Korea Can't Afford to Delay Necessary Reforms

Global consultancy McKinsey & Company’s Seoul representative used the “boiling frog” story a decade ago to caution Korea against putting off necessary reforms and now warns that the frog is “half boiled.” The warning echoes comments made recently by the governor of the Bank of Korea, who said, “Intoxicated by booming exports to China, Korea postponed reforms and wasted a decade.”

In a report published in 2013, McKinsey said the growth formula that brought the nation out of poverty and into wealth no longer serves the overall economy. It warned that Korea needs to bolster overall productivity to escape from the boiling pot and resolve the exorbitant costs of homes and education, while nurturing the service industry, creating more jobs and achieving social cohesion. That raised alarm bells in Korea at the time, causing a flurry of meetings of lawmakers and government officials, but they soon went back to squabbling among themselves and nothing was done.

In fact, home prices and education costs have since soared into the stratosphere, while militant labor unions continue to threaten corporate growth and essential restructuring and politicians remain deeply divided over ideology. As a result, Korea suffers from the lowest birthrate in the world and soaring household debt, and its economy is mired in low growth due failure to reform labor and business practices.

It might be asked what a global management consultancy knows about the soul of Korea. But an unbiased observer is often well positioned to offer incisive criticism and catch what Koreans themselves miss. Just before the onset of the Asian financial crisis in 1997, management consultancy Booz Allen Hamilton compared Korea to a walnut wedged in a nutcracker between China and Japan and urged the country to boost efficiency. Shortly after the report was published, Korea turned cap in hand to the International Monetary Fund for a US$58 billion bailout. The water in a pot heats up slowly but reaches boiling point in an instant. Korea needs to recover a sense of urgency and pursue crucial reforms throughout society or face the fate of the frog.

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