Korea Economy in Transition: Economic Prospects
Students and faculty were treated to a very special and timely lecture on November 5, 2013 which shed light on Korea’s economic prospects and policy issues.
“The Korean economy is very exciting, dynamic and energetic,” said Dr. Jung-hoon Kim from the Gyeonggi Research Institute. “I hope that after today you will understand the Korean economy a little better.”
Korea’s rise to one of the world’s leading and vibrant economies was not an easy one. To be sure, following the 1950-53 Korean War, General Douglas MacArthur said that it would take one hundred years for the country to recover.
“No one expected these kinds of accomplishments one of the most successful countries in the world,” Kim said.
If there ever was a playbook for what it would take for a country to be an economic success one would have to look no further than what Korea has been able to do in the sixty years following the end of the Korean War. According to Kim, the real GDP has grown 18 times from 1970-2012 and in that time, Korea rebounded rapidly after two financial crises.
What was most interesting about Kim’s lecture was when he looked at how Korea managed to become the vibrant economy it is today by focusing on the economic development which took place during this period. Specifically, he showed how the evolution of Korea’s economy went from a light industry to a heavy commodity industry as well as how the country changed dramatically from an agricultural-based economy to service industry. It might be surprising to those not familiar with Korea’s economic miracle that the country started with exporting wigs, textiles and plywood to steel, semi-conductors and automobiles.
“Korea achieved this by building a production base for export oriented industrialization to building new growth industry and globalization,” Kim said.
These days, according to Kim, there has been a slowdown of potential growth power which is the biggest problem that Korea faces these days. He pointed out that the country faces four problems: changing population structure, household debt, deteriorating fiscal soundness, and the polarization of the economy.
“The greatest risk in Korea is that wage growth is not keeping up with GDP growth weakness of consumption and growth power,” Kim said.
In order to deal with these problems, the Korean government has come up with four major policies focusing on a creative economy, social welfare reform, economic democratization, and economic cooperation.
“President Park is championing a creative economy as growth strategy,” Kim said, “to generate income and jobs thru the interface between creativity, culture economics and technology.”
Along with the creation of jobs and an increase of wages, Kim said that SMEs are the first policy for a creative economy. As for the economic democratization, the mitigation of the chaebol’s economic power and concentration is essential for the alleviation of economic polarization. Moreover, it is important to strengthen economic cooperation speeding up FTAs with China and Japan.
The economy is likely to recover soon but there will be high downward pressure, Kim said, though policy uncertainty could shrink investment sentiment external risks could slow down the economy.
“The Korean economy expected to grow faster than other OCED countries,” Kim said in conclusion. “Although it is likely to recover a little slowly, there should be no major downside if the country maintains strong fundamentals with no abrupt policy changes.”