South Korea’s Growth Model; Seoul pushes domestic deregulation over export promotion

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.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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