Approaches to addressing industrial and regional inclusiven

ess in Korea

Presented at “Knowledge and Innovation for Inclusive Development”

Advisory Group Meeting

Istanbul, Turkey 24 October 2013

Yongsuk Jang, Ph.D. Research Fellow

•  Korean Development Strategies

•  Side Effects: Inequalities

•  Policies for Inclusiveness

Contents

Korea's Economic Development, 1953-2010

$67 (1953)

$20,759 (2010)

Source: The Bank of Korea • 1953-1970: Per Capita GNP (current US$, 1975 base year) • 1971-2010: Per Capita GNI (current US$, 2005 base year)

11th Largest Economy in 2010

2nd Poorest Country in 1945

Overview of Korean Development

Period 1960s 1970s 1980s 1990s 2000s 2010~

Era Export-Oriented

Export-led Economic Liberalization

Democrat. Advancement Global Leading

Focused Industries

Light Industries

Heavy Industries

Assembly & Processing Industries

ICT Knowledge Intensive Industries

Knowl. Service/New Converging/ Green Ind.

Compet. Factor

Cheap Labor Skilled Labor Capital Investment

Technologies S&T Innovation

Advanced S&T Innovation

Demanding S&T HR

Skilled HR Technical HR Higher S&E High Calibre S&E

Creative S&E Creative & Converging S&E

Demanding Tech.

Plant Mgt. Facility M&O Mfg. Core Tech. Endogenous Tech.

Source Tech.

S&T Policy Turn-key Capital Import/ Tech. Learning

Internalizing Imported Tech./ Reverse Eng.

Modify Imported Tech./ Develop Domestic Tech.

Advancing Tech. Catch-up/ Large Gov. R&D Prog.

Focus on endogenous tech./ Systemize S&T Prog.

Globalize S&T/ Focus on Convergence

Imitation Catching-Up Innovation Endogenous Innovation

Paradigm Change

Debate on Dev. Strategy: Balanced vs. Unbalanced

•  Unbalanced Strategy

-  Intentional Pursuant of Unequal Growth expecting Spillovers to other sectors and regions

-  Strong Gov.: Picking Winners -  Strategic Building of ‘Islands

of Excellence’ -  Innovation: Reversed Model

(Technology First, Science Later)

-  Maybe Proper in Less Advanced Systems at Institutional Building Stage under resource austerity

-  Eastern Holistic Approach

•  Balanced Strategy

-  Pursuing Equal Growth in All Sectors and Regions

-  Small Government -  Innovation: Based on

Traditional Simple-Linear Model (Basic-Applied-Dev.)

-  Maybe Proper in Advanced Systems where all infrastructural components are fully developed

-  Western Analytical Approach

Industrial Shifts

1960s 1970s

1980s 1990s

"  Import Protection "  Foster export- oriented light industry

"  Introduce new technology, expand technological capability 

"  Promote import liberalization "  Expand investment in technological development, training of skilled manpower

"  Strengthen demand–driven technological innovation "  Establishment of nationwide IT infrastructure

“Select and Focus” Strategy

STI Meets Industrial Demands

Light Industries

Heavy Industries

Assembly & Processing Industri

es

IT Industries

New Growth Engines

Demand Side

Supply Side

• Self-Sustain

• Import-Subs.

• Import Protection

• Export-Orient

• Mfg. Capacity

• Industrial Seeds

• Open Market

• Higher Value-added

• Industrial Diversificat

ion

• Import Tech.

• Tech. Capability

• Expand R&D

• Skilled HR

• Demand-oriented Inn

ovation • Endogenous Tech.

Industry-Oriented STI Strategy

•  Government: EPB and STA •  EPB (Economic Planning Board) in 1962 •  5 Year Economic Plans (1962~) •  STA (Science and Technology Administration) in 1967 •  5 Year S&T Plans as a Part of Eps

•  Industry: Chaebols •  Big Conglomerates like Samsung, LG, Hyundai, Daewoo, etc. •  Oligopoly rather than Monopoly •  SMEs are Suppliers (Subcontractors)

• Research: KIST & GRIs •  KIST (Korea Institute of Science and Technology) in 1966 •  Spin-offs Specialized GRIs

•  Education: S&T Specialised Universities •  KAIS (Korea Advanced Institute for Science) in 1971 •  KAIST, UNIST, DGIST etc.

Leading Players

Side Effects: Inequalities

•  Regional Inequality

-  Concentrate on Seoul Metropolitan area

-  Half of population (One quarter in Seoul)

-  Half of employment -  Two thirds of Banking -  Two thirds of R&D

investment -  Three quarters of National

Taxes -  Inefficient use of land -  Higher housing prices, crime

rates, traffic congestion, air pollution, lower productivity, etc.

•  Industrial Inequality

-  Chaebols dominate (dominant shareholding manager capitalism)

-  Top 20 takes 83% of Assets, 75% of Sales, 74% of R&D investment

-  SMEs are only subcontractors to Chaebols

-  Unfair trades are widely practiced between Chaebols and SMEs

-  e.g, offers unreasonable prices, buy out innovative SMEs, scout core researchers from SMEs, etc.

Employment by Industrial Sector Rate of Urbanization

63.1

48.8

34.0

17.9

12.4 10.9 7.9 8.7

13.8

22.5

27.6 23.6

20.2 18.6

28.2

37.3

43.5

54.5

64.0

68.9

73.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

1963 1970 1980 1990 1995 2000 2005

primary sector secondary sector

tertiary sector

64.2

49.8

30.7

17.3 12.2 10.2

35.8

50.2

69.3

82.7 87.8 89.8

0

10

20

30

40

50

60

70

80

90

100

1960 1970 1980 1990 2000 2005

Rural Area Uraban Area

10

Industrial Revolution and Urbanization

Expansion of Chaebols

Assets

Profits

Sales

Subsidiaries

‘Samsung Illusion’

Employment by Region Population by Region

12

Concentration on Seoul

13

R&D Investment Nat’l Tax by Region

Regional Unbalance

•  Presidential Committee on Regional Balanced Dev. •  Special Law on National Balanced Development of 2003 •  5 Year Plan for Regional Balanced Dev. (2004-2008)

•  5+2 Framework •  5 Mega Regions & 2 Special Regions •  Customized Dev. based on Regional Strategic Industries •  Establish Regional Innovation Systems: 12 Regional Innovation Clusters, 18 Techno-Parks, etc.

•  Sejong City: Administrative Capital •  Regulate Expansion of Seoul Metropolitan area •  Move Administrative Capital to Sejong City •  Spread out public entities to other cities

•  International Science & Business Belt (ISBB) •  Institute for Basic Science (IBS) •  Rare Isotope Accelerator •  Science-based Business Environment

Policies against Regional Unbalance

15

5+2 Framework for Regional Dev.

16

Sejong City: The Administrative Capital

•  Fair Trade Commission (1981) •  Installed under EPB in 1981 •  Became Independent Standing Commission in 1994 •  Promoted to the Ministry Level in 1996

•  National Commission for Corporate Partnership (2010) •  For Shared Growth (www.winwingrowth.go.kr) •  Against Social Gap, Towards Sustainable Growth •  Large Firm (9), SMEs (9), Academies (6) •  Building Social Consensus on SMEs-specialised Products and Services

•  “Economic Democratization” •  As part of ‘Creative Economy’ in Park Geun-hye Admin. •  Building Inclusive ‘Creative Economy’ Culture •  Support Venture Start-ups and SMEs •  Regulate Chaebols’ Unfair Practices •  CSR (Corporate Social Responsibility)

Policies against Industrial Inequality

•  Large-SMEs Cooperation Foundation •  33 Chaebols, 12 Public Enterprises, 8 Medium Firms •  Tax Exempt Fund •  Support and Assist SMEs in following areas

•  Research and Development •  Support R&D activities and Tech. Transfer

•  Human Resources Development •  Support HR Recruit, Job Training, HRD facilities

•  Productivity Improvement •  Support Investment for Productivity Improvement •  Provide Technical and Managerial Consulting

•  Global Market •  Assist Global Market Survey and Oversea Contracts

•  Greenhouse Gas and Energy Efficiency •  Support Investment for reducing GHG and Energy Efficiency

Shared Growth Fund

Thank You!

For Further Comments & Questions;

Yongsuk Jang jang@stepi.re.kr