South Korea Joins the 20-50 Club: Taiwan Taken Down a Notch
China Times editorial (Taipei, Taiwan, ROC)
June 5, 2012
Summary: After World War II, a dozen or so economies, including the Taiwan Region of the Republic of China, experienced over 20 years of rapid growth. On average they experienced a 7% annual GDP growth rate. But recently South Korea has left everyone else behind. This month it will join the "20-50 Club." It will become one of the seven countries in the world with a population exceeding 50 million, and a per capita income exceeding $20,000 USD. This news was hard for both the ruling and opposition parties on Taiwan to swallow.
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After World War II, a dozen or so economies, including the Taiwan Region of the Republic of China, experienced over 20 years of rapid growth. On average they experienced a 7% annual GDP growth rate. But recently South Korea has left everyone else behind. This month it will join the "20-50 Club." It will become one of the seven countries in the world with a population exceeding 50 million, and a per capita income exceeding $20,000 USD.
Currently only six countries are members of the 20-50 Club. These six major developed countries became members before Korea. They include Japan (1987), the United States (1988) France and Italy (1990), Germany (1991), and Great Britain (1996).
This news was hard for both the ruling and opposition parties on Taiwan to swallow. Taiwan and South Korea have long competed in every field, from academics to athletics. The 20-50 Club however, is an objective standard, one established by the major powers. Given the numbers, the gap between Taiwan and South Korea is hardly surprising. In 2004 South Korea's per capita income was $15,037 USD, ahead of Taiwan's at $15,012 USD. The gap in per capita income is increasing. Taiwan exceeded $20,000 USD in 2011. But South Korea led by $3,000 USD. In recent years South Korea's international competitiveness has steadily risen. The lifeblood of Taiwan's electronics industry has been diverted to South Korea, to Samsung and other large enterprises. Taiwan has been under the gun. It has lost market share to South Korea even on the Chinese Mainland. In 2005, South Korea commanded an 11.64% share of the Mainland market, exceeding Taiwan's 11.31% share. It has continued to lead Taiwan since.
Many commentators have suggested that South Korea's achievements are a result of its internal solidarity. They say it channels the entire nation's resources into economic development. But the fact is South Korea is free and open. The government and Big Business join to suppress domestic trade unions and farmers. Allowing U.S. beef imports created quite a stir in South Korea. When South Korea signed an FTA with the United States, opposition party legislators occupied the legislature. Only ruling party force enabled the legislature to vote. In other words, once the Korean government set its goals, it did not hesitate to pay any political price to achieve its goal, This is something we have been unable to accomplish on Taiwan.
Secondly, Taiwan must reallze that South Korea has always been a larger economy than Taiwan. It has twice the population. It has vastly greater land area. Taiwan may set higher goals. It may compare itself to South Korea. Just like South Korea often compares itself to Japan, out of national pride. But such comparisons are unrealistic.
What Taiwan really needs to emulate, is the South Korean government's determination to open itself to the outside world. South Korea has signed more free trade agreements than any other country in the world. It has signed FTAs with the Association of Southeast Asian Nations (ASEAN), India, the European Union, and the United States. Currently 36.22% of South Korea's exports are duty-free. If it signs FTAs with Mainland China, including Hong Kong, with Japan and other countries, then 72.73% of South Korea's exports will be duty free. This will create ideal conditions for Korean products in the international markets.
South Korea's FTA strategy was devised by foreign service personnel and trade-oriented think tanks established by the government. They formulated its economic and trade strategy. Major companies also have research units. Together they have cultivated the talent necessary to open up global markets and negotiate FTAs. These talented individuals are experts in foreign languages and laws, international industry, finance, politics, and diplomacy. Hundreds of them have post-doctoral research experience. But the South Korean government's real achievements lie in its exploration of the future of industry. According to Nobel Prize winning economist Michael Spence, South Korea was like Taiwan. It too experienced a period of rapid growth. It too transitioned into a middle income economy. South Korean ruling and opposition parties also worried that their economy would lose momentum. High quality, labor-intensive manufacturing moved to lower cost countries. But the South Korean government vigorously promoted structural transformation. This may have been a response to the Asian financial crisis of 1997. South Korea hit rock bottom. This was a signal that reform could no longer be avoided. Public sector investment shifted from the labor-intensive export sector to education and applied research. The government actively recruited overseas Korean talent, and persuaded them to return. It canceled many of its plans to support industry. It transferred the resources to the private sector.
As Quanta Chairman Barry Lam observed, South Korea channeled its resources into the integration of technology. It actively developed information technology. First-class talent joined the Samsung Group. When Samsung announced its intention to develop and manufacture semiconductor memory chips, western countries thought it was being foolish. But a decade later, Samsung has created the world's first 256 GB memory chip. This was an important milestone for the semiconductor industry, The doubters are now silent.
If one really wants to understand the difference between South Korea and Taiwan, one must avoid the myth of "large consortia vs SMEs." The real difference lies elsewhere. The real question, whether for industrial policy or for FTA strategy, is whether the government took the lead and offered a vision. Did the ruling and opposition parties persist in infighting? Did they change the direction in which the country developed?