[Editorial] Fixing growth engines

President Park Geun-hye reminded many of her father when she presided over a meeting on trade and investment at Cheong Wa Dae on Wednesday. Attended by corporate CEOs as well as ministers, the high-profile session was designed to resolve problems that hamper exports and investment.

The troubleshooting meeting was modeled after the monthly export promotion meetings that former President Park Chung-hee had held from 1965 to 1979. Through these meetings, the late president sought to remove the obstacles that stood in the way of exporting companies.

After the senior Park’s death, the monthly meetings ceased to be held regularly and lost much of their importance. Now the junior Park has revived them. She has expanded the focus of the sessions from exports to trade and investment and plans to hold them every quarter.

Given the nation’s languishing economy, Park’s commitment to stimulating trade and investment is welcome. Exports and corporate investment have long been the two engines of growth for the Korean economy, but they are sputtering now.

Last year, Korea’s exports dropped 1.3 percent from the year before. In the first quarter of this year, overseas demand for Korean goods and services grew a mere 0.5 percent. For the whole of this year, Korea expects a 4.1 percent increase in shipments abroad, a modest target compared with a 19 percent jump in 2011. Yet the first quarter performance suggests even this goal will not be easy to attain.

Corporate investment has fared worse. Spending on facility expansion has been on the decline since 2011, except for a brief spike in the first quarter of 2012. Amid the dormant real estate market, construction investment fell in 2012 for the third consecutive year.

At Wednesday’s meeting, economic ministers unveiled a package of measures to rev up the two growth engines. On the trade front, the package focuses on small and medium-sized enterprises.

Last year, SMEs took up 33.4 percent of the nation’s exports, down from 36.9 percent in 2009. Their share needs to be expanded as export growth led by big businesses does not contribute much to creating jobs or increasing household income. This is because they increasingly rely on overseas parts suppliers.

But the problem is that most SMEs are domestic market-oriented and have little or no experience in exporting. Among the nation’s 3.1 million SMEs, a mere 2.8 percent, or 86,000 firms, are engaged in exports. And most exporting SMEs are small in scale, with 83 percent or 71,000 companies shipping goods or services worth less than $1 million a year.

To support non-exporters and exporting SMEs, the government proposes to foster private companies that specialize in providing a full range of export-related services, from export documentation to overseas marketing.

The idea sounds plausible. Yet whether or not the proposed companies would be able to play the expected role remains to be seen.

To stimulate investment, the government decided to remove the regulatory obstacles that impede the launch of six large-scale projects. Officials say this alone would unleash fresh investment totaling 12 trillion won.

One notable measure included in the package is to allow hospitals to set up hotels to accommodate foreign patients. The scheme is designed to help hospitals attract rich foreign patients who want personalized attention and a comfortable stay during treatment. This measure is a good example of deregulation for the service sector.

Another significant step is the decision to promote the standardization of electronic medical records and build national health information infrastructure. These measures are necessary for hospitals to provide health care services based on information technology.

Korean hospitals are highly advanced in terms of digitization. Yet their use of IT is limited due to legal barriers on services such as remote monitoring, diagnosis and treatment of patients using digital links.

The government needs to push hard to remove these barriers as it will not only curb medical costs but create a new industry that will help make Korea a global health care leader.

To encourage corporate investment, the government also proposes to transform the nation’s regulatory regime from a positive system to a negative one. Under a negative system, all activities are allowed in principle excluding those specifically banned.

A shift to a negative approach is desirable. But the government has thus far failed to make the transition. To be successful this time, it needs to make serious and concerted efforts.