Korea

Growing stronger together in Seoul

 

Conference on Economic Democratisation

Remarks by Angel Gurría,

OECD Secretary-General

Seoul, Korea, 25 October 2016

(As prepared for delivery)

 

 

Mayor Park, Ladies and Gentlemen:

 

It is a pleasure to join you here today.

 

Since entering the OECD 20 years ago, Korea has made a habit of being at the front of the class. You have led the OECD on several fronts, from R&D intensity, to university graduation rates, and the number of hi-tech firms operating at the technology frontier!

 

This leading position was reflected between 1990 and 2010, in productivity growth rates averaging more than 5% per year – the highest rate in the OECD area over the period! And Korea now ranks 22nd among the 35 OECD member countries in per capita income.

 

Challenges ahead

 

Yet, in recent years some of the growth impetus provided by past reforms has begun to dampen.  

 

Productivity growth has fallen since 2011, and at 0.8% per year is now close to the OECD average and a large gap persists between productivity in manufacturing and services, and between large and small firms. More worrisome, overall labour productivity is still only 50% of the top half of OECD countries.

 

Moreover, many of the social issues which strong economic performance helped to gloss over - from having the eighth highest relative poverty rate in the OECD, to the rise of inequality and rapid population ageing– have become more pressing than ever.

 

Today, in Korea, the top 10% of the income distribution earn around 10 times the income of the bottom 10%. This is close to the OECD average, but it is still too high! And nowhere is this issue more burning than here in Seoul!

 

Our recent OECD report, Making Cities Work for All, underlines that cities concentrate inequality with metropolitan areas displaying greater disparities than national averages. What is more, the larger the city, the greater inequality tends to be.

 

Putting Korea on the path to inclusive growth

 

If Korea is to rescale the heights it has achieved over these last 20 years, then it urgently needs to take steps to reinvigorate productivity growth, whilst also ensuring that the gains of that growth are broadly shared across the population. And more to the point, a substantial part of those efforts need to focus here in Seoul!

 

It is in this spirit that Mayor Park and the Seoul Metropolitan Government are striving to advance the ‘economic democratisation’ of the city.

 

The good news is that the pursuit of greater equity and stronger economic performance are not mutually exclusive. On the contrary, the OECD’s work on inclusive growth has shown they are essential complements!

 

Our recent report on the Productivity-Inclusiveness Nexus underlines that it is not just those at the bottom who suffer when inequalities scale new heights – we all do. When disadvantaged groups are unable to fulfil their potential, we all lose out on the visionary leaders, the innovators, and the economic growth that could have come to pass.

 

For instance, here in Korea the exclusion of women from the labour force not only hinders social and equity goals. It is also a major drag on growth. At 21% Korea has a gender employment gap more than double the OECD average and a gender pay gap of 36% - the largest in the OECD! This is an enormous waste of potential.

 

The Nexus report also underline the importance of ensuring that all firms – and particularly SMEs - are empowered to contribute to more robust growth. This is vital in Korea, where its impressive export-led growth has been dominated by a small group of large conglomerates.

 

Securing stronger and more inclusive growth going forward means reinvigorating its SMEs and opening up avenues for entrepreneurship to a broader range of people.

 

Mayor Park has taken on this mantel! The Seoul Metropolitan Government has taken innovative approaches to support SMEs, neighbourhood businesses, and local communities. This includes providing them with relevant market data, facilitating access to business expertise and financing, and ensuring that local businesses benefit – rather than suffer from – urban regeneration projects.

 

The city is also setting an example for fairer business practices by providing a more stable working environment for employees and adopting a living wage system that reflects actual living costs for low-income workers.

 

These are crucial ingredients for vibrant, resilient and inclusive economies, but there is significant work to be done here in Korea:

  • Labour productivity in SMEs was only 31% of that in large companies in 2014, down from 54% in 1988.
     
  • While Korea spends an impressive 4.3% of GDP on R&D, this is concentrated in the large manufacturing conglomerates. Services – where SMEs are concentrated – accounted for only 8% of Korea’s business R&D in 2013, well below the OECD average of 38%.

 

Making inclusive growth happen

 

Like Mayor Park, other local leaders across the globe are taking up the challenge in a range of policy areas that matter for inclusive growth.

 

This is why the OECD launched the Inclusive Growth in Cities Initiative, creating a global coalition of Champion Mayors for Inclusive Growth. Last March, 20 Champion Mayors joined Mayor Bill de Blasio to sign on to the New York Proposal for Inclusive Growth in Cities. Since that time, this coalition has grown to 50 mayors worldwide – including the Mayors of Seoul, Los Angeles, Paris, Dakar, Medellin and many more.

 

Champion Mayors, including Mayor Park, will join Mayor Anne Hidalgo in Paris next month to endorse the Paris Action Plan for Inclusive Growth in Cities. This will see Mayors commit to promoting affordable housing, improving access to services and making education systems and labour markets more inclusive.

 

Ladies and Gentlemen: At the core of both the OECD’s work on inclusive growth, and the city of Seoul’s plan for economic democratisation, is a simple realisation: broadly shared prosperity will be unattainable unless we put people at the heart of our economies. By working together with cities from across the world, we can take the fight to inequalities to restore growth and promote well-being.

 

Thank you.