One of the common denominators of the post-COVID world is the disastrous economic impact. In response to these challenges, South Korean President Moon Jae-in’s government has launched the ‘Korean New Deal’ to help the nation navigate the choppy waters to prosperity.
In the aftermath of the Korean War both the freshly divided North and South stood devastated by the ferocity of the fighting and the utter destruction wrought upon what little infrastructure remained standing post the brutal Japanese occupation of World War II.
While the communist North took one route and isolated itself from the world, the South approached the need for post-war reconstruction and economic growth with gusto, leveraging public policy, political commitment and direct national investment to build national resilience, sovereignty and a world leading industrial base.
This 'combined arms' strategy of national development post-war has seen the nation rapidly industrialise, with world leading industrial powerhouses like Hyundai and Samsung leading the path forward, driving technological innovation and millions of jobs to grow the economy and the middle class.
As a result, South Korea rapidly established itself as an indispensible US ally in the post-Second World War economic, political and strategic order and important buffer state to curtail further Soviet, Chinese or North Korean aggression in the western Pacific.
In doing so, South Korea has emerged as a credible industrial, political and military middle power in the post-Cold War era and one of the world's rapidly developing economies and industrial powerhouses.
South Korea's foundation of industrial and economic development, an economic concept called 'Export Oriented Industrialisation' (EOI), which focused upon export-led growth designed to speed up the rate of national industrialisation by focusing on the sectors in which the nation has a comparative advantage.
One thing that is often overlooked in the debates about the implementation of such a policy is the fact that prior to its implementation, Korea was still a largely agrarian society and economy, with little-to-no major modern industrialisation or manufacturing capacity, thus requiring significant government investment in education and training to establish said comparative advantage.
Despite its position as a global manufacturing hub and export oriented economy, buoyed by global supply chains and consumer demand for high-quality, low-cost goods across the developed and developing world, growing soft power influence throughout the Indo-Pacific driven by the likes of K-Pop, TV and cinema, COVID-19 has laid the nation low.
Like many of its contemporaries, including Australia and the broader developed world, COVID-19 has had a disastrous impact upon the South Korean economy as increasingly vulnerable global supply chains are threatened by nations scrambling to secure their own national interests and access to critical resources and materials.
In response, the South Korean government has moved swiftly to develop an integrated and truly national approach to securing Korea's economic prosperity, employment opportunities, national security and competitiveness in the post-COVID economic order, with what South Korean President Moon Jae-in describes as the 'Korean New Deal'.
A national strategy for a great transformation
As part of this national strategy, South Korean President Moon establishes rather lofty ambitions for the implementation of this Korean New Deal stating, "The Korean New Deal will set the foundation for Korea's next 100 years."
The new strategy identifies a number of key focuses for the structural transformation of the nation's economy and shifting focus as the nation, like many others, including Australia seeks to navigate the "severe economic recession", particularly as it faces two major challenges.
"In the face of the COVID-19 pandemic, the Korean economy has encountered two major challenges: aiding recovery from a severe economic recession while addressing the structural transformation," the Korean government's strategy document articulates.
"The unforeseen shock of the pandemic has resulted in the worst economic downturn that the world has seen since the Great Depression. Border closures and travel restrictions have affected economies and job markets around the world, and the Organization for Economic Cooperation and Development (OECD) has predicted that the income loss by the end of 2021 will exceed that of any previous recession over the last 100 years outside wartime."
Further to this, the Korean government has recognised the following: "The unparalleled challenges of the pandemic have completely changed the world’s overall economic and social structures. In addition to the increased use of ‘untact’ services accelerating the transition towards a digital economy, there has also been a growing demand for a green economy, making it a common consensus in the international community.
"Delayed action against such structural changes, therefore, may hurt productivity and result in a lower growth path.
"Against such backdrop, the Korean New Deal was introduced as a national development strategy to support the country’s recovery from the pandemic crisis and lead the global action against structural changes. Its three main objectives are as follows:
- First: The Korean New Deal aims to minimise the economic shock by creating jobs. It creates not only government-supported jobs for low-skilled workers, but also jobs that support the structural transition towards a digital and green economy;
- Second: This strategy supports the Korean economy’s quick return to its normal growth path by building the necessary infrastructure for a digital and green economy that will restore investments and support job creation; and
- Third: It sets the groundwork for Korea not only to adapt to the structural changes but also to lead the global community in the post COVID-19 era."
Building on these factors, the Korean New Deal focuses on three important shifts within the nation's strategy, namely focusing on developing:
- A smart country - that is at the centre of a digital transition based on data, network and artificial intelligence (DNA) infrastructure;
- A green country - that achieves a balance among people, nature and growth through a green transition towards net-zero emissions as a responsible member of the global community; and
- A safe country - that invests in human resources for a strong employment and social safety net.
The Korean model leverages the full breadth of national power, with a growth focused design, focused on building a robust, competitive and resilient nation and economy for the next century, not one simply focused on the next election cycle as is so often the criticism of many of Australia's political leaders.
Perhaps most promisingly, this model provides an opportunity for Australia to learn the lessons of the economic impact of COVID-19 and prepare the nation for the future in a similar way.
Industrial decline has had a dramatic impact on national security
While we are far from the end Australia's first recession in nearly three decades, the impacts are beginning to be felt and despite the best efforts of state, territory and Commonwealth governments, it will force a major restructuring of the national economy and Australia's relationships with both the broader global community and, more critically, its Indo-Pacific partners.
This predicament is further reinforced by a recent report conducted by the Australia Institute has revealed that the nation ranks last in manufacturing self-sufficiency among the membership of the Organisation of Economic Cooperation and Development (OECD) member states.
Explaining this, Tom McIlroy, writing for The Australian Financial Review, reveals some rather troubling details about the nation's declining economic and industrial diversity and, critically, its impact upon Australia's national security and sovereignty:
"As the COVID-19 pandemic highlights problems with global supply chains and gaps in Australia's manufacturing capability, the report released by the Australia Institute's Centre for Future Work shows renewal of the sector could generate as much as $180 billion in new sales, $50 billion in additional GDP and more than 400,000 jobs.
"It blames failures of trade and industrial policy for undermining domestic manufacturers’ success in doing business with key global markets, producing 'dangerously lopsided patterns' in overseas trade.
"Manufacturing jobs make up about 6.9 per cent of Australia’s workforce, but more than 26.4 per cent of all research and development spending. Total employment in the sector has dropped by 9.6 per cent since 2010, the report shows."
McIlroy added, "With manufacturing output worth US$270 billion ($378 billion), Australia ranks below all other Organisation for Economic Co-operation and Development economies, including countries producing more manufactured output than they consume, such as Germany, the Netherlands, South Korea, Sweden and Japan."
The growing importance of local, competitive manufacturing capabilities was further explained by author of the Australia Institute report, Dr Jim Stanford, who said, "As Australian governments and business leaders realise the importance of manufacturing in rebuilding the national economy after COVID, this research shows that Australia now has the smallest manufacturing industry relative to domestic purchases of any OECD country."
While this economic, political and strategic turmoil is in some ways 'unprecedented', the favoured catchphrase of many a media personality seeking to describe anything from the bushfires that devastated swathes of the landmass, the economic impact of COVID-19 or the societal upheaval sweeping the West, Australia does its best work when its chips are down.
Follow the Korean model: Think long-term, plan, communicate, manage expectations and deliver
It is often said that much of Australia's public policy-making decisions are based on the comparatively short election cycles across the various jurisdictions and this is a challenge faced across the democratic world – however, the grand irony is, if governments and oppositions planned for the long term they'd be more likely to be returned.
In light of this, it is time for Australia to plan for the next 15 to 20 years, not the next term of state, territory or federal government, providing policy consistency, vision for the public and surety in a period of global and regional turmoil.
This approach requires more than vanity programs, which can be best left to local government or private developers, rather it requires a strategic approach to a number of highly visible, big impact public policy areas, including:
- Infrastructure development: Addressing the critical links between hubs of economic prosperity including regional hubs and metropolitan centres – such as improved, faster and more reliable road, rail and air transport links.
- Water security: Australia is a continent of extremes, "droughts and flooding rains" yet we do little to adequately channel and store the vast quantities of water that falls – now is the opportunity to promote economic stimulus through infrastructure investment while supporting Australia's agricultural industry and drought-proofing the continent.
- Energy and resource security: Addressing the nation's lack of strategic resource and energy supplies has come to the fore during COVID-19, preparing the nation for such challenges whether natural or man-made should be of paramount priority – this requires less ideology and more pragmatism.
- Strategic industry development: COVID has stirred many within the Australian public to question why Australia isn't manufacturing more of the critical – it is clear that Australia requires a concerted policy initiative in the form of a Strategic Industries Act to develop a robust, globally competitive Industry 4.0 oriented manufacturing base.
Each of these contribute to the nation's sovereignty and security at a time when many of the principles that Australia's post-Second World War public and strategic policy is based upon coming under threat – serving to make Australia a more reliable economic, political and strategic partner amid a period of great power competition.
Furthermore it serves to make Australia more resilient to man-made and natural shocks, resistant to coercion, economically competitive and robust at a time when the Australian public are calling for leadership, forward planning and vision.
For Australia, a nation defined by this relationship with traditionally larger yet economically weaker regional neighbours, the growing economic prosperity of the region and corresponding arms build-up, combined with ancient and more recent enmities, competing geopolitical, economic and strategic interests, places the nation at the centre of the 21st century’s “great game”.
Enhancing Australia’s capacity to act as an independent power, incorporating great power-style strategic economic, diplomatic and military capability serves as a powerful symbol of Australia’s sovereignty and evolving responsibilities in supporting and enhancing the security and prosperity of Indo-Pacific Asia.
Australia is consistently told that as a nation we are torn between our economic relationship with China and the longstanding strategic partnership with the US, placing the country at the epicentre of a great power rivalry – but what if it didn’t have to be that way?
Get involved with the discussion and let us know your thoughts on Australia’s future role and position in the Indo-Pacific and what you would like to see from Australia’s political leaders in terms of shaking up the nation’s approach to our regional partners.