The Korea of the early 20th century is unrecognisable compared to the South Korea we know today. During the first half of the 1900s the Korean economy was underdeveloped, lacking proper infrastructure, had limited industry, and was still an economy that was largely dependent on agriculture. The majority of the population was involved in farming, but they generally used outdated equipment resulting in low farming productivity. The nation also had insufficient skilled labour and it relied heavily on financial aid to sustain its economy. Just after the 1953 Korean war the GDP of South Korea was about $40 million; this is 31,000 times less than it is today at $1.8 trillion. South Korea was not an economically developed country at this point in time, but today it is, so what happened?

The answer lies in what happened in the decades after the Korean War, which left a legacy of political instability, diminished natural resources and a tiny domestic market. The country was in an economically weak position and it seemed infeasible that they could dig themselves out of this hole. A ‘miracle’ then occurred. In the early 60s, South Korea began to transform, and by the 80s, it was an export-led economy emerging gradually onto the global stage. Sustained growth over the following few decades allowed them to solidify their status as a newfound economic power.

The miracle on the Han river refers to the rapid economic growth South Korea experienced in the years after the war, more specifically from 1960-1990. The government that lead this growth was under the leadership of president Park Chung-hee (president from 1963-1979). He drove an export orientated industrialisation of the nation, implementing policies to encourage growth of the domestic market, growth of exports, improved infrastructure and the improvement of human capital. The primary focus of export growth was aided by policies that subsidised manufacturing and also that encouraged foreign investment. One of the most significant examples that demonstrates the government’s desire to increase exports is the introduction of Free Trade Zones.

Firms operating in Free Trade Zones received tax breaks/reductions on taxes such as corporate tax and import duties. This allowed for more spending and investing by firms, promoting growth. These firms also were gifted customs benefits and were allowed some flexibility with regulations, both of which made it easier to perform business and attract investment from abroad, as well as making international trade less time-consuming and costly. Lastly, these firms received financial aid from special loan programmes and other financing programmes from financial institutions that were affiliated with the government. All of this special treatment was for firms who were manufacturing and exporting goods such as textiles, steel and petrochemicals. Textiles were certainly the most successful industry for exports in the 1960s, raking in $191 million in exports in 1969, and steel the second most, bringing in $85 million in 1969. However, the automobile and electronics industries were put into motion as well and whilst they only made $27 million in exports combined in 1969, it was the laying of the foundation of the future of the South Korean economy.

In terms of exports, we still associate South Korea with the electronics and automobiles industries. For example, one such company is Samsung, the 2nd largest electronics firm by revenue in the current electronics market. But, all companies start somewhere, and Samsung’s first electronics product, a black and white television, was brought onto the market in 1969 for the very first time following initial policies of export growth. Samsung is actually an example of a chaebol, which is a large family-owned business conglomerate in South Korea. In the 60s, the government collaborated with chaebols in order to ignite and stimulate economic growth. For example, the chaebol LG were one of the firms to receive government assistance. The government aided LG in its plans to expand, providing it with financial help, tax incentives, and access to credit. LG was a company that manufactured electronics, chemicals, and home appliances at the time and the government’s backing helped the company invest in new advanced capital, research and development, and allowed LG to expand its export capabilities. 

Another method the government used to promote chaebols was by facilitating improved market access. In the domestic markets the government protected chaebols from too much competition and allowed them to create a dominant presence in South Korea before allowing them to expand on a global scale. Chaebols were often operating in a Free Trade Zone as well, and so they received lots of select treatment. The government did this because they saw chaebols as the future of the South Korean economy. This was an excellent economic strategy because 58.1% of South Korea’s exports in 2021 depended on chaebols like Samsung, LG and Hyundai. Moreover, in 2021 exports accounted for about 35% of GDP in South Korea.

Moving on from chaebols, Park Chung-hee also implemented other policies to promote economic growth during his time as president. There was expenditure on improving human capital as well, which has now resulted in South Korea having the 5th highest tertiary education enrolment in the world today. The expenditure focused mainly on education and creating a more skilled labour force through improving the quality and availability of education, whilst also improving the literacy rate significantly. However, there was obviously a time lag before the effects of this improved education would come into play in aiding growth. The desired skilled labour force would not have a large impact for 10-20 years as people became educated, so it didn’t help initially in the 60s, but by the 80s a skilled workforce helped the economy sustain growth.

The last policies I want to mention concern infrastructure. The transformation of the transportation infrastructure in South Korea allowed for increased ability to export and transport goods, and increase access for the people across the country. The Busan Port (the nation’s largest) in 1961 had a handling capacity of 1.6 million tonnes but by 1969 it had a capacity of over 8 million tonnes. Furthermore, roads and highways like the Gyeongbu Expressway were created and others expanded as well. But most significantly, the government also commanded the creation of a new terminal at the Gimpo International Airport in Seoul in 1968. However, there were not only transportation changes, there were also changes introduced in the housing, electrical and industrial infrastructure of South Korea.

For instance, the Ulsan industrial complex was conveniently located near the port of Ulsan, and was created as a 40 square kilometre complex that housed mainly petrochemical and automobile firms such as Hyundai Oilbank and Motor Company. It’s construction began in the early 60s and the area played a significant role in South Korea’s growth. Another industrial development made was in the energy industry, the construction of the Geum River Dam, finished in 1973 with an energy capacity of 1200 MegaWatts. 

All of these advancements in infrastructure, exports and human capital helped propel South Korea forward out of the ditch they were left in following the war. With increased export revenue and growth facilitated by more efficient and skilled methods of production and transportation the government could continue to expand the economy using similar methods, leading to sustained growth across many decades. Eventually this has led to South Korea having the 10th largest economy in the world today.