UNDERSTANDING SOUTH KOREA’S ECONOMY

[1] When South Korea was first established, it was one of the poorest
nations in the world. [2] The country relied on foreign aid to survive. [3] From
1962 until
2018, South Korea’s economy on average grew 7% annually. [4] Today, South
Korea has become one of the most prosperous nations in the world and it
regularly provides foreign aid to many struggling nations. [5] The first half of the
20th century was marked with tragedy for South Korea. [6] In 1910, Japan annexed
the Korean Peninsula and controlled it until 1945. [7] When Japan
unconditionally surrendered to the Allied forces, Korea was split into two nations:
North and South Korea.

[8] South Korea suffered another setback when the Korean War began in
the 1950s. [9] War had destroyed South Korea. [10] In the country became one of
the poorest nations in the world, no one believed South Korea could escape poverty
but hope came in the form of a new government. [11] In the 1960s, General Park
Chung-hee gained control of South Korea through a military coup. [12] Up until
the
1960s, South Korea was heavily dependent on foreign aid but the Park
government wanted an end to it. [13] The government wanted the nation to be
independent and successful. [14] The Park government wanted South Korea to be
a market-based economy to improve the overall efficiency of the South Korean
economy. [15] As South Korea didn’t have any natural resources to export, the
government decided the country needed to specialize in the export of
manufactured goods.

[16] By the time the Park government came into power, a policy of
mandatory elementary education had already begun in South Korea. [17] The
government expanded access to secondary vocational and tertiary education to its
citizens. [18] The Park government chose to start industrializing the country
through a series of five-year plans beginning in 1962. [19] In the early stages of
industrialization, the government placed a high priority on developing the
country’s technological capacity. [20] The government capitalized on its educated
labor force by focusing on light manufacturing industries like textiles. [21] As
South gained more capital and technology, it transitioned into more advanced
industries. [22] To build the infrastructure for an advanced economy, the Park
government focused on getting foreign investment into the country.

[23] South Korea started to normalize relations with Japan in 1965 [24] As
relations improved with Japan, South Korea received 800 million dollars in grants
and loans, access to advanced technology and expertise from Japan. [25] South
Korea also deployed its military during the Vietnam War.[26] In return, the
United States helped South Korea with foreign aid. [27] During this period, the US
economy had low tariff barriers and it was open to exports from other countries.
[28] South Korea was able to export goods to the US allowing it to grow its GDP
and become less dependent on foreign aid. [29] By 1972, South Korea’s
government began focusing on developing the heavy, and petrochemical industries.

[30] The US decided to pull its troops from South Korea and the Park
government felt that by promoting heavy and chemical industries. [31] It could
provide the foundations for its own national security and defense. [32] To promote
the heavy and chemical industrialization of South Korea, KAIST, and Daedeok
science, Park created to train people in science and technology. [33] South Korea
began investing in industrial facilities that could help produce metal, steel,
machinery ships and cars. [34] The Park government decided which industries it
was going to promote and who controlled those industries, government favors
eventually turned these businesses into conglomerates - known as Chaebols.

[35] Chaebols were able to create economies of scale which allowed them to
compete globally. [36] Having a monopoly over certain markets allowed Chaebols
to take high risks outside of their core business. [37] They did this by allocating
resources to subsidiaries when they found new opportunities. [38] As the economy
became more complex, the government eventually withdrew and the country
started to rely on traditional market forces. [39] This coincided with the
democratization of South Korea. [40] Even though South Korea prospers today, the
country is facing a whole new set of challenges. [41] Heavy government
intervention in the economy has meant South Korea’s economy is reliant on large
conglomerates. [42] The ten largest chaebol’s produce 44 percent of the country’s
GDP. [43] These businesses are so large and powerful that their presence makes it
difficult for small businesses to thrive.

[44] The dominance of Chaebols has also meant that job opportunities for
young people are limited. [45] Small businesses don’t usually succeed in South
Korea, so the most reliable jobs come from Chaebols who don’t hire often. [46]
This is one of the reasons why the country suffers from huge youth
unemployment. [47] Forcing young people to put off having families until they are
financially secure. [48] Those who are fortunate enough to have a job work
overtime which provides little time to settle down and have a family. [49] As a
result, many young people remain unmarried and don't have children, which has
resulted in a low fertility rate. [50] The problem has gotten so bad that by the year
2750, the South Korean population may go extinct. [51] South Korea is now facing
an existential crisis one again, and this time it isn’t because of war or extreme
poverty. [52] It’s due to its own prosperity. [53] South Korea has achieved its
dream of becoming a wealthy nation and now it must work on creating an
environment where small businesses and young people thrive. [54] If it can do this,
then there is no doubt that this incredible nation will continue to flourish.