How to transform a national economy: from bankrupt to boom in just three steps
Here’s my first story for Qatar’s RasGas magazine. It’s the remarkable story of South Korea, known as the ‘miracle on the Han River’. Today it’s among the world’s most prosperous economies but only fifty years ago it was one of the poorest nations on earth. It has few natural resources, so how did it turn its fortunes round so quickly?
Step 1: They started out with mass industrialisation, selling products more cheaply than anyone else, focusing on export markets rather than domestic consumers. Piling high and selling cheap isn’t a long term strategy for success, of course, because there will always be competitors who can do things even more cheaply – for a while.
Step 2: They invested heavily in three things: R&D (for innovative products), education (for a highly skilled workforce) and buying in energy (liquid gas from Qatari company RasGas, because they couldn’t generate enough of their own). South Korea spends 3.5 per cent of its GDP on R&D, far more than China (1.5 per cent) and India (less than 1 per cent). And it spends more of its GDP on tertiary education than any other developed nation except the US.
Step 3: They shifted their focus to advanced technology and top quality brands. There’s a great quote to sum this up: ” ‘Made in Korea’ used to be synonymous with cheap and imitative; now it’s become premium and innovative.” (Bernie Cho, a commentator for the BBC World Service)
The result? South Korea punches far above its weight. It’s in the top 10 of world exporters, its economy is the 15th largest worldwide and its trade surplus is US$25bn for the fourth year in a row. There are downsides: the intense pressure on young people to achieve high qualifications; an ageing population; stagnation in its chaebols (conglomerates). But overall the future looks bright.
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