Monday, December 04, 2006

South Korean Economy at Risk in Nuclear Crisis

Yesterday's Los Angeles Times ran an interesting business article on the South Korean economy, an industrial powerhouse ranked as the seventh-largest exporter in the world. The article points out that there will be deep ramifications for world trade if South Korea has a serious crisis with the communist regime to the north:

Hyundai Heavy Industries Co. launches one of its new ships about every five days — some towering 15 stories high and stretching the length of three football fields.

A highly efficient, super-sized version of an automobile factory, the world's largest shipyard has 25 massive vessels under construction at any given time, a feat no other country has been able to achieve.

To many South Koreans, the shipyard in this once-quaint fishing village is a symbol of the dramatic resurgence from the devastation of the Korean War.

But it also is emblematic of what's at stake economically, given the increased tensions with North Korea after the communist nation's recent nuclear test. Barely an hour's flight away across the demilitarized zone, the North's army has 8,000 artillery barrels pointed at its neighbor, ready to wipe out much of the economic miracle in the South as well as many lives.

"It's really remarkable how important the South Korean economy has become," said Richard J. Ellings, president of the National Bureau of Asian Research in Seattle. "Whether it be cars or mobile phones, there would be serious disruptions. Any conflict would be catastrophic for global trade."

Two generations ago, living standards in South Korea were among the worst in the world, with workers earning about $70 a year.

South Korea has risen from that humble station to become the third-largest economy in Asia, trailing only Japan and China, and the 10th-largest in the world, according to the International Monetary Fund. The average annual income now: $16,000.

Tensions have eased somewhat since the Oct. 9 nuclear test, but the North's saber rattling has raised fears about the broader fallout should conflict derail the industrial engine of the South.

It would be felt far beyond the Korean peninsula. In addition to producing 44% of the world's commercial ships, South Korea is the largest maker of computer memory chips and flat-panel liquid-crystal-display screens.

The country, the world's seventh-largest exporter, makes a quarter of all cellphones and supplies more than 10% of the world's steel. Hyundai Motor Co., which has rapidly gained share in the hypercompetitive U.S. market, has grown to become the world's No. 7 automaker.

South Korea ranks first in global market share for nearly 60 lesser-known products — a diverse list that includes hairpins, inner tubes and ginseng.

Some experts believe that economic globalization, which has enabled South Korea and other East Asian countries to win so much business abroad, has made the region more vulnerable.
I've taken an interest in South Korea's development for some time. One of my undergraduate mentors was a Korean specialist and I did some of my grad school exam preparation in comparative politics on Third World development. The Times piece has a good discussion of the role of the state in lifting South Korea to the top ranks of the industrial powers today:

After the Korean War ended in an uneasy truce, infighting eventually led to a dark era in South Korea's political history. From 1961 to 1992, with the military in control, the government imprisoned opponents, regularly changed the country's constitution and censored the media.

But the government also focused on the economy. It developed targeted industries, such as auto making, by giving financial assistance to domestic companies while imposing restrictions on competing imports.

Such close ties between government and business spurred the rise of chaebol, the handful of conglomerates that came to dominate South Korea's economy and have built global brands — Hyundai, Samsung, LG and others.

Few places better illustrate South Korea's economic resurgence — and its sense of normalcy in an uncertain environment — than Hyundai's sprawling shipyard here on the southeast coast.

In 1972, when South Korea did virtually no shipbuilding, the government viewed it as an industry that could drive its economic engine. With merely an aerial photograph of the fishing village and future shipyard, Hyundai founder Chung Ju-yung persuaded a Greek ship operator to buy two cargo vessels. Two years later, a port city rose from the sand.

Since then, Hyundai has built more than 1,000 ships at the 1,200-acre site. With demand booming, it expects to complete 74 ships this year, an industry record. Hyundai has enough orders — 260 in all — to build ships for nearly four years without winning another contract.

South Korea's three major shipbuilders — Hyundai, Samsung and Daewoo — expect to finish the year with $40 billion in new orders for the year, almost double last year's total.

Han Dae-yun, chief operating officer of shipbuilding for Hyundai Heavy Industries, said in an interview at the company's headquarters here that the escalation of tensions on the peninsula had not affected the volume of orders.

"At the moment there is no noticeable impact," Han said, overlooking a bustling courtyard surrounded by a hotel and department store owned and operated by the company. "No client has raised any serious concerns."
South Korea's a classic example of the "capitalist developmental state" model -- a hot topic in political science in the late-1980s and early-1990s. A couple of key books examining South Korean industrialization are Frederic Deyo, ed., The Political Economy of the New Asian Industrialization (1984), and Stephan Haggard, Pathways from the Periphery: The Politics of Growth in the Newly Industrializing Countries (1990).

No comments: