A History of Korea (85 page)

Meanwhile, the war had destroyed some three-fourths of the industrial plants. Rehabilitation programs under both the United States and the United Nations, particularly the
U.N.
Korean Reconstruction Agency (UNKRA), poured hundreds of millions of dollars into South Korea, making the country heavily dependent on foreign aid, not only for defense but also for other expenditures. Foreign aid constituted one-third of the total budget in 1954, rose to 58.4 percent in 1956, and fell to approximately 38.0 percent of the budget in 1960. Scarcely any enterprise in South Korea had independent, private sources of help, as all the aid came through the South Korean government. After 1956, access to this aid was regulated by the ruling Liberal Party, leading to cozy relations between politics and business. As the United States offered mainly agricultural products in economic aid, there was development in the the consumption industry, aptly named the “three white industries,” representing wheat flour, sugar, and cotton. A few entrepreneurs who received preferential treatment from the government monopolized these industries and grew into the
chaeb
ŏ
l
conglomerates. In return for this special benefit, they offered massive political funds to the Rhee government and the Liberal Party.

Inflation, which had been almost continually on the rise since 1945, remained constant throughout the 1950s. The Rhee government took virtually no effective measures to deal with it. With property destroyed and inflation rampant, the formerly wealthier and middle-class families were severely hurt, in many cases completely ruined. Fortunes were made not in production but in speculation,
particularly in foreign exchange, as the legal exchange rate was constantly outstripped by inflation and the government was slow to restore balance. The sale of foreign exchange and the rights for imports became a vast government business, increasingly involving illegal payments to the ruling party and government officials. Because government loans were mainly funneled through the Korean Reconstruction Bank, almost all procurement operations for money or imported goods naturally involved bribery and corruption. In fact, business was no more than an adjunct of the government.

The pre–Korean War economic policies of South Korea were naïve, populist, and undisciplined, and indeed long-range economic planning was not undertaken until Syngman Rhee’s fall in 1960. Unfortunately, Syngman Rhee, a seasoned politician, had little understanding of economics, nor did his officials, which left his administration unable to resolve the economic difficulties. Moreover, for nationalist reasons, Rhee tended to act against U.S. advice.

With the Korean War having completely shattered the South Korean economy, reconstruction began immediately after the 1953 armistice but was hampered by the burden of maintaining a huge armed force.
⁹
Nevertheless, by 1957, the South Korean economy had been boosted by foreign aid and was significantly stabilized. The average annual increase in the
GNP
was 5.5 percent from 1954 through 1958, with industrial production leading the advance. But then the tightening of fiscal and monetary policies in 1958, coupled with the phasing out of the
UNKRA
aid program and the reduction in direct U.S. aid in 1957, caused an overall economic decline. From 1958 to 1960, the ever increasing South Korean political crisis worsened the economy, and the situation further deteriorated as a result of poor crops. Popular frustration at the lack of economic progress contributed in part to a political upheaval of 1960.

The ensuing Second Republic did not succeed in stabilizing the economy, but it introduced for the first time a multiyear economic development plan that helped the succeeding military regime implement its own economic programs after 1961. In the Second Republic a new National Reconstruction Program offered great hope of a speedier reconstruction effort, but this long-range economic plan was interrupted by the military coup of 16 May 1961.

A government-led economic development policy was necessary during the 1960s and the 1970s, because private entrepreneurs lacked the experience or capital to develop the key industries that were needed for South Korea’s economic
growth. The new Park military regime undertook the modernization of the country to gain legitimacy with his own people and with other countries, especially the United States; indeed, he firmly believed that economic development was the only way to secure that legitimacy. Thus Park and his coup associates, under the slogans of “modernization of the fatherland” and “economy first,” committed themselves to rapid economic progress. Park justified political repression and government corruption under the cloak of economic development; the regime’s sole measure of modernization was a high rate of
GNP
growth.

At first Park embarked on rash and ill-advised economic policies based on naïve populism. Eager for immediate success. his regime failed to realize the anticipated results and, instead of promoting progress, caused further economic confusion. The Park government quickly learned from its initial mistakes, however. Based on the Second Republic’s multiyear development planning, on 13 January 1962 it announced the First Five-Year Economic Development Plan (1962–1966). From the start Park tightened government controls over the economic life of the country. For instance, by virtually nationalizing the banks and directly regulating all institutional credit, the Park government extended its command over the business community. It also established an improved foreign-exchange regime and brought the budget under tight control. As a result, the Park regime succeeded in stabilizing the once shaky economy, displaying in the process more energy and effectiveness than any previous
ROK
government.

Amid increasing stability, the First Five-Year Economic Development Plan progressed toward building a self-sufficient industrial structure, stressing electrification, fertilizers, oil refining, synthetic fibers, and cement. In the absence of domestic financial resources, foreign sources had to supply the capital. Foreign debts were to be repaid with earnings from cheap exports based on cheap labor, South Korea’s most abundant natural resource. To attract foreign investments and lower the unit cost of production for exports, the Park regime maintained low wages by every possible means. When South Korea normalized its relations with Japan, the latter supplied an assistance package of $800 million in the form of grants and credits.

As expected, the Park regime’s economic development goals and policies worked well. Opportunely a vibrant, booming world economy invited South Korea’s exports. A well-organized state under the strong leadership that could deploy an educated, able, and extraordinarily low-wage workforce in a targeted fashion was in a position of strong competitive advantage to enter the global
markets. Consequently, exceeding most expectations in achieving the growth of both production and exports, South Korea enjoyed a 4.1 percent increase in
GNP
in 1962 and 9.3 percent in 1963. Thereafter South Korea consistently maintained an average annual increase of more than 8.0 percent in
GNP
growth.

The Second Five-Year Economic Development Plan (1967–1971) emphasized modernizing the industrial structure and rapidly building industries that had formerly relied on imports, including steel, machinery, and chemicals. During the First and Second Five-Year Plans, new and basic industries, such as fertilizer plants, oil refineries, cement factories, and power plants, were built. Infrastructure investments were in roads, railways, water and electricity supply, and communication. The Ulsan Oil Refinery Factory, first put into operation in 1964, the Masan Free Export Zone, created in 1969, and the Seoul-Pusan Expressway, opened for traffic in 1970 all symbolized South Korea’s rapid economic growth that was often referred to as the “Miracle of the Han River.” The annual increase in
GNP
for 1967–1971 was 10.7 percent. During this period, export grew by an annual average of 33.7 percent. These economic achievements were the pride of the Park Chung-hee government.

The remarkable growth rates in this period revealed the inevitable tendency of modernizing societies to exhibit decline in agriculture while manufacturing expands. The primary industry—agriculture and fishery—grew by an annual average of 4.3 percent during 1962–1969, mining and manufacturing by 17.9 percent, and services by 11.4 percent, but the average
GNP
growth rate for all industries in this period was 9.9 percent, with the agricultural and fishery sector’s share of
GNP
decreasing from 39.7 percent to 28.4 percent, and manufacturing’s share increasing from 15.0 percent to 24.6 percent.The speed and mode of this change in the South Korean industrial structure were conspicuous and carried significant social implications. Rapid industrialization brought about the growth of cities and the subsequent drifting of the population to urban centers. Urban development caused many social problems, particularly the growth of slums resulting from mass migrations of the poverty-stricken rural population to the cities. Another feature of South Korea’s rapid economic growth was the striking imbalance that occurred in the geographical distribution of economic development. Major industrial investment was concentrated in Seoul and its neighboring area within the Inch’
ŏ
n-Suw
ŏ
n industrial belt, as well as in the cities of Pusan, Ulsan, Masan, and Kumi in the southeast. The Y
ŏ
ngnam region was the home turf of Park Chung-hee’s political power and was comparatively favored in economic development in return for strong electoral support.
¹⁰

Park Chung-hee’s economic development programs resembled those that were seen in the Japanese colonial period. Like the former colonial masters, Park fostered and implemented comprehensive economic programs with top-down management and control of the entire economic life of the country. The process led to a close collaboration between government and business leaders and industrial expansion by the major chaeb
ŏ
l conglomerates.

Until the 1960s South Korean society had been overwhelmingly rural, with most Koreans supporting themselves through farming or fishing, and few ever venturing farther than the nearest market towns, which were not much larger than their home villages. By 1970, however, society had undergone profound changes, especially in rapid urbanization. Park Chung-hee’s industrial policies in the 1960s gave rise to mass migrations of rural Koreans to the cities in search of jobs and opportunities. The 1960s thus witnessed the explosive growth of Seoul, as well as Pusan, Taegu, and Inch’
ŏ
n, along with new manufacturing cities including Ulsan and Kumi. In a single generation, South Korea tipped from an agricultural, rural nation to an industrial, urban nation, profoundly modifying social structures and values, as well as behavior. The mass influx of people into cities led to the collapse of traditional values based on life in rural communities matched by the rise of new urban values throughout the nation. Although the shifting of the workforce to urban areas was an engine of economic growth, it drained human capital from the farms, exacerbating poverty in rural areas and permanently decreasing the number of young people in those areas.

The transformation of primarily rural South Korea into an urban society had already begun in the 1950s. The Korean War had brought about the mass movements of refugees and the depletion of the youthful population by military conscription. The war itself exposed South Korean youth to modern society, technologies, and new world outlooks. The war also resulted in the growth of a large officer corps that later became an increasingly significant social group. These changes in urban and rural life continued after the armistice in 1953, as increasing numbers of rural dwellers left their villages for the new urban environment and government price controls on farm products, designed to maintain low food prices and low wages in the large urban labor pools, made it unprofitable to operate small farm plots.

In the 1960s increasing poverty caused a surge in the rural exodus to the cities, with young females, mostly teenagers, seeking to work in light industries such
as apparel, textile, shoes, and electronics, and young males, often the eldest or smartest son, seeking a better education. Urbanization increased by an annual rate of more than 4 percent during the 1960s and the 1970s, and continued at a 3 percent rate annually in the 1980s. The population of Seoul more than doubled during the 1960s, from 2.5 million in 1960 to 5.5 million in 1970, and other major cities such as Pusan, Taegu, and Inch’
ŏ
n also grew dramatically. In 1970 the inhabitants of Seoul accounted for some 18 percent of the total Korean population of 31 million.

Distinctive regional features began to emerge in the capital, such as the appearance of numerous restaurants offering regional specialties and the emergence of electoral districts that produced bloc votes for presidential and National Assembly candidates from the same province as many of the district’s residents. As urban living standards improved, citizens expressed a strong desire for their children to be educated, particularly at secondary schools and institutions of higher learning. Those with higher education found better job opportunities in the cities, especially Seoul, and were soon absorbed by the rapidly growing industrial and commercial sectors. Joining the ranks of the expanding middle class, a higher portion of better-educated people resided in Seoul, the center of the nation’s political, economic, and cultural life. As beneficiaries of the rapidly expanding economy, much of the middle class was content with its situation and was indifferent to Park and his politics. But opposition to the Park regime grew among students, intellectual activists, and highly educated persons dissatisfied with their less well-paid jobs.

Rapid urbanization also further complicated the problems of housing, transportation, sanitation, and pollution inherent in urban life, which, in turn, generated other social problems. Life was hard for most city dwellers, as most of those newly arrived from the countryside were without jobs and would not be able to find work for several months. Most of the newcomers’ jobs were the “3D” (dangerous, dirty, and difficult) occupations with low wages. Even though the newcomers assembled in transient squatter settlements and slums, they still appeared to be better off than their rural counterparts, as they had better educational opportunities, which encouraged even more rural citizens to move to the major cities.