The miracle of South Korea is an earth breaking economic phenomenon witnessed over the past half-century. Before stepping into the miracle story of the Han River, we need to bow to the man who made the impossible possible, Park Chung Hee. This is the man who led the foundation of the miracle by seizing power through the orchestration of the May 16, 1961 military coup in Seoul. At that moment, Korea was one of the poorest countries globally by pure virtue of registering a per capita income of just USD79. In 1963, Park won the democratic election and extended his leadership for four election periods until he was assassinated 13 years later. It is also important to highlight the fact that before the coup d’état, the Japanese invasion and occupation for over 30 years was a difficult time for Korean tigers. Following liberty post-World War II, the Korean War ensued in the 1950s, and resulted in the destitute economy deteriorating even more. Back then, most Koreans were not able to even feed themselves. The period was characterized by corruption, weak public services, joblessness, homelessness, high fatality rates, and a high trade deficit. But this did not continue for long after South Korea declared their independence in 1945.
Ethiopia has a somehow similar political situation in terms of revolution, destitute economic situation, utilization of resources, and governance. During the last century, Ethiopia has not been able to answer basic political, economic, and social questions. Civil war, instability, and poverty were the most suitable explanatory variables of Ethiopia for decades. Ethiopia also passed through different economic and political practices.
The land lord (feudal) economy was backed by a monarchic political system. Following this was the brutal socialist regime, which butchered the generation’s cream. The current government ensued, formed through the politicization of ethnicity and the free mobility of factors of production. However, despite their differences, disarming the democratic power and will of the people and manipulating the nation using her weak or uneducated conciseness are similar features of all governments.
Economic Strategies and Policies of South Korea
The Korean military was worried to not apply either classical or Keynesian economic thoughts. The government, under the leadership of Park, only focused on eradicating poverty using any and all resources available. In the 1980s, after the economic development started to testify for itself and when it became too big of an economic phenomenon to ignore, most mainstream classical and Keynesian economists started to investigate in order to back and argue their theories taking Korean development as a case in point.
This led to the discovery that land reform was a very crucial element for the early stages of development of South Korea. When land reform was implemented for the first time, it was not successful in terms of production enhancement as land distribution was not initiated by the government for economic reasons, but was rather pushed by USA for political reasons. The other reason was the domination of North Korea, which was relatively advanced than South Korea, in almost in all parameters.
North Korea was the first country to redistribute land from land owners to peasants. That prompted South Korean peasants to push their government for land reform, a move which later proved to be successful. This was followed by all-rounded support, enhancing agricultural productivity. Despite having an agrarian economy characterized by labor intensive and less technologically advanced industries, South Korea managed to create a miracle, thanks to its dedicated public officials and citizens that were dedicated to make structural changes.
To make this miracle happen, they used different economic ingredients. The basic one was investing in software and hardware infrastructures. Building an effective and efficient financial system to make it cheaper and faster for the household farmer to purchase agricultural inputs, was also vital for their success. Another valuable ingredient for the success of the Koreans was their efficient civil service, which built strong institutions and helped the country be competitive for the next chapter of growth and domination the global arena.
During the first stage of South Korea’s development, there were economic challenges, especially when USA stopped economic aid during the John F. Kennedy regime. But this was managed when West Germany provided support to South Korea in exchange for health workers. The second phase of development was more of industrial development and an infrastructure revolution.
At this stage, South Korea was at first focused on infrastructural development, investing in the energy sector, roads, communication systems, railways, and hydroelectric dams. This was followed by the building of textile, cement, and fertilizer factories in industrial zones. During this time, additional aid arrived from Japan, spring boarding South Korea to take off into the third stage of transformation and exploit its economic potential to the highest possible level.
The third chapter of Korea’s development was characterized by improved research and development, as well as copying, for the production and modification of complex large machinery, quality infrastructure, and high quality education, all which supported the continuous growth of the economy and paved the way for the innovation of technologies.
How was Ethiopia Faring?
During the reign of Emperor Haile Selassie I, the economy was characterized by “accusation by possession” of land by the landlords and royal families, or the “premium families” of the time. Subsistence farming and the political dominance had a spillover effect on the economy. Farmers’ revolution against tax increments in different areas of the county was an exemplary case of the big superseding hand of landlords and the royal government. However, there were some attempts to build a market-based economy platform and some modernization efforts in different economic sectors were evident back then. This was all abolished when the military government took power.
The darkest period for the nation’s economy in the past 100 years could be between 1974 and 1991, exactly the period the Dergue regime was in power. A command economy and socialist dictatorial political structure were the major features of the regime, while their first noticeable economic phenomenon was land reform, which resulted from the widely accepted movement of “meret larashu” or “land to tiller,” during the imperial regime. This action was more or less similar to Korea’s land reform, even though this one was created by the internal struggle of farmers and university students. The other feature of Dergue was the restriction of production, distribution, and wealth/ capital accumulation, which totally killed the private sector and made the economy unstable as well as dependent on the state.
But after the Ethiopian People Revolutionary Democratic Front (EPRDF), now Prosperity Party, took power in 1991, the economic landscape encountered a fundamental change. The revolutionary democrats introduced a mixed economic system, partially liberalizing the economy and paving the way for the development of the private sector, which was almost non-existent during the military regime. That, however, was not easy.
The first decade of the EPRDF period was characterized by a sluggish economy because of a war and political instability as well as the under-development of the agriculture sector, the major contributor of the GDP. The second phase was after the conclusion of Ethio-Eritrea war, a take-off point for economic growth. This even helped birth the concept of the developmental state economic model in Ethiopia, although it has been practiced by Asian countries and other African countries for decades.
Conclusion and Policy Recommendation
From both countries’ development paths, we can gather that there is no correct political and economic ideology, policy, or strategy. Rather, every policy or strategy could be fruitful if tailored to the context of the country’s current situation. Besides, after placing situationally correct policy and strategies, the government should not rent its strategic economic policies, except for making tactical adjustments based on the prevailing economic context. However, this does not seem to be happening in least-developed countries, including Ethiopia, which is forced to rent its economy’s policies to different long-term development and short-term finance support from international institutions like the World Bank, IMF, and WTO. Such moves prevents the country from exercising its policy freedom, which is the main recipe for sustainable economic growth.
Selective and dynamic trade protection is also an important lesson Ethiopia needs to learn from both economies. Especially, at early stages of development, countries need to protect their infant industries from international competition and multinational companies that have the advantage of economies of scale, better technologies, and a global brand supremacy. Such protection will enable local companies to exploit the domestic market and generate income, later enabling them to build up their technological and financial capacities.
However, in Ethiopia’s case, especially over the past two years, we are exhibiting the implementations of static and less-effective trade protection policies that have failed to capture the interests of the local private sector. On the other hand, the local private sector, together with corrupted elites, is exploiting existing protections in some sectors to advance their personal gains at the expense of the public.
Additionally, the private sector, be it financial companies or big family-owned businesses, is also not ready to face any kind of foreign competition, signaling that the government should revise protection and incentive strategies to build their capacity. Policy revision is required to make the companies globally competitive and improve their corporate culture when the economy is open. This can be done through mergers and joint ventures with multinational companies.
Be that as it may, replacing aid-based approaches by economic partnerships is also a good lesson, which Ethiopia needs to learn from the past. Aid is conditional and thus increases the susceptibility of policy freedom. Not only this, but aid qualities are also important in this regard.
Meanwhile, government intervention towards macroeconomic stability and market correction is also important in developing economies. Placing situational and timely monetary and fiscal policies will enable the government to correct price distortions, arising from socially and politically affiliated economic dissections. Equally important is the building of a well-structured, functional, and less-costly financial infrastructure. Both of which will increase savings and mobilize financial resources at the grass-root level.
9th Year • Feb.16 – Mar.15 2020 • No. 83