New growth formula

By Park Yoon-bae

Average Koreans have taken the brunt of the prolonged economic slump, enduring stagnant growth in income and a deteriorating quality of life.

One indicator of the economic hardship is a drop in spending on food and non-alcoholic beverage. According to Statistics Korea, each household spent a monthly average 310,688 won ($277) on such basic items last year, 9 percent down from 341,472 won ($305) won in 2008.

Especially, households cut their purchase of fresh meat and fish as well as fruits by a bigger margin, while increasing spending on processed meat products and snacks.

This means that households in general have suffered a setback in their consumption of quality food following the economic sluggishness.

It is also worth noting that convenience stores have so far enjoyed a 40 to 60 percent surge in their sales of “lunch box” products. The brisk sales apparently reflect the fact that office workers and students prefer cheap food to decent meals to save on their living expenses.

Against this backdrop, the Engel’s coefficient, which measures the proportion of households’ food purchases to their total spending, reached a seven-year high of 14.2 percent in 2012.

In particular, those in the bottom 20-percent income bracket were hit harder with the figure climbing to 20.7 percent from 19.9 percent in 2009.

There is no sign of an imminent improvement in living standards as the economy is predicted to continue its slowdown for the time being.

It is safe to say that the nation is already heading for a low-growth era since it is implausible for it to repeat its past brilliant economic performance.

The country was briefly lauded for its resilience in coping with the 2008 global financial crisis. It showed a fast recovery from what was called the Great Recession.

However, Korea has now lost such resilience, dimming the prospects for a strong rebound and sustainable growth.

What happened? What’s wrong with Asia’s fourth-largest economy?

There is little doubt that the economy is losing its long-term growth momentum as it has failed to redress its structural weakness amid lingering global uncertainties.

Pessimists now liken the Korean economy to a frog in a pot of slowly boiling water.

Such a gloomy view should serve as a wakeup call to all economic players ― the government, businesses and households.

They need to pay heed to a report titled “Beyond Korean Style: Shaping a New Growth Formula” released this month by the McKinsey Global Institute, the business and economics research arm of McKinsey & Company.

The report recommends that Korea should retool its economy before it is too late, as the long-held policy focus on heavy-industry and manufactured exports cannot hold water any more.

It calls on the nation to strengthen its middle-income households, increase domestic demand, expand the service sector and beef up small- and medium-sized enterprises.

The report also calls for an end to the education “arms race,” a fierce competition among schoolchildren for college entrance. It points out that Koreans believe admission to a top university is the only path to success for their children.

In fact, Koreans’ excessive spending on private tutoring combined with high housing costs has weakened the growth potential of the nation. That’s why it is urgent to launch education reform in order to ease the financial burden on parents and allocate more financial resources for more practical use.

One may argue that McKinsey’s recommendations are nothing new, saying that Koreans know of their own economic problems better than anyone else.

Since the breakout of the 1997-98 Asian financial crisis, policymakers have continued to come up with a set of measures to reduce the country’s heavy reliance on exports and expand domestic demand by buttressing the services industry.

However, the nation has failed to produce successful results as it kept sticking to the old but easy way of promoting the export-driven economy dominated by family-controlled conglomerates, or chaebol.

The question is if President Park Geun-hye can set out a new growth formula by implementing her much-avowed policy of building a “creative economy.”

Frankly speaking, the concept of a creative economy is somewhat vague. But it is apparently aimed at creating a new growth engine for Korea Inc. by promoting science and technology, especially information and communication technology (ICT).

We hope that Park will succeed in her economic initiative to bring more prosperity and happiness to the people. For this she must keep her campaign promise to push for “economic democratization” to prevent the undue concentration of wealth on the hands of chaebol owners.