Getting rich is hard in age of China, Abenomics

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The life of Park Geun Hye, South Korea's just-inaugurated first female president, has so far been bookended by two larger-than-life men of debatable success.

The first is her father, Park Chung Hee, the dictator who ruled the nation for 18 years until his assassination in 1979. The second is Lee Myung Bak, her predecessor who spent the last five years in the Blue House, Korea's presidential residence, and a fellow member of her New Frontier Party.

Park must deal with their shortcomings in reverse. The immediate challenge is to be truer to her party's name than Lee ever was. Lee left office this week with an approval rating in the 20s, an economy burdened by record household debt, a widening income gap, a strong currency that is hurting export competitiveness, relations with Japan frayed and North Korea raising hell around the globe.

Park also must eventually reckon with the legacy of her father's era. The rapid growth of his time was fueled by cheap exports, easy credit, protection from foreign markets and the family-led conglomerates that still dominate. Today's voters are clamoring for a more balanced and egalitarian economy and an exit strategy from the past. They literally want a new frontier.

How well Park addresses the challenges posed by these two political bookends will say much about where Korea finds itself decades from now. Meanwhile, China's shadow is growing, Southeast Asia's upstarts are coming into their own and even longtime rival Japan is undergoing a bit of shock therapy as new Prime Minister Shinzo Abe acts to boost growth.

Deserved praise

The praise heaped Korea's way since the 1997-1998 Asian financial crisis is well deserved. When Iceland crashed a decade later, hedge funds figured Asia's fourth-biggest economy would be next. Bad call. Korea is also a role model for emerging nations looking to avoid the so-called middle-income trap, where per-capita income gains stall out at around the $10,000 mark.

But does Korea now face a higher-income trap? Can it revamp its model fast enough to take its economy to the next level? Korea is seeing the commoditization of the things it has long manufactured, such as cars, electronics and ships. It harnessed growth in those industries to catch up to the developed world. Now that it has arrived, Korea must change its approach to raise incomes for its 50 million people.

Luxury market

In the 1960s, when Park Chung Hee came to power, war-exhausted Korea was among the poorest countries anywhere, with per-capita income lower than many African nations. Today, income is on the cusp of $30,000 per year, new skyscrapers pop up in Seoul every couple of months, and luxury brands from Prada to Rolex are chasing adherents to the swanky Gangnam lifestyle.

What makes Korea special is that it has gotten where it is by combining rapid growth with democracy. It may have begun with military leader Park, whose legacy is marred by torture and censorship. But this year a Korea led by a new, popularly elected Park is likely to grow by 3.3 percent. In a region blighted by all too many authoritarian governments or one-party states parading as democracies, this is unique.

But the question remains, what's next? Park, who yesterday returned to the Blue House, pledged to rein in the huge conglomerates -- or "chaebol," which were born in her father's time -- and to aid small-to-medium-size companies. Park Chung Hee's support created a bit of a monster with the chaebol. Their tentacles spread everywhere and hogged up growth in unexpected ways. Yet on Feb. 21, when his daughter listed her top priorities of increased welfare spending and vague platitudes about improving information-technology and science research, it sounded disturbingly like the 1960s -- as if the ideas came from her father's administration.

Surprising us

Let's give Park some time to surprise us. Yet doing so would be to upend Lee's policies. Park's team has not said anything that suggests they understand that playing economic catch-up is very different from devising new ways to grow and prosper, as Korea must.

In years past, Korea could watch what others did. Here, think Hyundai Motor Co. copying Toyota Motor Corp. and Samsung Electronics Co. emulating Sony Corp. and Apple Inc. Once you join the majors, you must find your own formula for innovation and experimentation. Korea is still at the drawing board.

The corporate culture must focus less on social cohesion, hire more women and tap global talent. It must instill a greater willingness to fail here and there to learn what works and what doesn't. Park should cultivate a bigger venture-capital movement and offer tax incentives for startups. Championing small-to- midsize enterprises would increase productivity, lead to a more vibrant service sector and narrow the income gap, which is driving many households to take on too much debt.

The education system must be less about exams, cram schools and striving for a job at one of the chaebol and more about critical thinking, questioning authority and fostering an entrepreneurial spirit.

Korea has proven its resilience and ability to write new chapters in its history time and time again. It needs to surprise the world anew. President Park, too.

William Pesek
William Pesek is a Bloomberg View columnist. The opinions expressed are his own.

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