Few countries have transformed themselves as dramatically as South Korea has over the last half-century. A poor, authoritarian country with annual per capita income of less than US$400 (13,000 baht) has become a vibrant and prosperous democracy, with direct presidential elections, peaceful transfers of power, and a per capita income of more than $33,000.
But South Korea lately has been grappling with slowing economic momentum, rising political instability and an increasingly fragile security environment. Can the country transform itself again and meet these new challenges?
Begin with the economy. After decades of rapid GDP growth -- averaging over 7% in the 1970s–1990s -- the economy has slowed, growing by 2–3% in recent years. The growth rate is expected to fall further, to 1%, over the next decade.
A key reason for this is demographic decline, with South Korea's fertility rate having dropped to just 0.75 -- the world's lowest. Its population is shrinking and ageing fast.
It does not help that China is becoming increasingly competitive in sectors that South Korea once dominated, such as shipbuilding, steel, smartphones and, increasingly, semiconductors.
Domestic political volatility has risen as well. Corruption scandals and partisan gridlock persist, and both Freedom House and the Economist Intelligence Unit have reported signs of democratic backsliding. Former president Yoon Suk-yeol's attempt to impose martial law for the first time since 1980 revealed that South Korea's democracy remains fragile.
Mounting security risks further complicate the picture. North Korea, bolstered by deepening military ties with Russia and an enduring strategic alignment with China, has continued its regular provocations, including ballistic missile tests. Meanwhile, South Korea is grappling with the question of how to approach the escalating geopolitical competition between China and the United States. US President Donald Trump's past threats to scale back America's security commitments and cut deals with North Korea have revived calls within South Korea for an independent deterrent capability.
Against this backdrop, South Korea will hold its next presidential election on Tuesday. Whoever wins will have to confront head-on the intertwined challenges of boosting economic growth, implementing democratic reforms and providing strategic clarity.
On the economy, a top priority must be shifting from export-led to innovation-led growth. This will require major investments in research and development, as well as support for startups in frontier industries such as AI, biotechnology, green energy and digital health care. It will also require continued industrial policies in key sectors, together with regulatory streamlining.
Labour market reform is also essential. Policymakers must tackle two features of South Korea's labour market that are undermining productivity and inclusion: its dual structure ("regular" workers enjoy more job security, better benefits and higher wages than their "non-regular" counterparts) and its focus on seniority, rather than performance, in determining wages. To help offset demographic decline, policies aimed at boosting female labour force participation, attracting skilled immigrants and retaining older workers are also needed.
As for democratic reforms, the next president should focus on measures to strengthen the National Assembly's legislative capacity, uphold judicial independence and foster a civil society and media culture resilient to polarisation and disinformation. The next administration might even consider allowing presidents to serve up to two four-year terms (rather than one five-year term).
Finally, to strengthen South Korea's security posture, the next administration should reiterate its commitment to the alliance with the US, while seeking stronger security guarantees -- possibly including deployment of nuclear weapons. It should maintain and deepen trilateral security cooperation with the US and Japan, particularly on missile defence and intelligence.
At the same time, South Korea should pursue greater strategic autonomy. While it must uphold all alliance commitments vis-à-vis China, it should limit participation in anti-China initiatives and maintain an open economic dialogue with Beijing. As for North Korea, any engagement should hinge on a credible change in the regime's behaviour.
South Korea has shown a remarkable capacity for renewal in the past. With wise, unifying leadership that delivers a forward-looking vision that addresses economic vulnerabilities, bridges political divides and strengthens national security, this time will be no different. ©2025 Project Syndicate
Lee Jong-Wha, Professor of Economics at Korea University, is a former chief economist at the Asian Development Bank.