From Rags to Riches in One Generation

Capitalist Exploits's picture

By: Miha Zupan at

My first experience with South Korea (or Korea) goes back to my university era when I, more by coincidence than anything else, ended up in a student exchange program there. It was during that time that I got my first insight into the country's economic development, which could probably be best described with the phrase "from zero to hero".

 Today Korea is one of the most economically and technologically advanced nations on the planet, but it wasn't always like that.

Merely fifty years ago it was one of the poorest places on Earth. The country was poorer in fact than most of Africa and South America, and, ironically, poorer than its neighbor North Korea.

With the help of a stronger industrial base established during the pre-war Japanese colonial era, and excessive aid from the other communist countries, particularly from the Soviet Union, North Korea managed to quickly get back on its feet after the end of the Korean War in 1953. South Korea, on the other side, was suffering from political instability and high inflation. Interestingly enough, South Korea surpassed the economy of its northern neighbor only during the 1970s.

Things in the South started to turn around in 1961, when military general Park Cheung-hee (father of the current Korean president Park Geun-hye) took power and began the industrialization of the country through five-year economic plans.

BusanBusan, home to one of the largest ports in the world

In the fifty years since, South Korea has turned from one of the most impoverished to one of the world's richest nations per capita. This remarkable economic transformation, also dubbed as "the miracle on the Han River", after the Han River that flows through the Korean capital Seoul, was led by the chaebol, Korea's family-owned conglomerates.

Chaebol such as Samsung, LG, Kia or Hyundai are synonyms for electronic gadgets or cars for many outside of Korea. But as I learned when squeezing toothpaste out of a LG branded tub, there’s much more to chaebol than that. In Korea, many of these chaebol supply pretty much everything, from toilet paper to medical care.

LG Toothpaste

A concept partially related to chaebol is something called jeonse. Wikipedia describes jeonse as:

"A real estate term unique to South Korea that refers to the way apartments are leased. Instead of paying monthly rent, a renter will make a lump-sum deposit on a rental space, at anywhere from 50% to 100% of the market value. At the end of the contract, usually two or three years, the landlord returns the amount in its entirety to the renter."

To better understand the important role jeonse plays in the South Korean economy, let's look at the Korean era of industrialization. Rapid economic transformation drew farmers from rural areas to seek higher paying jobs in the cities. With that the need for additional housing to be built occurred. However, local banks were mainly focused on financing chaebol and access to credit for smaller entrepreneurs was often limited.

Jeonse, a system with roots going back to the period of ancient Korea, turned to be a convenient solution to both problems. It is a hybrid of a rental system and informal lending scheme. Imagine pledging your empty apartment as collateral for an interest free loan to finance expansion of your business. On the other side, it induces people to pool savings, which would over time be used for purchasing their own home.

The system proved to be particularly resilient during the Asian financial crisis in 1997 when it offered an attractive alternative to fragile and heavily indebted banks. To reduce the hefty debt burden Koreans were queuing up to donate their gold to the state. Ultimately this campaign became so popular that the officials feared that this would drive down the global prices of gold. From what I've experienced so far this gesture paints a pretty accurate image of Korean patriotic spirit.

Jeonse, however, is not a bulletproof system. It only works well in the environment of high interest rates and rising real estate prices. In the wake of the Asian crisis, first cracks began to show in the system. Interest rates came down to historically low levels and landlords started to raise the deposits to match their return on investment.

After the collapse of Lehman Brothers, Korean property prices started to lose steam. Since then even more people have turned to renting instead of buying an apartment that is declining in value. This pushed jeonse prices even higher. As of last year a tenant would on average have to put down a $290,000 deposit to rent an apartment in Seoul.

Korean Condos

High deposits and low return have incentivized many tenants and landlords, respectively, to start turning to a monthly rental system that is more familiar to the Western world and dubbed wolse in Korea.

Also akin to the Western world as well as Korea is the high level of debt. Korea today has one of the highest consumer debt levels in the world, largely accumulated in the last two decades. It is considered to be one of the biggest threats hanging over the Korean economy.

In the last few decades, Koreans have proved that they are capable of achieving a lot. They have a proven track record of economic successes, which I hope will not be broken when dealing with debt.

As I am sitting at the airport to leave the country, perhaps, "hwaiting", a Korean word for encouragement is the best way to wrap it up.

- Miha


"When I was growing up in South Korea in the '70s and early '80s, the country was too poor to buy original records. Everything was bootlegged." - Ha-Joon Chang

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Tzanchan's picture

Oh rerally now, Martial law for may years post war, concentrated wealth with interlocking directors, battles in the streets as they protested martial law. Huge tariff barriers to US products, what they sell 98 hundais to every 2 US cars sold? We kept 50k troops there for years, still spend billions on their "defense" so the can screw us? This is an idiotic a piece as I've ever seen. If all you care about is a Mercantilist society that is your shining city on a hill, they can all bugger off as far as I'm concerned; bring our troops home tomorrow and see what happens, N v.S; PRC get in, Japan gets in we keep the 7th fleet there 24/7/365 so all those jerks don't start mixing it up? Who pays for that? We have an empire but do not make the scum Kuwaitis sell us oil for $5 a barrell for saving their asses, Sauci can sell oil for $100 BBL because we keeo the 5th fleet here; we are suckers. People gotta pay for protection, insurance or we may need to take our carrier battle groups home

moneybots's picture

"In DPRK, they are always at a state of war.  War never terminated, DPRK however at the behest of PRC."


I don't think it is at the behest of China. The Kim Dynasty has a mind of its own.  In 1976, two American officers, Captain Bonifas and Lieutenant Barret, were murdered at Panmunjom, by North Korean soldiers.  A non aligned nations meeting was ocurring in Sri lanka at the time.  Following the attack on U.S. MP's, North Korea tried to get a resolution passed to demand the U.S. get its troops out of Korea.  I believe it passed, but was later recinded as facts about the attack came to light.

bbq on whitehouse lawn's picture

My take is that it was the only way for the landlord to get a loan.

Matt's picture

Better than a loan, no compounding interest, and the assets are lender-in-possession instead of debtor-in-possession. In exchange, you just have to generate a yearly return greater than what renting would.

Let's compare to apartments around here; let's say it is worth $150,000 for an older apartment, and generates $650 per month in rent, when at full occupancy. In 12 months that would be $7800, about 5.2% annual return (minus expenses).

With Joense, you have gauranteed occupancy for at least two or three years, and you would have $75,000 to $150,000 in cash to invest, meaning you would need between 10% and 5% return on investment to be equal to renting, assuming you could rent 100% of the time.

gaoptimize's picture

South Korea is in demographic collapse, with fewer that 9 live births per 1,000 population (4th or 5th from the bottom of ~>200 countries).  I adore their cars, hard disks, RAM, now extreme high end video cameras, and ships.  The greatest achievement of US power in the 20th century.  It's so sad to see them commit cultural suicide.

Matt's picture

I don't understand why people think having half or a quarter as many people 50 or 100 years from now is "suicide"? Must be all the infinite growth programming.

Bear's picture

Unfortunately, we in the West (including Japan and S Korea) are willing to trade children for iPads, Ikea, Isuzus, and I-everything ... be it for the belief that the earth is over-populated or just selfishness, we are choosing to cut our own throat ... and we be overrun by those who believe in children

Monty Burns's picture

There are two separate issues here.  There's no great problem with an orderly reduction in population.  But there most certainly s a major problem with, as you say, being overrun by those who believe in children.

Anton LaVey's picture

Things in the South started to turn around in 1961, when military general Park Cheung-hee (father of the current Korean president Park Geun-hye) took power and began the industrialization of the country through five-year economic plans.

Oh wait... You mean South Korea succeeded because a STATIST Dictator PLANNED the country economy 5 YEARS IN ADVANCE??!!??

(I can hear ZHers libertarians explode all the way from where I type this)

Read it and weep:

Yes, isn't it amazing that they were able to achieve this, and even more since the entire thing was planned, and executed, by (gasp) a Government Agency! And an agency that planned everything, and borrowed from foreign countries to be able to finance development the way the Korean Government wanted it, and not the way the IMF or World Bank wanted it!

In other words, Korea's governement succeeded brilliantly, using tactics that were straight out of a ''statist'' playbook. Not all government intervention is bad.

Of course, there are also plenty of things to blame Park Cheung-hee for: he was a dictator, who severely curtailed freedoms in South Korea and was not above kidnapping and assassination of opposition figures. In other words, Korea got very it is now through repression and a lot of violence directed at opposition parties and worker unions.

All of this to say, I find it very funny that "Capitalist Exploits" is singing the praise of Korea's economic miracle, while conveniently forgetting that (a) it has nothing to do with capitalism but everything to do with planned, governement-directed, planning and investment and (b) the atrocious legacy of Park Cheung-hee in the field of human rights.

But hey, Yay Capitalism! Right? "Those who don't learn from history are doomed to repeat past mistakes" and all that...

Fezter's picture

But they still allow entrepreneurship...Imagine how wealthy they could be without 5 year plans...Yes, lets not forget Stalin, Mao, Pol Pot, et al.

caconhma's picture

There is a vital role for a government: promote and defend national interests. It includes development of national domestic and foreign policies and its implementation. Free market is incapable of development of sound economic policies benefiting the entire society. At the same time, government and its bureaucrats are incapable of effectively implementing domestic economic development due to conflict of interest, corruption, and briberies. Consequently, it is the government function to develop strategic plans and create and maintain  a political/economic/legal environment to implement them where  the private/free market sector will flourish and create stability, safety, prosperity for its citizens.

It is vital to understand that capitalism and a free-market economy is NOT the same things. Capitalism is just a system/mechanism of moving financial instument around.  Free-market economy is an economic system allowing of balancing demands & supplies through innovations and competition.

Mercury's picture

It helps when you have a very homogenous, conformist population to centrally plan for and very successful, Western models (developed organically by heterogenous populations) to immitate.

"Capitalism" is a somewhat vague term essentially invented by Marx as a straw man. What modern economic -ism doesn't leverage capital and trade in abstract claims on goods, payments and services? S. Korea's system certainly allows for private property and a rule of law surrounding such. It may not have allowed for quite as much free enterprise as say, Hong Kong had during the same period (another Asian mega-success story...but with almost zero central planning). So, WE ALL need to be careful of simple labels.
Comte d'herblay's picture

Let's not forget the access that was provided to the United States markets in competition with domestic higher priced producers.

Korea was the beneficiary of politicians in the U.S. who sideswiped domestic producers.  

Wonder what percentage of their products are exported to USA.

Anymore, these formerly third world countries are beginning to resemble a model used in the NFL Draft.  While the'league' benefits and perpetuates itself over the long run, in the short one, which can last a decade or more, the 'home' team you root for begins a gradual descent into an abysmal record. 





AdvancingTime's picture

A book I wrote a while back focuses on how the ever quickening pace of change impacts today’s society and the massive challenges it creates. It is crucial we understand that we are living in a unique era the likes never before experienced by past generations. History viewed in the framework of mans time on earth formed the crux of my message.

Only by viewing the full journey from the beginning of man to our current state can we make sense of our fast changing chaotic world. Yes things are now very different from only a century ago and South Korea is more proof on just how fast things are changing. For a look at how we must now begin to start planning for a sustainable future see the artice below.

Zeta Reticuli's picture

I was impressed with how clean everything is in Korea. The public restrooms I saw were cleaner than most American homes. There is no litter or graffiti. Even in a lower blue-collar neighborhood, everything is painted and neat. In Seoul, the average car is bigger than in any American city. No Japanese cars here. Also, you can get a good cup of coffee almost anywhere. Coffee shops are everywhere.

The Koreans do not hide their hatred of the Japanese. At the Presidential Palace there is a temple with a large bell that is rung to welcome people from all nations, except Japan. Also, there are swastikas everywhere. It is an ancient symbol used on Buddhist temples. I visited South Korea twice last year and I plan to return this year.

Confused's picture

Western world and dubbed wolse in Korea


Sorry. There are some tings that will always make me laugh. ;-D


Can someone explain to me this jeonse? It would appear to me that the money flows to the landlord (to be used) and then fully back to the rentor. Its early here for me, and my brain is not fully processing the extent of why this would be a better alternative to traditional renting. I'm guessing that the landlord wouldn't have to get a loan from a bank at a puntitive interest rate to pursue other opportunities. But who the hell has $290,000 to rent an apartment (example from article). Sure it encourages saving (which we can all agree is great). Again, sorry for the ingnorance, I haven't had my coffee yet. 


Nice article, thank you. 

goneYonder's picture

Yes, you understand it correctly. It requires generational weath, ie capital built up, saved and passed on. A small minority of Koreans without family connections, for whatever reason, have difficulty renting. This, however, is rare. It's traditional for the groom's family to provide the living space and for the bride's to furnish it.

kareninca's picture

I have gotten to know a number of Korean people over the years, starting way back in college.  Yes, it is a very impressive society, full of proud, intelligent, diligent people.  But it is also a brutal society, likely as a consequence of Japanese wartime, and post wartime, brutality.  I have known Korean women who decided from a young age that they would never marry a Korean man, because of that.

It is also a society that doesn't allow people to be weak.  We had neighbors visiting from Korea; a highly educated couple and their children, the girl about 12.  I mentioned to her that my husband was anxious and depressed (oh, well).  She said to me, "I'm anxious and depressed."  Because her mother was relentlessly cheery, I wasn't eager to tell her, but I did.  The reaction was total denial, "Oh, she doesn't know what she's talking about!!  She doesn't even know what that means!!"  No, the kid knew exactly what she meant, and what she was talking about.

It is a sexist society, still.  We have a young friend (21) who grew up in China but who is Korean, and she hates the Korean sexism; it really angers her.  Her younger brother, who is a lazy slob (she is remarkably accomplished) is the all-important one to her parents, just because he has a dick.  Gross.  I read an ethnographic study done of rural Korea in the 1920s; they didn't even give girls names, just nicknames!  On the bright side, although for a while they aborted their baby girls like the rest of Asia, they have stopped doing that!!!!!  Sort of as a mass social movement, they stopped offing their girls!!!  I read an interview in which a Korean woman mentioned that she had noticed that girls actually notice and look after their parents, when the parents are old.

Koreans are obsessed with bloodlines, so they will not adopt.  Given that many of them are now Christian, they need to realize that that is not consistent with Christianity.  They also treat single mothers like dirt  -  the guy's parents will often even try to get the girl to get an abortion!!!  These women lose their jobs when they become pregnant, and have no way to support themselves and their child.   Ever wonder why Americans still (well it's finally sort of changing) adopt from Korea?  It's not like Korea can't afford to support their children!!  And it's NOT because the women want to give up their children.  It's because they literally cannot keep them.  Yes, single motherhood in the U.S. has become an issue, but we would never expect a woman to give up her child!!!!  Or pressure her to abort!!!! 

Well, the fertility rate in South Korea is 1.24.  I wish the country and its inhabitants well, but they need to stop tormenting their population with crazy educational and professional and reproductive expectations.  They simply torture themselves with these things; yes accomplishment matters, but it is possible to go to far!  It is a very unhappy country, which is a terrible shame.  My neighbor's best friend is from Korea; she is depressed and her (also Korean) husband (who has cancer) fears she will kill herself, but my friend cannot get her to get help.  An American woman in that situation would take the happy pills, thank god.

pashley1411's picture

Living in the shadow of super power or powers for 1000 yeras, no time for rest.

kurt's picture

Lets talk about going from riches to rags in one generation.

Where are America's defenders against enemy ocupation?

IMACOINNUT's picture

Spent 3 years there in the mid-seventies, it is and has been a land of highly motivated and tough people. Have many high quality and beautiful products such as blankets, rugs, mother of pearl vases and furniture that have remained in great condition all these years. The people were always very honest and loved to barter for their wares.  The winters there were some of the coldest and most bitter I've ever experienced, and that is having moved from Alaska the year before. Would like to revisit to see all they have accomplished.

moneybots's picture

" The winters there were some of the coldest and most bitter I've ever experienced, and that is having moved from Alaska the year before."


I was in Seoul in the mid 70's and winter was cold, but i don't recall it as being as bitter cold as upstate New York.  Also interesting that it didn't snow much.



DoChenRollingBearing's picture

Nice article.  I was very impressed with Korea when I went there in 2012.  Their bearing factories were straight out of "Star Trek", robots...

Koreans are a tough & motivated people.  All four of my business counterparts (export guys with their companies) worked 60 + hour weeks, they all had families.

The entire city of Seoul, I was told, had free wifi, inside and outside.  Their metro (subway) is huge and modern.

There are ssome 45,000,000 South Koreans.  If they ever successfully integrate the North into their economy, at some point they will be a powerful country.

New_Meat's picture

dcrb: next trip, try some kimchee, then get more agressive, next time you visit. "step it up a notch" ;-) - Ned

nah's picture

talent is worth something

Emergency Ward's picture

Aigoo, aigoo....oppa.....unni.....hyung......oma.....whaa?

New Child South Korea.

disabledvet's picture

"It is said that Sparta attacked and destroyed Athens because he was jealous of her."

Stuck on Zero's picture

A great deal of Credit for the Korean economic miracle goes to their mercantilist trade policies and Uncle Sap er Uncle Sam who is willing to sacrifice millions of American jobs for Korea.


zaphod's picture

Having worked in Korea for 4 years for a major Korean Chaebol, 99% of their success has been due to having the hardest work ethic in the world. I've been able to directly compare assembly lines in the mid-west to Korea and there is no comparison. The problem for the US is the decendants of what was a hard working people have become lazy and entitled and are squandering their inheritance. Korea's trade is unfair and closed (which the US should stop accepting), but their unbelievable success was due to much more.

Handful of Dust's picture

BUt...but...but working makes my brain hurt.

philipat's picture

Actually, it's not even 50 years. I spent a lot of time in Seoul in the early 1980's putting together a pharmaceutical joint venture with one of Korea's largest pharmaceutical Companies. In those days, Korea was still poor and they were manufacturing sports shoes and basketballs etc. for the large US manufacturers, which we could buy down in Itaewon for a few dollars. Old Korean chests were still plentiful and cheap with shipping costs to Hong Kong very cheap also.

In those days, the people worked long hours but mostly sleeping at the desk because it was not "The done thing" to leave the Office before the boss. That got converted into productive hours sometime between then and now.

August's picture

My daughter-in-law is Korean: diligent, hard-working, smart, sweet and nuts.

One glaring factual error by the author: the Korean War never "formally ended".  Anyone who's looked at the Wikipedia article on Korea would know this.

New_Meat's picture

In DPRK, they are always at a state of war.  War never terminated, DPRK however at the behest of PRC.

All y'all can think of this as the "1984" war forever thang.

- Ned

Vampyroteuthis infernalis's picture

Korean society produces a hard working, intelligent population. The only trouble I have with Koreans is their culture when among themselves. It is very rigid and hierarchical. Elders demand 100 % compliance no matter how immoral or wrong they may be.