South Korea goes to the polls on Tuesday to elect a new president after some tumultuous months following the attempted coup by the right-wing president Yoon Suk-yeol to arrest opposition leaders and close down parliament, where Yoon did not have a majority. Eventually, Yoon was impeached and arrested and is awaiting trial, despite vigorous efforts by his party to keep him in office.
The opposition Democratic party leader Lee Jae-myung is ahead in the polls over the new conservative candidate replacing Yoon, Kim Moon-soo. Having lost narrowly to Yoon in the 2022 presidential election (by just 0.7 per cent of the vote), Lee has since survived an assassination attempt when he was stabbed in the neck in 2024. Lee originally positioned himself as an anti-elitist, working-class hero aiming to create jobs and a ‘fair society’. Lee grew up in poverty and suffered permanent injury at the age of 13 when his arm was crushed in a machine at the baseball glove factory where he worked. In the 2022 election campaign, he declared his ambition to be a “successful Bernie Sanders”. Subsequently, the ruling elite tried to suppress his rise. Lee now has convictions for drink driving and there is a long-running investigation into a controversial property development during his time as a city mayor. Current cases against him include indictments for misuse of public funds, making false statements during an election campaign, and involvement in an alleged scheme to siphon money to North Korea through an underwear manufacturer in order to win an invitation to Pyongyang!
Complicating the vote somewhat is the rise of a neo-liberal conservative candidate Lee Jun-seok, 40. He is a Harvard graduate who once served as the youngest ever chair of Yoon’s party, but broke away and is now polling in third place. This Lee wants to deregulate the economy and reduce government to boost businesses.
During the election campaign leftist Lee has muted his firebrand image and moved to the centre, even describing himself as a “conservative” to appeal to ‘moderate’ voters. He has emphasised “corporate growth” and conceded that longer working hours may be necessary in some sectors. As a result, his lead in the polls has narrowed, although he still looks set to win.
If Lee Jae-myung wins the presidency, as seems likely, his administration faces serious economic challenges. Korea is Asia’s fourth-largest economy, but real GDP contracted in the first quarter of this year as exports and consumption stalled, amid fears over the impact of Washington’s aggressive tariffs as well as the political turmoil at home. Korea has been in trade talks with the US and is seeking a waiver from Trump’s tariffs, as Trump pressures Seoul to resolve the large trade imbalance with the US.
The recent political crisis is the consequence of the demise of Korean capitalism in the 21st century. Korea is supposedly an economic success story for capitalism, with economic growth averaging 5.5% since 1988, led by annual export growth of 9.3% a year. Korea’s GDP per person has risen from just US$67 in the early 1950s to $34,000 in 2019. But the slowdown in investment and productivity since the Great Recession has been visible. Labour productivity rose at an average annual rate of 5.5% in 1990-2011, but it has stagnated since then. Labour productivity is particularly low in the service sector—half that of manufacturing and much lower in smaller companies.
Behind the productivity and investment growth slowdown in the 21st century is the secular fall in the profitability of capital. Since the end of the military dictatorship in the mid-1980s which suppressed labour organisations and wages, the profitability of Korean capital has steadily fallen as Korean capital was forced into concessions. Korea’s past economic success had depended on a state-directed industrialisation and export strategy through close connections between the state and the chaebols (Korea’s version of family owned companies like Samsung etc).
Korea weathered the COVID-19 pandemic comparatively well, supported by a reasonably effective public health response. As a result, Korea’s economic contraction in 2020 was smaller than in most other advanced economies, with real GDP declining only by 1%. But the economy has slowed to an average of just 2.3% a year since, as the pandemic left economic scarring, namely weakened corporate profitability weighing on investment and job creation; subdued employment due to the high number of labour force exits; and poor productivity growth.
Korea’s oligarchs remain at the top of the economic structure. The World Inequality Database shows that the top 10% of Koreans by income have increased their share of income and sharply raised their share of household wealth (property and financial assets). In the last five years, that story has not really altered – indeed things have got worse. In 2024, the top ten percent of households in South Korea owned about 44.4 percent of total household net worth, while households in the lowest wealth decile owned minus 0.1 percent. South Korea’s poverty rate and its income inequality are among the worst among wealthy countries, with youths facing some of the steepest challenges. Nearly one in every five South Koreans between the ages of 15 and 29 are effectively jobless.
The real issue in the future is the decline in the population. With the world’s lowest fertility rate, the Korean workforce could halve over the next 40 years. Korea has become a “super-aged” society, which the UN defines as an economy with more than 20% of the population 65 years old or over. If the size of South Korea’s working population continues to decline, the economy could begin contracting by 2040.
The Korean economy is now close to an outright recession. The Korean economy is projected to grow by just 0.8% in 2025, weighed down by a contraction in construction and deteriorating trade conditions.
The Composite Consumer Sentiment Index, a critical gauge of consumer confidence, plummeted to 88.4 in December, reflecting a steep decline of 12.3 points—the sharpest drop since the onset of the COVID-19 pandemic in March 2020. The manufacturing sector is a serious slump (the manufacturing activity index is well below the 50 benchmark for expansion).
What’s Lee’s answer to this economic stagnation? He says he wants to expand government spending and investment. But this ‘fiscal approach’ has been widely attacked by the right-wing and the financial sector. The interim government wants to cut ‘discretionary spending’ by more than 10% and is even considering ‘adjustments’ in mandatory government expenditures, such as the basic pension and grant-in-aid for educational finance. The current government said: “In the past, we focused on short-term ‘sound fiscal policy,’ but now we mean to consider medium and long-term ‘fiscal sustainability.”
Lee will probably not reverse these moves to fiscal austerity in civil expenditures because of the growing demand for more spending on ‘defence’ . Lee talks of better relations with China, but Trump is demanding more Korean contribution to ‘defence’ against China. And there are growing calls among the elite to have nuclear weapons, given the supposed threat of North Korea and uncertainty about Trump’s commitment to South Korea’s defence. According to recent polls, 66 percent of South Koreans support their country going nuclear. Prominent Korean political leaders in both the conservative and progressive camps have not ruled out such policies, with some openly supporting them. From welfare to warfare.
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