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South Korea surpasses Japan in real GDP per capita

SBFNews

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South Korea surpasses Japan in real GDP per capita​

1 April 2022

Author: Richard Katz, Carnegie Council for Ethics in International Affairs

A major geoeconomic event occurred in 2018 when South Korea’s real GDP per capita surpassed that of Japan. By 2026, the International Monetary Fund projects that South Korea will be 12 per cent ahead of Japan. What makes this event all the more important and illuminating is that South Korea shares so many of Japan’s structural flaws. South Korea’s ability to ameliorate those flaws provide lessons for Japan.

The logo of Hyundai Motors is seen at the company's headquarters in Seoul, South Korea, 22 March 2019. (Photo: Reuters/Kim Hong-Ji/File Photo).

The measure used to calculate ‘real’ GDP is called Purchasing Power Parity, which eliminates distortions caused by varying price levels and gyrations in exchange rates.

South Korea overtook Japan because its growth in productivity has outpaced Japan. Until the early 1990s, Japan was rapidly catching up to the United States. Its productivity peaked at 71 per cent of the United States’ level in 1997. Since then, it has fallen back to just 63 per cent. By contrast, South Korea’s productivity has continued growing and is now just a few percentage points behind Japan.

But that begs the question: how did South Korea manage to do so when it shares so many of Japan’s economic flaws? Like Japan, South Korea is a ‘dual economy’ — a hybrid of extremely efficient exporting sectors, and woefully inefficient domestic manufacturing and services sectors. The productivity gap between South Korea’s corporate giants and its small and medium-sized enterprises (SMEs) is the third worst in the OECD.

South Korea’s economy is so lopsided that Samsung Electronics accounted for an astonishing 20 per cent of all South Korean exports in 2019. What happens if Samsung falters? Meanwhile, more than a third of the country’s labour force consists of low paid non regular workers. The OECD has reported that these structural economic defects in South Korea lowers its potential growth rate by 1–2 percentage points.

Despite these structural flaws, South Korea has managed to avoid Japan’s fate by getting more of the ‘basics’ right. As detailed below, it has also made more serious efforts to address its structural defects. Without such reforms, experts had warned that South Korea could share Japan’s fate.

South Korea has managed to create stability in macroeconomic demand to create resilience in the face of economic shocks. Wages have risen in tandem with overall GDP. This eliminates the need for chronic government deficit spending to stoke demand — a problem that persists in Japan.

From 1990 to 2020, the average Japanese worker enjoyed virtually no increase in real wages. Meanwhile, South Korean workers saw their pay double to a level higher than in Japan. As a result, South Korea’s GDP rose by 4 per cent even as Japan’s fell 7 per cent during the 1998 global financial crisis. During the first two years of COVID-19, Korea’s GDP rose 3 per cent while Japan’s fell 3 per cent.

Raising productivity growth requires an abundance of capital investment. In 1980, South Korean laborers had less than one-sixth as much capital to work with as their counterparts in Japan for each work hour. By 2019, they had 95 per cent as much.

South Korea has also invested more efficiently. South Korean companies get almost twice as much economic benefit per dollar of investment as those in Japan. While both countries suffer from a digital divide between corporate giants and SMEs, South Korean companies who do invest in information and communications technology have exploited its potential much more effectively. When 64 countries were ranked in 2021 on ‘business agility’ in the digital area, South Korea came in 5th place. Japan lagged behind at 53rd.

Acquiring the latest technology has minimal benefits unless managers and workers have the skills to use it imaginatively. Human capital measures the amount of schooling each person receives and also how effectively that education contributes to growth. In 1960, South Korean human capital was only 70 per cent of Japanese counterparts. By 2019, it was 5 per cent more. A key contributor to Japan’s lag is less spending by Japanese companies on off-the-job training, which has dropped 40 per cent since 1991.

Innovation only flourishes when new companies with new ideas have genuine opportunities to challenge incumbents. Politicians in both Seoul and Tokyo talk about encouraging entrepreneurship, but South Korea is turning more of its rhetoric into action. In Japan, only 12 per cent of government financial aid to research and development goes to companies with less than 250 employees, the least among OECD countries. In South Korea, half of the financial aid goes to SMEs.

There is a silver lining to Japan’s declining growth in real GDP per capita. South Korea’s experience shows that the right structural reforms can spur sustainable growth and raise real living standards.

Richard Katz is a Senior Fellow at the Carnegie Council for Ethics in International Affairs.
A version of this article first appeared in
Toyo Keizai magazine.
 

Boliao

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South Korean Samsung and SK group are in the radar of US as they have grown too big. This turkey is ready for slaughter like Japanese technology giants in the 80s. Wait and see, South Korea will follow footsteps of Japan soon.
 

rushifa666

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Another retarded article. Their pay is terrible. Gdp does not mean any good life for peasant. Dummies doesnt get japanese pay is already high
 

Byebye Penis

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South Korean Samsung and SK group are in the radar of US as they have grown too big. This turkey is ready for slaughter like Japanese technology giants in the 80s. Wait and see, South Korea will follow footsteps of Japan soon.
Korean conglomerates are generally pro-China.
 

Byebye Penis

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All that becomes nothing when Comrade Fatty Kim decides to do something crazy. :biggrin:
S. Korea vs N.Korea is like Russia vs Ukraine.

In defense, the Americans will trust the Japan, Australia and Taiwan.
They will have their doubts for South Korea, Singapore and India.
 

syed putra

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Its easy really. Japanese home consumer products totally overwhelmed by competition from china.
In 1998, IMF tried to force samsung to force sale of its electronic business to US funds. They refuse.
 

Byebye Penis

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If Japan experience hyperinflation this year, it will be another 1997 Asian Currency Crisis, everyone of us will be dragged down.
 

ChristJohnny

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All these are East Asian countries ... they are able to compete in world's stage. I remembered the 04 Asian Tigers (South Korea, Taiwan, HK and Singapore). They are at least stand shoulder to shoulder with many Western countries. All of them are East Asian or East Asian Majority. Coincidence? I don't think so.

Race and IQ
national-iq-scores.jpg
 

eatshitndie

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All these are East Asian countries ... they are able to compete in world's stage. I remembered the 04 Asian Tigers (South Korea, Taiwan, HK and Singapore). They are at least stand shoulder to shoulder with many Western countries. All of them are East Asian or East Asian Majority. Coincidence? I don't think so.

Race and IQ
View attachment 143202
no amount of ethnic superiority can prevent a sinkie soh with iq of 169 from being scammed by an african nigger with iq of 69.
 

ChristJohnny

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no amount of ethnic superiority can prevent a sinkie soh with iq of 169 from being scammed by an african nigger with iq of 69.
There are always many low retards in a Race ... it is the average that matters. If majority of Sinkie were scammed, your think all Sinkie will still be around? It only happens to small minority.

It is the big picture that counts.

The Nigerian used to slaves for a reason ... they have no wealth to scam ... instead they are shipped to being slaves and the country plunder.
Today, they have not change much ... because their Äverage" IQ is on the low side.

Race and IQ
national-iq-scores.jpg
 

syed putra

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All these are East Asian countries ... they are able to compete in world's stage. I remembered the 04 Asian Tigers (South Korea, Taiwan, HK and Singapore). They are at least stand shoulder to shoulder with many Western countries. All of them are East Asian or East Asian Majority. Coincidence? I don't think so
The Nigerian used to slaves for a reason ... they have no wealth to scam ... instead they are shipped to being slaves and the country plunder.
Today, they have not change much ... because their Äverage" IQ is on the low side.

These societies you mentioned are so scared to take holidays and only go home after their bosses leave. Not much difference from being enslaved.
 

mudhatter

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for most of history, japs and gooks were irrelevant to the world. they were only interesting for tiongs at most.

in recent decades, japs started copying ang moh kias with their meiji restoration program and gooks after korean war. they have been able to produce world leading consumer brands in consumer electronics, appliances, memory, high end machinery used in such production, robotics, shipbuilding automotive etc. in other words they copied ang moh kias extensively but produced very litttle ideas of their own.


after copying and pasting ang moh kias ideas then they made a few modifications a few amendments here & there


dont see how this is important anyway since any coolie gene peasant like stinkypura could also manufacture ang moh kia invented consumer product as a low wage coolie (like tiong or viet).

yes they have their own brands and are democratic and in that sense they trump stinkypura, can't expect much from coolie gene stinkies

but beyond some consumer products which these inferior slanties just copied and pasted from their ang moh masters what else they've got?

nothing.

that's why japs have been on the decline for three decades or stagnant and can't do anything abt it. copy paste only takes you so far.


i think same fate awaits tiongs and gooks, too. copy paste can only take you so far.

they can copy, no doubt.
 
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