Restoring the engine

Next year will be a meaningful one in many ways for Korea, most notably in the economic sphere.

In particular, it represents a chance to turn the page on the global downturn and usher in a new era for the local economy.

We shall soon see whether the country can hit the psychological benchmark of $30,000 in annual per capita gross national income (GNI), which is where the wealthiest nations dwell.

Despite Korea’s rapid economic growth over the past few decades, it has muddled along in recent years with per capita income stuck around the $20,000 level. Other advanced nations hit the $30,000 mark just five to eight years after surpassing $20,000.

Korea, however, has gone in the opposite direction. After hitting a record $21,659 in 2007, GNI tumbled to $19,296 in 2008 - when the global financial crisis erupted - before falling further to $17,175 last year. In 2010, Korea’s GNI is expected to surpass $20,000 again but will still come in roughly at the same level it was at several years ago.

That’s not to say there haven’t been solid accomplishments along the way. Korea joined the Group of 20 in setting up a framework for the global economy and successfully hosted the organization’s premier summit. Moreover, the country’s economy recovered much more quickly than other industrialized nations.

From a larger perspective, however, the economy has underperformed over the past decade. The primary reason is the erosion in the economy’s ability to drive growth. The rate at which the economy can expand without triggering inflation slowed to the 3-percent range last year from the 8-percent average posted in the 1980s. The long-term potential growth rate will slump further in the next decade because of a decline in the working population as a result of the nation’s low birthrate and aging society.

To address this, the government should concentrate on restoring the engine that drives growth and strengthening fundamentals. But the government seems stuck in the past, presenting nothing new or innovative in its outline for next year’s economic policy.

The government must act before it is too late. Revolutionizing the services industry is of the utmost importance, and the government must cut the red tape on licensing profit-seeking medical facilities and on other industries. Without a revolutionary system, the economy will not return to a cycle of innovation, convergence and rock-solid growth.