Speaker 1 Presentation

1
From Labor-intensive to Capital-Technology
Intensive Industries Problems and Challenges to
HRD (Global and Korean Perspective) Cheons
ik Woo Korea Development Institute (KDI)
I. Industrialization Process and HRD Old
Story II. New Challenges Digital Revolution
and KBE III. Policy Responses and Tasks Ahead
The Case of Korea
2
"A nation of people would prosper just to the
extent that the proper kind of man is nurtured by
the proper kind of education" -- Plato,
'Republic' rephrased "Knowledge itself is
power" - F. Bacon, Meditations Sacrae
(1597) Lifelong learning Learning for life or
Life for learning?
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I. Industrialization and HRD Old Story
1-1. Industrial Upgrading What Does It Mean?
? Stylized Fact/Pattern in respect of
Sectoral/Structural Composition
1. Expansion of Manufacturing and Services
Sectors in place of Agricluture/Mining
GDP Share (Korea)
Employment Share (Korea)
Note Service I service II - (construction
water/gas/electricity) Shares are in 1990 real
values Source National Accounts of Korea,
various issues
4

• ? Inside Manufacturing(Industrial) Sector
• (i) Cross-sectional (inter-industrial)
• Labor intensive industries --gt
  Capital-Technology intensive industries
• Low-tech --gt Mid-tech High-tech or Low VA
  --gt Mid to High VA
• (ii) Within each industry
• Technology/Capital/Knowledge/Skill/ contents
  increases

Stages of Industrialization Korea (1960 - 1999)
5

• In Korea, industrialzation has taken place in
  line with the stylized pattern
• Thrust industries shifted from low tech to
  mid-high tech ind
• Share of labor intenstive industries has shrunk
  in place for others with higher capital, skill
  and knowledge contents

Structural Changes in Korean Manufacturing
6
(No Transcript)
7

• Compartive advantages (reflected in export
  pattern) have changed in tandom

Export Shares by Industry Korea
Petro-Chemicals Others Petrol Chemicals,
Refined Petroleum Products Others, and Rubber
Plastic Products. Office Machine Tele
Equipment includes telecommunication Equipment
and computers. Electronic Parts includes
Semi-conductor, Display(LCD) and other
Electronic Parts Electricals Electronics
includes Audio Video Equipment, Home Appliances
and Industrial Electrical Equipment?
8

• As a result of suceessful industrialization
  process, Koreas industrial structure became
  similar to those of G-6 natioins in product
  composition (Structural Assimilation)
• - For instance, back in 1976, substantial gap
  as againt G-6 but no such gap now

VA Share by Industries and Countries ('76, '94)

50

• 6 mainstream industres
• - Electronics
• - Automobiles
• - Machinery
• - Textile/Apparel
• - Scientificc Equipment
• - Chemicals
• share in total manufacturing
• - 50-60 in VA employment
• - 70-90 of exports

1976
40
30
Korea
20
Italy
10
0
50

US
Japan
1994
40
Germany
France
Italy
Korea
30
Italy
20
10
0
Food
Basic
Metal
Wood
Paper
Others
Textiles
Metallic
Mineral
Non-
Machinery
Chemicals
Equipment
9
I-2. HRD and Industrial Upgrading

• Industrial advancement supported by upgrading in
  education and HRD
• Educational attainments paralleling (or
  outpacing) industrial attainments
• Largely, no systematic manpower shortages skill
  mismatch throughout the process

Growth Enrollments by School Level
Growth and Education in Korea
14
Age(20-29)
Elementary
100
12
Population
High
10
'95
80
'90
'85
8
AVG School Years
'80
60
'75
6
Middle
'70
40
Agegt50
'66
4
Kinder
20
Tertiary
2
0
55
60
65
70
75
80
85
90
95
0
2000
4000
6000
8000
10,000
GDP(Per Capita)
Year
10

• Quantitative profile of Koreas education
• quite impressive, and well above the OECD
  average
• - HS enrollment ratio 95
• - after secondary education, college education is
  becoming almost universal (gross advancement rate
  from HS 90 Net enrollment for age 1821
  41, worlds highest)
• - academic performances the worlds highest
  (science and math scores in TIMSS)
• - educational investment the worlds highest (in
  GDP share)

GDP Share of Educational Investment in Formal
Schools (1994)
foot Korea's total investment for year 2000 is
about 6.3 (govt4.2, private2.1) source

OECD,
Education at a Glance
, 1997.
11
II. New Challenges Digital Revolution
Knowledge-Based Economy

• Korea, as with many other countries, is now in
  the midst of a severe and deep structural
  adjustment process
• The latest financial crisis showed how
  vulnerable the Korean economy is in todays new
  global economic environment
• Although Korea managed to recover remarkably
  from the crisis, the recovery process is quite
  feeble and the long term growth prospect remains
  highly uncertain.
• Turbulent and vexing experiences of late
  cuttingly indicated
• Koreas old development model based on factor
  accumulation has reached limits,
• The industrial prowess built on borrowed
  technology, cost advantage and steered by a
  handful of locomotive Chaebols firms is not
  good enough, and especially
• Koreas knowledge or HR base is wanting a lot to
  meet the daunting new challenges of information
  age or KBE ( serious knowledge gap problem)
• So the new urgency and mandate to upgrade
  industrial structure and human resources

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II-1. Digital Revolution and KBE How
real/serious are they?

• KBE is Real will be the new techno-economic
  paradigm of 21st century
• came as a nature outcome of a long evolutionary
  process of old industrial capitalism
• its potential benefits and threats will
  manifest soon as transition process accelerates

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Two core elements of KBE ICT(Digital) revolution
Globalization
1) Digital Revolution far-reaching and
all-encompassing impacts affects consumption,
production, work organization, industrial
structure, government
Impacts and Progress of Digital Economy
Demand for Info. Knowledge Explodes

• Knowledge and Info as the sources of competitive
  advantages
• From goods- to K- consumption

Economic Activities
New Consumption, Production, Distribution System
Industrial Dimensions
Advancement of ICT
Digitialized Networked Information Knowledge

• Leapfrogging Computing power
• Digitalization of Contents progress of
  compression technology.

• New industries
• Services/Soft contents
• Fusion/Complexity

Political, Social, Cultural Dimensions
Networking

• Networking on a global scale
• Permeation and deepening of Internet Tech.

Great Transformation Virtual/Cyber/Trans-national
Participative Democracy
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The greatest effects of the internet have yet to
come The internet will have its strongest impact
in the net five years. The utility and
functionality of the internet will radically
improve, triggering a new and much more impacting
phase of t his revolution
Path of the Internet Revolution
15

• 2) Globalization
• - Increased international trade and investment
  and unbound global competition
• Virtually all national economies including the
  least developed integrated into a single global
  economy, forging up unprecedented high
  competitive pressure as against each other (WTO
  and other liberalization measures)
• - Deep integration global division of labor
  within a firm
• Leading MNEs and their followers pursue optimal
  trans-national combination of inputs (labor,
  physical/ financial capital) and business
  activities around the globe.
• New pattern of international division of labor
  by knowledge-capacity (knowledge-poor countries
  vs knowledge-abundant countries)
• - Global MA/alliances trend move to
  winner-take-all type oligopoly market
• Mega MA deals among the leaders Not much
  chance for the second-tier firms
• - Selective matching among firms/people
  according to quality competence
• Traditional linkage among a nation, a firm, and
  an individual erodes fast
• danger of fragmentation of a nation state and
  all traditional collective entities

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The full-fledged impacts of globalization have
also have yet to come So far, globalization has
proceeded among the high income nations,
involving a limited range of products. But it
will extend in an accelerating pace, engulfing
all nations and all goods and services including
most typical local product like government
service
Globalization Now and Future
17
II-2. The policy implications

• - Digital revolution and KBE posit both new
  opportunities and new challenges to all nations.
  But their economic effects on different countries
  will vary greatly as well as their specific
  policy implications
• - As for the less advanced nations weak in
  capital endowment and traditional industrial
  portfolio,
• They could take advantage of the new
  technological and market opportunities and reduce
  their development gap
• But, a heroic leapfrogging unlikely to
  materialize, with the the most difficult-to-acquir
  e factors of production seriously lacking --
  knowledge technological acumen
• - Over the foreseeable future, deepening
  D-divide or K-divide well predicted every
  where
• Increasing gap among nations between the
  leaders and the followers (from convergence to
  divergence ending of the old, rather mechanical
  catching-up process for the late-comers)
• - Special hardship for the mid-income nations
  with the tradition of a statist model of
  development
• Amplifying gap within a nation among K-haves
  and K-have-nots (income inequality)
• Persistent pressure to embrace free market
  principle and to open up hitherto protected
  market
• Marginalization of the substantial mass rising
  social conflict and erosion of social cohesion

18
Already, nations started to bifurcate in macro
performance, with a new innovative champion group
forging ahead strong New economies US, UK,
Australia, New Zealand, Finland, Ireland etc.
Old leaders, but now trailing/mediocre Germany,
Japan, East Asian Fours
Emerging New Trend in International Performance
Contests
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III. Policy Responses and Tasks Ahead The Case
of Korea
III-1. Recent Development

• - Korea in a saddle position to make the leader
  group or to fall behind for long
• - So new urgency and mandate to upgrade
  industrial structure and human resources
• - New vision and policy initiatives issued by the
  Korean government
• The comprehensive plan for transition to a KBE
  (3-year KBE Master Plan) emphatic, inter alias,
  on
• - Radical reforms in education and HRD system
  for greater variety, flexibility, and
  accountability
• - Enhancing IT capacity of the people and
  provide basic IT infra (H/W and S/W)
• - Promotion of New industries such as IT,
  bio-industries etc
• - As for education and HRD, the basic idea and
  directive well captured by the World Bank -OECD
  (Report for Koreas Transition to a KBE (2000)
• Given high national zeal for education, Korea
  has great potential to forge ahead in the new
  digital and knowledge age. However, in its
  endeavor to shift to a new and sustainable growth
  trajectory as a KBE, developing a new advanced
  HRD system is a must. Korean educational system
  served the country well during catch-up phase
  of industrialization, but now needs radical
  reforms so as to
• to develop skilled and creative people
  essential for innovation
• to become an integral part of a consistent
  policy framework for lifelong learning

20
Koreas present situation trouble areas in
industries and HRD well recognized

• 1) Industries
• despite continued upgrading so far, substantial
  qualitative gap
• Productivity persistent catch-up in the past,
  but still low
• - Overall productivity level 30(TA) -70
  (EE) of global leaders
• backward trade structure/ weak domestic
  supply-chain
• exports highly concentrated on final products
  in scale-intensive industries
• - import of core parts, intermediate goods and
  capital good (chemicals, machinery)
• overall technological and innovation
  capabilities remain low
• - only a few vanguard companies conducing
  serious RD and ready for global, unbound
  competition even the RD activities of these
  firms limited to commercialization research and
  basic engineering
• - the majority of SMEs not conducting any RD
  incapable of innovation (in a vicious-trap)
• Service sector relatively more backward, crammed
  with small cottage businesses

21
Labor Productivity of Major Industries (1995)
Patterns of Trade Specialization (1995
specialization coefficient, )
22
Koreas RD Investment by Industry and Size
International Technology Transaction
(Export-Import Ratio)
23
2) Education HRD

• Huge potentials, some solid areas, but many
  chronic/structural problems
• School-centered learning weak life-long
  learning
• - most schooling at formal schools no
  substantive learning beyond
• - late fist time entry into the labor market
  (avg 27.2)

Labor Market Participation of the Youth
24

• Low labor market participation of female labor
  (52.7 )
• - young female highly educated (as high as male
  counterparts), but under-tapped
• - an array of implicit discrimination in place
  backward nursery system

• Supplier-oriented, anti-competitive, rigid
  system (schools and VET institutes)
• - over-regulated, centralized system suppressing
  spot or field innovation
• Low linkage between schools/training institutes
  and industries
• - inadequate program contents low financial
  support from business
• Test-centered, low quality basic education and
  sub-standard college education
• - severe college entry competition, rampant
  tutoring, etc.
• Firm environment adverse to workers innovation
  and continuous learning
• Poor policy coordination among ministries weak
  evaluation

25
Koreas HRD vision and Strategy
HRD committee, 4th meeting (Sep. 2000)
26
III-2. Problems and Discussion

• Regarding HRD in particular, a host of ambitious
  programs policy initiatives
• New comprehensive policy package
• - 5-year Ed. Development Plan, BK21, Manpower
  21, CyberKorea 21, ST Vision 2020
• The HRD committee launched for better policy
  coordination among ministries
• New financing drive to raise education and RD
  investment
• - increase governments educational investment
  to 5 of GDP raise public RD investment to 5
  of government budget
• - The outcome yet to be seen, but need to tackle
  many fundamental issues
• No concrete ideas and consensus as regards how
  to accomplish requisite reforms, and
• Deadlock of vested interests and lock-in of
  outdated institutions hampering effective policy
  coordination and effective conflict management
• no objective and realistic perspective on
• i) actual urgency of all the requisite reforms
  and their respective priorities
• - ii) the trouble areas in need of intensive
  government support/intervention and those capable
  of self-correction/curing without special
  government support

27
Some policy initiatives are based on poor
understanding and forecast of structural
adjustment of industries and manpower demand
- Tendency to overemphasis ICT, high-science
industries, and highest VA services - Services
sectors will continue to expand, IC sector will
continue to advance, and high-science industries
will gain in significance. But - traditional
mainstay industries (brick and mortar) will
remain as important as before, and actually their
successful upgrading is pivotal to all above
happening. - IC sector emerges quite fast and
strong in Korea, but the primary source of
dynamism may rest with private-sectors
initiatives and capacity rather than with a
series of new policy promotion - Willful
promotion of high-science industries has clear
limitation world-class ST base comprising a
host of excellent universities and GRIs, and
solid, well-balanced industrial base involving
most major industrial branches are must - the
highest VA service activities such as strategic
business services (consulting, professional
marketing, RD) can not develop on its own the
presence of a pool of competitive firms in the
traditional manufacturing is must.
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1) ICT Sector in Korea




Korea lagged quite behind in ICT until lately
and there was some deep concern about this. But,
Korea is forging ahead quite strong and likely to
catch up the global leaders soon in most
near-to-end-market areas (Internet penetration,
IC industries, e-commerce)


GDP shares of IT industries
()
14
Kor
12
US
10
8
6
4
2
0
1994
1995
1996
1997
1998
2005
29
2) Forecast of Industrial and Employment
Structure (into 2010-20)

• Recent multi-sector analysis by KDI shows
• the primary sector (agriculture, mining etc) will
  continue to shrink services sector will continue
  to expand -- both in GDP and employment share
• - services sectors employment share from 58.3
  in 2000 to 63.2 in 2020 (under high growth
  scenario 62.3 under low growth scenario)
• but quite contrary to casual perception and
  previous forecast of similar kind, the
  manufacturing sectors could gain not only in GDP
  share but also in employment share
• under a high growth scenario increase from
  20.4 in 2000 to 20.8 in 2010, and to 21.0 in
  2020
• under low growth scenario fall to 19.7 in
  2010, and to 18.9 in 2020
• Actually, the strong performance and employment
  growth of the manufacturing is the prerequisite
  for the high growth scenario to materialize and
  the highest income service business to prosper

30
Future for the manufacturing? why and HRD
implication
- The industrial branches expected of robust
performance and further expansion are where Korea
stands relatively strong in East Asian markets
with locational advantages in attracting leading
foreign MNEs - Scale-intensive ind
electronics, automobiles, home appliances -
specialized suppliers machinery, plant
equipment, home appliances Also, under a high
growth scenario, Korea could make a substantial
gain in many typical labor-intensive, now
declining industrial branches such as -
textiles/apparel, footwear, food processing, and
other light-manufacturing - For this scenario to
materialize, a successful structural adjustment
within these industries and availability of a
sufficient number of mid to high quality
technicians and engineers are must - Critical
policy parameters in turn are upgrading of
regional innovation system and effectiveness of
the public VET programs
31

• Remark the direction and nature of upgrading of
  the traditional industries
• Nature/sources of gaps gap in the
  knowledge-Intensity gaps in the structure of
  VA chain

Gap in Kowledge-Intensity and Patterns of
Industrial Upgrading
- Korea's present positionposition of G-6 about
2-3 decades ago (natural development stage gap)
? huge room to upgrade the existing
mainstay industries ? No need for
disruptive switch to high-science industries
32
Remark Chance for industrial upgrading with
employment growth very high, given Koreas
locatioanl advantages in East Asian market
Employment Effect of Tech. Innovation
Globalization
Technological Innovation
Globalization
Process Innovation
Product Innovation
Dispersion of Production, Tech, Innovation
Productivity growth Labor-saving
New markets New demand
New International Division of Labor
Structural Adjustment
Job creation
Job destruction
FDI inflows
FDI Outflows
33
3) Educational Reform Basic Education

• Upgrading education is easier to say (promote)
  than done
• Educational problem is extremely complicated and
  intriguing, involving not only pure educational
  variables but also myriad of institutional,
  social-cultural factors Also virtually everybody
  has some critical stake, whether remote or direct
• Before taking on any drastic reforms or
  mega-experiments, a thorough understanding of the
  entire problem structure should comes first
• then extensive consultation and broad consensus
  building process should follow for effective
  buy-in from the major stakeholders (such as
  teachers) and population
• Then all reform efforts needs to sequenced and
  staged carefully from a long-term problem solving
  perspective
• A sequence of piecemeal policy experiments geared
  for minor or outcome-type (not sources) trouble
  areas could worsen the entire situation, adding
  to confusion, fatigues, and cynicism to any
  policy initiatives.
• In reasonably developed society, a top-down
  style reform without minimal consensus building
  could easily backfire

34
Koreas educational problems Structure
35
How to redesign educational system?
Inefficiency in Koreas basic education is of
structural nature - heavily regulated,
centralized system with major decision-making
power concentrated on the ministry of education
and regional educational authority (quite limited
school autonomy) - separation of educational
authority from general administration at the
regional level (no independent educational
authority at local level) - Anti-competitive
school system seriously blocking parents school
choices and active competition among schools
Resolving all these structural problems appears
to be a truly daunting task but serious talk is
now under way to seek for appropriate remedy and
viable reform trajectory.
36
Koreas Educational Governance System Basic
Education

lt Education gt
lt General gt
Central
MoE
Central Govt
LEA Chief Vice-

Congress
Educational Council ???? (146?)
Adm
Regional (16)
LEA Chief

Congress
Adm
Municipal/ Local
Electorates
(180)
(232)
Schools
Customers Public
Schools
School Council
37
Characterization Cross-country Comparative
Perspective
38
4) Policy Coordination and Decentralization

• HRD committee created for better policy
  coordination and priority setting
• But no concession for the MoE leadership (vice
  prime-minister for HRD)
• Many contending ministries too big to assume
  subordinate roles (all with their own extensive
  umbrella organizations under their control)
  (MoCIE, MoL)

Current Administrative Structure
39

• Possible solutions
• merging of MoE and MoL could lead to another
  Dinosaur M
• Alternative HRD committee --gt
  De-concentration/decentralization of each
  ministrys function -gt Merging of major functions
  both at the central and regional levels( created
  regionally integrated HRD system)

Current System
Transition
Final
(Centralized, Disparate)
(De-centralized, Coordinated)
(Regionally Integrated)
HRD Committee
Govt
Central
Labor
Ind
Ed
HRD
Ed
Labor
Ind
others
80 of Budget
grovt
Govt
Regional Local
Ed
Labor
Ind
Labor
Ind
Ed
HRD
others
20of budget
grovt
40
Remark WB-OECDs Recommendation for Radical
Reforms in Koreas Education and Training

• Deregulate curriculum, tuition, admissions
  requirements, number of spaces
• Integrate current formal, vocational, adult, and
  distance education systems and training of people
  to meet growing needs of lifelong learning
• Provide entrepreneurship and management training
• More English language and computer training
• Allow greater tax deductions for private
  contributions
• Increase public resources to schools and
  universities to improve quality and provide more
  scholarships to address equity issues

• Establish Higher Education Council with all
  important stakeholders to set guidelines for
  allocation of resources and monitoring and
  evaluation criteria
• Establish separate Review Board to do monitoring
  and evaluation, quality and accountability
  issues.
• Delegate to local authorities, responsibility for
  primary and secondary education, including
  reallocation of resources
• Provide comprehensive approach to human resource
  development by coordinating the Ministries of
  Education, Labor, Health and Welfare, Industry,
  ST, and Information and Communications

41
Annex
Road to a KBE The Case of Korea
42
Annex
Koreas KBE Master Plan Structure
43
World Trade flows by Regions
Annex
Domestic Shares of MNEs by Activities
(
Unit



)
44
Annex
45
Annex