South Korea is at a crossroads both economically and in terms of security. The United States, its close ally for 70 years, has a great interest in whether Korea’s leaders can sustain the country’s decades-old and highly successful economic model and security framework.
A popular anecdote about the Republic of Korea (ROK) among economists recalls the period right after the Korean War. The international community, having just fought the biggest war since WWII, dispatches the World Bank experts to Seoul shortly after the 1953 armistice in an effort to “win the peace.” The International Bank for Reconstruction and Development, as it was then more commonly known, declared Korea’s comparative advantage in rice farming and projected a 25-year yearly growth rate of 5 percent.
Following his 1960 coup, Gen. Park Chung-hee (apocryphally) read the report and exclaimed that rice farming could go straight to hell, embarking his country on one of the most astounding economic miracles the world has ever witnessed. In one of recent history’s most remarkable examples of play-to-win industrialization, the South Korean Chaebols were born, bringing the ROK’s economy kicking and screaming into the 20th century.
{mosads}Chaebols, huge and diverse corporations, are the foundation of what became known as Korea, Inc. By 1975, the annualized growth rate had topped 10 percent, double the World Bank projection, and President Park’s export-led growth industrialization strategy became the model for every “Asian Tiger” to stride the world economy ever since. Today, ROK has long since converged with most major western economies – something the World Bank predicted wouldn’t happen for decades.
The realization of Park’s vision in 1960 relied on specific policy decisions in the decades to follow. The policies of newly-elected President Moon Jae In will determine if the country’s unique economic history and traditions will prevail in decades to come. And here, there are more questions than answers at this point.
Nobody was surprised when the Kospi index became the worst performer of all Asian stock market indices, following the announcement of a tax hike by Moon’s government earlier this summer. Taking explicit aim at the Chaebols, the new tax will only apply to companies with profits above 200 billion Won (about $175 million USD).
Similarly, the government’s short-sighted approach towards its own businesses will play out in the possible jailing of Jay Y. Lee, the de facto CEO of the Samsung group — a Chaebol that accounts for a fifth of ROK’s GDP and almost a third of its exports. Lee is accused of bribery stemming from contributions Samsung made at the behest of impeached President Park Geun-hye. Lee’s trial has concluded and the verdict is pending. Prosecutors are seeking a prison sentence of 12 years, a number that shocked many observers who feel that this trial is mostly about scoring political points. Singling Lee out sends a symbolic message to the business community. However, this strategy could backfire as imprisoning corporate leaders won’t do much for the business climate.
Meanwhile, in the security arena, Moon is also grappling with how to manage shifting realities. The general public is familiar with the concept of Mutually Assured Destruction (MAD), whereby nuclear war is unwinnable. President Reagan’s administration funded and developed the Strategic Defense Initiative (SDI) with the objective of parrying a nuclear attack, avoiding any damage to the U.S. — a rearranging of the nuclear calculus that should, in theory, cancel out MAD. This “Nuclear umbrella” has since been extended to our European and East Asian allies and recent events have put South Korea perilously close to testing the MAD theory.
Shooting down a nuclear-armed North Korean-Ukrainian tin can would send a message to every country considering a nuclear breakout. Suddenly, anything short of a Russian-sized overwhelming arsenal would simply be shot out of the sky. The non-proliferation agenda, currently made up mainly of international agreements enforced by self-restraint, would finally have a concrete example to illustrate its case. It might even spur the disarmament agenda back into motion, since the relatively small arsenals of a China, India, Pakistan or even France and the United Kingdom couldn’t be sure to overwhelm the inevitable rise of SDI-equivalents in any country that can afford them.
A bet with that much upside is surely worth considering. In this case, President Moon deserves praise for now accepting the U.S.-backed THAAD missile defense system, which may come to be known as a byword for world peace.
The pragmatic determination of Gen. Park hangs over President Moon at this crossroads. With missile defense, Moon has made practical adjustments to address new and potential security threats. In his approach to the country’s storied corporate titans, he should be careful to not allow ideological orthodoxy and symbolic political victories undermine the economic “Miracle on the Han” built over the last half century. U.S. security and economic objectives are deeply enmeshed with Korea’s stability and success.
Felipe J. Cuello is a policy analyst for the European Commission.
The views expressed by contributors are their own and are not the views of The Hill.