A global powerhouse in science and technology

Since its accession to the OECD in 1996, Korea has become a global powerhouse in science and technology, one of the most advanced digital economies in the world, and a leading player in several industries, including electronics, automobiles, steel and shipbuilding. It has also played an important role at the OECD to support the Organisation’s work on science, technology, innovation and industry issues and advance complex agendas in these areas at the international level. This policy paper looks through a technology and industry lens to track Korea’s rapid structural change, the role that the OECD has played to support it, and the valuable synergies that have been created in these policy domains through Korea’s membership of the OECD.

Science, technology and innovation (STI) have been fundamental to Korea’s economic transformation that culminated in its accession to the OECD on 12 December 1996. When Korea joined the OECD, it was already the world’s eleventh largest economy, and seventh in terms of manufacturing value added. The practice of importing and adapting foreign technologies was being complemented by a rising trend of home-grown technologies and higher value added. Already in its early membership days, Korea also led the field in broadband connectivity, presaging its current strengths in the digital era.

The foundations were laid in the 1960s, when modern science and technology development started in Korea. In 1967, the Korean government established the Ministry of Science and Technology (MOST), which played a decisive role in raising Korea from the status of a developing country to the threshold of an advanced country by the mid-1980s. A first paradigm change toward high technology occurred in 1987 through the launch of the Industrial Generic Technology Development Programme, based on the Industrial Development Law that provided financial and technological assistance to private firms for developing critical high-risk technologies. By that time, private firms started performing in-house R&D, reducing their dependence on imported technologies. R&D spending advanced from 0.77% of GDP in 1980 to 2.33% in 1994, a level comparable to advanced OECD economies.

Evolution of science and technology policy in Korea

Over the past 25 years, Korea’s National Innovation System (NIS) has continued to develop spectacularly. By 2019 R&D spending – most of which is focused on experimental development – had reached a level of twice the OECD average (Figure 1).

Figure 1. Gross expenditure on research and development (GERD)

As a percentage of GDP

Source: OECD, Main Science and Technology Indicators Database, http://oe.cd/msti, extracted from OECD STI.Scoreboard platform, 22 July 2021: https://stip-pp.oecd.org/Stats/StatTrends_online.html?file=data/SB/SB-data.csv.

Korea’s science and technology journey with the OECD started with a first Review of Science and Technology Policies in 1996 (OECD, 1996). While applauding Korea’s impressive transformation, the review highlighted the importance of strengthening basic science to generate further breakthroughs in Korean science and technology, calling for a broader, more creative scientific foundation. It concluded that “Korean basic science and engineering will have to make the transition from specialised targeted research to the more diversified scientific base that will be necessary to be competitive in future world markets.” It also warned about the limits of technology push as a dominant model of technology promotion, given the lack of diffusion into the economy. Government coordination on STI was also identified as a barrier, with responsibilities for R&D split among four ministries and a co-ordination function by the National Committee for Science and Technology lacking effectiveness.

Following the OECD’s recommendations in the Review, MOST was upgraded from ‘vice-ministerial’ to ‘ministerial’ level in 1997, and a number of large national R&D projects were newly promoted, concentrating limited scientific and technological resources on strategic technology fields. A Five-Year Plan for Science and Technology (1997-2001) provided more coherence in the scattered science and technology policy landscape. This was complemented by the creation of the National Science and Technology Council in 1999, led by the President. The government’s continuing commitment to an ambitious science- and technology-driven growth strategy is well illustrated by the “Leading Technology Development Project (G7 Project)”, which aimed to raise Korea's science and technology to the level of the most advanced economies by 2001 (Sea-Hong Oh et al, 2016). This was the first cross-ministerial joint R&D project, and the first in which private companies participated in the planning process. It served as a pattern maker for large national R&D projects that were to follow.

Transition of the Korean NIS: Towards a “creative” innovation system

Following the Asian financial crisis of 1997-98, the Korean government sought to accelerate the transition from what was still considered a “catch-up” national system of innovation to a “creative” one, as articulated in the 2004 Implementation Plan for the NIS. This creative model saw greatly increased spending on R&D–by both the public and private sectors–and greater efforts to improve knowledge flows and technology transfer across the innovation system.

Korea continued increasing R&D spending faster even than its remarkable GDP growth, and in 2006 it reached 3.2% of GDP, one of the highest levels in the world. However, the capacity for conducting basic research was still lagging, and linkages remained underdeveloped, not only between academia and industry, but also within academia, and between government research institutes and universities. Inter-ministerial co-ordination still stood as a significant barrier to efficient STI policy making, despite some restructuring and a reduction in the number of ministries involved in supporting R&D.

In this context, the OECD undertook a second national review of Korea’s STI policies in 2009 (OECD 2009). The review made several recommendations, including strengthening inter-ministerial coordination on STI, and linkages between universities and government research institutes, and the private sector. It called for reinforcement of basic research by recognising its strategic value, and for selective investments in research infrastructure. In terms of business innovation, the review recommended continued support for R&D in the small- and medium-sized enterprise (SME) sector while streamlining the various schemes available, and to increase the focus on service innovation. It also called for industry diversification away from traditional areas of strength within the chaebols (Korea’s large industrial groups), towards areas such as bioscience, nanotechnology, space science, as well as welfare-oriented “grand challenges” for research. In line with the OECD recommendations, the R&D budget to help SMEs increase their global competitiveness was expanded, while government-funded research institutes were called upon to support and promote the R&D activities of SMEs and start-ups.

Korea’s continued drive to learn from good practices on innovation and technology policy

Providing an enabling environment for scientific and technological advance and ensuring its benefits the economy and society requires constant attention to policy settings. In 2014, at the request of the Korean government, the OECD undertook a fresh review of industry and technology policy in Korea (OECD 2014). It took place against a backdrop of relatively weak innovation performance of SMEs, a lagging services sector, and limited domestic job creation among the industrial conglomerates. The review stressed the need to fund and provide advisory support to high risk, high benefit R&D programmes, and improve selection and evaluation processes to feed back into policy decisions. Among other recommendations, it advocated fostering the start-up ecosystem by redesigning R&D tax credits to make it more beneficial to radically innovating firms, fine tuning advice and incubation services, improving access to finance and further promoting technology holding companies, and setting up for-profit organisations to commercialise early stage university technology through start-ups and joint ventures. It also called for a rebalance towards services and the creative economy. In 2018, SMEs accounted for 79% of R&D tax relief recipients, representing 40% of R&D tax support, though services continued to be underrepresented, accounting for 15% of R&D tax relief recipients and just 9% of R&D tax benefits (Figure 2) (OECD, 2021b). Korea recently extended the scope of its R&D tax credit to cover expenses incurred for innovative growth-related technology investments (e.g. design and manufacturing of system semiconductors, etc.).

Figure 2. Number of tax relief recipients and value of government tax relief for R&D, Korea, 2018

Note: Figures refer to the R&D investment credit and R&D tax credit. *SMEs are defined as firms that have total asset amount less than 500 trillion KRW, total sales less than 40-150 trillion KRW (the threshold varies by business sector), are not related to other large firms and do not run a lodging business or bar management. **Economic activity is defined as follows: Manufacturing (Steel, automobiles, food, etc. all kinds of products made in a factory), Services (Legal, consulting, advertisement, education, etc.), Other sectors (Agriculture, mining, fishing, construction, wholesale, retail, finance, healthcare, etc.)

Source: OECD (2021c), R&D Tax Incentives Database, http://oe.cd/rdtax, March 2021.

As Korea moves with the rest of the world to exit the COVID-19 pandemic and restore growth and resilience, there remains a strong national consensus for a business innovation-led growth model. The Ministry of Science and ICT (MSIT) has recently asked the OECD to review Korea’s STI policies in this new environment, which is also characterised by slower economic growth in Korea than in past periods. An initial self-assessment by the Korean Science and Technology Policy Institute (STEPI) found very strong government support for business innovation and R&D, for enhancing framework conditions for a highly educated workforce and for quality ICT infrastructure, as well as a strong propensity for the early adoption of technologies. There is also a growing need for advancing Korea’s STI system to respond to rapidly changing domestic and international environments, such as digital transformation, climate crisis and technological hegemony, in a pre-emptive and active manner. It is expected that the OECD Review of Innovation Policies will provide insight about key issues faced by Korea. The OECD Review of Innovation Policies will be finalised and launched in 2022, continuing the valuable engagement between Korea and the OECD on STI issues.

Korea’s rapid digital transformation

Alongside advances in science and technology, Korea–like other OECD countries–has been experiencing an accelerating digital transformation of its economy and society. As elaborated by the OECD’s Going Digital integrated policy framework, a successful transformation depends on a number of elements, including access to and effective use of digital technologies, jobs and skills, trust and market openness (OECD 2019). A fundamental building block is reliable connectivity, as it facilitates interactions between people, organisations and machines. Fixed Gigabit networks and 5G are likely to become the underlying connectivity behind the Internet of Things (IoT) and artificial intelligence (AI) with applications across all sectors of the economy. The COVID-19 pandemic has further underscored how the resilience and capability of broadband networks are becoming ever more critical. As we move more and more towards a “distance economy” (e.g. remote learning, remote health, automated driving, etc.), ensuring high-quality connectivity becomes essential.

Leading the way towards high-quality broadband networks

The Korean government understands the key role of connectivity for a successful digital transformation of the economy. As the need for a large-scale digital transformation policy became evident following the COVID-19 health emergency, the Korean government launched the “New Deal” on July 2020 to ensure the economic recovery of the country by 2025. The Korean New Deal places digital policies, together with sustainability, as the two key pillars of the “National Strategy for a Great Transformation”, and foresees connectivity playing a key role. The digital pillar focuses on a “smart country that is at the centre of a digital transformation based on data, network and artificial intelligence (DNA) infrastructure.” It proposes projects to integrate 5G and AI into all sectors of the economy and promote the digital transformation of industries (Government of the Republic of Korea, 2020).

Korea starts from a strong position, as a longstanding OECD leader in terms of connectivity. In the early 2000s, a time when residential broadband was still at an early stage of development, Korea outstripped other OECD countries, with a fixed broadband penetration already over 20 subscriptions per 100 inhabitants in 2001 (Figure 3).

Figure 3. Fixed broadband penetration, historical leading OECD countries (2000-2020)

Note: Swiss data for Q4-2020 are preliminary.

Source: OECD (2021d), OECD Broadband Portal, https://www.oecd.org/sti/broadband/broadband-statistics/, (accessed July 2021).

In December 2020, Korea was the leading OECD country in terms of the percentage of fibre in total fixed broadband connections (84.8% compared to the OECD average of 30.6%, Figure 4). In addition, in April 2019 Korea became one of the first OECD countries to launch 5G commercial networks and since then has achieved one of the highest coverage rates in the OECD. By the end of May 2021, the MSIT reported 15.84 million 5G subscriptions, comprising 22% of overall mobile subscriptions (Figure 5). The transformational aspects of 5G are likely to commence when “stand-alone (SA)” 5G networks are deployed, which are expected to increasingly make use of network slicing, with productivity effects across all sectors in the economy (OECD, 2020). All three Korean operators have plans to deploy SA-5G networks in 2021. On 15 July 2021, KT claimed launching Korea’s first commercial SA-5G network (Mobile World Live, 2021).

Figure 4. Percentage of fibre connections in total fixed broadband, December 2020

Note: Fibre subscriptions data includes Fibre to the Home (FTTH), Fibre to the Premises (FTTP) and Fibre to the Building (FTTB) and excludes Fibre to the Curb (FTTC) and Fibre to the Node (FTTN). Australia: Data reported for December 2018 and onwards is being collected by a new entity using a different methodology. Figures reported from December 2018 comprise a series break and are incomparable with previous data for any broadband measures Australia reports to the OECD. The OECD definition of fibre differs substantially from fibre classifications commonly used in Australian reporting. These figures treat connections known in Australia as 'Fibre-to-the-Node' and 'Fibre-to-the-Curb' as DSL connections, while ‘Fibre-to-the-Premises’ and ‘Fibre-to-the-Basement’ are treated as Fibre connections. Data on technology type prior to Q2-2016 should be treated as indicative until further notice. Czech Republic: A break in times series occurred from 2019 onwards. Mexico and Switzerland: Data are preliminary.

Source: OECD (2021d), OECD Broadband Portal, https://www.oecd.org/sti/broadband/broadband-statistics/, (accessed July 2021).

Figure 5. 5G commercial subscriptions in Korea, April 2019 to May 2021

Note: 5G commercial services were launched in Korea on April 2019.

Source: Ministry of Science and ICT, June 2021.

The deployment of more fibre into networks can help drive a substantial increase in broadband quality, including speeds across all access technologies. This is also key for 5G networks that rely on a strong fibre backhaul infrastructure to face the growth of data traffic driven by the digital transformation. Such advances are critical to support innovative uses of digital technologies, including those leveraging the IoT, with Korea’s smart city policies offering one example. Since the early 2000s, Korea has pioneered the use of digital technologies in urban management to upgrade traffic management, crime prevention and other urban services. With close co-operation between national and local governments, these have developed into Integrated Operation Control Centres (IOCC) and “smart city” platforms. To drive progress, since 2019, Korea has sponsored the OECD Programme on Smart Cities and Inclusive Growth (1st & 2nd Roundtables) and in 2021 Korea is developing a certification system to assess the progress and potential of smart cities (OECD, 2021e). Korea’s smart city data system was critical to build the Epidemic Investigation Support System (EISS) that helped monitor the spread of COVID-19 and enable contact tracing. The COVID-19 pandemic has more generally shown the importance of deploying more fibre deeper into networks and gradually phasing out xDSL technologies that typically have low upload speeds and are poorly suited to support activities such as working from home (OECD, 2020).

To upgrade networks, many OECD countries and operators have started to extend the coverage of gigabit Internet commercial offers (i.e. above 1 Gbps advertised speed), and the first 10 Gbps broadband commercial offers have emerged in France, Korea, Japan, Sweden, and Switzerland (OECD, 2020). Korea already has many commercial offers with 1 Gbps with vast coverage of these offers in the country. The coverage of 1 Gbps Internet coverage in the fourth quarter of 2017 (latest data available) was already 98.51% of urban households and 97.42% of rural households. In addition, Korean operators started with 10 Gbps commercial offers in 2018.

Policies to foster high-quality connectivity in Korea

Korea’s success in expanding connectivity is a result of concerted policy efforts, including several ICT and broadband plans over the years. It has also excelled in bridging the connectivity divide between rural and urban areas. Nevertheless, Korea has not been complacent, recognising that connectivity is the fundamental pillar of digital transformation (including in industrial processes) and that the road to achieving access to high-quality broadband services for all demands a constant effort. Korea has developed important strategies to extend the coverage of gigabit fixed broadband and 5G networks. With respect to fixed broadband networks, Korea reached a 90% coverage of fixed networks with speeds greater than 100 Mbps and less than or equal to 1 Gbps in 85 cities back in 2017. The country furthermore reached a 16% gigabit network coverage with speeds between 2.5 Gbps and 10 Gbps in 85 cities in 2020, with the goal of further expanding the coverage in the future (Ministry of Science and ICT, forthcoming). Regarding mobile networks, Korea launched a 5G strategy (5G+) in April 2019 to leverage the country’s early commercial rollout and promote a “5G ecosystem”, where 5G is the underlying infrastructure connecting advanced devices and innovative services.

Korea is also an example for OECD countries for innovative approaches to regulation, such as data-driven regulation to boost the quality of broadband networks. For more than 20 years, the Korean government, through the National Information Society Agency (NIA), has monitored the quality of broadband providers through “field” measurements, and renders the results publicly available1. According to the NIA, the service quality evaluation has significantly contributed to increase network quality and reduce the coverage gap between urban and rural areas in Korea as operators increased network quality after each publication. Furthermore, it has helped increase competition by providing users with objective quality information on communication services, so that they can choose providers accordingly (NIA, 2020).

Korea’s industrial development and business environment

Korea’s innovative economy and its capacity to engage in reforms have helped it weather economic downturns and crises over the past 25 years, including the 1997 Asian crisis and the 2008 global financial crisis. Its use of technology, including for tracking and tracing of infections, also helped it traverse the initial stages of the COVID-19 pandemic, and robust and stable economic growth is expected through 2021-22 after a relatively modest drop in GDP of -0.9% in 2020 (OECD, 2021f). Nevertheless, Korea has the opportunity to go further to achieve strong economic performance coupled with inclusiveness, by tackling challenges in the business environment.

In the last three decades, Korea has increased its productivity and income through greater participation in global value chains (GVCs), with a number of firms organising their supply chains across different countries and serving global markets. Among G20 countries, Korea has the highest participation in GVCs, with very high “backward participation” (value added of inputs sourced abroad, i.e. foreign content, accounted for about one-third, 32.6%, of the value of Korea’s gross exports in 2015) ensuring competitiveness and lower costs of production; and moderate “forward linkages” (about one-fifth, 19.1%, of the value of Korea’s gross exports in 2015 was subsequently used in production and exported by other countries) highlighting the integration of Korea into “factory Asia” (OECD, 2021g). Korea is also one of the top 10 manufacturing hubs in GVCs, as measured by “centrality” (Figure 6). In Asia, it holds third place behind China and Japan, and between 2005 and 2016 its degree of centrality decreased only slightly, indicating it succeeded in maintaining its competitiveness and leading role in manufacturing GVCs at the same time as China’s rapid rise. Over that period, certain Korean industries such as motor vehicles, other transport, machinery and electrical machinery increased their centrality, though the ICT and electronics industry fell back (mainly due to outputs going to fewer “spokes” or customers).

Figure 6. Korea’s place in the top 10 manufacturing and service hubs in GVCs

Foreign centrality index, 2016 and 2005

Note: Foreign centrality is calculated as the output-weighted average of industry-country centrality indices. See Criscuolo and Timmis (2018) for the methodology.

Source: OECD calculations based on OECD Inter-Country Input-Output tables, 2018 edition.

However, the former strategy of export-led growth in key manufacturing industries and targeted support to a small set of IT sectors that drove this economic advance has also contributed to drive growing productivity gaps in Korea. At the aggregate level, labour productivity in Korea is low by OECD standards; in 2017, GDP per hour worked was 37% of the productivity level of the United States, below the OECD average of 55%. The OECD’s Inclusive Growth Review of Korea (OECD, 2021g) dug deeper, highlighting unbalanced growth across different sectors and firm sizes in Korea and a correspondingly unequal distribution of productivity gains across population groups. In some industries, Korea has some of the most productive global companies. However, Korea also has among the largest productivity gaps between frontier firms and laggards (Figure 7). If similar productivity levels were reached by a wider set of firms, Korea could not only create a more inclusive society but also further increase its aggregate productivity and resume its income convergence with G7 economies. These challenges are not unique to Korea, and the review provided an occasion to draw on experiences and practices in other OECD member countries, as well as unique OECD data and policy information, and apply this in the Korean context.

Figure 7. Productivity gaps between frontier firms and laggards in Korea

Within-industry labour productivity of firms at the 10th percentile of the distribution relative to firms at the 90th percentile, available years

Note: This figure reports the average labour productivity of firms at the 10th percentile of the labour productivity distribution in each industry relative to the average labour productivity of firms at the 90th percentile, within industry for Korea and within country-industry pairs in a set of benchmark countries, over the period 2000-17 for manufacturing and 2006-17 for non-financial market services. Labour productivity is measured as the ratio of value added to employment. See Box 3-1 in OECD (2021g) for details.

Source: OECD MultiProd database.

In particular, the review revealed that just a few industries contributed most of Korea’s aggregate productivity growth in recent years. In manufacturing, the lion’s share of productivity growth between 2012 and 2017 was driven by the computer, electrical and machinery equipment industries (which include semiconductors). In services, the finance industry contributed the most to productivity growth. The sector-productivity gap in Korea is among the highest in the OECD. Productivity in market services was on average only 43% of the productivity level in manufacturing in 2016. This is less than that observed in the United States (61%) or in the United Kingdom (78%). Low productivity in services is ultimately detrimental to all industries that use service inputs, and also affects the performance of Korea’s service sector in GVCs, as can be seen in the relatively low ranking of Korea in GVC service hubs (Figure 6 earlier).

The review also showed that Korea has one of the highest size-productivity gaps in the OECD. Korean SMEs are more than 70% less productive than large firms, while this gap is only 30% in Germany and 13% in the United Kingdom. This is a concern as small businesses are generally key contributors to productivity and job creation and drive business dynamism. To tackle these challenges, Korea created a dedicated Ministry for SMEs and Start-ups in 2017; in 2019, the Ministry co-chaired the High-level Roundtable that launched the OECD “Digital for SMEs” Global Initiative. Support for SMEs’ digital transition has also been a key pillar in Korea’s response to COVID-19 (OECD, 2021h), including through new and existing measures, such as e-sales support, cybersecurity enhancement, and digitalisation of government-to-business services, helping many SMEs to weather the storm, and be better prepared for the recovery. However, a range of other complementary policies would further boost Korea’s trajectory to growth and inclusion. Key amongst then, highlighted by the Inclusive Growth review (OECD, 2021g), are encouraging a rebalancing of productivity growth towards services (including through product market reforms in lagging service sectors); creating a better environment for SMEs to work with large firms and be more productive (including through fostering adoption of technologies and facilitating women’s entrepreneurship); unleashing the growth of SMEs (including through helping service SMEs invest in intangible capital); assessing, evaluating and streamlining existing SME support programmes; and designing a more inclusive GVC strategy (including by encouraging strategic partnerships between Korean and foreign firms and adjusting cross-border data regulations to facilitate the transfer of information and promote e-commerce).

Korea’s contribution to the OECD’s work on science, technology, innovation and industry

Korea’s membership in the OECD’s Committee for Scientific and Technological Policy (CSTP), Committee on Digital Economy Policy (CDEP) and Committee on Industry, Innovation and Entrepreneurship (CIIE) has been an enriching opportunity for information sharing and mutual learning on STI issues, to the benefit of all OECD Members and of the OECD as an institution. Korea’s actions in steering and participating in the OECD’s work has led to a deep and fruitful dialogue and concrete advances in complex agendas. Its activities have spanned taking roles in Committee bureaus, championing development of legal standards, contributing to critical horizontal projects (including the OECD Innovation Strategy in 2010 and 2015, the OECD Green Growth Strategy in 2011 and the ongoing OECD Going Digital project) and participating in thematic analytical work. Its secondments from a range of ministries and agencies has supported the OECD work on science, technology and innovation, and strengthened links between the OECD and the Korean government at a high level, with some secondees reaching senior positions in the Korean government. Korea has also provided a valuable bridge to non-Member policy communities, extending the reach and impact of OECD work.

A champion for harnessing science and innovation

Korea currently holds the Chair of the CSTP and has held bureau positions across the CSTP family of working parties, actively participating in the work of the different groups and playing a leading role in the development and implementation of OECD legal standards. As just one example, relatively early in its membership, Korea hosted the 1997 CSTP Conference on Facilitating International Technology Co-operation in a Globalised Knowledge-Based Economy, which examined possible barriers to the implementation of the OECD Recommendation on Principles on Facilitating International Technology Co-operation Involving Enterprises adopted by the OECD Council in September 1995. Almost 25 years later, in 2020 Korea hosted a CSTP workshop on “Promoting International Technology Co-operation in the Digital Age and in the light of the COVID-19” to inform the revision of the same Recommendation that is currently underway.

Through its leadership position in the CSTP and by hosting events in Southeast Asia, Korea has helped extend the reach and impact of CSTP’s work to non-members such as Malaysia, Thailand and Indonesia. Korea has supported the engagement of the CSTP in the OECD’s Southeast Asia Regional Programme (SEARP) that was launched in 2014 and strengthened the policy exchange in science and technology policy between ASEAN and OECD Members. In March 2010, Korea hosted the Korea-OECD workshop on Green Growth, which was one of the first events that involved participation of China in the OECD’s work on green growth and explored some of the opportunities associated with using science and technology for achieving a greener economy.

In 2015, the CSTP met at ministerial level in Daejeon, Korea, the first time ever outside the OECD headquarters. The meeting, known as the Daejeon Ministerial was chaired by Korea’s Minister of Science, ICT and Future Planning. The meeting addressed, among other themes, effective coordination across government and better coordination and collaboration at the international level. Ministers agreed upon the OECD Daejeon Declaration on Science, Technology and Innovation Policies for the Global and Digital Age (OECD 2015) that called for greater international co-operation in science and technology to address global challenges and for strengthening the innovation capacities of developing countries as well as their involvement in global governance of science and technology. The Daejeon Declaration was adhered to by 16 non-members, many from Asia (e.g. Cambodia, China, the Philippines, Viet Nam, Myanmar and Thailand). The Daejeon Ministerial meeting was also the venue for the launch of a number of important Committee outputs in Asia, including the 2015 revision of the Frascati manual on Guidelines for Collecting and Reporting Data on Research and Experimental Development, which has been translated into Korean (OECD 2016).

A partner for fostering an inclusive digital transformation

Korea recently held the Chair of the CDEP, from 2017 to 2019, and has held bureau positions across the CDEP family of working parties, including current Vice-Chair roles in all four groups–on communications infrastructures and services policy, measurement and analysis, data governance and privacy, and security. Over the years, Korea, both through the MSIT and the NIA, has closely collaborated with the OECD on the topic of connectivity and in leading the work of the Organisation in this area. Korea has shown continued engagement in the work of the CDEP by supporting cutting-edge projects on enhancing connectivity, fostering the Internet of Things (IoTs), and AI. By sharing best practices, Korea and the OECD together have worked towards the aim of ensuring that the digital transformation reaches all.

In particular, Korea contributed its extensive experience to the development of the OECD Council Recommendation on Broadband Connectivity (OECD, 2021i), adopted in February 2021. This legal instrument provides a reference for policy makers within and beyond the OECD to unleash the full potential of connectivity for the digital transformation and to ensure equal access to connectivity for citizens and companies. Korea provided one of the first translations of the Recommendation into the respective national language and its subsequent championing of this work, including through the organisation of a public event associated with the 2021 OECD Meeting of the Council at Ministerial level and through support for non-Member convergence to the goals and principles of the Recommendation, is an invaluable boost to the wider objective of connectivity for all.

Reflecting its early strengths in the digital arena, Korea also hosted the 2008 Seoul Ministerial on the Future of the Internet Economy. This event marked a turning point with regard to Internet policy. It considered the social, economic and technological trends shaping the development of the Internet and envisioned its potential to evolve from a useful platform to an essential infrastructure for all economic and social actors, thereby for the basic functioning of the economy and society (“Internet economy”). The overall objectives of the Seoul Ministerial were to provide an enabling policy environment for the Internet economy by facilitating the convergence of digital networks, devices, applications and services, by fostering creativity in the development, use and application of the Internet, and by strengthening confidence and security. This meeting also served to raise awareness at the highest levels of government that the Internet has become a core economic and social infrastructure. The meeting saw the adoption of the 2008 Declaration for the Future of the Internet Economy (The Seoul Declaration) (OECD, 2008), in which Ministers stated the further expansion of the Internet economy would bolster the free flow of information, freedom of expression, and protection of individual liberties, as critical components of a democratic society and cultural diversity. They also showed foresight in undertaking to use the tools of the Internet economy to help address global challenges such as climate change. The Declaration has attracted non-Member adherents, including Brazil, Egypt, India, Indonesia, Kazakhstan, Morocco, Romania and Senegal. The Seoul Ministerial was an irreplaceable stepping stone on the path to the 2016 Cancun Ministerial meeting and the Going Digital horizontal project that has successfully placed the OECD at the core of international digital economy policy making.

Sharing knowledge to strengthen a dynamic business environment

Korea is increasing its role in the CIIE, including representation on the current bureau as Vice-Chair, with significant shared interests in the policy domains of productivity, digitalisation, business dynamics and global value chains. Most recently, in December 2019, along with the Ministry of Trade, Industry and Energy (MOTIE) and the Korea Institute for Industrial Economics & Trade (KIET), a joint forum was organised to discuss Digital Transformation and the Global Economy. Korea is supportive of the CIIE’s unique micro-data projects, including collaborating to apply the OECD DynEmp32 statistical code to Korean data from the Statistical Business Register, to shed further light on the employment dynamics among firms in Korea.

Looking forward

Korea is now among the most advanced economies in the world in science, technology, innovation and industry. The question currently is how Korea can redefine its innovation and industrial policy in the digital age. The digital transformation will provide opportunities but also challenges as competition intensifies at the global level and leading firms can quickly scale up their operations through investment in intangible assets such as data, proprietary software, and human and organisational capital. Both large and small firms need to play their full part, if the next years of economic growth are to go hand-in-hand with inclusiveness and benefit all Korean people. A more market- and demand-driven industrial policy, coupled with an innovation policy that empowers all firms to experiment, means that future successful activities in Korea may emerge from a broader set of firms and sectors and inclusiveness can be part of a new growth model relying on business dynamism.

There are strong complementarities between productivity, innovation, business dynamism and inclusiveness. Reforms aimed at promoting business dynamism, helping small firms to scale up and accelerating technology diffusion can increase productivity and reduce the sector and size productivity gaps. A robust innovation ecosystem with strong linkages across firms, academic and research institutions, and investment in fundamental research, will underpin advances that create new opportunities for Korea. Higher productivity benefitting a wider set of firms will enable Korea to participate in new GVC activities and allow productivity gains to be shared across more workers with a reduction in wage dispersion. This will in turn allow more workers to participate in the dynamic part of the economy and encourage new entrepreneurs to start businesses, thus contributing further to business dynamism.

Despite the unprecedented economic and social turmoil unleashed by the COVID-19 pandemic, Korea stands with strength in the global economy. The OECD looks forward to another 25 years of successful collaboration with Korea on science, technology, innovation and industry issues.

References

Bianchini, M. and I. Kwon (2021), "Enhancing SMEs’ resilience through digitalisation: The case of Korea", OECD SME and Entrepreneurship Papers, No. 27, OECD Publishing, Paris, https://doi.org/10.1787/23bd7a26-en.

Criscuolo, C. and J. Timmis (2018), "GVCS and centrality: Mapping key hubs, spokes and the periphery", OECD Productivity Working Papers, No. 12, OECD Publishing, Paris, https://doi.org/10.1787/d4a9bd6f-en.

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Notes

← 1.  The NIA QoS measurements for broadband performance commenced in 1999.

← 2.  The DynEmp project is a distributed micro-data project supporting the analysis of business dynamics, start-ups and job creation across a large number of OECD countries and partner economies.