South Asia & Far East

The Miracle of South Korea

Even though we do not examine history in detail, although South Korea has been stuck regionally between China and Japan for two centuries, it proves how South Korea is a struggling country. When we look at the recent history, the Korean peninsula as of the 20th century had a tough struggle against the Japanese invasion from 1910 to 1945. These struggles were not the end, and when the Japanese left the lands, the Soviets occupied the north of the 38th parallel in 1945 and the US occupied the south, the Koreans found themselves in a new struggle. While the whole world was afraid of a third world war again, the Korean War that started in 1950 ended with the Panmunjom Armistice Agreement signed on 27 July 1953 after a tough struggle that lasted for 3 years.

After the Korean War, the Korean peninsula was divided into North and South Korea. There was only one nation back divided into two, weakened and economically collapsed. They then tried to recover the remaining debris in both countries. In both countries, the wrong positioning of aid funds, state corruption, political impotence, and the threat of a war that could happen again were totally negative for domestic and foreign investors. However, South Korea began to grow rapidly after the 1970s and today has experienced one of the greatest economic transformations of the last 60 years. How did this happen?

Before the 1970s, South Korea made two major changes that contributed greatly to its economic development. The first was the rapid expansion of education. Until 1960, 96% of all children of primary school age attended school. As a result, South Korea had the best educated workforce in the 1960s compared to a country equivalent to income. Another change was land reform after the war. They turned the peasants into small entrepreneurial farmers and made investments in land and schools. Thus, thanks to the capital and initiatives driven by the stability brought to rural areas, they have made successful progress in trade, industry and education.

Then, the South Korean state turned towards economic growth with the development of five-year economic plans, re-orientation of the economy to export-oriented industrial development and credit controls over the giants. An Economic Planning Board was established to better drive economic growth. The state nationalized all commercial banks and reorganized the banking system to control the credit system. Many historians see the First Five-Year Development Plan as a point of economic development. As a result of these, the rapid growth of South Korea’s economic growth rate exceeded 8.9 percent.

Following this successful experiment, the Second Five-Year Plan in 1967 and 71 focused on attracting foreign investors to the country and improving the basic infrastructure. The Foreign Capital Induction Law exempts foreign managers from income tax and thus the process of investing in the country was accelerated. Another important breakthrough was South Korea’s focus on technical skills. In 1966, the state established the Korean Institute of Science and Technology and succeeded in taking its economic development to an advanced level.

In the 1970s, investors continued to be supported with the desire to become autonomous in the economic and political sphere. In 1973, six industries were targeted: steel, chemistry, metal, machinery, shipbuilding and electronics. In the decade from 1972 to 1982, steel production increased fourteen times. The state-owned Pohang Iron and Steel Company (POSCO) operated the largest steel production complex in the world. In the 1980s, South Korea became the world’s second largest shipbuilder, with a reputation for quickly and timely completing orders for new ships. South Korea has become a major borrowing country to finance not only new investments but also large infrastructure projects such as expanded power generation, telecommunications, port facilities and roads. In 1986-1988, it saw the highest GDP growth rates in the world, which was 12 percent annually, and the economy continued to grow by an average of 7 percent until 1996.

In 1996 the country became a member of the Organization of Economic Cooperation and Development (OECD). After the 2000s, they have continued to grow at a lower rate of growth, but still maintain their position as a developed country compared to many other countries. Today, South Korea’s most famous companies are struggling with other countries in global competition. Even though this is difficult for South Korea at the moment, their involvement in global competition, maintaining both economic and diplomatic relations, sets an example as a South Korean miracle compared to other underdeveloped countries.

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