Economic miracle of South Korea

1
Economic miracle of South Korea

• Dr. Kristiina Korhonen
• Center for Markets in Transition

2
The basic hierarchy of East and Southeast Asian
economic development
Japan the first non-western country to
industrialise Newly Industrialised Economies
(NIE) South Korea, Taiwan, Hong Kong,
Singapore Industrialising ASEAN countries
Malaysia, Thailand, Indonesia, the Philippines,
Brunei, Vietnam The Peoples Republic of
China The least developed countries North
Korea, Laos, Cambodia, Myanmar
3
GDP per capita in 1995 and 2006 in selected
Asian economies
Source Statistics Finland 2008
4
Debate on the explanations of economic success

• The Cultural Argument
• The Liberal Argument
• The Governed Market Argument

5
Cultural argument the role of Confucianism

• in the 1950s, Webers classical study
• economic success in the West based in the
  relative strengths of Protestant culture
• backwardness of the East Asian countries based on
  Confucianism
• in the 1970s, cultural-sociological approach
  positive connection between Confucianism and
  economic activity

6
Cultural argument role of Confucianism in South
Korea

• social homogeneity and national harmony
• ascetic values of Buddhism (cf. protestant work
  ethic)
• Confucianism Korea is often regarded as the most
  purely Confucian society in East Asia
• the East Asian man self-cultivating, follows
  the rules, respects and preserves social
  relations, desired for education, works for the
  government and the country
• resulted growth-first policy - even at the cost
  of democratisation

7
Cultural argument criticism

• differentiation of East Asias economic
  development from that of the West
• traditional forms of Confucianism have waned
• Confucianism has both positive (eg effective
  networking) and negative (eg nepotism) influences
  on the economic development
• the politicised debate on the Asian values in
  contrast to Western values

8
Liberal argument the flying geese model

• explains how East and Southeast Asian economies
  initiated their industrialisation strategies in
  tandem
• based on outward orientation and minimal role of
  the government
• focus on foreign trade, foreign direct
  investment, and technology transfer

9
Liberal argument the flying geese model (cont.)

• a traditional country starts as an exporter of
  primary products and an importer of simple
  manufactured goods,
• it becomes an exporter of the simple manufactured
  goods,
• it starts to import more sophisticated industrial
  products, and
• finally, it starts to export the advanced
  products

10
Liberal argument criticism

• Japanese view to the economic development of
  Pacific Asia
• attempt to justify Japans economic presence in
  the region
• the V-formation of flying geese has not become a
  straight-line pattern (Japan is reluctant to
  transfer its high technology to other nations?)
• in the Southeast Asian countries, the economic
  development has differed from that of East Asia

11
Governed market argument the state direction

• the East Asian governments have gone far beyond
  the rules of the free market economy
• state policy as the single most important
  determinant of the East Asian miracle
• the state led the industrialisation drive in
  order to achieve the social and economic goals

12
Governed market argument centralised planning
system
13
Governed market argument role of government in
South Korea

• military dictatorship in 1962-1987
• presidential democracy
• strong state direction until the late 1990s
• centralised administration and top-down
  administrative decision-making
• Economic Plannig Board (EPB) in charge of broad
  national planning
• characteristics typical of socialist planning
  mechanisms

14
Governed market argument criticism

• democratisation has challenged the government-led
  development
• liberalised policies, market competition and
  private initiative have replaced government
  intervention
• dependence on the world economy