The Globe and Mail,
Seoul — From Thursday's Globe and Mail Published on Wednesday, Jun. 23, 2010 7:41PM EDT Last updated on Thursday, Jun. 24, 2010 3:15PM EDT
In South Korean business circles, asking about the global economic crisis can draw a puzzled look. It’s a glance that says “What crisis?”
The Great Recession that clobbered the United States, Europe and other major economies has been little more than a speed bump in South Korea, particularly compared with the cliff that many South Korean companies plummeted off during the 1997 Asian financial crisis.
“With the lessons taken from the financial crisis in 1997, the Republic of Korea has been able to surmount the global economic crisis rather successfully,” President Lee Myung-bak boasted in a written interview with The Globe and Mail, in which he used the official name for South Korea. “The Korean government responded [to the crisis] by taking bold, pre-emptive measures, which have turned out to be conducive to mitigating the economic downturn and creating jobs.”
Somewhat immodest words, but based in truth. South Korea, which will co-hosts the G20 summit that opens in Toronto on Friday, has arguably emerged better from the crisis than any other country that will be attending.
Even as demand collapsed in key markets in North America and Europe, South Korea’s economy kept going strong, while neighbours and competitors like Japan and China were hit hard. Due in large part to a massive $11-billion (U.S.) stimulus package introduced by Mr. Lee’s government at the outset of the downturn, South Korea not only managed to avoid the sort of mass layoffs that hit other export-reliant economies, but actually added 200,000 jobs last year. How has South Korea escaped the contagion that has pulled down Japan, the neighbour it is so often compared to and grouped with?
Part of the answer is that South Korea has strong leadership – at both the government and corporate levels – while Japan suffered an unprecedented dearth.
In Seoul, many credit the lessons learned during the 1997 financial crisis for making the country better prepared to deal with a downturn the second time around. There is also the country’s fortuitous geography, right beside the massive Chinese market which increased demand just as customers in the West were cutting back. But Japan has the same neighbours, and went through the same crisis in 1997, and neither helped it keep pace. South Korea’s economy is forecast to expand by 5.8 per cent this year, while Japan’s economic growth remains anemic.
“Up until a few years ago, the conventional wisdom was that South Korea was in trouble, that it would be squeezed between a rising China and a technologically superior Japan,” said William Overholt, a senior research fellow and East Asia expert at the Harvard Kennedy School’s Ash Centre for Democratic Governance and Innovation.
South Korea has succeeded in carving out a unique identity by capitalizing on the advantages it has over its neighbours, he said. “When [South Korea] is competing with Japan, it’s more open. When it’s competing with China, it’s more technologically advanced.”
The biggest differences between South Korea and Japan can be found at the top of these two traditionally hierarchical societies. When Mr. Lee was elected in February, 2008, the Japanese government was led by Prime Minister Yasuo Fukuda. Two years on, Mr. Lee is still in office and getting warm applause from the business community for the timely introduction of the stimulus package that was by some measures the largest in the OECD, accounting for 6 per cent of gross domestic product last year. Over the same stretch, Japan has gone through three prime ministers since Mr. Fukuda, with the latest, Naoto Kan, warning his country may soon face a debt crisis akin to the one that has hammered Greece.
During the same period, the titan of Japanese industry, Toyota Motor Corp., fell into a tailspin while South Korea’s powerful conglomerates, known locally as the chaebol, rallied around Mr. Lee, himself a former chairman of Hyundai Motor Co.’s construction division. And in one of the world’s top manufacturing and exporting hubs, as big companies like Hyundai, Samsung Group, LG Corp. and Daewoo Group go, so goes the economy.
“The Korean people are very co-operative with the government in terms of the economic response. Even if we have disputes on the political side, we have a shared feeling about the crisis and a shared response to overcoming the crisis,” said Deok Rong Yoon, senior research fellow at the Korea Institute for International Economic Policy.
Another major factor, he said, was a freefall in South Korea’s currency, the won, which occurred just as the magnitude of the global crisis was becoming clear. The fall of the won in 2008, driven by concerns about the country’s high debt load, was initially seen as a cause for concern, but it wound up as a boon for exporters, keeping their products cheap internationally at a time when China’s government was controversially holding down its own currency to gain the same advantage.
There is cause for worrying about what the future looks like. As rosy as things seem now, South Korea still does share many of Japan’s problems, most notably that of an aging work force, many of whom will soon hit retirement age, placing enormous pension strain on a dwindling number of working-age labourers. As in Japan, the problems that come with an aging population are exacerbated by a traditional resistance to women playing leading roles in the work force and a largely ethnically homogeneous society apprehensive about wide-scale immigration.
Sakong Il, a former finance minister and the current head of South Korea’s cabinet-level G20 committee, acknowledged in an interview that the government has a tough sales job explaining to South Korea’s closed society why it has to change. “But as time goes on, the government may have to seriously consider immigration policy and seriously liberalizing its stance,” he said.
I usually am not interested in economics but this was quite interesting to me.
PS: so sorry mods! hopefully this entry is ok.