South Korea managed a relatively quick recovery from the global financial crisis — with a 0.2 percent gross domestic product increase in 2009 — but the country will need to invest in new engines of the economy to secure future growth, veteran journalists from the country told a recent symposium in Tokyo.
Unlike during the 1997 Asian crisis, major South Korean firms avoided massive job cuts in their response to the latest global turbulence, a factor that could contribute to improving the once troublesome labor-management relations in the country, they said.
Journalists from South Korea’s major dailies took part in the symposium organized March 19 by Keizai Koho Center under the theme, “Competitiveness of Japan and South Korea in the global economy.” Ichiro Ue, a senior writer at the Yomiuri Shimbun, served as the moderator.
With its small but positive GDP growth last year, South Korea is seen as a successful case among OECD economies that has contained the damage from the Lehman Brothers shock of September 2008, said Moon Hee Soo, an editorial writer at The Korea Economic Daily.
The government expects the economy to expand 5 percent in 2010 in a return to the same range of growth seen in 2006 and 2007, Moon said. Share prices also rose nearly 50 percent last year and have now recovered to levels seen in early 2008, he added.
However, the situation does not warrant optimism, he said, with leading indicators suggesting troubles ahead for the economy and some forecasts pointing to a slowdown later in the year.
South Korean growth has so far been led by its seven major industries: semiconductors, electronics, automobiles, mobile phones, steel, shipbuilding and petrochemicals. But there is a growing sense that future growth may be insecure if the country keeps relying on these sectors, he noted. Moon quoted a recent feature article in the U.K. magazine The Economist that said China is just about to catch up to South Korea in shipbuilding and petrochemicals and forecast that it would be just a matter of time before the same thing happens in semiconductors, electronics and steel.
These concerns have prompted the government to set a target of beefing up three other sectors — nuclear power, aircraft and defense — as the new engine of growth to support its goal of increasing the country’s per capita GDP to $40,000 by 2020, he said.
Buoyed by a South Korean consortium’s successful bid for nuclear power plant contracts in the United Arab Emirates in December, the government plans to pursue domestic production of core technologies in nuclear reactors, for which the country currently relies on overseas suppliers, Moon said.
Mainly focusing on the market for medium-size commercial jets, the government aims to boost the country’s aircraft sales from $1.9 billion in 2008 to $20 billion in 2020, Moon said. Similarly, it has set a target of making South Korea one of the world’s 10 largest arms exporters by 2020, he added.
Job creation also remains an urgent challenge for South Korea, with 1.21 million people unemployed as of the end of January, 370,000 higher than a year ago, Moon noted. The jobless rate among youths stands at 9.3 percent, 1.1 percentage points higher than a year ago and the worst level in recent years, he said.
Kwon Soon Hwai, an editorial writer for Dong-A Ilbo, said it must be noted that South Korean big businesses did not resort to large-scale job cuts — as they did during the 1997 Asian crisis — in their response to the latest global turbulence.
Such decisions of the major South Korean firms should get part of the credit for the economy’s quick recovery, along with the government’s implementation of fiscal stimulus and the positive impact of the won’s depreciation, Kwon said.
Kwon cited the example of LG Group, one of the major South Korean conglomerates, which hired 9,600 new employees in 2009 and plans to hire an additional 10,000 this year without introducing substantial cuts to its existing workforce. According to Kwon, LG Group Chairman and CEO Koo Bon Moo, a widely respected figure in the South Korean business community, played a key role in the decision and influenced the policies of other major business groups in the country.
Such moves, Kwon said, contributed to favorable labor-management relations at LG Group despite the tough environment and helped the group earn record profits last year in its key sectors.
While South Korean labor unions were long known for their aggressiveness, and disputes with unions often posed serious problems for businesses, the influence of the leftwing labor movement has been on the decline since President Lee Myung Bak took office in 2008 and labor-management relations are expected to gradually turn for the better, Kwon noted.
Meanwhile, Oh Tae Jin, a senior editorial writer for The Chosun Ilbo daily, pointed to an unfolding demographic challenge for South Korea — the retirement of millions from the baby boomer generation starting this year.
South Korea’s baby boomers — defined as those born between 1955 and 1963 — number 7.12 million and account for 14.6 percent of the total population. They start to turn 55 — the retirement age in many big corporations — this year, Oh noted. Roughly 3.1 million of the 5.32 million salaried workers in this generation are estimated to leave the workforce over the next nine years — about 300,000 to 400,000 each year, he said.
Experts warn that mass retirement of this generation of workers is going to have a serious impact on South Korean society, with the expected fall in consumer spending and rising social security costs causing fiscal problems and a negative spiral in the economy, Oh said. The impact is going to be bigger than in Japan, where its own baby boomers started to retire in 2007, because the South Korean counterparts make up a bigger portion of the population, he added.
This generation in South Korea has driven the country’s economic development but has also been exposed to tough competition and many of them are believed to lack preparation for their post-retirement life or possible new jobs, he noted. If they are unable to find work after the retirement age, it may mean that large numbers of this generation could spend more than 20 years of their life without wages, he added.
Given that South Korea’s total fertility rate is one of the world’s lowest at an average of 1.18 children expected per woman, the following generations will not be able to fill the void created by the retirement of baby boomers, Oh pointed out. Furthermore, actions taken by the South Korean government and businesses are insufficient and too slow in coming, with full-scale debate about extending the retirement age starting only recently, he noted.
Ohn Ki Un, an editorial writer for the Maeil Business Newspaper, discussed South Korea’s aggressive strategy of pursuing free trade agreements with the country’s main trading partners.
Unlike their Japanese rivals, South Korean firms do not have a large domestic market to rely on and have no choice but to explore overseas markets. The government has concluded FTAs with eight of the country’s 10 largest export destinations — except for Japan and China, Ohn said.
Chung Sun Gu, a senior writer for the JoongAng Ilbo, noted that the FTA talks with Japan appear to have been put on the back burner as doubts remain whether a free trade accord between the two countries — which today have a similar industrial structure and compete in a number of areas — would bring many benefits. The Lee administration’s plan to invite Japanese parts and materials industries to South Korea does not appear to have produced many results, Chung said, adding that there seems to be a mismatch between what Japan and South Korea want to offer to each other through these arrangements.