Korea’s struggle amid global boom in manufacturing industry

While the global manufacturing industry has hit the highest level in about three years, Korea is uniquely saddled in a deep slump, new statistics showed. According to the purchasing manager’s index (PMI) for January surveyed by Bloomberg Intelligence in the U.S., the manufacturing industry in advanced countries including the U.S., Japan and Europe, and China is constantly expanding, but only four countries namely Korea, Turkey, Greece and Brazil among the 24 countries surveyed displayed a slumping trend. PMI is an index that is tallied monthly through interviews with executives in charge of purchase at companies. It is hard to believe that Korea, which has loudly pushed for "Manufacturing Innovation 3.0" since June 2014, is facing a manufacturing sector crisis along with the three countries that have suffered a double whammy of political instability and economic recession.

Some experts say that the slump in the Korean manufacturing sector stems from the pressure of cost inflation hitting the highest level in six years with the price of products rising irrespective of demand, which is coupled with unfavorable exchange rate. However, the bigger reason for the slump is that the government and companies failed to achieve practical innovation even though they only have rhetorically emphasized manufacturing innovation in tune with creative economy.’ The U.S. established a "new administration action plan" aimed at accelerating manufacturing innovation in October 2014, Germany adopted "Industry 4.0" in April 2015, and Japan "Japan redevelopment strategy" in June 2015, and reshuffled their manufacturing sector in association with investment for the future and productivity revolution, and are generating achievements. In contrast, however, Korea, which announced policy before those countries, failed to implement drastic structural reform for the shipbuilding and shipping industries, and took countermeasures only belatedly to make the crises facing those sectors go from bad to worse. Korea posted the manufacturing sector’s average operating ratio of 72.4 percent last year, the lowest since 1998 when Korea was hit by the Asian financial crisis. Worse, since the inauguration of the Trump administration that seeks protectionist trade policy, internal and external environment for Korea’s manufacturing sector is highly uncertain and almost impossible to predict.

“There is a chance that the low-growth – low-inflation trend, which continued for several years, may shift to a low-growth – high inflation trend,” the Hyundai Economic Institute said on Sunday, warning that the Korean economy could enter stagflation. The Korean manufacturing sector is losing ground in global competition, while the Korean economy is feared to embrace stagflation, a situation that is grim and worrisome at best. If Korea is serious about preventing the manufacturing sector from collapsing, Deputy Prime Minister for Economy Yoo Il-ho is advised to closely look into "Manufacturing Innovation 3.0," which was prepared three years ago. The Korean government should closely examine which part of the presentation materials that were drafted sloppily in chair and presented to the president were inaccurate or ill-advised, and thus has failed to generate outcome, and solemnly measure scores accordingly. Only then can economic policy only trumpeting the black slogan that cheats the president and the public disappear, whichever party seizes the power in the next government.