New Paradigm of Korean Economy: To be More Creative and Innovative
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1 New Paradigm of Korean Economy: To be More Creative and Innovative Deok Ryong Yoon
2 Contents I. Introduction II. Why New Paradigm? III. Fostering a Creative Economy IV. Assessment and Conclusion 2
3 Contents I. Introduction II. Why New Paradigm? III. Fostering a Creative Economy IV. Assessment and Conclusion 3
4 I. Introduction Korean President Park Geun-hye introduced Creative Economy - initiative as a recipe to create new engines of growth and employment. She defines Creative Economy as the convergence of science and technology with industry, the fusion of culture and industry, and the blossoming of creativity in the very borders that were once permeated by barriers. Korea has been seeking for an exit strategy from the downsizing pressure and recognized that there is no other way than innovation. Creative economy aims to promote a new growth model based on innovation. The strategy of creative economy is therefore a possible solution for Korea to reach its next round of economic growth. 4
5 Contents I. Introduction II. Why New Paradigm? Contents III. Fostering a Creative Economy IV. Assessment and Conclusion 5
6 II. Why New Paradigm? Korea has reached the limits of its previous economic development approach. Korea s potential growth rate declined from more than 9% in 1990 to 3% in 2016, and projected to decrease by 2 percent during the 2030s. Productivity growth fell below the OECD average between Output growth slowed from a 4¼ % annual pace over to 2¾ % since The trickle-down effect from exports has declined. - In 1998, 1 billion KRW of exports generated value-added of 0.65 billion KRW and 19 jobs, but by 2010, the impact fell by 0.56 billion KRW of value-added and 7.9 jobs 6
7 II. Why New Paradigm? <Figure 1> Korea s economic growth since Real GDP Growth (%) Source: Bank of Korea 7
8 II. Why New Paradigm? <Figure 2> Korea s potential GDP growth since 1990 Source: OECD, 2016; 29 8
9 II. Why New Paradigm? Korea s potential growth rate declined from more than 9% in 1990 to 3% in Korea s labor productivity rose annually by 4.6% over three times OECD average. However, the level of productivity per hour of labor was only 55% of the top half of OECD countries in The gap is explained by low productivity in services, which was 45% of that in manufacturing in 2014, compared to an average of 90% in the OECD. The service sector is dominated by SMEs. Productivity in SMEs fell from 53.8% of that in large enterprises in 1988 to only 30.5% in 2014 Narrowing the gap depends on improving framework conditions, upgrading Korea s innovation system, increasing human capital and reforming policies for SMEs and venture capital. 9
10 II. Why New Paradigm? <Figure 3> Korea s labor productivity growth Source: OECE, 2016; p
11 II. Why New Paradigm? In order to avoid rapidly decreasing potential growth rate, productivity needs to be boosted through greater creativity and innovation calling for followings; - First, improving the innovation system to maximize the return on Korea s large investment in R&D. - Second, attracting new players, notably venture businesses and SMEs, into innovation. - Third, focusing innovation and new players on new fields, such as services and green growth. Korean government launched an initiative in 2013 to foster creative economy centered on innovation, in which start-ups and high-growth small businesses play a key role. 11
12 Contents I. Introduction II. Why New Paradigm? III. Fostering a Creative Economy IV. Assessment and Conclusion 12
13 III. Fostering Creative Economy President Park Geun-hye defined creative economy as: A creative economy is defined by the convergence of science and technology with industry, the fusion of culture with industry, and the blossoming of creativity in the very borders that were once permeated by barriers. It is about going beyond the rudimentary expansion of existing markets, and creating new markets and new jobs by building on the bedrock of convergence. At the very heart of a creative economy lie science technology and the IT industry, areas that I have earmarked as key priorities. 13
14 III. Fostering Creative Economy <Table 1> Concept of the Creative Economy Source: Han, Sung-Goo (2015), P.11 14
15 III. Fostering Creative Economy Creative economy is designed to create new industries and jobs by combining people s imagination and creativity with advanced science and technology and ICT. Korean government established a new Ministry of Science, ICT and Future Planning (MSIP) to lead creative economy -initiative. MSIP s objectives reflect the creative economy action plan introduced by the Korean government on 4 June The Cabinet has adopted the blueprint and set three goals: First, create new jobs and markets through creativity and innovation Second, strengthen Korea s global leadership through a creative economy Third, create a society where creativity is respected and manifested. To realize these goals, the government has established six strategies and 24 promotional tasks. 15
16 III. Fostering Creative Economy <Table 2> Strategies and Tasks to build up Creative Economy Strategy Strtegy1 : Creation of the ecosyst em in which creativity is rewarde d fairly and it is easy to start a ne w company Strategy 2: Strengthening of the global advance and playing a lead ing role in the creative economy b y venture business and small & m edium-sized businesses Strategy 3: Creation of the new g rowth engine to develop new pro ducts and new markets Tasks 1. To expand investment in creative idea and technology 2. To create an environment where it is easy to establish a start-up 3. To convert ideas and technologies into intellectual properties and to protect, utilize, and promote the same 4. To vitalize the commercialization of creative property 5. To construct a start-up safety network with which it may be possible to try again 1. To expand investment in creative idea and technology 2. To create an environment where it is easy to establish a start-up 3. To convert ideas and technologies into intellectual properties and to protect, utilize, and promote the same. 4. To vitalize the commercialization of creative property 5. To construct a start-up safety network with which it may be possible to try again 1. To create a new growth engine of the existing industry through the convergence of scientific technology and ICT 2. To develop SW and Internet-based new industry and high-value contents industry 3. To create a new market through human-centered technology innovation 4. To develop a new market through the discovery and promotion of a new promising industry 5. To promote industrial convergence and market creation through regulation rationali zation 16
17 <Table 2> Strategies and Tasks to build up Creative Economy (be continued) Strategy Tasks Strategy 4: Training of creative gl obal talents 1. To reinforce the convergence creative talent training 2. To expand education in order to infuse competitiveness and entrepreneurship 3. To vitalize the overseas expansion and domestic inflow of creative talents Strategy 5: Strengthening compe tency to innovate S&T and ICT as foundations for the creative econ omy 1. To improve the R&D system to expand potential and strengthen commercialization 2. To reinforce ICT innovation competency and to accelerate the creative economy 3. To reinforce the cooperation of industry, academy, research institution, and local g overnment in order to create jobs 4. To reinforce the roles of scientific technology and ICT to solve global problems Strategy 6: Development of the cr eative economy culture in which people and government work tog ether Source: Ministry of Strategy and Finance (2013) 1. To develop an environment of creativity and imagination 2. Task 2: To fuse public resources and national ideas through Government To innovate methods with which the government operates to realize the creative ec onomy 17
18 III. Fostering Creative Economy The Korean government unveiled in March 2014 the Three-Year Plan for Economic Innovation The plan analyzed policies and suggested alternatives to problems such as the fixation of rent seeking, low economic dynamics, and overly weighted growth towards exports rather than domestic consumption. The plan suggested three main directions for future economic policies: 1) Fair and efficient economy 2) Growth through innovation 3) Balance between exports and domestic consumption 18
19 III. Fostering Creative Economy <Table 3> Framework for Three Year Plan for Economic Innovation Source: Ministry of Strategy and Finance 19
20 III. Fostering Creative Economy The Korean government placed special emphasis on the creative economy innovation center one for each of the 17 local governments by The center, as a regional innovation base, supports the growth and overseas expansion of small and medium-sized businesses in specialized regional industry fields. The creative economy innovation center supervises the realization and diffusion of the local creative economy, such as the development of local society, training of talents and businesses, etc., The creative economy innovation center, with an online creative economy town ( serves as a core off-line platform for the realization of creative economy and outcome creation. This system calls for a concentration of all local R&D resources in the creative economy innovation centers that will promote specialized local businesses by matching them with large businesses on a 1:1 basis. 20
21 III. Fostering Creative Economy <Table 4> The Role of Creative Economy Innovation Center Source: Han, Sung-Goo (2015), P.27 21
22 III. Fostering Creative Economy <Table 5> Creative Innovation Center in Each Region Source: Han, Sung-Goo (2015), P
23 Contents I. Introduction II. Why New Paradigm? III. Fostering a Creative Economy IV. Assessment and Conclusion 23
24 IV. Conclusion The creative economy agenda represents an important and needed effort to build the foundation for Korea s future sustained growth and prosperity. It presents new approaches and opportunities to tackle pressing social and demographic challenges confronting Korea. It is important to focus to ensure the best potential ecosystem in Korea for innovation, entrepreneurship, and fostering creative new industries. Addressing regulatory, structural, and cultural barriers require a long-term approach and commitment, and may not yield short-term results. This will require patience in implementing this agenda, and in demonstrating and communicating to the Korean public with positive outcomes. 24
25 <Annex> Korea s Productivity Positions Changes in relative TFP positions for whole economy (Japan, 1995=1) Korea Japan China Taiwan United States 25
26 <Annex> Korea s Productivity Positions Changes in relative TFP positions for manufacturing (Japan, 1995=1) Korea Japan China Taiwan United States 26
27 <Annex> Korea s Productivity Positions Korea : Labor Productivity (1,000 Won) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10, Total Manufacturing Service Primary Source: KIP Database
28 <Annex> Korea s Productivity Positions Labor Productivity Comparison (1,000 dollar) Korea Japan China Taiwan Source: [Korea]: KIP Database 2014, [Japan] : JIP Database 2014, [China] : World Bank, Wu, Yue, Zhang(2015) [Taiwan] Asian Development Bank (ADB), [Yearly Average Exchange Rates] : - Forex Tools > Historical Rates 28
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