Korea’s rapid economic rise and lessons for developing economies

Labor market policies and their consequences

It would be fair to say that the Korean working class has made a lot of sacrifices during the country’s rapid industrialization that started from the early ’70s. In the 1960s, the government introduced a raft of measures designed to weaken labor unions, for example, by prohibiting multiple unions within a single firm, reinforcing the ban on political involvement by unions, and allowing employers to forego punishment over unfair labor practices, if they rectify their behavior afterwards. In return, the government expanded statutory benefits and protection for workers, including annual paid leave and severance payments.
In the early 1970s, the government resorted to more oppressive labor policies in the wake of declaring a state of emergency. This state of emergency was prompted by the late President Park’s ambition to hold on to the reins of power longer. In response, the labor union movement became more violent and more politically charged. The suppression of the labor movement continued in the 1980s, after the former general Chun Doo-hwan, who came to power after a military coup, was installed as president in 1981.

Things began to change in 1987, when the presidential candidate Roh Tae-woo made a public pledge on his campaign trail to expand and respect civil rights and revive democracy. Mr. Roh later became president and his pledge sparked an outburst of labor disputes. In 1987, Koreans witnessed a record number of labor unrest totaling 3,749, as compared to 280 in the previous year. On the surface, the issue was about wage increases. But beneath the disputes were about organizing a new labor union, totally free from the company’s influence.

The number and intensity of labor disputes in Korea subsided gradually in the subsequent years but they still made their way into news hours on BBC and CNN and made a negative effect on foreigners’ perception on the Korean economy in general and its long-term competitiveness.

To summarize, the oppressive labor markets policies in the 1960s through 1980 did contribute to high economic growth and rapid job creation, but at the same time, resulted in lingering political instability and hampered social integration. The legacy of a violent labor movement still remains.

Oppressive labor policies might be characterized as one of the dark chapters of recent Korean history. But the government had not much choice after all. The Korean economy had no natural resources to rely on. Its relatively well-educated and disciplined workforce, combined with the government’s long-term industrialization drive scheme, was everything that differentiated Korea from other developing economies.

In contrast to the fraught labor policies, the introduction of the New Village Movement in the early 1970s might be credited to the late President Park as one of his great accomplishments, and the People’s Republic of China often seeks advice from Korea to emulate its success and find effective ways to develop its underdeveloped Northwestern region.

New Village Movement

In the early 1970s when Korean industrialization took off in a full-fledged manner, the government noticed a growing gap of income and living conditions between urban and rural areas. The rural area remained a world of thatched roof cottages and dirt roads. On top of that, electricity, phone lines and tap water were not very commonplace.

The major ideas behind the movement were modernizing villages, developing rural infrastructure and discarding superstitious traditions. The work had to be done by villagers themselves, but they were educated and mobilized through state-sponsored campaigns and, at the same time, assisted by massive reallocations of government funds.

The readers might remind themselves of similar campaigns in socialist countries. But the New Village Movement was different from rural development campaigns in socialist economies mainly on two grounds. First, it gave villagers significant autonomy to make decisions on what to build and how to spend money, keeping the movement relatively independent from the local bureaucracy. Secondly, the government did not rely on “ideological guidance” only, but supplied the movement with solid material support. Furthermore, competition between villages was promoted and the most successful villages received much attention in the media.

From the 1980s the movement began to recede, partly because an increasing number of the rural population began to migrate to cities and the economic significance of the rural areas went into relative decline. However, it might be safe to say that the movement’s initial goals were achieved a long time ago and no one doubts that Korean rural villages, with all their problems, are essentially modern.

In the past, this movement was widely viewed with skepticism and was perceived by some as a means to justify the authoritarian grip of the late President Park. However, even foreign development scholars today admire the effectiveness of the New Village Movement and the Korean government is often asked by its neighbors to share its secret to success.


(This series of contribution is based upon the contents of the recently published book “The Korean Economy: Six decades of growth and development,” as compiled by The Committee for the Sixty-Year History of the Korean Economy and “Korea from Rags to Riches,” compiled by the Korean Institute of Public Administration.)