[Viewpoint] The 2011 turning pointEvery December, we take a few moments to look back on the year that’s passed and look forward to the one arriving. There is no guaranteeing that our predictions will come true or that any kind of determination can manage to alter the future. And we can’t ignore the year that’s ending, for it’s the base for any forecast. Plenty of analysts and commentators have produced economic forecasts for 2011, and various agencies and government organizations have already announced their detailed plans for next year.
However, next year is swathed in too much uncertainty for the kind of routine forecasts produced in past years. Domestic and international circumstances surrounding the Korean economy are unstable, and there are many variables that could push the economy off the cliff. The possibility of a North Korean provocation, which has been a constant threat to the Korean economy, is more serious than ever, and the geopolitical dynamics around the Korean Peninsula are shifting beneath our feet.
Most of all, a completely new challenge awaits the Korean economy, and it is different from the crises and obstacles we have overcome in decades past. Since the global financial crisis, the world economy has lost its safe foundation, and the aggravating global imbalances created friction between the United States and China and produced a plethora of other regional and international squabbles.
Internally, dull growth and slack employment have become commonplace, and polarization in all sectors of society is deepening. These are the kinds of challenges that cannot be resolved with the routine remedies the Korean economy has used previously. The success formulas of the past no longer apply here.
As the situation is so complicated and serious, we need to rise above the problem and look further ahead. Instead of getting obsessed over what will happen in 2011, we need to see the landscape better through a long-term perspective - a decade into the future. Just in time, the Samsung Economic Research Institute published a report diagnosing the present and the future of the Korean economy, titled “Post-Crisis Course of the Korean Economy: Challenges and Tasks of the Next Decade.”
The report focuses on the fact that the Korean economy is losing its main growth engines after enduring two economic crises. After the Asian financial crisis of 1997 and the global meltdown of 2008, the Korean economy dropped below its normal, long-term growth rate. After the two drops, recovery was rapid, but after each crisis, the economy failed to get back to precrisis growth levels. That shows how vulnerable the Korean economy is to external shock and how it lacks the means to recover momentum after a blow.
The report also forecasts that aggregated global imbalances in trade and currencies will go through adjustments next year, and therefore, our low-growth tendency will continue as competition and discord among countries intensify. Such conflicts have to affect an economy like Korea’s, which relies heavily on exports. Speed bumps are ahead of us both internally and externally. If Korea fails to recover its growth rate and slips back next year, the economic slump, combined with social polarization, will lead to serious social discord.
Therefore, next year will be a turning point for us to either get back in the orbit of stable growth or drop into the pit of low growth. The recovery of growth is key. If Korea fails to solidify the foundation for a stable, growing economy in the first half of 2011, the chance of fully entering the developed world in the next decade will disappear.
In the worst case, Korea may never evolve from being a promising developing country. Our working population will decrease in the next decade, and unpredictable variables on the peninsula may affect the economy. If we don’t change the very nature of our economy, it might be disturbed by domestic and international jolts.
To ensure the success of the Korean economy, we need to make a proper start. Next year will be the first step. The report proposed five tasks in macroeconomics, industry, employment, finance and society for stable and consistent growth. They are all necessary jobs, but the most urgent and important one is to make domestic consumption a new growth engine.
Growth that relies excessively on exports will not provide stability in an era of global economic slumps and intense international competition. Domestic demand can spur employment and dampen social polarization.
The core of domestic demand is the service industry. When regulations on medical, educational, legal and tourism service industries are lifted drastically, domestic demand will blossom and the economy will thrive. Easing regulations in the service industry is the most pressing task that will determine the next ten years of the Korean economy.
Next year will mark the end of the crisis and the beginning of sustainable, stable growth.
*The writer is an editorial writer of the JoongAng Ilbo.
By Kim Jong-soo