SOCIAL DEVELOPMENT IN KOREA, 1953-1993
by Irma Adelman
I. Introduction
Most economists and lay people would agree that the primary purpose
of economic development is to generate improvements in social welfare.
Development strategies and policies, industrialization, and accelerations
in economic growth are merely instrumental variables for raising social
welfare. In particular, increases in per capita income indicate only the
potential for raising social welfare, but do not show that improvements in
social welfare have actually taken place.
How can increases in average per capita income occur without
improvements in social welfare? The answers to this question lie in
externalities and distribution. If faster growth generates negative social
externalities, such as pollution, congestion, crime, social alienation,
intergenerational strife, disintegration of family and community
cohesiveness, and class warfare per capita income can increase while per
capita social welfare actually drops. Similarly, if increases in per capita
GNP are generated through exhaustion of either exhaustible or renewable
natural resources, whose cost is not included in conventional measures of
GNP or national income, the apparent increase in the per capita GNP of the
current generation is less than the true increase in its sustainable per
capita GNP or sustainable social welfare. Moreover, if increases in per
capita income are bought at the expense of decreases in civil liberties and
political participation one must weigh these factors against the growth in
per capita income which has occurred. In the same vein, if increases in per
capita income are generated by exploiting part of the population-- workers,
farmers, women and children, residents of particular regions, members of
particular ethnicites -- the increase in average income is less than the
increase in the distribution-weighted per capita income. Furthermore, if
different income strata share unequally in the increases in per capita
income that have taken place, or if economic growth occurs in such a way
that the distribution of income and wealth become more unequal as growth
takes place, social welfare will not rise as rapidly as average per capita
income.
By the same token, given appropriate social development policies,
increases in social welfare can take place more rapidly than increases in
per capita income. Sri Lanka before the 1970s is a case in point. During the
1970s and 1980s developing countries have seen more rapid social
development than economic development. Investments in education,
especially primary education, and in health, particularly environmental
sanitation, have improved
the human development index (a measure by UNDP of progress in social
development) more rapidly than they have raised per capita GNP for a great
number of developing countries.
Social development is an indicator of societal welfare. It includes not
only material but also non-material, distributional and intergenerational
aspects. Thus, a measure of "true" social development should reflect the
degree of social, political and spiritual satisfaction in the society as well
as the extent of progress in fulfilling societal material needs. Since there
are diminishing returns to all aspects of social development, the
distribution of social welfare indicators across social strata is an
important aspect of a nation's overall social development. With diminishing
returns, if one weighs the welfare of all individuals equally, the extent to
which the poorest members of society participate in its social development
becomes particularly important for overall societal welfare.
Attitudes and policies towards social development are influenced by
the prevalent ethics of society, especially the ethics of the dominant elites
and, in industrial societies, the middle class. In Korea, the orientation of
the political leaders towards social development has been particularly
important, especially during the 1960s and 1970s. In Korea. attitudes and
values have been egalitarian.
The purpose of this paper is to examine how Korea's economic
development since the end of the Korean War has affected its social welfare.
The discussion is divided into subperiods that reflect the major changes in
development strategies and policies since the end of the Korean War.
The thesis of this paper is that Korea's social development has been
uneven, with some aspects of social development performance, such as
education, proceeding more rapidly than economic growth and others, such
as housing and political participation, lagging behind. We also argue that
the relationship between Korea's economic development and its distribution
of income and wealth has been the reverse of the usual one in developing
countries, and that the reasons for this lie in the initial conditions and
development strategies selected and in the policies and institutions used
to implement them.
I. Liberation, Independence and The Korean War (1945-1953)
This period was one of great turbulence: It includes liberation from
Japan in 1945 and control by the American Military Government till 1948; the
establishment of an independent Korea under Syngman Rhee in 1948; and the
Korean War in 1951-53 . Korea had neither a viable economy nor a viable
polity. Nevertheless, the events and policies during this period laid the
foundations for the subsequent egalitarian development during the 1960s.
There were two waves of land reform, in 1947 and 1949. In 1947, the U.S.
military government decreed that the land confiscated from Japanese farmers
and Japanese corporations should be redistributed to tenants. The value of
the land was set at 3 times the annual output and the payment at 20% of the
value of the crop, payable over 15 years.
The second wave of land reform redistributed the holdings of Korean
landlords owning more than 3 chongbo (7.5 acres or about 3 hectares) to
tenant farmers and landless farm laborers. About 62% of farm families
benefitted from land reform. Tenancy was virtually abolished, almost one
million tenant farmers and landless became land owners and about 570000
small farmers were able to expand their holdings. The distribution of land
holdings became very even.
Farmers paid one third of the crop to the government and, as in the Taiwan
land reform, the government issued land value certificates to landlords
redeemable in industrial bonds in exchange for the confiscated land. The
certificates sold well under par in the open market, sometimes as low as 20-
30 % ( see Choo 1977). Thus this land reform destroyed much of the wealth
of the rich, induced forced savings among the poor and resulted in a very
egalitarian distribution of landed assets in the countryside.
In addition to the landed wealth redistributed in the land reforms,
much real wealth was also redistributed during this period. Formerly
Japanese corporations, buildings and mines were confiscated by the Korean
government, and became public property. Thus, after liberation most real
property was owned by the government rather than by the private sector. In
addition, the massive destruction of real wealth during the Korean war,
amounting to about one fifth of the real capital of the South, induced a very
substantial leveling of real asset ownership.
The formerly Japanese owned vested properties were sold off to the
private sector, often below market value, over a fifteen year period.
Although the sales of public property generated revenues of between 1 and
4 percent of total government receipts over this period, the discount below
market value on the landed properties did amount to a redistribution of non-
landed real wealth to the rich.
Measures were also taken to redistribute financial wealth. The
properties of speculators were confiscated. Inflation fighting measures hit
those who had financial wealth.
As a result, Korea started its development process with an initial
distribution of real and financial assets which was one of the most even in
the capitalist world.
II. Economic and Social Development During The Reconstruction Period
(1953-61)
The loss of life and physical destruction during the Korean War were
enormous. In 1953, the South was literally in ruins. The war had destroyed
a quarter of the real wealth of South Korea and killed over 5% of the civilian
population. The situation was further exacerbated by an influx of 3 million
refugees from the North. Life was grim with most Koreans living at or below
subsistence. Economic recovery was slow; the average growth of per capita
GNP was merely 1% per year; and the economy was kept from collapse only
through massive economic assistance by the United States.
The primary policies of the period were aimed at ensuring the
population's survival, reconstructing economic and social infrastructure,
rebuilding industrial facilities and stabilizing prices. Ninety percent of
imports were consumer goods, and constituted emergency relief for the
population. Little attention was paid to long-term economic development
during this period. The bulk of government investment during this period
was on social development: Of total government expenditures,8.8% went into
research and education, 5.6% into health and welfare, 8.7% into current
transfers to households and 2.8% into roads, waterways, fire protection,
water supply and sanitation as compared with a total of only 14% for capital
formation. Over this period, the literacy rate increased from 30 to over
80 percent. But more than two thirds of the cost of education was borne by
the private sector.
III. The Infrastructure and Import Substitution Period (1962-66);
The accelerated rate of economic growth started with the accession of
Major General Park Chung Hee to the Presidency of South Korea, in mid-1961.
Part of the explanation lies in his commitment to economic development.
(Shortly after taking office, he asked to be tutored in economics !). This
commitment had many manifestations, not the least of which was his
willingness to allow economic considerations to guide investment, trade and
financial policies. Severe unemployment rates and demonstrations by
students and the unemployed provided the primary motivation for the
policies and programs formulated during this period. The trade deficit
constraint was also very binding. Accordingly, the primary goals of the
development strategy followed during this period were to generate rapid
increases in efficient employment and to improve the balance of trade .
The strategy for employment generation involved applying labor-intensive
methods to the construction of certain key types of infrastructure, such as
roads, dams, and energy and irrigation projects. The strategy for improving
the balance of payments entailed reliance on import-substitution in some key
industries-- cement, chemical fertilizer, and synthetic fibers--as well as
striving to attain self-sufficiency in food grains by the end of the period.
The strategy was very successful, from both an economic growth and
social development perspective. The rate of growth of per capita GNP rose
from about 1% in the previous period to about 6.8%, leading to an increase in
GNP per capita of almost 40% over the period. Labor absorption was quite
rapid--employment increased by 10% and, despite an increase of 12% in
economically active population the unemployment rate dropped by 14%, from
8.2% of the economically active population to 7.1%. Import substitution
provided the major contribution to economic growth during this period.
Nevertheless, the trade deficit remained quite large as the industrialization
effort required more than 75% increase in industrial imports.
From the point of view of social development, there was a substantial
improvement in average social welfare. At the beginning of the period, Korea
was one of the poorest countries in the world. While still quite poor in 1962,
by the end of the period per capita GNP was 39% higher. Nutrition had
improved and there was a shift towards a more diversified, richer diet: the
average calorie intake rose more slowly than per capita GNP, from about 75%
to 80% of daily requirements; protein consumption increased by 12%; and the
intake of animal protein rose by 27%. The health status of the population
ameliorated: infant mortality dropped 10.5%, life expectancy rose 11.7% ; but
the death rate from epidemic diseases rose by 40%, due primarily to very
rapid immigration into Seoul, a city with poor environmental sanitation, high
population densities and a large number of people living in shanty towns on
the banks of the Han river, in unsanitary, overcrowded conditions.
Substantial investment in education continued, though at a lower rate than
in the earlier period. Between 1961 and 1966, both primary and secondary
enrollments rose by about a third, while university enrollments doubled. By
1966, Korea had achieved universal primary education and the rate of
university enrollment was greater than in Great Britain.
While there are no income distribution statistics prior to 1965, there
is some indication that income distribution remained very even. Indeed, in
1965, Korea's income distribution was one of the most even in the world.
The primary reasons for this were: the distribution of wealth from
which the growth started was very even, due to the actions undertaken in the
1945-53 period. Even though 1961-66 was a period of import-substitute
industrialization, growth was very labor intensive, partly due to the labor-
intensive technology used to construct infrastructure, and capital/output
ratios were very low by international standards. In addition, agricultural
incomes were high relative to urban wage earner incomes, and agricultural
terms of trade improved. And, even though this was a period of selective
import substitution the effective exchange rate for exports was only 11%
above the effective exchange rate for imports. Thus, the usual reasons why
import substitution deteriorates the distribution of income were not
operative. The operative consideration was that the growth was labor-
intensive. There was massive absorption of labor force from a relatively low
productivity sector, agriculture, to a high productivity sector,
manufacturing.
IV. The Labor-Intensive Export-Oriented Industrialization Period (1967-
1971);
This period was marked by a change in development strategy from
selective import substitution in producer-input industries towards export
led growth centering on labor-intensive manufactures. It was marked by an
interest rate reform which doubled interest rates paid on deposits, a
devaluation of the exchange rate by 100%, selective trade liberalization and
a movement of trade incentives towards greater neutrality of the effective
exchange rate between imports and exports. The economy became more open
and structural change accelerated: the share of manufacturing in GNP
increased by 50% and that of agriculture dropped by a third. The growth was
export-led: the annual rate of growth of exports averaged 38% and the share
of manufactured exports rose from about 60 to close to 70 percent of the
total. Nevertheless trade deficits continued to be substantial.
This was a period of very rapid economic growth and improvement in
economic welfare. Per capita GNP increased by more than a factor of two and
a half. Labor absorption continued to be quite rapid: employment increased
by 25% and unemployment rates dropped 45%. The labor market became tight
and the average wage rates of unskilled workers tripled. There was a rapid
increase in capital accumulation and capital efficiency.
The distribution of income became even more even than it had been in
1965, and the share of income of the poorest decile doubled. Infant
mortality, a very sensitive indicator of poverty, dropped dramatically, by
30%. The ratio of farm to non-farm income rose, due to the increase in demand
for food by the urban population which raised the agricultural terms of
trade. By the end of the period, the ratio of prices received to prices paid
by farmers had increased substantially (30%), to almost par.
Life expectancy rose by almost four years. However, due to the
extremely rapid in-migration into Seoul during this period, the relative
supply of housing deteriorated. Parasitic, infectious, respiratory, and
digestive disease rates continued high. Since these diseases are due to
poor environmental sanitation, environmental conditions and overcrowding
they indicate that almost 60% of all deaths could have been avoided during
this period.
Student enrollments increased by 28%; having achieved universal
primary education in the previous period the primary increase in enrollments
came from the expansion in secondary and higher education. The enrollment
ratio in secondary school increased by 36%, to almost 50% of the appropriate
age cohort. The 20% expansion of college enrollments occurred against the
government's wishes, because of the educated unemployment problem, and the
minister of education was fired for permitting too rapid an expansion of
university enrollments. The educational strategy followed by Korea of
expanding primary schooling first, then pushing secondary and only then
tertiary broadened the educational pyramid, and had an egalitarian effect.
It contrasted with that of Brazil, for example, in which secondary education
was limited to the elite and just sufficient to feed University enrollments.
There was some drop in the negative social externalities of economic
growth, especially in the industrial accident rate which dropped
dramatically, by almost half, starting from a scandalously high rate of 22%
of worker injury in 1966. Nevertheless, the negative externalities of
economic growth continued to be high: the miracle economic performance was
purchased at the cost of long working hours (50 hours per week), high
industrial accident rates (almost 10% of workers were injured on the job in
1972), and substantial air pollution. By the end of the period some of the
planners and economists were starting to wonder whether the rate of growth
should not be slowed down.
During the two previous periods, Korea's economic growth was marked
by growth with equity. As I have indicated elsewhere, an important reason
for this was in the "redistribution before growth" strategy adopted mainly
by historical accident in the aftermath of liberation and Korean war.
Starting accelerated growth from an egalitarian distribution of land, and
real and financial wealth, as Korea did, and adopting a labor-intensive rapid
economic growth strategy, there was no conflict between growth and equity.
Policies adopted to accelerate economic growth also led to substantial
equity improvement, especially reductions in poverty.
The growth with equity during take-off stands in strong contrast to the
usual relationship between economic growth and economic equity in
developing countries. In typical developing countries the takeoff is marked
by increases in inequality (Kuznets, 1955 and Adelman and Morris 1973).
V. The Heavy and Chemical Industry Period (1973-81);
Partly for geopolitical, security, reasons and partly to reflect
President Park's concept of what a mature industrial economy should look
like, this period was marked by a major change in development strategy.
There was a shift in policy emphasis away from labor-intensive industries
toward heavy and chemical industries (HCI). The export oriented emphasis
remained, although effective exchange rates for the new key industries were
biased against imports. Six strategic industries were selected _ steel,
petrochemicals, non-ferrous metals, shipbuilding, electronics and
machinery. Promotional laws for each of these industries were promulgated,
granting tax subsidies, access to subsidized public services, preferential
financing and specifying detailed engineering design. The first four
industries were capital intensive and their factor input structure was not
in accord with the economy's comparative advantage. The key industries
required import of raw materials and absorbed an average of 23% of total
finance over the period. As a result, labor intensive industries were
credit starved . Capital labor ratios rose faster in the key industries than
in the light industries. Also, since, by the very nature of the key
industries chosen, small and medium sized firms could not operate the key
industries, the new economic direction increased the concentration of
economic power in the largest chaebols. The incentives to key industries
benefitted large chaebols most, thus generating a large transfer to the very
rich, and leading to a considerably less equal distribution of assets than
was characteristic of the earlier periods. Most economists were opposed to
the change in emphasis towards key industries when it was initiated,
considering it inappropriate at that time.
In addition to the key industries, the third and fourth five year plans,
which covered this period emphasized other objectives as well: 'expanding
regional development', 'improving life in the rural areas', and 'improving the
quality of life of workers' (the Third Plan); and 'achievement of stable
growth and social development, based on three basic principles of continued
growth, efficiency and equity in pursuit of economic buildup' (The Fourth
Five Year Plan).
The regional and quality of life objectives were pursued in part
through a rural community development program. Even though farm household
incomes had increased slightly relative to urban incomes in the previous
period, they were still about 17% lower than urban wage earner incomes. Rural
social development indicators were substantially lower than urban ones, as
well. As a result, there was substantial discontent in the countryside.
There was also a desire to slow the rate of rural to urban migration. In 1971,
the President initiated a rural animation program, the Saemul Undong
movement, which provided investment funds and government leadership for
village development. The investment in this program absorbed about one half
of total government investment during 1973-78. Of this total, 28% was
allocated to production infrastructure, 41% to income increasing projects,
28% to welfare and environment improvement (social development) and 3% to
rural factories . The result, was a substantial narrowing of the
rural/urban social development gap. By 1981, farm incomes were only 8% below
urban wage-earner incomes; the gap in primary and high school enrollment
ratios had almost disappeared; the share of off farm income to total rural
household income had risen by two thirds, to about one third of rural
household income by 1979.
The heavy and chemical industry drive was initiated during a
particularly inauspicious period, that was marked by significant adverse
exogenous shocks from world markets. The HCI industries are energy and
import-intensive and the oil shock which raised oil prices sixfold, increased
the cost of operating these industries substantially. The two oil shocks
induced stagflation in the OECD countries, which were countered by
contractionary policies and led to a halving of their rates of growth; the
rate of growth of world demand for imports was also halved as a result. The
period also coincided with the construction boom in the Middle East, which
led to a withdrawal of about 300,000 workers from the domestic labor force,
generating labor shortages and wage increases. The migration to the Middle
East raised the construction costs of the HCI industries and exacerbated
the difficulties in the competitiveness problems of the labor-intensive
export-oriented industries. Partly as a result of these external
developments and partly as a result of the Big Push character of the HCI
drive the economy was plagued by a resurgence of high inflation rates.
Since the won was pegged to the dollar, the domestic inflation led to a
revaluation of the won, which exacerbated the pressures on the current
trade balance. The increased demand for machinery and intermediate imports
due to the HCI drive exacerbated the balance of trade problems. Easy
availability of credit led to heavy foreign borrowing by Korea to finance its
deficit and its HCI drive. Inflationary pressures were also fueled by the
long gestation period inherent in HCI industries, which meant that
expenditures were undertaken long before output came on line. The initial
performance of the HCI industries was disappointing. The end of the period
therefor also saw a scaling down of the HCI drive and a relative shift in
emphasis toward the more skill intensive electronic and machinery
industries.
Nevertheless, the improvement in average social welfare
was spectacular. Per capita GNP in current dollars increased almost six
times, though part of the increase is illusory due to the revaluation of the
won. Unemployment dropped to frictional levels. Social welfare expenditures
as a percent of GNP rose 40%, to 7% of GNP by 1980. University enrollments
almost tripled. There was a major improvement in the health status of the
population: infant mortality decreased 60%; the average number of calories
consumed rose to meet nutritional WHO nutritional standards, while the
portion of animal proteins in the diet increased by 50%. The improvements in
health were attained by greater investment of resources in the health
sector. The population per physician declined 25% ; the coverage of medical
insurance increased dramatically; the death rate due to poor sanitation,
environmental conditions and overcrowding dropped from 60 to 28% of total
deaths; and average life expectancy reached the levels characteristic of
more developed NICs. Poverty decreased dramatically.
But both the size and the regional distribution of income became more
unequal. The deterioration in the distribution of income during this period
is due to many different factors. First, by 1973 the distribution of real and
financial assets was no longer even. In addition to the effects of economic
growth on accumulation, the size structure of firms was concentrated.
Second, there was an increase in the capital/output and capital/labor ratios
during this period. This increase was partly due to the economy having
reached virtual full employment and partly due to the stress on the growth
of capital-intensive key industries. Third, the distribution of wage income
became more skewed as well, due to the relatively greater tightness in the
supply of the market for high level manpower. The only countervailing
influences were the rural development effort and rural-urban migration. The
Saemul Undong movement and the high rice-price policy initiated in the early
1970s led to an increase of farm income above urban income. But, since the
share of off-farm income in rural income also rose the distribution of income
within the rural sector deteriorated as well. Migration transferred workers
from the low-productivity, low income sector to a high productivity sector;
but since the high productivity sector also had a higher variance in the
distribution of income, this influence too was not unidirectional. Thus, the
foundations for unequalizing growth were laid during this period.
The increase in inequality after, rather than during, the takeoff runs
counter to cross country developing country experience. But Korea started
the takeoff from an unusually even distribution of real and financial assets,
and adopted a human-capital intensive development strategy during the
takeoff which was coupled with an egalitarian human-capital accumulation
policy. By contrast, the initial distribution of wealth with which Korea
entered the seventies had become more like that of a typical developing
country starting its development process. And the emphasis on the second
stage of import substitution in producer goods industries, albeit selective,
was typical of the development strategy followed by most Latin American
developing countries. The import-substitute development strategy tends to
worsen the distribution of income. Thus, at this point, it is not surprising
that the relationship between Korea's economic growth and distribution
became antagonistic.
VI. The Stabilization, Adjustment, Liberalization and Globalization Period
(1982-present)
The previous period left the economy with substantial economic
difficulties: high inflation, a large current account deficit, and a foreign
debt problem. Korea therefore embarked on an orthodox stabilization
program during 1979-81: monetary and fiscal stringency, a withdrawal of
incentives from the HCI industries, and an incomes policy. The deflationary
policy led to a downturn in the economy from 1979-1982. But, by contrast
with the experience of other NICs, the Korean stabilization program was
successful. It ushered in a period of price stability which has lasted to the
present. Fiscal deficits and trade deficits were brought under control.
Liberalization of financial markets turned interest rates positive and
led to an increase in domestic savings. Trade liberalization turned the
chronic trade deficits into surpluses. Korea's growth rebounded to enviable
levels. The HCI industries matured, became the core of the manufacturing
sector, and their exports started exceeding those of light industry by 1981.
There has unquestionably been very substantial improvement in
Korea's average welfare. Per capita income has increased almost sixfold, and
on most social development indicators Korea now stands at or near the top
of the middle income group. Tertiary school enrollment rates exceed those
of 70% of high income industrial economies. Life expectancy at birth is now
in the range of that in upper middle income economies; and under five
mortality rates have declined to levels comparable to those of New Zealand
and Israel.
One of the main social development issues in Korea has become the
distribution of income and wealth. There is substantial controversy
concerning the course of income distribution in Korea during the 1980s and
beyond. On the one hand, government statistics show the distribution of
income becoming more even. But the coverage of the sample on which the
statistics are based is biassed against the high income groups; and the
sample results do not match the national income results. On the other hand,
the income distribution statistics collected in a survey conducted by the
KDI for 1988 show the distribution of income considerably less even than do
the official statistics. The sample on which they were based was more
representative than the government sample and, when the KDI sample income
results are blown up to aggregate national income they match rather well
(Leipziger et al 1993). As against this, the enumerators used by KDI were
less experienced, their samples were rather small, and the survey indicated
that rural income is less evenly distributed than urban income which runs
against results for developing countries with even distribution of land.
There are several reasons for believing that the "true" distribution
of income worsened during the 1980s and beyond. First, there is no
argument that the distribution of wealth became more unequal during the
1980s, as land prices have skyrocketed, and the ratio of wealth to income
increased. And it is impossible for the distribution of wealth to become more
unequal while the distribution of income becomes more equal: wealth
generates property income, in the form of interest, rent and realized capital
gains, and this income is distributed less equally than wage and self
employment income, in a manner similar to wealth (Kwon 1993).
Second, property income has risen since 1988 as a share of National
Income. Even so, there is reason to believe that property income is
understated in the Korean national accounts: (1) the rent component of
property income in the national accounts has decreased even in nominal
terms while real estate prices and rents have increased. This is may be due
to the fact that the imputed rent of owner occupied dwellings, which should
be included in the national accounts, is probably not updated to reflect the
true current rent. Also, the measured rent probably does not incorporate the
accrual value of the "down payment" required to rent an apartment in the rent
since, when questioned about rent, respondents, whether landlords or
tenants, probably do not include this component. (2) realized capital gains
are underrepresented in both personal and national income (see Leipziger et
al 1993 on that point).
Third, the share of agricultural income in self employment income has
declined. Agricultural income is more evenly distributed than wages or other
self employment income. In addition, agricultural terms of trade have
declined through the 1980s as has the ratio of rural to urban income.
Fourth, the general perception of the public, which cannot be
dismissed, is that inequality has greatly increased. And my own casual
observation confirms the public's sentiment. Finland, a country with twice
Korea's per capita income in 1993 and a very even distribution of income,
does not have a luxury department store like Lotte and boutiques like those
on Seoul's "Rodeo drive"; instead, there are no boutiques in Finland and
Finland's major department stores carries middle class goods, of a
serviceable, sturdy quality.
There are also some reasons to believe that the distribution of income
has become more even. One, the share of wage and salary income National
Income has risen; this component of income is more evenly distributed than
property and non-agricultural self-employment income. Two, the distribution
of wages has narrowed, as the University education push has poured more
graduates into the labor market. Three, the share of non-agricultural self
employment income in total income has decreased. This income is less evenly
distributed than wage income and more evenly distributed than property
income.
To shed some light on this issue, I have recalculated the distribution
of income for 1992 (see Table I, below ) using the following assumptions:(1)
The national income account values for the components of income are used
in both the "KDI" and "Government statistics series; (2) The property income,
transfers, capital gains and self employment income excluding farm income
are distributed as in the KDI survey; (3) the "KDI" calculations assume that
wages and farm income are distributed as in the KDI survey while the
"Government Statistics" calculations assume these types of income are
distributed as in the government surveys for the relevant year; (4) For both
calculations distributed capital gains are assumed to be 10% of total
capital gains; the same ratio of capital gains to GNP is assumed for 1992 as
in 1991. The results from both "government" and "KDI" calculations indicate
that there has been a redistribution towards the top 10% . When capital
gains are excluded the redistribution is from the middle income groups; the
poorer income deciles benefit as well, due primarily to the increase in
transfers. When capital gains are included, the redistribution towards the
richest 20% is at the expense of both the poorest and the middle classes.
Whether capital gains are included or excluded, my calculations suggest that
there has been an increase in the overall concentration of income since
1988. Of course, the concentration is more pronounced when capital gains
are included.
I therefore believe that the "true" distribution of income in Korea has
worsened during the 1980s. If my belief is correct, the relationship between
income distribution and development in Korea has given rise to an inverted
Kuznets-curve. The initial stages of industrialization were marked by
egalitarian growth, whereas the later stages were characterized by
unequalizing growth. This is precisely the reverse of the typical
relationship postulated by Kuznets. The inversion of the distribution-
growth relation in Korea is due to both difference in initial conditions and
to the policies followed during this period. As indicated earlier, Korea had
developed a fairly unequal distribution of wealth by the beginning of the
nineteen eighties and has relied upon capital-intensive growth since the
early 1970s.
Even so, the distribution of income in Korea is no worse than that in
the United States. However, the trend is disturbing.
TABLE I: INCOME DISTRIBUTION FOR 1992 UNDER VARIOUS ASSUMPTIONS
KDI Government Statistics
Survey Publi Adju
shed shed sted
1981 1992 1993 1988 1984 1995 1996
First Decile 1.4 1.7 1.6 2.8 2.8 3.1 2.9
Second Decile 3.5 3.6 3.4 4.6 5.0 5.0 4.6
Third Decile 4.6 5.1 4.7 5.6 5.9 6.0 5.5
Fourth Decile 6.1 6.3 5.8 6.6 6.4 6.7 6.2
Fifth Decile 7.5 7.5 7.0 7.6 7.3 7.4 6.9
Sixth Decile 8.7 7.0 6.5 8.7 9.6 8.4 7.8
Seventh Decile 10.1 9.4 8.7 10.0 9.3 9.0 8.4
Eight Decile 12.5 11.9 11.7 11.8 11.0 10.9 10.4
Ninth Decile 15.6 13.4 13.0 14.6 14.7 13.1 12.4
Tenth Decile 30.0 34.0 37.6 27.6 27.8 30.0 34.1
Decile Ratio 1a .342 .352 .306 .464 .472 .482 .412
Decile Ratio 2b .850 .755 .669 .873 .875 .828 .720
a. ratio of the income share of the poorest 40% to that of the richest 20%
b. ratio of the income share of the middle 40% to that of the richest 20%
1. Source: Kwon 1993
2. Computed using the KDI distribution of wage income, self employment
income, property income, and transfers. Capital gains are excluded. Assumes
national income values of all income components for 1992.
3. Same as 2 but adding capital gains. Assuming that 10% of capital gains
accrued during the year are realized, and that capital gains are distributed
as in KDI survey.
4. Computed using statistical office distribution of wage and agricultural
income but KDI distribution of self employment income excluding agriculture,
property income, and transfers. Assumes national income values for all
income components for 1988. Excludes capital gains.
5. Computed using statistical office distribution of wage and agricultural
income but KDI distribution of self employment income excluding agriculture,
property income, and transfers. Assumes national income values for all
income components for 1992.Excludes capital gains.
6. Same as 5 but adding capital gains, with the same assumptions as in 3.
VII. Conclusion
No observer of Korea's development during the last fifty years can fail
to be deeply impressed by its achievements. From a basket case in the
aftermath of the liberation and Korean war, in which virtually the entire
population lived at or below subsistence, Korea has become a developed,
OECD country, with a poverty population below 10%. From a country which,
in the mid-sixties, was wondering whether its per capita income would ever
exceed $100 per year, it now has a per capita income of $10000. Korea has
become an economic powerhouse, as evidenced by the increasing pressures
to increase imports under which it finds itself from the United States.
While the potential for social development has risen enormously, there
are aspects of social development in which Korea still lags behind. It is
perhaps time to translate more of the gains in GNP into greater gains in the
quality of life and into more improvements in social welfare. Housing,
pollution, working conditions, safety net, and political participation, in
particular, are candidates for further improvement. Qualitative
improvements should be stressed in other areas over quantitative increases.
And, if my conjectures on the course of inequality in income and wealth are
correct, this area of social development will also require policy attention
in the near future.
REFERENCES
Adelman, Irma and C. Taft Morris 1973 Economic Growth and Social
Equity in Developing Countries Stanford Press
Adelman, Irma and S.Robinson 1978 Income Distribution Policies in
Developing Countries : The Case of Korea Stanford Press.
Choo Hakchung 1977 "Some Sources of Relative Equity in Income
Distribution: A Historical Perspective" in Chuk Kyo Kim ed.
Industrial and Social Development in Korea KDI 1977, 303-330.
þhoo, Hakchung 1985 " Estimation of Size Distribution of Income
and Its Sources of Change in Korea, 1982" KDI Working Paper 8515.
Hong, Wontack 1979 Trade, Distortions and Employment Growth in Korea KDI
Kuznets, Simon 1955 "Economic Growth and Income Inequality"
American Economic Review 1-28.
Kuznets, Paul 1977 Economic Growth and Structure in the Republic
of Korea Yale University Press.
Kwon, Sunwon 1993 Social Policy in Korea: Challenges and Responses
KDI
Leipziger D.M., Dollar.D., Shorrocks A.F. and S.Y. Song 1993 The
Distribution of Income in Korea KDI
Suh, Sang Mok 1985 "Economic Growth and Change in Income
Distribution: The Korean Case" KDI Working Paper 8508
TABLES
TABLE 1 ; STRUCTURAL CHANGE
OUTPUT (% OF GDP)
1950/53a 1961b 1966b 1972b 1981c 1987c 1993c
AGRICULTURE 50.4 44.0 38.9 26.5 16.3 16.3 7.1
INDUSTRY 6.8 12.0 15.9 24.4 18.8 18.8 29.4
SOCIAL OVERHEAD 8.7 6.1 9.0 12.9 8.0 17.5 21.1
OTHER SERVICES 34.1 37.1 36.2 36.2 56.8 0.0 42.4
SOURCES: a. BOK Economic Statistics Yearbook 1973, 1970 factor cost
(Quoted by Kuznets, op.cit)
b BOK National Accounts 1980, 1970 prices
c BOK National Accounts 1994, 1990 prices
EXPORTS(% OF TOTAL)
1955 1961 1966 1972 1981 1987 1993
FOOD 6.1 32.2 32.2 16.3 6.3 4.6 2.6
MINING&RAW MAT 85.0 50.2 22.5 8.2 1.4 2.5 3.7
MANUFACTURING 7.8 8.6 61.2 68.9 87.4 92.9 93.7
MACHINERY 1.1 1.8 3.1 6.7 10.9 35.8 44.9
NEC 0.0 2.2 0.0 0.0 .9 0.0 0.0
TOTAL (Mill $)a 18 43 175 1677 21254 47280 82236
SOURCES: BOK, ECONOMIC STATISTICS YEARBOOK, Various years.
a. FOB prices
IMPORTS(% OF TOTAL)
1955 1961 1966b 1971b 1981 1987 1993
FOOD 5.1 11.1 10.1 16.8 10.4 3.9 5.1
MINING &RAW MAT 41.1 50.4 49.4 36.5 52.2 40.5 38.7
MANUFACTURING 35.1 30.9 42.9 46.5 36.7 55.3 55.6
MACHINERY 16.7 14.1 24.0 22.2 23.1 33.9 33.9
NEC 18.7 7.6 .1 .2 .7 0.3 0.6
TOTAL (Mill $)a 341 360 716 2394 26131 41020 83800
SOURCES: BOK, ECONOMIC STATISTICS YEARBOOK, Various years.
a. FOB prices
b. customs clearance basis
TABLE 2: OTHER INDICATORS
FACTOR INTENSITY OF GROWTH:
1953 1961 1966 1972 1981 1987 1993
Gross Fixed Capital 7.6 8.8 10.7 18.9 38.0 73.0 176.3
Stocka (K)
Employmentb (L) 6.5c 7.3 8.4 10.5 14.6 16.9 19.8
GNP (bill $, O)a 2.7 3.8 5.7 9.7 28.6 46.2 87.6
K/O ratio 2.8 2.3 1.9 1.9 1.3 1.6 2.0
L/O ratio 2.4 1.9 1.5 1.1 .51 .37 .23
K/L ratio 1.2 1.2 1.3 1.8 2.6 4.3 8.8
Marginal K/O ratio - 1.1 1.0 2.0 1.0 2.0 2.4
Marginal L/O ratio - .67 .57 .50 .22 .13 .07
Marginal K/L ratio - 1.6 1.7 4.0 4.5 15.4 34.3
SOURCES: to 1972 Hong 1979 p399. Subsequently, computed from national
accounts in current $ and converted to constant 1970 $ by using the US CPI.
a. in billion of 1970 $
b. in millions of persons
c. Estimate from Korea Economic Reconstruction Frame Nathan Associates,
1952.
DISTRIBUTIONAL INFLUENCES:
1961 1966 1972 1981 1987 1992
Employee compensation (%NI) 34.5 39.9 39.7 51.8 54.4 63.4
Income from Property (% NI) 11.0 11.3 12.3 8.3 5.2 9.2
Operating Surplus (% NI) 65.4 66.8 59.2 48.0 46.5 39.4
Agric. terms of tradea 75.9 75.8 98.4 99.7 97.4 94.3
Farm population (% total) 57.0 53.6 43.6 25.8 18.7 12.3
Farm/urban wage income 116.0 80.6 83.0 109.4 98.5 95.5
Source: BOK, National Account Statistics 1994 and EPB, Major Indicators of
Korean Economy 1981.
a. ratio of prices received to prices paid by farmers 1975=100
TABLE 3: AVERAGE WELFARE INDICATORS
1953 1961 1966 1972 1981 1987 1993
GNP/CAPITA ($) 78.9 90 125 306 1741 3218 7466
Food/Priv. Cons% 58.5 56.2 55.5 52.7 45.4 33.6 27.4
Calorie % RDA n.a 74.7 80.0 88.5 97.3 108.1 113.1
Infant Mortality n.a 67 60 43 27 22 17
Av Life Expectancy 57 53 59.2 63.8 67.1 69.6 72.4
Illiteracy rate (%) n.a n.a n.a 21.4 12.6 9.6 7.0
Av.Years Schooling n.a n.a 5.0 6.1 7.8 9.0 10.1
Houses w/o water(%) n.a 81.8 77.8 62.2 41.0 28.6 17.0
Unemploymenta% n.a 17.0 15.5 9.7 9.7 4.9 4.2
n.a (7.5) (7.4) (4.1) (4.5) (3.1) (2.8)
Disabled Persons(%) n.a n.a 1.2 1.2 .9 .9 1.0
Poverty Population(%) n.a n.a 40.9 23.4 9.8 8.9 7.6
Crime
Alienation
Pollution
Cars/capita
telephones/capita
Source: BOK, 1994 National Accounts; EPB Major Statistics of Korean Economy
1981; and National Statistical Office, Major Statistics of Korean Economy
1995
a. Includes employed less than 18 hours per week. Figures in parenthesis are
full time unemployment. Figure in 1961 column is for 1963. Source: Yearbook
of Labor Statistics, various years.
TABLE 4: EDUCATION
1950 1961 1966 1972 1981 1987 1993
Primary
Total Enrollment (1000) 2669 3853 5165 5807 5586 4772 4336
Enrollment Ratio % 83 97 103 107 103 102 101
Percent Female na 45 46 48 48 48 48
Secondary
Total Enrollment (1000) 436 940 1257 2416 4397 4896 4480
Enrollment Ratio % 16 30 36 49 59 65 99
Percent Female 19 28 36 39 45 47 48
Percent Vocational 13 14 16 16 19 17 18
Tertiary
Total Enrollment (1000) 36 109 197 239 546 1010 1109
Enrollment Rate a 18 44 68 65 187 243 252
Percent Female 11 19 25 25 24 27 31
Total # Students 3141 4902 6619 8462 10529 10678 9925
Growth Rate (Annual %) - 5.0 5.5 5.0 5.0 0.0 -.1
Average Years of School n.a n.a 5.0 6.1 7.8 9.0 10.1
Source: Social Indicators in Korea 1994 and 1980.
a per 10,000 total population
n.a= not available
TABLE 5: HEALTH
1961 1966 1972 1981 1987 1993
Health Status
Average Life Expectancya 53 59.2 63.8 67.1 69.6 72.4
Infant Mortalityb 67 60 43 27 22 17
Crude death Ratec 10.5 9.3 7.9 5.9 5.7 5.2
Nutrition
Calorie % RDAd 74.7 80.0 88.5 97.3 108.1 113.1
Protein (g/day) 53.2 59.4 67.6 76.9 88.5 91.8
% Animal Protein 14 16 18 28 35 37
Medical Resources
Population /Physiciane 3.4 2.6 2.1 1.6 1.2 .8
Hosp. Beds/100000 Pop 36 44 49 169 275 374
Medical Insurance(%pop)f - .02 .05 39.3 79.1 100
Accident Insuranceg - 1.8 34.2 58.8 62.1 61.5
Death Causes (Diseases,%)
Parasitic & Infectious n.a n.a 7.2 4.4h 3.5 1.9
Respiratory n.a n.a 34.6 12.6h 5.7 5.1
Digestive n.a n.a 19.0 11.1h 8.6 5.2
Epidemic diseases 2.7 3.8 .1 - - -
% Deaths from poor
sanitation 60.9 28.1 17.8 12.2
Source: Social Indicators in Korea 1994. Interpolated between census dates.
a. at birth
b. per thousand 0-4 years population
c. per thousand population
d. 1961-1972 EPB Major Statistics of Korean Economy, 1981
e. 1000 of people per physician
f. % per thousand pop ; since 1977 includes Medicaid. Source for 1981-1993
Kwon 1993.
g. % workers
h. derived by interpolation between 1981 and 1987, in the same ratio as the
decrease in infant mortality.
n.a.= not available.
- = rounds to 0
TABLE 6: HOUSING
1961 1966 1972 1981 1987 1993
Housing Supply Rate Nation % 82.4 75.3 78.2 74.5 69.4 70.4
Housing Supply Rate Cities % 64.9 63.1 58.2 59.2 60.4 58.6
Water Supply Service Rate % 18.2 22.2 37.8 59.0 71.4 83.0
Floor Space per person(pyong)a 2.1 3.0 3.7 4.7
Land Price index
Rent % of consumption
Source: Social Indicators in Korea 1994 and Major Statistics Korean Economy
1995
a. Housing Policy in Korea , in Krause, L B and F.K Park
KDI 1993
n.a.= not available.
TABLE 7:LABOR AND WORKING CONDITIONS
1961 1966 1972 1981 1987 1993
Accident rate(%)c 2.4 20.2 9.2 7.2 1.5 .8
Accident insurance rated na 9 27 67 63 na
Pension Program (1000) 251 333 449 648 na na
Unionization rate(%) 22 22.4 21.2 19.0 18.8 21.7
Working Hours na 51.6 50.0 51.6 50.5 47.9
Manufacturing Employment% na 10.2 15.4 21.9 25.5 26.3
Industrial Disputes - - 122 186 3749 144
Average Labor Productivityb 192 222 247 443 675 907
Average real Wagea 84 98 162 321 475 801
Ratio productivity/wage 2.30 2.27 1.52 1.38 1.42 1.13
Gini of wage income n.a n.a .402 .369 .345 .284
Source: Park, Y B Labor in Korea (Korea Labor Institute 1993); Social
Indicators of Korea 1994; and Major Statistics of Korean Economy 1981.
a in 1000 1990 won per month
b Value added/employment in 1000 1990 won per month
c Per thousand working hours, %
d. Per worker, %
n.a= not available
TABLE 8: SOCIAL EXPENDITURES
1961 1966 1972 1981 1987 1993
Education
Government 12 26 123 1495 3788 9712
Private b (% total) 22.1 26.1 27.5 21.6 18.0 19.5
Urban (% private) 39.4 50.8 64.4 38.0 39.0 47.0
Health c
Government .9 1.5 9.0 103 401 504
Private (% total) 99 98 87 73.3 79.9 89.5
Urban (% private) 29 35.8 58.6 59.6 47.7 44.0
Housing
Government .3 .5 7.3 764 663 3441
Private (% total) d 89.0 91.3 93.6 85.2 72.9 60.3
Urban (% private)d 61.2 66.1 71.9 77.4 75.5 79.6
Social Security& Welfare
Government 4.8 7.6 37 496 1133 4800
Government Social Spending
/ government budget (%) 36.2 36.8 39.1 43.5 41.6 51.5
a. includes local expenditures, in trillion won.
b. includes in-school expenditures only
c. central government only
d. includes imputed rent for owner occupied housing.
TABLE 9: INCOME DISTRIBUTION (National, Government Statistics)
1965b 1970b 1976b 1982b 1988c 1990c
First Decile 1.32 2.78 1.84 2.56 2.81 2.99
Second Decile 4.43 4.56 3.86 4.30 4.58 4.82
Third Decile 6.47 5.81 4.93 5.46 5.65 5.83
Fourth Decile 7.12 6.48 6.22 6.48 6.64 6.82
Fifth Decile 7.21 7.63 7.07 7.51 7.60 7.83
Sixth Decile 8.32 8.71 8.34 8.73 8.68 8.98
Seventh Decile 11.32 10.24 9.91 10.03 10.01 10.30
Eight Decile 12.00 12.17 12.49 11.94 11.80 12.03
Ninth Decile 16.03 16.21 17.84 14.94 14.62 15.00
Tenth Decile 25.78 25.41 27.50 28.05 27.62 25.39
Gini .344 .332 .391 .357 .337 .323
Decile Distribution .463 .472 .372 .437 .466 .507
Ratio a
a: ratio of Income of poorest 40% to richest 20%
b. Source: Choo(1985)
c. Source EPB
TABLE 10 : POVERTY INDICATORS
1961 1965 1970 1980 1987 1993
Absolute Poverty a
National 40.9 23.4 9.8 8.9 7.6
Urban 54.9 16.2 10.4
Rural 35.8 27.9 9.0
Relative Povertyb
National 12.1 4.8 13.3
Urban 17.9 7.0 15.1
Rural 10.0 3.4 11.2
Source: for 1965-80 Suh 1985
a. less than 120000 a month in 1980 prices per household of four.
b. less than a third of average household income