Texans of Asia
A Wall Street Journal reporter once described South Koreans as the “Texans of Asia.” The South Koreans have been justifiably proud of their economic accomplishments so far. They have successfully built their economy from the ground up after the devastation of the Korean War. Despite enduring dictatorships, an unstable neighbour to the north, the Asian financial crisis and the 2008 recession, their nation has emerged as the gold standard of emerging market success. Within a lifetime of the average citizen, the country has gone from receiving financial aid to coming within striking distance of America’s standard of living.
If people were surprised by the hip prosperity of Seoul depicted in the viral video ‘Gangnam Style‘, they shouldn’t be. While attention was focused on the rise of China and India, South Korea has sneaked up on the world with robust and consistent economic growth fuelled by co-operation between the public and private sector.
A joke in the early 1980s went something like this –
Q:“How do you upgrade a Hyundai?”
A: “Put in an engine!”
For people old enough to remember those jokes, the transformation of Hyundai Motor Co from fodder for late-night comedy to the fifth largest auto company in the world seems nothing short of remarkable. Other Korean conglomerates (chaebols) like LG and Samsung have been outpunching their American and Japanese counterparts for the last decade. The country’s rise has been fuelled by exports and an accommodative industrial policy that has helped the chaebols thrive domestically and abroad.
However, policy makers have expressed concerns over the limits of the industrial policy that has worked so well for the country in the past. While South Koreans have moved from cheap exporters to fast followers, questions remain over whether they can transition once again from a manufacturing export-driven economy to a more innovation-driven economy. In short, can South Korea successfully press the reset button?
Acknowledging a problem is always the first step to solving it. The Korean leadership seems to have recognised that the current model has reached its limit in terms of growth. President Park has proposed developing creative industries by setting up innovation centers in 17 major cities. There are plans to set up a technology bank that will aggregate unused patents, ideas and knowhow and transfer them to entrepreneurs and small businesses. The country also plans to ramp up R&D spending to 5% of GDP while increasing the amount of startup funds available to entrepreneurs.
It is important to understand that South Korea is better placed than any other economy to make this transition. The raw ingredients necessary to generate innovation are available in abundance. First, South Koreans place great emphasis on education and hard work. An individual typically puts in 2200 hours of work each year and their education system regularly comes at the top of OECD standards. A well-educated workforce is the foundation of any knowledge-based economy and South Koreans are superbly educated.
Secondly, the country has one of the most robust and fastest internet infrastructures in the world. With the government’s plan to move to 5G, internet speeds will take a giant leap ahead of any country in the developed world.
Finally, an open democratic society combined with government-friendly policies provides the thrust required to create and move entire sectors of the economy into the digital age.
South Korea’s economic miracle has been a result of careful economic planning, a smooth transition to democracy and a well-educated and hardworking population. These factors have combined to generate consistent economic growth, resulting in South Korea being ranked a “standout nation” by the ten-driver model we developed for The Emerging Markets Handbook. We believe that South Korea needs to make a smooth transition into a knowledge-based, innovation-driven economy to maintain its position as a standout nation.
By- Pran Tiku CFP & Vikram Kondur CFA
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