Time to restructure Korea

We are just halfway into the first month of the New Year, but are already awash with a year’s worth of bombshell news.

Fears over the U.S. Federal Reserve’s increase in the benchmark interest rate have taken hold. Washington and Beijing remain befuddled by the unruly ways of North Korean leader Kim Jong-un, who claimed to have successfully detonated a hydrogen bomb last week. And the Middle East is teetering on the brink of a war.

At home, social divisions have deepened amid poor political leadership and escalating public disgruntlement. Some fear Korea could be the biggest casualty when the bubble bursts in China. But amid these dark clouds, the Korean people muddle along, day by day, like a flock of sheep that has grown used to living in a volcanic terrain.

Many are reminded of the nightmare two decades ago when the country blindly marched into a financial crisis and ended up with an international bailout. No one could make out whether such ominous signs would lead to a passing shower or the beginning of a lengthy monsoon.

Oblivious to a nearing catastrophic typhoon, society was entirely engrossed with the artful political match-making of three political behemoths. Bureaucrats at the time had their hands full with Korea joining the Organization for Economic Cooperation and Development, the scale-down in the financial policy division and the peg on currency.

The Standing Committee in the National Assembly couldn’t pass bills related to the economy because lawmakers were preoccupied by the presidential race. Korea Inc. was eventually sunken by the torrential storm it walked right into.

Today’s simmering crisis is universal, extensive and long-grown. Advanced economies have yet to entirely recover from the 2008 financial crisis. And emerging economies that helped us offset the risk from the 2008 crisis are at this time struggling badly, along with their leader in the pack - China - which is poised to be the epicenter for a renewed crisis. The fully liberalized and open Korean market with a currency that cannot be traded overseas is as vulnerable as ever to external volatilities.

Are we headed for another crisis like the late 1990s? It could be entirely new from the foreign-currency liquidity crisis. We face a chronic slowdown due to depressed consumer and corporate spending and the growing current-account surplus, which occurs when the pace of import decline is steeper than that of export decline.

In the meantime, zombie companies have mushroomed, suffocating the corporate environment as we neglect restructuring, blinded by the illusion of a Chinese boon, Samsung Electronics smartphones and real GDP figures. The zombies and the ailing corporate population has heavily weighed down the economy amid a dearth of new growth engines.

Excess is everywhere in Korea - in politics, the economy and society. The country has lost its vitality for growth and is instead sinking from high costs and low profitability. Under such a rigidly collaborated system, what needs to grow or go can do neither. Korea’s economic habitat has withered and is plunging deeper into stagnation.

Restructuring must start immediately. The environment must be rebuilt and reservoirs filled again. As important as tending to immediate dangers are structural fixes to fundamental problems. The entire landscape - including politics, business, labor, industry, technology and education - needs to be transformed.

But restructuring won’t be easy due to stumbling blocks and the heavily protected fortress established and guarded by an intricate network of collusive forces. The state must be rebuilt.

We need our leaders and the people to take up this demanding job. Korea has reached a stage where restructuring is a must for viability. This could be our turning point. We could be labeled as a developing category forever if we miss this opportunity while China continues to evolve.

We must get our act together. Across-the-board reform must be the top agenda item in the dawning political season.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Jan. 13, Page 28

*The author, the former minister of commerce, industry and energy, is the chairman of the North East Asian Research Foundation.

by Chung Duck-koo