Korean Industrial Policy and the Role of Science and Technology

1. Korean Industrial Policy and the Role of Science and Technology Suk Joon KIM Ph.D. President Science and Technology Policy Institute

2. Korean Industrial Policy and the Role of Science and Technology Suk Joon KIM Ph.D. President Science and Technology Policy Institute

3. Major Economic Indicators and Driving Force of Growth 1 2 Major Industrial Policies and Achievements 2 13 Korea Innovative Capability in Science and Technology 3 25 Key Characteristics of Korean Innovation System 4 32 5 Policy Lessons and Future Directions 37 Contents

4. 1 Major Economic Indicators and Driving Forces of Growth

5. Korea’s Major Economic Indicators • Current Situation

6. Korea’s Economic Growth < Trend of Korea’s Economic Growth > 1981~90 9.1% High Growth Period 1971~80 9.5% High Growth Period 1991~2000 6.7% 2001~10 4.3% 2011~2015 3% Low Growth Period Real Growth Rate Potential Growth Rate ※ Source : The Bank of Korea

7. Growth Engine (1) : Export < Export’s Contribution Rate to Economic Growth > (Rate : %)

8. Trade Trend • Until 1980’s imports exceeded exports, but after 1990’s the situation reversed. • From 1990s, the products of heavy chemical industry exceeds those of light industry in the structure of exporting items. ※ Source : The Korea International Trade Association, The Korea National Statistical Office

9. Change of Major Export Item < Change of the Five Export Items by Year >

10. Growth Engine (II) : Manufacturing Industry < Growth Rate of Real Value-Added by Industries (2000) > ※ Source : Korea Institute for Industrial Economics and Trade(2010)

11. 1960s 1970s 1980s 1990s 2000s Industryfor Promotion LightIndustry Heavy andChemical Industry Technology-intensiveIndustry Knowledge- Intensive Industry New Industry IncludingICT Factors ofCompetitive-ness SimpleLabor SkilledLabor Capital Technology Innovation • Change of Industrial Structure ※ Source : Hwang, Yongsoo(2007), “Role and Performance of S&T Policy to Cope with Transitional Needs of Economic Development”, Symposium for the Forty Anniversary of S&T Administration in Korea, 2007. 10. 29, MOST & STPEI, Seoul

12. Indicators – Change of Industrial Structure < Change of Industrial Structure Over Times > * Note : 1) Data before 1950 are based on the criteria of 1975, and data after 1970 are based on the 2000 & total amount of value added. 2) Data before 1960 include construction industry ※ Source : The Bank of Korea

13. Growth Engine(III) : Technology Innovation < Contributions of Factors to Growth (1971~2004) >

14. < History of Overcoming Economic Crisis > Decisive Investment Improve Economic Infrastructure Economic Crisis • Invest in heavy industry such as petroleum chemical, steel industry etc. * Declare we enter the stage of heavy industry(’73) • Move industrial emphasis from light industry to heavy industry 1st Oil Shock(Oct’73~Aut 74) • Price stabilization, open economy • Promote high tech industry such as automobile and semiconductor as major industry • Invest in high tech industry such as automobile, and semiconduc- tor etc. 2nd Oil Shock(Oct’78~Apr’82) • Enlarge IT venture investment • Enlarge government R&D investment • * Enact ‘Special Act on Promoting Venture Companies(’97) Financial Crisis(Dec’97~Aug.01) • Restructuring of large conglomerates • Promote IT as major industry • Knowledge, innovation driven industry • Low carbon economic system Global Financial Crisis (2008~) • Promote new growth engine • Green Growth ※ Source : Ministry of Knowledge Economy

15. 2 Major Industrial PoliciesandAchievements

16. < Science & Technology strategy Roadmap of Korea Government > 1960s 1970s 1980s 1990s 2000s 2010s CompetitiveDevelop-mentStage Factor Driven Stage Investment Driven Stage Innovation Driven Stage New Growth EngineDriven Stage Cheap labor Manufacturing capability Source ofCompetition Innovative capability Convergence capability Major direction ofIndustrial Policy Expand exportoriented lightindustries Expand heavy and chemical industries Expand technology Intensive industries Promotehigh-technologyinnovation TechnologyCommer-cialization Green Growth & New Growth Engines

17. < Science & Technology strategy Roadmap of Korea Government > 1960s 1970s 1980s 1990s 2000s 2010s R&D and PrivateResearchLabPromotion S&T Role of Government ScientificInfra-structureSetting R&BD andInvestmentPromotion Green Technology Promotion Scientific Institution Building Leading Rolein Strategic Area • Strategic program (highly advanced national project) • Enhancing university research capability • Linkages university- industry-govern- ment research institutes • Strategic increase of R&D invest- ment in GT • Promoting GT transfer and commercialization • Strengthening incentive schemes for inducing private invest- ment in GT • Establishment of ministry of S&T • S&T promotion law • Human resource development • Strategic program for tech. Business (R&BD, TBI, NTB) • Globalization of technology • Pursuit newly launched technology business and investment • Establishment of government research institutes • R&D promotion law • Highly qualified personnel development • National R&D funds • Promotion of the establish- ment of private research labs • Promotion of industrial R&D Innovative Capability of Private secret

18. Major Industrial Policies and Achievements 1960’s

19. Major Industrial Policies and Achievements 1970’s

20. Major Industrial Policies and Achievements 1980’s

21. Major Industrial Policies and Achievements 1990’s (1)

22. Major Industrial Policies and Achievements 1990’s (2)

23. Major Industrial Policies and Achievements 2000’s (1)

24. Major Industrial Policies and Achievements 2000’s (2)

25. Major Industrial Policies and Achievements 2010’s (1) < Korean National Strategy for Green Growth > VISION To Become the World 7th Green Power 2020,and the 5th by 2050 Three Objectives, Ten Policy Directions Mitigation of Climate Change & Energy Independence Creating New Engines for Economic Growth Improvement in Quality of Life &Enhanced International Standing • Greening the land, water and building the green transportation infrastructure • Bringing green revolution into our daily lives • Becoming a role-model for the international community as a green growth leader • Effective mitigation of greenhouse gas emissions • Reduction of the use of fossil fuels and the enhancement of energy independence • Strengthening the capacity to adapt to climate change • Development of green technologies • The “greening” of existing industries and promotion of green industries • Advancement of industrial structure

26. Selection of New Growth Engines • Develop 17 new driving forces in three areas • Green technology industry (6) : the foundation for future growth, energy use reduction and the high potential to tackle climate change and lack of resources • High tech convergence industry (6) : large world market size and high technology capability in Korea. Capable to create new industry and advance the existing industries through convergence • High value added industry (5) : huge potential of job creation. Capable to create high value added by complementing service industry 2010’s (2)

27. 3 Korea Innovative Capability in Science and Technology

28. Korea’s S&T Capability • S&T Statistics (Input) ※ Source : Ministry of Science and Technology * R&D / GNP

29. S&T Statistics (Output) ※ Source : Ministry of Science and Technology

30. Korea’s IMD Ranking(’06~’10)

31. Technological Needs / Efforts 1960s 1970s 1980s 1990s 2000s Tech- nologicalNeeds OperationTechnology Equipment-embodiedTechnology ProductionTechnology Creative Technology Critical/EssentialTechnology Tech-nologicalEfforts Importation/Learning ofTurnkey-basedForeignTechnologies Absorption/Assimilationof ForeignTechnologies,ReverseEngineering Modificationof ForeignTechnologies,Fostering ofEndogenousTechnologyDevelopment Broadening/ Deepening ofDomestic R&D Efforts Strengtheningof Future-orientedR&DEfforts Imitation Innovation ※ Source : Hwang, Yongsoo(2007).

32. HRD Needs / Efforts 1960s 1970s 1980s 1990s 2000s Needs of Human Resource Technician Engineer High-caliberEngineer Creative S&TManpower High-caliberR&DPersonnel Expansion of TechnicalHigh School Expansion ofEngineeringCollege Cultivationof Graduate-level S&TManpower Cultivationof HighlyProfessionalS&T Manpower HRDEfforts Brain Drain Brain Circulation Reverse Brain Drain ※ Source : Hwang, Yongsoo(2007).

33. World Competitiveness of Main Products • DRAM : World market leader since 1998(51%, 2009) • CDMA mobile phone : World market leader since 1998(38%, 2008) • Shipbuilding : World market leader(40%, 2008) • TFT-LCD : World market leader since 2001(46%, 2008) • Automobile : Fair global market share(5.7%, 2009) • TV : World market leader(35%, 2010) • Refrigerator : High global market share(22%, 2008) • Flash Memory : World market leader(54%, 2008) • Iron/Steel : Fair global market leader(3.9%, 2008) ※ Source : Ministry of Knowledge Economy, Korea International Trade Association

34. 4 Key Characteristics of Korean Innovation System

35. Key characteristics of Korean Innovation System • Key factors that influenced the Korean Innovation System • Outward-looking development strategy → Pressure for R&D investment • Government policy toward FDI TT → Focus on indigenous R&D • Government-led industrial development • Industry-targeting → Inter-industry R&D imbalance • Favoring large enterprises → R&D system biased for large firms/Financial capability to invest in R&D • S&T for industrialization → R&D system biased toward technology development • Rich pool of well educate HRST → High absorptive capacity • Government-led development of S&T infrastructure → Relative importance of GRIs

36. Government’s role : STI support programs by stage Input-based growth Knowledge-based growth R&D GrossExpen-diture on R&D Semi-conductor, digital appliances, IT, ….. 29,703(2009) - Green Growth - New Growth Engine Automobiles, Ships, Computer, Semi-conductor Apparels, Steel, Chemicals, Construction, Home application -NIS / RIS -New Growth Engine -TT -Industrial Base Development Program -Promotion of Ventures -KOSDAQ 24,155 Wig Plywood -MOST: HAN Project -MOCIE: Industrial Base TD Program -MIC: IT, R&D -R&D Tax Incentive -Industrial R&D Center -NRDP TT -TD Reserve Fund - TDPL / ETPL* 13,849 3,210 212 1970 1980 1990 2000 2005 2010 PCGG, PMO MOST MOCIE, MIC, MOE, ….. Regional gov’s R&D Tax Incentive(’81) Tariff Reduction for R&D Equipment(’82) Tax Technology Development Reserve Fund(’72) Special Tax Incentives for Foreign Engineers(’02) R&D tax incentives for growth engine products Finan-cial KTB(’82) - Law for the Promotion of Start-ups(’91) - Financial Support for Industrial Development(’86) - S&T Promotion Fund(’93) - IT Promotion Fund(’93) Korea Technology Promotion Corp.(’74) Green Growth Fund New Growth Engines Fund R&D Subsi-dies NRDP(’82) - New Growth Industries (’03) - Regional Cluster Program (’03) - Green Technology Program(’08) - Total R&D expenditure / 5% of GDP(’08) - GT development program - Support for new growth engines - Industrial Base Technology Development Program(’87) * Technology Development Promotion Law / Engineering Technology Promotion Law

37. Strength and weakness • Strength • Consensus on the importance of S&T : Dynamism of Korean business enterprises plus strong commitment of the government to S&T-based national development • Economic environments conducive to active innovation : Domestic firms’ exposure to international markets – pressure for R&D • Chaebol system : Financial capability to invest in long-term risky projects • Human resources • Growing scientific achievements : publications, IPR, etc • Attained technological leadership in selected areas

38. Weakness • Disadvantage of being small • Imbalances in innovation system • Basic scientific research vs technological development • Large firms vs SMEs • Regional concentration • Manufacture vs Service • Excessive reliance on private investment : vulnerable to changes in markets • Weak industry-science relationship • Insufficient internationalization : insufficient international R&D collaboration and international co-invention, etc.

39. 5 Policy Lessons and Future Directions

40. Policy Lessons and Future Directions • Lessons • Market competition is the very source of motivation for innovation • Pressure for technological competitiveness • Effectiveness of the outward-looking development strategy for small economies • Human resource is the key to learning • Government can play effectively the role of facilitator and promoter at the early stage of development • The efficiency of an NIS • Future Directions • Industry-oriented policy • Catch-up Strategy → Creative Strategy • Globalization and Open Innovation • Create New Growth Engine

41. Thank You.