Korea Under Siege, 1876-1945: Capital Formation and Economic Transformation

Published by EH.NET (October 2006)

Young-Iob Chung, Korea Under Siege, 1876-1945: Capital Formation and Economic Transformation. New York: Oxford University Press, 2006. xv + 390 pp. $74 (cloth), ISBN: 0-19-517830-0.

Reviewed for EH.NET by Myung Soo Cha, School of Economics and Finance, Yeungnam University.

Korea Under Siege, 1876-1945 claims that Japanese imperialism triggered an industrial revolution in Korea, highlighting capital accumulation as a key force driving the transition. Following a brief introduction, Young-Iob Chung, Professor Emeritus of Economics at Eastern Michigan University, begins by describing poverty persisting in traditional Korea (Chapter 2). Japan forced dynastic Korea to be open to international trade in 1876, allowing modern technologies to flow into the country, but living standards hardly improved before the beginning of Japanese rule in 1905 (Chapter 3). Modern economic growth in Korea required institutional reforms stimulating saving and education, which included legalization of property rights and modernization of pubic finance and the monetary system as implemented during the first decade of the colonial rule (Chapter 4). The next three chapters take a closer look at investment: Chapter 5 estimates sectoral investment; Chapter 6 explains measures taken to encourage investment and identifies sources of funds for different types of financial institutions; and Chapter 7 calculates how much of the investment was financed by domestic (or foreign) savings and by private (or public) savings. The capital accumulation resulted in per capita output rising 1.2% per year and primary sector output as a share of GDP contracted from around 90% to less than 50% during the colonial period (Chapter 8). Beneficiaries of the industrial revolution included Japanese landlords, entrepreneurs and skilled workers, while living standards enjoyed by Korean peasants and unskilled workers hardly improved (Chapter 9). Chapter 10 concludes by claiming that in terms of economic development the colonial rule was a “blessings in disguise” bestowed on Koreans by Japanese taxpayers.

The tale of Japanese colonialism rescuing Korea from a Malthusian trap sounds not only plausible (if not politically correct in Korea), but also familiar. What makes this volume unique is its focus on capital accumulation. Unfortunately, the author does not make any attempt to validate this important claim, confining himself to presenting aggregate input and output growth estimates. Had he used these numbers to do growth accounting, the outcome would have been quite misleading, because they are at best ballpark figures.

First, Chung conjectures that the Korean aggregate output grew 3% per year under Japanese rule, taking an average of two very different estimates: the growth rate of output from primary and secondary sectors as estimated by Suh (1978) and the aggregate output growth rate taken from an obscure conference paper. Chung apparently is unaware of Mizoguchi and Umemura (1988), the outcome of the first serious effort to estimate the national accounts of colonial Korea, which portrays the colony as growing considerably faster than Chung’s estimate – i.e., 4% per year. A more recent and refined calculation by researchers at the Naksungdae Institute of Economic Research (full details published in Korean as Kim (2006) and English summary included in Cha and Kim (2006)) produced a somewhat slower growth rate, 3.7% per year.

Second, Chung offers a population growth estimate – 1.8% from 1904-43 – calculated from the number of residents as published in the Statistical Yearbook of the Colonial Government. This is an overestimate, because the first census taken in 1925 revealed that the pre-1925 enumeration left out a considerable number of Koreans. Projecting backwards the downward trend in mortality found in census results, Ishi (1972) argued that population expanded significantly more slowly than Chung believes – 1.4% per year from 1906-44. This, in combination with the recent output growth estimates, implies per capita output growing twice as fast as Chung claims.

Finally, drawing on paid-in capital as published in firms’ financial statements and capital spending as recorded in public accounts, Chung estimates that investment from 1905-38 amounted to 6.4 billion yen. This figure is about twice as large as the sum of investment (estimated as a spending item in the national accounts of colonial Korea) from 1911-38. Young (1995: 651) observed similar inconsistency between investment in the South Korean national accounts and capital stock in the South Korean national wealth surveys, the latter being the sum of the value of asset ownership as declared by individual firms. Then he chose to use the investment figures in the national expenditure accounts, the reason being that they are at least constrained by the production accounts, while there is no way of checking the reliability of numbers offered by firms.

Chung’s assessment of the trends in colonial living standards sounds unduly pessimistic as a result of not paying enough attention to the mortality decline occurring under Japanese rule. Incomes earned by unskilled workers and tenant farmers did fail to rise as a matter of trend, which together with rising life expectancy implies improving living standards. The mortality decline also should have been highlighted in Chapter 4 as an important aspect of human capital accumulation, in addition to the spread of modern education. Chung presents falling per capita food availability as another piece of evidence proving that the benefits of economic growth failed to trickle down to a large majority of Koreans. The downward trend may well be a figment of the overestimated population growth, however. A recent estimate of pre-1925 population (based on demographic information from genealogies) suggests a growth rate even slower than Ishi (1972) – 1.3% per year – removing the negative time trend in per capita food availability (Cha (2006)).

Justly portraying the colonial government as bringing about modern economic growth in Korea through institutional modernization, Chung at the same time launches unjustified critiques of some of its policy measures. Most primary prices fell in the late 1920s and early 1930s all over the world, which makes it implausible to attribute falling rice prices in Korea to policy interventions to stimulate rice production. The external shock (known as the interwar agricultural depression) appeared to cause a number of irrigation associations to go bankrupt. While Chung explains the debacle in terms of the colonial government enforcing wasteful investment in irrigation, investigations using financial records of individual irrigation associations found no evidence to support the assertion (Chang, et al (1992)).

References:

Cha, Myung Soo. 2006. “Kyongje songjang, kujopyonhwa, soduk punbae,” in Nak Nyeon Kim. ed. Han’guk ui kyongje songjang 1910-1945. Seoul: Seoul National University Press.

Cha, Myung Soo and Nak Nyeon Kim. 2006. “Korea’s First Industrial Revolution,” Naksungdae Institute of Economic Research Working Paper no. 2006-3.

Chang, S. Matsumoto, T. Miyajima, H. and Rhee, Y. eds. 1992. Kundae choson suri chohap yon’gu Seoul: Ilchogak.

Ishi,Yoshikuni. 1972. Kankoku no jink? no bunseki. Tokyo: Keis? shob?.

Kim, Nak Nyeon. ed. 2006. Han’guk ui kyongje songjang 1910-1945. Seoul: Seoul National University Press.

Mizoguchi, Toshiyuki and Mataji Umemura. eds. 1988. Kyu nihon shokuminchi keizai t?kei. Tokyo: Toyo keizai shuppansha.

Suh, Sang-Chul. 1978. Growth and Structural Changes in the Korean Economy, 1910-1940. Cambridge: Harvard University Press.

Young, Alwyn. 1995. “The Tyranny of Numbers: Confronting the Statistical Realities of the East Asian Growth Experience.” Quarterly Journal of Economics 110 (3): 641-80.

Myung Soo Cha is Professor at School of Economics and Finance, Yeungnam University. He is currently working on the pre-colonial demographic history of Korea and the spread of modern education in colonial Korea.