[Outlook]A fatal arroganceTen years have passed since the financial crisis of 1997. Back then, I wrote a column that said it would take 10 years to revive our economy and we should be prepared for that. In the ’90s, the United States began 14 years of restructuring. Japan’s economy was sluggish for eight years after its bubble burst. The headline of an editorial in the Asahi Shimbun said that Japan should be ready for five more years of hardship. Japan’s economy is reviving now. But Korea’s economy is facing a fundamental crisis. The restructuring of Korea’s economy is only half complete and the Korean people do not grasp this reality. They are overly confident about their economy and do not feel that a crisis is near that will inhibit growth.
A free trade agreement with the United States has been signed. Negotiations for another trade pact with the European Union have begun. A free trade agreement does not mean heaven or hell for our economy. Kenichi Omae, a management consultant, speaks bluntly about Korea’s economy. He advised that we should celebrate the free trade agreement with the United States for two weeks, no more, and then come back to reality.
Omae reminded us that the North American Free Trade Agreement, which, at the time, created the world’s largest trade bloc, has been in effect for 13 years. However, Japanese automobiles have a 30 percent share of the United States market, even though the two countries have no free trade agreement. He maintains that successful trade is not something that the politics of a free trade agreement can handle but is a function of aggressive entrepreneurial activities.
Two months ago the Samsung Group Chairman Lee Kun-hee warned that our country will enter a crisis within four or five years unless Samsung and the entire country revises working practices. The Korean authorities were unhappy because the media reported his remark as a major news story but failed to pay attention to what he meant. The problem for Samsung Electronics, as for many Korean companies, is that their sales keep increasing but their profits have been falling since 2004, because the company has yet to find a new range of uniquely competitive products.
Hisashi Ono, the Seoul branch general manager of the Nomura Research Institute, warned that Korea’s economy faces four major obstacles. His warning was important, but the media did not pay attention to it because of the festive mood generated by the free trade agreement with Washington.
The first obstacle is technology. Korea can’t invest enough to catch up with U.S. and Japanese technology while being chased by China, which has more competitive prices.
The second is profits. When one item has a large market share, profits decrease. Taiwanese companies make more profits, relative to their costs, even though they do not have the world’s best or largest companies.
The third is market domination. We cannot compete with China with its massive investment in equipment and ability to mobilize capital.
The fourth is high technology. In the information and service industries, we have insufficient intellectual resources and weak brand power. In most businesses, Korean companies depend on Japan for vital parts. In Japan, there are hundreds of parts companies that have a 60 percent market share and they are backing the renaissance of the Japanese manufacturing industry.
What frustrates us more than these grim realities is that the people in power and in political circles do not sense the impending crisis. If we want to benefit from a free trade agreement, investment must be increased, not just trade.
For that regulations must be reduced, strategies for equal development in all regions must be re-examined and market mechanisms must be restored. A new growth model is desperately needed to replace the government-led growth model. But the government is busy improving inter-Korean relations, as if the Kaesong industrial park in North Korea represented our economic salvation.
As for real estate policy, housing prices must be kept under control. But to block the withdrawal route while putting deadly pressure on interest rates is not wise. The bottom 20 percent in terms of income require loans to survive. But still, the president appears relaxed, saying that the economy is working as he would wish.
The people in the administration believe that they are the only ones who are pursuing peace and reform. While being obsessed with an out-moded model of the welfare state, they persistently and arrogantly believe that growth, welfare, income equality and a fair distribution of wealth can be achieved at the same time. This is a fatal form of arrogance that threatens to kill our economy.
*The writer is a senior columnist of the JoongAng Ilbo. Translation by the JoongAng Daily staff.
by Byun Sang-keun