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SOUTH KOREA ECONOMIC REVOLUTION INTRODUCTION From the eternal past we have faced numerous problems. Human problems like poverty and diseases are as old as the human race itself. The poverty of the 18th century and before saw the agrarian reforms and industrial revolution. Dictatorship and political oppression saw the rise of revolutions like the Bolshevik, the American, the French and recently the ones in the Arab world. All these brought changes in social, political and economic systems that had existed prior to that. “It takes a revolution to bring a solution”, so goes one of the lines in Bob Marley‟s classic song. As much as it brings a solution, it also brings a change in the goals and values that shape society. The story of South Korea‟s transformation from a poor state to becoming one of the greatest economies is a poverty solution and deserves attention. Marked by slums and dirt a century ago, if those who died fifty years ago were to be raised they will hardly recognise it‟s the same space they once occupied. Today Seoul is one of the most beautiful and clean cities in the world Korea Today (2012). In this essay the focus will be how South Korea achieved this feat that has been a futile attempt for most nations. A major overhaul was at the centre of South Korea‟s economic growth. “Miracle on the Hangang River” refers to the miraculous economic growth that has transformed South Korea from the ashes of the Korean War BBC (2012). So remarkable has been the growth that it is a revolution on its own. Today South Korea is the third largest economy is in the Asian block and number fifteen in the world and one of the biggest trading partners of the United States of America. In the words of Spritzler and Stratman (2011) only revolution can fulfil the aspirations of the great majority of people for a better world. The world has seen numerous revolutions from the Bolshevik one to the French from the American revolution to the Arab revolution. All these brought changes in the political systems. Societies and economies also go through transformation. Growth in South Korea was founded on consistent fiscal and monetary policies, international trade, capitalistic behaviour, international aid, sustained population growth, investment in education, technology, and political stability among others. In its quest for economic growth, South Korea focused on building its potential by strengthening its commitment to reforms that enhance economic freedom and therefore competitiveness in its economic system. The people of Korea share a common heritage despite the modern day split between the north and the south. The Republic of Korea occupies the southern half of the Korean Peninsula on the north-eastern corner of the Asian continent. It occupies nearly 45 percent of the land area of the Korean Peninsula, or 98,190 square kilometres of land area and 290 square kilometres of water area Federal Research Division (2005). The early 1900 saw the occupation of Korea by Japan. From 1910 to 1945 South Korea was a colony of Japan and for this reason the economy relied heavily on that of Japan. Repression by the colonisers saw the rise of protest movements. The defeat of Japan in the Second World War by the allied powers saw the end of Japanese occupation of Korea. In 1950 the declaration of independence by South Korea saw it being attacked by their northern neighbors. The war ended without a peace agreement thus literally the country is still at war with North Korea. Since the 1960s, 2 the Republic of Korea has achieved a remarkably high level of economic growth, which has allowed the country to rise from the rubble of the Korean War and be counted among the richest in the world US State Department (2012). After the Korean War, real GNP grew rapidly from 1953 to 1957, averaging about 5 percent per annum. The economic benefits of capitalistic societies were eye-catching to South Koreans and therefore the alternative to capitalism was highly likely. South Korea allowed market forces to replace government and labour intervention. Capitalism, the economic system that calls for the deregulation of economic activities allows competition and the profit motive encourage investment which brings spillover benefits to most people not directly involved. The growth of big corporations like Samsung and Hyundai was never by chance but a result of well calculated strategies. From the 1960s, the government had schemes which encouraged the growth of family businesses and these were known as chaebol BBC (2012). This scheme saw the rise of conglomerates like LG, Hyundai and Samsung groups. These created jobs and transformed the nation‟s fortunes for the best. South Korea‟s experience with free trade and open markets has been exceptionally good. South Korea is now the world‟s 12th largest exporter, producing nearly 3 percent of world goods exports. Over three decades from the 1960s to the 1990s of pursuing liberal trade policies, real per capita GDP rose from $550 to nearly $15,000 Klingner & Kim (2007). Thus it can be argued that a bold sense of entrepreneurship has played a key role in South Korea‟s tremendous economic success. In 2008 the population of South Korea was estimated to be 48,5 million and the growth rate was around 0,6 %. In 1960s the population was around 25 million. The sustained increase on population over the period saw the gradual increase in labor force and this is one factor that forms the foundation of all economic growth. Intervention by government in stimulating economic activity is an essential if growth is to be achieved. Besides intervention, government also acts in formulation of macroeconomic policies upon which growth will be based. With this in place South Korea managed to keep and maintain its advantage as the best spot for investment. These policies sent powerful signals to investors. The adoption of expansionary fiscal policies in the 1960s revitalized the economy and these stimulated growth and in 1963 GNP grew by 8.8 percent. South Korean GNP continued in to grow rapidly from 1964 to 1966, averaging about 9 percent. The other non- official policy saw government favouring a small number of large firms than a large number of small firms, because the leadership and organization were more centralized and easier to control. This, in turn, gave large firms more capabilities to expand exports volumes as the government allocated more bank credit to them. Modern education developed rapidly and the growth of educational institutions and commercial and industrial enterprises in and around Korea‟s major cities attracted a larger number of rural people to urban areas. Everywhere in the world, it is known that the highest rates of return come from investments in education. Literacy rate in South Korea now stands at around 98 %. A larger educated work force may increase growth either because of faster technological progress, as individuals build on 3 the ideas of others, or by simply adding to the productive capacity of a country as Thirwall (2011) suggests. The World Bank (2010) sees education of women in developing nations as likely to give back the highest rates of return. However education of women can only work by showing the incentives that comes with education for example by providing jobs after school. The effect of education will also be seen on fertility rates and increase in national product. This truly sums up the story of South Korea. Individuals who had political influence in South Korea also contributed immensely to its development like president Park‟s philosophy of being economy-oriented rather than his predecessor who was politics-oriented. Today he is remembered for his controversial statement on democracy when he said economics mattered most than politics to the poor people of Korea. South Korea enjoyed periods of political stability for fairly longer periods. Changing perceptions on the political and security systems are known to have a negative effect on investors‟ confidence. Moments of instability in the political arena have occurred but have not been really widespread to stall economic growth. This is one factor that investors consider carefully before setting up businesses and regimes have stayed in power for fairly longer spells which helps in formulating and acting on long term goals. The historical aspect of technological innovation in Korea cannot be doubted. Technology is basically how the factors of production are organised to produce a good. Its level determines the quality and quantity of goods in an economy. A limit of it becomes a constraint and limit what is possible. With technology, output increases without shattering the prospects of greater future profit. The economic growth of South Korea was heavily buoyed by technological progress in this Asian country US state department (2012). From 1967 to 1972 the basic objective was to promote the modernisation of the industrial structure and to build the foundations for a self-supporting economy and during this period GNP growth averaged 10%. South Korea received much aid from multilateral institutions like the IMF and the World Bank and from the United States of America. These funds played a significant part in boosting the growth of this Asian economy. The funds were used in the procurement of food and capital goods. From 1953 to 1960 United States of America aid during the period amounted to $1,745 million. Therefore in more than one way the growth can be attributed to the aid. Economic expansion, having begun in the 1960s with the ousting of president Syngman Rhee, the new man in the office president Park enacted a new policy that transformed South Korea into an export-oriented economy, a focus on increasing exports with minimal to no imports. Exports were at the centre of all economic growth experienced in South Korea. Today it is one of the biggest exporters of goods to the United States. As the global world today has enormous Parkin (2010), a country open to international trade may experience faster technological progress and increased economic growth because the cost of developing new technology falls as more high technology goods are available Thirwall (2011). Comparative advantage is the force that drives this form of trade, and South Korea has one in the production of electronic consumables. This means it produce these products at lower opportunity cost than others. This is the specialisation that Adam Smith wrote about as causing economic differences in his influential book „An inquiry into the causes of the wealth of nations‟. South Korea‟s ties with New Zealand have been strong since the Korean war and trade between these nations have been booming. In 2008, imports from Korea and exports to Korea were of relatively equal 4 value, New Zealand traded NZ$1.4 billion of exports to Korea and NZ$1.3 billion of imports from Korea Asia: NZ foundation (2009). Parkin (2010) defines property rights as the social arrangements that govern ownership, use and disposal of anything that people value. Everywhere, where property rights are enforced, people have the incentive to specialise and produce goods in areas they have a comparative advantage. And these act as motivational tools. Patents, utility models, industrial designs, trademarks and copyrights are legally recognised in Korea. Lastly the traditional values of Confucianism were largely present through the Korean companies and in the personalities of Koreans. Confucianism had heavy influence in Korea and its code of ethics became the guide to the structure of Koreans in family, society and the work force, and the reason behind the wealth of human capital and the philosophy of Koreans Park (2012). Confucianism is the belief that humans are capable of learning, can improve and may become perfect through self-cultivation and self-creation. It focuses on the growth of virtues and maintenance of ethics. In South Korea the perpetuation of righteousness, belief in hard work, the ambition for success, loyalty and kinship was a real catalyst in the success of this nation. CONCLUSION Only revolution can fulfill the aspirations of the majority. Raising expectations, reshaping dreams and creating new possibilities is what it is based on. A move away from the system that has been proven to be faulty is the aim and finding solution to answers. Bob Marley was right in every sense, it‟s all about solutions. Wherever it„s yet to happen, they exist no problem or those facing problems haven‟t found the way out of their troubles yet. Today the gap between the rich and poor South Koreans is not much. Yes poor people exist but it is like that in many rich nations. The economic revolution that South Korea went through since the 1960s has brought „tasty pies‟ to most people.REFERENCES Asian: NZ foundation (2009) South Korea – an opportunity for New Zealand Business.www.asianz.org.nz. BBC news (2012) South Korea economic growth slows as investment falls. http://www.bbc.co.uk Federal Research Division (2005) Country profile. http://lcweb2.loc.gov/frd/cs/profiles Klingner, B & Kim, A., and (2007) Economic Lethargy: South Korea Needs a Second Wave of Reforms. www.heritage.org/research/AsiaandthePacific/bg2090. Korea Today (2012) Balanced economic growth. http://www.koreatimes.co.kr National Bureau of Economic Research (1975) Economic growth in South Korea since Second World War. http://www.nder.org Park, J. (2011) Confucianism in Korea’s Economic Revolution. http://history.emory.edu/home/assets Parkin, M., (2010) Economics, ninth edition, (global edition) University of western Ontario: Pearson Spritzler, J. & Stratman, D (2011) Thinking about revolution http://www.newdemocracyworld.org/Thinking The World Bank (2010) World development indicators. http://web.worldbank.org Thirwall, A., (2011) Economics of development, (ninth edition) University of Kent: Palgrave MacMillan US state department (2012).Diplomacy in action. http://www.state.gov/r/pa/ei/bgn/2800.