What the U.S. Can Learn From the Koreas

What the U.S. Can Learn From the Koreas

The death of leader Kim Jong Il has turned all eyes to North Korea.

But there's not a lot to see of the hermit kingdom—aside from images of his glass coffin, people wailing in public displays of grief and the coverage of his son's assumption of leadership.

What is eye-opening, however, is a comparison by the Motley Fool of the North and South Korean economies. When the two countries were partitioned in 1953, they started in the same position economically. But now, the democratic South Korea is, according to the CIA World Factbook, the world's 15th-largest economy, making it vastly wealthier than its totalitarian, dictator-led neighbor (#90) as well as similarly sized countries such as South Africa, Myanmar and Colombia. This just goes to show how much a government's practices affect its country's economy.

South Korea is doing so well, it actually bests the top-ranked U.S. on some key economic measures. Here, we present a chart showing how the three countries' economies stack up, and below, we note what the U.S. could learn from the small but mighty South Korea. (Note that decimals are rounded to the nearest tenth and that, with one exception, values are from the year 2010).

North Korea South Korea United States
Population 24,457,492 48,754,657 313,232,044
GDP $40 billion $1.5 trillion $14.7 trillion
GDP per Capita $1,800* $30,000 $47,200
Annual Imports $3.1 billion $422.4 billion $1.9 trillion
Annual Exports $2 billion $464.3 billion $1.3 trillion
Unemployment Rate NA% 3.7% 9.6%

*2009 estimate

What might jump out at you is the fact that North Korea's numbers are all a lot smaller than the others, but a closer look also reveals what the U.S. can learn from South Korea. First, let's establish a few key terms:

GDP

GDP, or gross domestic product, is the monetary value of all goods and services produced by a country within a year. It takes into account all public and private consumption, government spending, investments and exports, while subtracting imports. A country's GDP is largely regarded as an indicator of economic health and standard of living. It's this number that puts the U.S. at the top of rankings of world economies.

GDP per Capita

This figure usually indicates, on average, how much economic value each person in the country has in terms of production, and can also give a picture of the country's standard of living. "Per capita" is a Latin term meaning "per head," so this figure is simply calculated by dividing a country's GDP by its population. According to the chart above, the average North Korean produces about $1,800 in goods or services a year, the average South Korean produces 17 times more and the average American 26 times more.

So what could the U.S. learn from South Korea ? Let's look at the factors below.

Annual Imports and Exports

Imports are the goods and services a country purchases, and exports are the ones they produce and sell. When a country imports more than it exports, that means it has a trade deficit, or that it's spending more than it's bringing in. Out of the three countries above, South Korea is the only one without a trade deficit. Exports are generally preferred to imports, as they always benefit the country in some way: The exporting nation is either paid with cash, which brings in revenue, or receives traded goods in exchange for their exports. Therefore, a more secure economy earns more through exports than it spends on imports, resulting in a trade surplus.

South Korea's top exports happen to all be some of the most in-demand components of the new high-tech economy—semiconductors, wireless telecommunications equipment and computers—allowing it to make a substantial amount in taxes on all of those exports. Another of its biggest exports is cars, an industry the U.S. used to dominate but no longer does. The U.S., on the other hand, imports more in electronic goods and cars than it exports. This is one of the many contributing factors to the U.S.'s trade deficit.

If the U.S. identifies the next big wave industries (biotech? alternative energy?) and gives incentives to companies in those fields, it could soon command those fields, increasing exports and raising government revenues.

Unemployment Rate

"Unemployment rate" is most commonly defined as the percentage of people who are looking for work and are unable to find it. However, this definition does not include people who have become discouraged by a poor job market and have quit looking for work. As you can see, South Korea has an extremely low unemployment rate, indicating that its economy is running at full tilt.

Right now, the U.S.'s exports are heavily focused in services such as financial services, travel services and intellectual property. There are two downsides to being overly reliant on services: First, those industries employ mostly highly skilled workers, leaving workers with low-level skills in the cold. (Indeed, in this recession, workers with less education make up a disproportionate percentage of the unemployed.) Second, demand for services can be more volatile than demand for goods.

If, as suggested above, the U.S. pioneers new industries that have a manufacturing component, it will create jobs for workers with low-level skills, diversify the country's revenue stream and help buffer it from global downturns. All of these factors could help push unemployment lower.

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Image Credit: Flickr.com/gilad_rom

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