Interview: Adapting the South Korean development model to geoeconomic disruptions

Geopolitical competition is causing geoeconomic disruptions. This new normal has shifted the framework conditions for development. Which if these trends are real? What is hype?

Prof. Kim Heungchong: Geopolitical shifts are commonly attributed to heightened rivalry between the United States and China, yet these changes are deeply intertwined with a series of global transformations following the global economic crisis. Firstly, there has indeed been a noticeable deceleration in the pace of globalization. The rapid globalization triggered by the collapse of communism in the 1990s and the subsequent spread of globalization, particularly after China's accession to the WTO in 2001 catapulted it to become the world's factory, and expanded the international division of labor until the global financial crisis in 2008. In fact, major Korean corporations also began relocating manufacturing facilities overseas in earnest from the early to mid-2000s. The slowdown in globalization post-global financial crisis can be attributed to waning U.S. interest in multilateral trade liberalization in the latter half of the Obama administration, ongoing economic crises in Europe and some developing countries, and China's shift from being primarily a producer to a consumer market, diminishing trade's contribution to economic growth. However, globalization remains at historically high levels globally, and the extent of de-globalization can be considered exaggerated.

The perceived widening of income and wealth disparity among citizens in advanced countries is primarily attributed to technological advancements, with some aspects linked to rapid globalization. However, domestic politics in advanced countries are polarized by political forces attributing these issues to globalization in general and the acceptance of immigrants and refugees. The rise of right-wing forces poses significant challenges to free trade, green policies, regional integration, immigration, and ultimately democracy. Presently, the world is evolving in a complex manner characterized not only by U.S.-China tensions but also by the rise of the Global South, conflicts between the Global West and the Global East from China and Russia, and the increasing strategic importance and growing tensions in the Indo-Pacific region. These challenges persist and are unresolved in a dynamic global landscape.

These geoeconomic disruptions will affect all countries, but in a differentiated way. What kind of impact do you foresee on the development path of South Korea?

Prof. Kim Heungchong: South Korea has experienced compressed economic growth driven by export-led strategies over the past 60 years, achieving remarkable democratization through numerous political struggles and sacrifices by its citizens. Recently highlighted geoeconomic disruptions pose a significant threat akin to a catastrophe for South Korea, which heavily relies on overseas wealth creation.

Throughout its history, South Korea has shown a propensity to suffer greater impacts than other nations during global or regional economic downturns. In 1991, South Korea stood up 13^th in the world by GDP size. Over the following three decades, it managed to maintain a ranking of 10^th to 13^th, except for five years when it slipped below the 13^thspot during crises such as the Asian Financial Crisis in 1998 (14^th), the Global Financial Crisis and subsequent years including 2009 (15^th), and 2010-2012 (14^th). This illustrates South Korea's tendency to experience relatively larger declines in economic size compared to other countries during challenging periods in the global or Asian economies, indicating adverse impacts from reduced overseas demand. However, despite these interpretations, the domestic economic impact on South Korea during crises, except in 1998, was not significantly severe due to its ability to overcome crises through currency fluctuations. It is important to note that the relative size of GDP mentioned above is denoted in US dollars.

The heightened tension due to US-China competition presents significant challenges to South Korea's semiconductor giants, given their reliance on international markets for production and components. Moreover, given the nature of South Korea's industries, which are heavily dependent on overseas resources and components, current geoeconomic disruptions pose a major challenge to maintaining stable supply chains in almost all manufacturing supply chains.

Depending on their position in the global value chain, as well as domestic factors, countries will need to find tailor-made answers to these new challenges. Will South Korea have to adapt its traditional development model, or will a few adjustments of the compass be enough to manoeuvre in the new environment?

Prof. Kim Heungchong: The fundamental principle of economic advancement through opening markets and deepening economic ties with foreign economies will remain unchanged for South Korea. However, continuous efforts will be needed to secure technological edges in selected advanced technology sectors through expanded R&D investment, foster talent invitation and development, enhance both traditional and digital infrastructure, ensure spatial availability for housing and production facilities through balanced land development, expand international cooperation centered on the Global South, stabilize inter-Korean relations, narrow internal income disparities, and keep the expansion of everyday democracy.

How could a new development model look like that would allow South Korea to prosper in a world economy after peak globalization?

Prof. Kim Heungchong: If South Korea successfully navigates the challenges posed by geoeconomic disruptions, it can secure key choke points in the future advanced global supply chain. This could mitigate geopolitical risks currently faced by South Korea.

South Korea aims to establish sustained leadership in industries such as AI semiconductor chips, batteries, carbon-neutral related sectors, advanced pharmaceuticals, high-value-added services, as well as cultural products like dramas, films, music, and dance. Ultimately, this strategy seeks to imprint a positive national image of the brand “Korea” itself.

The political economy of change creates winners and losers. Which social groups or actors are likely to support change, and who will resist the shift in the development path? What are the chances of shifting course in time?

Prof. Kim Heungchong: Opposition to openness has historically come from strong interest groups such as agriculture, law, healthcare professions, and others. Additionally, new opposition forces may emerge from small-scale self-employed businesses lagging in competitiveness, education-related organizations, and higher education institutions. This is because current changes are not only driven by geoeconomic disruptions but also by innovative technological shifts like AI, significantly altering job stability. Conversely, expert groups leading technological innovation are poised to become crucial supporters of these changes.

In this context, urgent expansion of social safety nets is needed to support sectors vulnerable to geopolitical turmoil and technological shocks in the South Korean economy. Without smooth and just transitions, there is a risk of widespread discontent leading to the emergence of extreme political parties. Such a scenario could complicate the implementation of new economic development strategies.

The views in this interview article are not necessarily those of FES.