The South Korean Economy Is In Deep Trouble - Here's Why

South Korea is widely known as one of

the most economically successful

countries in the world with high-tech

Industries and Global brands that make

products sold all around the world over

the past decades it became a true

economic Powerhouse but now despite all

the global success of its Legacy Brands

it looks like South Korea's economic

model is increasingly running out of

steam its economic growth has been

gradually slowing for years and today it

has basically stopped and no one

including South Korea itself expects

that the economy should start growing

again anytime soon so how come that even

with all of South Korea's Global

high-tech Brands is the economy hitting

a wall how could South Korea turn this

around and why does it seem unable to do

that this is the end of South Korea's

economic miracle for a long time the

South Korean economy knew nothing but

growth starting in the 1950s the economy

grew at a lightning pace for nearly

three decades with growth rates still

exceeding 10% per year even as late as

the 1980s and even though growth

eventually began to slow there was

little cause for concern as South Korea

remained wealthy and it continued to

grow averaging 7% GDP growth in the

1990s 4% in the 2000s and 3% in the

2010s but over the past 5 years Grove

has continued to slow down year by year

and the real problem here isn't just

that the Grove has slowed down after all

this happens to all economies at some

point as they get richer instead the

concern is that this slowdown might not

be a temporary slump but rather the new

normal as even the bank of Korea has

publicly warned that the economy may see

no growth at all in the next decade and

it is likely to begin to shrink by the

2040s in other words there is a

widespread and well-founded worry that s

Korea's economy may have finally

exhausted the secret sauce that fueled

its growth for so long and that from now

on the country is on a declining

trajectory where unless things change

every decade will be worse than the one

before and every generation will be

worse off than their parents but how is

that possible if South Korea designs

builds and sells so many high deck

products that are successful all over

the world and that you very likely have

at home as well well from phones to cars

electronics and so much else well this

Paradox does have an explanation but it

requires us to peel back a few layers to

look at how the Korean economic model

actually came to be and how it operates

to this day because the reality is a

little less glamorous than how it's

usually sold you might have heard that

the core of the South Korean economy is

made up of so-called cha balls ginormous

monopolistic Korean corporation ations

usually owned and operated by several

dynastic families that have for

Generations received privileged support

from the state in form of tax breaks

subsidies and generally not having to

play by the same rules as everyone else

thanks to which they were able to build

companies like Samsung and quickly scale

expand their operations and dominate

markets from Europe to North America but

although here is where the explanation

of the Korean Miracle usually ends this

is a very simplified version of the

story and the whole truth is a lot more

complex because just a government

support doesn't entirely explain how

they were able to build massive

corporations in technologically advanced

sectors and in a country with a little

to no industrial or scientific base and

how they were able to catch up and

overtake their American and European

competitors which had Decades of

experience as a head start well a big

part of the reason behind this is that

South Koreans have mastered the art of

the so-called creative imitation doing

what others were doing but better and at

the origin of the South Korea's

high-tech Industries was its ability to

reverse engineer successful Western

Products and to produce similar items

but at a higher quality and lower cost

and the reason they were able to do that

was because on top of tax breaks and

subsidies the cha balls were able to tap

into other crucial resources thank

thanks to the state-owned Energy company

keco they had access to cheap energy

which lowered their costs and South

Korea's rapidly growing population which

more than doubled between the 1950s and

1980s together with the country's

excellent education system and its newly

created workaholic culture provided an

abundance of cheap and qualified labor

equipped with these advantages the

sorean cha balls were able to

essentially copy and then improve most

Western Products and off for them at a

much lower price and often in better

quality this allowed the country to

eventually move to more advanced

products and sectors evolving from

producing textiles and toys to

electronics and computers and also from

Pure imitation to Innovation gradually

improving and perfecting the products

that were originally just cheaper copies

of their Western competitors but this is

also where the problem began because

this strategy only gets you as far and

it only works as long as you have all

the favorable conditions on your side

and as long as you're able to build the

stuff at a lower price but if that

changes you're no longer competitive and

for South Korea most of the advantages

that made it possible gradually went

away after Decades of providing energy

at subsidized prices to domestic Giants

the Korean state-owned Energy company

keco is now burdened with spiraling debt

that has driven it close to bankruptcy

and so the cheap energy that that used

to fuel South Korea's industry is no

longer available and the cheap and

abandoned labor is also not a thing

anymore as the country's population is

now shrinking rather than growing and

its labor force keeps shrinking along

with it but most importantly the chaals

the South Korean industrial Giants that

drove the country's economy and growth

for decades are no longer the same

either while once upon a time there were

hungry Predators who pursued growth at

every cost today they're owned by a

third generation of their former

Founders and according to Professor Park

from the soul National University they

switched from a former growth mindset

born of hunger towards an incumbent

mindset born of comfort and complacency

instead in other words instead of using

the government's support to pursue

aggressive growth as they used to do

they now use it as a shelter from

competition from abroad and to stifle

competition in formal smaller Innovative

companies that could take their market

share at home and while they do continue

to build highquality products the staff

they build today is mostly the same as

they used to build 20 or 30 years ago

and while in the 20th century they

managed to grow by expanding into more

and more sectors that they would

eventually end up dominating in this

hasn't really been happening in the last

20 years anymore South Korea mostly

keeps building new and improved

iterations of the same cars phones and

consumer goods that It produced 20 years

ago as well but it hasn't really been

able to expand into any of the fastest

growing Tech sectors of the past 10 or

20 years which is why in 2012 it led the

world in 36 out of 120 priority

Technologies identified by the Korean

government but in 2020 this has dropped

to just four and unlike before they now

face a brutal competition from China

which uses a similar strategy as South

Korea and which is increasingly

replacing South Korea's former role and

becoming its direct competitor in many

of the sectors that South Korea used to

dominate in other words South Korea is

stuck in a model that originated in

another time more than seven decades ago

and while for a very long time it

delivered incredible results the world

has changed and it just doesn't work

anymore the South Korean government is

not able to support the cha boss in the

same way as once did Finding itself

without its cheap energy and shrinking

population and meanwhile the cha balls

themselves went from being aggressive

predators to bloated corporations that

use their unfair advantage to crush

domestic competition while they're

unable to keep up and break into new

sectors and Technologies now it might

seem like a logical conclusion that this

system desperately needs a change so why

is South Korea not trying to do that

well the problem is that because of how

incredibly successful this model was for

a long time it's now incredibly

difficult for South Korea to let it go

and move on to something else the cha

balls with all their influence and

wealth also don't want to change as that

would necessarily mean taking away their

unfair Privileges and the fact that

South Korea has been stuck in a series

of prolonged political crisis with a

paralyzed political system and an

inability to make any strategic

decisions as a result doesn't help

either but without significant reform

and a willingness to adapt to a new

reality South Korea risks losing its

hard- earned place as an economic

Powerhouse and the question is whether

it will be able to reinvent itself

before it's too late