Is Quantum-leap Possible in the Upcoming North Korean Development Process?
May 23rd saw a group of respected guests meet for Asia Society Korea’s May Monthly Luncheon. This month’s guest speaker, Mr. Wonjae Lee, brought the topic of innovation to the table. Lee’s voice is familiar to most Koreans since he regularly participates in panels on KBS Radio; furthermore, he is the CEO of a new think tank called ‘LAB2050’ and he also serves as a member of the Presidential Committee on Aging Society and Population Policy in the Korean government. Lee spoke on the topic “Is Quantum-leap Possible in the Upcoming North Korean Development Process?” and set out to demonstrate how advanced economies such as Korea’s will need to adapt due to changes in technology, income distribution, and population.
In terms of technology, Lee explained that automation is taking away jobs year by year. He used Adidas as an example, since the company recently created a smart factory that employs only ten people in Germany yet produces the same amount of output as 600 people in a factory in Bangladesh. This exhibits how companies around the world are able to produce more goods while employing fewer workers. Lee used evidence from the World Economic Forum to show how societies have gone through three industrial stages - initial mechanization, mass production, and computers and automation - to a fourth revolution termed ‘Cyber Physical Systems’. This fourth stage utilizes artificial intelligence, resulting in factories that can operate without human oversight.
Lee then moved on to explain how income distribution in developed countries is changing. First, he presented a graph to point out how ‘real term wages’ have grown progressively lower than ‘real term labor productivity’ since the mid-nineties. From a worker’s perspective, this means that even if workers are more efficient, the reward for labor output does not grow at the same rate. A second graph demonstrated how low-income workers are receiving a lower proportion of the wealth that is generated by companies than in the past; instead, it is capital owners such as investors or land owners who are eating up the difference. Another challenge that Lee noted is the huge growth in the ‘knowledge economy’ at the expense of the ‘industrial labor economy’. The ‘knowledge economy’ deals with intangible assets like patents, copyrights, and trademarks, and this intellectual property contributes to 87% of the S&P market value, compared to just 17% in 1975. All the graphs came together to show that the value of labor is continuously decreasing.
Population was the final change that Lee observed, since most developed countries are suffering from aging populations, with Korea being a prime example. This will create issues going forward as today two-thirds of Korea’s population is in the ‘working age’ bracket, but this will decrease to less than half of its population in fifty years. This will be a big challenge for economies as they will have a smaller labor workforce to count on.
Lee then moved on to talk about how the current government is planning to deal with these three changes. He explained that the Moon administration has come up with a new policy called “Innovative Growth and Income-Led Growth”. The first part relates to more investment in research and technology, and the second combats disproportionate income distribution through raising the minimum wage and improving social security.
Finally, Lee brought North Korea into the equation by explaining his own model, which opposes the conventional wisdom that North Korea will potentially complement South Korea through cheap labor and natural resources. This new model is supported by the inconvenient truth that the North already has its own aging population, as well as his earlier argument that we are facing the importance of the fourth industrial revolution and the significance of the ‘knowledge economy’. Lee claims the suggestion that the North should replicate the model that the South used to grow into a global economic leader is wrong because we are now in a different time; thus, it would make sense for the North to start from the fourth industrial stage rather than the first. The goal should be to create jobs that are desirable for 2018 and not in labor-driven industries such as agriculture and manufacturing. He concluded by arguing that because the North would be starting from scratch, it would be the perfect place to test out revolutionary concepts; for instance, smart technology, shared economies, and social innovation.
While we are still a long way from seeing ideas such as these come to fruition, it shows how far relations have come between the two countries that they are even being suggested. What is also clear from Lee’s talk is that the world stops for no one, and if South Korea wants to remain at the front of the pack, it will need to continue to innovate.