Last week, I introduced the paradox on the Han River: the rise of Korea’s global success and decline in hope among young Koreans. Here, I will continue to examine Korea’s choices around two pivotal areas facing the next generation -- its economic future and social inclusion. What choices will South Korea make to sustain its economic future?
An explicit focus on economic growth, rather than focusing on distribution alone such as advocated by the “degrowth” movement, is a moral -- not just economic -- imperative.
Ben Friedman, a Harvard economist and author of “The Moral Consequences of Economic Growth,” says economically growing societies view their future with positive values such as hope and optimism. For example, Vietnam is a relatively poor country, but anyone visiting Ho Chi Minh City today (a rapidly growing economy at rates similar to South Korea’s 1970s and 1980s) can witness its vibrancy and a sense hope for its future, in contrast to Seoul’s visible material wealth but flattening growth and declining hope among the younger generation.
South Korea’s economic future is vulnerable as reflected in low growth rates and structural weaknesses. The country’s annual economic growth has been plateauing to 2-3 percent or less since 2012, after four decades of spectacular annual growth at 6-9 percent.
While low growth rates are common in countries in advanced stage of development, this is exacerbated by the country’s structural economic vulnerabilities of its products, markets, industry structure and inputs. It is substantially dependent on one main export product (semiconductors), still dependent on one major single market (China), manufactured by one or two major companies (e.g., Samsung) and relies on critical raw materials from a country that it is still in a trade war with (Japan).
Low growth rates are also a reflection of South Korea’s demographic challenges, to which there are not many good answers. Absent of major changes in childbirth trends, one significant ray of hope could be in areas where foreign talent could be attracted and matching them in areas where there is a growing interest among younger Koreans.
Although I am of Korean descent, I lived most of my life in other countries prior to landing in Seoul in 2018. What surprised me the most when I returned was to see the vibrancy in Seongsu-dong (known as the Brooklyn of Seoul) and Pangyo Valley (Korea’s Silicon Valley), the home of Korea’s social entrepreneurs and high-tech startups.
Two things surprised me. First, the level of innovation and creativity in these places were infectious, almost as if they were part of a different Korea. Second, it broke the stereotype that due to its strong Confucian social norms, Koreans are most successful in hierarchical corporate structures like the chaebol.
A vibrant innovation-based startup economy could be a game-changer for South Korea as a new source of growth. More examples such as Naver (Korea’s Google), which entered for the first time the list of the nation’s top 10 companies in 2020, are needed.
But the Naver stories are too few and far in between. Barriers for startup growth remain, such as low tolerance to risk, hindering some of Korea’s innovation and entrepreneurial energy.
Moreover, there is evidence of policy distortions (including fiscal policy and government-backed “funds of funds”) that create negative incentives for smaller firms to grow, according to studies by the KDI School of Public Policy and Management and Organization for Economic Cooperation and Development.
Finally, widespread practices by large companies -- such as squeezing maximum profits from smaller suppliers for short-term gains rather than long-term investments in the supply chain ecosystem -- are substantial impediments to small business growth. There are important initiatives attempting to address this challenge, such as promoting mutuality in the Korean and Asian corporate value chain.
More is needed, especially from Korean corporate leaders.
If such barriers were removed, South Korea could become a world-class startup and investment destination, attracting a new generation of global business and entrepreneurial talent, complementing its growing reputation as a global cultural hub. How will South Korea choose to respond to internal social conflicts and inequality?
As two decades of work around the world with the World Bank have taught me, economic growth is necessary, but insufficient for an inclusive society with prospects for upward mobility. A society that shares its prosperity is critical to its long-term flourishing.
While Korea benefitted from decades of rapid economic growth, the results have been uneven, with an increasing sense of limited social mobility among the young and other vulnerable groups, as well as the general perception that many are being left behind. Small businesses have been historically squeezed by large corporations that captures most of the profits and talent, resulting in one of the largest wage differentials by firm size among OECD countries. Skyrocketing real estate prices, fueled by speculators and distortive policies, has narrowed key entry points for younger generations for social mobility and wealth building.
A more inclusive society requires many different perspectives, particularly careful listening to the voices of the marginalized.
Here, it is worth noting the role of “public intermediaries” or a wide range of agents seeking a common good who could come from many facets of society: ranging from social workers, human rights advocates, religious entities bringing their historical role in serving the marginalized and artists to responsible leaders in the corporate sector. The rise of corporate responsibility in South Korea -- particularly the explosive growth of environmental, social and governance awareness -- could be a once-in-a generation opportunity to channel capital and expertise toward social impact on a large scale.
One recent example is a working group of public, private and civil society leaders to develop ESG recommendations for the next president of South Korea.
Rather than a top-down approach or one-size-fit-all policies, solving complex social problems require a multistakeholder approach that brings these different approaches together. A new Korean social contract is needed. To develop this, credible leaders who are strong facilitators and bridge builders are needed to bring the hidden voices and talents of Korea.
A fuller picture of a growing and more inclusive future Korea involves addressing two inter-related questions: First, economically, what should be a new growth and social model for Korea that is more sustainable (focused on long term) over time, in a way that balances people, profits and planet? Second, representing many different voices in society today -- at the individual, communal and national level -- what is the desired future of Korea and the society it wants to become?
Or simply put, what is a good society from the Korean perspective?
By Kwang W. Kim (email@example.com) This is the second article of a three-part series. Kwang W. Kim is the Korea country representative for the Asia Foundation. Previously, he was the Latin America lead for sustainable business advisory at the World Bank Group’s International Finance Corp. He taught at Georgetown University, Ewha Womans University and Hanyang University.
The views expressed in the article are those of the author and do not necessarily reflect the views of the Asia Foundation or that of The Korea Herald. -- Ed.
By Korea Herald (firstname.lastname@example.org