What Led to the Successful Economic Development of South Korea?

After independence from Japan in 1945, Korea split into the Communist North and Capitalist South. The two Koreas subsequently engaged in a civil war from 1950 to 1953 that devastated both countries and killed two to three million civilians. By the end of this war, South Korea was one of the poorest, least developed countries in the world.

However, within just a few decades, South Korea managed to develop into one of the wealthiest countries in the world. Rapid industrialization has transformed its economy from agriculturally-based in the 1960s to highly developed today. The percentage of people in absolute poverty dropped from 40.9% in 1965 to 23.4% in 1970, 14.8% in 1976 and 9.8% in 1980 and further to 4.6% in 1984. Rapid economic growth has allowed the country to join the OECD and the G-20. South Korea is now home to world-leading businesses like Samsung, Hyundai, LG, and others.

Intrigued by South Korea’s economic success, the World Bank sent scholars to study the causes of the country’s rapid development. In the resulting report, these scholars concluded that the government’s ability to implement effective long-term policies was key to the country’s economic success. Daron Acemoglu and James Robinson later underscored the World Bank report’s conclusion by emphasizing that the Korean government succeeded by establishing itself as an ‘inclusive institution’, in which it accounts for the welfare of the general population rather than working primarily to benefit the elites. However, neither the World Bank team nor Acemoglu and Robinson could identify how South Korea managed to establish such inclusive institutions that enabled it to implement successful long-term policies. 

Sociologist Diane E. Davis suggests land reform as a possible explanation for South Korea’s success in establishing such institutions. During the process of land reform, the Korean government distributed land to individual farmers, which enabled the latter to increase their productivity and income and eventually form a rural middle class. Having benefited greatly from land reform, this middle class became ardent supporters of the South Kreaon government. This mass support provided the requisite backing for the government to discipline Korean conglomerates, compelling them to enter highly competitive international competitive markets and grow more efficient in the process. With the establishment of these efficient businesses, Korea accumulated the capital needed for further industrialization and economic development. 

Although Davis advances a compelling argument, she fails to offer a full explanation for the inclusive nature of Korean land reform, which differed markedly from other models such as those that took hold in Latin America. The Korean government’s focus on general welfare and expansion of its economy may be instead traced back to the threat of another potential North Korean invasion rather than land reform; this threat favored an inclusive economy over an extractive one that would only benefit a small class of elites. 

During the Korean War, many Korean government and business elites realized the economic disparity between the communist North and capitalist South. North Korea had a larger economy than South Korea until the late 1970s, which implied that it could produce and afford larger quantities of better quality weapons, which would in turn contribute to a greater ability to sustain its military efforts. Even following the Armistice, the prospect of a North Korean invasion remained likely, calling into question the South’s ability to defend itself. The government therefore saw an urgent need to develop the economy, an objective most effectively achieved through creating inclusive institutions. Threats to national security therefore constitute an important explanation for the South Korean government’s implementation of relatively inclusive land reforms, as these provided the government with the necessary support to discipline the elites in order to further grow the economy and, by extension, the country’s defensive capabilities. 

South Korea’s economic success has thus clearly hinged on an inclusive government that was willing and able to implement long-term policies for economic development. The North Korean threat provided the government with a pressing reason to develop the economy, rather than complacently retaining an extractive model in which the elites could exploit the masses. The key policy the South Korean government used to prevent economic elites from taking control of the government policies and creating such extractive institutions is land reform. Although these two factors are not the only causes that led to the rapid development of South Korea, they constitute important aspects of the country’s economic success.

Kipyo Do

Kipyo Do is a second-year undergraduate student studying International Development at King’s College London.

 

Image by @hoyun423 – https://www.instagram.com/p/B5ewdmiha8o/

References:

Acemoglu, Daron, and James A. Robinson. Why Nations Fail the Origins of Power, Prosperity, and Poverty. London: Profile Books, 2013.

Birdsall, Nancy M.; Campos, Jose Edgardo L.; Kim, Chang-Shik; Corden, W. Max; MacDonald, Lawrence [editor]; Pack, Howard; Page, John; Sabor, Richard; Stiglitz, Joseph E. (1993). The East Asian miracle : economic growth and public policy: A World Bank policy research report. Oxford University Press. 

Chun, Seung-Hoon. The Economic Development of South Korea: from Poverty to a Modern Industrial State. London…: Routledge, 2018.

Cole, David C., and Yung Chul Park. “Financial Development in Korea, 1945–1978.” The American Historical Review, 1984. https://doi.org/10.1086/ahr/89.2.502.

Cumings, Bruce. The Korean War: a History. New York: Modern Library, 2011.

Davis, Diane E. Discipline and Development: Middle Classes and Prosperity in East Asia and Latin America. Cambridge: Cambridge University, 2004.

Doner, Richard F., Bryan K. Ritchie, and Dan Slater. “Systemic Vulnerability and the Origins of Developmental States: Northeast and Southeast Asia in Comparative Perspective.” International Organization 59, no. 2 (2005): 327-61. Accessed February 12, 2020. http://www.jstor.org/stable/3877907.

Kleiner Jürgen. Korea: a Century of Change. New Jersey: World Scientific, 2013.

Paldam, Martin. “Economic Freedom and the Success of the Asian Tigers: an Essay on Controversy.” European Journal of Political Economy 19, no. 3 (2003): 453–77. https://doi.org/10.1016/s0176-2680(03)00012-0.

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