reign investment, which the country sorely needed in the 1960s when it lacked domestic capital and savings. Also, such an efficient work force helps make exports attractive, which enabled South Korea to exploit foreign markets like the U.S., because South Korean markets were still poor three decades ago. Thus, South Korea's economic policies provide a textbook case for the Third World on how to achieve economic 'takeoff' out of the poverty of underdevelopment.
In the aftermath of the Korean war of 1950-1953, the South Korean economy lay in ruins (Amsden, 1989). Dependent to a great extent on aid from the U.S., the country's government set about to rebuild and create a viable economy largely on the Japanese model. Japan had ruled Korea (including the North) in the first half of this century, and its influence lingered after independence in 1945. Japan was building up its light industry with such goods as textiles and toys, after World War II while under American occupation, and exporting its wares mainly to the U.S. Similarly, South Korea, though underdeveloped economically, began orienting its main industry, textiles, for eventual exports. The reason for such export orientation is that South Korea's internal market was too small to support mass production industries. In addition, wages were very low in the country, and unions were weak or non-existent because of government policy. Also, a policy of import substitution and tariff protection helped nurture industries like textiles. Finally, South Korea's nascent development policy included investment in education and accumulation of domestic capital, through such measures as keeping wages down. Thus, starting in the latter half of the 1950s, South Korea formulated several successful economic policies, some of which have expanded and continued to the present day, if in different form or degrees.
The textile industry in South Korea in the 1950s was a cartel of 15 oligopolis...