South Korea Needs Liberalized Market
SOUTH Korea, the world's 11th-largest trading nation, will lose its competitive position slowly but persistently unless the newly elected government sets policy priorities correctly.
That warning comes from Il SaKong, who was the nation's minister of finance from 1987 to 1988, in his new book, "Korea in the World Economy."
As one of Asia's fast-growing "four tigers," South Korea's per capita income rose from less than $100 in the 1960s to $6,500 in 1991. But now that the economy has become bigger and more complex, the competitiveness of Korean firms is being eroded by a combination of the government's tight fiscal policies, which keep interest rates high, and its extensive bureaucratic control, Dr. SaKong says. Now is the time, SaKong suggests, for the government to let private entrepreneurs and businesses take initiatives
to raise overall economic efficiency.
Over the past three decades, the author says, Korea has built economic success on overseas markets, the availability of foreign capital, and an ability to use borrowed funds productively. Despite his recommendations, SaKong acknowledges the important role the Korean government has played. Like a bank, it allocated capital to heavy industry and the chemical sector during the 1970s.
In explaining the successes and failures of economic policies of the country, SaKong relies heavily on numbers and charts, which may discourage general readers.
SaKong's call for a freer private sector comes at a time of poor relations between the government and Hyundai, one of the largest conglomerates in the country. Hyundai's founder has been pushing for the government to loosen its grip on industry. But he lost the recent presidential election, raising doubts about the prospects for reform. Korean conglomerates are learning that they have to work with the government, not challenge it.
SaKong's views on trade will be well-received by Americans, who have tried unsuccessfully to open South Korea's agricultural and financial markets in the past few years. He says Korea must contribute to the successful completion of the Uruguay Round trade talks because Korea would benefit from a more liberal global trading system. His view is not popular among most Koreans, who are reluctant to open markets unless prodded by retaliatory threats from the United States. But he adds: "Koreans should realize
that their country is no longer perceived by others as a war-torn, helpless nation but rather is seen as a fierce competitor, to be kept under close observation."
South Korea must plan very carefully how it would absorb the cost of a possible economic unification of the two Koreas, the author says. In 1990 South Korea's output was $237.9 billion, 10 times greater than the North's $23.5 billion. The brunt of the unification burden would fall on South Korea, and therefore "it is urgent for [South] Korea to reorient its priorities toward economics to provide a solid foundation for unification," he notes.