Seoul Learning From Tokyos Failure
By Lee Hyo-sik
Staff Reporter
South Korea should create a freer market economy, improve living standards for its citizens and invest more in the knowledge-based services sector in order not to follow in the footsteps of the sinking Japanese economy, one of the leading think tanks here said Sunday.
The LG Economic Research Institute (LGERI) warned that the nation could repeat the vicious circle currently disrupting the world's second-largest economy.
Japan's population has been rapidly declining over the years, which has weakened its economic vitality and dampened private consumption.
As a result of sluggish domestic demand, businesses there have refrained from making investments and hiring new workers.
With deteriorating household finances, the Japanese have become more unwilling to tie the knot and have babies, further facilitating the population decline.
"The Japanese economy has been grappling with a host of problems, including a chronically low growth rate, over the past two decades after the real estate bubble burst in the early 1990s.
"The increasingly aging population is shrinking the size of its domestic market and weakening its economic dynamism. Japan has failed to boost low birthrates and transform itself into a welfare-oriented advanced economy," LGERI research fellow Lee Ji-pyong said.
Lee also said the country continues to rely heavily on the manufacturing sector for growth and has failed to strengthen the competitiveness of its services industry in preparation for the post-industrial era. Sony and other Japanese manufacturing powerhouses are increasingly losing market share to emerging rivals, while the recent safety scandal engulfing Toyota and Honda are further raising concerns over Japan Inc.
"Korea could face a similar malaise as its economic structure was modeled after that of Japan. We should learn lessons from Japan's decline and take all possible steps not to follow suit," Lee stressed.
Among the 30 OECD member countries, Korea, along with Japan, ranks at the bottom in welfare expenditure and birthrates, he said, adding Asia's fourth-largest economy also is suffering from a widening income gap as 9.8 percent of households make slightly less than 40 percent of the median income, higher than Japan's 9.5 percent.
"Additionally, Korea is not adequately prepared for a post-industrialization society, with Koreans working the longest hours and being the least productive in the world. Like the neighboring country, we could suffer a vicious circle of low-growth and low-birth in the near future unless we maintain economic vitality, and create a more market friendly economy and sustainable welfare society," Lee said.
He urged policymakers to create a better business environment to encourage companies to make investments and hire more workers, saying this would boost the falling birthrate and expand economic vigor. "Learning from Japan's failure, we should refrain from engaging in fierce competition with emerging rivals. Instead, we should make efforts to secure a competitive edge in core technologies and management know-how that emerging economies need. Korea also needs to expand trade with them and set up a greater presence overseas."
Lee suggested that the country turn itself into a better place to live for its citizens and foreign residents, nurture creative and talented manpower, and promote competition in the legal, health and other high-value added services sectors.