A pipeline of economic miracles: how the Korean economy works

Back in the middle of the XNUMXth century, South Korea was a poor developing nation, but today it is one of the largest economies in the world, a popular tourist destination and an important business center. What is the reason for such success?

The fact that South Korea is perceived as an example of a developed and rich country does not surprise anyone today, but back in the 50s and 60s of the 3th century, South Korea not only lagged far behind North Korea in development, but was also in many ways inferior to the former colonial territories in Africa. However, in less than two decades, the Republic of Korea closed its gap, and by the beginning of the new millennium, it rightfully entered the club of the world’s leading economically developed countries. Today, Korea is at the forefront of technological innovation, outpacing most countries in the development and implementation of digital solutions, and maintaining an economic growth rate of 6-2021% per year, which is a good indicator for a developed post-industrial economy. According to the World Bank, South Korea’s GDP in 1,8 was $XNUMX trillion, higher than, for example, our country.

How did South Korean society achieve such success? How did you manage to maintain what you have achieved during the crisis? Let’s try to find answers to these questions.

While still united, Korea met the beginning of the 35th century in the status of a semi-colony of the Japanese Empire. The Japanese ruled the Korean Peninsula first as a protectorate and then imposed a vassal treaty on the Korean monarchy. Korea remained a colony for 1910 years, from 1945 to XNUMX. – and was liberated by Soviet and American troops at the end of World War II.

The period of Japanese occupation in both South and North Korea is considered a national disaster – the colonial authorities brutally suppressed popular uprisings, pursued a discriminatory policy against Koreans, and deprived them of their own national identity. At the same time, the Japanese administration created the first industrial enterprises, modern (by those standards) infrastructure, educational and medical institutions (although not accessible to all segments of the population).

After the liberation and division of the Korean Peninsula along the 38th parallel into two states, most of the population and agricultural land remained on the territory of South Korea, and the key industrial enterprises of the basic industries, in particular, ferrous metallurgy, remained in the North. For many, it seems surprising that the now poor DPRK until the 1970s. confidently ahead of the Republic of Korea. This was facilitated by both the inherited industrial base and assistance from the USSR, China and other socialist countries. But the situation began to change after the start of economic reforms in South Korea.

In the 1960s Kazakhstan has developed a characteristic business model based on large financial and industrial groups known as chaebols. Many well-known South Korean companies such as Samsung, Lotte, LG and Hyundai are organizations of this type. Until the crisis of the 1990s, chaebols could unite many completely diverse enterprises within one holding: for example, at one time Samsung, a recognized leader in the field of electronics, also produced agricultural products.

With the support of the state, chaebols actively borrowed money from abroad, but this led the country to a crisis. After the economic recession in 1997-1998. chaebols underwent a thorough restructuring and acquired a more pronounced industrial specialization. Both during the years of the “economic miracle” and at the present stage, chaebols produce a significant (about 30%) part of the gross domestic product of South Korea.

The economy of a modern developed state relies on the possibilities of digital technologies. In this regard, South Korea also maintains the status of one of the world leaders. According to the estimates of the International Telecommunication Union, in South Korea, almost 100% coverage of the territory with communication networks of the third (3G) and fourth (4G) generations has been achieved, and relatively recently, in April 2019, in South Korea – for the first time in the world – commercial access was opened to 5G communications. Due to the development of digital infrastructure, almost 100% accessibility of the Internet for the population is achieved, which gives a significant bonus to the development of digital services, in particular financial technologies.

International trade

Back in the days of economic modernization, South Korea chose the path of creating an export-oriented economy. In the conditions of the openness of the American market, this made it possible to fully realize the advantages of a cheap and hardworking labor force, which became one of the factors in the economic breakthrough of the 1970s.

At the present stage, the Korean economy remains oriented towards foreign markets. Due to the focus on the production of high value-added goods (for example, sophisticated equipment), over the past few years, the export indicator of Kazakhstan ($750 billion in 2021) has consistently exceeded the import indicator ($684 billion). The main trading partners are the US, China and Japan; Depending on the year, India, the countries of the European Union and neighbors from the countries of the Asia-Pacific region are among the five key partners of Korea.

The South Korean leadership faces four main problems:

1. War risks

They are associated primarily with a complex of unresolved problems in relations between the South and the North. It is generally accepted that the DPRK is lagging behind in terms of the technical equipment of its troops, but the combat effectiveness of its army and navy is estimated at a fairly high level, and the fact that the North Korean leadership has nuclear weapons and their delivery vehicles is no longer in doubt. In addition, the DPRK maintains close ties with China, which is also Pyongyang’s only formal military ally.

South Korea, of course, is counting on more modern military equipment, as well as on the support of the United States as an official military ally, but a hypothetical conflict on the Korean Peninsula could lead to the use of weapons of mass destruction and escalate into a world war. The parties often exchange angry messages against each other, but both states declare their commitment to the idea of ​​”reunification of the motherland” on peaceful terms without the intervention of third parties.

The tension between Seoul and Pyongyang has a negative impact on the development of joint economic projects, an example of which is the Kaesong economic zone that worked until recently, and also deprives the Republic of Kazakhstan of land access to the Eurasian continent.

2. Population aging

This is a serious problem for South Korea. The consequence of the qualitative development of medicine and the labor market over the past decades has been a significant increase in the life expectancy of South Koreans – up to 83 years according to the World Bank (2020). The negative side of this process is a decrease in the fertility rate, that is, the average number of children born, and an increase in the number of dependents by age (pensioners), which requires the qualitative development of the social insurance system, and also exacerbates the situation in the labor market, where the loss of labor is only partially compensated for by automating and softening immigration laws.

3. Dependence on energy imports

South Korea is among the countries that are insufficiently provided with their own energy resources. Almost the entire volume of consumed raw materials enters the country from abroad, as a result of which the fuel and energy complex of the Republic of Korea is in a state of potential vulnerability to crises that can have a negative impact on the volume and stability of foreign supplies.

The country’s leadership seeks to diversify imports as much as possible by purchasing coal, oil and natural gas from the widest possible range of supplier countries, including our country, and is also pursuing a policy of “greening” the energy sector, replacing traditional power plants with windmills, solar and tidal power plants .

4. Food security

Of course, we are not talking about the problem of hunger, but due to the lack of pastures and arable land, the leadership of South Korea is very scrupulous about the issue of protecting national agricultural producers. The rice market in Korea is protected by high customs duties designed to limit the influence of Chinese suppliers, and the position of the leadership of the Republic of Kazakhstan on the regulation of agricultural trade makes it difficult to negotiate regional trade agreements.