South Korea

   
 

Executive Summary

Return to normality
after scandal
After the dramatic changes in South Korea’s government following the impeachment of former President Park Geun-hye and the election of President Moon Jae-in in May 2017, Korea has returned to normality. Despite the difficult circumstances, the new administration managed to accomplish a relatively smooth transition. The liberal Moon administration has a very different governing and public-communication style than did the preceding conservative administrations, which were criticized as being authoritarian and nontransparent. The new government has also begun implementing some of its campaign pledges, some of which entail substantial policy shifts.
Substantial policy
shifts underway
The announcement of an “income-led growth strategy” represents a dramatic change from the policies of previous governments, which largely relied on industrial policies to stimulate the economy. For example, the administration increased the minimum wage by 16.4% in 2018 to KRW 7530, and promised to increase it further to KRW 10,000 by 2020. The government also reduced the maximum-allowed weekly working hours from 68 to 52 hours. While a more consumption-driven economy seems prudent given Korea’s large current-account surpluses and the current global environment, the government has come under criticism from businesses, academia and the media.
Backing away from
some promises
To some degree President Moon has already rowed back from some of the promises, promising a “flexible” implementation. Measures seeking to curb rising real-estate prices in Seoul and to address the country’s massive amount of private household debt have also been criticized as ineffectual. The implementation of the campaign pledges (“100 policy tasks”) remains a major challenge, particularly because the government lacks a majority in parliament.
Lack of majority stalls institutional reform
This lack of a parliamentary majority and the preference given for consensus building in the Korean governance system is particularly problematic for deeper institutional reforms, such as electoral-system, judiciary and education reforms. For example, Moon’s plan to decentralize power away from the presidency, in part by strengthening the prime minister, has been stalled due to the institutional and cultural inertia of centralized power.
Strong economy,
but vulnerable to
global shifts
Economically, Korea is doing both nominally and relatively well in cross-OECD comparison. With an annual GDP growth rate of 3.1% in 2017, Korea was above the OECD average of 2.6%. Korea is a major exporter with a strong current-account surplus, and is home to many highly competitive multinational corporations that produce a great variety of products in the automotive, IT and other industries, although this also leaves the country vulnerable to global market volatility and protectionist tendencies. The overall unemployment rate remains low at 3.7%, which is the fifth-lowest such rate in the OECD. However, Korea’s labor-market participation rate remains below average, and the lack of social mobility is causing an increasing degree of concern, particularly among the younger generation.
Social welfare, environment are
problem areas
Social welfare and environmental sustainability are more problematic policy areas, with Korea one of the weakest countries in the OECD in each of these categories. Particularly with regard to the transition to a carbon-neutral economy, Korea is falling ever further behind the leaders in this field.
Dramatic shift in
North Korea relations
With regard to international relations, President Moon has abandoned the hard-line rhetoric of previous governments. He actively seeks negotiations and cooperation with North Korea, and managed to help de-escalate the dangerous regional confrontation. While the Korean peninsula labored under a cloud of bellicose rhetoric and muscle-flexing in late 2017, the situation has since improved dramatically. Summit meetings between North Korea and South Korea, as well as the United States, give hope for a permanent peace treaty with the North accompanied by disarmament on both sides. While most measures taken to date remain largely symbolic, the first small steps toward improved cooperation and exchange have been taken. Unfortunately, beyond the North Korea question, Korea’s international engagement remains underdeveloped – for example, with regard to important issues such as climate change, poverty in the Global South, and a fairer global economic and financial system.
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