Japan and Korea are among a “handful of successes among the world’s more than one hundred developing countries”and as such offer a successful development model to emerging economies in Asia and beyond.
(Kuznets 1994:1) While both countries completed the transition to a fully-developed economy in the 20th century, it is worthwhile to examine the historical foundations of this transition. By surveying the 19th century roots of Korean and Japanese development, we can draw conclusions that may benefit the 21st century modernization efforts of other countries, most notably China.
It is beyond the scope of this short essay to address the myriad factors that may have influenced industrialization and further economic growth in these two countries. My aim is to provide an overview of, and perspective on, some of the recurring themes in the relevant literature, namely the role of political stability; advances in agriculture; urbanization and proto-industrialization; formation of human and physical capital; and the impact of institutional change.
The Japanese case will feature more prominently in the following pages. This is due to relative availability of data and the fact that Japan offers a somewhat uninterrupted narrative linking the economic and social structures of late 19th century with those of 20th century. Furthermore, the various factors of Japanese development provide, up to a point, a framework within which Koreaʼs progress can be evaluated.
While I focus on the economy in the late 19th century, I have tried to emphasize those elements that developed gradually prior to that period as these provide a better basis for comparison between the two countries, and may explain the differences in the way either country responded to the introduction of foreign trade and Western ideas on government and economic organization. In addition, Korea, unlike Japan, did not initiate a formal process of modernization until the very last years of the nineteenth century, and these efforts were hampered significantly by geopolitical developments until well into the second half of the twentieth century. And so, those elements in society and the economy on the eve of early modernization may hint at what Korea may have (or have not) achieved in an alternative, uninterrupted, future.
Both Japan and Korea entered the 19th century as uniquely closed countries, almost completely reluctant to engage in foreign trade other than with each other and China (Tipton 1998: 59; Gordon 2003:19). The Tokugawa regime brought a long period of “unprecedented peace to the Japanese islands” (Gordon, 2003: 19) which resulted in “great prosperity, industrial development, and domestic trade” (Carpenter 1960:159). During the preceding centuries, Korea also enjoyed a long period of relative political stability. The longevity of Korean dynasties may be due to the protectorate status that Korea enjoyed under the Chinese emperors, although Korean dynasties usually survived while their “protecting” Chinese dynasties changed (Palais 1995: 422). While the political stability of both countries is not an economic feature per se, it provided the foundation to social and economic developments.
Furthermore, external pressures were important triggers of political change in both countries during the second half of the 19th century. In fact, it may be argued that the rise of Japanese militarism in the end of the nineteenth century contributed directly to the countryʼs industrialization and the development of key industries (Samuels 1996: 83-88), and this development in turn affected the development of Korea. And so, in an ironic twist of the Roman adage, Japan became prepared for war for by pursuing peace and Korea had to let go of peace by not being prepared enough for war.
An interesting development during the Tokugawa period was the introduction of the alternate residence system. This arrangement required local officials (Daimios) to spend one year out of two in the capital (Edo), as well as to leave their wives and children in the capital. This system had “the effect of further monetizing and commercializing the economy” (1998: 62), by providing a cultural link between rural leaders and the city; burdening rural officials (and their local economies) with sustaining a life style based on the cost of living in the capital; and necessitating the emergence of more efficient medium of exchange to facilitate trade between urban and rural regions (Nakamura 1981: 271).
The overall result was an increase of what Nakamura calls “market consciousness” among Japanese farmers (p. 267) – a growing awareness of demand for produce and services beyond those required by the local landlord and beyond the agricultural sector. Some argue that during this time the Japanese work ethic emerged, thus making Japanese labor more suitable for later industrial work. Relying on accounts of foreign visitors, Alam points out that it seems, at least, that the notion that the Japanese are “industrious, efficient, and, disciplined, people is not a new one” (Alam 1987:242).
Gauging the importance (and existence) of a Korean work ethic is more tricky. Chung brings several accounts of foreigners, including Westerners, who visited pre-modern Korea and describe a “somewhat listless and perfunctory” workforce. Korean agriculture was described as “ʻwasteful and untidyʼ and conducted in a careless and haphazard fashion”. The description of Korean farms is especially telling, as it draws a comparison with the “exquisite neatness of Japanese and Chinese husbandry” (2006: 17-18). This difference in attitude, if it indeed existed, may imply that while Korean did not lack an ability to do better, they simply had no incentive to do so within the existing political and economic structure.
In time, perhaps as a result of the alternate residence system and advances in agriculture, “a host of… industries developed throughout the [Japanese] countryside, including the production of sake… miso, soy sauce, cotton, and rougher fabrics” (Gordon 2003:30). In one example, Green describes a small town that “tripled in size from 1757 to 1855 as it came to specialize in weaving”. In line with indigenous growth of non-agricultural enterprise in rural areas, many city entrepreneurs started to move their production facilities “to the countryside to escape the restrictions of urban economic life (e.g. guilds) and to take advantage of the available labour time of farm households” (Francks 1999: 51).
As a result, more and more rural households, especially in the areas surrounding the big cities, “came to derive significant portions of their income and employment from non-agricultural sources” (p.51). This process of proto-industrialization, comprised of “an increased scale of operations and specialized production networks serving long-range markets” (Gordon 2003: 30), set the scene and prepared the population for more complex trade system in the following decades. It also contributed to the integration of urban and rural areas, and as Reischauer points out, while Japan was an “outwardly feudal land” in 1800, it was “almost as urbanized as were the leading industrial countries in the West at that time” (in Carpenter p. 160). In Korea, the integration of rural and urban areas was more limited, and even during the last years of the 19th century, major developments “did not radiate widely from open ports to [other] urban areas and then to the provinces” (Chung 2006: 87).
The process of proto-industrialization grew inline with advances in the agricultural sector. In both Korea and Japan, resources for investment – both human and physical – from the agricultural sector were mobilized for the development of the manufacturing sector (Francks 1999:10). However, in Korea, this occurred mostly in the 20th century. Further, Japan underwent a “Green Revolution” in the last quarter of the 19th century, introducing new agricultural techniques, fertilizers, and high-yielding seed varieties (p.30). Some of these innovations were ported from Japan to Korea, but here too only in the 20th century.
Advances in agriculture not only lead to accumulation of capital but also contributed to the general development and integration of markets (Tipton 1998:ch.3). This, in turn, affects the way in which individuals interact with each other. As Clark points out (2007: 262), “by 1800 Japan was the closest of the Asian economies to England in terms of social characteristics”. A significant increase in village schools occurred during the 19th century, with thousand of them popping up across the country (Nakamura in Clark 2007: 263). As a result, “Literacy rate for men estimated at 40-50 percent by the time of the Meiji Restoration of 1868, and a rate for women of 13-17% percent” (Passin in Clark 2007: 263). In Korea, male literacy in seventeenth century Korea was “probably high by premodern standards, and most likely increased in the eighteenth and nineteenth centuries” (Seth 2006: 134). Still, while not much data is available about Korean literacy rates at the end of the 19th century, later records from the early period of the Japanese occupation (1910 and onwards) imply a significantly lower number of schools and overall literacy levels in Korea (Chung 2006: 114).
The importance of human capital as a factor (as well as a product) of economic growth has been widely acknowledged, most notably in Gary Beckerʼs work (1993) on the subject. Becker describes human capital as a personʼs “knowledge, skills, health, or values”. While discussing the relation between economic development and social values, it is worthwhile to examine the of Confucian traditions in both countries.
Confucianism influenced many aspects of Japanese society, including moral code of the Samurai class (Tai 1989: 75). However, due to the diversity of its influence and the subsequent development outcomes (in places such as China, Korea, Vietnam, Singapore, Hong Kong, and Japan) it cannot be considered a substantive factor. In addition, as Fogel points out (1996: 430-434), while “Confucianism enjoyed a significant rejuvenation” during the Tokugawa era, “Korea, China, and Vietnam were far more profoundly ʻConfucianʼ social orders than Japan”. Indeed, Chung points out that “Koreans were perhaps even more steeped” in Confucian traditions than the Chinese themselves. He asserts that this adversely affected Koreaʼs economic growth by discouraging economic aspiration, de- emphasising the importance of innovation and entrepreneurship, undervaluing work (as opposed to learning for the sake of learning), and served as a disincentive for capital formation (1989:160-161).
The variety of social and economic developments in, and relative achievements of, Korea and Japan up to the middle of the 19th century set the scene for the institutional changes that took place in the following decades. The Tokugawa rule ended through a series of events culminating in the Meiji Restoration of 1968. At that time, a new system of government was established, with a mandate to open up the country and adopt (within limits) a variety of Western political and economic ideas. While the Restoration signals the birth of modern Japan, it is important to emphasize that by that time the country was already “highly commercialized” and was – to a considerable extent – ripe with entrepreneurship (Cullen 2003: 210).
Apart from advances in agriculture during this period, described above, development was also driven by increased military expenditure. As Samuels points out, “[d]irect military procurement was an early and critical stimulus (to the Japanese economy)”, and military spending accounted for more than half of government investment from 1877 until the end of the 19th century and beyond. Military demand, in turn, provided a “key stimulus for the rest of the economy” (1996: 85). Many of the leading Japanese industrial conglomerates emerged during this period, consolidating a variety of strategic industries and setting the stage for Japanʼs growth up to the middle of the 20th century. The list of companies that were established or came to the fore during this period in many of Japanʼs largest companies to this very day – Mistubishi, Mitsui, Toshiba, Nikon, and Kawasaki, to name a few (pp.85-88).
Korea also began a process of “opening the country to the outside world” (Chung 2006: 41) from 1876 onwards,. Many important processes were initiated during this period, encompassing within them the sprouts of future development. However, Koreaʼs efforts were cut short less than 30 years later once it became a protectorate, and later a colony, of Japan.
While there were no consistent government policies during the period of transition, the general direction was towards general acceptance of Western ideas regarding economic and order (pp.57-58). A variety of machine-made foreign products were introduced to the Korean market during this period and aggregate imports grew faster than GDP, starting from 70,000 yen in 1875 to 20 million yen by 1904 (p. 45). Most imports came from Japan. Concurrently, Korea saw a growth in Foreign Direct Investment (pp. 50-52) and increase in the availability foreign loans (p. 55).
Overall, the opening of the country brought a “different outlook on life, technology, infrastructure, production, business, and consumption” and provided Koreans with a powerful demonstration of the benefits of modernization (p. 56). Still, Koreaʼs initial response to this new outlook was “overwhelmingly negative, especially toward the Japanese”, but they were nonetheless gradually accepted (p.81). The end result was that by 1904 very limited real GDP growth – roughly 10% in 30 years – has been achieved, and the Korean economy still relied heavily on agriculture with an “infantile” manufacturing sector (p.81).
As we have seen above, an examination of late 19th century Japan and Korea brings to the fore a variety of social and economic factors that may be considered conducive to economic growth. These factors, in turn, affected political changes in both countries during the end of the 19th century, and affected the geopolitical balance between them.
Among the various factors, the most significant ones seem to be the formation of human capital; the relatively high level of commercial activity and existence of markets prior to formal industrialization; and advances in agriculture. The advances in these three factors were relatively unique to both countries (vis-a-vis other Asian countries) and also reflect, if not explain, the differences between their development trajectories. Another important feature in 19th century Japan was the emergence of a new political system, one that promotes the absorption of foreign methods and techniques, and promotes a variety of strategic industries. The Korean attempt to follow in Japanʼs footsteps during the last years of the 19th century seems to have been half-hearted, and in any case it was cut short by the Japanese occupation.