South Korea's Growth Strategy

We have all heard about South Korea's economic success. Well and good.

But much of that success was due to hard work, rather than efficient and innovative work, according to Dartmouth College academic David C. Kang.

The OECD estimates that in 2005, output per hour worked in Korea was 41 per cent of that in the United States, "making Korea roughly as efficient as the Czech Republic (45 per cent), Poland (37 per cent), and Turkey (28 per cent). Japanese workers were 71 per cent as efficient as the United States, with Germany 91 per cent and the UK 83 per cent … In short, for every hour worked. Korea sees less than half the output of advanced countries." (Korea’s Growth Strategy: Work Smarter, Not Harder, in Insight into Korea, Herald Media 2007.)

And that was despite Korean workers putting almost 15 extra weeks of work per year, as compared to the US.

"Simply put, Korean wealth and prosperity is a result of sweat," Kang wrote, adding that the Korean economy is mainly an input-based economy that grows through accumulation and work, and not increases in productivity and efficiency.

So for Korea to join the ranks of the most advanced economies, it has to combine its capacity for hard work with "the institutions, laws, and companies that make efficient – i.e. productive – work possible."

It should also work towards improving its productivity in three key areas – finance, labor, and small businesses.

The financial sector is in need of greater liberalization and institutionalization, and a clear legal and political framework for business activities such as foreign investment, accounting, bond market, and even bankruptcy should be put in place.

Currently, Korea's bankruptcy system makes it difficult for "young firms to take chances, because Korea's bankruptcy laws tend to "criminalize" them. At present there are almost 100 provisions in various laws that discriminate against bankrupt persons. The task … is to find a balance between promoting entrepreneurship and risk-taking while at the same time protecting investors and allowing inefficient firms to fail."

Labor reform is needed to provide flexibility in hiring and firing.

SMEs also needed to be restructured to increase productivity and competition, especially since they accounted for almost 85 per cent of employment and 50 per cent of manufacturing output.