[Editorial] Declining GDP Ranking: Only Radical Innovation Can Break Through

The growth prospects of countries leading advanced industries are clearly different from ours. According to the International Monetary Fund (IMF) on the 20th, Korea’s per capita Gross Domestic Product (GDP) will drop from 34th in the world last year to 37th this year, falling three places. Previously, both domestic and international institutions predicted Korea’s growth rate this year would remain in the 0% range. Among major economies, Korea is virtually the only one expected to see such low growth. It is therefore no surprise that our per capita GDP ranking is falling this year.
The real issue is that this decline will not end this year but will continue in the years ahead. Korea will slip from 37th this year to 38th next year, and by 2028, it will fall into the 40s. Taiwan, which has a similarly export-oriented structure, is moving in the opposite direction. Its per capita GDP will jump by 11% this year compared to last year, propelling its global ranking from 38th to 35th. Having overtaken Korea for the first time in 22 years, Taiwan is expected to enter the era of $40,000 per capita GDP next year, with its global ranking projected to soar to 31st.
Taiwan’s rapid growth does not stop there. The IMF forecasts that Taiwan will surpass $50,000 in per capita GDP by 2030, just three years after reaching the $40,000 milestone. For Korea, even reaching $40,000 is unlikely before 2028. While this is an improvement over the IMF’s previous projection in April, which predicted Korea would reach $40,000 only by 2029, it still lags far behind Taiwan.
It has been 11 years since Korea surpassed the $30,000 per capita GDP mark. Since then, competing countries have made remarkable leaps in advanced and high value-added industries, while Korea has stagnated. Eight out of Korea’s top ten export items have remained unchanged for 20 years, illustrating this lack of progress. The failure to create an environment where new businesses can take risks and innovate without fear has been a major factor. Instead, vested interests have stifled the seeds of new industries.
Not only have new industries struggled, but the influence of traditional manufacturing has also weakened. While countries around the world have reformed systems and regulations to revive their manufacturing sectors and boost competitiveness, Korea has been out of sync. Requests to ease rigid labor regulations have been consistently rejected. Companies have repeatedly voiced concerns that the Yellow Envelope Act and amendments to the Commercial Act are excessive, but these appeals have also been dismissed.
According to a survey released on the 20th by the Korea Chamber of Commerce and Industry (KCCI) of 2,275 manufacturing companies nationwide, the situation on the ground is dire. Seventy-five percent of manufacturers expect their operating profits this year to fall short of the targets set at the beginning of the year. As many as 32% anticipate operating losses. Many say that business conditions this year are even bleaker than during the COVID-19 pandemic. The business environment is fraught with uncertainty, while rising corporate taxes have increased costs, and regulations under the Commercial Act and MRFTA have become even stricter. The burden on companies could grow even heavier in the future.
The main drivers of growth are companies, especially those in the private sector. However, the responsibility to maximize corporate capabilities must be shared by the government and political leaders. Taiwan’s remarkable growth was led by TSMC, the world’s top foundry company, but its achievements would not have been possible without government support. The behind-the-scenes efforts of the government and local authorities to establish a robust advanced ecosystem centered on TSMC are likely immense.
Whenever possible, the government emphasizes the need for an AI-driven transformation and a hyper-innovative economy. However, it is crucial to move beyond rhetoric and deliver concrete results through effective execution. More effort must be devoted to passing legislation that supports growth and revitalizes corporate activity.