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Today, world peace is on the verge of a new nuclear threat. Increased aggression on the part of the Russian Federation due to economic sanctions, the desire for economic independence of Asian countries, and most importantly, regular statements by Pyongyang regarding an increase in nuclear development, testing of missiles and hydrogen bombs, and retaliatory threats from the United States.

It is clear that not a single threat can lead to serious economic consequences, but what will happen to the world economy if another conflict breaks out. After all, North Korea is not Syria at all, and any aggression towards it can lead not only to serious military, material and political consequences - but will also entail major economic changes that few people realize.

Let's consider what will happen to the global economy, using the exchange rates of the ruble, yuan and dollar as an example.

Historical military summary

The proposed war is not the first conflict that could lead to consequences on a global scale. Let us recall that already in the 40s of last year, a certain Adolf Hitler was already able to introduce almost the entire world into a global confrontation.

World War II provides an excellent example of how fighting across the planet would affect the course of major powers.

Note: Although we are based in part on data taken from historical reports, it should be understood that the impact and scale on the economy will now be much greater, since the world's dependence on Internet banking has increased, and no currency is anymore pegged to the gold standard due to the Jamaican currency reform.

Decrease in the volume of foreign trade relations

When the economies of the three main powers transition to a war footing, the output of civilian products will be significantly reduced, many factories will be deprivatized, or agreements will be reached to re-equip them throughout the military conflict.

As a result, there will be a general weakening of each economy involved in the military conflict. We must not forget that during the war, foreign economic relations between countries were severely limited, both due to the disruption of communication channels and due to changes in general policy.

All this can be expected in the event of US aggression towards Kem Jong-un.

Fixing the domestic currency

If we consider the conflict even in a local sense, then during any global military action, be it the Second World War, or a possible conflict today, the state’s currency exchange rate is fixed for the entire period of military action.

The reaction of the main states under such a blockade

USA. Considering the movement of exchange rates using the example of the 40s, the whole picture looks more than rosy. The US dollar has been deliberately fixed all this time, despite significant progress in the economy and production. As a result, such exchange rate fixation led to the fact that the real value of the dollar was much higher than it could be bought or sold. As a consequence, this led to its significant growth immediately after the war, and when the dollar exchange rate was untied from the gold standard, global changes occurred in the world economy.

THE USSR - everything is simple here. Despite the fact that the USSR was a communist country, generally due to the forced mobilization of forces, the country's economy gradually faded, which in turn led to a weakening of the currency in relation to its market value outside the confederation. Subsequently, it was the communist system and maintaining the level of mobilization of production over the next 30 years that made it possible to stabilize the course in such a way that neither citizens nor external economic relations were harmed.

DPRK– Like the USSR, due to the peculiarities of its policy, it did not show the real exchange rate for almost 30 years; the exchange rate was fixed until the implementation of the Jamaican monetary reform.

In any case, regardless of what trade and peaceful relations and agreements are observed in the world, everything will happen according to approximately similar scenarios; only the scale will change, but not the dynamics and direction.

US war with Korea 2017, 2018

Moving on to modern times. What awaits the economies of the main states in the event of any aggression either from North Korea or towards it?

Firstly, this start of a new Korean War. In this case, with a seemingly local conflict, the strength of the main currencies. Where it leads? It's simple. The euro will rise, the exchange rates of small states, such as Ukraine, Poland, and Belarus, will also jump.

Why will this happen? Everything is very simple. Due to the impossibility of full participation in a military conflict, each power, within the framework of agreements with North/South Korea, will be forced to accept all possible financial assistance.

And in the face of an looming nuclear threat, each state will make every possible effort to neutralize North Korea's nuclear potential. In particular, the United States, led by Trump, will support South Korea with both troops and finances. While the People's Democratic Republic of China, although dissatisfied with the actions of the buffer state, will take all possible participation.

Because if North Korea, led by Kim Jong-in, is a headache for them, then the United States and the democratization of Korea as a whole are a serious threat to China’s internal security and economic viability.

As for the ruble, everything is somewhat more complicated. But we can expect that during the diversion of the main forces to a military conflict with North Korea, Russia will take the side of China, or, having a free hand, will continue financial investments in Syria.

From an economic point of view, such a protracted conflict, although it will not have an immediate and global impact, can still lead to significant relaxations on the part of each of the participating states in the future.

100 points there, 100 points here - so, over the course of a year, countries can lose up to 3% of their foreign exchange reserves, which will certainly affect their rate in international banking trading.

Influence of the PRC and Russia

It is worth noting that when a conflict breaks out between Korea and the United States, the attention of the American government will be diverted from other, less important matters. All this will lead to a weakening of economic sanctions and an increase in Russia’s influence on the territory of the Eurasian continent, along with established trade relations with Asia.

Where it leads? It’s simple – a weakening of the Euro, a weakening of the dollar, but at the same time a significant strengthening of the Russian ruble and the Yuan.

At the same time, all events will be accompanied by a trade embargo on goods from the United States, and the search by the world community for an alternative, calmer currency platform. Therefore, regardless of how the conflict goes, it will be possible to forget about trading in dollars until the end of the conflict.

Mistrust leads to rebellion

Despite the seemingly strong position of the United States in relation to “democracy around the world,” aggressive actions towards China could end very badly. All this will lead the people to dissatisfaction with the actions of the government, which may even lead to impeachment. Needless to say, in this case, Trump and company will have no time to continue economic pressure on Eastern European countries. This destabilization within the country could both lead to the defeat of US troops in North Korea (which, recall, happened during the Vietnam War), and to a significant weakening of the dollar as a whole.

Changing anger to mercy

The US interest in fighting the Koreans will lead to a decrease in attention towards the Russian Federation. This scenario is only possible if the Russian government takes the “correct” side, from the US point of view. In this case, we can expect a complete lifting of economic sanctions, recognition of Crimea as legally transferred, and many more concessions. One can even expect a significant reduction in Russia's debt to the United States, which will lead to a noticeable strengthening of the ruble.

In this case, the ruble could drop to a phenomenal 30 per dollar, which under current conditions will lead to a new round of the economy.

Nuclear scenario Korea vs USA

In the case of a nuclear scenario, we can forget about economic analysis altogether. So, almost all states will join in a nuclear war, and the era of nuclear deterrence will end. What will this lead to? To serious climatic, political and material consequences. And the current market capitalization system, together with the Internet, Forex, banks, etc., will simply sink into oblivion.

Market sentiment right now

The ongoing and not so sluggish conflict between the two states is already affecting the technical sentiment of the market. The combination of US conflicts between Syria, Russia and North Korea began to gradually weaken the dollar.

And the strengthening of economic relations between the Russian Federation and the DPRK leads to additional strengthening and the desire for independence of these two states. Already now one can observe a rapid decline in the dollar, and its rush to the level of 55 rubles per dollar (remember, we could last observe such an exchange rate during the emerging conflict in the south of Ukraine in relation to the annexation of Crimea to the Russian Federation).

The market, in anticipation of further events, is only gaining momentum, and the desire of traders to scalp on any news only leads to greater pressure.

Unfortunately, we hasten to disappoint traders who see the emerging conflict between Korea and the United States as an opportunity to make money. Almost any scenario will rigidly fix exchange rates, and international banking exchange will be reduced to a minimum. So, if market participants have assets, and there will be a complication of relations on the world stage, it is better to hedge your risks and trade calmer assets.

Military conflict over North Korea could affect South Korea, Japan and China, disrupting crude oil supplies to these countries, which account for approximately a third (34%) of all seaborne crude oil trade. In addition, these three countries contain about 65% of Asian refining capacity. Because of this, global oil markets will be seriously “suffered” - this was the conclusion made by analysts from the British consulting company Wood Mackenzi.

Half of China's oil production is at risk if tensions between North Korea and its neighbors escalate into open conflict. China has its own oil production, but more than half of its factories will shut down due to rising tensions. According to Wood Mackenzie, about 1.5 million barrels of crude oil out of China's 3.95 million barrels per day comes from the North China Petroleum Basin, with the nearest field located 200 km from the North Korean border. If the conflict escalates, China will start using oil from its strategic reserves for the first time since their creation 3-4 years ago, Wood Mackenzie expert Chris Graham said.

Japan and South Korea could take similar measures - both countries have the necessary reserves to cover oil shortages within 90 days. In addition, Japan may speed up the re-commissioning of nuclear generators to compensate for reduced oil and gas imports.

Oil prices tend to react positively to an increase in the likelihood of large-scale military action. Growing instability in the world leads to an increase in prices for black gold, says Sergei Pigarev, head of the Asset Management Club of the Higher School of Economics and chief financial analyst at the Mangazeya oil company: “In addition, the DPRK is a major exporter of coal. In 2016, the volume of net exports reached 25 million tons, and export revenue amounted to about $1.2 billion. The cessation of export supplies from North Korea can support coal prices on the international market, and also provides an excellent opportunity for Russian coal miners to replace North Korean volumes with their own supplies.”

As for the gas industry, we can expect an increase in purchases of LNG from Japan in the short term to create reserves of blue fuel, as well as an increase in LNG prices when supplied to the area of ​​possible military operations: the size of the “risk premium” will depend on the level of tension in region, the analyst says. “Provided that Russia does not find itself drawn into a direct confrontation with the DPRK, the escalation of confrontation between North Korea and the rest of the world, led by the United States, could have a positive impact on the Russian economy. First of all, we are talking about the energy sector of the Russian economy. Exporters of oil, coal and gas will benefit the most,” says Pigarev.

In the case of the DPRK, the military development of the situation puts two major consumers of energy resources - Japan and South Korea - at risk and at the same time makes the scenario of relations between China and the United States, which also have a colossal influence on the global balance of production and supplies of hydrocarbons, less predictable, states Alexander Ershov, editor-in-chief of commodity markets Thomson Reuters: “Therefore, it is difficult to talk about a significant likelihood of a so-called war premium in the price of oil in the event of a Korean conflict. The behavior of the commodity market will largely be based on the overall impact of this crisis on the global economy, since the direct threat of losing a significant amount of extracted resources is less likely compared, for example, with the Middle East,” Ershov believes.

Wood Mackenzie's forecasts are limited only to the situation of a regional clash between the DPRK and its neighbors. But Donald Trump does not rule out a different scenario: he promised to respond to the DPRK with “force, fury and fire,” which “the world has never seen before.” In response, Pyongyang is ready to launch a missile attack on a US military base on the island of Guam.

Vitaly Ermakov, head of the Center for Energy Policy Analysis at the Institute of Energy at the National Research University Higher School of Economics, warns against this kind of economic analysis, since it creates the illusion that some kind of “regional” conflict around North Korea is possible, which could have some negative economic consequences for regional players: “In fact In fact, a serious military conflict is only possible with the participation of the United States, which can decide that North Korea's nuclear potential must be destroyed, despite the risk of nuclear war. The problem is that some irresponsible politicians believe that the conflict can be limited to Asia. It seems to me that this is a dangerous illusion that could bring the world to the brink of nuclear disaster. In this regard, discussions about the impact of the war with North Korea on oil demand are simply inappropriate. Dead people don’t need oil,” the expert concludes.

So far, commodity markets have reacted restrainedly to the Korean crisis, notes Alexander Ershov. There are several reasons for this. The main thing is still only the political crisis. Threats of exchanging missile strikes are only in the words of the leaders of the DPRK and the United States, but although tensions in the region have increased, the real lever of influence on the commodity markets is the direct threat of disrupting the balance of demand and supply, and this has not yet happened. Hurricane Harvey is now more visible to the market than the Korean threat, the analyst says. Both the EU and the United States talk about the need to put pressure on North Korea and new sanctions, but in reality only China and, to a lesser extent, Russia can influence Pyongyang. And they behave with restraint - so the markets are relatively calm.

But, according to Alexander Ershov, if the situation escalates, one must understand that a fictitious war in Korea (or anywhere else) will not necessarily provoke an increase in commodity prices. We must again proceed from the formation of a global balance of supplies - price movements are possible in any direction: “The same Harvey, having hit oil refining in the United States, freed up the volume of oil for export, thus putting pressure on world prices, although usually during the hurricane season In the Gulf of Mexico, oil prices are rising because production is usually affected by the elements more than the downstream,” concludes the editor-in-chief for commodity markets at Thomson Reuters.

North Korea's share of the global commodities sector is very small because sanctions isolate it from international markets. At the same time, it is surrounded by large raw materials countries. China imports more than half of the world's soybean supply. Japan is the world's largest importer of liquefied natural gas. South Korea is one of the largest buyers of coal and seller of steel. The combined imports of these three countries account for about one-third of the world's seaborne oil.

Shipping firms are closely watching North Korea's missile tests and Trump's rhetoric to see if tensions have increased in activities that could disrupt trade flows to those countries. While it remains a war of words for now, the intensification could lead to higher insurance rates on ships, exclusion zones or port disruptions, which could increase shipping costs and alter routes, according to shipping analysts, academics and industry consultants.

The impact on trade routes will depend on whether the conflict is limited to the Korean Peninsula or spreads throughout the region. During the 10-week Falkland Islands War in 1982, Britain established a 200 nautical mile maritime exclusion zone around the islands, making any ship within the zone a potential target. In the same decade, neutral commercial vessels were attacked in the Persian Gulf during the war between Iran and Iraq.

South Korea's capital, Seoul, is about 25 miles (40 km) from the North Korean border, one of the most secure in the world. But the trade area affected could be broader in the event of a conflict. Dalian in China is approximately 170 miles from the northern coastline. Japan's main island is about 320 miles from North Korea.

According to Gary Chen, founder of Xinde Marine Services, a maritime risk management company based in Dalian, shipping rates in the region could rise by 20-30% and ships could be forced to change routes, increasing transit times. At the same time, supplies may be diverted to other ports or routed overland by other means, which will increase their cost.

Three of the world's five largest crude oil importers share their borders or seas with North Korea. Virtually all of Japan and South Korea's crude oil imports, as well as the vast majority of China's, are shipped by sea. Together, the three countries receive about one-third of the 39.9 million barrels of oil transported around the world on giant tankers every day, according to Clarkson Plc.

About 40% of global exports of finished and semi-finished steel come from China, South Korea and Japan. The three countries account for about 84% of global seaborne iron ore trade, according to Citigroup, and 47% of global seaborne metallurgical coal imports, according to UBS Group AG.

According to a Citigroup note dated August 10, direct commodity prices and commodity market volatility are largely unaffected by geopolitical risk. The Bloomberg Commodity Index is down 4.8% this year.

According to the US Department of Agriculture, China accounted for 64% of global soybean imports in 2016-2017. China is also the world's largest importer of rice, accounting for about 13% of the trade. Japan is the largest buyer of overseas corn. Together, these three countries account for 20% of world grain imports.

China's four northern customs regions, near North Korea, receive about 47% of the country's oil imports and 63% of its anthracite coal imports, according to the General Administration of Customs. China's imports do not rely on sea borders like those of Japan and South Korea because it has pipelines and land channels to transport oil, natural gas and coal, and China can always redirect tankers to southern ports or move goods overland.

South Korea is a unique country in terms of economic growth. During 1960-2010, GDP per capita at purchasing power parity increased 25 times and today stands at $36.6 thousand. Now Korea is a highly developed country, a member of the G20, the 11th largest economy in the world. Korea is often cited as an example of successful dirigisme—government intervention in the economy. Alexander Zholud carefully studied the modern economic history of Korea and found the answer to the question of whether government intervention is really so beneficial for the economy.

The Republic of Korea, or as it is more commonly called after the Korean War of 1950-53, South Korea, is a unique country in terms of economic growth. Over 50 years (1960-2010), GDP per capita in constant prices (that is, excluding inflation) at purchasing power parity (PPP) increased 25 times. The country, which started out on the same level as China at that time, today has a PPP GDP of $36.6 thousand.

Rice. 1. GDP per capita in constant 1990 dollars, North and South Korea, 1950-2008

Such significant and long-lasting growth certainly aroused the interest of economists. This may seem strange to the general public, but today there is no consensus in the economic environment as to what exactly helped Korea achieve such success. The purpose of this article is to attempt to describe the factors and policies that influenced the development of the Korean economy and possible lessons for Ukraine.

The development of the Korean economy is usually divided into 3 periods: import substitution, export orientation, industrialization.

First period, 1953-1961: “import substitution”

After the war ended, South Korea was poorer than most countries in Africa, not to mention Europe. Most of the capital and land before independence were owned by the Japanese colonialists. These assets were confiscated to the state and privatized after the end of World War II, often with powerful and well-connected family groups as buyers. The first attempt to launch economic growth was the then popular idea of ​​import substitution—“self-sufficiency” of the economy. To implement it, the government introduced high (up to 77% of the price) import tariffs, importers had to obtain a special permit to import products, and several exchange rates existed at the same time. This policy made money for a number of businessmen close to the government, who later formed “sister corporations” or chaebols, but as a policy it was a failure - the average growth rate at that time was at the level of 5.5%, which is very low for a country that is recovering from war. Even irrevocable financial, technical and humanitarian assistance from the United States, which amounted to 10% of Korea's GDP per year, did not help - from 1954 to 1960.on average over two thirds of annual imports financed by US aid. In 1960, the next presidential (and vice-presidential) elections took place, in which 85-year-old President Syngman Rhee won by a large margin. The elections were heavily flawed and sparked massive student protests (the army opened fire on protesters, killing 180 and injuring thousands of civilians), leading to the overthrow of Syngman Rhee's regime. The result was a short-lived “second Korean republic,” which was overthrown in less than a year by a military junta led by Park Chung-hee, who took over the country.

Second period, 1962-1972: “export orientation”

Park Chung Hee was an implacable opponent of communism, which did not stop him from actively introducing government intervention in the economy, the creation and implementation of five-year plans, and the illegal persecution of political opponents. At the first stage, he tried to actively fight corruption and businessmen close to the previous government, but it did not lead to any significant “landings”, and the connection between big business and the authorities only intensified. We moved from the failed import substitution policy to an export orientation.

Rice. 2. Construction, agricultural and processing industries, shares of added value,%

It is very important to understand the geopolitical situation of the early 60s: Korea is improving relations with the former colonialist Japan (Japan is paying multimillion-dollar compensation) and in exchange for military and political support for US actions in Vietnam, it gains access to purchases that the US carried out to conduct the campaign. For example, according to Kim (cited in , original 1970 article not available online), Korea's revenue from Vietnam War-related contracts totaled $185 million in 1967, or about 4% of the country's GDP for that year.

Procurement not only provided foreign currency for the purchase of modern imported equipment, but also created a guaranteed sales market and helped to acquire skills that could then be used in other projects. According to Glassman and Choi , 21% of construction work in 1965-1969 was carried out by order of the United States. The projects were built by civilian companies within the chaebols. For example, Hyundai was building the Pattan-Narathiwat road in Thailand in 1965, which would supply troops and supplies to Vietnam. As a result, 40% to 60% of gross fixed capital formation (GFCF) came from US public procurement contracts and US financial and humanitarian assistance in the late 1960s.

The new government continued to actively intervene in the economy, but changed the emphasis of this intervention. Import tariffs were reduced, but businesses that met established export quotas received access to subsidized loans and other benefits. Until 1967, there was a list of permitted goods for import (the rest were prohibited. They could be imported only with a special permit and there were restrictions on the purchase of hard currency for these purposes), but under external pressure, since 1967 the government changed the policy to the opposite - a list of prohibited goods .

Loans to exporters were issued both by foreign banks under state guarantees and by the state through renationalized banks. The main development of industry took place through labor-intensive industries that could attract labor from agriculture. If in 1963 43.1% of GDP was produced in agriculture and 63.4% of the labor force was employed, then in 1970 these figureswere 26.7% and 50.4%, respectively . Export promotion was successful in both absolute and relative terms: export growth from $55 million in 1962 (2.4% of GDP) to $1.6 billion in 1972 (15% of GDP). The structure of exports shifted from agricultural products and minerals to light industrial goods - the top three leading goods in exports in 1970 were textiles (40.8% of exports), plywood (11%) and wigs (10.8%). In general, labor-intensive light industrial goods accounted for more than 70% of exports - that is, the country, in full accordance with the classical theory of international trade, used its competitive advantage. Korea's main trading partners were the United States (47.3%) and Japan (28.1%).

Rice. 3. Net exports as a percentage of GDP

Exports grew at a very high rate - in 1963-1969 the average annual increase was at 35% , while imports grew by an average of 22% annually. However, it should be noted that throughout this period, net exports remained negative with an average level of -6.9% of GDP in 1962-1971. Maintaining such a persistent and large trade deficit required an influx of external capital—first financial aid, then investment and debt.

Because it was necessary to have significant production and export volumes to receive most government incentives, business concentration and the development of chaebols occurred. Government lending support was not always successful, often requiring additional resources to be spent to bail out failed projects. To generate revenue to support such spending, the government provided protection to successful companies by restricting the entry of new entrants into the market. 4 attempts to change legislation in favor of deregulation and competition during this period failed.

During the 1960s, Korean firms invested heavily in new assets—the growth rate of gross fixed capital formation increased from 10.5% per year in the first half of the decade to 33.2% in the second. Companies did not have enough own funds for such investments and they actively increased debt - the ratio of net worth to assets fell from 51.6% in 1965 to 23.3% in 1970, a large proportion of companies appeared that had positive cash flow , but were critically dependent on the continuation of credit lines and the circulation of their own bills. When bank loans were not available to companies, they borrowed from the domestic unregulated financial market, often at significant interest rates.

Third period, 1973-1979: "development of heavy and chemical industries"

In July 1971, the Federation of Korean Industry (representative of the interests of large companies) turned to President Park with a request for the government to buy out the debts of troubled companies. The last straw in the accumulation of problems was the 17 percent devaluation of the national currency in the previous month, which led to an increase in the cost of servicing foreign currency loans. The possibility of bankruptcy of such firms was considered, but due to fears of stopping foreign investment in the event of high-profile bankruptcies, a possibly more expensive, but more politically acceptable option was chosen. A little more than a year passed, and the government issued a decree (the so-calledDecree of August 3 ), by which all old debts of companies to the unregulated financial market were replaced with debt at a flat rate (1.35% per month), which had to be repaid 5 years after an initial three-year period without payments. Short-term debts to the banking system were replaced by a unified debt (8% per annum, 3 years of grace period, 5 years of payments). Real interest rates were virtually zero or negative - annual inflation in 1971-1974 was 13.5%, 11.7%, 3.2% and 24.3%, respectively.

Rice. 4. Gross fixed capital formation as % of GDP

So, there was a redistribution of value in favor of borrowers at the expense of the formal and informal financial sector, from which large businesses primarily benefited, while small and medium-sized businesses were significantly limited in their ability to obtain loans. However, this brought only temporary relief to large businesses - the reduction in loan payments led to an opportunistic build-up of new debts.

In addition to direct credit support for large businesses, the government introduced a moratorium on servicing companies' debt to the unofficial financial markets. Companies that did not want to invest in industries chosen by the state not only lost access to financing (the banking system was under government control), but also faced tax problems and restrictions on obtaining licenses, which denied them access to promising markets. Many companies created excess production capacity that they could not use due to lack of demand for the relevant goods.

In January 1973, Park Chung Hee announced a “declaration on the development of heavy and chemical industry” (English: Heavy and Chemical Industry, HCI). The 1970s were the peak of government intervention in corporate activities. Prior to this, export promotion did not select the types of industrial activities that should be supported. The transition to direct support for industries was a consequence of three main factors (according to Anne O. Krueger (1995) :

1) a decrease in the US military presence, which created the need to develop our own military-industrial complex;

2) rising wages due to general economic growth, which made labor-intensive exports less competitive. The growth of neighboring countries with similar labor-intensive industries;

3) the presence of a large deficit in the current account of the balance of payments, despite the stimulation of exports, including due to the use of imported resources in production.

The reduction in financial support from the United States meant that the foreign trade deficit urgently needed to be reduced, because the source of its financing was disappearing.

Rice. 5 Real GDP growth rate,% per annum

State-owned industrial enterprises were created, one of the most famous examples of which is POSCO (Pohang Iron and Steel Company), an iron and steel plant built with funds provided by Japan as part of the program of mutual understanding between the former mother country and the colony. An agreement on credit, financial and technical assistance was signed in 1969, steel production began in 1972. The company was privatized in the late 1990s, and today it is the fourth largest steel producer in the world.

During this period, Korea's GDP grew faster (11% per year in 1973-1979 versus 9.6% in 1963-1972), although opponents of government intervention note that most of the growth was driven by the general export direction of the economy and the influx of foreign direct investment and its pace could be faster without government intervention. It should be noted that in 1980 there was the first drop in GDP in almost thirty years. This was certainly influenced by the murder of Park Chung Hee and the second oil shock, but the slowdown was obvious even before these events.

1979-2017: bug fixes

In 1979, a series of events occurred that created a crisis and forced the government to move away from supporting specific companies to creating a more level playing field - a process that is still ongoing. First, there was a second oil shock that hit the chemical industry, one of the industries with significant government support. Second, the acceleration of inflation to 18.3% in 1979 and 28.7% in 1980 due to large budget and foreign trade deficits and price distortions by government policies led to shortages of many consumer goods. Thirdly, on October 26, 1979, a successful assassination attempt was made on President Park Chung-hee, a dictator who almost single-handedly decided tactical and strategic issues of economic development. Fourthly, due to drought in 1980 there was a very poor harvest, GDP showed a decline for the first time since 1953 - by 1.7%.

Another group of military men came to power, led by Chun Doo Hwan, who, fearing the resumption of a military conflict with North Korea, introduced a state of emergency. In response, protests by students and ordinary citizens against the political dictatorship and the dominance of the chaebols became more frequent - for example, the uprising in Gwangju in May 1980, suppressed by the army, as a result of which more than one hundred and fifty people died. Trade union protests began. The protesters would achieve success only in 1996, when former President Chun Doo-hwan was sentenced to life in prison, among other things, for excessive use of force in suppressing protests.

By the early 1980s, the level of GDP per capita in constant 1990 dollars in Korea was approximately the same as in modern Ukraine. Chun Doo-hwan's advisers explained the futility of continuing the policy of active government intervention in the economy - Korea at that time was already approaching the technological frontier, and its economy had become so complicated that it became almost impossible to predict the success of one or another intervention. Therefore, gradual economic liberalization took place. It did not prevent further economic growth - from 1981 to 1997 (the year of the Asian financial crisis) - average annual GDP grew by 9.1%. Import duties were reduced, new government projects in industry were not launched, and businesses received more equal access to credit.

However, as became clear especially after the Asian crisis of 1997, the country still has significant structural imbalances. The banking system still has problems with significant volumes of loans issued under government pressure to large corporations, some of which (for example, Daewoo) went bankrupt. The chaebol leadership is accused of bribery, financial fraud, tax evasion and influence on government - in recent years, similar court sentences have been handed down to the heads of such large companies as Samsung, SK, Hyundai, Hangwa and Lotte. At the same time, the heads of large chaebols, after being convicted, receive an amnesty - as was the case with Lee Kun-hee (Samsung) or Chong Mong-ku (Hyundai). At the end of 2016, the first female president was impeached Park Kin Hye on charges of corruption.

1953-1979: three decades of government intervention

There is no consensus on whether such policies had a positive impact on economic growth. Most agree that the intervention had a negative impact during the import substitution stage, as evidenced by the moderate GDP growth rates despite massive external financial assistance. Government restrictions on imports did not produce either a direct effect of reducing the foreign trade deficit or significant industrial growth. The situation changed only with a reorientation towards external expansion.

The periods of export orientation and the development of heavy industry are similar in the sense that in both periods there was active government intervention, but they differ significantly in the mechanisms of such intervention. In the first case, any exporter received access to preferences for fulfilling established export plans - low-rate loans, hard currency, tax breaks, and the like. Therefore, the development of industries took place according to market laws - the country specialized in light industrial goods, in which it had a competitive advantage - cheap labor. When the state took up the development of heavy and chemical industries, the main goal was not to obtain maximum profits, but the country’s defense capability. Therefore, a policy of direct support for specific industries and enterprises was applied - the government set prices for them below market prices for materials, sent engineers and other qualified labor. This led to the introduction of controls on consumer prices, the emergence of shortages of consumer goods and the black market, and ultimately a slowdown in economic and export growth.

It is worth noting that the division into camps according to the point of view on the role of the state in the development of Korea does not at all reflect the division according to economic schools or the nationality of the authors. Thus, a prominent proponent of the role of the state in the development of Korea was Alice Amsden with her book Asia's Next Giant: South Korea and even to some extent representatives of the World Bank ( study welcomes government intervention only in cases where there are problems for the market, for example, asymmetric information in lending, problems achieving economies of scale in competition, etc.). Opponents noted that when calculated at available world prices, the productivity of the heavy and chemical industries remained below the productivity of the light industry, the development of which was hampered in the 1970s ( Yoo Jung-ho, 1990 ), OECD countries' imports from Korea grew less in the 1970s than from Taiwan, which had a similar export structure but did not engage in significant government intervention during this period. An undeniable difficulty in the assessment is the lack of a perfect “control case” with which Korea could be compared. All counter-historical assessments are based on certain assumptions that cannot be clearly proven.

In general, over the entire period, the following factors can be identified that had a significant impact on the development of the Korean economy:

Economists usually distinguish two types of economic growth: extensive and intensive. The first is to increase the amount of resources used - capital, labor, etc. The second means more efficient use of available resources. European countries and North America developed mainly due to intensive growth - the emergence of new, more efficient technologies. At the same time, the USSR during the industrialization period was a clear example of extensive growth - due to the displacement of people into urban industrial work (in particular by the rationing system), the squeezing out of private savings (Torgsin's work to buy gold during the Holodomor), forced savings and the purchase of Western factories and other modern capital. The problem with extensive growth is that at some point resources run out. Thus, it is possible to double the workforce by attracting women to production, improve its quality through educational programs and education, but one can hardly expect to attract everyone - from infants to the elderly - to production or train everyone to the level of candidates or doctors of science. That is why, after resources were exhausted, growth in the USSR slowed down significantly, which ultimately led to the fall of the Soviet empire.

In the 1970-1980s, a significant part of Western economists considered the “Eastern economic miracles” to be the result of a repetition of the Western path, that is, an increase in efficiency. However, in the 1990s, after Japan's economic growth stalled and Korea's financial problems, the dominant view became that their success was the result of favorable conditions (including political ones) for foreign trade, coupled with significant resource mobilization. Just as in the USSR, such mobilization makes it possible to temporarily have significant rates of economic growth simply by increasing production factors.

Lessons for Ukraine

Ukraine is unlikely to be able to directly copy the experience of South Korea due to a number of economic and political restrictions:

• Lack of labor reserve. There are no significant numbers of young people moving from less productive agriculture into industry. It is unlikely that young people will agree to work 10-12 hours a day for a small salary. In Korea in 1980 (that is, after significant direct government intervention), 34% of all workers were employed in agriculture, in 1963 there were 63.4%; in Ukraine in 2012-2015 this figure averaged 17.3%.
• A significant level of budget expenditures on social protection requires a significant tax burden. If preferences are provided to industries and firms, the burden on the rest of the economy will only increase. An aging population will require additional increases in social and health care costs.
• Low level of savings and low probability of forced mobilization of funds
• Lack of significant external support - The Korean economy ran a trade deficit from 1953 to 1997, driven by aid from the US and Japan in the 1950s and 1960s and FDI and credit in the later period, as well as promoting market access to the US and Japan.
• The political unacceptability of dictatorship and the further merging of the state and big business.

Notes:

About 1000 dollars of GDP per person. For comparison, GDP per capita at PPP in Ukraine in 2015 was almost $8,000.
The Americans initially placed high demands on the sale of confiscated Japanese assets, and few Korean citizens met these demands, so ownership was transferred to the new Korean government. The government first put the banks up for sale in 1954 with a number of provisions to prevent ultra-low sales with restrictions on the source of funds, but no offers were received. The government has sharply relaxed the requirements. Using political connections, large industrial capitalists borrowed money from banks in order to buy these same banks. When privatization was completed in 1957, all commercial banks were under the control of industrial capitalists. According to one study, the share of insider loans of such banks exceeded 50 percent. Buyers actively supported President Syngman Rhee's Liberal Party financially. (for workPhillip Wonhyuk Lim “Path Dependence in Action: The Rise and Fall of the Korean Model of Economic Development” )
In addition to commercial banks and government-controlled "deposit banks," there was a significant domestic unregulated market that provided primarily short-term loans. In 1972, the volume of loans from the unregulated market amounted to 346 billion won, commercial banks - 646 billion and depository banks - 823 billion (see page 166 of the bookFinancial Development in Korea, 1945-1978 ).
He was founded only in 1988 year. Before this, there were funds for civil servants and the military, but they covered a small part of the population.

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World markets, which have not had time to recover from the Icelandic volcano eruption and are painfully experiencing every news from Europe, are again going into negative territory on fears of a military conflict between North and South Korea.

Asian stocks fell sharply, and shares of South Korean companies were subject to massive sales after the escalation of the confrontation between North and South Korea.

North Korea has allegedly put its troops on alert, as reported by South Korean media citing experts in Seoul, who, for their part, use their own sources in the north of the peninsula. According to these data, Kim Jong Il gave the corresponding order to the highest military officials. There has been no official confirmation of this information from Pyongyang yet, nor have there been any comments from South Korean officials, Reuters reports.

On Monday, Seoul announced it was freezing all trade relations with the North and banning North Korean ships from entering South Korean waters, in what Britain said was a crushing blow to the communist state's economy. This was South Korea's response to the sinking of a corvette in March of this year. 46 sailors were killed. Reuters calls the attack the deadliest episode in inter-Korean relations since the 1950-53 North-South War. A group of international experts admitted that the corvette was sunk as a result of the launch of a North Korean torpedo.

News from South and North Korea added tension to already nervous investors, who sold the euro on Monday on news from Spain that the local regulator had taken control of the small bank CajaSur. Japan's Nikkei index fell 2.8%, Australia's &P/ASX 200 fell 2.3%, and South Korea's Kospi Composite index fell 4.3%. Hong Kong's Hang Seng fell 2.5%, while the Shanghai Composite index lost 1.2%, The Financial Times newspaper notes.

As a result, the South Korean won fell against the US dollar in foreign exchange trading. At 10:57 local time, the dollar was worth 1,257.65 won, which is 43.15 won less than the previous trading levels, Yonhap noted. According to sources in The Financial Times, the Korean Central Bank had to intervene in the trading process to avoid an even stronger fall in the national currency.

The MSCI Asia Pacific composite index fell 3.1% to 109.24 points at 1:30 p.m. in Tokyo, to its lowest level since late July 2009, Bloomberg reports. “Rising tensions on the Korean Peninsula, combined with growing concerns about European sovereign risks, are affecting investor sentiment,” Kim Yong-jun from Seoul-based NH-CA Asset Management stated in an interview with the agency. - However, many of North Korea's statements are bluffs. I don't think catastrophic events will follow."

“I think people are overreacting to what's happening. Neighboring countries and allies will not allow conflict to flare up on the Korean Peninsula. However, it is worth considering that such news will have an impact on financial markets from time to time,” Lee Soon-Yup from Shinhan Investment Corporation told the FT.

On the other hand, North Korean defectors in Seoul claim on their website (www.nkis.kr) that the order to put troops on high alert was given on May 20, that is, before Seoul announced retaliatory actions for the North Korean attack on South Korean warship.

The website quotes words from a Pyongyang radio report: “We are not in the mood for war. But if South Korea, with the US and Japan on its tail, tries to attack us, Kim Jong Il has ordered us to complete the unification process that was not completed during the (Korean) War.” North Korean media write that the South Korean authorities deliberately fabricated the incident with the sunken corvette in order to create a pretext for an attack on North Korea.

The United States, whose military contingent in South Korea numbers 28 thousand troops, expressed full support for Seoul. On the other side of the border is one of the largest armies in the world, North Korea's, which is believed to number 1 million. However, according to experts, the North Koreans’ weapons are outdated, and they are unlikely to risk starting full-scale hostilities against the much better armed and trained army of South Korea and the American contingent.

Japan, in turn, said it could impose its own sanctions against North Korea in connection with the sinking of the South Korean ship, Japanese Prime Minister Yukio Hatoyama said the day before, the Korean Yonhap agency reports.

Meanwhile, South Korean companies in various sectors are suffering losses. Shares of KB Financial fell by 4.9%, Samsung Electronics - by 2.1%, and Hyundai Motor immediately fell by 5.8%. Investors' concerns also affected the quotes of airlines and the travel industry. "The dollar's sharp rise against the Korean won has triggered massive selling in airline stocks," said Kyung Um-dong, a Bank of Korea spokesman. Korean Air Lines fell 5.3%, Asiana Airlines fell 9.9%, and tour operator Hana Tour lost 5.8% of its market capitalization. The Bank of Korea has scheduled an emergency management meeting for late Tuesday evening to discuss trends in currency and financial markets.