Building a Knowledge Based Economy: the Case of Korea Feb Professor Eul Yong Park Handong University

Korean Economy: Background and Legacy Korean economy; 1960s-1980s =>The government-, investment-, and export- led growth. Rapid sustained long term growth. In 1960, Korea’s 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.

US Japan Ireland Korea Singapore Hong Kong Malaysia Finland Per Capita GDP (PPP, current international $)

The Causes of the Crisis of 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.

Korea's Overall International Competitiveness (Rank of IMD's World Competitiveness Report)

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

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

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

Share of World Manufactured Exports Korea China Singapore Hong Kong Taiwan

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.

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.

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.

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).

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.

Korea Singapore Hong Kong Malaysia Tertiary Enrollment US Finland Japan Ireland

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.

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.

Innovation System Strengths – Korea high spender on R&D – Most R&D financed by private sector Weaknessess – R&D output not commensurate with inputs – Quality and allocation of local S&E talent – Linkages between universities, public research institutes and firms – Linkages to global knowledge – Low regard for value of knowledge

R&D Expenditures:% of GNP, Finland Japan Ireland Korea Taiwan US

Patent Applications(Residents), 1996 (per million population)

Promotion of Venture Firms Rapid growth in new ventures (6,000 established ) 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.

Challenges to the Innovation System Improving internal efficiency of R&D effort.--Role and efficiency of Government research institutes. -- Efficiency of private R&D efforts. Improving external efficiency of R&D effort. Strengthening intellectual property rights. Improving links to global knowledge. Improving knowledge management in firms.

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

PC per 1,000 people US Finland Japan Ireland Korea Singapore Hong Kong Malaysia

Telephones (fixed lines + mobile) per 1,000 people US Finland Japan Ireland Korea Singapore Hong Kong Malaysia

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.

Key Issues of Information Infrastructure Digital divide. Development of database and networking. Development of skills to utilize the new information infrastructure.

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.

Lessons 1 Importance of human-centered development strategy => investment in people, providing equal opportunities. Importance of intangibles. Promotion of clusters and networks.

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.