South Korea’s ferry disaster has had a profound psychological impact on Asia’s fourth-largest economy, shaking public confidence in the very foundations of the country’s “miracle” development model. The most tangible economic impact has been on domestic demand, as the mood of national grief at the loss of so many lives – most of them schoolchildren – has manifested itself in collective consumer abstinence.
In the month since the 6,825-tonne Sewol capsized with 476 people on board, a self-imposed moratorium on leisure-time spending has been in effect.
On an institutional level, spring festivals were cancelled, corporate entertainment events and retreats indefinitely postponed and music, sports and other cultural events either scrapped or significantly toned down.
On a personal level, many ordinary South Koreans simply stopped dining, drinking and shopping in their usual numbers.
“First of all, public confidence has been hammered,” said Chun Sang-Jin, a sociology professor at Seoul’s Sogang University.
“On top of that there’s a collective sense of grief and guilt that just doesn’t sit with drinking, cracking jokes and merry-making,” Chun said.
According to data compiled by market researcher FnGuide, South Korean brokerage houses have cut second-quarter earnings outlooks for companies in the telecoms, food and retail sectors.
Credit card companies have reported a drop in transactions of up to 10 percent, while small businesses, shops and restaurants are all feeling the pinch.
The government, which has faced a public backlash in the wake of the Sewol tragedy, has already announced a number of measures, including front-loading this year’s budget.
In a bid to boost domestic demand the share of the annual budget to be spent in the first six months of the year has been increased from 55 to 57 percent – meaning an extra 7.6 billion dollars in spending by the end of June.
“A slump in consumption following the Sewol disaster… could dampen a hard-won economic recovery,” Finance Minister Hyun Oh-Seok said, promising “pre-emptive” measures to mitigate the fallout.
Low-interest loans were announced for small and medium-sized businesses involved in tourism, transportation and accommodation.
The export and manufacturing sectors are dominant in South Korea, so a dip in the domestic consumer market has a limited impact in terms of the overall economy.
But a protracted slump would have a significant social and political impact.
“There is certainly a worry about just how long this might go on for,” said Shin Hoon, policy director of the Korea Foods Industry Association.
So far, 284 people have been confirmed dead in the disaster, but 20 remain unaccounted for and the operation to recover all bodies from the submerged vessel continues – more than one month after it sank.
South Koreans are not easily knocked off kilter, having spent decades living with a volatile, unpredictable neighbour in North Korea.
While the international community buckles with concern over every North Korean provocation, people in the South have become so inured to the constant threat that they tend to shrug it off.
The country has suffered disasters in the past, including a 1995 department store collapse that claimed more than 500 lives and a 2003 subway fire that killed 192.
But the Sewol tragedy has wounded the national psyche in a way that those events did not.
The unprecedented number of children among the dead is a huge factor, with the final death toll expected to include 250 students – all from the same high school.
Then there is the increasing evidence that the disaster was wholly man-made: the result of cut corners, regulatory violations, poor safety training and a woeful lack of oversight – all, or nearly all, attributable to a desire to maximise profits.
Modern South Korea still has deep Confucian routes which, while stressing filial piety and obedience, also insist on parents – and by extension the state – earning that obedience by acting as “ever-watchful and loving guardians”.
The sense that this Confucian contract was broken may partly explain why national grief over the Sewol has largely been expressed in terms of guilt, apology and remorse, as well as anger.
“We are sorry” reads the giant banner erected above a temporary memorial to the Sewol victims outside Seoul City Hall.
“It was a collective trauma, and there is a collective guilt,” said Hwang Sang-Min, a psychology professor at Yonsei University. “And I’m not sure there is anyone who commands the respect or leadership to say ‘now let’s move on’,” Hwang said.
And even when the corner is turned, the legacy of the disaster looks set to endure in the questions it has raised over the formula for South Korea’s extraordinary economic success.
The rapid transformation from dictatorship to vibrant democracy and war-torn, impoverished backwater to Asia’s fourth-largest economy is a source of great national pride.
But maybe, some are now asking, the unfettered growth came at too high a price, as safety standards were sidelined and regulations ignored in the blind rush for development.
“The Sewol tragedy has called into question all our great achievements … (and) it feels like the country may never be the same again,” the novelist Kim Young-Ha wrote in an op-ed piece for the New York Times. “We are awash in self-reflection. Has all of our progress been a facade? Are we, in fact, an advanced country?”Chan Kyong Park, "Ferry tragedy undermines South Korea economic ‘miracle’," Business recorder. 2014-05-19.
Keywords: Economics , Economic issues , Economic system , Economic development , Budget , Tourism , South Korea