ED Beef up service sector

Deregulation, innovation key to improving competitiveness

When a country's economy advances, its services industry also develops. As this sector's share in the national economy grows, it creates numerous jobs. Korea is a global manufacturing powerhouse, but the number of manufacturing workers stood at 4.41 million as of March 31, accounting for only 16 percent of the total 26.92 million employees. Manufacturing has a limited capacity for job creation as robots and artificial intelligence replace humans, but the services sector has a far greater potential to boost employment.

A recent report by the Federation of Korean Industries that the local services industry's competitiveness ranks among the lowest among OECD countries is more than disappointing in this regard. Korea's labor productivity per worker in the sector remained at $62,948 in 2018, equivalent to 70 percent of the OECD average to be ranked 28th among the 33 member nations. The nation was ranked lower than Greece (24th) and Slovenia (27th) while slightly higher than Lithuania (29th).

There might be a combination of factors for the industry's lagging competitiveness. As the FKI report pointed out, however, the single most important reason is regulation. In Korea, it is hard to expect bold corporate change, such as Tesla's transformation into a software company and Sony becoming a content provider, because of widespread “regulatory risks” in the administrative and legislative branches.

Both the government and the ruling party have loudly trumpeted regulatory reform and proposed plans to develop the services industry. Politicians and bureaucrats have talked about a sharing economy, while at the same time enacting a law banning ride-sharing businesses. Or, they often discussed measures to sharpen the distribution industry's competitive edge, but failed to push for deregulation. The Framework Act on the Services Industry Development remains what it was a decade ago, making it difficult to encourage innovation and entrepreneurship.

If Korea keeps neglecting its services industry, the nation cannot become an advanced economy. The importance of the sector will grow further in the contactless economy driven by the COVID-19 pandemic. There should be no partisan differences in laying the foundation for developing the industry as preparation for the future. Now is the time to reinvigorate the private sector's creativity and market vitality through bold deregulation. It will also be of great help in resolving the high youth unemployment rate.