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[Editorial] Falling Behind Economically

Posted July. 07, 2009 08:22,   


Korea’s nominal GDP ranked 15th in U.S. dollar terms in 2007, a notch below the previous year’s record. In economic size, India pushed Korea from 11th place in 2003 to 12th in 2004. Brazil surpassed Korea in the standings a year later, Russia did so in 2006, and Australia last year. The dramatic fall in the won’s value might have put Korea at a disadvantage in dollar terms, but there is no denying that the Korean economy’s world standing has weakened.

Korea initiated full-fledged economic development since the 1960s. As a result, it achieved unprecedented economic growth at an amazing pace. As the size of its economy grew, however, it became more challenging to find a new growth momentum. To make matters worse, militant unions blocked further advancement and trapped the economy in a vicious cycle of low growth. While the rest of the world was enjoying real economic growth averaging 4.6 percent, Korea lagged behind at 4.4 percent under the previous Roh Moo-hyun administration. In the face of the economic crisis, growth in the fourth quarter last year dropped to minus 5.1 percent from the previous quarter.

Korea is also facing increasing competition from BRIC – Brazil, Russia, India and China - whose economic power has grown rapidly despite their belated entry into market economics. Compared to these countries, Korea is in an unfavorable position in land size, population, natural resources and many other factors. If Korea is to stay ahead in the age of the open global economy, where people and money frequently move across borders, it needs dramatic improvement in national development strategies, social system and the people’s mindset.

Previous state-led efforts to nurture manufacturing such as those of electronics, cars, shipbuilding and steel have continued to sustain the economy. Korea must now find new growth engines while maintaining its competitiveness in manufacturing. National and corporate strategies are urgently needed to compete head on with advanced economies in areas that could provide new growth momentum, such as renewable energy, and lead the era of green growth, biotechnology, nanotechnology and next generation mobile communication. If a mid-size country like Korea is to seek growth, it should dramatically chart a new unexplored path.

Given its high export dependency, the Korean economy should be restructured in a way where exports and domestic demand are balanced to buffer consumption against external shock. In particular, expansion is needed in markets for cutting-edge service industries such as medicine and healthcare, education and media, four sectors which have low international competitiveness. Their development will minimize losses in national wealth, if any, and invite more foreign investment that will raise economic development and create jobs.

Effective education and labor policies are needed if the Korean economy is to take another leap forward. Educational institutions should nurture talent with global competitiveness amid an era of cutthroat competition. Such talent can unleash their true potential only when outdated labor-management practices are abolished. The government should strictly enforce laws on illegal strikes that hinder production and violent demonstrations that paralyze the nation. This is the least it can do to pursue sustainable growth.