South Korea’s economy
What do you do when you reach the top?
South Korea, one of the poorest nations in the world just fifty years ago, is now thriving thanks to a great deal of development aid from around the world. The author of this article states that,
“By the end of 2011 it [South Korea] will be richer than the European Union average, with a gross domestic product per person of $31,750, calculated on a basis of purchasing-power parity (PPP), compared with $31,550 for the EU. South Korea is the only country that has so far managed to go from being the recipient of a lot of development aid to being rich within a working life.”
South Korea is said to have bettered themselves by following in the footsteps of great nations before them. The concern now is that South Korea has “reached the top” and they will not be able to stay afloat with no “footsteps to follow.”
The article focuses on what South Korea should do now to maintain a stable economy but there is also a lot of information about how they managed to expand their economy and some things that did not help so much. For example,
“Yet in 2010, GDP grew by 6%. This year’s expansion is likely to be 4%. The unemployment rate is now a covetable 3%. Some of the recovery is the result of Korea’s happy dependence on China: it exports more capital goods to China relative to the size of its economy than anyone else, even Germany. But this is only part of the explanation (which is just as well given China’s slowdown). The government also initiated a public-works scheme that is mopping up over 2% of the labour force. It introduced an old-age pension and began, then expanded, an earned-income tax credit. All this from President Lee Myung-bak, who was once chief executive officer of Hyundai Construction and is widely assumed to be excessively friendly to big business.”
I wanted to focus on this quote here because there is so much to talk about within it. As we know, GDP growth displays economic growth, which was what South Korea needed. The fact that unemployment is so low shows that South Korea is utilizing all their resources. They have also made it a fact to export more than they import, which is also a key to economic expansion. The government in South Korea also created a number of jobs by initiating a “public-works” scheme, which ultimately brought more people back to work. Currently, the average woman in South Korea does not hold a job other than to raise her children. In the future, if South Korea needs to increase production more, bringing women into the workforce would help them to do that. Also in the quote I pulled from my source is talk of introducing a pension and an “earned-income tax credit.” These actions will help decrease uncertainty and allow people to invest more freely, bringing more money into the economy. Another great thing South Korea has going for them in their support of education. In this article, the author reports, “Korea spends a larger share of GDP on tertiary education than any rich country other than America. Given relatively low wages, this superbly educated workforce is hard to beat.” The fact that the workers are educated past a high school degree is promising because it is likely to increase the possibility for technological advances and ultimately greater economic expansion.
You may be wondering why there is need for concern in this article since South Korea seems to be doing most things right. The following quote helps to identify some of the concerns:
“But with Korea already top of the league tables, it is harder to generate further jumps in income from big increases in hours and skills. Indeed, the immediate problem is merely to maintain its excellence. According to Yeong Kwan Song of the Korean Development Institute (KDI), a think-tank, companies are starting to worry that graduates are emerging from university with the wrong skills. On some estimates, half of recent graduates are failing to find full-time jobs and are going into further study or part-time employment. So while general education remains good, some industrial skills may be declining.”
As displayed here, there’s concern that the increase in higher education may be decreasing the “worker” skills needed in South Korea to work in the industries that run the economy. Another concern is that the country is exporting profitably, but isn’t providing well for itself. As the author reports, “Over time, their [the small weak firms] performance seems to be getting worse. Korea, in short, has first-world manufacturing exporters and third-world services.” This is a concern because the third-world services are also declining instead of improving so if something isn’t done to improve them, certain issues could arrive within South Korea such as famine or disease. Any internal issues could cause economic contraction if it causes a loss of workers.
So does it all balance out? Or will South Korea see contraction as quickly as it saw expansion? This author seems to think that
“If it [South Korea] can increase public spending a little to reduce inequality and poverty, boost its labour supply by encouraging more women to work and avoid compromising its educational standards and penchant for hard work, then it should be well placed to pull ahead of Europeans and catch up with America, too.”
I think I can agree that if South Korea can increase public consumption and utilize the rest of its resources they will be in good standing but one of the bigger concerns that I had for South Korea was the fact that the internal services aren’t so strong. Perhaps an increase in public consumption would strengthen them, but regardless, internal services should definitely be monitored if South Korea wants to “pull ahead of Europeans and catch up with America, too.”
Article can be found by following this link: http://www.economist.com/node/21538104
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