An engineer works on a semiconductor production line at Samsung Electronics’ Hwaseong campus, one of the company’s major chip manufacturing facilities.SAMSUNG ELECTRONICS
Lee Jeong-dong
The author is a professor of the Technology Management, Economics and Policy Program at Seoul National University’s College of Engineering.
Unexpected wealth sometimes destroys those who acquire it. People who expand spending on the strength of temporary income often struggle to reduce expenses when that income disappears. If they have abandoned their original livelihoods, they may have lost the means to recover. Whether a windfall becomes a blessing or a curse depends not on its size but on how it is managed.
Countries are no exception. The paradox of resource-rich nations losing economic vitality is known as the resource curse. When resource exports bring sudden inflows of foreign currency, prices and wages rise and the currency appreciates. Export competitiveness weakens, forcing factories to close. The phenomenon became known as Dutch disease after the Netherlands discovered major natural gas deposits in 1959.
A deeper crisis emerges in public finances. Governments that expand subsidies and public employment during resource booms struggle to cut spending when prices fall. Venezuela, holder of the world's largest proven oil reserves, repeatedly increased public spending when oil prices rose, only to suffer fiscal and economic crises when they declined. Promises made during prosperity became liabilities during downturns. Poorly managed windfalls can do more harm than good.
Norway offers a contrasting example. After discovering North Sea oil in 1969, it experienced volatile petroleum revenues, including the 1986 oil price collapse. Norway eventually learned to separate resource income from ordinary government finances. It established a sovereign wealth fund in 1990 and began depositing petroleum revenues in 1996. The money was invested in long-term assets rather than released directly into the domestic economy. In 2001, Norway adopted a fiscal rule limiting spending to the fund's expected returns.
Successive governments upheld that principle. The fund has since surpassed $2 trillion, becoming the world's largest sovereign wealth fund. Norway transformed an exhaustible resource into assets supporting future prosperity. What distinguished Norway from Venezuela was not resource abundance but whether windfall revenues financed present consumption or future opportunities.
Korea has never worried about the resource curse because it possessed few natural resources. Instead, it built prosperity through manufacturing and exports. Now, however, it faces something resembling an unexpected oil discovery: enormous tax revenues generated by the semiconductor boom.
Semiconductors are not resources discovered by chance. They represent capabilities accumulated over decades by earlier generations. Yet today's extraordinary profits also reflect an unexpected external advantage: the global AI investment boom.
The semiconductor industry has always experienced cycles lasting several years. Extraordinary tax revenues collected at the peak cannot be treated as permanent income. Expanding recurring expenditures on that assumption would leave public finances burdened when the boom ends.
The curse arises not from resources themselves but from treating their proceeds as free money. Unexpected tax revenues inevitably generate demands for redistribution and recurring spending. Such demands often arise from legitimate needs and good intentions, making them difficult to reject. Redistribution appears compassionate, while restraint looks ungenerous.
Even determined fiscal authorities cannot defend long-term principles if society consistently prioritizes immediate demands. Norway succeeded because its people reached a shared understanding that petroleum wealth should be invested for the future.
Korea's proposed Future Response Fund, financed through the semiconductor boom and additional tax revenues, will test whether a similar consensus can emerge. Its success depends not on its size but on its discipline.
Calling something a future-oriented fund does not automatically make its projects investments in the future. If it merely absorbs existing programs or finances recurring expenditures, it will become another government spending account.
Norway converted petroleum wealth into financial assets. Korea must convert semiconductor prosperity into technological capabilities for the next generation. Resources should support unexplored technologies that private markets have yet to finance, ambitious projects requiring years of experimentation and the people capable of undertaking them.
Project selection and evaluation must emphasize accumulated capabilities over time rather than results measured within a single fiscal year. Korea needs to discover its next source of prosperity before today's semiconductor windfall runs dry.
Farmers once preserved their seed potatoes even during poor harvests. They understood that immediate hunger made those potatoes tempting, but eating them would eliminate the following year's crop. The greater the hardship, the more important it was to protect the seeds of future survival.
Tax revenues from the semiconductor boom should be treated not as food for today's consumption but as seed potatoes for tomorrow.
This article was originally written in Korean and translated by a bilingual reporter with the help of generative AI tools. It was then edited by a native English-speaking editor. All AI-assisted translations are reviewed and refined by our newsroom.
