1. ECONOMIC
DEVELOPMENT OF
SOUTH KOREA UNDER
PARK CHUNG HEE
(1961-1979)
How South Korea escaped poverty and
became one of the richest countries in the
world
Hyunsu “Philip” Cho
Edmonds-Woodway High School

2. ► Despite trillions of aid given, 2.6 billion live w/ less than $2 a
day
► Countries in Africa and Lat. Am. are still dependent on
commodity exports
► Productivity has stagnated in Lat. Am. - falling behind in int'l
competition
POVERTY IS A STUBBORN THING

3. ► GDP per capita around $100,
poorer than Philippines
► Ravaged by the Korean War
(1950-3)
► Large standing army - menace
from North
► Largely agarian country
► Lack of natural resources - coal,
iron, copper, oil
SOUTH KOREA IN 1950S

4. ► GDP growth averaged 9-10% a year
► Manufactoring sector took greater share of the economy
(close to 30% - comparable to West Germany)
► “Boys who grew up working in rice paddies found
themselves building oil tankers and designing
semiconductor chips.” - Mark L. Clifford
SOUTH KOREAN ECONOMY
ROARS

5. RESEARCH QUESTION
TO WHAT EXTENT did Park Chung Hee‟s iron rule contribute
to South Korea‟s economic growth?

6. ► Sense of desperation
► U.S. aid kept people barely alive: 1/2 of national budget
► 1/5 of adults unemployed; social unrest fueled by unemployed youth
► Menace from the North
► Traditional social structure dismantled
► Land Reform: wiped out traditional landed aristocracy
► Tepid economic growth, lack of manufacturing base
► Democracy seemed helpless in mounting economic challenges
► Capital shortage kept businesses from growing
POSTWAR SITUATION

7. ► seized the capital + other
important cities
► purged politicians on corruption
charge
► brought businessmen into
submission (June 14 law)
► The military was the most modern
sector of that time
“Western democratic institutions do
not harmonize with the
underdeveloped conditions of Korea.”
– Park
PARK STAGES MAY 16
REVOLUTION

8. ► Economic growth as the historical goal, to be achieved at
all cost
► “In human life, economics precedes politics or culture.” – Park
► “Guided Capitalism”: The state as the engine of economic
development
► central planning + gov‟t intervention in the market
► industrial policy, corporate state
► Influenced by state-planning in Manchukuo
PARK‟S “DEVELOPMENTALISM”

9. ► The state intervenes in individual firms‟ decisions
► Economic Planning Board (EPB) : planning, national budget
► Ministry of Finance (MoF) controlled the banking sector
► Nationalization of banks
► Extraordinary power over credit-starved businesses
► All businesses were required to join associations
► Policies, regulations, orders move quickly from ministries to firms
► domestic cartels – steady stream of profit
► Enfoncement devices
► Cutting off credit line • Personal connections
► Arbitrary tax audit • Uneven law enforcement
KOREAN CORPORATE STATE

10. Top-down, General Headquarter
style
Other Gov‟t
- Park himself made major decisions
Ministries
MoF (Ministry of state-owned
Finance) banks
EPB (Economic
Planning Board) MTI (Ministry of industry/business
Trade + Industry) associations
FKTU (Federation
(gov‟t-controlled) Businesses
of Korean Trade
industrial unions
Unions)
National Budget
Coopted labor

11. ► Pro
► Allows for great flexibility in policy implementation
► Channel of communication b/w gov‟t and private sector
► Unlike Mussolini, Park utilized corporate state to the fullest
► Con
► Coercive element – individual initiatives are often compromised, tight gov‟t
control, the state always had upper hand
► Red tape – maze of permits, regulations, and licenses
► Institutionalized corruption
► favors big business over small business
KOREAN CORPORATE STATE
(CONT.)

12. ► Early 1960s: dollars began to run out; U.S. threatened to cut aid
► 2nd FYP: Build industries targeted to export markets
► 1960s: S. Korea utilized cheap labor – light manufacturing
► Huge incentives for exporters
► Import license conditional on export performance
► Tariff exemption for raw materials and machinery
► Exporters could automatically borrow against overseas orders
► More credit to companies w/ superior export performance
► Coercive element: Corporate state had business go along
EXPORT-ORIENTED
INDUSTRIALIZATION (EOI)

13. 1st Export Promotion Meeting (1960)
Park hands over export towers
► Monthly Export Promotion Meeting
► President, gov‟t officials, academics, reps from trading companies – “rapid response
team” for exporters
► Export Day (11/30)
► “Export towers” to companies w/ best export performance
EXPORT-ORIENTED
INDUSTRIALIZATION (EOI)

14. ► Scoured the world for new export
markets
► Helped Korean businesses how to
market their products in foreign
countries
► Key to overcoming the obstacles
early exporters faced
KOREA TRADE PROMOTION
AGENCY (KOTRA)

15. ► HUGE SUCCESS!
► Exports skyrocketed; trade deficit stayed under $1 billion
► S. Korea established a firm international standing in light
industries – shoes, wig, clothes, plywood etc
► Foreign borrowing + direct investment plugged the gap
► Exports: $33 million -> $3.3 billion (100 times)
► Imports: $343 million -> $3.8 billion (11 times)
► Raw materials + machinery for export industries
► Investment: 6% of GDP -> 23% of GDP
RESULTS (1961-73)

16. EOI (EXPORT ISI (IMPORT
PROMOTION) SUBSTITUTION)
► Taiwan, South Korea ► Latin America, Soviet
Union, Mussolini‟s Italy, North
► Selective, short-term protection – Korea
international competition makes
infant industries grow up ► Blanket, permanent protection –
infant industries don‟t grow up
► Up-to-date machinery introduced
► Lack of competition →
► Experience w/ overseas market drag in int‟l competitiveness
► Gov‟t complements market forces ► Inflated wages
► Correction of market failure – high ► Tried to reinvent the wheel:
set-up costs of exports; imperfect expensive intermediate goods
information
► Gov‟t resists market forces
► Meritocracy in allocating credit
► Balance of Payment crisis lowers
► Reduced possibility of BoP crisis quality of inputs
► Selective use of FDI (Foreign Direct ► Dependence on FDI and foreign
Investment) aid
WHAT‟S GOOD ABOUT EOI?

17. ► North Korea continued its
offensive; U.S. threatened to
withdraw its troops
► Yushin Constitution
► Nation ruled under martial law;
Korea became Single Party State
► Park turned into dictator
► KCIA censored the
press, eavesdropped phone calls
THE BIG PUSH (1973-79)

18. ► HCI (Heavy & Chemical Industries) Plans – 4th FYP
► Aim: build up defense
► Shipbuilding, machinery, chemicals, steel, electronics, automobile
► Unprecedented industrial expansion
► Good: gain experience in heavy industries, which create far more added
value; acquire managerial skills; economies of scale
► Korea became competitive in semiconductor, shipbuilding, steel
► Bad: policy loans caused massive inflation in 1970s; some target
industries didn‟t work out in the end (i.e. aluminum)
THE BIG PUSH (1973-79)

19. ► Lure Koreans who‟d been
educated overseas with attractive
pay packages
► Cutting-edge managerial
techniques and scientific
knowledge
► KAIST (Korea Institute of Science
of Technology)
► engineering education
“REVERSE BRAIN DRAIN”

20. ► State-owned enterprise
► World Bank refused to finance the project
► Park Tae Joon used personal connection in Japan to channel
reparations (for past colonization)
► Ran like military
► Rapid construction schedule + high quality standard
► Long work hours (60-70 hour work week)
► Became one of the largest, most efficient
steel maker in the world
► Opened up the way for heavy industries
POSCO: INTEGRATED STEEL MILL

21. ► National conglomerates (groups) run by founding families
► Profitable firms subsidize less profitable firms within the
conglomerate (cross-subsidization)
► Factors
► Scarce credit + abounding investment opportunities
► Red tape – lots of paperwork
► Export promotion – bigger is better in export market
► State-owned banking sector – political clout was a must to
secure loans
► Quite a few became successful global multinationals
RISE OF CHAEBOLS

22. PARK: A HERO OR A VILLAIN?
Controversy still continues

23. ► Economic growth was impossible
w/o Park
► Western-style democracy isn‟t fit
for an undeveloped country like
Korea
► Nonpartisan planning is the way
to rapidly modernize
► Park had a grand vision for
economic development
Kim Seong Jin – President
Park‟s former secretary
CONSERVATIVE HISTORIANS

24. ► Strength
► EOI wasn‟t as politically palatable as ISI (popular in 3rd world countries)
► Businesses were reluctant to export if left on their own
► State autonomy allowed for quick policy decisions
► Capital market hadn‟t fully developed (curb market)
► Weakness
► Park didn‟t have a “vision” (1st FYP didn‟t include export promotion)
► Park adjusted his strategies according to economic realities
► He listened to U.S. AID advisers + foreign-educated technocrats
► Park was luckier than his Latin American counterparts
EVALUATION OF ARGUMENT

25. ► Military/Economic alliance with the United States
► U.S. wasn‟t so friendly w/ some Latin American countries
► U.S. aid $3 billion by 1968; Vietnam gave military contracts
► The Cold War: need to contain North Korea
► U.S. gave Korea considerable freedom in economic policy
► 1960s: rise of international division of labor
► Labor cost too high in developed countries
► Opposition was weak/unorganized; the state was autonomous
► Anticommunism: leftists and labor unions were repressed
► Land reform of 1950s: landed aristocracy wiped out
► Bourgeoisie lost wealth during wartime; industrialists and businessmen were
dependent on the state for foreign aid
EXTERNAL FACTORS

26. ► Harms done by Park‟s iron rule
outweigh benefits of economic
growth
► South Korea‟s economic
development was mainly driven
by external factors above Park‟s
control
► Chaebols became a huge liability
► Expansion into many different
fields of production, regardless of
profits
Jin Jung Kwon – a ► High debt-equity ratio –
social critic vulnerable to recessions
► Corrupt gov‟t-business alliance
LIBERAL HISTORIANS

27. ► Strength
► Democracy and economic development aren‟t mutually exclusive
► Labor sacrificed too much
► Jeon Tae-il (labor activist) burned himself in 1970
► External factors
► 1997 financial crisis: gov‟t allowed chaebols to borrow excessively
► Weakness
► Efficient developmental state requires autonomous state
► Initial phase of development entails hard time for labor
► Economy of scale is necessary to compete in global market
► Gains in competitiveness stuck after 1997 financial crisis
► Not every leader can take advantage of good environment
EVALUATION OF ARGUMENT

28. ► Park instilled into people the value
of thrift and hard work
► Although circumscribed, private
property encouraged investment
► Korea had (virtual) free trade
► Park contained communist North
► Park is guilty of central planning
► Economy is best left to the
individual
► Economic freedom and political
freedom are intertwined
Kim Jeong Ho – president of
Center for Free Enterprise (CFE)
LIBERTARIANS / NEOCLASSICALS

29. ► Strength
► Saemaul (New Community) Movement mobilized idle workers in countryside
► Businessmen and entrepreneurs maintained their roles
► Exporters didn‟t pay tariffs on raw materials + machinery
► Businessmen couldn‟t speak up against gov‟t, fearing their credit lines might be
cut off
► Weakness
► Corporate state forced businesses to invest more than they would otherwise; cult
of austerity induced people to save
► Gov‟t intervention corrected market failures in exports
► Gov‟t selectively protected + nurtured infant industries
EVALUATION OF ARGUMENT

30. ► Chaebols served to protect
national economy from predatory
foreign capital
► Park‟s developmental state offers
model for “economic democracy”
► State-owned financial sector
► Extensive control over capital
► A democracy is powerless if it
cannot contain the excesses of
the market
Chang, Ha-Joon – author of
23 Things They Don’t Tell You About
Capitalism
CONTRARIAN

31. ► Strength
► Profits made by chaebols stayed within the border
► Corporate state ensured that businesses act in accordance with the national
interests
► Weakness
► Modern nations with sizable population have representative democracy. Putting
too much financial power to politicians is like putting all eggs in one basket.
► Corporate state requires autonomy of the state – interest groups hamper such
development.
► Chaebols are just like other multinationals of the world
EVALUATION OF ARGUMENT

32. ► Park has built a “Tiger Daddy State”
► Economic development in exchange for political freedom
► Single party corporate state speeded up development
► Businesses were forced to compete overseas
► Park was pragmatic and flexible
► Took maximum advantage of int‟l + domestic politics
► EOI as result of policy adaptation
► Acknowledged role of businessmen and entrepreneurs
► Recognized need for advanced foreign technology
► While developmental state is somewhat at odds with interest group
democracy, Park didn’t need iron rule to advance his agenda; state
autonomy had been established since 1950s
CONCLUSION

33. ► It takes right kind of “parenting” to develop a country‟s industrial base to
internationally competitive level
► Park‟s South Korea: too authoritarian
► Latin America: too overprotective
► Somewhere in the middle
► Alexander Hamilton‟s American School
► France and Quebec: “indicative planning”
► Countries should integrate into world economy, on their own terms
► Infant industries need some time to grow and mature
► The individual cannot overcome market failures
► The individual succeed only so far as his country provides him opportunities to
do so
CONCLUSION

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