[Column] Command center needed for industrial policy

Chung Un-chan

The author, a former prime minister and former president of Seoul National University, is the chairman of the Korea Institute for Shared Growth.

To leave the economy to the “invisible hand” or to let the government intervene is a question toiling economists for centuries. Given the intrinsic defects of the market and the blind faith in the almighty state, a good answer to the dilemma could be a balanced mix of the two — a reciprocal solution harmonizing with one another.

After underscoring the role of government in the financial, telecommunication, petrochemical and biotech industries, President Yoon Suk Yeol went on to signal the return of government-led industrial policies in his “New growth Strategy 4.0 Meeting” and “Export Strategy Meeting.”

As Korea’s market infrastructure is not that mature, the government must devise economic regulations and practices to help the market function well. But haste makes waste. A rush to directly control prices, including interest rates for commercial banks, only backfires.

Industrial policy is a tool for a government to spur economic growth, create jobs and raise the quality of people’s lives by fostering certain industries and reforming existing industrial structure, as a number of developing economies, including Korea, did after World War II. With the advent of neoliberalism in the 1980s through the early 2000s, however, negative views about industrial policy spread fast. But the state-led economy has resurfaced in the wave of changes in the international order, the response to climate change, a rapid transition to the digital economy and concerns about economic security.

The about-turn is palpable in America, too. The Biden administration has rolled up its sleeves to develop its “core industries” over the past two years. Since its launch in 2021, the U.S. government has drawn up bold plans to rebuild U.S.-based supply chains for chips, batteries, rare earth materials and biotech products. The government backed the move with the CHIPS and Science Act and the Inflation Reduction Act. The White House pushes forward its industrial policy as a national project through close communications with think tanks and market players. If loopholes are discovered, the government fixes them to draw up a blueprint over the long haul. After taking the helm of national projects, the White House carefully reviews what policy tasks should be handled by which departments before Biden delivers an executive order.

How should the Yoon Suk Yeol administration push industrial policy? What matters is to present visions for the future economy. The U.S. wants to build supply chains in America to protect its interests while China pushes policies to raise independence for its strategic industries. Our government also presses ahead with policies to develop new industries. But regrettably, it appears to follow the same path past governments took to catch up with developed economies.

Second, a strategic approach is needed. Advanced countries cooperate with Korea over cutting-edge technologies, but they are extremely wary of Korea at the same time. So, we must obtain unrivaled technologies other countries desperately need. At the same time, Korea must be flexible in using that technological leverage from the global perspective.

Third, Korea needs an aggressive policy tool over the long haul. It takes at least 10 years to develop a cutting-edge technology and commercialize it. That calls for a farsighted policy tool. For instance, the government could consider the establishment of a “national strategic investment corporation” aimed at making preemptive investments in promising start-ups overseas.

Fourth, a command center matters. In the past, it was enough for the government to foster a certain industry through inter-departmental efforts in the government and expertise in that field. As fusion and convergence accelerates across the board, the role of a command center to integrate diversified expertise and boost organic cooperation among government ministries is more important than ever. Under the presidential system, the buck stops there.

Fifth, aggressive administration also matters. To fix industrial sites for chips and biotech, close cooperation between the central government and municipal governments is required. In this process, the government must make regulations more transparent to help entrepreneurs. This doesn’t happen in reality, as it takes too long to determine the location of industrial complexes and complete their construction. For fear of their accountability for problems in the approval process, junior or mid-level government officials don’t move. If their conscientious act should cause a procedural problem, the government must not hold them responsible for it. I propose President Yoon make that point clear to encourage civil servants to accelerate the selection of plant locations for industries.

Last, a systematic cooperation system should be established between the government and the corporate sector. In the past, the central government and companies were advised to keep distance from one another to prevent collusion. But today, they must act as a one team. The time has come for Korea Inc. just like America Inc. before. The stunning technology paradigm shift produces a number of losers too. Giving them opportunities carries special weight for the symbiotic growth of the economy. I hope the government weaves out a successful industrial policy to expedite Korea’s elevation to the G5.

Translation by the Korea JoongAng Daily staff.