Looking toward inclusive growth
economy contracted by 6.9 percent. The Gini index rose to 0.32. Distribution slightly improved, but the gap deepened after the Wall Street-triggered financial meltdown in 2008. The middle class shriveled, while lower incomes widened along with the wealth gap.
The two crises taught us that low growth can lead to rises in unemployment and worsen income discrepancies. The economy can only maintain sustainable growth if it runs on both engines of domestic and external demand. Domestic demand must tick in during volatilities on the external front. Demand at home was killed by the sinking of Sewol ferry, which resulted in more than 300 deaths. The economy fell into a silent depression in up to larger enterprises. Mom-and-pop stores and self-employed businesses should build up their competitiveness to survive on their own. Large companies now mostly pay primary subcontractors on time.
But payment to second and third suppliers still arrives late. Improvement in payment delivery and pricing could help boost domestic demand. If payment arrives at the primary subcontractors, it should be shared on time with the second and third suppliers. Such symbiotic capital flow will strengthen manufacturing competitiveness.
South Korea and China are close to striking a free trade agreement. Large and smaller industries must join forces to increase exports to meet the tastes of a gigantic market with 1.3 billion people. On the food science front, small and midsize companies can develop local organic farm produce, and large companies can help exports to China through their sales network.
The local innovation centers the government has been supporting to promote start-ups across the nation also depend on the capacity of innovation by small companies in regional areas. Large companies are reported to have a 757 trillion won surplus. There are many capable venture capital companies in the country. Companies should be encouraged to invest in venture capital enterprises with their cash reserves to help foster start-ups and innovative technologies. Economic activities hinge on that sentiment. Consumer spending also sways on expectations for income growth. Large-scale corporate investment that accompanies risk-taking also moves on instinctual sentiment.
We need to breed a predictable investment environment. The benign cycle of growth and distribution can only run when entrepreneurship, investment will, timely legal actions and administrative competence all function well.