Korea Under Japanese Rule - Economy and Modernization

Economy and Modernization

The Korean economy went through significant changes during the Japanese occupation. There is no academic consensus on the influence of Japanese rule on the development of Korea: some scholars argue that Japanese rule worsened the economic condition of Korea, while others, such as Princeton's Atul Kohli, have concluded that the economic development model the Japanese instituted played the crucial role in Korean economic development, a model that was maintained by the Koreans in the post-WWII era.

There were some modernization efforts by the late 19th century. Seoul became the first city in East Asia to have electricity, trolley cars, water, telephone, and telegraph systems all at the same time, but Korea remained a largely backward agricultural economy around the start of the 20th century. "Japan's initial colonial policy was to increase agricultural production in Korea to meet Japan's growing need for rice. Japan also began to build large-scale industries in Korea in the 1930s as part of the empire-wide program of economic self-sufficiency and war preparation."

According to scholar Donald S. Macdonald, "for centuries most Koreans lived as subsistence farmers of rice and other grains and satisfied most of their basic needs through their own labor or through barter. The manufactures of traditional Korea--principally cloth, cooking and eating utensils, furniture, jewelry, and paper--were produced by artisans in a few population centers."

During the early period of Japanese rule, the Japanese government attempted to completely integrate the Korean economy with Japan, and thus introduced many modern economic and social institutions and invested heavily in infrastructure, including schools, railroads and utilities. Most of these physical facilities remained in Korea after the Liberation. The Japanese government played an even more active role in developing Korea than it had played in developing the Japanese economy in the late nineteenth century. Many programs drafted in Korea in the 1920s and 1930s originated in policies drafted in Japan during the Meiji period (1868-1912). The Japanese government helped to mobilize resources for development and provided entrepreneurial leadership for these new enterprises. Colonial economic growth was initiated through powerful government efforts to expand the economic infrastructure, to increase investment in human capital through health and education and to raise productivity.

However, under Japanese rule, many Korean resources were only utilized for Japan. Economist Suh Sang-Chul points out that the nature of industrialization during the period was as an "imposed enclave," so the impact of colonialism was trivial. Another scholar, Song Byung-Nak, states that the economic condition of average Koreans was aggravated during the period despite the economic growth. Most Koreans at the time could access only a primary school education under restriction by the Japanese, and this prevented the growth of an indigenous entrepreneurial class. A 1939 statistic shows that among the total capital recorded by factories, about 94 percent was Japanese-owned. While Koreans owned about 61 percent of small-scale firms that had 5 to 49 employees, about 92 percent of large-scale enterprises with more than 200 employees were Japanese-owned.

Virtually all industries were owned either by Japan-based corporations or by Japanese corporations in Korea. As of 1942, indigenous capital constituted only 1.5 percent of the total capital invested in Korean industries. Korean entrepreneurs were charged interest rates 25 percent higher than their Japanese counterparts, so it was difficult for large Korean enterprises to emerge. More and more farmland was taken over by the Japanese, and an increasing proportion of Korean farmers either became sharecroppers or migrated to Japan or Manchuria as laborers. As greater quantities of Korean rice were exported to Japan, per capita consumption of rice among the Koreans declined; between 1932 and 1936, per capita consumption of rice declined to half the level consumed between 1912 and 1916. Although the government imported coarse grains from Manchuria to augment the Korean food supply, per capita consumption of food grains in 1944 was 35 percent below that of 1912 to 1916.

The Japanese government created a system of colonial mercantilism, requiring construction of significant transportation infrastructure on the Korean Peninsula for the purpose of extracting and exploiting resources such as raw materials (timber), foodstuff (mostly rice and fish), and mineral resources (coal and iron ore). The Japanese developed port facilities and an extensive railway system which included a main trunk railway from the southern port city of Pusan through the capital of Seoul and north to the Chinese border. This infrastructure was intended not only to facilitate a colonial mercantilist economy, but was also viewed as a strategic necessity for the Japanese military to control Korea and to move large numbers of troops and materials to the Chinese border at short notice.

From the late 1920s and into the 1930s, particularly during the tenure of Japanese Governor-General Kazushige Ugaki, concentrated efforts were made to build up the industrial base in Korea. This was especially true in the areas of heavy industry, such as chemical plants and steel mills, and munitions production. The Japanese military felt it would be beneficial to have production closer to the source of raw materials and closer to potential front lines for a future war with China.

By the early 1930s, Japanese investment was curtailed by the Great Depression, competition for investment opportunities from the potentially more lucrative Manchukuo and by Japan's own limited economic capacity. As Imperial Japan began feeling the strains of World War II, Japan carried out a colonial exploitation policy in Korea.