Will Korea lose 20 years like Japan?

Will Korea lose 20 years like Japan?

By Kim Seong-jun

Taken From:  Korea Times

Korea is now faced with big challenges such as low economic growth, a low birthrate and an aging population. On the contrary, Japan will reach the far end of the tunnel dubbed "the lost 20 years," as reported last January by Macqurie Securities. Reading the story, I wondered whether Korea will lose 20 years like Japan did.

"The lost 20 years" were marked by a harsh and long-term economic recession that Japan has been going through since the 1990s. Massive bad loans caused by the burst of the asset bubble delivered a deathblow to the overall economic system in Japan. Why has Japan become defamed by this famous metaphor amidst the chronic global economic downturn?

It is said that Japan's misfortune began because it signed the Plaza Accord in 1985, which was aimed at depreciating the U.S. dollar in relation to the Japanese yen, and intervening in currency markets.

After signing the accord, the yen appreciated by 8 percent in a week and that gradually reduced Tokyo's export volume and GDP growth. 

That was the starting point of Japan's lost 20 years. Some also point out the failures of the Japanese government's policy responses. Japan pursued a low interest rate in a bid to tide over appreciation of the yen. Then, it brought about more economic growth than before while triggering excessive domestic investments in real estate.

The housing price soared by the banks' competing to offer loans to the people. But, the Japanese government had to implement a package of countermeasures to stabilize the rising housing prices with various laws and regulations to restrict the loans in relation to the real estate and construction industries. It resulted in an unprecedented crash in stocks and housing prices, with bad loans worsening the banks' financial stability and motivating bankruptcy at domestic enterprises.

Fueling Japan's dilemma was its aging society coupled with a low birthrate. Japan was Asia's first aging country in 2006. The deepening seriousness of Japan's aging society has caused a low savings ratio from 11 percent in the 1990s to only 3 percent in the 2000s and also the current account deficit by a decrease of domestic investment and lack of capital for Japanese enterprises.

But, many experts don't hesitate to indicate the most critical reason for why Japan plunged into "the lost 20 years." It is the decline of Japanese entrepreneurship. Japan's corporate founders had been replaced with professional CEOs, who lacked a challenging or innovative spirit but managed with a conservative attitude to hold onto their jobs as long as possible. We may find it in the cases of Sony and Kodak, which failed to transform themselves in the industries they once led.

Is Korea now safe from Japanization or following in the footsteps of Japan's lost 20 years? Regrettably enough, Korea is much apt to repeat the mistakes of Japan in many facets and in some sense has already begun, as we are now living in the new normal era that typically represents problems of low growth and an aging society, all of which seem to be a big barrier for Korea to overcome. I am not sure whether the current regime is prepared to avoid becoming the second country of "the lost 20 years" and whether Korean enterprises are aware of the possible crisis to be generated by the same factors affecting Japan in the future. Of course, I know it is not easy to resolve these comprehensive problems surrounding the gloomy prospect of Korea's tomorrow in such a short time as was the case of Japan for two decades.

Ironically enough, however, we may find one solution in the story of some Japanese enterprises such as Uniqlo, Takeda Pharmaceuticals and Rakuten which have successfully changed themselves as fitting for global management with unique and innovative work processes and systems and achieved remarkable growth and profits even amidst Japan's long walk through the tunnel of its lost 20 years. In my view, they all show how Korean enterprises can avoid the mistakes of Japan.

I sincerely hope Korea won't lose 20 years.