Domestic Market Should Also Grow for Balanced Economy

Korea becoming the world's ninth-largest exporter for the first time this year is apparently something to celebrate.

Seoul's pledge to climb one notch to emerge as one of the top-eight export powerhouses by 2014 is also a worthy, laudable goal. To attain this, the government will cultivate smaller but stronger export companies and replenish infrastructure, such as trade financing and manpower. These are all steps in the right direction.

It appears natural for this small, resource-poor country, which has all but exported its way to the 15th largest economy in less than half a century, to resort to foreign shipment to get out of recurring crises as well as for a main engine in future growth.

A closer look into Korea's export industry and the national economy as a whole, however, reveals some deceptive features and structural problems requiring remedial steps as early as possible.

First of all, behind the nation's estimated export total of $360 billion for this year, there are some serious illusionary effects caused by its weak currency as well as the overblown export figures in the shipbuilding industry, which account for 15 percent of total shipments abroad, mainly because of the time lag between order placement and delivery. The total export itself represents a sharp decline from 2008, if less steep than others'.

More serious is Korean exporters' undue reliance on foreign ― especially Japanese-made ― parts and equipments. For instance, the ``import inducement coefficients" of 0.65 for computers means Korean exporters have to import 65 won worth of foreign components to export 100 won worth of computers. The comparable figures for other sectors are 0.53 for cell phones and 0.50 for semiconductors. This explains why Seoul's trade deficit with Tokyo all but eclipses its surplus with the rest of the world.

To develop industries that produce world-class parts and components, research and development (R&D) is most important, which in turn requires extensive government investment to encourage the private sector, which is normally mired in more short-term gains, to do likewise. But the Lee Myung-bak administration's R&D budget is disappointingly small, which is why we have long maintained this is no time to be bent on building apartments and digging riverbeds.

Most problematic from the viewpoint of the overall economy is the excessive dependence ratio on exports and other overseas factors, which have topped 90 percent this year, compared with just 11 percent for Japan and 25 percent for China, reaffirming the nation's extreme vulnerability to economic turmoil overseas. The excessive reliance on foreign markets, coupled with the relatively weak part-component industry, also shows why the nation's export-led expansion had to end up as jobless growth.

To stimulate domestic demand, the government should focus on increasing the income of mid- to low-income working-class families while curbing inflation and real estate speculation, instead of creating housing and construction bubbles, as the Lee administration is doing now for a short-term and the most visible stimulus and vote gatherer.

It is not even certain whether the global environment remains favorable to export-oriented economic strategy, now that most industrial countries, particularly the United States, are calling for the correction of global imbalances on the part of emerging economies. Korea, the host of the G20 summit next year, will find it especially hard to reject that call.

The nation can hardly afford to remain complacent but must hurry to find and rectify problems in both its industrial structure and economic management.