Building a Knowledge Based Economy: the Case of Korea

1
Buildinga Knowledge Based Economythe Case of
Korea

• Feb. 2002
• Professor Eul Yong Park
• Handong University

2
Korean Economy Background and Legacy

• Korean economy 1960s-1980s
• gtThe government-, investment-, and
  export-led growth. Rapid sustained long term
  growth.
• In 1960, Koreas per capita income was 80, one
  of the lowest in the world. Not many people had
  hope for sustained growth.
• Korea did not have capital, technology or natural
  resources. Only human resources.
• High absorption capacity backed by strong
  achievement mentality and education.

3
Per Capita GDP (PPP, current international )
US
Ireland
Japan
Finland
Hong Kong
Singapore
Korea
Malaysia
4
The Causes of the Crisis of 1997-1998

• Mismanagement of foreign debt.
• Structural causes neglected reforms of major
  issues as globalization process accelerated.
• Needed paradigm shift in development strategy
  from government-led to market-led.

5
Korea's Overall International Competitiveness
(Rank of IMD's World Competitiveness Report)
6
Updating the Economic and Institutional Regime

• Greater openness to trade, and competition
• Financial sector/corporate reform
• Improving labor market flexibility and retraining
• Restructured government compatible with the
  information age
• Rule of law, fairness, anticorruption, equal
  opportunity

7
Specific Issues in the Economic and Institutional
Regime

• Dealing with risk of increasing inequality
• Social safety nets
• Opportunities for life-long learning
• Strengthening intellectual property
• Venture capital for technology based firms
• Industrial structure issues

8
Industrial Structure Issues

• Strengths and weakness of the chaebol
• Promoting small and medium industries
• Role of foreign firms
• Encouraging high value service activities

9
Share of World Manufactured Exports
China
Hong Kong
Korea
Taiwan
Singapore
10
The Reform Agenda Government Sector

• Deregulation Government restructuring Rule of
  law.
• Strengthening local autonomy
• Correct bureaucratic red tape Lack of
  transparency in decision making process.

11
The Reform Agenda Private Corporate Sector

• Strengthening corporate financing system
  reduction of debt level. .
• Reforming competition policy large firms vs.
  SMEs.
• Reform of corporate governance.
• Promoting ventures, high-value services, SMEs and
  foreign direct investment.

12
The Reform Agenda Financial Sector

• Legacy of strong government influence led to weak
  financial system.
• New role of government liberalization with close
  prudential supervision and monitoring.
• Preparing for globalized financial system.

13
The Reform Agenda Labor Sector

• Labor market flexibility.
• Coordination among government, labor union and
  management.
• Reform of compensation system Linking
  company performance with the compensation for
  workers (U.S. experience).

14
Developing Human Resources for the KBE

• Korea has tremendous assets in high educational
  investment attainment
• But problems with quality and creativity
• Challenge is to re-deploy resources to get more
  out of large investments.

15
Tertiary Enrollment
Finland
Korea
US
Ireland
Singapore
Japan
Hong Kong
Malaysia
16
Specific HR Issues

• Quality of formal education.
• too academic, not practical or creative.
• ineffective use of resources.
• over-regulation quotas, testing, content.
• poor links to labor market.
• Adult learning opportunities limited.
• Gender inequity in higher ed and jobs.

17
HR Reform Agenda

• From mass uniform education to that of
  diversity and choice.
• Deregulation and competition.
• New role of government from controller to
  designer and supporter.
• Urgent needs of university reform.
• Promoting life long learning and linkage with
  job-training.
• International linkage.

18
Innovation System

• Strengths
• Korea high spender on RD
• Most RD financed by private sector
• Weaknessess
• RD output not commensurate with inputs
• Quality and allocation of local SE talent
• Linkages between universities, public research
  institutes and firms
• Linkages to global knowledge
• Low regard for value of knowledge

19
RD Expenditures of GNP, 1981-97
Japan
Korea
Finland
US
Taiwan
Ireland
20
Patent Applications(Residents), 1996 (per million
population)
21
Promotion of Venture Firms

• Rapid growth in new ventures (6,000 established
  1998-2000)
• Large number of technology-based startups
• Concentrated in IT sector(34), telecom(11),
  electronics(12), and mechanical
  engineering(10). ( Jul. 2001).
• Key issues the role of venture capital,
  government supporting system, role of
  universities, GRIs and venture incubation
  centers.

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Challenges to the Innovation System

• Improving internal efficiency of RD
  effort.--Role and efficiency of Government
  research institutes. -- Efficiency of private RD
  efforts.
• Improving external efficiency of RD effort.
• Strengthening intellectual property rights.
• Improving links to global knowledge.
• Improving knowledge management in firms.

23
Information Infrastructure

• A dynamic information infrastructure is critical
  to take advantage of the knowledge and
  information
• Korea has made big strides
• Korea has potential to leapfrog to leadership
  position and leverage economy

24
PC per 1,000 people
US
Singapore
Finland
Ireland
Hong Kong
Japan
Korea
Malaysia
25
Telephones (fixed lines mobile) per 1,000 people
Hong Kong
Finland
Japan
US
Korea
Singapore
Ireland
Malaysia
26
Information Infrastructure

• Active role of government in investment in
  infrastructure.
• Internet subscribers 26 million (55 of total
  population).
• High speed broad band connections (ADSL etc.)
  6.7 million households.
• Promoting e-government and e-business.

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Key Issues of Information Infrastructure

• Digital divide.
• Development of database and networking.
• Development of skills to utilize the new
  information infrastructure.

28
Issues of the Reform Implementation

• Consensus building among major stake-holders is
  important.
• Awareness of what is at stake.
• Mission, goals and priority setting.
• Trying to implement too quickly causes waste and
  inefficiencies.

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Lessons 1

• Importance of human-centered development strategy
  gt investment in people, providing equal
  opportunities.
• Importance of intangibles.
• Promotion of clusters and networks.

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Lessons 2

• Role of government From controller to designer
  of KBE.
• Leap-frogging development through exploiting
  global market and knowledge.
• Importance of continuous learning, innovation and
  reform.