By Young Back Choi and Chidem Kurdas
Compared to the turmoil in the Middle East, South Korea appears to be an oasis of calm. But as recently as 20 or so years ago you could still smell tear gas on the streets of Seoul. Violent demonstrations shook the city for decades—-making it look like Cairo today.
Despite continuing tensions with North Korea, Seoul is now relatively peaceful and the economy is humming along. How did South Korea get out of the cycle of angry protests and government repression?
Certainly part of the answer is prosperity. South Korean real gross domestic product grew at an average of 8% from the 1960s to 1990. Per capita GDP is now close to the level of Japan’s (at purchasing power parity). But the expansion of jobs and income was in part a result of government response to public fury.
One of us (Young Back) grew up in Seoul and as a young teenager joined protests that pitted the police against the protestors. He remembers the widespread anger about an undemocratic and repressive regime. Political rent extraction was rampant. Much American aid was channeled through a corrupt political network with little benefit to the economy at large. Even youngsters like him, mere children, believed justice was on the side of the opposition. So he rushed to join the demonstrators.
South Korean democracy did not develop immediately in response to the public’s demands. The process was convoluted. Since the founding of the Republic of Korea in 1948, there has been six distinct regimes, including the military regime of Park Chung-hee, who was in power for 18 years. In 1979, amid protests, Park was assassinated by the head of the Korean secret service.
Park and other Korean rulers saw economic growth as a way to gain acceptance and weaken the opposition—thus the protests encouraged pro-growth policies. But even as governments promoted investment and exports, there were huge roadblocks along the way.
When international credit dried up in the late 1970s, Korea could have gone bankrupt. Factories were still under construction, exports were small and foreign exchange earnings were insufficient to buy the equipment and materials needed to produce exportable goods. Loans from Japan eased that economic crisis.
One basic lesson is that political stability and economic success cut both ways. While greater affluence would calm Egyptian demonstrators, overcoming major economic barriers requires a government that is accepted by the population. This may or may not mean political liberalization. China shows that fast growth can happen under a repressive regime. But a chaotic environment is an impediment to growth, with the recent financial and economic disruption caused by political unrest in Egypt a vivid example.
As we know all too well from the history of the developing world, it’s easy for societies to get trapped in a vicious cycle. Exploitative government causes political unrest and economic stagnation, which in turn leads to further repression, unrest and economic stagnation.
The interaction of a responsive political system and income growth creates a virtuous cycle. In South Korea, this took several decades. Over time the government became more representative. The sixth Republic – currently in place – started in 1987, when demands for reform led to direct presidential elections and the restoration of civil rights.
Challenges remain, of course. South Korea is heavily unionized and higher wages have made exports less competitive. Faced with aggressive union demands at home, Korean companies often invest abroad—like the Hyundai Motor plant built in Montgomery, Alabama, in 2004 or a plan by Posco to build a $12 billion steel factory in India. But these are the issues of a modern economy.
Let us hope that when they reach middle age, the young protestors of Egypt and Tunisia will look back to today as a crossroads that led to better lives, in the sense of both greater liberty and material wellbeing.