Nowadays, it's obvious that South Korea is richer than North Korea.
Yet, wikipedia and a pictoral essay at 9gag claim that until 1970 North Korea had the same size economy as South Korea.
Why the dramatic divergence since 1970?
You make the mistake of thinking the South Korean economy was as strong as it is today before around 1970. It wasn't. Effectively the country was still an agricultural economy no different from what it had been under Japanese occupation.
In the 1960s the South Korean government started massive industrialisation projects, building factories, shipyards, airports, etc. etc. which caused the economy to boom. North Korea meanwhile was stagnant, as it had been since the end of the Korean war.
To quote Wikipedia :
Since the 1960s, the South Korean economy has grown enormously and the economic structure was radically transformed. In 1957 South Korea had a lower per capita GDP than Ghana, and by 2008 it was 17 times as high as Ghana's.[a]
This was the legacy of president Park, who succeeded president Rhee in 1960.
So it wasn't North Korea falling down after success but South Korea taking off and leaving the north behind.
The main reason was the proper balance between planned and free. South Korea, despite maintaining a free market, pursued a hardcore, aggressive and intelligent interventionist policy, which basically meant targeting several strategic industries, encouraging them through massive state subsidies, high industrial tariffs and acquisition of foreign technologies and imposing upon the whole population a Spartan treatment in order to better achieve these economic goals. For instance, people were actively encouraged to spy and report on neighbors and friends if any of them smoked foreign cigarettes, because foreign exchange reserves were so important for buying hardware and know-how from abroad. Samsung was not, as most people think, a free-market miracle, it was a state-assisted company, as was, for example, Toyota in Japan. North Korea limited so drastically it's economic relations that it took upon itself both tasks of industry and research. South Korea mainly focused on industry, using the fruits of industry to acquire Western research, which is a much more flexible economic approach. This, in the long-term, meant stagnation for the North and development for the South.
(As @jwenting pointed out, the South Korean economy was at a colonial level back in the 60s - it's main exports were fish and tungsten).
Resource: Ha-Joon Chang - "Bad Samaritans"
South Korea and North Korea took dramatically different paths following the end of fighting in the Korean War in 1953. When it comes to their economies and living standards, they could hardly be more different.
The two Koreas are separated by the demilitarized zone, a four-kilometer wide strip running along the 38th parallel which splits the Korean peninsula roughly in half. To the south of the DMZ, South Korea operates one of the world's most advanced economies, while to the north its neighbor is a military dictatorship that keeps a tight fist on the economy. The North continues to face challenges in food and nutrition among other difficulties.
- North Korea's economy is isolated and tightly controlled. It is generally unable to meet the basic needs of its people.
- Economists find it difficult to analyze the North Korean economy because data is either non-existent, unreliable, or outdated.
- South Korea's economy is one of the world's most advanced and productive, ranking 12th globally in terms of annual output.
- South Korea's economic growth depends heavily on exports, and the nation leads the world in shipments of semiconductors and memory chips.
Bill Clinton Once Struck a Nuclear Deal With North Korea
President Bill Clinton took the podium on October 18, 1994, with aspeech that reads like a sigh of relief—the announcement of a landmark nuclear agreement between the United States and North Korea. “This agreement is good for the United States, good for our allies, and good for the safety of the entire world,” he assured the nation. Called the Agreed Framework, it was designed to put the brakes on North Korea’s nuclear program, and it promised to put an end to years of increasing nuclear tension, including a near war, to a halt.
“This agreement represents the first step on the road to a nuclear-free Korean Peninsula,” Clinton said. “It does not rely on trust.” In exchange for North Korea ending its nuclear weapons program, the United States agreed to normalize relations with the nation𠅊nd both agreed to pursue 𠇏ormal assurances” not to use nukes against one another.
The agreement𠅏orged against all odds in an environment of fear and worry—seemed bulletproof. So why did it fail just a few years later? The reasons why are rooted in behind-the-scenes negotiations and international mistrust.
North Korea had been preparing for nuclear war since the Cold War, when the USSR began to train North Korean scientists to build nuclear weapons. As part of the Communist bloc, North Korea was closely aligned with the USSR, and Moscow provided the technology, training and even geological surveys that helped North Korea locate local deposits of graphite and uranium ore that could be used to create nuclear weapons.
According to Derek Bolton, who works with the national security think tank American Security Project, North Korea was well on its way to a nuclear weapons program by the 1960s, and had conducted successful experiments with fission, the underlying chemical phenomenon that can cause a nuclear reaction, under the supervision of the USSR as early as 1963.
Over the years, North Korea tried to find more support for its nuclear program, includingengaging South Korea in talks about whether the two countries should develop a joint nuclear weapon in secret. (South Korea declined.) But it took until the 1980s for the world to realize that North Korea might be serious about building nukes𠅊nd to recognize that it might be closer to nuclear weapons than previously thought.
A1992 file photo showing missiles marching in the North Korean People’s forces’ 60th anniversary parade. (Credit: Jiji Press/KNS/AFP/Getty Images)
Despite its apparent commitment to developing nuclear weapons, North Korean leader Kim Il Sung did ratify the Treaty on the Non-Proliferation of Nuclear Weapons in 1985. The international treaty, which was designed to prevent the spread of nuclear weapons, had been in force since 1970, but North Korea had lagged behind other nations like the United States. Now that North Korea was on board, though, it also began mining uranium and producing plutonium𠅋oth critical to the production of nuclear weapons𠅊nd creating nuclear reactors during the 1980s. Then, in 1989, the Soviet Union fell, leaving North Korea increasingly isolated.
“With the collapse of the Soviet Union, North Korea lost its main protector,” Georgetown University professor Keir LeibertoldVox’s Zack Beauchamp. “What does it have that can counter conventional US power? The answer is obvious: nuclear weapons.”
That same year, the U.S. discovered Kim Il Sung’s covert nuclear program using satellite imagery, and North Korea kept developing weapons even afteragreeing with South Korea not to test or manufacture nukes. As a result, the International Atomic Energy Agency, an autonomous nuclear oversight organization that reports directly to the United Nations, asked to conduct inspections of North Korean nuclear sites in 1992 and 1993. North Korea refused, and threatened to back out of the Nuclear Non-Proliferation Treaty.
This represented a double crisis for then-President Clinton. Republicans in Congress pressured him not to negotiate with North Korea, but the international community and Democrats argued that engagement was the only solution. Meanwhile, North Korea escalated its rhetoric,telling the United States that North Korea would turn Seoul into 𠇊 sea of flames” if the U.S. pursued sanctions through the United Nations.
Former North Korea President Kim Il Sung sitting alongside former U.S. President Jimmy Carter in June 1994, just weeks before Kim’s death. (Credit: Korean Central News Agency/AP Photo)
The U.S. considered military intervention, but also sent Jimmy Carter to Pyongyang to meet with Kim Il Sung. Carter convinced Kim to start nuclear talks𠅋ut the day negotiations were supposed to begin, Kim died. He was succeeded by his son, Kim Jong Il, the very man who founded the most controversial nuclear complex in North Korea, a facility in Yongbyon.
Things looked grim, but Clinton became increasingly convinced that direct negotiations were the only way. However, American negotiators doubted from the start that diplomacy would work. “The initial contacts were to test the proposition that we could address their security concerns by getting them to give up their nuclear weapons,” Robert Gallucci, the chief negotiator,toldBeyond Parallel in a 2016 interview. “It was not so much of a conviction on anybody’s part…It was possibly true, and worth testing.”
For 16 months, Gallucci and his team conducted intense negotiations with North Korea. The countries locked horns on what it would take for North Korea to stop producing nukes. Finally, they came to an agreement—the Agreed Framework.
Just four pages long, theagreement said that North Korea would shut down its main nuclear reactor in Yongbyon, abandon two others, and seal fuel that could potentially be used to create a nuclear weapon. In exchange, the U.S. would provide oil to make up for the fuel lost from the dismantled plants and would build two new “light fuel” plants from which it would be harder to extract nuclear materials. If North Korea did try to get fuel out of the new plants, it would beeasy for nuclear watchdogs to identify𠅊nd hard to hide. In addition, the agreement promised that the U.S. would lift economic sanctions and its diplomatic freeze on North Korea and agree that it would not use nuclear weapons of its own on North Korea.
President Bill Clinton looks on as Assistant Secretary of State Robert Gallucci meets reporters in the White House briefing room, October 18, 1994. The president announced that North Korea agreed to freeze its existing nuclear program and accept international inspection of all its nuclear facilities. (Credit: Marcy Nighswander/Getty Images)
On the surface, it looked like the U.S. was offering huge concessions to North Korea in exchange for few assurances. But behind the scenes, the Clinton administrationthought that North Korea was on the verge of collapse and likely wouldn’t last long enough for the U.S. to build the agreed-upon reactors. In North Korea, the agreement wasn’t taken seriously. Isolated, impoverished and headed by a leader who believed nuclear power would give the country power on the international stage, North Korea had little motivation to give up its program.
Clinton knew the agreement would be hugely controversial—so he structured it in a way that ensured it wouldn’t have to be ratified by the Senate. Republicans were infuriated. And shortly after the agreement was signed, the Republicans won control of Congress. They grilled Gallucci. “It was pretty harsh,” hetold PBS in 2003. “We did not get ticker tape parades, as it turned out.” Congress made it clear that they would not agree to actually fund the implementation of the project or sanction formal peace agreements between the two countries.
Meanwhile, North Korea continued producing uranium. Kim Jong Il, it turned out, had used potential nukes as a bargaining chip𠅎ven though he had no intention of stopping the program. Despite promisinginitial results, North Korea began flouting the agreement more and more. North Korea ignored warnings that the agreement was in jeopardy and soon intelligence agencies realized it possessed much more advanced nuclear tech than the U.S. had suspected.
At first it seemed like George W. Bush, who took office in 2001, might continue Clinton-era diplomatic policies toward North Korea. But then things fell apart. Bush’s diplomats stopped sending fuel shipments North Korea complained bitterly that the promised nuclear reactors had never been built. And when the September 11 terrorist attacks happened, it pushed American diplomacy in other directions𠅊nd Bush mentioned North Korea as one of the three countries in his 𠇊xis of Evil” State of the Union Speech in 2002.
Soon, relations between the two countries were openly tense, if not hostile. North Korea dropped out of the Nuclear Non-Proliferation Treaty in 2003. By 2006, it had conducted its first nuclear test𠅊n underground delivery that may have been a fizzle, or unsuccessful explosion. And though Bill Clinton himselfheaded to North Korea to successfully negotiate the release of two American hostages in 2009, it was too late to halt North Korea’s march toward nukes.
Though the United States continues to try to seek solutions to North Korea’s potential nukes, including the potential of talks between President Donald Trump and Kim Jong Un, Clinton’s vision of an end to nuclear proliferation on the Korean Peninsula now seems more like a mirage.
Transition to a Democracy and Transformation into an Economic Powerhouse
On May 10, 1948, the first general election was held in a democratic manner in South Korea under the UN’s supervision to elect the 198 members of the National Assembly. In July of the same year, the Constitution was enacted and Rhee Syngman and Yi Si-yeong, two independence fighters deeply respected by Koreans, were elected as the country’s first President and Vice President, respectively. On August 15, 1948, the Republic of Korea (ROK) was formally established as a liberal democracy, which inherited the legitimacy of the PGK. The UN recognized the government of the ROK as the only legitimate government on the Korean Peninsula.
However, to the north of the 38th parallel, a general election under UN supervision could not be carried out due to the Soviet Union’s opposition. On September 9, 1948, the Democratic People’s Republic of Korea (DPRK) was proclaimed as a communist country, and Kim Il-sung, who had served as an officer of the Soviet Russian Army, was sworn in as the President. Amid the confrontation between a free democracy in the south and a communist dictatorship in the north, the ROK government led by President Rhee Syngman was burdened with many issues such as establishing domestic order, eliminating vestiges of Japanese imperialism, and overcoming ideological confrontations between the left and the right.
On June 25, 1950, North Korean troops armed with Soviet-made tanks and fighters invaded the South, thus triggering an all-out war. The UN Security Council unanimously condemned the North Korean invasion and published a resolution recommending that its member states provide military assistance to South Korea. When the tide of the war turned against the North with the intervention of the UN Forces, the Chinese Red Army intervened in the war on the North’s side. The two sides engaged in fierce battles until, on July 27, 1953, the two sides finally signed the armistice agreement. President Rhee Syngman did not sign the agreement, calling strongly for the prolongation of the war with the goal of unifying the entire country in the South’s favor.
South Korea’s first national expressway connecting Seoul and Busan opened in 1970.
The three-year-long internecine war started by the Communists reduced the entire Korean Peninsula to rubble. Millions of troops and civilians were killed. Most of the country’s industrial facilities were destroyed. South Korea became one of the poorest countries in the world. However, the war taught South Koreans the preciousness of freedom. The experience provided the foundation that inspired patriotism in the hearts of young students and uniformed soldiers alike, and became the principal engine of the country’s modernization.
President Rhee Syngman strengthened his authoritarian rule. In 1960, the ruling Liberal Party rigged the Presidential election. Young students took to the streets in protest. The situation deteriorated when many demonstrators were shot by the police, which led to massive protests called the April 19 Revolution. President Rhee Syngman announced his step-down and took refuge in Hawaii. Shortly thereafter, the Constitution was amended, and a cabinet system and the bicameral National Assembly were adopted. Under the new constitution, the regime led by Prime Minister Jang Myeon was launched, but the political situation became extremely fragile amid political struggles and continued street demonstrations by students.
In May 1961, a group of young army officers led by General Park Chung-hee seized power in a coup d’état. In the presidential election held on October 15, 1963, after two years of military rule, Park Chung-hee, having retired from the military, was elected as President and inaugurated in December that same year. The government led by President Park set up a 5-year economic development plan under the slogan of “modernization of the fatherland” and achieved rapid economic growth by implementing an export-oriented policy.
Observers called it “the Miracle on the Hangang River.” The country vigorously pushed ahead with the development of national land, including the construction of the Gyeongbu Expressway and subway lines in large cities. The country also carried out the Saemaeul Undong (New Community Movement), turning the impoverished agricultural society into a country focused mainly on manufacturing.
Since the South Korean government was established in 1948, the country has transformed itself from one of the most impoverished countries in the world to an economic powerhouse and an exemplar of liberal democracy.
When the government announced the Yusin (Revitalization Reform) in October 1972, which was designed to extend the term of the incumbent government after eighteen years of dictatorship, students and ordinary people continued to engage in the democratization movement. After the assassination of President Park on October 26, 1979, a new group of army officers led by General Chun Doohwan (Singunbu) seized power through a coup d’état. Singunbu suppressed by force the voices calling for democratization, including the May 18 Democratization Movement. Chun Doo-hwan was sworn in as the President and ruled with an authoritarian grip. The Chun Doo-hwan government concentrated on economic stabilization, successfully bringing inflated prices under control. Under his leadership, the country accomplished continued economic growth.
On June 29, 1987, Roh Tae-woo, a presidential hopeful of the ruling party, made a special announcement to the effect that he would accept the people’s request for democratization and direct election of the President. On December 16, 1987, he was elected to a five-year term as President and sworn in as President on February 25, 1988. The Roh Tae-woo administration established diplomatic relations with Communist countries including the Soviet Union, China, and those in Eastern Europe. During his term, the two Koreas joined the UN simultaneously on September 17, 1991.
The Kim Young-sam government, which was inaugurated in 1993, strove to eliminate corruption by making it a rule for high-ranking public officials to register all their assets and by prohibiting the use of false names in all financial transactions. The level of transparency in business transactions was considerably enhanced by this measure. The government also implemented the local autonomy system in full force. President Kim Dae-jung took office in 1998 and his government succeeded in overcoming the foreign exchange crisis that had hit the country one year earlier, and strove to develop both democracy and the market economy. In its relations with North Korea, the government adopted the Sunshine Policy. On June 15, 2000, the leaders of the two Koreas met at a summit held in Pyongyang, North Korea, and made a joint statement. Then, the two Koreas established a system of reconciliation and cooperation, and agreed on the reunion of dispersed family members, the connection of the Gyeongui and Donghae railroad lines, the revitalization of unification movements led by the private sector, and the expansion of economic cooperation, including sightseeing in Geumgangsan Mountain.
The Roh Moo-hyun government, which was inaugurated in 2003, concentrated on three leading objectives: the realization of democracy with the participation of the people, balanced social development, and the realization of peace and prosperity in Northeast Asia. The government also held the second summit between the leaders of the two Koreas in Pyongyang on October 4, 2007 and the same year signed an FTA with the United States.
The Lee Myung-bak administration, which was inaugurated in 2008, announced five leading indicators in a bid for the establishment of a new development system with the focus on changes and practicality. The government stressed that it would be a government that would serve the people. It also made efforts to streamline the government organization, privatize public corporations equipped with higher efficiency, and reform administrative regulations. Other policies adopted by the government included the forging of a creative alliance with the United States as befits the 21st century, and the creation of a global Korea under the South-North Economic Community.
With the election of the first female president of the Republic of Korea in December 2012, the Park Geun-hye administration was launched, presenting a new vision of the people’s happiness and the nation’s development. Her government also stressed the need for implementing the creative economy saying, “A creative economy based on science technologies and ICT is a challenge that we must take on for our economic breakthrough and the only growth engine of the Korean economy.”
Moon Jae-in, the 19th President of the Republic of Korea
In May 2017, Moon Jae-in was sworn in as the 19th president of the Republic of Korea. Stressing the need for “national unity,” President Moon Jae-in pledged that his government would pursue fairness and cooperation, reform and change, dialogue and communication, and competence and expertise.
Launched in May 2017, the Moon Jae-in administration unveiled its national vision: “A Nation of the People, a Just Republic of Korea,” which signifies the embodiment of the spirit of the candlelight rallies, in conjunction with five policy goals to achieve the national vision: a Government of the People, an Economy Pursuing Mutual Prosperity, a Nation Taking Responsibility for Each Individual, Well-balanced Development across Every Region, and a Peaceful and Prosperous Korean Peninsula. As part of these efforts, the government has worked to eradicate authoritarian culture, communicate with the people, and restore democracy. It has also created more jobs, reduced the incidence of irregular work, and increased the minimum wage in efforts to realize a “people-oriented economy.”
Moreover, the Moon Jae-in administration has paved the way to ease tension on the Korean Peninsula and open an era of peace by holding inter-Korean summits as well as South Korea–US and South Korea–China summits. In the face of the Fourth Industrial Revolution, the government has also focused on building infrastructure, improving related regulations, and securing key technologies for future generations.
The Fall of North Korea
North Korea’s dramatic growth was not to last. By the 1990s, propelled by its own industrial revolution and increased openness to international trade, South Korea’s per capita GDP far surpasses that of North Korea. Thirty years later, South Korea’s per capita GDP is 40 times greater than North Korea’s.
While South Korea experiences dramatic export-led growth, North Korea is reeling from the collapse of the Soviet Union. Losing by far its greatest source of oil, and lacking alternative forms of energy generation, North Korea becomes unable to generate enough electricity. In the early 1990s, the country is driven into widespread famine.
Over the course of several years, floods, a reduction in aid and poor planning triggers a 60% fall in food production. In an attempt to ease food shortages, Kim Il Sung’s government launches a ‘two meals a day’ campaign and mandates work in the fields.
Despite openly receiving Western aid for the first time, it is estimated that North Korea’s death toll from starvation and malnutrition summed to a million, or 5% the country’s population of 22 million.
Even now, North Korea is believed to be suffering from severe malnutrition and poverty. Despite most rural regions (typically home to North Korea’s poorest citizens) being largely out of bounds to the international media, it is estimated that rates of extreme poverty in North Korea remain amongst the highest on Earth.
As a result of famine, 18-year-old North Korean men were, on average, five inches shorter than their South Korean counterparts and nearly half of all children under the age of 5 were reported as malnourished in 2011.
While hospitals in North Korea remain free at the point of delivery, it is speculated that they are generally accessible only to Pyongyang’s elite. These hospitals are also critically under-resourced, with reporters claiming a severe lack of heating, medicines and operating tools.
Recently, North Korea’s irresponsible military pursuits have prevented advancements in foreign aid. In 2012, a long-range rocket launch thwarted plans for the USA to send 240,000 tons of food aid in return for suspending nuclear weapons testing.
From economic prosperity in the 1970s and 80s to sweeping malnourishment and poverty, North Korea demonstrates how irresponsible government and a reluctance to modernise can reverse decades of progress.
The Economic History of Korea
Two regime shifts divide the economic history of Korea during the past six centuries into three distinct periods: 1) the period of Malthusian stagnation up to 1910, when Japan annexed Korea 2) the colonial period from 1910-45, when the country embarked upon modern economic growth and 3) the post colonial decades, when living standards improved rapidly in South Korea, while North Korea returned to the world of disease and starvation. The dramatic history of living standards in Korea presents one of the most convincing pieces of evidence to show that institutions — particularly the government — matter for economic growth.
The founders of the Chosôn dynasty (1392-1910) imposed a tribute system on a little-commercialized peasant economy, collecting taxes in the form of a wide variety of products and mobilizing labor to obtain the handicrafts and services it needed. From the late sixteenth to the early seventeenth century, invading armies from Japan and China shattered the command system and forced a transition to a market economy. The damaged bureaucracy started to receive taxes in money commodities — rice and cotton textiles — and eventually began to mint copper coins and lifted restrictions on trade. The wars also dealt a serious blow to slavery and the pre-war system of forced labor, allowing labor markets to emerge.
Markets were slow to develop: grain markets in agricultural regions of Korea appeared less integrated than those in comparable parts of China and Japan. Population and acreage, however, recovered quickly from the adverse impact of the wars. Population growth came to a halt around 1800, and a century of demographic stagnation followed due to a higher level of mortality. During the nineteenth century, living standards appeared to deteriorate. Both wages and rents fell, tax receipts shrank, and budget deficits expanded, forcing the government to resort to debasement. Peasant rebellions occurred more frequently, and poor peasants left Korea for northern China.
Given that both acreage and population remained stable during the nineteenth century, the worsening living standards imply that the aggregate output contracted, because land and labor were being used in an ever more inefficient way. The decline in efficiency appeared to have much to do with disintegrating system of water control, which included flood control and irrigation.
The water control problem had institutional roots, as in Q’ing China. Population growth caused rapid deforestation, as peasants were able to readily obtain farmlands by burning off forests, where property rights usually remained ill-defined. (This contrasts with Tokugawa Japan, where conflicts and litigation following competitive exploitation of forests led to forest regulation.) While the deforestation wrought havoc on reservoirs by increasing the incidence and intensity of flooding, private individuals had little incentives to repair the damages, as they expected others to free-ride on the benefits of their efforts. Keeping the system of water control in good condition required public initiatives, which the dynastic government could not undertake. During the nineteenth century, powerful landowning families took turns controlling minor or ailing kings, reducing the state to an instrument serving private interests. Failing to take measures to maintain irrigation, provincial officials accelerated its decay by taking bribes in return for conniving at the practice of farming on the rich soil alongside reservoirs. Peasants responded to the decaying irrigation by developing new rice seed varieties, which could better resist droughts but yielded less. They also tried to counter the increasingly unstable water supply by building waterways linking farmlands with rivers, which frequently met opposition from people farming further downstream. Not only did provincial administrators fail to settle the water disputes, but also some of them became central causes of clashes. In 1894 peasants protested against a local administrator’s attempts to generate private income by collecting fees for using waterways, which had been built by peasants. The uprising quickly developed into a nationwide peasant rebellion, which the crumbling government could suppress only by calling in military forces from China and Japan. An unforeseen consequence of the rebellion was the Sino-Japanese war fought on the Korean soil, where Japan defeated China, tipping the balance of power in Korea critically in her favor.
The water control problem affected primarily rice farming productivity: during the nineteenth century paddy land prices (as measured by the amount of rice) fell, while dry farm prices (as measured by the amount of dry farm products) rose. Peasants and landlords converted paddy lands into dry farms during the nineteenth century, and there occurred an exodus of workers out of agriculture into handicraft and commerce. Despite the proto-industrialization, late dynastic Korea remained less urbanized than Q’ing China, not to mention Tokugawa Japan. Seasonal fluctuations in rice prices in the main agricultural regions of Korea were far wider than those observed in Japan during the nineteenth century, implying a significantly higher interest rate, a lower level of capital per person, and therefore lower living standards for Korea. In the mid-nineteenth century paddy land productivity in Korea was about half of that in Japan.
Colonial Transition to Modern Economic Growth
Less than two decades after having been opened by Commodore Perry, Japan first made its ambitions about Korea known by forcing the country open to trade in 1876. Defeating Russia in the war of 1905, Japan virtually annexed Korea, which was made official five years later. What replaced the feeble and predatory bureaucracy of the ChosǑn dynasty was a developmental state. Drawing on the Meiji government’s experience, the colonial state introduced a set of expensive policy measures to modernize Korea. One important project was to improve infrastructure: railway lines were extended, and roads and harbors and communication networks were improved, which rapidly integrated goods and factor markets both nationally and internationally. Another project was a vigorous health campaign: the colonial government improved public hygiene, introduced modern medicine, and built hospitals, significantly accelerating the mortality decline set in motion around 1890, apparently by the introduction of the smallpox vaccination. The mortality transition resulted in a population expanding 1.4% per year during the colonial period. The third project was to revamp education. As modern teaching institutions quickly replaced traditional schools teaching Chinese classics, primary school enrollment ration rose from 1 percent in 1910 to 47 percent in 1943. Finally, the cadastral survey (1910-18) modernized and legalized property rights to land, which boosted not only the efficiency in land use, but also tax revenue from landowners. These modernization efforts generated sizable public deficits, which the colonial government could finance partly by floating bonds in Japan and partly by unilateral transfers from the Japanese government.
The colonial government implemented industrial policy as well. The Rice Production Development Program (1920-1933), a policy response to the Rice Riots in Japan in 1918, was aimed at increasing rice supply within the Japanese empire. In colonial Korea, the program placed particular emphasis upon reversing the decay in water control. The colonial government provided subsidies for irrigation projects, and set up institutions to lower information, negotiation, and enforcement costs in building new waterways and reservoirs. Improved irrigation made it possible for peasants to grow high yielding rice seed varieties. Completion of a chemical fertilizer factory in 1927 increased the use of fertilizer, further boosting the yields from the new type of rice seeds. Rice prices fell rapidly in the late 1920s and early 1930s in the wake of the world agricultural depression, leading to the suspension of the program in 1933.
Despite the Rice Program, the structure of the colonial economy has been shifting away from agriculture towards manufacturing ever since the beginning of the colonial rule at a consistent pace. From 1911-40 the share of manufacturing in GDP increased from 6 percent to 28 percent, and the share of agriculture fell from 76 percent to 41 percent. Major causes of the structural change included diffusion of modern manufacturing technology, the world agricultural depression shifting the terms of trade in favor of manufacturing, and Japan’s early recovery from the Great Depression generating an investment boom in the colony. Also Korea’s cheap labor and natural resources and the introduction of controls on output and investment in Japan to mitigate the impact of the Depression helped attract direct investment in the colony. Finally, subjugating party politicians and pushing Japan into the Second World War with the invasion of China in 1937, the Japanese military began to develop northern parts of Korea peninsula as an industrial base producing munitions.
The institutional modernization, technological diffusion, and the inflow of Japanese capital put an end to the Malthusian degeneration and pushed Korea onto the path of modern economic growth. Both rents and wages stopped falling and started to rise from the early twentieth century. As the population explosion made labor increasingly abundant vis-a-vis land, rents increased more rapidly than wages, suggesting that income distribution became less equal during the colonial period. Per capita output rose faster than one percent per year from 1911-38.
Per capita grain consumption declined during the colonial period, providing grounds for traditional criticism of the Japanese colonialism exploiting Korea. However, per capita real consumption increased, due to rising non-grain and non-good consumption, and Koreans were also getting better education and living longer. In the late 1920s, life expectancy at birth was 37 years, an estimate several years longer than in China and almost ten years shorter than in Japan. Life expectancy increased to 43 years at the end of the colonial period. Male mean stature was slightly higher than 160 centimeters at the end of the 1920s, a number not significantly different from the Chinese or Japanese height, and appeared to become shorter during the latter half of the colonial period.
South Korean Prosperity
With the end of the Second World War in 1945, two separate regimes emerged on the Korean peninsula to replace the colonial government. The U.S. military government took over the southern half, while communist Russia set up a Korean leadership in the northern half. The de-colonization and political division meant sudden disruption of trade both with Japan and within Korea, causing serious economic turmoil. Dealing with the post-colonial chaos with economic aid, the U.S. military government privatized properties previously owned by the Japanese government and civilians. The first South Korean government, established in 1948, carried out a land reform, making land distribution more egalitarian. Then the Korean War broke out in 1950, killing one and half million people and destroying about a quarter of capital stock during its three year duration.
After the war, South Korean policymakers set upon stimulating economic growth by promoting indigenous industrial firms, following the example of many other post-World War II developing countries. The government selected firms in targeted industries and gave them privileges to buy foreign currencies and to borrow funds from banks at preferential rates. It also erected tariff barriers and imposed a prohibition on manufacturing imports, hoping that the protection would give domestic firms a chance to improve productivity through learning-by-doing and importing advanced technologies. Under the policy, known as import-substitution industrialization (ISI), entrepreneurs seemed more interested in maximizing and perpetuating favors by bribing bureaucrats and politicians, however. This behavior, dubbed as directly unproductive profit-seeking activities (DUP), caused efficiency to falter and living standards to stagnate, providing a background to the collapse of the First Republic in April 1960.
The military coup led by General Park Chung Hee overthrew the short-lived Second Republic in May 1961, making a shift to a strategy of stimulating growth through export promotion (EP hereafter), although ISI was not altogether abandoned. Under EP, policymakers gave various types of favors — low interest loans being the most important — to exporting firms according to their export performance. As the qualification for the special treatment was quantifiable and objective, the room for DUP became significantly smaller. Another advantage of EP over ISI was that it accelerated productivity advances by placing firms under the discipline of export markets and by widening the contact with the developed world: efficiency growth was significantly faster in export industries than in the rest of the economy. In the decade following the shift to EP, per capita output doubled, and South Korea became an industrialized country: from 1960/62 to 1973/75 the share of agriculture in GDP fell from 45 percent to 25 percent, while the share of manufacturing rose from 9 percent to 27 percent. One important factor contributing to the achievement was that the authoritarian government could enjoy relative independence from and avoid capture by special interests.
The withdrawal of U.S. troops from Vietnam in the early 1970s and the subsequent conquest of the region by the communist regime alarmed the South Korean leadership, which has been coping with the threat of North Korea with the help of the U.S. military presence. Park Chung Hee’s reaction was to reduce the level of reliance on the U.S. armed support by expanding capability to produce munitions, which required returning to ISI to build heavy and chemical industries (HCI). The government intervened heavily in the financial markets, directing banks to provide low interest loans to chaebols — conglomerates of businesses owned by a single family — selected for the task of developing different sectors of HCI. Successfully expanding the capital-intensive industries more rapidly than the rest of the economy, the HCI drive generated multiple symptoms of distortion, including rapidly slowing growth, worsening inflation and accumulation of non-performing loans.
Again the ISI ended with a regime shift, triggered by Park Chung Hee’s assassination in 1979. In the 1980s, the succeeding leadership made systematic attempts to sort out the unwelcome legacy of the HCI drive by de-regulating trade and financial sectors. In the 1990s, liberalization of capital account followed, causing rapid accumulation of short-term external debts. This, together with a highly leveraged corporate sector and the banking sector destabilized by the financial repression, provided the background to the contagion of financial crisis from Southeast Asia in 1997. The crisis provided a strong momentum for corporate and financial sector reform.
In the quarter century following the policy shift in the early 1960s, the South Korean per capita output grew at an unusually rapid rate of 7 percent per year, a growth performance paralleled only by Taiwan and two city-states, Hong Kong and Singapore. The portion of South Koreans enjoying the benefits of the growth increased more rapidly from the end of 1970s, when the rising trend in the Gini coefficient (which measures the inequality of income distribution) since the colonial period was reversed. The growth was attributable far more to increased use of productive inputs — physical capital in particular — than to productivity advances. The rapid capital accumulation was driven by an increasingly high savings rate due to a falling dependency ratio, a lagged outcome of rapidly falling mortality during the colonial period. The high growth was also aided by accumulation of human capital, which started with the introduction of modern education under the Japanese rule. Finally, the South Korean developmental state, as symbolized by Park Chung Hee, a former officer of the Japanese Imperial army serving in wartime Manchuria, was closely modeled upon the colonial system of government. In short, South Korea grew on the shoulders of the colonial achievement, rather than emerging out of the ashes left by the Korean War, as is sometimes asserted.
North Korean Starvation
Neither did the North Korean economy emerge out of a void. Founders of the regime took over the system of command set up by the Japanese rulers to invade China. They also benefited from the colonial industrialization concentrated in the north, which had raised the standard of living in the north above that in the south at the end of the colonial rule. While the economic advantage led the North Korean leadership to feel confident enough to invade the South in 1950, it could not sustain the lead: North Korea started to lag behind the fast growing South from the late 1960s, and then suffered a tragic decline in living standards in the 1990s.
After the conclusion of the Korean War, the North Korean power elites adopted a strategy of driving growth through forced saving, which went quickly to the wall for several reasons. First, managers and workers in collective farms and state enterprises had little incentive to improve productivity to counter the falling marginal productivity of capital. Second, the country’s self-imposed isolation made it difficult for it to benefit from the advanced technologies of the developed world through trade and foreign investment. Finally, the despotic and militaristic rule diverted resources to unproductive purposes and disturbed the consistency of planning.
The economic stalemate forced the ruling elites to experiment with the introduction of material incentives and independent accounting of state enterprises. However, they could not push the institutional reform far enough, for fear that it might destabilize their totalitarian rule. Efforts were also made to attract foreign capital, which ended in failure too. Having spent the funds lent by western banks in the early 1970s largely for military purposes, North Korea defaulted on the loans. Laws introduced in the 1980s to draw foreign direct investment had little effect.
The collapse of centrally planned economies in the late 1980s virtually ended energy and capital goods imports at subsidized prices, dealing a serious blow to the wobbly regime. Desperate efforts to resolve chronic food shortages by expanding acreage through deforestation made the country vulnerable to climatic shocks in the 1990s. The end result was a disastrous subsistence crisis, to which the militarist regime responded by extorting concessions from the rest of the world through brinkmanship diplomacy.
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New spike in tensions
2013 January - South Korea launches a satellite into orbit for the first time using a rocket launched from its own soil. Comes weeks after a North Korean rocket placed a satellite in orbit.
2013 March - South Korea accuses North of a cyber-attack that temporarily shuts down the computer systems at banks and broadcasters.
2013 September - North and South Korea reopen Kaesong joint industrial complex and hotline.
2013 December - South Korea announces expansion of air defence zone, two weeks after China unilaterally announced its own extended air defence zone in East China Sea to include disputed Socotra Rock.
2014 March - North and South Korea exchange fire into sea across the disputed western maritime border during largest South-US military training exercise in region for 20 years.
Former Brookings Expert
Asian Specialist - Institute for Defense Analysis
The capstone of this achievement was the 1988 Seoul Olympics, where Koreans displayed their ability to host successfully a world-class event.
The traffic was calm thanks to the willingness of Seoul citizens to restrict their driving. Streets were cleaned and flowering plants decorated the fronts of homes and businesses. Even the roughest of bustling Seoul citizens put smiles on their faces to welcome their foreign visitors. As important as what visitors could see was the transformation that took place in the hearts and minds of the Korean people, who found in themselves a “we can do it” spirit.
This inward and outward transformation of Korean society was the first big step toward full participation in the international community.
Yet, until the end of the 1990s, Koreans still felt vulnerable and weak. Economic success brought them better jobs, salaries, and living conditions, but one could sense an endless desire to get more and more, perhaps a legacy of the many years of struggle and deprivation that Koreans had experienced. A kind of “me first” syndrome characterized much of Korean society, showing itself in pushing and shoving and the frequent resort to corruption to get ahead. Traditional values such as sharing with the community’s less fortunate seemed to have been eclipsed. Hence, the phenomenon of Seoul divided by the Han River, with the “South Han River” side becoming a new center of finance and economic power as many wealthy families moved to high-rise condos, while the north side was left out of the new development.
Korea’s new-found wealth also made it possible for Koreans to travel abroad, something that they previously had been prevented from doing both by lack of funds and by government restrictions. Unfortunately, some of these Korean travelers, having little experience with foreign cultures, took the worst of their everyday behaviors with them. It was not uncommon to see Korean travel groups sitting on the floors of airport terminals drinking soju and loudly playing the Korean card game called “hwatu.”
And then in the late 1990s Koreans reached another turning point in their national psyche and began to show a sensitivity and concern for others – in their society and in the world beyond. Perhaps this change can be attributed in part to how quickly and successfully Koreans overcame the financial crisis that swept through Asia in 1997. Today, Korean tourists of all ages, smartly dressed and sophisticated, are found in popular tourist spots around the world. Korean popular culture is also spreading throughout the world. The famous “hallyu” (Korean wave) of music, television shows, and films has swept through Asia, and Korean dishes such as kimchi are widely appreciated all over the world.
Today, Korea’s nominal per capita GNP is approximately $20,000, and Korea has become the world’s 14th largest economy. The Republic of Korea became a member of the Organization for Economic Cooperation and Development (OECD) in 1996 and joined its Development Assistance Committee in November, 2009.
Korea, once an international aid recipient, has now become an aid donor. Korea was the first case since OECD’s birth in 1961 that an OECD member transformed its status from recipient to donor. It will greatly contribute to enhancing Korea’s prestige around the Seoul G-20 meeting of the major economies, scheduled for November in 2010. Korea’s industries are known throughout the world by their manufacturing and construction products. The time has come for Korea to take its place in the world. In 1991, the Korean International Cooperation Agency (KOICA) was established to administer Korea’s aid to other countries. More controversially, Korea has also been participating in security and reconstruction efforts in the some of the world’s hotspots, such as Afghanistan, not forgetting that it was once a hot spot itself.
And now there is the launch of World Friends Korea, an umbrella or “brand” covering numerous Korean volunteer programs already in operation.
On the government side, these programs include the Ministry of Foreign Affairs’ KOICA Volunteers, the Ministry of Public Administration’s Internet Volunteers, and the Ministry of Education’s University Volunteers and Techno Peace Corps. By the end of the year, some 3,000 Korean volunteers, young and old, will be working with foreign governments, schools, and other non-profit organizations in some 40 countries, making this the second largest such program after the U.S. Peace Corps. In the years ahead, the program is expected to expand to more than 10,000 volunteers.
By coordinating its volunteer efforts within government agencies and with Korean NGO’s and private companies’ volunteer programs, World Friends aims to strengthen the brand name of the country (which some people still confuse with its troublesome neighbor, North Korea), as well as enhance volunteer training, overseas support, and services for returning volunteers.
Each of the volunteer programs has its own particular field of expertise and its own objectives. For example, the Korea Internet Volunteers, founded in 2001, provide information and communication training to foreign ICT experts and students in some 40 countries, while the Techno Peace Corps, established in 2006, sends volunteers on one-year assignments to teach foreign students about technology transfer.
Under the unified coordination of World Friends, the common goals of all these programs will be to improve the quality of life for people in the host nations, strengthen friendship and mutual understanding with the people of Korea, and help the volunteers fulfill their own potential. Like members of the American Peace Corps and similar volunteer organizations in other countries, Korean volunteers often discover their overseas experience has become a defining part of their life and a path to future success in their careers back home.
The Korean International Cooperation Agency was established in 1991 as a government agency to administer aid grants to developing countries. KOICA was modeled on JICA (Japan International Cooperation Agency), which had been operating since 1974 to administer Japan’s substantial foreign aid program. KOICA’s three main goals are to assist developing countries in achieving sustainable social and economic development, to help alleviate poverty, and to promote humanitarian assistance and human security.
KOICA’s focus areas are education, health, governance, rural development, information and communication technology, industry and energy, environmental protection, and gender equality.
KOICA is an important institution in the Korean government’s Overseas Development Aid (ODA) framework, which administers three types of aid: bilateral grants, bilateral loans, and multilateral assistance. KOICA is responsible for implementing the aid programs and promote international cooperation.
Specific KOICA tasks include recruiting foreign trainees, dispatching Korean experts and volunteers, conducting development studies, providing emergency and disaster relief, and supporting aid programs with capital, facilities, and supplies. In addition, KOICA promotes cooperation with multilateral organizations, engages in research and policy planning, and supports the implementation of overseas Korean government projects.
KOICA reaches every corner of the globe, with an emphasis on countries in South Asia and Africa. An important goal is to integrate Korea’s own development experience and comparative advantage with current development cooperation projects. To leverage its resources, KOICA enlists the cooperation of government and civil organizations and businesses in the host countries.
Today, KOICA staff members are in the vanguard of Koreans who are demonstrating the country’s willingness and readiness to share the wealth and knowledge they have gained through years of hard work. This volunteer work is more impressive given Korea’s tumultuous history and past experiences as an underdeveloped nation, and holds out hope that many of the countries now benefiting from KOICA’s work will one day themselves be able to extend a helping hand to less fortunate countries.
Korea’s overseas medical aid
Korea today benefits from a modern health-care system, ranking above the United States in life expectancy. It was not always so. In the 1950s, the life expectancy for Koreans was little more than 50 years. One could almost say that in those days modern medical treatment was a luxury. One of the major policy objectives of KOICA is to improve healthcare and medical knowledge in poverty- stricken countries. In this endeavor, KOICA joins the ranks of Korean NGOs whose expertise in the fields of public health and medicine have contributed substantially to improving global health. KOICA and NGOs are experienced in providing urgent medical assistance in disaster-hit areas, as well as establishing long-term public health programs.
For example, after the tsunami devastated Indonesia’s Aceh province in 2004, Korea joined international disaster relief teams to provide medical personnel and medicine.
The same was true after the earthquake hit Haiti in 2010. In 2007 KOICA donated funds to build a Public Health Center for mothers and children in Ecuador, a rehabilitation center in Columbia, and a medical center in Cambodia. In Cambodia, KOICA also provided medicine for the center, training courses for the junior doctors, and management skills to run the center. In 2008 the Korean government provided new blood banks for the Irbed, Mafraq, and Ajlun areas of Jordan. In short, Korean doctors, nurses, and public health workers participate with KOICA and other agencies of the Korean government to alleviate suffering around the world and address the same kind of shortages in medicine and public health that Korea once faced.
U.S. Relations With North Korea
The United States and Korea’s Joseon Dynasty established diplomatic relations under the 1882 Treaty of Peace, Amity, Commerce, and Navigation, and the first U.S. diplomatic envoy arrived in Korea in 1883. U.S.-Korea relations continued until 1905, when Japan assumed direction over Korean foreign affairs. In 1910, Japan began a 35-year period of colonial rule over Korea. Following Japan’s surrender in 1945 at the end of World War II, the Korean Peninsula was divided at the 38th parallel into two occupation zones, with the United States in the South and the Soviet Union in the North. Initial hopes for a unified, independent Korea were not realized, and in 1948 two separate nations were established — the Republic of Korea (ROK) in the South, and the Democratic People’s Republic of Korea (DPRK) in the North.
On June 25, 1950, North Korean forces invaded South Korea. Led by the United States, a United Nations coalition of 16 countries undertook the defense of South Korea. Following China’s entry into the war on behalf of North Korea later that year, a stalemate ensued for the final two years of the conflict until an armistice was concluded on July 27, 1953. A peace treaty has never been signed. North and South Korea have had a difficult and, at times, bitter relationship since the Korean War. The two countries are separated by a demilitarized zone. During the postwar period, both Korean governments have repeatedly affirmed their desire to reunify the Korean Peninsula, but until 1971 the two governments had no direct, official communications or other contact. North Korea has been ruled by successive generations of Kim Il Sung’s family, and its political and economic structure is centrally controlled.
The United States supports the peaceful reunification of Korea on terms acceptable to the Korean people and recognizes that the future of the Korean Peninsula is primarily a matter for them to decide. The United States believes that a constructive and serious dialogue between North and South Korea is necessary to improve inter-Korean relations and to resolve outstanding problems.
The United States has engaged in several rounds of diplomacy to remove the nuclear threat posed by North Korea. In 1994, the United States and North Korea reached agreement on a roadmap for the denuclearization of the Korean Peninsula. In 2003, the United States proposed multilateral talks on the North Korean nuclear issue. Several rounds of Six-Party Talks were held, with the last round occurring in 2009. Although North Korea has at times said it will take steps toward denuclearization, it has continued to conduct tests in violation of international law, including ballistic missile launches, including three intercontinental ballistic missiles (ICBMs), and its largest ever nuclear test in 2017 alone. The United States has called on North Korea to take concrete, irreversible denuclearization steps toward fulfillment of the 2005 Joint Statement of the Six-Party Talks, comply with international law including United Nations Security Council Resolutions 1718 (2006), 1874 (2009), 2087 (2013), 2094 (2013), 2270 (2016), 2371 (2017), 2375 (2017), and 2397 (2017) and cease provocative behaviors.
In 2017, the United States initiated an international economic and diplomatic pressure campaign on the DPRK to bring them into negotiations on denuclearization. International focus led to new international diplomatic engagement with DPRK leader Kim Jong Un, including summits with South Korea, China and the United States. On June 12, 2018, President Trump became the first sitting U.S. president to meet with the leader of the DPRK when he met with Kim Jong Un in Singapore. The two leaders signed a joint statement that agreed to the complete denuclearization of the Korean Peninsula, security guarantees for the DPRK, working toward a peace regime, and the recovery and immediate repatriation of POW/MIA remains.
U.S. Assistance to North Korea
In the past, the United States has provided food and other emergency aid to North Korea during times of famine and natural disasters, upon request by North Korea. The United States does not currently provide any direct aid to North Korea. Currently, there are a number of U.S. NGOs who travel to the DPRK, through private and faith-based donor support, to provide aid to fight infectious diseases such as multi-drug-resistant tuberculosis and to improve farming practices and agricultural output in rural areas.
Bilateral Economic Relations
The United States imposed a near total economic embargo on North Korea in 1950 when North Korea attacked the South. Over the following years, some U.S. sanctions were eased, but others were imposed. Most recently, Executive Order 13810 was signed by the President on September 21, 2017, in the wake of the DPRK’s September 2017 nuclear test and multiple ICBM tests. Combined with previous executive orders and other restrictions on the DPRK, these constitute the most restrictive sanctions on North Korea to date.
North Korea’s Membership in International Organizations
North Korea and the United States belong to some of the same international organizations, including the United Nations and the Association of Southeast Asian Nations (ASEAN) Regional Forum.
The United States and North Korea do not have diplomatic relations. The Swedish Embassy in North Korea is the U.S. protecting power and provides limited consular services to U.S. citizens.
North Korea has no embassy in Washington, DC, but it is represented in the United States through its mission to the United Nations in New York.
More information about North Korea is available from the Department of State and other sources, some of which are listed here:
The Post-War North
After the war, North Korea's government focused on industrialization as it rebuilt the battle-torn country. As president, Kim Il-sung preached the idea of Juche, or "self-reliance." North Korea would become strong by producing all of its own food, technology, and domestic needs, rather than importing goods from abroad.
During the 1960s, North Korea was caught in the middle of the Sino-Soviet split. Although Kim Il-sung hoped to remain neutral and play the two larger powers off of one another, the Soviets concluded that he favored the Chinese. They cut off help to North Korea.
During the 1970s, North Korea's economy began to fail. It has no oil reserves, and the spiking price of oil left it massively in debt. North Korea defaulted on its debt in 1980.
Kim Il-sung died in 1994 and was succeeded by his son Kim Jong-il. Between 1996 and 1999, the country suffered from a famine that killed between 600,000 and 900,000 people.
Today, North Korea relied on international food aid through 2009, even as it poured scarce resources into the military. The agricultural output has improved since 2009 but malnutrition and poor living conditions continue.
North Korea evidently tested its first nuclear weapon on October 9, 2006. It continues to develop its nuclear arsenal and conducted tests in 2013 and 2016.
On December 17, 2011, Kim Jong-il died and was succeeded by his third son, Kim Jong-un.