MOLDING AN ECONOMY TO TAKE ON THE WORLD

FOR almost two decades the South Korean economy has defied gravity. And it shows no immediate signs of coming down to earth. The economy has grown at a nearly continuous double-digit rate. The average income of Koreans has risen 20-fold in the past 20 years. The country has become a major exporter, even challenging Japan. Western markets are filling up with Korean-made cars, VCRs, and televisions, producing a balance-of-payments surplus since 1986.

The transformation of South Korea from a poor, agrarian developing country into a modern industrial nation is trumpeted by economists as a ``miracle.'' But serious new challenges have come with success.

The Korean economy has grown behind a wall of protection, encouraging exports while building up domestic industry. The government, both directly and indirectly, has played a strong role in Korea's industrialization. Government policy has favored the formation of large private conglomerates at the expense of smaller business.

As South Korean products flood into foreign markets, particularly the United States, pressure has mounted on Seoul to open its own markets to foreign competition. ``How Korea will accept more internationalization'' is one of the two major tasks for the future, says Koo Bon Oh, the president of the prestigious government-funded Korea Development Institute.

As it faces demands to open up, Korea is struggling to reduce trade barriers, to limit the role of the government in the economy, and to curb the growth of big business. The aim is to shape an economy that can face global competition with less protection.

These reforms must be carried out at the same time that Korea is facing a wave of labor militancy. Since last summer, millions of workers have staged often-bitter strikes to form unions and gain higher wages. Despite the visible improvement in living standards, Korean workers have suffered low wages and the longest average workweek (about 54 hours a week) in the industrial world.

Every day Koreans can see evidence of a growing gap between rich and average workers. While almost every Korean household now has a television set, the men who manufacture the Hyundai cars for export to America still have little hope of owning their own car. Their bosses, however, lead lives of affluence.

``How to combine this new tide of political and social democracy with more economic growth and more economic liberalization'' is the second major task for the future, Dr. Koo says. Korean economists worry that rising wages will slow growth, undercutting the advantage of cheap labor that has made Korean exports so competitive.

Korea's development has gone through discernible stages since the Korean war. ``After the war, it was basically a US aid-dependent economy,'' says Koo. ``If there was no US aid, thousands and thousands of people would have starved to death.''

But during the 1950s, Korea laid the basis for industrialization by investing in public education, up to the college level. Compared with other countries at similar economic levels, Korea achieved a far higher percentage of literacy and advanced education, including sending thousands to the United States for specialized training.

``Korea has no raw materials and is very poor in natural resources,'' explains Kim Dae Ki, deputy director of planning with the Economic Planning Board (EPB). ``The only source of our economic development is high-quality labor.''

Starting in the 1950s, strong-willed entrepreneurs like Lee Byung Chul, founder of the Samsung group, built up huge conglomerates called chaebol. Groups like Hyundai, Goldstar, Lucky, and Daewoo are still run today by the families that founded them.

Korean development started to take off after the military-led takeover of 1961. The government of former Gen. Park Chung Hee, who ruled until 1979, provided political stability and strong leadership aimed at promoting exports and industrialization. The new government set up powerful planning institutions, notably the EPB, which controlled both government budget planning and the allocation of credit.

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