South Koreans will vote for president next month, but don’t expect the country’s tried-and-tested economic policy to change

February 25, 2022, 4:00 AM UTC
Korean presidential candidate Lee Jae-myung gives a speech while wearing a face mask
Ramon Pacheco Pardo, author of "Shrimp to Whale: South Korea from the Forgotten War to K-Pop", says that people shouldn't expect big economic changes from the country's upcoming presidential elections
Chris Jung—NurPhoto via Getty Images

Are you reading this article on your smartphone? You can thank Samsung for the semiconductors that make it work. Your smart TV likely crossed the ocean in a high-tech ship built by Hyundai or Daewoo. The battery in your electric car was likely made by LG Corporation or SK Group.

South Korea is a tech powerhouse, competing head-to-head with Europe, Japan and the U.S. It ranks as the world’s most innovative country. And it has a diversified tech base, from the semiconductors that drive the world economy to the vaccine manufacturing that will hopefully put an end to the COVID-19 pandemic.

South Korea’s presidential campaign officially kicked off last week. Should we expect a revolutionary plan to maintain the country’s tech dominance from its new president—whoever it is?

In short: don’t expect much to change, as both leading parties largely agree on how to run South Korea’s economy.

The plan involves the government, well-known chaebol, and innovative start-ups.

As far back as the 1980s, South Korean leaders have been driven by a fear of getting sandwiched between “low-cost China” and “high-tech Japan”. While fear of Japan recedes as South Korean firms compete directly with—or even overtake—their Japanese peers, the fear of China remains, further compounded by economic competition between China and the U.S. The Moon Jae-in government saw continued investment in tech as a way to navigate superpower tensions—and keep Chinese firms at bay. As Trade Minister Yeo Han-koo put it in a recent interview, South Korea’s status in the world economy has changed. Today, other countries want and need South Korean products and investment.

Industrial policy is at the center of Seoul’s strategy. The “visible hand” of the state made South Korea rich in the last century, and will help the country to remain competitive and innovative this century.

The $190 billion “Korean New Deal 2.0”, announced in July of last year, would increase investment in education, training, research and development, and digital and green technologies, mainly for the benefit for the private sector—and then the country as a whole. Whoever wins the upcoming March election is likely to keep the plan, if not expand it—after a rebranding to make the plan look new.

Inevitably, South Korea’s chaebol are part of the country’s strategy to remain competitive. Every candidate promises to reform the country’s conglomerates. But none has ever delivered on that pledge.

This time around, none of the leading candidates are even pretending that they’d significantly reform the chaebol. As the global economy reels from COVID-19, South Korean politicians are not keen to make life difficult for the country’s largest firms. Voters, also, are more focused on other issues. In a recent poll, respondents picked high real estate prices, economic growth, and the pandemic as the top priorities for the next president. Chaebol reform is not a top concern, as it was in previous presidential elections.

Love them or hate them, these conglomerates are central to the South Korean economy—and to its future growth. South Korea’s next president will likely encourage high-tech start-ups and the chaebol to cooperate: a policy that dates back to the Asian Financial Crisis. South Korea’s 19 Creative Economy Innovation centers give a glimpse of how this government-chaebol-start-up partnership works. Set up during the Park Geun-hye government and quietly supported by Moon, they bring national and local bureaucrats, conglomerate representatives, and excited entrepreneurs under the same roof. It is one of the clearest examples of how government and business work together for South Korea to maintain its competitive edge.

Thus we shouldn’t expect much change in terms of economic policy, regardless of who becomes the next South Korean president. When Lee Myung-bak took office in 2008 as the first conservative president in a decade, he pledged to privatize hundreds of state-owned firms. By the time he left office, fewer than ten percent of the over 300 public enterprises had been merged or privatized.

When Moon became the first liberal president after two consecutive conservative presidencies, his signature policy was raising the minimum wage. Yet Moon’s pledge wasn’t that much of a shift for the country; South Korea already had one of the most generous relative minimum wages in the Organization for Economic Co-operation and Development.

History tells us, however, that South Korean conservatives, as much as liberals, like the state to play a dominant role in the economy. After all, none other than Park Chung-hee—the South Korean president credited with bringing the country out of poverty—institutionalized the role of government in shaping the market.

This mindset is not gone, even after the South Korean economy is vastly changed today. Both Korea’s political elite and general public believe that the country’s economy should be backed by a strong industrial policy. It’s a template that’s worked since the 1960s, and old habits die hard. In fact, South Koreans have a lingering sentiment that manufacturing jobs are higher-quality compared to other sectors.

In addition, South Korea’s small domestic market means that it cannot sustain itself purely on a service sector. Transitioning away from a reliance on South Korea’s manufacturing juggernauts would mean job-losses in the short-term with no guarantee that change would be successful.

No South Korean president—or business leader, for that matter—would take the risk of pushing for such an evolution.

South Korea’s next president will undoubtedly announce an overhaul of South Korea’s economy, But they’ll likely fall back on the tried-and-tested, driven by the same fears and beliefs that helped turn the country into the economic powerhouse it is today.

Ramon Pacheco Pardo is the author of “Shrimp to Whale: South Korea from the Forgotten War to K-pop”, to be published by Hurst in 2022.

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