South Korea: Miracle on the Han River
The housing boom in China aftermath the 2008 global financial crises is speculated to bring another turmoil in global economy. The housing prices are rising tremendously with an average 1,000 square foot apartment in Shanghai going for $725,00. Although this price isn’t surprising for locals in London or New York but what one should divert attention to is the price-to-income ratio.From being one of the poorest countries in the world with per capita income of 164$ in 1960s to hosting 1988 Summer Olympics, entry to wealthy OCED , it is indeed nothing less than a miracle. The Korean War which perished 20% of its population and damaged property by 25%, we will explore the Korean recipe for economic development.
Japanese and American factor
Korea was a Japanese colony between 1910 and 1945 subjugated to enormous economic and human exploitation. It experienced phase of industrialization and economic growth under colonial rule but the profits were enjoyed by Japanese inhabitants of Korea. However, during the very same period some large companies like Samsung were founded which later became the centre of its economic development. US military government cleared land reforms and introduced concepts of market economy along with provision of massive loans and foreign aids. All this initial conditions played crucial role in long term.
Rise of chaebols and import substitution
In 1961, a military coup led by Park Chung-hee overthrew the ruling Democratic Party. Park rejected America’s advice of developing small and medium industries and instead focused on chemical fertilizer, cement, iron and steel, etc. His government provided funds and loans which encouraged big companies to take risk and invest in heavy industries. Thus, monopolies was established in which big conglomerates or the so called “chaebols” like Samsung, LG, Hyundai were in forefront. It increased employment and also industrialized nation. Park’s motto of “treating employees like family” was highly effective, South Korean worker’s productivity was 2.5 times that of their American counterparts. In the mid 1970s, South Korea successfully invested in heavy chemicals, with a strategy of import substitution. With government backing heavy industries, electronics and steel industries flourished. In 1996, it entered OCED and graduated from developing economy.
South Korea’s per capita income crossed 20,000$ mark in 2006 and growth has been staggered since then with the current per capita income of 26,000$ raising fear of “middle income trap”. Along with some political disturbances and underperformance of chaebols, growth from last 5-6 years has been between 2-3%.While the chaebol helped make South Korea an economic success story, many politicians and investors argue that the system is a cultural relic poorly suited to the 21st-century economy. Citizens are also increasingly questioning the consolidation of wealth among a handful of families and the stifling effect they’ve had on small businesses and start-ups. However ,recently there has been major change in Korea’s political functionality and the new government is expected to take tough stance against the rising chaebol scandals and get the economy back on track.