Runner-up Prize Can Korea repeat Miracle on the Han River?

By Aaron Lefler-Moore

Aaron Lefler-Moore

Korea has achieved an economic miracle over the last generation. However, recent hardships have caused the Korean economy to stall. Wages in Korea have been stagnant, the population is aging, and entrenched corruption among chaebol have been some of the many reasons causing the economy to underperform.

To combat this, President Moon Jae-in initiated policies of "income-led growth" and “inclusive growth” to spur the economy. These policies, while having good intentions, have produced lackluster results. Rapid minimum wage increases have caused many businesses to close their doors while youth unemployment remains around 10.1 percent.

The answer to stimulating Korea's economy cannot come from the government's big spending-trickle effects to increase wages and jobs.

Korea's economy needs to be creative and flexible, so it can compete with a globalizing world through supporting its entrepreneurs and MSMEs (micro, small, and medium enterprises) while adapting its education system to synergize accordingly.

Short-run Solution

Korea should remember its competitive advantage as a country, innovation and high education. Innovation is the fuel for entrepreneurs who create value through establishing MSMEs which offer more flexible services and challenge the supremacy of the Chaebol. MSMEs comprise 90 percent of total employment and most of Korea's economy. While Korea has one of the best MSME support programs, changes should be considered to increase competitiveness.

MSMEs need environments conductive to private development. The majority of MSMEs acquire support through private channels such as banks and personal investments. Korea should enact policies that allow for natural flow and market forces to dictate the business environment so private institutions can operate effectively. By helping bridge MSMEs to capital, businesses will have more opportunities to receive necessary financial support to operate.

Korea should also consider support firms to assist MSMEs in identifying their competitive hardships, capabilities, and shortcomings. Competitiveness is dynamic, and many MSME cannot continually define their needs on their own.

Through empowering MSMEs early on, Korea can supply these businesses with resources to be competitive and help them find necessary assistance.

Korea's education system should synergize with government policies favoring entrepreneurship. While highly advanced, higher education in Korea lacks global competitiveness and international support.

In the past, Koreans enrolled in hagwon, prepared for the Suneung ( the College Scholastic Ability Test), attended one of the SKY universities, graduated with connections, and were employed in one of the prestigious chaebol.

In today's world, this process is obsolete as chaebol are hiring less and are no longer growth drivers. Higher education in Korea should shift its focus from the Suneung-SKY-chaebol path to providing a diversified foreign faculty to students so they can compete in a global world.

South Korea can take many strategic actions. The government can invest more resources into providing lower-income families and minorities with access to higher education through grants and scholarships. Such investments would result in a broader base of highly-educated graduates.

Secondly, Korean education should create an environment that attracts foreign faculty and staff through the development of research centers and improved institutions as foreign-influenced/diversified thinking among students helps foster innovation.

Thirdly, Korea should consider the development of vocational learning programs to give students first-hand experience in their field. This has the potential to open the doors for future full-time and long-term employment options with growing MSMEs who wish to find new young talent.

Lastly, Korea's education system should foster 'Fourth Industrial Revolution' workers such as big data analysts, artificial intelligence specialists, blockchain producers, Internet of Things (IOT) operators, and bio-mimicry designers.

Long-run solution

South Korea should explore the economic benefits from reunification with North Korea. This action, while having immediate disadvantages, would have economic and demographic advantages for Korea in the long run. Reunification should not be hastened; a sloppy reunification could spell disaster.

At first, Korea would need to balance labor and wage rates between the two economies to achieve stabilization and mitigate the immediate negative effects an influx or workers would bring.

After balancing wage rates, Korea should explore options to optimize natural resources and rare earth metals in a way that is best for productivity and the environment. A resource-deprived economy like South Korea obtaining $10 trillion worth of natural resources would be equivalent to massive long-term advantages.

Lastly, the new Korea should seek optimization of technological advancements, so the lives of all Koreans can be improved through the advancements of education and entrepreneurship in a unified country.

South Korea should reach a coherence between the opportunities for MSMEs and the enhancement of education to be globally competitive. Reunification would give Korea access to raw materials and a cheaper labor force.

Korea's economy has lived up to its name “The Miracle on the Han River” for the past 60 years. While building on its previous success and accomplishments, Korea can create the second Miracle on the Han River with an economy driven by innovation and entrepreneurship.