Korea Economic Growth Process and Factory Saemaul Undong

There are two characteristics in economics.

1) Close relationship with our lives.

2) The most logical and scientific among social sciences.

The economy can show every situation with a number even the situation of development

progress and change. So, investment Rate, Growth Rate, Price, Interest Rate, Income,
Consumption, Export etc. is can also be shown with a number. Therefore it is easy to make a

logical explanation and able to do the various comparisons. Each country comparison, industry
comparison and hierarchical comparison can be the example. So there is no effect without a
cause and also there is no such word “Miracle” in economy. However, the word of “Miracle” to

be used in case if it is hard to explain with logic or number. After the Second World War, the

rapid growth of financial independence in the ruins called “The Miracle of the Rhine River”
and the rapid growth of Korean economy is called “The Miracle of the Han River”. Why the

economists say the development of the Korean economy is a miracle of the Han River? What

made this miracle?

The Saemaul spirit has shaken the souls of Koreans who were sleeping for 5 thousand years

and it blasted the DNA that was hidden in the heart and the head.

Pioneering spirit, confidence, will to live, positive thought, competition in good faith,
entrepreneurial spirit, community spirit and traditional Confucian values etc. In other words,

people think but lack of practice and the trend of downplaying the business due to the value

that important work was only done by upper class people hardened were getting changed.

Saemaul system which everyone in the organization gives ideas and brainstormed to create

road map for action started to spread throughout the Republic of Korea.

Saemaul spirit of diligence, self-help and cooperation spread to everywhere in the city, in rural

areas, in workplaces and factories and this showed a great change.

From agriculture oriented country, it has been transformed into advanced country where a
manufacturing powerhouse, a major exporting country and information oriented society.
Korea has achieved the economic development in 50 years while advanced country of the West
took 200 years. From the world’s poorest agriculture nation, Korea became a manufacturing

powerhouse of the world.

Income per capita rapidly increased from $80 to $28,000 (350 times) and also exportation

rapidly increased from $10 million to $500 billion (5 million times)

Korea does not have any underground resources. Excluding limestone, which is a raw material
for cement; raw materials for industrial products are almost dependent on imports. For
example, imports of energy resources such as crude oil and natural gas exceed $10 million.
Despite these adverse conditions, Korean major companies such as Samsung, LG, SK, Hyundai

and POSCO continue to grow and becoming a global companies.

However, business environment is tough. Facing intense competition between China, the
world’s second largest economy and Japan, the world’s third largest economy is continued and
it is in position to overcome this difficult environment due to pursuit of other least developed

countries.

When United Kingdom was the most powerful in the reign of Queen Victoria, the empire called

as “an empire which the sun never sets”. Queen Victoria’s three ruling principle was diligence,

self-help and honor. Solve the problem by oneself about diligence and make honorable United

Kingdom was the point. Similar to the ruling principle of United Kingdom, three virtues of
Samaul are diligence, self-help and cooperation. Like how diligence, self-help and honor made
United Kingdom, Samaul spirit of diligence, self-help and cooperation transformed Korea as a

great nation of manufacturing that continued to grow.

1. Korea’s economic society in the early 1960s

1) A letter from the Prime Minister Mr. Jang Myun to US Secretary of State

- One third of rural population can’t eat one of the three meal in the Spring

- One quarter of the workable population is unemployed

2) In 1962 President Park, Jung Hee asked US to change the way they help Korea that
build fertilizer factory instead of supporting agricultural products and US

responded:

- One quarter of the workable population is unemployed

 - $20 million of exportation and $200 million of importation

- Power production is one seventh of Mexico’s power production

- Lack of social overhead capital

- Lack of distribution and logistics

- Therefore, agricultural products support will be continued

2. Factory that the most difficult to make but the most important in Korea

1) Process of POSCO establishment

- Failure to negotiate with the World Bank(IBRD)

- Failed joint venture with individual companies in USA, Japan and Germany

- Established consortium(KISA) to establish the world’s first steel company

USA, Japan, Germany, Italy, Austria (2 consortium consisting of eight companies

in five countries)

(1) Craft skills apartment

(2) Capital donated apartment

After two years of discussions, it came to the conclusion that it can’t make a

profit due to lack of steel stones, bituminous coal, technology, operating funds,

domestic market size etc.

- Independently established factory with claim funds raised in Japan

Beginning in 1965, starting from the idea of a steel company, it gets to 103
thousand tons of crude steel production in five years, 1970. At last, it produced
2,800 thousand tons in 1992 by completion of Kwang-yang steel mill (World’s

number 5 company)

- The global engineering college POSTECH established in 1986 (established by

steel company)

3. How is it evaluated from other countries?

 1) President of USA, Peru, Bolivia and Ecuador have the same evaluation

2) France thinker Mr. Guy, Sorman’s evaluation

3) Comparative evaluation between Korea and Africa

- Income per capita of Korea, Cameroon, Senegal, Ghana and Ethiopia was the

same in 1960

- Total trade amount in Korea in year 2010 was more than the sum of total

number of trade in 53 African countries in year 2010

※ This gives the message to African people that they also can make
rich and powerful countries if they work hard

4. Factory Samaul Undong

Factory Saemaul Undong was a rationalization movement of the enterprise

Q. Where does the power of the nation come from?

A. From economic power

Q. Who make the economic power?

A. Enterprise

Q. Who runs a business?

A. People (Managers and Workers)

Q. What makes a business to be maintained?

A. Profit

Q. What is the key challenge in maximizing profits?

A. Increased productivity

Q. What is the essential requirement for improving productivity?

A. Labor – Management cooperation

1) Basic idea of Factory Samaul Undong

- Establish a good work orientation by ownership inspiration

- Make a company a common fate through labor-management cooperation

- Thoroughly carry out quality control to improve productivity

- Settled as an industrial movement for the rich economy

2) Specific Action Items

- Operation of labor-management council

(1) Preparation and discuss for yearly business plan

(2) Monthly business performance announcement

(3) Quarterly business performance analysis

(4) Negotiate annual budget

(5) Negotiate distribution of profits

- Promotion of productivity improvement

(1) Periodic quality control training

(2) Composition of group (within 10 people)

(3) Selection of discussion (4 per year)

(4) Progress of the meeting (brainstorming)

Ex. 1) Reduction of working time method

2) Materials, energy conservation saving method

3) Improve the working method

4) Feedback on consumer’s demand

5) Sharing achievements

- Improve work environment and spread welfare system

The establishment and spread of the welfare system of Korean companies is the result of

Samaul Undong.

1. Soup kitchens (Lunch, Dinner etc.)

2. Free shuttle bus

3. Free fitness center

4. Scholarship assistance

5. Rest area

6. ETC.

(4)Promotion organization and participating companies

1. Promotion Organization: The Korean Chamber of Commerce & Industry, 72 Local Chamber

of Commerce & Industry, Major Industrial Complex, 36 Major Companies (Samsung etc.)

2. Participation Companies: Companies where hold more than 50 employees

(5)Assessment

1. Measurement of Business performance level

-Give a reward to top companies

-Provide case study of top companies for under-performers

(1)Government and Cooperation

1- Utilize Monthly Economic Trends Report Meeting

2- Selection of Best Practices

3- Sharing Success Stories with National Firm

5. Overcoming IMF Management System in a Short Time

1) Meaning of the Korean Economy in 1997

1-According to the Korea Report <May 1997> by Booz Allen Consulting, Korea has a reputed
as a ‘Nutcracker’ caught between Japan (in quality and technology side) and China (minimum

wage).

2-Structure Financing Request in Dec 1997

-$2 billion of short-term funding and other $19.5 billion of structure financing request

-Debt repayment made in only one and half year with effort of all nations such as restructuring
of corporate financial institutions and collecting gold etc.

-The spirit of Saemaul Undong

6. Korea, China and Japan <Competition and Cooperation>

1) Economic indicators of China

1-Foreigner direct investment

2-Forieng exchange reserves

3-Import and export scale

4-Economy scale

5-Steel, Production consumption

6-Technology investment

7-Automobile production and sales

8-Three of the world’s 10 largest banks

9-80% of Walmart display products in the US

10-Over 70 million Overseas Chinese

2) Change in China

World’s factory → Raw material black hole → Start point of reflation → One of the largest

manufacturing country → Largest tourism country → The market of the world

3) The size of the market <1.4 billion populations>

If every single population in China buys the product of amount 1,000 won, the total amount

comes to 1.4 trillion won due to huge population

2) Toyota cars in Japan

1-Market capitalization of GM + Ford + Chrysler < Toyota

2-Rank 28th in the world economy rankings

3-Production of 10 million units per year

4-Strenghts of global companies: Factories in 32 regions

Adjust production level at the optimal location of exchange rate, customs duty and labor

cost

5-Sustained growth over the last 50 years

6-Stable labor relations

7-Prepair for the future cars <Leading Company of electric hybrid cars>

8-Airplane parts production and smart farm in case of Automotive market saturation

7. Tasks of the Saemaul Undong <labor-management cooperation>

-Growing pains, growth and distribution and labor dispute that every countries struggling to

1) Evaluation of IMD <National competitiveness and labor-management competitiveness>

Korea: Ranked 26th in national competitiveness

Ranked 129th in labor-management competitiveness

2) Labor-management cooperation and labor-management classification case of world major

companies

1-Why did the economies of France and Germany differs greatly?

2-Example of Argentina and Greece

3-Example of United Kingdom

4-Swiss pension debate

8. Work and factory attraction war

9. Knowing and practicing

-In the middle of the 19th century, Korea, Japan and China felt the world’s change of the power

is the same. Also they all felt that the power and science of Westernization were ahead.

Korea (Chosun) - Let’s combine the power of Chosun and Western technology

China (Chung) – Chinese body needs Western technology Japan – Utilize Western technology

in Japan’s spirit

※ Korea (Chosun) and China (Chung) knew it but they was not able to practice

In 1873, Japan utilized 18% of the Ministry of Education budget

1)373 people studied abroad (English, German, Dutch, French, and American)

2)300 people of foreign experts designated to each administration

Japan accepted the Western culture along with Meiji Restoration and joined the ranks of

advanced countries in the 20th century.

8. Growing pains of Korean Economy and the role of Saemaul Undong

1) National interest in economic growth has been diminished

2) Labor relations are in the worst group

3) There are only Saemaul to fix above two problems

9. What to do after the training?

1) Korea, the most underdeveloped countries, became a manufacturing powerhouse, a trading

powerhouse, and an advanced computerized country

2) There was an IMP structured finance however overcame in a short period of time

3) Suffering from growing pains

4) Have problems with labor relations

5) Trying to overcome through Samael spirit

6) What will we do when we go back?

7) How do we move on to practice that we saw and heard?

8) Find the ways to practice and utilize the Saemaul spirit of diligence, self-help and

cooperation