Growth still the answerApgujeong’s Rodeo Street in southern Seoul was the hippest place for young people in the 1990s. The street is still chockablock with fashion stores and luxury brands but it has lost some of its past luster. Despite the opening of a subway stop bearing its name in 2012, the crowds never returned. Popular taste and trends are fluid and change fast. Due to a lack of effort to evolve and meet new demands, the crowd has moved onto the more alluring streets in a nearby neighborhood, Cheongdam-dong, and the lower block of Garosu-gil in Shinsa-dong.
A hot spot loses its vitality if it cannot keep abreast of the times. This does not only apply to fashion or shopping districts. The same goes for individuals, enterprises and a country’s economy as a whole.
The Korean economy evolved around the figure 3 percent for a long time. Some said 3 percent was passable growth for the economy and some said it was too low. Korea has been mired in 3 percent growth since 2011. From 1990 to 2010, Korea’s economy grew 5.9 percent annually on average, ahead of the global average of 3.6 percent. It began to lose significant steam four years ago. Every year, policy makers assured the public that the next year would be better. But 3 percent became something of a fixture. The growth rate was brought down to the 2 percent range this year, and yet there is little sense of alarm or urgency.
People are beginning to think the economic growth figure doesn’t make much of a difference in their lives. But the pace of growth of an economy is a barometer of the country’s economic activity, wellbeing and security.
Atrophying growth levels suggest that our mainstream manufacturing has become outmoded and Korea needs a new growth engine. Ten mainstream exports have kept the economy going for some 22 years. They have grown stagnant without evolving into new growth-generating industries.
Low growth figures also mean that the corporate sector, which should be responsible for three-fourths of the country’s working population, does not continue to increase its recruitment and the salaries it pays. Working conditions have turned meaner. The self-employed business sector, which accounts for the other one-fourth of our working population, also struggles in overcrowded areas of wholesale, retail, lodging, restaurants and transportation services.
Slow growth can also aggravate income distribution and inequalities. A study shows that 1 percent growth in gross domestic product can bring down the Gini coefficient, which measures income distribution and equality, by 0.3 percentage point - in short helping to ease inequality that much. During the thriving period between 1990 and 1997 when the economy ran at a pace of 7 percent to 8 percent growth, the middle class accounted for 75 percent of the population. The ratio fell to 60 percent as growth slowed significantly.
Only when the economy moves beyond a snail’s pace can vitality return to the life of employees, the self-employed and companies. When the economy generates meaningful growth, the employment rate and profitability will get better to ease inequality and strengthen the middle class.
The supply end must innovate in order to bolster the growth rate. Our economic ecosystem should help breed innovation and creativity, and improve the business environment through deregulation so that new industries and jobs will sprout. Corporate activities must regain life to push up growth potential. Some advise stimulus actions to boost demand through spending and welfare increases. Japan tried all that - giving out gift certificates, expanding fiscal spending and cutting interest rates - to stimulate demand in the early 1990s. But the country instead had to endure a stagnancy that lasted for two decades.
Korea can either continue to grow or slip into stagnancy. Its per capita income has been stuck in the $20,000 range since it first crossed that threshold in 2006. The people, companies, government and political sector all have to unite to put the economy back on a solid growth path. People seem to have gotten tired of trying. But if we give up now, our future could be harder.
Translation by the Korea JoongAng Daily staff.
The author is the head of economic affairs with the Federation of Korean Industries.
by Song Won-keun