[The Editors' Verdict] In the Post-Pandemic Era, Innovation Is the Key

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

The COVID-19 pandemic crisis, which infected over 100 million people and claimed more than 2.5 million lives, is now showing signs of subsiding. Both daily infections and deaths are decreasing worldwide, and if vaccination proceeds smoothly, this trend is expected to become even more pronounced.

There are clear signs of global economic recovery. Above all, the export of goods, which gauges the direction of the global economy, is increasing significantly. Moreover, the revived demand is triggering a whip effect that induces corporate production activities to meet not only actual demand but also anticipated demand, causing the global value chain (GVC), which had loosened during the pandemic crisis, to act as a constraint. It is not uncommon for automobile production to halt due to a shortage of semiconductors for vehicles.

Now, the world's attention is focused on the post-pandemic era. Just as war was a turning point for a nation's rise and fall, the starting line differs for each country depending on how well they responded to the pandemic, and the path they take depends on how they plan for the post-pandemic future.

Yuval Harari, widely known as the author of "Sapiens," cited the achievements of science and the failures of politics as the "lessons of 2020" in a recent Financial Times (FT) article. Unlike during the 1918 Spanish flu, scientists are now able to identify the virus and track infection routes in real time, enabling very selective and effective quarantines. In particular, automation and the internet have allowed economic activities to continue during long periods of isolation, which in 1918 would have caused many people to starve.

In response to the pandemic crisis, governments around the world poured enormous amounts of money into relief efforts. The International Monetary Fund (IMF) reported that $14 trillion was spent last year, and projected that fiscal deficits and national debt would rise significantly due to tax revenue shortfalls. As a result, the fiscal balance (national debt) of advanced economies was forecasted at -13.3% (106.6%) of GDP last year and -8.8% (109.0%) this year.

Especially the United States, the center of the global economy, is acting as if at war. According to the Peterson Institute, the U.S. Congress passed five bills last year, allocating $3.5 trillion in budget. Adding the $1.9 trillion stimulus package proposed by the Biden administration this year, the total exceeds 25% of annual GDP.

As after major wars, fiscal soundness is expected to become a key issue in the post-pandemic era. The same applies to South Korea. Although at a relatively low level compared to other countries, national debt is rapidly increasing due to unprecedented rapid aging and growing welfare demands. Low tax burdens, high welfare levels, and low national debt cannot all be achieved simultaneously; one of the three must be sacrificed. Low growth exacerbates this fiscal trilemma problem (the cost of choices that must be given up). Therefore, innovation that can break free from low growth is the key to opening the post-pandemic era.

Reflecting again on Harari’s criticism, when there is insufficient social will to pay the price for innovations such as regulatory reform, innovation inevitably faces constraints from political leadership. It is worth noting the British government’s recent announcement to establish the Advanced Research and Invention Agency (ARIA), modeled after the U.S. Defense Advanced Research Projects Agency (DARPA). Although the UK lagged behind other countries due to poor pandemic response, it has declared its intention to catch up through innovation.

Kim Kyung-soo, Professor Emeritus, Sungkyunkwan University

This content was produced with the assistance of AI translation services.