Chapter 4.

The Four Asian Tigers: South Korea,

Taiwan, Hong Kong, Singapore
Applied Economics in East Asia

Roser Alvarez Klee

[email protected]
 Contents
1. Hong Kong

2. Taiwan

3. South Korea

4. Singapore
 GDP per capita

22.000

20.000

18.000

16.000

14.000

12.000

10.000

8.000

6.000

4.000

2.000
1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007
Brazil Mexico Korea Taiwan
3. SOUTH KOREA
 The Korean peninsula

• Korean Peninsula: 220.000 km2

(half Spain).

• Population 26 million (North

Korea), 52 million (South
Korea).

• High population density, bu no

as high as the rest of Northeast
Asia.

• No natural assets (except

ginseng).

• North extreme of the China

Sea, no geographical
advantage.
THE JAPANESE PERIOD, 1895-1945
 The influence of Japan in Korea

• 1876: Japan forces Korea to open to trade

• 1910: Korea officially become a Japanese colony à

modernization of the economy

– Transport & communication à market integration

– Health campaign à reduction in mortality
– Education à 47% primary school enrolment (1943)
– Institutions à property rights & tax
– Modernization of agriculture (1920-33) à boost yields
– But also shift to industrialization (1911-40)
• Industry as a % share of GDP: 6% to 28%
• Agriculture as % share of GDP: 76% to 41%

• 1937-45: war industry

 Korea and the Japanese modernity
• Bureaucracy from 10,000 officials (1910)
to 90,000 (1937). Education: 10,000
students (1910) to 1.7 million (1945).

• Centralized modern state, and state

intervention in the economy (first
agriculture then industry).

• Military discipline (workforce is

repressed) and violent repression over Hwasin Department Store
Korean nationalism, culture and women.

• Export of agricultural production to Market shares of Korean cloth markets, 1903-14

Japan and from 1920s growth in industry Britain USA Japan
(food processing) and infrastructures 1903 59% 0% 41%
(railway, irrigation projects and ports).
1908 48% 1% 51%
• Origins of Chaebol ( , 財閥) from 1912 16% 0% 84%
zaibatsu (財閥): Kyongbang (textiles), 1914 3% 0% 97%
Kongsin Hosiery, Paekson, Choson
Industrial Bank, Hwasin Department
Store.
 Consequences in Korea from the economic
modernization
• Population growth

• Improved the living standards of Korean population

– Increase of rents and wages, but misbalanced growth that lead to inequality

• Life expectancy: 43 years (en of the colonial era)

• Increase consumption, but not food-consumption

• Increase of human capital

Unbalanced outcomes
POST-WWII AND THE KOREAN WAR
(MID-1940S TO 1960)
 The division of Korea, 1945-1952
• 1945 U.S.-Soviet Union Joint
Commission (decolonization
process)
– Trade disruption
– Economic breakdown

• Korean War, Jun 1950 – Jul

1953:
– 1.5 M casualties
– Destruction of 25% K
– US military deployment
(mining and manufacturing),
US aid and technology
transfers but war
devastation.

• After the war, the north and

south remained divided
 North Korea’s isolationist policies
• Kim Il-sung, balance between Mao and
Stalin.

• 1953-65: rapid economic growth and

reconstruction (aid from other socialist
countries).

• Stalinist economy.

• 1960s: The Sino-Soviet Split causes the

growing isolation of North Korea.
– Lack of trade and new technology

• June 1972: agreement between the two

Koreas (non-intervention).

• 1976: South Korea surpasses North

Korea in GDPpc.

• 1990s: Crisis in North Korea.

 South Korea (1954-1960)
• Land reform, protectionism and incipient democracy.

• State intervention

• Industrialization
– ISI (import-substitution industrialization)
– Loans from banks to enterprises

• But high levels of corruption that caused inefficient markets and economic stagnation
(collapse of the First Republic 1960)

• Dependence on foreign capital (U.S.)

• GDP growth: 3.4%

• Population Growth: 3%

• Poverty rate around 40% of the population in the mid 1950s. South Korea is poorer than
Ethiopia, Yemen or North Korea.
 Conclusions
• Since the fall of the Joseon dynasty at the end of the 19th
Century, Korea has been suffering the pressure of Japan,
China, Russia and the United States.
• The development of Korea in the 20th Century comes from
the institutional frameworks that was set by Japan in the
first half of the century (for instance, the chaebol).
• South Korea also received a strong US influence due to the
Korean War and the deployment of thousands of US
soldiers in the country.
• Despite some spots of modernization, Korea was a poor
and agricultural country (even poorer than China) by the
1950s.
THE KOREAN ECONOMIC MIRACLE
(1961-81)
 South Korea under Park
Chung Hee, 1961-79

• Military Coup 1961: Inspiration on Meiji Reform,

pro-Japanese military leaders.

• Rise of bureaucracy (half million people),

inspiration on Japanese MITI, public investment
in infrastructures.

• Militarized top-down repressive growth-

oriented state: Korean Central Intelligence
Agency (KCIA) controls private companies and
workers.

• Cohesive capitalist state, corporate state or

guided capitalist state…

• Combination of cheap Korean workers and

technology from the United States and Japan:
high speed industrialization in the 1960s.
 South Korea – 1960s
• Command capitalism

• Government loans with low interests to

enterprises

• Construction of infreastructure

• Export-oriented industrialization
– Supply (production) adapts to demand from
the international market
– Technology and K transfer from Japan
– Light industry

• Less corruption

• Outcomes
– Industry in share % of GDP: 9% (1960-62) to
27% (1973-75)
– Agriculture in share % of GDP: 45% (1960-62)
to 25% (1973-75)
– GDP av. Growth: 9,3% (1960s-70s)
 South Korea – 1970s
• Greater state intervention
– Bank loans to chaebols
– Low taxes for business
production on products of daily consumption
– ISI &EOI
• Exports: 30%
– Control of prices & wages

• Heavy and chemical industries (military)

– Chaebols
– Greater growth than other industrial sectors

• Promotes car and ship industry (& also technology)

• Investment in education
– Education: 87,6%

• Equity in agricultural wages, but not industrial wages

• Inflation by the end of the decade

 The path towards export promotion from the mid
1960s onwards
• 1960s: Restrictions to imports and
development of export-oriented
industries (like Japan).

• 1970s: Capital intensive sectors (steel,

shipbuilding), especially HCI (Heavy
and Chemical Industries).

• 1980s: from capital intensive to

technology intensive (cars,
semiconductors).

• 1990s: Korea becomes world leader in

shipbuilding (now is 2nd after China),
cars and electronic products.
Japan and Taiwan also bet for this sector

• Chaebols receive foreign loans but not

FDI. The salaries of workers are kept
low (but their productivity is high).
more technological type of industry
enterprises are increasing their income but workers
have a less increase in their salary, creating inequality
KOREA’S TRANSITION, 1979-1997
First steps towards stabilization after Park, 1979-92

• Political instability after Park’s death, general Chun.

• Neoliberal policies: Budget constraints, salary and currency

devaluation, financial liberalization, bank reform.
led by the market forces, less intervention of the State

• The “three lows” recovery, 1980-86: low international interest

rates, low oil prices, low won.
because they focus on the EOI, the low prices of commofdities attract the international market

• 1987 Government of general Roh: increase the value of the

won, salaries and capital liberalization.
more educated population, the country has modernized economically.
Enequality lead to the wish to fight

• Democratic transition and Seoul Olympic Games in 1988.

 The declining growth rates, 1980-1997

• Fall of economic growth rates.

• “Comprehensive Policy
Measures of Economic
Stabilization”, from a
government driven economy to
a market driven economy.
• 1980s Tensions between the
government / workers /
chaebols.
• Social protests demanding
improvements in the standards
of living.
• 1993: first democratic elections
(Kim Young Sam): enhance
neoliberal measures: financial
liberalization.
 The export boom of the successful
chaebols
• Korean chaebols lead Value of Exports by Major Electronics
the international Companies, 1987-1995
market of consumption
electronics in the 1990s.
• Also the car business.
• Korean chaebols create
innovations in the most
innovative sectors of
the 1990s: computers, Total Sales of Major Electronics
TV sets, cars, mobile Companies, 1987-1995
phones.
• Chaebols are reformed
after the 1997 crisis.
 The crisis of 1997
• 1990s: Neoliberal policies under Kim Young-sam: globalization (segyehwa
).
IMF (International Monetary
Fund) will help financially the
• Sout Korea is vulnerable to sudden capital outflows. countries in need. SK
demanded their help in 97.
They will receive their help but
• Competition from other Asian countries (mainly China, but also Taiwan). also will have more neoliberal
kind of policies
• Financial and stock bubbles drives banking crisis (bankruptcy of chaebols
Ssanyong, Hanbo Steel). Chaebol reform. They were able to return the
money but it caused more
inequality
• Corruption cases and crony capitalism (Kia case).

• Industrial overcapacity in some industrial sectors (Steel, petrochemical, etc.).

• December 1997: Rescue plan from FMI 60 billion USD. The loan is paid back in
2001 (before schedule).

• FMI policies: more liberalization policies: capital flows, labor flexibilization,

privatization.

• Fall of the won, exports resume fast.

• Standars of living: higher unequality and poverty rates.

THE RISE OF TRANSNATIONAL
KOREA, 1997-2020
 Innovation and
technology

• Mid 1980s: Korea produces

256k RAM chips before
Europe. 1994, market share
of 24%. Now, Korea is the
largest DRAM producer.
• 1990 the “chip” fusions:
Hyundai and LG, biggest
world DRAM producer.
• Samsung become the world’s
top producer of
semiconductors and mobile
telephones (market share
22% in 2016).
• From investment driven to
innovation driven.
 Samsung and the third
Industrial Revolution
• 1938, Lee Byung-chull, small trading
company (drief fish, noodles).
• 1947 sugar refinery, also in the woolen
business (1950s), futbol…
• 1968 decision to enter the electronics
business (Samsung Electronics): TV sets,
microwave (1970s), a/c
• 1970s: petrochemicals, shipbuilding.
• 1983: first PC by Samsung, Samsung
Aerospace Industries (military)
• 1991: Samsung Mobile Handset
• Chip and hardisk production: 64 MB
RAM, 250 MB RAM
• 1995 LCD crystal screen.
• 1997 Samsung motor is sold to Renault.
• 2007: First TV producer
• 2012: first mobile producer (and biggest
advertiser)

innovation has led them in a technological growth

 The Korean wave
from the 2000s
• 1990s: Innovations in the
cosmetic industrial General search interest for the Korean
products for young boyband Super Junior
women: BB Cream, CC
Cream.
• TV Dramas, cinema and
gaming industry for Asian
public (China, South Asia
and also Middle East).
• 2000s: rise of K-Pop.
• The Korean Wave ( ,韓
流).
• 2012-13 “Gangnam
Style” (PSY) the first clip to
reach 1 billion views in
youtube.
new industries that received attention: cosmestics
 Corruption scandals chaebol -
government
big connection between political and
enterprises —> a lot of protests
the problem is that it a negative impact
in social perspective

• Roh Moo-hyun,
president 2003-08
(suicide).
• Lee Myung-bak,
president 2008-13
(Mbonics).
• Park Geun-hye,
president 2013-17
(daugther of Park,
destitution under
scandal).
• Hwang Kyo-ahn,
president from
2017.
Korea and the middle-income trap
• Korea was the poorest
economy of the UN in
the 1950s.
• In the 1960s-70s it
became a middle-
income country but
kept growing until
catching up with the
developed countries.
• Technology adoption,
innovation and catch
up hypothesis.
 The difference is in R+D: Korea and
Spain
• Spain population: Spain and Korea GDP pc (2011 international USD), 1990-2017
46.5 million / 40000
Korea is 51
million. 35000

• Spain’s GDP: 1.3 30000

billion USD /
Korea: 1.5 billion. 25000

• Spain R+D 20000

Spending: 19.2 15000

billion USD (1,2%
GDP), Korea: 91.6 10000

(4.2% GDP).
5000

Korea Spain
 Korea’s social problems
• WHO, Korea is the second
highest country on suicide
rate.
• High working and
education pressure, stress
(low fertility), burnout.
demographic problem
• The share of income
concentrated in the 10%
and 1% of the richest has
doubled.
• Rising housing prices and
low pensions have caused
increase in poverty ratios
of the young and old leading to the increase
generations. of private debt
• North Korea as a source of
future growth?
 Conclusions
• Korea is one of the most successful countries of the third
globalization and IT revolution. Thank to the country’s
spending in R+D and the strength of its chaebols, it has led
the mobile technology revolution.
• Korea has also managed to extend its soft power influence
with the sectors of entertainment (as Japan did).
• Korea has solved the middle-income trap problem and is
now among the most developed countries (surpassing
Spain in pc GDP).
• However, the country is not perfect: corruption, social
imbalances the strict labor ethics create an increasing
feeling of social problems and unrest. And last, but not
least North Korea.