What’s Korea’s choice for survival?
Published: 10 Mar. 2024, 19:52
Updated: 10 Mar. 2024, 21:26
Choi Byung-il
The author, a professor of economics at the Ewha Womans University Graduate School of International Studies, is president of the Korea Foundation for Advanced Studies.
At the end of February, I was startled at two attention-grabbing headlines in the media. The first read “Korea, with the world’s lowest birth rate, breaks the record again” and the second read “Japan completes factory of the world’s largest foundry, TSMC, in Kumamoto.”
As I was familiar with the first news, my attention shifted to why Tokyo brought TSMC’s cutting-edge plant to Japan by offering hefty subsidies. Japan took the action because of its strategic judgment that it must have manufacturing bases in its home turf to survive the U.S.-China rivalry. TSMC’s second plant in the city will also be built soon.
Taipei encourages TSMC to expand its investments to value-sharing countries like Japan, the United States and Europe to protect Taiwan’s economic security from China’s threat. Given the expeditious move by TSMC, what should Samsung Electronics and SK Hynix do? Since the Russian invasion of Ukraine in 2022, competition between free democracies and authoritarian states is accelerating. Korea is even pressed to redesign its own supply chains after having emerged as a manufacturing powerhouse largely thanks to China’s cheap labor. The repositioning foreshadows short-term losses and cost increases for Korean companies.
If the new Cold War is an external shock, the ever-worsening fertility rate is an internal shock. The pace of Korea’s population decline and aging is as outstanding as the country’s economic rise. Its 50 million population will shrink to 30 million after 50 years, implying an ominous return to the population of the 1970s. The 30 million people 50 years ago showed a pyramid-shaped structure, but the 30 million people after 50 years will show an inverted pyramid structure, making Korea the most super-aged society in the world.
The “population bonus” from baby boomers is being fast replaced by “population onus.” Despite Korea’s uninterrupted population decline in the past, governments, liberal or conservative, couldn’t reverse the trend even after their humongous fiscal spending to encourage childbirths through tax and other benefits over the past 20 years. Without massive immigration, Korea’s population will decrease to 30 million in a half century. If the economically active population drastically falls, Korea cannot remain a manufacturing powerhouse. The increased tax burden on the younger generation for the older generation will spark a sharp generational conflict.
Korea faces a plethora of challenges ahead. Since the time of chasing and overtaking ended, the country must take an uncharted path. But the new path is blocked by new obstacles. The population cliff — and the fragmentation of global supply chains, triggered by the new Cold War — shake the very foundation of Korea’s past success. Its society is sharply divided over ideology. The politics of belittling opponents has supplanted the politics of embracing them as the formula for election victory. Korea is respected for its manufacturing prowess and dynamic democracy by the rest of the world. But its vision for the future is invisible. Does the country have any future visions beyond the advanced ranks?
What country should Korea be in the future? There are several paths ahead. First is the way Argentina followed. In the Age of Exploration, the blessed land was South America rather than North America. In particular, Argentina with its vast prairies and abundant natural resources was a newfound paradise for Europeans. Buenos Aires was once called “The Paris of South America.” As people and money flowed into the cosmopolitan city, festivities were held every evening. But that was it. The following chapter of Argentina’s history in the 20th century explicitly shows its dramatic fall from grace, as seen in its repeated national defaults amid its unfathomable inflation, ever-yawning wealth gap, and political instability. Due to the rampant populism, the economy collapsed, the middle class fell apart, and the country split. But no one takes responsibility. Argentina has become a laughing stock for its habitual requests for a rescue fund from the IMF.
Second is the path Italy took. Putting behind all the wounds from World War II, Italy grew into a strong leader in fashion and car industries. But the fruits of its fast economic growth were only enjoyed by certain regions. Politics was lethargic to ease the deepening wealth gap between the north and the south. No politicians volunteered to fix the high-cost and low-efficiency welfare system the country had built when it became an aging society. Though being a G7 member, Italy’s fiscal health deteriorated to the point of handing over the operation of its major infrastructure to Chinese capital. Ubiquitous corruption weighs over the rule of law. To make matters worse, social conflict is deepening over whether to accept refugees from Africa and Middle East.
The third path for Korea is Japan’s path. In the 1980s, Japan’s economic power was so strong that pundits even said, “If Japan sells Tokyo, it can buy America.” But after the bubble burst from U.S. checks, Japan fell into recession. Japan lost its vitality after its fast pace of ageing and declining population pushed the country into a corner. Now, Tokyo desperately wants to maintain a 100-million population.
The path to Argentina represents doom. Italy’s path exemplifies a fall from grace. But fortunately, Italy has wings even if it falls, mostly thanks to the historic legacies its ancestors left behind. Japan’s path signifies endurance and perseverance, distinctly different from Korea’s ppali-ppali — or “hurry, hurry” in English — culture, which contributed to its swift transition to a digital power in the past.
If Korea fails to fix the political, economic, social and cultural fault lines across its society, the country can hardly avoid the path to Argentina. If Korea can maintain its global position as a manufacturing hub for a while despite its extreme internal division, it still can follow Italy’s path. But the two paths only point to a gloomy future. What other paths does Korea have now?
Some pundits insist Korea move toward a mature society from now. They stress the need for the government to focus on drawing up eco-friendly policies and protecting the socially weak, since the era of growth has ended after the country’s potential growth rate fell below 2 percent. But their argument is only half-right. Undoubtedly, it will be desirable if the government expands the rights of the underprivileged, still stuck in the shadow of their country’s growth, to pursue happiness.
But where does the money come from? A no-growth society will be headed to “a state of war of all against all,” as Thomas Hobbes famously said. The country will be swept in unseen political turmoil over distribution. In a country whose fertility rate declines at the fastest speed and whose aging pace is the fastest, the only way to stop the slowed growth and eventually reverse it is innovation. That is the only way Korea can change the preordained course of the future. Bringing in a number of immigrants over and over can help Korea recover its economic growth, but it will certainly create another fault line in a division-ridden society.
Korea must follow the innovation-led path of California. Korea is already an innovation-driven country, as implied by its highest density of industrial robots in the world. Korea uses 1,000 robots per 10,000 employees, while Japan uses 399 robots and Germany 397 and China 322, according to a survey by World Robotics 2022. If Korea can establish an attractive innovation habitat for humans and AI across industry and society, it can raise productivity enough to offset the decline in its economically active population.
Korea has memories of catching up and outpacing frontrunners. The country was a late comer in industrialization, but swiftly emerged as an IT powerhouse with the slogan of “Let’s lead information technology this time!” Korea is the country who refused to accept the Global System for Mobile Communications (GSM) and instead commercialized the Code-Division Multiple Access (CDMA) technology for the first time in the world. The spirit of chasing developed economies without respite and going beyond was the norm at the time. If we can revive the DNAs for such dramatic transformation, we certainly can dream of a better future.
Translation by the Korea JoongAng Daily.
with the Korea JoongAng Daily
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