Let’s bring back economic planning in Korea

2014-03-06 16:58

Let’s bring back economic planning

Lee Chang-sup
In the 1980s, Koreans regarded a 7 percent economic growth as a “recession.” Today, however, President Park Geun-hye struggles to achieve even a 4 percent growth.
Since the economy has expanded significantly in the past few decades, it is inevitable that growth would slow down. The economy, as measured by GDP, grew from less than $100 billion in 1984 to more than $1 trillion this year. However, growth has slowed down at an alarming rate. The growth rate peaked at 9–10 percent under President Chun Doo-hwan (1980–1987) and then fell to 8 percent under President Roh Tae-woo (1988–1993), to 7 percent under President Kim Young-sam (1993–1998), to 5 percent under President Kim Dae-jung (1998–2003), to 4 percent under President Roh Moo-hyun (2003–2008) and to 3 percent under President Lee Myung-bak (2008–2013).
From the 1970s to 1997 when the currency crisis hit Korea, Korea seldom grew slower than the United States. However, in recent years, the United States often grew faster than Korea even though the former is 15 times larger than the latter. Similarly, Korea is now at the bottom of the Asian economic growth chart, in contrast to the 1980s and 1990s when it was at the top of the chart.
What went wrong with the Korea economy? Korea has been losing its economic dynamism mostly because of the falling birth rates and aging population, which could have been addressed, had the country continued its five-year economic plans.
Former Presidents Park Chung-hee, Chun Doo-hwan, Roh Tae-woo and Kim Young-sam mobilized 200 economists and government technocrats each year to develop plans for the economy. According to SaKong Il, a former finance minister and a key architect of Korea’s fifth five-year socioeconomic plan (1982–1986), these plans provide a roadmap for the economy. They help policymakers identify what they need to do in the short term and the long term. The media also helped inform the public of the plan’s benefits.
However, the government ended economic planning well before Korea joined the OECD in 1996, under the notion that only socialist countries have central economic planning and central planning no longer works in open, globalized and advanced economies like Korea’s. According to business consultant Tony Michell, the government scrapped central planning because they thought “businessmen knew better than government officials where new markets lay and further investment should be made.”
However, scrapping economic planning was a mistake. As Michell noted, “the government’s planning enabled policymakers to direct the nation’s scarce resources into investment and thus raised growth. This was essential in the 1960s and 1970s to create employment for the post-Korean War baby boom. To make this happen, the respective ministries set up regulations and industry associations. On the whole the choices of direction that Korea made fueled growth.”
Had Korea continued planning for the economy, it could have prevented or slowed the falling birth rates and fast-aging population, and eased the economic polarization, in which the wealthy becomes wealthier and the poor becomes poorer. Long-term economic planning could also have enabled the government to improve the conditions of irregular workers, which comprise one-third of the workforce.
Economic planning could have prompted chaebol to assume a greater role in job creation. Currently, Samsung, the largest conglomerate, makes only 5 percent of its smartphones in Korea. Likewise, Hyundai Motor produces fewer than half of its cars in the country. Their significant growth no longer translates to more jobs here. While every college graduate was offered at least four jobs in 1984, only one in four college graduates gets a decent job these days.
Some academic economists say planning is wrong or obsolete. However, companies create visions, strategies and then operational plans and try to implement them. So why shouldn’t the government do the same thing?
Korea would not have moved out of the poverty trap in the 1960s without economic plans. This was possible because of the late President Park Chung-hee’s keen sense of avoiding planning mistakes in India and Malaysia.
Michell says, “I do not think that any other practice would have moved Korea so fast in the right direction.  Only the preparation and capacity created in the previous decades made this possible.”
President Park’s three-year economic plan has some good points, which include creating 700,000 jobs and achieving $40,000 per capita income during her presidency to 2018. However, it lacks specificity. It doesn’t outline what the country needs to do to achieve its goals. It is also ridden with vague ideas such as “creative economy,” “innovation” and “venture boom.”
In addition, the administration tries to do several different difficult things at the same time, including increasing welfare, taming public enterprises and slashing regulations. Without coordination, it is impossible to get many ministries, agencies and supervisory bodies to work together in the same direction.
However, as Michell said, “purposeful and coordinated action is always better than uncoordinated action and response.” Thus, to realize or surpass her goal of a 4 percent economic growth, President Park should actively implement her economic plan. The President should also bring back this economic planning.
Lee Chang-sup is the executive managing director of The Korea Times. Contact him at editorial@koreatimes.co.kr