South Korea Is Doing It Again: Confounding The Skeptics

In 1998, Asia’s fourth-biggest economy surprised everyone by being first to recover from the region’s financial crisis. In 2000 and 2008, it avoided, respectively, the worst of the dot-com and Lehman Brothers meltdowns. Ditto for the 2013 “temper tantrum” in emerging markets.

Now, Korea has joined China in returning to its pre-Covid growth levels.

“Teflon Korea” is again proving the bears wrong by beating forecasts and growing an annualized 1.6% in the first three months of the year. Accelerating private consumption, increased corporate investment and rising government expenditures has Korea exiting the wreckage from 2020 faster than economies from Washington to Tokyo. 

What’s more, Bank of Korea director Park Yang-soo thinks exports will start benefiting from more than just China’s revival, but nascent recoveries in the U.S. and Europe.

Headwinds abound, of course. One is the global chip shortage, partly a byproduct of the trade war. Covid-19 fourth waves in the U.S., Europe and Japan made for quite a wild card. So does the specter of higher bond yields from New York to Mumbai.

Yet Korea’s return to the plus column could be a harbinger of better times to come. Globally, we have few better economic weathervanes than open, export-reliant and sizable trading power Korea. Its zigs and zags often hint at where much bigger economies might be headed weeks or months out.

That it’s growing again could be even more telling than China’s pivot toward expansion. The light at the end of Korea’s tunnel is no aberration when you look at the performance of Samsung, by far the most important family-owned conglomerate, or chaebol.

Samsung is its own microcosm within a microcosm. And in the first quarter, Samsung Electronics Co.’s net profit jumped 46% from a year earlier. The largest smartphone and memory-chip maker benefited from the same rising demand for the tech giant’s gadgets and appliances propelling the national economy.

The good news is that Korea’s rebound adds spring to the step of President Moon Jae-in’s government, which is in its last year. Since May 2017, Moon has talked big about building a more innovative growth model.

In recent decades, Korea beat the dreaded “middle-income trap” by becoming a leader in consumer electronics, digital devices, petrochemicals, semiconductors and popular culture exports. More recently, Seoul tried to diversify an economy historically driven by autos and ships. Moon set out to recalibrate growth engines from exports to innovation and services.

A major focus has been diverting economic oxygen away from chaebols to startups that disrupt the local business culture and develop into tech “unicorns” that create new jobs and wealth. The trouble, of course, is that Korea has now had three successive presidents who spoke of raising the nation’s economic game.

First came Lee Myung-bak, who moved into the presidential Blue House in 2008 promising a major reform Big Bang. The effort ended rather quickly, though. In retrospect, it probably wasn’t wise to expect the former CEO of Hyundai Group’s engineering and construction business to reduce the economic power of chaebols. He later went to jail on corruption charges.

Lee’s successor, Park Geun-hye, arrived in 2013 promising to “establish an economic system characterized by a virtuous cycle of growth, employment and distribution.” Park’s motivating philosophy: that “growth led by a few big firms and the government is bound to be limited.”

Park’s arrival intrigued historians. It was a father, dictator Park Chung-hee, who created the chaebol system in the 1960s and 1970s. These conglomerates were integral to helping Korea rise from the ashes of war. Over time, though, they became ever more powerful, hoarding much of the economic oxygen. They also became almost impossible to control.

Rather than reining in chaebols, Park got co-opted. In 2017, she was impeached and arrested for bribery and influence-peddling. In fact, Park got caught up in the same scandal that put Samsung heir Lee Jae-yong in jail.

In 2017, it was Moon’s turn to pledge to democratize Korea’s economic model. Whereas U.S. President Donald Trump engaged in “trickle-down” economics, Moon raised corporate taxes and the minimum wage He excited voters with a “trickle-up growth” view of economic change.

Now that Korea is growing again, Moon has a window of opportunity to at least begin the hard work of remaking the economy. If he does, Korea will continue to confound the naysayers–and rise up the economic ladder even faster.