Time for a turnaroundKorea’s gross national income per capita shrank last year for the first time in six years, amid a prolonged economic slowdown and sharp depreciation of the local currency. According to the Bank of Korea, per-capita gross national income decreased 2.4 percent year on year to $27,340 in 2015.
The central bank explained that income actually rose 4.6 percent from the previous year in won terms, but fell when converted to U.S. dollars due to a 7.4 percent plunge in the won against the greenback. The explanation is understandable given the spike in the U.S. dollar on expectations that the U.S. Federal Reserve would end its expansionary monetary policy and start raising interest rates.
But foreign exchange rates alone cannot be the prime factor behind the downward movement in gross national income statistics. The country’s per-capita income has been in a bottleneck since it first passed the $20,000 threshold in 2006. It took Japan and Sweden four years to climb over the $30,000 threshold and Germany and Denmark six years. A decade has passed, and Korea is slipping further away from the next income threshold.
The main reason is our slow-moving economy. An economy that grew around 5 percent until 2007 slowed to 2.6 percent last year. It is highly unlikely that the economy will grow 3 percent this year as hoped by the government. Growth has become so feeble it cannot even take advantage of a weakening won, which should boost our exports abroad.
Near-term prospects are no better. Before the global financial meltdown in 2008, the country’s growth potential remained at around 5 percent. But now, some doubt it has the potential to grow at even a 3 percent rate. Our low birthrates, coupled with a fast-aging population, has taken a toll on the working population and how it spends. Companies are lagging in innovation. Our mainstream industries of steel, automobiles, shipping and refineries can hardly keep up their current size. Cash-rich companies dare not to invest, and households refrain from spending due to insecurity about the future. The economy is shriveling due to declining corporate investment and private spending.
Restructuring is no longer a choice; it is the only solution. The labor market, corporate sector and industrial policy all require makeovers. We must grow beyond an economy reliant on exports and heavy industries. Economic experts are currently heading rival political parties. They must come up with feasible and visionary restructuring packages on the campaign trail for the April 13 general election to deliver some hope to the people.
JoongAng Ilbo, March 26, Page 26