A Shrinking Society: Why South Korea’s Economic Model is Failing

Translation resultHong Seong-guk, chair of the Democratic Party’s National Economic Advisory Council, warns that climate change and demographic shifts are locking South Korea into a “shrinking society” and urges sweeping structural reforms to restore growth.“In mid‑April it was already warm enough to wear short sleeves. In a decade, we may have to start wearing them in March,” Hong told the Seoul Economic Daily in an interview at his private office in Gwanghwamun. “We must redesign our social systems to fit a shrinking society shaped by the climate crisis and demographic change.”Hong built his career at Daewoo Securities, entering through open recruitment and rising to CEO—a trajectory often described as a securities‑industry “salaryman” legend. He entered politics as the Democratic Party candidate for Sejong‑gap and won a seat in the 2020 general election. In late 2023 he announced he would not seek re‑election in the 22nd general election. Since the 21st National Assembly, he has led economic seminars for ruling‑party lawmakers, earning the nickname “the Democratic Party’s economics teacher.” He is also the author of several books analyzing social and economic trends, including Into Deflation (2004), Shrinking Society (2018), and The Stronger Fascism (recent).Hong argues the world shifted from an “expansion society” to a “contraction society” after the 2008 global financial crisis. Governments increased debt to steady economies amid excess supply, and the COVID‑19 pandemic pushed borrowing even higher. “That ultimately led to higher inflation and deeper social polarization,” he said. “The U.S. then raised interest rates aggressively to curb inflation, which accelerated the transition to a contraction society.”He identifies four core problems afflicting South Korea in this environment—inequality, unfairness, uncertainty, and instability—what he calls the “four no’s.” As low growth becomes entrenched, survival becomes the overriding priority, he warns, and public appetite grows for strong leaders who promise quick fixes—conditions that can fuel the spread of fascism.Hong sees the recent Middle East war as one manifestation of that trend. He says a strain of racism that accompanied fascism around the start of World War II now contributes to the conflict. “In the past, neighboring Muslim countries tended to attack Israel first. Lately, Israel has been striking first,” he observed, noting Israel’s population of roughly 10 million and the faster population growth in surrounding Muslim states, which increases Israel’s sense of threat. “Former President Trump aligned with Israel, which shares interests with a core Jewish constituency in the U.S., and moved toward confronting Iran,” he added.As a political remedy, Hong calls for a reinvigoration of democracy. “The strongest prescription to protect a world heading toward fascism is to strengthen democracy,” he said. “Only with institutional stability can we undertake social reform and pursue growth strategies to overcome a contraction society.”He proposes replenishing “social capital”—the network of trust among members of society. Close cooperation among individuals and groups, he argues, will make democracy function better, sustain economic growth, and increase community resilience.Hong says South Korea urgently needs a national growth model. “We lack a model that shows what kind of country Korea should aim to be,” he said. “Because we don’t have an external model to emulate, we must design our own growth strategy.” He contends that the Swedish welfare model once admired by the progressive camp has lost its growth engine, while U.S.‑style neoliberalism on the conservative side has produced severe polarization and inequality.Other priorities for structural reform include education reform tailored to the AI era and a reconsideration of the relationship between corporations and society. While working in the securities industry, Hong gained attention for predicting both the 1997 foreign‑exchange crisis and the 2008 global financial crisis. “Since the 1990s I’ve focused on structural economic issues and read macro thinkers like Francis Fukuyama and Immanuel Wallerstein closely,” he said. “I’ve read Jeremy Rifkin and Yuval Harari in full; each time I read them I’m impressed and think, ‘I want to write books like this.’”On his next book, Hong says he will convert the directions laid out in The Stronger Fascism into concrete policy proposals. “I will explain the policies that matter most for changing Korean society,” he said.