Today we are going to talk about South Korea, or as Kim Jong Un would call it, “the bad
Korea”. You’ve probably heard of this country because it is where your mobile phone,
or your TV screen, or even your car was manufactured… Or perhaps because it is the place where the
most watched YouTube video of all time came from…
Yes, South Korea is a big power: not only at the cultural level but also at the economic
one. I’m sure everyone of you watching this video have at least, one product from SAMSUNG,
HYUNDAI or LG…
South Korean companies are on fire. And this is a surprise given that in 1960, South Korea
was an extremely poor country. And no, we are not talking about relative poverty here.
Other countries like Gabon or Zimbabwe were more developed.
Nonetheless, in just one generation, South
Koreans went from starvation to one of the most prosperous societies in the world.
And, so now for the big question: What did
they do in South Korea to become quite so rich?
Hold on a second though, because I know what
you are thinking if you are a regular viewer… “Ah, this is just another video where we
explain how a country got marvellously wealthy thanks to free market capitalism, right?!
RIGHT?!”
Well, I’m sorry to disappoint you (or not). But the story of South Korea is a bit different.
Of course, compared with their neighbours to the north, South Korea is a free paradise,
but their economic model has one peculiarity that sets it apart from the rest of the world…
So then… What are the reasons that explain
this incredible progress in South Korea? And more importantly… Why was Gangnam Style
so controversial in South Korea? Both of this questions are actually related (we promise)
and these are the questions we are going to answer in this video.
FROM THE TOP TO THE BOTTOM
As you probably know, in 1953, the Korean peninsula was split in two halves after a
war in which over 2 million people died. At that moment we could actually say that South
Korea was the country that was in more trouble economically... The North had all the industries
and companies, while the south was agricultural and underdeveloped region.
Schools had no desks and the most of the children
got the majority of their nutrition from powdered milk given by the US and Europe. This is why,
in 1960, after many protests, General PARK CHUN HEE organized a coup d’etat and took
power in the country. And this is how the first South Korean dictatorship started.
For the next 27 years the country had 3 different
dictators. And all of them came to power in a violent way - by overthrowing the previous
dictator. Nonetheless, despite the political instability, these were the times when the
South Korean economic model was created.
But hold on a minute because this economy is not as free as you might think...
In fact, a free market is organized in a bottom
up fashion. The private businesses decide how, when and what they want to sell. Then,
the state comes in and regulates all that activity through laws.
Well… PARK CHUN HEE´s system was the opposite.
This was a TOP-DOWN system. His policy was to meet the most important families in the
country, who controlled most of South Korea’s industries. This group included the founders
of Samsung and LG.
So essentially he put them in a room and said “Look, from now on, I will give you whatever
you need for you to grow.”
If one year you cannot pay taxes… it´s OK! I will forgive you! Do you need some grant?
Here you have it! Do you need to borrow some money from abroad? Well the government will
back your loan! Even if you cannot pay your debts, the state is going to help you!
“If we are weak, our country will be in
jeopardy. (…) In order for a country not to fall, it must cultivate its own strength.”
--Park Chung Hee
Nonetheless, unlike other countries like France, South Korea didn’t put up any barriers to
international trade. Actually, since that very first moment, the government guaranteed
rule of law and low taxes for all businesses, regardless of where did they come from. But
not only that… Park Chun Hee gave all kinds of tax incentives for companies and individuals
to invest and save money.
In other words, the big conglomerates like HYUNDAI or LOTTE had to compete in an open
market with other corporate juggernauts from Japan or the US. But, at the same time, they
had the help from the government.
Since South Korea has no natural resources but a big population, those companies put
a focus on industries that required a large workforce: manufacturing.
And this was the beginning of…
THE CHAEBOL NATION
Imagine the life of one of the 100,000 workers employed by SAMSUNG in South Korea. He gets
up in the morning in a house built by CyT, the construction company run by the Samsung
group. While he eats breakfast, he watches the latest VisualPolitik video (or so we like
to think). He does it from his Samsung Galaxy phone. Then, he takes his RENAULT-SAMSUNG
car. Yep, you might not know that, but Renault cars are manufactured by Samsung in South
Korea… And guess where he has his car insurance! Yep, you’re getting the trend here, he get’s
it from SAMSUNG!
Then after a hard day working at… (pause) yeah, you got it! Now our South Korean man
wants to get some beers with his colleagues. So he goes to the canteen at… (pause) yep,
you got it! Then, the weekend comes. And our friend wants to spend some quality time with
his wife and his children. He decides to take them to a park. Where do you think he will
go? Yeah, he goes to Samsung’s very own Disney style theme park…
In other words, if you work for Samsung, the
company is everything to you. We are talking about the biggest “CHAEBOL” in all of
South Korea.
And now you might wonder… What exactly is a CHAEBOL? Chaebols are those big conglomerates
supported by the state. Some of them, like the already defunt DAEWOO, were started by
the administration itself. Others, like HYUNDAI, were born in the 1940s. All of them started
being family owned but, as they grew, they became public companies. And all of them have
different business lines...
For example, LG is famous for their TVs and their mobile phones... But in South Korea,
they are also the distributors of Coca-Cola.
In total, there are around 100 chaebols and they are the biggest asset in the South Korean
economy. Now, as I said before, the government places a red carpet under their feet… but
this doesn’t mean they have a blank check.
This is why when a CHAEBOL as big as DAEWOO went bankrupt, no one came to bail them out.
And this is is a clear incentive for this companies to be at the edge of innovation.
For instance, in 2008, SONY, the Japanese firm, wanted to create the first OLED TVs.
But this technology was not advanced enough and the screens were pretty expensive, even
priced to high for most of the luxury market. So the SONY guys put the project on hold,
and never really got back into it.
South Korean LG had the same technology and the same problem. So what did they do? They
launched OLED mobile phones, with a smaller display. This way, they took advantage of
their assets and, what is more important, they learned how to work with this new technology.
This is why, in a very short amount of time, they found ways to produce affordable OLED
TV screens.
But hold on a minute because there is another important part which helps explain this very
innovative culture. SOUTH KOREAN EDUCATION
We all know it: South Korean children have
always one of the best marks in the international PISA test. The whole country stops university
entrance exams start. South Korean schools spend whatever they need to guarantee the
best education for their boys and girls.
The flipside of the coin is that those kids have the biggest child suicide rate in the
world. In fact, all of South Korea has a problem with suicide -the country having the second
highest suicide rate, per capita, in the world.
Since the beginning, the government has understood that CHAEBOLS would need high skilled workers.
So they designed an educational system that worked in line with the nation's companies.
This explains why South Korean children are incredible good at maths and have excellent
memorisation abilities.
Further, their respect for authority and hierarchy is almost religious. And… this is why none
one of them want to start a company. The dream of every South Korean one is to end up working
in one of this CHAEBOLS. If they work hard, they might even become a manager and get a
house in that paradise on earth, in that famous district of Seoul with a name that will sound
familiar to you... Yep, I´m talking about the GANGNAM DISTRICT.
WHAT´S THE MEANING OF GANGNAM STYLE?
“A human and warm girl during the day. A classy one, someone who knows how to enjoy
the freedom of a cup of coffee but when the night comes down, her hart gets warmer because
she is a girl with two faces… Hey, sexy lady, Opa is Gangnam Style”.
This is an extract from that famous song that
became so popular back in 2012. It even lead to their main singer, PSY, getting into some
trouble with the authorities due to the lyrics having “inappropriate content.”
For a society that is obsessed with the respect
for authority, PSY’s aesthetics are something as radical as the hip movements from Elvis
back in the 50s...
But the truth is that a hierarchical economy, one which relies on a few big corporations
is not a good recipe for a stable economy. In fact, South Korea, big as it is in the
manufacturing industry, lags behind in other fields such as services or finance. And since
the economy depends so much on governmental and chaebol decisions, there is almost no
space for entrepreneurs. Think about it… even if you want it, it is hard to start a
company when your competitors are supported by the government.
But not only that! These hierarchical structures
are not as efficient as you might think. In fact, most of the CHAEBOLS have become bureaucratic
behemoths that require lots and lots of money to work. Take Samsung as an example. This
firm leads the sales on mobile phones in the entire world. However, they make almost no
profit. And that is a problem.
Anyway, things are starting to change. A lot of South Korean youngsters have been educated
in Europe or America. And now they are coming back to their country of origin with a new,
more critical mindset, and a more entrepreneurial spirit. This new generation is creating the
roots for an start up ecosystem. But there is still a lot of work to be done…
Anyway, whether you like it or not, we must
admit that this top-down model has been successful in South Korea. But despite all of this, there
are still some questions to be answered:
What would happen if one day a company like Samsung collapsed? What would happen to the
country as a whole? And not only that... This marriage between politics and business has
created lots of incentives for corruption on a massive scale. But that’s something
we are going to cover in a future video!
Meanwhile, you should check out this other
video where we tell you about the rising Asian middle class!
Also don’t forget to check out RECONSIDER
MEDIA.COM, the podcast where you can hear the voice on this video that isn’t mine!
And now the question is… Do you think this
crossover between hierarchy and free market could ever work in other countries? What’s
your opinion about the South Korean system? Please, leave your opinion in the comment
section below!
And don’t forget that we upload brand new videos every Monday and every Thursday so
don’t forget to subscribe so you won’t miss anything. If you liked this video, do
give us a thumbs up. And, as always, I’ll see you next time.