[Editorial] Service Industry Reform

At a public hearing, the government and the state-funded Korea Development Institute discussed an old topic – allowing corporate pharmacies. The Fair Trade Commission announced in October 2004 that it will seek to revise a law banning pharmaceutical sales outlets in corporate form. Nothing has been done, however, and the same issue is being discussed again.

Under law, a pharmacist or an herbal pharmacist can open only one pharmacy in Korea. The Constitutional Court ruled in 2002 that banning businesses from opening pharmacies was unconstitutional yet the law remains intact. Korea and a few European countries prohibit businesses from opening up pharmacies. In Japan and the United States, anyone can open a pharmacy and hire pharmacists.

Excessive regulations have plagued the Korean medical, education and legal sectors. According to the Federation of Korean Industries, 67 percent of 543 service industries have regulations limiting entry, things that stifle competition and dent industrial growth. In 2007, Korea’s service industry accounted for 67 percent of all hiring in the country, ranking 20th among 30 member countries of the Organization for Economic Cooperation and Development. The industry, however, accounted for just 58 percent of value-added production, second lowest in the OECD.

As consumers go overseas to seek better services, Korea suffered a deficit of 55.5 billion U.S. dollars in its services account for the past three years. The government should accelerate service industry reform to provide consumers with better services at lower prices and attract overseas consumption.

Korea’s economic growth strategy should also shift from manufacturing to more balanced growth between manufacturing and services. As of 2007, manufacturing needed an average of 9.2 people to produce one billion won (863,185 U.S. dollars) worth of goods, while the service industry required 18.1. Some 157,000 manufacturing jobs disappeared in the first half of this year. In comparison, the service industry added 96,000 jobs over the same period.

The service industry should be nurtured to promote job creation. Korea must expand domestic consumption, as it depended on international trade for 92 percent of economic growth.

The government will conclude its plan to advance the service industry before the end of the year and revise related laws in the first half next year. Resistance from doctors, lawyers, accountants and other professionals is an obstacle. Bold measures are needed to reform the service industry, especially those focusing on promoting consumer interests.