By Robert D. Atkinson
South Korea has a productivity problem. Productivity growth is the single most important economic factor, for without it per-capita incomes stagnate.
For the half century after the 1950-53 Korean War, South Korea likely had the fastest rate of productivity growth of any nation in history, with annual rates of GDP-per-capita growth sometimes in excess of 10 percent. That is why Korea went from a low-income nation to a high-income one.
But no more. While Korean productivity growth rates used to regularly be three or four or even five times higher than those in the United States, over the last seven years they have been just 1.3 times higher, with rates in the last two years lagging the U.S.
There are a number of reasons for this poor performance. One is that as economies get closer to the global production frontier a lot of the "low hanging fruit" of productivity gains from catching up have already been picked. But still, that doesn't mean that Korean productivity should still not be growing faster than the United States, which is still ahead of Korea technologically.
Another reason, as I describe here, is that the Korean economy has far too many small firms, largely enabled by government policies that prop up small enterprises. In every country, including Korea, small firms on average are significantly less productive than large firms.
A third factor is capital investment. Relative to many countries, Korea still does well on this indicator. But with the rise of the next wave of innovation around artificial intelligence, connectivity, and autonomous systems, investment in new technologies, particularly to drive automation growth will be critical.
In the United States that kind of investment has come under attack from a number of misguided economists and pundits who argue that the only good technology is that which augments worker skills, and that technology that replaces workers is "bad," and actually lowers productivity and wages.
Case in point the work of MIT economist Daron Acemoglu. He claims that robots, and automation in general, have hurt U.S. workers, and as a result, he makes the faulty and dubious distinction between good and bad automation. Good automation is not really automation; it's the introduction of technology that helps a worker do his or her job better.
Bad automation is anything that enables more work to be done with fewer workers. He wrongly attributes automation to the decline in labor's share of U.S. national income. But the only way this could make sense is if automation leads to higher profits (it does not) or if workers laid off by automation never become employed again (they do).
Even more strangely Acemoglu and others argue that using technology that keeps workers on the job is more productive than using technology to replace the worker. The only way that could be true is if the former arrangement enables higher quality or more flexibility.
But more often than not, spending money to install automation equipment saves more money if the company no longer needs the worker to perform that task.
Imagine how poor Korea would be today if all the automation technology on Korean farms did nothing to displace farm workers and half of Korean workers were still farmers. It is this kind of thinking that has led the U.S. National Science Foundation National Robotics Initiative to be structured to only support worker-complementing robotics technology.
Acemoglu even argues that automation can be excessive, a strange assertion, given that U.S. productivity growth rates, like Korea, are near all-time lows. And his policy recommendations are even more problematic, calling for the U.S. government to actually impose higher taxes on automation equipment, something that would slow productivity growth even more.
If Korea wishes to continue to close the per-capita income gap with the United States and grow its international market share in robot and automation equipment production, policymakers should not listen to these U.S. automation doomsayers. Indeed, Korea has the potential to be a global leader in the production and sale of automation technology.
For example, Hyundai Robotics is working with KFC Korea to developed automated chicken cookers.
But to do that, Korea needs to embrace all kinds of automation, and leave the decisions of whether it is worker enhancing or worker replacing up to companies. And the Korean government should expand, not cut tax incentives for investing in automation.
Finally, to be sure, companies and the government need to ensure that workers who do lose their jobs to automation are assisted in the efforts to obtain new employment, including temporary income support and retraining. But having the policy be to minimize technological "creative destruction" and automation, is a path to slow economic and income growth.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), a think tank for science and technology policy. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.
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For the half century after the 1950-53 Korean War, South Korea likely had the fastest rate of productivity growth of any nation in history, with annual rates of GDP-per-capita growth sometimes in excess of 10 percent. That is why Korea went from a low-income nation to a high-income one.
But no more. While Korean productivity growth rates used to regularly be three or four or even five times higher than those in the United States, over the last seven years they have been just 1.3 times higher, with rates in the last two years lagging the U.S.
There are a number of reasons for this poor performance. One is that as economies get closer to the global production frontier a lot of the "low hanging fruit" of productivity gains from catching up have already been picked. But still, that doesn't mean that Korean productivity should still not be growing faster than the United States, which is still ahead of Korea technologically.
Another reason, as I describe here, is that the Korean economy has far too many small firms, largely enabled by government policies that prop up small enterprises. In every country, including Korea, small firms on average are significantly less productive than large firms.
A third factor is capital investment. Relative to many countries, Korea still does well on this indicator. But with the rise of the next wave of innovation around artificial intelligence, connectivity, and autonomous systems, investment in new technologies, particularly to drive automation growth will be critical.
In the United States that kind of investment has come under attack from a number of misguided economists and pundits who argue that the only good technology is that which augments worker skills, and that technology that replaces workers is "bad," and actually lowers productivity and wages.
Case in point the work of MIT economist Daron Acemoglu. He claims that robots, and automation in general, have hurt U.S. workers, and as a result, he makes the faulty and dubious distinction between good and bad automation. Good automation is not really automation; it's the introduction of technology that helps a worker do his or her job better.
Bad automation is anything that enables more work to be done with fewer workers. He wrongly attributes automation to the decline in labor's share of U.S. national income. But the only way this could make sense is if automation leads to higher profits (it does not) or if workers laid off by automation never become employed again (they do).
Even more strangely Acemoglu and others argue that using technology that keeps workers on the job is more productive than using technology to replace the worker. The only way that could be true is if the former arrangement enables higher quality or more flexibility.
But more often than not, spending money to install automation equipment saves more money if the company no longer needs the worker to perform that task.
Imagine how poor Korea would be today if all the automation technology on Korean farms did nothing to displace farm workers and half of Korean workers were still farmers. It is this kind of thinking that has led the U.S. National Science Foundation National Robotics Initiative to be structured to only support worker-complementing robotics technology.
Acemoglu even argues that automation can be excessive, a strange assertion, given that U.S. productivity growth rates, like Korea, are near all-time lows. And his policy recommendations are even more problematic, calling for the U.S. government to actually impose higher taxes on automation equipment, something that would slow productivity growth even more.
If Korea wishes to continue to close the per-capita income gap with the United States and grow its international market share in robot and automation equipment production, policymakers should not listen to these U.S. automation doomsayers. Indeed, Korea has the potential to be a global leader in the production and sale of automation technology.
For example, Hyundai Robotics is working with KFC Korea to developed automated chicken cookers.
But to do that, Korea needs to embrace all kinds of automation, and leave the decisions of whether it is worker enhancing or worker replacing up to companies. And the Korean government should expand, not cut tax incentives for investing in automation.
Finally, to be sure, companies and the government need to ensure that workers who do lose their jobs to automation are assisted in the efforts to obtain new employment, including temporary income support and retraining. But having the policy be to minimize technological "creative destruction" and automation, is a path to slow economic and income growth.
Robert D. Atkinson (@RobAtkinsonITIF) is president of the Information Technology and Innovation Foundation (ITIF), a think tank for science and technology policy. The views expressed in the above article are the author's own and do not reflect the editorial direction of The Korea Times.
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