'Dynamic Korea: Hub of Asia' - or is
it? By David Scofield
SEOUL -
There's a new national economic mantra in South Korea,
proclaimed in banners unfurled in the capital and around
the
country: "Dynamic
Korea: Hub of Asia". And there's a mascot - Huby, a
cute, white Pokemon-type character with huge liquid eyes
and a single red flower springing from its head.
The idea holds promise and the public relations
is appealing - South Korea as the North Asian nexus of
trade and technology - but it's not really off the
ground and it has a long way to go to become a real hub,
a magnet, an economic nerve and resource center, a
financial and logistic ganglion of possibilities.
Of course, to be a hub presupposes internal
institutional sturdiness, transparency and
predictability. Internal market freedom must be coupled
with wider regional markets and a hub must be a place
where goods and services can enter, exit and transit
with few hindrances and little red tape. South Korea's
comparative advantages over its neighbors as a hub are
numerous. Its location is ideal for those doing business
in China or Japan, situated between Japan's recovering
economy, the world's second-largest, and China's
voracious dynamo, demanding imports and rich in human
capital. South Korea could well become a service center
for the region. It enjoys a higher standard of living
than China, at a cheaper cost than Japan.
Further, unresolved issues - Japan's wartime
past and regional anxiety over China's formidable power
- make developing such a hub in either China or Japan
problematic. Both Tokyo and Beijing think they have some
economic levers of control in Korea - and they do - and
so neither is threatened by it: a shrimp between two
whales.
On paper, South Korea has implemented
great structural reforms in both banking and finance,
introducing globally acknowledged concepts and
principles. Laws have been enacted to attract new
foreign investment and the relocation of foreign
enterprises, yet Korea's share of regional foreign
direct investment (FDI) is shrinking, and few business
people espouse the virtues of setting up shop in South
Korea.
Focus on hardware, not
software The notion of South Korea becoming a hub
dates to the opening of Incheon airport in March 2001.
"A new airport for the new millennium" - the airport
slogan - was proof for many of Korea's hub status, or
potential status. At least that's how it was touted, and
many Koreans responded with certainty that the nation's
hub ambitions definitely would be realized. Many
Koreans, it seems, have the propensity to focus on the
hardware - the bricks and mortar, the outward symbols of
achievement - while software concerns, infrastructure,
regulations, the mindset conducive to international
trade - are often left out of the equation.
The
US$5 billion investment in the new airport was just the
beginning. Since then the government has poured billions
of dollars into projects heralded as integral to South
Korea's rising status and hub ambitions. The co-hosting
with Japan of the 2002 World Cup soccer tournament was
proclaimed not as a new chapter in regional integration,
or proof of the maturing Korea-Japan relationship, but
rather as the enhancement of Korea's brand name, its
image and national status. And that branding campaign
cost the taxpayers almost $3 billion.
The fact
that few tourists arrived for the World Cup in 2002 and
that June actually marked a decrease in inbound tourism
was ignored.
In April, Korea's first high-speed
train line will open, though it will have so many
politically expedient stations that the description
"high-speed" may be a bit misleading. Government
officials are proclaiming that another piece has been
added to the grand economic hub picture.
But
while the government continues to expend its resources
building more hardware, business groups, especially
foreign ones, are becoming increasingly vocal about
software issues: intransigent government bureaucrats,
inflexible and militant labor organizations, and a
shortage of highly educated individuals with strong
English-language proficiency and an international,
outward-looking mindset.
As the country manager
of a major US firm here said, "We have a very hard time
finding people who can think beyond Korea, people who
can think strategically, in a global sense."
The tale and tail of the mouse, and the
bureaucrat The government adds concrete
(literally) assets, enacts new laws and issues edicts,
but changes in the legal code must pass through the
Korean lens of people and institutions. Laws and
regulations, while numerous, are often deliberately
vague so as to give the bureaucracy power in defining
and implementing them.
It was traditionally said
that the salary of a government bureaucrat was like the
tail of a mouse, not enough, in itself, to sustain the
mouse - or the bureaucrat. The vague and ambiguous
nature of rules and regulations encourages monetary
compensation for favorable interpretations. The
Swiss-based International Institute for Management
Development ranks South Korea's civil servants 35th in
the world in efficiency; last year China's were ranked
23rd. As the president of the American Chamber of
Commerce, Tami Overby, and others have said, the South
Korean government often makes it more difficult, not
less trying, to do business. While civil servants in
other countries usually try to encourage and help
corporations, in Korea many will not budge or show
flexibility they if there is the slightest suggestion in
the rules that might inhibit or restrict giving help.
Beyond port facilities and a sparkling new
airport, the software and infrastructure, including the
psychological infrastructure, to run a hub successfully
is less visible, but no less important. Nationalism, the
hallmark of Korean society and the passion behind every
campaign - whether to sell a politician, a car or
cell-phone service now available on the Liancourt Rocks
- impedes South Korea's hub ambitions.
South
Korea is very much an us-versus-them society. Koreans
focus considerable energy on stratifying their culture
internally, and defining themselves as distinct from the
rest of the world: their history, their culture, their
pain, even their seasons are believed to be not only
unique, but impervious to foreign influence and
incompatible with foreigners. This helps to explain why
the government routinely enacts regulations devised and
implemented to deal with foreigners exclusively, the
implication being that Korean systems are for Koreans
only.
Koreans also frustrated by red
tape Foreigners are not the only ones who
complain about doing business in South Korea. Korea's
small-business people are also upset with the
government's bias toward the large over the small,
especially among those working in import trade. A
disgruntled Ms Kim, asking not to be identified further,
operates a small clothing-import business in Seoul. She
is not connected with a chaebol, a large
government-favored conglomerate, and she struggles with
paper-thin margins and an increasingly competitive
market. Like many of South Korea's small-business
owners, she finds the government's Byzantine regulations
and rules regarding imports and levied taxes designed to
make it as difficult as possible to bring products into
the country.
"As an importer," she told Asia
Times Online, "customs officials, postal workers and
even couriers treat you like a criminal." Once, she
said, a courier for an international express firm told
her she was weakening the economy and the country by
bringing in US-made products. According to Ms Kim, this
mentality is very prevalent, and what is more disturbing
is that many of her contemporaries have become so
conditioned by decades of nationalistic propaganda
emphasizing self-reliance that though they import
legally and obey all the rules, they still believe it is
inherently illicit work.
South Korea can realize
its hub aspirations. It has natural advantages, and it
continues to develop the nation's hardware consistent
with its ambition. But Korean analysts and foreign
business people say it must become more open, fair and
globally integrated - not only for foreign investors,
but also for the whole of contemporary Korean society:
everyone who calls South Korea home. If this doesn't
happen, South Korea's dream of being a financial and
logistical hub of Northeast Asia could well meet the
same fate as previous poorly implemented policies
designed to expand the economy: a failed marriage of
high inputs with low national returns.
South
Korea has had other great - unrealized - dreams,
campaigns and banners of economic growth. As recently as
1999, domestic consumption was heralded as the next
major growth engine. The encouragement of credit
spending among individuals and households - a totally
new strategy - was supposed to spur high growth and pull
Korea out of the post-1998 economic doldrums. The idea
was not wrong. It made perfect sense to tap the
collective savings of Koreans by easing and expanding
credit. The problem was not the plan, but the
implementation. Banks, long used to operating under
government direction, began lending with the implicit
understanding that they were performing their prescribed
role: credit allocation based on national directives, an
integral component to South Korea's government-business
nexus.
But as with the nation's firms, this cozy
banker-consumer relationship led to irrational risk
allocation: people with little or no income were
assigned huge credit allocations - resulting not in a
more stable, growth-oriented domestic economy, but one
mired in delinquent debt.
Today, those who
expounded the benefits of plastic patriotism and the
logic of offering to students, the unemployed and other
such obvious repayment risks the enticing burdens of
easy credit have moved on. The banners calling for more
consumer spending have been put away. Now the new
banners proclaim: "Dynamic Korea: Hub of Asia".
David Scofield is a lecturer at the
Graduate Institute of Peace Studies, Kyung Hee
University, Seoul.
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country: "Dynamic
Korea: Hub of Asia". And there's a mascot - Huby, a
cute, white Pokemon-type character with huge liquid eyes
and a single red flower springing from its head.
