How can Korea update its economic model for continued growth?

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I think one thing that could update Korea’s economic model would be its dependency on large corporations. We’ll need several more large corporations, similar to before, but at the same time, we need a few of those still large but midsize companies, maybe $10 billion, $20 billion in scale. And we need more than 100 unicorns, which together with more established companies, would simultaneously boost our Korean economy.

Another indicator would be the labor productivity of our industry. Korea is known for very low labor productivity. It’s not because our operational efficiency is slow—it’s because of structural problems. Because of our high dependency on a few large corporations, the average productivity, mostly driven by SMEs, has been very low. I think once we transform our industry structure, the average productivity of an SME could [double]—and that will boost the overall productivity of Korean corporations.

Another metric would be capital injection. We need to create a virtuous cycle of capital injection, value creation, reinvestments, and so on. The reason why I’m saying this is despite Korea’s economic stature, the FDI flow into the country is very low.

If you look at the foreign investment for the Korean Stock Exchange, I think that has been decreasing over the last ten years. And there are a lot of retained earnings within corporates—there are more than $100 or $1,000 billion of retained earnings among top corporations. But they are very hesitant to make bold investments, and I think these investment flows should be accelerated. That can help create value, which in turn can create more returns.

The next one is overall human resources, especially for those highly skilled workers in semiconductors, or ship building, or automotive, AI (Artificial Intelligence), and so on. And AI, especially generative AI and analytical AI, can create huge value for the Korean economy across industries.

Another thing I want to mention is the number of industries where we have very distinctive strategic distance against our competitors. So, when it comes to semiconductor memory chips, or large ship building, or automotive industries, or EV batteries, Korea is a leader on those globally. For some of those areas, we have very, very distinctive leadership. And we’ll have to develop a few more of those areas which can boost the ecosystem and Korea’s overall economy.

Some examples can come from the energy transition—Korea [is a pioneer] in the hydrogen sector, and Korean companies are also very excited about CCUS technologies. So, renewables or SMR (small modular reactors)—those types of energy transition-related industries could be options. Biotech is another option, like third-generation CGT (cell gene therapy), CDMO (contract development and manufacturing organization), or CRO (clinical organizational research). So, there are certain industries where Korean corporations and Korean government can focus their investment and create second, third, fourth semiconductor memory chip type of industries.

Once we do this, the ratio between the manufacturing sector and the service sector can be more balanced. Right now, Korea is the country with one of the lowest service-sector contributions to GDP. I think that needs to go up significantly, from 60 percent to 70 percent.

And lastly, one of the things we should also aim for is establishing some of those large-scale industry clusters. what I mean by that is something like Silicon Valley, or the Boston bio cluster. Right now, Korea has very small-scale industry clusters scattered all across the country. But since we have very limited resources, I think it’s time to consolidate some of those capabilities and create mega-scale industry clusters which have large corporation, ventures, investors, schools, R&D centers, foreign companies, and so on. In doing so, we can create an ecosystem that can continuously innovate and grow all by itself.

Once we find the solution for this puzzle, Korea can rebound and come back to high-growth economy, with the likes of a 4 percent GDP growth on average. And once we realize that model, maybe by 2040, we can even aspire to become 7th largest global economy by GDP.

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