[CULTURAL DIMENSIONS]Why no game plan for Korea?The latest wave of election funding scandals has attracted a lot of media attention, but little public outrage. The reason? People are bored with politics and expect little from the current political dynamic. The endless cycle of accusations, discoveries, and prosecutions has become a rhetorical dance among out-of-touch politicians.
Instead, Koreans are worried about the economics of daily life. Nearly 300 people apply for some jobs offered in business. At times, the competition for jobs turns statistics on end: 29,700 people recently applied for 200 jobs at Pantech, a maker of mobile phones. The recent media buzz about the price of housing in the Gangnam area of Seoul, meanwhile, shows how real estate bubbles create panic in society. And all of this as growth slows to historically low levels for Korea.
The economy has largely determined the fate of Korean presidents and their subsequent historical standing. Times of economic difficulty, in particular, have forced presidents to come up with a game plan to return Korea to growth rates that are high enough to support hopes for a more prosperous future.
Roh Moo-hyun did not take office amid an economic crisis, but he faces the same problem as those who did: how to put the economy back on a hope-inspiring growth path. The problem is more difficult for the Roh administration because of the aging of the population and the rise of China as an economic power. Any economic game plan must consider these two trends.
The aging of the population is forcing great economic and social change in Japan. The savings rate, for example, once one of the highest in the developed world, has fallen to near zero this year, as the face of aging increases.
Big cities are full of glitzy new shopping centers, but shopping areas in smaller cities in the regions are dying for lack of customers. Meanwhile, pension systems are being squeezed as the number of retirees grows, forcing the government to consider reforms, such as raising premiums and the age at which people can start receiving pensions.
The economics of aging is simple: fewer workers have to support growing numbers of retirees who live on fixed incomes. This process shrinks the economy unless the labor force is more efficient or more workers come from outside the traditional labor market. Efficiency comes from investment and more workers come from migration and social changes in the labor market.
The Japanese economy has improved this year even as the effects of aging pinch because of restructuring and investment in new technologies. By becoming more efficient and focusing on high-tech fields, Japan is quietly leaving the low-tech economy to China. For now this is working, but over the long-term, Japan may be forced to attract more workers from overseas. Japan’s move toward a high-efficiency strategy with a low domestic savings rate, of course, means that it will need more foreign investment than in the past.
China, meanwhile, needs foreign investment to provide technology transfer and job growth for a rapidly urbanizing population. Attracted by cheap labor, foreign investment has poured into China, turning it into the world’s factory and causing job losses in established industrial centers across the globe. Calls for a revaluation of the yuan are confirmation of China’s newfound economic prowess, much as calls for revaluation of the yen in the 1970s confirmed Japan’s economic prowess then.
In the middle sits Korea, without a game plan. The Kim Dae-jung game plan of increased foreign investment, structural reform, and competitiveness is fading into history, but it deserves revisiting. A renewed emphasis on foreign investment is critical to making the Korean economy more competitive and efficient. As the example of Japan shows, competitiveness and efficiency can help offset the weight of an aging society. As the population ages, people will become more accepting of slower growth, but they will not tolerate policy-induced decline.
The need to increase efficiency is at odds with the recent direction of policy. Labor unions are too unpredictable for domestic investors, let alone foreign investors. The National Assembly’s failure to ratify the free trade agreement with Chile casts doubt over future FTA negotiations with other nations. Above all, the silence about economic policy in political circles suggests drift when leadership is badly needed. No wonder the Korea Federation of Industries called on President Roh to scrap his proposed confidence referendum.
The proposed FTA negotiations with Japan give the Roh administration the chance to provide leadership on the economy. President Roh is keen on the idea, but many of his more left-wing supporters are not. Ironically, like Park Chung Hee before him, President Roh may find that deepening ties with Japan sends a strong message to the world that Korea has a forward-looking economic game plan that offers hope to its people.
* The writer is an associate professor at Kyoto University in Japan.
by Robert J. Fouser
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