On 16 May 1961 the military launched a coup in Seoul. This led to three years of military government. The junta was nominally led by Army Chief of Staff Lieutenant General Chang Do-yung but it soon became clear the real leading personality was Major General Park Chung-hee. Park was a professional soldier from Daegu in south east Korea. First commissioned in the Japanese Manchukuo army, he later served in the ROK army during the Korean War. He had trained as a logistics expert, something which would serve him well later as President.
Following the coup all executive, legislative and judicial powers of the state of the ROK were assumed by the Supreme Council for National Reconstruction (SCNR), the chief organ of the military regime. The decision of the President Yun Po-Sun to stay in office gave the regime a veneer of legitimacy. Day to day government was by a newly appointed cabinet and countless local officials including mayors, judges and governors who continued in post.
In July 1961 Gen. Park Chung-hee took over as Chairman of the SCNR. The SCNR initially took sweeping powers of detention, censorship, and proscription (aimed at corrupt politicians and businessmen). However they claimed they would hand power back to elected civilians once their reforms were complete.
The junta acted firmly to establish its authority. The armed forces were purged extensively, some two thousand military officers being dismissed. Hundreds of civilians were banned from political activity. There was also a small number of executions of individuals accused of crimes against the state. The junta carried out sporadic crackdowns on activities it considered criminal or antisocial, such as smuggling of foreign cigarettes into the country and erotic dancing. Petty criminals were publicly humiliated by being paraded through the streets.
Park himself was described by observers at the time as a short but powerfully built man who showed little emotion, was a man of few words, and always wore sunglasses. Those who had dealings with him found him matter of fact in speech and not overtly threatening, yet some said there was something vaguely frightening about him. Korean journalists dubbed him ‘Parkov’ by comparison with Soviet officials.
Park was to handle the power of big business through the personal intimidation of business leaders. He arrested a number of major business leaders who had done well under Rhee. He threatened to prosecute them for corruption and profiteering at the expense of the state. He then forced them into a deal by which they would set up companies with their own funds as directed by the junta, then hand over shares in the companies to the state. These plans were never carried out, but Park had made his point, business leaders however wealthy, would be continually under threat of arrest if they failed to participate in the junta’s development plans. The state would be in control of businessmen, not businessmen in control of the state.
At first the Kennedy administration in Washington was unsure of his junta and withheld aid in response to the military overthrow of a democratically elected government. Some in Washington suspected Park of being a communist. Within three months however, the US ambassador Samuel Berger sent approving signals to the State Department and aid began to flow again.
The new regime put national re-unification as a secondary issue to political stability and economic progress. One quote from a speech of Park was: “I want to emphasize, and re-emphasize, that the key aim of the May 16 Revolution was to effect an industrial revolution in Korea.”
In the field of national security a plethora of organizations were replaced with two more centralised ones, the KCIA (Korean Central Intelligence Agency) a civilian agency, and the CIC (Counter-Intelligence Corps) a military agency.
Park belonged to the ‘Japanese Generation’, those whose formative years had been spent in the last days of the Japanese colony. They had witnessed how central planning of the economy, government targeting of industrial sectors, and state controlled finance to direct private sector activity, could be used to carry out rapid industrialisation successfully.
Within a year of seizing power the junta confiscated large shareholdings in banks, nationalizing five of the biggest banks based in Seoul, including one belonging to Samsung. This gave the state almost complete control over finance, the instrument that would be used to direct the activities of private industry.
Park now intended to develop the economy through a series of Soviet-style five year plans.
The economic planning apparatus was reorganized. Immediately after the coup the Economic Planning Board (EPB) was established as a centralised organ of planning. It took over planning responsibilities from the Ministry of Reconstruction which was disbanded. It acquired budgeting powers from the Ministry of Finance, and it oversaw statistical data collection, instead of the Ministry of Home Affairs.
Park used a triad of state institutions to implement the plans. The EPB has been likened to the brains of the system, while the Ministry of Commerce and Industry (MCI) and the Ministry of Finance (MoF), through its control of access to investment, acted as the hands.
Another feature of Park’s system of ‘guided capitalism’ was to force all industries to form associations. It is alleged by some analysts that whereas in many countries these agencies are formed to represent the interests of their members, in the ROK they formed a means of state control over companies. Each association was assigned to a government ministry which could then regulate that industry through the medium of the association.
In August 1961 the Federation of Korean Industry (FKI) was formed by those very business leaders who Park had threatened with prosecution. This agency acted as an interface between the government and the large industrial conglomerates. It is reported that whereas Park was prepared to listen to the representations of industry through the FKI, he retained ultimate authority in decision making.
Once the military junta took over and rapid industrialisation began, the state and employers collaborated to bring labour under control aiming to limit any disruption to productivity or profits. In 1961 the national federation of unions was restructured as the FKTU (‘Federation of Korean Trade Unions’). It was now organised as sixteen federations by industry, incorporating over two thousand different unions with a collective membership of one third of a million workers. Only union officials approved by the state were allowed to participate, enabling the exclusion of those considered uncooperative or militant.
Textiles now had one national union, as did transportation, chemicals and the six metal working industries. Although designated as industry wide unions, these unions actually acted as ‘workplace’ unions, which made them isolated and weak. Genuinely independent unions were much constrained in their activities. They were mostly found in SMEs, where they could be dissolved by employers with the backing of the state. Trade unions were either compliant or were banned by employers from the workplace.
The First Five Year Economic Development Plan 1962 – 1966
In July 1961 a five year economic development plan was announced to run in the years 1962 – 1966. It was produced quickly, it has been suggested the junta was anxious not to let the situation stagnate for long and so acted with the greatest haste. The first plan was in fact based on a plan already drawn up under Rhee and Chang by the former Economic Development Council of the Ministry of Reconstruction. The junta consulted staff who had worked on the plan and repackaged it as the junta’s first five year plan.
This plan reflected the basic economic priorities of the military government. The annual growth target was 7.1 percent for the period 1962 to 1966. It listed priorities in the following order, energy (electricity and coal), raising agricultural output and farm incomes, expansion of key industries, conservation of natural resources by mobilising the underemployed, export promotion to improve the balance of payments, and upgrading technology.
It is reported that the US Agency for International Development (USAID) officials in Korea disapproved of this plan and would not certify it for foreign lending. It is claimed that the first plan was never fully implemented.
Immediately after the coup political instability did nothing for the economy. The junta’s response to the crisis was a Keynesian stimulus package of high government spending and low interest rates. After a lag of a few months the economy responded with strong growth. However a consequence of this policy was that inflation started to rise in 1962. As a measure to fight inflation and also to draw peoples’ cash savings into the banking system so they could be used, the Korean currency was suddenly re-nominated.
On 9 June 1962 a new currency the Won was introduced at a rate of 10 Hwan for each Won. The Exchange rate was fixed at 125 Won equivalent to one US Dollar. The move was viewed with skepticism by liberal economists within the government. It failed to halt the rise in inflation and the hoped for influx of hidden savings did not materialise. In fact consumer price index (CPI) inflation in Seoul shot up in 1963 – 64.
Exports grew during this period. Interestingly data show that exports actually began their upward trend in the late nineteen fifties and grew continuously through the nineteen sixties. In fact export promotion policies had been a feature of ROK industrial policy for some time. From 1950 export credits were selectively available. From 1955 export companies could receive government subsidies. From 1957 the right to import goods was made conditional upon export performance of a firm. From 1959 import duty exemptions were available for exporters, as were loans to help with production of goods for export.
Of note though, was that manufactured exports mushroomed in the early nineteen sixties and by 1963 they already represented half the value of all exports. The main manufactured export items in the mid-nineteen sixties were, in decreasing value: textiles (notably cotton), finished clothing, plywood, footwear and wigs. These were all light manufactures produced by labour intensive methods.
During the early nineteen sixties there were developments in a number of industries which would later prove important to the economy of the ROK. Oil refining started in South Korea in 1964 with the activities of the Korea Oil Corp. and the Kukdong Oil Industrial Company. The Korea Oil Corp. commissioned its Ulsan refinery with an initial capacity of 35,000 bpd (barrels per day). This project was a particular interest of Park’s. In 1965 Kukdong also completed construction of its oil refinery at Pusan. In the year 1965 the total output of refinery products in the ROK was 9.9 million barrels, including fuel oil for ships and heating, diesel, gasoline and kerosine. This reduced the need to import fuels and contributed towards improving the country’s balance of payments.
Later in the decade the capacity of the Ulsan refinery was considerably expanded with the addition of a second ‘production train’, reaching a total output of nearly 120,000 bpd. In 1968 it was complemented by the start up of a plant to blend lubricating oils.
In search of technology in 1968 Kukdong entered into a joint venture with Royal Dutch Shell, to form the company Kukdong Shell Petroleum Co. Ltd. Around the same time Lucky Goldstar, the chemicals and electronics group, entered into a joint venture with US major oil company Caltex Petroleum Corp. forming GS Caltex. In 1969 their refinery at Yeosu, on the southern coast, commenced operations with an initial capacity of 60,000 bpd. It was soon joined by a lubricants plant.
During this period other branches of the South Korean chemicals industry also blossomed. Lucky Chemical developed PVC production in 1962, developed the first synthetic detergent plant in the ROK in 1966, and renamed itself Luck Chemical Industries Co. Ltd. By the end of the decade it was listed on the KSE (Korea Stock Exchange).
In 1966 Korea Explosives also entered petrochemicals, manufacturing PVC and PVC products through the launch of it’s Korea Hwasung Industrial Corporation. In 1969 the group entered into a venture, Kyung-in Energy Development Company, to build an oil refinery at Inchon.
The acquisition of oil refineries by plastics and chemicals companies reflected a trend towards ‘vertical integration’. Not only did the companies gain lucrative fuels business, but it also marked a move ‘upstream’ to obtain a ready source of raw materials for the production of a wide range of polymers and organic chemicals.
The CJ branch of the Samsung group began to export its sugar for the first time in the early nineteen sixties. It also began the production of the food seasoning additive MSG (Monosodium Glutamate) in 1963. It expanded its foods manufacturing with the mass production of the traditional Korean Mipoong seasoning in 1964.
Another industry considered to be strategic was cement. All the construction work and reconstruction work in the country demanded large amounts of cement. The more the country could produce, and the cheaper, the better for the balance of trade, and for the construction industry. In 1962 Kim Sung-kon sold his Kumsung Textiles venture to finance his entry into the cement business. He used his funds to establish the Ssangyong (‘Double Dragons’) Cement Industrial Co. Ltd. In 1964 his cement plant at Yongwol, Gangwon Province, commenced operations. With strong demand his company grew and he diversified his interests, even acquiring a paper company to package his cement. In 1968 production commenced at his Donghae plant, with an initial capacity of 1.7 million tons per year. The plant was carefully sited on top of vast reserves of limestone, and close to the port of Pukyong. It would become the largest single unit cement plant in the world.
Other cement companies also benefited from strong demand and from government support. For example in 1961 the Tang Yong Cement Industrial Company received a US$ 2 million government loan to expand capacity at its Samchok Plant, more than doubling it to 380,000 tons per year. By 1967 capacity had expanded above one million tons per year, which made it South Korea’s largest cement producer at that time. Meanwhile Hyundai Engineering & Construction Company completed its own Danyang Cement plant in 1964.
The automotive industry witnessed formative developments during this decade. In 1962 the government established a five year automobile industry plan. It also announced the “Automobile Industry Protection Act”. The government would promote automotive manufacture while excluding foreign competition as ‘infant industry’ protection. Foreign automotive companies were barred from entering the ROK except through joint ventures with Korean companies. This attracted some Korean industrial groups not previously involved in the automotive business to start seeking entry.
The MCI appointed one company to produce in one product segment so that in the limited Korean market companies would be able to achieve economies of scale. This would improve their profitability and increase their efficiency in the hope they would be able to export at some point in the future.
From 1962 Kia began to build trucks as allocated by the MCI. The company also built machine tools. From 1962 until 1966 Kia acted as an assembler of imported parts from foreign truck manufacturers. However from 1967 Kia increasingly developed and produced its own parts using knowledge it had gained from outside suppliers.
In 1964 Ha Dong-hwan Motor Company started to build trucks, buses and jeeps, including jeeps for the US army in Korea. Again according to the industry plan which segmented the market in terms of engine size.
Saenara Motor (“New Country Motor”) was allocated the role of producing passenger cars. The company’s founder Park No-jeong, who had Japanese links, was accused by his rivals of paying illicit political donations to the junta to gain the allocation. The company signed a deal with Nissan for technical assistance and a US$ 35 million loan for the construction of a brand new car plant at Bupyeong-gu, Inchon, having an intended capacity of 6000 units per year.
From November 1962 Saenara imported duty-free ‘semi-knock down’ kits to assemble the Datsun Bluebird 310. The price was set high by the government with the intention of raising taxes on the sales. It should have been profitable but the price was too high for the market and sales were poorer than expected. However, ironically, Saenara was given permission by the government to import four hundred finished Bluebird models from Japan which it sold to taxi firms through the brand ‘Saenara Taxi’. This killed off the Sibal with the company going bankrupt in 1963.
Saenara soon ran out of foreign exchange and production had to stop, with the government refusing to support further imports of finished cars. Production halted in May 1963 after making some 2,773 units. It seems this crisis was preceded by tensions between the company and the government. In July 1963 ownership of Saenara Motor was taken over by the MCI and Seoul based Hanil Bank.
Shinjin Motors was a rival of Saenara which had been rejected for the role of passenger car maker. However determined to muscle in on the business, in 1963 the company released the Shinjin ‘Shinsungho’, a close copy of the Saenara Bluebird, but fitted with jeep engines.
In May 1964 the government finally allocated the role of passenger car maker to Shinjin, and the company was given control of the plant at Bupyeong-gu, Inchon. Again there were allegations of corruption from disgruntled rivals. This venture was renamed Shinjin Automobile Company. In 1966 it was decided to cease production of the Shinjin ‘Shinsungho’ after only 322 units were made. Rather the company entered into a deal with Toyota to produce the ‘Corona’. Production started within weeks.
In 1965 the government announced a three year automobile localization plan, with the goal that auto manufacturers should source ninety percent of the parts content of the finished vehicles from factories within the ROK by 1967. There existed a plethora of SMEs in the form of engineering workshops to provide such components for the assemblers.
At the end of 1966, in the face of lobbying from other firms, the government ended Shinjin’s monopoly on passenger cars and allowed Hyundai group to set up a rival concern. In 1967 the Hyundai Motor Company (HMC) was set up by the Hyundai group with its original interests in construction and engineering. In 1968 the company began producing the ‘Cortina’ in cooperation with Ford, and a few other Ford models.
Shinjin released another passenger car in 1967, the ‘Publica’, known as the ‘little red car’, but it sold poorly. The company also moved up-market with a luxury car, the ‘Crown’. In spite of its problems the company’s asset base had grown massively.
In the year 1969 Korean automotive output reached a total of 33,000 units, as compared with a total of only 7,400 units in 1966. However, all these companies were merely automotive assemblers, mostly importing parts from overseas partners.
A Formal Return to ‘Civilian’ Government
During 1962 a new constitution was drafted intended to provide for new elections and a return to civilian rule. This returned to the idea of a strong popularly elected President. In March 1962 Yun Po-sun resigned as President and was replaced by Park, nominated by the SCNR. In December 1962 the new constitution was approved by a national referendum.
In Presidential elections in October 1963 Park defeated Yun Po-sun. Park then resigned from the Army and was inaugurated as President in December 1963. The Third Republic thus came into being.
The Presidential Secretariat was upgraded. It was to be based in Chong Wa Dae the presidential Mansion in Seoul, known colloquially as the ‘Blue House’ because of its blue roof tiles. A number of executive agencies were set up, reporting directly to the President, such as: The Board of Audit and Inspection, and The Economic and Scientific Council. In this way the President became increasingly the focus of state power. The Secretariat, closely led by Park, became the key institution of executive power within the state.
The new president was facing new economic problems. Ironically as exports rose, imports rose with them. The result was that although the trade deficit fluctuated, its overall trend was to worsen through the nineteen sixties. From 1960 US aid levels were steadily tapering off. Previously they had been a key source of foreign exchange. Thus foreign exchange reserves dwindled reaching a trough in 1963.
It became crucial for the government to act. Import controls were imposed, export incentives, such as tax exemptions were provided, and there were attempts to attract investment from abroad in the form of loans and FDI. President Park’s government introduced a variety of trade policies which included unification of the exchange rate, devaluation of the Won, and a wide range of export incentives.
In addition the government actively discriminated in favour of the export sector by granting exporters the right to import inputs on credit, offering loans and export credits. The government set annual export targets for selected commodities, which reinforced the incentive system since individual firms had to achieve export targets in order to receive import licences. The government permitted exporters high depreciation allowances on materials and even subsidised transport costs.
The state promoted Korea’s products overseas through a new government agency the “Korea Trade Promotion Association” (KOTRA). This raised funds by a tiny tax on imports to finance it activities. The work of the agency had two different aspects. One was international market research, seeking out new markets globally for Korean exporters. The other was information and training for inexperienced exporters, giving advice and guidance on issues such as rules and regulations in target markets, foreign customs procedures, packaging, sales training etc. Government trade missions and trade agreements also sought to secure new markets.
Overall, the government helped to change attitudes towards exporting through ‘hearts and minds’ campaigns. Park instituted a monthly export promotion meeting attended by businessmen, relevant government officials, journalists and academics. Park held frequent business lunches where exporters could petition him for aid. The president would personally intervene to get things moving if he discovered hold ups in the provision of export incentives to some company.
To mark 30 November 1964, he declared an annual ‘Export Day’. This was the date when South Korea’s exports first reached the ‘psychological’ figure of US$ 100 million. On this day Park would award gold, silver or bronze ‘export towers’ to businesses with outstanding export performance, thus providing them with a good opportunity for publicity.
In spite of all these things some businesses were still unenthusiastic about exporting. Many less efficient companies found it difficult to make a profit overseas, and much easier to make money in the protected domestic market. In many cases it seems that profits on sales at home had to cross-subsidise loss making exports, but the companies felt coerced by the regime into exporting. It was the Korean consumer who had to suffer high prices, less choice and lower quality in order for this system to work.
In 1964 Park’s government amended a series of labour laws including, ‘The Trade Union Act’, ‘The Labour Dispute Conciliation Law’, and the ‘Labour Committee Law’. Multiple unions in one workplace were banned. The government also established the ‘Labour Management Council’ to steer unions away from politics and promote a focus narrowly on employment conditions.
In 1964 the ‘civilian’ government was facing another macroeconomic problem, inflation. Measures were now taken to bring inflation under control. Both fiscal and monetary methods were employed.
On the monetary side interest rates were raised on domestic bank deposits and loans. On the fiscal side the government attempted to eliminate all deficits from government accounts, and control the money supply by limiting the provision of credit by banks and loans institutions. The policies seem to have worked as inflation fell in 1965 then stabilised to moderate levels for the rest of the decade.
In addition, in 1965 there was an attempt to raise taxation. Both collection procedures and taxation rates were altered. This was followed by a comprehensive reform of the tax system implemented in 1967. The changes seem to have been effective as central government tax revenues increased gradually, covering a larger percentage of government spending than in previous decades.
In foreign relations the US sought to normalize relations between the ROK and Japan. The process had been stymied until Park came to power. During 1964-65 Park successfully concluded normalisation negotiations. In April 1965 a comprehensive treaty was finally signed in Tokyo, and it was ratified by the ROK National Assembly in August that year. This established full diplomatic relations between the ROK and Japan. Japan provided a direct grant of US$ 300 million in aid and loans worth US$ 200 million to the ROK (nominal figures). By comparison the total import bill of the ROK was US$ 420 million in 1965.
In addition to Japanese state finance, private Japanese investors contributed another US$ 300 million. This was to prove crucial in Park achieving his dream of building an integrated iron and steel complex at Pohang.
Normalisation of relations with Japan in 1965 helped the economy. The treaty settled a number of issues such as fishing rights, various property claims deriving from the colonial period, and the status of Koreans in Japan.
Korea wanted Japanese investment and Japanese business saw good investment opportunities. Trade with Japan also steadily increased and by 1980 Japan was Korea’s second biggest trading partner after the USA.
Furthermore, by now convinced that the US was committed to defending the ROK, commercial loans were forthcoming from western countries including the USA, West Germany, Italy and the UK. In addition, from 1968 till 1973 the “Asian Development Bank” directed eighteen percent of its loans to South Korea. American political influence may have played a part in this.
The Second Five Year Economic Development Plan 1967 – 1972
Most targets had been exceeded in the first five year plan, notably the overall growth rates. Attempts to draft the second five year plan would reveal strains between the president’s vision of a rapid industrial revolution and the views of economic liberals in the EPB, in USAID and with academic Korean advisers. Many of these people had learnt economics in American universities.
The liberals favoured freer markets and less state intervention. They favoured playing to what they saw as Korea’s strengths, in other words the country’s ‘comparative advantage’ in cheap labour, which favoured labour-intensive industries like light manufacturing. In other words Korea should continue to do more of what it already did.
The liberals argued that growth in labour-intensive industries would soak up the unemployed from a growing population. They were sceptical about Korea’s ability to manage a high technology, capital-intensive industrial programme. It might fail, it wouldn’t create enough jobs, and it would be all out of scale with the size of the domestic market, they would argue.
Deputy prime minister and head of the EPB was Chang Ki-yong. He had a background in business including newspaper publishing. He favoured free enterprise and free markets. He had been instrumental in many of the reforms of the mid-sixties described above. Chang believed that if Park pushed the Americans too far the aid, which was needed for the success of the programme, might not be forthcoming.
In the end a compromise was reached between Park and Chang. The second plan would focus on light industries such as textiles and consumer electronics in the first three years, while heavy industry such as Park’s dream of an integrated steel complex, would be phased in more slowly, receiving attention in the last two years of the plan.
The plan set an annual growth target of seven percent from 1967 to 1971. Its main aim was stated as to “Promote modernisation of the industrial structure and to build the foundations of a self-supporting economy.”
The major targets were:
- To attain food self-sufficiency, reforest the country, and develop marine resources.
- To accelerate and diversify industrialisation, targeting chemicals, machinery, iron and steel.
- To improve the balance of payments, through a combination of export increases and import substitution.
- To restrict population growth through family planning, and to tackle unemployment.
- To increase farm productivity and incomes through diversification.
- To raise productivity through technology, improved management skills and upgraded human resources.
In 1967 Park was again elected by popular vote to a second four year term. Since he was elected President in 1963 Park had centralised power and the National Assembly was controlled by his DRP (Democratic Republican Party). In 1969 a constitutional amendment allowed the President to stand for more than just two terms of office. This change was attacked by the opposition NDP (New Democratic Party).
From 1967 to 1971 the average GNP (Gross National Product) growth rate averaged over ten percent per annum, outperforming the planned target for growth by a wide margin. Actual performance exceeded planned targets in almost all major sectors. Each year targets were adjusted according to an annual ‘Overall Resources Budget’.
Park personally drove forwards the major transport infrastructure project of the Seoul – Pusan highway which contributed significantly to growth in the construction industry. Construction work began in February 1968 and did not finish until July 1970. The cost of the project was 43 billion Won. It is reported that some seventy workers died during the project. Eyewitnesses attest to the personal involvement of Park, who was seen traveling up and down the half built highway in a helicopter, monitoring progress and intervening to deal with bottlenecks in construction.
During the second plan all the major export product categories showed strong growth too. Notable changes though were the much stronger growth of finished clothing compared with textiles so that finished clothes became the largest export earner, displacing textiles. Another notable trend was the emergence of electrical goods, including telecommunication equipment, as a significant contribution to export earnings. Exports of steel products also appeared as a significant entry due to construction projects in Vietnam.
Korea’s strong record of economic growth in the late nineteen sixties and early nineteen seventies owed something to the Vietnam War, and the enormous war expenditures of the USA. For one thing the decision by the ROK government to send Korean troops to Vietnam was instrumental in eliciting a surge in dollar earnings.
At the peak, in the period 1967 to 1972 the Korean government maintained 50,000 troops in Vietnam. The full cost of this was paid by the US, and soldiers’ remittances home contributed to foreign exchange earnings. Some 300,000 troops were rotated through Vietnam during the war.
It took several months of negotiations for an agreement to be reached between the ROK and the USA on the deployment of Korean combat troops to the Vietnam War. The terms and conditions of this agreement were contained in a document, dated March 1966, known as the “Brown Memorandum” after US Ambassador to Korea Winthrop G. Brown.
The policy was thought to be unpopular with the Korean public. The South Korean government used the public opposition to the policy to wrest concessions from the US during the negotiations.
The agreement drastically increased Korea’s dollar earnings from participating in the war. From 1965 till 1970 about US$ 1 billion were channelled by the US to Korea under the provisions of the Brown letter. This was equivalent to more than one third of the value of the country’s commodity export earnings over the same period.
Also US military aid had been declining till 1964 when it stood at US$ 124 million, but after the war escalated in 1965 it substantially increased. From 1965 till 1973 more than US$ 2 billion in US military aid was spent for Korea. Though much of this was spent in the US, for example on defence companies and US based training, enough US dollars reached Korea to have an impact on Korean foreign exchange earnings.
The war also greatly stimulated Korean exports. It gave an important boost to Korea’s export manufacturing. However as this sector was in its early stages the volume of exports to Vietnam from Korea was still small compared with those from Taiwan or Japan.
Many needs for the war were procured in Korea funded by US AID, supplies, services, and equipment. There were increased loans from US AID. There was US technical assistance in support of Korean exports and developmental needs in support of the war.
It was an important chance for the Korean chaebol to start selling their products internationally. In the period 1966 to 1967 Vietnam imported significant quantities of Korean steel products, transport equipment and chemical products. Also Korean exports to the US rose ten fold from 1966 to 1973, apparently driven by the war economy.
The Hanjin transport group profited greatly from transporting goods by road and sea. Its shipping affiliate was awarded a contract to operate Quy Nhon port in South Vietnam. In 1969 Hanjin’s contribution to earning foreign exchange was rewarded by the ROK government by giving them control of the bankrupt national airline, to establish the Korean Air Lines Company.
The Brown letter also provided for Korea’s participation in construction projects in Vietnam, this helped the development of Korea’s construction industry. In 1965 Hyundai Engineering & Construction Company undertook its first overseas ventures. Its first international contracts were for dredging in Vietnam and highway construction in Thailand. Both of these were connected to the war.
The consequence of the above is that despite the continuance through the period of the second plan of a large and growing trade deficit, foreign exchange reserves mostly grew in the years 1967 to 1971. This left the ROK with healthy reserves of US$ 568 million in 1971.
The nineteen sixties was the decade when Korea’s consumer electronics industry began to take off. The number of electronics companies in the ROK increased dramatically, especially in the late nineteen sixties, from 21 in 1962 to 114 in 1969. At the end of the decade the industry had a dualistic structure with a small number of large foreign owned companies assembling items such as radio sets and black and white televisions for export, and a large number of Korean owned SMEs (firms with 10 – 250 employees) making electronic components and parts for the domestic market.
The majority of large foreign export assemblers were wholly foreign owned. The Korean SMEs gained little business from these companies as they tended to import all their parts and components rather than source them locally. In the mid-nineteen sixties there was an influx of American consumer electronics companies, which facing price competition in the domestic US market from Japanese imports, sought to produce more cheaply ‘offshore’. These were soon followed by a wave of Japanese firms, following the normalisation of relations in 1965. The Japanese firms were facing increases in labour costs at home and also sought cheaper production ‘offshore’ to maintain their export competitiveness.
The ROK government policies for the electronics industry at the time were covered by policies for other machinery industries. Foreign investment was attracted by low taxes, tax exemptions, for instance on imported parts, and ‘guarantees’ of freedom from labour unrest. In 1970 the “Temporary Act for the Trade Union and Strike Adjustment in the Workplace of Foreign Invested Enterprises” was enacted to ensure a strike-free environment for foreign investors. This legislation followed the first large strikes under Park, which took place at the American electronics firms Signetics and Oak Electronetics in 1968, where workers protested against low wages. In response Oak Electronetics promptly pulled out of South Korea.
The government recognised that wholly foreign owned companies transferred relatively little technology to Koreans, and that joint ventures with Korean firms were a better way for Koreans to gain technological learning. Thus in 1966 the “Foreign Capital Inducement Law” was introduced with the intention of controlling the nature of FDI (Foreign Direct Investment, foreign investment by company ownership), and encouraging foreign firms to establish joint ventures with a Korean partner. From the late sixties and through the seventies the share of joint ventures in export production doubled from ten percent to twenty percent.
By the end of the decade the ROK government recognised the technological, military strategic and growth potential of electronics as a sector and decided to target the industry with its own set of promotion policies. In 1969 the “Law for the Promotion of the Electronics Industry” was enacted. It sought to promote the Korean electronics industry by banning imports to the Korean domestic market, giving preferential tax treatment (for both foreign and Korean firms), and state subsidies (for both foreign and Korean firms).
The pioneer of Korean electronics in terms of making and exporting finished products was Goldstar Co., the offshoot of Lucky Chemicals. Having started at the end of the fifties with assembling vacuum tube radio sets, GS rapidly expanded into household appliances. In 1965 it was the first Korean firm to make refrigerators. In 1966 it was the first Korean company to make black and white televisions. It soon diversified into a range of electrical and electronic equipment such as lifts, escalators, air conditioners, electric typewriters etc. The company was successful, its sales grew steadily.
GS was the first Korean consumer electronics firm to enter the export market. It achieved this through OEM agreements. ‘Original Equipment Manufacturer’ agreements are contracts where a manufacturing company undertakes to manufacture and supply wholesale a product, usually to the design and specification of another company which takes care of marketing, distribution and retail arrangements. The company that makes the products has no brand of its own, the branding is provided by the company contracting the goods. OEM agreements were useful for Korean manufacturers as they could just ‘plug in’ to the well established marketing networks of a company usually well established in the targeted foreign market. In the case of GS It had OEM agreements to supply black and white televisions to US catalogue shopping and department store companies, ‘Sears’ and ‘J. C. Penney’, who retailed them under their own brand names.
In 1969 the foods and textiles giant Samsung decided to branch into consumer electronics by establishing the Samsung Electronics Co. Ltd. Samsung formed a joint venture with Japan’s Sanyo with the intention of manufacturing a basic black and white television. Production started in the early nineteen seventies. It was of course to become Korea’s most successful electronics giant by the start of the new century.
In the late sixties South Korea’s most successful ‘bicycle magnate’ Kim Hyang-soo decided to branch into the exciting new world of electronics, founding Anam. It started as a service provider, packaging and testing semi-conductors. Kim recruited his son, US educated ‘Jim Kim’ to run a US based marketing arm of the new venture called Amkor. With an estimated one third of the global semiconductor assembly market in the early 21st century, the Anam Group grew to be one of South Korea’s largest companies.
The end of the sixties was to see Park achieving one of his most elusive goals, to build South Korea a globally competitive steel industry. An integrated steel mill with an annual capacity of 300,000 tons was discussed at a very early stage, and there were some hopes of including it in the First Five Year Development Plan. The World Bank and other international agencies considered the plan too ambitious and inappropriate.
In place of the larger scheme, a number of small-scale steel plants based on electric furnaces and domestic scrap were built. One of the first and most important of these was the Inchon Heavy Industrial Corporation financed by the Korean government. (Later became “Hyundai Steel Co. Ltd.” “HSC”). Inchon had a 50-ton open-hearth furnace and a medium rolling mill capable of producing 10,000 tons of sheet steel per year.
Further development on a similar scale led, particularly after 1963, to the establishment of some 15 firms involved in producing steel of various kinds. Initially employing old-fashioned techniques, non-continuous rolling mills produced: sheet steel, bars, rods, wire and pipes of uneven quality in quantities insufficient to meet demand. This early steel production was based on imported pig iron and scrap, while at the same time Korea was actually exporting iron ore, only tungsten was a more important mineral export.
With the strong support of ROK President Park Chung -hee, the chairman of the Korean Tungsten Mining Company, former Major General Park Tae-joon spearheaded a second attempt to assemble an international financial package to build an integrated steel mill. POSCO was established as a joint venture between the ROK Government and “TaeguTec” (then Korea Tungsten Company). This scheme, to build a plant capable of producing 600,000 tons of crude steel per year, was elaborated by a consortium of seven Western steelmakers, known as “Korea International Steel Associates” (“KISA”).
In October 1967, a contract between KISA and the Korean government stipulated that KISA would raise an international loan by 1969, and complete the integrated mill by 1972. Costs were estimated at US$100 million.
The operating company, “Pohang Iron and Steel”, was incorporated in 1968 with thirty-nine employees. For most of its history, however, Pohang was commonly referred to as POSCO. Reflecting this reality, the company formally adopted this name in 2002.
Koppers, the leading consultant in the group, was unable to raise the necessary capital, as the World Bank and US Exim Bank strongly opposed the project. Thus KISA was dissolved in 1969. Advice given to the Korean government continued to oppose the building of an integrated steel capacity, primarily on the grounds of the domestic market’s inability to support an efficient plant. The government remained convinced of the steel mill’s importance, however, and decided to raise foreign loans to finance it.
In August 1969, during the “Third South Korea-Japan Ministerial Meeting” between Korean and Japanese ministers preliminary agreement was reached for resurrecting the KISA plan. Financing included US$73.7 million in Japanese government grants and loans.
This cooperation was one consequence of the normalization of relations with Japan in 1965 and reflected the view of the government of Japan as noted in the “Nixon–Sato communique” of November 21, 1969, that “The national security of the Republic of Korea is essential to the security of Japan.”
Discussions through the rest of the year led to a contract whereby Japan would arrange loans covering most of the capital required. Japan’s “Export-Import Bank” provided $52.5 million, its “Economic Cooperation Fund” $46.43 million, while Japanese commercial loans provided $28.58 million. The remainder, some $24 million, came from other sources.
Detailed planning was carried out with the help of “Mitsubishi Heavy Industries”. Construction was planned and implemented in such a way as to facilitate future expansion. The Japanese steelmakers involved in the plans were Nippon Kokan (NK) and Nippon Steel Corporation (NSC). Virtually every detail scheduling the timing of construction, specifications, supervision, purchasing, inspection and onsite support for start-up and operation was in Japanese hands. The involvement of Korean engineers in this first phase was limited to the inspection of specifications, in conjunction with foreign engineers. Construction commenced in 1970. Production and expansion were in a number of phases over eleven years. It was a massive project.
The large influx of all the foreign loans into Korea in the late sixties had the consequence of increasing greatly the cost of loan repayments. Korean firms and the government experienced a worrying rise in the debt servicing burden. In the period 1965 to 1968 the average debt to equity ratio of Korean firms doubled. The government took over thirty firms in 1969, all of them recipients of foreign loans. It was thought another ninety companies were on the brink of bankruptcy.
In 1969 the government obtained a ‘standby’ agreement from the International Monetary Fund (IMF), to help out in case of emergencies. However a condition of this provision was to restrict Korean firms to loans dated for one to three years only. As a result the rate of growth of foreign debt slowed significantly in 1970 and 1971, but so did investment. The rate of growth of exports consequently slowed. To stimulate exports the Won was devalued by 12 percent in 1971.
Park Tightens his Grip on Power
In 1971 Park won a third term as president, beating the opposition’s Kim Dae-jung by a narrow majority. Many suspected there were irregularities in the poll. The press was by now routinely critical of Park. During 1971 the political situation became tenser many anti-government protests took place at universities. In general though, it is believed Park was popular and the economy thrived.
In the late sixties and early nineteen seventies an underground independent trade union movement emerged. The number of strikes increased from seventy in 1969 to over one hundred in 1971. Frustrated with the FKTU workers organised their own unofficial large scale protests. These were often militant and there were even shocking incidents of ‘self-immolation’. Independent unions were often supported and encouraged by political groups such as the ‘Urban Industrial Mission’ (UIM), the ‘Catholic Farming Youth Workers’ Association’ or university student activists.
In 1969 metal workers went on strike at Choson Shipbuilding and in 1970 chemical workers staged a long hunger strike at Korea Pfizer. While in 1971 auto workers went on strike at the GM Saehan plant. In the same year the Hanjin Company’s building was set on fire by militants.
Cheap labour with poor pay and conditions underpinned the export-led strategy. Korean light manufacturing industries depended on a plentiful supply of cheap young female workers, many coming from the countryside, seeking to earn money to send back to their parents in the villages. In the seventies some 600,000 young women were employed in manufacturing, about a third of the workforce. They were concentrated in certain industries, such as textiles where they made up over eighty percent of the workforce. They were mostly in the 18 to 22 year old age range. Many had to live in unheated company dormitories and eat in company ‘mess halls’. Many had only one day per month leave and worked long hours for a pittance.
There were limits to what Korean workers would accept, for example in November 1970, police broke up a demonstration by 500 such workers over pay and working conditions at the Peace Market in Cheonggyecheon in Seoul. In the Peace Market some 20,000 workers were employed in a thousand small sweat shops under cramped, poorly ventilated conditions. They worked typically fifteen hours a day, earning 50 Won per day, the price of a cup of coffee. It is reported that when demand was high, workers were forced to take amphetamines so they could work around the clock. Following the suppression of the protests, a young tailor called Chun Tai-il, who worked in the market, burnt himself to death with petrol, in a scene reminiscent of the infamous South Vietnam protests.
It is held by Korean unionists that his death was not in vain as it galvanised many to join the minjung (people’s mass) movements and seek to form independent unions. Most immediately Chun’s mother set up an independent union, the ‘Cheonggye Garment Worker’s Union’.
In 1971 the “Special Act for National Security” restricted union activity and collective bargaining, directly involving the state in industrial disputes. It enabled security agencies such as the police and KCIA to suppress industrial conflict. The KCIA intervened in several strikes either to break them or mediate in them.
For example in 1974 there was a strike at Bando Co. a textile firm belonging to the Lucky chaebol. Over 1000 female workers protested at low pay and dangerous working conditions. The strike’s female leaders were arrested by police and replaced with selected male workers through the FKTU. Despite the breaking of the strike an independent union presence was maintained at the firm.
Another aspect of security alarmed Park and his associates, namely the changes in US policy in East Asia, such as the withdrawal from Vietnam and apparent US defeat in the war, also Nixon’s visit to China in February 1972. In March 1970 the US ambassador had already warned Park that the US was intending to reduce by one division, about a third, its troop strength in the ROK. This reflected a new policy, the “Nixon Doctrine”. In future the US would rely more on the military forces of its allies to contain communism and would intervene directly with its own forces less often.
The decision led to a bitter dispute in which Park actually threatened to physically prevent the withdrawal, fearing the action could trigger an invasion from the north. Inevitably the withdrawal was accepted, but Park now regarded the US as an unreliable ally. He apparently felt that the ROK must take measures to become more self-sufficient in defence. It is reported the ROK even began a nuclear weapons programme, later abandoned, following intense US pressure.
In global superpower relations it was a period of ‘thaw’ with Soviet – US relations based on ‘détente’ (‘relaxation’), and a new relationship between the US and the People’s Republic of China. Now Park also sought to defuse the very tense relations between north and south. On 15 August 1970, the 25th anniversary of Korea’s liberation, Park suggested publicly that differences between North and South could be settled by peaceful competition.
He sponsored contacts between Red Cross delegates from North Korea and South Korea at Panmunjom. The two governments began talks in August 1972 aimed at reuniting divided families and settling other humanitarian problems. These moves and Nixon’s new China policy led to increasing contacts and secret talks between North and South. On 4th July 1972 a joint communiqué announced the creation of a high-level North-South Co-ordinating Committee (NSCC), intended to move towards re-unification without foreign involvement.
Ironically amid internal unrest, and it would seem, fears that the north might misinterpret the diplomatic moves as a sign of weakness, Park decided to tighten his hold on the country. In October 1972 Park suspended parts of the constitution, declared martial law, and dissolved the National Assembly.
A new ‘Yushin’ (’Revitalising‘) constitution was announced which enhanced the President’s powers, gave him a six year term and removed any limit on the number of times he could be re-elected. Under the new constitution the President would be elected by an electoral college called the “National Conference for Unification” (NCU), itself popularly elected. The President was given unlimited powers to promulgate emergency decrees. The President also had the right to nominate one-third of the National Assembly.
Formally the Yushin constitution was democratic. The new constitution was approved by a national referendum. There then followed unprecedentedly high levels of talks between the Northern and Southern regimes in November 1972.
In December 1972 Park Chung-hee was elected to a six year term as President, initiating the ‘Fourth Republic’. Despite much popular support for the new constitution, there was significant political opposition from some quarters which resented the restrictions on freedom of speech and assembly. For example there were active opposition groups in churches, universities and some of the press. Martial Law was ended, but the President ruled largely by decree.
The KCIA acted as Park’s secret police. It cultivated networks of informers in businesses, university campuses, political organizations and press organizations. It is reported that electronic communications such phone and telex lines were widely intercepted, that waitresses acted as spies, listening in on private conversations in restaurants etc.
Opponents sometimes disappeared like one former KCIA director who knew too much, or were kidnapped such as student opposition activists abducted in West Germany, and most notoriously opposition leader Kim Dae-jung who was abducted in Tokyo. ‘False imprisonment’ and torture were used. Even senior business magnates were not immune from such treatment.
Other state security organs also competed with the KCIA to serve the regime’s interests. These included the Capitol Garrison Command, the Defence Security Command, the Presidential Protective Force and the Intelligence Bureau of the Korean National Police.
Those who displeased Park, such as uncooperative business leaders were often arrested, tried and imprisoned on fabricated charges such as corruption. Often their assets were seized. South Korea under Park, especially during the seventies, has been described as a ‘society permeated by fear’.
In the economy an emergency arose. The 1971 devaluation of the Won had backfired badly. Companies found their debt repayments too expensive and could not afford to borrow. Some two hundred firms went bankrupt in 1971. The government opted to bail out many of these firms.
One reason for the problem was that having been deprived of long-term finance by the IMF conditions, Korean firms turned to the ‘Curb Market’ for short-term loans for long-term investment. As interest rates on the ‘Curb Market’ were very high compared to loans from the government controlled mainstream banks, it was a recipe for financial disaster.
The ‘Curb Market’ was a characteristic feature of Korean business. Many small firms who did not receive the government’s patronage relied on it as their main source of credit. Repayment periods were short and interest rates were high. Lending firms were usually small and included the ‘Kye’, informal savings and loans associations, run by people who knew and trusted each other well, typically housewives. Families would put their savings into the ‘Kye’ which would then lend them to, usually small, businessmen. The ‘Curb Market’ as a whole was big. It became apparent in due course that the value of finance passing through the ‘Curb Market’ was at least one third of the size of lending by the formal banking system.
On 3 August 1972 a ‘Presidential Emergency Decree’ sought to get the firms borrowing again and to reduce the debt burden on overextended firms. To stimulate borrowing the government lowered interest rates. To reduce company’s debt burdens on 2 August 1972 the government carried out a drastic intervention in the ‘curb market’ for loans. All existing loan agreements were nullified, and borrowers offered a ‘debt for equity swap’. In other words the money owed to the lender could be converted into shares in the indebted firm. There was also a moratorium on repayments lasting three years, and new rules setting lower interest rates with a ceiling of 18% APR (annual percentage rate).
The economy responded better than expected. GNP growth was very strong, export growth was exceptionally strong.
Throughout the late twentieth century South Korea was urbanising rapidly. In 1960, about 60 percent of the population lived and worked in the countryside. By 1970 this had fallen to about 50 percent, and by 1980 the figure was down to about 35 percent. Despite rapid industrialisation and urbanisation a large proportion of the population still lived in villages and townships outside the urban centres.
The mass flow of people into the cities, especially as the country’s road network developed, began to cause problems. Urban squatter settlements, ‘shanty towns’, were growing alarmingly at the end of the nineteen sixties. Park decided to take action to deal with this problem. In 1971 he launched the ‘Saemaul Undong’ movement (“New Community” movement). It was to run throughout the seventies, but gradually petered out towards the end.
This policy has been hailed as a model for rural development in less developed countries by some, and criticised as an attempt by an order obsessed military dictator to impose regimentation and ‘tidiness’ on the countryside, by others. A stated aim was to raise rural standards of living to at least the same level as in towns and cities. One intention may have been to reduce the rate of flow of people from the country to the cities.
The Saemaul movement attempted to turn rural underemployment into a useful resource, by building rural infrastructure and reconstructing villages and farms. It was largely based on ‘voluntary’ labour. There is much evidence of pressure and coercion being used though. The Saemaul movement had a strongly political-spiritual dimension with slogans, songs and exhortations to serve the community. Its ideal was ‘self-reliance’ of the community. In many ways it was reminiscent of rural campaigns carried out in Maoist China and the Soviet Union. It was presented as a way of restoring pride to those who lived in the countryside at a time when city dwelling was increasingly seen as the ideal.
Bridges, roads, irrigation canals, dikes and small reservoirs were built. The government provided expert assistance and building materials. In the winter of 1970 – 71 officials brought 330 – 500 bags of cement and one ton of steel reinforcing rods to each village throughout the country. At this time South Korea had a surplus of cement due to the opening of the large cement plants in the late sixties. Villagers always had to pay some contribution towards the costs as a way of both subsidising operations and giving participants a sense of investment in the project.
The achievements of each village were assessed, and ranked with the best performing villages being given more resources. In the first such assessment 18,000 under-performing villages were excluded from the next round of supplies, leaving some 16,000 participating villages. It is reported that the sense of competition between villages acted as a motivating force in efforts to upgrade the local environment. Over the decade the government claimed the eventual achievement of practically complete participation by villages throughout the country.
Official ROK government statistics also claim that electrification was brought to 2.8 million homes in the countryside. Electricity supplied to rural households was subsidized. Villagers could now buy televisions which would link them in with the rest of the nation.
One feature of the policy was to ‘tidy up’ the countryside and make it look more ‘modern’. Thatched roofs on villagers’ houses were replaced first with corrugated iron, then with concrete tiles. Many villagers objected to this as the thatched roofs kept the heat in better during the bitter Korean winters, and ‘breathed’ during the sweltering summers. Those who refused to change simply had their houses re-roofed anyway. Official ROK government statistics claim that nearly 2.5 million houses were re-roofed in this way, approximately half the houses in the countryside of South Korea. Facades on main street buildings also had to be straight, false facades were added to some buildings to make village and town centres look more orderly.
Although initially the Saemaul movement was not focussed on agriculture, from 1972 there was a move to instigate a ‘green revolution’ to boost rice production. South Korea was in food deficit at the beginning of the seventies. Domestically produced rice only covered four fifths of needs, the other one fifth had to be imported. There had been little incentive for farmers to increase rice production. The state purchase policy was to pay low prices and then distribute the rice through a rationing system. This policy was intended to keep the urban cost of living low so the wages of industrial workers could be kept low, thus maintaining competitive exports. In addition the market was flooded with imports of rice supplied as US aid.
From 1971 a new high yielding rice variety had been introduced by the government. The Tongil variety, developed by Korean scientists in the government’s Rural Development Administration (RDA), could be planted densely and could tolerate high levels of nitrogen fertiliser. In addition it had resistance to rice Blast Fungus, the most common crop disease. The government also instituted a higher purchase price policy than before to stimulate output.
The adoption of Tongil rice was forced upon farmers by the government. The farmers were drawn into a whole new system of expensive chemical inputs, expanded storage capacities developed by the government, state sponsored co-operatives and intensive irrigation.
This programme was administered solely by the Ministry of Home Affairs enabling co-ordination of the many different aspects, especially as local government authorities operated under this ministry. Local government officials were made to actively work together with the villagers to ensure the programme progressed.
In 1971 only 0.02 percent of rice farming area was planted with Tongil, by 1975 the figure was 23 percent, and by 1978 three quarters of the rice planted area was with Tongil. As with village reconstruction, an incentive scheme was introduced. Farms achieving a yield over six tons per Hectare were rewarded with a grant worth US$ 250. In 1973 fewer than 4,000 farms received the grant, but by 1976 this had risen to nearly 54,000 farms. It is reported that by 1977 the ROK produced a rice surplus.
In the late seventies financial support to the farmers for growing Tongil rice ended. Many found the high input system too expensive, did not want to continue borrowing money and getting more indebted, and so they turned to other varieties.
From 1971 till 1978 areas planted with Tongil did not suffer the usual outbreaks of rice Blast Fungus. However in 1978 there was finally a severe outbreak. Plant pathologists concluded that this resulted mainly from favourable wet and humid weather conditions, combined with the rise of new strains of the fungus. Rice production was badly hit for the following two years. In 1981 the government ceased insisting that farmers use the Tongil variety, and farmers were again left to make their own decisions. Many farmers continued with a high input, high yield system that required them to borrow money and become indebted. The high debt load of farmers has since remained a perennial rural issue.
Along with high yielding rice varieties, mechanisation was also adopted, although rather late by comparison with other countries undergoing a ‘green revolution’. Rural underemployment in the past had made mechanisation look irrelevant, but as people flocked to the cities labour shortages began. Also it was people of working age who tended to relocate to the city, leaving older people behind to struggle with the strenuous work load. Machines were able to improve their productivity.
Small tractors and tillers were first to come into use. In 1978 the ‘Agricultural Mechanisation Promotion Law’ came into effect. The manufacture of farm machinery was subsidised to encourage domestic Korean production. Farmers could get tax exemptions on purchases of farm machinery. The state helped with the setting up of maintenance and repair facilities in the countryside, and with organising joint use systems among farmers. The state also invested in R&D for further machinery development. The mechanisation of rice transplanting and harvesting was then fully pursued. It is believed that by the nineteen nineties mechanisation was nearly complete.
Adoption of farm machinery had many side effects. Tractors served as a means of transportation, enabling more commerce between town and country. This effect was enhanced by the improved road networks being developed in rural areas.
Interestingly there was no significant change in farm sizes during the Korean ‘green revolution’. The government strictly enforced the original land reform law restricting farm sizes to a maximum of three Hectares. Market forces did not tend to undermine this. Land prices were too high for most farmers to contemplate accumulating land. There were few economies of scale to be gained from expanding land holdings as facilities were shared by many farmers. This included machinery, storage facilities, irrigation and water management systems, agricultural services and rural infrastructure such as roads. Similarly the migration of the younger generation towards the city reduced the pressure to sub-divide the land upon inheritance.
As the rural population declined and underemployment was replaced by labour shortages and mechanisation, the rural population no longer had a lot of spare time for the Saemaul construction projects. By the end of the seventies the rural Saemaul movement was petering out.
The Heavy and Chemical Industries Plan 1973 – 1976
In early 1973 President Park announced the ‘Heavy and Chemical Industries Plan’. He had high hopes for the economy declaring an ambitious target for the end of the decade of US$ 10 billion per year in exports and GNP per head of US$ 1000. The figures in 1972 had been US$ 1.7 billion of exports and US$ 318 per head.
The original plan for the decade targeted six key industries, shipbuilding, machinery, petrochemicals, steel, non-ferrous metals and electronics. It was the product of Park and his close associates. Planning and execution bypassed the EPB and other institutions dominated by liberal economists who were sceptical of the whole concept.
Park created a special Heavy and Chemicals Industries Committee based in the ‘Blue House’, answerable directly to him. This committee not only drew up all the plans but worked directly with the MCI, MoF, Banks and industrialists to execute the plans.
In the nineteen seventies the foundations of the South Korean shipbuilding industry were established. The Korean shipbuilding industry dramatically transformed its capability from the production of small coastal ships to the construction of large ocean-going vessels, including large bulk carriers and oil tankers. At that time no one would have guessed that the ROK would become the world’s number one ship building nation.
It all started with what was planned to be one of the world’s largest shipbuilding facilities at Ulsan on the east coast of Korea by Hyundai Group. It was designed as a 380 metre long dry dock capable of taking vessels of up to 400,000 deadweight tonnage (dwt).
In 1971 Chung Ju-yung founder of Hyundai, decided to begin shipbuilding, and by 1972 the company’s shipyard had held its ground-breaking ceremony in Mipo Bay, Ulsan, on the south-eastern tip of the Korean peninsula. In 1972 the yard was incorporated as Hyundai Shipbuilding and Heavy Industries Company.
The Ulsan yard was still at the planning stage when Hyundai won its first contract, for two oil tankers, from Livanos, a Greek ship owner. The order paved the way to a loan from Barclays Bank of the United Kingdom. Chung had to borrow capital from foreign banks to build the yard, which was opened in 1974. In 1975, the Hyundai Mipo Dockyard Company was also set up to do conversions and repairs.
Hyundai, however, quickly won four orders for large tankers from the Japanese, its main competitors, and concluded technical cooperation deals with Kawasaki Heavy Industries of Japan and Scott Lithgow of the United Kingdom.
Ironically the adverse market conditions actually helped Hyundai to obtain the foreign technology and experienced staff it needed by acting counter-cyclically. Hyundai, under Park’s HCI plan, started to venture into shipbuilding at a time of excess capacity and cut throat price competition in the mid-seventies. The rise in oil prices hit international trade and reduced orders for shipbuilding. Established shipbuilding firms were desperate for ways to obtain revenues, and concluding technology transfer deals with Korean firms was one way. This is a phenomenon that was repeated in some other Korean industries.
Dockyard designs were obtained from Scottish naval architects A & P Appledore, while ship designs & operating Instructions were obtained from the Scottish shipbuilding firm Scottlithgow. Hyundai employed many experienced European shipbuilders for its first three years of operations. Production Know-how was obtained from the Kawasaki Shipbuilding Co. of Japan.
This sector developed rapidly throughout the 1970s, but the group was hit by the first oil crisis and the consequent decline in demand for large tankers. Before the market collapsed, twelve large tankers had been built at the yards. Despite the unfavourable market conditions Hyundai’s shipbuilding enterprise survived to later grow, due to the Hyundai Group’s diversified business activities and Korean government support as the President was determined to develop shipbuilding as part of his HCI plan.
Park’s government helped Hyundai in a number of ways. The company was granted a temporary monopoly on steel structure building. South Korea’s crude oil imports were to be exclusively carried in Hyundai’s new tanker fleet. The government subsidised the company’s building of infrastructure and granted access to foreign credit.
The market collapse forced Hyundai to turn to the building of medium-sized vessels. It also took steps to remain abreast of technological developments in the industry and to develop spin-offs.
In 1975, Hyundai Shipbuilding and Heavy Industries created an industrial-plant and steel-fabrication division. In 1976 began to produce marine engines carrying famous names such as Sulzer and B&W. A further collaboration was clinched in 1977 with Siemens, of West Germany, which led to the creation of the electrical-engineering division.
In 1978 the company changed its name to “Hyundai Heavy Industries Company” (“HHI”) to reflect its diverse operations. At the same time, 1978, it incorporated its engine and electrical engineering divisions into Hyundai Engine and Machinery Company and Hyundai Electrical Engineering Company.
These business moves represented a strategy of both diversification and ‘vertical integration’ into the production of engines, sub-systems, components and even raw materials. All these affiliated companies could provide the technological inputs to the manufacture of the finished vessels.
The planned development of shipbuilding was by no means confined to the Ulsan project. In 1973 KSEC, the Korea Shipbuilding and Engineering Corporation, was allocated the task of constructing the largest shipyard in the world at Okpo on Geoje Island, off Pusan. It was planned to have a 530m dry dock capable of taking vessels up to 1,000,000 dwt.
The company was overwhelmed by the project and the project was taken over by a government owned corporation. By 1978 it was only one quarter completed and drowning in debt. President Park, seeing Kim Woo-choong, founder of Daewoo, as a ‘trouble-shooter’, personally intervened to ask him to take over the shipyard project.
Without Kim’s agreement the government forced the Okpo shipyard company into Daewoo Group. The controlling 51percent of shares were given to Daewoo establishing DSHM (the Daewoo Shipbuilding & Heavy Machinery Co. Ltd.), the remaining 49 percent were held by the Korea Development Bank by converting the company’s debts into equity.
Kim’s reluctance to take over one of the world’s biggest dockyards was well documented, and his comment on the Korean government indicated a growing frustration: “They tell you it’s your duty and you have to do it even if there’s no profit.”
In 1979 DSHM built their first chemical carrier. Kim soon saw Daewoo Shipbuilding and Heavy Machinery earn a reputation for competitively priced ships and oil rigs that were often delivered ahead of schedule.
The timing of the entry into shipbuilding was terrible as the world economy was suffering from the oil shocks and the shipbuilding industry entered a recession which started in 1975 and did not even bottom out until 1988. After taking over the Okpo shipyard, debts at Daewoo Heavy Industries were twice as large as the whole group’s equity. This made Daewoo the most financially unsound of the largest chaebol. This was to have long term consequences for the group.
Other chaebol were not to be left out. In 1974 Samsung Shipbuilding was established with the opening of a plant at Changwon. A shipyard at Woojin was purchased soon after. In 1979 this was followed by the construction of a large facility at Geoje Island not far from the Daewoo. facility. While Halla Group built a yard at Inchon on the western coast.
To feed this giant shipbuilding industry, large quantities of steel would be needed. POSCO was the key to this. It took eleven years, from 1970 until 1981 to complete the integrated steel complex at Pohang. It was completed in four stages, each contributing to stepwise increases in output.
It was part of the Korean development strategy to locate the new plant as far as possible from Seoul, to create industrial centres throughout the country. Park Tae-joon and the government ministry settled on Pohang in the Kyongsangnam-do province on the east coast, as the location.
Park Tae-joon was to become the driving force behind the project, often living onsite in the ‘Rommel House’ a hut on a sand pile, he directed and inspected operations day and night, seven days a week. He not only insisted that suppliers meet deadlines, but also, in some cases, accelerated deadlines and insisted that they be met. As well as being notorious for getting project stages completed ahead of schedule, he insisted that quality be the foremost consideration. He got the knick name ‘Dynamite Park’, because of an incident, frequently repeated, when he made his workers blow up incorrectly laid concrete to start over again.
The first phase ran from 1970 to 1973. In 1973 when the first stage of construction was completed, a month ahead of schedule, the major plant consisted of a blast furnace, to extract iron from iron ore. It had two steel converters to turn the iron into steel, of one million tons per year capacity each. There was a foundry pig iron furnace, with production capacity of 150,000 tons per year. There were also various steel mills, including a blooming and slabbing mill, a billet mill, a plate and hot rolling mill. This plant reached full production within four months rather than the minimum of twelve months the Japanese steelmakers had anticipated.
While construction of the first phase was going on, Koreans were being trained abroad, particularly in Japan, to take over some of the technological work involved in operating the mill. They laboured alongside their Japanese counterparts in construction and operating work, gaining valuable experience. As a result, in subsequent expansion, the amount of operating technology that had to be brought in from outside steadily decreased.
In 1972 POSCO first began by selling steel plate products and focused its sales policies on the domestic market to improve steel self-sufficiency at home. It made special efforts to supply quality iron and steel to related domestic companies at below export price to strengthen their international competitiveness
The second phase ran from 1974 till 1976 taking about two and a half years. This construction stage was similar in capacity to the initial stage and Korean engineers were still only involved in specification inspection. Only in this second stage was there any significant U.S. capital participation. Out of a total of US$342.25 million, US$61.6 million came from U.S. sources, about 75% of that in the form of commercial loans.
The third stage ran from 1976 till 1979, had approximately double the capacity of the second, and was completed in about two and a half years. By the time the third phase had begun, Koreans had taken over tasks such as calculating material balance, facilities specification and inspection of drawings. In the third stage Japanese capital, in the form of commercial loans, accounted for more than half the US$766.30 billion raised. The project would not be completed till the early nineteen eighties.
Meanwhile expansions in capacity of the petroleum refining industry were taking place, accompanied by developments in petrochemicals. At Ulsan, the largest refinery complex in the ROK, US major oil company Gulf Oil Corp. bought a fifty percent share in Korea Oil Corp in 1970, creating a joint venture which would bring foreign investment and technology. The same year a BTX (Benzene / Toluene / Xylene) plant with capacity of 260,000 tons per year, was added to the Ulsan refinery to produce aromatics used mainly for blending to make high octane petrol, or as feed stocks for petrochemicals manufacture.
In 1972 a third ‘production train’ was commissioned at Ulsan, adding 170,000 bpd capacity. A pipeline was also built connecting the refinery inland to the city of Daegu. An important development in petrochemicals for the ROK was the start up of a naphtha cracking centre in 1973, to produce 100,000 tons per year of ethylene, mainly used for making polythene plastics or as a feed stock for petrochemicals synthesis. In 1974 crude oil refining capacity was further expanded and in 1978 naphtha cracking capacity was also expanded to 155,000 tons per year.
At the Yeosu refinery of GS Caltex, crude distillation capacity was expanded in stages throughout the decade, reaching a total of 230,000 bpd in 1978. The company acquired its own shipping fleet, Honam Tanker, in the early seventies. In 1972 Kyung-in Energy completed its Inchon refinery and began production.
In 1974 the chemicals branch of Lucky Goldstar renamed itself Lucky Corporation. It established a petrochemicals plant at Ulsan, by the refinery complex including a plastic processing plant. At the Yeosu refinery complex it established a PVC paste resin production plant. The company also opened an R&D (Research and Development) centre at Daedok.
At the end of this decade the ROK was still a net importer of refinery products and petrochemicals. However the developments were important as ‘secondary import substitution’, helping to reduce the import bill for such fuels and materials.
The CJ branch of Samsung continued to develop its interests in foods during the seventies, expanding its sugar production capacity with a new refinery at Inchon, opening an animal feed facility in Pusan and starting the production of the Korean soup seasoning Dashida. In 1977 it added nucleic acids seasonings. The company set up an R&D centre in 1978, to research food ingredients and seasonings. At the end of the decade the company began cooking oil production.
Another concern of Park’s addressed in his plans, was the small scale of South Korea’s energy production and electricity generation. To supply the ambitious industrialisation programme it would need to grow dramatically.
In the nineteen seventies the ROK embraced nuclear power. Park may have had ulterior motives for developing a nuclear industry given the later revelation he wanted an independent nuclear deterrent. However in the 21st century nuclear power is established as an important component of South Korea’s ‘base load’ electricity generation. That is the generating capacity dedicated to reliably supplying the nation’s minimum electricity needs in each twenty-four hour cycle. About one quarter of ‘baseload’ is supplied by nuclear energy, most still comes from coal.
In 1971 the national energy plan provided for the construction of three 600 Megawatt nuclear reactors. The site selected was Kori on the outskirts of Pusan. In April 1972 construction started on the first reactor in the complex. It was a Pressurised Water Reactor (PWR) built under contract by US engineering giant Westinghouse. It was ‘turnkey’ project, in other words Westinghouse under took to supply a fully completed and operational reactor based on their own standard design, then hand it over to Korean operators who they trained. As the project expanded, further service contracts provided for the training and transfer of nuclear technology to Korean engineers. The reactor first achieved criticality during operational tests in June 1977, then became fully commercially operative in April 1978.
The Fourth Five Year Economic Development Plan 1977 – 1981
From 1973 to 1974 the price of crude oil quadrupled. This had a massive impact on many developing countries which had to import most of their energy. In Taiwan for example, the ‘Sixth Four Year Plan’ had to be abandoned.
Despite South Korea’s heavy dependence on imported energy, and the fact that it faced massive oil bills at a time of developing energy intensive heavy industries, the ROK government was determined not to let the ‘first oil shock’ derail their plans. The government even devalued the Won to boost exports, though knowing this meant a much higher oil bill. The government and business would continue to borrow as much as was needed to meet the targets.
Foreign direct investment was encouraged through joint ventures in industries where Korea needed to gain new technology, but elsewhere foreign ownership was to be avoided when possible. Foreign financial participation was to be through commercial loans, leaving Koreans in charge of their industries.
The ROK was helped through this crisis by two factors. Firstly the rise in oil revenues in the hands of a relatively few OPEC oil exporters meant that huge funds for investment accumulated which had to be distributed back into the world economy by western banks. This was the so-called ‘Petrodollar Recycling’ system. Credit suddenly became available internationally and many governments began to borrow heavily. It was to lead to a sovereign debt crisis in the early nineteen eighties. The ROK would be high up the resulting list of indebted nations.
A second factor was that some newly enriched OPEC nations started a construction boom. The Park government strengthened its relations with many Middle Eastern states and Korean construction firms became very involved in serving this demand, profiting greatly. By 1978 about seventy Korean construction companies were operating in the Middle East, employing some 170,000 Korean workers. This contributed to helping with South Korea’s balance of payments problems.
By the end of 1976 the Fourth Five year plan had been prepared. It targeted only machinery, steel and shipbuilding for state support. The scale of many projects was cut back, some were abandoned. The aim of developing nine new shipyards was cut to only two. There were reductions in the scale of fertiliser plants, pulp plants, and a copper smelter. An aluminium smelter was cancelled.
During the seventies the automotive industry continued to grow. At the beginning of the decade Shinjin Motors was the dominant passenger car maker in the ROK. Its success was mainly due to its joint venture with Toyota, but from 1970 Toyota showed signs of wanting to withdraw from the deal. In 1972, following Toyota’s withdrawal Shinjin established a joint venture with US giant General Motors to form General Motors Korea. The Chevrolet 1700 was launched, based on the Holden Torana model.
In 1972 Shinjin also began building jeeps under licence from American Motors. In 1974 the company established a fifty-fifty joint venture with American Motors, called the Shinjin Jeep Company. The same year the GM Korea Rekord was released, based on the Opel Rekord. Then in 1975 the GM Korea Camina was launched based on the Holden Torana.
In 1976 GM Korea changed its name to Saehan Automobiles, launching a number of new models, the Gemini and the Elf, based on Isuzu and Opel models. In 1978 a basic and a deluxe version of the Opel Rekord were released, the Saehan Rekord and the Saehan Royale Saloon. In 1977 Saehan launched a bus, the SMC BF101.
In 1979 the Shinjin Jeep Motor Co. changed its name to the Shinjin Motor Company. It became a fully Korean owned enterprise.
Hyundai was to achieve some firsts for the Korean auto industry in this decade. In 1970 they released the 0303 Benz bus. In 1973 a new version of the Cortina was released. Hyundai Motor Company established its own R&D centre in 1975.
In 1975 Hyundai made history by being the first Korean auto manufacturer to launch its own original model, the Pony. It was designed by ItalDesign and based on Mitsubishi technology. Hyundai Motors accomplished this by engaging George Turnbull of British Leyland Motor Corporation as vice-president. The final result was a collaborative effort, comprising: design from Italdesign, transmission and engine from Mitsubishi, technology transfer (bodies) from Perkinson, car body molding from Ogihara Mold Company, a machine press from France and funds from Barclays Bank and France Suez.
With the Pony, Hyundai was to pioneer Korean exports of finished passenger cars. The Pony was imported to Britain, where Korean cars had never been sold before. From 1976 to 1982 the Pony was exported to South American countries including Colombia, Venezuela and Ecuador.
In 1976 Hyundai also began selling a range of trucks, the HD1000 based on a Mitsubishi Fuso, and the Hyundai Vision. In 1977 Hyundai released some more Ford models, versions of the Cortina and a Granada. In 1977 Hyundai achieved 54 percent of the Korean domestic auto market.
In the seventies truck manufacturer Kia first branched into passenger cars. In 1970 it released Titan and Boxer truck models. In 1972 the KB Truck, based on a Hino truck model.
In 1973 Kia opened its first integrated automotive assembly plant at Sohari in Gwangmyeong City, South East of Seoul. In accordance with Park’s “Long-Term Plan for Motor Vehicle Industry Promotion” of 1973, Kia began manufacturing automobiles in 1974. The government had set a goal of half a million vehicles to be built annually, with the announcement of the “Automobile Industry Promotion Plan”. From 1974 till 1981 Kia built the small Brisa range of cars.
In 1976 Kia Heavy Industry Co. Ltd. was established to produce military vehicles and other transportation equipment, being designated by the ROK government as its sole supplier. In 1979 the Kia Bongo truck was launched.
Hyundai led Kia in automobile production throughout the seventies and into the mid-nineteen nineties. However, the two companies did not directly compete in their home country because the government set car prices according to engine sizes based on which the market was deliberately segmented. Kia’s domestic car and truck business proved successful and allowed Kia to become the second largest domestic vehicle manufacturer by the nineteen eighties.
In the sixties the government had set targets for the ‘localisation’ of auto parts. By 1980 it is estimated that local content use had reached 90 percent. Previously SME parts makers had lost out as joint ventures mainly imported parts for assembly as ‘knock-down’, or ‘semi-knock down’ kits. SME parts suppliers did not benefit as much as they could have from the greater domestic sourcing of parts because the assemblers were tending to ‘integrate vertically’, either by setting up new companies or by buying up small parts makers. Despite the fact that numerically SME auto part suppliers far outnumbered the chaebol auto part affiliates, the value of their output was smaller.
Recognising these problems in 1975 the government established the “Systematization Promotion Act” for medium and small enterprises in automobile industry. However, it appears that government policies to boost SMEs had little benefit, as such enterprises suffered from a lack of financial resources and a lack of advanced technology. The relationship with their chaebol customers often did not help the situation, as some chaebol attempted to block their suppliers from supplying competitors, causing problems for the SMEs such as prevention of achievement of economies of scale and a failure to standardise parts over the industry.
At the end on the nineteen seventies the ROK was still producing fewer than 100,000 vehicles per year. Although notable steps had been taken in this decade to develop auto exports, the value of exported production remained negligible as a proportion of total output in 1980.
During the nineteen seventies the Korean electronics export industries were still dominated by foreign owned firms. In 1977 two thirds of exports by value and one half of jobs in electronics were provided by firms either partly or wholly foreign owned.
As noted above the trend was for increasing numbers of joint ventures, with a decline in wholly foreign owned firms. However, joint ventures still remained the minority at the end of the decade.
Wholly Korean owned firms increased their share of exports during the decade from about one fifth to about one third by value, but their share of total production fell.
During the nineteen seventies there was a significant increase in Japanese investment in the industry. In 1970 the Masan Free Export Zone attracted an influx of Japanese firms. By 1974 over ninety percent of investment in the zone was Japanese.
In 1970 the Kumi Electronics Complex was established to attract foreign investment into the industry. Foreign investors were offered incentives such as whole ownership of firms, import duty exemptions for imported parts and components, and a five year tax holiday followed by a further three years of reduced taxes. This in fact led to an increase in the number of Japanese joint ventures with Korean chaebol.
Thus in the early seventies the trend was for a strong relationship to develop between the Korean chaebol and the Japanese consumer electronics industry. In 1970 Japan’s NEC made joint ventures with Goldstar and Samsung, in 1973 Matsushita made a joint venture with Anam Industrial to produce colour televisions, and Sanyo formed a joint venture with Samsung to manufacture electronic parts. This influx of foreign capital enabled the Korean partners to branch into new product lines such as colour TV, digital watches, pocket calculators and push button telephones.
As part of its strategic planning the government sought to promote electronics through a number of policies. The state set up R&D facilities such as KIST in 1969, the Korea Institute of Science and Technology. It built industrial complexes such as the one at Kumi. It set up government bodies to oversee the industry such as the Electronics Commission and the Semi-conductor Commission within the MCI. The government also allocated funds for investment in electronics.
The government worked through industry associations such as FKI and the Electronics Industry Association of Korea, EIAK. The roles and relationships of these agencies is debated. Some analysts see them as powerful lobbies for the chaebol, others as instruments of state policy.
Park’s regime also engineered what has been called a ‘reverse brain drain’. He kept track of Koreans studying and working abroad in high technology areas, he then attempted to lure them back to Korea, recruiting them with generous packages of pay and conditions competitive with what they could expect abroad.
The government also offered Korean electronics manufacturers a protected home market. For example television imports were banned until the early nineteen eighties.
During the seventies a trend seen in many industries was the concentration of production and market power in the hands of the giant chaebol while SMEs stagnated, declining in number and value added in their industries. This was certainly true in electronics.
The Korean SMEs which made parts and components suffered. Many joint ventures imported parts and components because of quality issues, or because international market prices were lower than for parts made domestically. In some case the foreign partner had affiliates which supplied the parts. The increase in joint ventures led to an increase in the importation of parts to the detriment of Korean suppliers.
Some parts could also be made with economies of scale, so it was better for large companies to mass produce them. In other words small scale production was uncompetitive.
Another factor harming the SMEs was the setting up of GTCs, or General Trading Companies. In 1975 in a bid to boost exports, the Park government encouraged companies to become designated as GTCs. The idea seems loosely based on the Japanese ‘Sogo Shosha’, global trading and shipping combines. Companies qualifying for the designation gained benefits such as state subsidies for exporting. One way to qualify was to ‘vertically integrate’ by absorbing links in the supply chain. Following the incentives many chaebol started to buy up SMEs such as parts suppliers. Consequently the number of SMEs fell and those remaining saw their market decline. For example in 1970 Goldstar entered joint ventures with Japanese firms to make parts. Similarly in 1973 Samsung followed suit.
As more large companies made their own parts the demand for SMEs to subcontract in parts production declined. A market composed of large numbers of parts suppliers and a small number of contracting companies created intense competition among suppliers to the profit of the chaebol. Terms and condition of subcontracting deteriorated. Contracts were short, often for a production run of one particular item. Relationships were unstable and irregular with contracting companies frequently switching suppliers. The chaebol have been criticised by some analysts for having a ‘short-sighted’ attitude towards the domestic parts industry.
SME parts suppliers had to branch into exporting and selling their products directly to customers. Research has found that subcontracting to large companies accounted for less than one third of SME sales.
The government began to recognise the problems of SMEs across many industries and took steps to redress the balance. In 1975 the ‘Gye yol hwa Promotion Act’ was intended to inhibit vertical integration and absorption of SMEs by the chaebol. In 1978 other acts were passed or amended to segment industries in a way to reduce competition between and duplication of efforts by chaebol and SMEs.
In 1979 the SMIPC, Small and Medium Industry Promotion Act, was established to execute policies to protect SMEs. Some analysts have criticised all these moves during the decade as largely ineffective. The chaebol continued to benefit at the expense of small firms.
The chaebol continued to develop their electronics interests with a successful record of exporting and a protected home market. During the nineteen seventies Goldstar’s revenues continued to increase. In 1970 Goldstar entered into a joint venture with Japan’s NEC from which it gained technology.
An important departure was the investment of massive amounts into a semiconductor manufacturing division, firstly to supply components for its own products, but ultimately with the long term aim of positioning the company to compete in the emerging advanced electronics and telecommunications industries.
In 1977 the first product labelled with the ‘Goldstar’ brand name was a 19 inch black and white television which was successfully sold in the US. This success encouraged the company to export several lines of low-cost electronic products during the late seventies and the eighties under the ‘Goldstar’ label.
As for Samsung, a 1970 joint venture with Japan’s NEC, ‘Samsung-NEC’ enabled a transition into consumer electronics with products such as televisions and household appliances. To this end the company invested heavily, largely by borrowing. In 1973 a Samsung-Sanyo joint venture manufactured electronic parts and components.
In 1974 Samsung acquired Korea Semiconductor, one of the first chip making facilities in the country, thus entering the semiconductor business. Samsung’s entry into the semiconductor business was pivotal for the company. Founder Lee Byung-chull had determined in the mid-1970s that high-tech electronics was the growth industry of the future, and that Samsung was to be a major player. To that end, he formed Samsung Semiconductor and Telecommunications Co. in 1978.
In 1971 Daewoo group joined the electronics bandwagon, establishing Daewoo Electronics Co., Ltd. By 1974 sales began in Audio Products such as cassette recorders and car audio equipment.
In 1973 Anam also decided to move towards consumer electronics forming a joint venture with Matsushita to form Anam National Electric Co. Ltd. The company manufactured televisions, video cassette recorders and audio equipment.
Towards the end of the seventies as the Korean export of consumer electronics thrived, manufacturers were forced to accept VERs, so-called ‘Voluntary Export Restraints’ and quotas on sales of items such as colour televisions, video casette recorders and microwave ovens to markets such as the USA and UK.
In 1980 the ROK government launched the ‘Colour Television Broadcasting Project’. It would create a domestic market for the CTV manufacturers. It is reported that EIAK was largely responsible for the birth of this policy.
The End of the Beginning
In 1978 Park was re-elected President but the December 1978 National Assembly elections gave more votes to the opposition NDP (New Democratic Party). However because of the ‘Yushin’ system which enabled the President to appoint a third of members, his ruling DRP was able to maintain control of the assembly. Following the elections of December 1978 the opposition intensified its activity calling for Park’s resignation and an end to the ‘Yushin’ constitution.
By the late seventies problems had been emerging with the economic system. In 1977 to 1978 many of these problems had crystallised. There was persistent high inflation. People sought to invest their money, but bank interest rates were too low, so property speculation took off. Property prices escalated, which ‘priced’ an increasing number of people out of the housing market.
Economic growth was accompanied by growing inequality. The wage gap between ‘white collar’ and ‘blue collar’ workers increased. Low wages fuelled labour resistance. The concentration of large numbers of workers in factories and worksites belonging to the chaebol made collective action easier. In 1974 some 3000 workers went on strike and rioted in Hyundai’s Ulsan shipyard, and in 1977 again some 3000 workers participated in a strike at one of Hyundai’s Middle East building projects in protest against low wages and the militaristic style of management control.
The HCI drive exacerbated imbalances in the economy. Although the well financed exporting companies could divert some of their production towards the protected domestic market, those companies that did not export faced problems obtaining finance. Expansions in their output had to be funded from past profits which caused these companies to overcharge. The Korean consumer took the brunt of the strain with shortages of consumer goods, high prices, little choice, and poor quality in some cases. Consumers facing shortages tended to hoard, aggravating these shortages. In late 1977 to early 1978 many basic goods including toiletries and electric fans disappeared from the shops in a rash of panic buying.
In December 1978 the Deputy Prime Minister Nam Duck-woo was sacked and replaced by Shin Hyon-hwak, a liberal economist who wanted to fight inflation and slow down growth. From January 1979 Shin worked in great secrecy, and with Park’s approval, on a package to fight inflation. From April 1979 this package was implemented.
There were divisions among the Korean elites at this time. Many chaebol leaders did not want the change, while the KCIA warned Park that counter-inflationary measures could cause an economic slowdown leading to political unrest.
As the package started to work, unemployment rose, with some companies collapsing, including the large Yulsan Group, a conglomerate of over a dozen companies in exporting, construction, aluminium, shipping, engineering, electronics, foods and construction materials. It was one of South Korea’s biggest and fastest growing chaebol.
In May 1979 disaster struck as the price of crude oil shot up following months of disruption to Iranian exports due to the ongoing revolution in the country. The ‘second oil shock’ not only pushed up South Korea’s import bill, but it caused a global recession which hit the country’s export markets. Korean manufacturers faced massive over-capacity.
By the summer of 1979 a political crisis was developing. Following the economic crisis caused by the second oil shock many companies went bankrupt. One such case was to galvanise the South Korean minjung movement. The company Y. H. Trading was once the largest exporter of wigs in the ROK. When it ran into financial trouble in August 1979, its owner shut down the factory and fled abroad with what he could of the company’s assets. The poorly paid female workforce, who earned 220 Won a day, about the price of a cup of coffee at that time, staged a ‘sit-in’ demanding their back pay.
When the police violently assaulted and evicted the women, nearly two hundred of them, Kim Young-sam, leader of the opposition New Democratic Party offered them ‘asylum’ in his party headquarters. The Park government seems to have regarded this action as an attempt to undermine it. Two days later a thousand police officers stormed the party building injuring dozens of the workers and some NDP officials. In the process one woman fell, under unexplained circumstances, from an upper floor window and died.
This death acted as a focus of minjung politics. Mass demonstrations and protests involving workers and student activists mushroomed in the industrial centres of Masan and Pusan. Independent trade unions began to appear here and in a number of other industrial centres.
In September 1979 Kim Young-sam denounced the Park regime as dictatorial in an interview with the ‘New York Times’. Consequently he was expelled from the National Assembly.
In October 1979 the army cracked-down on serious student riots in Pusan and the nearby Masan. This political unrest was the worst Park had experienced. His advisers were divided on whether to act tough or make concessions. The director of the KCIA, Kim Jae-kyu, apparently wanted Park to be conciliatory.
On 26 October 1979 Kim Jae-kyu shot President Park dead at a dinner in Seoul.
This was apparently part of a coup plot, but in the event the constitutional process was followed and the Prime Minister, former diplomat Choi Kyu-hah, became acting President. This was the end of the Park era and the beginning of a series of major shifts in the political and economic system in the ROK.