Kukmin Future Forum 2023

The economic outlook is bleak:
‘Flexibility’ is the key to resolving the situation

• Korean Economic Outlook and Reform Tasks at the ‘Kukmin Future Forum 2023’

  On the 17th October, Dongchul Cho, the president of the Korea Development Institute, delivered a presentation titled “Korean Economic Outlook and Reform Tasks” at the ‘Kukmin Future Forum 2023’ organized by Kukmin-Ilbo. President Cho began his speech by stating that our economy can no longer grow at the high rates of the past and emphasized that improving productivity must be our paramount task.
  
  Korea’s Total Factor Productivity Index (TFP) has been below 1% over the past decade and currently does not meet the average of the world’s advanced economies. President Cho projected that if the current situation persists, Korea’s GDP per capita ranking within the OECD will gradually decline and the economic gap with the United States will widen. He cited Japan’s GDP per capita, which once surpassed that of the U.S. but has now fallen below 50%, as an example, warning that Korea could follow this trend.

  

  President Cho introduced reform measures to solve the current low economic productivity issue intertwined with various causes such as low birth rates, aging population, and economic maturity. He first explained the “entry and exit reform,” which facilitates innovative companies to enter new markets while allowing less productive businesses to withdraw from those markets. The regulations on Lawtalk and the Uber/Tada were used as examples of how regulatory measures impede the progress of new businesses. In addition, there is so-called ‘Peter Pan syndrome’, in which companies that should be eliminated remain as ’zombie companies’ because of continuous government support or do not increase the size of the company to receive government support, both of which extinguish the sparks of economic growth.

  Following that, President Cho explained the three main reforms; labor, education, and pensions. In relation to labor reform, the unprecedentedly high economic participation rate of women in their 30s is a positive phenomenon. However, it is worth noting that this number is the result of women forgoing childbirth. Therefore, He explained that our society should provide support to ensure that childcare and work are compatible through methods such as flexible working hours. In addition, the rigid wage and employment system are another factors undermining the dynamism of our economy. Consequently, they must be modified to be more flexible.

  Meanwhile, in terms of education reform, President Cho explained that there needs to be a shift towards a consumer-centered approach, tailored to the demands of students and parents. He criticized that the current system for evaluating universities based on uniform standards and distributing subsidies, which leads to complacency in reform efforts and diminishes the quality of educational services. Furthermore, he also pointed out the reluctance of politicians to address the unsustainability of the current pension system due to fear of public backlash. As a solution, President Cho proposed the establishment of a new pension system, separate from the current one, to reduce the burden of supporting the elderly on younger generations and to ensure that they receive a definite return on their contributions in the future. 

  Written by:
  Bojeon Kim, Research Associate at the President Office,  044-550-4003, kbj@kdi.re.kr