Korea and the knowledge-based economy: making the transition

151 Pages·2001·4.37 MB·English

by  Carl Dahlman

«
INFORMATION SOCIETY
Korea and the Knowledge-based Korea and the
Economy
Knowledge-based
MAKING THE TRANSITION
Economy
As an input to Korea's efforts to revise the country's development strategy, the OECD and
the World Bank have prepared a joint review of the challenges confronting Korea in its
transition to a knowledge-based economy. The report proposes a four-pronged framework MAKING THE TRANSITION
which will empower Korea to effectively tap into technology advances and the growing stock
of knowledge:
• An economic and institutional regime that provides incentives for the efficient use of
existing knowledge, for the creation of new knowledge, for the dismantling of obsolete
activities and for the start-up of more efficient new ones. INFORMATION SOCIETY
K
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• An educated and entrepreneurial population that can both create and use new e
a
knowledge.
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• A dynamic information infrastructure that can facilitate effective communication t
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dissemination and processing of information. e

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• An efficient innovation system comprising firms, science and research centers, o
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universities, think tanks, consultants and other organizations that can interact and tap into
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e
the growing stock of global knowledge; assimilate and adapt it to local needs; and use it to d
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create new knowledge and technology.
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b
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The report addresses additional challenges with respect to the development of knowledge-
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based activities, and of setting up an overall framework for the design and implementation
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of more consistent policies conducive to the knowledge-based economy. E
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FURTHER READING m
OECD (2000). Regulatory Reform in Korea, Paris: OECD. y

M
OECD (2000). OECD Economic Surveys: Korea 1999-2000, Paris: OECD. A
K
World Bank (1999). Korea: Establishing a New Foundation for Sustained Growth, IN
G
Washington, DC: World Bank. T
H
World Bank (2000). East Asia: Recovery and Beyond, Washington, DC: World Bank. E
T
R
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S
www.worldbank.org www.oecd.org IT
www.oecd.org IO
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W O R L D B A N K I N S T I T U T E
Promoting knowledge and learning for a better world
ISBN 92-64-18298-5
92 2000 06 1 P -:HSTCQE=V]W^]V:
Edited by Carl Dahlman and Thomas Andersson
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Korea and
the Knowledge-based
Economy
Making the Transition
THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT/THE WORLD BANK
ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT
ORGANISATION FOR ECONOMIC CO-OPERATION
AND DEVELOPMENT
Pursuant to Article 1 of the Convention signed in Paris on 14th December 1960, and which came into
force on 30th September 1961, the Organisation for Economic Co-operation and Development (OECD)
shall promote policies designed:
– to achieve the highest sustainable economic growth and employment and a rising standard of
living in Member countries, while maintaining financial stability, and thus to contribute to the
development of the world economy;
– to contribute to sound economic expansion in Member as well as non-member countries in the
process of economic development; and
– to contribute to the expansion of world trade on a multilateral, non-discriminatory basis in
accordance with international obligations.
The original Member countries of the OECD are Austria, Belgium, Canada, Denmark, France,
Germany, Greece, Iceland, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, Turkey, the United Kingdom and the United States. The following countries
became Members subsequently through accession at the dates indicated hereafter: Japan
(28thApril1964), Finland (28th January 1969), Australia (7th June 1971), New Zealand (29th May 1973),
Mexico (18th May 1994), the Czech Republic (21st December 1995), Hungary (7th May 1996), Poland
(22ndNovember 1996) and Korea (12th December 1996). The Commission of the European Communities
takes part in the work of the OECD (Article 13 of the OECD Convention).
The World Bank Institute (WBI) provides training and other learning activities that support the World Bank’s
mission to reduce poverty and improve living standards in the developing world. WBI’s programs help build the
capacity of World Bank borrowers, staff, and other partners in the skills and knowledge that are critical to economic
and social development.
WBI is located at World Bank headquarters in Washington, DC. Many of its activities are held in member coun-
tries in cooperation with regional and national development agencies and education and training institutions. The
Institute’s distance education unit conducts interactive courses via satellite links worldwide. While most of WBI’s work
is conducted in English, it also operates in Arabic, Chinese, French, Portuguese, Russian, and Spanish.
The findings, interpretations, and conclusions expressed in this book are entirely those of the contributors and
should not be attributed in any manner to the World Bank and the Organisation for the Economic Co-operation
and Development, to their affiliated organizations, or to members of their Boards of Executive Directors or the coun-
tries they represent.
This edition © The International Bank for Reconstruction and Development/The World Bank and the
Organisation for Economic Co-operation and Development 2000
The knowledge assessment framework and the knowledge scorecards used in this edition
© The International Bank for Reconstruction and Development/The World Bank 2000
Foreword
Knowledge is fast becoming a key factor in economic and social development worldwide. Rapid
innovations in science, communications and computing technologies are opening up new opportunities
for countries to harness knowledge and participate more fully in the global economy. Developing coun-
tries that successfully make the transition to the knowledge-based economy will have unprecedented
possibilities to become more competitive in world markets and to participate in the global information
society. New technologies can also extend the benefits of knowledge to all segments of society and
help countries close the gap in living standards among their citizens.
This book defines a knowledge-based economy as one where knowledge is created, acquired,
transmitted and used effectively by enterprises, organizations, individuals and communities. It does
not focus narrowly on high-technology industries or on information and communications technologies,
but rather presents a framework for analyzing a range of policy options in education, information infra-
structure and innovation systems that can help usher in the knowledge economy. It also makes the case
for better co-ordination among the government, the private sector and civil society to enhance competitive-
ness and advance economic and social development.
The book, which is based on a joint study by the World Bank and the Organisation for Economic
Co-operation and Development, breaks new ground in its attempt to develop a comprehensive set of
national policy responses to the knowledge revolution. The study focuses on Korea, a country with limited
natural resources which has developed mainly through an outward-oriented, industry-led strategy based
on large firms and economies of scale. Today, however, this industrial paradigm is being challenged by the
rapid rise of knowledge as the principal driver of competitiveness.
We believe that Korea and the Knowledge-based Economy provides useful lessons for other countries as
they move away from old paradigms toward new models of development.
Vinod Thomas Herwig Schlögl
Vice-President of the World Bank Institute Deputy Secretary-General of the OECD
Acknowledgements
This study was prepared at the request of the Ministry of Finance and Economy of the Government
of Korea as an input to its strategy for becoming an advanced knowledge-based economy. The timing of
the study was appropriate as the government was in the final stages of preparation of its three-year
Master Plan, following the announcement by President Kim in January 2000. It is the result of a collabo-
rative effort between the World Bank and the OECD, with the bulk of the funding being provided by the
World Bank’s Korea country program budget.
During the preparation of this study over the past year, several missions made up of World Bank
and OECD staff visited Korea and held discussions with various government counterparts, representa-
tives from think tanks, the private sector and civil society, to obtain a better understanding of the issues
confronting Korea in its transition to a knowledge-based economy. During these meetings, the team
gained valuable insights on the process, timeline and details of the Korean vision and strategy.
Carl Dahlman undertook the overall co-ordination of the report and headed the World Bank team,
which included Saha Dhevan Meyanathan, Anuja Adhar Utz, Jean-Eric Aubert (on secondment from the
OECD), Moon Kyu Bang, Xiaonan Cao, Swati Ghosh, Denis Gilhooly, Charles Kenny and EulYong Park
(consultant).
The OECD team was headed by Thomas Andersson, and included Peter Avery, Zhang Gang, Jean
Guinet, Abrar Hasan, Daniel Malkin and Joonghae Suh (consultant).
Valuable contributions and comments were received from World Bank colleagues, including
Charles Abelmann, Sri-Ram Aiyer, Jacqueline Baptist, Gillian Brown, Bruce Harris, Emma Hooper,
Masahiro Kawai, Homi Kharas, Eun Jeong Kim, Bruno Laporte, KatherineMarshall, John Middleton,
Richard Newfarmer, Zia Qureshi, Christopher Thomas, and Shahid Yusuf, as well as from Randall Jones
and Dimitri Ypsilanti of the OECD. Research assistance was provided by Sean White and Zhihua Zeng.
Administrative assistance was provided by Megan Breece.
We would like to express our appreciation to our Korean counterparts for their many insightful com-
ments, notably those received, at the time of writing, from Mr. Kun Kyung Lee, Deputy Minister, Ministry
of Finance and Economy, Mr. Yong Lin Moon, Minister of Education, Mr.Nyum Jin, Minister of Planning
and Budget, Mr. Oh Seok Hyun, Managing Director of the National Economic Advisory Council to the
President of Korea, Mr. Jin Soon Lee, President, Korea Development Institute, Mr. Jungho Yoo, Vice
President, Korea Development Institute, and Mr. Cheonsik Woo, Korea Development Institute.
4
Table of Contents
Currency Equivalents.......................................................................................................................................................... 9
Abbreviations....................................................................................................................................................................... 9
Executive Summary............................................................................................................................................................. 11
A. The knowledge revolution: the challenge to Korea’s development strategy................................................ 11
B. The framework of the knowledge-based economy............................................................................................ 13
C. Issues in the four key areas................................................................................................................................... 14
D.Industry-related reforms....................................................................................................................................... 16
E. Implementation of the reforms............................................................................................................................ 17
F. Executive summary matrix: main findings and remaining issues.................................................................... 18
Chapter 1. The Knowledge Revolution: A Challenge to Korea’s Development Strategy....................................... 25
A. The current context................................................................................................................................................ 25
B. The knowledge and information revolution....................................................................................................... 25
C. Challenges to Korea’s future development........................................................................................................ 28
D.Korea’s new development strategy..................................................................................................................... 31
E. The concept of a knowledge-based economy.................................................................................................... 31
F. Definition and framework...................................................................................................................................... 32
Notes..................................................................................................................................................................................... 37
References............................................................................................................................................................................ 39
Chapter 2. Updating the Economic Incentive and InstitutionalRegime.................................................................. 41
A. Introduction............................................................................................................................................................ 41
B. Redefining the role of government...................................................................................................................... 41
C. Opening up the economy and promoting competition.................................................................................... 42
D.Increasing the soundness and efficiency of financial markets......................................................................... 45
E. Enhancing labor flexibility and strengthening social safety nets.................................................................... 46
F. Addressing the risks of the “digital divide”........................................................................................................ 47
G.Updating the institutional regime........................................................................................................................ 50
H.Conclusion............................................................................................................................................................... 52
Notes..................................................................................................................................................................................... 53
References............................................................................................................................................................................ 56
Chapter 3. Developing Human Resources fortheKnowledge-basedEconomy..................................................... 57
A. Introduction............................................................................................................................................................ 57
B. Educational achievements and recent education reforms in Korea............................................................... 57
C. The paradigm shift in education.......................................................................................................................... 60
D.Challenges to the Korean education system and possible responses........................................................... 61
E. Conclusions............................................................................................................................................................. 71
Notes..................................................................................................................................................................................... 73
References............................................................................................................................................................................ 76 5
Korea and the Knowledge-based Economy: Making the Transition
Chapter 4. Ensuring a Dynamic Information Infrastructure........................................................................................ 79
A. Background............................................................................................................................................................. 79
B. Recent sector growth............................................................................................................................................. 79
C. Remaining challenges........................................................................................................................................... 82
D.Cyber Korea 21: Targets and initiatives................................................................................................................. 83
E. Next-generation policy and regulatory role for government............................................................................ 84
F. Ensuring access and overcoming the digital divide.......................................................................................... 89
G.Using ICTs to improve the performance of government................................................................................... 90
H.Conclusions............................................................................................................................................................. 91
Notes..................................................................................................................................................................................... 93
References............................................................................................................................................................................ 94
Chapter 5. Improving the Korean Innovation System.................................................................................................. 95
A. Introduction............................................................................................................................................................ 95
B. Profile of science, technology and innovation activities................................................................................... 95
C. Main features and weaknesses of the Korean innovation system.................................................................. 98
D.The new policy agenda......................................................................................................................................... 103
E. Conclusions............................................................................................................................................................. 110
Notes..................................................................................................................................................................................... 111
References............................................................................................................................................................................ 113
Chapter 6. Promoting Knowledge-based Activities...................................................................................................... 115
A. Introduction............................................................................................................................................................ 115
B. Reforming the chaebol............................................................................................................................................. 116
C. Improving conditions for small and medium-sized enterprises (SMEs)........................................................ 120
D.Strengthening the contribution of foreign firms................................................................................................. 123
E. Promotion of high-value-added services............................................................................................................ 124
F. Promoting investment in intangible assets........................................................................................................ 126
G.Conclusion.............................................................................................................................................................. 128
Appendix Most Important Bottlenecks in Production and Technological Improvement....................................... 129
Notes..................................................................................................................................................................................... 130
References............................................................................................................................................................................ 131
Chapter 7. Implementing Korea’s Strategy for a Knowledge-based Economy.................................................................. 133
A. Introduction............................................................................................................................................................ 133
B. Broadening and deepening the consultations................................................................................................... 133
C. Working out the implementation details............................................................................................................ 136
Notes..................................................................................................................................................................................... 140
References............................................................................................................................................................................ 142
Annexes
I. Preliminary Assessment of the Knowledge-based Economy in Korea................................................................ 143
II. Closing the Digital Divide: Some Country Examples............................................................................................. 147
III. Some Reflections on the Challenges of Policy Implementation........................................................................... 151
List of Boxes
1.1. The new economy....................................................................................................................................................... 26
1.2. The national innovation system................................................................................................................................ 35
3.1. New Zealand’s experience with decentralization................................................................................................... 64
5.1. The under-utilization of national R&D results – STEPI report............................................................................... 102
5.2. KIS for the transition to a knowledge-based economy.......................................................................................... 104
5.3. From a sectoral to a cluster approach: innovation and technology policy intheknowledge-based economy...... 109
6 6.1. Components of investment in intangible assets.................................................................................................... 127
Table of Contents
7.1. Finland’s broad consultations................................................................................................................................... 134
7.2. Implementation and financing: The Irish case........................................................................................................ 137
7.3. Korea’s medium-term fiscal plan.............................................................................................................................. 138
7.4. Finland’s rolling strategy............................................................................................................................................ 139
List of Tables
1.1. Total factor productivity growth estimates forKorea............................................................................................. 29
2.1. Total outstanding venture capital investments inKorea....................................................................................... 46
3.1. Public expenditure oneducation asapercentage ofGDP, 1995.......................................................................... 59
4.1. Korean investment ininformation infrastructure, 1991-99.................................................................................... 82
5.1. Income andtechnological performance, 1998......................................................................................................... 96
5.2. Flows ofR&D funds inKorea, 1997........................................................................................................................... 97
6.1. Main characteristics ofselected knowledge-intensive industries inKorea........................................................ 117
6.2. Measures toimprove thegeneral policy environment forbusiness inKorea.................................................... 119
6.3. Basic characteristics ofKorean manufacturing establishments, bysize.............................................................. 121
6.4. Trend ofstart-ups andbankruptcies, 1993-99......................................................................................................... 121
List of Figures
1.1. International trade by type of good, 1976 and 1996............................................................................................... 27
1.2. East Asian countries’ share of world manufactured exports.................................................................................. 30
1.3. The changing composition of East Asian manufactured exports, 1985 and 1995................................................ 30
2.1. Foreign direct investment in Korea, by sector........................................................................................................ 43
2.2. Services as a percentage of GDP, 1995-98................................................................................................................ 44
3.1. Education indicators: Korea...................................................................................................................................... 58
3.2. Student teacher ratio (secondary level)................................................................................................................... 58
4.1. Past and predicted growth in mobile phones......................................................................................................... 80
4.2. Total Internet subscribers, past and predicted....................................................................................................... 83
5.1. Basic research as a percentage of GDP by sector of performance, 1997............................................................. 99
5.2. Higher education expenditure on R&D per researcher......................................................................................... 100
6.1. Share of total business-sector value added by knowledge-based industries.................................................... 116
6.2. Real value-added growth by the total business sector and by knowledge-based industries.......................... 116
Annex Figures
1a. Knowledge assessment scorecard: Korea............................................................................................................... 144
1b. Knowledge assessment scorecard: United States.................................................................................................. 144
1c. Knowledge assessment scorecard: Singapore........................................................................................................ 144
1d. Knowledge assessment scorecard: Japan................................................................................................................ 144
7
Currency Equivalents
As of 21June 2000
Currency unit = Won (KRW)
USD1.00 = KRW1119.20
KRW1.00 = USD0.000893
Abbreviations
ADSL Asymmetric Digital Subscriber Line KSMBA Korea Small and Medium Business Administration
ANVAR Agence nationale de valorisation de la recherche KT Korea Telecom
(French Innovation Agency)
CDMA Code Division Multiple Access LCD Liquid Crystal Display
Chaebol Conglomerate MIC Ministry of Information and Communications
CNRS Centre national de la recherche MNC Multinational Corporation
scientifique(National Center for Scientific Research)
DDSA Door-to-door Sales Act MOCIE Ministry of Commerce, Industry and Energy
EPCC Economic Policy Co-ordinating Committee MOE Ministry of Education
ERC Engineering Research Center MOFE Ministry of Finance and Economy
FDI Foreign Direct Investment MPB Ministry of Planning and Budget
FSC Financial Supervisory Commission NEAC National Economic Advisory Council
FTA Fair Trade Act NII National Information Infrastructure
GDI Gender-related Development Index NIS National Innovation System
GDP Gross Domestic Product NPL Non-Performing Loan
GEM Gender Empowerment Measure NRDP National R&D Program
GNP Gross National Product OECD Organization for Economic Co-operation and
Development
GRI Government Research Institute PC Personal Computer
GSM Global System for Mobile Communications PCER Presidential Commission on Education Reform
ICT Information and Communication Technology POSTECH Pohang Science and Technology Institute
IMD International Institute for Management PPP Purchasing Power Parity
Development R&D Research and Development
IMTS-2000 International Mobile Telecommunication RRC Regional Research Center
Standard2000
ISDN Integrated Services Digital Network SAT Scholastic Achievement Test
ISO International Standards Organization SCI Science Citation Index
KAIST Korean Advanced Institute for Science SME Small and Medium Enterprise
andTechnology
KAMCO Korea Asset Management Corporation SNU Seoul National University
KBE Knowledge-based Economy SRC Science Research Center
KCC Korean Communications Commission STEPI Science and Technology Policy Institute
KDI Korea Development Institute STI Science Technology and Innovation
KEDI Korea Education Development Institute STSP Specialized Telecom Service Provider
KEPCO Korea Electric Power Company TFP Total Factor Productivity
KFTC Korea Fair Trade Commission TMA Trademark Act
KIET Korea Institute for Industrial Economics and Trade TRIPS Trade-Related Aspects of Intellectual Property
Rights
KINITI Korea Institute of Industry and Technology UI Unemployment Insurance
Information
KIS Korea’s Innovation System UNCPC United Nations Central Products Classification
Scheme
KITA Korea Industrial Technology Association VoIP Voice over Internet Protocol
KOSDAQ Korea Securities Dealers Automated Quotation WIPO World Intellectual Property Organization
(aNASDAQ-like stock exchange)
KOTRA Korea Trade Promotion Corporation WTO World Trade Organization
KSE Korea Stock Exchange
9