Japan and Korea: Lessons for Economic Development


By: Kyle Roll

The question of what makes some countries successful at achieving modern economic growth and others seemingly incapable of development is one that has intrigued economic historians for decades. Many scholars have made the argument that Japan and Korea, who were “late adopters”, could be seen as model examples of how countries can make the transition from being “backward” to achieving modern economic growth. While it may be true that these countries have become some of the largest and most powerful economies in the world and that certain lessons can certainly be taken from their development, it would be a gross oversimplification to call them an appropriate model. The two countries should instead be seen as being successful in capitalizing on their advantages in the marketplace, but not without high costs. Brutal violence through two respective wars, gender inequality and an aging population crisis are negative components of Korea and Japans modernization that cannot be overlooked.

A country’s economic growth according to Simon Kuznets is defined as a long-term capability to supply a wide array of economic goods to its population. The ability to do so is driven by advances in technology, and fine-tuning institutions to meet these demands. He goes on to explain what characteristics a country that has been successful in development will posses. They will have high rates of growth of per capita product juxtaposed with a rising population. The rate of increase in productivity and structural transformation will be high. This transformation is typically characterized by a shift away from agriculture and towards industry and later services. Changes in the structure of society will occur an example of which would be high rates of urbanization. Finally, the country through technological means will possess the ability to reach out to the other countries of the world and interact with these foreign states[1]. Based on these economic measurements, both Japan and Korea have been successful in development. From the time of their opening by western powers in the late 19th century both Japan and Korea have exhibited each of these characteristics at some stage. Over the course of the 20th century both countries experienced dramatic rises in their HDI rankings[2]. These accomplishments should not be overlooked and the path to achieve them was arduous for both countries. When Commodore Matthew Perry forced Japan to open its doors to foreign influence in the mid nineteenth century, Japan suffered from many of the problems that plague late adaptors. The technological gap between European powers and the Japanese state was substantial and left Japan militarily weak and incapable of resisting the wests demands[3]. The humiliation of being “backward” and being incapable of defending political and economic sovereignty was also true in the case of Korea who only had a limited window of independent economic development before being absorbed into the Japanese Empire at the dawn of the 20th century.

Beyond meeting the Kuznets criteria of a successful developed state, the most notable capability of these economies has been their proven ability to maximize their economic potential by capitalizing on their relative advantages in the marketplace. Both Korea and Japan benefited immensely from an abundance of cheap labour that has allowed them to develop a global export industry, which today is known for electronics and automobiles. In 2013 Japan exported nearly 700 billion dollars in goods ranking fifth while Korea exported 557 billion making it 8th overall. In the case of Korea this is especially impressive since in 1960 Korea was perhaps the poorest country on earth and had a gross domestic product per capita of about $79. They experienced growth of more than 8 percent per year for half a century. The manufacturing sector grew from 14.3% in 1962 to 30.3 percent in 1987[4].

The case of agriculture in Japan is one that could be particularly useful as a model for other developing states. Like many pre-developed states, the government of Meiji Japan was reliant on the tax collected from farmers for funding. Being a late adaptor, they looked to the west for ways to increase their agricultural productivity. Initially Japan tried to adopt the Anglo-American model for agriculture. They imported machinery from the United States and invited British agronomists to share their expertise. These efforts failed miserably due to a misalignment of factor prices. Japan and The United States had extreme differences in factor endowments and in price ratios, which meant that Japan could not just merely import American technology and successfully introduce it into its agricultural industry. Realizing this the Meiji government made a brilliant decision and devised a different strategy that was appropriate for their endowments and price ratios. Rather than focusing on mechanization, which was successful in the high land-labour ratio economy of the United States, the Japanese government chose to focus on encouraging biological and chemical innovation. In the 1880’s the Meiji government hired German soil scientists and veteran farmer’s to find ways to increase productivity in terms of the output per hectare[5]. The early improvements in Japanese farming were noticeable and the lesson of utilizing comparative advantage and adapting to local factor prices is the part of Japan’s economic modernization that should be used as a model by other countries. The idea being that there is not a one size fits all model to economic development but that the path to modernity should be customized to the specifics of the adopting country.

It is an undeniable fact that Japan and Korea fulfil Kuznet’s criteria for a successful developed economy despite being late adaptors. It is equally true that both countries utilize comparative advantage and local factor prices to achieve great economic growth. While these individual aspects of Japanese and Korean development have been successful, the bigger model is one plagued by problems. Meeting Kuznets definition of a modern economic state is a crude measurement and should not be the only gauge of whether or not a state should be seen as a suitable model. One of the biggest problems facing both Japan and Korea is gender equality. After decades of improvement, today Japan educates its women to a higher level than anywhere else in the world, yet when women leave university their potential is often squandered. Female participation is only 63%, which is far lower than other rich countries. 70% of women leave the workforce for a decade or more when they have their first child compared to just 30% in other developed economies. The current Japanese Prime Minister Shinzo Abe initially was concerned with preserving traditional gender roles and subscribed to the logic that if women were kept out of the workforce they would have more babies and increase the size of the workforce. However as fertility rates continued to decline, this was proven to be false. Today, he has reversed his opinion and is in support of increasing women’s role in the workplace. The plan currently in place estimates that 8 million workers could be added to Japan resulting in up to a 15% in GDP and increase in demand[6]. However just adding women to the workforce will not be enough. Social attitudes and gender norms need to change. Managers in Japanese firms reinforce stereotypes and prioritize work over family life. This puts women who wish to have families in a position where work becomes impossible. They are left with the ultimatum, either emulate workplace masculinity or opt out[7]. The discrimination that women face in Korean firms is unfortunately equally appalling. According to The Economists 2013 “Glass-ceiling index” of five indicators of friendliness towards working women, South Korea ranks the lowest of all OECD countries and in particular lacks women in senior roles. In Korea there is an overabundance of university-educated males who face a shortage of jobs, which has intensified sex discrimination. The work available to women is often of a lower status and less well paid than thy desire. In many cases they have to accept jobs that are lower than those men receive who are possibly even less educated. The net result: women who have husbands who make significant money withdraw from the workforce disenchanted with their prospects[8]. While modernization has resulted in widespread literacy rates and increased access to education being extended to both men and women, the inequality of men and women logically means that the countries are not reaching their full potential. Jobs are given to men rather than the best person for the job. Large amounts of women are driven away from the workforce and the smaller workforce as resulted in lower GDP. Developing states should recognize the benefits of an equal society and strive to avoid the problem that plagues both Korea and Japan.

Japan and Korea are also both facing a demographic crisis. The fertility rate in Japan has been low in recent years at 1.42 while the rate in Korea has had a dramatic decline recently to 1.25. Since a 2.1 signifies a population that is neither growing nor shrinking (two parents are being replaced by two children plus a .1 for mortality) both of these countries have aging populations. Korea, which has for much of the development process been one step behind Japan, is once again catching up to Japan but this time following them down a dangerous path. In Japan only 13.7% of the population are under 14 years old. A recent report compiled with Japanese government cooperation warned that by 2060 the number of Japanese would have fallen from 127m to about 87m, of whom almost 40% will be 65 or older[9]. The effects on Japan have been clear. They face continued deflation, national finances are in ruins and government debt to GDP is at a staggering 230%[10]. The protectionist policies of Japan are sometimes attributed to the success of Japan’s economic development but the policy has also limited immigration into the country. The relatively small numbers of foreign immigrants has helped compound their aging population problem because Japanese industry cannot sufficiently draw foreign workers. The two countries shrinking population’s pulls the sustainability of their economic development model into question.

Japan’s anxiety about self-identity and desire to become a developed world power drove it down a path of militarism and imperialism. The consequences of which were immense and catastrophic. During the Second Sino-Japanese War soldiers in the Imperial Japanese Army massacred in-between 40,000 and 300,000 unarmed Chinese civilians[11]. The Second World War left in-between 2.5 and 3 million Japanese dead and nearly half a million Koreans who died due to forced labor in Japan and Manchuria[12]. Nearly 40% of Japan’s industrial capabilities were destroyed in World War II and production reverted to levels roughly fifteen years prior. Not only would these conditions be nearly impossible to reproduce, they shouldn’t be. The world is a better place without total warfare, which was a key aspect of Japanese development both because of American aid after the war and the fact that its imperial colonies gave it large markets to export its goods to during Japanese imperialism. In the case of Korea competing visions for its modern development led to a civil war that killed nearly 2.5 million Koreans and left the country divided. The North never recovered or achieved economic growth. One result and key component of South Korea’s economy today is military expenditure. The constant threat of an invasion from the north has given birth to one of the largest military industries in the world. While the argument could be made that this type of spending creates jobs, a military industrial complex might not be an ideal development model for aspiring states. While the transformations that occurred from both of these wars proved to be beneficial, in the long run most would agree that state economies should develop through peaceful means and that millions of lives are a very steep price to pay for economic advancement.

The triumphs of Japan and Korea are respectable and are valuable examples but to say they are appropriate models for development implies that their route to development should be mirrored. Instead it should be recognized that there are significant problems that have plagued Japan and Korea and that those interested in development should continue to examine their roots and attempt to avoid the same mistakes in the future. Furthermore, their growth after devastation through brutal warfare is a condition for development that should not and almost certainly could not be emulated. The reality is that there is no complete ideal model of development. Developing states should emulate Japan and Korea’s successes and learn from their mistakes. Modern development should be and needs to be customized to an individual states factor endowments and price ratios.

 

 

Works Cited

Alexander Gershenkron Economic backwardness in historical perspective, a book of essays, Cambridge, Massachusetts: Belknap Press of Harvard University Press.

Economic Growth Rates of Advanced Economies International Monetary Fund

Factor Price and Technological Change in Agricultural Development: The Us and Japan 1880-1960 Hayami and Rattan 1970

Iris Chang The Rape of Nanking pg 6.

K Nemoto Long Working Hours and the Corporate Gender Divide in Japan

Nicholas Crafts Globalization and Growth in The 20th Century, 2000

Mary C Brinton Women’s Education and the labor market in Japan and South Korea

Rodney Johnson Demographic Trends show South Korea is Shrinking

J. Rummel “Statistics of Democide: Genocide and Mass Murder Since 1900” 1998

Simon Kuznets Modern Economic Growth: Rate, Structure and Spread. New Haven and London: Yale University Press, 1966

The Economist: Japan’s Demography The Incredible Shrinking Country May 2014

The Economist: Holding Back Half the Nation, March 2014

 

Footnotes

[1] Simon Kuznets Modern Economic Growth: Rate, Structure and Spread. New Haven and London: Yale University Press, 1966

[2] Nicholas Crafts Globalization and Growth in The 20th Century, 2000

[3] Alexander Gershenkron Economic backwardness in historical perspective, a book of essays, Cambridge, Massachusetts: Belknap Press of Harvard University Press.

[4] Economic Growth Rates of Advanced Economies International Monetary Fund

[5] Factor Price and Technological Change in Agricultural Development: The Us and Japan 1880-1960 Hayami and Rattan 1970

[6] The Economist: Holding Back Half The Nation March 2014

[7] K Nemoto Long Working Hours and the Corporate Gender Divide in Japan

[8] Mary C Brinton Womens Education and the labor market in Japan and South Korea

[9] The Economist Japan’s Demography The Incredible Shrinking Country May 2014

[10] Rodney Johnson Demographic Trends show South Korea is Shrinking

[11] Iris Chang The Rape of Nanking pg 6.

[12] R. J. Rummel “Statistics of Democide: Genocide and Mass Murder Since 1900” 1998

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