Tackling tough challenges ahead

Where would South Korea stand a decade or two from now? The population would be heavy with senior members and the industries like steel, electronics, and shipbuilding would no longer drive the economy. Jobs would become scarcer and wealth discrepancies greater. Decreased working and active population would undermine national competitiveness. We more or less become would be like Japan. But we would be a fool to go down the same path as Japan. We still have a choice. We just have to become fearless to change.

The challenges have not just suddenly landed at our path. They have been building up over the years. The world was quickly evolving and yet we have failed to catch up. What is demanded and sells better in the global markets are products augmented with value intelligence. Factory-less Google is more successful than most manufacturers by selling intelligence-based services and products. Car-hailing app service Uber threatens cab service around the world without having to own a fleet of vehicles. The web has created entirely new playing field. The world is about to change at a faster pace through the Internet. Yet we hear no Japanese corporate names ushering the way. This should tell something to Korean enterprises. If they fear experimenting with novel ideas, they will lag behind.

Creative front-runners like Google and Uber cannot sprout in Korean territory under current financial industry. Korea in the past had been led primarily by the manufacturing sector. Their products have brought prosperity to the country and raised brand awareness of Korea. But manufactured goods alone cannot pull the economy in the future. Intelligence industry must be invested. The securities and asset management sector must enlarge to finance the growth. Companies must be invested and grow enough to go public making more value through expansion in market capital.

Korean financial sector ranks low in global competiveness scale. Advanced financial sector also would help the society better prepare for the extended life after retirement. Poverty ratio among Korean senior citizens is one of the world’s highest because of lagging financial sector. If money remains parked in banks instead of other investment options with higher returns, Korea will lose financial competitiveness like Japan. Stock investment by Korean pension and retirement funds are among the lowest in the world along with Japanese counterparts. Americans place half of their retirement funds in stocks.

Most Korean salary-earners do not know where their pension funds are invested in. Labor unions also refrain from running retirement funds in stocks. The financial sector does not have a future if people regard stock investment as speculation. Startups and new enterprises cannot breed under such environment. Pension and retirement funds must be the seeds to allow trend-setting ventures like Google and Uber to sprout.

Even employees of financial institutions are subscribed to defined-benefit plans sponsored by employers. Even when they contribute to individual annuity plan, they are passive in investing their retirement reserves in stocks. Parking old-age funds in products that merely protect principle is foolish. But most of the people I have met think so. They are mostly ignorant to stock investment because they have never been taught at school and society on active investments. Lagging competitiveness of local financial institutions is partly blamed for the disinterest in stock investment.

The fixed tenures of managing executives at financial institutions also are part of the reason why Korean industry remains uncompetitive. The management can hardly work eagerly and proactively when positions are guaranteed for two or three years. Even if the managers get a second term, the period is not enough to pursue visionary ventures. Terms for senior executives in American financial institutions are not set. Female members on the executive board are also scarce. There should be more female contribution in financial management in Korea to add diversity to financial governance. The organization also can turn less rigid.

The financial sector does not need factories. Yet it generates many jobs. Koreans excel in intelligence. There is no reason why the financial sector cannot advance. Students must be taught finance during schooldays. In adulthood, they must prepare well ahead for post-retirement. Senior age must be stable in order for a society to stay secure. Development of the financial industry is a must for the country.
Translation by the Korea JoongAng Daily staff.

JoongAng Ilbo, July 14, Page B8

*The author is the chief executive of Meritz Asset Management.

John Lee