South Korea’s Japanese Mirror

The economic and demographic challenges currently facing South Korea closely resemble those that have been diminishing Japan's prospects for more than two decades. The difference is that South Korea may still have time to address these challenges and avoid a Japanese-style quagmire of slow growth and long-term decline.

SEOUL – Given the daunting challenges facing Japan, one can only admire Prime Minister Shinzo Abe’s determination to end the country’s two-decade-long period of economic stagnation. His strategy – the “three arrows” of massive monetary expansion, increased government spending, and structural reform – is theoretically sound. But only one and a half arrows have been launched so far.

The stimulus package is being offset by consumption-tax hikes aimed at reducing Japan’s massive debt burden – a process that will lead many Japanese consumers to adjust their spending downward. The promised structural reforms of the energy sector, labor market, and competition policy have yet to be introduced, and appear unlikely to take effect anytime soon. Even more worrisome are larger immutable realities – like a rapidly aging and shrinking population – that will limit Japan’s economic growth in the coming decades.

But Japan’s problems are not unique. Indeed, its neighbor and historical rival, South Korea, is headed down a similar path. The difference is that South Korea may still have time to ameliorate these trends, and avoid a Japanese-style quagmire of permanent low growth and long-term decline.

https://prosyn.org/4daWIHD