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Are they preparing for the Asian era?

Published: 11 Aug. 2024, 20:19

Cho Yoon-je
The author is a professor emeritus at Sogang University.

Three East Asian majors — South Korea, China and Japan — are jointly up against the menacing headwinds of a declining population, productivity and growth. The economic machine of China has lost steam in the 2020s with its annual average growth of 7.7 percent in the 2010s plunging to 4.7 percent in the last four years. China’s contribution to global economic growth sank to 24 percent in 2020-2023 from 32 percent in 2010-2019. China’s economically active population has been thinning from 2015, and its investment rate against its GDP has stagnated. Productivity that should substitute reduced labor forces and capital investments has been on the decline since the 2010s. Beijing recently announced stimuli measures through increased spending and credit, but their effects will be short-lived.

Japan took that gloomy path three decades ago. Ever since the mighty economy peaked out from multiple whammies of U.S. trade sanctions, the Plaza Accord and an aging population, Japan resorted to fiscal and monetary stimuli only to invite asset bubbles and a decades-long depression. Stalled restructuring and declining productivity forced the economy to surrender its No. 2 rank until 2010 to China and later to Germany and India to now its humble spot at No. 5. Its habitual turn to expedient fiscal expansion has caused the world’s highest debt pile.

Korea has entered the same danger zone. Productivity that should be raised to compensate for sagging labor and capital inputs has been falling for years. According to the Bank of Korea (BOK), productivity enhancement was responsible for 24 percent in driving economic growth over the past 50 years. But its contribution dipped to 7.5 percent in the last three years. At this rate, the economy will come to a standstill with growth at a zero rate 10 years later and fall into the negative territory after 20 years. This sad picture is not far away.

The advances in science and technology and political and economic systems do not suddenly occur, as they are bred in a system that rewards innovation and a social environment that values the exploration of knowledge and information and excites debate and creativity. The major economies in East Asia still lag behind their Western counterparts in these areas. The three countries could sustain strong productivity when their manufacturing expanded thanks to importing foreign technologies and methods. But the three economies’ productivity has stalled after reaching the phase of innovation and development.

China has surpassed America in the count of scientific publications, but it still falls behind the United States in advanced technologies and overall scientific standards. The East is not just behind the West on the science and technology turf. Their dawdling is more serious in social science. Modern economics born and polished in Britain and the United States have evolved together with the changes in their own market environment and progress. If Korea and China want to avoid Japan’s unfortunate path of 30 years, they must develop economics based on their distinct features and needs. As they resorted to makeshift universal measures without regards to the particularities in their asset ownership, industrial, financial and labor structures, as well as their growth history and market customs, the countries today are grappling with asset bubbles and soaring housing prices which have become unreachable for the young, on top of a deepening wealth polarization and a structural weakening in growth.

Asia nevertheless will be central in the 21st century. By the midway into the century, the Asian economy led by China and India will account for more than half of the global economy. The global economic order and governance structure led by the United States and Europe will inevitably shift. For Korea, China and Japan to act their roles as leaders of Asia to realign the global order, they must hurry to advance and accumulate knowledge. Korea is relatively small against the two neighbors, but it must not fall behind in the knowledge capital.

It all boils down to the basics — knowledge and innovation ability. Without them, achieving economic growth and national prosperity is just a pipe dream, not to mention having leadership over the global order. Korea must raise universities and enhance rewards for knowledge and research explorations. The three nations must partner in all areas, but most importantly, in intelligence exchange, cooperation, reciprocal stimulation and learning in the longer run. If the three fail to overcome their historical conflict and differences to widen the spectrum in knowledge and experience, the world’s future can become more unsettling than now.

Translation by the Korea JoongAng Daily staff.