In the past, the World Bank has recognized South Korea as a standout example of a country that successfully transitioned from a middle-income to a high-income economy, praising it for its remarkable economic growth.
In a report addressing the challenges faced by countries struggling to move beyond middle-income status, the World Bank commended South Korea’s effective strategies—such as robust investment, technology adoption, and innovation—that led to its impressive economic growth. The report also suggested that policymakers in other countries facing similar economic challenges should closely study South Korea’s approach.
However, this praise from the World Bank is becoming a thing of the past. The current state of the South Korean economy is far from that of an exemplary model of economic growth. The keys to its past success—openness, innovation, and determination—are hard to find, and the economy appears to be showing signs commonly seen in advanced countries where growth has stalled.
In fact, S. Korea’s economic growth rate, which was in the double digits until the 1990s, dropped to 5% in the 2000s, 3% in the 2010s, and 2% in the 2020s. The potential growth rate, which can be achieved without inflation, is projected to fall to 1% after the 2030s.
South Korea, with the world’s most severe low birth rate and aging population, is experiencing chronic low growth, while much-needed structural reforms in labor, education, and pensions, which are essential for restoring economic vitality, are progressing slowly.
Also, the national competitiveness that once drove the rapid growth of the country is deteriorating, and the political arena, which should be forging new breakthroughs, is bogged down in extreme factionalism and endless political strife. Besides, the race to adopt populist policies among politicians has eroded one of South Korea’s greatest economic strengths—its fiscal responsibility—leading to a national debt that now exceeds 1,000 trillion won ($1 trillion).
Twenty-seven years ago, just as S. Korea surpassed a per capita income of $10,000 and joined the OECD, marking its entry into the ranks of advanced countries, it immediately faced a national bankruptcy crisis.
Through the painful efforts of nationwide restructuring, including “The Gold Collection Campaign” by the entire population, S. Korea overcame the crisis and achieved a per capita income of $30,000, joining the ranks of advanced nations. However, it is now showing signs of structural low-growth stagnation once again.
The World Bank report highlighted that economic growth is driven by the innovative transformation of outdated institutions and practices. If South Korea misses the crucial opportunity for structural reform and remains stuck in the issues commonly seen in advanced countries, its economic success story will become a thing of the past.
