Revival of manufacturing

Policy needed to curb exodus of firms

Korea is seeing a revival in manufacturing. For the first time in three years, manufacturing payrolls surpassed the four million mark. Manufacturing accounted for more than 30 percent of the economy last year.

The nation needs to adopt a manufacturing-first policy for solid growth. Without manufacturing, the country might not hasten the era of the $30,000 per capita income.

Asia, led by China, Korea and India, has outperformed North America and the EU since the world’s worst economic recession in 2008.

The United States and the EU have lost economic dynamism for belittling manufacturing. Fat-cat capitalists on Wall Street dominated the American economy until the financial meltdown in 2008. Their economic stagnancy is attributable to the thinning-out of manufacturing bases. Seoul should learn lessons from the U.S. and the EU.

Making things must get priority, even in the knowledge economy. Korea is globally competitive in manufacturing. An OECD report put Korea in the fifth among its 31 member economies in manufacturing productivity in 2009.

Manufacturing is not a smoke-stack industry. Policymakers must create a social environment where manufacturers get decent respect.

The manufacturing resurgence should not mask the hidden woos, however. A few chaebol are powering and dominating manufacturing. Small-and medium-sized enterprises are sidelined and marginalized. A balanced growth between small and big firms is essential.

A manufacturing upturn has not led to a noticeable rise in job openings. The jobless growth necessitated the need for fostering SMEs, which account for 99 percent of the number of companies and 88 percent of payrolls.

Policymakers should be sophisticated enough to ensure that finance would not be domineering over manufacturing. Manufacturers and financiers are partners for economic prosperity. Indications are that banks are standing above makers. The dominance of finance over industry will ultimately lead to the crumbling of the industrial base. This is well illustrated in Western countries.

Industrial hollowing-out should not be regarded as a natural process of economic maturity. Policymakers must devise incentives to keep Samsung, Hyundai, LG, SK and others at home. More than half of Hyundai cars are now produced outside Korea. This raised the question whether Hyundai is a Korean company or a foreign firm.

Upgrading the productivity of the service sector is key to sophisticating manufacturing. Regrettably, the nation ranks 18th in the OECD service-sector productivity. The service sector is less than half of the manufacturing one in productivity. A parallel growth of both manufacturing and service sectors will upgrade the economy.

Manufacturers should not sit in an armchair reminiscing over the recent revival. They need to put extra energy in developing core technologies to hone their competitive edge. Korea should no longer be a house of copycat products.

Part of their recent revival is attributable to the high-exchange rate, namely the lower value of the won. A weak local currency benefits manufacturing exports, but reduces welfare of consumers and travelers. A global lower interest rate also powered their recent stellar performance.