South Korea vs. the Philippines:

A Paragon of Economic
Development?

Ruben Reyes
GLS – 102-005
Professor Eijmberts
April 28, 2015

A little over half a century ago, South Korea was under the colonial rule of Japan, while the Philippines was colonized by the United States. It was not until the late 1940s did both countries gain their independence. After decades of political strife, ranging from conventional war to guerrilla conflict against the United States, the Philippines gained their independence on July 4, 1946. It was when the United States signed the Treaty of Manila, annexing the Philippines, as it became an independent commonwealth (Philippine Independence). Meanwhile, approximately two and a half thousand kilometers north of the Philippines, Japanese oppression ran rampant in the Korean peninsula. It was only until, the US had dropped two atomic bombs over Hiroshima and Nagasaki did Japan withdraw their troops from the peninsula, ending the Second World War. Thus, on August 13, 1948, South Korea had attained full autonomy from Japan, commemorating the end of the thirty-five year Japanese occupation, and the formation of the South Korean republic (National Liberation Day 2012). Similarly, following the liberation from colonial rule, both nations had experienced political turmoil, or economic deterioration as a result of war. Just 5 years following the liberation of Korea, the communist North invaded the South thus ensuing the Korean War and truncating into half the once united Korea (Tran 2011). Concurrently, the Philippines, though lacking a stable administrative system to recover from the war, endured as relatively stable in terms of state unity. As both countries encountered similar colonial experiences and political turmoil around the same time, the events that followed after the post-independence period was divergent, in terms of the countries’ economic conditions. Thereby, setting the stage of this paper: as the war had made South Korea one of the poorest nations in the 1950s – agonized by poverty and political discontent. Hence, as South Korea’s economic performance lagged behind; in contrast, the Philippines’s economy surged forward as it faced no external threats (Jong-Sung 191).
Today however, the economic positions in which South Korea and the Philippines stand are reversed. According to various economic indicators, South Korea significantly outperformed the Philippines; and is considered an ‘Asian Tiger’. On that account, under what circumstances, – despite similarities in the political system ranging from an colonial rule to economic deterioration – had played a part in the rapid economic development of South Korea and the relatively slow economic development of the Philippines? South Korea and the Philippines’s economic performances are derived from the political environment to which their economies are interconnected. For South Korea, rapid growth was characterized by political authoritarianism and considerable state intervention within the economy. Meanwhile, the Philippines’s stagnant economy had descended from continuous political instability due to corruption, minimal exposure to trade, and the lack of a long-term plan for constructive economic reform.

Following the division of the Korean peninsula in 1945, South Korea already possessed the implications for development by the Japanese. Houngcheul Jeon and Hayan Kim, the authors of the book, The Political Economy of South Korea: Economic Growth, Democratization and Financial Crisis discuss the political economy of South Korea. In order to explain the factors that brought the rapid economic growth and development to the country and the transition of its political system from an autocracy to a democracy. South Korea’s economic development was set in motion since 1962 through the implementation of several five-year economic plans, which was designed to increase the nations GDP per capita while strengthening the country’s political stability (Houngcheul 3). Under the military rule of General Park Chung Hee, the main purpose of these self-sufficient five-year economic development plans was to end South Korea’s dependency on foreign aid (5), especially to the US. Under the Park Chung Hee administration, government-led approaches propelled the South Korean economy to being the 11th largest in the world as of 2010. In contrast to the USSR’s five year plans to restructure their economy as well as their political body, the five year plans of South Korea was a success as it had achieved its goal by increasing the country’s GDP per capita from $70 in 1954 to $949.7 in 2007. Houngcheul and Hayan mention approaches that are precursors to the country’s economic development. They require consistent interventions from the authoritarian state. This is the statist approach (4); thereby agreeing with the thesis that one of the fundamental factors that contributed to South Korea’s economy today, had stemmed from state intervention. The state’s autonomy is a crucial component to maintaining South Korea’s economic performance, because when government policies shift, the new incentives may cause those with opposing viewpoints to form coalitions. As much as state autonomy is important, it is essential to remember that a relationship between the government and the private sector must exist, in order to offset instability when sharing the benefits of the country’s economic success.
Correspondingly, a journal by Kae H. Chung called, Industrial Progress in Korea, discusses how the economic breakthrough of the Five-Year plan not only establishes the country’s reputation as a future economic power, but it also creates problems associated with the rapid economic expansion. As a result of the country’s growth, GNP per capita had doubled within the first decade as the country achieved high capital investments, and increase in domestic savings, and foreign exchange earnings (Kae 439). Similar to the previous article, Kae emphasizes the achievements and purposes of each implemented Five-Year Plan. Overall, each of the four five year plans was developed to cater the country’s agrarian economy. The increase in economic activity however had resulted in heavy foreign debt (446). This is because South Korea is not capital abundant, therefore the country heavily relies on foreign investment in the form of aid. Thus resulting in a trade balance deficit (448) as the nations export industries are heavily reliant on imports of raw materials. As an agrarian economy, the majority of the workforce is engaged in the agricultural sector, however due to the geographical landscape of South Korea, it limits the opportunities for farmers to expand their farming area as the mountainous terrain prohibits it (450). Therefore, the country should have a comparative advantage on the agriculture sector, especially since the supply of agricultural goods is relatively inelastic. This is advantageous for producers as it allows them to manipulate the demand and supply for these goods, by adjusting prices to their advantage.
In contrast, the immediate postwar period years, the Philippines had suffered from unrestricted trade policies, as well as the lack of a constructive economic plan to stimulate the country’s growth. Thomas Mchale’s article, “Problems of Economic Development in the Philippines”, discusses how despite the Philippines and United States’ continued trade relationship, the Philippines showed no signs of improvement (Thomas 160). In addition, the article emphasizes that due to the instability of the political party at the time, the country had not been able to implement trade policies nor emphasize the production of domestic goods. Such that, the volume of manufactured goods from 1940-50 had revealed no significant increases (164). The main point of the article, is that despite knowing that industrialization would be the only pragmatic solution to the economic difficulties that the country was experiencing, the idea itself proved impossible without a large inflow of foreign capital. In essence, the Philippines did not exhibit an increase in productivity due to a lack of a strong government body. But why was the nations industrial development laggard? This is probably because the Philippines have always been an agricultural country with no history of possessing a booming private sector, thus the lack of confidence. However, the most comprehensive reason as to why the Philippines economy was stagnating was due to a lack of national unity.

However, despite the findings of various scholars, brings the question: under what circumstances had played a part in the rapid development of South Korea, and the slow economic growth of the Philippines? After the liberation of both nations, both countries had undergone different transformations of economic development, which was primarily due to the actions of the political body that governed each nation.

From being one of the poorest countries in the world, even poorer than Mozambique, in 1960, the country had come a long way, even surpassing the Philippines, who’s economy once surpassed South Korea’s. As previously mentioned, the South Korean government actively intervenes in the economy in order to protect against foreign competition, as a means to be able to remain competitive with foreign markets. Differing from the Philippines’ lack of political stability constituting a lack in economic reforms, South Korea had proved that authoritarianism could be good for growth; in this case, the country was under the administration of military general Park Chung Hee in 1961 (Houngcheul 13). When South Korea implemented the first of the Five-Year Plans in 1962, US foreign aid was in decline, as altering the focus of the plan to make South Korea’s dependency on US aid become independent. This was the export-oriented strategy implemented by the government, where they would provide consistent assistance the improvement of social and economic infrastructures (14). Figure 1 (Menkoff 53) shows the GDP growth per capita in US dollars of South Korea since the implantation of the first of the Five-Year Plans from 1960. South Korea had grown faster than 3% per capita, that per capita income had grown from US$82 in 1961 to US$286 in 1971 (47). GDP or gross domestic product measures the sum of the gross value of the goods and services produced by the country’s Figure 1

Figure 1

producers within its’ borders.

As a result, it improved the foundation of the economy by increasing exports. The country embarked on the campaign of an export-led economy where it focused on subsistent agricultural products and light manufacturing such as textiles. As the plan focused on the need to increase agricultural output, the structure of the agricultural industry surged dramatically as growth had shot up to 3% (49) making South Korea considered no more as developing country, rather they had secured a spot among countries such as the US as an NIC or a newly industrialized country. This rapid development was a result of massive capital accumulation to invest in education of the country. To sustain their productivity growth, South Korea’s investment in primary education allowed for a “gradual shift up the value-added chain toward sophisticated commodities” (51). By the 1980s, after the assassination of Park Chung Hee, the country had expanded on their investments toward higher education in order to create a highly skilled workforce. During this period, the country had already expanded into the technology industry, in which the GDP had risen to $1,778.5 according to the World Bank.
Figure 2
Figure 2 For a brief period, when Ferdinand Marcos had been elected president of the Philippines in 1965, his economic development reform policies were focused on foreign borrowing. He conceptualized the idea that borrowing money would ultimately speed the growth of the economy. Within the period of 1970-83, Marcos’ policies had shown results, however at a diminishing rate. The strategy in it self was unsustainable, since the funds were not invested productively that by the 1980s the countries debt had reached $17.3 billion from a $2.9 billion in 1973. Figure 2 (Thomas 68) shows the development in GDP under the Marcos administration. In addition, Marcos himself was known to have embezzled large sums of government money for his private use, emphasizing corruption.

It is important to note, that through comparative analysis of concurrent dictatorship in both South Korea and the Philippines, shows that during this time there was a significant gap in terms of economic development. The economic performance of South Korea gradually outdistanced that of the Philippines, that by 1985, the GDP per capita of the Philippines under the Marcos administration was $599, whereas the GDP per capita in South Korea was a whopping $2,200. This was all because of the strong motivation for economic reform in South Korea by the political system under Park Chung Hee, as opposed to the Philippines where Marcos had proclaimed marital law in 1972, thus expanding the influence of the government in the country. The very dependency of the country’s government performance after their liberation form colonial rule was the justification of how their respective economies had performed until today. In South Korea, there was motivation for economic development by the state of poverty the country was in postwar, as well as their vulnerability to North Korean forces. On the contrary, for the Philippines, the desire for economic development as a whole was not for the country itself, but for specific groups of people. Specifically, Marcos and his cronies who had set priorities on themselves as opposed to the country as a whole. Overall, political turmoil was what brought the downfall of the Philippine economy.

Works Cited

Chung, Kae H. "Industrial Progress in South Korea." Asian Survey 14.5 (1974): 439-55. JSTOR. Web. 23 Apr. 2015. <http://www.jstor.org/stable/2642849>.

Jeon, Houngcheul, and Hayam Kim. "The Political Economy of South Korea: Economic Growth, Democratization, and Financial Crisis." University of Maryland at Baltimore: School of Law (2008): 2-16. Digital Commons Law. University of Maryland. Web. 25 Apr. 2015. <http://digitalcommons.law.umaryland.edu/cgi/viewcontent.cgi?article=1192&context=mscas>.

Kim, Kyong-Ju. "The Configuration of Korean Civlization." The Development of Modern South Korea: State Formation, Capitalist Development and National Identity. New York: Routledge, 2006. 9-32. Print.

McHale, Thomas. "Problems of Economic Development in the Philippines." Pacific Affairs 25.2 (1952): 160-69. JSTOR. Web. 26 Apr. 2015. <http://www.jstor.org/stable/2753534>.

Menkoff, Thomas. "Using Knowledge as an Engine of Growth." Beyond the Knowledge Trap: Developing Asia's Knowledge-based Economies. Singapore: World Scientific, 2011. 47-87. Print.

"National Liberation Day of Korea." :: Korea.net : The Official Website of the Republic of Korea. Korea Magazine, 14 Aug. 2012. Web. 22 Apr. 2015. <http://www.korea.net/NewsFocus/Policies/view?articleId=101821>.

"Philippine Independence from the Americans." Philippine History. 12 Feb. 2014. Web. 23 Apr. 2015. <http://www.philippine-history.org/independence-from-americans.htm>.

Tran, Mark. "South Korea: A Model of Development?" The Guardian 28 Nov. 2011. Guardian News and Media. Web. 21 Apr. 2015. <http://www.theguardian.com/global-development/poverty-matters/2011/nov/28/south-korea-development-model>.

You, Jong-Sung. "Land Reform, Inequality, and Corruption: A Comparative Historical Study of Korea, Taiwan, and the Philippines." JSTOR 12-1 (2014): 191-224. JSTOR. Web. 21 Apr. 2015. <http://ssrn.com/abstract=2505635>.