The rapid economic rise of East Asian countries including Korea after the end of the World War II has become an issue of inquiry among scholars. The East Asian countries followed a different variety of capitalism which led to rapid economic development and made them into Asian Tiger economies. There was a capitalist system but also economic planning.
Chalmers Johnson coined the term "developmental state" in his study of the role of the Ministry of International Trade and Industry (MITI) in the economic rise of Japan. Later, various scholars applied this concept of the developmental state in understanding the economic development of other countries of East Asia. With a wide range of interventionist policies these states controlled the market forces.
In Korea the developmental state emerged under the leadership of Park Chung-hee (1961-79). This led to a paradigm shift in Korea's economic development. Centuries of economic stagnation and backwardness had made Korea one of the poorest countries in the world. But under the guidance of the developmental state the country entered rapid economic modernization and industrialization.
The Korean experience suggests that economic development cannot be left to market forces. The role of the state was crucial in disciplining both chaebol groups and labor. The policies of the developmental state in Korea ensured "jobs for life" and there was almost full employment. Income and regional disparities were low and people worked hard on national development.
The democratization of the polity and the globalization of the economy in Korea led to several structural changes in the developmental state. The 1997 Asian financial crisis was a major blow to the developmental state system. As a result, the economic security provided by the state also faded away.
The developmental state model was criticized for several reasons. It was considered authoritarian and exclusionary. It was blamed for promoting "crony capitalism" and suppressing the democratic aspirations of the people. Political democratization and economic globalization in Korea were supposed to make life more comfortable but paradoxically the results have not been satisfactory.
Democratic consolidation has increased the role of interest groups which pursue parochial agendas at the cost of national interest. Similarly, economic globalization has increased the concentration of national resources in few hands. It was reported that in 2011 the total sales of the top ten chaebol groups was equivalent to 80 percent of Korea's gross domestic production.
Korea has a high suicide rate and it ranks low on the life satisfaction index among the OECD countries. The high real estate prices and cost of living are prohibiting young people from marrying and having children. As a result, the birth rate in Korea has gone down. On the other hand, the export-oriented economy of the country is also declining.
To overcome these challenges Korea can apply some strategies from other Asian Tigers. For example, in Singapore the government built apartments for the people but asked them to return the price in installments which effectively solved the housing problem in the country. In Taiwan the state promoted small and medium-size enterprises which are also important for the revival of the Korean economy and generating employment.
Despite being a city-state, Singapore has a successful aviation sector and thriving tourism industry. Hong Kong has emerged as a major financial hub which can provide lessons to make Korea a center of service and finance.
The dynamic role of the state created the "Miracle on the Han River" in the past. The future of the Korean economic development also depends on the strategies of the state. This time Korea needs a developmental state which would promote economic growth, democracy and control economic disparities.