Korea Faces An Economic Fork In The Road As It Recovers From The Pandemic

This story is part of Forbes’ coverage of Korea’s Richest 2020. See the full list here.

South Korean President Moon Jae-in took a risk to hold legislative elections in April as the country was still emerging from its Covid-19 outbreak. His gamble paid off. Carried by a wave of approval for his handling of the pandemic, voters gave 180 out of 300 seats in the legislature to Moon’s party, along with an ally. It was the biggest election win in Korea since 1960.

Moon now has the opportunity and mandate to start afresh despite a dismal record in managing the economy since coming to power in 2017. GDP growth dropped from 3.1% in 2017 to 2% in 2019, a ten-year low.

He raised Korea’s minimum wage repeatedly in a vain attempt to increase labor’s share of national income while curbing the power of the chaebols.

Instead, Korean exports as a percentage of GDP dropped even as global trade grew, while higher minimum wages discouraged corporate investment.

President Moon has now arrived at an economic fork in the road. He can either persist down the failed path he has followed since 2017; or he can strike out in a new direction. Korean entrepreneurs and small businesses have languished in the country’s industrial and export-dominated economy.

They tend, however, to do much better in services. So as the domestic service sector grows, a new vista is opening among Korea’s major Asian trading partners.

A tantalizing sign of things to come is the rise in Korea’s “cultural exports”—music, movies, TV shows and related products and services. In 2018, the value of these cultural exports overtook that of home appliance exports—traditionally the backbone of Korean exports.

Mirroring the underperformance of entrepreneurs and small businesses in Korea’s economy is the underutilization of women in its labor force. Korea’s female labor force participation rate in 2018 was only 53%, compared with 73% among males. This disparity is especially vexing given that the proportion of Korean women earning a college degree has climbed to roughly 45%— on par with men—from just 38% in 2000.

With rapidly increasing female human capital, Korea’s low female labor participation rate represents not only a social injustice, but also a wasted economic resource. Well-educated, entrepreneurial women can bring new creative energy to the service sector, including cultural exports.

For that to happen, though, Korea has to close the gender gap in both pay and corporate leadership. With his new mandate, President Moon can make the changes needed to empower women as part of a concerted effort to support the expansion of creative services. Instead of fighting the tired, futile battle of capital versus labor, this is the turn in the fork in the road that could help Korea find new success in the post-Covid world.