Park Geun-hye

Finding a new formula for S Korea to grow and prosper

The country can no longer rely on the chaebol model that made it an economic success

PUBLISHED : Wednesday, 27 February, 2013, 12:00am
UPDATED : Wednesday, 27 February, 2013, 2:56am

The life of Park Geun-hye, South Korea's just-inaugurated first woman president, has so far been bookended by two larger-than-life men of debatable success.

The first is her father, Park Chung-hee, the dictator who ruled the country for 18 years until his assassination in 1979.

The second is her predecessor, Lee Myung-bak, who spent the past five years in the Blue House, and is a fellow member of her New Frontier Party.

Park must deal with their shortcomings in reverse. The immediate challenge is to be truer to her party's name than Lee ever was. Lee left office this week with an approval rating in the 20s, an economy burdened by record household debt, a widening income gap, a strong currency that is hurting export competitiveness, frayed relations with Japan and North Korea raising hell around the globe.

She must also reckon with the legacy of her father's era. The rapid growth of his time was fuelled by cheap exports, easy credit, protection from foreign markets, and the family-led conglomerates that still dominate the economy.

Today's voters are clamouring for a more balanced and egalitarian economy.

Meanwhile, China's shadow is growing, Southeast Asia's upstarts are coming into their own, and even long-time rival Japan is undergoing a bit of shock therapy as the new prime minister, Shinzo Abe, acts to boost growth.

The praise heaped South Korea's way since the 1997-98 Asian financial crisis is well deserved. South Korea is also a role model for emerging economies looking to avoid the so-called middle-income trap, where per capita income gains stall out at the US$10,000 mark.

But does the country now face a higher-income trap? Can it revamp its model fast enough to take its economy to the next level?

Does the country now face a higher-income trap? Can it revamp its model fast enough to take its economy to the next level?

South Korea is seeing the commoditisation of the things it has long manufactured, such as cars, electronics and ships. It harnessed growth in those industries to catch up with the developed world. Now that it has arrived, the country must change its approach to raise incomes for its 50 million people.

In the 1960s, when Park Chung-hee came to power, war-exhausted South Korea was among the poorest countries anywhere, with per capita income lower than those of many African countries. Today, income is on the cusp of US$30,000 per year, new skyscrapers pop up in Seoul every couple of months, and luxury brands from Prada to Rolex are chasing adherents to the swanky Gangnam lifestyle.

What makes South Korea special is that it has got where it is by combining rapid growth with democracy. It may have begun with military leader Park, whose legacy is marred by torture and censorship. But this year, led by a new, popularly elected Park, it is likely to grow 3.3 per cent.

But what's next? Park pledged to rein in the huge conglomerates - or chaebol, which were born in her father's time - and to aid small to medium-sized companies. Park Chung-hee's support of the chaebol created a monster. Their tentacles tied up growth in unexpected ways. Yet last Thursday, when his daughter listed her top priorities of increased welfare spending and vague platitudes about improving research in IT and science, it sounded disturbingly like the 1960s - as if the ideas came from her father's administration.

Park's team has not said anything that suggests it understands that playing economic catch-up is very different from devising new ways to grow and prosper, as South Korea must.

In years past, the country could watch what others did. Hyundai Motor copied Toyota Motor, and Samsung Electronics emulated Sony and Apple. Once you join the majors, you must find your own formula for innovation and experimentation.

The corporate culture must focus less on social cohesion. Firms must hire more women and tap global talent. There must be a greater willingness to fail.

Park should cultivate a bigger venture capital movement and offer tax incentives for start-ups. Championing small to medium-sized enterprises would raise productivity, lead to a more vibrant service sector and narrow the income gap, which is driving many households to take on too much debt.

The education system must be less about exams and striving for a job at one of the chaebol and more about critical thinking, questioning authority and fostering an entrepreneurial spirit.

South Korea has proven its resilience and ability to write new chapters in its history time and again. It needs to surprise the world anew. President Park, too.