Totalitarian Capitalism in South Korea

Korean economic miracle 1961–1987

When it comes to discussions on Korean economic development in 1960–1985, one of the most common cliches is the phrase “Korean economic miracle.” Perhaps this expression has already snapped, but we cannot deny that it did not arise from a scratch: the economic development of Korea in 1960–1985 really was a miracle.

Seoul, Nowadays

Today, looking at the shining skyscrapers of Seoul, at the streams of cars, at smartly dressed people, at the shop windows full of goods, it’s hard to imagine how Korea looked only 60 years ago, from the memory of so many still living Koreans. To say that Korea in 1960 was a poor country is to say nothing: it was a poor country even by the standards of the Third World at that time. In terms of GNP (Gross National Product) per capita — $ 80 in 1960, Korea lagged behind Nigeria and Papua New Guinea. Multi-storey residential buildings in the country were only in Seoul, in large cities electricity was supplied not all day long, and only a quarter of all houses in the capital were provided with sewage. The Koreans of the older generation remember the times when in primary school only 4–5 out of 40–50 students in the class could afford to eat rice. In spring, grass and boiled tree bark were the usual “dishes” at the lower class table. In general, the situation in Korea was not much different from that, which existed somewhere in Ethiopia or Somalia — in some ways it was even worse.

Seoul during the 1960s, Rob Wile, Busines Insider

Even the huge American help did not change the situation. During 1946–1976 US provided $ 12.6 billion worth of aid to Korea. Thus, in terms of per capita, Koreans were the third recipients of American help in the world (the Israelis were in the first ones, the South Vietnamese were in the second). At the same time, the lion’s share of American aid was provided to Korea precisely in the fifties — and did not bring any results. Most of the funds were simply stolen by ex-president Lee Sung and his associates, while the rest was used with minimal efficiency. By the end of the 1950s, American diplomats and economists simply wrote off Korea as a bottomless barrel, in which you have to invest without the slightest hope of return.

How did the miracle happen?

The “Korean economic miracle” has a very definite date of birth — May 16, 1961. That day, a military revolution took place in Korea: with American support, local generals overthrew the civilian government, which over the year of its existence managed to put the country on the edge of collapse. From that time until 1987, South Korea was governed by the military regime. The 1961 coup was led by General Park Chung Hee, who will after become a key figure in Korean history of the 20th century. The General came from a poor peasant family but was able to get an education, worked as a teacher, and during the Second World War, after graduating from the Japanese officer school, he served in the Japanese imperial army (Korea was a Japanese colony until 1945). After 1945, like many Korean intellectuals of that time, Park Chung Hee was carried away by left-wing ideas and even at one time was a member of an underground communist organization, but he quickly lost faith in communism and in 1950–1953, during the Korean War, became one of the best South Army combat officers.

Park Chung Hee, May 16, 1961

There was nothing unusual in the coup itself. Back in the days, such actions by right-wing officers with American support from time to time took place all over the world — mostly in those countries where there was a real threat of strengthening communists or other anti-Western movements. In particular, such regimes were prevalent in Latin America. For the most part, they were distinguished by an addiction to noisy rhetoric on the themes of “democracy” and “protecting the interests of the free world”. Therefore, the 1961 South Korean military coup did not attract much attention in the world: the left-wing press limited itself to on-duty attacks on “American imperialism” and its “puppets”, the liberals complained a little about “violating democracy”, while the right-wing more or less actively welcomed the “restoration of order” and “a blow to the rebellious plans of the pro-communist forces.” After that, the world safely forgot about Korea.

After the coup

Neither Park Chung Hee himself nor his entourage wanted to remain just another group of American puppets in a third-rate developing country. Moreover, they did not want to follow the example of their predecessors from the Lee Sung environment — an ordinary thief of Western loans and American aid. Park Chung Hee and his associates wanted to see South Korea as a strong and wealthy state, but the problems that the country faced back then seemed unsolvable. As the General himself subsequently wrote: “I had the feeling as if I had accepted the affairs of a bankrupt company.”

There are practically no minerals or fossils in Korea, so Park Chung Hee could not follow the example of the Arab countries, which just then began to make fortunes on oil. Moreover, even small, but densely populated Korea did not provide itself with agricultural products, and the physical survival of the population depended on American aid. The only available resource of Korea was the Koreans themselves, their high work culture and their willingness to work for a meagre pay — in the most literal sense of the word, for a cup of rice. This is precisely what the bet was made on.

The scheme that Park Chung Hee has chosen as the basis of his economic strategy was simple: obtain loans abroad and build factories that would work on imported raw materials and using foreign technology. The products of these factories were oriented on export, and the profits would be spent on new raw materials and new technologies. Basically, the country turned into a kind of huge super-factory engaged in the processing of imported raw materials.

However, the government of Park Chung Hee have faced one more problem: the Koreans of the 1960s were mostly unpretentious and willing to work for pennies, but at the same time they had neither education nor professional skills at all. Besides, the country’s poverty made itself quite unattractive for large-scale foreign investments — it was difficult to find those who wanted to invest noticeable amounts in a little-known third world country. Therefore, at first, in 1962–1970, the emphasis was placed on light industries, which did not require skilled labour, sophisticated technologies, or large investments. The peasant women who came from the villages, working 12–14 hours a day, sewed shirts according to foreign patterns and made soft toys. In those days, Korean teddy bears literally flooded the entire Western market, while fabrics and clothing made up about half of all Korean exports (41% in 1965). To master such production, special education was not required, the main necessary qualities were discipline and hard work.

When in 1962, General Park Chung Hee announced the adoption of the First Five-Year Plan, which was forecasting the economic growth of 7–8% per year, the world (more precisely, those few who were generally interested in Korea) did not take those plans seriously. However, in the next year, 1963, Korean GNP (Gross National Product) grew by 9.1%. At first, it seemed to many that this was just an accidental success, but over nearly two decades of Pak Chung Hee’s regime (1961–1979), annual GNP growth was 8–10%, occasionally rising to 12–14% and never dropping below 6%! To everyone’s surprise, South Korea, whose situation until recently seemed hopeless, has become one of the most dynamic economies on the planet and still holds this position. The country’s GNP tripled every decade, and it’s per capita figure, which in 1960 was $ 80, reached $ 1,000 by 1979 and exceeded $ 10,000 in the mid-1990s.

Step by step

In the early ’70s, the accumulated experience and capital made it possible to take the next step — from light industry, from teddy bears and wigs to capital-intensive but not technologically advanced sectors: metallurgy, shipbuilding, and the chemical industry. It was at this time when huge metallurgical plants appeared in Korea, which soon turned the country into one of the largest steel producers in the world, as well as shipyards, which by 1980 had already produced about a third of the world’s ship’s tonnage. The metallurgy and shipbuilding industry was followed by the automotive industry, the deployment of which began after 1976, and then electronics, the development era of which was already in the eighties.

Despite totalitarian politics, the development of the country under Park Chung Hee was capitalistic. However, this capitalism possessed several very peculiar features. There was no question of any free market in the sixties and seventies, and Korea’s economic policy was very far from the ideals of economic liberalism. The state worked out a development strategy, and private firms obediently obeyed the orders of the authorities. From the very beginning, the stake was placed on large multidisciplinary companies, which would be closely connected with the government, and which — simply because of their small numbers — were easier to manipulate. Strictly speaking, there were none truly large firms in Korea in 1961–1962 so they had to be created artificially. That is how the current Korean monopolies, the “chaebol” appeared. In fact, all the largest Korean companies — Hyundai, Samsung, and the recently bankrupt Teu (Daiva) have reached their gigantic size because their founders were chosen by General Park Chung Hee for the role of Korean oligarchs. However, it is important that in Korea it was not the oligarchs who ruled the president and his associates, but the other way around. Unlike his predecessors and, unfortunately, his successors, Pak Chung Hee did not take bribes. He needed not envelopes with dollars, but the execution of orders and economic efficiency — and by efficiency, he understood not so much profitability but the ability to produce high-quality export goods. Most firms had planned tasks to increase the volume of export products, for the implementation of which their owners were personally responsible. Everyone knew that the General would not joke around and that there was enough incriminating evidence in the vaults of the Blue House to send any Korean oligarch to prison for a long time.

Chung Ju Yung (founder of Hyundai) during the construction of the first Hyundai plant, 1967

Towards the end of the seventies, the Korean monopolies created with state support reached enormous proportions. In 1981, the total sales of Korea’s 10 largest firms amounted to 48.1% of the country’s total gross national product (in 1984, it already amounted to 67.4% of GNP)! World history knows a few examples of such a production power concentration.

The state itself has actively invested in the economy — primarily in infrastructure, in those sectors that do not give immediate returns but are necessary for the development of the economy as a whole. Since the late 1960s, when Korea still had virtually no cars, the state began to build a network of highways, without which it is impossible to imagine today’s South Korea. The construction cost of the Seoul-Busan highway in 1968–1971 was almost a quarter of the entire Korean state budget for 1967 (more precisely, 23.6%). Of course, such investments were absolutely unbearable for private firms, so the state inevitably incurred the costs of developing the infrastructure.

The state heavily invested in education, which during Park Chung Hee years has experienced a real boom. In 1965, 105 thousand students studied at Korean universities, and in 1988, just over a million. Back in 1961, the government nationalized banks and established tight control over foreign exchange operations. Credits on favourable terms were issued primarily to large firms, and to those who proved their ability to produce high-quality export goods. At the same time, the country’s social security system was virtually absent — the burden of caring for the sick, the unemployed, the old and small was placed on the family institution which, admittedly, is extremely strong in Korea. The absence of social expenses allowed to keep taxes on very low levels: the income tax rate in Korea even now equals 10–20%, while in the developed countries it fluctuates between 25% and 50%.

Students participate in an abacus class in this 1960s file photo (Photo courtesy of Gyeongsangbuk-do Education Research Institute)

Two more conditions

It was not only the right economic strategy that made the “Korean economic miracle” possible. It wouldn’t happen without two additional, but very important conditions.

1The first of these conditions was a huge portion of foreign aid — mainly American and partially Japanese. Despite some initial distrust of Park Chung Hee’s plans, the United States provided loans and free aid to Korea. The United States was guided, first of all, by its military and political interests: South Korea has always been the strategic base of the United States in East Asia, so its political stability was important to Washington. It cannot be said that relations between Washington and Seoul were absolutely cloudless: Park Jung Hee was not a “lackey of American imperialism” and often openly used his overseas partners for his own purposes. If necessary, South Korean intelligence bribed American congressmen and stole technological secrets from a dear ally. However, in general, the alliance against common enemies — Pyongyang, Moscow and Beijing — was very strong.

Lyndon B. Johnson and Park Chung Hee at the Oval Office, White House, 1965, LBJ Library

During 1960–1985. Korea actively borrowed money — from private banks, governments and international organizations. As a result, the size of Korea’s external debt by the end of the military’s regime reached an impressive size of $ 46.7 billion in 1985. That year, Korea was ranked fourth in the world in terms of debt, second only to the Latin American trio — Argentina, Mexico and Brazil. However, Korea was lending willingly, primarily because in the world it had a reputation as an ideal debtor. The question of whether to pay or not to pay on loans did not stand in principle — they always paid, and on time, without any debates or restructuring. In rare cases of bankruptcy of a private company, the government took over the payment of its debt to foreign organizations. As a result of this “unpatriotic” policy, this “worship of foreign capital”, Korea had access to cheap loans, which were actively used.

2The second most important condition without which a “Korean economic miracle” would be impossible is an authoritarian power. There is no doubt that the regime of Park Chung Hee(1961–1979) and his less fortunate successor, Jong Du-hwan (1980–1987), was a dictatorship, although relatively mild, especially when compared to ultra-Stalinist North Korea. Certain political freedoms did exist in Korea under military regimes. Although, what is now called the “administrative resource” in Russia was used to the fullest and, as a rule, ensured the elections was suitable for the government. At first, until the early 1970s, economic achievements did not give anything to the majority of the country’s population, who despite hard work remained poor. In these circumstances, the government was ready to maintain political stability by any means. Attempts to create independent trade unions were suppressed with extreme cruelty. Perhaps the most important advantage of Korea in international competition in those days was the cheap workforce. Even at the end of the military’s regime in 1985, the average salary in South Korea was 11% of the one from the United States. The government believed that the activities of independent trade unions could ultimately make Korea uncompetitive in the global market. As it is now clear, in the long-term this policy paid off, although in the short run it made the existence of millions of people even more difficult.

Social equalities forced by the regime

However, social stability was ensured not only by stiff suppression of all those forces that did not agree with the logic of capitalist development. Countries of the third world have always been characterized by a high level of wealth inequality — and the rich population usually feels free to demonstrate their wealth in every possible way. Shining Mercedes, cupboard-like bodyguards and gold-hungry wives are usual attributes of Russian or Brazilian billionaires. General Park Chung Hee has consistently fought both with inequality itself (as far as this is possible with capitalism) and with the demonstrative, prestigious consumption of the elites. The scandal that the president arranged for several oligarchs after their wives appeared at some reception, hung with diamonds, received considerable fame. The 1970 Korean oligarch was supposed to live modestly and not show off his wealth.

Hyundai Group founder Chung Ju Yung left, and Samsung Group’s Chairman Lee Byung-Chul, right, walk together with Lee Won-sung, a founding member of the National Association of Entrepreneurs, in the early 1960s, Korea Times

However, everything was not limited to purely demonstrative propaganda actions. The level of inequality measured by the Gini coefficient was much lower in Korea than in most third world countries. In the 1980s, Korea was roughly equivalent to semi-socialist Sweden in terms of social inequality. Of course, the absence of sharp contrasts alleviated a lot of social problems. Workers with miserable wages were ready to stay at the machine tools and assembly lines for 14 hours a day because they didn’t have to see luxurious and fancy lifestyle across the street.

An important role in mitigating social tension was played by the educational system. During the military regime, explosive growth occurred, and access to universities was open to anyone who could pass entry exams. There was practically no corruption in the exams, and the government did everything possible to minimize the influence of parents’ income on the quality of education (refusal from paid and specialized schools, campaigns against tutoring, etc.). Everyone knew that competition for university diplomas was fair, and this gave even the poorest and most socially unfortunate parents the hope that their children could eventually become successful. A university diploma served as a pass to the ranks of the rapidly growing middle class, and any young Korean was able to get it.

The result of Park Chung Hee’s policy is on the table: a powerful industrial state, created literally from scratch, out of nothing. This example is tempting, and so many countries have studied and tried to repeat the Korean path. However, all unsuccessful. The only exception is the countries of East Asia, (tigers) but they have not so much repeated Korean success as they have achieved their own simultaneously with Korea. Outside the Far East, Korean recipes have not yet worked — and most likely never will. Korean politics at the time of the economic miracle was based on the cultural specifics of Korea, which has developed over thousands of years.

A land of rice

Traditionally, Korea and the Far East as a whole have been primarily a civilization of rice. Compared to other crops, rice gives maximum calories per unit of cultivated area and, therefore, allows to feed a large population living in a small area. However, rice is a specific plant and very time-consuming. Unlike a wheat field, a rice plantation is a complex system consisting of tens and hundreds of small fields separated by dams and connected by special channels. The construction of such a system and its maintenance in good condition required the systematic efforts of hundreds and thousands of people. Without these constant and collective efforts, no agricultural production in the Far East, and, therefore, the physical existence of its population, would have been impossible. Living in such conditions for tens of generations has formed a Korean attitude towards the world, developed a penchant for systematic, painstaking work. At the same time, even the hardest work could not provide the Far Eastern peasants with a high standard of living. The poverty of the life of the Korean peasant, his ability to be content with little and the willingness to unconditionally obey the authorities struck European travellers even in those days when the lives of ordinary people in their homeland could not be called prosperous.

The economic strategy chosen by Park Jung-hee was primarily based on these national and cultural features of the Koreans. He relied on the ability of Koreans to work hard and conscientiously, without asking unnecessary questions, patiently transferring hardships and obeying the authorities. He took into account and brought up by Confucian culture respect for education, and the strength of family ties and gave a start to the Korean Economic Miracle.

References

Lee, M., 2014. The Japan-Korea Solidarity Movement in the 1970s and 1980s: From Solidarity to Reflexive Democracy. [online] The Asia-Pacific Journal: Japan Focus. Available at: <https://apjjf.org/2014/12/38/Misook-Lee/4187.html> [Accessed 3 February 2021].

Koreanhistory.info. North Korea The 1960s Reconstruction KoreanHistory.info. [online] Available at: <http://koreanhistory.info/Reconstruction.htm> [Accessed 1March 2021].

Salmon, A., 2011. Chaebol’s birth in 1961: prime movers of nation-building. [online] KoreaTimes. Available at <https://www.koreatimes.co.kr/www/nation/2021/02/113_79758.html> [Accessed 7 January 2021].

Macrotrends.net. 2021. South Korea Exports 1960–2021. [online] Available at: <https://www.macrotrends.net/countries/KOR/south-korea/exports> [Accessed 3 February 2021].

Young-Gil, S., 2020. What is more important: Sending anti-North Korea leaflets or providing food and medical supplies for hungry children?. [online] Koreaherald.com. Available at: <http://www.koreaherald.com/view.php?ud=20201213000162&ACE_SEARCH=1> [Accessed 5 March 2021].

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Petr Vysotskiy

Petr Vysotskiy

Blockchain, economics and politics enthusiast.

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