South Korean Economy Facing Unique Challenges 

Jose Garcia
Jose Garcia
Undergraduate student at Boston College studying Political Science, Economics, and Spanish. I am a member of the Boston College Economics association and the Investment Banking Association. My focus in my academic interests is on International Relations with a concentration on the projection of soft and hard power within the dynamics of state-to-state relations.

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In the past decade, South Korea has prioritized revitalizing its alliances with established and emerging powers to counter threats from its neighbors. North Korea and China are encroaching on the sovereignty of Seoul, which has triggered an initiative to solidify the nation’s regional power.

As policy has shifted to a more dominant outlook, South Korea has built on new strengths and continued to reinvigorate old ones. Besides the prosperity and growth that President Yoon Suk Yeol has yielded in the defense industry, the president must look inward towards the domestic economy to effectively balance future possibilities that might backtrack the progress made.

As a country heavily reliant on exports, it is necessary for a young working population to be intact and able to hold the foundation of their shipping industry. The four largest shipping companies are based in South Korea, which means the state has a solid foothold in the global shipping trade network. This advantage is crucial to the prestige of Seoul because it has access to waterways that most landlocked nations could only dream of obtaining. Besides Europe, there are no landlocked nations that have developed economies. These regions are home to what the United Nations has labeled Landlocked Developing Nations. This does not mean every country with a coast is prosperous, but it definitely puts them ahead of others when building their economies.

Additionally, South Korea’s exertion of soft power has become increasingly more significant and relevant throughout the developed world. Between its modern television shows, skincare, plastic surgeries, and music, Seoul has become more and more appealing to the younger generation of the world, allowing the state to boost its policy of prestige. This image projection can cause a positive return on exports, allowing brands and services to put a premium on their products, which in turn injects more money into the economy.

However, there are two main issues when it comes to the future of South Korea. First, the country is facing an aging population that will damage economic growth. The birth rate in the area is the lowest anywhere else in the world, with a data analysis of 0.84 children per woman. By 2070, half of the population will be over the age of 60. The result will be that more people than not are unfit to contribute to the economy and work most jobs. Even though innovation power is emerging in Seoul’s portfolio, the rate of research and development will not outpace the rate of job loss. This means automated machines will not fill the void the aging population will leave behind.

The second issue at hand is brewing in South Korea’s unique housing market. Besides the main concepts and practices used by other developed nations to live in private and public housing, Seoul created a new way to ensure people had a place to live while giving homeowners the opportunity to invest more. The system is referred to as the Key Deposit Structure. Instead of loans with interest attached to them, the renter deposits 60–80% of the home’s value for a leasing period, and once that time is complete, the owner must give back the amount of the upfront payment. During the leasing period, the owner can use the payment to invest in other assets, such as more properties to rent out that will give a large enough return by the time the renters are ready to move out. The Achilles heel of this alternative solution is the fact that home prices must appreciate in value for the system to have positive returns for the economy. Otherwise, the house of cards would come crashing down in a massive sell-off. Since the values of homes are currently depreciating in value for the first time since the Asian financial crisis and a large proportion of the South Korean population has wealth intertwined with real estate, the country is facing some pressing conditions for an unpredictable future.

Overall, the focus of the state should be to attract migrant workers and prepare a bailout reserve for the people that will suffer the most from these issues. Those would be business owners, homeowners, and prospective renters. Since that includes the vast majority of the population, a safety net of funds would soften the potential crash landing that could become a byproduct of the status quo. Bringing in a more skilled workforce from other nations would help fill the empty glass that the current aging population will create in the next several decades. With a strong projection of soft power and an economy reliant on exports, it is essential for Yoon Suk Yeol to allocate resources and minds to solving the problems that would put them at a disadvantage to neighboring adversaries.