Korea’s plausible growth plan
Park’s numeric acronym stands for generating 4 percent growth, a 70 percent employment rate and average per capita income of $40,000. You’d think Park would’ve steered very clear of any catchphrase that reminded the world of Lee Myung Bak’s “747 plan” flameout. Lee’s platform of 7 percent growth, $40,000 of income and South Korea becoming the world’s seventh-biggest economy was more punch line than strategy. Park’s enemies have already connected the rhetorical dots and predicted failure.
But botched sloganeering aside, let’s be cautiously optimistic not only about what Park proposes, but also how she intends to achieve it. Her 474 vision is more plausible than many pundits, business people and even her own policy makers seem to think.
Here’s the gist of Park’s plan: Shift tax benefits from giant manufacturers to startups; roll back regulations on sectors from health to finance to education to tourism to software in order to spur competition; rein in state-owned enterprises; boost public support for venture-capital funding; and incentivize employers to hire more women and young people. All of this is meant to achieve two overriding goals: ending Korea’s reliance on exports and creating a vibrant services sector to raise productivity.
It’s an extraordinarily grand vision, and Park will be hard-pressed to complete it in the remaining four years of her presidency. She must have the courage to enact legislation that puts powerful family-run conglomerates, or chaebol, at a disadvantage - something that would require Margaret Thatcher-esque resolve. But her ambitions are a welcome sign that reform in Asia isn’t dead. Park’s plan could be considered the anti-Abenomics gambit, putting structural change ahead of massive monetary stimulus. Nowhere in 474 does she call on the Bank of Korea to print a tidal wave of won.
To me, Park’s critics are asking the wrong question. What Koreans need to be discussing is not whether their president can succeed, but what will happen to their country if she doesn’t. If Park is timid about altering the mechanics of the economy, Korea will have lost considerable ground by 2017, when she leaves office.
After the Lee years, Korea has no such wiggle room. One reason Lee’s jumbo-jet-sized 747 ambitions never got off the ground was the global financial crisis. While Korea avoided the worst of the 2008 “Lehman shock,” the fallout slammed its biggest export markets. But Lee’s real failure grew out of a mix of hubris and complacency.
A 7 percent growth rate is the stuff of China, Indonesia and the Philippines, not one of the world’s fastest-aging nations. Lee’s scheme also lacked specifics about how to raise living standards amid exploding competition. South Korea needed to be bracing for the day China builds a decent car that consumers in the U.S., France and Singapore see as a viable alternative to a Hyundai or a Kia. Seoul should have been planning for the moment China produces a sexy smartphone that steals Samsung’s thunder, or a flat-screen television that outperforms one from LG. Korea should have been plotting what to do when companies like STX Shipbuilding lose orders to the mainland.
While Korea has achieved incredible things since the war-torn 1950s, it must constantly ask what’s next. Here, the recent woes at Samsung Electronics, often seen as a proxy for the economy, are instructive. It’s being squeezed by soft global demand, a weaker yen and the fast-increasing threat from Chinese manufacturers churning out smartphones costing as little as $100. In October, when Samsung Chairman Lee Kun-hee told his workers to “arm yourself once again with a sense of urgency,” he could have been speaking to all Koreans, across sectors.
As Park can see from Tokyo to Beijing, talk of reform isn’t enough. Park campaigned on a pledge to build a “creative economy,” and the blueprint she announced on Feb. 25 would more than deliver - but only if it’s implemented expeditiously and wisely. Frankly, Park’s Finance Ministry has impressed no one over the last week with unsteady efforts to explain 474’s specifics.
Still, Park is looking in the right places and taking steps Korean leaders long lacked the will to take - like allowing trading of U.S. dollar futures between 6 p.m. and 5 a.m. to boost Seoul’s bona fides as a financial center. It’s also promising that Park is focusing on the long run, not short-term Band-Aids such as easy money or massive stimulus, as Japan and China have done.
Taking on South Korea’s vested interests will require a level of political brawn Park hasn’t yet displayed. But I’m hopeful.
*The author is a Bloomberg View columnist.
By William Pesek