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POL 205 Asian Politics Dr. Lairson Korea Korea achieves significant political unity in 1388 Isolation from outside influences produces stasis in the political and economic system for 500 years Hermit Kingdom 1590s invasion by Japan is repulsed 1910 Japan annexes Korea following victory over Russia; controls until 1945 Japanese control was ruthless and brutal Forced labor in WWII Sexual slavery of Korean and Chinese women 1945 division of Korea at 38th parallel for purposes of surrender and occupation Korean War – 1950-1953 Syngman Rhee Park Chung-hee Emergence of Korea economic miracle – 1963 Park is assassinated by head of KCIA in 1979 Chun Doo-hwan military coup in 1979 Despotic rule from 1979-1987 Student-led demonstration in 1987 and silent pressure by the US leads to acceptance of direct election for president in 1988 Military leader wins election – Roh Tae-woo Election of Kim Young-sam in 1993 marks beginning of democracy Current president: Park Geun-hye is the daughter of Park Chung-hee Population 50 million Lowest birthrate in the world Seoul population of about 25 million Per capita $35,000 (PPP) $26,000 Low level of inequality GINI .30 (US .45; China .48) Economic growth 7% over 50 years Recently in the 3-4% range To call South Korea an emerging market, therefore, is a bit of an anachronism. The country is a rich, technologically advanced, mature democracy with an impressive record of innovation, economic reform, and sound leadership. Yet South Korea is not exactly a developed market, either. The value of its exports plus imports (at $1.25 trillion a year) exceeds its national income (at $1.1 trillion). That openness, along with the lack of protection provided by a bloc such as the eu, subjects South Korea to greater market volatility than other major industrialized countries and presents some serious challenges. So, too, does its highly concentrated corporate sector, aging population, and politically dangerous neighborhood. South Korea may well be more dynamic than some developed economies, making it attractive to investors, but it is also much riskier. South Korea's initial rapid growth was characterized by both political authoritarianism and extensive state intervention in the economy. In the 1970s and 1980s, Seoul channeled massive amounts of capital through subsidies and low-interest- rate loans into trusted family-led chaebol, or conglomerates. These favored firms also enjoyed trade preferences and monopoly rights, among other indulgences extended by the government. Such preferential treatment enabled the chaebol, which today include Hyundai and Samsung, to grow into massive business empires whose brands are now recognized and envied around the world. But the story has a dark side: today, the chaebol's ongoing dominance poses challenges to regulators seeking to make South Korea's markets more competitive. And the conglomerates' historical ties to the country's early dictators feed resentment among many South Koreans, who regard the businesses as having achieved their dominance unfairly. The country was badly burned during the 1997-98 Asian financial crisis, for example, which exposed a weak, badly regulated financial system; wildly overleveraged firms; and occasionally corrupt corporate governance practices. But the government under Kim Dae-jung responded by undertaking significant reforms: it shut down bad banks, forced the resolution of bankrupt companies, and, most of all, strengthened previously inept financial regulation. Substantial and deepening interdependence with China If South Koreans want to remind themselves of the progress they have enjoyed, they need only look north, where men on average measure up to 8cm less and die 12 years sooner. North Korea’s Kim dynasty is now in its third generation, with power passing in 2011 to Kim Jong Un, who may not yet be 30 (no one is quite sure) but models his gestures and embraces on those of his grandfather, Kim Il Sung. The country’s output of cereals, which collapsed in the mid-1990s, has only just regained the level it reached in 1982. A visiting NGO hoping to improve yields on a collective farm had to dust off agricultural techniques that had not been used in the south for decades. To help its electrical equipment cope with the north’s wild swings in current, it had to order a voltage stabiliser not seen in the south since the 1980s. Babystrike Firms oblige men to work punishing hours; men then heap all the household duties they do not have time for on their wives. The arrangement suits employers, who prefer a longer working week to a higher headcount, argue Randall Jones and Satoshi Urasawa of the OECD. It may also suit some men, who find the office more congenial than the nursery. And even if it does not, most do not feel able to stand up to their employers’ unreasonable demands. Instead, they make unreasonable demands on their wives—who have responded by going on baby-strike. The average South Korean woman now waits until after her 29th birthday to marry and after her 30th to start a family. Some women never do either. The chances of their never marrying have risen from 9% in 2000 to 15% today. And South Korea’s fertility rate, now at 1.3 children per woman, has remained stubbornly low. Over Educated? Are Firms too Big? The chaebol’s customers are no longer as captive as they were. Over the past nine years South Korea has concluded nine free-trade agreements, bringing down tariffs, so consumers have the choice of buying imported goods. The government has also tried to strengthen suppliers by allowing small-business co-operatives to negotiate disputes on their behalf. Such efforts are welcome, but a second initiative, to reserve some sectors for small firms, is less so. In 2010 nine representatives of the conglomerates (including Lotte and Samsung Electronics) and nine small firms formed a National Commission for Corporate Partnership (NCCP) which earlier this year suggested that big companies tread lightly in about 100 designated sectors, including restaurants, car repair and bicycle sales. Some big firms with plans to invest in those sectors cancelled them, says Yoo Jang-hee of the NCCP. This is counterproductive. If the service sector remains small-scale and inefficient, it will not provide an attractive alternative outlet for the country’s capital and labour. The chaebol’s size and reach can create the potential for abuse, but that is no reason to forgo the gains from their economies of scale altogether. Indeed, if South Korea is to sustain productivity growth, its chaebol may have to spread themselves even wider. As the country has grown richer, its manufacturers have accounted for a declining share of employment. Between 1995 and 2010 their output increased by an average of 7% a year but their employment fell by 2% annually.