OECD Observer Korea 20th Anniversary edition October 2016

Special 20th Anniversary Edition

October 2016

www.oecdobserver.org

ŠCharlotte Moreau

Korea at the OECD 20 years of progress

CONTENTS Special Anniversary Edition, October 2016

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EDITORIALS 2 3

The OECD and Korea: Celebrating a milestone Angel Gurría, Secretary-General of the OECD

Korea and the OECD: The past 20 years and beyond Yun Byung-se, Minister of Foreign Affairs Republic of Korea

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From early footsteps to adulthood: Two decades of achievement Jong-Won Yoon, Ambassador of Korea to the OECD

OECD i-LIBRARY 30

Publications: Focus on Korea

Ode to my Father

DATABANK

Marking 20 years at the OECD: A new way forward Yoo Il-ho, Deputy Prime Minister and Minister of Strategy and Finance, Republic of Korea

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Korea in the OECD Observer: A selection from the archives

OECD.ORG 28

People at the OECD

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OECD Young Professionals Programme

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Korea’s young students excel, as women outsmart men

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Korean-African trade techs up

SPOTLIGHT 7 8 10 11 12 13 14 16

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Korea and the OECD today Korea’s economy: Finding a new momentum Randall Jones, OECD Economics Department The innovation wave Getting smart: Korea’s creative economy Korea’s digital governance Education: Korea’s class act faces new tests From a green jewel, a green economy Lessons in rural development Carl Dahlman and Vicente Ruiz, OECD Development Centre, and Randall Jones, OECD Economics Department Databank: Snapshots on Korea OECD Observer Roundtable on Korea Well-being in Korea

Korea’s star economy, page 8

The innovation wave, page 10

Education, page 13

Korea and the OECD today, page 7

A SHORT HISTORY 23

To the Miracle on the Han Donald Johnston, former Secretary-General of the OECD (1996-2006)

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Korea’s accession to the OECD: A history Peter Carroll, Tasmanian School of Business and Economics, University of Tasmania, and William Hynes, OECD

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EDITORIAL

The OECD and Korea: Celebrating a milestone Korea’s development strategy has served it well, but appears to be in need of re-engineering

Angel Gurría Secretary-General of the OECD

In 2016, we celebrate Korea’s 20th anniversary of OECD membership. Throughout this time, Korea has achieved impressive convergence in living standards towards the Organisation’s top performers. In fact, as this special anniversary edition shows, from being one of the poorest countries in the world half a century ago, Korea is now the world’s 11th largest economy and 6th largest exporter. It is home, not only to some of the world’s most famous household brands, from cars to smartphones, but to the K-pop and fashion wave that has seduced young people everywhere. No wonder people refer to Korea’s transformation as “the Miracle on the Han River”.

During its 20 years as an OECD member country, Korea has overcome stern tests too, including the Asian financial crisis shortly after it joined. Fundamental to Korea’s achievements have been investment, innovation and human capital. Korean students regularly rank among the best performers in the OECD’s PISA tests, while the country is a leader in investment in research and development. At the same time, Korea has not been afflicted by the curse of rising inequality that has struck most other OECD members over the past decade. The level of income inequality remains slightly below the OECD average.

Membership in the OECD has, in turn, provided an opportunity to exchange ideas with the most advanced countries and to learn best practices. The OECD has played a crucial analytical and advisory role for Korea during the past two decades.

In exchange, Korea has brought knowledge and diversity to our membership, and has been a vital ambassador in the Southeast Asian region in helping the OECD to reach out and become more global, inclusive and effective. Korea has also been a very active member of the Organisation. It chaired the OECD Ministerial Council Meeting in 2009 and played a leading role in adopting the Green Growth Initiatives. In 2010, Korea joined the OECD Development Assistance Committee, thus becoming a donor

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nation. Moreover in 2015, the OECD Committee for Scientific and Technological Policy met at ministerial level in Korea, the first time ever outside the OECD headquarters. Indeed, we have achieved so much together. But anniversaries are also an opportunity to reflect on our challenges and trace a path to a brighter future. In this respect, numerous challenges persist. Korea’s growth rate has slowed to some 2.8% per year since 2011. The development strategy has served it well, but appears to be in need of re-engineering to face the social, economic and environmental challenges ahead.

In addition, Korea’s population is also expected to undergo the most rapid ageing of any OECD member over the next half century.

The short transition from the fourth-youngest country today to the third oldest by 2050 creates a number of challenges, notably for public finances. Public social spending is projected to rise from around 10% of GDP in 2013 to as high as 29% by 2060. Korea also faces the challenge of boosting productivity to achieve inclusive growth. The country’s dualistic economy is characterised by large productivity gaps between manufacturing and services, and between large and small firms. As a result, overall productivity is only 55% of the top half of OECD countries.

To leverage its position as a leading innovator, and thereby stimulate economic growth, President Park Geun-hye introduced the “creative economy” initiative in 2013. The initiative’s goals focus upon harnessing the productive potential of Korea’s private sector, in particular its lagging services sectors and smaller firms. There is scope to enhance the impact of Korea’s substantial R&D investments, for example, by strengthening the links between public research institutions and the private sector, as well as by improving the regulatory environment for innovative entrepreneurs. Smaller firms should also be encouraged to adopt information and communication technologies that allow them to seize the opportunities of the digital economy.

Meanwhile, the focus of the “creative economy” on green innovation, as part of the 2nd five-year plan of Korea’s National Strategy for Green Growth, can help reduce greenhouse gas emissions–an important objective in the context of implementing COP 21 agreements on climate change.

Challenges also remain in terms of addressing old-age poverty and labour market duality. To keep Korea on an “inclusive growth” path, win-win reforms to increase growth and reduce inequality should be prioritised, such as encouraging female labour market participation and investing in skills relevant to labour market needs. And as OECD experts in this edition point out, a stronger focus on well-being and the work-life balance would also help. The OECD continues to work with the Korean authorities on these and other policy priorities. The OECD and Korea have come a long way together since 1996, and what better way to celebrate this 20th anniversary than to look forward to strengthening our fruitful collaboration in the design, development and delivery of better policies for better lives. www.oecdobserver.org/angelgurria and www.oecd.org/about/secretary-general @A_Gurria See also: “Korea: Policy priorities for a dynamic, inclusive and creative economy”, October 2015, OECD Better Policies Series.

EDITORIAL

Marking 20 years at the OECD: A new way forward Korea has one of the most impressive economic growth performances among the OECD countries

Yoo Il-ho Deputy Prime Minister and Minister of Strategy and Finance, Republic of Korea

This year, 2016, marks the 20th anniversary of Korea’s accession to the OECD. In the meantime, Korea has continued to grow, both in quantitative and qualitative terms, yielding a remarkable outcome that befits the ranks of the OECD countries. Korea has one of the most impressive economic growth performances among the OECD countries, with its economic size now almost three times greater than it was at the time of accession. As of today, Korea proudly ranks as the 8th OECD country in terms of economic size.

Moreover, Korea has established an advanced economic system that strengthens its presence among the OECD member countries by enhancing its domestic institutions and continuously driving forward reforms in each economic sector. Over the years of our partnership, the OECD has provided valuable policy recommendations on ways to improve corporate governance and the financial supervisory system, increase flexibility in the labour market and enhance social safety nets. Korea has successfully institutionalised those recommendations, has managed to overcome the financial crisis in the late 1990s and has reinforced its economic fundamentals.

Korea has also endeavoured to relax overall regulations by adopting the Regulatory Total Amount System (a “one-in, one-out” approach to regulation) and to ease trade and investment barriers by signing Free Trade Agreements (FTAs) with some 50 countries. In this sense, no one can deny that Korea’s joining the OECD has set an important milestone in upgrading the Korean economy.

Contributing as a middle power The OECD has contributed to improving the global economy through mutual co-operation among its member countries, and adopted the motto “Better Policies for Better Lives” in commemoration of the 50th anniversary of the establishment of

the OECD. And it has committed itself to making a better world on multiple fronts, such as the environment, the quality of life and development co-operation.

For its part, Korea has been playing an active role as a middle power of the OECD. In 2010, Korea became the first non-G7 country to host a G20 summit, and it has taken the lead in tackling climate change by hosting the Green Climate Fund (GCF) and establishing the Global Green Growth Institute (GGGI). On top of this, Korea has played a constructive role in international discussions on development co-operation by becoming the 24th member of the OECD Development Assistance Committee (DAC) in 2010.

Recently, Korea has been actively undertaking “Four Initiatives for Development Co-operation”, which focus on improving education and health care in underdeveloped countries, and fostering co-operation on science and technology to help reach the Sustainable Development Goals (SDGs).

The world economy is slowly picking up from the aftermath of the global financial crisis, but has yet to recover to pre-crisis levels.

Instability is still prevailing over the global economy, forcing us to walk on thin ice amid growing uncertainties. Worries over eroding economic vitality, a lack of jobs and mounting social polarisation have become tasks for countries throughout the world.

Facing these tough challenges, the Korean government has strived to break open a new path for growth through bold and active policies and structural reform efforts. In this regard, Korea has unveiled the “Three Year Plan for Economic Innovation”, a comprehensive strategy designed to improve economic fundamentals and unlock growth potential. The Korean government has also carried out reform in the labour, financial, public and education sectors. At the same time, Korea has channelled its energy into industrial reform by reinforcing business competitiveness and nurturing new industries for the so-called Fourth Industrial Revolution. In line with these policy efforts, Korea has continued to do its share by giving momentum to the economic recovery through active fiscal operations and the promotion of business investment.

To put an end to the low-growth trend in the global economy, OECD countries should do their bit for greater international co-ordination, such as by implementing active macro-economic policies and conducting structural reforms. The Korean government will remain committed both at the domestic and international levels to paving the way for recovery and the development of the global economy.

Based on policy co-ordination within the OECD, Korea will be able to deal with newly arising international challenges more effectively and promote sustainable growth for all countries. Last but not least, Korea will continue to share its development experiences with the global community, serving as a stepping stone to economic growth for emerging countries.

Visit the Finance Ministry’s website at http://english.mosf.go.kr/

OECD Observer Korea 20th Anniversary Edition

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EDITORIAL

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Korea and the OECD: The past 20 years and beyond Korea has played a leading role in OECD policy discussions on a whole range of issues

Yun Byung-se Minister of Foreign Affairs Republic of Korea

This year marks the 20th anniversary of Korea’s membership in the OECD. Korea joined the OECD in 1996, following its membership to the World Trade Organization in 1995 as part of its globalisation efforts, and has thereafter risen as a full-fledged middle power, actively contributing to the international community.

In particular, the OECD–a group of countries sharing the values of democracy and a free market economy–was conducive to the overall improvement of Korea’s politics, economy and society.

As an exemplary country for achieving democracy and economic development, Korea in turn made a humble contribution to the formation of global governance.

To be sure, Korea was not immune from challenges and difficulties over the past two decades. Immediately after Korea joined the OECD, the Asian financial crisis hit the country hard. Some were critical that Korea should not have joined the club in the first place. Some even disparaged Korea for popping the champagne too early.

However, the path that Korea has taken to date clearly demonstrates that it made the right decision at the right time. The OECD’s policy recommendations and international standards have contributed to upgrading Korea’s policies and institutions. For the Korean people and government, the OECD has established itself as one of the most trusted policy advisors.

At the same time, as a reliable partner of the OECD, Korea has played a leading role in OECD policy discussions on a whole range of issues, including development, anti-corruption, the digital economy, innovation, public administration and the environment.

In the process, Korea has also contributed to creating and sharing exemplary cases.

Development co-operation is a case in point. Since Korea joined the Development Assistance Committee (DAC) in 2010, it has actively shared with other OECD members its experience of transformation from an aid recipient to a donor. As the host of the 4th High Level Forum on Aid Effectiveness in Busan in 2011,

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it has also laid the foundation for bringing the important paradigm shift in international development co-operation from aid effectiveness to development effectiveness. Moreover, during the 2015 UN Sustainable Development Summit, in co-operation with the OECD and the UN Development Programme, Korea co-hosted yet another landmark event in which the Saemaul Undong (new village movement) was presented as a new rural development paradigm, reflecting the reality and conditions of developing countries. The Saemaul Undong model is now steadily taking root in a number of developing countries in Asia and Africa, in particular.

Turning to science and technology, Korea successfully hosted a Ministerial-level Meeting of the OECD Committee for Scientific and Technology Policy in Daejeon in 2015 and led the discussions on utilising innovations in science and technology to support sustainable development. In particular, the OECD member countries recognised the significance of this event as it became

For the Korean people and government, the OECD has established itself as one of the most trusted policy advisors the first ever meeting to be held outside Paris since the Committee’s initial gathering in 1963. The members also appreciated Korea’s active efforts in resurrecting the forum after a hiatus of 11 years following the global economic downturn.

Looking ahead, Korea will actively partner with the OECD in overcoming a host of global challenges, ranging from sluggish economic growth, protectionism, an ageing population and climate change, and in developing common policies for inclusive and sustainable growth.

The world today is undergoing rapid change owing to technological advances such as the digital revolution. I would count on the OECD as a global policy network to continue functioning effectively in assessing and analysing the changes of our times and presenting us with appropriate policy options.

Korea stands ready to contribute to the OECD’s efforts in this regard.

The words of former US Secretary of State George C Marshall, who sowed the seeds of the OECD, still hold true today: “[With] a willingness on the part of our people to face up to the vast responsibility which history has clearly placed upon our country, the difficulties I have outlined can and will be overcome.” As Korea enters the next 20 years in the organisation, it will continue to stand shoulder to shoulder with other OECD member countries and exert its best efforts to realise our shared vision of creating new growth engines through innovation and thereby achieving sustainable growth.

Visit the Foreign Ministry website at www.mofa.go.kr/ENG/main/index.jsp

EDITORIAL

From early footsteps to adulthood: Two decades of achievement

©Marco Illuminati/OECD

Korea has come of age within the OECD

Jong-Won Yoon Ambassador of Korea to the OECD

Twenty years of age is often regarded as the threshold of adulthood. Coming-of-age celebrations vary across cultures, but the common understanding is that once you become an adult, you are expected to be a mature and responsible member of the society.

This year marks the 20th anniversary of Korea’s membership in the OECD. We would like to take this opportunity to confirm our status as a responsible and mature partner within the OECD. To celebrate this occasion and reflect on our experience as an OECD member country, we are planning various events in Paris, such as a 20th anniversary seminar and cultural events including concerts, the screening of a film, “Ode to My Father”, which vividly shows Korea’s painstaking development history, and much more.

Korea’s coming of age within the OECD has occurred through 20 years of footsteps, which have helped us make great strides forward in overcoming various challenges and difficulties. In 1997, soon after joining the OECD, we found ourselves in the midst of the Asian financial crisis. The Korean government made steady efforts at overcoming the crisis and implementing structural reforms, working hand in hand with international organisations such as the OECD and the IMF. At the same time, individual Korean citizens took part in rescuing the country by donating their gold to help pay off our national debt.

Korea has taken initiatives in setting the global agenda, such as by chairing the annual OECD Ministerial Council Meeting (MCM) in 2009 and being the driver behind the OECD Green Growth Declaration, adopted that year. In 2010, Korea joined the Development Assistance Committee (DAC) and officially became the first country to transform from a least developed recipient to a donor country. Since then, Korea’s official development assistance (ODA) has grown faster than any OECD country in its effort to catch up with the more established donors.

Over the past two decades, Korea has enjoyed various achievements within the OECD. Per capita GDP adjusted for purchasing power parity has more than doubled from US$14,428

to $34,502, and the trade volume has risen more than fourfold from $0.3 billion to $1.4 trillion, evincing our greater participation in global value chains. The country has recorded outstanding performances in economic growth, employment, Internet penetration, R&D investment, and education. Indeed, Korea is among the leaders in international rankings of school competence among 15-year-olds, as measured under the OECD’s PISA surveys, to name but a few benchmarks.

Since the global financial crisis in 2008, however, Korea, like many other countries, has faced slower growth, higher unemployment, a slowdown in productivity and a rise in inequality. Indeed, one can say that in becoming an adult, Korea has experienced growing pains, while undergoing various difficulties and structural problems. Indicators show that Korea still faces many challenges that need our attention, including relatively long working hours compared with other countries, not to mention high suicide and road-fatality rates, and a persistent gender gap.

Korea joined the OECD in order to modernise the country and become a strong global partner. We have put great effort into reforming and developing our laws, institutions, and awareness,

Korea has enjoyed various achievements within the OECD, though has also experienced growing pains which underpin our politics, economy and society. The OECD’s motto, “Better Policies for Better Lives”, is in line with the Korean government’s national strategy of fostering a creative economy, harnessing innovation, strengthening the social safety net and thereby enhancing social inclusiveness. In this context, the OECD’s recommendations, outlined in reports such as OECD Economic Survey: Korea and Going for Growth, are key elements in the government’s Three-Year Plan for Economic Innovation.

The OECD provides many answers in the government’s pursuit of building a better society. The OECD’s Better Life Index and the adoption of well-being as a key element in policies contribute greatly to our efforts to promote happiness among Korean citizens.

The OECD, as a community with collective wisdom and vast policy experience, continues to provide invaluable analysis, perspectives and policy advice to guide Koreans in achieving happiness. As ambassador of Korea to the OECD, I commit on behalf of my government to contribute to the OECD community by sharing the unique development experience that we can offer, and having come of age, actively taking part in OECD work as a responsible adult member and contributing to building better societies worldwide.

Visit http://oecd.mofa.go.kr/korean/eu/oecd/main/index.jsp and www.oecd.org/korea

OECD Observer Korea 20th Anniversary Edition

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SPOTLIGHT

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Korea and the OECD today

President Park Geun-hye and OECD Secretary-General Angel Gurría engage in a lively discussion on ways to enhance science, technology, and innovation at the opening ceremony of the OECD Ministerial Meeting in Daejeon, Korea, 20-21 October 2015.

The ministerial meeting was concluded with the Daejeon Declaration on Science, Technology, and Innovation Policies for the Global and Digital Age, or the Daejeon Declaration for short, which sets out the common guidelines and commitments of member countries in the field. In the Declaration, ministers

not only agreed that science, technology and innovation are being revolutionised by digital technologies, but recognised the potentially transformative nature of the “next production revolution” for our well-being. Basic and applied research need long-term funding, the declaration points out, as well as a market-friendly competitive environment, while innovation in the public sector needs to be strengthened.

The full English text of the Daejeon Declaration can be found at www.oecd.org/sti/ daejeon-declaration-2015.htm

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Korea’s economy: Finding a new momentum

©Michael Dean/OECD Observer

Randall Jones, OECD Economics Department

Korea’s transition from one of the poorest countries on earth in the early 1960s to the world’s 11th-largest economy and sixth-largest exporter by 2015 is unprecedented.

The high-growth era that began in the early 1960s was supported by: first, an outward-oriented development policy based on the expansion of exports; second,

macroeconomic stability; and third, investment in physical and human capital.

information technology and the growth of a knowledge-based economy.

I was privileged to watch the early days of the “Miracle on the Han River” while living in Korea from 1974 to 1976; then, per capita income was less than 15% of the US level (adjusted for purchasing power parity). Life expectancy was short: my friends who saw through their 50s were honoured with “a feast at age 60” ( ). Poverty was accompanied by political repression and martial law.

Economic development was accompanied by democratisation: the election of President Roh Tae-woo in 1987 was the first democratic transition of power in Korean history. His successor, President Kim Young-sam, Korea’s first president without a military background, achieved his goal of leading Korea into the OECD in 1996, a feat that represented the culmination of 35 years of extraordinary growth.

Returning to Seoul in 1993 to begin preparing the first OECD Economic Survey of Korea, I saw a very different country.

Rapid industrialisation had made it a major exporter, with per capita income at 37% of the US level, similar to Greece and Portugal at that time. Development was underpinned by education: enrolment rates reached 90% for primary school in 1964, for middle school in 1979 and high school in 1993. In addition to the economic benefits, universal access to primary and secondary education promoted social mobility and income equality. The focus on tertiary education in the 1990s laid the foundation for Korea’s success in

Korea’s per capita income converges towards OECD average GDP per capita, 2010 constant prices, 2010 purchasing power parity exchange rates, % % 90

80 70 Relative to OECD average

60 50

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Relative to the US

However, less than a year later, Korea was hit by the Asian financial crisis. In November 1997, Korea requested emergency assistance from the IMF to avoid a default on its foreign debt. In early December, the IMF announced a record US$57 billion agreement with Korea.

Nevertheless, the situation continued to deteriorate due to large-scale capital flight, and the Korean won lost nearly half of its value relative to the dollar during the month of December 1997. The survival of Korea’s economic miracle appeared to be in jeopardy.

The financial crisis led to a sharp economic downturn. Output fell more than 5% in 1998 and around half of the country’s chaebols disappeared, including Daewoo, the second largest conglomerate, whose 275 companies manufactured everything from ships to semiconductor chips. The unemployment rate jumped from 2% to 7%, leading to severe hardship in a country with only a rudimentary social safety net. During my visits in 1998, Seoul was covered with signs advertising “IMF” sales, also referred to as “I aM Fired” sales. I was touched by the resilience and patriotism of Koreans. Ordinary citizens lined up to turn in their personal holdings of gold–even wedding bands–to help the country overcome the financial crisis.

30 20

10 0 1970

1975

1980

Source: OECD Economic Outlook database

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1985

1990

1995

2000

2005

2010

2014

The 1997 crisis was a result of a number of structural weaknesses that had developed during the high-growth era.

As noted in the OECD Economic Survey of Korea in 2000, Korea had been “deficient in developing the rules and principles of a market economy, failing to implement structural reform policies consistent with the changes in the international

SPOTLIGHT

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environment”. Two such weaknesses appear to have been fundamental: the low levels of profitability and high levels of debt in the corporate sector, reflecting the tendency of the business conglomerates to diversify across a wide range of industries; and a poorly-functioning financial system that followed government, rather than market, direction in allocating capital, as well as having poor credit analysis and internal risk control mechanisms.

Following the old saying “never waste a crisis”, the Korean authorities set out to address these weaknesses, with the OECD providing support. For instance, our annual OECD Economic Surveys of Korea over 1998-2001 helped by focusing on reforms

Korea’s traditional growth model, based on exports produced primarily by chaebols, has become less effective to improve the corporate sector and the financial system, as well as the labour market. These policies laid the foundation for renewed growth, which averaged some 4.3% per year during 2001-11.

As stressed in the 2016 OECD Economic Survey of Korea, converging to productivity levels in the most advanced countries requires narrowing productivity gaps between manufacturing and services, and between large and small firms. This, in

My 40-year experience of Korea leaves me optimistic turn, depends on improving framework conditions through regulatory reform, greater integration in the world economy, and enhanced labour flexibility. Changing the government’s role from that of coach to referee is necessary to promote a creative economy.

An essential goal is to ensure that growth is inclusive. One of the hallmarks of Korea’s high-growth era was a relatively low level of inequality, but its performance in this regard has weakened. Indeed, inequality has risen significantly and Korea’s relative poverty rate is the eighth highest in the OECD area, reflecting wide wage gaps between regular and nonregular workers, who account for a third of employment and earn only 64% as

much per hour as regular workers.

Breaking down labour market dualism and addressing the large productivity gaps between services and manufacturing, and between large and small firms, would be sure steps to promote more social cohesion.

Quite simply, after rapid economic development, Korea now needs to focus more on well-being. Its work-life balance is undermined by working hours that are the longest in the OECD area. In particular, Korea must reverse the environmental degradation that accompanied rapid industrialisation in order to improve the quality of life.

My 40-year experience of Korea leaves me optimistic that the country will overcome these challenges. Korea’s most important resource is its people, which are outstanding in so many ways. I look forward to continued collaboration with Korea and to celebrating further progress over the next 20 years.

OECD (2016), OECD Economic Survey of Korea, OECD Publishing, see www.oecd.org/korea

Slowing growth suggests that Korea’s traditional growth model, based on exports produced primarily by chaebols, has become less effective. The OECD is supporting the government’s objective of fostering a “creative economy” by shifting Korea’s economic paradigm to one based on innovation in which new start-ups and the service sector play a more central role.

©Lee Jae Won/REUTERS

Since 2011, however, the annual output growth has slowed, in part reflecting a more morose global picture, to 2.8%, leaving per capita income at around 64% of the US level. Domestic problems shared the blame. The current president, Park Geun-hye, stated in 2014 that there would be “no future for us, unless we break the protracted cycle of low growth by changing the fundamentals of our economy”. Sustained output growth is necessary to further raise living standards, deal with the cost of possible rapprochement with North Korea and cope with population ageing, which is projected to be the fastest in the OECD.

Star export: K-pop icon Psy enthrals a lively crowd. The billion-dollar Korean pop music industry has been dubbed “Korea’s greatest export” by Time magazine.

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The innovation wave and Samsung, and benefiting from extensive broadband deployment– according to the OECD, Korea ranks 8th in the OECD for mobile broadband subscriptions, and 99% of businesses have broadband connections, OECD data show–the government’s innovation initiative is particularly focusing on start-ups and high-growth small businesses. Small and medium-sized enterprises (SMEs) represented 99.9% of enterprises in 2013, while microenterprises accounted for 93.1%, both higher than the average for most OECD countries (68% and 89.9% respectively), but the digital economy has still to make its mark in this sector.

While policy making and OECD membership helps explain much of Korea’s successes in the last two decades, major firms have had a role to play too.

In fact, Korea is associated with several global household brands, as strong demand for the likes of Samsung curved televisions, Hyundai hybrid cars and K-pop hits like “Gangnam Style” jolting the Land of the Morning Calm into the sixth-largest exporter in the world.

But while productivity in many large manufacturers has pushed Korea into the world’s top ten producers of cars, ships, mobile phones and DVDs, productivity in smaller firms and the service industry means overall productivity is half the level of leading OECD countries.

A central element in President Park’s “creative economy” initiative of 2013 is to forge new pathways to boost productivity and long-term growth across the entire economy. A digital economy can support productivity gains by lowering barriers to entrepreneurship, enabling firms to reduce fixed costs and outsource many activities.

Building on its position as a world leader in the provision of information and communication technology goods, like LG

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While 33.8% of larger Korean companies (>250 employees) sold online, this was only the case for 14.9% of smaller companies (10-49 employees). Overall, 15.7% of Korean companies were engaged in sales via e-commerce in 2013, below the OECD average of 21%. Yet Korean consumers are willing digital customers– for instance 47% of smartphone users made purchases on their phones in 2013, higher than the OECD average of 38%, according to data from the OECD Digital Economy Outlook.

The aim has to be to lift wages and labour productivity among SMEs, which is only a quarter of that of large firms, in order to provoke a beneficial knock-on effect in the wider economy. The concentration of SMEs in the service sector should be an area of policy focus, so that their productivity levels close the gap with manufacturing.

SMEs also need a better understanding of the digital tools available such as cloud computing, which enables easier, more flexible and on-demand access to applications and computing power, and which can be particularly beneficial for smaller firms. In 2014, more than 22% of businesses used cloud computing services in the OECD area; in Korea, however, only 10.4% of all companies relied on it in 2012.

Korea is also integrating digital innovation into other walks of life in with the implementation of the Internet of Things

(IoT) project. Rolled out across areas such as public administration and industry, the project aims to improve public services, productivity and efficiency and overall quality of life. To develop the IoT it is important to adapt current regulation in, for example, health care and transport, and in particular to revise medical law to allow for telemedicine.

On the same trajectory, it is important to embed new digital skills into training programmes and education, thus making them even more relevant for labour market needs. The digital economy

The digital economy should be a natural tool in the hands of Korea’s digital savvy youth should be a natural tool in the hands of Korea’s digital savvy youth, and its students who regularly rank among the best performers in the OECD’s PISA test, with tertiary educational attainment among younger Korean adults the highest in the OECD. However, a large proportion of young people aged 15-24 are not in education, training or employment.

Among the 15-29 age bracket 42% of men and 44.4% of women are part of the labour force, below OECD averages of 64.1% and 53% respectively.

The promotion of more a positive attitude towards start-ups and the development of a more entrepreneurial spirit will also be a challenge. Survey data indicates that Koreans believe themselves less capable of becoming an entrepreneur than in most other countries. Many fear failure yet should be encouraged to consider entrepreneurship as a real career choice.

Claire MacDonald “Korea: Policy priorities for a dynamic, inclusive and creative economy”, OECD Better Policies Series, report available at www.oecd.org/korea/korea-policy-prioritiesfor-a-dynamic-inclusive-and-creative-economy-EN.pdf OECD (2015) Digital Economy Outlook, http://dx.doi. org/10.1787/9789264232440 Visit the OECD Broadband Portal at http://oe.cd/1lw

SPOTLIGHT

KOREA

Getting smart: Korea’s creative economy has funnelled billions of dollars into start-ups and a global venture capital fund, the Angel Investment Matching Fund. It has built infrastructure designed to help SMEs obtain financing more easily, launching the Korea New Exchange (KONEX), for example, a securities exchange that lists only SMEs. It also legalised and simplified crowdfunding in 2015, paving the way for yet another source of start-up financing.

Korean financial institutions and corporations have followed suit by joining together to form startup funds and

Songdo and Daegu are like Internet of Things living labs

©Thomas Peter/Reuters

incubators. In 2012, its top 20 banks founded the Banks Foundation for Young Entrepreneurs and launched D. Camp (dkamp.kr), a co-working and mentoring hub for fledgling tech entrepreneurs.

Since the 1970s, economic growth in Korea has largely been driven by big companies such as Samsung, Hyundai and LG. These so-called chaebol have been remarkably successful, but have dominated the economy, with little room for small and medium-sized businesses (SME) to gain traction and grow.

This dominance is most striking in the data on Korea’s spending on research and development (R&D). Indeed, Korea devoted a little over 4% of its GDP to R&D, more than any other OECD country. However, three-quarters of its private R&D investments went to the conglomerates and, in 2013, just over a fifth went to SMEs. Korean President Park Geun-hye wants SMEs play a bigger role. By nurturing start-ups and small businesses, particularly in the digital sphere, the president underlined the importance

in her 2013 inaugural speech of aiming at “the convergence of science and technology with industry, the fusion of culture with industry and the blossoming of creativity in the very border areas that were once permeated by barriers.”

Korea’s policy makers are now tackling these barriers by loosening regulation, allocating a greater percentage of R&D funding to SMEs (to some 53% of government-funded business investment in R&D in 2013) , easing SME access to non-debt financing, creating innovation hubs, and providing tax incentives to companies who provide financing to startups.

The government has opened 17 innovation centres throughout Korea.

These startup hubs support R&D in the areas of Internet of Things (IoT), biotech, 5G, cloud and fog computing, big data and artificial intelligence (AI). The government

Maru 180 is a Hyundai-sponsored incubator that also connects startups with venture capital (VCs) and mentors.

To date, writes Elaine Ramirez, Maru 180’s biggest success story is Memebox, a cosmetics mobile and e-commerce platform that raised nearly US$30 million from international investors in March 2015. Memebox and other Korean blue-chip startups like online retailer Coupang and Whatsapp challenger Kakao signal Korea’s start-up wave, and should help the country close the gap, if not surpass, other advanced economies.

In March 2016, President Park announced that the government would invest ଄1 trillion ($860 million) in AI research over the next five years (see Mark Zastro).

This is a positive step, though is put in perspective when compared with multinational giants like Google, which has invested about $30 billion in AI since the 2000s.

Where the country may have a “virtual” jump on everyone else is in places like Songdo, a 100% “smart city” in Incheon, south of Seoul. According to a report

by Stephanie Chan, Cisco Systems and real-estate developer Gale International have equipped the 600-hectare city with

OECD Observer Korea 20th Anniversary Edition

11

SPOTLIGHT

KOREA

Korea’s digital governance an entirely connected infrastructure of high-speed fibre optics, sensors and intelligent utilities grids.

Cities like Copenhagen, Addis Ababa and Singapore also have smart aspirations, but they are upgrading, laying IoT technology

President Park is eager to vault Korea to the fore of the fourth industrial revolution over existing infrastructure. Korean cities like Songdo and Daegu are starting from scratch, which can be advantageous. They are like IoT living labs that collect and use abundant user data to improve waste management, street lighting, public transport, buildings, healthcare, security, schooling and every other urban service.

By 2050, more than 60% of the world’s population will be living in cities, according to UN predictions. And according to a recent MarketsandMarkets research report, the market size of IoT applications for smart cities will grow from $52 billion in 2015 to $148 billion by 2020.

President Park is eager to vault Korea to the fore of the fourth industrial revolution–the seamless merging of the physical world with computer cyberspace, with its immense promise and transformational potential. The country’s smart laboratory cities may well help achieve that aim.

Digital services are smart too: for example, if a person applies for a birth certificate, the online system called Minwon 24 enables them automatically to apply to get child-support payments or to get vaccination information at the same time. The use of digital tools among public officials is also widespread.

However, there is a wide gap between the use of e-government services by age group, with over 90% of younger people declaring use, but only 30% among the older generation, which is lower than, say, France or the UK, with 35%.

Chan, Stephanie, (2016), “Innovation has the smart city of Songdo living in the future”, https://newsroom.cisco. com (accessed 26 January) Ramirez, Elaine (2016) “Everyone you need to know in South Korea’s startup scene”, www.techinasia.com (accessed 2 March) Zastro, Mark (2016) “South Korea trumpets $860-million AI fund after AlphaGo ‘shock’”, www.nature.com (accessed 23 March)

There are challenges of course, such as constantly improving user-friendliness and stepping up engagement with civil society organisations and the media. Social media also provides new challenges for all governments, and while Korea’s 3.0 action plans provide some guidelines for the public sector, performance indicators still need to be enhanced.

Where Korea particularly shines is in open data, as the government has increased the amount of data available

OECD (2016), Government at a Glance: How Korea Compares, OECD Publishing For more information, contact Barbara Ubaldi at the OECD

OURdata Index: Open, useful, reusable government data, 2014 Data availability

The president’s full inaugural speech of 25 February 2013 can be found at www.korea.net

on its central open data portal (https://data. go.kr). Since 2013, all public sector agencies have had to register their datasets in the central open data portal by law, and now Koreans can access large quantities of government data on public expenditure and election results, as well as on crime, the environment, health care and education. Open data management guidelines have been developed to assure quality, timeliness and formats, while the government also sponsors promotional events, such as an IoT (Internet of Things) Week, and hackathons for programmers and start-ups. Its “Open Square D” Centre (OSD) opened in 2016 provides a facility for data entrepreneurs to exchange knowledge and to develop their skills.

Given Korea’s prowess in digital services, it should come as no surprise to see the country leading the field in e-governance.

Its lead, notably in open data, owes much to government efforts and investments in digital infrastructure and systems since the 1990s. In 2014 more than 70% of all Koreans reported having used the internet at least once over the previous 12 months to interact with the public authorities, whether to obtain information on a government website, or to download or file a form, for instance. That’s far more than the OECD average of 55%.

Data accessibility

Government support to re-use

1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 rea Ko

ce

n Fra

US

Source: Government at a Glance: How Korea Compares, OECD 2016

12

an

Jap

y an

rm

Ge

http://dx.doi.org/10.1787/8889333834335

SPOTLIGHT

KOREA

Education: Korea’s class act faces new tests

©Jo Yong-hak/Reuters. From edition No 297 Q4 2013.

introduced “free semester” programmes for middle school students to enhance motivation, wellbeing and happiness by offering the likes of discussions, experiments, projects, physical exercise, arts, and other activities without written exams.

Korea’s transformation into an economic powerhouse in just 20 years is largely due to what is often claimed to be its only natural resource–its people. Huge investments in education and training boosted productivity and growth, turning the country into an international player with a booming high-tech, export-led economy.

Between 1970 and 2000, Korea achieved universal primary and secondary education, and by 2010 it had the largest proportion of 25-34 year olds with at least an upper secondary education among OECD countries. Korea’s 15 year olds are also high performers. The average student scored 542 in reading literacy, maths and science in the OECD’s Programme for International Student Assessment (PISA), higher than the OECD average of 497 and topping the tables.

Korea’s excellent academic achievements have laid strong foundations for economic growth, but its education system is not making citizens as happy as they might be, nor is it necessarily helping them to find jobs. Pressure to succeed in school is relentless. The single college entrance exam, the suneung, is so critical that planes are grounded on the day of the listening test to avoid disturbing the children. Only 60% of Korea’s children answered yes to feeling happy at school, placing it at the bottom of the league table; the OECD average is 80%.

The country’s 11 to 15 year olds report the highest amount of stress out of 30

developed nations, and suicide is the biggest cause of death among teens.

Young people also find it hard to make the transition from school to work, primarily because of a mismatch between the relevance of their education and skills with the workplace. Despite being among the best performers in terms of their skills proficiencies, as measured by the OECD Survey of Adult Skills (PIAAC), less than half of those in the 15-29 age range participated in the labour force in 2013–42% for men and 44.4% for women, which is low compared with OECD averages of 64.1% and 53% respectively.

Youth unemployment has risen since the end of 2012, reaching 10.9% in 2015, plus a high number of young people aged 15-24 are neither in employment nor in education and training, particularly those with tertiary degrees. Under the creative economy initiative, the government now needs to offer alternative routes, such as vocational education and training (VET), which would introduce work-based learning, and initiate more involvement from employers with relevant industry experience in the design of programmes and training in the classroom.

Korea has been developing National Competency Standards (NCS) since 2013 with learning modules based on NCS for VET schools and Junior Colleges. It also

The network of Meister high schools has already started aligning students’ potential with the real world. Established in 2010, these institutes have an industrysupported curriculum design, with a focus on developing skills that expose students to the workplace. They offer a nearguarantee of employment to graduates.

Another interesting initiative is Job World, which opened in the city of Seongnam-si in 2012. It provides career guidance in an interactive way, with the aim of providing its 3,000 daily visitors with a realistic view about possible professional choices.

Developing a more relevant skill set would help create a more inclusive workforce, which in turn could offset the future financial burden of the country’s aging population. Older workers have low skills–literacy proficiency among those over 45 is significantly below average– and they struggle to find work if forced to take early retirement. Employers should be encouraged to change their approach to this age group, which is often excluded from training programmes due to the perception of lower long-term employability.

Korea’s children, however, are already showing their ability to adapt to a more relevant environment. In the 2012 OECD PISA first assessment of creative problem solving, Korea’s students were among the top performers, showing themselves to be quick learners, highly inquisitive and able to solve unstructured problems in unfamiliar contexts.

The future seems bright, therefore, suggesting no further need for the kind of intensive education system that has propelled Korea so headily forward since 1996, but rather a more rounded experience that hones problem-solving skills and includes hands-on experience, as well as an understanding of the value of just letting children play.

Visit www.oecd.org/pisa and www.oecd.org/education

OECD Observer Korea 20th Anniversary Edition

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SPOTLIGHT

KOREA

From a green jewel, a green economy installation, building smart energy grids, and storage technologies. In early 2016, Korea became home to one of the world’s largest energy storage system.

As a country where road transport is dominant, Korea is also doubling down on an enlightened car policy. The Ministry of Trade, Industry and Energy projects an annual increase in low- and zero-emission cars from 80,000 in 2016 to 920,000 in the next five years, cutting CO2 emissions by 3.8 million tonnes.

©Charlotte Moreau

It is developing an ambitious electric car infrastructure. The city of Gumi, for example, has 24km of roadway embedded with electric cables, which generate an electromagnetic field to keep vehicle batteries charged.

Jeju Island lies in the Strait of Korea. Often described as the “Hawaii of Korea”, it is also a tropical jewel in the country’s strategy towards greening its economy.

Korea believes that the basis for a green revolution is not just in the way its market, financing structures and legislation are set up, but information. Jeju Island, which is one of the country’s nine provinces, is its flagship, having been set out as a smart-grid test bed since 2009.

Five Korean conglomerates, including Hyundai and SK Group, are outfitting the small island with smart homes, electric car charging stations–500 already in place–and renewable energy infrastructure like solar and biogas.

Korea’s green policies are not new. On 15 August 2008, at the 60th anniversary of the founding of the Republic of Korea, then-President Lee Myung-bak set a new pace in the greening programme by voluntarily targeting a 30% reduction in greenhouse gas (GHG) emissions in 2020 from a business-as-usual (BAU) baseline.

He also allotted 2% of annual GDP to green growth initiatives and passed a US$30.7 billion green stimulus package.

President Park Geun-hye is now adding to this green vision with a second five-year plan (2014-2018). For the UN Conference on Climate Change (COP21) in Paris in November-December 2015, Korea submitted a proposal to cut business-as-

14

usual emissions by 37% by 2030, as its contribution to the Paris Agreement.

Like other countries, Korea is trying to balance competitiveness with its need to confront climate change. Nearly 90% of Korea’s rise in greenhouse gases occurred in a single decade, 1990-2000. By 2013 Korea was the world’s 14th largest economy, but its eighth largest carbon emitter. In fact, Korea’s greenhouse gas emissions increased by 43% in absolute terms between the accession year of 1996 and 2011, while the OECD total declined over the same period. However, much of this reflects Korea’s catch-up phase of rapid growth. Moreover, Korea’s GDP grew by 94% over the same period, indicating that GHG emissions have been relatively decoupled from economic growth.

This is encouraging, since Korea’s goal is to shrink its carbon footprint with an industrial, urban, and market-friendly green strategy focusing on infrastructure.

In the process, Korea also aims to become a leading exporter of green technology.

The Korea Environmental Industry and Technology Institute estimates that since 2010, 50 environmentally friendly small and medium-sized businesses have exported ଄1.5 trillion (US$1.3 billion) worth of product.

Korea’s efforts to green its energy mix have concentrated on support for renewable energy development and

Transport planning is also moving in a more ecological direction. The cities of Daegu, Busan and Incheon now have expanded bus rapid transit lanes, and

The Korea Export-Import Bank became the world’s first noninternational financial institution to issue a global green bond areas open only to bicycles and public transport. The capital, Seoul, has been successfully experimenting with congestion fees on the Namsan tunnels.

The government has likewise tilted its budget toward public transport, increasing spending on railways by 29% and cutting spending on roads by the same percentage (2009-20).

In keeping with its business-oriented green policy, Korea has been very effective with financing green endeavours, and at setting up a legislative and market-based environment for carbon-reducing mechanisms. Since 2013, Korea has been the headquarters for the Green Climate Fund, which is designed to be the long-term financing arm of the UNFCCC. Korea has pledged $100 million to the fund.

In 2013, the Korea Export-Import (KEXIM) Bank became the first non-international financial institution in the world to issue a global green bond, valued at $500 million;

based on its success, it issued a second bond in 2016. Providing cheaper capital than conventional bank-based financing, climate bonds enable green projects to expand faster.

Domestically, there has been extensive support of green technology firms, with the Industrial Bank of Korea reporting sharp double-digit increases in eco-tech investments and green R&D. The government launched the region’s first national Emissions Trading Scheme, cap-and-trade market in 2015. It includes some 525 of Korea’s major polluters, which are responsible for two-thirds of the country’s non-vehicular emissions. This follows the government’s founding of the Greenhouse Gas Inventory and Research Centre of Korea (GIR, visit www.gir.go.kr/) and of the firm-level emissions Target Management Scheme in 2010.

There are challenges in what is the OECD’s most densely populated member country, however. Air pollution is a major health concern, and the country faces high water

stress compared to its OECD peers. Rapid urbanisation is severely threatening Korea’s rich biodiversity, and stakeholder engagement around large infrastructure projects with environmental impacts continues to be highly sensitive. For instance, although projects aimed at cleaning up polluted rivers, securing water resources and improving flood control have achieved much, tough ecological challenges remain, notably in relation to habitats for migratory birds, fish corridors and the like.

The third OECD Environmental Performance Review of Korea, to be released end-2016, will provide an assessment of the effectiveness and impact of Korea’s green growth policies and initiatives, and map out the challenges. The review will highlight achievements, pinpoint challenges, and propose recommendations for Korea to continue improving its green performance.

Finding a sustainable balance between economic, environmental and social needs will be a priority for Korea’s green

economy as it expands in the years ahead.

The green revolution and initiatives on Jeju Island with its smart, low-carbon lifestyle, will help point the way.

References Visit www.oecd.org/greengrowth OECD (Forthcoming), Environmental Performance Review: Korea, OECD Publishing Chung, Ah-young, (2013) “Jeju aims to be carbon-free island” The Korea Times, 4 December, www.koreatimes.co.kr/www/news/culture/2016/02/ 320_192345.html Kim, Sung-Young (2015) “South Korea doubles down on Green Growth”, East Asia Forum, 25 December www.eastasiaforum.org/2015/12/25/south-koreadoubles-down-on-green-growth/ NRDC (2015),“Paris Climate Conference: South Korea”, November 2015, https://www.nrdc.org/sites/default/files/ paris-climate-conference-SouthKorea-IB.pdf Son, Bongsoo and Hwang, Kee Yeon (2002) “Four-year-old Namsan tunnel congestion pricing scheme in Seoul: Success or Failure?”, IATSS Research, Vol 26, Issue 1 “South Korea’s Four Rivers Restoration”, Water & Wastewater International, 2015 www.waterworld.com/ articles/wwi/print/volume-27/issue-6/regional-spotlightasia-pacific/south-korea-s-four-rivers-restoration.htmland

Held on 6-7 September 2016 Jeju Island, Korea For outcomes, visit www.greengrowthknowledge.org The Green Growth Knowledge Platform (www.greengrowthknowledge.org) is a global network of international organisations and experts that was established in January 2012 by the Global Green Growth Institute, the OECD, the United Nations Environment Programme and the World Bank.

SPOTLIGHT

KOREA

SPOTLIGHT

KOREA

Lessons in rural development Carl Dahlman and Vicente Ruiz, OECD Development Centre, and Randall Jones, OECD Economics Department Cities are in fashion nowadays among policy-makers as countries everywhere look to urban areas as hubs for innovation and growth.

But what about the countryside? Economic development led by continuous rural-to-urban migration and rising living standards and opportunities in the urban milieu, not to mention industrialisation, contributes to widening disparities between rural and urban areas. Korea’s development experience shows that socially-inclusive and sustainable growth requires developing rural areas as an integral part of successful economic development. Indeed, Korea’s rapid rise from a mainly agricultural and food-aid recipient nation to one of the fastest-growing, developed OECD economies was made possible by a structural transformation that involved urban and rural areas alike.

The Korean government implemented a strong and wellcoordinated rural development strategy. Rural development in Korea was accomplished through several policies. First, land reform in 1948 transferred land from landlords to the previous tenants. The reform thus promoted social inclusion by creating a new class of independent, family proprietors. Then in 1970, President Park Chung-hee launched the Saemaul Undong (“New Village Movement”) to modernise rural areas and limit the growing disparity in income levels with the rapidly industrialising urban centres. Saemaul Undong was based on citizen participation and community efforts backed by government support. Diligence, self-help and collaboration were key for encouraging rural populations to participate in the development process.

Initially, the focus was on improving basic living conditions, such as replacing thatched roofs with tiles. Subsequent projects

©Robert Harding/Alamy Stock Photo

While many thatch roofs were replaced by more modern slate roofs as part of the 1970s New Village Movement (Saemaul Undong), some better specimens were preserved, such as in Yangdong village, now a UNESCO World Heritage Site.

16

concentrated on building irrigation systems, bridges and roads.

Overall, Saemaul Undong played a key role in boosting incomes in rural areas and acted as a buffer during Korea’s fast and successful structural transformation. Saemaul Undong was not meant to reverse the economic development trends emerging in urban areas, but instead to harness them to help smooth the transformation of rural areas by redistributing wealth, boosting agricultural productivity, and providing infrastructure and services in rural areas.

Today, Korea is sharing the experience of Samaul Undong with other countries as a possible road map for rural development based on: investing in education and social capital, and establishing robust institutions for rural areas; co-ordinating governance across all sectors while combining top down and bottom up stakeholder approaches; and sequencing policy implementation to improve effectiveness, while closely monitoring progress along the way.

Above all, Korea’s approach highlights the importance of strategic planning in rural areas, including urban-rural redistribution and investment, for promoting inclusive country-wide development.

The broad lesson is simple: reducing urban-rural disparities means bringing the rural population into the national development process. This benefits people in rural and urban areas alike, and strengthens social and political cohesion, too.

No doubt policy-makers in OECD countries where rural-urban disparities have widened could learn from this, too.

OECD (2016), A New Rural Development Paradigm for the 21st Century: A Toolkit for Developing Countries, OECD Publishing

Who we are •Korea's only independent economic think-tank •Devoted to the principles of free markets, free competition, free enterprise

What we do •In-depth research on corporate policies •Analysis of macroeconomic policies •Promotion of free markets •Education for market capitalism

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SPOTLIGHT KOREA

Databank: Snapshots on Korea Per capita GDP

US$, 2010 constant prices, PPP, 2014

Gross fixed capital formation

30

% of GDP, 2014

80,000

70,000 25

50,000 20

40,000 15

20,000 10

10,000 5

0

Unemployment rate

% of labour force aged 15-64, 2014

Hours worked per worker

Average annual hours, 2014

2,500

2,000

20

15 1,500

10 1,000

500

0

Income inequality Disposable incomes, 2012,

Gini coefficient (0 = perfect equality, 1 = perfect inequality)

General government debt

2014

0.50 250

% of GDP

0.40

200

0.30

150

0.20

100

0.10

50

0.00

0

2008

SPOTLIGHT

KOREA

Life expectancy at birth

Trade-to-GDP ratio

Years

%, Sum of exports and imports as % of GDP 120

86 Japan

84

100 Korea

80

France

82

Korea France

80

OECD total

78

US

76

60 40

US

20

74

0

72

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

General government fiscal balance

Labour income share

% of GDP

Total labour compensation adjusted for the self-employed / total income

6

0.90

4

0.85

Korea

2

0.80

0

0.75

Korea

0.70

-2

France

-4 France

0.65 0.60

US

-8

Japan

-10

0.55

-12

0.50

-14

1994

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

Japan

1995

1997

1999

2001

2003

2005

2007

2009

2011

2013

2015

Gross domestic expenditure on R&D

Foreign reserves

% of GDP

Million SDR 300 000

US

-6

Korea (left) France (left)

China (right) Japan (right)

3 000 000

5.0 4.5

Korea

250 000

2 500 000

200 000

2 000 000

150 000

1 500 000

3.0

US

100 000

1 000 000

2.5

OECD total

500 000

500 000

2.0

France

4.0

0

0 1994

3.5

1.5

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Public social spending

Population with tertiary education % in same age group, 2014 80

25-34 years

45-54 years

% of GDP

55-64 years

35

70

France

30

60

25

50

OECD total

20

40

US 15

30

10

20

Korea

10

5

0

0

Mexico

Germany

Finland

US

Japan

Korea

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

OECD Observer Korea 20th Anniversary Edition

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SPOTLIGHT

Roundtable on Korea

OECD Observer Roundtable on Korea root of a country’s economic development.

We are now living in the Fourth Industrial Revolution, where new things are created everyday through the fusion of artificial intelligence and bio science, fostering a new technology as a matter of survival rather than choice. The development of new technologies for the future is essential, and these should be generated by individuals and corporations, and supported by the government’s policies.

Korea joined the OECD on 12 December 1996, the first Asian country to become a member of the organisation in over 30 years. By all accounts, the country’s economic transformation has been unprecedented, from one of the poorest countries in the world half a century ago to one of its leading economies. In this OECD Observer Roundtable, we asked a range of experts who have witnessed Korea’s progress over the years: What in your view are Korea’s main achievements of the past two decades, and what challenges would you highlight for the next two?

To a start-up nation Dae-whan Chang, Chairman, Maekyung Media Group*

I believe that Koreans have innovation and creativity in their DNA. If we can successfully bring about an extensive innovation in the above three areas, we will be able to become the centre of the world and build a prosperous future. *The Maekyung Media Group includes the World Knowledge Forum and Maeil Business Newspaper, which were knowledge partners of the OECD Forum in the early 2000s. Visit http://m.mk.co.kr/wkforum_2015/eng

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Korea’s economy is facing new challenges in 2016. Externally, it has to find new growth sources within the large flow of global changes sparked by the Fourth Industrial Revolution. Domestically, Korea could be locked into low economic growth of 1-2%, with the manufacturing industry

Towards a quantum leap Seon-joo Kwon, CEO of the Industrial Bank of Korea

Koreans have innovation and creativity in their DNA

In the process of fighting back the financial crisis, Korea luckily seized a chance to rebuild its economy. Korean people strongly united to rescue the sinking economy, voluntarily donating their gold rings and pieces of jewellery, and companies started to gain competitiveness in the world market.

Organisations began to seek new growth engines that could sustain them in the future, while boldly carrying out financial and corporate reforms and actively benchmarking global corporate standards.

that had once supported the country’s fast expansion now losing steam. Without innovation, the future of the country will be at stake.

Maekyung Media Group has proposed three different innovative ideas that could bode well for Korea over the next 50 years, based on its own recent study. The first one is innovation in leadership. The government and corporate sector have to unify the people and display leadership that can embrace those who are left behind.

The second innovation is to transform Korea into a start-up nation. Major companies need to challenge themselves to find businesses, which can become new growth engines for the economy, while small and medium enterprises should strive continuously to expand, based on powerful ideas. Without flexibility, a company will have no future.

The third innovation is the development of disruptive technology. Technology is the

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When Korea finally joined the OECD in 1996, no one would expect an OECD badge to be a double-edged sword for the country. Membership certainly paved the way for the Asian country to globalise itself, but the opening-up policy without a proper understanding of, and preparation for, globalisation and open market reforms also took a heavy toll on the country, forcing it to teeter on the edge of bankruptcy during the 1997 Asian financial crisis.

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Korea broke the long standing belief that financial crises occur repeatedly in developing countries. Korea has gone through trials over the last 20 years after joining in the OECD, but through the process of recovery, the Korean economy has become more stable and sound.

Since joining the OECD as the 29th member in December 1996, Korea has strived to improve its economic fundamentals and upgrade its financial systems to meet global standards. These efforts paid off, allowing the country to achieve remarkable economic growth despite the aftermath of the Asian financial crisis in the late 1990s. As of 2015, Korea ranked 8th in terms of overall GDP and 12th in terms of the international trade-to-GDP ratio among the 34 OECD member countries. Noticeably, Korea became a member of OECD Development Assistance Committee in 2010, making a

world economy recovers, which is not sure at this moment. Furthermore, with a decreasing fertility rate, we are rapidly entering into the aging society that Japan has known for several years. The OECD expects Korea’s potential growth rate would drop to 1.29% by 2060, faster than any other countries. The problem of so-called “economic democracy” arises as it provokes

dramatic transition from an aid beneficiary to donor, a status that only 29 countries hold.

Korea is now regarded as a country with an advanced financial system quite substantially. These achievements are attributable to enhanced transparency, greater efficiency and sweeping economic reforms made since joining the OECD. The financial sector has also contributed to national development by offering a creative solution to economic issues and ensuring efficient resource allocation.

Now, Korea’s economy is facing a huge paradigm shift. In the era of jobless growth, the nation is committed to implementing a “creative economy” with an emphasis on job creation.

At the centre of this strategy lie startups and venture companies. Based on innovation, such companies will be systematically supported to grow into global companies, eventually to create more jobs and drive economic development. To this end, the Korean government is promoting entrepreneurship and nurturing new growth industries. The financial industry in Korea has answered to such government policies by devising technology financing programmes and deploying platforms for FinTech, or financial technology. Only when the industry successfully adapts to the paradigm shift, can it bring about a quantum leap for the nation for the next 20 years.

Visit http://eng.ibk.co.kr/

New regulations under the flag of economic democracy will quite likely impair the Korean economy

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The financial sector was one of the key areas in which Korea has worked to meet OECD standards. Through financial liberalisation and reform, Korea is now regarded as a country with an advanced financial system, especially in the areas of banking, insurance and capital markets. For instance, Korea’s financial liberalisation index, as measured by the OECD, jumped from 65% in 1997 to 85.1% in 2006. Furthermore, commercial banks have shown significant development in financial soundness over the past two decades as capital adequacy ratios and non-performing loan ratios have improved

SPOTLIGHT

OECD OBSERVER ROUNDTABLE

Celebrate, but watch for challenges ahead Kwon Tae-shin, President, Korea Economic Research Institute (KERI) A shift from “quantity” to “quality” in economic growth has taken place. Before the 1990s, the Korean economy had rapidly changed and achieved quantitative expansion. Korea finally joined the OECD club in 1996, but it was a mistake to pop the champagne too early as the Asian financial crisis hit its economy in 1997. Yet, we overcame it, and the IMF crisis turned out to be a suffering and a blessing at the same time. Some 16 out of 30 conglomerates were shut down, and people went through the agony of mass layoffs and unemployment.

However, the crisis also led into a great transformation of Korea. Its economic foundation was enhanced through the reform of social and economic systems, and corporate governance became more transparent. These must be the greatest achievements over the last 20 years.

The challenges we are facing today are as follows: global depression and slowing economic growth in Korea, a low fertility rate and lowering potential growth rate, and idealism in politics and social conflict.

These are major concerns for upcoming two decades in Korea. Its economic growth rate continued to decrease from 6.5% in 2010 to 2.6% in 2015, which though higher than the OECD rate last year has been lower than the global average since 2011, which includes China. Given that the Korean economy is export-oriented, its success depends on when and how the

unusual economic regulations, especially targeting large companies as well as leading to unnecessary social conflicts. Although it originates from a good intention of public interest, newly established regulations under the flag of economic democracy will quite likely impair the efficiency and vitality of Korean economy.

I hope Korea jumps up to an advanced country level in the next two decades by clearing the aforementioned hurdles. We are standing on the threshold of achieving that status, but we still need to grow more.

The OECD recently urged Korea to reform its labour market regulations. This is an inevitable prescription to revitalise the Korean economy. I look forward to popping the champagne again when we make that jump, in the hope that it won’t be too early this time.

Visit www.keri.org/web/eng/home

Delivering on promises Ho Jeong Kim, Journalist and Consultant Korea’s 20 years at the OECD crowns a period of remarkable achievement, and this can be said with a hint of pride and without any remorse. Emerging from a colonial past, two wars and a geopolitically tense setting to become one of the most dynamic countries within half a century, Korea’s hard work was rewarded with its accession to the OECD in 1996. The ensuing Asian financial crisis has only proved how OECD membership is more than just a coveted trophy, but a reference frame for the Korean society. In the 20 years since it joined the OECD, Korea has replaced the pursuit of

OECD Observer Korea 20th Anniversary Edition

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SPOTLIGHT

Roundtable on Korea

Well-being in Korea Ranking of well-being topics by users of the Better Life Index in Korea 12% 9.10% 10% 7.91%

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8%

8.42%

8.84%

9.27%

9.50%

10.10%

10.53%

8.91%

6.83%

6% 4%

Ho Jeong Kim

growth for its own sake with growth that lasts, has given social safety nets a stronger focus and business-as-usual practices were examined with a view to reform. The OECD has accompanied Korea through some significant changes and commitments. The wider world has witnessed Korea become a provider of development assistance and emerge as a creative force, with its K-culture wave resonating strongly with an international audience. Korea’s 20 years with the OECD has been promising.

So what lies ahead? With many commitments made, the stage is now set for Korea to deliver on its promises.

Demands to open and become more transparent will grow, while the increasing flow of migration will replace the

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Korean users give greater importance to health, safety and life satisfaction.

Korea’s country ranking in the 11 well-being dimensions

Environment

Ranking out of 36 countries Housing

Civic engagement

Income

Health

Jobs

Life satisfaction

Community

Safety

Education

Work-Life balance

The wider world has witnessed Korea emerge as a creative force, with its K-culture wave resonating strongly homogenous society with a diverse one.

Demands for better movement of capital, services and goods, and better compliance with business guidelines on corruption and intellectual property rights, as well as labour rights, will also intensify. A fast ageing society, the ever growing role of women and falling fertility rates will bring a renewed focus on health, pension and education. Korea must also continue to set the pace in Green Growth.

Whenever the OECD shares its findings on our performance, it is in fact encouraging the public to engage, discuss and to challenge. This enriches Korea’s partnership with the OECD, which will mature even further in the years ahead.

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9.58%

See www.betterlifeindex.org For note on Korea’s OECD Better Life Index, visit http://oe.cd/1ge

alth He

n ety ctio Saf isfa sat e f Li

A SHORT HISTORY

To the Miracle on the Han Donald Johnston, former Secretary-General of the OECD (1996-2006)

messages, not of despair; yes, of considerable sacrifice, but suggesting a prosperous future. Since 1998 Korea’s GDP has more than doubled in real terms, and now amounts to US$1.3 trillion!

During the past 20 years I have visited Korea several times a year.

Indeed, after stepping down from the OECD in 2006 my regular visits have continued.

In many ways the Korea I know is unique. Of course it is physically beautiful–and I have yet to enjoy all that beauty– mountains, plains, beaches and the wonderful Jeju Island,

Good education has been central to Korea’s success

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which I have visited on several occasions. But quite a number of countries have such physical marvels. They do not make Korea unique. It is the people who make Korea unique.

Unlike many OECD member countries, Korea does not benefit from an abundance of natural resources. It has engineered its comparative advantages relying on imported materials and energy, and competing with quality exports in world markets.

During my tenure as secretary-general of the OECD, few events gave me as much pleasure as welcoming Korea as a member in the autumn of 1996.

At the end of hostilities in 1953 South Korea was one of the poorest countries in the world, having emerged from a bitter conflict, which left much of it in ashes. The toll in human lives was enormous, with as many as 217,000 Korean soldiers and 100,000 civilians killed, along with tens of thousands of UN force soldiers. It seemed impossible that in less than 50 years Korea had rebuilt its physical and human infrastructure and was ready to join the small group of developed countries known by some as the “rich man’s club”.

This extraordinary progress on every front became known as the Miracle on the Han, the beautiful river that runs through Seoul on its way to the sea. President Kim Young-sam was in office in 1996 and he was soon to be succeeded by Kim Dae-jung, who assumed office only to be faced with the worst economic downturn since the end of hostilities. Korea suddenly found itself as a victim of the contagious Asian financial crisis, which had its origins in Thailand just months before.

The impact of the crisis beginning in late 1997 came under the mandate of Kim Dae-jung. Even economists at the OECD believed that the Miracle on the Han was at an end! The leadership of President Kim Dae-jung and his regular messages to the Korean people were instrumental in surmounting the crisis as no other country has done before nor since. In fact, Korea went from a near 6% economic contraction to over 11% growth in some 18 months!

I believe this Miracle on the Han, which showed its resilience as it recovered from the Asian financial crisis, is a product of the education levels of the Korean people.

Their collective response to the financial crisis of the late 1990s also demonstrates this. They understood the messages from President Kim Dae-jung, knew what had to be done, and did it.

This thirst for education seems rooted in the culture of Korea.

When I read the diaries of the Dutch sailor Hendrik Hamel, a captive for many years in Korea in the 17th century, he described this characteristic as follows: “The nobility and well-to-do people give their children a good education. They take tutors in their service to teach them how to read and write, skills to which this nation is much inclined.”

Good education has been central to Korea’s success and it seems that North Koreans have also inherited that trait, with a reported national literacy rate of 99% for those over 15 years of age. That is very encouraging as the peninsula moves, hopefully, towards unification.

There is good reason to celebrate this 20th anniversary. Korea has set an example for other emerging market economies to follow. It has even moved from being a recipient of development aid to being a donor and a member of the OECD Development Assistance Committee.

The great economist, John Maynard Keynes, advised that one should examine the present, in light of the past, for the purposes of the future. When one does that, it is impossible not to be very optimistic about the future of Korea and its people.

For more on Donald Johnston, see http://oe.cd/1lJ

During that period the president invited me regularly to Korea to speak, meet journalists and reinforce his messages. They were

OECD Observer Korea 20th Anniversary Edition

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KOREA

Korea’s accession to the OECD: A history membership offered, while the OECD’s decision to commence an informal and exploratory dialogue with the “Dynamic Asian Economies” (DAEs) in 1989, including Korea, was another motivating factor.

Peter Carroll, Tasmanian School of Business and Economics, University of Tasmania, and William Hynes, OECD In 2016 Korea celebrates 20 years of membership in the OECD. In the early 1980s, following a period of remarkably successful economic growth, it commenced a programme of financial liberalisation and then, from 1993, more general economic and regulatory reform.

There were three major reasons for the change in approach. The first was the increasing international influence of the market and the second was growing

There were concerns that Korea’s economic and social standards were not yet completely compatible with the OECD principles, which in some ways could be expected. There were four main sticking points in Korea’s accession process: one was the OECD Codes of Liberalisation; second was Korea’s membership of the Group of 77; labour rights formed a third difficulty; while the fourth was the country’s developing country status, especially for trade and environmental issues. The possibility of Korean membership was discussed at the OECD in 1990 and soon became entangled with discussions regarding the membership prospects of several Central and Eastern European countries following the break-up of the Soviet bloc. All were sympathetic to Korean membership, and many, including

Membership of OECD formed part of President Kim Young-sam’s globalisation policy

Membership of OECD formed part of President Kim Young-sam’s globalisation policy. Some economists and journalists at home and abroad had expressed scepticism about membership of the OECD, while farmer and social groups were opposed to the aim of full liberalisation. The major reform effort included the decision to attempt to enter the OECD for a variety of related motives.

For instance, membership of such an international body would have value in convincing US administrations that Korea was serious about opening its markets. It also added credibility and clout to reform efforts in the face of domestic opposition, notably those in the Seventh Economic and Social Development Plan, 1992-96 and the Liberalisation Blueprint of 1993; indeed, the aim of membership of the OECD was made explicit in the Plan, developed in 1989. There were also the opportunities for policy learning that

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As indicated to OECD Secretary-General Jean-Claude Paye by Foreign Minister Lee Sang-ok in 1992, the period to 1996 would be one of increasing Korean engagement and it rapidly became a full participant in the Council Working Party on Shipbuilding, the Development Centre, the Nuclear Energy Agency and the Steel Committee, and was granted observer status in an increasing number of other committees. The process of engagement progressed relatively smoothly with a generally positive OECD Economic Survey of Korea issued in 1994. However, in July of that year, as an early sign of future tensions to come in the formal accession process, the Trade Union Advisory Committee to the OECD (TUAC) made strong representations to the organisation alleging the abuse of trade union rights in Korea, an issue that had not figured in earlier OECD accession processes. Korea was invited to become an observer on the Employment, Labour and Social Affairs

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international and domestic pressure for Korea to remove trade restrictions, increasingly important as the Uruguay Round negotiations led to the establishment of the WTO. A third reason was pressure from increasingly powerful industrial groups or chaebols for liberalisation, especially as regards lifting the ceiling on their ownership of bank shares, greater freedom in foreign borrowing and raising the aggregate credit ceiling.

the US, saw Korean accession as a test of the OECD’s openness and flexibility.

Korea’s accession: Korean Foreign Affairs Minister, Gong Ro-Myung shakes hands with OECD Secretary-General Donald Johnston after signing the invitation to join the organisation, 25 October 1996

A SHORT HISTORY

Committee (ELSAC) in October, which would put it in a better position to respond to TUAC’s assertions.

In March 1995 Korea submitted its application for membership, to the satisfaction of most countries which were keen to see the OECD bringing in new countries and driving global development.

Nevertheless, the OECD Council was divided over some issues. Non-European members protested that the criteria proposed by the organisation for assessing the merits of the application were tougher for Korea than for Mexico (1994), the Czech Republic (1995), Hungary (1996), and Poland (1996). After further discussion the matter was resolved and the procedures for accession were agreed. Hence, in the following months Korea underwent a detailed examination that covered its policies and practices relating to capital movements, international investment, international trade, banking, insurance policies, labour relations, education, agriculture, climate change, environment, and maritime transportation.

In summary, the examination was followed by agreement on recommendations that its liberalisation policies be accelerated, although Korea

Korea joined the OECD Development Assistance Committee in 2010 (www.oecd.org/dac).

At the signing ceremony on 27 November 2009 are (from back row, left to right): Joo Hyung-hwan, DirectorGeneral of Ministry of Strategy and Finance, Angel Gurría, OECD Secretary-General; Oh Joon, Deputy Minister of Ministry of Foreign Affairs; Eckhard Deutscher, DAC Chair; Kim Choong-soo, Ambassador of Korea to France

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Foreign Minister Gong Ro-myung, in a letter to the OECD Secretary General in 1996 provided assurances that labour laws would be amended based on recommendations of the Presidential Commission on Industrial Relations reform. But some member countries, as well as TUAC, wanted to see progress of reforms. Indeed, ELSAC deemed that the eventual reform as such did not fully meet the commitments made by the Korean government with respect to freedom of association and the right to collective bargaining (OECD Council document C/M(97)2/PROV). The labour law reform in Korea was a sensitive matter, and put the complexities of the OECD accession process in the public eye. A confidential letter from Foreign Minister Gong was later published in the Financial Times which was “embarrassing for the organisation and disagreeable for one of its members” (OECD Council document C/M(97)2/PROV).

had reportedly agreed to immediately implement only some 65% of the OECD’s Codes of Liberalisation. Korea maintained that they “did their best” and that significant progress had been achieved in the liberalisation of capital movements, services and investment. Korea reasoned

Welcoming a new Asian member country was a major step forward that progressive liberalisation of policies was necessary for the stability of the macro-economy. They also felt that more weight could be given to Korea’s track record as a whole and that past efforts strongly pointed in the direction of greater liberalisation. In its final report to the Council the Financial Markets Committee drew comfort from the Korean authorities’ statement that the government would “continue its efforts towards financial liberalisation, including the liberalisation of international capital movements and cross-border financial services” (see paragraph 14 of Annex II in the OECD Council document C(96)168). It nonetheless required a review of financial policies within two years of accession.

Korea took up membership of the OECD in December 1996, crowning an era of strong growth and development. Though its advances and assurances in meeting OECD membership requirements had been met, unusually, the organisation continued to monitor its progress on labour relations reform for another

decade, until 2007. For the organisation, welcoming a new Asian member country was a major step forward in consolidating its own opening and outreach in a burgeoning and increasingly important region, in line with the founding aims of the OECD. In the accession ceremony, Foreign Minister Gong expressed the hope that OECD accession would “be remembered as an important turning point in the annals of Korean diplomacy and economic history”.

References Burton, John, Taylor, Robert (1996), “S Korea braces for restructuring: OECD membership will promote shift towards market economy”, Financial Times, London Kang, Susan (2008), “Contestation and Collectivities: Protecting Labor Organizing Rights in the Global Economy”, a doctoral dissertation submitted at the University of Minnesota Lee, Chung, Lee, Keun, and Lee, Kangkook (2002), “Chaebols, Financial Liberalization and Economic Crisis: Transformation of Quasi-Internal Organization in Korea”, Asian Economic Journal 2002, Vol. 16 No. 1 OECD (1994), OECD Economic Surveys 1993-94 Korea, OECD Publishing Salzman, James (2000), “Labor Rights, Globalisation and Institutions: the role and influence of the Organization for Economic Cooperation and Development”, Michigan Journal of International Law, Vol. 21 Tae-Shin Kwon (2008), “Korea’s Experience of OECD Peer Reviews”, Shaping Policy Reform and Peer Review in Southeast Asia: Integrating Economies amid Diversity, OECD Publishing Visit www.oecd.org/korea and www.oecd.org/ investment/investment-policy/codes.htm

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Korea in the OECD Observer: A selection from the archives Koreans online One country with an exemplary record in broadband is Korea, host of the 2008 OECD ministerial meeting on the Future of the Internet Economy. On broadband reach it is the seventh in the OECD in December 2007, for fibre-optics it lies second only to Japan and is well ahead of the rest of the field, and for download speeds, it is in a comfortable third, after France and Japan. Korea is also a leader in mobile technology.

Some 94% of households had access to broadband via computers or mobile phones in 2006, three times more than in 2000, and many hotels and public places provide broadband connections for free. In fact, Koreans are so “wired” that Internet addiction is now seen as a treatable condition.

(2008), “Koreans online”, OECD Observer No 268, June

Korea: Better social policies for a stronger economy

Korea’s young workers

Knowledge is power!

Credit to Korea

The Korean economic wave continues forward, with strong growth and low unemployment expected in 2008-09. But the upsurge appears to have left some younger people behind.

True, at 10%, Korean youth unemployment is below the OECD average of nearer 15%, and though the country has a lower employment rate, this reflects a much lower school drop-out rate and high participation in education.

Korea’s economic transformation has been one of the most remarkable of the past century.

From the ashes of a terrible war, in a short period of time it rose to become an industrial power, joining the OECD in 1996. Korea has now set itself the ambition of becoming a knowledge-based economy.

Korea’s economic recovery in 2002–with GDP growth of 6% despite a sluggish world economy–reflects the success of its economic restructuring programme and the underlying dynamism of the economy.

But this should not lead to complacency about resolving remaining structural weaknesses and addressing emerging imbalances, the latest OECD Economic Survey of Korea says.

Willem Adema, Peter Tergeist and Raymond Torres, OECD Directorate for Employment, Labour and Social Affairs

(2003), “Credit to Korea” OECD Observer No 236, March

Adema, Willem, Peter Tergeist and Raymond Torres (2000), “Korea: Better social policies for a stronger economy”, OECD Observer No 223, October

“Korea’s young workers” OECD Observer No 264-265, December 2007-January 2008

“Knowledge is power!”

OECD Observer No 240-241, December 2003

Crisis, what crisis, is a tempting way to describe Korea these days. With the economy expanding rapidly again and unemployment below 4%, which is low by most standards, the traumatic effects of the financial crisis of late 1997 are receding in many people’s memories.

(1998) OECD Economic Surveys - Korea, (Korean version)

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A SHORT HISTORY

Korea and the OECD: A decade of progress

Korea’s work-life balance Development and Korea: policies for sustainable growth Yes we could

Okyu Kwon, Deputy Prime Minister and Minister of Finance and Economy, Korea

Hee-Jung Kim, Minister of Gender Equality and Family, Republic of Korea

In 1996 just when the Korean government took the initiative and worked hard to join the OECD, some media and civil society organisations were reluctant to extend their support.

They worried, saying that it would be too premature for Korea to join the rich man’s club and would cause us great losses.

Of the abundant resources given to mankind, what is the most underused resource of our time?

Without a doubt, women!

Kim, Hee-Jung (2015), “Korea’s work-life balance policies for sustainable growth”, OECD Yearbook 2015

Kwon, Okyu (2006), “Korea and the OECD: A decade of progress”, OECD Observer No 257, October

We’ll start with a close-up of a woman on her knees. She seems to be scrubbing some tiles. We track back and see that in fact she’s scrubbing the tyre tracks off a forecourt. Back a bit more and we see that she and her colleagues are in front of a huge conference centre. It’s covered with banners in Korean and English announcing the Fourth High-Level Forum on Aid Effectiveness, HLF4. There’s a metaphor there somewhere, and it’s called Busan, the host city and the world’s fifth largest port.

(2011), “Development and Korea: Yes we could”, OECD Observer No 287, Q4

Science and technology in Korea South Korea has experienced remarkable economic growth, with real per capita income increasing about ten-fold between the mid-1950s and today, when it has reached nearly US$10,000. In many industrial sectors, such as semiconductors, electronics, shipbuilding and steel, it ranks among the world leaders. As it stands on the threshold of OECD membership, Korea is determined to be one of the major industrialised nations within a decade. One of the main conditions for meeting that goal is to raise the standard of its technology so that in time it can compete on an equal footing with the most highly advanced economies.

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Aubert, Jean-Eric (1996), “Science and technology in Korea”, OECD Observer No 200, June-July Drive your way: Secretary-General Angel Gurría admires Hyundai Motor Company’s shining works in Seoul, Korea, September 2006.

(1992) Technological change in the Korean electronics industry

All articles are available at www.oecdobserver.org, except for articles published before 1999, which can be searched on the OECD iLibrary (www.oecd-ilibrary.org).

ODE TO MY FATHER An impressive 14 million viewers–that’s not far short of a third of Korea’s population–have flocked to see the film, “Ode to My Father”. Taking you back to the outbreak of the Korean War in the 1950s, “Ode to My Father” depicts in vivid imagery the struggles and achievements that have shaped contemporary Korean history.

It is told through the life story of one family man, and though a work of fiction, it evokes real historical events as seen through the eyes of ordinary Koreans. The film has been screened at the OECD in Paris during 2016 to mark the country’s 20th anniversary of membership of the organisation, courtesy of the Korean delegation.

KOREA

People at the OECD Ji Eun Chung My name is Ji Eun Chung and I have been working as a policy analyst in the Directorate for Education and Skills (EDU)

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Then I moved to work on the Survey of Adult Skills (PIAAC) project, which is the first OECD study that measures adult competencies in 32 countries and regions around the world. Working at the OECD

Eun Jung Kim My name is Eun Jung Kim, and I work as a statistician in the Economics Department at the OECD. I am currently in charge of collecting and analysing relevant statistics for the OECD Economic Surveys of Germany, Estonia and Slovakia, and the OECD Economic Outlook. Prior to joining the organisation, I worked as a junior analyst of insurance contracts and claim records for a private insurance company, after graduating from Korea University.

Initially, I came to Paris to study. In 2007, I applied for an internship at the OECD and started to work in the national accounts division of the Statistics

James Kim

©Michael Dean/OECD Observer

My name is James Kim and I work as an Information & Communications Technology Officer in the OECD Development Co-operation Directorate (DCD). I’m a Korean-American born in

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since 2011. I manage the Fostering Good Education for All project, which aims to address educational inequality in close collaboration with the OECD’s inclusive growth initiative. I first joined the OECD as a young professional–I had studied public policies at Seoul National University and economics at the University of London–and contributed to one of the organisation’s leading publications entitled Education at a Glance.

has expanded my horizon tremendously.

It allowed me to work on large scale international surveys, gain knowledge of various country policies and learn from cross-cutting projects spanning several multidisciplinary topics on the economic and social front. In particular, I have been very fortunate to work with wonderful people from different international backgrounds.

I would like to continue contributing to making our societies fairer and more inclusive by serving our member and partner countries to the best of my abilities, especially for those who are socio-economically disadvantaged.

Directorate during the summer. And I am still here today.

This makes me one of the longest serving Korean staff now. I am grateful to be working here and I find it rewarding to contribute to improving member countries’ policy making on diverse issues. I also enjoy sharing knowledge with colleagues from different backgrounds and with different fields of expertise as well as giving each other new insights when dealing with challenging situations.

This year, Korea is celebrating the 20th anniversary of its membership. I expect

the co-operation between Korea and the OECD will be further strengthened over the next 20 years.

the United States, brought up within the context of the Korean culture with all its traditions and customs, and now I live in Paris with my wife and three French-born children. It is a privilege to work in the OECD and live in France. Some would label me multinational given my background, and I have to admit that I never really thought of that as I never really felt fully part of any one country. However, now having been given the chance to reflect on my status on the 20th anniversary of Korea’s joining the OECD, I would say being a multinational is a good way to describe my unique personal experience working and living among such a diverse international group of people. My Korean-American-French status gives me a global identity and definitely affects my global perspective. It gives me

opportunities to meet new people and shapes my experiences, which allow me to contribute to my local community in Paris and also to the international community. The OECD’s vision, “better policies for better lives” makes more and more sense to me, and reinforces my feeling that the more we get to know about one another and the stories behind the statistics, graphs and data we produce, the more it will give colour, character and more meaning to our work.

The excellent and complex work we do for our member countries opens honest conversations over policy routes to better lives and brings the political and stakeholder community closer together, which is vital in today’s fraught atmosphere. As a global citizen, let me add a different take on OECD’s motto: Better together than apart.

OECD.ORG

economic development from the London School of Economics and Political Science.

I joined the OECD family in 2012, first as part of the Global Energy Policy Office of the International Energy Agency (IEA), a sister body of the OECD. Prior to joining the IEA, I worked in the private sector analysing power market needs and collaborated with developers and government clients to explore investment opportunities. I also travelled extensively in the Middle East, India, Southeast Asia and South America while based in Seoul.

I am a Korean national and was raised in Washington DC. I studied philosophy, politics and economics at the University of Oxford for my undergraduate degree, and received a master of science in local

OECD Young Professionals Programme Ready for a career in global policy making? Then become an OECD YP. When opting for a Young Professionals Programme you have to choose the best. At the OECD our YPs work with experienced and enthusiastic people from a rich diversity of cultures, languages and professional backgrounds. YPs research and analyse current policy issues under the supervision of top professionals, and participate in conferences. We match assignments to academic background, professional experience, and personal preference.

And because the assignments are associated with the organisation’s work programme and include knowledge sharing sessions with senior staff, you know you are working on policy issues that matter. Not only do YPs have access to the OECD’s staff

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My name is Yerim Park and I am currently a project co-ordinator in the OECD Global Relations Secretariat, Eurasia division.

The international aspect of my work is what I find most interesting, through projects, diversity of content, communication and colleagues. I have worked on projects with experts and stakeholders from all over the world, which has been an enriching experience.

As project co-ordinator at the OECD, I help implement projects that support non-member countries, for instance, towards development of policy recommendations, capacity building and devising sustainable reforms, while drawing from OECD experiences and best practices. Working on the Ukraine Sector Competitiveness Strategy project in 2015

was one such invaluable experience, as the collaboration took place at a time of major change in that country.

training programmes, but each YP spends six months working with a mentor. You can also seek advice from former YPs and tap into the networking opportunities within the OECD and beyond. In fact, as a YP, you become part of a network of more than 60,000 policy makers and shapers who come to the OECD for workshops, meetings and conferences throughout year.

YP candidates will ideally have a graduate degree, excellent English or French, and two years of relevant experience. YPs work on fixed-term appointments of two years, and are based in the OECD’s headquarters in Paris, France. Candidates must be born on or after 1 January 1981 and have OECD member country nationality.

We offer competitive salaries and an attractive benefits package.

To find out more about the next available programme, qualifications and eligibility, go to: www.oecd.org/careers/ypp

©Andrew Wheeler/OECD

Yerim Park

OECD Observer Korea 20th Anniversary Edition

29

BOOKS OECD iLibrary

Focus on Korea Road Infrastructure, Inclusive Development and Traffic Safety in Korea This report combines empirical research on the l ti hi b t relationship between road infrastructure, inclusive economic development and traffic safety with an assessment of policies and governance structures to help Korea find ways to create effective, safe and inclusive transport infrastructures.

All publications available at www.oecd.org/bookshop and www.OECD-iLibrary.org The Korean Public Procurement Service: Innovating for Effectiveness

This report on the Public Procurement Service of Korea examines the effectiveness of its system, identifying good practices that can inspire reform efforts in other countries.

ISBN 978-92-64-24941-7 January 2016, 116 pages €24 $29 £19 ¥3 100

Government at a Glance: How Korea Compares

ISBN 9-7892-64-25550-0 May 2016, 148 pages €30 $36 £24 ¥3 900 OECD Skills Strategy Diagnostic Report

Korea 2015

OECD Skills Strategy Diagnostic Report: Korea

This diagnostic report presents the main outcomes of Korea’s collaborative project with the OECD. It identifies 12 skills challenges that need to be addressed to build a more effective skills system in Korea.

2015, 222 pages

Schools for 21st-Century Learners: Strong Leaders, Confident Teachers, Innovative Approaches (Korean version) This report summarises evidence from the OECD TALIS and PISA surveys that underpins the three themes of the 2015 International Summit on the Teaching Profession: school leadership, teachers’ self-efficacy and innovation.

ISBN 978-92-64-25417-6 March 2016, 132 pages

This report provides a series of indicators on Korea’s policymaking practices and government performance compared to those of other OECD countries and of the G7 countries.

ISBN 978-92-64-25899-0 July 2016, 180 pages €33 $40 £26 ¥4 200

Compact City Policies: Korea This report examines Korea’s urban policies and offers customised policy recommendations based on the OECD publication, Compact City Policies (2012). Some Korean policies, such as urban regeneration, new town development or multi-modal transferring centres, have implicitly implemented compact city polices to a certain degree.

ISBN 978-92-64-22549-7 December 2014, 208 pages €62 $87 £56 ¥8 000

Employment and Skills Strategies in Korea With the rising economic importance of human resources and skills, employment and training agencies are now often expected to play a more important role in local strategies to support new creation, facilitate restructuring and increase productivity. This book examines the contribution of local labour market policy to boosting quality employment and enhancing productivity in Korea. It focuses on the Bucheon and Busan regions.

ISBN 978-92-64-21655-6 October 2014, 84 pages €33 $47 £30 ¥4 200

OECD Economic Surveys: Korea 2016 Korea has been one of the fastest growing OECD economies over the past 25 years, boosting its per capita income from 39% of the average of the top half of OECD countries in 1991 to 75% by 2014. The 2016 OECD Economic Survey of Korea examines Korea’s recent economic developments, policies and prospects.

ISBN 978-92-64-25718-4 June 2016, 168 pages €49 $59 £39 ¥6 300

Industry and Technology Policies in Korea The Korean innovation system is in many ways highly developed and has helped to underpin Korea’s rapid industrialisation. i d i li i However, H long-standing policy emphases on manufacturing and large firms are today in question. This review addresses Korea’s industry and technology policies and institutions, and provides policy recommendations.

ISBN 978-92-64-21321-0 June 2014, 208 pages €60 $84 £54 ¥7 800 30

DATABANK

If there is one area where Korea has jostled to the front of the OECD field in 20 years, it is in education. Take school performance: according to the OECD’s Programme for International Student Assessment (PISA), a renowned global benchmark which surveys competence among 15-year-olds around the world, Korea’s young students perform better at school than most of their peers in other OECD countries. In the last test in 2012, Korea led the OECD field in mathematics, was second to Japan for reading (our chart), and was in the top seven for science. Some 64 countries and economies with comparable data took the tests. In the 2009 tests Korea had also commanded a top spot.

Korea’s consistently high rankings reflect excellent performances of students in Asia more widely, with Japan, ShanghaiChina, Hong Kong-China and Singapore all performing strongly, which the OECD director for Education and Skills, Andreas Schleicher, puts down to a strong

PISA (Programme for International Student Assessment) reading score Mean score, 2012 540 520 500 480 460 440 420 400 Me xic Slo o va k R Chi ep le ub Tu lic rk Gr ey e Slo ece ve Ice nia la Sw nd ed e Isr n H a Lu ung el xe ary mb o Po urg rtu ga Sp l a Au in str Cz i ech It a Re aly pu b OE Den lic CD ma av rk era ge US No UK rw a Fr y Ge ance rm an y B Sw elgiu it m Ne zerla the nd rla A nd Ne ustr s w Ze alia ala Es nd ton Po ia la Ca nd na d Ire a la Fin nd lan Ko d rea Jap an

Korea’s young students excel–

Source: OECD PISA

commitment to 21st century learning and investment in teachers, rather than, say, computer use in the classroom, which in technology-savvy Korea, is actually below the OECD average.

The main challenge for Korean school education is less a matter of achieving excellence than how to improve wellbeing among children by reducing study pressure and finding a better work-play balance.

–as women outsmart men Traditionally, men have tended to be more educated than women in Korea, especially when it comes to higher education. Only 34% of doctoral graduates or equivalent graduates are women which is among the lowest shares across G7 and OECD countries. However, women in Korea have made great strides in educational attainment over the past decade.

The OECD PISA 2015 survey of some 72 countries will be released in December.

Visit www.oecd.org/pisa For a more complete ranking across mathematics, reading and science, see “Class progress”, in OECD Observer No 297, Q4 2013, see http://oe.cd/1wj Avvisati, Francesco (2014), “Digital learning in schools” in OECD Observer No 301, Q4, http://oe.cd/R1

Women leaders 24-35 year-olds who have attained tertiary education by gender, %, 2014 80

Men

70

Women

60 50 40 30 20 10 OE CD

G7

Ge rm an y

Ita ly

an Jap

Fra nc e

US

UK

da

Au str alia

na Ca

Ko rea

0

In the OECD PISA tests, for instance, 15 year-old girls now outperform boys in reading assessments. Among younger adults aged 25-34 years old, some 72% of women have obtained a tertiary education degree, compared with 64% of men. The gender gap between male and female doctoral graduates has also decreased due to national policies aimed at supporting female human resource development and social activities. Women accounted for 32% of doctoral graduates in 2011, 34% in 2013, and 36% in 2015. In addition, 63% of young Korean women reported achieving a higher educational

Note: France and Korea data are for 2013 rather than 2014 Source: OECD. Table A1.4b. See Annex 3 for notes (www.oecd.org/ education/education-at-a-glance-19991487.htm)

attainment than their parents, which suggests upward generational mobility in education.

Despite these impressive educational achievements, female labour market outcomes remain poor compared with men, with the Korean gender pay gap remaining the highest among OECD

http://dx.doi.org/10.1787/888933384245

countries at 36.6%. Closing it will be a key policy challenge in the years ahead.

See “Korea’s work-life balance policies for sustainable growth” in OECD Yearbook 2015, http://oe.cd/1wk Visit www.oecd.org/gender and www.oecd. org/pisa

OECD Observer Korea 20th Anniversary Edition

31

DATABANK

Korean-African trade techs up Korean trade with Africa has more than

Korea’s trade flows with Africa, 1996-2014

quadrupled since the late 1990s. With imports and exports totalling US$26.5 in 2014, Korea is one of the fastest emerging

US$ billion

20

trade partners of the continent over the last decade. By contrast with other “newcomers”

Korea, Exports to Africa

Korea, Imports from Africa

like China, India or Brazil, exports to the 15

continent tend to dominate. Until 2011, Korea’s exports to Africa have increased more than 2.5 times faster than its imports from the continent. Three-quarters of the

10

Korean exports are composed of electronic and electro-appliances equipment, phones and transport equipment, compared with

5

less than half of exports in the case of China, for instance. Korea has thus become an important source of equipment and

20 13

20 14

20 12

20 11

09

20 10

08

20

20

07 20

05

06 20

04

03

20

20

02

20

01 20

20

99

00 20

97

98

19

19

19

19

96

0

technology, both for African consumers and companies.

Source: OECD Development Centre (calculations based on Comtrade data)

Bakary Traoré, OECD Development Centre

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