A painful truth from the BOK chief: There hasn't been new industry for 10 years
Published: 27 Feb. 2025, 00:00
The Bank of Korea’s (BOK) Monetary Policy Board lowered this year’s economic growth forecast by 0.4 percentage points Tuesday, triggering concerns regarding a “1.5 percent shock.” Growth rates fluctuate due to economic cycles or temporary external shocks. When the economy falters, monetary policy, such as the rate cut announced by the board, or expansionary fiscal measures, including supplementary budgets, can provide short-term stimulus.
More concerning, however, is that Korea’s potential growth rate — an indicator of the economy’s underlying strength — has been in continuous decline. The BOK projected that Korea would remain stuck in low growth at 1.8 percent next year as well. BOK Gov. Rhee Chang-yong bluntly remarked, “We must accept 1.8 percent growth — that is our reality.” He pointed out that “the most painful truth for our government to acknowledge is that no new industries have emerged in the past 10 years. Creative destruction is necessary, and someone must bear the pain. But by avoiding everything, we have failed to introduce a single new industry.” His criticism rings true. The National Assembly, for instance, outright shut down ride-sharing services like Tada, starkly exposing Korean society’s resistance to innovation.
Rhee has long emphasized the need for structural reform to avoid sinking into a prolonged low-growth trap. In 2023, he warned that attempting to resolve structural stagnation with short-term policies would be “the fastest way to ruin the country.” He also lamented that Korea “wasted over a decade basking in the benefits of Chinese demand instead of using that time to elevate our industries to the next level.” Last year, he likened economic reform to picking high-hanging fruits, emphasizing that “harvesting them requires effort and pain.” Korea has already plucked all the low-hanging fruit, but instead of facing tough challenges head-on, we continue to hope for an easy way out.
Warnings that Korea is missing its “golden time” for structural reform have become a recurring theme among economists. In December of last year, the Korea Development Institute stressed that “productivity improvement across all sectors is the only pillar that can support Korea’s economic dynamism” and called for regulatory innovation, labor market reforms and enhanced social mobility through education. Economist Yoon Hee-sook recently argued in her book that Korea must overhaul its “outdated” regulatory framework and foster an innovation-friendly social environment. She urged a societal shift to restore what she called “mental dynamism,” lamenting that Korea’s current atmosphere stifles ambition and discourages risk-taking. If Korea continues to turn its back on reform and innovation, it will be difficult to escape the pessimistic outlook Yoon warned of: “At best, Korea will age gracefully.”
The immediate priority is for the ruling and opposition parties to reach an agreement on a supplementary budget. But beyond that, they must engage in serious discussions on what needs to be reformed and how. A strong economy cannot exist without sound governance, and true economic progress is impossible without good politics.
Translated using generative AI and edited by Korea JoongAng Daily staff.
More concerning, however, is that Korea’s potential growth rate — an indicator of the economy’s underlying strength — has been in continuous decline. The BOK projected that Korea would remain stuck in low growth at 1.8 percent next year as well. BOK Gov. Rhee Chang-yong bluntly remarked, “We must accept 1.8 percent growth — that is our reality.” He pointed out that “the most painful truth for our government to acknowledge is that no new industries have emerged in the past 10 years. Creative destruction is necessary, and someone must bear the pain. But by avoiding everything, we have failed to introduce a single new industry.” His criticism rings true. The National Assembly, for instance, outright shut down ride-sharing services like Tada, starkly exposing Korean society’s resistance to innovation.
Rhee has long emphasized the need for structural reform to avoid sinking into a prolonged low-growth trap. In 2023, he warned that attempting to resolve structural stagnation with short-term policies would be “the fastest way to ruin the country.” He also lamented that Korea “wasted over a decade basking in the benefits of Chinese demand instead of using that time to elevate our industries to the next level.” Last year, he likened economic reform to picking high-hanging fruits, emphasizing that “harvesting them requires effort and pain.” Korea has already plucked all the low-hanging fruit, but instead of facing tough challenges head-on, we continue to hope for an easy way out.
Warnings that Korea is missing its “golden time” for structural reform have become a recurring theme among economists. In December of last year, the Korea Development Institute stressed that “productivity improvement across all sectors is the only pillar that can support Korea’s economic dynamism” and called for regulatory innovation, labor market reforms and enhanced social mobility through education. Economist Yoon Hee-sook recently argued in her book that Korea must overhaul its “outdated” regulatory framework and foster an innovation-friendly social environment. She urged a societal shift to restore what she called “mental dynamism,” lamenting that Korea’s current atmosphere stifles ambition and discourages risk-taking. If Korea continues to turn its back on reform and innovation, it will be difficult to escape the pessimistic outlook Yoon warned of: “At best, Korea will age gracefully.”
The immediate priority is for the ruling and opposition parties to reach an agreement on a supplementary budget. But beyond that, they must engage in serious discussions on what needs to be reformed and how. A strong economy cannot exist without sound governance, and true economic progress is impossible without good politics.
Translated using generative AI and edited by Korea JoongAng Daily staff.
with the Korea JoongAng Daily
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