[GLOBAL EYE]Keep the economy’s clock runningKenichi Ohmae, a visiting professor at the University of California at Los Angeles who is well known for his straight talk about the Korean economy, said on a visit to Seoul last month, “nothing has changed in Korea over the past five years.” He said that although Korea had overcome the financial crisis, the fundamental problems of the Korean economy remained barely resolved. He was right.
The restructuring of past years at most involved dealing with bad loans and reducing the debt ratio of businesses. The soundness of financial institutions has improved through public funding, but there is a long way to go to achieve financial normalization through market principles. Institutional devices for improving managerial transparency and corporate governance have been strengthened, but the accounting irregularities and a huge amount of slush funds still negatively affect the environment. Conflict between labor and management has intensified over the flexibility of the labor market, and reforms in the public sector have fallen behind those in the private sector.
As the reforms have dwindled, the growth engine has rapidly cooled. Hans Tietmeyer, former head of the Bundesbank, Germany’s central bank, warned, “If it cannot reform its labor market, Korea will be stuck in the mire of low growth like Germany.” Korea’s estimated growth rate in the future stands at 3 to 4 percent, the lowest among its major rival countries. Moreover, Korea faces the hollowing of skilled labor and a brain drain, because we have a strong tendency to lower costs when we cannot compete by technology.
Nevertheless, “the participatory government” only emphasizes anti-corruption and reform without suggesting any medium and long-term vision to make the economy go forward. Per capita income of $20,000 should only be the result of growth, not a goal in itself. Korea wants to be the hub of Northeast Asia but has not been able to achieve a free trade agreement with any country yet.
Free trade involves a long journey in which a country first enters an agreement with its easiest partner, then gradually expands its scope, ultimately achieving global free trade. Despite the term “free trade,” in this process “open regionalism” is at work, and if a country cannot join others it will be “a loner” in international trade. If Korea cannot finalize an agreement with Chile, the easiest partner, it will be even harder for the country to do so with China, Japan and members of the Association of Southeast Asian Nations. We should hasten to ratify the agreement with Chile, along with preparing complementary measures for agriculture. If Korea delays ratification further, the international community will doubt its ability to coordinate domestic interests. This will be a fatal blow to the credibility of our policy overseas.
Our awareness of globalization is already at a worrisome level. According to a recent report on the Korean economy by McKinsey & Co., Korea scored a mere 27 percent in the category of positive awareness of globalization, while Indonesia scored 59 percent; Malaysia, 51 percent; India, 49 percent; and Vietnam, 47 percent. Globalization, whether we like it or not, is an irreversible reality. We need to take a flexible attitude of adjusting the contents and speed of our market opening positively.
Why would we worry if our problem is nothing but a short-term slowdown owing to a decline in spending and investment? The seriousness of the problem is that there is structural vulnerability in almost all sectors, including production, technology development, finance, business management, labor and education. Although the export sector performs well, items and regional benefits are unevenly distributed. While Korea is a world leader in manufacturing computer memory chips, profitability is unstable due to the wide fluctuation in semiconductor prices. Although Korea is the kingdom of cellular phones, it does not actually own the core technology. Its dependence on foreign countries for high-tech core parts is increasing as time passes.
In a nutshell, we are in a situation where we cannot have confidence in our future. We urgently need to develop a differential strategy for “a small but strong country” such as creating an industrial business model that emphasizes aggressive forays into niche markets and maximization of our strong points. In reforms, a clear guideline on what to choose is as important as setting a goal when there are conflicting goals with limited resources and means. And there should be leadership that can persuade the people about the realistic limitations of the strategy. Without these two, the clock of the Korean economy will go backward or continue running idle.
* The writer is a senior editorial writer of the JoongAng Ilbo.
by Byun Sang-keun