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Challenges to a renaissance

June 21,2019
President Moon Jae-in has come up with a bold plan to raise Korea’s per-capita national income to $40,000 by 2030 and make its manufacturing industry one of the four largest in the world. We welcome the plan, but they are difficult targets. Moon explained the reasons himself. In a ceremony on Wednesday to outline his vision, he admitted Korea’s inability to create new industries over the last three decades. “As our manufacturing sector lost steam, China is poised to surpass Korea,” he said.

Without a strong manufacturing base, we cannot be a leader in the fourth industrial revolution and its myriad technologies from big data to artificial intelligence (AI), drones and self-driving cars. Moon vowed to get rid of multiple layers of regulation — which hinder the development of the manufacturing industry — to raise the number of top companies to 1,200 from 573, increase the share of new industries to 30 percent from the current 16 percent and lift our export volume to fourth place from a current sixth in the world.

The decline of once-mighty Britain — now the fifth largest economy in the world — coincided with the downturn of its manufacturing sector. Japan’s “lost” decades partly resulted from Korea and China’s rise in manufacturing. Advanced countries have already started to revitalize their manufacturing fields, as seen in U.S. President Donald Trump’s “America First” policy aimed at restoring the manufacturing base of the United States. To achieve that goal, he lowered the maximum corporate tax rate to 21 percent from 35 percent, which resulted in some “reshoring” of U.S. manufacturing companies.

Japan rolled up its sleeves to reinforce the competitiveness of its manufacturing sector. According to consulting firm Deloitte, Japan’s manufacturing competitiveness rose to fourth place in 2016 from 10th in 2013 thanks to the government’s “Society 5.0” strategy aimed at upgrading the traditional manufacturing base. Reshoring was accelerated after Tokyo lowered its maximum corporate tax rate to 23 percent from 39.4 percent. Germany is no different, as seen in its “Industry 4.0” project.

Moon’s ambitions can be achieved only when the economy is backed by a strong manufacturing base. Yet manufacturing companies are fleeing the country to avoid regulations and cut their labor costs. Their overseas direct investment doubled last year compared to the previous year, and in the first quarter of this year increased by a whopping 40 percent. The government must deregulate and launch labor reform before it’s too late.