South Korean Lessons

At its independence in 1948, South Korea, wracked by poverty, political chaos and popular discontent, was widely regarded as a sinkhole of American aid. Now this small, ruggedly anti-communist country enjoys relative political stability and is making impressive economic progress. It has become one of the success stories of the United States assistance program.

Experts familiar with South Korea’s history since the war with the communist North insist that the ingredients for success had been there for a long time, however, they are convinced that the apparent miracle is genuine and likely to continue.

Economic growth was at the rate of 7.6 percent annually over the 1962-67 period, with an 8.4 percent rise in 1967 and a surprising 13.1 percent for 1968, but it started from a very low base. South Korea’s mixed economy ranks 11th nominal and 13th purchasing power parity GDP in the world, identifying it as one of the G-20 major economies. It is a developed country with a high-income economy and is the most industrialised member country of the OECD. South Korean brands such as LG Electronics and Samsung are internationally famous and garnered South Korea’s reputation for its quality electronics and other manufactured goods. Although considerable progress has been made toward democracy, the overriding need for stability and order and the government’s vigilant anti-communist policy lay a heavy hand across certain sectors of society. However, the key element is a new feeling of self-reliance and self-assurance that has begun to pervade the country. “We can do it ourselves” has become the motto for a people who long were inclined to ask: “How can we ever succeed?”

From 1961 to 1996, South Korea underwent a period of rapid economic development, during which it was transformed into a prosperous, industrial society. During these years, its economic growth rates were among the highest in the world. The state gave priority to economic development, focusing on a combination of state planning and private entrepreneurship. Possessing few natural resources, it depended on a low wage, educated, and disciplined labor force to produce goods for exports. As wages rose, economic development shifted from labor to capital-intensive industries. Focusing initially on textiles and footwear, South Korean manufacturing moved into steel, heavy equipment, ships, and petrochemicals in the 1970s, and electronics and automobiles in the 1980s. Two major reforms under the administration of Syngman Rhee helped to prepare the way for land reform and educational development. However, it was the commitment to rapid industrialization. Industrialization was characterized by a close pattern of cooperation between the state and large family-owned conglomerates known as chaebǒls. But after 1987, labor emerged as a major political force, and rising wages gave further impetus to the development of more capital-intensive industry. Although living standards still lagged behind those of North America, Western Europe, and Japan, the gap was significantly narrowed. After 1996, its economic development slowed but was still high enough to achieve a per capita income comparable to the countries of Western Europe and to shift from a borrower of to an innovator in technology.

South Koreans came to attribute much of their success to traditional values. By this, they mean hard work, discipline, respect for learning, frugality, and the importance of family, the emphasis on education, the high esteem in which civil servants were held that attracted talented technocrats to serve the state, and even to the willingness to delay gratification that resulted in the high savings rate that characterized the period of rapid economic growth. Many scholars found it necessary to look at specific development policies and historical contingencies to explain the economic transformation of South Korea, including the roles played by land reform, by educational development, and by the ways the country achieved technical transfers.

On the other side, almost all financial indicators in Pakistan have seen a downward trend. The growth rate fell by almost 50 percent from 6.2 percent to 3.3 percent. It is expected to go down even further to 2.4 percent next year, which will be the country’s lowest in the past 10 years. The Pakistani rupee has lost a fifth of its value against the dollar since the beginning of this fiscal year. Inflation is expected to hover around 13 percent over the next 12 months, reaching a 10-year-high as well.

Then there is the issue of the ever-increasing debt, which eats up some 30 percent of the budget every year. Pakistan continues to take out loans to be able to cover repayments of past borrowing. It recently signed yet another deal with the International Monetary Fund (IMF) for a bailout package worth $6bn.

The country has low sources of revenues and high non-development expenditures, which is a recipe for a financial disaster.

For decades, the Pakistani authorities have been unable to establish effective tax collection practices. Currently, only one percent of Pakistanis pay their taxes and the country has one of the lowest tax-to-GDP ratios in the world.

Successive governments have avoided imposing stricter controls because of widespread corruption. In fact, it is cheaper for them to bribe than to pay their dues.

Thus, the tax burden in Pakistan falls overwhelmingly on the poor who pay in various indirect ways and who already struggle to make ends meet. Currently, a third of the nation is living below the poverty line. Pakistan May follow the footsteps of South Korea in technology and industrialisation.

Now, those in power and those who enjoy economic privileges must realise that this status quo is unsustainable. The only way out is to implement a just easy tax system along cancellation of large currency notes like thousand and five thousand.

If Pakistan is to avoid the looming economic disaster, it must revise current spending and prioritise expenditures that will actually generate social and economic development and uplift the poor, not just the civilian and military elites.

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