Slowly but surely, South Korea is displacing Japan as the lynchpin of East Asian innovation, culture, and trade. Sure, Japan is still a goliath with the third largest economy in the world, a powerful navy, global cultural influence, and technological prowess, but it’s not in the unrivalled position of preeminence in Asia it was in the 80s or 90s.
The South Korean David has now overtaken or is poised to overtake Japan in per-capita income, wages, cultural influence, manufacturing prowess, and democratic indices. In this article, we will explore the similarities and differences between the two countries and why other countries would do well to pay close attention.
A Tale of Two Miracles
Both the Japanese and South Korean economic transformations have rightly been termed ‘miracles’. While Japan started earlier, in the 1870s, the true boom came after World War II in the ’60s, ’70s, and ’80s. However, after the bubble popped in 1991, the country seems to have lost its way. Japan today has not seen significant growth in productivity or output in three decades, and its global position has steadily been slipping.
While the country is still a technologically advanced economy with the third-highest GDP in the world, its lead has been slipping for a while. The military is woefully underfunded, political violence is on the rise again, and obsolete relics like fax machines and floppy disks are still commonplace in Japanese workplaces.
Meanwhile, the South Korean economic story has also been nothing short of a miracle. Once one of the poorest countries in the world, ravaged by the Korean War and Japanese occupation, and with almost no natural resources to speak of, South Korea is today a technological powerhouse. Due to a sophisticated manufacturing ecosystem, Samsung smartphones, Hyundai cars, and LG appliances serve as evidence of South Korean prowess in homes across the world.
The Korean economy is now poised to overtake Japan in per-capita output (though total GDP is still much smaller, owing to Korea’s smaller population). Seoul is a global hub of research, education, entertainment, and finance, and Korean intellectual properties like Squid Game, Parasite, and BTS have become global sensations.
What South Korea Learned from Japan…
The South Korean story has plenty of lessons for other countries. The country followed the developmental path first charted by Japan but with constant adjustments to local conditions. Historical similarities with the Japanese model include the following –
- Powerful vertically integrated conglomerates (chaebol in Korea, keiretsu in Japan) that integrate financial, research, manufacturing, and retail interests across diverse sectors.
- Financial manipulation is based on keeping interest rates low to drive up investment, which is then ‘guided’ by the state into key areas like infrastructure and education.
- A strong focus on exports and moving up the value chain as a path to development
- A common Confucian tradition that emphasises values of frugality, hierarchy, education, and discipline.
…And what Japan can learn from South Korea
What is even more interesting are the differences between the South Korean and Japanese models, as they shed light on why Japan has stagnated while South Korea surges ever forward –
- South Korean democracy is much more vibrant, with a strong tradition of street protest and competitive elections. While Japan is also a democracy, it is much more lethargic, with the same party being in power for decades and mass protests of the kind common in Seoul being rare.
- While Japan has slowly retreated from trade and sheltered its economy, South Korea has doubled down on it. Japanese products have been retreating from stores worldwide, while Korean ones have proliferated. Trade now makes up a much larger proportion of the GDP in South Korea as compared to Japan.
- Korean businesses overall are much more modern than Japanese ones; certainly, fax machines and floppy disks are no longer used. Korean productivity has been growing rapidly, while Japanese productivity has stagnated.
These differences are important in understanding the reasons for South Korean dynamism. The country’s more globalist outlook and continued focus on world-leading innovation and democratic nationalism mean that South Korea is much better positioned to dominate key 21st-century sectors than Japan is.
Can South Korea handle the issues that enervated Japan?
Certainly, South Korea faces many challenges, some of them the same that struck down Japan, such as a looming demographic disaster, North Korean aggression, overdependence on exports, and stiff competition from Asian challengers lower down the value chain, but these are not insurmountable. South Korea’s more flexible society is capable of applying solutions that would be unthinkable in 1990s Japan. Its better ties with China also mean that it has an alternate source of investment and demand close to home.
Whether or not South Korea is able to deal with these challenges will be a major issue in the coming decades. But the country, through its resourcefulness and cultural heft, has already positioned itself as a divergent developmental model to Japan in Asia, and developing countries would do well to take lessons from both the Japanese and South Korean stories.