This thesis deals with a development strategy for the Korean economy in the rapidly approaching Unification and Asia-Pacific era. The working hypothesis is referred to the new growth theory that is complemented by theories from the school of new insti...
This thesis deals with a development strategy for the Korean economy in the rapidly approaching Unification and Asia-Pacific era. The working hypothesis is referred to the new growth theory that is complemented by theories from the school of new institutionalists.
I define economic development not as a simple increment in national income, but as a multidimensional process, which includes fundamental correction in international social and economic institutions, acceleration of economic growth, reduction in inequality and alleviation of poverty in addition to changes in social structure, people's attitudes and national institutions, I use Goulet's terminology of ① life sustenance and ② self-esteem ③ freedom from serfdom as the primary precepts to understand the intrinsic meaning of economic development.
I focus on the government's role in economic development as determined by theoretical market failure. In a country such as Korea which has sought to develop into an advanced economy, government intervention has been thought to be indispensable in such investment areas as infrastructure, human capital and R & D, major determinants of technological advancement, because of their large externalities. It is also necessary to understand the extent and effect of government intervention in other countries.
In the late 1980s and early 1990s, the new growth theory assessed economic development in terms of increments in per capita income. The theory focused on the govemment role in the development process because complementary investments m technology development and infrastructure, for example, were felt to be essential even if a nation had a market economy. The new growth theory insisted that govemment has to subsidize physical capital, human capital and R & D investments for economic growth because laissez-faire economies tended to fall behind the optimal growth rate as a result of extemalities.
The new growth theory and its political implications are thought to be well adapted to the Korean economy, because the expansion of infrastructure investment, human capital formation and R & D investment are necessary to jump start of the Korean economy. The ability to advance technologically is largely determined by social organizations and cultures that are other expressions of social capability, It is necessary, therefore, to complement the technology-advancing process with the concepts of the new institutionalists.
The upcoming Asia-Pacific and Unification era, moreover, is considered a significant factor in devising a globalization strategy for the Korean economy. Specially, the axis of the developing worldwide economic order, which currently passes through North America, with the U.S. as the main center, is shifting toward Asia and centering on Korea, Japan and China.
The Asian NIEs, including Korea, had a rapid growth rate of more than 8.5 percent between 1960 and the mid-1980s. Since the mid-1980s, however, the growth rates of such ASEAN countries as Thailand and Malaysia have begun to outdistance those of the Asian NIEs. The growth rate in this region exceeds the average growth rate of the world economy and even that of developing countries. Compared to the growth rate of OECD countries, that of ASEAN countries is five percentage points higher, an indication of dynamic economies.
I contend that the Korean peninsula, from a historical, cultural and geopolitical standpoint, will play a pivotal role in the Northeast Asian economic zone which is to lead the world economy. To succeed at this, Korea will have to expand economic exchanges within the area. Furthermore, I believe Korea will play a leading role in the Asia-Pacific era because its prospects for future economic exchanges are strong based on the results of an analysis of the trade and investment matrix over the ten year period, 1981 to 1991.
As for unification, I assert that conditions for unification will be a consequence of the times, whether North Korea wants to admit it or not. This assertion is predicated on observations of how, after the end of the cold war, the former U.S.S.R. and Eastern European countries entered into the world economic system and how that promoted peace, cooperation, and competition in goods and services.
Consequently, economic interests are now major criteria in every nation's policies. Korea's neighbors have changed their former collective security system to a multinational one. Because North Korea is suffering from many economic difficulties, it is unable to completely ignore the tide of the times. Thus, it is now carrying outa partially open policy which allows very restricted foreign investment.
From the economic point of view, unification and the associated market expansion will enhance the Korean economic image in the world economy and push it on to become a great regional economic power. The rich mineral resources in North Korea combined with South Korea's capital and technology will make the Korean economy eminently more effective and competitive. Although there are the negative phenomena of joblessness, refugees and mammoth expenses inherent in unification, the positive aspects of creating a Korean economy that will be stronger and more powerful than ever before vastly outweigh the negative.
In the forecast Asia-Pacific and Unification era, the following globalization strategy for the Korean economy will have to be pushed.
First, Korea's role as a leader in the era must be touted. To combat the trend toward development of economic blocs to benefit Northeast Asia, the Korean economy ought to move up to that of an advanced economy by : uniting the two Korean economies into one, adjusting the industrial structure, and securing broader export and resource markets. Korea must also evolve into a hub for fmancing, economic exchanges and investment by: modernizing its backward financial sector, promoting economic cooperation among NIEs in Northeast Asia, and improving the overall investment climate.
Secondly, a united economy has to be formed gradually on the basis of a free-market system. Market forces, the most important element in the transformation of North Korea into a capitalist system, will have to be firmly planted. And, a plan to privatize the existing state-owned companies will have to be drawn up to maximize the sales revenues.
Thirdly, the industrial structure must be advanced. With the launching of the WTO, our industrial subsidy system must be reformed to comply with the WTO regulations. R & D investment, a determinant of a nation's competitive status in the era of globalization, must be greatly expanded.
Fourthly, before unification can become a reality, the competitive status of the financial sector must be beefed up. Once accomplished North Korea's financial institutions must be adapted to South Korea's and in the final stage of economic unification, the two Koreas' monetary systems must be merged.
Finally, for Korea to develop into an advanced industrial society, policies on social equality, welfare, and the quality of life have to be improved and enforced, In the era of Unification, an economic policy has to be formulated that can handle those alienated by the positive process of unification.
Up to now I analysed the major economic policy alternatives to be taken strategically. I think that the contents of the alternatives are sophisticated and also have conflicts with existing policies. Therefore, to carry out police alternatives cause a lot of difficulties. Particularly, most of them will be restricted by time because external circumstances already will be changing. Therefore, to reach the goals, Korea should have an integrated and systematic way of approach, furthermore, in fhe coming 2-3 years Korea should concentrate all-out efforts on carrying out my suggested policies. Priority of nation's objectives should be reviewed according to the above policy alternatives. The government will have to take initiatives in carrying out these alternatives. In this sense, "Big Government" based on the New Growth Theory in economic aspect is needed.
My conclusion is that this generation should have the historical responsibility to make Korea a center of Northeast Asia economic zone in the Asia-Pacific era.