues of the companies that invested from abroad accounted for approximately 15% of the entire industry’s volume of sales (Heo and Roehrig, South Korea’s Rise 170). The South Korean government is currently making efforts to attract foreign investment into the country.

Several decades ago, the majority of the countries avoided any economic relations with South Korea whereas it is an honorary member of many organizations at present. Moreover, it increasingly seeks to declare itself in the international community. The government spares no effort to achieve the goal. It relies on investments in culture and science, economic development, and the accumulation of military and political resources. First, South Korea can rely on the undeniable economic power due to powerful industrial conglomerates in various sectors, which lead the country to the forefront of the global market (Chung and Hyun 105). In addition, the global strategy of the state allows it to establish a special policy for the African region. With regard to the military sphere, South Korea uses its troops in large-scale peacekeeping operations (Chung and Hyun 109). This fact is followed by big plans in the arms industry and the development of the defense mechanisms.

In general, the Korean model has four distinctive features. They include high social cohesion, incredible diligence, relatively weak small firms, and powerful conglomerates (Kong 135). Koreans work about 2,200 hours per year (Kong 135). Nevertheless, the quality is valued more than the amount. Educational school standards in the country are considered equivalent to those of Finland and Singapore (Kong 136). The power of Korean conglomerates is extremely high; for example, Korean shipyards build the largest container vessels in the world (Kong 136). In South Korea, a protectionist policy is applied to corporations, which is intended to enhance the international influence of such firms through financial incentives and preferential tax treatment by the state (Kong 137). Nonetheless, the policy sustains a downside since the small business has virtually no chances to develop in the medium and large formations due to the presence of the big players in this market (Park 265). Social cohesion is reflected in the fair distribution of income among the population. The Gini coefficient in the country lags behind the Scandinavian countries but is ahead of Canada (Kong 138). These distinctive features of the Korean model can serve as a bright example for other countries.

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Despite the fact that currently, the economy of the country does not develop rapidly, the situation in South Korea is still stable. The main policy that influences the economic development of the state is the orientation of foreign markets. The trade balance of the country is constantly increasing (Heo and Roehrig, South Korea’s Rise 179). The Republic of Korea is one of the main importers and exporters of goods. The development of the economy of South Korea is mostly determined by the expansion of its foreign economic relations, and foreign trade is considered the most important aspect. The state performs active foreign policy, which major goal is to increase the volume of exports through opening up markets with partner states in the area of services, agriculture, and industrial production. Its main trading partners include the United States, Japan, and China. Although the strategy of the economic growth is grounded on exports to the developed states, South Korea makes efforts for the expansion of trade relations and the establishment of multilateral economic cooperation with BRICS and ASEAN countries (Heo and Roehrig, South Korea’s Rise 198). Such factors as an export-oriented economy, the lack of natural resources, and increasing competition from China serve the great interest of Korean companies to the markets of the countries-members of BRICS and ASEAN. It is also significant to note that South Korea signed free trade agreements with several states, namely China, the United States, and the European Union (Heo and Roehrig, South Korea’s Rise 181). Free trade agreements facilitate trade relations of South Korea with the aforementioned countries (Heo and Roehrig, South Korea’s Rise 181). A free trade agreement with the United States has an especially important value for South Korea as it prohibits the governments of the two states to inflict various performance requirements, including import limits, export ratios, and domestic content requirements. Currently, the South Korean economy is based primarily on the production of consumer goods such as textiles, electronics, and automobiles, as well as heavy industry sectors, in particular steel production and shipbuilding, which are the main export items. Despite the fact that the import market has become freer recently, the agricultural sector is still under protectionist policies because of serious discrepancies in prices of agricultural products inside the country as well as in the world. The main purpose of the current government of the state is to continue the economic growth of South Korea. Thus, A National Vision of Sustainable Development was declared. Since the time of its declaration, many acts and laws have been created to implement the most important aims of the sustainable development of the country. When the industry in the country reached a high level, the role of the government in promoting economic development increased greatly. The National Science and Technology Council was created to determine the direction of policy in technology and science and define priorities for national development (Heo and Roehrig, South Korea’s Rise 197). This measure provides greater sustainable development in the country. Therefore, South Korea is a highly developed country at present, and its government makes all efforts to achieve even better results.

Conclusion

Frequently, the rapid growth of the Korean economy in the 60s-80s is cited as an argument in favor of the liberal model of development. According to the widespread opinion, the economy of South Korea experienced a real miracle. Since 1961, the country has shown exponential growth which is especially surprising due to the starting conditions in the country. Everyone in South Korea believes that such a rapid leap was possible only due to President Chung Hee as he restored order in the country. Although his methods are considered undemocratic, he got rid of corruption and cleaned the entire state apparatus. Despite the conduction of tough reforms, Park Chung Hee entered the history of the country not as a bloody dictator but as a governor who managed to turn one of Asia’s poorest countries in a stable state with an independent economy. This miracle was only possible due to the strict management of the economy in the manual mode. The role of the government was dramatically enhanced, and central planning was introduced. In general, it can be stated that with the help of the clever governor, it is possible to achieve great success, and South Korea has proved it.

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