Toward a practical government with an innovation framework

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Toward a practical government with an innovation framework

Published: 04 Jul. 2025, 00:02

Audio report: written by reporters, read by AI

Cho Yoon-je

The author is a special appointment professor at Yonsei University School of Economics.

Once hailed for its dynamism, the Korean economy now appears stalled and sluggish. Its growth rate has long fallen below the global average, and this year, it is projected to rank near the bottom among OECD member states. Korea’s GDP, once the 10th largest in the world, dropped to 14th last year. If current trends persist, further decline seems inevitable.

A retrospective look at Korea’s economic development since the launch of its first Five-Year Economic Plan in 1962 reveals two contrasting eras. During the first 30 years, the country posted an average annual growth rate exceeding 8 percent — a feat unmatched in global economic history. But in the following three decades, growth fell by half. Now, forecasts suggest the rate could drop to a quarter of what it was during the early phase of industrialization. Korea’s growth trajectory — marked by rapid ascent and an equally sharp deceleration — stands out even among advanced economies. This pattern suggests that policy responses should involve swift and decisive structural reforms. Yet, reform efforts have lagged while distortions have accumulated.

President Lee Jae Myung delivers opening remarks during a press conference titled “30 Days of the President: The Press Asks, the People get Answers” at the State Guest House of the former presidential compound in Seoul on July 3. [YONHAP]

The hallmark of Korea’s early growth was dynamism. The collapse of rigid class hierarchies through Japanese occupation, land reform and the Korean War placed nearly all citizens on an equal footing by the 1960s. Opportunities for upward mobility, once reserved for the elite, were suddenly available to all. The "Korean dream" proved even more accessible than the American version, which continued to be shadowed by racial and religious barriers. Koreans poured their energy into improving their futures, driven by personal ambition and belief in national progress.

This national energy, combined with visionary leadership, effective bureaucracies and favorable global conditions, fueled an era of near-miraculous growth. But the dynamism did not last. By the 1980s, vested interests began to reemerge, and social mobility narrowed. The democratization process, though essential, did not resolve core structural challenges. Inequality grew across generations, regions and classes, and reform stalled except during the Asian financial crisis, when external pressure forced temporary adjustments.

Since then, structural problems have only deepened. Reliance on fiscal and monetary expansion as stopgap measures has led to record levels of private debt. Government debt is also expected to surge, driven by aging-related expenditures in pensions and health care, soon exceeding the OECD average and threatening fiscal sustainability.

To avoid Japan’s “lost decades,” Korea must abandon its habitual dependence on expansionary policy. Urgent reforms are needed: industrial restructuring, labor market flexibility, wage system reform, increased investment in technology and a complete overhaul of policies for small and venture businesses. As China closes in on Korea’s industrial base, the cost of inaction grows.

A campaign poster for Park Chung Hee during the 7th presidential election. [NATIONAL ELECTION COMMISSION]

Recovering dynamism is critical. Korea must widen the ladder of opportunity and ensure young people can compete from an equal starting point. Improving public education through better teacher training and incentives, while reducing reliance on private tutoring, is a start. Expanded scholarships and research funding for universities would help foster long-term innovation.

Reforming corporate governance to reduce concentration of economic power is also necessary. More space must be created for midsize and venture firms to grow. Korea must enforce a fair competition order to prevent collusion, corruption, technology theft and wealth transfers through unfair internal transactions. Blind support for struggling small businesses should be reconsidered. Restructuring must be driven by intrinsic value and market potential, not government subsidies. Only then will innovation-focused firms have room to thrive.

Lee Jae Myung, then presidential candidate of the Democratic Party, visits the commemorative tower at Chupungnyeong Rest Area in Gimcheon, North Gyeongsang, on December 12, 2021. The rest area, the first of its kind in Korea, is located at the midpoint of the Gyeongbu Expressway between Seoul and Busan. The tower symbolizes the construction of the expressway, a project widely credited as a key achievement of the Park Chung Hee administration. [YONHAP]

The new administration’s emphasis on pragmatism is welcome. Ideologically driven policies in the past often undermined public education, worsened labor market dualism and entrenched the privileges of the powerful. Still, pragmatism must not become synonymous with ad hoc responses. Korea cannot break out of prolonged stagnation without systemwide innovation.

What is required is a structured framework for reform — and then pragmatic execution within it. Ultimately, economic success depends on people, capital, institutions and technology. Korea must reform its outdated incentive systems that distort the allocation of talent and capital. Human capital and technology will shape the nation’s future competitiveness.

President Lee Jae Myung’s government commands a rare legislative supermajority. It should use this political leverage to deliver bold and lasting economic innovation.

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.