Big Push in South Korea

Big Push in South Korea

South Korea is currently one of the fastest growing economies of the globe, and this is due to four decades of sustained growth. The government of the country has developed and implemented an economic growth model based on massive exports, and a restriction of the imports. Additionally, when imports were engaged in, they mostly included raw materials and technologies, as opposed to commodities. In other words, emphasis was placed on production and exports, rather than on consumption, which constituted the backbone of economic growth in several Western economies.

While the policy of growth through exports generated economic stability and development, it also translated into a series of disadvantages. For instance, the country is highly dependent on exports, meaning as such that its financial stability is directly pegged to that of the countries where South Korea exports its items; in other words, economic problems in the destination countries materialize in decreased demand for the South Korean items, and decreased revenues and GDP in South Korea.

With lessons learnt from the Asian economic crisis of 1997-1998, as well as the current internationalized economic crisis, South Korea has begun to address its limitations and is also basing its economic growth on the consumption of the domestic population. Still, challenges remain to be overcome and the most relevant examples in this sense include the aging of the population, the lack of flexibility in the labor market as well as the still increased dependency on exports (Central Intelligence Agency, 2012).

The challenges encountered by South Korea are multiple and complex and they need to be addressed through a multifaceted economic model. A component of this approach is represented by the Big Push model, at the level of worker education and company investments in research and development. In other words, it is argued that the rule of president Park Chung Hee (between 1962 and 1979) has supported the alignment and coordination of worker education efforts and the R&D efforts, which has consequently led to a big push in the overall economy of South Korea, by supporting its transition to a knowledge-based economy.

2. The big push model in South Korea

In a most generic formulation, the big push model represents a theory of economic growth based on coordination that would lead to industrialization. Generally speaking, several forces would be expected to interact and stimulate a big push, namely a sustainable economic growth. In the case of South Korea, the two forces interacting to generate a big push are represented by the increased emphasis on the training and education of the workers, as well as the attention of economic agents in research and development.

Then, another important trait of the big fish economic model is that the combination of the two forces is expected to be integrant and aligned, and to materialize in economic growth.

The big fish model is also characterized by the fact that it stimulates an open and free economy, as opposed to a rigid and highly controlled economy (Groning, 2010). The South Korean economy was historically rather enclosed, but has recently opened up to more international trade, namely more imports.

During the rule of President Park Chung Hee, South Korea generated high levels of industrialization and economic growth and development. This development was nevertheless based on exports and free trade was not encouraged. Today however, more emphasis is being placed on free trade and the liberalization of commerce, but the reign of Park Chung Hee represents the background to the current economic evolution of the country.

Park Chung Hee was a military man, who seized power and became the ruler of South Korea in 1962. The leader is often criticized for the authority and even dictatorship he used in ruling the country, but he is also praised for the economic growth he helped create in South Korea. At a more detailed level, the ruling of President Park Chung Hee is characterized by the following:

Support of the military throughout the entire presidency period; this support took the form of an administrative democracy, which set out to "weed out corruption, strengthen the autonomous ability of people and establish social justice" (Khaled, 2007).

Decreased emphasis on the unification of Korea

Intense intervention of the state in the industrial enterprises, with the role of creating equality. According to Park, "guided capitalism was [a] system of economic management designed to create an economic order that would guarantee the equalization of income and public benefits from the economy" (Khaled, 2007).

Emphasis on the securing the energy resources, expanding social infrastructures (such as railroads and ports), constructing basic industries (such as fertilizers, steel, cement and so on), increasing the production of farms, balancing the foreign payments and promoting technology

The strengthening of the family-controlled corporate groups, the chaebols, coupled with an intense collaboration between the chaebols and the government, which supported industrialization

The regulation of the capitals, stimulating foreign investments in the country, to ensure the development of the national industries

The strict control of the labor force through the prohibition of unions and strikes (Khaled, 2007).

At the beginning of Park's rule, South Korea was one of the poorest economies of the globe, with limited industry and relying primarily on agricultural operations. Inflation was soaring; prices gradually increased; unemployment reached peak levels and production of national commodities had decreased dramatically. "A vicious circle of poverty had set in Korea" (Khaled, 2007).

In such a setting, Park's focus was that of ensuring the rapid industrialization of the country, and his emphasis fell on short-term gains and objectives. He granted little attention to long-term issues, such as free trade or human rights (Gregg, 1999). Given his approach, the former president is often criticized for his autocratic leadership, but is also praised for the industrialization of South Korea.

Returning to the big push model, another feature worthwhile mentioning in the context of Park's presidency is represented by the need for state intervention. In the context of the previous model feature -- that of a need for a free market -- this particular trait would result in the creation of a paradox. Nevertheless, the argument is that the state recognizes the need for a big push and supports its creation through adequate intervention. In other words, by maintaining equilibrium in the economy, the state intervenes to support the coordination of the investments in the attainment of the big push (Arrow, Ig and Yang, 1998). The former South Korean president fully played this role in generating a big push in the domestic industry.

In the specific case of modern day South Korea, the two interdependent elements in the big push model are represented by an increase in worker education and by an increase in the investments made by firms in the direction of research and development. The occurrence of the two features, as well as the relationship between the two in the creation of economic development is pegged to a series of features, including the rule of Park Chung Hee. Some of the Park policies which support worker education and R&D include the promotion of technology, the improvement of the infrastructure or the stimulation of foreign policies.

At the level of worker education, this feature has generally been overlooked in South Korea, especially when former president Park Chung Hee had denied numerous rights to the workers. In the past recent years however, the South Korean employees are beginning to enjoy more rights, such as better paid wages or more financial and non-financial benefits.

The education of the workers is generally ensured with a twofold benefit. On the one hand, it provides the employer with staffs which are better skilled, better qualified, more efficient and as such more productive. On the other hand, employee education also enhances the satisfaction and motivation of the worker, once again leading to increased worker performance (Armstrong and Baron, 2002).

The education of the workforce in South Korea is however not only supported by the business sector, but by the very state. In this order of ideas, in 1998, the government opened the Credit Bank System (CBS), which allows adults in the country to accumulate credits with which to support their educational efforts in institutions such as colleges, universities, non-formal educational institutions, as well as online universities.

The institution has the benefit of centralizing the needs of adults as well as the offer of various educational institutions. It also strives to ensure educational equity, especially for the undereducated South Koreans. The primary feature of the Credit Bank System is that it operates based on a market system, in which educational programs are offered in a balance between the needs of learners, as well as the needs of the market (Rubenson, 2011).

Throughout the recent years, the South Korean government has recognized the role of a skilled labor force in the attainment of the economic goals of the nation. The state as such introduced the vocational training system, through which emphasis was placed on the creation of skilled technicians to support the development of the domestic industries.

Throughout the 1990s decade however, the South Korean labor force changed to raise new challenges, such as the aging of the population, the declining rates of the young population, and the resulting shortage of skilled labor force. In such a setting then, the vocational training system was extended to promote lifelong training for the employees, and this took the form of the Vocational Competency Development Program.

Despite the advances made, much still remains to be done, as South Korea is among the countries with the lowest investments in worker education. According to a study of the Organization for Economic Cooperation and Development (OECD), South Korea invested 0.05 per cent of its gross domestic product in employee training; Germany for instance invested 0.37 per cent and Austria invested 0.40 per cent (Lee and Jeon, 2009).

Aside from the increasing education of the labor force, the economic development of South Korea can also be linked to increases in the organizational and state investments in research and development. Throughout the past recent decade, the investments in research and development in the country have increased at a sustained rate, in a gradual and consistent manner. The chart below reveals this evolution as percentage in the gross domestic product:

Source: Trading Economics, 2012

As a result of this gradual increase in R&D spending, South Korea became one of the leading countries in terms of investments in research and development. In 2011 for instance, South Korea was the third largest nation by percentage of GDP invested in R&D, being only surpassed by Israel and Sweden. The chart below reveals the top ten countries by size of R&D investments:

Source: The Economist, 2011

At the particular level of the structure of the investments, it is noted that the majority of the R&D investments, approximately 75 per cent, are completed by the private sector, including both domestic economic agents, as well as foreign investors. The R&D investments of the South Korean state only account for approximately 25 per cent of all investments, and are generically divided between the R&D efforts of universities and the R&D efforts of public institutions; universities revealed a slightly higher rate of investments in research and development (University World News, 2009).

While at the level of percentage in the GDP, the R&D investments in South Korea are global leaders, in terms of the actual amounts, these are considerably decreased in comparison to the investments of other states. South Korea's investments in 2010 for instance totaled up to $37.93 billion, whereas the investments of the United States of America totaled nearly $400 billion; France, China and Germany also outperformed South Korea's R&D investments (Yonhap News Agency, 2011).

All in all, the combination of increasing investments in research and development on the one hand, and increased worker education on the other hand, has supported the transformation of South Korea from a centrally planned economy into a market driven economy, in which knowledge workers drive growth and development. Still, the full transition to a knowledge-based economy has yet to be completed and some challenges which remain to be addressed include the decreased participation of the services sector to the generation of the gross domestic product, an underdeveloped financial sector or decreased competitiveness of the South Korean business sectors (MacDonald, 2006).

3. Conclusions

South Korea has traditionally been an enclosed economy, but is now focusing on becoming a free market. The past recent decades have witnessed tremendous evolutions and combinations of forces, which have led to the creation of economic developments.

At the current level, the economic development takes the form of the knowledge economy, which is becoming preponderant within the modern day global society. South Korea is attaining its knowledge economy objectives through various elements, two important ones being the education of its workforce, as well as the increase in the amounts of research and development funding.

The table below reveals the structured representation of the big fish model in South Korea.

Feature of big push model

Application in South Korea

1.

Combination of two elements

- Worker education

- Investments in research and development

2.

Results of the two elements combined / Big push

Economic growth in South Korea / Transition to the knowledge economy

3.

Free market

- More emphasis on international trade / imports

- Policies to free the market and globally integrate the country

4.

State intervention to coordinate investments

The policies of President Park Chung Hee

5.

Increase in R&D investments

Sustained increase

3rd largest country in the world, by R&D investments as percentage of GDP

By amount, the values of R&D investments remain low

6.

Increase in worker education

Offered by employers

Supported by the state

Continued need for program improvement

7.

Big push / economic growth

Transition to knowledge economy

Challenges still remain

In South Korea, the policies developed and implemented by President Park Chung Hee have materialized in the stimulation of the economic sector at multiple levels, including the efforts of economic agents in sustaining more research and development efforts; while the former president denied any worker rights, the modern day society in South Korea is stimulating the education, training and motivation of the staff members.

The relationship between the two variables in the big push model is revealed at a basic level as follows: