Pure Common Sense

In the decades immediately following the Second World War and the Korean War, all of East Asia went about great change.  China and Vietnam became communist states.  Japan transitioned from a military power to an economic power.  Korea found it’s nation sharply split between north and south.  This was a time of many changes for East Asia.  During this era, from the beginnings of the postwar world to the 1970s, Japan and South Korea underwent separate paths toward economic growth.  Some aspects of their overall strategies were similar.  Indeed, South Korea saw Japan as a role model for East Asian economic development.  While there was lingering resentment of Japanese colonialism, the fact that a nation so similar (or as some Koreans say, inferior) to Japan had come so far bread a desire for imitation.  (Also, some Japanese influence lingered on from the colonial era into the 1950s, though many Koreans might not be quick to admit it.)  It is therefore not surprising that South Korean economic development was somewhat similar to that of Japan.  But there were still very drastic disparities in their postwar economic development.

There are a few ways that Japan and South Korea’s postwar economies were alike.  Both societies had large financial cliques.  These included the Keiretsu (formerly Zaibatsu) in Japan and the Chaebol in Korea.  These were large influential conglomerates in the economies of Japan and South Korea that held some concrete roll in development. Vertical Keiretsu in Japan, including names such as Toyota and Matsuhita, comprised large sections of the economy through acquisitions and long-term contracts with parts dealers.  Since they needed the parts to fuel their business and the parts dealers needed stable buyers, a long-term codependent relationship came out of the contract.  In South Korea in the 1950s, landlords were on the decline and many former landlords became businessmen.  The amount of entrepreneurs and economic opportunities continued to grow during much of the postwar period.

Government Intervention was a major part of both the postwar Japanese economic growth strategy and the postwar South Korean economic growth strategy.  In Japan, the state influenced the economy in part by influencing the allocation of resources.  State intervention in the economy of Japan hailed from the philosophy of Hiromi Arisawa in the prewar period.  The government of Japan engaged in both Industrial Policy and Administrative Guidance.  The system was somewhat skewed toward the banking industry.  It also encouraged acquisitions.  Antitrust laws were relatively weak compared to other countries of the day (such as America) government exercised considerable control over foreign exchange, import licensing, contracts, aid funds and materials and bank loans.

The relationship between the government and big businesses in postwar Japan and South Korea tended to be strikingly similar.  Japan and South Korea were both capitalist free markets with the United States as a mentor.  While government controlled some aspects of the economy, direct control over businesses did not appear to be the norm.

Both growth strategies included support for the role that exporters play.  In Japan, the government supported exports in market-based economic intervention such as tax breaks.  Since 1961 in South Korea their economy has been fueled by exports, so it’s no wonder their government supported them.  The South Korean government practiced protectionism in order to protect their export industries and to allow them to be successful.

On a final note as far as similarities go, both economies had some protectionism for their own domestic industries in the beginning.  Preferential access to the world was an advantage for South Korean industries.

One of the major differences in the economic development of the two countries are that of labor conditions.  Japanese workers typically get better treatment.  There is lifetime employment and a seniority wage system.  In South Korea better conditions were in high demand in the 1960s and 1970s but have only recently gotten better.   And in the 1950s the profits rise in Chaebol was disproportionate to the wage.

Another difference between the growth of the Japanese and South Korean economies during the postwar period was the role of banks.  In Japan, banks had a considerable hold on the market share of the economy.  The banks have a large share in Keiretsu shared with weak shareholders in relation to the US.  The corporations have more accountability to the banks therefore.  Banks are more controlled in South Korea.

It is safe to assume that both Japan and South Korea underwent significant economic growth from the 1950s to the 1970s.  In the 1950s South Korea was dependent upon foreign aid and was far behind North Korea.  In 1945 North Korea was six times as rich as South Korea.  Now South Korea is the 10^th largest economy in the world while North Korea lags behind.  Despite that, Japan’s economy remained larger than that of South Korea during the thirty years following World War II.  Until the early to mid 1970s the Japanese economy was growing at an average of 11.7% per year.  While it is highly debatable from either side which economic strategy is better, the Japanese stabilized capitalist economy seems to have worked in the long run.  In order to conduct a satisfactory evaluation, one must not only look at the past, but at the present and the future as well.