From Potato Chips to Computer Chips: Features of Korea's Economic Development: Knowledge Sharing Forum on Development Experiences: Comparative Experiences of Korea and Latin America and the Caribbean
When considering countries of phenomenal economic development and growth, Korea is among the top tiers. While there are other economies with similar economic growth, including those of Singapore, Hong Kong, and Taiwan, the economic growth of Korea is exceptional considering that the country lacked basic economic foundation in the past. R. Lucas Jr. (1993), a Nobel Laureate in economics and also a renowned scholar of the respective field, praised the country's economic success, by stating that "I do not think it is in any way an exaggeration to refer to this continuing transformation of Korean society as a miracle". As an evidence for his argument, he asserted "Never before have the lives of so many people undergone so rapid an improvement over so long a period, nor is there any sign that this progress is near its end". Yet, the history of Korea is more than just its outcome; it is the history of continuous national ordeal, a series of challenges and crisis that required people to toil night and day to overcome the situation. If it were not for today's splendid economic success, it would have been more appropriate to describe the history of Korea as that of wretchedness and misery. The fact that South Korea became one of the leading nations in the world is nothing less than a miracle, considering that it underwent many hardships after its independence such as fratricidal Korean War, a long period of dictatorship, 4.19 revolution as a reactionary to the dictatorship, 5.16 military coup, the engagement in the Vietnam War, two oil crises, another military coup afterwards, civil revolutions, a foreign exchange crisis, and the global economic crisis. Economic growth means value-added increase in a certain period of time. To boost this value-added increase, the elements of production such as labor, capital, and land must be both accumulated and invested. Furthermore, it requires the effective use of these elements by combining them when necessary, so that the best value can be drawn out. In other words, the vital factor in economic growth is raising productivity. Then, given similar situations, how come some countries show different performance in factor accumulation or productivity improvement? The accumulation of resources and increase of productivity depend on economic incentive. Proper institution in an economy that provides incentives for economic agents enables factors to flow and to be accumulated where productivity is high. It also gives motivation for innovation and improvement of productivity. Competition in product markets and acquisition of resources and raw materials with low cost through an open-door policy can induce the accumulation of elements and improvement of technology, where in a broader perspective, open-door policy can also be considered as a part of institution. The growth of the Korean economy is unique since only a few economies could demonstrate compatibly high growth rates for a long period. However, at the same time, Korea's case is never unique as its success story is based on factor accumulation, productivity enhancement and, most of all, a fundamental called institution. Its growth was possible due to the fact that there was a proper functioning of market backed by the establishment of proper institutions. The Korean government indeed worked favorably towards the establishment of institution and running of economy in a market-friendly manner. Some features of its growth pattern are worthwhile to be illustrated as there are still a large number of developing countries and high income countries with unstable institutions worldwide, which could gain from a part of Korea's story, at least, and collect substantial knowledge for their future growth.