What in your view are Korea’s main achievements of the past two decades, and what challenges would you highlight for the next two?
To a start-up nation
Dae-whan Chang, Chairman, Maekyung Media Group*
When Korea finally joined the OECD in 1996, no one would expect an OECD badge to be a double-edged sword for the country. Membership certainly paved the way for the Asian country to globalise itself, but the opening-up policy without a proper understanding of, and preparation for, globalisation and open market reforms also took a heavy toll on the country, forcing it to teeter on the edge of bankruptcy during the 1997 Asian financial crisis.
In the process of fighting back the financial crisis, Korea luckily seized a chance to rebuild its economy. Korean people strongly united to rescue the sinking economy, voluntarily donating their gold rings and pieces of jewellery, and companies started to gain competitiveness in the world market. Organisations began to seek new growth engines that could sustain them in the future, while boldly carrying out financial and corporate reforms and actively benchmarking global corporate standards.
Korea broke the long standing belief that financial crises occur repeatedly in developing countries. Korea has gone through trials over the last 20 years after joining in the OECD, but through the process of recovery, the Korean economy has become more stable and sound.
Korea’s economy is facing new challenges in 2016. Externally, it has to find new growth sources within the large flow of global changes sparked by the Fourth Industrial Revolution. Domestically, Korea could be locked into low economic growth of 1-2%, with the manufacturing industry that had once supported the country’s fast expansion now losing steam. Without innovation, the future of the country will be at stake.
Maekyung Media Group has proposed three different innovative ideas that could bode well for Korea over the next 50 years, based on its own recent study. The first one is innovation in leadership. The government and corporate sector have to unify the people and display leadership that can embrace those who are left behind.
The second innovation is to transform Korea into a start-up nation. Major companies need to challenge themselves to find businesses, which can become new growth engines for the economy, while small and medium enterprises should strive continuously to expand, based on powerful ideas. Without flexibility, a company will have no future.
The third innovation is the development of disruptive technology. Technology is the root of a country’s economic development. We are now living in the Fourth Industrial Revolution, where new things are created everyday through the fusion of artificial intelligence and bio science, fostering a new technology as a matter of survival rather than choice. The development of new technologies for the future is essential, and these should be generated by individuals and corporations, and supported by the government’s policies.
I believe that Koreans have innovation and creativity in their DNA. If we can successfully bring about an extensive innovation in the above three areas, we will be able to become the centre of the world and build a prosperous future.
*The Maekyung Media Group includes the World Knowledge Forum and Maeil Business Newspaper, which were knowledge partners of the OECD Forum in the early 2000s. Visit http://m.mk.co.kr/wkforum_2015/eng
Towards a quantum leap
Seon-joo Kwon, CEO of the Industrial Bank of Korea
Since joining the OECD as the 29th member in December 1996, Korea has strived to improve its economic fundamentals and upgrade its financial systems to meet global standards. These efforts paid off, allowing the country to achieve remarkable economic growth despite the aftermath of the Asian financial crisis in the late 1990s. As of 2015, Korea ranked 8th in terms of overall GDP and 12th in terms of the international trade-to-GDP ratio among the 34 OECD member countries. Noticeably, Korea became a member of OECD Development Assistance Committee in 2010, making a dramatic transition from an aid beneficiary to donor, a status that only 29 countries hold.
The financial sector was one of the key areas in which Korea has worked to meet OECD standards. Through financial liberalisation and reform, Korea is now regarded as a country with an advanced financial system, especially in the areas of banking, insurance and capital markets. For instance, Korea’s financial liberalisation index, as measured by the OECD, jumped from 65% in 1997 to 85.1% in 2006. Furthermore, commercial banks have shown significant development in financial soundness over the past two decades as capital adequacy ratios and non-performing loan ratios have improved quite substantially. These achievements are attributable to enhanced transparency, greater efficiency and sweeping economic reforms made since joining the OECD. The financial sector has also contributed to national development by offering a creative solution to economic issues and ensuring efficient resource allocation.
Now, Korea’s economy is facing a huge paradigm shift. In the era of jobless growth, the nation is committed to implementing a “creative economy” with an emphasis on job creation.
At the centre of this strategy lie startups and venture companies. Based on innovation, such companies will be systematically supported to grow into global companies, eventually to create more jobs and drive economic development. To this end, the Korean government is promoting entrepreneurship and nurturing new growth industries. The financial industry in Korea has answered to such government policies by devising technology financing programmes and deploying platforms for FinTech, or financial technology. Only when the industry successfully adapts to the paradigm shift, can it bring about a quantum leap for the nation for the next 20 years.
Celebrate, but watch for challenges ahead
Kwon Tae-shin, President, Korea Economic Research Institute (KERI)
A shift from “quantity” to “quality” in economic growth has taken place. Before the 1990s, the Korean economy had rapidly changed and achieved quantitative expansion. Korea finally joined the OECD club in 1996, but it was a mistake to pop the champagne too early as the Asian financial crisis hit its economy in 1997. Yet, we overcame it, and the IMF crisis turned out to be a suffering and a blessing at the same time. Some 16 out of 30 conglomerates were shut down, and people went through the agony of mass layoffs and unemployment. However, the crisis also led into a great transformation of Korea. Its economic foundation was enhanced through the reform of social and economic systems, and corporate governance became more transparent. These must be the greatest achievements over the last 20 years.
The challenges we are facing today are as follows: global depression and slowing economic growth in Korea, a low fertility rate and lowering potential growth rate, and idealism in politics and social conflict. These are major concerns for upcoming two decades in Korea. Its economic growth rate continued to decrease from 6.5% in 2010 to 2.6% in 2015, which though higher than the OECD rate last year has been lower than the global average since 2011, which includes China. Given that the Korean economy is export-oriented, its success depends on when and how the world economy recovers, which is not sure at this moment. Furthermore, with a decreasing fertility rate, we are rapidly entering into the aging society that Japan has known for several years. The OECD expects Korea’s potential growth rate would drop to 1.29% by 2060, faster than any other countries. The problem of so-called “economic democracy” arises as it provokes unusual economic regulations, especially targeting large companies as well as leading to unnecessary social conflicts. Although it originates from a good intention of public interest, newly established regulations under the flag of economic democracy will quite likely impair the efficiency and vitality of Korean economy.
I hope Korea jumps up to an advanced country level in the next two decades by clearing the aforementioned hurdles. We are standing on the threshold of achieving that status, but we still need to grow more. The OECD recently urged Korea to reform its labour market regulations. This is an inevitable prescription to revitalise the Korean economy. I look forward to popping the champagne again when we make that jump, in the hope that it won’t be too early this time.
Delivering on promises
Ho Jeong Kim, Journalist and Consultant
Korea’s 20 years at the OECD crowns a period of remarkable achievement, and this can be said with a hint of pride and without any remorse. Emerging from a colonial past, two wars and a geopolitically tense setting to become one of the most dynamic countries within half a century, Korea’s hard work was rewarded with its accession to the OECD in 1996. The ensuing Asian financial crisis has only proved how OECD membership is more than just a coveted trophy, but a reference frame for the Korean society. In the 20 years since it joined the OECD, Korea has replaced the pursuit of growth for its own sake with growth that lasts, has given social safety nets a stronger focus and business-as-usual practices were examined with a view to reform. The OECD has accompanied Korea through some significant changes and commitments. The wider world has witnessed Korea become a provider of development assistance and emerge as a creative force, with its K-culture wave resonating strongly with an international audience. Korea’s 20 years with the OECD has been promising.
So what lies ahead? With many commitments made, the stage is now set for Korea to deliver on its promises. Demands to open and become more transparent will grow, while the increasing flow of migration will replace the homogenous society with a diverse one.
Demands for better movement of capital, services and goods, and better compliance with business guidelines on corruption and intellectual property rights, as well as labour rights, will also intensify. A fast ageing society, the ever growing role of women and falling fertility rates will bring a renewed focus on health, pension and education. Korea must also continue to set the pace in Green Growth.
Whenever the OECD shares its findings on our performance, it is in fact encouraging the public to engage, discuss and to challenge. This enriches Korea’s partnership with the OECD, which will mature even further in the years ahead.
©OECD Observer October 2016