ID :
189347
Sat, 06/18/2011 - 04:30
Auther :
Shortlink :
http://m.oananews.org//node/189347
The shortlink copeid
Two-speed economy : Parallel growth of export, domestic demand urgent
Korea has been a model for its export-oriented development. The latest data shows that this external-focused growth strategy is not always a panacea as it widens economic polarization and creates two economies in one country.
The Bank of Korea reported that exports outweighed domestic demand in the first quarter for the first time since 1970. Exports accounted for 52.2 percent of the gross domestic product (GDP).
Between 1970 and now, exports have grown 22 times faster than domestic demand. GDP has expanded 1.7 times as fast.
The statistics indicate the existence of a two-speed economy in Korea. Exports have powered the economy. Large enterprises have been the engine of export-fueled expansion and the main beneficiary of this unbalanced growth pattern.
However, the income gap between domestic-oriented companies and exporters has been widening. The record performance of exporters has masked the shadowy side of the economy. The inflation-adjusted household income has fallen, and consumer spending has been stagnant. Exports no longer have the powerful effect of stimulating investment and creating new jobs.
Troublesome is that the exporters have made the life of small firms harder. They recycle large earnings for penetrating business sectors that were once exclusive for small- and medium-sized firms.
This is a critical mistake the pro-conglomerate administration has made.
Under the name of igniting competition, the government lifted entry barriers, allowing large enterprises to expand their business lines like an octopus moving its tentacles in all directions.
Now the government has the twin task of stimulating domestic demands and stabilizing inflation. The two objectives are contradictory. An attempt to prop up domestic demands will fan inflation, which will make the livelihood of the people harder.
The Lee Myung-bak administration has kept the won-dollar exchange rate artificially high. This policy has sharpened the competitiveness of exporters at the risk of importing inflation. A cheaper value of the local currency is a subsidy for exporters but a penalty for consumers.
Late this month, the government will unveil measures to upgrade the medical tourism, education, legal services and accounting markets.
Policymakers are in a dilemma as there are no quick-fix, magical solutions to jumpstart the moribund domestic demand.
They have encountered obstacles in the services-market upgrade due to a conflict of interest.
Statistically, Korea is envied by the world. Its per-capita income has returned to the $20,000 level. It is one of a few countries which has successfully overcome the 2008 global economic recession. Its annual trade is to top $1 trillion this year, becoming one of the world's top 10 trading countries. It is the world's 14th largest economy. Its foreign exchange reserves exceed $300 billion. It was the host country of a G20 summit and has become a donor country in the OECD.
Internally, the nation has a two-speed economy. The high-speed export sector may derail the low-speed domestic one. The time has come when Korea must adjust the speed of the two economies. A parallel growth of exports and domestic demand is necessary.
The Bank of Korea reported that exports outweighed domestic demand in the first quarter for the first time since 1970. Exports accounted for 52.2 percent of the gross domestic product (GDP).
Between 1970 and now, exports have grown 22 times faster than domestic demand. GDP has expanded 1.7 times as fast.
The statistics indicate the existence of a two-speed economy in Korea. Exports have powered the economy. Large enterprises have been the engine of export-fueled expansion and the main beneficiary of this unbalanced growth pattern.
However, the income gap between domestic-oriented companies and exporters has been widening. The record performance of exporters has masked the shadowy side of the economy. The inflation-adjusted household income has fallen, and consumer spending has been stagnant. Exports no longer have the powerful effect of stimulating investment and creating new jobs.
Troublesome is that the exporters have made the life of small firms harder. They recycle large earnings for penetrating business sectors that were once exclusive for small- and medium-sized firms.
This is a critical mistake the pro-conglomerate administration has made.
Under the name of igniting competition, the government lifted entry barriers, allowing large enterprises to expand their business lines like an octopus moving its tentacles in all directions.
Now the government has the twin task of stimulating domestic demands and stabilizing inflation. The two objectives are contradictory. An attempt to prop up domestic demands will fan inflation, which will make the livelihood of the people harder.
The Lee Myung-bak administration has kept the won-dollar exchange rate artificially high. This policy has sharpened the competitiveness of exporters at the risk of importing inflation. A cheaper value of the local currency is a subsidy for exporters but a penalty for consumers.
Late this month, the government will unveil measures to upgrade the medical tourism, education, legal services and accounting markets.
Policymakers are in a dilemma as there are no quick-fix, magical solutions to jumpstart the moribund domestic demand.
They have encountered obstacles in the services-market upgrade due to a conflict of interest.
Statistically, Korea is envied by the world. Its per-capita income has returned to the $20,000 level. It is one of a few countries which has successfully overcome the 2008 global economic recession. Its annual trade is to top $1 trillion this year, becoming one of the world's top 10 trading countries. It is the world's 14th largest economy. Its foreign exchange reserves exceed $300 billion. It was the host country of a G20 summit and has become a donor country in the OECD.
Internally, the nation has a two-speed economy. The high-speed export sector may derail the low-speed domestic one. The time has come when Korea must adjust the speed of the two economies. A parallel growth of exports and domestic demand is necessary.
