17 мая 1996
8871

Vladimir Andrianov: Korean Economy at the beginning of the Next Century

Thanks to rapid economic growth Korea to day has emerged as the newly industrializing country (NIC) with the greatest promise of joining the ranks of the industrialized nations at the beginning of the next century. In modern times only Japan was succeeded in transforming itself from a developing into an advanced nation.
It will no easy task for Korea, which has experienced rapid growth over last three decades, to become fully advanced nation. To achieve this goal, Korea must improve its international competitiveness, adopt a macro-management policy suited to an open economic environmrnt and learn how to cope with new international economic order.
In its efforts to manage this transition Korea will face a unique set of challenges and opportunities. The primary purpose of this article is to identify how Korean economy will look like in the year 2000 and the role that it is likely to play in the word economy.

Economic growth

The Korean economy has registered a high rate of growth in just last 30 years, elevating the country to the threshold of advanced nation. In nearest future, according to our estimates, Korea has the potential to achieve a real annual economic growth rate of 7,5 -- 8,5% for the period between now and the year 2000.
These indicators will be more than average real annual economic growth rate for many countries of the Asia Pacific Region (7%), but less than real annual economic growth rate for such countries as China, Vietnam and Malaysia.
With such level of growth per year, Korean"s GNP at 1995 prices could reach $500 -- 550 billion by the year 2000. Korea"s GNP will be comparable to that of Canada, Spain and Brasil today. This level will probably make the Korean economy among the 15 largest economies in the world.
With such rapid growth in GNP and with a decline in the annual growth of population to 1,0 -- 0,9% by the year 2000, GNP per capita will reach the $ 13000-14000 level by the year 2000. Korea"s GNP per capita will be comparable to that of Spain, Finland and Ireland today and level of Korea"s standards of living will be modest by developed country standards.
As a result of these development, South Korea"s economy will be far bigger than that of North Korea. By the year 2000 South Korea"s GNP can be expected to be about ten or more times greater than that of North Korea , and its GNP per capita twelfth times as great.
Unlike in Japan and Taiwan, economic growth in Korea was accompanied by high inflation. At present, inflation remain in the single digits, but it is still considerably higher than in most advanced nations.
If the contentious labor disputes will take place in the course of Korea"s democratization and will bring about steep wage increases the level of inflation at the beginning of next century probably will remain higher than in most advanced nation.

Structural changes in the Korean economy

At the beginning of the next century the Korean economy will undergo a structural transformation as dramatic as that which has taken place in last quota century. The percentage of GDP accounted for by agriculture will decline, while the share of manufacturing and services will probably rise. South Korea will have an economic structure that will depend very heavily on income from industry and services.
The share of Korea"s traditional labor-intensive industries such as textiles clothing"s and footwear in total manufacturing output will be substantially reduced, as they will have lost ground to competitors from the new wave of newly industrializing countries.
However, in qualitative terms, these industries should do very well, having made the necessary adjustment by shifting into the production high value added high fashion items in the way that some countries, for instance, Italy and Germany have done in recent years.
The broad sectional shifts indicated above belie the tremendous change that will occur in the nature of activities within each sector. Within the manufacturing sector, Korea"s most competitive industry will remain electronics, computers, telecommunication equipment and specialized machinery and parts.
South Korea could by the end of the century join the countries with the most modern types of industrial technology , if its highly ambitious program for developing its scientific and technical potential succeeds. Super computers, aerospace facilities, design of the most sophisticated electronic equipment and development of materials with new properties form the basis of South Korea"s economy, turning it into one of the most developed countries of the modern world.
By the year of 2000 the scientific and technical level of South Korea will rise considerably, but the gap behind industrialized countries will still be there. At the same time, by the beginning of the next century, South Korea probably will outstrip many industrialized countries in some, though not the foremost, spheres of scientific progress.

Employment

Reflecting the changes in the industrial structure , the pattern of employment will also undergo a significant transformation between now and the year 2000.
According to our estimates, the share of employment accounted for by agricultural will decline from 22% currently to about 16% by the year 2000. The share of employment accounted for mining and manufacturing will rise from current 26% to about 29 - 30% by the year 2000. Meanwhile, the share of employment in services will rise from current 51% to over 55% by the year 2000.
The most striking change in the pattern of employment will be the great numbers of Koreans engaged in computer and data - information - processing industry.
Thanks to a reservoir of highly trained technicians , Korea is already becoming quite competitive in this field. If such trend continue, it is very likely that Korea will emerge as a new center for servicing of computer hardware as well as development of software in Asia Pacific region.
The overall level of employees education will increase by the year 2000 because access to education will have increased to such an extent that over 20% of the population will have received college-level education or higher.

From Government Regulation to Mechanisms of Selfregulation

The government will try to minimize its role in the economy and will rely more on the market mechanism and private initiative to achieve an efficient allocation of resources and equity in income distribution.
The Korean government will continue to liberalize its economic policy, both external and internal. The nation will carry out structural reform in key sectors of economy. This basic policy at all time will accompanied by macro policies which maintain price stability.
Needless to emphasize, for nations such Korea that lack natural resources, human capital is a key factor in any effort to gain a comparative advantage, that is why another area where government should play a role concerns investment in human resources.
At the beginning of the next century aggressive investment in education is necessary to ensure the availability of a wide range of job opprtunities and a sufficient pool of trained manpower. The government will play an active role in stimulating scientific and technical progress in South Korea. At the beginning of next century will be a basic change in the nature of state regulation of the economy, when the main emphasis was laid on optimizing the economic system, and making it more flexible and perspective to scientific and technical revolution achievements. State agencies determined the basic lines of the restructuring of the economy, and produced the long-term programs for economic development. Thus, the Ministry for Trade and Industry will continue to work out five-year plans for the development of science-intensive industries, its main aim being to make South Korea less dependent on foreign technology and also to make its export products more competitive.
The scope of government functions will includes such matters as establishing and enforcing regulations, providing public facilities througth investment in social overhead capital, levying taxes, making adjustments in response to economic fluctuations, and pursuing social security and walfare policies.
At the beginning of the next century in Korean ecomomy will appear Functional Economic Systems, which in modern market economy are basic mechanisms of self regulations, responsible for dynamics and sustainability of economic development..

Scientific and Technical Potential
According to the long-wave theory formulated by well-known Russian economist Nikolay Kondratyev, the fifth wave of scientific and technical progress which began in the mid-1980s and which is based on the development of microelectronics, mechatronics, biotechnology, genetic engineering, new materials, new types of energy and superconductivity could well revolutionize the productive forces of modern society, for it is much deeper than any of the earlier ones.
The scientific and technical revolution (STR) and the application of its results in the economy is now becoming one of the basic factors of intensive development of the productive forces. Qualitative improvement of the scientific and technical potential as one of the most active elements of the reproduction process has in the past few years been the main factor behind the high rates of economic development in South Korea. At the initial stage in the development of its high-tech industries South Korea adopted the strategy of borrowing foreign experience and technologies: virtually all the high technology industries in this country used Western know-how and were equipped with foreign technology. The strategy of borrowing, which enables a country to absorb and use the best there is in the world of science and technology, by the year 2000 will be combined with a strategy of developing a country"s own scientific and technical potential.
The results, for all practical purposes, will be achieved through a concentration of resources along definite STR lines, with a marked emphasis on the development of current and long-term programs for R&D, their material and personnel backup, system of organization and management of research, and provision of information. This is to take up about $50 billion, which will go into R&D to develop new technology in such areas as microelectronics, mechatronics, aerospace, biotechnology, fine chemistry, laser technology, optical equipment and new materials. South Korea"s R&D appropriations are expected to rise from 3,0% of GDP in 1995 to 5% by 2000. To attain these objectives, the South Korean government must provide local companies easy credits. Besides, companies engaged in turning out science-intensive export products need to be given additional tax privileges. The program for developing science-intensive industries will be implemented with market methods of regulation including credit, fiscal and other mechanism for stimulating scientific and technical progress. Let us stress that in organizing R&D projects South Korea has made use of Japanese methods, which are characterized by a blending of efforts of the state, academic and private organizations, with the latter having a basic role to play, especially in applying the results. In the early 1980s, only a handful of South Korea companies had their own R&D organizations: by the 1995, however, their number had gone up to 700. In that period, R&D outlays by industrial corporations multiplied over and over again to nearly $8 billion, with the largest appropriations going into the development of scientific and technical facilities characteristic for South Korean transnational corporations("chaebol"). Let us note that the leading South Korean companies as compared with firms from other Asian NICs, have a fairly high proportion of R&D outlays in new gross investments. If this trend will continue by the year 2000 the share of R&D outlays in new gross investments for Lucky-Goldstar may be about 28-30%, Hyundai 22-25%, Samsung 20-24% and Daewoo 16-20%.
The most significant investment in R&D Korean transnational corporations will be concentrated on the development of science-intensive products in such areas as electronics, electrical engineering, automobile making, petrochemistry, aerospace, robotics, and the promotion of riskobusiness.
In the next century South Korea may save the leading position in the word on such indicators as share of private business appropriations on R&D in total country expenditure on R&D, growth of R&D personal in industry and share of R&D outlays in new gross corporate investments.
The leading Korean corporations will continue to set up new research centers, joint ventures and their own research branches in major scientific centers abroad. Modern technopolises are being organized in South Korea itself as well as in Japan. The largest technopolis, known as Dae Dook, is located near Taejon, a hundred or so miles south of Seoul, and it is the South Korean counterpart of the Japanese technopolis in Tsukuba, whose basic R&D projects are related to the production of high-tech goods, new technologies and materials. In is also engaged in basic research. Coordination of private sector efforts with state support yields tangible at the beginning of next century practical results in developing high-tech products. Specialists believe that South Korean companies will be able to make electronic components for a new generation of computers with a 64-megabyte memory, and by the end of the century, one with a gigabyte memory.
These electronic components will be technically the most sophisticated ones on the market. They are being ever more widely used in super computers, workstations and communication equipment, and may eventually be extensively applied in high-resolution.
Let us stress that faster progress in any one of the industries is never isolated, but entails progress in several others, producing a technological chain. But with electronization, quantity tends to add up to a new quality. Once they built up a modern electronic-component base, South Korean companies were in a position to develop every sphere of electronics and the electrotechnical industry.
The production of electronics and electrotechnical items in South Korea is expected to grow up from $60 billion in 1995 to about $80-90 billion by the year 2000, carrying the country to the third place in the world after the United States and Japan. If its highly ambitious program for developing its scientific and technical potential succeeds, South Korea could by the end of the century join the countries with the most modern types of industrial technology. Supercomputers, aerospace facilities, design of the most sophisticated electronic equipment and development of materials with new properties from the basis of South Korea"s economy, turning it into one of the most developed countries of the modern world
According to our estimates high-tech products as a part of South Korea"s manufactured exports should grow up from 25% in 1995 to 30% at the beginning of next century, so that the country"s share of the world market of high-tech products could increase from 2,4% in 1995 to about 3,0 -- 3,3% in the year 2000.
Exporters of high-tech goods from South Korea and other Asian NICs will be the main competitors for US makers of similar products. For all their conspicuous successes in promoting science-intensive industries, South Korea is still on the periphery of the industrialized Western countries conducting most of the fundamental research which in the long run determines the future progress of mankind.
At the same time, we believe that South Korea could well make breakthroughs along various lines of world scientific and technical progress. Western specialists put a fairly high value on South Korea competitive potentialities on the world market of science-intensive products. Analyzing the prospects for the economic and technological development of South Korea we believe that by the year of 2000 the scientific and technical level of South Korea will rise considerably, but that the lag behind Japan will still be there. At the same time, they hold that by the end of the century, South Korea will outstrip Japan in some, though not the foremost, spheres of scientific progress.

Liberalization

If Korea wants to join the OECD and step up to the ranks of advanced nations it shoud also libereralize its rules of movement of capital. Without doubt such liberalization measures will have a serios influence on the Korean economy
Future liberalization of foreign investment control will promote link-ups between domestic and foreign financial firms. In order to survive the forthcoming international competition the efficiency of its banking operations must be elevated to intrnational level and government control over banks must be relaxed accordingly.
Liberalization measures will have positive effect on Korean position in global ranking of world comprtitiveness. According to our estimates Korea may move from 24-th. place in world competitiveness scorebord in 1994 to about 20-th place by the beginning of the next century.
Korea will support efforts to liberalize trade within the Asia Pacific region, in particular taking part in the activities of Asia Pacific Economic (APEC), forum, whose goal is open regionalism.
In terms of trade, technology and investment United States and Japan will remain most important partners for Korea. United State will also remain largest single market for Korean exports.Vigorous efforts will be made to cultivate the vast market potencial of China, Vietnam, ASEAN countries and intra-Korean economic cooperation.

References
1. Andrianov V. D., Newly Industrializing Countries in Global Economy; International Affairs Publisher, Moscow, Soviet Union, 1989.
2. Asia Development Outlook 1995; Asia Development Bank, Manila, Philippines, 1996.
3. Key Indicator for Developing Asian & Pacific Countries; Asia Development Bank, Manila, Philippines, 1994.
4. Korea and the World, Key Indicators, 1995; Korea Foreign Trade Association, Seoul, Korea, 1995.
5. Korea: Transition to Maturity; World Development, Special Issue, Vol. 16, No. 1, Pergamon Press, Oxford, 1988.
6. Korea Year 2000: Prospects and Issue for Long -term Development, The Summary Report; Korea Development Institute, Seoul, Korea, 1985.
7. Korea: Managing the Industrial Transition, World Bank Country Study; Wold Bank, Washington, D.C., United States, 1987.
8. Korea Focus on current topics, Vol. 3, No. 4; Korea Foundation, Seoul, Korea, 1995.
9. Pacific Economic Community Statistics, 1994; Tokyo, Japan, 1995.
10. South Korea, Country Profile 1995; The Economic Intellegence Unit, London, United Kingdom, 1995.
11. The World Competitive Report, 1995; World Economic Forum, Geneva, Switzerland, 1996.
Korean Economy at the beginning of the Next Century
Abstracts
Thanks to rapid economic growth Korea to day has emerged as the newly industrializing country (NIC) with the greatest promise of joining the ranks of the industrialized nations at the beginning of the next century.
In its efforts to manage this transition Korea will face a unique set of challenges and opportunities. The primary purpose of this article is to identify how Korean economy will look like in the year 2000 and the role that it is likely to play in the word economy.
At the beginning of the next century the Korean economy will undergo a structural transformation as dramatic as that which has taken place in last quota century. The percentage of GDP accounted for by agriculture will decline, while the share of manufacturing and services will probably rise. South Korea will have an economic structure that will depend very heavily on income from industry and services.
The broad sectoral shifts indicated above belie the tremendous change that will occur in the nature of activities within each sector. Within the manufacturing sector, Korea"s most competitive industry will remain electronics, computers, telecommunication equipment and specialized machinery and parts.
South Korea could by the end of the century join the countries with the most modern types of industrial technology , if its highly ambitious program for developing its scientific and technical potential succeeds. Super computers, aerospace facilities, design of the most sophisticated electronic equipment and development of materials with new properties form the basis of South Korea"s economy, turning it into one of the most developed countries of the modern world.
By the year of 2000 the scientific and technical level of South Korea will rise considerably, but the lag behind industrialized countries will still be there. At the same time, by the beginning of the next century, South Korea probably will outstrip many industrialized countries in some, though not the foremost, spheres of scientific progress.
The share of Korea"s traditional labor-intensive industries such as textiles clothing"s and footwear in total manufacturing output will be substantially reduced, as they will have lost ground to computers from new wave of newly industrializing countries.
Reflecting the changes in the industrial structure , the paten of employment will also undergo a significant transformation between now and the year 2000.
The government will try to minimize its role in the economy and will rely more on the market mechanism and private initiative to achieve an efficient allocation of resources and equity in income distribution.
The Korean government will continue to liberalize its economic policy , both external and internals. The nation will carry out structural reform in key sectors of economy. This basic policy at all time will accompanied by macro policies which maintain price stability.



Опубликовано в Республика Корея, г. Сеул, "Академия корейских исследований", в 1996 г.


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