[OUTLOOK]Korea’s potential to be No. 2?Someday Korea will become the second-richest nation in the world after the United States? If some Korean economic research institute presented such a prediction, it would be rebuffed and called absurd. The report could end up in the trash can even before being published, and the economist who came up with the prediction might be fired immediately.
However, the problem is that a recent report by Goldman Sachs, one of the most prestigious global investment banking and securities companies, contained the prediction. The Korean media reported the optimistic prediction at once, and the news immediately became the talk of the town. Based on a number called the “growth environment score,” Goldman Sachs predicted that by 2050, Korea’s per-capita gross domestic product would be the second-highest in the world after the United States. How reliable is Goldman Sachs?
The company attracted international attention in 2003 when it coined the term “BRICs nations.” It predicted that trends in the global economy would be swayed by four potential economic powers, namely China, India, Russia and Brazil, and this prediction turns out to be true. This time, the authority in global finance gave a high score to the Korean economy.
Just when everything seemed so unpromising and gloomy, such a rosy economic forecast was a rather refreshing shock. Koreans were happy to hear that despite the endless tunnel of serious confrontations, the Korean economy would continue to grow and become the second-richest in the world. We really hope that the prediction becomes reality. With the much-awaited stock market rally and rebounding consumption, the prediction came just in time. The report was a critical blow to those who had criticized economic policy blunders, and at the same time, the most welcome news for the government and the ruling party, who had been cornered by the critics. It is not just a report by a Korean research institute but by the economic analysts of an internationally renowned financial services firm.
I have no intention to disappoint or discourage those who wish to believe the report. However, unfortunately, the writers have committed a serious fault and the readers have misunderstood a very important point. Above all, we have to pay attention to how the report uses the words “dream” and “potential.” The 2003 paper was titled, “Dreaming with BRICs,” and the latest report is a follow-up to it. As the report praises Korea and Mexico, it clearly states that depending on how these countries behave, the dream and potential can be realized or lost.
The report is more of a discussion about growth potential than an economic prediction. The Korean media has conveniently omitted these premises and emphasized the “second-richest economy” part, and the exaggeration ultimately undermined the credibility of the Goldman Sachs report.
Then, is the Goldman Sachs paper flawless? Of course not. If we look at just one aspect that Goldman Sachs had completely ignored, it becomes clear that the report’s prediction of the Korean economy is flawed. While the growth environment score was decided based on 13 sub-indices to predict the future, it overlooked one of the most crucial variables about Korea. As the company looks several decades in the future about the Korean economy, it fails to mention unification even once. Hardly anyone expects the peninsula to remain divided until 2050, 45 years from now. Moreover, when the two Koreas are unified, the fate of the Korean economy will vary drastically depending on the manner of the unification.
The Goldman Sachs report is a mere essay written without once contemplating such a crucial variable. After all, there is no way even for prestigious Goldman Sachs to understand why North Korean leader Kim Jong-il is so freely traveling all over China and how his eccentric behavior will affect the future of the Korean economy.
* The writer is the CEO of the JoongAng Ilbo News Magazine. Translation by the JoongAng Daily staff.
by Lee Chang-kyu