What’s behind Korea’s economic success?

For every economist South Korea is a fascinating country. In the 1960’s it was one of the poorest nations in the world with GDP per capita lagging behind that of Vietnam or Democratic Republic of Congo. In fact, the nominal GDP per capita in 1960 was around $100, while in 2010 it reached $20,000 (source: nationmaster.com).  The country is now a success – a trillion-dollar economy and a leader in technology and innovation. How was it possible?

Many economists would be quick to point out the big influence of the amount of foreign investment done by both USA and Japan in the years following the Korean War (1950-1953).

During my visit in Korea I kept asking myself, how much of that ‘Miracle on the River Han’, as the Korean rapid economic development was frequently dubbed, can actually be attributed to Korean culture or identity? And more importantly, how much grit and resistance does it take for the nation to rebuild a country from scratch?

Did you know that LG produces shampoos?

This is something I accidentally discovered while taking a shower after landing in Seoul on a cold December morning in 2014. I picked up my friend’s shampoo and discovered-to my huge surprise- that it was an LG brand. I was confused.

When I shared this revelation with my host he laughed at my ignorance and proceeded to tease me: ‘Didn’t your Lonely Planet guidebook tell you that the bridge you crossed on your way from the Incheon airport was built by Samsung? Those companies do EVERYTHING here’.

Samsung bridge - a success in infrastructure.
Incheon bridge. Ever heard of Samsung C&T construction group? Never have I. (Source: http://news.samsungcnt.com/cable-stayed-bridges-connecting-world/)

That’s how I learnt the word chaebol – which basically means a business conglomerate, frequently family-controlled. The large international champions like LG , Samsung, Hyundai and KIA were formed in opposition to the capitalist approach. While the USA insisted on Korean government supporting the development of small and medium-sized companies, Park Chung-Hee (a president-dictator during the 60’s and the 70’s) focused on building up world-class brands Korea is known for today. Some argue that chaebols contributed to even 60% of Korean economic growth during the ‘Miracle on the River Han’ years. What would Korean economy look like without them? Would any Korean brands make it worldwide if the government followed the American hints on development? How important is for a government to have their own vision of the industry, without relying of foreign investment?

Many of us, the products of Western capitalists societies, might cringe at the very first thought of the sort of protectionism that thwarts foreign ownership in an attempt to boost the domestic industry. But, looking at the example of Korea (and, well, most recently, China), it is hard not to notice certain benefits of limiting the exposure of key industries to, for instance, foreign ownership or technology transfers. Moreover, Korea actually pushed their own innovation (with the money they borrowed internationally) by imitating and adapting foreign technologies in their nationally-owed companies.

Let’s note, once again, that after the Korean War the country was in absolute ruin. And, believe it or not, it was North Korea that was more lucky in terms of resources geographical location and industrialization progress. South was nearly playing the catch up game – maybe that’s why they cared, first and foremost, about building a strong economy based on their national capital?

I should note that chaebols , as successful as they were, are still extremely dependent on politics and have faced huge problems involving corruption and lack of diversity in the workplace since their beginning. Additionally, their operational inefficiency was revealed to a certain degree after the Asian crisis in the 90’s. Finally, the challenges of the 21st century force many traditional Korean companies to readjust their rigid structures and gain functional and team agility. Nowadays, much of the innovation is driven by technology start-ups and the digital disruption is causing the tech-oriented corporations to lose their stakes on the innovation landscape.

However, the role of chaebols in driving Korean industries post-Korean War remains undeniable. They are still one of the biggest employers in Korea and biggest contributors to the country’s economy. Fun fact: Samsung’s revenue in 2014 was equivalent to 20% of Korea’s GDP that year (source: Bloomberg QuickTake).

Samsung - another success story of a Korean company
Me in front of Samsung’s global HQ in Seoul

http://www.lgcare.com/global/brand/detail.jsp?gbn=2&bid1=H113 – this is in case you fancy some LG bubbles in the bath, highly recommend the citrus scent of ON shower gel)

Do you know any other nation that would voluntarily donate gold jewelry to be melted, if their government asked for it?

Now, fast-forward to 1997 and the Asian financial crisis. Korean won is plummeting, the companies are being crushed by their debt and the country is facing an urgent need of a big money influx to save itself from defaulting. Korean government turns to their citizens with a plea to help mitigate the country’s financial problems.

That is how Koreans ended up donating billions of dollars’ worth of gold jewelry to help pay down the money the country owed to the International Monetary Fund. And they paid it off entirely before the deadline. In just three years.

It is quite unbelievable that, in the midst of the financial crisis, people donated over 200 tonnes of wedding rings, gold medals, family keepsakes at special government collection centers. All in the name of a greater good. How else can it be explained, if not by the Korean powerful sense of community?

Call it patriotism or pure nationalism – I think it is that sort of a sense of community that helps nations endure. Moreover, one can argue that the fact that Koreans showed their solidarity in the face of national threatening conditions is a result of their history and the preservation instinct developed in response to their powerful neighbors like China and Japan. I can’t help but compare it to the same solidarity spirit that drove, for instance, Poland against the Soviet Union in the 80’s.

Many people point out the effect of the Confucian culture, based on sympathy, compassion and reciprocity. Is this the driver behind the ideas of common good and hard work that makes Koreans so generous in their devotion to society and continuous improvement as a nation? I am not oblivious to the fact that Confucianism itself doesn’t lack dark sides – especially in business, where it reinforces hierarchical approaches and somehow omits the issues of gender equality (see Malcom Gladwell’s argument about Korean Air in ‘Outliers’).

Nevertheless, the sort of mobilization of the society to create value for the common good and to deal with national crisis together is in line with Confucian qualities and visible (perhaps to a lesser degree) in countries like Japan or Singapore as well.

Wouldn’t you like to sit down on a warmed-up seat in metro when it’s freezing outside?

The incredible attention to detail is a quality I most admired about South Koreans and had the pleasure to experience daily. I have traveled across the country and was mesmerized by the efficiency of their transport system (even more so, having worked in the transport industry myself). The trains and buses were always on time, even on harshest winter days. It was possible to adjust seats on the train to facing either towards or away from the direction of travel. Furthermore, the Incheon airport was one of the best I have been to. It constantly ranks as one of the most traveler-friendly airports in the world and the list of amenities includes public showers, comfortable seats you can sleep on in the gate lounge and dimmed light at night that allows you to nap when you need to catch the flight in the early morning. I could literally live there for a month in a higher standard than at my first apartment.

I concluded that if Koreans decide to do something – they do it well and to the best of their power. Granted, my view can be deemed pretty superficial due to the brevity of my visit, but… things there just seemed to work. I also experienced some situations which seemed to confirm this idea.

In one of them, I was standing on a bus stop waiting for a city bus on my very first day in Korea. I wasn’t sure if this was the right bus stop (I got confused because there were so many roads around I couldn’t figure out which direction I should be going and my GPS signal wasn’t picking me up). I decided to ask an old man standing next to me in hope he can point me towards the right way. He didn’t speak English well, but he said that most likely the place I’m trying to reach is accessible by a bus on the other side of the the busy crossing. So I went in that direction. Two minutes later, I hear someone following me. I look behind me and the same old man is walking towards me. He just confirmed with someone else where I should be going and it is, in fact, the stop he told me before. I was genuinely surprised he would even bother to catch up with me…and just to make me sure I am going the right way. This is how I started to really like Koreans.


Jokes aside. The above is meant more, of course, as a food-for-thought than a comprehensive analysis of the roots of Korean economic growth (I leave that for my grad class if I happen to return to UChicago some day in the future). Nevertheless, I think adding the social and cultural context to economic/business analysis of a country, especially combined with travel observations, can lead to some pretty interesting perspectives. Feel free to share your thoughts 🙂

Kudos to Koreans!

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