The Fallacy of Korea’s Economic and Innovation Model (한국 경제와 혁신 모델의 오류)

On the surface, the Korean case illustrates how a country can steer its economy through innovation and production.  And yet, underneath the surface, its economic growth model as well as innovation model has serious flaws.  Korea was modeled after Japan.  So was China.  Korea and China are on the same course as Japan.

The current economic model and innovation model can’t escape the inevitable run in with the brick wall.  It was flawed from the start and designed to work for a certain period of time.  As pointed out, since this model produced a multi-decade improvement in infrastructure, industrial base and living standards, people just don’t see the fundamental flaws of this model.

The rapid rise of the East Asian countries largely stems from their symbiotic relationship with the U.S.  Their mercantilism has been associated with the US dollar reserve currency status.  In a sense, these two have fed off each other, as discussed.  The East Asian countries got the export market in exchange for buying the U.S. debt.

Internally, another symbiotic relationship between the state and big business has kept the models going.  It also worked for quite some time.  Then Korea got hit by the financial crisis in 1997, which shook the entire nation.  The 1997 financial crisis was a blessing in disguise.  Korea had an opportunity to change its course.  And yet, it bolstered the short-term strength of export engine and bubble economy to extend a failing growth paradigm with little regard to long-term consequences.  Ironically, since the 1997 financial crisis, while some chaebols’ balance sheet got stronger, the government balance sheet got worse.  Whereas some chaebols have grown to become platform companies with global recognition in high tech sectors and made a successful transformation going forward, the economic fundamentals of Korea, along with the increased income disparity, deindustrialization and financialization of the economy, have gradually deteriorated.  The trickle down innovation hasn’t occurred.  Meanwhile, since the rest of the world was in inflation and the world economies were booming, Korea was able to export into that.

Since this model is broken as the U.S. financial market started to implode and most world economies are in contraction, a change is coming sooner or later regardless of whether they are ready for it.  Can the East Asian countries unpeg from the USD? To what degree have they turned their economies inwards?  Now that this model has reached its peak, who would have to clean up the mess?  That the price for the flawed model and policies falls heaviest on the broader public should concern us all.

Again, what kind of country Korea wishes to be?  Its economic/innovation model should be geared toward serving the broader social interest.  Korea is desperate for new measures.

(A detailed analysis on this topic won’t be shared due to the proprietary nature of the content.)