South Korea’s Growth Model; Seoul pushes domestic deregulation over export promotion
March 3, 2014 Leave a comment
South Korea’s Growth Model
Seoul pushes domestic deregulation over export promotion.
Updated Feb. 27, 2014 6:01 p.m. ET
Japan’s Abenomics may be struggling, but at least economic reform isn’t dead in Asia. Witness South Korea, where President Park Geun-hye is proposing a reform package that could be a model for the region and many other parts of the world.
The three-year plan Ms. Park unveiled Tuesday seeks to wean Korea off its dependence on manufacturing exports. Seoul would end tax policies that favor large exporters over other companies and would push ahead with deregulation to remove hurdles for domestic service firms. Ms. Park also would rein in large state-owned enterprises by limiting their ability to borrow.
Some elements of the plan are less praiseworthy. These include a promise of more government funding for corporate start-ups, and incentives to hire younger workers and women. Venture funding and hiring decisions are best left to the private economy, and these provisions signal that Seoul hasn’t dropped all of its interventionist proclivities.
Still, Ms. Park’s proposal is a breakthrough in its focus on boosting productivity. For years Korean leaders have tried to reverse slowing growth with targeted measures to support this or that industry, or grand public-works projects.
Implicit in Ms. Park’s proposal is the recognition that the days of easy growth are over. Her annual GDP growth target of 4% is lower than predecessor Lee Myung-bak’s unrealistic 7% promise of 2007, and her reforms are deeper. The message is that Koreans will have to work harder to grow in the future, and that government should get out of the way to let them do it. That’s exactly right for any economy, but especially one at Korea’s stage of development.
This makes for a big contrast from Japan, where Prime Minister Shinzo Abe’s growth project is languishing amid a big looming tax increase and absent concrete policy reforms. The two countries share the dilemmas of an aging society with successful exporters but anemic domestic productivity. Yet South Korea already is far ahead of Japan in some key reform areas including free trade, which is still anathema in many quarters of Tokyo.
If Koreans latch onto reform ideas such as Ms. Park’s now, while growth of 3.7% is still relatively healthy, they have a chance to avoid the stagnation that afflicts their neighbor to the east.
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