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South Korean unique model of economic development

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South Korea and its economic policyare phenomenal in the modern world. South Korea’s economic growth and the country’s ability to overcome crisis is particularly remarkable.

The newly industrializing countries (NICs), first of all Eastern Asia, are the centre of attention of the contemporary world.

New standards, new precedents, new, models of economic development are being developed in the world amid the globalization process.

Modern technological systems and scientific technological progress made the rates of the growth and development uncontrolled. The progress of Japan, “Asian Tiger” (South Korea, Singapore, Hong Kong and Taiwan) in the field of economy, as well as the unprecedented scale of China’s economic development have allowed these countries to be integrated into the global economic elite. They led the world to new challenges and created unique precedents for success.

It’s not unknown that Japan, as the export-oriented country, leads the Asian market and it took the country a long time to overcome the financial crisis of the 90s. Although the Chinese model is based on continuous innovative growth and industrial revolutions, it involves many shortcomings and great risks. This is a cheap labor force, its high exploitation, low level of social guarantees, lack of political reforms, obsolete ideological platforms, high economic expenditures. Amid this situation, since the beginning of1960s,in 40 years, the least-developed agrarian country managed to turn into the most developed industrialized country – this is South Korea. The Republic of Korea ranked 15th with an estimated Gross Domestic Product.

It is the honorable member of the world’s 20 biggest economies G20.

South Korea is still being developed, it is developing markets in the global direction, carrying out reforms and provides high economic revenue. The country is a member of the OECD (Organization for Economic Cooperation and Development). South Korea is considered as an elite member of the Asian Tiger. The country is known worldwide for the highest rate of economic development from 1960 to 1990. By 2000, it, together with other members of the “Asian Tiger”, was the fastest growing country. However, everything is ahead, South Korea still has the status of the developing country.

Korea has achieved quite impressive scales in terms of macroeconomic indicators: GDP (Nominal) – USD 1,130 trillion (15th place in the world) (see the diagram №1), PPP –USD 1,554 trillion (12thplace in the world). GDP per capita – USD 32 020. As GDP distribution across the economic sectors, there is the following picture: service – 58%, industry – 39%, agriculture – 3%.

Over the last decades, South Korea was distinguished by the highest rate of economic growth in the world, that is driven largely by the exports of industrial products. The country needed to implement significant investments to enter the international market, especially the western market, with competitive products. Large manufactures (Samsung, Daewoo …) made large-scale financial investments in development of new products, in promotion of trademarks worldwide and in keeping significantly lower export prices (see Table 1). Investments certainly required large credit resources.

Naturally, investments required large credit resources. Western creditors considered cooperation with South Korean enterprises and banks especially profitable because they saw South Korea was implementing an effective export policy, reachingunprecedented scales. South Korea managed to become one of the leading countries in the industries of shipbuilding, electronics,automobiles and household appliances.

 

Samsung shipbuilder in South Korea

The country started from practically a zero base and within the shortest period of time it could create the world’s famous chaebols, including Samsung, LG and Hyundai. A little later, it has started to focus on the development of small and medium businesses.

Chaebol – is a large industrial conglomerate that is run and controlled by an owner or family. The word chaebol is a combination of the Korean words chae (wealth) and bol (clan or clique). Chaebol emerged in South Korea before the period of Japanese occupation, 1910. Doosan is considered as the  oldest and largest chaebol in South Korea, which was established under the Joseon Dynasty. Initially, chaebols were family-owned enterprises in Korea, but later, under the leadership of General Park Chung-hee, who served as president from 1961 to 1979, chaebols were modeled on the zaibatsu system. There were significant differences between the zaibatsu and the chaebol, the most significant of which was the source of capital. The zaibatsu were organized around a bank for their source of capital. The chaebol in contrast were prohibited from owning a bank. The Park regime nationalized the banks of South Korea and could channel scarce capital to industries and firms it saw as necessary for achieving national objectives. While banks were able to found Japanese “zaibatsu“.

It is worth mentioning that, chaebols enjoyingcertainstate privileges, have made a great contribution to the technological development of Korea. They have also played a special role in research and development (R & D) in the country. From this perspective, in the 1970s, South Koreans focused on the textile industry, cement, shipbuilding, marineand heavy industries.

Chaebols made an enormous contribution to the South Korean economy, but in fact, those chaebols, which enjoyed state guarantees and privileges. While others were fighting for overcoming financial difficulties, faced difficulties and got into debtsas far as chaebols enjoyed political support and were less depended on their own resources, they depended on the political processes and the governance in the country. Just three out of ten largest chaebols managed to survive by 1965. These chaebols are: Samsung, LG and Ssangyong. Due to the created problems, the International Monetary Fund recommended South Korea to reform the chaebols, however, it was not easy.

History and successful economic emphasis.

South Korea was under Japan’s colonial rule in 1910-1945. After World War II the process of a was a new distribution of power took place in the world. With the defeat of Japan, the Soviet Union imposed its control on the north of Korea, and the United States – on the south.

The country is divided into two parts. 3 years later, both parties declared state independence, first of all, from each other. That is what triggered the Korean War, with direct or indirect involvement of the US, the USSR and China. Eventually, we got two states, which were absolutely independent from each other. Economic and social conditions of both sides weretoo difficult. People on both sides lived in poverty.

It should be emphasized that after the country was divided into two parts, a large portion of the industrial assets of the entire country remained in North Korea. The southern side was the most backward and lived on the verge of poverty. The living in the country was extremely low. Despite these challenges, South Korea managed to grow its gross domestic product from USD 2, 3 billion to 250 billion. the average annual income of population from USD 87 to USD 4 830 during the period from 1962 to 1989, in less than 30 years.The country’s average annual GDP growth was 8%.

After the Second World War, it is clear that South Korea was focused on agrarian farming and as a result of implemented reforms, theservice sector and the rate of development is becoming has becomeprioritiesin the early 21st century(see Diagram No. 3).

Source: Korea Development Institute (KDI)

Diagram No. 3

The South Korean Development Plan was developed with involvement of the US in 1954-1979, USD 1.5 billion in subsidies was allocated for development of the country. These resources were mainly spent on subsistence and imported products. General Park Chung-Hee (1961-1979), who came to power of South Korea through the coup d’état in 1961, a man who came to power in 1961 with military coup in South Korea, is the “author” of the “economic miracle” of Korea. He has madea bet on industrialization of the economy, taking into consideration the growth of the export volume. With this approach, Park Chung-Hee managed to attract the largest investors to make investments in the country.

(The third President of South Korea Park Chung-hee)

Several steps were taken to direct the state toward economic growth: the development of five-year economic plans, the redirection of the economy from import substitution to exported-oriented industrial development, and state control over credit. The state nationalized all commercial banks and reorganized the banking system to give control over credit. It then provided low interest loans to businesses according to the needs of economic plans, emphasis to attracting direct foreign investment.

The head of state made a special emphasis on the personal characteristics of business owners, helping them to create the largest conglomerates– “chaebols”. General was famous for his struggle against corruption and he strictly demanded from the government agencies to obey the state interests. This was the period when the world brands – Hyundai, Daewoo, Samsung, LG, KIA, SsangYong and etc. were developed in the country.

Park Chung-Hee used to develop methods of difficult, mobilized economic policy and perfectly realized them.

(Hyundai Genesis 2015)

The results of the “economic miracle” is clearly demonstrated in the bellow table (№2).It is better to see some comparative achievements of both South and North Korean economies across time.

History of Per Capita income of South and North Koreas (In USD)

Year 1960 1965 1970 1975 1980 2000 2009 2010 2012
South Korea 83 106 242 574 1592 10841 17175 20759 >24000
North Korea 280 162 240 750 959 959 960 688 1000

Source: Lecture by Mr. HYUN In-Tae (Special Advisor to the President for Unification Policy, Former Minister of Unification), Seoul-South Korea

When Korea was creating an “economic miracle”, the most important resource for it was a disciplined and cheap labor force, their union in large corporations, and the influential charismatic leaders of the country brought relevant results. These accents triggered large-scale, stable growth in the Korean economy until 1997. Because of the high rate of economic growth in 60s-90s of the last century, economists established a new term in their dictionary “Asian Tigers”, which included South Korea, Singapore, Hong Kong and Taiwan. The state governance was distinguished by its mobility and fast adaptation to ongoing developments in the world that made the country more flexible and mobile, and overcoming the difficulties was relatively easy.

The crisis was rapidly overcame in 1997 and by 1999, the economy continued to grow. In the same year, a group of by finance ministers and heads of central banks was set up. South Korea was deservedly included in the Group of Twenty (G20).

(G20 leaders at 2014 Australia Summit)

Crisis

After years of strong performance, Korea’s economy entered a crisis in 1997.  According to the results of October 1997, South Korean enterprises and banks borrowed up to $ 66 billion in short-term loan (USD 20 billion of that was to paid off by the end of the year), while monetary-gold reserves of South Korean bank amounted to USD 30 billion. Western creditors and investors were panicked that the country would not have enough funds to pay off the debts. South Korean borrowers were also concerned over the existed situation.

An intensive process of the redemption of foreign currency took place. A stable rate of local currency against the US dollar was also very profitable.Everyone started selling the shares of local enterprises. The stock index fell by 50% in June-December. Two largest bankruptcies occurred in South Korea in 1997– the largest steelmaker company „Sambo Stell” and later, the carmaker “KIA” went bankrupt. A number of “chaebols” were closed in autumn of the same year. The companies, which were in the crisis, failed to pay their liabilities, consequently, the crisis has been transferred to the banking sector. Because of the attacks with currency speculation by Thailand and the crisis in Asia, West banks stopped opening credit lines across the region.Despite the difficulties, the country’s credit SP [Global credit rating agency Standard & Poor’s] rating [1] has not been downgraded and remained at “AA”. Experts supposed that the Republic of Korea would soon be able to get out of the crisis.However, by the end of the year, Taiwan Dollar had been devalued, after a stock plunge on the Hong Kong Stock Exchange made the SP to revise South Korea’s rating and downgrade it from “AA” to ”A”.

Heavy currency crisis started in the country. Investors began to leave the country and withdraw their r investments. During the crisis, the government addressed the population to sell their gold to fill reserves, thus, the country collected 227 tons of gold, which equated USD 2,2 billion.

The International Monetary Fund (IMF) held negotiations with the country leadership on December 3 of 1997. The fund aimed to support borrowers and creditors to overcome the existed financial difficulties and liabilities and to preventdepreciation of local currency (Won). Korea and IMF agree on $57 billion support package (the IMF’s contributions alone total $21 billion and the rest amount was allocated by the World Bank, Asian Development Bank, Japan and other leading creditors of the world). It was decided that the country would receive these funds for 3 years. Although the decision was made public, panic has not been reduced. On December 16, 1997, the Bank of Korea, which has spent a large amount of reserves for to keeping the currency exchange rate fixed, refused to peg the exchange rate and the local currency started a rapid devaluation and it devaluedby 80% in 2 months. The IMF was forced to accelerate loan allocation procedures andthe tranche of USD 10 billion was provided on January 29, 1998. At the same time, the Korean government started active negotiations with the leading West banks to restructure short-term loans for local banks and businesses (prolongation from 1 to 3 years).

Phase of recovery

South Korea could use IMF recommendations with maximum efficiency. The financial sector was restructured, the corporate sector management style was improved, the level of transparency of companies was increased. The debt crisis has even acquired the role of a cleanser. The management system of “chaebols” was changed and structural reorganization was implemented, resources were distributed optimally among business spheres, qualification of managers was improved and the banking system became more efficient.

The mentioned efforts and the steps taken by the government  ledthe South Korean economics to the phase of revival. Production and service exports increased by 13.3% in 1998, the volume of import decreased by 22%. By the end of the year, South Korean reserves reached $ 52 billion. The decline in the national currency rate suspended in March of 1998. Investors started to buy shares of local enterprises, this process was facilitated by the IMF’s requirements for the country’s government to liberalize its policy in order the foreign capital to reach the local market.

The Bank of Korea has reduced aggressive credit policy, the banking interest reducedfrom 22% to 14% in 1998. The growth of GDP during the crisis period it is quite interesting(see Diagram # 4)

Source: THE BANK OF KOREA Diagram # 4)

The reserves amounted to $ 62 billion in 1998. Because of a large amount of foreign currencies in the market, the Korean bank had to regulate the growth of the Won. Despite of the unreliable predictions for 2000, the South Korean shipbuilding business has reached unprecedented success and has received an unprecedented amount of orders. It was reported by the  business circles that Korea received orders worth $ 15 billion and 700 million during 1998, which was triggered by the increase in the maritime shipping market in the world and by the lack of competition from Japan and European countries. The volume of orders in this field increased by 62% compared to 1999.

Source: KDI – Korea Development Institute. Schedule №1

After the crisis, the approaches of the new government were comparable to the principles of modern market economics, and the more favorable period started for the medium-sized business. Small business was given the opportunity to use preferential credits and received credits were restructured. Accordingly, banks became more interested in cooperating with small and medium businesses. The number of newly registered business objects was growing. The state has actively started setting up consulting, technical support, staff training centers and investment funds for small and medium businesses. The state promoted trade in both domestic and international markets. Exhibitions and fairs were held. These efforts led to the employment and involvement of local population, which improved the social climate in the country.

(Strike of Ssang Yong Motors employees)

In 2007, the mortgage crisis in the US soon swelled into the crisis of the whole world and covered all developed countries. The crisis has particularly damaged South Korea in 2008.  The country’s manufacturing industries fell by almost 75 percent, but the “Asian Tiger” managed to overcome difficulties. Korea was positively assessed and it was predicted that by 2010,the country would reach a high pace of development. South Korea justified the expectations and in April of 2010, Moody’s Investors Service Inc., the company which provides credit ratings, research, and risk analysis, upgraded Korea’s rating fromA2 to A1 (“for special sustainability of South Korea’s economy amid the world financial crisis” – the country has managed to avoid increase in the domestic debt and to keep control of the budget deficit). Already in 2009, the country showed a 0.2% increase in economy. For the last 7 years, it was the lowest rate of economic growth for South Korea, but South Korea’s economic growth speeded up in the first quarter of 2010. According to data from the Ministry of Economy of the Republic, in 2010 the country’s domestic turnover grew by 20%. As for export volume, it was increased by three times in 2009 compared to 2009. Of course, there were some problem in the economy and this was mainly related to the growth in the debt of state corporations. However, the government planned to restructure the corporationsfacing problems, mostly by focusing on inefficient spending.

It was interesting that in 2009, South Korea adopted a state program to correct the image of the country and allocated $ 74 million a year for this purpose. The main goal was to improve the country’s Nation Brand Index [1]”, which means Korea’s ranking to 15th placeby 2015.

[1]Nation Brand Index – British expert Simon Anholt developed the Nation Brands Index (NBI) in 2005 to measure the image and reputation of the world’s nations and track their profiles as they rise or fall.The variables that are taken into consideration by the Anholt-Gfk Roper ranking are:

  1. Exports: This determines the public’s image of products and services from each country and the extent to which consumers proactively seek or avoid products from each country of origin.
  2. Governance: This measures public opinion of the level of national government competency and fairness. It describes individuals’ beliefs about each country’s government, as well as the government’s perceived commitment to global issues such as democracy, justice, poverty and the environment.
  3. Culture and Heritage: This reveals global perceptions of each nation’s heritage and the level of appreciation for its contemporary culture, including film, music, art, sport and literature.
  4. People: Measures the population’s reputation in terms of competence, level of education, openness and friendliness and other qualities, as well as perceived levels of potential hostility and discrimination.
  5. Tourism: Captures the level of interest in visiting a country and the draw of natural and man-made tourist attractions.
  6. Investment and Immigration: This dimension determines the power to attract people to live, work or study in each country and reveals how people perceive a country’s economic and social situation.

 

The role of the state in the development of the country

The state actively adopted new laws and revised the existing ones, a number of political measures were taken for maximum mobilization, for growth of exports, for large capital investments, for attract ion of foreign technologies and investments in accordance with national interests. The government did its best to create the appropriate social infrastructure: roads, buildings, ports, highways and schools. The business representatives often addressed the state to assume risks, asked the government to become the guarantor for the spending part of large projects.

Stability of credit and monetary policy was the number one challenge in the country. The government did not lose its control over money circulation, inflation and the state budget deficit even amid significant difficulties in the country.The state’s monopoly on the financial and credit systems played a key role. The concentration of financial and monetary resources under the state control played a major role in the formation of public enterprises. In addition, the main bet was always made on the export, worldwide. The republic started to subsidize the export of national products, they enjoyed special banking benefits. 7 priority areas have been defined at the legislative level by the 70s, including shipbuilding industry, electronics industry, machinery industry, textile industry, black metallurgy, colored metallurgy, chemistry industry.

The use of state resources for these sectors was set as a priority, they enjoyed tax benefits and various bank concessions. At the same time, the state strictly regulated the competitive advantage of priority directions, make them to leave the market or join relatedandcompetitive private owners. The state often compensated the losses.

It was obvious that the role of the South Korean state was dominant over the economy of the country and was actually a defining factor. Therefore, the question arises: whether the South Korean private companies can be considered as independent units? The question was raised following reasons:

1kg gold at KRX (Korea Exchange Inc)

In addition to national enterprises, the state actively controlled the flow of foreign investments. It should be noted that from 1967 through 1986, the amount of direct foreign investment was just 2%. South Korea was not focused to attract any foreign investment, but only the one that was in the common interests of the country’s development. Thus, we gettrilateral close alliance-cooperation between the state, local capital and foreign capital. However, the state is the guarantor of protection of the interests of all three parties and therefore its decision is mandatory for all of them.

The merit of the state in the miracle of the South Korean economy can be considered the fact that the state defined middle and long-term plans as well as target programs, gave tasks and timeframes for fulfilling these tasks to the national enterprises and

Challenged national competitions with rivals, giving tasks and timing for its fulfillment. Strictly controlled family farms and rapidly destroyed unhealthy players for the country’s economy. The South Korean economy can be assessed as the best example of harmonization of planned and market economies.

At the present time,South Korea’s economic problem, which hinders growth, is related to demographic problems. In 2010, the Minister of Finance of South Korea, made interesting emphasis. He stressed that the country did not have enough people for the relevant services, South Korean birth rate was the lowest one among all developedcountries with 1.15 babies per female.

Chaebols

Chaebol – is a large industrial conglomerate that is run and controlled by an owner or family. The word chaebol is a combination of the Korean words chae (wealth) and bol (clan or clique). Chaebol emerged in South Korea before the period of Japanese occupation, 1910. Doosan is considered as the  oldest and largest chaebol in South Korea, which was established under the Joseon Dynasty. Initially, chaebols were family-owned enterprises in Korea, but later, under the leadership of General Park Chung-hee, who served as president from 1961 to 1979, chaebols were modeled on the zaibatsu system. There were significant differences between the zaibatsu and the chaebol, the most significant of which was the source of capital. The zaibatsu were organized around a bank for their source of capital. The chaebol in contrast were prohibited from owning a bank. The Park regime nationalized the banks of South Korea and could channel scarce capital to industries and firms it saw as necessary for achieving national objectives. While banks were able to found Japanese “zaibatsu“.

Park Chung-hee did not have any resources in the country to start any kind of business or manage processes. He showed uniqueness and talent by gathering like-minded people around him. These people did not have any experience. The development of the economy began with the development of light industry, the products, which could easily be exported, the work that required a hard work, but less professionalism.

In 70s, the country started mobilization of gained experience for development of heavy industry.

While talking about the economic experience of the Republic of Korea and chaebols, scientists cite Park’s business meetings and the style of governance. Here is a content of conversation of one of such meetings: “One dayPark summoned all the leading businessmen of the country … He began to distribute and define tasks. Park said he wanted to develop a high-performance economic model that would have been enabled to compete with Japan and other economic monsters…

  • Tsoi, what type of business are you doing?
  • Rice farming and gambling businesses.
  • You will start shipbuilding.
  • hat Britons and Norwegians should ask for advice.
  • But, I can’t.
  • I will help you. The state will help you. Initially, it will be difficult, but we will win. The main thing is you to help Korea to strengthen and gain influences and in exchange for it, you will receive honor and attention. If you refuse, you will annoy me. Do you understand?! Kim will start producing TVs and cassette players, Cho-  will make vehicles … “.

South Korean businessman Chung Ju Yung was the founder of the Hyundai Group, one of the world’s largest business conglomerates. He was credited with having played a leading role in the revival of the South Korean economy. Chung got his start in business as the owner of an auto repair shop. Later, he established Hyundai Engineering and Construction in 1948. The company received an order to build the US base during the Vietnam War, then it received orders to build ports for Dubai, Saudi Arabia. Following it, the company started car making, ship building, electrical engineering.

(Territory for construction of Hyundai ships)

The activities of shipbuilding firms, which were producing their products at the Hyundai platform, were particularly successful and held the leader position for 10 years worldwide. While in the 60s there were just fishing vessels in South Korea. By the 1980s, Korea moved to the second place, but by the end of 2000, the Republic of South Korea manufactured 35% of total number of cargo ships builtin the world.

Lee Byung-chul was the founder of the Samsung Group and one of South Korea’s most successful businessmen. Samsung has many different businesses. It makes mobile phones, cameras and other electronics. Since 1990, Samsung has increasingly globalized its activities and electronics; in particular, its mobile phones and semiconductors have become its most important source of income.

Notable Samsung industrial affiliates include Samsung Electronics (the world’s largest information technology company measured by revenues, and 4th in market value), Samsung Heavy Industries (the world’s 2nd largest shipbuilder),and Samsung Engineering and Samsung C&T; Samsung Life Insurance (the world’s 14th largest life insurance company), Samsung Everland (operator of Everland Resort, the oldest theme park in South Korea)and Cheil Worldwide (the world’s 15th largest advertising agency).

Samsung has a powerful influence on South Korea’s economic development, politics, media and culture.

LG Corp. founder Koo In-Hwoi established Lak-Hui Chemical Industrial Corp. in 1947. In 1952, Lak-Hui (currently LG Chem) became the first Korean company to enter the plastic industry. As the company expanded its plastic business, it established Goldstar Co. Ltd. (currently LG Electronics Inc.) in 1958. Both companies Lucky and Goldstar merged and formed Lucky-Goldstar.”In 1959, Gold Star’s design laboratory had already started designing the new radio model. Alongside efforts to develop the new radio model the laboratory was also designing domestic components in house. On November 15, 1959, the first domestic radio came off the assembly line.

In 1995, to compete better in the Western market, the Lucky-Goldstar Corporation was renamed “LG”, the abbreviation of “Lucky-Goldstar”.

LG Electronics plays a large role in the global consumer electronics industry; it was the second-largest LCD TV manufacturer worldwide after Samsung Electronics and the fourth largest mobile phone manufacture as of 2013.

Failure of Chaebols

The model, which is closely tied with the state’s finances, faced many challenges –corruption, when businesses were forced to contact the state officials to solve problems. Although former President Park Chung-heewas resisting corruptionand state crimes, there was a great deal of corruption hidden from him in the country.

Since the impacts of the chaebols were increased, introduction of effective control mechanisms became difficult. There were significant violations and errors in the work process. Companies started to make large-scale investments in non profitable projects, which led to embezzlement and improper management of resources that triggered decrease in their efficiency. They considered themselves so great and influential that they did not think they had any chance to make mistakes or to go bankrupt. Eventually, these mistakes have resulted in devaluation of the national currency and the crisis in the Republic of Korea.

Agriculture

Land Reform was carried out by the Government of Republic of Korea in 1950s and Koreans with large landholdings were obliged to divest most of their land. It’s remarkable that 2/3 percent of the country’s land is mountainous territory. Cattle raising is not developed in the country and the average size of land holding per farm household is only 1.5 ha.

(Farmer from Sa Đéc)

The state has decided to support small enterprises and family farmers takingsocial interests into account. The government started purchasing rice from farmers at a price higher than market price and imported it. With this policy, the government provided subsidies and encouraged local production and family farms. Over time, based on the free market principles, under the pressure of “trade wars”, the state was forced to gradually reducr support for farmers, which led to protest of  local farmers. However, they have already moved to a new stage of development.

 

Nuclear Power in South Korea

23 reactors provide about one-third of South Korea’s electricity from 22 GWe of plant. South Korea is among the world’s six most prominent nuclear energy countries. The country plans to increase the number of the nuclear reactors to 30 by 2020.

(Nuclear Power Co in South Korea) Education and Science

The Republic of Korea took much from Japan’s successful model. In addition, the country managed to analyze and study their mistakes. The leadership of the country believes that the development of education and science is a fundamental message of economic development. There are more than 400 higher education institutions and colleges in the country, with more than 4 million students, 32% of them are educated in engineering. South Korea is one of the world’s leading countries for the number of students enrolled in universities. Apart from the government, private corporations make especially large investments for development of science and education in the country. Consequently, the development of science and techniques is of utmost importance and investments are made in this direction.

(Seoul State University, South Korea)

Nowadays Korea is facing a very serious challenge.South Koreans have reached a point where so many people have become educated that fewer apply for lower-paid, lower-skilled jobs. That’s left the nation’s farms and manufacturers scrambling for labor, at the same time many college graduates spend their 20s waiting for opportunities in large companies and the government.

“Park Ju-eun, a student at Hongik University in Seoul, decided to delay graduation for a year after encountering a difficult job market. “These days, no one graduates as scheduled,” she says. “Students put off graduation to have a better chance to get hired.” Ms. Park, who is 24 years old and a management major, applied for jobs at 15 companies, but she wasn’t invited to interview at any. She’ll get her degree next year and, if she still can’t get a job, will study foreign languages and take certification tests to build up her credentials,” the Wall Street Journal writes.

Summary and conclusions

In 2007, South Korea’s president, Mr. Lee, campaigned on a promise of economic growth he pitched as the “747” plan—7% annual growth, $40,000 per capita income and the world’s seventh-largest economy by 2018. A key element: government downsizing.

“Confronting the problems today is more difficult than mustering the will to rise up from poverty was in the 1960s, says Huh Chan-guk, an economics professor at Chungnam University.

“We don’t have that consistent meeting of the minds with staying power compared to the magnitude of the problems,” Dr. Huh says. For economists specializing in South Korea, the country’s growth dilemma has become grist for theorizing; several investment banks recently issued formulas for jump-starting its medium-term and long-term growth. A study by Danny Leipziger, a professor at George Washington University and a former World Bank vice president, showed that, with enough productivity improvements and greater employment of women and the elderly, South Korea could reach even the 7% growth target Mr. Lee touted in his presidential campaign. “

The model now for South Korea, economists say, should be countries in Europe and North America that developed robust service industries, which absorb highly skilled workers and complement existing manufacturing competence, and embrace more diverse working environments that stimulate invention and creativity. To get there, South Korea will need to reshape its economy to be driven from the bottom up, rather than the top down, and confront the cultural traditions that are creating work barriers for women and immigrants. “Korea has to decide whether it will reconstitute itself and stay in the limelight or get ready for a Japan-style sunset,” says Jasper Kim, a law professor at Ewha University in Seoul.

The Korean Institute for International Trade (KITA) identified four major driving wheels of the Korean economy. It puts openness as the most critical element in booming their economy. The second prominent factor to Korean economic achievement goes to human capital (which is the second driving wheel according to KITA). KITA underlined efficient governance as the third key factor for Korean Economy. According to KITA, government vision and policy played crucial roles in securing rapid and sustainable economic growth for the last consecutive decades. Corporations also play momentous roles in achieving Korean economic success. This is the fourth important factor according to KITA.

The Korean Economic success is actually manifested in its IT boom and expansion of the New Media as well. It is the world’s number one nation in terms of internet penetration and number of internet users. Professor Sejung Marina Choi from Korea University explains that Korea has more than 40 Million internet users, which is almost 83% of its total population.”


By Giorgi Mikanadze, Economic Policy Researcher, Assistant-Professor at Caucasus University.

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