Toward a vibrant economy

The Korean economy is shaky. What’s worse, its prospects are far from bright. The economy is mired in a hard slog. Companies’ revenues are sagging and balance sheet are worsening. Households are laden with debt. Youth unemployment is at an all-time high of 12.5 percent. Inequalities in incomes are deepening. Public disgruntlement over a lack of social welfare is mounting, but the ability to afford more welfare benefits escapes us.

People are forced to swallow their hardships and anxieties. They live in fear of deteriorating living standards and insecurity for themselves in old age. They worry about their children’s futures. We cannot know how acutely bureaucrats feel this sense of crisis. We see few endeavors to speed up the growth, making decent jobs for the young of strengthen the social welfare system. There is no progress in the long-delayed restructuring of ailing companies or much-needed reforms in labor, education and the financial sector.

Politicians are still busy pulling out flowery promises on the campaign trail ahead of the April 13 general election. Few believe things will get better once the election is over. Populist promises aimed at winning votes are unlikely to help the economy. Bureaucrats rarely work hard to achieve something under a president whose tenure lasts five years.

The Korean economy grew 2.96 percent on average over the past five years, hovering below its growth potential of around 3 percent. For the first five years of the 21st century, the average growth was 4.7 percent. It shifted to a slower gear after managing 4.1 percent up to 2010. Currently, Korea’s per capita income is about $28,000, a level Japan achieved in 1991. Japan’s economy grew a mere 0.8 percent in the following 20 years. At the current rate, growth for the Korean economy could be fixed in the 1 percent range or lower for a long time.
We must be fully aware of the consequences of a structural slowdown. Without growth, spending and jobs cannot increase. In a stagnant economy, people cannot succeed or move up the social ladder entirely through education or success in some kind of business. Without growth, a welfare system cannot be sustained. When the economy is reduced by 1 percent from current gross domestic output of 1,490 trillion won ($1.29 trillion), income of 15 trillion won would be lost. That amount is more than a full year’s budget for monthly daycare subsidies and allowances for low-income senior citizens.

The economy faces challenges at home and abroad. The world economy has never fully recovered from the 2008 global financial crisis. The Chinese economy that once fueled global growth has been slowing for the last five years and is unlikely to sustain annual growth of 6 percent in the future. Korean exports have been hit hard.

The thinning out of the working population has undermined the country’s growth potential. In 2030, the population between the ages of 15 to 64 will be 4 million fewer. People aged 65 and older will surge by more than 6 million. By that time, senior citizens will take up a fourth of the total population. There will be less demand for jobs, but growth will slow further because of the reduced working force.

Worse, advances in technology have lost steam. Our traditional industry that flourished by mastering and upgrading borrowed foreign technology is waning. Yet there are no decisive new industrial alternatives that can replace those businesses and sustain the economy. Korea is already falling behind in shipbuilding, steel and petrochemicals. The automobile and electronics sectors are also vulnerable. Yet the country lacks human resources or core technologies to bolster its high-tech manufacturing sector.

It is imperative to raise growth potential through human resources and technology advances. Public education must be upgraded and all members of society should be entitled to an education environment in which they can fully develop their individual potentials. Creative and adventurous minds in the fields of science and technology must be bred and nurtured. Timely training and life-long education must be provided so that workers can continue to hone their capabilities. The labor market must be flexible so that appropriation of human resources can be rationalized.

Outdated systems and regulations need to be removed to promote competition and startups to allow evolution in technology to add vitality to the economy. The legal environment must be improved to pave the way for a transition to the fourth industrial revolution led by bioengineering, artificial intelligence and renewable energy as well as high-value-added industries such as healthcare, tourism, finance and cultural services sector.

Longtime chief executive and chairman of Intel Corp. Andrew Grove who died recently said that a third-rate company goes down in crisis, a second-rate company can fight it and a first-rate one improves after a crisis. A nation is no different.

Korea has weathered a number of crises better and faster than any other countries. Agility in responding to change has been our biggest strength. But we too can become a third-rate country if we become complacent without being aware of the crisis we are in. We must pursue fairer distribution and a stronger welfare system through sustainable growth. Or else we are headed straight into the lengthy tunnel of gloom Japan is stuck in.

Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, Apr. 2, Page 27

*The author is an economics professor of Korea University.

Lee Jong-wha