Why South Korea proves that economic development depends mainly on institutions

0


[ad_1]

South Korea said independence on August 15, 1948, following Japanese colonial domination and carry on American occupation. The nation, officially the Republic of Korea, was only part of the Korean Peninsula. The rest became North Korea, with the USSR support and China. Over the next five years, South Korea and North Korea fought the Korean War, supported by UN, Soviet and Chinese forces. By the end of the war, South Korea’s railways and infrastructure were destroyed, its factories devastated, and three million Koreans were killed. The total value of damage to Korean assets amounted to $ 2 billion, equal to the whole GNP in 1949. The nation had a meager GNI per capita of only $ 67 in 1953, making it one of the poorest states in the world. How the nation increased its GNI per capita more than 30,000 times, overcame the damage to the war-torn nation and became a major economic manufacturing power is, in my opinion, the perfect example of economic development.

How the nation increased its GNI per capita more than 30,000 times, overcame the damage to the war-torn nation and became a major economic manufacturing power is, in my opinion, the perfect example of economic development

States that aim for economic development must focus on several factors. In my opinion, the most important would include: the increase total factor productivity use education, develop infrastructure, increase exports, improve institutions and businesses to be more efficient, and encourage foreign direct investment.

The first South Korean government faced the arduous task of rebuilding the battered country. He understood that the best way to start rebuilding the nation would be to unleash the entrepreneurial talents of his already successful businesses, such as Samsung. American aid to South Korea amounted to $ 1.2 billion from 1945 to 1953 and was spent on the military. The large influx of aid into South Korea allowed the government to distribute funds to businesses and infrastructure projects, which would otherwise have been used by the military. Companies were then able to develop and increase their exports. I would say it is this commitment to free trade that has enabled South Korea to dominate Asian markets by manufacturing, textiles and mining later.

It is this commitment to free trade that has enabled South Korea to dominate Asian markets.

Additionally, the South Korean government has worked closely with large companies, ensuring that its policies encourage entrepreneurial activity. This meant that the government influenced its business activity by using tax breaks. A notable example is South Korea’s steel industry. The nation lack of significant iron stores, but it is now the world’s fourth largest steel exporter (from 2017). The genius of government was to provide subsidies and tax breaks for steel production. This has encouraged Korean entrepreneurs to import iron from Canada . The contractors would then manufacture and sell steel. This experience in the steel industry led to spillovers into modern manufacturing industries as other ambitious entrepreneurs drew their skills from steel and applied them to other products. Examples include electronic devices such as televisions and smartphones, as well as South Korea’s position as a the largest shipbuilder in the world.

In return for the generous support of the government, companies had to respect export quotas and accept government control over banking operations. This prevented the creation of monopolies, which would stifle competition, and made South Korea an exporter. Thanks to government grants, companies sold overpriced products. It gave companies extra money to invest in research and development, which they used to improve technology and expand into different industries. In doing so, these companies modernized the South Korean economy.

In this way, Samsung has been transformed from a fish exporter into a leading technology company in the world. In essence, interventionism and state control over the banking sector have enabled it to create a business-friendly market. As a result, South Korea has the the highest research and development expenditure in the world.

I believe this intelligent marriage of interests between enthusiastic businesses and a united state has created a winning combination that has led to sustained economic growth. South Korea even operated state-owned enterprises in several industries to develop them, without hampering private enterprise. Indeed, China has followed a similar path with similar results.

This clever marriage of interests between enthusiastic companies and a united state has created a winning combination that has led to sustained economic growth.

Interestingly, while South Korea has lacked the stability of other nations, it was still able to achieve tremendous economic development. I think this is because revolutionary governments continue to work in alliance with business and implement good policies. This shows that even turbulent countries can continue to grow economically if government policies are favorable.

I also consider the human capital element to be essential for economic development. At the beginning of the 20th century, South Korea was predominantly illiterate. However, the government has loans created, supported educational institutions and channeled foreign aid in education. This has given businesses and the public sector a well-suited workforce to develop new technologies and maintain high levels of economic growth.

Yet South Korea’s success was not inevitable, and the nation had few advantages.

Across the border North Korea received most of the resources and arable land on the peninsula. However, the hostility of the state towards business, a lack of business partners and poor institutions have led to North Korea overtaken by its southern neighbor. In my opinion, this proves that institutional factors are more important than geographic advantages in defining economic development.

In my opinion, this proves that institutional factors are more important than geographic advantages in defining economic development.

Of course, the other major difference was ideological. South Korea has always embraced capitalism, while the The north is nominally communist. Unlike many postcolonial states, South Korea has supported businesses rather than focusing on state-dominated industries. Several other postcolonial nations such as India tried to develop using state control over industries as much as the USSR had done so, fearing that imperialism and capitalism would be roughly the same thing. This has led to a waste of entrepreneurial talent, a lack of competitive development and excessive bureaucracy. The brilliance of the South Korean model, in my opinion, was to use the state to support businesses and attract foreign investment.

There are clear lessons on economic development to be learned from South Korea. It is a geographically unlucky nation, bequeathed with only limited natural resources and arable land, hostile neighbors as well as a small population. He overcame these limitations because the government was committed to creating modern industries, which involved fostering entrepreneurship and free trade. This engagement lasted even through the turbulence of revolutionary blows because companies have always maintained close ties with the government.

The nation has also escaped neoliberalism and an economic system of socialist command. Indeed, the free market economy dictates that South Korea shouldn’t have had a steel industry, lack of iron ore, this is what made its success.

A developing nation should avoid ideological dogmas and pursue necessary policies, as South Korea does

Instead, the South Korean state has played an interventionist and complementary role to private companies. It was the key to success. I would say that a developing nation should avoid ideological dogmas and pursue necessary policies, like South Korea is doing.

Its progression from one of the poorest states in the world to one of the most technologically advanced states and the 11th richest is matched only by the other three. Asian Tiger Savings and China. Even today, he managed the pandemic with relative success and stay on third fastest growing economy in the world. Developing countries should regard South Korea’s policy book for the past seven decades as an invaluable manual for economic development.


More comments

Is cryptocurrency the future of trading and investing?

Why homelessness will never end in a neoliberal society

Sugar and salt taxes: a scapegoat for more urgent concerns?

[ad_2]

Share.

Leave A Reply