A Tale of Two Nations: Why South Korea Leaped Ahead While Indonesia Still Crawls?

Imagine a farmer in Daegu, South Korea, in 1960. His life was more destitute than a farmer in Klaten, Central Java. Today, the grandson of the Daegu farmer designs semiconductors at Samsung, while the grandson of the Klaten farmer is still stuck in a land certificate dispute that has been unresolved since his grandfather’s time.

August 1945 was indeed a sacred month for both countries—Indonesia gained independence on August 17, South Korea on August 15. Even in the 1960s, South Korea’s GDP per capita was still below Indonesia’s. But today? South Korea has leaped far ahead, while we are still crawling in middle-income country status.

What actually happened? Why did the “Miracle on the Han River” happen, while we are still grappling with the same problems from decades ago?

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1. Agrarian Reform: Building the Foundation from the Ground Up

Before talking about Samsung and semiconductors, let’s start with the most basic thing: land. This may sound unrelated, but this is actually the foundation that determines whether a nation can leap forward or continue to crawl.

Post-Korean War South Korea had a very feudal agrarian structure—3% of the population controlled 60% of agricultural land. Tenant farmers lived under a brutal sharecropping system (had to surrender 50-70% of harvest). Indonesia in the same era also had similar problems, especially in Java.

But here’s the difference. South Korea did something radical. President Syngman Rhee enacted the Agricultural Land Reform Act in 1949: each family was limited to a maximum of 3 hectares, land was sold cheaply to farmers (150% of annual harvest, installments over 5 years). Interestingly, landlords who lost their land received government bonds, not cash—forcing them to invest in other sectors, many eventually entering manufacturing.

Within 2 years, 1.2 million hectares were distributed to 1.5 million families. Agricultural productivity jumped 30% in 5 years. Farmers’ surplus income was used for children’s education, creating a rural middle class and channeling capital to the industrial sector.

Unlike the failure of the 1960 UUPA in Indonesia, which was hampered by political conflict, South Korea successfully performed “class suicide” for its landlords. UUPA No. 5 of 1960 in the Sukarno era was actually a progressive document, but its implementation failed completely. Many regents who were also large landlords refused. The political turmoil of the 1960s (G30S/PKI) halted the program. Until 2020, 0.2% of households still control 56% of agricultural land. Smallholder farmers account for 56% of total farmers. The same problems still recur to this day.

2. Industrial Strategy: Global vs Domestic

In the 70s, both countries built industries. But with very different “compasses.”

Resource-poor South Korea had no other choice. President Park Chung-hee gave an ultimatum to Chaebol: “Export or die.” Government banks only provided credit to companies that could prove export contracts. No exports? No credit. Each Chaebol was given strict annual export targets. Failure meant losing access to credit, import licenses, and subsidies.

Samsung Electronics, which just entered the electronics industry in 1969, was forced to export even though quality was still low. In 1972, they exported TVs to Panama—quality was poor, but they learned. In 1977, they successfully entered the US market. Today Samsung is a global technology giant. South Korea’s exports jumped from USD 55 million (1962) to USD 600 billion (2020). GDP per capita from USD 158 to USD 31,000.

Meanwhile, Indonesia with its large domestic market chose a “safer” strategy: protecting domestic industry. Repelita (1969-1974) focused on import substitution—high tariffs of 50-200% on imported products, strict import licenses, subsidies for local industry, 40% local content policy.

The result? Our industries became uncompetitive because they were protected from global competition. National cars in the 1970s cost 2-3 times the global market price, but quality was far below. Only in the 2000s did we start opening the market, but it was too late—Indonesia’s automotive industry never became a major exporter like Thailand.

Our GDP per capita went from USD 80 (1967) to USD 4,000 (2020)—far below Korea. The problem is clear: Korea forced its industries to compete directly in the global market, making them learn quickly. We protected industries, making them comfortable but not developing.

3. Human Capital Investment: Betting on Brains

South Korea had no natural resources. Their only asset was the brains of their people. And they bet big on that.

Post-Korean War, South Korea’s literacy rate was only 22% (1945). Indonesia was also low, around 10%. But Korea had a Confucian tradition that valued education and strong political will.

Even though GDP per capita was still very low (USD 158 in 1962), South Korea allocated 15-20% of total budget for education—a very high proportion. They built hundreds of technical secondary schools with complete workshops. Each Chaebol was required to accept at least 10% of employees from vocational internships.

KAIST was established in 1971 with full support from government and industry. Samsung became one of the main funders. The result? In the 1980s, 70% of Samsung engineers were KAIST graduates. Literacy reached 100% in 1980. South Korea became the country with the highest patents per capita in the world. PISA rankings always in the top 5. 70% of high school graduates continued to university.

Indonesia? Budget allocation was only 8-12%—far below Korea. Although the Constitution mandates 20%, implementation is still problematic. Focus on general education, not technical and science. Vocational high schools (SMK) only developed in the 1990s, quality still far below standards. Quality gaps between regions are huge. Curriculum not aligned with industry needs. Gojek, which was just established in the 2000s, had to recruit many engineers from abroad because there weren’t enough local talents.

Today, our literacy reaches 95% (2020)—still below Korea which reached 100% since 1980. Our PISA rankings are always in the 70s out of 80 countries. Only 30% of high school graduates continue to university. The problem is clear: Korea invested big, focused on technical and science, and ensured link and match with industry. We had small budgets, general focus, and no strong mechanism.

4. Development Mentality: Saemaul Undong

How do you mobilize village communities to progress? In the 1970s, the majority of both countries’ populations lived in rural areas.

South Korea had 70% of its population in very poor rural areas. President Park Chung-hee realized the need to change the mentality from “waiting for aid” to “building ourselves.” Saemaul Undong (New Village Movement) began in 1970 in 33,000 villages with simple principles: diligence, self-help, cooperation. But the mechanism was clever—the government divided villages into three categories (basic, self-reliant, model) and provided gradual assistance. Successful villages received greater assistance. This created incentives to work hard.

Wonjeon Village is a success example. In 1970, per capita income was only USD 50 per year. After 5 years it became USD 500 per year, made into a model. Within 10 years, 98% of 33,000 villages successfully became self-reliant. Farmer income tripled. Mentality changed from passive to proactive.

Indonesia? We have various village development programs—from IDT (1990s) to Village Fund (2015). But implementation is different. Our programs are more top-down. Village Fund provides direct funds to villages (around Rp 1 billion per village per year), but there’s no competition mechanism or strict evaluation. All villages receive the same funds, regardless of their performance.

The result? Many villages use funds for unproductive or consumptive projects. Many villages become dependent on government aid. Rural infrastructure did increase, but not as fast as Korea. The “waiting for aid” mentality is still strong. The difference is clear: Korea used a competition system and gradual assistance that forced villages to work hard and be self-reliant. We provide direct assistance without competition.

5. The Natural Resource Curse

Ironically, Indonesia’s natural wealth often becomes a “stumbling block.” The phenomenon of “Resource Curse” or “Paradox of Plenty”—countries rich in natural resources tend to develop more slowly.

South Korea had no natural resources. The only “resource” they had was 50 million people. This situation forced them to think creatively: innovation. They couldn’t export raw materials, so they processed them into finished products—import crude oil to become petrochemicals, iron ore to become steel/cars/ships.

The Korean government and companies invested a very large proportion of GDP in R&D. In 2020, South Korea invested 4.8% of GDP in R&D—one of the highest in the world. Samsung alone invests USD 20 billion per year in R&D. Samsung Semiconductors, which entered the semiconductor industry in the 1980s, learned from Japanese and American companies, investing billions of dollars. Today, Samsung is the world’s largest semiconductor producer, surpassing Intel and TSMC.

South Korea became one of the most innovative countries in the world (ranked 5th in Global Innovation Index). Their exports are dominated by high-tech products, not commodities.

Indonesia? We have oil, gas, coal, tin, nickel, gold. In the 1970s, we became an OPEC member and the largest oil exporter in Southeast Asia. But this wealth became a “curse.” Since the New Order era, Indonesia’s exports have been dominated by commodities. In the 1980s, oil and gas contributed 70% of total exports. When commodity prices rose (oil boom 1970s), the rupiah exchange rate strengthened, making manufactured products uncompetitive.

Because it was easy to get foreign exchange from commodity exports, the government and private sector were less interested in investing in more complex manufacturing industries. It was easier to export crude oil than to build refineries. Natural resource wealth created “rent-seeking” opportunities—many were more interested in getting mining/plantation permits than building manufacturing industries.

In the 1970s, we became Southeast Asia’s largest oil exporter. But we didn’t seriously build downstream industries. Preferred to export crude oil rather than build refineries. Today, we even have to import fuel because refinery capacity is insufficient.

Only in the 2010s did we start taking downstream processing seriously. The ban on raw nickel exports forced companies to build smelters. This is the right step, although a bit late. But many still doubt whether this will really change our economic structure or just “pseudo-downstream processing.”

Indonesia’s exports are still dominated by commodities (around 60%). Manufacturing industries don’t develop as fast as they should. Our economy is vulnerable to global commodity price fluctuations. The difference is clear: Korea had no natural resources, so they were forced to develop technology and innovation. We are rich in natural resources, so we “became complacent” and less focused on high-tech manufacturing industries.

Conclusion: Is It Too Late to Leap?

South Korea’s turning point occurred in the 1970s. President Park Chung-hee dared to invest USD 10 billion (30% of GDP) in chemical and heavy industries—steel, petrochemicals, electronics, ships, machinery, automotive. A big bet that successfully became the foundation of the “Miracle on the Han River.” Meanwhile, Indonesia enjoyed the oil boom (prices rose from USD 3 to USD 35 per barrel), received large foreign exchange, but did not invest in high-tech manufacturing industries. Preferred to export crude oil and import finished products.

Today, we are starting to take downstream processing, vocational education, and Village Fund seriously. But is this enough? The problem is, we still face the same challenges: equalizing education quality, slow bureaucracy, corruption, and most importantly—we still often change policies every time there’s a change of government. This makes investors hesitant to make long-term investments.

The lesson from South Korea is clear: natural resource wealth is just a bonus. Human resource quality is the key. The courage to compete in the global market. A self-reliant mentality. And most importantly, policy consistency—Korea succeeded because they were consistent with their strategy for decades.

It’s not too late for Indonesia. But this requires long-term commitment and the courage to take risks. Like South Korea which dared to bet 30% of their GDP. We must also dare to bet on our future.

Otherwise, we will keep crawling while other countries leap forward.