The End of South Korea's Economic Miracle

South Korea has widely been seen as an economic miracle thanks to its rapid development from the 1960s through to the present it is today one of the largest and most advanced economies not only in Asia but anywhere in the world it's home to globally competitive Industries like ship building Advanced manufacturing finance and Automotive production and it achieved all of this while maintaining a relatively low level of debt and while dealing with its rather belligerent of strange brother to the north this economic success is one of the clearest examples of the virtues of market capitalism democracy

and private Enterprise the alternative that's been playing out in North Korea a nation which despite having more resources and a direct connection to Major allies is far poorer than the South which has not had those advantages but the thing is that sure when compared to its most logical rival North Korea South Korea is the model of a diligently run economy but when compared to basically any other Advanced Nation it has some problems now of course the most current sign of these problems was the Declaration of Martial law and the subsequent impeachment trial that played out

earlier this month those are some major events for a edly stable economy but the reality is these are just the most globally visible results of a country dealing with a lot of fundamental issues all at the same time a country whose economic Prosperity has perhaps been more of a manufactured exception rather than the natural result of whatever it did differently from the north South Korea's economic Miracle is probably less of a story about a miraculously well-run economy and perhaps more of a miracle that things have stayed together this long and to really see this we

as always need to look at a few key details so how did South Korea achieve its economic success despite having so many problems are these issues finally catching up with the country and finally how are these problems reinforced by the nation's precarious political Dynamics have you ever had to make a presentation but dreaded the hours of work it takes you know formatting slides finding the right images and trying to make it all look good it's timec consuming frustrating and honestly kind of outdated but what if he could create a presentation like this in just seconds

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to share the strategy visuals and channel focus with our team using gamma we created a quick polish presentation that laid everything out clearly without spending hours designing it I'll be honest I didn't know what to expect when I first tried gamma but I'm quite impressed by how simple and Powerful it is so if you want to transform how you make presentations check out gamma today it's free to get started and trust me you're going to love it it would be simple to say that the nation of South Korea as it exists today really got started

in 1953 at the end of the Korean War when the peninsula was divided between the Communists in the North and the Coalition of capitalists in the South but there is a lot more to it than that for starters the war never never really ended the armus allowed for the exchange of prisoners and the ceasefire that has continued to this day but the two careers are still technically at War but now that the actually comments have been silenced the more tangible issue with this simplified history is that after the war came to a close South Korea

did not immediately become The Shining Beacon of democracy and the free market that it is today it went through no less than five different governments all broken up by coups questionable elections and authoritarian leaders complete with military parades and Cults of personality if any of these governments managed to hold on to power for long enough to really cement their position there's no reason to believe that the South would be any less of a dictatorship than the North a lot of the economic policies of these authoritarian governments also didn't look that different complete with 5-year plans

and a strong focus on heavy industry if the implementation of Martial law scene earlier this month was actually fully put into effect it would really just be a return to the historical normal for South Korea rather than something totally unprecedented for a long time North and South Korea looked incredibly similar and the north was actually more productive thanks to their higher concentration natural resources and their direct connection to the major powers of China and the USSR which let them trade these resources directly over a land border now despite all this turbulence there were of course

some differences that eventually resulted in South Korea becoming as wealthy as it is today while North Korea effectively stagnated the first big advantage that sometimes gets overlooked was that South Korea received a lot of aid from the USA both in terms of capital transfers but also military aid and technological knowhow of course this was all during the Cold War where South Korea represented a convenient Beach head against the spread of Communism so they weren't doing this out of the goodness of their hearts but either way this was all a big boost to what was otherwise

a relatively poor economy even to this day the USA maintains a strong military presence in South Korea with over 24,000 troops stationed there falling only behind Japan and Germany in terms of foreign deployed Personnel this in itself is an indirect form of stimulus as those men and women will be paid from the US Department of Defense but will be spending at least some of their money in the Korean economy and all of this is to say nothing of the billions of dollars paid to local contractors to keep these bases operational and provisioned now to be

fair the US military is still getting a nice Outpost in a geopolitically sensitive region and Korea does cover some operational costs themselves especially when it comes to cross trining their personnel But ultimately it's also a nicely disguised form of foreign assistance now the other big advantage that South Korea had over its problematic sibling in the north was that it did eventually liberalize kicking off with the restoration of civil rights and properly Fair elections beginning in the late 1980s with this the people not only gained more economic freedom but the country itself engaged more openly with

International Community the parallels between the opening of South Korea and the Chinese economies around the same time are frankly quite startling and the only reason they aren't compared more often is probably simply because the Chinese story had a hammer and sickle so it makes a more compelling story about how great and bracing the free market is Den Xiao ping the face of China's modern economic Revolution said that common Prosperity would be achieved by letting some people get rich first now in China those people were perhaps unsurprisingly politically well-connected Party leaders who benefited from the country's

first privatized Industries in South Korea the people that got rich first were the politically well-connected industrial families that own the chaal while companies like yundai Samsung LG LTE and Kumo have been private Enterprises since their Inception they were hand selected by the government to receive special protections and privileges The Hope was that these companies would help to rebuild domestic industry after the Korean War and the government took an active hand in getting them the resources they needed to make that happen this obviously made these companies and their families incredibly wealthy and politically influential and many

of them had more consistent power over the economy than the various governments that had come and gone over the past century when South Korea fully started opening up to Global Commerce in the late 1980s these companies expanded their operations and were very successful in making Korea an industrial Powerhouse but they also made themselves extremely wealthy in the process the timing of Korea's liberalization was also something of a miracle as well these companies had enough time to build up technical knowhow their labor force was still quite cheap and therefore globally competitive and China was still almost

a decade away from really becoming the workshop of the world especially in the more technical industries that Korea came to dominate like ship building electronics and Automobiles and as if their timing wasn't already serendipitous enough just a few years earlier the plaza Accord was signed which was an agreement between major Western Nations and Japan to allow the value of the Japanese yen to rise in relation to the US dollar and by extension these other currencies as well this was done because Japanese exports have begun dominating the global market and their artificially lowcost currency was helping

them maintain What was seen as an unfair Advantage South Korea did not make the same agreements so right as Japan lost its Competitive Edge it was able to swoop in and undercut the Asian superpower which at the time was already much richer and therefore more expensive to manufacture in now Japanese lowcost exports losing ground to Korean lowcost exports which have in turn lost ground to Chinese lowcost exports is just the reality of globalization fortunately for Korea it has managed to build out these industries that compete on world leading technology expertise and brand image rather than

purely price so it's managed to maintain and even grow its value added manufacturing but the bumpy ride it took to get there still has burned the country with a long list of problems the mega conglomerates of South Korea may have been an effective tool to push through industrial ambition but they have effectively now become State sanctioned monopolies with all of the disadvantages of state-owned Enterprises combined with all of the disadvantages of private profit at all cost companies now the first typical problems with companies this large is that they have no real competition so they can

charge whatever they want at the expense of the consumer the good news is that South Korea is a predominantly export-led economy which means the typical with monopolistic pricing are not really too much of a concern within the economy the chibbles also tend to be large conglomerates spreading their operations into multiple markets rather than dominating just one Samsung may be best known as a technology company but it also operates in finance Insurance military production and even ship building so while it is massive it still has to compete across these operations and of course it has Global

Rivals to contend with as well but there's actually an even bigger issue with the mega corporations that control the Korean economy they may not have Monopoly power over consumers but they do over workers these major global companies pay considerably better than smaller local business so the competition to get a job with one of these companies is insane people go through intense High School exams to get into top universities and then do separate employment exams just to be considered for an interview at a company like LG Samsung or Hyundai outside of becoming a medical doctor or

a highend lawyer jobs at these companies is seen as one of the only ways to get ahead in an extremely competitive Society now apart from being a huge social issue which we will need to discuss later this industrial concentration has very immediate economic problems if people spend their entire lives trying to land a job with one of these companies then that means a lot of talent has been directed away from starting new businesses that could introduce new technologies Beyond Manpower these chaals also soak up a lot of capital these organizations tend to run very debt

heavy to spread out into all of these very Capital intensive Industries something like ship building one of the country's biggest industries requires an enormous amount of money not only to construct the yards but also to finance the ships themselves before they can be sold to their eventual buyer since these conglomerates are so large they can access this money through loans quite easily and since the financial sector just considers them too big to fail they're happy to lend to them over small businesses government debt to GDP in South Korea is relatively low for an advanced economy

but corporate debt to GDP primarily coming from these Mega corporations is among some of the highest levels in the world comparatively today even China has a bigger culture of starting new businesses to produce new technologies and a lot of these businesses have been highly successful another problem is that it means that the economy is not very well Diversified the revenue of Sansung group alone was more than 22% of the country's total GDP in 2022 now this is often misrepresented to mean that Samsung is responsible for 20% of the country's entire economy which is not really

technically how GDP Works revenue is just the total amount of money a company brings in in Topline sales where gross domestic product looks at actual value ad so theoretically Samsung could have just sold a bunch of phones that imported from China made a lot of Revenue and actually had a negative impact on GDP since Imports are subtracted from Total output an even sillier example is someone could make a business selling $20 bills for $10 sell a billion of them and claim revenues of $10 billion we not really making any contributions towards economic productivity or running

a particularly sustainable business but with technicalities aside Samsung is actually a huge exporter a component of GDP and their value add through manufacturing and services is quite a solid share of their total revenue so while the 20% of the entire Korean economy claim is a bit of stretch it's still more than fair to say that they and a small collection of other companies don't just have an unreasonable influence over the Korean economy they are the Korean economy this has overtime also created something of a bad culture with Global Partners as well because the Korean cha

balls are simply too big to fail they get special treatment by the government which makes it very hard for foreign companies to compete in their domestic Market which means big importers are far less motivated to make neutral trade agreements with Korea and in such an export heavy economy this can be bad news following the Asian financial crisis in the late 1990s the IMF actually put conditions on how the government could work with these companies going forward and it had to agree to these conditions as part of their $60 billion bailout loan but back then that

was actually a lot of money for financial bailouts now the burden that these old slow and too big to fail corporations put on the Korean economy has been well documented but unwinding their influence is next to Impossible within the country there is also a lot of popular support for these companies because they were seen as what made the nation as wealthy as it is today which is not wrong when an economy is poor pushing through a few core Industries like the ones conducted by these chables is a good way to create a solid foundation of

jobs exports and business South Korea was also quite lucky that the industries it decided to go all in on have done very well over the last three decades technology and in particular smartphones global Shipping and economy cars have all seen massive market growth but eventually they need to compete fairly otherwise they're just going to get slow and lazy Korea is still competitive in all these industries but it's not dominant like it once was they are starting to stagnate their population is aging investors are weary about putting money into the country and just like they became

the New Japan China is becoming the new Korea making even cheaper cars more exciting phones and pouring billions back into making ships as well Korea is now a high income economy where people want to be paid a decent wage to compensate for higher costs of living the scale and weight of these companies are also making all of these problems worse the Miracle on the Han River made South Korea what it is today which is obviously still one of the most prosperous economies in the world but there was a fast in bargain made with these companies

that means that frankly it was a miracle it lasted this long now they do have one big advantage over their major competitors and it's simply politics for as crumbly as their Industries are the west and in particular the USA is a lot more interested in doing business with a strong Ally as compared to a perceived adversary internally it's a little bit more complicated though of course the real reason these companies get such little scrutiny is simply their immense political influence now they may have been able to get away with pulling the strings of power while

their economy was on the up and up but as it has stagnated people have realized they're fighting over a pie that is no longer growing unfortunately for the country that could mean the political instability we saw earlier this month is just a harbinger of what is to come as the country becomes divided on how to regain that greatness which could in turn make all of these very real economic problems even worse now we try to avoid politics here on this channel but we've actually made a full video over on our partner Channel context matters where

we explain the bizarre and perhaps dangerous political dynamics of South Korea so yeah make sure to subscribe to that channel if you're interested in those kinds of breakdowns and you should be able to click to that video on your screen now thanks for watching mate bye