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Is South Korea’s economic miracle over?

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Is South Korea’s economic miracle over?

Outside the town of Yongin, 40 kilometres south of Seoul, an army of diggers is preparing for what South Korea’s president has described as a global “semiconductor war”.

The diggers are moving 40,000 cubic metres of earth a day, cutting a mountain in half as they lay the foundations for a new cluster of chipmaking facilities that will include the world’s largest three-storey fabrication plant.

The 1,000-acre site, a $91bn investment by chipmaker SK Hynix, will itself only be one part of a $471bn “mega cluster” at Yongin that will include an investment of 300tn won ($220bn) by Samsung Electronics. The development is being overseen by the government amid growing anxiety that the country’s leading export industry will be usurped by rivals across Asia and the west.

“We will provide full support, together with SK Hynix, to ensure that our companies won’t fall behind in the global chip cluster race,” South Korea’s industry minister Ahn Duk-geun told SK Hynix executives during a meeting at the Yongin site last month.

Most industry experts agree the investments at Yongin are required for South Korean chipmakers to maintain their technological lead in cutting edge memory chips, as well as to meet booming future demand for AI-related hardware.

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But economists worry that the government’s determination to double down on South Korea’s traditional growth drivers of manufacturing and large conglomerates betrays an unwillingness or inability to reform a model that is showing signs of running out of steam.

Having grown at an average of 6.4 per cent between 1970 and 2022, the Bank of Korea warned last year that annual growth is on course to slow to an average of 2.1 per cent in the 2020s, 0.6 per cent in the 2030s, and to start to shrink by 0.1 per cent a year by the 2040s.

Pillars of the old model, such as cheap energy and labour, are creaking. Kepco, the state-owned energy monopoly that provides Korean manufacturers with heavily subsidised industrial tariffs, has amassed liabilities of $150bn. Of the other 37 OECD member countries, only Greece, Chile, Mexico and Colombia have lower workforce productivity.

Park Sangin, professor of economics at the graduate school of public administration at Seoul National University, notes that South Korea’s weakness in developing new “underlying technologies” — as opposed to its strength in commercialising technologies like chips and lithium-ion batteries invented in the US and Japan respectively — is being exposed as Chinese rivals close the innovation gap.

Arial view of the building site for the new megacluster of fabrication plants
Diggers are moving 40,000 cubic metres of earth a day as they lay the foundations for a new cluster of chipmaking facilities in Yongin © Yonhap/Newcom/Alamy Stock Photo

“Looking from the outside, you would assume that South Korea is extremely dynamic,” says Park. “But our economic structure, which is based on catching up with the developed world through imitation, hasn’t fundamentally changed since the 1970s.”

Worries about future growth have been exacerbated by an impending demographic crisis. According to the Korea Institute of Health and Social Affairs, the country’s gross domestic product will be 28 per cent lower in 2050 than it was in 2022, as the working age population shrinks by almost 35 per cent.

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“The Korean economy will face big challenges if we stick to the past growth model,” finance minister Choi Sang-mok told the Financial Times earlier this month.

Some hope that the expected global boom in AI will rescue the Korean semiconductor industry, and perhaps even the Korean economy at large, by offering solutions to the country’s productivity and demographic problems.

Column chart of South Korean population by age group (mn) showing The working age population is expected to fall 35 per cent by mid-century

But sceptics point to the country’s poor record in addressing challenges ranging from its plummeting fertility rate to its outdated energy sector to its underperforming capital markets.

That is unlikely to improve in the near future. Political leadership is split between a leftwing-controlled legislature and an unpopular conservative presidential administration, with the victory of leftwing parties in parliamentary elections earlier this month raising the prospect of more than three years of gridlock until the next presidential election in 2027.

“Korean industry is struggling to move on from the old model,” says Yeo Han-koo, a former South Korean trade minister now at the Peterson Institute for International Economics. “It hasn’t worked out what comes next.”


One of the reasons why it is proving so hard to reform the “old model”, say economists, is because it has been so successful.

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The achievements of South Korea’s state-guided capitalism, which took it from an impoverished agrarian society to a technological powerhouse in less than half a century, have come to be known as the “miracle on the Han River”. In 2018, South Korea’s GDP per capita measured at purchasing power parity surpassed that of its former colonial occupier, Japan.

Line chart of GDP per head ($'000s in constant 2018 prices, at purchasing power parity) showing The South Korean miracle: living standards passed Japanese levels in 2018

Seungheon Song, managing partner of consultancy McKinsey’s practice in Seoul, notes that South Korea made two great leaps — one between the 1960s and the 1980s, when the country moved from basic goods to petrochemicals and heavy industry, and the second between the 1980s and 2000s, when it moved to high-tech manufacturing.

Between 2005 and 2022, however, only one new sector — displays — entered the country’s list of top ten export products. Meanwhile, South Korea’s lead in a range of critical technologies has dwindled. Having led the world in 36 of 120 priority technologies identified by the Korean government in 2012, by 2020 that number had dropped to just four.

Park says the country’s leading conglomerates, or chaebol, many of which are now overseen by the third generation of their founding families, have drifted from a “growth mindset” born of hunger towards an “incumbent mindset” born of complacency.

He argues that the present model reached its apogee in 2011, after a decade during which Korean tech exports were driven by the related twin demand shocks of the rise of China and the global technology boom, as well as by massive investments by Samsung and LG to seize control of the global display industry from their Japanese counterparts.

Since then, however, Chinese tech companies have caught up with their Korean competitors in almost every area except the most advanced semiconductors, meaning that Chinese companies that were once customers or suppliers have become rivals. Samsung and LG are fighting for survival in the global display industry they dominated just a few years ago.

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Goldstar Electronic manufacturing workers wearing special suits and masks as they test electronic equipment in 1987 in Busan, South Korea
Between the 1980s and 2000s, South Korea moved to high-tech manufacturing, completing its transformation from an impoverished agrarian society into a technological powerhouse © Bill Nation/Sygma/Getty Images

Park adds that many of the headline-grabbing gains made by the leading conglomerates have come at the expense of their domestic suppliers, who are subjected to price squeezing through exclusive contractual relationships.

The result is that small and medium enterprises, which employ more than 80 per cent of the South Korean labour force, have less money to invest in their employees or infrastructure, exacerbating low productivity, slowing innovation and stifling growth in the services sector.

“The rationale used to be that the chaebol should be sheltered from disruption at home so they can focus on disrupting rivals abroad,” says Park. “But now they are the incumbents, they are both stifling innovation at home and highly vulnerable to disruption themselves.”

The country’s two-tier economy, in which according to Park almost half of the country’s GDP was delivered by conglomerates that employed just 6 per cent of South Koreans in 2021, also feeds social and regional inequalities, which in turn feeds spiralling competition among young South Koreans for a small number of elite university places and high-paying jobs in and around Seoul.

That competition is helping drive down the country’s fertility rate even further as young Koreans wrestle with mounting academic, financial and social burdens. The country has the widest gender pay gap and the highest suicide rate in the OECD.

South Korea also has one of the highest rates of household debt as a proportion of GDP in the developed world, according to the Institute of International Finance. The average newly-wed couple in South Korea has combined debts of $124,000.

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Bar chart of Ratio of household debt to GDP (%), Q4 2023, selected economies showing South Korean households have very high levels of debt

While South Korea’s government debt to GDP is relatively low by western standards, at 57.5 per cent, the IMF forecasts that it will triple over the next 50 years in the absence of drastic pension reforms. Forty-six per cent of South Koreans are projected to be over the age of 65 by 2070, and the country already has the highest rate of elderly poverty in the developed world.

“Slowing growth has fed the declining birth rate, which will lead to even slower growth,” says Song of McKinsey. “We are in danger of getting stuck in a vicious circle.”


The Yongin mega cluster illustrates South Korea’s challenge in sustaining an economic model that was first developed at a time when the country was much poorer and less democratic.

The project was announced in 2019, but was delayed for several years due to wrangles over construction permits and the site’s water supply. Once the first cluster is completed in 2027 — more are planned for later — it will face a shortage of qualified labour. Without a sufficient supply of renewable energy, and without a bipartisan consensus on building new nuclear power plants, it is unclear how the cluster will be powered.

Despite the uncertainties that surround it, the plan reflects confidence that an expected boom in demand for AI-related hardware, including the Dram memory chips needed for large language models, will justify the titanic investments. Shares in SK Hynix have more than doubled over the past year amid investor excitement over its “high bandwidth memory” chips used with Nvidia’s cutting edge processors.

Ahn Ki-hyun, executive director of the Korea Semiconductor Industry Association, says the country needs to press on with the Yongin project as potential rivals are making their own large investments.

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He singles out the US and Japan’s efforts to revive their own chipmaking capabilities with generous subsidies. “We could lose our status as a chipmaking powerhouse if our companies continue to build plants abroad, but if facilities are concentrated in our own country, our competitiveness will increase,” he says.

Last week, Samsung announced a $45bn investment in Texas to meet expected AI-related chip demand, while SK Hynix is building a high bandwidth memory facility in Indiana.

A person with their back to the camera stands in front of an arrange of screens in the Samsung Electronics Innovation Museum
Samsung and LG are fighting for survival in the global display industry they dominated just a few years ago © SeongJoon Cho/Bloomberg

In the long term, however, executives worry about US rivals absorbing Korean knowhow, as well as the risk that the proliferation of chip clusters around the world will lead to chronic oversupply and inefficiencies that could further undermine profitability.

Samsung’s Texan investments, which have benefited from up to $6.4bn in federal subsidies from Washington, also highlight how the Korean government is struggling to match the incentives on offer in other countries.

Some see in the coming AI era an opportunity for South Korea to lift its sights beyond manufacturing and the preservation of its biggest players.

Sunghyun Park, chief executive of AI chip design start-up Rebellions, notes the country already has capabilities in three of the four pillars needed for AI — logic, memory, and cloud service providers — and now has the opportunity to secure reciprocal access to the world’s most sophisticated AI algorithms, the fourth pillar.

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“Our strength in hardware is important, but if we are to progress we need to move up the value chain into design and software,” says Park. “That means investing our money in strategic partnerships with the makers of the world’s leading large language models.”

Park’s argument resonates with those who worry that South Korea’s continued emphasis on manufacturing and hardware — both in the chip sector and beyond — will prove unsustainable as costs continue to rise.

But Inseong Jeong, a former SK Hynix engineer and author of The Future of Semiconductor Empires, a book about the Korean chip industry, says the country should focus on its existing strengths. “The world will always need hardware, and the world will always need chips.”

He adds that by remaining at the cutting edge of chip production, Korean companies will be more likely to benefit from future breakthroughs in AI.

“The moat between hardware and software is hard to cross, but it works both ways,” says Jeong. “For example, our memory chip companies would be the main beneficiaries of a breakthrough whereby AI chips would more closely resemble the workings of a human brain. There are no guarantees that AI will run on Nvidia GPUs forever.”

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Some observers regard warnings about South Korea’s economic future as overblown, noting that many western countries bitterly regret abandoning the kind of advanced manufacturing base that Seoul has managed to preserve.

An elderly South Korean woman walks past young students at a school
South Korea’s plummeting birth rate is projected to shrink the working age population by almost 35 per cent by 2050, leaving gross domestic product 28 per cent lower than in 2022 © Jung Yeon/AFP/Getty Images

The “tech war” between the US and China, they argue, is playing into Korean hands as Chinese rivals in the chip, battery and biotech sectors are restricted or barred from entry into growing western markets, while concern about Taiwan’s security feeds demand for Korean alternatives.

South Korean companies in areas ranging from defence and construction to pharmaceuticals, electric vehicles and entertainment, have shown themselves to be more adept than many of their western counterparts in reducing their exposure to the Chinese market and seeking out growth in south-east Asia, India, the Middle East, Africa and Latin America.

The Bank of Korea has also said that the most doom-laden scenarios regarding the country’s demographic crisis and growth prospects can be alleviated by bringing the country up to the OECD average on a range of metrics, including urban population concentration and youth employment.

But others argue that while there is much that South Korea could and should do to alleviate its problems, its record on reform is poor.

Spending on private tuition continues to climb as competition for university places grows fiercer, while the fertility rate continues to fall. Pension, housing and medical sector reforms have stalled, while long-standing campaigns to curb the country’s dependence on the conglomerates, boost renewables, raise corporate valuations, close the gender pay gap, and make Seoul a leading Asian financial centre have all made little headway.

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But finance minister Choi retains his faith that the country’s economy can be reformed, insisting that “dynamism is embedded in the Korean DNA”.

“We need to redesign policies to unleash that economic dynamism again,” says Choi. “But the miracle isn’t over.”

Additional reporting by Song Jung-a

Data visualisation by Keith Fray

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Idaho Democratic Caucus Results

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Key moments ahead in the UK election campaign

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Key moments ahead in the UK election campaign

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Rishi Sunak’s decision to call a general election on July 4 has set in train a series of political and constitutional events unforeseen 48 hours ago.

With an election now six weeks away, these are the some of the key moments in Britain’s new political calendar.

What does the election mean for parliament?

The prime minister’s decision to hold a July 4 poll has led to a frenetic clearing of the legislative decks before parliament is officially “prorogued” — or suspended — on Friday.

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The surprise calling of a summer election has forced Sunak to hurriedly drop key bills including measures to crack down on smoking by young people and create a new football regulator for England.

Parliament will be officially dissolved on May 30, at which point all seats fall vacant. Some MPs resent the fact that they have had little time to say their farewells to colleagues.

After the election, parliament will meet on July 9, when the first business will be the election of the Speaker of the House of Commons and the swearing-in of new MPs. The State Opening will take place on July 17.

When will the manifestos appear?

Labour says its manifesto, or programme for government, is ready but it has yet to set a publication date. According to party insiders it will be “a reasonably slim document”. Sunak claims Sir Keir Starmer, leader of the main opposition party, has “no plan” for the country. 

The Labour manifesto has been pulled together by Rav Athwal, a former academic and Treasury official, but under tight political control from Pat McFadden, the party’s campaign co-ordinator, and campaign chief Morgan McSweeney.

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Party insiders say McFadden and McSweeney have “bomb-proofed” the manifesto to avoid it exploding in the course of a six-week campaign. Expect a focus on “stability” with promises to reform worker rights, planning and a pledge to invest in the green transition.

Allies of Sunak say the Conservative manifesto is “in good shape” and is intended to show the party has not run out of ideas. “It’s not going to be bland,” said one. The party says it expects to publish the document early in the campaign.

Will Tanner and James Nation, two policy advisers, “held the pen” on the document. Expect red-blooded commitments on tax cuts, migration, welfare reform and extra defence spending.

Will there be TV debates?

Although they feel like a long-standing tradition in British politics, TV debates between party leaders started only in 2010, a remarkable 50 years after Richard Nixon and John F Kennedy went head to head in the US presidential race in 1960.

Typically the underdog in an election has more to gain from such an encounter, so Sunak’s team have challenged Starmer to take part in a televised debate during every week of the six-week campaign. 

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“Don’t you think the British public deserve to know what you actually stand for?” asked Richard Holden, Tory chair, on social media platform X. It is highly unlikely Starmer will agree to such an intense schedule.

“I’ve been saying bring it on for a very, very long time,” Starmer said in January. “I’m happy to debate any time.” 

There has been speculation that the Labour leader might only take part in two debates on the BBC and ITV. A spokesperson for Starmer declined to comment, but insisted: “We’re up for it.”

How will candidates be picked?  

A frantic rush by all the parties to select their final candidates will now take place before the June 7 deadline to submit nomination forms to the Electoral Commission, the elections watchdog. 

Both the Conservatives and Labour have scores of vacancies left to fill, with additional openings arising on Thursday after a new clutch of MPs announced they would be stepping down at this election. 

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The latest departures include Tory MPs Dame Eleanor Laing, deputy Commons speaker, plus ministers Jo Churchill and Huw Merriman. Labour MPs Holly Lynch and Kevan Jones have also now said they will leave parliament.

The heaviest scrutiny will fall on empty Labour and Tory “safe” seats, into which party bosses are likely to try and parachute favoured figures. The central party machines enjoy far greater influence in these eleventh-hour selections.

Will international meetings be affected?

Sunak’s decision to go for July 4 throws up some significant political and diplomatic challenges. Downing Street’s working assumption is that he will still attend the G7 summit in Bari, Italy, between June 13 and June 15.

More interesting is the fact that whoever emerges as prime minister on July 4 — opinion polls suggest it will be Starmer — will be thrust immediately on to the world stage with two big upcoming international summits.

The newly elected UK leader will travel to a Nato meeting in Washington starting on July 9, where the Ukraine war will be high on the security alliance’s agenda.

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Then crucially on July 18, the new premier is scheduled to host a meeting of the European Political Community at Blenheim Palace. London’s sluggishness over fixing this date for the grouping of more than 40 European states had already riled allies.

A change of prime minister would further complicate matters. Sunak intended the event to focus on irregular migration, while Starmer is likely to favour a broader agenda.

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Some NFL fans see disparities in its responses to Harrison Butker and Colin Kaepernick

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Some NFL fans see disparities in its responses to Harrison Butker and Colin Kaepernick

Kansas City Chiefs kicker Harrison Butker, pictured at a December 2023 game, sparked conversation and controversy earlier this month with his commencement speech at Benedictine College in Kansas.

Noam Galai/Getty Images for The Gordon Parks Foundation and Jamie Squire/Getty Images


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Noam Galai/Getty Images for The Gordon Parks Foundation and Jamie Squire/Getty Images

Harrison Butker’s controversial commencement speech — and the reaction — continue to dominate conversation off the field, with key figures in the NFL weighing in publicly for the first time this week.

The Kansas City Chiefs kicker stirred up a culture war skirmish with his remarks at Benedictine College earlier this month, in which he denounced abortion rights, Pride Month, COVID-19 lockdowns, “dangerous gender ideologies” and “the tyranny of diversity, equity and inclusion,” while also encouraging female graduates to embrace the “vocation” of homemaker, all in 20 minutes.

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The speech, which has since racked up nearly 2 million views on YouTube, resonated with some football fans and conservative public figures, including Missouri Sen. Josh Hawley. Online sales of Butker’s jersey spiked, becoming the Chiefs’ best-seller.

But the speech has drawn widespread criticism from many corners of the internet, including some current and former students of the Catholic liberal arts college, an order of affiliated nuns, Kansas City officials and fans of Taylor Swift, whom Butker quoted in the speech as “my teammate’s girlfriend.”

The NFL distanced itself from Butker’s comments in a brief statement last week, saying he made them “in his personal capacity” and “his views are not those of the NFL as an organization.”

“The NFL is steadfast in our commitment to inclusion, which only makes our league stronger,” it added.

NFL Commissioner Roger Goodell echoed that idea while speaking to reporters on Wednesday.

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“We have over 3,000 players,” Goodell said, according to Yahoo Sports and the Associated Press. “We have executives around the league that have a diversity of opinions and thoughts just like America does. I think that’s something that we treasure, and that’s part of, I think, ultimately what makes us as a society better.”

But some social media users were quick to contrastGoodell’s comments with hisreaction to another high-profile controversy involving a football player exercising his right to self-expression: that of former San Francisco 49ers quarterback Colin Kaepernick.

When it comes to players’ self-expression, some see a double standard

 Kaepernick, who is biracial, began sitting on the bench during the playing of the national anthem in the 2016 preseason to protest what he called “the injustices that are happening in America.”

He continued to kneel during the anthem for the rest of the season, inspiring some other players but prompting criticism from many — including then-President Donald Trump — who accused him of being anti-American.

Goodell bemoaned Trump’s comments as showing “an unfortunate lack of respect” for players but had already made a similar critique of Kaepernick’s protest himself.

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“I think it’s important if they see things they want to change in society, and clearly we have things that can get better in society, and we should get better,” Goodell said in his first public comments on the protest in 2016. “But we have to choose respectful ways of doing that so that we can achieve the outcomes we ultimately want and do it with the values and ideals that make our country great.”

The following year, as the number of players kneeling — and the backlash to them — grew, Goodell told NFL teams in a memo that “everyone should stand” during the national anthem.

“The controversy over the Anthem is a barrier to having honest conversations and making real progress on the underlying issues,” he wrote. “We need to move past this controversy, and we want to do that together with our players.”

Kaepernick opted out of his contract with the 49ers in the spring of 2017 but wasn’t signed by any NFL team afterward, which led his supporters to accuse league owners of freezing him out because of his political beliefs. Kaepernick alleged the same in a grievance filed against the NFL later that year, which he withdrew after settling in 2019.

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He hasn’t played professionally since but has continued his career as a civil rights activist and author.

In June 2020, as protests against racial injustice and police brutality rocked the U.S., and after players called on the NFL to speak out, Goodell released a video statement condemning racism and acknowledging the league’s shortcomings in that area.

“We, the National Football League admit we were wrong for not listening to NFL players earlier and encourage all to speak out and peacefully protest,” he said, without naming Kaepernick.

Goodell doubled down in a series of remarks that summer, including encouraging an NFL team to sign Kaepernick as a free agent and publicly apologizing.

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“I wished we had listened earlier, Kaep, to what you were kneeling about and what you were trying to bring attention to,” he said.

On Wednesday, X (formerly Twitter) users and op-ed writers called Goodell’s comments hypocritical and wondered aloud what Kaepernick thinks of them. Some acknowledged that their situations differ, since Kaepernick protested in uniform during games while Butker made his speech off the field.

Kaepernick hasn’t commented publicly on Butker’s speech or Goodell’s response.

Last week, as controversy over Butker’s comments brewed, The View co-host Whoopi Goldberg said Butker and Kaepernick deserve equal respect for expressing their views.

“These are his beliefs and he’s welcome to them,” she said of Butker. “I don’t have to believe them, I don’t have to accept them, the ladies that were sitting in that audience don’t have to accept them.

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“The same way we want respect when Colin Kaepernick takes a knee, we want to give respect to people whose ideas are different from ours because the man who says he wants to be president … he says the way to act is to take away people’s right to say how they feel. We don’t want to be that, we don’t want to be those people.”

Some Chiefs leaders have also spoken up for Butker

More members of the Chiefs acknowledged the controversy on Wednesday, coming to Butker’s defense.

Star quarterback Patrick Mahomes told reporters, “There are certain things that he said that I don’t necessarily agree with but I understand … he’s trying to do whatever he can to lead people in the right direction.”

He added that he’s known Butker for seven years and considers him a good person.

“I judge him by the character that he shows every single day,” he said. “That’s someone who cares about the people around him, cares about his family and wants to make a good impact in society.”

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Chiefs Head Coach Andy Reid also addressed the response to the speech, though stayed away from its contents. He said he hadn’t talked to Butker about it because “I didn’t think we needed to.”

“We’re a microcosm of life,” he said of the team. “Everybody is from different areas, different religions, different races, and so, we all get along, we all respect each other’s opinions and not necessarily do we go by those, but we respect everybody to have a voice … My wish is that everybody could kind of follow that.”

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