[Letters] Lessons from the global financial crisis for KoreaFollowing the current global financial crisis, companies are less likely to invest in countries that are overreliant on one industry as the risks of low country diversification become more apparent.
Prior to the global crisis, such developed economies as the U.K. would not be considered in this category of risk but now such risk factors are considered.
The financial services industry in the U.K. grew faster than any other part of the economy in recent years. The sector contributed close to $150 billion per annum to the U.K.’s GDP.
However, following the global recession, the U.K. was the last of the G-20 to recover. Some economists believe that this was due to overreliance on financial services.
How can the U.K. reconcile its competitive edge in this sector with increasing risk of overspecialization in one sector?
It is important to focus on strengths but also for the national economy to avoid overdependence on one sector for jobs and growth.
The trick is to get the degree of specialization right in order to avoid the worst effects of a global recession.
Some may argue that the U.K. economy is not overexposed to the financial services sector as it represents only 8 percent of the GDP.
However, in the past decade or so, the sector contributed close to a quarter of U.K. growth, 20 percent of jobs and represented 12 percent of GDP when all supporting industries are included.
The relative size and scale of financial flexibility in the sector turned to a disadvantage while other sectors like manufacturing - which is still so import for innovation - reduced in importance.
Some Asian countries, including South Korea, may have got the balance right between playing to strengths and avoiding overspecialization in one sector while moving up the value chain. Korea successfully managed to transform from a low-cost manufacturer to a global leader in wireless telecoms.
Korea has continued to build its industrial sectors and reduced its dependence on primary exports.
Although the Korean economy has weathered the current global crisis extremely well, policy makers can’t afford to be complacent. Korea learned from its own mistakes following the Asian financial crisis of 1997.
Now, while providing example for other troubled economies, Korea needs to also learn for others’ mistakes.
We should note the adverse consequences of the sector crisis in the city of London, of Iceland’s overreliance on the banking sector, of the failures of global giants such as Toyota in Japan, Swissair and UBS in Switzerland and Lehman Brothers and AIG in the U.S.
These events had huge negative consequences for the economies and images of these countries and this may also have a negative knock-on effect on foreign investment.
While Korea has come out fighting strong from the current global crisis, policy makers should remain vigilant and maintain diversification while continuing to build on core competencies.
President of Gerard Consulting in Seoul