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of 2 South Korea opts for
mind over matter By Scott B MacDonald
important to
develop the financial-services sector if the
country is to achieve a more knowledge-based,
service-oriented economy. The Korea Economic
Institute report said: "Financial-services
development will also create new and better jobs,
help to offset job losses in manufacturing, and
raise Korea's long-term growth
potential."
Along these
lines, the government introduced in 2006 the
Capital Market Consolidation Act. According to the
government, the CMCA (which is expected to come
into effect next year) seeks to improve the
international competitiveness of the country's
non-bank financial institutions, make South Korea
the financial hub of Northeast Asia, liberalize
the financial-services sector to make it an
economic growth engine, and improve the viability
of the overall services sector to reduce South
Korea's reliance on manufactured exports for
growth.
South Korea's ambitions to
transform the economy into one that is more
knowledge-based is a necessary move, reflecting
stark realities of being a key player in a
globalized economy. At the same time, the process
is difficult. There is a pressing need for labor
reform. According to the World Bank, the cost of
firing a regular worker in Korea is more than
twice as high as the average for advanced
countries. This has led to a bifurcated labor
market, with one group of protected regular
workers and a growing number of non-regular (less
protected) workers. Moody's Investors Services
noted in a report last April: "Strong employment
protection and high labor costs for regular
workers have prompted firms to employ non-regular
workers, who now comprise almost 40% of employed
persons but earn only 60% of regular workers'
compensation."
Another concern is that for
a more service-oriented economy to thrive, small
and medium-sized enterprises (SMEs) are critical.
Along these lines, there is a pressing need to
loosen lending regulations to SMEs (in particular
laws pertaining to defining collateral). In many
advanced economies in North America and Europe,
SMEs have played an important role in deepening
the process of creating diversified and deep
service sectors.
South Korea is in the
process of another round of economic and societal
change related to structural transformations
taking the country further along the path of the
manufacturing-services continuum. In simple
language this means it is slowly moving toward a
more knowledge-based economy. The democratic
nature of South Korea's political system provides
a hearty public forum for discussing the country's
future, which in itself is important. This allows
an airing of discontent over speculation, the
implications of foreign investment, the accrual of
wealth via real estate, and how to create more
transparent and open business practices among
major conglomerates. It also helps to maintain
some sense of urgency over the need to maintain
reform if South Korea is going to develop into a
more full-fledged knowledge-based society.
The process of change is always difficult,
but South Korea has demonstrated a track record of
accomplishments, sometimes against considerable
odds. It will need to do so again.
Note: While the information and
opinions contained within this article have been
compiled from sources believed to be reliable, KWR
does not represent that it is accurate or complete
and it should be relied on as such. Accordingly,
nothing in this article shall be construed as
offering a guarantee of the accuracy or
completeness of the information contained herein,
or as an offer or solicitation with respect to the
purchase or sale of any security. All opinions and
estimates are subject to change without notice.
KWR staff, consultants and contributors to the KWR
International Advisor may at any time have a long
or short position in any security or option
mentioned.
Scott B MacDonald is
editor of KWR International Advisor.
(Copyright 2007 KWR International, Inc.)
(Posted with permission from KWR International,
Inc, a consulting firm specializing in
the delivery of research, communications and
advisory services.)
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