Economic Prosperity of South Korea

In this post, I want to summarize the key ideas from two forum threads and two articles that provided answer to the forum question, “Why is South Korea so successful?”  I think the attribution of the primary cause to the “meteoric rise” of the economy of South Korea is the central contention in this question. Is the economic success of South Korea really the product of government’s intervention? Or is it the work of the free market?

Collaboration between the Government and the Chaebol

The initiator of the first forum thread acknowledged the limitation of his knowledge concerning the history and status of Korean economy. He is so concerned about the question for refuting the mainstream story about Korea’s economic miracle due to government intervention would provide a strong defense for the free market.

The first responder identified the vital role of the ties between the “chaebol” and the government explaining Korea’s economic success. Such ties started during the regime of Park Chung Hee (1961-1979) where the government recruited the “chaebol” to boost the national economy through industrialization and giving priority to export industry. The government is capable to provide the necessary huge funds for the “chaebol” to accomplish these economic ends through the nationalization of banks of Korea. The “chaebol” enjoyed special privileges from the government by receiving huge loans with low interest rates. This deprived medium-sized enterprises to avail of necessary capital. All of this was made possible by inflating the money supply.

However, the dominance of the “chaebol” was greatly affected due to two critical changes – the end of Park’s regime and the financial crisis in the late 1990s. South Korea now is looking for economic alternative to “chaebol” system since 1999.

Result of US Intervention on Korea’s Economy

The second thread deals with a difficult subject. It is about the impact of US intervention on Korean economy. One thread contributor recognized the difficulty of the subject for dealing with speculation and alternative history are difficult to avoid.

The dominant sentiment in the thread is that simply describing South Korean economic explosion as the total outcome of US intervention is a distortion of the picture. This is because the story of North Korea is intentionally left out. It appears to me that the picture closer to reality is that US intervention actually results both to economic prosperity of South Korea and economic poverty of North Korea. So basing on this second thread, the answer to our central question about the economic development of South Korea is closely connected to US intervention.

An Experimental Period

The third link is more focused on the situation in North Korea. However, I choose to limit my comment on the data concerning South Korea.

The writer, Tim Swanson, identifies that the situation in South Korea is still under experimental period between two ideological forces – pure socialism and relatively free market. Historically, South Korea “flirted” with dictators, but still the free market has survived for five decades. The economic miracle of South Korea is a product of neither the ideal libertarianism nor pure capitalism. If my understanding is correct, the writer is saying that Korea’s economic miracle is an outcome of the combination of these two forces. Moreover, the writer predicts that the free market will triumph over socialism in the end.

Chaebol Using the Government

The fourth answer came from George Reisman. He refused to buy the mainstream story about the economic success of South Korea attributed to government intervention. To him, accepting the mainstream story is tantamount to biblical miracles like raising the dead person to life or the virgin birth. In his mind, the New York Times actually reported the result of a defiance of an economic law, which is impossible to happen. Instead of uncritically accepting such misleading report, Reisman offered a different story. He saw the real cause of the success of South Korea’s economy from the fact that big businesses used the government for their own ends.

For Reisman, the story of big businesses using the government is not new. This has been happening in the US and similar scenario is also true in South Korea; the “chaebol” dictates the decision of the government. Two quotations from Reisman’s article support this assertion:

“The same principle of businessmen using the government for their own ends undoubtedly applies …to every other case of alleged government responsibility for the economic success of a country.”

“It’s sign of the corruption of our culture that today, businessmen feel the need to hide behind the mantle of corrupt ideology and pretend that what springs from their fundamentally life-giving self-interest comes instead from the government, the agency that can give only destruction and death.”

Answering our central question about the economic prosperity of South Korea, we came up with four different but interrelated answers. The chaebol’s collaboration with the government, American intervention, an outcome of economic experiment between socialism and the free market, and chaebol using the government are the answers we gathered from the two forum threads and two articles taken from Ludwig von Mises Institute.