Strategies and Tasks for the Advancement of Korean Industry, Volume I: The Structure and Challenges of Korean Industry Today

Amid rapid changes in the domestic and global industrial environment, there is a pressing need to assess the current state of the South Korean economy and to formulate industrial policies that strengthen its responsiveness. Korean industry is confronting three simultaneous crises: declining industrial competitiveness and a weakened growth foundation, declining innovation capacity across the economy, and a rapidly changing external environment. Korea’s declining industrial competitiveness is evident in structural low growth and slowing productivity, weakening global market competitiveness, the maturation of flagship industries alongside stagnation in the creation of new ones, and a decline in dynamism across the broader industrial landscape. At the same time, inherent structural problems are eroding innovation capacity in each industrial sector. These include an increase in marginal firms (i.e., zombie firms) and inefficient resource allocation, intensifying regulatory burdens, insufficient adoption of new technologies such as artificial intelligence and a lack of tangible market outcomes from such adoption, and a persistent quantitative and qualitative decline in the overall labor supply. External conditions are also becoming more challenging, as Korea faces a global industrial paradigm shift accompanied by intensifying industrial policy competition among major countries, as well as growing challenges and uncertainties associated with the green transition. Based on an objective assessment of these intertwined challenges, it is vital to establish strategic directions for future industrial policy, supported by the detailed formulation and systematic implementation of concrete policy tasks. This report is the first in a series of KIET studies that seek to determine the best course of Korean industrial policy going forward.