Byungtae Lee (Dean of KAIST College of Business)

Korea shipbuilding industry has been No. 1 for its highest level of export in the world for the last 11 years. However, Korea recently lost the number-one position in shipbuilding industry to China last year. As Japanese yen has weakened dramatically and China has strengthened the competitiveness of its technologies in the global market, Korean competitiveness of exports has been weakened a lot. The “New Sandwich Crisis” seemed to come to the fore.

A few years ago, I (a writer of this article) attended a training session with executives in shipbuilding industries. At the session, I had asked people if they are concerned about the possibility that China might overtake us as Korea had done to Japan. They said very confidently that Korea would never be overtaken by China at least for the next 20 years. However, it’s now getting clearer that they had underestimated China’s economies of scale too much.

The importance of service industries becomes greater as a country enters the line of developed countries. However, we can realize how important the competitiveness of manufacturing is if we recall many countries which suffered from the lack of good jobs and an economic crisis. Southern European countries having suffered from the economic crisis do not seem to have a solution for the economic crisis because of their weak manufacturing base. The United Sates also attributes the lack of good jobs after the financial crisis to the deindustrialization of manufacturing. Despite the effort of America to bring in many companies, entrepreneurs point out its weakened manufacturing base. It’s because the U.S. hasn’t fostered high-quality technical professionals and thus it now trails far behind the R&D investment of China. Management consulting, finance, and service industries can grow when there exists a solid manufacturing base. Thus, the new government’s “creative economy” policy should focus on building solid bases of technology and manufacturing.

Then, how can the government overcome this new crisis and achieve sustainable development of the economy? It needs to stabilize the operation of exchange rates. Also, the government needs an innovation in its immigration policy. Our current policy is quite generous to the influx of low-income workers, but has many restrictions to the influx or immigration of high-quality workers. We need the new immigration policy that can help companies use talents for global technologies and design. Our bases of global education, medical system, and tax favor that are deemed necessary for the influx of high-quality workers are much inferior to those in China and Hong Kong.

The pursuit of economy democratization and the social atmosphere arising from it may not end up with the achievement of development, but with the expansion of welfare services. We need a policy which encourages companies’ investment in challengeable R&D and large-scale projects if we don’t want to regret having undermined an economic base for sustainable development.

The government’s investment in technology development should proceed in a selective and focused way. KAIST could recently win many large-scale projects such as online electronic cars and mobile harbor by investing drastically. The need for selecting a policy is desperate not to repeat budget waste anymore.

The advancement and liberalization of finance is also urgent. The development level of finance in Korea is way behind the advanced level of Korean manufacturing industries. Companies’ economic activities have grown too much to be sufficiently covered by the governmental funds. Without the financial advancement like funding harmoniously from start-up businesses to projects in accordance with the market principle, maintaining industrial competitiveness and discovering growth engine will be hardly achievable. Many Chinese firms are easily being listed on the advanced public stock exchanges such as NASDAQ because of the huge domestic market of China. Those Chinese firms secure their capital strength and brand power using the enormous funds raised from China.

The best medium- and long-term strategies will be the inducement for companies to develop technology or the policy that encourages education to foster high-quality workers that can strengthen the R&D ability. The U.S. Silicon Valley could be born with the presence of many privileged universities like Stanford and UC Berkeley. It has been long time since prospective students started to avoid natural sciences and engineering. There will be no technology competitiveness in Korea if we repeat what the U.S. regretted long time ago.

Link: http://www.munhwa.com/news/view.html?no=2013030501033137191002