Why is South Korea So Rich?

Why is South Korea So Rich?

The competition for Korea’s most famous cultural export is now closed. With more than 3 billion views, Gangnam Style has done more to put South Korea on the map than anything else. The video portrays South Korea as confident, stylish, and prosperous—and that’s accurate.

What’s remarkable is how quickly South Korea became one of the most advanced economies in the world. In 1960, the average South Korean was poorer than the average person in Senegal, Honduras, or the Philippines. Today, they are more than ten times richer. How did that happen? What was the secret? And are there lessons for countries that don’t have much Gangnam style?

When the Second World War ended in 1945, Koreans were among the happiest people on earth. The Japanese had occupied and exploited Korea since 1910, and now they were gone. Korea’s joy did not last long, however. The peninsula suffered two fresh disasters.

The first was the division of their land into a Communist North, supported by China and Russia, and South Korea, which was dominated by the USA. The second was the war between these two Koreas and their allies. More than two million Koreans were killed. Both North and South were devastated by the time the war ended in 1953.

However, the trauma of the first half of the twentieth century laid important foundations for the triumphs of the second half. Wartime refugees fled to the cities, creating an urban labour force for new factories. Land reform in the countryside meant that millions in South Korea now owned the land they farmed. These new landowners had the incentive and the stability to be entrepreneurial. They also wanted their children to get an education and a better life. South Korea built thousands of schools after 1953, which provided a highly educated workforce.

None of this, however, was enough to jumpstart the South Korean economy, which was still stagnant in 1960. Nor was the $6.6 billion dollars the US gave to its strategically located Asian ally between 1946 and 1978—although American money certainly helped. (For comparison, the US gave $6.9 billion to all of Africa during the same period.)

It was the decisions of the South Korean government after 1960 that made the difference, especially those associated with the president who controlled the country for 15 years after 1963—Park Chung-hee.

Park was deeply patriotic and he was determined that his country would be free of foreign influence. He saw that the only way that would happen was if South Korea was economically strong and self-reliant. He therefore geared the state for rapid growth.

Park believed that industrialization was the best path to economic success, and he was right: factories are almost always more profitable than fields. In the beginning, this meant assembling goods designed in Japan and light industry such as wig making. But the results were impressive—the South Korean economy was growing at 9% a year by the mid-1960’s, and exports by 29%.

In 1972 Park, who by this stage had almost dictatorial powers, decided to push the economy towards even more growth. The government invested in heavy industry—steel, petrochemicals, cars, electronics, and shipbuilding. South Korea quickly became a technological power in its own right—not just a place where the Japanese and others could manufacture their creations. The result was even greater profitability for South Korean companies and rising wealth and living standards for almost everyone.

South Korea’s economic growth during the second half of the twentieth century was an extraordinary achievement. However, that growth had its costs. Democracy disappeared while Park was in control. Businesses were free to treat workers poorly as a result. Many people lived in slums. Government support for the vulnerable in society was often lacking. And a group of companies known as the chaebols (including Hyundai, Samsung and LG), received preferential treatment from the government, such as tax breaks and cheap loans. Their share of the economy increased from 15% to 67% in the decade after 1974. South Korea was successful, but it was hardly an example of free market capitalism.

Park deserves credit for recognizing that industrialization was the best way to ensure his country was rich, strong, and secure, and for pursuing this course against the advice of his American allies—who wanted South Korea to make wigs, not circuit boards.

Park was assassinated in 1979, after which South Korea slowly became more democratic. Nowadays, the country boasts some of the world’s most respected companies, notably Samsung and LG. South Korea now has the combination of political liberty and economic success that people in the West like to think is normal.

South Korea is very different from the country it was in 1960. The easiest way to see how much it has prospered is to look at the women on the Gangnam Style video (despite their objectification as “sexy ladies”). On average young women in South Korea are 20 cm (8 inches) taller than their great-grandmothers a century ago, due to better health and nutrition. It’s the biggest increase you’ll find anywhere in the world.

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