South Korea’s ‘Miracle on the Han River’

In the past few decades, South Korea has built its economy from the ground up by maximising exports and allowing its private sector – and innovation – to flourish.

Following the Korean War in the 1950s, South Korea, officially known as the Republic of Korea, became one of the poorest and least-developed nations in the world.

However, in a period referred to as the “Miracle on the Han River”, South Korea turned its economy around to become one of the world’s largest economies with a GDP of more than $1 trillion.

While many factors contributed to this turnaround, two strategies stood out:

• Implementing export-oriented policies and supporting big businesses.
• Supporting startups, investing in innovation, and focusing on the ease of doing business.

Here is a look at how South Korea became one of the world’s most advanced economies and a leading technology hub.

Exports and big business

Following a military coup in 1961, the Democratic Party was overthrown and a military junta known as the Supreme Council for National Reconstruction (SCNR) took over. During this time, the first national Five-Year Plan was implemented.

This plan aimed to develop the South Korean economy through various strategies, including export promotion, to improve the country’s balance of payments.

This strategy resulted in implementing export-oriented policies, as the country put all its efforts into maximising export products, starting with simple items such as garments, fibre, and footwear. 

As exports increased, the government focused on building more sophisticated hardware-based products for heavy manufacturing industries such as automotive, TVs, and semiconductors. 

“At the same time, the government has strengthened its collaborative ties to support a select number of front runners in these industries, which led to the creation of Chaeobols – family-led large industrial conglomerates,” according to the World Economic Forum (WEF). 

These strategies saw South Korea become one of the top 10 exporters in the world, as the country’s trade-to-GDP ratio increased from 14.61% in 1960 to 80.49% in 2021.

However, according to the World Bank, this feat did not come easy. 

South Korea “had translated peace into prosperity through export-led strategies that involved working and saving a lot and sometimes postponing political liberties for later”.

While highly successful, this choice to focus on exports and elevate Chaeobolsled to the uneven distribution of wealth and power. 

Innovation

However, in recent years, South Korea has distributed government support with a focus on start-ups.

It implemented government support schemes for start-ups like the Tech Incubator Program for Start-ups (TIPS). 

TIPS is “a state-led incubation programme that discovers and nurtures promising start-ups by selectively matching them with government funding”. 

In 2017, South Korea established the Ministry of SMEs and Start-ups to oversee start-up support schemes. 

These efforts saw venture investments pour into Korean start-ups.

According to the WEF, venture investments “have grown 78% year-on-year in 2021, surpassing 7.7 trillion won ($6.4 billion). The number of new jobs created by start-ups in 2021 surpassed those created by the four largest conglomerates combined.”

This focus on start-ups, along with significant investment in research and development (R&D), allowed South Korea to become one of the world’s innovation hubs.

South Korea also focused on optimising the ease of doing business. In 2019, the World Bank ranked South Korea fourth in the Ease of Doing Business index.