The Tale of Two Koreas

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The Tale of Two Koreas

• Tomá Dudá

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History of the Korean Peninsula

• China, Russia and Japan were fighting over the
  power in Korea, the result was a destruction of
  Korea an poor conditions for development
• China was superior to Korea and represented an
  important source for culture, technology and
  knowledge. Also China protected Korea and claimed
  to be it's older brother

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History of the Korean Peninsula

• Periods of relative peace were filled by internal
  conflicts between local noble families fighting
  for more influence and greater power
• Poor conditions for farmers- high payments to the
  government, corrupt administration
• Isolation
• Korea has been annexed by Japan in 1910 and it
  regained its independence only in 1948
• Dark period of Korean history strong
  suppression of the national culture by the
  Japanese occupants

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History of the Korean Peninsula

• In 1948 the northern part of the country declared
  its independence under the leadership of Kim
  Il-sung
• Subsequently - Peoples democratic republic of
  Korea invaded the southern part of the peninsula
• The war ended in standstill the peninsula is
  divided along the 38th parallel

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• Thus begins the story of two Koreas
• the story of two economic and political systems
• the story of prosperity and poverty
• the story of human development and suffering

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Republic of Korea (South Korea)
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The Korean miracle

• 60's
• GDP p.c. 85 USD
• Export 30 mil. USD
• Unemployment 20
• Population below poverty line 40
• huge inflation
• social tensions

Today GDP p.c. 20,000 USD Export 379.6 billion
USD Unemployment 3.3 Population below poverty
line 15 Slovakias GDP 13,893 USD
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Miracle on River Han
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Miracle on River Han

• South Korean development went through 6 phases
• Classical import substitution (1963-1966)
• Labor-intensive export-led growth (1967-1972)
• Heavy industry promotion (1973-1978)
• Stabilization, liberalization and economic
  maturity( 1979-1996)
• Financial crisis (19971999)
• Reform, restoration of growth (1999-present)

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Park Chung Hee the man of the change

• In 1961 an peaceful military coup led by Park
  Chung He was carried out. At the beginning of his
  rule even Park could enjoy the assistance and
  generosity of the USA - 70 of the military
  spending was financed by USA
• Park managed the country through a group of
  military officers
• He removed the corrupt civil servants and
  military officers
• Soon the Parliament was dissolved and any
  political activity was banned.
• Censorship and press constrains were introduced

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Park Chung Hee - the man of the change

• apolitical technocrats were largely involved in
  managing the country
• private businesses largely supported Park. These
  were implementing Parks export-oriented policy
  and were rewarded by tax forgiveness, cheap
  credits, government guarantees on foreign
  credits, investment incentives
• An important momentum in gaining support from USA
  was the war in Vietnam,
• South Korea was the main ally and biggest
  supporter of USA (sending 300.000 soldiers)

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Chaebol the Key of the Korean Success

• Park nationalized all the Korean banks
• Reinforced the system of chaebol
• a few specially selected large companies
• encouraged to tailor their growth and production
  targets to meet government objectives
• dependent on those state-owned banks for the
  credit they needed to operate and grow

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Chaebols - the Key of the Korean Success

• A conglomerate of many companies
• companies hold shares in each other
• concentration of national economy
• does not have own financial institution
• spreads across industries
• has centralized structure and control
• tends to be family-based

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Parks Legacy - A Strong State

• state controlled virtually all economic
  activities in South Korea
• government approved all bank loans
• granted licenses for virtually all businesses
• controlled many prices
• copied much of the Japanese model
• with a heavier emphasis on political and military
  influence in running the economy

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Export promotion

• The administration made exporting into a national
  campaign, almost a patriotic duty.
• export producers were given priority in
  investment decisions, credit allocations, and
  other benefits
• strategy of forcing domestic consumers to
  subsidize exports
• Korea Traders Association (KOTRA)

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Regime change democracy and free market economy

• Democratization
• Deregulation
• land use (1990)
• import liberalization (1992)
• open stock market to foreigners (1992)
• open domestic capital market (1994)
• deregulate loan financing in foreign market (1994)

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Crisis in South Korea 1997

• chaebol crisis (bankruptcies)
• financial crisis
• credit rating downgraded
• exchange rate of won
• stock market
• economic crisis
• economic growth rate and GNP per capita
• unemployment rate

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Democratic People's Republic of Korea (North
Korea)
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Dear Leader and Great Leader
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Basic Facts

• One of the most secretive, paranoid and isolated
  regimes in the world
• Data from North Korea are inaccurate and
  suspicious
• Population approx. 23 million
• GDP/C - 1,900 USD in 2007 (PPP)
• GDP growth - -1,1 in 2007
• Population below the poverty line - ????

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Economic development

• At the end of World War II, the DPRK represented
  the industrialized part of the Korean peninsula.
  Under Japanese colonialism, heavy industry, water
  power, and manufacturing were concentrated in the
  North, contrasted with the more agrarian south
• The new country adopted a classic communist
  economic regime
• After the Korean war the first three year plan
  was adopted

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Economic development

• Similar to other communist countries due to heavy
  industrialization the economy grew rapidly in the
  50s and the 60s
• Juche policy - "spirit of self-reliance"
• The growth rates began to decline in the 70s, but
  still in 1976 the GDP p.c. equaled the GDP p.c.
  in South Korea
• but from that year South Korea gained ground
  rapidly

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Collapse of the communist bloc Collapse of the
economy

• Main problem Loss of Russian aid, export
  markets and cheap oil
• Technologically outdated and inefficient economy
• Collapse of central planning
• Natural disasters continuing droughts and
  floods
• Collapse of agriculture hunger

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Songun - Military First policy

• Was introduced by Kim-Jong-Il after the death of
  his father in 1995
• a revolutionary idea of attaching great
  importance to the army
• Songun emphasizes the military over all other
  aspects of state and society
• In line with this policy North Korea spends 5
  billion out of a gross domestic product (GDP) of
  20.9 billion on the military (estimate) and
  maintains the 5th largest standing army in the
  world
• What good is this world without North Korea?
• Kim Jong-Il

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Famines in the 90s

• Main factors
• unsuitable terrain (80 of the land is not
  suitable for agriculture)
• economic mismanagement (bad crops selection
  rice and maize and over-fertilization)
• serious fertilizer shortages
• collapse of the eastern bloc
• series of natural disasters (due to deforestation
  and soil erosion)
• Results
• estimated 1-3 million deaths between 1995-1999
• in 2006 studies said that 7 percent of children
  were severely malnourished and 37 percent were
  chronically malnourished
• recent study of the Peterson Institute for
  International Economics shows that a new famine
  is highly probable

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Reforms announced in 2002

• Establishment of special economic zones (near the
  border with China and close to South Korea)
• increases in prices and wages
• changes in foreign investment laws
• steep currency devaluation
• limited increases in flexibility and
  responsibility for economic enterprises

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The Two Koreas - Comparison

• South Korea
• Index of economic freedom 41st position
  (moderately free)
• Human development index 26th position
• Global Competitiveness Index 13th

• North Korea
• Index of economic freedom 157th position
  (repressed)
• Human development index not included (no data)
• Global Competitiveness Index not included

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Night Image of the Two Koreas After Five Decades