Back to the Future of the South Korean Economy and Society

This paper examines the various potential paths of economic growth to understand the development of the economy and the transformation of the society in South Korea. Based on the endogenous growth theory, we describe the engine of economic growth in the South Korean economy over the last fifty years. We also demonstrate how this fast economic growth has molded the country’s sociopoliticocultural life and, in doing so at an semianthropological and pseudoethnographical approach, help readers to better understand the contemporary life style of average South Koreans. The experience of economic growth in South Korea is unprecedented in human history and provides a role model for the design of strategies for economic growth and development, as well as for associated government policies, for recently developing economies. We then show that the economy and society in South Korea provides an example of a living laboratory to understand better both developing and advanced economies. The “growing pain” of fastgrowing economies and the “geriatric symptom” of advanced economies coexist in contemporary South Korea

사회과학연구 2016; 42(3) Journal of Social Science Vol.42, No.3, 2016; 1-52 http://dx.doi.org/10.15820/khjss.2016.42.3.001 사 회 과 Back to the Future of the South Korean Economy and Society* 1) 학 연 구 2)Minjoo Oh (오민주)** Professor, Department of Sociology and Anthropology, University of Mississippi 3)Hyun Park (박현)*** Professor, Department of Economics, Kyung Hee University ABSTRACT This paper examines the various potential paths of economic growth to understand the development of the economy and the transformation of the society in South Korea Based on the endogenous growth theory, we describe the engine of economic growth in the South Korean economy over the last fifty years We also demonstrate how this fast economic growth has molded the country’s socio-politico-cultural life and, in doing so at an semi-anthropological and pseudo-ethnographical approach, help readers to better understand the contemporary life style of average South Koreans The experience of economic growth in South Korea is unprecedented in human history and provides a role model for the design of strategies for economic growth and development, as well as for associated government policies, for recently developing economies We then show that the economy and society in South Korea provides an example of a living laboratory to understand better both developing and advanced economies The “growing pain” of fast-growing economies and the “geriatric symptom” of advanced economies coexist in contemporary South Korea Key Words: Economic Growth and Development; Endogenous Growth Theory; Socio-Politico-Cultural Fundamentals; South Korean Economy and Society * We thank Sunghoon Cha, George Economides, Jeffrey Greenwood, Tetsu Haruyama, Jeffrey Jackson, Heayoung Jung, Yeongyo Jung, Han Goo Lee, Apostolis Phillippopulos, and Vanghelis Vassilatos for their helpful comments and suggestions We also extend our thanks to seminar participants at Athens University of Economics and Business, International Monetary Fund, Kobe University, Macau University, University of Alabama, and University of Pennsylvania Park gratefully acknowledge the financial support of SSK (2014S1A3A2044459) in Korea Research Foundation ** Professor Minjoo Oh, Department of Sociology and Anthropology, University of Mississippi, Room 510 Lamar Hall, 615 Grove Loop, University, MS 38677; Phone: +1-662-915-3454; email: minjoo@olemiss.edu *** Corresponding Author: Professor Hyun Park, Department of Economics, Kyung Hee University, 001 Hoegi-Dong, Dongdaemoon-Gu, Seoul 130-701, South Korea; Phone: +82-2-961-9375; email: econhyun@khu.ac.kr 2ㆍ사회과학연구 제42권 제3호 Ⅰ Introduction As when visiting any foreign country for the first time, we as a first-time visitor are most likely to encounter the basic outlook of South Korea We may observe how this outlook shapes views on weather, food, streets, traffic, buildings, trees and flowers and then we may go on to explore its everyday lifestyle―its dress code, facial expressions, and public manner―and come to understand these facets by comparing them with the ones of our own country We then further explore the unique aspects of the country’s customs and culture at the levels of its technology and political institutions Inevitably, we also try to sense the advance of its unacquainted economic standing beyond the statistics and official level of gross domestic product (GDP), by comparing it with the advance of our own economy That is to say, we imagine ourselves as a foreigner as if we were visiting South Korea for the first time in our life We then set up a working hypothesis to explain a few selected observations in respect to the South Korean economy, which has largely enjoyed the resilience of fast-moving economic growth over the past fifty years Our modest intention in this study is to offer you, the reader, a “Travelers’ Guide to the Contemporary South Korean Economy and Society.” We intend to take a few directions in “what to look at and how to look at the past and present South Korean economy and society” In particular, we will travel “back to the future” of the South Korea, and revisit theoretical arguments and practical observations made during the economic growth and development progress that South Korea has experienced and that has led the average South Korean to become about sixty times richer than s/he was after the Korean War The slightly more ambitious intention in this paper is to design a simple road map for a current developing economy to follow by differentiating between the general and unique nature of aspects of the South Korean economy We then show that the South Korean economy provides an excellent example of a living laboratory that may be used to understand both developing or advanced economies, for example, the United States and Japan on the one hand, and India and Republic of Congo on the other hand Due to the amazing accomplishment of an industrial revolution completed within a fifty-year lifetime, we can witness that the seemingly contradictory characteristics of these two polarized groups of economies coexist together in the contemporary South Korean economy This paper also intends that by traveling “back to the future” in South Korea we gain a greater understanding of what to expect for the future of developing economies and reconstructing their corresponding societies in the next ten or twenty years Back to the Future of the South Korean Economy and Societyㆍ3 First, we argue that the fast economic growth of the South Korean economy is unprecedented in the world economy since the first wave of the eighteenth-century industrial revolution South Korea also has demonstrated her resilience of economic performance during the two financial crises: 1997~1998 in Asia and 2008~2009 globally Her economic success has been accompanied with equitable income distribution and accomplished democratization We then illustrate how the endogenous growth theory helps us to understand the Korean economic miracle and democratization,1) so that we may be able to duplicate her experiences in recently developing economies For example, this paper differentiates growth elements in short-term and long-term periods: input factors of production, productivity and efficiency, technology, institutions, and government, international interdependence, urbanization, climates, environment, and many others Furthermore, the paper explores how preferences in households affect the economic performance of the South Korean economy We find that an envy and jealousy preference formation plays a significant role for persistent economic growth in South Korea during the past half century More specifically, envy and jealousy explain the pattern of individual and collective decisions: consumption and saving behaviors, work ethics and motivations, learning and imitation, international competition, and many other elements of the socioeconomic changes of South Korea during the rapid industrialization period Therefore, we conclude that intertemporal and interpersonal preferences are as critical as nondecreasing returns technology for persistent economic growth The South Korean economy exhibits her preferences satisfying the joint condition with persistent economic growth The scope of the paper is extended fundamentals of economic growth to socio-politico-cultural phenomena in contemporary South Korea We then argue that noneconomic episodes are closely related with the rapid industrialization, urbanization, economic transformation and achievement, and democratization It is because we observe the causal relations between economic and socio-politico-cultural changes in a fast-growing economy, say at the nine percent rate of growth, whose per capita income doubles every eight years Hence, it is inevitable that the cultural changes in the South Korean society are followed by economic development, and vice versa; otherwise, economic growth cannot be sustainable in the long term We thus proffer a tentative linkage between economic growth and socio-politico-cultural changes in contemporary South Korea The method in this paper is not conventional in the economic literature, in the sense that the paper presents theoretical explanation and empirical evidence in a semi-anthropological and 1) See Acemoglu (2009) for the excellent survey on the endogenous growth theory and Acemoglu and Robinson (2012) for the historical aspects of the interconnection between economic and political institutions 4ㆍ사회과학연구 제42권 제3호 pseudo-ethnographical method The first formal approach shows how South Korea has been able to grow persistently over the last five decades, whereas the latter speculates on how South Korean society has changed throughout the process of her rapid economic growth More specifically, the paper introduces a few socio-politico-cultural episodes that capture the correlation between persistent economic changes in a relatively short period and the events in question We, nevertheless, have no intention to claim that these episodes occurred solely due to economic changes and success, but identify them to illustrate that “fast” economic growth is critically responsible for a few seemingly puzzling everyday-life phenomena in South Korea We begin by presenting some episodes that, we believe, signify some defining characteristics of the socio-politico-cultural phenomena of South Koreans’ experience of a fast-growing economy over the past fifty years These episodes, we speculate, are equally likely to surprise most foreign visitors to South Korea, be they from either developing or developed countries As mentioned before, the main objective of the paper is not to conduct a scientific analysis but to suggestively conjecture on the relation between a fast-growing economy and socio-politico-cultural phenomena What follows is a list of interrogatories based on anthropological and ethnographical observations concerning the everyday lifestyle in South Korea: How is it that South Koreans have come to prefer to live in high-rise apartment complexes in both rural areas and cities? Why are those apartment complexes consistently and repetitively named after large, well-known companies,2) for example: “Hyundai Apartments” built by the automaker Hyundai; “Samsung Apartments” built by the electronics company the Samsung Group; “SK Apartments” built by SK Telecom; “LG Apartments” built by LG Electronics; “Daewoo Apartments” built by the heavy-industrial company the Daewoo Group; or any other conglomerate? How is it that one can often see a white-collar, middle-aged Samsung or Hyundai businessman drunk with a group of coworkers at midnight―acting like a freshman with a group of college friend―walking in the middle of a major street in the Kangnam District of Seoul? Why is it that you may easily encounter groups of teenaged, high-school girls snacking on a cup of instant noodles in front of convenience stores, Tomato, Seven-eleven, GS25, etc., as late as midnight? 2) We hope that, without violating academic integrity, we may reference specific South Korean companies to make these episodes more realistic and down-to-earth for readers Back to the Future of the South Korean Economy and Societyㆍ5 Why are there so many Starbucks, one at almost every intersection of Chongro streets in Seoul, even though the price of an Americano in Starbucks in South Korea is at least four-times more expensive in terms of real income than one sold in Chicago? How is an average college student in South Korea able to afford to buy expensive designer items: clothes, bags, watches, shoes, etc., produced by MaxMara, Giovanni, Fendi, Gucci, Prada, Luis Vuitton, and many other luxury brands? Why are South Koreans on their cellular phones including instant KakaoTalk messages all the time? Why South Koreans seemingly fear to be alone and why they have an almost impulsive desire to be connected with each other at all times? Why South Koreans engage in regular, seemingly militant demonstrations in the Kwangwhamoon Square in Seoul, e.g., the 2008 Candle-Light-Demonstrations against beef imports, motivated by fears of mad-cow disease, and the ratification of a free-trade agreement (FTA) with the U.S.? How does the Demilitarized Zone (DMZ) become one of South Korea’s tourist attractions? How is it that we may be able to find various kinds of travel brochures for trips to the DMZ in the lobbies of major international hotels in Seoul? This paper hypothesizes that the experience of fast economic growth is a critical, if not complete, cause of the above representative phenomena in contemporary South Korea The brief precipitate explanations this paper provides are summarized as the following First, in order of the above episodes, fast industrialization without financial development has forced many conglomerate companies to diversify their manufactured products by becoming involved in the construction of residential apartment blocks Additionally, South Koreans seeking quality assurance believe they are reducing the risk of poor-quality products by choosing well-known brands, that is, a brand effect Second, the working habits formed in agriculture remain even though there has been rapid urbanization, so that we may observe the social behavior of agricultural farmers replicated in a manufacturing sector Third, a high valuation of private education in the context of low public-education spending by the federal government prevails, and thus from elementary school through college a student must privately spend to meet changes in the demand for new human-capital requirements along with technological changes Fourth, the scarcity of land influences the prices of commodities and services, for example, a relatively expensive Americano at Starbucks Yet, such a fixed cost does not deter long-run economic performance in South Korea 6ㆍ사회과학연구 제42권 제3호 Fifth, the South Korean economy verifies that human-capital accumulation, including an advance of science and technology, is the main essence of the economic growth and development Education plays an important role of forming a future orientation perspective across overlapping generations Success in achieving fast economic growth within an average lifetime has improved South Koreans’ health and longevity; for instance, the average South Korean has become more than four inches taller over the past fifty years Such physical change leads to the fashion consciousness; parents are willing to incur additional expenses on appearances as if competing themselves Sixth, social integration is heavily valued in Korean society as a defense mechanism to fear and insecurity amid rapid social changes This leads to broad connections among families, alumni, church members, sports clubs, and many other public and private associations Seventh, along with economic success, South Korea has also achieved the transition to a democratic society in a short period This transition is closely related to how the South Korean society has maintained a healthy level of socioeconomic diversities, for example, income disparity―better than the income inequality in Canada, for example On the other hand, the recent stagnation of growth has pricked sensitivity to income inequality, along with envy/jealousy or altruism/admiration in preferences Finally, there is no doubt that North Korea has caused additional uncertainty in the current South Korean economy and society and is most likely a factor to shape the future of South Korea But the impact is not necessarily through the threat of another Korean War, but in the manner that the South Korea crafts a fiscal response to any future unification of the two Korean economies The rest of the paper explores in details for the above conjectures The remainder of the paper is organized as follows In section 2, the paper outlines the present status of the South Korean economy, comparing it with economically advanced and developing countries, for example the United States and the Philippines, respectively Understanding the present South Korean economy inevitably requires reaching back into the country’s contemporary socio-economic history; and thus we will focus on the main events and policies influential on its growth and developmental processes in section Section discusses the production input factors for economic growth, better understanding the bumpy paths of industrial transformation We explicate that those input factors in the South Korean economy affect only its short-run growth but not necessarily its long-run economic growth and social changes In section 5, we examine the main elements necessary to maintain persistent economic growth and social changes in the long term By applying the endogenous growth theory, we also discuss the engine of persistent long-run growth In section 6, we find the correlation of economic growth with the ultimate variables, for example, envy/jealousy, Back to the Future of the South Korean Economy and Societyㆍ7 openness, impatience, work ethic, and many others in the society In section 7, we begin to construct a definition of the engine of growth, which is essential to examine the future South Korean economy and society The paper concludes in section Ⅱ The Present Status of the South Korean Economy In this section, we offer a few indicative pieces of empirical evidence to provide a better understanding of the contemporary South Korean economy and society The following evidences demonstrate how South Korea has outperformed expectations over the past fifty years South Korea has reached the point where it is the tenth largest economy, its international trade volume is the eleventh largest in the world, and the average income of a South Korean is in the top of fifteen percent globally in terms of per capita GDP (Heston, Summer, and Aten, 2002) The per capita income of South Korea is 31,950 USD, as compared with per capita income of 51,700 USD in the U.S., and is slightly higher than the average per capita income of the European Union at 31,570 USD It is about 2.7 times the average per capita income, 11,964 USD, of the world economy―based on Purchasing Power Parity calculated in 2012 (International Monetary Fund and World Bank, 2012) In addition, a rough outline of the South Korean economy can be illustrated as follows: South Korea has the eleventh largest economy by volume, 250 million USD per day of international trade among countries including China, Germany and the U.S (South Korea International Trade Association, 2007) That is, South Korea is one of the most open economies in the world―with total exports accounting for more than forty-four percent of GDP―followed by Germany, in which exports account for about forty-two percent of its GDP The following South Korean industries are at the top of global production: ship building and ship yards; mobile communications products; the LCD/PDP/computer and the DREM-chips industries in information technology The country’s steel industry is ranked second in global steel production; electronic goods are produced at the fourth largest rate in the world market; 8ㆍ사회과학연구 제42권 제3호 and automobile production is ranked fifth in the world (South Korea International Trade Association, 2007; Statistics of South Korea, 2008) The multinational companies Samsung, LG Electronics, Hyundai Automobile, and the SK Group are all in the Fortune 500 Moreover, fifty-nine South Korean companies are ranked in the top share of their markets, out of 1,175 companies throughout the world market Surmounting these corporate statistics, the average South Korean has become roughly forty times richer since the 1960s Imagining that we had traveled to South Korea fifty years ago, we would have found that she was as poor as Ethiopia and poorer than the Philippines Returning to the present, we are surprised by the fact that the average contemporary South Koreans are as rich as residents in Spain and above the average for citizens of European Union countries Hence, an important question arises―one that is not merely for academic curiosity but also related to an unavoidable practical inquiry in the history of human development How was South Korea able to achieve this astonishing economic success in one person’s lifetime? Why so many people in the world continuously suffer from the failure to escape from absolute poverty? In the presence of advanced technology in already developed economies, how is it so difficult to achieve an industrial revolution in underdeveloped countries? To put it differently, what can we learn and duplicate from South Korean’s growth experience for other recently developing economies? Is there any socioeconomic framework for understanding the South Korean phenomenon so that we can avoid development policy mistakes when implementing a course of growth strategies? Although there is no doubt that the outlook for the South Korean economy may be impressive to anyone from a developing economy (e.g., for visitors from India, Brazil, the Philippines, Chile, the Republic of Congo, or even from Argentina), South Korea is still in the process of catching up with advanced economies (e.g., the U.S., Japan, German, or Sweden) The per capita income of South Korea is about sixty-two percent that of the U.S., eighty percent that of Sweden, and eight-four percent that of Japan We then ask whether South Korea has a potential engine of economic growth capable of joining the club of the most-advanced economies in the near future Or, is the recent slowdown of her growth such a hindrance to the momentum of past economic growth and development that South Korea has run its course and lost the chase? The following sections address these inquiries based on the endogenous economic growth theory Back to the Future of the South Korean Economy and Societyㆍ9 Ⅲ The Contemporary History of the South Korean Economy Let us start with a thought experiment to illustrate how a small difference of growth rates alters an individual’s economic situation within a lifetime Imagine your income increases to fifteen times larger than it is now; say to one-half million USD (500 million Won) per year within thirty years, say by the time that you are fifty-five years old You may feel “not too bad at all!” In fact, average South Koreans from the previous generation experienced a wage increase far better than the one we have imagined: for our imaginary household, the Korean growth rate resulted in a thirty-fold increase in their personal income within thirty working years! This would translate into an extra million USD (1 billion Won) above the current thirty years of income Now, we trace how South Korea’s achievement evolves into its current position in the world economy in 2014 More ambitiously, we trace how her lifestyle, including various socio-politico-cultural aspects, has been transformed during this fast-growing period In the early 1950s, South Korea’s GDP, 520 USD per capita was close to the GDP per capita of Ethiopia Note that the contemporary Ethiopian is earning 830 USD per capita and that more than sixty-five percent of its population is living below USD per day Indeed, a one out of six persons in the current world population is living in such a destitute condition Also, note that China―even though it is the fastest-growing economy over the last twenty-five years and now the largest economy in the world―still has ten percent of its population living on per capital income below USD per day, compared with an average South Korean who now spends about 85 USD per day In 1962, per capita income in South Korea was 1,200 USD, which was around one-half the per capita income of the Philippines By 2014, per capita income in the Philippines is 3,500 USD, which is roughly one-tenth the per capita income in South Korea, 31,950 USD The 1961~1962 World Bank Annual Report concluded that the Philippines had a better growth capacity than South Korea for future economic development The report detailed its conclusion as follows: (1) Filipinos were more educated than South Koreans―twice its population was in tertiary education (2) Filipinos were more diligent than South Koreans due to a sincere work ethic, based on 10ㆍ사회과학연구 제42권 제3호 Catholic vs Confucian philosophy, respectively (3) Filipinos were scientific due to the influence of Roman Catholicism, whereas South Koreans, influenced by Buddhism, were superstitious (4) The Filipino government was more democratic than the South Korean government and thus the Philippines is more politically stable (5) The Philippines has richer natural resources than South Korea Based on those reasons in the broad aspects, the World Bank offered reconstruction and development program to the Philippines but not to South Korea The history proves otherwise that the Bank’s prediction for the future of the South Korean economy did not come true―this is obviously good news for South Korea but bad news for the Philippines Also bad news to some economists? However, the report provides us an important lesson in why the essential economic elements that many development economists have considered fail to produce economic development, and often mislead us in predicting the future course of developing countries The following sections of this paper suggest how to interpret this report by applying the endogenous growth model, where the long-run engine of economic growth operates differently from the short-run engine of economic growth In 1985, per capita income in South Korea was close to 7,500 USD per capita, similar to that of Brazil or Mexico All three countries had fast growth experiences during the 1970s, but South Korea significantly slowed down after the late 1980s In 2014, the average income of Brazil or Mexico is about 12,000 USD, which is 2.5 times less than the current GDP per capita of South Korea It was the first time in South Korean history that per capita income rose above the average for the world economy In this present decade, South Korea’s economy has been catching up to a few of the member of countries of the Organization for Economic Co-operation and Development (OECD), for example, Portugal in 2000 and Greece in 2010, and South Korea overtook the per capita GDP (and thus the quality of an everyday life) of Spain in 2014 In addition, the development of South Korea has resulted in a socio-politico-cultural transformation in aspects of the country’s everyday life This observation is plausible since South Korea has experienced fast economic growth and development in a very short time period.3) The two following 3) This argument is rather unconventional in the literature A usual causality is believed to be the reverse, based on a hypothesis that the culture changes more slowly than does the economic development (Weber, 1958) We, however, argue that fast economic growth affects culture because economic growth is not otherwise sustainable without a change in the cultural elements influencing the economy 38ㆍ사회과학연구 제42권 제3호 South Korea renegotiated its beef-import agreement with the U.S government About two months after resuming imports, more than one million South Koreans participated in a candlelight demonstration against the resumption of U.S beef import The following questions demonstrate various aspects of this massive demonstration How was such a massive protest mobilized with such enthusiasm against an agricultural product imported from an advanced economy? Was this protest supported by a sentimental revival of their glorious memories of the 1988 Democratic Movement? Was this a collective expression politically motivated by the bitterness of losing the presidential election? Did this occur because the public felt that an insensitive government undermined the parental obligation for children’s safety? Could this protest be understood as a result of the speed of urbanization within one lifetime, such that most of these citizens’ sentiments came from reminiscence of the ordinary lives of their parents and grandparents in the agricultural sector? The rapid urbanization, within a single generation of an average South Korean, fostered a collective sympathy for the agricultural hometown of one’s parents, even though the most of protesters likely worked for either a manufacturer or service sector Trust and Cultural and Social Capital: Trust towards others in a society is a necessary norm required for economic activities and in the socioeconomic contract under the various political institutions in a decentralized market economy (Fukuyama, 1992) A social norm facilitates the implementation of these activities and contracts under either a government or the market The socio-politico-cultural norm, therefore, is regarded as one of the essential elements for shaping the incentives for economic agents and the function of institutions For instance, to understand economic growth and development, economic analysis is extended to how an economic agent deals with the rules of law in the economy Intellectual property rights are a good example, which is also related to knowledge accumulation and innovation and invention before and after the Industrial Revolution (North, 1981) However, as expected, a dilemma exists when the knowledge-creation policy overemphasizes the rights of innovators and inventors because it also reduces the dissemination of knowledge for economic growth and development The knowledge-creation activity is a nonrival and nonexcludable public good and thus the social efficiency in a competitive market fails in the presence of externalities in innovation and invention Furthermore, intellectual property rights confer a monopoly power to an innovator or inventor of such knowledge To overcome the inefficiency of the intellectual property rights system, the public domain of knowledge is required to supplement the market for knowledge, and the presence of cultural and social capital in the market plays an essential role in Back to the Future of the South Korean Economy and Societyㆍ39 knowledge dissemination in a competitive economy.35) That is, the presence of cultural and social capital may help to solve for the monopoly inefficiency created by intellectual property Cultural and social capital is also complimentary to the overcoming of institutional failures Active participation in a political process is indispensable for formation of social consensus Coleman (1988) argued that the formation of cultural and social capital increases democratic participation However, when income disparity is increasing we must take into account the amount of socio-politico-economic distrust in the economic system It is not obvious that cultural and social capital formation can elevate social tension in South Korea as well as in any other advanced economies without improving economic equity and justice In the next section we will argue that restoring socio-politico-cultural coherence is an immediate task that must be addressed in order for the South Korean economy to reduce the cost of redistributive pressure that will induce greater inefficiency into a Pareto-efficient competitive market economy Ⅶ The Future of the South Korean Economy Will South Korea join the club of the most advanced countries with over 50,000 USD per capita in the next two decades? If this convergence happens, South Korea will be the first country in history to complete her journey of economic growth and development, starting from the absolute poverty to become a most advanced economy Given the critical size of populations in the respective economies, South Korea, we argue, is the only non-European countries in the advanced economic group within an individual’s lifetime Noticeably, Japanese industrial revolution had taken more than a hundred years: started in the 1850s and completed in the 1970s Taiwan is a potential but rather awkward candidate for a member of this group It is because Taiwan was not at the absolute poverty in the 1960s, was relatively small with her population of less than 25 million, and belonged to the Sino-periphery of the Chinese economy Based on the similar reasons we also exclude Singapore in this group Furthermore, it is worth noting that not every country starting with industrialization has completed its process For example, Russia (the Soviet Union at the time) had failed to maintain its fascinating economic growth in the 1950s~1970s The economic decline of Argentina in the 1940s is another disturbing example of 35) See Bourdieu (1977) and Coleman (1988) Roughly speaking, “cultural and social capital” is defined as a time-dependent cultural and social composition that facilitates a collective activity in a decentralized economy 40ㆍ사회과학연구 제42권 제3호 instability to maintain economic growth after an industrial revolution We address in this section what South Koreans might expect for the future of their economy and discuss the validity of their expectations on joining the advanced economic club Pessimistic Views of the Contemporary South Korean Economy: After the 1997~1998 Asian financial crisis, the general public and some economists believed that the South Korean economy had lost its momentum for completing economic success and had begun to experience a serious structural stagnation A South Korean identifies a few structural changes: (1) Growth slowdown―the South Korean economy slows down to an average of three percent from 7.5 percent before the Asian financial crisis; (2) Worsening income inequality―Gini indexes, an income disparty measure, increased from 0.24 to 0.32 in the last decade;36) (3) Labor market uncertainty―the two percentage points of the country’s five percent unemployment rate constitute young workers (twenty-four to thirty-four year olds), and part-time employment has risen to fifteen percent of workers as of 2007;37) (4) Decreasing fertility and mortality rates―which makes South Korea an aged society In detail, the 7.5 percent of the population was over sixty-five years old in 2000 and will meet the classification for an aged society (i.e., fourteen percent of a population is over sixty-five years old) in 2019, and then will become a super-aged society (i.e., twenty percent of a population or more is over sixty-five years old) in 2026.38) Those are signs of the geriatric symptoms that the most advanced of economies have experienced over time Those issues also shape economic incentives in contemporary South Korea First of all, unemployment for younger generations and the resulting intergenerational inequalities threaten social integrity and coherence Labor market uncertainty also reduces incentives for the labor supply and jeopardizes capital investment for the future One can argue that the recent financial instability is the 36) Yu and Kim (2003) showed that South Korean income inequality in market income is about the average of that seen in the OECD countries and remains at a similar level of inequality in disposable income even after a redistribution policy 37) The definition of noncontract employment is not uniform across the OECD countries, so international comparison is not possible The noncontract employment rate based on employed time in South Korea is relatively lower than the rate in the OECD countries; but, based of the period of employment contract, South Korea’s unemployment rate is much higher than the average rate of OECD countries, which is sixteen and seven percent, respectively, of the total employment (OECD 2003) 38) South Korea’s replacement level of fertility has to be slightly larger than two percent to maintain the current level of population, but the country’s rate is the lowest of the OECD countries Back to the Future of the South Korean Economy and Societyㆍ41 primary cause for the current occurrence of income inequality; blames the crisis for the current economic injustice found in the whole economic system, including the function of the country’s competitive markets and the government’s policies (An and Bosworth, 2013) Furthermore, over recent years the labor market has been affected by an aging population along with a low birthrate: the average age in the workforce is increasing and thus can be seen to slow down productivity and thereby to lower the overall learning rate In addition, the increase in the proportion of social security benefits has increased the size of government spending and consequently has reduced the social efficiency of government spending on, for instance, education, R&D spending, and infrastructure investment All of those programs lead to an increase in consumptive government spending and have thus reduced economic growth and development Despite the remarkably fast recovery from the 2008~2009 global financial crisis, this second financial crisis has confused South Koreans once more over whether the South Korean economy is capable of dealing with external shocks to business cycles or with financial disturbances originating from foreign countries Nonetheless, the South Korean economy has shown the resilience of its economic growth by recovering from the massive hit of an increase to 1.2 million who were unemployed during the first year of the 2008~2009 global financial crisis Again, regardless of whether or not the 1997~1998 Asian financial crisis drives a structural change of the South Korean economy,39) there is no doubt that South Korea is experiencing an economic growth slowdown From now on we select two controversial issues that affect the everyday life of an average South Korean in recent years: income disparity and the threat posed by North Korea The former is related to the current growth slowdown and post-industrialization of the South Korean economy The latter, even in a peaceful period, is not only a political but also an economic issue because if South Korea delays a proper preparation or miscalculates the potential cost of an unexpected unification of the two Koreas, the unification cost will be enormous to South Korea and thus will jeopardize economic growth in the unified South and North Korean economy Income Inequality: In despite that the Korean economy has grown at an unprecedented speed, she unexpectedly has achieved economic equity and equality (Leipziger, Dollar, and Shorrocks, 1992).40) 39) Interestingly, the recent financial crises in, for example, Greece, Portugal, and Taiwan, occurred when their per capita income had reached 15,000 USD It seems that financial crisis can be associated with a structural change combined with a stage of economic development Great Britain had suffered financial crises in 1976 and 1991 Consequently, the Labor Party lost power to the Conservative Party (Margaret Thatcher) in 1979, while the next crisis facilitated a transition from the Conservative Party to the Labor Party (Tony Blair) in 1997 42ㆍ사회과학연구 제42권 제3호 The Gini coefficient in South Korea continuously declined from 0.31 in 1960 to 0.26 in 1997, which is close to the average Gini coefficient in Scandinavian countries However, her income equality deteriorated to 0.36 after the 1997~1998 Asian financial crisis, but has improved slightly to 0.32 in the past few years (Yoo, 2009) The South Korean Gini coefficient is better than that of Canada, but the average South Korean feels otherwise The significance of income equality is partially subjective and partially objective, and thus its effect on interpersonal utility appears to have different effects from one country to another However, how an individual of a country feels and how he or she tolerates the income disparity significantly influences an agent’s incentive and corresponding decision An economic agent reacts to income inequality and income distribution endogenously evolves over time, both within an individual lifetime and among overlapping generations This Intermezzo in the aspect of income disparity revisits the relation between fashion and socioeconomic status in South Korea Intermezzo: In addition to the previously postulated reason, income disparity has triggered fashion-consciousness in South Korea Aesthetic plastic surgery is seen as an easy fix to discrimination based on socioeconomic status, discrimination that has been exacerbated due to these rapid economic changes For instance in a job market, an interviewer often exercises a preference in a selection process in order to deal with asymmetric information by refer to a candidate’s physical appearance These interviewers then often react to the social demand for employees who are attractive rather than looking for signals of hidden productivity from candidates It is an example of a signaling problem that results from asymmetric information (Akerlof, 1970) Choosing to alter the physical appearance is a simple reaction to increasing income disparity under asymmetric information in the labor market of South Korea The transitional opportunity for achieving both intra- and inter-generational equity reduces the tension of income redistribution over the generational time horizon This opportunity, if seized, releases the redistribution pressures expressed within a democratic government (Alesina and Rodrik, 1994) The current discontent towards income disparity in contemporary South Korea has been 40) Bourguignon and Morrison (2002) found that current income disparity is composed of sixty percent difference across countries and of forty percent internal dynamics-differences within a country In OECD economies, the top ten percent of income is twenty-five times the lowest ten percent By comparison in the world economies, the top ten percent (e.g., Italy: 36,000 USD) is forty times the lowest ten percent (e.g., India: 850 USD) Back to the Future of the South Korean Economy and Societyㆍ43 exaggerated due to the government’s slow policy response to psychological insecurity For example, South Korea allocates only six percent of GDP for spending for the social safety net, whereas the average is eighteen percent of GDP in the OECD countries Additionally, only eighteen percent of South Korea’s government expenditures target the reduction of poverty, whereas, for example, Sweden allocates eighty percent of its government spending for poverty reduction.41) Moreover, the accelerated increase in life expectancy has decreased the financial security of a later life; as a consequence, an elderly South Korean’s chance of falling into poverty is three times higher than the rate in the OECD countries overall A daunting challenge remains as to how to balance the competitive market mechanism and governmental intervention, for example, social safety net programs, to deal with income equality and economic growth We argue that South Korea often overestimates the effects of governmental redistribution policies and underestimates the obstacles to their policy implementation, even though government policies for social welfare are believed to be well intended The government failure is not less detrimental as is the market failure We then urge that South Korea must learn from the failed experiences of European welfare programs, including the 1960s-1990s programs in the Scandinavian countries We witness that those welfare states have suffered from a slowdown in economic growth, from ten to twenty percent unemployment during the 1970s and 1980s, and from painful structural changes in the 1990s in order to recover economic growth Given this lesson from the welfare states at the end of the previous century in European economies, South Korea should neither take the beaten path of redistributive policies in advanced economies, nor envision a welfare state as a future outcome of the South Korean economy North Korean Issues: There exists an ever-present imponderable: the potentially horrendous reunification costs, both economically as well as politically, if South Korea should be rejoined with the destitute North Korea, the “ugly” brothers and sisters of South Korea North Korea’s basic economic outlook is: the North has 1,800 USD per capita yearly income, which is one seventeenth the per capita income in the South; the North’s GDP is three percent of the South’s; and the North’s population (24 million) is less than the half of the South (52 million) The per capita income of the North is currently about half that of India and is now on par with Kenya’s The next Intermezzo shows the odd but real confrontation between the North and the South 41) It is interesting to note that the before-tax income inequality in Sweden is worse than in South Korea In addition, the Gini index of wealth distribution in Sweden is larger than that of most of other OECD countries, including South Korea 44ㆍ사회과학연구 제42권 제3호 Intermezzo: I often wonder how the demilitarization zone (DMZ) has become a tourist attraction for foreign visitors to South Korea I imagine that human curiosity is strangely drawn towards a disaster or towards desperation in the human condition The DMZ can be seen as: a symbol of the Korean War, the confrontation of two political and military powers, the ideological clash between democracy and communism, the separation of more than the half of one million family members, and the dislocation of people Does anyone believe that viewing the DMZ helps one to understand the South as well as the North? Yes at everyone’s own perspective! This paper cannot engage the ever-present question of whether another military confrontation between North Korea and South Korea is immediate or inevitable Nevertheless, given the economic difference between the two Koreas, it is more than reasonable to believe that, as long as the North’s objective is its own continued existence, the North would not initiate another Korean War against the South However, the South always wonders what “reasonable” means to the North―a subject of shaped collective psychology This insecurity in the South has led to fiscal overspending on national defense and security It is inevitable that North Korea’s economy seeks to emulate the Chinese economy That is, North Korea is less likely to follow the types of reforms seen in the Russian economy However, our unsubstantiated-but-educated guess is that a broken North Korean economy demands a rather radical reconstruction North Korea wants to carry out economic policies but hesitates to make political changes including openness to international markets North Korea is neither China nor Russia This transition is a critical challenge for any nonmarket-oriented economy, even though China has been successful in its economic development under a centrally planned economy Noticeably, China has allowed a market mechanism to be the main force in its economic reformation, by opening up its markets to foreign countries It will be interesting to observe whether or not the Chinese economic success is compatible with its centralized political system (Acemoglu and Robinson, 2012) This question is equally valid in relation to North Korea Regarding the economic issue of North Korea, the real disaster that South Korea may face is a sudden collapse of the North Clearly, such a collapse would upside down every feature of the South Korean economy as well as the South Korean society The collapse would dramatically transform everyone’s life in the South as well as in the North Imagine 30,000 North Koreans camping on the bank of the Han River in Seoul Also, imagine that South Koreans rush for speculative, rather than Back to the Future of the South Korean Economy and Societyㆍ45 long-term, investment in the northern land Hence, the South―as well as the North―needs to doubtlessly prepare both politically and economically for either such a sudden collapse or gradual unification with the North The South also needs to be cautious that accumulating the excessive unification fund would hurt the current and future economy and the unification costs should be shared and diversified intertemporally over generations and internationally among neighboring countries Ⅷ Concluding Remarks This paper traces back the path of South Korean economic development and social transformation since the 1960s By applying the endogenous economic growth theory with empirical evidence and semi-anthropological and pseudo-ethnographical observation, this paper provides us with an outline of how to explain the resilient and phenomenal economic growth experience, along with sociocultural changes, of the South Korean economy By travelling back to developmental stages of South Korea, we intend to identify lessons that are instructive for how to plan for economic growth and development in newly developing economies around the world More specifically, we argue that the socioeconomic experiences in contemporary South Korea are the best role model for underdeveloped economies in the twenty-first century We also summarize the constructive recommendations for how to conceptualize developmental strategies and suggest how to form governmental policies under country-specific constraints similar to those faced by many underdeveloped economies In her sociocultural aspects, the paper illustrates that, during the past five decades, South Koreans have maintained an uncompromised desire to escape from the unbearable poverty inherited from their parents South Koreans have made their economic decisions for a better life in the future rather than for an increase in immediate welfare Those future-oriented decisions have involved not only the country’s accumulation of physical and human capital but also necessary advances in the sciences and technology, along with the improvement of the government and other public institutions The South Korean government, unlike many other governments in underdeveloped countries, has not obstructed people’s desire and dream for a better life and a better future and, thereby, has extended the horizon to the next generations Furthermore, the paper explains how and what South Korea’s socio-political-cultural changes along with amazing economic achievement have occurred in a relatively short period As illustrated in the various Intermezzos, the fast-growing economy has yielded the 46ㆍ사회과학연구 제42권 제3호 social-politico-cultural transformation and vice versa The resilient success of the South Korean economy is due to the country’s maintaining incentives and motivations to create a better life in the future rather than simply to be in a situation in the present The developmental project has been the actualization of the country’s stubborn desire for a future in which South Korea achieves a standard of living comparable to Japan, the U.S., and European countries By South Korea’s persistent desire to become “equal to the others,” the past of the country has been shaped by envy and jealousy in individual preferences Contemporary South Koreans now ask themselves whether the country maintains an uncompleted passion and future-oriented desire to build an efficient and equitable economy, and whether she can become a responsible citizen in the global economy When the aspiration for the future continues in the same spirit South Korea will celebrate a bright future because her uncompromised dream becomes reality and a promising future is under way for her near future generations We then hope that we are able to duplicate her rich experiences on the latest industrial revolution and the recent economic growth convergence for newly developing countries of the world economy in the twenty-first century Back to the Future of the South Korean Economy and Societyㆍ47 References Acemoglu, D (2009), Introduction to Modern Economic Growth, Princeton University Press, New Jersey Acemoglu, D., S Johnson, and J Robinson (2000), “The colonial origins of comparative development: an empirical investigation,”, American Economic Review, Vol 91, pp.1369-1401 Acemoglu, D., J Robinson (2012), Why Nations Fall: the Origins of Power, Prospects, and Poverty, Crown Business, New York An, C and B Bosworth (2013), Income Inequality in Korea: An Analysis of Trends, Causes, and Answers, Harvard East Asian Monographs, No 354, Harvard University Press, Cambridge Aghion, P and P Howitt (2007), The Economic Growth, The MIT Press, Cambridge Akerlof, G (1970), “The market for lemon”, Quarterly Journal of Economics, Vol 84, pp.488-500 Alesina, A and D Rodrik (1994), “Distributive 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pp.13-64 Weber, M (1956), The Protestant Ethic and the Spirit of Capitalism, trans by T Parsons, Charles Scribner’s Sons, New York Weil, D (2012), Economic Growth, 3ed Ed Prentice Hall, Boston Westphel, L and K Kim (1982), “Industrial policy development in Korea”, World Bank Stuff Working Paper, No 263 52ㆍ사회과학연구 제42권 제3호 한국의 경제적 발전과 사회적 변화에 대한 고찰 오민주 미시시피대학교 사회학과 교수 박현 경희대학교 경제학과 교수 국문요약 본 논문은 한국의 경제적 발전과 사회적 변화를 역으로 추정하여 서로의 상호관계를 고 찰 한다 먼저 내생적 경제성장론을 기초로 하여 지난 50년간의 한국 경제성장의 원동력을 조명한 후, 인류 사회학적 접근법으로 “단기간의 급속한 경제성장은 사회-정치-문화적 변화 를 동반한다“는 가설을 통계적 증거와 한국인의 광범위한 삶의 모습을 통해 증명한다 본 논문은 20세기의 한국의 경제성장은 인류사적으로 획기적인 사건임을 밝히고, 이는 최근의 경제개발도상국의 정부정책을 포함한 사회-정치-문화적 변화의 과정을 이해하고 예측할 수 있는 살아있는 실험실을 제공하고 있음을 주장한다 그 예로서 현재 한국은 경제적 발전과 사회적 변화를 보여 주는 모델로써, 급성장 과정의 성장통과 선진국 진입에 따른 노인병을 동시에 시달리고 있음을 발견할 수 있다 핵심용어: 경제성장과 발전, 내생적 경제성장론, 사회-정치-문화적 요소, 한국 사회와 경제 Received September 21 2016 Revised October 21 2016 Accepted October 31 2016 ... years Back to the Future of the South Korean Economy and Society? ??3 First, we argue that the fast economic growth of the South Korean economy is unprecedented in the world economy since the first... Westphal and Kim (1982) for details of an empirical investigation of the effect of export-promotion policies on the South Korean economy Back to the Future of the South Korean Economy and Society? ??29... elements to predict the future of a developing country More important, this analysis provides the tool to understand the growth and development of the South Korean economy and the associated South Korean