South Korea: debunking the ‘miracle’ economy


South Korea’s economic development over the past 50 years offers lessons in the past, present and future, and casts light upon the injustice of economic development, and the pressing need for reform to the capitalist system in those states who have most decisively adopted it.


The Korean peninsula is a true twenty-first century paradox: the juxtaposition of immense wealth with extreme poverty, the healthy alongside the malnourished, the civility of the South versus the relentless totalitarianism of the North. The Korean experience offers a wealth of understanding for the world that we live in today, and what it might look like in the future. Particularly, it illuminates the shortcomings, and structural defects of the capitalisms practiced globally, and the social, political and demographic manifestations of this failure. And yet Korea also represents the failure of our society—of our political and economic class—in being unable to facilitate and catalyze peace and prosperity to all peoples. Korea embellishes all of these grand themes: it is the most important geographical region for understanding our present predicament and our collective future. And yet the peninsula is often overlooked, underestimated and, above all else, misunderstood.

Perhaps surprisingly, it is South Korea—the tame sibling to the wayward North—which can offer us the greatest understanding of the present and the future. There’s little to learn from North Korea: what you see is, by and large, what you get. It is a rogue state with unspecified nuclear capabilities; it operates an increasingly mixed economic model which is highly dysfunctional and ineffective; the quality of life in North Korea is abysmal—citizens are denied the most basic of human rights. The North is politically disturbing: a paranoid totalitarian dictatorship that seeks the security and longevity of the regime at all costs. North Korea is unique: there is no state today that even closely resembles it. And yet it tells us little, other than the abject failure, cruelty and objective immorality of the system it operates.

South Korea—the comparatively tranquil and unassuming neighbour—is, however, critical to understanding different models of capitalism: its uplifting benefits and its crippling defects. Korea exemplifies the idea that there is no single, homogenous and coherent understanding or implementation of capitalism. Since the end of the Korean War in 1953, Korea has practiced two varieties of capitalism, and a third model—critical for capitalisms everywhere—is beginning to emerge from the myriad of social, economic, political and demographic complications that is increasingly jeopardising Korea’s once bright future.

From 1953 and to the beginning of the 1990s, South Korean capitalism took the shape of an over-bearing, paternalistic state, which practiced import substituting industrialization and subsidized emerging domestic industries, while heavily limiting foreign investment and placing hefty tariffs on imports. Samsung, Kia and Hyundai are all products of the Korean government’s substantial intervention and central economic planning. The success of Korea during this period—transformed from a nation poorer than Ghana, to a global economic power—is almost unprecedented in economic history. The Korean people, in the space of a single generation, became richer, healthier and better educated. Such is the potency of paternalistic developmental capitalism.

You may be surprised to learn that these practices—anathema to a neoliberal capitalist approach to development—were invented by the British, and pioneered by the Americans. The United States—the flag-bearer of free-market, lassiez-faire capitalism—assumed its position of economic hegemony as a result of its use of state-led economic paternalism and intervention in the economic realm to limit the destruction of unregulated capitalism. Alexander Hamilton—architect of the modern American economy—was the first to theorize protecting domestic industries against foreign competitors. Paternalistic developmental capitalism, which tames and limits harmful free-market forces, has the precedent of having fueled the immense rise of many of the world’s most formidable economies. It is a model of proven, substantial success—both historically, and, in Korea’s case, contemporarily.

The paradox, therefore, is the comprehensive rejection of this development model by the powers that be. You may wonder why the IMF and World Bank insist on such forceful programs of austerity and free-market conditions in developing economies; or why the United States (the beneficiary of the most successful model of development capitalism) insists on the global poor opening their borders to the relentless influx of American goods, against which these nations have no possible chance of competing.

Such is the fundamental character of the world we live in. States, and the institutions they lean upon, are egoistical merchants. The stark inequality between the global rich and the global poor is paramount to the maintainence of economic hegemony. Without the plethora of undeveloped, non-industrialised states, those economically dominant would be unable to maintain their position. The uneven playing field—one of the great ironies of the ‘free market’—is essential. We live in a world of deceit, ruled by snake oil salesmen.

This is one side of the coin that Korea exposes. The other side, however, is no less sinister, and reveals the splintering stilts upon which the most developed and highly capitalised states have structured their economies.

After the 1997 East-Asian financial crisis, South Korea abandoned its state paternalism, adopting an increasingly neoliberal capitalism. Today, South Korea is highly capitalised, with very limited state intervention in the economy and other free-market factors following reforms aimed at rapidly opening the South Korean economy to the outside world (After the 1997 crisis, South Korea raised the ceiling on foreign investment in domestic firms from 28% to 100%). Neoliberalism has developed deficiencies which may prove to be insurmountable—jeopardizing neoliberal capitalism for other users. If they are to be overcome, South Korea will have illuminated the future of capitalism, which will look more similar to the past then it does to the present. This post-capitalism will be more paternalistic: free-market forces will be reined in, market failures reduced. For the sake of reducing social and political fury, and the security of the very planet we live on, South Korean post-capitalism may become global post-capitalism.

Amongst OECD states, South Korea is exceptional in the near total absence of a welfare state. This has created structural problems in its workforce, reducing labour-flexibility and the dynamism of the economy. Perpetual fear of unemployment (a result of the lack of welfare for pensioners and the unemployed) drives the young predominantly into two professions: law and medicine. Korea’s population has also rapidly aged, the average age has increased by nearly 30 years since the end of the Korean War. Nearly half of Korea’s pensioners live in poverty (the highest rate amongst the 34 OECD countries). Meanwhile social spending is exceptionally low at 11% (compared to 25% in the UK, and 19% in Hungary) and Korea’s tax-benefit system reduces inequality by a meagre 18% (compared to Sweden’s admirable 80%). Korea’s chaebols (enormous corporations like Samsung that dominate employment, and have immense political leverage) are stifling labour flexibility further, while soft corruption and monopolization have combined to slow economic progress and innovation. Lee Jae-Yong—the heir to the Samsung empire—was sentenced to five years in prison following the discovery of a network detailing the links between the conglomerate and the government.

And yet, the solution cannot be as simple as Korea establishing a welfare state to addresses these growing problems. Politics prevents this: Korean society does not have the political ‘slack’—the dormant political capacity—that it once had. Trying to carve out the amounts of social spending that would be necessary to address these demographic and social impediments is not viable. The solution for Korea is unclear; the need for one is pressing. Currently, Korea plans to gradually increase its minimum wage—progress, for sure. Yet more is needed. An informed state-led paternalism is critical, but it’s not necessarily possible in societies that have so rapidly liberalized their economies and shunned the very practices which made them so prosperous in the first place.

In the meantime, for the states that constitute the global poor, the future is bleak. The economic and political powers that be—those whose currency is found the world-over, it’s products sold on the streets of every town and village, and its military inconceivably vast—are not selfless political actors. The key to maintaining their superior economic position is guaranteeing the inferior economic position of others. The fact that their wealth is the product of paternalistic capitalism is irrelevant. Neoliberal capitalism needs poor and undeveloped states to exploit.