Saturday, May 22, 2010

The Korean story

Back in university when I did my undergraduate studies, I used to read about the East Asian success stories; that South Korea, Taiwan, Hong Kong, and Singapore as the four Asian tigers. I used to write papers on the success of these nations, how they have managed to achieve high economic growth through advancement in education, and capital accumulation. Since then, I’ve visited Singapore (one of the tigers), several times. Recently, I’ve got the opportunity to visit Korea, and see for myself the development of the country. I’ve to say, most of the things I saw and experienced beat all expectations, and I couldn’t help writing about the success of this developed country. Firstly, let’s look at the facts:

The per capita GDP was about $100 in the early 1960s, and back then it was among the least developed countries in the world. However, today it’s over $20,000. Korea has become the 4th largest economy in Asia, and is also the world’s 8th largest exporter. It has a very high human development index, and education index. The gross capital formation in 2008 was about 30 percent (world average 22 percent) of GDP, and exports are 53 percent (world average is 29 percent) of GDP. (World Bank)

I can still remember one article written by the famous economist, Paul Krugman, saying that Asian economies’ success is mainly due to the accumulation of inputs, with less technological growth. (Paul Krugman, 1995). While it can be true for Singapore, it seems that its not exactly the case for Korea. Unlike Singapore and most other Asian countries, Korea has internationally successful brands like Samsung, LG, and Hyundai-Kia. And these firms spend huge amounts annually on R&D, thus achieving further innovation.

So, how did South Korea achieve all this? Definitely it has to do with innovation and technological growth. The country is now ranked as the most innovative country in the world in the Global Innovation Index. South Korea has been able to achieve high export-led growth through their innovation. I spent an year in America, and visited many states in the country, visited many universities and institutions. I was amazed by the level of efficiency and technology usage. Believe me, I could feel the same thing in Korea. In some aspects, it beats even America; that we can see even from the numbers. The gross capital formation in America is about 18 percent of GDP, compared to 30 percent in Korea. I'm not by any means saying that Korea is superior to America in terms of technology, but rather trying to express my amazement.

What I’ve noticed through the few days in Korea is that, unlike Singapore, there aren't many expatriate workers around. Unlike USA or UK, I don’t see many immigrants in Seoul. Ok, Korea already has a population of over 50 million, so we can’t compare it to Singapore. However, in terms of attracting international talent, America and Britain have done a great job. The growth in national total factor productivity (TFP) in those countries surely has been influenced by the influx of talented workers from all over the world. But, it’s not the case in Korea. It is one of most demographically homogenous society, with about 99 percent Korean ethnicity. I could notice this by walking around. They also have a well-developed language, and this I could see from their book stores as most of the books were in their own language. I couldn’t find too many books in English from a huge book store in Seoul.

So, back to the success story; What are the lessons that we can learn from Korea? One: Great economic progress can be achieved through effective and efficient utilization of foreign aid by investing on productive industries that can earn foreign exchange to the country. Even if we incur huge external debt, if those funds are wisely invested on productive income generating activities, the country will be getting the benefits of it.

Lesson number two: for economic progress, we need an efficient governing system, with less political conflicts. One could do a good control experiment, if we consider the neighboring North Korea, almost identical in terms of resources, ethnicity and climate; with the main difference in their governing system. One could see the huge difference between the two countries in terms of economic power.

Lesson three: emphasis should be on developing the private sector, and the private sector should be the engine of economic growth.

These are all important lessons for all other developing countries. As for Maldives, surely we don’t have 50 million people, and enough land. However, most of our economic problems facing today, are due to our low focus on developing the private sector, and the over-reliance on the government. When we come to think of it, many of highly educated youth are employed in the government and engaged in economically unproductive work. In order to achieve economic progress, we need productive investments in the private sector. We citizens need to focus more on economic activities, rather than wasting our time on unproductive political fights. If we need to pressure the government, it has to be on developing the private sectors, so that we can earn an income, rather than asking the government to give us subsidies to pay our bills. Most of all, we need a strategic macroeconomic vision, and a master plan for the future.


  1. One of the other major factor is keeping the population as homogeneous as possible. This will ensure a tight unity and the will to work for the betterment of the country plus the race.

  2. nice read..for a start u should give more time for economically productive work which adds value. you've got vision, intellect and see the big picture. i see u r also intertwined in our petty political (office) blabbering.

    I am no different

  3. The writer seems having great knowledge about what he is writing. There is substance in it. All in all, one should learn from the very few "Stories" of this nature. Keep writing more STORIES!

  4. Ibrahim, yes you are right. We need to start it ourselves as well. We have to remember at the same time that there should be regulatory bodies as well. There is an important role for the government, law-making bodies, and the court system as well.

  5. :D
    Considering we have around 3 lakh people I think we do have many educated and visionary people.
    but we are too complacent and let other people write our future. As i see it as long we do not make a concerted effort ourselves and actively engage ourselves to make the country better, we do not have any right to talk.
    everyday i meet with so many people with grand visions but whats the difference between us and koreans is that they work for it, we go to bed with our dreams and visions and if things are not going right we criticize and make it more harder to do anything right in the first place.
    its a DNA disorder.
    no helping it

  6. At first glance our whole system is set up in a way that it stifles innovation - I think you've pointed out that that is the, if not one of the, factors that has helped elevate Korea...

    The standards set by our finance sector and the bidding standards, and other similar guidelines, set to ensure 'fairness' also discourage creative, innovative ideas by individuals or start-ups...

    I think THAT is a HUGE hurdle... there has to be a way to be fair and creative/innovative.