South Korea’s economy: How did this Asian tiger industrialize?

August 22, 2023

South Korea’s economy became industrialized through business conglomerates, prioritization of strategic sectors and research.

South Korea’s economy, South Korea’s industry, South Korea’s worker, Más Colombia

South Korea’s economy is known to be one of the most recent “economic miracles”. It went from being an underdeveloped country with a small economy in the 1960s to establishing itself as one of the Asian tigers.

Today, South Korea is known worldwide for the technological products of the multinational Samsung and for its robust entertainment industry, factors that demonstrate the success of its efforts to diversify its economy and boost economic growth.

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Throughout the 21st century, South Korea has been among the top ten exporting countries, according to the World Bank. The industrialization of the South Korean economy enabled this success in international trade, as the main products exported by this country are integrated circuits, vehicles, machinery and electrical appliances.

Indeed, this country, which in 2022 had a per capita income of USD $32,000 and a Gross Domestic Product of USD $1,665 billion, according to the World Bank, has been taken as an example of industrialization. Becoming the first exporter of passenger, cargo and special purpose ships demonstrates its undoubted leadership in industrial matters. But how did it achieve this?

The industrialization of South Korea’s economy was a state-led process, which relied on private enterprise. A recent study by the Center for Labor Studies, Cedetrabajo, explains the industrialization of the Asian country. According to the report, three major keys allowed the Asian country to reach this achievement.

1. Emergence of business conglomerates

According to the Cedetrabajo study, South Korea consolidated a business sphere that boosted industrial development. This was preceded by an agrarian reform carried out in 1949, which put an end to the landlord class. These new conditions in the countryside, in turn, boosted capitalist development.

Another factor that allowed the consolidation of this business sphere in the South Korean economy, according to the Cedetrabajo document, was the sale of companies and assets confiscated from the Japanese after 1945, following a thirty-year occupation of the country. In the period from 1951 to 1953, 53% of Japanese assets were disposed of.

In addition, after the end of the Korean Civil War in 1953, resources were allocated for reconstruction that ended up reinforcing the consolidation of large companies. This led to the emergence of large business conglomerates in Korea, known as Chebol.

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These conglomerates, favored by the State for the reconstruction of the country, are the ones that years later ended up becoming multinational conglomerates such as Samsung, Hyundai, LG or Lotte.

Strategic sectors of the South Korean economy were prioritized

In the process of industrialization of the South Korean economy, the government’s determination to prioritize sectors considered strategic was important. Initially, in the late 1950s and throughout the 1960s, the focus was on the light industry of consumer goods.

In the course of those years, the textile and garment industry, in which South Korea had already been working, was strengthened. In addition, the skilled labor force in the sector was taken advantage of.

In the 1950s and 1960s, new industries were also promoted. Without being highly complex, they laid the foundations for climbing the ladder of industrialization of the South Korean economy. The three main ones were fertilizers, cement and oil refining.

The Cedetrabajo study explains that later, in the 1970s, the State directed South Korea’s economy towards steel, petrochemicals and shipbuilding.

And, starting in 1980, a decisive stage in South Korea’s economy began, in which support was given to the development of high-tech industries. It was the production of electrical appliances, electronic devices and, later, computer equipment that enabled South Korea to become one of the world’s leading exporters. From 1970 to 1997, South Korea’s manufacturing sector grew at an annual average of 18%, according to research by the Pontifical University of Madrid.

3. Education and research policies in South Korea

Along with the consolidation of strong business clusters and the prioritization of strategic sectors, the industrialization of the South Korean economy required major advances in education and research.

Since 1960, policies and programs to boost innovation, science and technology began to be implemented. In that decade, the Ministry of Science and Technology, the Korean Institute of Science and Technology for industry and the Atomic Energy Research Institute were created, according to the Cedetrabajo study.

Later, in the second decade of the 21st century, the National Research and Development Strategy, which is currently in force, was created to promote developments in artificial intelligence, renewable energies and biotechnology. This strategy has as one of its funding postulates to increase the research and development budget from 5% to 6% of GDP.

Finally, the Cedetrabajo document explains that one of the keys to the industrialization of the South Korean economy was to couple the emphasis of education with each of the phases of industrial development.