Political Science

South Korea (hereafter Korea) is a prime example of one of the resilient economies that grew from poverty to riches and continues to face challenges in its ways. It has witnessed various cycles and incidents, yet, still remains a strong economy.  Korea developed with strong, fundamental policies that led to its being counted as one of the countries of East Asia that saw Miracle Growth.  By 2005, it had become the fourth largest economy in Asia with GDP per capita of US 16,000 (Harvie and Pahlavani 2006)

Koreas economic development began with the surrender of Japan in the Second World War in 1945 that brought with it the end of Koreas colonization era.  However, the Korean peninsula is divided with North Korea within the Soviet influence and South Korea being in the sphere of US influence.

It is argued that one reason for Koreas emergence as an independent nation could be due to the influence of US ideologies that contributed to its early strategic policies and agenda.  The ideological and economic thought wars prevailing at the time between Communism and Capitalism led Korea to choose its path with a mix of state role and capitalism that proved fruitful for its development.
The rise in terms of economic growth and development came through the vision of the military dictator Park Chung Hee.  Parks main goal was to make Korea independent of the assistance of US and to build an economic and regional independent state. It was this particular vision that military under Parks rule turned to economists and intellectuals to build a structural framework that would ensure development of the country. The Economic Planning Board was formed in 1961 (Country Studies US). The Board developed strategic Five Year development Plans that were to see that rise of Korea as a developed nation. It is to be noted that various developing countries did follow this pattern of creating Five Year development plans, yet, only a few saw the growth like Koreas.

The first strategy that was enforced was the decision to use foreign aid from the US during the 1950s to build an infrastructure that included a nation-wide network of primary and secondary schools.... across the whole country (Country Studies US). This particular strategy of creating human capital became the backbone of a successful industrialization process. The strategies set for industrialization were kicked off by a well-educated labour and investment in infrastructure. One critical point to be noted in the case of the development of industries is that the state followed a mix policy of protectionism, import substitution and export-led growth.  According to Rodrik (1995) by the late 1950s, Korea had exhausted the easy stage of import substitution. Thus, once that stage was exhausted and the timing was realized, export-oriented growth policies were adopted.  The policy was backed up by preferential treatment in obtaining low interest bank loans, import privileges, permission to borrow from foreign sources and tax benefits (Country Studies US).  Once the industry matured, it was the state that worked in creating the conditions for its exports. Income taxes were reduced for businesses and entrepreneurs, exemption from tariffs for raw materials and accelerated depreciation allowances (Hyundai Corporation) all set the stage for an export-oriented growth. In return, the businesses realized their competitiveness in the world market and they used up idle capacity and the demand for investment in new manufacturing arose.  It is believed that during the 1970s Seoul had the worlds most productive economy and it was the manufacturing sector providing the main stimulus, growing by 15 -21 (Country Studies US).

However, Rodrik (1995) argues that it wasnt only the export-oriented policies that led to the rise of Korea economic development. Rodrik (1995) argues that the interventions by the state came at the right time and there were other factors that allowed Korea to reap the benefits of development. Firstly, it had a well-educated human capital which made it productive. Secondly, there was a relatively equal distribution of income and wealth which was critical in economic growth. The absence of large inequities gave several advantages firstly, the government was insulated from the pressure of large interest groups and was free to intervene. Secondly, the historical equities of income and wealth gave the leaders free time to focus on economic goals and keep a close eye on the bureaucracy (CEPR 2000). Thus, the policies enforced were favoured by the initial conditions of the country that led to its rapid rise. Yap (2000) contends that government spending of Korea is an example of how allocations can be strategically used without undermining the democratization processes. 

However, like all the economies, Korea has seen its own share of crisis. Korea saw a shift in development strategy in 1970s due to adverse side effects of the earlier policies which included sectoral imbalance between light and heavy industries, light industry exports began to weaken highlighting the need for new exportable products, the gap between domestic and export businesses widened (Harvie and Pahlavani 2006). In addition to these problems, came the inflation pressure, increased budget deficits, but most importantly, insecure investments that were made without sufficient analysis of their feasibility that led to bankruptcies of major industries.
 
By 1980-89, the economic policies shifted towards stabilization and liberalization emphasizing trade and financial liberalization, and allowing foreign investment. However, the measures made the country more vulnerable to rapid transfers of hot money and the existence of deregulation without state monitoring set the stage for the 1997 financial crisis. The financial crisis also engulfed other countries of East Asia such as Thailand and Malaysia. The collapse of exchange rate is blamed for the crisis, but, it is argued that the diversification and reckless expansion of the conglomerates in Korea without taking productivity and profitability into account played a role in the financial crisis (Fathom 2000).  The financial crisis led Korea to agree to a bail-out package of US 60 billion and most of its policies were to reform the corporate and financial sector at the behest of IMF. The growth rate returned to 6 by 2000-2004, yet, again in 2002-2003 there was a credit card bubble that led to an economic downturn. The downturn was also due to emergence of China as an increasingly important trading partner.

The interplay between Korea and globalization has remained complex partly, because globalization has its own challenges and partly, because of the cultural and political environment that Korea has remained in over a period of time.  It is argued that the democratic state continues to face tensions with industrial conglomerates, labour and a combative civil society (Fathom 2000). On the other hand, with China emerging as a major global power and trader in the international world, Korea faces tests in terms of its industrial production and exports, which has the capacity to filter the effects on the economy through various channels such as employment, production of goods, consumption, quality of goods, and productivity of the labour. The current financial crisis has added further to the test as the world faces deep recession. Korea will have to implement strategies that combat the side-effects of the current crisis without destabilizing its own economic growth. The rising oil prices and the weak dollar are also playing their role in the global economy. The oil prices will have an impact on Korea as the country relies heavily on oil for industrial production.

Korea is a strong model for developing countries in terms of achieving growth through growth and sustainable economic policies. Although it remains to be seen how Korea will handle such a crisis and the course of its growth and development. Yet, it is for sure that Korea will survive and re-emerge as one of the advanced and strong economies of the world.