Asia's Latest Miracle

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Photograph by Jean Chung for TIME

Seoul-ful The capital's glittering cityscape reflects a very happening place

When I relocated from New York City to Seoul, South Korea's capital, in 1996, I found the city vibrant and fascinating, but also surprisingly provincial. Koreans preferred their fermented kimchi over any other food, and though I grew to enjoy the spicy staple, a longing for familiarity and the feebleness of my digestive system occasionally demanded a respite from the chili-laden cabbage. That proved challenging. Aside from some fast-food joints and wallet-straining restaurants at five-star hotels, foreign cuisine was hard to come by. It's why I have such fond memories of Lee Je Chun. While studying and working in Germany, Lee acquired a taste for things European, so in 1992, he opened the Jell, a shop that sold wine, cheese, pasta, sausages and other imported delicacies. The occasional chunk of cheddar I'd buy was a cherished reminder of a home far away.

A few weeks ago, I returned to my old neighborhood in Seoul for the first time in 10 years, and much to my surprise, Lee and the Jell are still there. But it wasn't the same place where I shopped in the 1990s. Lee no longer sells food: foreign goodies can now readily be found at supermarkets and Costco outlets. Instead, Lee has built a private club for wine lovers, where he hosts tastings for members who pay a $900 annual fee. In its earlier form, the Jell catered largely to expatriates; today the wine club's members are nearly all locals. Koreans have caught on to the pleasures of a good wine. "Korea has changed a lot," Lee says. "Koreans are opening their minds."

The results are striking. Thirty years ago, Korea was poorer than Malaysia and Mexico. Since then, its GDP per capita has surged by a factor of 10 to $17,000, more than double the levels in those countries. GDP growth was 0.2% in 2009, when much of the rest of the world was contracting, and is estimated to be 6% this year. Yet when I left Korea in 2000, it was an open question whether its success could continue. The embarrassing memories of the 1997 Asian financial crisis were still fresh, and Koreans were worrying that they would lose out to a rising China.

Over the past decade, however, Korea has reinvented itself — it's an Asian miracle again. Korea has become an innovator, an economy that doesn't just make stuff, but designs and develops products, infuses them with the latest technology, and then brands and markets them worldwide, with style and smarts. Samsung and LG, not the Japanese electronics giants, are dominating the hot new LCD-TV business. In 4G phone technology, Samsung is poised to become a leading force, while Hyundai Motor, an industry joke a decade ago, is a top-five automaker, its rising market share fueled by quality cars and nifty marketing. "'Made in Korea' used to be synonymous with cheap and imitative," says Bernie Cho, president of DFSB Kollective, a start-up that markets Korean pop music internationally. "Now it's become premium and innovative." New industries, from online games to pop music, have emerged as powerhouses. Politically as well, Korea is stepping out of Washington's shadow and becoming an influential voice in its own right. Symbolic of that new role, Seoul is hosting the G-20 summit on Nov. 11 and 12, the first Asian country to do so. This nation is a global leader-in-waiting.

Part of Korea's success is simple commitment. Koreans spend some 3.5% of their GDP on R&D, compared with 1.5% in China and less than 1% in Malaysia and India. Innovation, however, isn't something that can be conjured up in government offices or corporate boardrooms. You can tell people to work harder or build a more modern factory, but you can't order them to think better or be more creative. That change has to take place inside people's heads. In Korea, it has. Koreans have become more accepting of diversity and outside influences and quicker to shed old prejudices. Such an outlook was brought about by a fundamental (and continuing) reformation of Korean society. Koreans are breaking down the barriers that held the nation back, a process fostered by political freedom and a passionate embrace of the forces of globalization. Says Cho: "Korea has gone from being a hermit kingdom, from a closed door, to open arms."

A Stranger No More
Globalization has always been the engine behind Korea's economic miracle. Beginning in the 1960s, a destitute Korea capitalized on its cheap labor to competitively export toys, shoes and other low-tech goods to consumers in the West. That jump-started income growth; as costs rose, Korea shifted into ships, microchips and other advanced products. Yet to Koreans, globalization was a one-way street. They were happy to sell things to the world, but wanted no more than the profits in return. Koreans didn't care much for foreign cars, foreign investment — or foreigners. Empty taxis would ignore my frantic hails, while locals sometimes swore at me while I walked in Seoul with my Korean-American girlfriend (now wife). Behind its crenellated walls, the Korean economy developed on its own dynamic, and boosted by their unexpected economic success, Koreans came to believe their system was special, even superior. But dangerous problems were festering. Companies were shielded from competition and heavily supported by tight links to the government and banks, allowing them to borrow and invest willy-nilly while building up frightening debt burdens. When I would mention these flaws to businessmen or officials, I got brushed off. The normal rules of economics didn't apply to Korea.

That self-delusion evaporated during the Asian financial crisis of the late 1990s. As Korea's most prominent companies collapsed into bankruptcy and the government endured a humiliating $58 billion International Monetary Fund bailout, Koreans had to rethink the ways they did business, managed their careers — even their entire economic system. The crisis "was the catalyst" for change, says financier Tom Kang. "The old ways didn't work."

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