South Korea’s ‘New Deal’

“The Korean New Deal is the blueprint for South Korea’s next hundred years,” said President Moon Jae-in as he officially unveiled the Korean New Deal during an address to the nation on July 14. 

Drawing an explicit parallel to U.S. President Franklin Roosevelt’s signature program in the 1930s, the Korean New Deal proposes not only a way out of the economic crisis following the COVID-19 pandemic but also a fast track for a nationwide digital transformation and South Korea’s leadership in the post-COVID era. The policy revolves around three pillars – the Digital New Deal, Green New Deal, and strengthening the employment and the social safety nets (which some refer to as the “human” pillar) – with a massive investment of 160 trillion won ($133.1 billion) and the creation of 1.9 million new jobs by 2025. 

The Korean New Deal is one of the early medium- to long-term strategies that have come out of the COVID-19 crisis and also certainly one of the most ambitious plans. This article takes a deeper dive into the Korean New Deal, examining the broader context that led to its development and the narratives that Seoul has put forward in connection to its history of rapid economic development and the vision for its middle-power leadership in the post-COVID world.

The Evolution of the Korean New Deal

The Korean New Deal was first announced at the end of April 2020, and it has evolved significantly since then. 

According to the announcement by the Finance Ministry on May 7, the Korean New Deal was going to primarily be a digitalization policy, revolving around the three pillars of data infrastructure, “untact” (contactless) economy, and digitalization of social overhead capital. However, Moon announced on May 20 that the Korean New Deal would include a “Green New Deal” component. Reportedly, the cabinet was split about the addition, and Moon had personally pushed for it. In this context, a June 1 announcement outlined the 76 trillion won ($63.3 billion) Korean New Deal, led by the digital and green pillars, which would create 550,000 new jobs.

On July 14, Moon presented the official roadmap of the Korean New Deal, which significantly expanded both the size and the scope of the initiative. According to the latest plan, the government will directly invest 114 trillion won in the Korean New Deal until 2025, which pushes the total investment to 160 trillion won including funding from local governments and the private sector. Overall, the investment is expected to create 1.9 million new jobs by 2025. Also, the new plan inserted “strengthening the employment and social safety nets” as the third pillar of the Korean New Deal along with the Digital and Green New Deals. 

Seoul has already moved quickly to start implementing the Korean New Deal. The government’s latest proposal for the supplementary budget of 35.1 trillion won, which included funding for the Korean New Deal, was cleared in early July, and the money started to flow into new projects as of July 6. Out of the supplementary budget, 4.8 trillion won is committed to the Korean New Deal, and Seoul has pledged to implement at least 75 percent of the projects supported by additional funding within the next three months.

Overview of the Korean New Deal

The latest iteration of the Korean New Deal outlines 28 projects under nine policy objectives across the three main pillars. The policy objectives reiterate support for the “D.N.A.” (data, network/5G, AI) industries, digitalization and greening of public infrastructure, reform of the employment and social safety nets, and investment in digital and green talent and the future of work. 

For its digital pillar, the government will launch the “Data Dam” project, releasing 140,000 new datasets and providing “data vouchers” (subsidies for the purchase of data and integration of AI) to 8,400 firms to create a synergy effect for the “D.N.A.” industries. Seoul will also digitalize public infrastructure such as roads, ports, and logistics centers to facilitate the transition to the future of mobility. Internet access will be expanded through the installation of Wi-Fi in all public schools and high-speed internet networks in 1,200 rural villages. The government will also invest in training 100,000 AI and software talents. 

On the Green New Deal front, the government will fund the remodelling of 230,000 deteriorated public buildings such as public housing, schools, daycares, and clinics into zero carbon buildings. 1.13 million electric and 200,000 hydrogen vehicles will be on the roads, and the early scrapping of 1.16 million diesel-run vehicles will be subsidized. The Korean New Deal will create 10 “smart green industrial parks,” 100 “smart ecology” factories, and 1,750 “clean factories.” In addition, 20,000 new “green” talents will be trained as part of the Green New Deal. 

Seoul included the strengthening of the employment and social safety nets as the final pillar of the Korean New Deal. Earlier this year, the labor ministry announced that it would release a concrete roadmap for extending employment insurance to all workers. As part of the Korean New Deal, the government will expand the employment insurance program to provide coverage to contract workers and freelancers. Further, it will carry out the National Employment Support Program, in which low-income job seekers will receive counselling, child care, and other support services for their employment search and 500,000 won ($415) in a monthly stipend for six months. In addition, the requirements for the Basic Livelihood Security Program will be relaxed by 2022, and sickness benefits will be introduced as part of the Korean New Deal as well.

Same Direction, Greater Momentum

Despite what its name may suggest, the Korean New Deal does not propose a new direction to Seoul’s policy, but rather leverages the COVID-19 crisis to add considerable momentum to its long-standing agenda of accelerating a transition to the Fourth Industrial Revolution. 

The South Korean leadership has long been conscious of the vulnerabilities of its export-reliant economy and looked at innovation-driven growth as a way of enhancing its competitiveness. Former President Park Geun-hye’s economic policies centered on the vision of the “creative economy,” which would support the integration of information technology into existing industries. Park restructured the bureaucracy to create the Ministry of Science, ICT, and Future Planning – the more literal translation being closer to “Future Creation Science Ministry” – to carry out this agenda. In this vision, Seoul highlighted South Korea’s strengths in information and communications technology, and the potential to leverage them in the era of the Fourth Industrial Revolution.

In 2017, the ministry released a document titled “Mid- to Long-term Master Plan in Preparation for the Intelligent Information Society.” The Master Plan outlined a 30-year timeline to deliver the building of a world-class technological foundation, promotion of intelligent (i.e. AI-driven) industry, and adaption of social policies and regulations to the needs of the Fourth Industrial Revolution. While Park was ousted later that year and the ministry re-organized as the Ministry of Science and ICT, the basic directions set by the document have remained since then.

Moon Jae-in’s government further put the Fourth Industrial Revolution in the front and center of its policy agenda, shifting the branding from “creative economy,” which was abandoned due to its association with Park’s disgraceful exit, to “innovation-led growth.” Shortly after his inauguration, Moon created the Presidential Committee on the Fourth Industrial Revolution (PCFIR), a body for deliberation and coordination of policies related to the Fourth Industrial Revolution. The PCFIR released the I-Korea 4.0 strategy, which outlines Seoul’s “national response” to the Fourth Industrial Revolution between 2018 and 2022. I-Korea 4.0 addresses a wide range of policy objectives, including R&D, technology deployment, talent, and regulatory reforms. 

Under this broader strategy, Seoul has also significantly increased funding for key areas. In 2018, the government chose data, AI, and the hydrogen economy as three areas of strategic investment. It also selected eight “leading projects” (smart manufacturing, biohealth, fintech, future mobility, smart cities, smart farms, new energy, and the drone industry), allocating 5 trillion won in 2019 alone. 

Job creation has been at the core of both the Fourth Industrial Revolution policy and the Korean New Deal. Moon’s first act as president was the creation of a job committee, and he has installed a board that displays the latest employment numbers in his office. Most of the initiatives within the third pillar of the Korean New Deal were included in the five-year labor policy roadmap that was released in 2017. The roadmap emphasized the importance of adapting to the disruption in the labor market and addressing the particular weaknesses in South Korea’s employment system, such as the disproportionate number of contract workers or the lack of insurance coverage for contract workers and freelancers. Before the inclusion of the third pillar to the Korean New Deal, the labor ministry had already been working to develop a roadmap for expanding employment insurance, and the National Assembly had already passed a law for the creation of the National Employment Support Program.

Thus, the focus on innovation-led growth and improving social and employment security has been consistent through the Master Plan, I-Korea 4.0, and the Korean New Deal. It is clear that the Korean New Deal does not so much propose new programs but instead amplifies existing initiatives on a large scale. Indeed, many critics have pointed to the failure to offer new directions or paradigms through the Korean New Deal. In this context, then, the critical factor of the Korean New Deal is not the direction, but its speed – and the COVID-19 outbreak seems to have created a perfect condition for Seoul to double down on its existing policy initiatives.

The COVID-19 Momentum

The pandemic has accelerated the trend of digitalization, creating a greater need for better digital infrastructure and more demand for digital services. During the COVID-19 outbreak, South Koreans coined the Konglish term “untact,” referring to technology-based contactless services. Untact became a high-growth sector in South Korea. Kakao and Naver, two leading tech firms in South Korea, increased their market values by 5 trillion won and 4 trillion won, respectively, between January and May 2020. Further, online sales in the country have increased by 41 percent. In this context, it is expected that both the private and the public sectors would be more receptive to the Korean New Deal. For instance, higher demand for “untact” services in health, education, and work would compel more firms to integrate AI into their services (e.g. chatbots) and take advantage of the data voucher program. 

In addition, the COVID-19-induced economic crisis has justified an increase in spending even at the expense of the budget deficit. Like other countries around the world, South Korea faces unprecedented economic difficulties due to the COVID-19 pandemic and has been forced to inject cash into the economy. South Korea’s growth rate has declined by 1.4 percent to 1.3 percent, and the Korea Development Institute projects that it could further drop to negative 1.6 percent in the worst-case scenario. As an export-dependent economy, South Korea faces significant challenges with the disruption of the global supply chain and continued rise of protectionism. The government had already shored up two supplementary budgets totalling 23.9 trillion won for COVID-19 response prior to the introduction of the Korean New Deal, and then another 35.1 trillion won in the third. Leveraging this unprecedented global crisis, Seoul has been able to push forward a commensurately aggressive fiscal policy.

In Search of Post-COVID Soft Power?

An interesting aspect of the Korean New Deal is its presentation as a soft power initiative that puts South Korea in a leadership position on the global stage. Throughout the COVID-19 crisis, Seoul’s successful response to the pandemic drew attention to the South Korean government’s effectiveness, a stark contrast to many countries around the world. The leadership thus saw this as an opportunity to boost South Korea’s soft power, branding its response as “K-Public Health.” The Ministry of Foreign Affairs organized a task force to share Seoul’s expertise and resources for COVID-19 response with other countries.

Now, Seoul seems to have identified the Korean New Deal as another opportunity to boost South Korea’s soft power by setting a model for post-COVID economic recovery. In adding the Green New Deal to the program, Moon highlighted the external expectations for South Korea to act responsibly as a “middle power” and as a “leader” in climate change response. 

Moon’s address to the nation on July 14 further underscored the soft power element of the Korean New Deal. Throughout the speech, Moon used the language of “leader” or “leading,” which is also present in the policy documents. For instance, he called the Korean New Deal “South Korea’s announcement of its great transition into a ‘leading country’” and mentioned “the strong resolve of the government to fundamentally transform South Korea from a ‘follower economy’ into a ‘leading economy.’” On the digital component, Moon further emphasized that “becoming a leading economy is the main objective,” and said that “South Korea will move forward as the number one digital nation that leads the world.”

South Korea’s rapid economic development through the 20th century was driven by the developmental state model, which emphasized the idea that South Korea was falling behind and that there was a need for the state to lead the “catching up” process through national-scale initiatives. Seoul is very much playing into the same compelling narrative. It presents the Korean New Deal as a historic, watershed moment in which South Korea transitions from a “follower” to a “leader” on the global stage. 

Will the New Deal Be a Big Deal?

Conceptually, the Korean New Deal is an exciting initiative, which marries economic recovery with existing policy initiatives of the Moon administration. The Fourth Industrial Revolution entails multifaceted challenges, and a massive, national-scale initiative like the Korean New Deal on the heels of a disruptive crisis like the COVID-19 outbreak would provide Seoul with a great opportunity to transition into the new economic and social paradigm. However, there are some uncertainties and potential red flags. 

Critics of the Korean New Deal argue that it does not do enough to fundamentally transform the South Korean economy. They have pointed out that the Korean New Deal does not propose a new direction, and that it merely groups and expands support for existing policy initiatives. There are concerns that the Korean New Deal operates within the same model of the developmental state and state-led industrial policy. While this model was incredibly effective in enhancing South Korea’s competitiveness as a manufacturer and exporter, critics argue that it entrenched the country’s reliance on the chaebols (conglomerates) and thus hampered innovation from the ground up. In response to Moon’s address on July 14, the official opposition criticized the government for merely injecting taxpayer money into existing initiatives instead of addressing regulatory barriers to the shared economy industry and labor mobility.

Another question is whether the ethical, social, and legal issues entailed with hastened digitalization will be addressed adequately. South Korea’s primarily state- and private sector-led digitalization policy may not adequately reflect the concerns of civil society on issues such as privacy and AI ethics. For instance, the collection and disclosure of contact tracing data by the health authorities during the pandemic highlighted the gap between South Korea and Western democracies in terms of the attitudes and approach to handling privacy issues. The push for more digitalization through the Korean New Deal will inevitably raise more questions and challenges in this realm, and it is uncertain as to whether there is the capacity to address these issues adequately.

In addition, the Korean New Deal is expensive. While local governments and the private sector will also invest in the 160 trillion won program, the government will still fund the bulk of it (114.1 trillion won or $94.7 billion). The cost of the program is close to 6 percent of South Korea’s annual GDP, and in the context of the post-COVID economy, this will be a significant burden for Seoul. The conservative opposition has already been critical of what they describe as the “handout” policies of the Moon administration. As of mid-July, Moon’s approval rating had been falling for seven weeks in a row, a reflection of the public’s negative assessment of his performance. 

A related problem is that the Korean New Deal has a five-year timeline, but Moon’s term ends in 2022. The change in leadership could lead to the early scrapping of the Moon government’s signature initiative. 

There are some precedents. Lee Myung-bak’s government (2008-2013) launched the “Green Growth” or “Green New Deal” initiative, with a 22 trillion won ($18.3 billion) infrastructure project, the Four Major Rivers Project, as its flagship endeavor. Lee’s “Green Growth” policy is largely considered to have been a failure; even Park, his successor from the same party, disowned it and called for an investigation when she came to power. Similarly, as discussed above, Park’s vision of the “creative economy” was scrapped with her ouster and Moon’s election. While these two examples have more complexities of their own, the point is that there are past signature projects or visions that have not been successful, and instead were scrapped and disowned after a change of leadership. The Korean New Deal faces similar risks. 

Despite the question marks and potential red flags, however, the Moon administration has put forward a truly ambitious initiative at a time of unprecedented difficulties, and the Korean New Deal could indeed provide a blueprint for a way toward recovery for other countries. It is a key policy experiment to watch as countries around the world start to think about the world after COVID-19.