SEOUL – South Korea’s incoming president, Park Geun-hye, takes over a country that has been a global role model for economic development. But, with the economy slowing, it has become a model in need of renewal.
The so-called “Miracle on the Han River” took root with the reforms initiated by Park’s late father Park Chung-hee, the country’s ruler for much of the 1960’s and 1970’s. A measure of South Korea’s success is that it was the first country to make the transition from being a recipient of OECD aid to becoming a donor, with per capita GDP today exceeding $30,000 (in purchasing power parity terms).
But the growth formula that long underpinned South Korea’s success – a form of state-guided capitalism that focuses on export-led manufacturing – is no longer working for many South Koreans. GDP has nearly tripled over the past 20 years, but, with real wages rising at less than half this rate, growth has become decoupled from the fate of ordinary citizens.
More than half of middle-income households spend more each month than they earn. The signs of social distress are multiplying. South Korea’s divorce rate has doubled, fertility rates have fallen to the fourth lowest among advanced economies, and the suicide rate is the highest in the OECD.