Current Status of National Competitiveness 5-Year Vision for National Competitiveness Policy Implications The Way Forward: A Small & Strong Gov.

Current Status of National Competitiveness 5-Year Vision for National Competitiveness Policy Implications The Way Forward: A Small & Strong Gov.

Ⅰ -1. IMD World Competitiveness Rankings Coverage: 55 countries in 2008 Assessment:  Four factors of competitiveness Economic Performance, Government Efficiency, Business Efficiency, Infrastructure  331 criteria (208 statistical criteria, 123 survey data) * 77 out of 208 statistical criteria are for background information only 2008 Rankings KoreaJapanChinaTaiwanHong KongSingapore

Ⅰ -2. Trend of Korea's National Competitiveness Infrastructure Overall Business Efficiency Government Efficiency Economic Performance Ranking Year

Ⅰ -3. Sectoral Weaknesses in Korea's Competitiveness Factor Economic Performance Government Efficiency Business EfficiencyInfrastructure Overall Ranking Statistical Criteria -Cost of living (55) -FDI (% of GDP, 54) -Tourism receipts (% of GDP, 52) -- -Pupil-teacher ratio for primary education (50) Survey Criteria -Labor regulations (54) -Immigration laws do not prevent foreign labor employment (54) -Legal and regulatory framework (53) -Public sector contracts open to foreign partners (53) -Price controls do not affect pricing of products (53) -Labor relations (55) -National culture open to foreign ideas (55) -Corporate boards supervise the management of companies (54) -Technological regulation supports business development and innovation (55) -University education meets the needs of a competitive economy (53) -Environmental laws hinder businesses (50) Korea's Weaknesses by 4 factors of competitiveness (out of 55 countries covered in 2008)

Current Status of National Competitiveness Policy Implications 5-Year Vision for National Competitiveness The Way Forward: A Small & Strong Gov.

II. 5-Year Vision for National Competitiveness Status Quo : Maintain Current Development Trend Take-off : Implement Unreserved and Fundamental Reform Ranking in 5 years Government Efficiency Business Efficiency Economic Performance Infrastructure Potential growth rate in 5 years 28 Gain 5 ranks Gain 2~3 ranks 4.2% Ranking in 5 years Government Efficiency Business Efficiency Economic Performance Infrastructure Potential growth rate in 5 years 15 Gain 30 ranks in weak areas *regulation, etc Gain 30 ranks in weak areas *labor relations, etc Gain 20+ ranks Gain 5 ranks 6~7%

Current Status of National Competitiveness Policy Implications 5-Year Vision for National Competitiveness The Way Forward: A Small & Strong Gov.

III-1. Unreserved deregulation Realignment into a system of‘good regulations’ - Achieve regulatory objective + Reduce regulatory costs * Total regulatory costs in 2007 (SERI Proj.) : KRW78.1 trillion (8.7% of GDP) Key regulations by sectors have been reformed until the 4 th meeting of the PCNC -Opening a new business: improved opening process -Financial sector: set basic directions for financial deregulation and improved entry regulations -Land, sites: reformed regulations regarding industrial complexes, reduced prices for industrial complex sites -FDI: Promoted FEZs -Foreign labor: Expanded efforts to attract global skilled labor force -Business environment: Alleviated on-site problems of manufacturing SMEs

Rule of law is a key factor of social capital → serious effect on economic growth Korea's rule of law is at the lowest level among OECD countries: negative effect on the economic growth rate by 1%p (KDI) Recent candlelight demonstrations : Direct costs of KRW billion, Indirect costs of KRW trillion (KERI) First, foster a law-abiding environment Establishment of a‘good regulations’framework through regulatory reform An effective conflict management system also needs to be established Next, strict law enforcement on illegal actions → Advancement in law and order * Analysis of Korea's demonstrations and protests(1989 ∼ 2003) show that demands through illegal demonstrations (29.1%) were more likely to be attained than through legal demonstrations(25.2%) → Incentives for illegal demonstrations remain III-2. Advancement of Law and Order

Korea's size of government: small among OECD members, but increasing rapidly - Continued pressure for public sector expansion is expected taking into account rapid population aging and increasing demand for welfare Public sector innovation is essential in establishing a sustainable foundation for economic growth - Continued devolution of manpower, organization, and functions to the private sector * Government : Deregulation + Outsourcing → Small Government * Public Entities : Privatization, Restructuring → Enhanced efficiency and service - Limiting increases in the size of public finance III-3. Public Sector Innovation Trend of total tax burden ratio (%) OECD Average Total Tax Burden (Incl. Quasi Tax)

III-4. Cooperative Labor Relations Corporate social responsibility - Transparent corporate governance and strengthened noblesse oblige are prerequisites to strict law enforcement and cooperative labor relations An advanced institutional framework to establish peaceful labor-management culture - Recently, labor disputes and lost work days are on the decrease - To foster a cooperative labor-management culture, an law and principle-based environment is needed  Put an end to unfair labor practices  Adhere to the‘no work, no pay’principle  Institutional advances such as long-term collective agreements * Duration of collective agreements : Korea(2 years max.), Japan(3 years max.), France(5 years max.), US(2 ∼ 3 years) Labor disputes (no.) Lost work days

III-5. Strengthened Policy PR Significance of strengthening policy PR and public communication * In 2008 IMD World Competitiveness Rankings: Statistical criteria ranking (23) vs. business survey ranking (36) → Overall ranking: 31 Active PR efforts though various channels and methods are needed to reach policy customers - Increase PR though media such as TV, newspapers, and internet portals - Strengthen customized PR (Policy Customer Relationship Management)

Current Status of National Competitiveness National Competitiveness in 5 Yrs: 2 Scenarios Policy Implications The Way Forward: A Small & Strong Gov.

IV. The Way Forward: A Small & Strong Government Current Trend Target Path Small & Strong Gov. ① Regulatory reform ② Public sector innovation ③ Cooperative labor relations □ Current trend of Korea’s public expenditure and regulation (Yellow Path) □ Achieving the ’Take-off’ (Mid-Expenditure, Low Regulation) Scenario (Red Path)