A way forwardIf not for the Middle East respiratory syndrome (MERS) outbreak that is on the minds of practically everyone in this land, the 10.9 percent on-year plunge in exports in May would have dominated the headlines. Exports, which have been heading south for several months, sank by double digits for the first time since the global financial crisis started in 2008. Analysts weren’t surprised. Economic institutes said the contraction was foreseeable and did not stem from seasonal or temporary factors. The culprits are structural problems. They are skeptical about a turnaround in the near future.
“This had been predicted 10 years ago. They (exporters) had not been preparing for this day,” one said. As a reporter covering trade, I too was able to see it coming.
The limitations of Korea’s exports-driven industrial structure had been flagged since early 2000. China’s industrial growth model overlapped with Korea’s. I wrote a feature on China’s aggressive facilities investment in areas that were Korean mainstream exports like petrochemicals, electronics and steel back in 2001. I wrote another in 2007 calling for industrial restructuring in order to free ourselves from money-losing export competition in which Korea faced a heavy rivaly from China, and Japan.
Scholars, companies and the media all sent up a joint chant that Korea should redirect its industrial structure away from manufacturing and exports to services and fulfilling domestic demand. Various ideas and suggestions poured forth.
But it is not easy to walk away from what one has been doing for 40 years - and had done very well at. The heavy industrial sector is an area Korea has been living on for the last four decades ever since it shifted focus from light industry in the 1970s. Business went on doing what it does well and industrial and economic policy was oriented towards today’s comfort zones rather than the future. Few paid heed to the warnings because all was well on the export front. The growth of the last decade, however, was illusory - driven entirely by a boom from China, which was in its early stage of industrialization. The fate of an economy can be foreseen to some extent. It was not difficult to discern what was real and unreal. Brisk demand from China couldn’t last and therefore was illusory. Korea was warned of the danger of its export-reliant growth model when a global slowdown was inevitable as the result of the 2008 financial crisis. The setbacks on the external front, therefore, had been sufficiently cautioned against.
But this should come as no surprise as we are experts on missing the right timing. We watched a passenger-packed ferry sink before our eyes. Missing golden hours may have become second nature for us. We don’t seem to learn our lesson. The horses have bolted several times and yet we still forget to shut the stable door. We just kick ourselves after the sinking of the Sewol, the outbreak of MERS and the crumbling of Korea Inc.’s export powerhouse.
Korea is headed toward a structural slowdown. Some say it may be in for a Japan-like stagnation. Most other countries entered a protracted slowdown due to external factors like oil or financial shocks. Japan’s crisis was the bursting of an asset bubble, a series of policy failures, weakening in export competitiveness and sluggish domestic demand from the shift of its manufacturing base overseas. Stagnation has lasted in Japan for two decades.
Japan is trying to hoist itself out of depression. It was helped by all-out fiscal and monetary easing from the government under the so-called Abenomics. Manufacturers returned home and exports have been diversified through increased overseas direct investment. We may have missed the timing to restructure our industrial structure for more sustainable growth. But we must not make the same mistakes to avoid a Japan-like fall into the abyss. There are many says to strengthen domestic demand. Many can offer advice. Policy-makers must open their eyes and ears. They must seek new breakthroughs to innovate on the industrial front. We cannot stop here.
JoongAng Ilbo, June 17, Page 30
*The author is an editorial writer of the JoongAng Ilbo.
by Yang Sunny