My native South Korea is something of a star performer. With per capita income of around $20,000 (on a par with Portugal), it is not one of the richest countries, but we are talking about a country whose income was less than half that of Ghana's until the early 1960s. With an annual per capita income growth rate of just under 4%, it is one of the fastest-growing OECD economies.

Once a byword for hyper-exploited sweatshop labour, churning out cheap transistor radios and trainers, the country now possesses the only thing that stands between iPhone and world domination (the Samsung Galaxy). It is also a world leader in industries such as shipbuilding, steel and automobiles.

The country is, per capita, the third most innovative in the world, after Japan and Taiwan, when measured by the number of patents granted by the US patent office. It has one of the world's highest university enrolment ratios, and schoolchildren who rank in the top five in virtually all standardised international tests.

So, when things seem to be going so swimmingly, why are Koreans clamouring for big changes in the run-up to the general election next week? Because they are desperately unhappy.

According to a recent World Values Survey, Koreans are the second unhappiest people (after Hungary) among the citizens of the 32 OECD countries studied. Worse, its children are the unhappiest in the rich world, according to a survey of 23 OECD countries done by Yonsei University in Seoul. In 2009 the country topped the international league table for suicides, with 28.4 suicides per 100,000 people. Japan was a distant second with 19.7. But Koreans never used to be this unhappy. Until 1995 its suicide rate was, at about 10 per 100,000 people, just below the OECD average. Since then it has almost tripled.

The answer to the Korean puzzle can be found in the consequences of the economic reform implemented after the country's 1997 financial crisis. In the UK-US mould, the stock market was fully opened to foreign investors, putting the larger, listed companies under pressure from international shareholders, making them increase short-term profits by minimising investments. The ability of smaller, unlisted companies to invest was severely curtailed by a dramatic reduction in credit availability. Deregulation allowed banks to rush into more lucrative consumer loan markets, reducing the share of loans to business.

The resulting dramatic fall in investments has led to a substantial fall in economic growth from 6%-7% (in per capita terms) per year to under 4%. With lower growth, few well-paid jobs are created. When combined with the relaxation of labour laws after 1997, this has given employers a decisive upper hand over their workers. Many employees were sacked and re-hired as "agency" workers, doing the same jobs at lower wages. The proportion of the workforce without a permanent contract rose from an already high 50% to 60%, the highest in the OECD.

Not that having a permanent contract gives you much protection these days. Most of the companies that used to (informally) provide "lifetime employment" for their core workers have ended the practice, with older staff put under pressure to make way for younger, cheaper workers.

And all of this is being played out in the absence of a decent welfare state – the country has the second smallest in the OECD, after Mexico (measured by welfare spending as a share of GDP). Given this, people live in constant fear of unemployment, forced retirement, and major illnesses, which expose them to a life of penury.

This "fear factor" also partly explains the country's excessive educational zeal. Pupils study hard, thinking that better educational qualification may give them a layer of protection in an unforgiving labour market. But since everyone is studying hard, they have to run faster to stay in the same place. The result is the combination of long study hours (double that of Finnish children, who do equally well in international tests), and enormous mental stress.

Moreover, increased job insecurity has driven the best Korean students into "secure" professions, like medicine and law, leaving science and engineering deprived of top talents. If this trend continues, the country's ability to innovate will be damaged.

The sad tale of my country should serve as a salutary warning to Britain and other European countries that are embarking on major cuts to welfare. They believe that such cuts will reduce budget deficits and make their economies more productive by making people compete more vigorously. However, the Korean story shows that insecurity actually makes people less, not more, productive, and also desperately unhappy. Surely, that is not what they want.

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