Over the course of 60 years South Korea has developed to become an industrial giant. And it was the inspired visions of its leaders that made it all possible, writes Hyun Oh-seok
Chung Ju-yung, the founder of Hyundai Group, pulled out a 500 won (Dh1.6) note from his pocket and placed it on the table.
On the back of the currency was a picture of a geobukseon, an iron-clad battleship the Koreans built and used in the 1500s.
"Korea built this iron-clad battleship in the 16th Century, which is 300 years prior to [the first such vessel built in] the United Kingdom," he said.
"Although industrialisation in [South] Korea is in the initial stage, this is only due to its seclusion policy of the past. Based on the country's experience of building such advanced battleships, I assure you Korea holds the potential to build vessels."
In 1971 Mr Chung announced plans to establish a shipbuilding industry in Korea. Everybody thought his plan was "crazy", as Korea did not have the financial resources, lacked the technology and did not have a reputation for shipbuilding. Yet Mr Chung repeatedly visited foreign banks to secure the necessary investments. Despite his passion for the project, the only answer awaiting him was "no".
Thinking Barclays Bank in the UK was his last chance, he gave his speech about the geobukseon and succeeded in persuading the chairman of the bank. In doing so, he secured the investment desperately needed to launch the shipbuilding industry. He also persuaded a major shipping agent in Greece to place an initial order for two 2.6 million tonne ships. It is in this way the entrepreneurship of the private sector has made South Korea one of the world's leading industrial countries.
The tremendous growth of the Korean economy over the past 60 years has been accompanied by deep changes in its industrial structure. Initially, the economy was dominated by agriculture and other primary industries. As industrialisation gained full momentum in the 1960s. Labour-intensive manufacturing, which utilised Korea's comparative advantage in its abundant supply of a well-educated and diligent labour force, led economic growth.
However, as salary levels began to rise and competition from low-wage economies intensified, Korea faced increasing pressure to transform its economic structure. As a result, in the 1970s, capital-intensive, high-productivity manufacturing began to gain importance.
At the same time, the industrial structure was transformed towards heavy and chemical industries on the back of the serious threat to national security resulting from the reduced presence of American forces in Korea. Whenever the Korean economy moved to a new stage, the entrepreneurship of the private sector, along with government support through public-private dialogue, was a major factor.
Entering the 1980s, there was a change in leadership. Chun Doo-hwan took advantage of the fragile political situation following the assassination of then president Park Chung-hee and gained the office of the presidency. As a graduate of the Korea Military Academy, Mr Chun held strict control over all aspects of decision making. Yet there was one exception: his relationship with Kim Jae-ik, one of the leading technocrats of the economic planning board. Upon taking power, Mr Chun appointed Mr Kim as his senior economic adviser. Mr Chun expressed his full trust and support in Mr Kim's decisions regarding economic matters, openly referring to him as "Korea's economic president".
With full support from the president, Mr Kim pursued a policy of stabilisation, liberalisation and market opening, which solved problems of excess investment and inefficiency the Korean heavy and chemical industries were facing. In the period of "three lows" (low interest rate, low exchange rate and low petrol prices), his strategy made possible remarkable advances in Korea's industrial development. As a result, Korea achieved phenomenal growth rates during this time.
In a generation, the nation's economic structure was transformed from primary to labour-intensive, low-productivity sectors and eventually to capital-intensive, high-productivity sectors. In the early 1950s, nearly 50 per cent of Korea's GDP came from primary sectors such as agriculture and mining. The main exports were iron ore, raw yarn, coal, rice and fish.
Now, Korea is a leading economy in many sectors including ship-making, electronics and information and communication technology. Agriculture and mining constitute less than 3 per cent of Korea's GDP.
Instead, secondary and tertiary industries constitute more than 95 per cent of total GDP. For the past decade, heavy and chemical industry products have accounted for in excess of 80 per cent of total exports.
Korea's growth was initiated and sustained through the continuous creation of new comparative advantages, with the government focused on building a conducive atmosphere for economic growth through investment in human resources capable of creating comparative advantage, investment in infrastructure and support for the private sector to tap the world market for investment and to promote innovation through investment in research and development.
At every stage of its transformation there were leaders who laid out the vision, intrepid entrepreneurs, well-trained and devoted technocrats who implemented the vision and hard-working citizens who diligently supported the transformation. They all made Korea's economic development possible.
The Korean economy will continue to depend on the creativity and innovation of the private sector that has created its dynamism today.
Hyun Oh-seok is the president of the Korea Development Institute. This is the third of a six-part series on the Korean economy.