Policy and Economic Performance in Divided Korea During the Cold War Era: 1945-91

by Nicholas Eberstadt

Overview

The Korean peninsula during the Cold War provided a cruel but historically unparalleled real-world “experiment” in the relationship between polity and material advance: an ethnically and culturally homogenous nation was, in 1945, suddenly divided by an arbitrary boundary line and then subjected to two radically different and adversarial political economies for successive decades on end. Assessing the competition between the North and South Korean economies from partition to the end of the Soviet era, Nicholas Eberstadt argues that the storyline is not quite as simple as the now-prevailing narrative suggests (that centrally-planned economies are doomed to fail against market-oriented alternatives). Rather, he suggests, the race for material progress was just that: a race, the results of which were far from preordained at the outset. In Policy and Economic Performance in Divided Korea during the Cold War Era: 1945–91, Eberstadt presents an impressive compilation of hard-to-find comparative data on economic performance for the Democratic People's Republic of Korea (DPRK, or North Korea) and the Republic of Korea (ROK, or South Korea) over two critical generations. By a number of indicators, Eberstadt argues, Kim Il Sung's North Korea actually outperformed South Korea for much of this period—not only in the years immediately following partition, but perhaps also into the 1970s. To explain these surprising results, Eberstadt details the impact of government policies on the course of growth of both economies and offers some unorthodox observations about material performance under these two contending polities. He finds that prevailing economic development theory on such issues as planned-versus- market economies, military burden, and the relationship between material advance and poverty, may require reexamination in light of the experience of the two Koreas between partition and the end of the Cold War.

Product Details

ISBN-13:	9780844742748
Publisher:	American Enterprise Institute for Public Policy Research
Publication date:	03/16/2010
Pages:	340
Product dimensions:	5.90(w) x 9.20(h) x 1.10(d)

About the Author

Nicholas Eberstadt holds the Henry Wendt Chair in Political Economy at AEI, where he researches and writes extensively on demographics, economic development, and international security in the Korean Peninsula and Asia. Domestically, he focuses on poverty and social well-being. Mr. Eberstadt is also a senior adviser to the National Bureau of Asian Research. His many books and monographs include Men Without Work: America’s Invisible Crisis (2016); A Nation of Takers: America’s Entitlement Epidemic (2012); Russia’s Peacetime Demographic Crisis: Dimensions, Causes, Implications (2010); and The Poverty of “the Poverty Rate”: Measure and Mismeasure of Want in Modern America (2008). He has offered invited testimony before the US Congress on numerous occasions and has served as consultant or adviser for a wide variety of units in the US government. In 2012, Mr. Eberstadt was awarded the prestigious Bradley Prize, and he delivered the Irving Kristol Lecture in 2020. He earned a bachelor of arts from Harvard University, a master of science from the London School of Economics, a master of public administration from the Kennedy School of Government at Harvard University, and a PhD in political economy and government from Harvard University.

Table of Contents

List of Tables ix

Acknowledgment xiii

Introduction: The Experiment 1

Limits of Observation 3

Organization of the Study 7

1 Comparative Performance of the Two Korean Economies: 1945-91 9

A Survey of the Available Estimates for Korea 11

Some Indicators of Comparative Performance 15

Indices of Physical Output 18

Labor Force Trends 20

Urbanization Trends 23

The Official Budget of the DPRK 25

"National Income" 27

Commercial Energy Consumption 27

Official "GNP" Estimates 30

Alternative Endpoints and Their Implications 31

Conclusion 33

2 Policy and Economic Performance in the DPRK: 1945-91 34

Partition, War, Recovery 40

The 1960s 43

The 1970s and 1980s 45

Quantitative and Structural Aspects of North Korean Economic Development during the Cold War Era 56

North Korean Economy Before and After "Liberation" 60

North Korean Economy and Noncommunist Low-Income Economies 68

North Korea's Economic Structure in Communist Perspective 72

Quantitative Trends in the North Korean Economy, 1960-1990 75

The North Korean Economy's Mounting Problems 84

Limits to Growth 84

Limits to Reform 89

The Soviet Bloc Collapse 90

Conclusions 92

3 Policy and Economic Performance in South Korea: 1945-91 94

South Korea's Economic Successes: Conflicting Claims to Patrimony 95

The Years 1945-1960: The Interlude between "Hard States" 98

General Park and the Return to Economic Development 100

Foreign Aid and Economic "Takeoff" 103

Desiderata of Development: South Korean Exceptions 108

Microeconomic Issues: Transaction Costs and Uncertainty 109

Macroeconomic Issues: Market Structure, Allocative Efficiency, and Technical Efficiency 116

Development Policy: Some Mistakes Matter More Than Others 127

Induced Dirigiste Distortions: Agriculture, Heavy Industry, and Finance 129

Agriculture 129

Heavy Industry: The HCI Drive 136

Finance 141

Accounting for South Korea's Rapid Economic Growth: Factor Mobilization versus Factor Productivity 146

The "Contrarian" Reassessment of East Asian Growth 147

Caveats of "Growth Accounting" 148

Total Factor Productivity in South Korea: Indications and Calculations 150

The Enigma of South Korean Growth: How Much Can We Explain? 162

Reconciling Paradigms 169

4 Summation and Concluding Observations 172

Review of Findings 172

Observations, Speculations, and Issues for Further Research 181

Notes 193

References 271

Index 299

About the Author 315