Sapping Growth Potential
Paradigm Shift Necessary for Economic Revival
The nation's potential growth rate is predicted to fall to the 3-percent level this year due to a contraction in both investment and consumption. But the level may be seen as too high considering a projected contraction of 1.5 to 3 percent amid the worldwide economic crisis ― although South Korea is likely to swing back to a positive growth next year.
Most of all, we have to face the stark reality that the Korean economy has continued to lose its economic potential since its rapid growth and development in the 1970s to 1980s, when its GDP growth often shot over 10 percent. According to the Bank of Korea (BOK), the state-run Korea Development Institute (KDI) and Samsung Economic Research Institute, the potential growth rate stood at 8 percent in the 1980s, 6 percent in the 1990s and 4.5 to 5 percent between 2000 and 2007.
The rate is even forecast to drop below the 3-percent mark next year. It could rebound to the 4-percent range during the 2011-20 period. But then it is likely to fall to the 2-percent level from 2021 till 2030 due to the declining population and the soaring number of senior citizens. It seems that the nation will never see the heydays of brilliant economic growth again.
It can be understood that newly industrialized countries such as South Korea find it difficult to maintain higher growth as the scale of their economies is getting bigger and more established than rapidly industrializing nations. Of course, the weakening growth potential in 2009 and 2010 is a direct reflection of the unprecedented global economic crisis.
But the real problem is that South Korea has done little to maintain its growth momentum and find new growth engines. In this situation, the country has suffered from dwindling facility investment along with a failure to create jobs and stimulate consumption. That is, the nation has neglected boosting growth potential by better utilizing resources, including capital, labor and technology. That's why Korea's world economic ranking fell from 11th in 2003 to 15th in 2008. In a nutshell, the country has continued to lose its international competitiveness over the past five years.
At stake is how to replenish the country's growth potential. The first thing is to encourage businesses to increase their investment. Without investment, nothing can change the current situation. Then the government, businesses and research institutes should step up collaboration in developing advanced technologies. For this, the nation has to invest more in research and development (R&D). Besides, management and labor are required to go all-out to raise productivity. Now is the time to make a paradigm shift to save the sinking Korean Inc.