As disastrous in its effects on Korean economy as the division of Korea’s people and resources by the 38° North parallel, was the evacuation of all Japanese personnel, except 500 retained in North Korea, after VJ-Day. The 700,000 Japanese formerly resident in Korea dominated all elements of the economy and supplied management and technical personnel even to the mechanic class. Koreans were denied opportunities or positions of consequence in all phases of political and economic life. It is no reflection on the individuals concerned to note that a former Korean stationmaster at Pusan is now head of the railways, or that a vocational school graduate is in responsible charge of a large hydroelectric plant not far from Seoul. It is however, an indication of an almost fatal deficiency in South Korean economy. The ultimate solution is not readily apparent.
Disinvestment
The process of disinvestment probably began in South Korea during the late thirties when the Japanese decided to put all new capital into war production and permit nonwar facilities to depreciate. Capital goods provided by the Japanese for maintenance and development in South Korea went with few exceptions to war plants such as the submarine shop at Pusan, and to the strategic transport services linking Japan with the Manchuria-North Korea industrial complex. This meant that facilities such as the north-south railroad from Pusan to Antung on the Manchurian border received the main portion of construction materials available. Other industrial establishments in South Korea were converted to war production or allowed to deteriorate. The supply of fertilizer, essential to rice culture in the exhausted paddies of South Korea, was drastically reduced in the early forties as a result of the conversion of North Korean nitrogen fixation plants to the manufacture of explosives. Exploitation of South Korea’s meager forest resources resulted in severe erosion and the destruction of crops and utilities through flooding The Japanese also depleted Korean stock-piles and withdrew skilled labor for Army service, or for the mines and factories of Manchuria and the Japanese islands. During two years of military government, the process of disinvestment has continued.
The possibility of South Korea financing a program of investment and rehabilitation out of the proceeds of exports is not worth considering in detail. Although South Korea is primarily agricultural, it is unlikely that it will be able to export foodstuff, even under the most favorable circumstances. Deterioration of agriculture, due to accumulated soil deficiencies and erosion, and an increase of population from 15 to 20 million since 1940 indicate that no export surplus of food can be expected in the next several years. The only exports which may be derived from South Korea are small amounts of such minerals as tungsten, gold and copper, some ginseng root, and marine products such as agar-agar. The most optimistic estimate is $10 million worth of exports by 1950. Much more than $10 million earned by Korean exports will be needed to finance essential raw material imports, and there is no prospect of any capital development out of current production.
Inflation
The Korean inflation is not as serious as the Chinese inflation in rate of price increase, but its causes are less susceptible to control by measures taken within Korea. Price increases have been due to physical inability to produce goods, and not to unrestrained issuance of paper currency. Prices of consumers’ goods in various categories have risen 200 to 700 times over the 1937 level. The official rise price, however, has risen only 70 times, and about 80 per cent of the calorie requirement for the urban population is available at the official price. A runaway inflation has not yet occurred in South Korea, because (a) the Military Government has restrained the issuance of currency by keeping governmental expenditures and local occupation costs at reasonable levels, and (b) because cannibalization and the use of Japanese stocks have kept some industry going, and (c) the forcible collection of rice at harvest time has brought in sufficient food to maintain, with “disease an unrest” imports, an adequate official ration in the cities without the use of large inflationary payments to the farmers. Highly inflationary factors such as the exhaustion of raw material stocks, cumulative breakdowns in public services and transportation, and the cutting of power supply from the North, might occur simultaneously. The Korean economic outlook is, therefore, more grave than in China or Japan, where governmental fiscal policies as well as low production, are the main causes of inflation. Korea, lacking raw materials and skilled labor, is not in a position to be saved from a disastrous and chaotic hyper-inflation by the efforts of its own people combined with correct policy decisions. A breakdown could be forestalled only by external provision of large amounts of consumers’ goods and transportation equipment.
Agriculture and Fisheries
Agriculture—Over three-quarters of the total population of South Korea are farmers. The total area of land under cultivation in 1946 was 6,033,000 acres, or about 2½ acres per farm household. Approximately 15 per cent of agricultural land was formerly owned by Japanese, but title thereto remains with the Military Government and will eventually pass to Koreans. In the projected land reforms an additional 60 per cent of land, which is tenant-operated, would be involved. The Military Government has not proceeded with land reform even with regard to Japanese-held land, in the view that such reform should not precede establishment of an interim Korean Government.
After VJ-Day the influx of over two and a half million Koreans from Japan, China, and North Korea into South Korea, coupled with almost complete lack of commercial fertilizers as well as severe floods, resulted in a severe food shortage. Farmers have been reluctant to double-crop soils already depleted because of a lack of fertilizer, and have preferred to conserve land for rice, the best money crop. In 1946 the average planted acreage was only 79 per cent of the 1935-39 average, and production of grains and pulses was only 71 per cent.
In the past, about 36 per cent of the population and 36 per cent of the food production of Korea were located north of the 38° North parallel. However, postwar population movements, plus the availability of more commercial fertilizers in North Korea (where almost all of Korea’s large chemical plants are located), has changed this situation. Only about 30 per cent of Korea’s population is now north of the 38° North parallel, but that area accounts for around 38 per cent of food production.