Korea s Economic Development and Its Implications. 27th May 2014

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Korea‟s Economic Development

and Its Implications

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'Miracle on the Han River' refers to

the miraculous economic growth

that has transformed South Korea

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Korean Economic Growth From 1953 To 2013

IMF Crisis

Financial Crisis

1953 1962 1967 1972 1977 1982 … 2013

per capita income($) 67 87 142 322 1,043 1,927 … 24,044

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Korean Economic Growth From 1950 To 2010

1950s 1970s 1990s 1960s 1980s 2000s •Corruption Eradication •Urbanization •GATT •Triple Lows

•Democratization ••Internet Globalization

•Welfare

•Five-Year Economic Development Plan •Export-Led Growth •Light Industry

•Growth with Social Stability and Autonomy •Liberalization of Import •Privatization •Market Opening

•Growth with Venture and IT •Korean War •UNKRA • Revitalizing Reform •Spirit Modernization • Globalization •Social Reformation •Import-Substitutive Industrialization

•Farmland Reform Act

•Export-Led Growth •Heavy Chemical Industry •Saemaul Undong •Strengthen Corporate Competitiveness

•Real Name Financial Transaction System Key Policy Characteristics of Society and Key Policy Characteristics of Society and Economy

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Map of Presentation

Policy & Feature

Era

Chapter Title

1960

1970

1980

1990

2000

•Five-Year Economic Development Plan •Export-Led Growth/Light Industry

•Saemaul Undong

•Export-Led Growth/Heavy Chemical Industry

•Liberalization of Import

•Growth with Social Stability and Autonomy

•Real Name Financial Transaction System

•Strengthen Corporate Competiveness

•Privatization Market Opening

•Growth with Venture And IT

Starting Up

Balancing with Innovation

Sacrifices and Actions

Science and Technology

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Korea, Liberated but had nothing

 August 15th, 1945, Korea is liberated after the end of Second World War

 There were almost nothing in Korean peninsula

40s

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Korean War and Destruction

Ⅰ. Introduction

50s

 June 25, 1950 the Korean War broke out

 In July of 1953 the Korean war ended, the country destroyed into ashes

- S. Korea heavily relied on foreign aids in 1950s The 50% of budget came from AID - Per capita income was $86 which was one of the lowest, 87th_{of the 103}

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Wall by Foreign Aids



Korean government heavily relied on the aids but had

little power

to use them



Korean new government

insisted on building

factories

but the aid country did not agree because

of inflation

Ⅰ. Introduction 60s

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Table of Contents

Introduction

Ⅰ.

Ⅱ.

Ⅲ.

Ⅳ.

Ⅵ.

Ⅴ.

Ⅶ.

Ⅷ.

Starting Up

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Chapter Title

Starting Up

Turning

Map of Presentation

Policy & Feature

•5Year Economic Development Plan

•Export-Led Growth/Light Industry

•Export-Led Growth/Heavy Chemical Industry

•Growth with Venture And IT

Era

1960 1970 1980 1990 2000 Ⅱ. Starting up

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1. Summary

1960s 1970s

• Five-Year Economic

Development Plan, 1962 • Export-Led Growth/

Import-Substitutive Industrialization

• Continuity in 1960s‟ policy

• Turning focus Light to heavy industry

• US Aids reduced

• Few Resources, Fund, Facilities and Human Resources

• World economy recession

• North Korea threat

• US army evacuation Economic

Background

• Consistency and Continuity

• President‟s Initiatives •• Entrepreneurs Training Workers

21(1961)  78(1970) (371%) 95(1971)  643(1980) (677%) Policy Policy Base Perfor mance 82(1961)  255(1970) (311%) 291(1971)  1,660(1980) (570%) GDP(Billion$) per capita income($) Ⅱ. Starting up

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The President took the Initiatives 60s 70s

 The president actively led the plan, accompanied the people at the development site, and chaired in the evaluation meetings

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2.1. 70's Policy

60s

• As a result of US President Nixon policy, the pulling out of US army began. • Then the South Korean government reconfirmed the importance of promoting

heavy industry

Ⅱ. Starting up

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2.2. 70's Policy

70s Making bases for turning to heavy industry

Steel & Shipbuilding Technician Nurturing Industrial Complex Capital Support Ⅱ. Starting up

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3. 70's Policy Base

70s Training technicians

Specialty Machinery _{High School}Tech. Specialized Tech _School _{High school}Regular Number of

Graduates/Yr. 10,000 9,000 6,000 25,000

2nd_{level Certified}

Technician 10,000 9,000 6,000 18,000

Total # of Graduates 50,000

• Technicians and facilities were needed for heavy industrialization

• There were approximately 5,000 technicians in Korea, which was too few to

complete the 5yEDP

• So the government provided unprecedented support

Ⅱ. Starting up

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4. 70's Behind Story

70s „Even one drop, keep it in the drum

“Your urine can produce foreign money”

 It was very common in public toilet in the 1970s

 Due to lack of products to export, people sold

everything from urine to ladies‟ long hair

 Success was impossible without the support of the people

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Map of Presentation

Policy & Feature

Era

Chapter Title

1960 1970 1980 1990 2000

•Five-Year Economic Development Plan

•Export-Led Growth/Light Industry

•Saemaul Undong

Starting Up

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1. Summary of 'Balancing with Innovation'

Ⅲ. Balancing with Innovation

• Success on 1st_{and 2}nd_{5yEDP & Export-Led Growth policy} • Acceleration of village impoverishment

• Saemaul Undong as a new village development movement started in 1970 and turned to national innovation

• Nation-wide campaign and movement

• Balanced development in rural communities contributed to national economic development

Back ground

Policy

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2. Background of 70's Economic Development

Ⅲ. Balancing with Innovation 40s 50s 60s

One More Thing, Reform of Awareness

Thatched House(1893) Thatched House(1969)

 The general circumstance of the rural area was no different from a century ago  Considerable change including establishment of modernized awareness was

essential

No Difference

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3. Policy for Balanced Development

Ⅲ. Balancing with Innovation 70s

Saemaul Undong

• April of 1970, Saemaul Undong was announced for a movement of wealth

• This movement was a philosophy of behavior with fundamental confidence of “We can do it”.

• Result: Household Income from $255.8 in 1970

to $2,227.2 in 1999

“Diligence” -근면 “Self-help” -자조

is the spirit of putting eyes afar, getting thoughts broadly, and doing action firmly.

is the spirit of doing my work by myself; realizing that my fate and future depends on myself, and doing the best in my efforts.

“Cooperation” -협동

is the spirit of believing in the power of unity. It is the spirit that cares for others first and encourages each other, and that shares with and help each other and "work and get over together hardness.

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1. Summary of 'Sacrifices and Actions'

Ⅳ. Sacrifices and Actions

Environments

Policy Sacrifice

Action

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2. Environments

Ⅳ. Sacrifices and Actions 60s 70s

Oil Shock twice(1973, 1979)

1940 1950 1960 1970 1973 1974 1979 1990 2nd_Oil Shock $1.90 $11.58 $36.83 Unit: $/Barrel OPEC Founded 1st_{Oil Shock} Source: SLI,BP

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3. Sacrifice

Indemnity Compensation, Export of Labor Force, Deep-Sea Fishery

• Considerable sacrifices for stacking foreign exchange

1965 „Indemnity Compensation‟ from the Japanese Colonial Rule

Individual compensation of $500 million was used to build

Pohang Iron & Steel Co.

1963 Export of labor force - Mine workers and Nurses

1965 – 1975 Total of 115.3 million $

1969 Deep-Sea Fishery

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4. Key Policies

Ⅳ. Sacrifices and Actions 70s

Middle East Construction Self- Sufficiency

of Food

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4.1. Key Policies -1

KOTRA(Korea Trade Promotion Agency)

 Korea selected policies that focused on external trade for economic development  KOTRA was established to provide support in facilitating export at a national

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4.2. Key Policies -2

GTC(General Trading Company)

GTC had privileges such as priority in international bidding, requirement relaxation in importing raw materials, permission to local L/C and specialty in export financing

20 40 60 80 100 120 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 GNP(Nominal),Billion $ Export by GTC,Billion $

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4.3. Key Policies -3

Building Up Industrial Park

 The major export items were wigs, sewing, and toys

 To concentrate on production, the

government constructed industrial complex, Cluster (1965)

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4.4. Key Policies -4

Self-sufficiency of Food

 To reduce food

imports, various breeds were developed to

produce large amount of harvest

 As a result in 1971,

new rice of 17% yield more was developed 94,7 86,2 76 _75,8 ₇₄ 75,9 79,1 81,7 74,2 85,8 75,5 69,6 65 75 85 95 105 1966 1971 1973 1975 1977 1979

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4.5. Key Policies -5

Entering Middle-East Construction Market

 Oil Shock gave big cash to the middle east countries

 To get a golden chance, Korean construction company took part in

expanding the infrastructure

 Korean workers made a miracle under an inadequate and unfamiliar desert condition

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5. Result

Exceeding 10B$ Export in 1997

• The plan of 1970 was to export $5.4 billion by 1980

• In 1972, the government changes the plan to $10 billion. This was a goal possible with 25% annual growth rates

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1. Summary of 'Science and Technology'

60s 70s

Ⅴ. Science and Technology

Science and Technology

• Policy for promoting science and technology started in early 1950s • In preparing the economic development plan in 1960s, science and

technology strategy was also included

• Administrative support, establishment of structured system such as institute and laboratory are executed in schedule

• KIST(Korea Institute of Science and Technology) has considerably

contributed to Korean economic development

• Reckless technician training plan and program were forced

• Amount of R/D in Korea ranks second in the world after 2000s

Back ground

Policy

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2-1. Background

50s

Aid turned to loan

Internal Competitiveness AID

Waste

Science and Technology

Investment

Economic

Development

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2-2. Background

60s 70s

Nurturing Technicians

• The majority of the skills heavily relied on foreign nations.

• Structure for science and technology promotion was settled • Technicians were on the top of training list

Winners at the International Vocational Training Competition(1977)

Asia Car Manufacturing Factory(1970s)

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3. Key Policy Case

60s 70s

Establishment of KIST(Korea Institute of Science and Technology)

 In January 1966, KIST was built with aid from USA, taking a central role as the

first comprehensive research agency for the promotion of the nation‟s economic growth and the modernization of engineering fields

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4. Policy Base

With persistent Promotion of Science and Technology

National R&D Investment Amount and Ratio to GDP

Amount(Trillion Won) Ratio to GDP(%)

 Investment on science and technology does not give a direct effect, therefore

it becomes a pending problem for many countries

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1. Summary of 'Turning'

Background Environments Relevant Activity Activity Purpose

 From development to Stability and furthering to Welfare

 Boom in virtue of Triple Low (Oil price, Exchange & Interest rate)

 Introduction of the

real-name financial system

 Constructing of Advanced and Transparent Economic System

 Financial Crisis by early popping champagne  Moral Hazard  IMF

 Restructuring and Advancement

 Overcoming National Economic Crisis

Economic Restructuring while overcoming crisis

Government Enterprise

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Ⅵ. Turning

2. Environment : IMF Crisis

90s Financial Crisis

 Although implementing economic transparency, corruption and negations

were prevalent

 When foreign exchange holdings showed its bottom, the government borrowed

money from IMF. Big restructuring began Signing for Borrowing money

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Ⅵ. Turning

3. Activity & Result

90s National Movement for restructuring

 The entire nation joined to rebuild the collapsed economic pillar

 People took gold from their vaults and deployed “Anabada” movement, which is

Korean abbreviation of Save, Share, Exchange ad Re-use  Anabada: Save, Share, Exchange and Reuse Things

Movement for Gathering Gold (1998) GNI per person(1997-2006) Loan pay back with 4 years

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2. Background

Small outside but Firm at the core

Industry

Change of the Employee for each company type

SME accounts for 86.8% of workers And 99.9% of number of business firm

Large Company

 The role of big biz. was massive in the economic growth of S. Korea

 Armed with entrepreneurship spirit, the small to mid size business filled the

vacancy of large businesses.

 Small to mid size industries influence many aspects of economic activities by creating jobs in the local community

U

nit:

P

ers

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3. Policy for SME

“Minor Enterprise Act”

Ⅶ. Small and Medium Industry Export (1970s) Technology (1980s) Venture (1990s) Innovation (2000s)

•Legislation on modernization of SME •Amendments in fundamental law of SME

•Policies to protect SME business •Opening SME Administration

•Drastically increased budget support •Bail-out program as a result of financial crisis

•Promotion of innovated SME

•General and structural policies of SME •Strategic accompanied growth with SME

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4. Result

SME, Doing Important Role in Economic Development

Industry

Number of Corporate

Large Company

SME

 Since 1990s the importance of small-medium sized business started increasing.

 Below statistics show that SME business is the future growth engine Number of Corporate

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Table of Contents

Introduction

Ⅰ.

Ⅱ.

Ⅲ.

Ⅳ.

Ⅵ.

Ⅴ.

Ⅶ.

Ⅷ.

Starting Up

Small and Medium Industry Closing

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We, Korea was same

Ⅷ. Closing

There were times when children begged American soldiers for chocolates, homeless and thieves were overflowing on the streets,

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Environment Change makes always crisis

Ⅷ. Closing Is it Crisis or Risk? No It's a Chance

危

機

(

Risk) (Opportunity) + Human and Resources

 Environment always changes up and down

 In the East, crisis embeds the meaning of both risk and opportunity  In order to change risk to opportunity, resource is needed. Creation and

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Summary of Key Success Factor

Ⅷ. Closing 5yEDP, Focusing and Saemaul Undong

(경제개발 5개년 계획-Plan, 집중-중공업 & 희생- Do, 새마을운동-Spirit

5yEDP

 The 3 key success factor of Korea‟s economic development in 1970s can be summed up as the 5-year Economic

Development Plan(5yEDP), industry policy centered around on exports and big

business(Chaebol) and Saemaul Undong that rooted modernized mindset

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Key Success Factors

Ⅷ. Closing

IF YOU WANT TO GO

FAR GO TOGETHER….

 The historic and current economic

situation of your nation will vary greatly from that of the past South Korea

 Korea‟s economic experiences cannot be applied to all situation

 Resources to support economic growth +

understanding leadership and

environmental factors + willpower = overcome hardships

 Regardless of any era, place or race, one

thing is for sure – if the nation work together as one, nothing is impossible

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Thank you

United Nations

Korean

Reconstruction

Agency

Korea s Economic Development and Its Implications. 27th May 2014