An economic-growth flight planThe Ministry of Strategy and Finance has lowered its forecast for this year’s economic growth to 2.3 percent, noting the more or less flat growth for the past seven quarters.
The U.S. economy is showing signs of recovery, and it believed to be running at a 2 to 3 percent growth rate. The second-largest economy, China, is still roaring at a pace of more than 8 percent, and the troubled euro zone has stabilized to some extent. External factors, therefore, cannot be entirely blamed for Korea’s anemic economy.
Immediate stimulus actions to reinvigorate the economy through increased public spending are necessary. But what’s more urgent is an overall economic health checkup. The government should lay out a five-year road map with economic goals and directions followed by specific action plans. We must not repeat the mistake of such short-term, hasty stimulus packages as the “100-day action plan” of the early 1990s.
The Park Geun-hye administration has reinstated the title of deputy prime minister of economy for the minister of strategy and finance. The new economic control tower should come up with a comprehensive agenda to rebuild the Korean economy and activate plans to meet the goal starting this year. The keystone of the agenda should be restoring the potential of an economy that has been quickly losing steam since the Asian financial crisis of the late 1990s.
Prior to that, Korea maintained the potential for annual growth of nearly 7 percent. Today, expectations are stuck in the area of 3.5 percent. The economy has matured over the decades and various demographic problems, most notably our rapidly aging population, have eroded growth potential. But fortunately, the economy still has substantial potential.
We need to study the exemplary economic management of Germany, as we can learn a lot from the country’s experience, especially approaches to balancing economic growth and social welfare, efforts to foster small- and mid-sized enterprises as the core of industrial growth, and the reunification of the East and West German economies. What would perhaps be more valuable for us are Germany’s policy failures and how the country addressed them.
Germany, which miraculously rebuilt its economy after World War II, was sneered at as Europe’s “sick man” in the early 2000s. Unemployment reached double digits and the number of people who relied entirely on food stamps and jobless allowances exceeded 4 million.
In 2003, then-Chancellor Gerhard Schröder and his Social Democratic Party proposed “Agenda 2010,” outlining sweeping reforms of the social system and labor market. Despite the political risks, his government sought flexibility in the labor market, drastic cuts in social benefits and deregulation. The agenda’s legacy has been continued by the conservative coalition of Chancellor Angela Merkel.
Few would raise an objection to the analysis that Germany benefited most from the euro currency. The country could capitalize on the benefits of a single currency and common economic bloc as it strengthened economic fundamentals through incremental and consistent reform programs.
I suggest Seoul work out economic rebuilding “Agenda 2018,” comprised of comprehensive and specific annual action plans to nurture the country’s growth potential. The government’s slogan of creating an “inventive economy” and reforms aimed at raising productivity of the service sector should be part of the agenda to rebuild the economy and hone growth potential. The service sector should play a pivotal role because it can generate more meaningful jobs than the manufacturing sector.
To raise our growth potential, various red tape that hampers corporate investment and activities should be lifted and more flexibility allowed in the labor market. Education also needs to be overhauled in order to groom more inventive and competitive human resources. We need more opportunities for training and retraining as well as effective ways to utilize the talents of women.
Efforts to improve the system and refine laws also should be accompanied by enhanced transparency, fair policy execution and trade, and symbiotic and reciprocal growth of large and smaller companies. At the same time, the government must carry out reforms and policies to balance wealth and growth for social unity and foster sustainable growth through affordable welfare system and stronger social safety net.
I am sure that if the deputy prime minister and government carry out these measures with unwavering focus and drive for the next five years, our economic growth potential could be lifted to around 5 percent by 2018.