Challenging the Validity of the South Korean Development Model: A Social Aspect of Sustainability Perspective

(1)

Ha Soojeong

INSTITUTIONEN FÖR GEOVETENSKAPER

Challenging the Validity of the South Korean Development Model:

A Social Aspect of Sustainability

Perspective

(2)

(3)

CHALLENGING THE VALIDITY OF

THE SOUTH KOREAN DEVELOPMENT MODEL

: A SOCIAL ASPECT OF SUSTAINABILITY PERSPECTIVE

APPLICANT‘S NAME: Ha, Soojeong

COURSE NAME: Sustainable Development

DEPARTMENT: Faculty of Science and Technology Uppsala University, Sweden

SUPERVISOR: Dr Brian Palmer

DATE OF SUBMISSION: 10/DEC/2010 15/FEB/2011

(4)

ABSTRACT

After the severe devastation from the Korean War between 1950~1953, South Korea achieved a complete makeover. The country with the 12^th largest economy in the world commemorated its success by hosting the G20 summit in 2010 for the first time in Asia. Korea is the only country switched its status from an international aid recipient to a donor. The country is known to have a high potential to grow even further with its emerging economy.

Many developing countries in Africa, South East Asia and Latin America declared that they adopted or plan to adopt the Korean development model which is government-driven industrialization nurturing exports. However behind the dazzling skyscrapers, the country is reported to be suffering from a high suicide rate, rising temporary employment, disparity, value crisis and increasing antisocial behaviours.

Based on an analysis of indices, the country is diagnosed to be in anomie. The society is going through moral breakdown due to commodification introduced during the rapid industrialization. Given that society is shaped through a constant reconciliation between freedom and security, Korea has sacrificed its security by letting market freedom override politics, which has to function as a sound moderator, to the point it cannot be controlled.

This paper argues that ensuring the primacy of politics to rein in market freedom is an urgent task. Market needs to be repositioned under society in pursuit of restoring the balance between freedom and security which should work as the basis of the every development agenda. Sound governance and transparency as prerequisites, many countries should establish those before starting to implement a development plan. Restoring community is heightened both as a measure of prevention and cure that it can be started at the individual level.

 2010 Ha Soojeong. All rights NOT reserved.

Keywords: South Korea, development, freedom, security, anomie, sustainability, society, commodification, inequality

(6)

1. INTRODUCTION

1.1 BACKGROUND OF STUDY

Ye shall know them by their fruits. (Matthew 2000, 7:16)¹

Republic of Korea (hereafter South Korea) has achieved remarkable economic development in a relatively short period of time since 1960s. In terms of GDP (Gross Domestic Production) growth, South Korea has been soaring through its industrialization. After the Korean War between 1950 and 1953, the country was at the bottom of the economic ladder and now became to have the 12^th largest economy in the world and shifted its status from an international aid recipient to an emerging donor country ever since the country joined the Organization for Economic Cooperation and Development (OECD) in 1996. The dramatic change has been commemorated by South Korea hosting the G20 summit in 2010 as the first country in Asia.

Inspired by those achievements, many developing countries are showing great interest about the South Korean development model. More than 20 countries in Africa and South East Asia have been sending their delegates to learn the model and ask the Korean government to send the experts to assist them implement the strategies.

It is certainly a very flattering thing for the country but I could not help worrying about the rush to adopt the Korean development model. As a person has lived in the country, I doubt what Korean society achieved through development has indeed contributed to the wellbeing of its people. Behind the sparkling skyscrapers and high GDP, South Korea is suffering from the longest working hour, a high suicide rate, a widening gap between rich and poor, losing community value, corruption and antisocial behaviours.

I felt the urgency of warning before many countries finally recognize that something goes wrong after they implement it. Maybe it is the nature of crisis that we only know it when we are in the state of crisis. We realize it when things, which used to sustain the system, are absent. Therefore precautions need to be issued. A through diagnosis will offer a sound basis for that. This will not only benefit South Korea but also help many other countries, who are declaring to adopt the Korean development model officially and unofficially, not to be misled.

Despite the trend of many developing countries, the assessment of Korean development has mainly been done in a glorifying fashion. At least to the extent that previous studies have dealt with economics, mostly it has been praising the economic achievement with little mentioning about the social and cultural aspects.

Though some made a linkage with politics, there is no established study that examines the country in a holistic way with a socio-cultural and environmental

(7)

assessment in depth with the same degree of emphasis which was upon economy to my knowledge.

Thus, the study, inspired by the quote from the Bible, ‗You shall know them by their fruits‘ will present the taste of fruits of the unprecedentedly fast development of South Korea especially focused on social impact. The study wishes to give a guideline before many countries start bearing theirs.

1.2 RESEARCH QUESTIONS

- Is the South Korean development model sustainable?

- Which is the best theoretical framework to explain the current Korean society and how can it be addressed and related to the identified social problems?

- What should be done first both at the state and the individual level to make the society sustainable?

1.3 AIM OF STUDY

This study aims to undertake an assessment of Korean society in order to see if the country is a good model for many developing countries to ensure a sustainable future. It seeks to scrutinize the history of Korean development so as to be able to discern possible side-effects to the rapid economic and social development that has taken place in South Korea over the past decades.

As stated earlier, the Korean development model is seen as an example by many other developing countries, but there is a risk that actual negative consequences of Korean way of development may occur in many other nations as well. On the basis of its negative findings, the thesis wants to advocate a pronounced inclusion of social protection through restore the primacy of politics, in order to rein in the free and allegedly negative play of market forces, as part of the development paradigm.

The scheme only works when it is well planned by reflecting the local traits. Also it must be executed by determined political leadership. The study earns better understanding about how the country shaped its status quo by recapitulating the country‘s development history. To make an assessment of the present Korean society, the research performed an analysis with various indices ranging from economic growth to people‘s wellbeing. By depicting multi dimensional aspects of the country, it will guide to see if there is any room for refining the Korean development model toward sustainability as well as to give references for many developing countries who want to follow the stairs of South Korean development.

(8)

Furthermore the study intends to explore theories to explain social phenomena to back up the argument which underpins that economic development should come together with the social, cultural consideration based on a sound philosophy rooting in its history. It wants to highlight the importance of social security – implying community values, shared social norms, stability – as much as freedom – nurturing economic growth, competitiveness and diversity – in a serial process of social continuity both with factual data and theories.

The study gives a considerable space to argue that when the society fails to balance freedom and security, society commodify things should not be commodified such as fellow human beings and spirituality. The traditional values and norms start to crash with new material one. This confusion causes a state of anomie where there is a transition of shared virtue and the breakdown of social norms. It is discussed what possible phenomena can happen when people go through this anomie period by replacing the traditional virtue which developed through history, with commodity by presenting relevant statistics and case study. The research wants to highlight a conclusive relation between commodification and increasing antisocial phenomena.

The intrinsic aim of this study is to offer a theoretical and a factual basis for arguing the importance of reconciliation between market freedom and social security. It advocates that the economic growth should not be the sole purpose of development but one element of development. The study provides a comprehensive reference of the present Korean society formed by such fast development focusing on economic aspect only. One wishes to give impartial data or a warning to many developing countries who are considering adopting the Korean development model, especially those who want to have a sustainable future.

1.4 SCOPE AND LIMITATIONS

The study intends to deepen its reasoning by focusing on South Korea. The theories and relevant figures are carefully taken from the verified organization, institutions, news providers and renowned scholars worldwide to make the rationale behind the argument to attain the generality which makes it meaningful to the broader audience regardless the geographical limitation. The most recent date are collected unless one has timeless significance.

Due to the characteristics of social science study, some traits are hardly represented by the statistics. Though the study included case studies and examples, it would be still not sufficient to fully understand the society. It would be more comprehensive if the analysis had done in a more interdisciplinary way. Also the study would have given a keener insight if it had added environmental assessment to underpin sustainability.

(9)

1.5 METHODOLOGY

There are many different methods applied to come to a meaningful conclusion.

Both a quantitative and qualitative information analysis along with contemplation upon established theories helped the serial process; articulating the hypothesis, discerning its validity and extracting the conclusion.

The first phase started with questioning if the Korean development model is universal since many countries are declaring that they started or are planning to adopt the Korean model despite the social, cultural and environmental differences.

It was challenged to examine if South Korean society is good enough to offer a sustainable blue print to the other developing countries.

From the beginning it required an extensive literature review and an assessment of various figures to illuminate the arguments. To understand the reason behind, the study followed the Korean history from the Korean War in 1950-1953 and remarked its development processes. It allowed a recapitulation of the crucial facts which helped to perceive the implications for the present as well as a big picture of the country‘s development history. Overall it was extremely helpful to understand the mechanism of how South Korea achieved such growth and why the country is facing today‘s problems.

Then the country has been examined its status quo through an analysis of various indices covering economic productivity to happiness. Data were collected from international organizations such as the World Bank, the International Monetary Fund, the United Nations and other renowned research institutions.

Indices were carefully selected and other relevant statistics were inserted to support the main argument. To give lucid thoughts for the analysis, several countries were chosen to be referred when it made comparison. The countries were selected as when it has distinct features in indices to give clear picture such as Sweden and the U.S. or significance in the context like Ghana and Pakistan, both known to adopt the Korean development model.

Along with statistics and relevant indices, the research enhances its depth by supplementing it with the case study. Due to the delicacy of social science study, certain types of social phenomena and trends are less likely to be reflected on the official statistics. Therefore, the study included a case study drawn from media source enhanced by personal research which helped to depict the complexity with a penetrating insight. Both statistics and the case study gave a reference to understand the society. Assessing the data from the indices became the backbone of the analysis to formulate the argument and the case study added flesh to it.

The arguments were refined through a theoretical analysis. Relevant theories and academic papers were reviewed and introduced to explain the social phenomena presented by the indices analysis. It identified the signals of social crisis through reasoning. Based on the established theories and the analysis, the paper upholds

(10)

the idea that economy should be included under social arena and emphasizes the role of politics.

In a theoretical analysis, it presents an original graph depicting a theoretical relation between freedom and security which is able to show the movement of society within the coordinates. It also set the hypothetical boundary of freedom and security society can sustain. It gives the theoretical device to look at social continuity in terms of constant reconciliation between two organizing principles of society, namely freedom and security.

Finally the study summarizes findings of the analysis and arguments before coming to the conclusion which highlights that economic development should grow together with social development through seeking the golden mean between market freedom and social protection. It also emphasizes the role of politics as a moderator to rein in market under the society. The paper argues the reconciliation by restoring the primacy of politics. Decommodification and uprooting corruption is an urgent call for ensuring sound governance. Recovering community value is proposed as ground for the further step which each individual can start.

2. ANALYSIS

2.1 BACKGROUND OF SUSTAINABLE DEVELOPMET

Sustainable development seeks to meet the needs and aspirations of the present without compromising the ability to meet those of the future (World Commission on Environment and Development 1987).²

The definition of sustainable development from the report of the World Commission on Environment and Development (WCED) has been widely accepted since its publication. Soon it has been declared as a core principle of many countries‘ development agenda.

Though the report was meaningful as it has ignited the intra-generational equity issue worldwide, it has to be admitted that it lacked the holistic approach as it allocated most consideration to the resource depletion issue. It addressed an urgency underlining that it might lead to the conflict due to the competition to secure enough fossil fuels, water, food and other essential natural resources.

Nevertheless it was definitely not enough to embrace the complexity of sustainability. The concept needed to be articulated by reflecting the socio-political and even ethical factors.

When a country plans a plan for its future, a dynamic perspective in terms of timeframe is substantial. It allows a long term perspective which keeps the country from inclining to short term gaining. To broaden its vision, the concept of

(11)

sustainable development has been developed to have three pillars of economy, society and environment, claiming that each system deserves equal consideration to support sustainability.

Now this ‗three pillars‘ diagram has been challenged by ecological economists with the new diagram depicting three circles subset within one other in an order of economy, society and environment from the center. It is calling forth relationships of necessary and sufficient conditions. By regarding economy as a subsystem of society and environment, economy is a sufficient condition for society and environment. On the other hand for economy, society and environment is necessary condition. This can be understood with the strong sustainability concept which is much stricter than weak sustainability.

CONCEPTUAL CHANGE OF SUSTAINABILITY NATURAL RESOURCES

↓

ECONOMIY- ENVIRONMENT – SOCIETY

↓

ENVIRONMENT > SOCIETY > ECONOMY

Figure 1. Concept of sustainability in ecological economics³

Differing from the old ‗three pillars‘ sustainability concept, these new three circles enclosed within one another implies economy cannot exist solely without society and environment as these are necessary conditions for economy. Seeing market as a subsystem of society rather than a self regulating separate one is not new. It already has been originated by a Hungarian intellectual, Karl Polanyi, back in 1940s.

It is classified that there are four types of capital consisted of natural capital (natural resources), human-made capital (physical or artificial capital built by human being), human capital (health and wellbeing) and social capital (social

(12)

relations, norms and institutions). From the declaration of sustainable development from Our Common Future often referred as The Brundtland Report, it is agreed that we need to preserve opportunities to enjoy those capitals for future generation.

However, under weak sustainability, each capital is replaceable with another as long as it can keep the net amount. Thus it is not necessary to keep all the four types of capital. On the other hand, strong sustainability requires every type of capital to be conserved as one cannot be substituted for another (Shields cited in Herbert 2009).⁴

At some extent, nature might be interchangeable with human-made capital as technology advances, but the stage we are on today is rather insignificant or almost none compared to what nature provide. For instance, fundamental resources like sun light, air, water, soil, biodiversity as well as natural services including purification, renewal and storage can never be replaced with what human can ever make. Namely it is impossible to put the price on our ecosystem as it cannot be purchased.

Nature is not a commodity. This makes the school of ecological economics differ from environmental economics where nature is converted to monetary value.

Besides that, in environmental economics, privatization and pricing environment are regarded as basic solutions to nature degradation. It would not be wrong to consider environmental economics as a side-stream of neoclassical economics as its solutions are not so much different from orthodox economics suggests. Both are market centered and convinced that market can solve the environmental problems by taking them into market system. However this approach to the tragedy of commons is challenged by some political scientists who are questioning the belief about homo economicus, or economic manⁱ which sees humans as rational but self- interested actors.⁵ This political approach advocates community value.

Many people still think that sustainability is all about compromising between nature preservation and development, or even one limit it to energy efficiency which meets another deadlock of the Jevons paradoxⁱⁱ. Therefore it is going to be worth relating the concept of strong sustainability to development studies which claims that every capital should be conserved respectively. This strong sustainability concept will give many countries‘ development agenda a brake.

i The term was introduced by John Stuart Mill in the late nineteenth century. It is defined as ―a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained‖.

ii The Jevons paradox is the proposition by an English economist William Stanley Jevons that technological improvements that increases the efficiency of coal use led to the

increased consumption of coal in a wide range of industries. In general the term refers that technological progress that increases the efficiency of a resource usage rather tends to increase the consumption of the resource (Blake 2005).

(13)

In spite of the recent definition of sustainability which emphasizes holistic approach, social aspect has been neglected under a sustainability umbrella. There are so many cases of compromising social and cultural assets in pursuit of economic development. Many countries make economic growth as a priority of their development and justify sacrificing social values as far as they can develop. This is the exact logic of weak sustainability.

Now there are the attempts emerging to include social aspect into economic and environmental debates. In fact society is ‗the subject‘ to foster and implement the plans. Therefore we cannot solve any problem without considering society.

Bo Kjellen, one of the chief negotiators in environmental issues, heading the Swedish delegation in the Rio process in 1992 and other climate negotiations, claims how important it is to include social aspect onto the negotiation table. He advocates that social aspect should be weighted just as politics and economics by stressing that social aspect becomes crucial when it comes to implementation stage.

The diagram (see Figure 2) showing possible factors to bring sustainability has been introduced. On the diagram social attributes are shielding the center axis with economy and environment as each end.

‗[the diamond]… illustrates the fundamentals of social sciences in dealing with economic, political and social problems. The challenge now is to integrate the social sciences into developing policy focusing on long-term global sustainability’ (Kjellen 1999).⁶ Sustainability stipulates for such ideas of democracy, justice and freedom.

Figure 2. Kjellén Diamond of Sustainability (Kjellén 1999)⁷

(14)

There is no point in arguing that every country wants to have sustainable future.

Targeting economic growth only is not sufficient to be sustainable. It requires a long term perspective which challenges to concern people‘s wellbeing, social trust, happiness, human development and it will be endless to name.

There is no universal model when it comes to development as every country has its own elements and traits that reflect local culture and social inheritance.

Strategic points might inspire some developing countries, but there is no golden rule. One country‘s development agenda should be articulated with its own logicality and subjectivity. If there is a model country which many developing countries are aiming to be like, it should be carefully examined with every possible index to see if it is eligible to guide a way to the sustainable future in advance.

Then again it can only be a reference not the one replicable.

2.2 KOREAN DEVELOPMENT HISTORY

In terms of GDP growth, South Korea has achieved great improvement since the 1960s. The country has the 7^th largest export volume (Yoon 2010)⁸ and its market economy ranks 12^th in the world by purchasing power parityⁱⁱⁱ, yet is categorized to have emerging economy. In addition, South Korea is known to be the only country shifted its status from the international aid recipient to the donor country. The achievement was highlighted when South Korea hosted the OECD summit 2010 first time in Asia.

South Korea has its population of 49 million people with the 21^st of the highest population density. After the Korean War from 1950 to 1953, the country was completely devastated and had almost the same capita with Ghana, and less than Pakistan. Though the country does not have much natural resources, South Korea has one of the highest literacy rate, longest education period, productivity and industrious culture valuing diligence from Confucianism. Altogether it helped achieving rapid development.

After the Second World War, the United States Army Military Government in Korea (USAMGIK, 1945~1948), as the official ruling body of the peninsula south of the 38th parallel dismissed the People‘s Republic of Korea, the already established national government, by force based on the suspicions that the government advocated Communism. The USAMGIK also disregarded the Provisional Government of the Republic of Korea which had a long history as a base of the

iii Among many other versions of GDP indices, Purchasing Power Parity calculation is chosen as it suits better when comparing generalized differences by reflecting the relative living standards rather than just applying exchange rates which might distort the actual differences in income.

(15)

Korean resistance movement from Japanese colonial period. Later on, the USAMGIK played a main role to divide the country into the North and the South by supporting United Nations election.

The provision of the People‘s Republic of Korea wrote:

‗The confiscation without compensation of lands held by the Japanese and collaborators; free distribution of that land to the peasants; rent limits on the nonredistributed land; nationalization of such major industries as mining, transportation, banking, and communication; state supervision of small and mid- sized companies; …guaranteed basic human rights and freedoms, including those of speech, press, assembly, and faith; universal suffrage to adults over the age of eighteen; equality for women; labor law reforms including an eight-hour day, a minimum wage, and prohibition of child labor; and ‘establishment of close relations with the United States, USSR, England, and China, and positive opposition to any foreign influences interfering with the domestic affairs of the state‘ (Cumings, 1981).⁹

Korea would have been very different from today if one of those national governments had established the modern Korean system instead of the USAMGIK.

During and also after the period of the USAMGIK, the United States has expanded its influence on South Korea. The U.S. wanted to keep South Korea as a stronghold of capitalism against communism defended by China and the former Soviet Union.

Since then, two countries have strengthened the ally to stay against North Korea.

The United States Forces Korea (USFK) is stationed in South Korea up to 2011, and has wartime control till 2015.^iv South Korea is the 7^th largest buyer of American defense products in 2009 according to the Pentagon‘s Annual Military Assistance Report (Kim, 2010).¹⁰

Whilst many people credit country‘s makeover to those human factors, scholars emphasizes the role of Korean government during the period of development. In fact the role of the government was very important in the early stage of Korean economic development. The government driven industrialization began in the early 60s with an export encouraging policy along with a currency reform. The early form of industry was manufacturing, mainly labour intensive light industries then moved on to heavy-chemical industries and services. Now it broadens its market power in cutting edge technology and cultural products like movies and TV series.

During the 60s and the 70s, eradicating poverty and igniting economy were the top priority thus the government even held the regular meetings with the heads of business sector to check on what they needed. The government provided bank

iv South Korea was scheduled to take over the right to control its forces in the event of a war in April 2012 under a 2007 agreement with the U.S. suggested by the president Roe

Moohyun. However South Korea proposed to delay a planned handover of ‗wartime control‘

in the event of a military conflict to Dec. 1, 2015 and agreed by with the U.S. in 2010.

(16)

loans at below market interest rates as well as infrastructures required by industries. However, it was not for every industry but some specific favoured ones which fitted the government plan to encourage exports, later bred jaebeol, a South Korean form of business conglomerate.

Fast economic growth over three decades has been accompanied by a very rapid pace of capital accumulation and a strong rise in exports as a share of output. It has helped a shift the dynamic fulcrum of the economy towards industrial activity.

Those may be the general features of East Asian development. Initially the first wave of successful industrialization in East Asia emerged with the rapid dismantling of government restrictions in the immediate post-war period which enabled countries‘ development to approximate a regime of laissez-faire. The higher rates of growth have been achieved through greater allocative efficiency, especially gains from international trade (Akü ze et al. 1999).¹¹

Though the government played main role, it was not like Keynesianism which advocates a large role of government and public expenditure by active policies including fiscal and monetary actions to boom the business cycle. The way the Korean government intervened in economy, was a patron of industry which rather resembles to mercantilism. Mercantilism was the main economic theory influenced Western Europe between the 16^th to the 18^th century. Protectionism – the government nurtured exports with subsidies and discouraged imports with taxation – was the main policy where the similarity rests.

On top of that, the South Korean government organized a nationwide campaign called ―Saemaeul Woondong‖ which means the ―new community movement‖, aiming to rectify growing disparity between industrializing urban area and remained rural area. Though it was a very totalitarian top-down approach, it has been implemented without strong resistance as community value and diligence were inherited in Korean culture. Most of all, people were desperate to build a better future from devastation after the war.

The main idea was to offer raw materials to build up rural infrastructure such as roads, community centers, water systems and bridges in the village by themselves. In spite of the modernization of the village through the campaign, this experimental political initiative could not have stopped the mass migration to cities by the young demographic and increasing poverty among agricultural population.

When South Korea articulated a development plan, the United States had a great influence on the country. Furthermore the U.S government offered many chances to young South Korean people to get educated in the United States. When they came back to South Korea, they took high positions in almost every area of academia, economy and politics. It was natural for them to bench mark how the U.S. system works and consult with their colleagues and teachers in the U.S. when they made a decision. Korean society especially economic system is rooted in the U.S. system by which it shows the similar patterns like severe competition, classified reward system and materialization. However as the country went through

(17)

globalization especially after the International Monetary Fund programme in 1997, interdependency became severe and diversified by lower the barrier in financial and labour markets.

There were many social drawbacks in spite of all the remarkable economic achievement. The priority of government driven development plan was economic growth which undermines human rights, the Labor Standard Act, press freedom and so forth. The government positioned its role as a paternal government which allowed excuses to intervene in private life. Even it was prohibited for men to grow hair by the reason of demoralization. A strict dictatorship used anticommunism propaganda to justify the tight control of people and to eliminate whatever interfering the way of government. Anyone who raised a question or seemed to revolt against the government policy, the government labeled them communists.

Many people who were critical to the government or suspected as a labour agitator were accused of North Korean sympathizers or communist spies, and those were enough reasons to be imprisoned. Often they were exposed to torture and even some got killed. It was an exact reappearance of McCarthyism after 20 years when it hit the United States.

In the 80s, both economy and society went through rapid changes. There were huge social movements supported by a majority. The democratization movement, labour movement, citizens‘ movement were organized by the public and often led by intellectuals. Even teenagers participated and senior citizens showed their supports by covering them. In a way it was an era of social integration by active participation for the one goal toward democracy.

However anyone who involved democratization movement or hung out with people targeted by authority soon had been placed on the blacklist which would follow them as a tag and make them suffer from unemployment and surveillance or even expel. Hong, Sehwa (b.1947) graduated the best school in Korea used to involve in democratization movement when he was in the college. When he went to Paris for a business after his graduation in 1979, the government started to investigate the movement. He could not come back to Korea and sought asylum, worked as a taxi driver in Paris for 20 years before he finally got back to the country in 2002. It is known that there are around 30 more who are not able to come back due to the political reasons.

Among many other democratization movements, the Gwangju Democratic Uprising in 1980 has been known as the most severe one. It has reported that the victims of enforcement of the Martial Law numbered 154 killed, 74 missing, 4 141 wounded (including those who died from their wounds) and placed under arrest.¹² It is regarded as the most tragic and disgraceful event in modern Korean history.

(18)

Some economic cracks started to appear in the late 1990s. The selective industrial policy was like a double-edged sword. There were symptoms of market failure which many of those were side effects of the government active market intervention. The government driven policy was only focusing on economic development by supporting a few chosen industrial sectors with financial benefits and infrastructures. It helped them to be relieved from the pressure of competition which every company was supposed to deal with and let them focus on fast growth only which in return distorted fair market economy.

In spite of high growth of economic indices, this activist government support spoiled the companies by making them less competitive. Companies somehow relied on implicit guarantee which created market distortions in terms of fairness and make them weak to compete in the global market. Under the government protection, jaebeols could easily borrow money from the bank which allowed them to make overinvestment in expending their businesses to the point that the production got out of their hands. By taking the rule of natural selection and fairness out of the market, efficiency and recovery rates had been lowered.

Unsound financial viability was established among big corporations. Such financial structure was of course fundamentally unstable.

However both the government and jaebeols knew that those big businesses fostered by the government were too big to fail since they might have a huge spread effect which gave reasons for bailouts. Ironically it is in the interest of the firms to expand in size, to empire-build so that the possibility of bankruptcy would pose a social threat (Woo-Cummings 1999).¹³ It nurtured moral hazard that endangered both real and financial economy of the country. In return, it caused a currency flow crisis and led to domino bankruptcies. This is the background for the Korean financial crisis of 1997.

According to an analysis by the World Bank in its East Asian Miracle (World Bank 1993)¹⁴, the economic achievement in the region is based on market-friendly institutions, high savings and investment rate, and high human capital formation due to the pierce competition and desire for education. Overall it promoted technical innovation and efficiency. The report acknowledged the positive contribution of government market-friendly policy as what led economic expansion.

The research found free mobility of labour, capital and technology, and the low barrier for companies had played a crucial role by promoting the public qualities of knowledge and technology.

In fact there are common traits when one looks at the background of the East Asian countries‘ economic growth. The state played the essential role in harnessing resources and providing incentives through the political institutions. Both in Japan and South Korea, the primary sources of industrial finance were the state controlled interest rates and bank loans. One can argue that it was an ideal type of an interventionist state that joined private ownership with state guidance.

(19)

Among East Asian countries, South Korea particularly showed a centralized economic bureaucracy which provided pro-business policies. Though the pattern of South Korean economic development has common traits with neighbour East Asian countries such as Japan and Taiwan, the economic achievement of South Korea deserves its credit as the country made a miraculous change from complete devastation after the war.

However critics blamed the combination of lack of transparency, bad governance, high corporate debt-to-equity ratios and vulnerability to moral hazards for fostering corruption and over expansion in industrial sector. Government interference, once regarded as a key to miraculous economic growth, was accused as a causal factor for the crisis. Nevertheless it cannot be dismissed that the model eradicated poverty, turn the country into a competitive player in the international market and raise the standard of living for majority (Hall 2003).¹⁵

Amid all the discussion over the validity of the Korean development model, there were still many challenges left to be addressed for South Korea to overcome. The government between the 80s and the 90s perverted the decisions depending on how much a company contributed to the political campaign. Those types of bribery scandals protruded every time a new cabinet took over but none of them fully served their sentences. When the last two cabinets of Kim, Daejung (served from 1998 to 2003, and the Nobel Peace Prize recipient in 2000) and Roh, Moohyun (served from 2003 to 2008) tried to decouple the government from the industrial patronage, they had to realize that the bondage between politics and industries was too strong to break without triggering another crisis. What is worse is the influence by those conglomerates seems to be out of control of politics.

In 2007, South Korea elected a man from a conservative party, a onetime top executive of the Hyundai group, one of the Korean conglomerates, who declared that he wanted to strengthen a relations with the U.S. through a greater emphasis on free market solutions as well as privatization of public sector.¹⁶

South Korea is reported to have features that are believed to single out its high economic potential. The country is the only one among developed countries classified as one of the Next Eleven (N11)^v owing to one of the most skilled population though the size of population is significantly smaller than the other N11 countries. On the other hand, the country has many tasks to take care of such as longest working hour, high unemployment rate, increasing temporary employment, vulnerability to global fluctuation and many accompanied social problems.

vThe Next Eleven are eleven countries identified to have emerging economies designation by Goldman Sachs as having a high potential of becoming the world's largest economies in the 21st century along with the BRICs based on the criterion of stability, political maturity, openness of trade and investment and quality of education.

(20)

2.3 ASSESSMENT OF SOUTH KOREAN SOCIETY

2.3.1 GROSS DOMESTIC PRODUCT

Although there are many new indices introduced to measure a country, GDP is still a commonly used index to measure the countries‘ prosperity. In terms of GDP derived from purchasing power parity (PPP)calculations which take into account the relative cost of living and the inflation rates of the countries to reflect the differences in standard of living, South Korea ranked 12^th for year 2009 (See Appendix 1). The change of volume of South Korean economy is noticeable especially comparing it to the figure in the 60‘s when the country was one of the poorest countries in the world.

From 1960 to 2009, South Korea showed unprecedentedly high GDP growth except two financial crises. The Figure 3 shows comparison of Korea with three other countries. Sweden, from highly industrialized countries, two developing countries Ghana and Pakistan each from Africa and Asia were chosen. Especially both were the countries showing keen interest to replicate the South Korean development model along with many other African and South East Asian countries.

In the early 60s, three countries of Ghana, Pakistan and South Korea had more or less the same GDP. Actually Pakistan had higher GDP than South Korea up until the early 70s and even South Korea emulated the Pakistani economic plan.

However South Korea started to go ahead making a steep curve of growth of GDP except two global financial hits in 1997 and 2008 whilst the other countries increased gradually. The country‘s GDP soared 214 times since 1960 while Sweden and Pakistan increased 27 and 45 times respectively.

Figure 3. GDP of Four countries 1960-2009 (World Bank, See Appendix 2)

(21)

The main sector of industries evolved from labour intensive light industries like textile in the 70‘s, heavy and chemical industries like automobile in the 80s, electronics and semiconductor industries in the 90s. Then now information technology driven industries have become the main export sector. As the industrial development progressed, the volume of GDP snowballed.

On the other hand, it goes down to 26^th if the per capita rank of the same index is taken (See Appendix 3). The reason for the rank difference between GDP and GDP per capita is explained partly that the country benefits the size of population where South Korea is at 26^th in the List of countries by population (See Appendix 4).

Also the country is challenged to move on to knowledge intensive industry which can create more monetary value.

The reason why many developing countries set South Korea as a development model is mainly based on the growing volume of GDP and its development speed.

The economic achievement South Korea made is miraculous and it certainly alleviated poverty and improved general living condition. The economic performance seems to give the sound rationale to adopt the Korean strategy and it is still worth to trace its progress. Nevertheless it should be remarked that GDP has its own limitation.

Since GDP is defined as the total amount of goods and services produced in a year within a nation, it counts every production into account. It does not differentiate the nature of goods and activities. Even Simon Kuznets^vi who invented the GDP said the welfare of a nation can scarcely be inferred from a measure of national income.¹⁷ The U.S. senator Robert Kennedy pointed out the shortcomings of GDP (GNP in his quotes) in March, 1968 which made no further explanation required to present limitations of GDP measurement. Says:

‗Too much and too long, we seem to have surrendered community excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over eight hundred billion dollars a year, but that GNP – if we should judge America by that – counts air pollution and cigarette advertising and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for those who break them. It counts the destruction of our redwoods and the loss of our natural wonder in chaotic sprawl. It counts napalm and the cost of a nuclear warhead, and armored cars for police who fight riots in our streets. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children.

vi Simon Smith Kuznets (1901 – 1985) was a Russian American economist who won the 1971 Nobel Memorial Prize in Economic Sciences. In his book National Income and Its Composition, 1919–1938 published in 1941 contains a historically significant work on Gross National Product.

(22)

Yet the Gross National Product does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country;

it measures everything, in short, except that which makes life worthwhile.‘¹⁸

Many scholars including Novel Laureates Amartya Sen and James Tobin¹⁹ also pointed out that GDP does not show the wellbeing of people or social development.

Though it still deserves a credit by showing the trend of countries‘ economic growth and sizes, it should not be the index to measure a country‘s prosperity. The GDP of Korea cannot guarantee that Korean society ensures a high quality of life. This is why a growth in GDP cannot be a sole basis to adopt the development model.

2.3.2 DISPARITY

Disparity is one of the major problems that the modern society is facing. A research in the United Kingdom calls disparity the mother of all evils. According to an article which provoked the necessity of reformation of welfare system in the UK, a society with higher economic inequality tends to face more negative social phenomena (The Guardian 2009).²⁰ Another study has found the problems like: low levels of trust, mental illness (including drug and alcohol addiction), worse children wellbeing, teenage births, obesity, homicides, imprisonment rates and low social mobility were more common in more unequal countries (Wilkinson & Pickett 2010).²¹

Countries defending free market theory are based on competition. The system allows the classified wage structure underlining the argument that someone who is doing better deserves more. However, sometimes the difference is considerably huge. In many industrialized countries, economic inequality is regarded to be fair and this economic norm justifies incentives by the belief that it is essential to stimulate better performance. It has been proved through history that most communist country, emphasizing equal distribution, had suffered from less productivity.

Income inequality in countries especially where free market theory is dominant, that means almost every country now, is greater than it has ever been. Statics show the widening gulf between the rich and the poor and it seems impossible for many people to move up the economic ladder today.

As long as the society has a high level of social mobility namely if there is a hope or a chance to move upward, economic inequality would be more acceptable.

However where financial market works active just as real market, money makes money. The problem lies where often income inequality breeds inequality in almost every occasion such as health, education, wellbeing, treatment and social

(23)

connection.²² To make matters worse, it is directly linked to inequality of opportunity which takes chances that one can become the other away.

Higher inequality reduces intergenerational mobility to the extent that it leads to segregation along income lines, resulting in adverse peer effects for children from low-income families (Durlauf cited in Andrews and Leigh, 1996).²³ When inequality between parents increases, intergenerational mobility will fall because it is easier for rich parents to buy their children educational advantages that less well-off parents cannot afford (Burtless and Jencks, 2003).²⁴ In consequences, being rich or being born rich guarantees forestallment. It places them far ahead of the starting line than the most who are less fortunate, against of the rule of fairness.

The Gini Coefficient is a measure showing inequality of a distribution within and between countries. If a country had a completely even distribution of income, the Gini Coefficient would be zero whilst it would be one in case one person had all of the whole country‘s income and the rest of the population had not at all. Since it seems to be unrealistic to have the Gini Coefficient to be zero in a country, countries with Gini Coefficients between 0.2 and 0.30 are regarded to be relatively equal on the contrary countries with Gini Coefficients over than 0.5 are considered to be seriously inequitable.

South Korea‘s Gini Coefficient value for 2009 is 0.33 as in the same range with an average of European Union, Canada and Australia and it has been gradually increased since the 1990s. On the other hand, many developing countries tend to have the high Gini Coefficient numbers. Some African and South American countries show to have even higher than 0.6. The lack of the welfare and distribution system is considered as the reason behind it.

Figure 4. Gini Coefficient (2009, CIA)

(24)

It is reckoned that severe income inequality is a crucial factor of social collapse.

If a society has higher than 0.45 of Gini Coefficient which freezes social mobility, the society would face more antisocial behaviours and negative symptoms.

Reflecting the human history, though it cannot be a single reason, majority people below the mean might become to want a radical change to deal with this inequality through an extreme way.

In terms of income distribution, South Korea is not able to offer the best case.

Since 1998 right after the Korean financial crisis under the IMF programme, the Gini Coefficient started to soar to 0.35. Though the recent Gini Coefficient in 2008 shows 0.33 for the country, there is good reason to understand South Korean society is seriously unequal. The situation in South Korea is worse off than the countries with the similar score in Europe in reality.

According to the latest statistics by the OECD, 31.3 per cent of total employment in Korea is self-employed and this is a double of OECD average, 15.8 per cent. The country‘s self employed population constitutes a quarter of total Korean workforce. Furthermore it is reported that 8 out of 10 shopkeepers close their businesses within 3 years and only less than 10 per cent are profitable.

However, small businesses are not included in the first data by the Korean statistics bureau for Gini Coefficient. Therefore credibility of the Gini Coefficient for South Korea should be questioned as the country has a considerably high rate of self-employment but it is not reflected on the index.

During the IMF programme, the IMF demanded the South Korean government to introduce "greater labour flexibility" meaning elimination of laws that protect workers from layoffs. The job security provisions have been a part of Korean – maybe Asian – traditional economic structure. However the restructuring of economy adopting labour market flexibility allowed employers to be able to hire more temporary jobs than permanent jobs. The OECD statistics also shows that 21.3 per cent of dependent employment in South Korea is temporary employment in 2009 while the average of OECD countries is 11.6 per cent. Moreover the percentage of previous earnings for unemployed person can get is only 9.3 per cent when OECD average gets 24.7 per cent. Both the percentage of temporary employment and low-paid employment has been increased since the country went through the IMF programme.

The flexible labour market policy furthered competition and employment insecurity. A large sum of temporary employees have to bear unfair treatment or poor working condition to ensure their employment contract renewed. It also explains why South Korea has the longest working hour in the world.

(25)

Table1. South Korean Labour Market Outcomes (OECD 2010)²⁵

Unit 1999 2008 2009 2009

OECD-Total

Employment rate % of

working age population 59.6 63.8 62.9 64.8

Temporary employment %

of dependent employment .. 20.4 21.3 11.6

Average annual working

time Hours per worker 2 502 2 256 .. 1 739

Unit 1997 2007 Latest Year

OECD-Total

Unemployment benefits %

of previous earnings .. 9.3 24.7

In consequence, combined with a lack of social safety net, Korean people have few choices but jumping into small businesses which might be the last resort to sustain their living. That is why South Korea has such high rate of self-employment, and a mere score of Gini Coefficient cannot explain income inequality in South Korea.

Forty-seven year old Lee, Soobeom^vii has a good job and enjoys a decent standard of living but he worries if he suddenly gets sick or loses his job. That means he would be very vulnerable as there is no social safety net he could rely on.

A country like Sweden where around 30 per cent of GDP is spent on social programmes offers universal care to make sure no one fall through. Based on the idea of decommodification, social democrats argue that welfare system promote equality, diminish poverty, increase productivity and prevent antisocial behaviours.

Decommodification, suggested by a Danish socio-economist Esping-Andersen, means activities to make labours less dependent on their wage (market) for their wellbeing. In a market economy ‗labor is unable to withhold itself for long without recourse to alternative means of subsistence’ (Esping-Anderson 1990)²⁶ as people and their labour are commodified. The idea became the basis of welfare state which allows welfare services provided – not to be sold – to everyone.

Inequality can be undermined through redistribution if people below the mean are able to benefit from the public welfare system. The figure 5 indicates both public and private social expenditure at programme level covering poverty, senior

vii A journalist working for Hankyoreh Media Company in South Korea.

(26)

citizen, health, unemployment, housing, people with disability and other social areas. South Korea assigns only 7.5 per cent of GDP for public welfare expenditure, second least after Mexico among 33 OECD countries. An average gross public social expenditure across OECD countries is 19 per cent in 2007 and Korea constitutes less than a half of OECD average.

Figure 5. Public and private social expenditure in percentage of GDP among OECD countries (2007, OECD)²⁷

If a country runs many social programmes to give benefits to middle class and people with lower income, it actually functions as wealth distribution which makes society less unequal. Since Korea does not spend much for social programmes, the actual Gini Coefficient might feel much higher in reality.

Another reason that South Korea has high income inequality is because of low income tax rate. A single person with no child at 100 per cent of average earnings pays only 4.17 per cent of one‘s income. Income tax average in South Korea is the lowest among 31 OECD countries except Mexico. Whilst a person with same condition in Sweden pays 18.3 per cent and an average of European Union is 15.44 per cent. One for the U.S. is 14.76 per cent.

What is worse is that South Korean conglomerates are often accused of tax evasion and the amount runs into astronomical figures. Nevertheless they mostly receive a pardon. According to the excuse of Korean government, they are afraid that it might discourage the economy.

Despites criticism of low growth and equal result instead of equal opportunity, a country with wealth distribution and social safety nets have been reported to result Percentage of GDP

(27)

in a lower crime rates, lower poverty levels and less Gini Coefficient value with high GDP.

Inequality is socially corrosive. Acknowledging the provision of equality and its implication, the first thing many developing countries should work on is wealth distribution than growing the pie through development. If the countries pursue economic development without restructuring their distribution system especially those of many with high income inequality, it would only worsen the situation which might threaten social security in return.

2.3.3 HUMAN DEVELOPMENT

The Human Development Index (HDI) is an indicator measuring quality of life in nations. In addition to economic performance as standard of living, the HDI considers the nations prosperity in matters like health and education. Life expectancy is the main indicator for health whilst expected years of schooling for children and average years of schooling in adults over 25 are the ones for education.

The index has a shortcoming as the formula of the HDI is rather simple that it draws the geometric mean of the sum of each normalized subtotal of the three dimensional achievements without applying an elaborative weight system. However it is still valuable to see the trend of countries development as those three subindices can be regarded as fuel for a future of each country.

Countries are grouped into four human development categories or quartiles:

very high, high, medium and low. A country is in the very high group if its HDI is in the top quartile, in the high group if its HDI is in percentiles 51–75, in the medium group if its HDI is in percentiles 26–50, and in the low group if its HDI is in the bottom quartile (UNDP 2010).²⁸

HDI score of South Korea for 2010 is 0.877 classified in the very high human development category, setting the country at 12^th out of 169 countries. Between 1980 and 2010, the country‘s value rose from 0.616 to 0.877 and this high progress allowed South Korea to be ranked 11^th in terms of HDI improvement.

During the last four decades, economic growth, as measured by GNI per capita has increased almost five times which contributed to the most to the progress. Also the rest indices increased gradually: life expectancy at birth by 14 years, both mean years of schooling and expected years of schooling by 5 and 4 years each.

Table 2. South Korea’s HDI trends (1980-2010, UNDP)

Year Life expectancy

at birth Expected years

of schooling Mean years of

schooling GNI per capita

(PPP US$) HDI value

1980 65.7 11.6 7.3 5,911 0.616

(28)

1985 68.2 13.1 8.2 7,989 0.671

1990 71.3 13.7 8.9 12,338 0.725

1995 73.5 14.7 10 17,037 0.776

2000 75.9 15.8 10.6 20,213 0.815

2005 78.6 16.3 11.1 24,689 0.851

2010 79.8 16.8 11.6 29,518 0.877

Korean people have valued education with tradition which is obviously showing on the statistics. Though the HDI value of South Korea of 0.877 is slightly less than the OECD average of 0.879, it is remarked that South Korea is higher than average in both mean years of adult education and expected years of schooling compared to the OECD average and similar range countries like Sweden, Japan and France, which had ranked 9, 11 and 14 respectively.

However when the index is adjusted by taking inequality into consideration to discount all subindices according to the country‘s inequality level, the value of South Korea is dropping to 0.731 from 0.877, positioning at 27^th. (See Appendix 6) This discounted value should be regarded as an actual index. Given the existing inequality in distribution with little expenditure in public sector, South Korea shows a loss of 17 per cent of its achievement while Sweden shows only a loss of 9 per cent. Again South Korea has to work more on wealth distribution. In countries with severe inequality, the loss gets larger up to 30 per cent.

Table 3. Comparison of three countries with HDI and Inequality Adjusted HDI (UNDP, 2010)

Korea Sweden Ghana

HDI IHDI HDI IHDI HDI IHDI

Overall

HDI 0.877 0.731 0.885 0.824 0.467 0.349

Health 0.947 0.902 0.970 0.934 0.587 0.354

Education 0.891 0.663 0.856 0.825 0.527 0.487

Income 0.800 0.653 0.835 0.726 0.330 0.246

2.3.4 HAPPINESS

Happiness is the virtue which is desired not only for its own sake but for the sake of all ends of our activity. It is one of the most widely pursued ideas, at the same time it is very subjective to tell as what makes people happy is depending on each individual. As stated earlier via Kennedy‘s criticism about GDP, Higher GDP does not necessarily guarantee a better life or happiness. Happiness is a subjective matter thus an objective measurement does not suffice. The Happy Life-Expectancy

(29)

(HLE) index measures quality of life by output, the degree to which citizens live long and happily. Besides official data, the index includes survey data on subjective appreciation-of-life.

The result of HLE is meaningful that South Korea is falling to 68^th. Surprisingly Costa Rica is rocketing up and positioned in the top spot of 146 countries. Being asked to rate their own happiness on a 0-10 point scale, the average of South Korean answers is 6 when Costa Rica gives 8.5. Sweden remains in the happiest group with an average 7.8 along with the other Nordic countries like Denmark, Iceland, Finland and Norway. The values appear to be relatively high in Latin America and lowest in Africa that Togo and Tanzania gives only 2.6 and 2.8 respectively. Ghanaians are happier at 5.2 than the average African that makes 3.5 and it is partially due to the relatively stable political situation.

Table 4. AVERAGE HAPPINESS IN NATIONS 2000-2009²⁹ How much people enjoy their life-as-a-whole on scale 0 to 10

(2010 World Database of Happiness, See Appendix 6 for more detail)

In spite of the subjectivity of the index, it is noteworthy that Korean people in general feel far less happy than what they have achieved in economic terms, out of accordance with the other indices. It can relate to the fact that Korea has the longest working hour (See Appendix 7) and a high level of stress due to the pierce competition.

It might explain the increasing suicide rate in South Korea (Figure 5). According to the statistics, a total of 12 858 Koreans committed suicide in 2008. It means

Rank Nation Satisfaction

with life Number of surveys

1 Costa Rica 8.5 1

2 Denmark 8.3 8

3 Iceland 8.2 2

4 Switzerland 8 15

5 Finland 7.9 9

6 Mexico 7.9 3

7 Norway 7.9 6

8 Canada 7.8 2

9 Panama 7.8 1

10 Sweden 7.8 10

20 U.S 7.4 2

52 Japan 6.5 3

58 China 6.3 2

68 Korea, South 6 4

99 Ghana 5.2 2

145 Tanzania 2.8 2

146 Togo 2.6 1

(30)

that one person taking his or her life every 40 minutes that it ends for 33 South Koreans on average a day. While suicide rates are falling in most OECD countries, it shows a sharp increase in South Korea from the late 1990s by doubling the rate in the past decade. Till 1995 just before the financial crisis, the country‘s suicide rate was below the average, even one of the lowest of the OECD countries. Korea now has the highest suicide rates among OECD countries with around 22 deaths per 100 000 individuals.³⁰

Older people in Korea are more likely to take their own lives. The trend is not complying with general tendency across the OECD. The largest increasing age group is the ages of 45-54 which gives an account for 47 year old Lee‘s fear about getting sick or losing his job (See p.21) due to the holes of social safety net.

The rate amongst the eldest group (75 years or more) is extremely high – made a figure to use extended scale on the right side of the graph only for South Korea. It is more than ten times higher than those of young people aged 15-24. The source shows most suicides by older people are found in the rural area, driven among other things by isolation, illness and poverty. An urgent call is issued to repair the big hole of social safety net.

Suicide is the leading cause of death among South Koreans in their 20s and 30s as well, and it is the fourth leading cause of death overall (Harden, 2010).³¹

Figure 6. Suicides per 100 000 persons by age group (WTO 2005) ³² Age Number of

suicides per 100 000 persons

Number of suicides per 100 000 persons

for South Korea