Special Report on South Korea: Korean tiger is still burning bright

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When President Kim Young Sam took office just over two years ago, South Korea was beset by what many called the "Korean disease", according to the government, writes Raymond Whitaker. Its symptoms included "the apparent evaporation of Korean industriousness and ingenuity", not to mention "lethargy", "inertia" and "the combined loss of self-confidence and onset of defeatism".

If this is how the South Korean authorities react to a couple of years of GNP growth below the long-term average of 8 per cent, one scarcely dares to surmise what they would have to say about an increase of only 3.9 per cent, which is what Britain enjoyed last year. For the record, the South Korean economy grew around 5 per cent a year in 1992 and 1993, after 9.1 per cent in 1991. Last year it was back to normal, around 8 per cent. Even though growth may slip to about 7.2 per cent this year, defeatism hardly seems in order.

Such uncompromising attitudes, however, are probably what has made the South Korean economy one of the fastest-growing in the world. In 1970, according to local estimates, its GNP per head was $248, below that of North Korea. By 1980, however, it had grown to twice the size, and by 1990, when the North's economy peaked, GNP in the South was more than five times higher. South Korea is now the world's 12th largest trading nation, and one of the four East Asian "tigers" - the others are Taiwan, Hong Kong and Singapore - chasing Japan into the ranks of industrialised countries.

Some analysts have claimed that certain aspects of the early stages of South Korea's development were reminiscent of the Soviet Union, such as the focus on heavy industry and a degree of government intervention in the economy, which smacked of central planning. The main difference, of course, was that South Korea drove for exports rather than import substitution, but the economy continues to be affected by bureaucratic rigidity and is still dominated by the chaebol - huge family-owned conglomerates, which have stifled the growth of small and medium-sized companies.

No government could dream of taking on these conglomerates directly, but President Kim's administration is seeking to force them to specialise and to spread ownership outside the founding families. With South Korea under pressure to liberalise its markets, it sees the need for the corporate sector to be more creative and flexible. The same qualities will also be necessary if South Korea is to stay ahead of the pack of Asian economies - mainly in south-east Asia, but including China, the behemoth next door - which can tap far cheaper sources of labour.

The chaebol are looking yearningly at North Korea as a possible site for plants, but for the time being have to look elsewhere. At Ulsan, where Hyundai has the largest vehicle plant in the world, the destination boards in the export yards resemble the membership of the United Nations, but the company has signed contracts to build plants in the Philippines, Indonesia and Egypt, and plans to produce 300,000 vehicles abroad annually by the year 2000. One of its competitors, Kia, which has ventured into Vietnam and Iran and is moving into Indonesia, has a similar target; Daewoo, which is establishing a foothold in India, aims for a million.

South Korean companies have colonised the cheaper end of consumer electronics as well as cars and domestic appliances - Samsung is the world's biggest producer of semiconductors. But the "tigers" have to follow Japan into the realm of hi-tech, and the attributes which have brought South Korea this far may not be the ones required to succeed at the next level.

"There is a certain amount of concern about maintaining our high rate of growth," said Koh Il Dong of the Korea Development Institute "Our economy is based on imitation and local adaptations, not innovation." Spending on research and development is rising, but remains small by international standards.

If energy is what is needed to stay ahead, however, South Korea will have no problem. As the government's words show, one thing the country can never be accused of is complacency.