SKorea seen falling behind Japan

Dec 18, 2006 07:12:51

South Korea will likely fall further behind Japan unless it takes steps to become more competitive and less imitative of its larger neighbor, a leading economic research institute said. "The economic gap between South Korea and Japan is forecast to widen in the future," the Hyundai Research Institute said in a report released Sunday. "South Korea can never overtake Japan" under prevailing conditions, it said. "South Korea first needs to withdraw from the past industrialization period's Japan-imitating growth strategy," the report said, emphasizing instead knowledge-intensive industries. South Korea should work to be more innovative technologically, close its competition gap with Japan, strive for more cooperative labor-management relations and move away from its Japanese-style education system toward one aimed at emphasizing creativity and innovation, the report said. South Korea has long seen Japan as its main rival and has largely modeled its remarkable assent over the past 4 1/2 decades from one of the world's poorest economies to its 10th largest by imitating its neighbor. Beginning in the early 1960s successive governments in Seoul embarked on a policy of ambitious industrialization, encouraging exports, suppressing imports and giving precedence to huge conglomerates. That paid dividends as South Korea moved into areas such as textiles, shipbuilding, automobiles, consumer electronics and semiconductors. The strategy is widely recognized as getting a huge boost from Japan's payment of US$500 million in economic aid in the form of reparations when it established diplomatic relations with South Korea in 1965. Japan ruled the Korean peninsula as a colony in 1910-1945. Today, South Korean companies such as Hyundai Heavy Industries Co. in shipbuilding and Samsung Electronics Co. in memory chips dominate the globe in their fields. In pure numbers, surpassing Japan was always going to be a tall order. Japan's economy as measured by gross domestic product ranks second in the world after the United States at about US$4.6 trillion (euro3.5 trillion) as measured by the International Monetary Fund. South Korea's economy, Asia's third largest after Japan and China, is about US$793 billion (euro605 billion) in size, according to the IMF. Japan's economic renaissance the past five years after a decade of doldrums marked by stop-and-start recoveries following the collapse of a 1980s asset-inflated bubble is also a factor hurting South Korean aspirations, the report said.