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Will South Korea eventually have a higher GDP per capita than Japan?

Most people reading this question would have no trouble answering almost immediately with an emphatic No! Some would probably snort or chuckle at the mere suggestion but as time goes on and – if North Korea doesn’t collapse in the foreseeable future – I think answering Yes isn’t all that far-fetched considering a number of variables at play in modern Japan and South Korea.

First, let’s look at the current GDP per capita figures for both Japan and South Korea. Surely, Japan’s miles ahead of South Korea, it’s one of the richest countries in the world after all! Well, the truth is that Japan was one of the richest countries in the world and that since its over decade long slowdown it has never fully regained its feet nor found significant strategies to improve its rut. The most recent figures from the International Monetary Fund (IMF), World Bank and CIA World Factbook indicate that Japan has a Gross Domestic Product at purchasing power parity per capita (in US dollars) of $34,166, $34,099 and $34,000 respectively, placing Japan as only the 24th, 18th and 28th richest country in the world respectively. These figures came as huge shock to me as I’ve known for a long time that Japan has had an extended rut, but I never foresaw just how significant that rut has been. I still thought that Japan was still one of the ten richest countries in the world, if not surely in the top 15. But, as you can see I was wrong.

Back in 1990, according to World Bank and CIA World Factbook figures, Japan was the ninth richest country in the world with a GDP (at PPP) per capita of $24,430. Whereas, South Korea’s GDP per capita was a much more humble $6,153 being ranked all the way down at #48. Just less that twenty years ago, South Korea was nearly four times comparatively poorer than Japan was!

Now, let’s have a look at South Korea’s current GDP (at PPP) per capita figures to determine just how big a gap still exists between Japan and South Korea economically. South Korea’s current GDP (at PPP) per capita figures come out as $27,692, $27,939,and $27,600 according to the IMF, World Bank and CIA World Factbook respectively. That places South Korea at 33rd, 24th, and 39th on the world’s richest nations totem poles respectively, and just nine, six, and eleven positions behind Japan according to the figures calculated by the IMF, World Bank and CIA.

This is a tremendous improvement in the past twenty years on South Korea’s behalf and an incredible bridging on what was a huge gap between Japan and South Korea. South Korea was, on average, $18,277 ‘poorer’ than Japan in 1990 compared being on average to just $6,474, $6,160 and $6,400 ‘poorer’ now depending on whoever’s stats you prefer. At this rate, South Korea should overtake Japan sometime within the next decade! Well, let’s not just yet get ahead of ourselves …

Regardless, this is a phenomenal improvement in South Korea’s relative wealth compared with Japan’s, especially considering both countries experienced the devastating Asian Financial Crisis of the late ’90s. If these stats are anything to go by, it seems to show that South Korea managed to ride out the storm and keep on moving about after the AFC whereas Japan has just never been the same.

Now I’m no economist, far from it. Despite having to take two year’s worth of economics classes at uni I’d be buggered if I remember the difference between macroeconomics and microeconomics, and all those charts we used to draw and analyse seemed more like an educated guess than scientific analysis to me. But, nevertheless these figures are interesting and somewhat compelling, despite knowing some of the inevitable questions , queries and disputes to be raised from more economically-minded individuals on this analysis:

These figures just reflect what happens when you compare the growth of a nation with high growth rates moving from a developing to a developed economiy as opposed to a firmly developed economy which has stabilised and plateaued.

- Well, you’re most likely right there. Japan, too, was once a developing country with high growth rates relying largely on an export-oriented economy with its highly skilled, hardworking labour force. South Korea followed and expanded on Japan’s business model to get to where it is today where it competes and seemingly more frequently beats its longer established Japanese rivals, who they not so long ago sought to emulate. South Korea did indeed receive significant capital enumerations and labour skills training from the Japanese during the Park Chung-hee era to help kickstart its economy, and indeed Korea would not be where it is today without this assistance, and a lot of assistance from other nations – in particular, the US – during its economic developing period following the Korean War.

The more critical question will be whether South Korea can continue to expand on its growth and economy, and manage to stabilise – which it inevitably will* do at some point -at a higher economic plane than Japan.

* – a country which is effectively an island (thanks to North Korea) with a rapidly aging workplace, one of the lowest birth rates in the world (though Japan’s is darn low too), an ethnically homogeneous nation displaying growing pains at allowing a larger proportion of non-locals in, and being right near a nation in China with all the economic benefits for growth (a huge, still largely untapped rural labour force that will work for peanuts; an ever-growing, ever-affluent , ever-consuming, educated and hardworking middle class;  furtheringly sophisticated technology and consumer goods and a huge landmass) will surely taper South Korea’s growth sooner than later. Unless, of course, South Korea can manage to successfully walk the tightrope and capitalise on China’s growth.

South Korea has a reputation for being slow to change, what with its chaebols and corrupt businessman, its sometimes myopic, outdated viewpoints, its Confucian-based traditions and still significant xenophobia.

- Well, again you make good points. But, again I think everything you mentioned could also be applied to Japan. Furthermore, you could well argue that Japan has had a good two to three to four decade jump on South Korea to assess, adjust and alleviate these issues but in Japan today these issues are to some degree still as relevant now as they were in 1970, 1980 and 1990. Japan has undoubtedly changed and modified its economy, society and psyche over the past few decades, it’s just my belief that South Korea has done so more – granted it started from a much lower base – and also my hunch that South Korea is prepared to continue to do so to a greater degree than Japan will. I base this assumption largely on South Korea’s obsessive drive to learn English and further open its economy and society, and its obsession with being an economic power. Japan’s already been an economic and cultural power, perhaps it won’t be as inclined to put in the hard yards to continue to be an economic and cultural power, particularly with the rising dragon of China just round the corner.

In my view, Japanese society has reached the enlightenment stage when an economy gets to the point that its citizens – in particularly its youth – start questioning whether it’s worth breaking your back and spending all your time working to ‘get ahead’, and start to re-assess just what is important in life. This is largely great news for individuals in Japan but not so good news if you want your economy to grow at any cost, as people become less inclined to do that bit more to ‘get’ ahead when they question whether it will really help them in the long run. Japan, I believe, has increasingly entered this stage over the past decade whereas I believe it’s still a good 5 to 10 years away until South Korean society really starts to question the get ahead and work hard at all costs mentality on a significant level.

How’s South Korea going to grow when its got no kids, everyone’s over sixty and they don’t really want outsiders moving in?

- Again, valid points. But, again points that could equally be leveled at Japan. In fact, whereas South Korea does have one of the lowest birth rates in the world (Japan’s is lower), at least its population is growing whereas Japan’s is already starting to decline.

OK, yes, South Korea AND Japan are two of – if not – the most ethnically homogeneous nations on Earth which have over recent history shown a reluctance to actively use immigration as a ways of growing their populations and economies, instead actively trying technology and ethnic-focused immigration as a means to alleviate these problems. Both countries, according to recent statistics, still have low immigration rates. Japan’s is higher than South Korea’s as South Korea actually has a negative growth rate due to higher numbers of individuals emigrating than immigrating.

Conclusion

So, as these figures show South Korea has indeed experienced a rapid, sustained period of economic growth which is continuing to this day despite the huge setbacks of the Asian Financial Crisis in the late ’90s and recent Global Financial Crisis. Japan, on the other hand, has slowly gone off the boil in terms of its economic development to the degree that South Korea is now within sight of catching up with Japan’s GDP (PPP) per capita with the next decade, something that would have either been laughed at, mocked or scorned by most individuals just 10 or 15 years ago.

Can South Korea catch up with Japan’s GDP per capita? Who really knows. A lot depends on what occurs in South Korea and Japan, a whole series of factors and variables come into play that make it seemingly impossible to accurately predict whether South Korea will indeed one day surpass Japan’s GDP per capita. These variables become all the more complicated when we figure in external factors such as China and North Korea. East Asia is one of the most dynamic, volatile regions of the planet. Who knows just what exactly could develop over the next five years here. There’s an infinite numbers of critical developments or disasters that should significantly effect not just this region but the entire world.

All that said, I do believe that South Korea has significant chance of one day within the next 15 years having a higher GDP per PPP than Japan. How long it would occur for and what happens after that is anyone’s guess.