Collapse of Manufacturing Industry and Its Solutions for Next Generation
[IDEA2050_005E]
Professor Seunghoon Yang, Professor of Sociology, Department of Sociology, Kyungnam University, Industrial Policy Researcher
Korea’s shipbuilding industry has undergone three-year restructuring since 2015. More than seven trillion won from public funds was spent to keep Daewoo Shipbuilding afloat. But there was a price for the company to pay. Public funds were provided on condition to lay off its workers.
As a result, more than 50 thousand workers lost their job. Restructuring in the shipbuilding industry is significant not only because of the number of jobs disappeared, but also because it means a collapse of a model that allowed ordinary citizens to live a decent life.
What do we do when we cannot grow anymore?
The Park Chung-hee administration’s Heavy and Chemical Industry Policy was a pledge to achieve export-driven growth and a promise to ordinary citizens that it would provide stable jobs for them to support their family. Young people that had little chance for education were able to find a job in companies located in the Southeastern Maritime Industrial Region after receiving vocational training run by the government or businesses and learning welding or machine fitting skills.
The growth of the democratic labor union movement and the success of the manufacturing industry gave confidence to workers that they had the ability to support themselves and their family. Even though they were not as well off as those who passed the state exam or work in professional fields, they received decent payments with which they were able to travel abroad, buy a house and support a family of four.
Korea’s manufacturing industry, especially the heavy chemical industry, continued to grow until the 2010s except minor ups and downs. It enjoyed the best years in the early 2000s thanks to the rapid economic development in China.
In the meantime, Korea reached per capita income of 30,000 dollars and joined the ranks of developed nations. The crisis that the industry is facing today may feel like growing pains as Korea became an advanced country only so long ago. However, the task given to us now is different from that we had before.
“What do we have to do when we cannot grow any further and may have to hand over the lead on key industries to other countries?”
This is the question in front of us. The range of ‘what’ has become broader and more complex.
It is time to ask a fundamental question on the ‘ordinary people’ model
The transitioning period of the manufacturing industry asks a fundamental question on whether the golden era would come again. Ordinary people could land a job without impressive educational background and live well if they worked hard in the good old days. Now it is time for us to stop and think on changes in the meaning of skills, increased ratio of highly educated people and regional gaps.
Let us look through the ongoing changes. First, the change in the meaning of skilled labor implies that the value of production labor is declining. Hyundai Motor, one of the most representative businesses in Korea, is a prime example of this. Hyundai Motor has been working towards the goal to create an assembly process that does not require a lot of human labor (Cho Hyeong-je, Hyundai Motor’s agile production methods, HanulMPlus, 2016). It seems that the automaker has almost attained the goal.
Hyundai Motor’s labor union has asked to hire 17,500 workers from 2017 to 2025 as the same number of regular workers would retire during that period of time. The management announced that it cannot. Of course, it could possibly hire more workers if the government or the civil society put pressure on it, but it would never go beyond a mere show.
Hyundai Motor’s is known to have the most automated process in the world. Businesses would naturally want to reduce fixed cost — labor cost — if they can run their processes with unskilled or low-skilled workers without any problem. Even the shipbuilding industry that requires ‘fingertip skills’ outsourced some 50% of their production processes. Businesses still hire regular workers for major processes, but the importance of their skills will continue to shrink. Improvements in productivity come from university-educated manufacturing technology engineers and design engineers, not from the fingertips of skillful production workers.
<Table 1> Employment Trend of Top Nine Shipbuilders
The second important change is that of human resources. When less than 20% of citizens attended university and 70% of technical or commercial high school students started working right after the graduation, these people were ‘ordinary citizens.’ Things are different now. Some 50% of those who were born in the 1970s went to college. More than 70% of those who were born in the 1980s received university education.
Generalization of higher education is a global phenomenon, not a byproduct of Korean people’s obsession with education. Almost 50% of high school graduates go off to college in Germany, a country with a strong manufacturing sector and advanced vocational training. University graduates have become the new ordinary citizens in today’s world. This transition is particularly unfamiliar in manufacturing cities; Engineers and office workers who studied in universities are today’s ordinary citizens, not production workers in assembly lines.
The third important transition is deepening geographical inequality. Existing industrial cities lost their elevated status since pre-processes such as R&D, design and production planning have become more prioritized than production itself. Top-tier engineers prefer to work in an R&D or engineering center in the capital area. It is only temporary even if they work in the field. That is why businesses try to build their manufacturing hub in the capital area. SK Hynix recently decided to build a semiconductor factory in Yongin, a city in the capital area, instead of Gumi. The semiconductor industry is a manufacturing industry, but it has been called ‘knowledge-based industry’ for some time.
There are children living in employment crisis-stricken cities
Then where should we set our focus when contemplating on the future of the manufacturing cities amid these changes? The focus should be on the aforementioned ‘ordinary citizens.’ Most of the engineers and office workers who graduated from a local university work in the field. I wrote about “students who cannot make the cut for universities in Seoul but go to a university in other cities, and cannot land a job in big conglomerates but fill out most vacancies in small-to-medium size businesses” in the column <The story of the 6th to 25th> (The 20 out of 30 students).
These are locally educated engineers who fill out the vacancies left by engineers with degrees from Seoul and its suburban universities, who secured their employment at other companies. These are engineers who work for SMEs which are subcontractors of large conglomerates. They realized their limits and had to give up at a certain point in university entrance, but they clearly understand that they cannot make a living with simple skills like the older generation.
Industrial sophistication for innovative growth and fostering excellent R&D resources cannot reveal the real issue: ‘geographical distribution’ of excellent resources. Excellent researchers and engineers want to work in the capital area. Businesses concentrate core processes in the capital area to suit their needs. This is a serious problem for residents outside of the capital area, but solutions to tackle this situation have rarely been suggested.
Another problem comes from treating a city’s issue as a mere employment issue. The incumbent government’s one and only solution to the employment crisis is running retraining or labor market re-entrance programs. It designates a city with large-scale layoffs as an employment or industrial crisis region and allocates the government budget to run programs. However, these programs are not a solution for the younger generation who are often children of laid-off workers.
Creating innovation through retraining
Korea’s manufacturing industry is going through a period of transition. Ironically, it needs to ask questions about ordinary citizens’ learning and growing to find solutions. Finding a solution for low-skilled engineers graduated from a local university and will stay in a local city is more urgent than inviting more top-tier engineers to local cities. They should have a way to accumulate skills and enjoy a decent and stable life.
The triple helix (university, research institute and industry) cluster that has been highlighted for balanced development of regions can be helpful. However, we must consider ordinary citizens and the emerging generation.
I would like to suggest three concrete measures. First, Korea should establish or repair lifelong education and retraining system. This would allow fathers who have been working as a production worker in a local factory to horn their skills as they work or find a job somewhere else. Improved skills should not only improve productivity at production sites, but also advance work processes based on understandings on engineering. Germany’s higher university entrance rate mainly comes from production workers enrolling in local engineering colleges.
Individual workers should not be the ones who bear the burden or cost of retraining. Participation of businesses is a must to draw a bigger impact from training. There should be trust between manufacturing businesses and their workers to create a virtuous cycle of training, upskilling and innovation. The state, businesses, industry unions and local communities should reach a consensus to build new trust going beyond the long-standing conflicts between labor and management.
Second, there should be a university system for ordinary people. Local universities should not just be second- or third-tier institutions. They should be places to educate citizens and retrain manufacturing workers. To do that, the government should invest in both hardware and software. The university structure reform assessment can be an opportunity for transition.
Hope lies in the capacity of ordinary people to innovate
Lastly, a triple helix cluster of a bigger scale going beyond industrial cities should be established. Cities such as Geoje, Pohang and Changwon cannot reduce their dependency on one manufacturing business right away. The cities would benefit more in the long term if they set the focus of city revitalization on exploiting industrial advantages.
For instance, the shipbuilding industry can strengthen its ecosystem by preparing for base material exports when it has no ship to build. The role of research-based universities in regional hubs and government-funded research centers is important for this. A space for working-level cooperation should be designed more meticulously for joint research. It is important to connect metropolitan areas as it is impossible to build infrastructure in every industrial city. Building a denser traffic network could be an effective way to do this. A good example would be the light rail connecting Bujeon station and Masan station to be completed next year. The central or local government could purchase businesses having financial difficulties to utilize them as a test bed or a training center for joint technology development of the triple helix.
To recapitulate, ‘a shift of viewpoints’ is a prerequisite to achieve innovative growth of the manufacturing industry and balance out regional development. Ordinary people fostering their innovative capacity through a strong network of the triple helix could effectively evolve existing industries.
What if our ordinary children can grow through work and learning, and enjoy a quality life in the city they grew up? What if it can strengthen the industrial ecosystem in turn? Korea could consolidate its position as a newly evolved manufacturing powerhouse.
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