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Export–led Industrialization in Korea

Jeffrey Frankel/ Harvard University Kennedy School

One way to think of Korean economic miracle is that it’s the best example we have about how the market system worked in a country previously was quite poor and in one lifetime people achieve standards of living comparable to high income countries. There are other examples, but maybe Korea is the best example of how large countries achieve that.

Only 50 years ago

Korean economy was no different from some of the poorest countries in Africa.
What was going on with the Korean economy for the past 50 years?
It’s time to look back over the history of Korea’s economic rise.

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1. Creation of a free market economy

Daehan News “after being liberated from the chains of 36 years of Japanese colonial rule on 15th August 1945, the first president, Dr. Syngman Rhee declared to the world that the Republic of Korea had been established.”

Three years after liberation
15th August 1948

The government of the Republic of Korea was established,
a member of the Western bloc of nations,
an advocate of liberal democracy and free markets.

The late 1940s,
the Cold War had just begun
The majority of newly independent states
are communist states that deny rights to private property
or have economies dominated by the state

They generally sought to sever or at least minimize trade
with the advanced capitalist world.

Because South Korea chose the free market system
it was able to enjoy the benefits
of easy access to advanced Western
civilization and technology.

The choice of free markets
also encouraged a spirit of self-help.

Miners and nurses sent to Germany
Engineers sent to South Vietnam
Construction Workers sent to Middle East
All examples of Koreans working hard
for themselves and their families.

Thus, South Korea’s choice of economic system
was a great decision.
But it all began with South Korea being so poor that
it could not be self-sufficient.

Shin Ho-cheol (aged 69) (Yu Yong-rak interview, latter stages)

There was nothing to eat, so we would mash up and eat kudzu roots we found on mountains
or eat sprouts, that’s just how poor we were. Three meals a day was a real luxury, people usually subsisted on one or two meals. At the time, there was also flour given as aid by the United States, we’d sometimes get some and turn it into dough medallion soup. I remember how we lived on the brink of starvation back in those days.

South Korea was reliant on international aid for its continued existence
following the end of the Korean War.
In the 1945-61 period, the United States provided a colossal $3.1 billion of aid
which was used to rebuild facilities destroyed in war
and reconstruct the economy.
A corner stone of this, consumer goods,
The three whites: flour, sugar and cotton
flour milling, sugar refining and weaving industry developed.
Thus, from 1954-1960
the South Korean economy grew 4.9% per year.

However, South Korea could not rely on aid forever.

Because the United States intended to cut aid,
South Korea had to create the basis for economic self-sufficiency.
In the late 1950s, USAID requested that the South Korean government
draw up a plan for long-term economic development

In response, the Syngman Rhee government’s
Ministers of Reconstruction Kim Hyeon-cheol and Song Yin-sang
Head of the Economic Planning Agency Cha Gyun-hwae
Head planner Lee Gi-hong
Head of the Budget office in the Ministry of Finance Lee Han-bin
And other young technocrats
began laying plans for economic self-sufficiency.

In April 1958,
An Industrial Development Committee is set up
under the Ministry of Reconstruction
composed of specialists,
it creates the first systematic economic plan
‘the Three Year Economic Development Plan’.

The plan
targeted 5.2% economic growth a year
and concentrated on the development of secondary industries
such as manufacturing, construction and mining.
The plan was announced in April 1960
but the 19th April revolution
broke out soon after
And with the collapse of the Rhee government
the plan was scrapped.

The Democratic Party government that took power
also made economic development its overriding mission.
With reference to the three-year plan, they set out their own
five-year plan.
However

This plan too came to nothing
with the 16th May military coup.

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2. The Park Chung-hee government’s the first five-year economic development plan
Emergence of the Park Chung-hee government

Park Chung-hee’s first inaugural address
“Our enemies are poverty, corruption and communism. I believe these to be our three common enemies.”

In the early hours of the morning of 16th May 1961
A group of soldiers led by Park Chung-hee
staged a coup and seized power.

Under the auspices of the Military Revolutionary Committee
they declared a revolutionary platform of policies.

1. Anti-communism is the cornerstone of state policy.
2. Compliance with the UN charter, and closer friendship with America are essential
3. Root out corruption
4. End the despair and hunger of the people, and mobilize all energies in the construction of a self-sufficient economy.
5. Foster the capacity to confront communism
6. Once these tasks have been achieved, hand power over to civilian politicians and restore the military to its former position.

Following the coup, the new government advocated
guided capitalism
enlightened capitalism.
The intervention and control of the state was quite visible
but private companies remained a central component of the economy.

The military government requested
that the heads of large corporations actively participate in economic reconstruction.
Those suspected of having made illicit gains in the former regime
formed the ‘Committee for Economic Reconstruction’.

This was precursor to the Federation of Korean Industries.
The military government entrusted the construction of state industrial facilities,
such as steel mills and fertilizer factories, to these heads of industry.

The government also created the Economic Planning Board,
which was responsible for planning, budgets and even the induction of foreign capital.

In October 1961, the military government
on the pretext of retrieving ill-gotten gains
nationalized the banks,
thus taking control of financial markets.

At the same time, the military government
rushed to establish an economic plan.

January 1962,
the First Five-year plan unveiled.
Annual growth target of 7.1%!

The plan promised to double national income in 10 years
in imitation of an Income Doubling Program
that the Japanese had begun pursuing.

Given the 2.3% annual growth rates of the previous 3 years,
such plans appeared rather overly ambitious.

A policy aimed at mobilizing domestic capital was set out in June,
in order to realize the economic plan.
A currency reform with an exchange rate of 10:1 designed to garner funds
for industrial development was put in place.

However,
the anticipated large sums of old currency did not materialize
and the reform ended in failure.

Getting funds from overseas also proved difficult.
There was no ready source and the country’s credit rating was very low,
hence there was no easy method to obtain foreign loans.

The United States demanded that the target growth rate be lowered,
and overly ambitious investment plans, like those for a combined steel works
be cancelled.

So it was that the first five-year plan
ended in failure.
It had been, from the very beginning,
an unrealistic plan that did not fit with the circumstances of the time.

Professor Pak Yi-taek

Following their seizure of power, the military government wanted to have something to show for its efforts, and pursued high economic growth rates. They targeted 7.1% per year.
They soon found themselves struggling to mobilize domestic and foreign capital. Thus, they released a revised plan in February 1964.
The government was forced
either to change the plan to make it viable,
or find a new route to prosperity.

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3. Introduction of an export-led industrialization strategy

The government changed track,
reducing targets
and released a revised First Five-year plan
in February 1964.

The growth target was reduced from 7% to 5%
and the scale of the industries to be built was reduced.

Three months later, in May 1964,
the government substantially devalued the won.
One dollar had bought 130 won, now it was worth 255 won,
thus the won lost half its value.
The government had merely given in to US demands to liberalize Korean markets,
this was not yet part of the export-led industrialization strategy.

But a new way had been found.
From 1962, exports of industrial goods began to rise.
The main exports were tinned iron, plywood and textiles.

The business circles had, before the government,
found a way to increase exports.

In February 1963, the Korean Chamber of Commerce and Industry
sent a bonded processing export survey team to Japan.
This was followed by another team sent to Hong Kong in June 1963.

In March, the Korean Businessman’s Association created
the Committee for the Promotion of Export Industry,
which dispatched a bonded processing export survey team to Japan.
They looked for new industrial export opportunities,
while also requesting that Japanese-Koreans invest in Korean industry
Upon their return, the team requested that the government create
an export industrial park in the surburbs of Seoul as a site for Japanese-Korean investment.

Heads of industry like Jeon Taek-bo (of Chunu Corp.)
urged the government to put in place export-friendly policies.

The government was also interested by increases in exports.
Even as early as January 1964, Park Chung-hee
in his annual address, mentioned the rise in industrial exports
as a noteworthy development.
May 1964, a new economy team is formed.
Under Prime Minister Jeong Il-gwon,
driving force behind sudden rush to normalize relations with Japan ,

Jang Gi-yeong, deputy prime minister in charge of economy, was a leading figure.
Jang’s nickname was the ‘ringleader’,
a testament to his leadership skills and determination.
His trips to Japan had confirmed to him the possibility of an export-led boom,
and hence he advocated for export-led industrialization.

Yang Yun-se
Deputy Prime Minister Jang had a drive that you cannot really put into words. He was extremely determined, both his energy and method were highly regarded, and there are many stories about him.
With Jang, the Economic Planning Board found that it had a massively expanded remit.
There really was no one better for the job.
He woke early in the mornings to make phone calls, his drive earned him the nickname ‘the bulldozer’.

Hwang Byeong-tae

Jang never seemed to sleep, always deep in thought. His way of operating, like a bulldozer, was well suited to Park Chung-hee’s leadership style.
The country’s initial development was thanks to Jang and Park Chung-hee. Park didn’t do it on his own. I think it was Jang that gave Park Chung-hee his economic philosophy.

In the same team, Pak Chung-hun, Trade and Industry Minister,
advocated a policy of exports first.
Vice-minister Kim Jeong-ryeom, with reference to the Japanese reconstruction experience
stressed the importance of the processing trade.

Finally, in 1964
exports passed the $100 million mark.

The Park Chung-hee government designated
30th November as export day to commemorate this milestone.

(January 1965, President’s Annual Address)
‘Thanks to the efforts of the government and industry over a considerable number of years, exports have begun to increase rapidly.’

January 1965, the President Park
in his annual address, sets three national priorities:
increase production, exports and construction.

So it was that the government, then in its infancy
made increasing national exports its overriding priority.

Exports first, national prosperity through export became
priorities that the people soon came to know well.

The government provided export finance at low interest rates,
reduced taxes for raw materials used in goods for export
and awarded prizes and provided additional support to outstanding exporters.

March 1965,
construction begins at Guro, on a new export industry complex.
This marked the realization of the suggestion made by industrialists
on their return from Japan two years previously.

By 1973, a total of three sites, with an area of 600,000 pyeong,
were constructed, and played host to a wide variety of companies
whose products included textiles and electronics.
By 1978, there were over 114,000 people working at the complex.

From February 1965,
the Enlarged Conference for Export Promotion, under the President’s direct oversight
met monthly.

Park Chung-hee,
from the first meeting until his death in 1979,
attended nearly every meeting.

So it was that, in the latter half of 1964
the Park Chung-hee government adopted an industrialization strategy
that prioritized exports.
Private enterprise’s initial move in this direction
bore fruit,
and with that, the government made exports
the centrepiece of state economic policy.

Song Ui-yeong (Sogang University, Graduate School of Economics)

From the early 1960s, private sector-led export industrialization began, and the government, impressed by the results, moved to strengthen and reinforce the trend. I think the role of officialdom was to create a rational, systematic policy, a general plan, and carry it out. The government, the top political leadership in particular, played an important role in adopting export-led industrialization as state policy and maintaining an atmosphere conducive to its realization.

This was a strategy without precedent
in the industrialization of other undeveloped countries.
It was also far from clear at the time
whether it would prove to be successful.

Perkins D.(Harvard university ),

Most people thought that Korea was sure to fail. Most people at that time were either pushing import-substitution or who knows what but, no one at the time really praised Korea for its export strategy.
It was only after Korea’s successful industrialization
that economists began to talk about
‘export-led industrialization’ and ‘export-orientated industrialization’.

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4. The global economic boom and growth in global trade

The rapid rise in South Korean exports of industrial goods
was also the result of riding the waves of
rapid global economic growth.

From the 1945 end of the second world war until the first oil shock of 1973,
the global economy, with the Western world leading the way
grew at unprecedented speed.

From 1950 to 1973, the global economy
averaged 4.9% growth per year.
It is far above the 1.6% average annual growth rate from 1820 to 1950..

As incomes and wages grew in developed countries,
it became difficult to maintain labour-intensive
light industry.

It was natural that
simple light industry like textiles, toys, wigs, footwear and electronics
moved to developing countries.

Developing nations with significant quantities of quality labour
nurtured light industry, seizing the opportunity to export industrial good
to the developed world.

South Korea, a country where the majority had received an education,
was just such a country. South Korea in the early 1960s was flooded with the people educated, but unemployed. Among those people female high teenagers, docile, patient and ready to sacrifice themselves for their families, in advance started to work in the factories of garments and wigs.

Amid such global currents,
South Korea’s decision
to adopt a light industry export-led growth model
turned out to be the right one.

The 1965 normalization of relations between South Korea and Japan
was especially helpful in supporting this strategy.
Japan was a country that had become an intermediary parts and capital goods of machinery exporting nation
as a result of heavy and chemical industrialization

South Korea began to get equipments and parts from Japan,
and began to process/assemble light industrial goods
for export to advanced nations like America.

Song Ui-yeong

The 1965 normalization of relations with Japan is very controversial. But getting capital goods, technology and financial capital from advanced nations, especially Japan, laid the foundations for economic growth and export industries. As a result of this, the country could move up in the global division of labour. Thus, I think that the normalization of relations was immensely important in the history of Korea’s economic development.

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5. Rapid increase in the export of light industrial goods

Exports increased rapidly every year. Totalling $40,900,000 in 1961,
by 1979, they totalled $15.1 billion, a 368-fold increase.
They rose annually by 40% on average, a staggering rate of increase.

In the 1960s, clothing, plywood and wigs,
processed light industrial goods and/
In the 1970s, textiles, electronics, shipbuilding
were the principal export items.

(1) Apparel
Clothing and fabric exports were a mere
$57.6 million in 1965
but by 1970, they had risen to $330 million
a full 40% of all exports.

At first, it was unprocessed textiles and apparel
that were exported, but soon finished clothes
became the major export. It was knit goods, in particular
that were central.

(2) Plywood
Plywood, another export item,
also a labour-intensive product to make.

In high demand for reconstruction after the war
the lumber industry learnt from Japanese plywood makers
and energized the industry.

Around 1970, plywood exports
totalled over 10% of all exports.
Jang Mun-yeong, deputy head of the Plywood Association

We had no resources, but plenty of educated people, so development was labour intensive. Amongst the industries developed was plywood. It had first been developed in the 1930s by Japanese industrialists when Korea was under Japanese colonial rule. In the 1940s, Dongmyeong Lumber and other small-scale plywood companies began to emerge. We had the people to absorb the demand, technical and high-level man power was there, so the plywood industry grew rapidly.

(3) Wigs
Cutting off your hair bun
and making enough to pay school fees and eat

The production of wigs utilized the abundant supply of dextrous female labour,
as well as all the hair to be found domestically.
It was exactly the right kind of industry for South Korea in the 1960s.

It was Choe Jun-gyu, head of Seoul Trade
who was behind the rise of wigs as an export.

In early summer 1965, the minister of Trade and Industry, Park Chung-hun had a series meeting with industrialists at the Chamber of Commerce & Industry. The first industrialist he met was Choe Jun-gyu, head of Seoul Trade Co., who presented him with a dyed black wig. Choe urged Park to ban the export of raw hair in order to maximize export gains from wigs. Thanks to the Vietnam War, the United States had banned the import of wigs from Hong Kong and Japan that used raw hair from China, due to Chinese support for the North Vietnamese. This temporary ban resulted in a surge in Korean wig sales within the United State. Wig sales had totalled a paltry $14,000 in 1964, but in 1965 they hit $1,550,000, in 1966 they were $10,620,000, and by 1970 they reached $93,570,000.

In these ways luck also was important.

Seoul Trade of Guro Complex had a factory
employing a thousand female workers.
Seoul Trade also made toys and sweaters for export,
in 1970 its exports were the second largest nationwide.
Its president, Choe Jun-gyu , beating the heads of Chaebol out,
was the person with the highest Individual General Income tax bill.

In 1970, wigs represented 12% of exports
the 3rd largest export item, and South Korea
was second only to Hong Kong in the US
wig market.

But with continued economic growth,
South Korean wages began to rise,
and with that, wig exports began to decline in the 1970s.

At the start, it was textiles, plywood and wigs
that were 1, 2, and 3 in the list of South Korean exports
not all that impressive.

O Won-cheol

I think it was either 1964 or 1965, when I went to America.
We exported white shirts and that kind of thing, we’d like to see how they were sold. We went to a small market, like Suwon or Changwon market.
Tumble down one and two storey houses, no lighting on, the shirts were piled up outside the shop. The made-in-Korea shirts couldn’t be sold inside the shop, too cheap.

They didn’t sell them individually, but in sets of five or ten.
Couldn’t buy one, had to buy five or ten.
Seeing that, I felt like I had been whacked. We had worked so hard, and this is how what we made was being treated.

But, it’s with the export of such cheap, dull merchandise
that industrialization begins.

Robert Lucas(Nobel prize honour, Chicago University)

Textile is where you start. So the first Korea product I got was a baseball glove. A good glove was very expensive in the United States. All of a sudden you could get these very cheap gloves. They were sown together by hands, by some lady, she probably put a stack of leather took it back to her house and (you know)... they were well done. That is what you do when you are just starting up.

(4) Entry into South Vietnamese freight and construction market
In the late 1960s,
with the mobilization of South Korean soldiers
South Korean companies entered
the freight and construction markets.

Technicians sent to Vietnam totalled 105 in 1965
with the start of the ‘Vietnam boom’ in 1966
the number rose to 15,571 by 1968.
They were mainly crane engineers,
and truck drivers

The provision of military supplies, construction services,
as well as the remittances of technicians and soldiers
meant that in 1969, $187,300,000 was earned.
This amounted to nearly 30% of all exports that year.

The large freight company Hanjin Group,
grew rapidly through special contracts granted during the Vietnam War.

At the time, Hanjin Trading
took advantage of the Vietnam boom,
making a total of $110,000,000 in revenue from Vietnam
including $26,700,000 in shipping and transportation services in 1968,
growing into a large company.

(5) The causes of the export boom
The smooth export of light industrial product/
was possible thanks to cheap and quality
labour.

In 1966, Korean workers were paid
only half of what the workers in the Philippines,
Thailand and Taiwan got.

But they worked the longest hours.

In the late 1960s, developed country and Southeast Asian workers worked 45 hours a week on average,
in South Korea the average was 55 hours.

The poor labour conditions
were epitomised in the Peace Market
clothing factory at Cheongye stream in Seoul.

Garment cutters and female stitch workers
employed in small-scale textiles factories
worked in places as narrow and dirty as
chicken coops, for over 12 hours a day.

Thus, on 13th November 1970,
a 22 year old garment cutter named Jeon Tae-il
who worked at the Peace Market,
set himself on fire and demanded that the Labour
Laws be respected.

The Petition Jeon Tae-il had intended to send to the President
As a young man, my blood is boiling. As a garment cutter who challenges these present circumstances, I cannot accept such terrible conditions….In a single month, we have one day off in the first week and another in the third. With so little time to rest, even those with the steeliest of constitutions would soon collapse.

At this very time, though, real wages
were rising for workers.

In 1965-6, real wages rose 5% a year,
and from 1967, they rose 10% a year.
This was thanks to the economy moving into
high skilled, technical industries.

So it was that in the 1960s and 1970s,
the work of garment cutters and textile workers
from poor backgrounds, became the first step on the ladder
of escape from the poverty.

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6. Development of assembly processing industries

1) Chemical fibre industry
The expansion of light industry brought
development in other related industries.
Chemical fibre industry was typical in this regard.

Chemical fibres are synthetic fabrics
invented in 1920s-30s, like nylon,
polyester and acrylic.

Nylon was similar to silk, Polyester to cotton
and Acrylic to wool.

From the late 1950s, stretch processing import companies
processed nylon to make socks and other textiles,
becoming popular.

Seeing an opportunity,
a businessman built a nylon factory.
Soon, acrylic and polyester factories were also built.

In 1957, two brothers, Lee Won-man and Lee Won-cheon
formed the nylon processing company, Korean Nylon.
With loans, they built a manufacturing plant of nylon yarn in Daegu in August 1963.

This was the beginning of the chemical fibre industry in South Korea,
and marked the formation of the Kolon Group.

After Kolon Group came
Hanil Nylon (1964)
Dongyang Nylon (1965)
began production of Nylon.

Following that, Hanil Synthetic Fibre (1967)
Dongyang Synthetic Fibre (1965)
began acrylic production,
while from 1969, Seonkyung Synthetic Fibre
began polyester production.

These companies were given loan guarantees
by banks and government for foreign loans
and domestic capital, such as it was.
They developed into large industrial chaebol.

Professor Lee Sang-cheol (Sungkonghoe University, Department of Social Sciences)

The goal was to replace imported items with domestic production, and such a policy began with chemical fibres. There was a need to increase scale, it started as import replacement, but after scale increased to the point where domestic demand was satisfied this created a new issue.
What to do with excess production? The production of chemical fibres evolved, and exports rose.

2) Electronic industry
The success of Korean labour intensive industries
can be seen in the manual assembly of parts
in electronic industry.

To begin with, the Korean electronic industry
assembled foreign-produced electronic parts.

This can be seen in the LG Goldstar radio.

Rakhwee Chemicals President Gu In-hoe,
having been successful with plastics
chose the domestic production of radios
as his next business project.

Gu brought West German technicians over
to train Korean technicians in radio assembly,
people like Kim Hae-su.

In November 1959, the first Korean radio set,
assembled from foreign electronic parts such as Sanyo Electrics’ valves,
were released.

After that, Gu In-hoe
began the assembly of telephone switchboards
and black-and-white TVs.

As private industry began to produce electronics domestically
the government began to give its active support.

In line with the times,
the government put in place a number of electronic industry support plans
including the Electronic Industry Promotion Act (January 1969).

US and Japanese electron companies,
seeking to take advantage of cheap, quality Korean labour
flooded in, setting up companies and creating joint ventures.

Korean companies also began to enter the industry.
The largest Korean corporation, Samsung, began to produce
TVs and values for exclusively for export.

In the early 1970s, in order to aid the industry,
the government constructed a large complex in Gumi, North Gyeongsang Province
and many companies moved in.

As a result, electronic industrial production
began to rapidly increase.

In the early stages, production centred on parts like
condensers and transistors,
later, production transitioned to
finished home appliances like black-and-white TVs and video recording equipment.

3) Masan Free Trade Zone
The Masan Free Trade Zone (FTZ)
to a certain extent epitomized the features of
the Korean economy’s assembly processing.

In 1970, the government created the Masan FTZ,
with a variety of tax incentives and relaxed regulations with respect to
foreign currency.
The aim was to encourage foreign investment in high end
electronics and machines for export.

In the 1970s, the Masan FTZ
hosted 90 companies, mainly Japanese
that employed 30,000 workers,
producing, by simple assembly,
electronic, metal and precision machine products.
In 1979, exports from the FTZ
totalled $600,000,000,
4% of South Korea’s total exports.

Lee Sang Cheol
The government initially envisaged that the Masan FTZ would attract high end technology companies and increase domestic employment. The expectation was that it would contribute to the domestic industrial base.
But it was ailing Japanese industry that came flooding in and the government’s expectations were largely unrealized.

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7. Heavy chemical industry exports

From the 1970s onward,
exports increased also dramatically.

In 1971, exports hit the $1 billion mark,
by 1977, they exceeded $10 billion,
and by 1988, they had passed $60 billion.

The major driving force behind export growth
at this point was the heavy chemical industrialization policy
set out by the government, and the resultant ‘heavy chemical industrial’ produce.

By 1988, the no. 1 export was
fibre and clothing.

But from the 1970s,
as heavy industrial exports increased/
electronic products, steel products and ships
were the no. 2 and no. 3 exports.

In the latter half of the 1980s,
automobiles became the third largest export/

In the 1990s
electronics became the no. 1 export.
Chemical engineering goods and other general equipment
newly became the principal export.
In a short time, South Korea has quickly progressed up
the export value chain, with higher value-added products.

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8. Entering the Middle Eastern Construction market

In 1972, Sanhwan Corp, wins a contract
to construct a 164 km motorway.
This was the start of South Korea’s entry
into the Middle Eastern construction market.

As with the first oil shock in late 1973,
the price of importing oil increased rapidly
and the trade deficit deteriorated,
the government sought alleviate the problem
by entering the Middle Eastern construction market.

The government offered active support,
making the Korean banks guarantee the construction companies
to the extent that Korean banks would compensate
for owner’s losses if construction companies went bankrupt.

Following the example set by Samhwan,
a number of companies entered the market
winning contracts in road and port construction.

Hyundai construction, in particular, scored a big success
by landing a contract to build Jubail industrial port in 1976.

The construction of Jubail industrial port
cost $940 million, the largest construction project at that time
with concrete wharf, seawall and massive moorage facilities (OSTT)./
This figure was equivalent to 25% of the Korean fiscal budget.

As the total value of contracts won by Korean companies
continued to rise, in 1982,
South Korea was second (11.2%)
only to the United States (36.5%)
in the percentage of the total value
construction contracts awarded.

In the 1976-81 period,
the value of construction contracts won
totalled almost one-half of exports/
Thus, the construction boom
played a crucial role in overcoming the oil shock

The hard work and sweat of Korean workers
and businessmen in the hot, sandy winds of
the Arabian Desert, became a powerful
motive force in the rise of the Korean economy.

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9. The vanguard of exports, the General Trading Company

From Ramen to Missiles’
‘From toothpicks to satellites’
The slogan of the General Trading Company,
the company that trades in everything.

The General Trade Company is a kind
of organization only to be found in Japan and South Korea.
In 1975, companies with exports in excess of 2% of total exports
were designated ‘General Trading Companies’.

The first company to achieve such status was Samsung C&T
Followed by Ssangyong, Daewoo Industries and International Trade.
In 1976, they were followed by Koryo Trade, Hyoseong C&T,
Peninsula Trade, Seonkyung, Samhwa, and Geumho Industries.

The General Trade company began by simply exporting
a small number of popular products/
and until the late 1970s, it focused on
textile exports.

But, from the 1980s,
they began to focus to overseas resource development,/
in the 1990s, utilizing operational, informational and financial
capacity, they expanded into project-based operations,
each with their own institutional structure, supply chains
and modus operandi.

At last, by the mid-1990s,
General Trading Company exports
totalled 50% of the entire export.
They had become the driving force
behind Korean exports.

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10. Achieving external balance

Over the last half century,
as exports increased
imports did too.

Doubts were raised over
the continued viability
of Korea’s trade deficit and
Korea’s overall growth strategy.

However, with the growth of exports
the Korean economy gradually found balance.

The ratio of exports to imports means how exports can
be made to cover the cost of all imports.
The ratio indicates the level of self-sufficiency,
the number continued to rise,
as Korea developed.

An important turning point
in South Korea’s move toward self-sufficiency
was the latter half of the 1980s, during the economic boom
accompanied by the ‘three lows’.

In 1985,
with the United States running a serious trade deficit
the US Treasury secretary, and German and Japanese Finance Ministers
agreed to the dollar to depreciate against the Japanese Yen and West German Mark,
and lower interest rates.

After this agreement, the global economy enjoyed
a period characterized by a low dollar and low interest rates,
with the price of oil also being low.

While the Japanese and West German’s were adversely impacted,
the South Korean economy unexpectedly thrived.

The stiff competition from Japanese products
abated as Korean products gained competitiveness
thanks to the ‘three lows’.

In 1986-88 period,
South Korea ran a large current account surplus,
and debts to foreign creditors declined.

From the opening of the country in 1876,
under the Joseon dynasty,
for about 110 years, Korea had not been able
to overcome a chronic trade deficit.

However, from by the late 1980s,
the country became economically
self-sufficient.

Song Ui-yeong

South Korea was not the only country to experience the ‘three lows’. Indeed, other countries also had the advantages that the situation conferred, but it was South Korea alone who was able to seize the opportunities that the situation had created.
That ability to seize such an opportunity resulted from the heavy chemical industries built in the 1970s. Ironically, I think, when seen from a certain point of view, it was because restructuring had not been properly done, Korean companies had a lot of surplus capacity, that they were able to mobilize during this period and contribute massively to the export account.

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11. Epilogue: the significance of export-led industrialization

The Republic of Korea
had nothing to offer but people.
If it had had natural resources,
there would have been no need to
export plywood, textiles and wigs.

In the early stages, the country
developed expertise in producing simple, processed goods.
Later, it was able to make goods
that required more skilled labour and sophisticated technology.

From the early 1960s to the late 1980s,
exports rose by 30-40% a year,
and this led to rapid economic growth

Investment in export-related sectors
increased rapidly, while increases in consumption
resulting from income increases led to a rise in investment.

In such a way, a virtuous circle of rising exports,
investment and consumption
resulted in the fastest economic growth rates
in the world at the time.

Exports turned Koreans
into world citizens.
A people who had lived in a
closed and isolated country/
took centre stage
in world trade,
thanks to export-led industrialization.

Koreans became global citizens,
who traded and worked with
people from across the world,
from both poor and rich countries.

From this, Koreans learnt how to
operate businesses in line with global standards.
Korean business, by continuing to improve
the quality of their operations,
can continue to advance the Korean economy.