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
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
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
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
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
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see you next time.