The Economy: Korean Blog Series: Part 5

POSCO Headquarters

POSCO Headquarters

How could they do it? That is what I and others wondered as our group of educators toured the POSCO Steel Plant in Gwangyang, South Korea. Sponsored by the Academy of Korean Studies, we were experiencing first-hand what the world called the Korean Economic Miracle. It was an enormous plant, dredged from the swampy lowlands next to the East Asia Sea and forged into a first-rate facility, shipping enough steel to world-wide customers to make it the 4th largest steel company in the world. In promotional videos we viewed at the Visitors’ Center, they announced that they had “reclaimed the promised land” and “POSCO is creating the tomorrow of the world.” After viewing the facilities, they had reason to be proud.

POSCO is a recent project, especially compared to the U.S. steel companies that date back to the 1800s. POSCO was born in 1968, and its father was the visionary, but autocratic, President Park-Chung-hee.  He concluded that self-sufficiency in steel was essential to economic development. It was a government run project, in which his administration arranged financing from Japan and the U.S.

Well-paid POSCO workers

Well-paid POSCO workers

POSCO CEO Park Tae-joon was quoted as saying, “You can import coal and machines, but you cannot import talent.” He realized that Korea needed a pool of well-educated youth who were proficient in science and technology to ensure that Korea would be a leader in high technology. Park founded, with government support, the Pohang University of Science and Technology (POSTECH) in 1986, and it remains a top university in its field today.

The U.S. and global institutions, such as the World Bank, pressured South Korea to privatize POSCO, and gradually full privatization was realized in 2000. The company has since expanded its operations to countries such as India, China, Indonesia, Cameroon (Africa), Mexico, and Vietnam. With 30,000 employees earning good wages, POSCO symbolizes South Korea’s economic success and long-term planning.

I started out this blog describing the company POSCO because it represents what has economically happened in Korea in many different instances, whether it is Hyundai, Samsung, or many other lesser known companies. For example, China and Korea dominate shipbuilding today. There has been remarkable economic growth as a result of a close connection between government and industry and careful strategic planning to achieve impressive results.

Miracle on the Han River

Miracle on the Han River

South Koreans refer to this growth as the Miracle on the Han River. It has a market economy, even though there is government involvement, which ranks 15th in the world according to GDP (gross domestic product) and 12th according to purchasing power. It is a developed country with a high-income economy.

The Korean War, which ended in 1953, shattered an already fragile South Korean economy. However, after the end of the war the United States aided its development by locating supply bastions for American troops stationed on the Korean peninsula.

Having almost no natural resources and always suffering from overpopulation in its small territory, South Korea adopted an export-oriented economic strategy. Once again, the U.S., not wanting South Korea to go the communist route, was a major consumer of Korea’s exports, along with mostly eliminating import tariffs. But credit is due to the hard-working people of Korea, who were dedicated to achieving economic success and a better standard of living. A rigorous educational system and the establishment of a highly motivated and educated population have spurred the country’s high technology boom and rapid economic development. In 2012, South Korea was the 7th largest exporter and 7th largest importer in the world.

South Korea GDP (PPP) evolution from 1911 to 2008 in millions of $

South Korea GDP (PPP) evolution from 1911 to 2008 in millions of $

In 1980, the South Korean GDP per capita was $2,300, about one-third of nearby developed Asian economies such as Singapore, Hong Kong, and Japan. Since then, South Korea has attained a GDP per capita of $30,000 in 2010, almost thirteen times the figure 30 years ago. These are remarkable achievements considering its humble beginnings just over 50 years ago.

I learned a lesson about the South Korean economy while touring and studying the country: there is a very close cooperation and strategic, long-term planning between government and business. I want to emphasize this cooperation and planning because it is in stark contrast to the philosophy of anti-government/business cooperation among many people and politicians in the U.S. today. On my short tour of Korea, I recognized that the rest of the world is moving toward more government/business cooperation and it behooves the U.S. to realize the benefits of this arrangement and not to be left economically adrift in an increasingly complex and competitive world.

 

questions-to-consider

 

 

 

  1. What do you think of the close cooperation between business and the government in Korea?
  2. Do you think the U.S. should develop closer government/business cooperation and long-term planning or less? Why.
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