A History of Korea (75 page)

The Republic of Korea was formally inaugurated on 15 August at a ceremony in Seoul attended by General Douglas MacArthur. General Hodge officially proclaimed that the USAMGIK would be terminated at midnight on that date. Unable to eliminate the economic damage done by Japanese colonial rule, the new government was faced with the pressing task of reconstructing the bankrupt economy left by the chaos of the three-year post-liberation period. These, along with various other problems, were too demanding a task for a new and inexperienced government.

The course of events in southern Korea brought a prompt response from northern Korea. On 9 September the North Korean government led by Kim Il-sung was officially established as the Democratic People’s Republic of Korea. The two mutually hostile regimes refused to cooperate with each other, even though at least a working relationship between the two governments was necessary to develop a viable economy in either state. Each state saw itself as the only lawful government of all Korea. Nevertheless, the permanent division of Korea was now an accomplished fact.

The division of the Korean peninsula into the U.S. and Soviet occupation zones in August 1945 further aggravated already serious economic problems. Even if the Americans had arrived with a carefully considered economic plan, the situation would have been difficult, as the Japanese had developed Korea’s economy only as part of their empire, with little for Korea’s economic welfare. When liberation came in August 1945, therefore, many inherent problems stood in the way of building a self-sufficient economy in southern Korea. Most of the natural resources, particularly mineral resources, heavy industry including fertilizer
production, and electric power generation were concentrated in northern Korea. Southern Korea, in contrast, was the food basket and center of the textile and other light industries.

Although trade between the two zones was essential for a viable economy in each area, it was already severely reduced even before the Korean War of 1950. Along with the lack of electricity, the problems were further complicated by the near absence of managerial and technical skills and capital resources. The main source of electricity for both zones was the Sup’ung Electric Plant on the Yalu River, but on 14 May 1948 northern Korea cut off the power supply to its southern neighbor, depriving it of more than half its already inadequate electric power. As the Americans repatriated Japanese holdovers to their homeland in the months following their military occupation, almost all the factories and mines vested in the Military Government as enemy properties were left without managers, technicians, and capital. The inevitable result was high levels of unemployment and severe shortages.

The U.S. Military Government, aided only by complete faith in free private enterprise, removed all wartime economic controls. Hoarding, speculation, food shortages, and massive inflation followed. As the Military Government rescinded Japanese controls on rice, the attempt to establish a free market resulted in disaster. At the time Korea was not yet in an economic stage of development capable of successfully adopting a free market system. The immediate effect of the free market policy was a steep rise in the price of rice, resulting in hoarding and speculation. Moreover, despite a bumper harvest in 1945, maldistribution of food led to food shortages and hunger in the cities. The rice-based South Korean economy began to suffer from severe inflation, and a black market grew and prospered to the point where, lured by high prices, rice disappeared almost entirely from the free market and flowed into the black market. Through its free market policy, the Military Government lost the main strong point of the South Korean economy—its ability to extract large surpluses of grain—and caused, instead, spiraling inflation in early 1946 and a general economic breakdown.

The disastrous shortage of rice in southern Korea caused U.S.-Soviet relations to deteriorate. From 16 January to 5 February 1946, the Americans and Russians held a joint conference in Seoul to consider administrative and economic matters of mutual concern to American and Soviet military authorities in Korea. Whereas the Americans favored complete administrative and economic integration, the Russians sought only an exchange of goods, with one fixed goal in mind—to secure southern Korean rice for the hungry population
of northern Korea. Clearly the Russians believed they were being deceived when the Americans professed at the conference that southern Korea was experiencing a severe rice shortage, for only a short time earlier the Americans had announced that there was a surplus of rice. The Russians concluded that the Americans were intentionally undermining the Soviet administration in northern Korea by preventing the use of surplus South Korean rice to alleviate the critical food shortage in northern Korea. All that northern Korea wanted was rice, and the Americans did not have it. It was over this essential issue that the conference stalled and ended in failure.

The U.S. Military Government was flooded with complaints and petitions from Koreans demanding that price controls and rationing be resumed and that it act promptly to stop the rice hoarding. As a result, by February 1946, the Military Government had not only rescinded the free market but had also ordered rice rationing. Indeed, the rice shortage was evident throughout the country, and people everywhere thought, spoke, and wrote of only one thing—food, which meant rice to Koreans. People were generally confused, frightened, and uncertain. The food situation was so serious that in the summer of 1946 the Military Government began to worry about the possible appearance of the “rice communists,” who might agitate a revolt among the hungry population. During March 1946 demonstrations were staged in several cities in protest to slim rations. Massive starvation was averted only by U.S. emergency relief under the Government Aid and Relief in Occupied Areas (GARIOA) program, intended to avert disease and unrest that might threaten U.S. forces. The receipt of U.S. grains made it possible to gradually increase rations; from 1945 to 1948, $400 million in aid was given to southern Korea, 90 percent of it in food, clothing, fuel, other consumer commodities, and fertilizer.

The deteriorating food situation forced the Americans to revive the old Japanese rice collection system. Because black-market rice was 7.6 times higher than the price of collected rice, farmers wanted their rice sold on the black market rather than collected by the Military Government. The farmers’ reluctance to comply with rice collection led the Military Government to enforce it by all means necessary.

The collection of grain, particularly rice, was carried out throughout the period of U.S. military occupation, and collection results improved as the years passed. The non-farming population was put on rations; non-farmers received individual ration cards, drew their rations at a ration station, and made payments according to the price of rice set by the Military Government. The number
of ration recipients was roughly 6.9 million in 1946, 8.5 million in 1947, and 9.6 million, or some 48 percent of the total population, in 1948. The average daily ration per person was 1.2
hop,
or 630 calories, in 1946; 2.3 hop, or 1,228 calories, in 1947; and 2.4 hop, or 1,236 calories, in 1948. Because the actual ration fell short of the minimum ration (2.5 hop) promised by the Military Government, Korean consumers had to make up the difference through the black market. The price of rice on the black market was usually 5.25 times higher than that of rationed rice, and therefore Korean rice consumers had to struggle against hard times. At the time, expenses for the staple food amounted to 30 percent of the total living expenses for a household.

The socioeconomic situation was complicated by the repatriation of the Japanese, along with their managerial and technical skills, and a huge inflow of Koreans from former Japanese territories and from northern Korea. The U.S. Military Government sped the evacuation of the Japanese from Korea. At the time of liberation there were some 2 million Japanese on the Korean peninsula with about 700,000 in southern Korea. About the same number of Japanese refugees had fled south from northern Korea to avoid persecution by Soviet troops. Roughly 400,000 Japanese troops in Korea were disarmed by American and Russian forces, and many Japanese soldiers who remained in the Soviet occupation zone were sent to forced labor camps in Siberia. All the Japanese in the U.S. zone were repatriated to Japan in an orderly manner.

At about the same time, of the more than 2 million Koreans in Japan, about 1.5 million were repatriated and some 600,000 chose to remain in Japan. At the end of World War II, 1.4 million Koreans were still in Manchuria, 600,000 in Siberia, and 130,000 in China proper. Of these Koreans, some 500,000 returned to their homeland, making the total repatriated from overseas over 2 million. Most of the repatriated went to southern Korea. Along with these overseas Koreans, by the end of 1947 more than 800,000, most of them Christians, came south over the 38th parallel, producing a sudden increase in the population of more than 2.8 million and creating huge problems, including massive unemployment.
¹⁵

As industries became paralyzed, their production was no more than 10 to 15 percent of the pre-liberation potential by the end of 1948. Moreover, southern Korea was exposed to severe inflation when the Japanese recklessly printed money before their surrender. As defeat in the Pacific war was impending, the Japanese, in an atmosphere of hysteria, flooded their colony with paper money. This excessive issue of paper currency was also designed to buy protection. In June 1943 a billion Bank of Chosen yen notes had circulated in Korea; on 6
August 1945, 4 billion notes were in circulation throughout Korea. By October 1945 7 billion or more circulated in the U.S. occupation zone alone. Currency in circulation continued to rise steadily to 18.3 billion in January 1947 and 33.4 billion in December 1947. The newly established Republic of Korea government also issued too many Bank of Chos
ŏ
n notes, amounting to 38 billion w
ŏ
n (formerly called yen) at the end of 1948. Thus, while retail prices rose 10 times higher between August 1945 and December 1946, wholesale prices soared 28 times higher. The average monthly cost of food per person rose from 8 yen before the war to 800 w
ŏ
n (yen) by September 1946, a rise aggravated by the Military Government’s release of controls over grain prices in October 1945. Strikes, demonstrations, and demands for more food were the order of the day.
¹⁶

Serious economic distress led to a rapid increase in crime rates, as many city dwellers, especially refugees and repatriates pouring into southern Korea, stole, operated in the black market, or pimped in the alleys and marketplaces of Seoul and other major cities. Also, new refugees went into the business of illegally seizing “enemy properties” of the Japanese. Moreover, corruption pervaded all classes of society.
¹⁷
Black markets prospered to the extent that some 15 percent of the 1946 rice yields and 24 percent of the 1947 rice yields were channeled to this underground economy. In short, as suggested by the proverb “Hunger makes any man a criminal,” destitution prevented many people from suffering qualms of conscience.

As social chaos added to economic sufferings, southern Korea under the U.S. Military Government was in a difficult situation. South Koreans had led hard lives, troubled by shortages of food, jobs, and all the other commodities needed in daily life.

Despite its mistakes and conservative bias, the Military Government generally acted with diligence and fairness in seeking to accomplish land reform, social and educational changes to promote equal opportunity for women and their full equality with men, and the development of a bill of rights. When Korea was liberated in August 1945, it was still an overwhelmingly agrarian nation. In southern Korea some 74 percent of the total population engaged directly or indirectly in agricultural production. Thus, when the Americans arrived in southern Korea in September 1945, they found a nearly universal clamor for land reform. In early October 1945 the Military Government placed a maximum allowable tenancy rent at one-third of the crop, which proved very popular. Unfortunately,
however, the rent-reduction measure had no effective enforcement mechanism and Korean officials under the Military Government made few attempts to enforce the regulation. Korean landlords widely violated the measure, which was only effective on former Japanese-held lands vested in the Military Government. On 6 December 1945 the Military Government took ownership of all former Japanese properties, including farmlands, as of 25 September 1945. Late in 1945 the Americans set up the New Korea Company which was charged with managing the former Japanese farmlands.

To keep southern Korea noncommunist, the Americans had to improve the existing land tenure system to deflect peasant farmers from the appeal of communal ownership of farms. From early 1946 the Americans directed their attention to the redistribution of farmland, and in February 1946 they drafted a proposal to sell formerly Japanese-owned farmlands to tenants. Unfortunately the execution of the program was postponed indefinitely, as the Military Government decided that, on the basis of several opinion polls, the Koreans preferred to wait for the establishment of a Korean provisional government before proceeding with farmland reform.

As the U.S.-Soviet Joint Commission reached its final impasse in the summer of 1947, the United States decided to establish a separate rightist government in southern Korea. The creation of a southern regime needed firm support from its people, and because more than 70 percent of South Koreans were farmers, the Americans could find no more effective means than land reform to gain the people’s support. Again, in late March 1948, the Military Government announced a program to sell formerly Japanese-held farmland to tenant farmers and to allow tenants, whose holdings did not exceed 2 ch
ŏ
ngbo (approximately 5 acres) to buy their farms. A buyer’s total holdings could not exceed 2 ch
ŏ
ngbo through the land sale. Each piece of land was to be sold for three times its historical average yearly production, and the purchase price was to be paid in the principal crop over a period of 15 years, without interest. Therefore a farmer could pay 20 percent of a normal yield each year and eventually own his land, with title and deed. By September 1948, 245,554 ch
ŏ
ngbo, or 613,885 acres, amounting to 91.4 percent of the total farmland vested in the New Korea Company, had been sold. Unsold farmland was transferred to the newly established Republic of Korea government.