“Independent” Korea

During the Second World War, Korea was still under Japanese colonial rule, which had begun in 1910. The Japanese imperial regime intensified the exploitation of the Korean peninsula to sustain the war effort, transforming its economy into an appendage of the Japanese military-industrial machine. Korean natural resources, particularly coal and metals, were massively extracted to feed the Japanese war industries, while the population was subjected to increasingly severe forms of social and cultural control.

The policy of forced assimilation reached its peak during the war years: Koreans were compelled to adopt Japanese names, to speak exclusively Japanese, and to practise Shinto rituals. Simultaneously, hundreds of thousands of Koreans were deported as forced labourers to Japanese industries and mines, while tens of thousands more young people were forcibly conscripted into the imperial army. This massive deportation and militarisation of the population would have profound demographic and social consequences in the post-war period.

The Korean economy, already distorted by the demands of colonial rule, was further subordinated to Japanese military needs. Light industry, primarily textiles, was expanded to produce uniforms and war materials, while agriculture was oriented towards rice production for export to Japan. This colonial economic structuring, characterised by dependence on raw materials and light industry, would profoundly condition Korea’s possibilities for development in the post-war period.

The end of the war and the division of the peninsula

Japan’s surrender in September 1945 marked the end of colonial rule, but did not bring about Korea’s immediate independence. Under the post-war agreements, the peninsula was divided along the 38th parallel into two occupation zones: the northern zone under Soviet control and the southern zone under American control. This division, initially conceived as temporary to facilitate the disarmament of Japanese forces, rapidly transformed into a permanent fracture.

The two superpowers imposed different political systems in their respective zones of influence. In the north, the Soviet Union supported the establishment of a national-communist inspired regime led by Kim Il-sung, which initiated agrarian reform and the nationalisation of industry. In the south, the United States initially retained many officials from the Japanese colonial administration, creating tensions with the Korean population that aspired to genuine decolonisation.

The division had devastating economic consequences: heavy industry and electrical power were concentrated mainly in the north, which was rich in mineral resources and equipped with hydroelectric plants, while the south was predominantly agricultural and housed light industry. This economic complementarity, shattered by the political division, exacerbated the economic difficulties of both parts of the peninsula. The end of the war thus left South Korea in a condition of profound economic and social transformation, with a dispersed population, an economy fully integrated into the now-collapsing Japanese imperial system, and the need to reconstruct a national identity and an independent economic system under American military occupation.

In this study, we shall focus primarily on the developments in South Korea, which has undergone a powerful process of industrialisation and transformation from agricultural colony to imperialist power.

The demographic and social transformation of the post-war period

Despite the flight of capital, Korea’s population would register a significant demographic increase with the repatriation of 1.8 million people from North Korea, 120,000 from China (mainly from Manchuria), and one million from Japan, in addition to other populations arriving from various zones. The most relevant characteristic of these human masses, for the purposes of our analysis, lies in the fact that the majority of them were composed of proletarianised workers or workers in the process of proletarianisation. The result was the formation of a numerous, impoverished working class, still undisciplined from the standpoint of the capitalist organisation of labour.

In 1947, approximately half of the 10 million workers were employed. This represented approximately 54% of the active Korean population.

The Chaebol, the Japanese legacy, and the influence of the United States

It is worth noting that some of the Chaebol, the great Korean industrial conglomerates, had originated during the period of Japanese rule. Kyungbang Ltd, a chemical and textile company founded in 1919 during Japanese imperialist rule, continued its operations up to the present day.

The struggle between factions of the Korean bourgeoisie was never more evident than in the opposition to the expansion of Kyungbang, suspected of supporting the Korean Democratic Party (KDP). This constituted the principal political opposition and would ultimately lead Korea to the coup d’état of Park Chung-hee. The KDP represented American interests in general, as it received substantial investment and aid from the United States, following the measures adopted by the Rhee government to curb its expansion, and highlighted Korea’s general dependence on American investment, particularly with regard to the supply of raw materials such as cotton for textile production. The textile industry would represent the main bourgeois sector supported by the United States, and its dependence on American capital as opposed to Korean capital would subsequently play a fundamental role in the coup d’état of 16 May 1961.

From the Bank of Joseon to the Bank of Korea

We can now examine the origins of the Bank of Korea (BOK), which played a decisive role in this entire process of capitalist transformation. After decolonisation from Japan, Korea possessed only the remnants of the Japanese banking apparatus for its money-transfer systems. Consequently, the general circuit of the exchange of goods and commodities was partially interrupted during the early years of the American military government until the founding of the BOK.

Thus, the BOK obviously did not arise from nothing, but found its origins in the Japanese colonial state capitalist trusts, in particular the Bank of Joseon. The Bank was the principal commercial bank of Japanese state industry on the Korean peninsula during imperial rule, and continued its operations until 1950. It is important to note that, in North Korea, the Bank of Joseon was immediately replaced under Soviet occupation. During this period, the Bank issued the won instead of the yen, which served the interests of the American bourgeoisie in many ways.

The BOK would be principally responsible for the circulation of a vast influx of currency. Considering the demographic factors and South Korea’s underdevelopment already mentioned, the increase in currency circulation caused the devaluation of the currency and a general rise in prices before the Korean War, a phenomenon that would continue even after the conflict.

General commodity prices across the entire productive sector rose in all sectors in Korea from 1948 to 1952 (see table), as the quantity of the means of circulation (the won) increased due to the general law of the depreciation of commodities in the long run. At the same time, prices appeared to decline in October 1952, also due to changes in the velocity of circulation following the disposal of Japanese assets and the destruction of capital caused by the Korean War.

Source: Kim Dong-Wook, “1940s-1950s Korean Inflation and Stabilization”, PhD Dissertation, Department of Economics, Yonsei University (1994), p.124

The agrarian reform and the redistribution of capital

Thus, the process of economic transformation was set in motion following the massive influx of newly proletarianised workers into South Korea and the expropriation of rural lands by the state. A flight of capital indeed occurred across all productive sectors following the Japanese exodus, although a large portion of this capital would subsequently be acquired independently by the nascent chaebol. During the period of Japanese rule, large sectors of the economy were still controlled by the landowning class, reflecting the underdevelopment of the region during the imperial era. Over the course of the 1950s, Japanese capital was systematically liquidated in various waves.

This elimination of capital and the influx of currency into circulation constitute two sides of the same phenomenon of Korean economic advancement. The landowning class, which had previously owned a substantial portion of particular industrial sectors, typically those of food production, was expropriated quite rapidly when the Korean capitalist class took control of the South Korean state and began purchasing the lands of the landowners, who had been, in the majority, collaborators and clients of the Japanese imperial economy.

This coincided, similarly, with the vast influx of labour power to feed the nascent Korean industries. 53.2% of capital transfers in the form of purchases of Japanese assets took place between 1951 and 1953, coinciding with the agrarian reform, which led to the expropriation of the landowners — a well-known characteristic of developing capitalist economies. The agrarian law was amended in 1950, providing for state purchase and redistribution of lands. The reform was also conceived to reduce the influence of the northern guerrillas on the poor peasantry, who were often dazzled by the demagogic prospect of North Korean-style reform, which envisaged expropriation without compensation and the free redistribution of lands.

The American imperialist strategy

As the centre of international trusts and cartels and, by extension, of international finance capital flows, the United States began seeking to secure its interests in Asia after the failure of the Chinese civil war. South Korea, in its developing phase and intent on winning a position in the Asian textile industry and in a key market for the United States, would be the next challenge upon which the United States would seek to secure its imperialist interests.

This would lead to a much more direct approach to prevent the Korean peninsula from falling into the sphere of influence of Soviet capital, as had occurred with China. Through the advantages of an integrated circuit of Asian capitals, comprising mainly Japan and Korea, the objective of the United States was to unify all the new vassal-allies into a single imperialist bloc. The objective of finance capital was to use the leverage of such a bloc to further expand its influence into the poorer zones of Asia, ripe for further profits derived from manufacturing production.

Here the Americans encountered significant problems. The United States failed to improve the situation with their strategies, although the imperial psychology of the United States in this period reveals how little their strategy would change in the decades that followed.

The First Republic and its structural failures

Thus, beginning with the American occupation, the First Republic that we are discussing was established in South Korea. This republic found itself in a rather difficult position, as it had to contend with the conflicting interests within its own bourgeois factions and with the conflicts between its own bourgeoisie and that of the United States.

This conflict, initially not particularly heated, would worsen due to the series of crises that would strike Korea. Syngman Rhee was the American choice as the new figurehead of the Korean bourgeoisie and president of the Assembly, but he proved to be a total failure from the standpoint of the interests of finance capital. He was unknown to the various bourgeois factions and apparently failed to consolidate the interests of nearly all factions of the bourgeoisie, particularly the American bourgeoisie and its clients in Korea. Consequently, he failed to obtain the support of broad sections of parliament, and his government quickly fell, weakened by factional disputes.

What was the crux of these disputes? One of the principal failures of the American choice of Rhee was his absolute refusal to collaborate with Japan, which the United States sought to strengthen in order to consolidate their Asian bloc and to satisfy the industrialists’ demands regarding exports. Naturally, these attitudes reflected a national economic situation that lagged behind the whims of the more advanced capitalist centres of power of the era, but this would be rapidly overcome when Korea, having passed through the crisis of the civil war, would enter a new East Asian order.

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