hellosyam

Can Strong Exports Make Korea an Advanced Country?

Can Strong Exports Make Korea an Advanced Country?
Korea has become the 11th country to reach US $300 billion in annual export volume. The first 10 were the U.S., China, Japan, Germany, the U.K., France, Canada, Italy, Belgium and the Netherlands. Except for China, all of them became nominally advanced countries as measured by per-capita income of US$30,000-40,000 once they reached $300 billion in exports. Can Korea do the same?
Germany and Japan, with which Korea has most in common, suffered an economic slowdown once they surpassed the mark. Many Japanese indiscriminately bought overseas real estate and companies with their abundant dollars, and the country saw its property prices skyrocket. What's worse, Japanese companies hurried to move their manufacturing bases overseas, which led to a sluggish economy. The collapse of its real estate bubbles caused the economy to slip into the decade-long economic recession. Germany was mired in a vicious cycle of low growth and high unemployment to fund its all-too-sudden unification. Korea has much to learn from the two countries since it has the same industrial structure as Japan and is divided like Germany.
Japan’s trial and error
Japan reached $300 billion in export volume in 1991 and posted $594.4 billion last year, landing in fourth place after China with $762 billion. It exceeded $27,000 per capita income 15 years ago and reached $38,900 last year. But given the exchange rate, there has been little progress. What happened to the Japanese economy over the past fifteen years? The engine of growth for exports in Japan is manufacturing. It came top in the world in terms of competitiveness in almost all segments, from cars to electronics and shipbuilding. Enormous pressure from the U.S. in the 90s caused the Japanese yen to appreciate sharply, and emerging economies such as Korea and Taiwan doubled their efforts to catch up. Lee Ji-pyeong, a fellow at LG Economic Research Institute, said, "The Japanese economy found a solution to the situation by exporting more sophisticated items.”
Japan gave up on run-of-the-mill consumer goods, which lost competitiveness from the appreciating yen, and focused on producing cutting-edge products that were light, thin and small. It also concentrated on forming a so-called “flying-geese formation” where core technology comes from Japan and is assembled in countries like Malaysia and Thailand. As a result, its car, machinery and parts industries rushed overseas to establish operations. It hurried to restructure industries like shipbuilding, where it expected to lose competitiveness.
Moving manufacturing bases overseas, however, failed to produce the synergy the nation expected. They were dispersed too widely -- in Korea, Taiwan and Singapore -- to be truly effective. In addition, competitors including Korea dramatically developed their technology. As some manufacturers return home, experts in Japan say the hurry to make its manufacturing industry sophisticated rather hollowed out local manufacturing. Korea today is very similar to Japan 15 years ago: the won is appreciating, the real estate bubble is inflating, and manufacturers are moving their operations overseas.
Germany’s unification albatross
Germany’s exports exceeded $300 billion in 1988. Its flagship industries -- cars, chemicals and fine machinery --still lead the nation's exports. Last year, Germany came top in the world by posting $969.9 billion in exports. Its per capita national income more than doubled from $16,000 in 1988 to $34,500 last year. That is a considerable success considering that some 17 million from former East Germany were absorbed into the unified country.
The secret was constant investment in the top industries. Lee Seo-won, an economist at the LG Economic Research Institute, said, "It’s said that one in four Germans makes a living from the car industry. The country is highly competitive in the auto industry and services like finance and insurance.” It also benefited from European integration, which has accelerated since 2000 and helped export expand. Yet the German economy is mired in high unemployment and low growth. Parts of the former East Germany have 18-19 percent unemployment, which is causing serious social problems there. High taxes are driving businesses and capital overseas, and the low birthrate and aging society are eroding economic vitality. The huge financial burden of unification is pressuring Germany, once considered the example to follow among European economies.
Strategies for Korea
Korea is in a way worse off than Japan and Germany. The North Korean economy is one of the worst in the world, and the South has only a handful of cutting-edge technologies where it can claim to lead the world. It has immensely powerful trade unions much more inclined to disrupt production than their counterparts in Germany and Japan. What's more, Korea’s service industry is far less competitive than the manufacturing industry -- a serious stumbling block to evolving into an advanced nation.
“The Korean economy has no future if it fails to nurture its financial, medical, education and legal services, which lag behind,” says Dr. Choi Gong-pil, a senior researcher with the Korea Institute of Finance. "The country is expected to post a $19 billion service account deficit including travel, education and medical sectors this year.” In short, what we earn from exporting cars and mobile phones is spent on studying or traveling overseas.
Shin Seung-kwan, a research fellow at the Trade Research Institute, said the German and Japanese economies are based on manufacturing, but the service industry accounts for a whopping 70 percent of their economies. "We need to increase the proportion of the service industry in our economy from the current 55 percent to keep our economy active,” he added. Prof. Kim So-young, an economist at Korea University, said, "Our medical, education and legal services lag behind due to resistance from interest groups at home, and the financial service industry is in the same situation due to red tape.”

source : http://english.chosun.com/w21data/html/news/200612/200612110011.html

posted by Syam @ 9:29 AM