The Korean Economy System – The Miracle on the Hangang River
The Constitution of South Korea stipulates that “the right of property shall be guaranteed for every citizen.” In short, the country has adopted the market economy system, respects individuals’ and businesses’ right to conduct free economic activities, and guarantees the profits and properties made and accumulated by them.
However, the Constitution does not guarantee the limitless, unfettered pursuit of capitalistic free economy. The Constitution stipulates that an unjust situation should be rectified if the abuse of capital is found to cause damage to people as an apparatus set to improve things relating to the free market economy. South Korea has achieved economic growth at an unprecedented speed. Observers called what the country has accomplished the “Miracle of the Hangang River”, as most of the country’s industrial facilities were destroyed during the three-year-long Korean War, and the country was devoid of capital and natural resources.
In the early 1960s, the country pushed ahead with export-oriented economic development plans. At first, the country’s major export items were mainly light industrial products manufactured in small factories, or raw materials. In the 1970s, the country invested in heavy chemical facilities and laid the basis for the export of heavy industrial products. At present, the country has a number of industries that boast solid international competitiveness, such as the shipbuilding, iron/steel, and chemical industries.
The foundation of such strong competitiveness was built around that time. The country is now leading the semiconductor and display sectors. The country hosted the 1988 Seoul Olympic Games, which provided the country with the momentum to join the ranks of semi-advanced countries. The international mass media called the country one of the four Asian tigers, along with Taiwan, Singapore, and Hong Kong. In December 1996, the country became the 29th country to join the OECD, which is largely composed of advanced countries.
South Korea’s exports, which amounted to only USD 32.82 million in 1960, surpassed the USD 10 billion mark in 1977 and reached USD 495.4 billion in 2016. The country’s GNI per capita was a paltry USD 67 in 1953 around when the government was established, yet reached USD 29,745 in 2017.
South Korea gradually established an export-oriented economic structure centered on large businesses in the process of pursuing growth as a country with insufficient capital and resources. Conglomerates came to dominate industry, while the country’s economic structure became heavily reliant on exports and imports, leaving it susceptible to external conditions.
In November 1997, a foreign exchange crisis hit the country, forcing it to turn to the IMF for a bailout. It was the first ordeal the country had had to face after years of rapid economic growth. The country took the drastic step of driving poorly performing businesses out of the market and then pushed ahead with industrial restructuring. In only two years, the country regained its previous growth rate and price levels as well as a current account balance surplus. In the process, some 3.5 million people joined in the campaign to collect gold to help the government repay the fund borrowed from the IMF. A total of 227t of gold were collected. The world marveled at the Korean people’s voluntary participation in the determined effort to repay its national debts.
While making concerted efforts to extricate itself from the foreign exchange crisis, the country benefitted from certain ancillary effects, such as the adoption of the globalized economic and financial system. However, the restructuring process also had its dark sides. The government’s fiscal expenditure increased and the income imbalance deepened.
After overcoming the economic crisis, the South Korean economy continued to record solid growth. The country’s GDP more than tripled from USD 504.6 billion in 2001 to USD 1,616.4 billion in 2017, the 11th largest total in the world. In fact, during the period 2008-10, when most of the world was experiencing a devastating financial crisis, the country recorded an amazing 6.3% economic growth rate. The world’s major mass media organs referred to the country’s accomplishment as a “textbook recovery”.
By 2010, South Korea had emerged as the world’s 7th largest exporting country. From 2011 to 2014, the total volume of the country’s exports and imports stood at over USD 1 trillion for four consecutive years. Trade volume retreated in 2015 and 2016 but rebounded to the USD 1 trillion level in 2017. South Korea’s foreign currency reserves amounted to USD 389.3 billion in 2017, and the country’s short-term foreign debt ratio stood at 30.8% as of the end of June in 2017, which sits around the middle range among G20 countries. The country’s sovereign credit rating has been at a stable level.