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A vision for Korea: laying the foundations to join the most advanced countries in the world

 

by Angel Gurría, OECD Secretary-General
Keynote speech delivered at a conference commemorating the 10th Anniversary of the Korean Accession to the OECD
Seoul, September 22, 2006.


I am honored to be in Seoul celebrating the 10th anniversary of Korea’s accession to the OECD, a decade of mutually beneficial co-operation between Korea and the Organisation.

The OECD brings together 30 countries sharing a common commitment to democratic government and the market economy. National experiences are analysed, best practices are identified and, in some cases, international standards and rules are developed and implemented.

Korea’s contribution to the OECD

In this policy dialogue, the OECD has learned much from Korea, which is one of our most dynamic members. Korea entered the OECD ten years ago following three decades of rapid growth that had transformed it from a rural, undeveloped society to a modern economy in just one generation. Korea is a very unique and remarkable success story of rapid economic development.

Korea is converging fast to the average GDP per capita within the OECD and has made stunning progress in many fronts. Since joining the OECD, Korea has achieved an economic growth rate of almost 6% per year, more than double the OECD average. It has become a world leader in many sectors, including ICT. Indeed, the contribution of the ICT sector to productivity growth in Korea is the largest in the OECD area. Korea’s achievements in high-technology industries are based on its strong emphasis on education. The proportion of high school graduates advancing to university in Korea is 82%, the highest in the world. In the OECD Programme for International Student Assessment, known as the PISA programme, Korean 15-year- olds have been outstanding performers. In the past, a country’s wealth depended on its natural resources. In the 21st century, a country’s future depends on its capacity to generate ideas. Korea is laying the foundation to catch up with the most advanced economies in the world.

The OECD’s role in economic policymaking in Korea

The OECD has played a key role in helping Korea at difficult times, particularly following the 1997 crisis. One year after its entry into the OECD, Korea was hit by a financial crisis, caused by the flight of short-term financial capital. The crisis was in part due to contagion from Southeast Asia, but structural weaknesses in Korea also played a role.
In response to the crisis, Korea wisely chose to introduce global standards and best practices in every sector of its economy. The OECD has been closely involved in the development and implementation of such policies, particularly in the financial sector, the corporate sector, the labour market and the public sector. OECD recommendations not only set forth the direction of reform in these areas but also helped to persuade domestic interest groups to accept changes.
Although OECD recommendations are not legally binding, the fact that they are based on in-depth analysis by the OECD Secretariat and supported by the member countries – who account for two thirds of the global economy – give them considerable weight.
Let me offer some specific examples that illustrate how the OECD has contributed to economic policies in Korea.  

1. Corporate governance: The 1998 and 1999 Economic Surveys of Korea recommended a market-based approach to corporate restructuring, including improved corporate governance. The implementation of these policies has brought Korea’s corporate governance framework in line with OECD principles. In addition, there has been a shift in chaebol policy away from direct regulation and toward more reliance on market forces.

2. Labour law reform: When Korea joined the Organisation, the OECD Council instructed the committee that is responsible for labour issues to closely monitor Korea’s progress in bringing its labour laws in line with internationally-accepted standards. Such monitoring has encouraged some progress. Moreover, Korea adopted a roadmap for labour market reform in 2003, which would make its labour laws consistent with international standards. The government is committed to implementing the roadmap by the end of 2006.

3. Regulatory Reform. In 2000, the OECD issued several recommendations covering the regulatory framework, competition policy and market openness. Korea has made significant progress in all of them.

4. The social safety net: Existing government social programmes were inadequate to cope with the large rise in unemployment in the wake of the crisis. In 2000, the OECD’s special study on Korea’s social safety net contributed to improved policies.

5. Monetary policy: The 2003 OECD Economic Survey of Korea recommended increasing the independence and accountability of the Bank of Korea. The revision of the Bank of Korea Act in 2004 significantly improved the monetary policy framework in line with these recommendations.

6. Regional policy: The OECD Territorial Reviews of Busan and Seoul in 2005 addressed the issue of achieving balanced regional development while relaxing regulations on construction in the capital region to encourage its international competitiveness.

7. Environmental policy: Yesterday, we released the second OECD Environmental Performance Review of Korea, which evaluates the extent to which Korea has met its domestic objectives and international commitments in the field of the environment. This is yet another area where Korea has made outstanding advances, in terms of the regulatory framework, institution building and performance.
These are just a few of the many examples of the positive interaction between Korea and the OECD. There are many others, and there will be more, as our interaction and understanding grow stronger.

Korea’s Vision 2030 Plan

Indeed, the OECD will continue to work with Korea as it pursues its reform agenda. A few weeks ago, the government announced the Vision 2030 plan, which provides a comprehensive long-term strategy to transform Korea into a fully advanced country and addresses key challenges such as rapid population ageing.
Vision 2030 emphasises the creation a virtuous circle between economic growth and social welfare. Korea has given increasing attention over the past decade to the social safety net. With public social spending amounting to only 6% of GDP in 2001 – compared to an OECD average of 20% –  the development of the social safety net in Korea is at a relatively early stage compared to other member countries. Clearly, there are urgent needs to prevent an increase in poverty. At the same time, it is important to avoid the mistakes of some OECD countries where public social spending and high tax burdens have created work disincentives and poverty traps.
The OECD stands ready to support in other areas where progress is lagging. In terms of its economic integration to the world economy, there seems to be room for improvement in Korea, as the stock of inward FDI is the second lowest in the OECD area at around 8%; Imports of manufactures as a share of domestic demand in Korea is the second lowest in the OECD area, and agricultural protection is also high, almost double the OECD average of support at 62% of average income.
Policies that would help Korea make greater use of goods, services, capital, technology and human resources from abroad would help accelerate structural reform and boost economic growth. However, reforms are not easy to advance and implement. There is an increasing awareness of the priority of the political economy of reform. This is an area where the OECD should become much more prominent, following the mandate given to us by our members.

Conclusion

Korea’s outstanding economic performance during the past ten years is due to its willingness to embark on structural reform. The OECD is very pleased to have played a part in these reforms. Korea now faces new challenges as it confronts one of the most rapidly ageing populations in the OECD and the growing need to develop the social safety net, while trying to maintain a high growth rate in an increasingly competitive and globalised world economy. It also confronts the challenge to do it balancing economic growth on the one hand and fairness and equity on the other. The OECD stands ready to assist Korea in meeting these challenges.

 

 

 

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