The Miracle on the Han River refers to the period of rapid economic growth in South Korea following the Korean War (1950-1953), during which South Korea transformed from a developing country to a developed country. The rapid reconstruction and development of the South Korean economy during the latter half of the 20th century was accompanied by events such as the country's successful hosting of the 1988 Summer Olympics and its co-hosting of the 2002 FIFA World Cup, as well as the ascension of family-owned conglomerates known as chaebols, such as Samsung, LG, and Hyundai.
The term "Miracle on the Han River" was coined after the phrase "Miracle on the Rhine" was used to refer to the economic rebirth of West Germany after World War II. This analogy was incorporated by Chang Myon, prime minister of the Second Republic of Korea, in his New Year's address of 1961, in which he encouraged South Koreans to bear difficulties in the hope of achieving a similar economic upturn. The resultant growth has been attributed to the hard work of the labour force, in terms of which the phrase's use of "miracle" may be seen as a misnomer. Following the Miracle on the Han River, South Korea has been held as an economic model for other developing countries and acceded to the G20 in November 2010, capping a successful sixty-some years of rebuilding and modernization.
Between 1910-1945, Korea was a colony of the Japanese Empire. As a result of Japanese capital investment, especially during the 1930s-1940s, it experienced a phase of industrialization, modernization, and economic growth. During the period of Japanese colonialism, eight large companies were founded and other firms grew as a result of aid and foreign-exchange profit. However, following the Pacific War, the Korean economy declined as trade relations between Korea and Japan broke down.
The division of territory as a result of the Korean War further damaged Korean property by 25% and resulted in the establishment of the First Republic of South Korea, ruled by the Syngman Rhee administration until 1960. At this time, the economy was largely agricultural. Through the Farmland Reform Act of 1950, the United States Army Military Government in Korea redistributed previously Japanese-owned land, allowing the generation of private funds.
The Second Republic of South Korea existed for only one year, but had a great effect on economy and history of South Korea through ideology and policy. Prime Minister Chang Myon and the Democratic Party held a stance of extreme anti-communism (as did the First Republic), but also advocated an Economic First Policy with State-led Capitalism, promoting amity and economic cooperation with Japan.
When a military coup in 1961 led by general Park Chung-hee overthrew the Democratic Party, the result was a military junta under the SCNR. During this time, the first national Five-Year Plan (1962-1966) was implemented, becoming an important factor in the Miracle on the Han River. It aimed to develop the nation's economy through expansion of agriculture and energy industries such as coal and electric power; development of basic industries such as chemical fertilizer, cement, oil refinery, iron, and steel; expansion of social overhead capital including roads, railways, and ports; full utilisation of idle resources including increased employment; conservation and utilisation of land; export promotion to improve the balance of payments; and promotion of science and technology. While this first Five-Year Plan did not bring about an immediately self-reliant economy, it brought a period of growth and modernization in preparation for long-term economic success and policy reform.
Park's motto of "treating employees like family" has been credited with increasing productivity within the South Korean workforce and thus as contributing to the nation's economic success. South Korean workers were reportedly 2.5 times more productive than American workers, even though they were paid a tenth of American wages. Park's national reputation as a leader has met mixed receptions: while praised for his contributions to South Korea's economic recovery, contemporary commentators also criticize him for systematic disregard of human rights and media censorship (because of anti-communist sentiment) as part of a military dictatorship. In the one-party regime of the SCNR, the leading party answered to a small constituency of the ruling or military elite, and South Korea's economic restoration was prioritised at the expense of human rights as Park utilized the abundant supply of cheap labor.
At the same time, morality laws established mandatory curfews and regulations on attire and music. In his program of Yushin Kaehyuk (Revitalizing Reforms), he caused Korean cinema to enter into a moribund period considered by many to be the lowest periods in the history of Korean cinema. Park had believed that South Korea was not ready to be a full democratic nation nor a free nation. As he stated, "Democracy cannot be realized without an economic revolution." Park argued that the poverty of the nation would make it vulnerable, and therefore an urgent task was to eliminate poverty rather than establish a democratic nation. During his presidency the Korean Central Intelligence Agency became a much feared institution and the government frequently imprisoned dissenters. Park Chung-hee's rule ended on October 26, 1979 when he was killed by his chief of security services, Kim Jae-gyu.
During the Third Republic, South Korea received hundreds of millions of dollars from Japan under property claims, and was mostly dependent on foreign aid, largely from the U.S. in exchange for South Korea's involvement in the Vietnam War. The government used this money to accomplish a self-supporting economy, launching the Saemaeul movement in order to develop rural areas. The strong leadership of the government (though criticized as repressive and heavy-handed) as well as the effective use of cheap labor served as catalysts for the growth of the South Korean economy.
During the Fourth Republic, South Korea invested in its heavy chemical industry, with a strategy of import substitution. Civilians cooperated by investing in these markets, and business employers did their part ensuring that employees were loyal, improving labor costs. This continued to be the case even when marginal utility seemed to be decreasing because of the overproduction of goods. Another motivating factor in the industrial sector was the influence of a series of "policy loans" that were closely associated with negative interest rates.
With the government backing heavy industries, electronics and steel industries flourished. Another benefit of government backing was the freedom for leaders in the industrial sector to spend money without feeling constrained by a budget due to the government’s commitment to keep the business running. Money subsequently came pouring into the economy as consumer confidence in heavy industries grew.
By the end of 1995, South Korea had established itself as the eleventh largest economy in the world, in contrast to the bleak economic landscape at the end of the war. However, systemic problems remained within its political and financial systems. Earlier, whenever problems arose that hindered economic development, the junta harassed the wealthy for funding. The junta also gathered a group of high earners, who had attained their wealth due to their corrupt relations with Syngman Rhee. These people were known as the "illicit profiteers".
Financial troubles mounted as Korea received short term relief from the United States when Treasury Secretary Robert Rubin and other senior officials agreed to a US$57 billion bailout package in exchange for drastic restructuring of Korea's markets. As the country came under pressure to restructure the financial sector and make it more transparent, market-oriented, and better supervised, its firms were obliged to restructure in a way that would allow international organizations to audit them.
Around December 1996, President Kim Young-Sam announced that South Korea had gained recognition for its economy by joining the Organization of Economic Cooperation and Development, consisting of top industrial nations. President Kim then created a new labor law which retained the Korean Federation of Trade Unions, a large, state-controlled trade union, as the only officially approved labor organization for five more years, leaving the independent Korean Confederation of Trade Unions out in the cold. This new law undercut workers' interests.
In 1997, South Korea faced economic disaster in the form of the 1997 Asian Financial Crisis. The country's reserves were severely limited at US$6 billion, the majority of which was allocated for spending in the upcoming term. Kim Young-sam, the first nonmilitary President in thirty years, failed to protect the economy at the time, and President Kim Dae-jung (1998–2003) took over office with considerable damage to repair. The new President was openly opposed to the chaebol and the financial and governmental system of the time, and his election along with the efforts of the citizens and US$58 billion put together by the International Monetary Fund, the country paid its debts and surmounted the problem. Thus, South Korea's financial crisis was severe but relatively brief compared to other countries who experienced similar situations.
Chaebol refers to corporate groups in South Korea, mainly run by families, that exercise monopolist or oligopolist control over product lines and industries. They can be compared with conglomerates of the United States and the Zaibatsu of Japan. Sometimes the Korean military itself is considered a chaebol. During the industrialization period of South Korea, President Park Chung-hee supported the rise of chaebol groups, facilitating the growth of these groups in order to trigger economic growth. Inside the operations of chaebol groups, there are many branches that family members control and operate. Every Korean chaebol business was started by a family group and 70 percent of chaebol are still managed by family members, and in order for the power and standing of these groups to grow stronger, many chaebol form alliances through marriage, with examples including Samsung and Hyundai. Many political affiliations are formed within chaebol groups. One-third of chaebol occupy high-ranking offices in three branches of the government. The chaebol, tired of new generals coming in and seizing their property or directing them to invest in favored industries, moved in the same direction as the middle class toward democratic elections and the rule of law.
According to George E. Ogle, ten chaebol families were responsible for 60 percent of the growth of the South Korean economy during the Miracle on the Han River. With the help of governmental help and associations, chaebols are still an enormous influence on the Korean economy, though they are also accused of inhibiting small businesses or independent entrepreneurship. The Kim Young-sam government (1993–98) attempted to assist small businesses by providing more loans, but this did not deter the expansion of the chaebols. In 1992, Korea was rated a maximum score of 100 on wage rates and 100 on tax burden or lack thereof (with Spain the next highest at 71, and the United States third at 55). In other words, the Korean state still provides a relative capitalist haven for its large business conglomerates.