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The Peninsula

Five Challenges for the Park Geun-hye Administration

Published February 25, 2013
Category: South Korea

By Troy Stangarone

As Park Geun-hye takes office as South Korea’s first female president, she comes into power at a time of contradictions and challenges. The lives of South Koreans have perhaps never been better. The nation is wealthier than it has ever been. Unemployment is low despite continuing troubles in many of South Korea’s export markets and chaebols such as Hyundai and Samsung are arguably at the peak of their commercial and creative success. Internationally, Seoul finds itself with a growing level of influence in international issues.

However, underneath all of the success are a series of challenges that have grown out of South Korea’s meteoric economic rise. Decades of economic growth and migration to the cities have begun to break down some of South Korea’s traditional social structures. The result of this transition has been an increasing number of the elderly without traditional family support or an adequate social safety net. The young, notwithstanding high levels of education, often have difficulty finding meaningful work in an increasingly competitive society. Despite their contribution to South Korea’s economic success, there is growing dissatisfaction with the chaebols and their impact on the potential success of small and medium sized business. Years of declining birthrates mean that in the coming decades South Korea will face a rapidly aging society, in spite of being a relatively young society today. Internationally, North Korea has perhaps never been as belligerent as it is today outside of the Korean War.

This is the context in which Park Geun-hye will take power. A society at a relatively affluent level, but with a series of challenges to meet to ensure that affluence remains for the generations to come. While the Park administration will deal with many issues during its five year term, there are five relatively interconnected domestic and international issues that will have a significant influence on the potential success of her administration. They include:

Reviving the Economy – Park was elected in large part to revive a slowing economy. With economy having slowed to its lowest rate of growth since the 2008 financial crisis at 2.1 percent, South Koreans were looking for answers to address a growing state of inequality within the economy and sagging job opportunities.

Park hopes to steer the economy back to health and focus more on the quality of growth rather than the quantity. In line with that philosophy, she is the first South Korean president to decline to set a target for economic growth. She has also called for a shift in South Korea’s economic philosophy from the mass production that served it so well during its economic development to an economy driven more by creativity and innovation. With this in mind, she has called for increased job creation through innovation and science and technology, while at the same time promising to help revive economic growth among small and medium enterprises. Designed properly, both policies could create new outlets for the growth and job creation needed to address two challenges within South Korea’s economy – youth unemployment and an underdeveloped services sector.

However, reviving the economy will not be easy and is to a degree out of Park’s control. With exports accounting for more than 50 percent of South Korea’s GDP, economic slowdowns in the European Union, the United States, and China have all created a drag on growth.  As a result, the estimates for South Korea’s growth rate in 2013 have already been revised down from 4.3 percent to 3.0 percent. Over time, South Korea needs to rebalance its economy towards domestic consumption, but high levels of household debt will likely inhibit efforts to boost growth through increased domestic consumption.

Over the course of Park’s term, the administration will face additional challenges in reviving the economy. As South Korea’s economy matures, growth rates will inevitably decline. South Korea has already seen its potential economic growth rate fall from 6.8 percent in the mid-1990s to 3.6 percent today. South Korea also faces a maturing population. By the end of Park’s term in office, the size of South Korea’s potential workforce will have begun to decline. As South Korea’s workforce ages and its size declines, the economy will need to shift to a more service oriented economy to care for the elderly, while finding additional ways to increase productivity in order to maintain economic growth with a declining population.

Improving the Social Safety Net – While South Korea’s per capita income is closing in on the OECD average, society’s affluence has not always spread to South Korea’s less fortunate. Social spending in South Korea is about half of the level of the OECD average, and slightly less than in the United States which is known for its less generous social safety net. Economic inequality has been increasing in recent years and the most up to date data indicates that there has been a rise in poverty with 15 percent of Koreans living off less than half of the median income as of 2008.

In a society where the family traditional took care of the elderly, the shift away from traditional family structures has been wrenching. South Korea has the highest rate of seniors living in poverty with nearly 1 in 2 seniors living in relative poverty. The number of Koreans over the age of 65 committing suicide has quadrupled in recent years, as many elderly find themselves without family support and ineligible for government support.

To address these and other social challenges, Park has proposed increasing spending on social welfare issues. Because the current pension system was only put in place the late 1980s, many elderly Koreans are not eligible. Park has proposed making all elderly 65 and over eligible for the government’s pension program and raising the current benefit from 97,000 won to 200,000 won. In order to make the plan financially feasible, consideration has been given to excluding seniors who are already eligible for more generous plans. To pay for the plan, Park hopes bring the informal economy into the mainstream and raise additional revenue by taxing aspects of the informal economy, as well as finding waste in current government expenditures to cover the costs.

Gender Inequality – As South Korea’s working age population declines, one potential avenue for addressing the decline in South Korea’s labor pool is to tap into women who are currently underutilized in the economy. Despite similar or better educational attainment levels to men, the percentage of women in the workforce has not changed much in the last two decades. Only 10 percent of women are in managerial positions, in contrast to the OECD average of a third, and South Korea has the highest gender pay gap among OECD countries at 39 percent.

Data from the World Economic Forum’s Global Gender Gap Report is less encouraging. South Korea has the largest gender gap in the developed world, ranking 108 out of 135 countries. South Korea does especially poorly in the World Economic Forum’s rankings for economic participation and opportunity (ranking 116), and relatively better in the areas of educational attainment, health and survival, and political empowerment.

With the election of Park Geun-hye as South Korea’s first female president there has been some speculation that this could be a turning point for the role of women in South Korean society. However, some are skeptical that Park’s election will make much of a difference. Throughout her career, Park has not traditionally embraced women’s issues and some see her as model not of a successful women but rather the heir of a successful politician. For her part, Park has never stressed her gender in her political life.

However, that does not mean that Park cannot play a meaningful role in addressing gender inequality in South Korea. Park is a potential role model for women, regardless of her father’s role in her success.

Recently, Park has begun to call for more measures to address the needs of women. She has pledged to provide incentives for employers to increase the number of women in management and to increase child care subsidies for single family homes. Her first budget includes funding for free child care for children under the age of five. She has proposed introducing a quota requiring 30 percent of all positions at public institutions and educational jobs to be filled by women, while suggesting that an institute be created to train future women leaders.

If Park is successful in implementing some of these policies, they will create greater opportunities for women. And while Korean society will not change overnight, finding ways to close the gender gap will also help to address South Korea’s long term demographic and economic challenges.

Addressing Relations with China and Japan – South Korea has complex historic and diplomatic ties with China and Japan – two of its largest economic partners. In the last 20 years, economic ties with China have grown at an astounding rate, with trade jumping from a paltry 6.3 billion in 1992 to more than $220 billion in 2011. Trade with China today is now more than South Korea’s trade with the United States and Japan combined.

Despite the strong growth in economic ties, relations have not been easy between the two countries in recent years. A series of factors have contributed to tensions in the broader relationship such as disputes over the repatriation of North Koreans, Chinese fishermen in disputed waters, historical issues related to the Kingdom of Goguryeo, and differing approaches in how to manage the regime in Pyongyang.

However, Park may be ideally placed to improve relations between China and South Korea. She is well liked in China and has made improving ties between Seoul and Beijing a priority. Prior to her inauguration, she made the gesture of sending her first special envoy to Beijing. As improved ties and coordination with China will play a significant role in Park’s attempt to reshape Seoul’s relationship with Pyongyang, she has also proposed the creation of a dialogue between the United States, China, and South Korea on North Korea.

Relations with Japan also require mending. Tensions began to rise last year when the two nations were unable to implement an intelligence sharing agreement on North Korea, and historical issues related to comfort women and Dokdo began to flare.

Park has suggested that a proper understanding of history would help in relations with Japan, but that will likely take time for the Japanese government. In the interim, Park will need to manage the desire to see Japan move on issues of history, while at the same time moving forward with key policies such as a revival of the aborted intelligence sharing agreement and the Korea-China-Japan FTA.

However, improving ties could prove more challenging than with Beijing. While perhaps understandable in light of President Lee’s visit to Dokdo last year, sending a Cabinet official for the first time to attend Takashima Day (Japan’s name for Dokdo) just prior to Park’s inauguration surely does not send a signal of the Abe government looking to move past historical issues with South Korea to encourage greater cooperation.

North Korea – In spite of North Korea’s third nuclear test, Park plans to continue with her policy of trust building with Pyongyang. Commonly referred to as “TrustPolitik,” the policy envisions building trust between North and South Korea through a series of incremental measures. This would include the separation of humanitarian and nuclear issues, the recognition of prior agreements, cultural exchanges, and joint economic projects.

However, it is unclear if North Korea is ready or interested in dialogue. In the last few months, North Korea has successfully launched a satellite into orbit and tested a third nuclear weapon. It has stated that its continued missile and nuclear tests are directed at the United States. During a debate at the UN Committee on Disarmament, a North Korean official threatened South Korea with “final destruction.” None of this of course takes into account the recent YouTube videos depicting an attack on the United States or President Obama in flames.

While North Korea has often used heated rhetoric in the past, the confluence of tests and rhetoric make establishing any meaningful dialogue with the regime difficult. Park will have to balance a policy of credible deterrence, while time finding avenues for dialogue that allow South Korea rather than North Korea to set the tone for the relationship. The challenge for Park is that ultimately she must have a willing partner in Pyongyang.

Additionally, building trust as Park has proposed will require time. As in any relationship, trust is a two way street and must be earned. This means that any progress could be easily undermined. However, Park’s trust building is not limited to North Korea. One of the irritants in Beijing’s relationship with Seoul has been their differing approaches to Pyongyang. Improved North-South relations could also play a role in improving ties between Seoul and Beijing.

Conclusion

While North Korea has received much of the attention in the lead up to Park Geun-hye’s inauguration, it is just one of a series of challenges that the Park administration will face. While all South Korean presidents strive to make progress with North Korea, her legacy will most likely be determined in the same way as most democratically elected leaders – how she handles the economy.

Taking steps to address social welfare issues and gender equality will help strengthen the economy and to reduce growing income inequality in South Korea. At the same time, getting Seoul’s relationship with its immediate neighbors right could also have spillover effects on the economy and enhance its influence as in international affairs. In the long run, all of the economies of Northeast Asia need to undertake reforms to encourage future economic growth. Reaching high quality trade agreements between South Korea, China, and Japan that spur real economic changes will be much more likely if relations begin to improve overtime.

Troy Stangarone is the Senior Director for Congressional Affairs and Trade for the Korea Economic Institute. The views expressed here are his alone.

Photo from Plaubel Makina’s photostream on flickr Creative Commons.

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