Six Markets to Watch: South Korea – The Backwater That Boomed via Foreign Affairs

A few excerpts:

” …  Despite all this progress, the country’s recent years have not been uniformly easy. Still, one of the things that has distinguished South Korea is its ability to adapt to and learn from setbacks. The country was badly burned during the 1997–98 Asian financial crisis, for example, which exposed a weak, badly regulated financial system; wildly overleveraged firms; and occasionally corrupt corporate governance practices. But the government under Kim Dae-jung responded by undertaking significant reforms: it shut down bad banks, forced the resolution of bankrupt companies, and, most of all, strengthened previously inept financial regulation.   …”

“…  South Korea also needs to squeeze the most productivity it can out of its labor and capital, especially given the competition it faces from its neighbors low-wage China and high-technology Japan. South Korea may be tempted to try to accomplish this feat by emphasizing technology above all else. After all, as competitors from Apple to Toyota will attest, the country’s progress in this field, particularly in information technology and manufacturing, has been phenomenal.

But increasing productivity requires more than just technological innovation; it also takes encouraging innovation in emerging sectors while terminating inefficient practices throughout the economy. In South Korea’s case, the area that needs the most help is the heavily regulated service sector. If the government were willing to lower barriers to entry, the ongoing development of the country’s financial sector could help restructure the service sector by making more capital available to underwrite innovation and boost investment….”