KIME Mideast Studies

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Date: Friday, March 16, 2001

Place: Conference Hall, Hankuk University of Foreign Studies, Seoul Korea

Organizer: Institute of Middle East, Center for Foreign Studies, HUFS

Co-organizer: Korean-Turkish Academic Society

Ⅰ. Forward

In a broad senses, a modernization can be to define that structural change is advanced generally from all fields of politics, economy, society, culture and sense of value back and the process that it sees creates the life condition which improves from go backwards condition. This case transference term, as the traditional things the fact that the retrogression or underdevelopment does, when advanced or as the modern time sees the fact that it improves, modernization is a possibility as also the process which the traditional society executes in the modern society doing.

Modernization of Korea was propelled the modernization which puts an emphasis in economic development in hopes of the solution of poverty problem as short cut of modernization and met the good results with propulsion of the economic development plan which is started from 1962 years. But the rapid modernization that is centered on economic development gets up a new problem in the Korean society and re-inspection against a modernization strategy is requested. Today Korean economy has many tasks that are realization of the social justice through just distribution of wealth, moral sincerity recovery, removal of environmental pollution due to the industrialization; maintenance of international competitiveness through technical innovation and problem of industrialization is caused by it simultaneously.

This paper aims to examine modernization and Korean economy, economic development and industrialization in Korea, and the success of Korean industrialization and government role in economic development. It also deals with the impact of Korean modernization and problems in the future.

Ⅱ. Modernization and Korean Economy

1. The Definition of Modernization in the Economic Aspect

Modern society is industrial society. To modernize a society is, first of all, to industrialize it. Historically, the rise of modern society has been inextricably linked with the emergence of industrial society. All the features those are associated with modernity to be related to the set of changes that, no more than two centuries ago, brought into being the industrial type of society. This suggests that the terms industrialism and industrial society imply far more than the economic and technological components that make up their core. Industrialism is a way of life that encompasses profound economic, social, political, and cultural changes. It is by undergoing the comprehensive transformation of industrialization that societies become modern.

Modernization is a continuous and open-ended process. Historically, the span of time over which it has occurred must be measured in centuries, although there are examples of accelerated modernization. In either case, modernization is not a once-and-for-all-time achievement. There seems to be a dynamic principle built into the very fabric of modern societies that does not allow them to settle, or to achieve equilibrium. Their development is always irregular and uneven. Whatever the level of development, there are always "backward" regions and "peripheral" groups. This is a persistent source of strain and conflict in modern societies. Such a condition is not confined to the internal development of individual states. It can be seen on a global scale, as modernization extends outward from its original Western base to take in the whole world. The existence of unevenly and unequally developed nations introduces a fundamental element of instability into the world system of states. Modernization seems to have two main phases. Up to a certain point in its course, it carries the institutions and values of society along with it, in what is generally regarded as a progressive, upward movement. Initial resistance to modernization may be sharp and prolonged, but it is generally doomed to failure. Beyond some point, however, modernization begins to breed discontent on an increasing scale. This is due in part to rising expectations provoked by the early successes and dynamism of modern society. Groups tend to make escalating demands on the community, and these demands become increasingly difficult to meet. More seriously, modernization on an intensified level and on a world scale brings new social and material strains that may threaten the very growth and expansion on which modern society is founded. In this second phase, modern societies find themselves faced with an array of new problems whose solutions often seem beyond the competence of the traditional nation-state. At the same time, the world remains dominated by a system (Encyclopedia Britannica, 1994-2000).

Modernization implies an approach toward the institutions, structures, and values of Western society. According to S. M. Eisenstadt, historically modernization is the process of change toward those types of social, economic and political systems that have developed in Western Europe and North America from the seventeenth century to the nineteenth and have then spread to other European countries and in the nineteenth and twentieth centuries to the South American, Asian, and African continents.

Economic growth, defined as an increase in per capita incomes, has been accompanied by an expansion of modern and a contraction of the traditional sector; with increased urbanization, a marked change in the structure of output and employment, increasing literacy, and a decrease in production for domestic use. The employment consequences of modernization in the sense of movement toward the values and institutions of the West, has certain validity. There has been something like a linear, irreversible progression, marked by increase in per capita incomes, urbanization, industrialization, increased literacy, communications, social mobility, and other indexes (Edward S. Mason et al., 1980: 31-32).

Economic modernization, particularly in the early stages of development, requires transformations that are injurious to certain groups, though they may be advantageous to others. An increase in the rate of savings may demand unpopular increases in the level of taxation. A redistribution of agricultural land or changes in land tenure will meet with opposition from vested interests. Changes of this sort are difficult to bring about under any system of government, but they are particularly difficult in a full-fledged democracy. (ibid.: 37-38)

In many, if not most, less-developed countries economic development has been accompanied by a strengthening of the administrative structures and processes through which public policies are formulated and put into effect. The division of labor, the specialization of function, which Riggs characterizes as the essence of modernization, is as evident in public administration as it is in economic organization and the development of social institutions. It would be difficult to deny that the industrial societies of Communist Europe are modern, even though political control is highly centralized. Similarly, the modernization process in the Third World need not move and certainly as yet has not moved clearly in the direction of political democracy. (Ibid.: 39-40).

2. The Changes of Korean Society

Modernization in the societies of the Third World has not, in general, led in the direction of political democracy, and Korea is no exception. The form that authoritarian government has taken in Korea, however, has been powerfully shaped by local circumstances. The invasion from the north in 1950 and the possibility of renewed invasion is considered sufficient justification for maintaining the fifth largest standing army in the world. The size of the armed forces, the government positions offered to retired officers, the sizable fraction of the population that has experienced military service, and the equally large fraction held in readiness for future military service have given a pronounced cast to the society.

Korean Society has also been deeply influenced by the two countries with which it has been in close contact-Japan during the thirty-five years of colonial rule and during the period since 1965 when the transfer of capital and technology has been large; and the United States, whose economic and military assistances has been vital to the continued existence of Korea. Trade relations with Japan and the United States still account for over one-half of Korea's exports and imports, though this percentage will probably decline over time. A second respect in which authoritarian government in Korea differs from that in most other less-developed countries is in the heavy emphasis placed on economic growth as a national objective. Not only has the increase in national income since 1963 been remarkable, but all elements of the population, though not in the same measure, have shared this prosperity. (ibid.: 54-55)

3. Korean Economy in the Process of Modernization

Lee Ho Sik classified the Korean Economy into 9 categories in his writings, Modern Economic Growth in Korea; 1) The era before modern capitalism: - 1876, 2) The first trial to the modern capitalism and the Japanese Occupation: 1876 - 1945, 3) The liberation and the U.S. military governing: 1945 - 1948, 4) Korean War and reconstruction: 1948 - 1961, 5) The military coup and new economic policy: 1961, 6) The plans for the development: 1962 - 1971, 7) The oil shocks and the effects: 1972 - 1979, 8) The redirection of economic policy after the oil shocks, and 9) the newly emerging problems in Korea.

For a long time, before the modern time, Korea had been a feudalism society based on the Confucianism. In the Confucianism, the commercial activity was considered as the humble thing and the merchants were treated as the lowest class of the society. As a result, even though overall Korean culture had been well developed, the economy system was very inefficient.

At the late of 19th century, Korea woke up from the long dream, and started to build modern economy system. Chosun Dynasty arranged the currency system, and the old fashioned paddlers started to build new organizations. Economists think that era as the starting line of modern economy.

But unfortunately, the trial of the modern economy system by Chosun Dynasty failed and the dynasty corrupted by the force of Japan. At that time, Japan had already succeeded in modernizing its social system earlier than Korea and started dreaming of the imperialism and expansionism. Korea was the first shape-goat of the ambition. From 1910 to 1945, Korea was colonized by Japan and the economy was distorted for the favor of Japan. For an example, Korea had to export half of rice produced to the Japan. It means Korean people could consume only a third of the rice they used to before the Japanese Occupation. The only desirable thing, which happened during the Japanese Occupation, was that it destroyed the old feudalism social system.

In 1945, Korea got liberated from Japan. But on the liberation, the U.S.A. and the U.S.S.R. decided to divide Korea, and until nowadays Korea has existed as two Koreas - South and North Korea. The division of Korea caused the economy shock in South Korea because most of electricity and mineral had been produced in North Korea.

From 1945 to 1948, America military government governed Korea. The economy was dependent on the aid of the U.S.A. Up to 1948, the U.S.A. supported grain and cloth of $ 4,300 million. At the period, the whole Korean economy was related with the aid and the economy system is called the 'aid economy'.

But in 1950, Korean War broke out and it destroyed most of facilities and infrastructure in Korea. When it finished at 1953, there was nothing but terrible poverty in Korea. But at the same time, the war made all people equal. After the war, there was no richer nor poorer. Even born as the humble, if he succeeds in business, he could get respected. And the widespreader idea of equality became the biggest advantage of the later development.

From 1954 to 1961, Korean economy system was reconstructed by the aid of the U.S.A. again. Korea could manufacture cotton yard, flour and sugar by the help of the U.S.A. The products were consumed domestically, and that kind of economy is called an import-substitution industrialization'.

1962 is a very important year for Korean economy. In 1961, by military coup, General Park, Jung Hee became president and accelerated the new building of economy. To grow up the economy, he used all means whether the method was moral or not. Since 1962, Korean economy has grown faster than any other countries.

Military government could conduct the policy mentioned above very powerfully. Even though the policy is sometimes blamed because it enhanced the gap between the rich and the poor, it is evaluated as a success and the locomotive of the development.

From 1962 to 1966, the first plan for the development was conducted. The purpose of the plan was to substitute the import of cement, refined oil, and fertilizer with domestic product and to build the infrastructure such as roads, rails, and power plants. During this period, the rate of economic growth was 7.9% and the rate of unemployment got lowered from 8.2% to 7.1%.

From 1967 to 1971, the second plan was conducted. During this period, the goods like the shoes, flying wood, bag and cloth started to export. Those products were competitive in the international market because of the cheap labor force in Korea. Due to these industries, Korea manufacturing industry could grow up to 22% a year and Korea could gain the accumulated capital for further investment.

In 1973, the first oil shock broke out. At that time, Korea started to invest on the heavy industries such as oil refinery, motor and ship building, and the oil shock gave very big damage to Korean economy. But after the first oil shock, Middle Asia got in the boom of construction and Korea became the most beneficiary of the boom. As a result, it was the first oil shock, which gave Korea a chance to organize the industry more efficiently than ever. After overcoming the risk, Korean economy grew by the record-breaking rate.

But in 1979, the second oil shock was proven to be huge disaster for Korean economy. Before the second oil shock, the excessive investment on the heavy industry, the unstable monetary policy and nationwide trend of speculation had been weakening the economy. And the second oil shock aggravated the situation.

In the early 1980s, after the second oil shock, the world economy suffered from the stagflation, and it caused the high rate of unemployment. It resulted in the new trend of the protectionism. To Korea, which was highly dependent on international trade, that trend of protectionism made the economic situation worse.

To overcome the difficulty, the Korean government had to change the priority from the economic growth to the economic stability and it resulted in low inflation of about 6% from 1982 to 1988. The stable economy made export increase steadily and improved the balance of payment. At last in 1986, the export exceeded the import.

Since 1962, the main purpose of Korean economic policy had been focused on the development of economy to escape from poverty. But such unbalanced development has caused many side-effect on the economy and now Korea is challenging the newly emerging problem such as the black market, the gap between the poor and the rich, the unfair taxation, and the lack of welfare system.

Now, Korea is about to join OECD, which consists of the developed countries. But just a few Korean think of Korea as the developed countries. To become a true developed country, Korea must solve the problems mentioned above.

Prior to the currency crisis turned into economic crisis last November, Korea enjoyed the reputation of having achieved the "rags to [near] riches" dream over a mere few decades. Between the early 1970s and 1997, its GNP per capita increased 40 times, from around US$250 to over US$10,000. It metamorphosed from a largely agrarian subsistence economy into a new industrial "dragon". With over US$12,000 per capita GNP as the goal for 1997 prior to the crisis, the "miracle of the Han River" had appeared well established and sustainable. Korea's social indicators progressed with the positive economic indicators. The average life expectancy at birth rose from 60 years in the early 1970s to 75 years in 1997; the infant mortality rate fell from 40 per 1000 live births to below 10 over the same period; the number of people per physician changed from 2,100 to less than 1,200; the primary enrollment ratio reached nearly 100% from as early as the 1970s and it was accompanied by rapid improvements in the secondary and tertiary enrollment ratios for both sexes; and full employment has been more or less the norm. Advance in gender equality has also been notable, especially in policy, legislation and infrastructure terms as well as in employment and related support service such as job training, maternity protection and day care. In the long-neglected environment field, too, serious initiatives have emerged as evident, in part, in the successive upgrading of the responsible government authority from a Bureau (1980) to an Office (1990) and then to a Ministry (1994). While accurate poverty statistics are unavailable, the number of persons eligible for public assistance declined from 2.1 million in 1989 to 1.2 million in 1997. Korea's Human Development Index for 1994-ranked 32^nd among the 64 "High Human Development" countries in the world.

The above economic and social progress was achieved based on twin development strategies: modernization and export-oriented industrialization, supported by the underpinning human resource development and seven successive economic development plans. The most recent "Five-Year Plan for a New Economy (1993-1997)" had sought to achieve competitiveness in the global economic environment through, inter alia, industrial restructuring, market liberalization, financial sector and institutional reforms, administrative deregulation, tariff cuts, development of science and technology, and promotion of entrepreneurial initiatives. The implementation of the Plan was inconclusive, however, due to resistance from vested interests, pervasive mismanagement and inconsistency of policy (Pak Po-Hi, 1998).

4. The Process of Modernization in Korea

Throughout its long history, Korea was secluded from the outside world, particularly the Western world. The country was often described as the Hermit Kingdom of the Orient. This changed in the latter part of the 19th century, when Korea was forced to open its doors to Japan and the Western powers. In 1876 Japan forced Korea to open its ports to Japan by a treaty of friendship Korea signed similar treaties with the US, Russia, Germany, Great Britain, France, Italy and China during the period of 1876 - 1886.

Korea was almost entirely an agrarian economy before the Japanese colonization of 1910. During the colonial era of 1910 to 1945, the Korean economy experienced rapid structural transformation. The structural pattern of this development was largely determined by the Japanese colonial regime. As a result, the Korean economy experienced what is known as colonial enclave industrialization. During this period, the share of manufactures in net commodity-product grew from less than 4 percent to over 20 percent. Japanese colonial rule ended in 1945 with the conclusion of World War II (Il Sakong, 1993; 1).

<Table 2-1> Net Value of Commodity-Product, 1910-1941