This research is framed to explore the relationship between Korea’s current semiconductor industry policies and historical industrial policies. Broadly, it also examines how current government industrial policies align with or diverge from these historical strategies. This article aims to understand the historical policy framework of Korea’s semiconductor industry and to explore its correlation with the Park regime’s (1961-1979) development strategies, such as the Economic Planning Board’s (EPB) five-year plan, using a comparative analysis of historical and contemporary semiconductor policies. It explores the symbiotics between the current and historical industrial policies, while examining how contemporary industrial policies align with or diverge from these historical strategies. The central argument of this article is that the developmental strategies conceived in the 1970s have markedly correlated with the modern-day semiconductor policy and the government-industry relations therein. At the same time, the role of the South Korean government evolved from being a foreign-led facilitator to its present-day dual role as a localized facilitator as well as a consumer. This represents both an alignment and a diversion from its history of industrial policy.
Unprecedented Economic and Technological Development of South Korea
The epoch following World War II heralded a pivotal era for many Asian nations as they wrested independence from the grips of imperialism, transitioning from colonies of dominant Western or Japanese powers to sovereign states. Among these nations, Singapore, Taiwan, South Korea, and Hong Kong chose self-determined paths, surprising many by their rapid economic development. Since the 1960s in particular, these newly industrialized countries (NICs) pursued rigorous development plans to rejuvenate their national economies, achieving impressive economic growth rates. According to data from the World Bank, during the period between 1970s and 1980s, these countries recorded an average annual GDP growth rate of 6-8%.[1] South Korea, with a remarkable GDP growth rate of 8.6% during this period,[2] showcased the efficacy of its developmental strategies, notwithstanding historical hurdles such as the Korean War (1950-1953) and the colonization of Japan in the early 1900s.
Embedded within this larger narrative of Asian economic ascendancy is South Korea’s progress, often epitomized as the “Miracle on the Han River”.[3] This journey saw its transformation from an agrarian society to an industrial powerhouse, with a significant impetus to the emergence and growth of the semiconductor industry. South Korea’s rise as a tech-savvy, manufacturing major player on the global stage is a salient feature of its industrial metamorphosis. This technological competitiveness has not only garnered international recognition but also established South Korea as a crucial player in the global semiconductor market.
Past Policies: Government’s Role as a Foreign-Oriented Facilitator
In the early 1970s, President Chung Hee Park announced an ambitious economic transformation, with the state playing a pivotal role as a top-down facilitator in fostering rapid industrialization. Under his leadership, South Korea’s aggressive push toward industrialization was particularly evident in the realm of semiconductors. The government’s policy apparatus was calibrated to support the semiconductor industry in its various stages of development, recognizing its potential as a strategic asset for modern industrialization.
Under the Park regime’s top-down strategy, South Korea undertook strategic legislative and administrative initiatives to accelerate the growth of its electronics and IT industries. A cornerstone of this strategy was the revision of foreign investment laws and regulations by the EPB in pursuit of two primary objectives: attracting and transferring foreign technology and catalyzing the growth of conglomerates.
The year 1969 saw the enactment of the Foreign Capital Inducement Law, which, while being scant on regulatory details, opened the domestic market to foreign capital and provided appealing incentives like tax breaks. The discretion on many aspects of this law was vested in the hands of the EPB and other relevant ministries. This reformation created room for an influx of foreign investment, with US and Japanese semiconductor companies like Fairchild and Toshiba establishing their presence in Korea through joint ventures and wholly owned operations.[4] Thus, Korean enterprises were able to bring in high-level and complex technologies under special licensing arrangements. This established a collaborative educational environment between the licensors, predominantly Japanese and US firms, and the Korean companies, targeting the development of production know-how in emerging technologies and design skills in semiconductors. To put it succinctly, the expertise in production technologies during this stage was enhanced through direct manufacturing—referred to as “learning by doing”[5]—alongside the tailored modification of the acquired foreign technologies. At the same time, this strategic orchestration was embedded in the ‘Eight-Year Plan for the Electronics Industry Promotion (1969-76)’ and the Electronic Industry Promotion Law (1969). They laid out grand visions for product-specific nurturing, export targets, and the establishment of a promotion fund. This was South Korea’s first plan that added memory devices and silicon wafers as strategic assets for local production.[6] As a testament to its success, by 1973, electronics and semiconductors accounted for 5% of Korea’s total exports.
Legislative initiatives and deregulatory measures were also implemented to provide the chaebols, the country’s large family-owned conglomerates, with a liberating environment to grow and expand. This approach led to the formation of a synergistic government-business nexus, with policies tailored to nurture these conglomerates as the primary engines of technological development. For example, the Economic and Scientific Council made recommendations for the Korean government to “encourage the chaebols to enter the electronics industry,”[7] leading Samsung, one of the major semiconductor conglomerates, to enter the semiconductor and electronics market ahead of other Korean firms. This was how the South Korean government and the chaebols formed tight relations in the 1970s. It was a win-win for both: South Korea was able to develop technological capabilities, while the chaebols gained more freedom in their research & development (R&D) and business activities, allowing them to contribute immensely to semiconductor development.[8]
However, the facilitation policy of the government had its limitations due to a hierarchical governance system. Despite investments from the United States and Japan spurring rapid growth, the Korean semiconductor industry’s quality remained stagnant until the early 1980s, confined largely to basic, manual assembly work. During this period, the semiconductor industry was dominated by hierarchical, foreign-owned firms that dictated the direction and coordination of Korea’s economic activities in the sector.[9] However, the government as a facilitator supported this structure, but did not do enough to foster independent competitive strengths or building a self-sufficient industry. The government’s approach focused primarily on attracting foreign direct investment and technology transfer, making itself a facilitator that was led by foreign assets.
At its core, this top-down approach functioned as a catalyst for the semiconductor industrial expansion of South Korea by endorsing foreign technology transfers and cooperation, while sculpting an environment ripe for a cooperative private-public relationship. However, it revealed the government’s limited role as a facilitator in fostering a self-sustaining industry, relying mainly on foreign technology transfer to promote domestic semiconductor technology capability.
Current Semiconductor Policy: Role as a Localized Facilitator and Consumer
The current landscape of semiconductor policy also has a top-down, facilitator-based approach, reminiscent of strategies utilized during the Park regime. This includes deregulation and legislative support for semiconductor industries, which have been pivotal steps in fostering an environment conducive to domestic growth and innovation. The Korean government has made deregulation plans for constructing fabs within Korea, such as providing easier access to electricity infrastructures and new education plans for fostering human capital to meet the rising demand of skilled workers.[10] For instance, it has proposed the “Special Act on Expanding the National Power Grid,” which focuses on removing bureaucratic hurdles of electricity infrastructure construction approval and streamlining the electricity supply to semiconductor industries.[11] Furthermore, initiatives such as massive tax credits and legislative endeavors like the K-CHIPS Act have been instrumental in developing Korea’s domestic semiconductor ecosystem and supply chain.[12] By providing tax credits ranging from 30% to 40% of investment costs for semiconductor R&D along with a 15% tax break on domestic investments,[13] these financial and legislative incentives have served as catalysts for technological advancements and helped sustain the competitive edge of domestic semiconductor firms. Along with these incentives, the Korean government has been trying to bolster supply chain resiliency through supporting localization of chip equipment, components, and materials, which were areas South Korea lacked in the semiconductor supply chain.[14]
At the same time, the enduring influence of chaebols in the semiconductor industries underscores the continuity of a tight government-business relationship. Through the government’s drive of deregulation, these chaebols continue to wield considerable influence and freedom over the industry. The hereditary nature of these businesses means that the long-established connections between government and business remain tightly knit, allowing for concerted and strategic efforts in advancing the semiconductor sector. This has continued in the current Yoon administration, with the conservative administration’s continued pro-business stance with the chaebols. For instance, President Yoon called himself Korea’s, “… No.1 salesman…,” and that he “… will pull all its effort for businesses to achieve greater results … and widen the field where businesses run freely …,” increasing contact with chaebols and CEOs of semiconductor and various industries.[15]
However, the Korean government has evolved into the role of a consumer along with being a facilitator. On the consumer front, the policy has been inclusive of projects in which the government is a client, with a strong emphasis on Artificial Intelligence (AI) and cloud computing. The current government has shown ambitious aspirations to create a Digital Platform Government (DPG), which utilizes hyper-scale AI and cloud computing to integrate 17,000 administrative systems.[16] These government-led initiatives demonstrate a commitment to not only bolstering the semiconductor infrastructure but also to driving the consumption of the resulting technology. By investing in public AI projects and the development of robust cloud computing services, the government is both a patron and a facilitator of the semiconductor industry’s output. This creates a symbiotic relationship, where the government not only supports the production of semiconductors but also ensures there is a huge domestic demand for their application.
The Coherence and Transformation of the Korean Government’s Role
Through a comparative analysis of historical and contemporary policies, it is true that there was a mix of cohesion and diversion between the contemporary semiconductor policy and the semiconductor policy of the Park regime in the 1970s. The government has been coherent in its role as a facilitator of the semiconductor industry, trying to deregulate, incentivize, and maintain a strategic cooperative essence with the semiconductor chaebols. Both policies have utilized administrative and legislative efforts to support the industry, considering semiconductors as a strategic asset of the nation. It showed a continuation of pro-business, incentive-based industrial policies, especially in South Korea’s conservative administrations, regardless of the era.
However, there are also diversions from the Park regime’s semiconductor policy, especially in the evolution of the government’s role as a facilitator and a consumer. The government’s role was limited to facilitating foreign investments and technology transfers without a strong focus on domestic capability or capacity building. Now, the government’s policy has evolved into supporting building domestic capabilities and promoting localization without reliance on foreign technologies. This reflects a more strategic and multifaceted role in the development of the semiconductor industry, where the government acts as a catalyst for innovation and growth while also nurturing the industry’s end-to-end resilience. This shift indicates a maturation of the government’s role from a basic facilitator to an active participant in the industry’s ecosystem, focusing on long-term strategic autonomy and technological leadership. At the same time, the Korean government has become both a proactive facilitator and the consumer, creating more domestic demand for the Korean semiconductor industries.
Although these two eras of semiconductor policies are related in various ways, the major diversion from the historical semiconductor policy has been significantly influenced by the rise of unique geopolitical factors, especially the US-China tech war. This was part of the consistency of policies that counter China from the United States, especially in cutting-edge technologies, such as President Trump’s policies to impose tariffs on Chinese goods or Biden administration’s export controls of highest-performing AI chips to China. The US-China tech war has amplified the fragility of international supply networks, particularly within the semiconductor sector. South Korea carefully examined the precariousness introduced by the escalating tensions, that poses a direct threat to the steady flow of essential semiconductor components and materials. To mitigate these risks, South Korea has strategically transitioned toward diminishing its dependence on the volatile global supply chain, as shown in a sharp decrease of its semiconductor exports to China.[17] This strategic realignment is not merely a defensive maneuver against potential supply disruptions; it also aligns with South Korea’s broader ambitions to bolster its economic security and reinforce its competitive stance to have more strategic leverage in the global technology realm.
While evolving geopolitics and strategic competition in the international community evoked a divergence in semiconductor policies, the consequential impact of the divergence into an active facilitator and a consumer is South Korea’s potential trajectory away from strict adherence to free-trade principles toward a more domestically focused approach. It may adopt a more balanced strategy that combines global engagement with strong support for domestic industries, focusing on robust internal capacities, which aligns with ongoing protectionist international trend proven by the US Inflation Reductions Act (IRA) and Made in China 2025. Although the South Korean government has been a vanguard in supporting rules-based trade norms, creating government-led domestic market demands and promoting localization provide possibilities that South Korea can also prioritize national interests more than globalized trade norms unlike the past. This shift is exemplified by a recent proposal from South Korea’s ruling party to amend the CHIPs Act to provide direct subsidies to domestic chipmakers.[18] Such a move could potentially conflict with international trade laws, specifically the World Trade Organization’s Agreement on Subsidies and Countervailing Measures (SCM Agreement), which regulates government subsidies that may distort international trade. The more proactive facilitator it becomes, the higher possibility that South Korea will shift away from keeping the liberal trade order.
Conclusion
The trajectory of South Korea’s semiconductor industry, from the era of the Park regime to the present day, showcases a deliberate and strategic transformation. Historically, the industry leaned heavily on importing foreign technology, but today, it stands as a testament to South Korea’s commitment to fostering domestic expertise and self-sufficiency. Initially, the government’s role was limited to attracting foreign investment and facilitating technology transfers. However, in recent years, the government has broadened its participation, not only continuing to encourage investment but also becoming a major consumer of the industry’s output, thus bolstering a vibrant, self-sustaining industrial ecosystem. This evolution has been particularly catalyzed by the recent techno-political tensions, notably the US-China tech conflict, which highlighted the risks of overdependence on international supply chains. In response, South Korea has strategically pivoted, seeking to fortify its technological autonomy and reduce vulnerabilities by nurturing innovation and expanding its manufacturing capacities. The approach reflects a nuanced balancing act, where the government’s enduring role in supporting the industry is recalibrated to confront new geopolitical challenges and supply chain uncertainties. By doing so, South Korea has not only secured its economic interests but has also reinforced its position as a pivotal player in the global semiconductor arena.
This proactive stance underscores the South Korean semiconductor policy framework’s agility and forward-thinking outlook, ensuring the country’s continued prominence and competitiveness in a rapidly evolving global landscape. It is this move that not only deals with the immediate pressures of international trade dynamics, but also sets a vision for long-term resilience and leadership in the semiconductor industry. At the same time, it shows South Korea’s potential shift from a model of trade rules adherent to a nation that follows the ongoing international trend of promoting domestic industries’ incentives and protectionist policies.
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[3] Gulati, Umesh C. “The Foundations of Rapid Economic Growth: The Case of the Four Tigers.” The American Journal of Economics and Sociology, vol. 51, no. 2, 1992, pp. 161–72. JSTOR, http://www.jstor.org/stable/3487387.
[4] Soh, Changrok. 1997. “From Investment to Innovation? The Korean Political Economy and Changes in Industrial Competitiveness.” International Trade and Business Institute, Korea (ITBI).
[5] Fakir, Aouatif El, 2008. “South Korean System of Innovation: From Imitation to Frontiers of Technology, Successes and Limitations.” Management of Technology Innovation and Value Creation, pp.275-292. 978-981-279-053-8 10.1142/9789812790545_0017. hal-01347728.
[6] Mushkudiani, David. 2000. “The Korean Semiconductor Industry: Historical Overview and Prospects For Future Development.” South Korea: School of Public Policy and Management, KDI. https://archives.kdischool.ac.kr/bitstream/11125/29891/1/The%20Korean%20semiconductor%20industry.pdf.
[7] EIAK. 1989, “Thirty-year History of Korean Electronics Industry.” Seoul. South Korea: The Electronic Industries Association of Korea.
[8] Kim, Jiyoung and Eun Mee Kim. 2006. “Erosion of A Development State: A Case Study of South Korea’s Semiconductor Industry.” International Studies Review, vol. 7 (2). October 2006, pp. 37 – 59.
[9] Kim, H. K. 1991. “Industrial Structural Policy and New Definition of the State-Firm Relationship in the Semiconductor Industry.” The State and Public Policy. Seoul, pp. 410-446.
[10] Kim, Eun-Jin. 2022. “Semiconductor Makers Welcome Government’s Engineer Fostering Plan.” Businesskorea. BusinessKorea. July 20, 2022. https://www.businesskorea.co.kr/news/articleView.html?idxno=96917.
[11] Kim, SeungHwan. 2024. “South Korea’s Strategic Shortfall in the Semiconductor and AI Race.” Institute for Security & Development Policy. June 5, 2024. https://www.isdp.eu/south-koreas-strategic-shortfall-in-the-semiconductor-and-ai-race/.
[12] Jo, He-Rim. 2023. “Korean Chips Act Aims to Extend Tax Cuts for Local Chipmakers.” The Korea Herald. The Kora Herald. March 30, 2023. https://www.koreaherald.com/view.php?ud=20230330000782#:~:text=South%20Korea%20on%20Thursday%20passed%20a%20revision.
[13] Son, Ji-Hyoung. 2022. “[Korea Chips Act] Korea Sets out Own Chips Act, in Less Ambitious Fashion.” The Korea Herald, The Korea Herald, 24 Jan. 2022, www.koreaherald.com/view.php?ud=20220124000671.
[14] Cho, Jeehyun, and Chan-jong Oh. 2021. “S. Korea Adds Speed in Localization of Components, Equipment for Chipmaking – Pulse by Maeil Business News Korea.” Pulsenews.co.kr. Maeil Business News Korea. February 21, 2021. https://pulsenews.co.kr/view.php?year=2021&no=172644.
[15] Lee, Haye-ah. 2023. “Yoon Renews Pledge to Be ‘Salesperson’ for S. Korea.” Yonhap News Agency. Yonhap News Agency. October 24, 2023. https://en.yna.co.kr/view/AEN20231024000300315.
[16] Ministry of Science and ICT. 2023. “Press Releases: Korea.net : The Official Website of the Republic of Korea.” www.korea.net. Ministry of Science and ICT. September 17, 2023. https://www.korea.net/Government/Briefing-Room/Press-Releases/view?articleId=7030&type=O.
[17] Wang, Ray. 2024. “Reality Check: South Korea and China Face More Complex Economic Dynamics.” The Diplomat, June 15, 2024. https://thediplomat.com/2024/06/reality-check-south-korea-and-china-face-more-complex-economic-dynamics/.
[18] Jin, Hyunjoo. 2024. “South Korea’s ruling party plans chips law to avert Trump threat.” Reuters, November 11, 2024. https://www.reuters.com/world/asia-pacific/rpt-south-koreas-ruling-party-plans-chips-law-avert-trump-threat-2024-11-11/.
