South Korea is currently engaged, once again, in a large-scale, expensive modernization of its military that aims to provide the country with a more robust and self-sufficient defense. The timing of this considerable increase in military spending might seem, at first glance, rather odd. Korean economic growth has been relatively anemic in the past few years. Meanwhile, the conventional military power of its chief adversary, North Korea, has steadily declined, and, until recently, South Korean leaders were committed to expanding inter-Korean cooperation. In another irony, the current Lee Myung-bak administration has simultaneously pushed a much harder line on North Korea and reduced the level of spending projected by the previous Roh Moo-hyun government.

Although the North Korean threat still serves to justify military spending in the South, other rationales have gained prominence, such as perceptions of a weakening U.S. security commitment, “unspecified” threats or insecurity in the region, and the technological requirements of the Revolution in Military Affairs (RMA). But another rationale has shaped South Korean military spending, and this rationale may become even more salient during this period of global economic crisis. Successive South Korean governments have argued that growing the military and localizing production is good for the economy.

On the face of it, this economic argument makes intuitive sense. Large-scale military spending accompanied South Korea’s spectacular rise to the commanding heights of the global economy. Indeed, the defense industry in some ways led the industrialization process. “We made tanks before we made cars,” recalls Kim Jong-dae, editor of Diplomacy and Defense Focus. Today, the country’s military industry employs a little more than 20,000 people directly and more than 50,000 indirectly, and it accounts for sales of roughly $5.7 billion, including more than $1 billion in exports in 2008. These are not small figures. Yet, critics charge that government funds could be more profi tably invested in civilian sectors of the economy to better utilize research and development (R&D) funds and contribute more to economic growth. The flip side of the economic argument—that a national economic slowdown intensifi ed by a global recession necessitates a less ambitious military modernization—has generated a different set of controversies concerning the sequencing of defense reform and the allocation of scarce resources.

This paper will explore these various controversies, which have pitted academic against academic, government official against government official, ally against ally, and even army against navy and air force. It will examine the nature of South Korean military spending, the outlines of the debate around the current modernization, and the push and pull factors that drive budgetary increases. It will look at the domestic economic (and inevitably political) impact of more won going into the defense sector. And it will assess whether South Korea’s military transformation refl ects and contributes to a regional arms race, which in turn has economic consequences of its own.

The paper will conclude that economic arguments for increased military spending are at best weak, at worst counterproductive, and, in general, irrelevant. For all the effort expended by economists and government officials to translate military spending into economic advantage, the primary rationales for the size and type of defense spending are noneconomic. Ultimately, then, the debate over South Korean military spending, whatever its economic implications, must take place at a different level of discourse.