According to Goldman Sachs, Indonesia’s economy is projected to surpass South Korea’s around 2030. However, based on per capita GDP, South Korea is expected to maintain a higher standard of living. Which is more important: economic size or standard of living?
Can Indonesia overtake the South Korean economy?
On December 6, 2022, investment bank Goldman Sachs released a report titled “The Path to 2075.” This report contains projections for the economic growth of countries worldwide through 2075. Goldman Sachs, which first coined the term ‘BRICS’ in 2001 and had previously issued two economic outlooks extending to 2050, updated its content after 11 years and expanded its economic outlook to 2075.
However, this report became a topic of discussion in Korea for a different reason. It projected that the Korean economy would be overtaken by Indonesia and Nigeria by 2050, and even surpassed by the Philippines by 2075. More specifically, it stated that the Korean economy would be overtaken by Indonesia in 2030, surpassed by Nigeria, Egypt, and Pakistan by 2050, and then by Bangladesh and the Philippines by 2060. Is a major crisis looming for the Korean economy?
Per capita living standard × National population
This question is answered by looking at other content in the Goldman Sachs report. According to this report, based on per capita GDP, Korea is projected to lead Japan by about 7 percent in 2030 and show a gap exceeding 10 percent by 2040. Moreover, after 2030, South Korea’s per capita GDP is projected to surpass Italy’s, and by 2050, it is expected to come very close to France’s.
So why do such differences appear in the same report? The former refers to ‘national economic size,’ while the latter refers to ‘per capita GDP.’ The factor distinguishing these two is ‘the number of citizens in a country,’ i.e., population. Dividing a country’s total GDP by its population yields per capita GDP. Put differently, a country’s economic strength = population × the average standard of living per citizen.
Currently, South Korea’s birth rate is very low, and its population is projected to decline. This has complex implications for both the standard of living of its citizens and the size of the national economy. Consequently, while the South Korean economy has achieved significant growth in terms of the standard of living per citizen, its growth in terms of the size of the national economy inevitably faces many limitations. As of 2023, South Korea’s population is approximately 51 million, Japan’s population exceeds roughly 120 million, and Indonesia’s population surpasses about 270 million. In other words, even if South Korea’s per capita GDP increases, the total national output is highly likely to be overtaken because the population gap is simply too large.
Why Economic Growth is Easier for Developing Countries
The Goldman Sachs report focuses most on whether developing countries can achieve economic growth. Generally, developing countries have higher economic growth rates than developed nations. Especially when they pursue political stability and embrace market economies and globalization, they often achieve remarkably high growth rates. To put it simply, it’s similar to how a student scoring 40 points finding it easier to raise their score to 60 points than a student scoring 85 points finding it easier to raise their score to 90 points. For students with lower grades, if specific factors making it difficult to focus on studies are addressed and an environment enabling concentration on learning is provided, their grades can improve rapidly. This principle applies directly to the economic growth of developing countries.
Looking at economic growth from 2000 to 2020, most countries classified as developed nations had growth rates below the global average. Conversely, many developing countries achieved higher growth rates than developed nations, and nations in the Middle East and Africa also recorded growth rates above the global average. Since 2010, Southeast Asian countries have been showing high economic growth rates. In other words, it is natural for developing countries to have higher economic growth rates than developed countries, and when certain conditions are met, rapidly growing countries can emerge among developing nations.
Of course, the degree of economic growth varies significantly between countries. Among the BRICS nations, Brazil and Russia’s economic growth has lagged considerably, while India and China’s economic growth remains at a high level. Numerous and diverse factors influence economic growth, making it difficult to explain them simply. However, examining China’s case—which experienced stagnant growth for a long time before rapidly expanding after 2000—reveals that adopting a market economy system and initiating international trade and division of labor through globalization served as a significant driving force for its economic growth.
This is also the primary reason why the economic growth outcomes of South Korea and North Korea diverged completely. While cultural factors, high educational fervor, and national character are sometimes cited as drivers of South Korea’s economic growth, North Korea, sharing the same historical and cultural background, failed to achieve economic growth. Therefore, explaining South Korea’s economic success solely through these factors has limitations. The decisive difference between South and North Korea lies in the market economy, globalization, and international trade.
However, while most countries worldwide have adopted market economies, the degree of globalization acceptance varies significantly between nations. Factors like political stability, property rights protection, and democracy also show considerable differences in implementation across countries. Consequently, it is difficult to definitively state whether populous developing nations will achieve sustained economic growth.
Goldman Sachs projected that by 2050, China would rank first in economic size, followed by the United States in second, India in third, and Indonesia overtaking Germany to reach fourth. Furthermore, all nations projected to achieve high growth by 2075 were populous countries (based on 2023 population figures, Pakistan ranks fifth and Nigeria seventh). This is a relatively positive outlook for the economic growth of populous nations.
However, while a 2011 report projected China would surpass the US economy by 2026, this latest report adjusts that to 2035. This effectively acknowledges Goldman Sachs’ previous analysis was incorrect. Economic forecasting is inherently difficult in the short term, and long-term predictions are even more challenging. So, is Goldman Sachs’ latest analysis correct?
It seems unlikely to be entirely accurate this time either. The weakening of globalization due to U.S.-China tensions will negatively impact developing countries, and the expectation that all developing nations will pursue political stability and democracy is unrealistic. However, if populous developing nations achieve economic growth, it means the global population experiencing absolute poverty will decrease. Regardless of my own predictions, I hope many countries achieve economic growth, allowing numerous global citizens to enjoy better lives.
Finally, let’s reconsider South Korea’s economic situation. According to a Goldman Sachs report, the Korean economy won’t collapse dramatically, and its citizens will enjoy a high standard of living, but national power will weaken. So which is more important? Opinions may vary, but in my view, Korea has a small land area and limited regions capable of accommodating its population. Therefore, there are inherent limits to Korea becoming a global powerhouse. In other words, the more important factor is the standard of living for its citizens.
However, while it’s true that Korea has a large population relative to its land area, the current decline in the birth rate is still too severe. If the population were to decrease gradually, it could help create a more pleasant and livable environment. But a sharp population decline would cause significant shocks across society, including issues with national defense, public safety, and the national pension system. Therefore, a fundamental and national response is essential. South Korea must establish diverse policies to increase its birth rate and also make efforts to welcome and live alongside foreign residents. Rather than scheming about how to exploit foreign workers, South Korea needs to embrace global citizenship and view foreigners without discrimination.
