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[Outlook]A fatal arrogance |
Korea cannot invest enough to catch up with Japan or the United States while being chased by China. May 09, 2007 | Ten
years have passed since the financial crisis of 1997. Back then, I
wrote a column that said it would take 10 years to revive our economy
and we should be prepared for that. In the ′90s, the United States
began 14 years of restructuring. Japan′s economy was sluggish for eight
years after its bubble burst. The headline of an editorial in the Asahi
Shimbun said that Japan should be ready for five more years of
hardship. Japan′s economy is reviving now. But Korea′s economy is
facing a fundamental crisis. The restructuring of Korea′s economy is
only half complete and the Korean people do not grasp this reality.
They are overly confident about their economy and do not feel that a
crisis is near that will inhibit growth.
A free trade agreement with
the United States has been signed. Negotiations for another trade pact
with the European Union have begun. A free trade agreement does not
mean heaven or hell for our economy. Kenichi Omae, a management
consultant, speaks bluntly about Korea′s economy. He advised that we
should celebrate the free trade agreement with the United States for
two weeks, no more, and then come back to reality.
Omae reminded us
that the North American Free Trade Agreement, which, at the time,
created the world′s largest trade bloc, has been in effect for 13
years. However, Japanese automobiles have a 30 percent share of the
United States market, even though the two countries have no free trade
agreement. He maintains that successful trade is not something that the
politics of a free trade agreement can handle but is a function of
aggressive entrepreneurial activities.
Two months ago the Samsung
Group Chairman Lee Kun-hee warned that our country will enter a crisis
within four or five years unless Samsung and the entire country revises
working practices. The Korean authorities were unhappy because the
media reported his remark as a major news story but failed to pay
attention to what he meant. The problem for Samsung Electronics, as for
many Korean companies, is that their sales keep increasing but their
profits have been falling since 2004, because the company has yet to
find a new range of uniquely competitive products.
Hisashi Ono, the
Seoul branch general manager of the Nomura Research Institute, warned
that Korea′s economy faces four major obstacles. His warning was
important, but the media did not pay attention to it because of the
festive mood generated by the free trade agreement with Washington.
The
first obstacle is technology. Korea can′t invest enough to catch up
with U.S. and Japanese technology while being chased by China, which
has more competitive prices.
The second is profits. When one item
has a large market share, profits decrease. Taiwanese companies make
more profits, relative to their costs, even though they do not have the
world′s best or largest companies.
The third is market domination.
We cannot compete with China with its massive investment in equipment
and ability to mobilize capital.
The fourth is high technology. In
the information and service industries, we have insufficient
intellectual resources and weak brand power. In most businesses, Korean
companies depend on Japan for vital parts. In Japan, there are hundreds
of parts companies that have a 60 percent market share and they are
backing the renaissance of the Japanese manufacturing industry.
What
frustrates us more than these grim realities is that the people in
power and in political circles do not sense the impending crisis. If we
want to benefit from a free trade agreement, investment must be
increased, not just trade.
For that regulations must be reduced,
strategies for equal development in all regions must be re-examined and
market mechanisms must be restored. A new growth model is desperately
needed to replace the government-led growth model. But the government
is busy improving inter-Korean relations, as if the Kaesong industrial
park in North Korea represented our economic salvation.
As for
real estate policy, housing prices must be kept under control. But to
block the withdrawal route while putting deadly pressure on interest
rates is not wise. The bottom 20 percent in terms of income require
loans to survive. But still, the president appears relaxed, saying that
the economy is working as he would wish.
The people in the
administration believe that they are the only ones who are pursuing
peace and reform. While being obsessed with an out-moded model of the
welfare state, they persistently and arrogantly believe that growth,
welfare, income equality and a fair distribution of wealth can be
achieved at the same time. This is a fatal form of arrogance that
threatens to kill our economy.
*The writer is a senior columnist of the JoongAng Ilbo. Translation by the JoongAng Daily staff.
by Byun Sang-keun
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Social affairs 
