The truth about Korea's economic miracle

Cantus/Wikimedia

South Korea GDP (PPP) evolution from 1911 to 2008 in millions of 1990 International dollars. Source: Angus Maddison

Article Highlights

  • Nicholas Eberstadt's thoughs on Troubled Tiger by Mark Clifford.

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  • Troubled Tiger fills in some of the blank pages in the story of South Korea’s so-called economic miracle

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  • Troubled Tiger is more informative about the earlier phases of Korea, Inc. than about its more recent years--a curious inversion

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Troubled Tiger: Businessmen, Bureaucrats and Generals in South Korea
By Mark L. Clifford
M. E. Sharpe, 357 pages, $55/$19.95

Since 1960, South Korea’s economy has grown by something like 1,500% and its per-capita income has risen nearly eightfold. While foreign observers have had no difficulty recognizing this dazzling record for what it is, they have generally been rather less adept at explaining this nation’s extraordinary performance.

"While foreign observers have had no difficulty recognizing this dazzling record for what it is, they have generally been rather less adept at explaining this nation’s extraordinary performance."--Eberstadt, Nicholas

Even astute analysts have stumbled badly on the Korean economic terrain. Milton and Rose Friedman, for example, once attributed South Korea’s economic success to its "relying extensively on private markets," while blaming the "economic stagnation and political repression" of other Asian states on central planning. Like many Western writers they were apparently unaware that the military rulers who governed South Korea in the 1960s, ’70s and early ’80s had nationalized the country’s banking system, promulgated detailed five-year plans for the local economy and presided over a legal system in which contracts between private parties were anything but binding.

The outside world’s peculiar ignorance about the workings of the South Korean economy has many causes--not the least of these being official "slander against the state" strictures, which were only recently relaxed under civilian rule. Mark L. Clifford’s superb Troubled Tiger: Businessmen, Bureaucrats and Generals in South Korea (M. E. Sharpe, 357 pages, $55/$19.95) fills in some of the blank pages in the story of South Korea’s so-called economic miracle. For years after World War II, Mr. Clifford writes, most foreign experts took a dim view of this impoverished, agrarian ex-colony’s economic potential. Why the sudden take-off after prolonged torpor? Mr. Clifford gives much of the credit to Gen. (later President) Park Chung Hee, an extraordinary and complex historical figure, who masterminded a military coup against an ineffectual civilian government in 1961 and was assassinated by his own hand-picked intelligence chief in 1979.

As a youth Park had served with the Japanese Imperial Army in Manchuria, where he had seen military-led development firsthand. Once in command, Park and his circle rapidly implemented their "Manchurian model" of development. They took over the banks, set up an Economic Planning Board and established a huge police/intelligence structure. But, much as he distrusted Korea’s business magnates, Park nevertheless knew he needed them for the rich country and strong army he wished to build.

In a startling strategy, he arrested two dozen of the country’s top business leaders and threatened to confiscate all "illegally" amassed wealth. Park’s strike was a warning, not a massacre: The millionaires were soon released and were allowed to keep most of their money. But the rules of the new game were clear: Guided capitalism was in--and corporations that helped the government fulfill its industrial ambitions stood to prosper. A highly effective modus operandi emerged in which giant business conglomerates, or chaebols, leveraged to the hilt and nourished on cheap government credits, served as shock troops; micromanaging technocrats at the EPB and other ministries functioned like an office corps; and the Blue House (Seoul’s presidential residence) handed down battle strategy.

In Mr. Clifford’s convincing analysis, however, this "economic miracle" remained a problematic venture throughout its dizzying ascent. For one thing, the distorted, hyperleveraged Korean corporate economy was extremely vulnerable to downswings in the business cycle. For another, the dirigiste thrust of official economic policy has become ever more expensive and questionable. In 1990, the South Korean government authorized a $10 billion stock-market purchase program (to keep prices on the Seoul exchange high and local investors happy).

"Troubled Tiger is more informative about the earlier phases of Korea, Inc. than about its more recent years--a curious inversion"--Nicholas Eberstadt

But perhaps the most serious structural problem has been corruption. Lacking anything like a Western rule of law, the South Korean economic machine is lubricated by coerced bribes, reciprocal favors, extralegal payments and what are delicately called "quasi-taxes." In a rapidly modernizing country, such practices dangerously undermined the legitimacy of Korea, Inc. Almost nobody in Korea itself believes the mantra--repeated endlessly at the World Bank and in Western economics departments--that theirs is a highly egalitarian economy. Troubled Tiger is more informative about the earlier phases of Korea, Inc. than about its more recent years--a curious inversion, since Mr. Clifford covered Korea for the Far Eastern Economic Review from 1987 to 1992. But he steps into the future with a warning. "Opportunity is slipping away," he writes, "because of Korea’s hostility to free flows of capital, people and ideas. . . . Why does Korea want to stick with a poor man’s version of the Japanese model when even wealthy Japan is enduring a wrenching restructuring?" In Mr. Clifford’s view, the need to reform is all the more acute because South Korea still must face its toughest test: reunification with North Korea.

Nicholas Eberstadt is the Henry Wendt Scholar in Political Economy at AEI.

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