Korean Economies: Cold War Economic Tests (1945-2000)

Figure 1.--This is 1953 photograph what South Korea looked like after the Korean War. The photograph was taken by an American advising the South Koreans on their railroads. We are not sure just where it was taken, probably in the Inchon-Seoul area. Viewing images like this, no one could have predicted that in only a few decades that South Korea would become a Tiger economy competing with America and Euopean in industrial and high-tech products. Nor did anyone think that indudstrialized North Korea would not only fail to recover, but actually decline to a country unable to manufacure commercial products or feed its people.

The Cold War provided real life tests of economic systems. The central test was that betweem the United States, two superpowers with large. well educated populstions, conintal powers with industrial economies and important africulyural secyors and important nstrural resources. Than there was the compeurion between Communidt Eastern Europe and the capitalist West. And then there was the stiking competition within a divided country, communist East Germany and and capitalist West Germany. But the Communist could make excuses, claiming that World War II damage was most severe in the East, delasing recovery. And they could claim thart the West was more developed thn the East before the War, making recovery easier. As for Germny, theyvcould point out that the Soviet occupation zone was largely agriculture and tht Germn industry was primarily loicated in the Western occupation zones. And although they did not openly say so except secretly to the Soviets, reparation payments to the Soviets damaged the East Germsn economy. So the Asian competitioins were particularly interesting China and Hong Kong Taiwan and North and South Korea. The huge differences between China and Hong Kong Korea make commpisons diffiucult. North and South Korea are a different matter. And here unlike East and West Germany, in the was Communhist North Korea that had been far more affluent abd industrislized. The South before World War II had been the poor agricultural section of the country. As a result, unlike East Germany, the Communists have no excuse for economic failure. North Korea was not only the most advanced part of Korea, but was not as danaged as South Korea by the War.

Tiger Economy: The Miracle on the Han

The results were staggering--The Miracle on the Han. The Han River flowed through Seoul. It stood in sharp contrast to the disaster on the Yalu to the north. A rich vibrant market economy with world class industry emerged in the south. This is amazing given what was left of South Korea after the Korean War. And doubly amazing given that the south was the poor, sagricultural part of Korea. The Communists in the north inherited the northern area with the resources that the Japanese industrialized. The Korean Economic miralcle is perhaps more surprising than the German and Japanese Economic Miralcles because it emerged in a basically poor agricultural country. And it began later than in Germany nd Japan, in fct while their economic miracles were well under way. South Korea emerged as one of the hugely successful Asian Tigers. Four Asian econonies diverged from the socialist policies adopted through the Third World--and the results were spectacular. The command economy in the North has brough economic decline, hunger, and repression. One Korean scholar writes, "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." [Cha] One of the most dramatic expression of the differences between North and South Korea is night time satellite imagery. South Korea energes as a bright jewel of modernity while Koreas in the North are visually shown as living in a new Dark Age. Market capitalism in three decades transformed South Korea into one of the most modern prposperous coutries in Asia and Seoul was transformed into a sparkling global city, a major hub of business and finance. South Korea today is an modern nation rivaling Japan and Western Europe with an advanced technological and communications infrastructure.

Economic Disaster on the Yalu

Korea was a very traditional, agricultural country until Japan formally seized it (1909). The Japanese developed mineral resources and introduced heavy industry. Most of the industrial development occurred in the north where the mineral resources were located. North Korea thus was an important part of the Japanese World War II war industry. North Korean industry was largely beyond the range of the American strategic bombing campaign and thus unlike Japanese industry survived the War. Thus when the Communists took over, it was thw wealthiest, most prodictive. Kim Il Song sinstalled in power by Stalin pursued Soviet-style central planning and integrated the country into the Soviet economic system. The Korean War (1950-53) did considerable damage and was followed by a long period of economic decline when a series of large centrally planned projects proved economic failures. At the same time the South which pursued capatalist free enterprose economics brought about an economic miracle accomplished without important natural resources which made it one of the richest countries in Asia. Communist North Korea is the world's most centrally directed and least open economies. The result has been unmitigated disaster. Economic problems are endemic, but largely hidden while the Soviet Union subsisized the regime and forced its Eastern European satellites to do the same. The fall of Communism in Eastern Rurope and the Soviet Union, ended North Korea's ability to arrange barter deals. State policies preventing foreign competition has neant that industry fell behind that of other countries. The country's industrial capital stock is thus old an inefficient, suffering from underinvestment and shortages of spare parts and unable to produce products saleable outside of the country. As in other Connunist countries, agriculture is also a failure as a result of collectivization and mismanagent. Combined with droughts, crop failures have resulted in famine, only ameliorated by food shipments from countries the regime vilifies (America, Japn, and South Korea). All of this is further compounded by the maintenance of a huge military andc weapons programs which absorbs much of the country's economic output.


Cha, Myung Soo. Yeungnam University. "The economic history of Korea," EH.net, undated, retrieved August 22, 2014.


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Created: 11:37 AM 6/5/2018
Last updated: 11:37 AM 6/5/2018