National wealth windfall and a government's fate

Choi Hoon

The author is a senior columnist at the JoongAng Ilbo. 

Korea is expected to collect around 100 trillion won ($66 billion) in corporate tax revenue this year, roughly 15 trillion to 20 trillion won more than last year, thanks largely to the semiconductor industry. That would leave government coffers 17 to 19 percent larger than the 83.5 trillion won collected a year earlier. Forecasts for real GDP growth have also been raised from 2.0 percent to 2.6 percent, while gross national income per capita is projected to approach $40,000 after reaching $36,963 last year.

Samsung Electronics and SK hynix are expected to post combined second-quarter operating profits exceeding 150 trillion won, making semiconductors the largest single contributor to Korea's national wealth in absolute terms. The country is entering another period of exceptional prosperity.

Korea has experienced five previous turning points in national wealth creation: the heavy and chemical industrialization drive of the 1970s, the "three lows" boom of 1986–89 marked by low oil prices, a weak dollar and low interest rates, the first semiconductor boom of 1994–95, the China-driven export surge of 2004–07 and the semiconductor supercycle of 2017–18. According to studies by the Korea Development Institute, the Bank of Korea and the Korea Institute for Industrial Economics and Trade, the current generative AI-led semiconductor boom represents a sixth watershed.

The industrialization campaign of the 1970s remains the most transformative. It reshaped Korea's economic structure, fostered globally competitive manufacturers and laid the foundation for today's economy. The "three lows" boom ranks close behind. Annual growth of 10 to 12 percent produced broad gains in employment and wages, allowing many households to buy color televisions, cars and apartments for the first time, a lifestyle captured in "Reply 1988" (2015).

The semiconductor booms also proved pivotal. The 2017–18 supercycle, fueled by soaring demand from smartphones and data centers, drove dynamic random-access memory and NAND flash prices sharply higher and lifted semiconductor exports by about 60 percent. That success was built on Samsung's decision to press ahead with semiconductor investment in 1984 despite posting losses in its first year. China's accession to the World Trade Organization in 2001 likewise fueled exports of ships, steel and other industrial goods, adding another powerful source of growth between 2004 and 2007.

The relationship between economic windfalls and political fortunes is striking. President Park Chung Hee, who led the heavy industrialization drive, and Presidents Chun Doo Hwan and Roh Tae-woo, who governed during the "three lows" boom, all left office under difficult circumstances. President Kim Young-sam presided over the first semiconductor boom but ultimately faced the Asian financial crisis. Presidents Roh Moo-hyun and Moon Jae-in also benefited from periods of strong growth, yet both saw power return to the opposition. Economic good fortune may earn a government temporary credit, but history suggests it does not determine its political fate.

Voters increasingly recognize that lasting growth comes from corporate innovation and entrepreneurship rather than government claims of success. If an administration simply celebrates favorable conditions, rising expectations can make it even more vulnerable when the economy slows.

History also shows that fiscal windfalls should be invested in the country's future rather than used for political gain. During the "three lows" era, the Roh Tae-woo administration expanded spending to answer growing demands for higher wages and welfare. During the 1994–95 semiconductor boom, the Kim Young-sam administration concentrated on joining the Organisation for Economic Co-operation and Development while allowing excessive business diversification and rapid financial liberalization under the banner of globalization.

The same lesson applies to later administrations. Despite benefiting from China's rapid growth, the Roh Moo-hyun government failed to pursue labor market reforms that could have strengthened productivity. Once economic policy becomes shaped primarily by political interests or ideology, growth inevitably loses momentum.

Those lessons should guide the Lee Jae Myung administration as Samsung Electronics and SK hynix expand investment into Gwangju, the southwest and the Chungcheong region. The government can play a legitimate role in regional development by supporting infrastructure such as electricity, water and research capacity. Beyond that, however, decisions on investment scale, timing and technology should remain in corporate hands, following the example of Taiwan's Hsinchu Science Park.

Some of the additional tax revenue should help vulnerable groups and improve youth employment. Most of the windfall, however, should be directed toward the future: biotechnology, quantum technology, robotics, autonomous driving, optical communications, nuclear power and the convergence of artificial intelligence with next-generation industries. As the government prepares next year's budget, three principles should take priority: the future, the next generation and sustained growth. The historical assessment of the Lee Jae Myung administration may well depend on whether it follows those priorities.