The Financial Times (FT), a British business newspaper, published an article titled ‘Is South Korea’s economic miracle over?’ in its The Big Read section. “South Korea’s decades of growth are dwindling as it faces challenges overhauling its economic model and decreasing its reliance on manufacturing,” the article stated. It highlighted a growth model skewed toward manufacturing conglomerates, a widening gap between large and small businesses, a declining birthrate and aging population, overtaking Chinese companies, and “complacency” among third-generation heirs of conglomerates as factors contributing to the crisis.
The news mentioned several challenges South Korea faces - the tendency for domestic companies to have lower stock market valuations than global peers (the “Korea Discount”) and an underdeveloped energy sector. However, according to its light, these issues will unlikely be resolved soon due to political division from the April 10 general election. It said, “With the left-wing-dominated legislature and an unpopular conservative president leading the administration, a stalemate is expected to persist until the 2027 presidential election,”
In response, the South Korean government issued an explanatory statement saying it is “working on three major structural reforms - labor, education, and pensions - to reverse the declining growth rate.” However, this doesn’t seem possible. The opposition’s obstructionism during the Yoon administration prevented progress on these reforms over the past two years, resulting in stagnation. The only way to reignite the reform momentum was to make the transition of the country’s politics at the general election. The government instead allowed the anti-Yoon sentiment in the campaign and thwarted this possibility. Now, how do they move forward with piles of tasks?
Foreign media and investors are expressing concerns not just about South Korea’s economic weaknesses, but also about the growing political polarization. The issues plaguing the economy, as highlighted by the Financial Times, are longstanding and stem from continual disputes and delays between conservative and liberal administrations.
South Korea’s rapid growth has been achieved by a “fast follower” strategy, following and chasing after new products and technologies from other countries. However, with the sophistication of industries, the rise of China, and intensifying global competition, it seems to have reached its limit. In the Fourth Industrial Revolution era, represented by artificial intelligence (AI), big data, and autonomous vehicles, the country must position itself as a first mover with creative talent. Education, labor, pension, and regulatory reforms are the mountains that must be overcome to change the economic structure and unleash the dynamism of future generations. To achieve this, significant reforms are necessary in education, labor, pensions, and regulations to reshape the economic landscape and unlock the potential of future generations. The Democratic Party, now in control of the National Assembly, must break free from outdated ideologies and populism. It should lead the charge on unpopular but crucial reforms in these areas to establish South Korea as a leader in innovation and economic dynamism.
