Why South Korea Matters? March 29, 2010
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Posted by Michael Schuman TIME correspondent In Seoul
I’m writing this post from Seoul, South Korea, a city that holds very special meaning for me. Seoul was my first full-time overseas assignment as a foreign correspondent (for The Wall Street Journal), and I spent almost five years here, intensely immersed in the history, economy and culture of this fascinating nation. I used to joke I lived in Korea long enough to distinguish between different styles of kimchi (and have favorite ones, no less). The city has changed quite a bit since I moved on more than nine years ago, but I will always have a connection to the place. I met my wife here, and every time I return, I feel almost like I’m coming home.
Unfortunately, too few foreign journalists and economists have had the good fortune of such an in-depth experience with South Korea. Korea often gets lost in all of the noise about Asia’s giants, China, India and Japan. Those who do invest the time to study the place usually zero in on its six-decade face-off with Communist North Korea. And that’s a shame, since Korea has always offered priceless lessons in economic development, and continues to do so today.
Lesson One: If Korea can do it, any country can. Sitting in a (surprisingly pricey) Starbucks in downtown Seoul, surrounded by modern office towers and Hyundai-clogged streets, it’s impossible to comprehend how pitiful this country was less then 50 years ago. In 1960, Korea was poorer, on a per capita basis, than Iraq, Liberia and Zimbabwe, and, with hardly any natural resources or industry, its future prospects seemed dire. Yet today Korea is a proud member of the G20 and a leading manufacturer of microchips, LCD panels and automobiles. Of all of Asia’s rapid-growth economies, Korea has experienced the greatest increase in per-capita GDP since the mid-1960s.
Most analysts tend to credit Korea’s success to the heavy role of the state in making this miracle happen. But I prefer to see the Korea story as one created by the power of globalization. Back in the 1960s, Korea’s technocrats were smart enough to realize they could increase incomes at home by using their advantage in low-cost labor to export cheap manufactured goods to the industrialized world, and especially the United States. As wealth increased, the country could then afford investments in new, heavy and high-tech industries. South Korea is probably the best single example of how international market forces, if wisely tapped, can turn the poorest of nations rich in a remarkably short period of time. It’s proof that no matter how destitute a nation might be (such as an unfortunate number of African countries), the right mix of policies can get growth going and incomes rising, and transform hopelessness into hope.
Lesson Two: Liberalize and internationalize. When I lived in Korea in the late 1990s, there was real fear that the economy was going to get overrun by China. Chinese firms were charging hard into the industries in which South Korea specialized, such as shipbuilding and electronics, and competing with even lower costs. But Korea has managed to maintain a clear edge over China by starting to make the “leap” from a developing economy based on manufacturing stuff into a more advanced one increasingly based on innovation. Korean companies are becoming adept at R&D, branding, design and marketing. This “leap” is extremely difficult. I can’t think of any other emerging market in recent years that has made it. (Japan did back in the 1960s and 1970s; Taiwan might be close on Korea’s heels today).
How is Korea “leaping”? In my opinion, the reason is the increasing liberalization of South Korea, across all aspects of society.
When I first moved to Seoul, in 1996, the city was a tightly wound, provincial place. The country was in the early stages of democratization (the last dictator conceded to free elections in 1987) and vestiges of the old system of state control remained. The financial sector was still manipulated by the bureaucracy. Big business conglomerates were well protected by compliant bankers, regulators and government officials. Foreigners were generally unwelcome. I had to venture onto the U.S. army base, located in the middle of Seoul, in search of an American breakfast. A midnight curfew remained in force, after which all of the clubs and bars had to shut. Seoul was an interesting place, but not necessarily a vibrant one. For a nation so dependent on the outside world for its growth, Korea was surprisingly removed from it.
Today, Korea is in many respects a much more liberal environment. The economy is more market-oriented after the Asian financial crisis of 1997-98 broke apart the cozy links between government, finance and business. That forced the big companies to be more independent, profitable and transparent, and laid the groundwork for the explosion of Korean firms like Samsung, Hyundai and LG in the global marketplace. More and more Koreans are educated overseas and are exposed to a wider range of influences. The economy is more welcoming to outsiders; many of the senior management posts at consumer electronics giant LG are now filled by non-Koreans, for example. The rise of “creative” industries, such as film, video games and pop culture, has filtered into the corporate world, where it shows up in niftier design and marketing. It’s hard to imagine the Korean economy making these advances under the closed system imposed by the strict dictatorships of old. I can’t prove that, but Korea does suggest that a more open society can become a more innovative one.
Korea has much work left to do. Its companies struggle to invent the “breakthrough” technologies they’ll need to compete in the future and the economy needs to become even more open to foreign investment and competition. Some of its biggest firms still must modernize their corporate management practices, as shown by Samsung Electronics today, which restored Lee Kun Hee, the current patriarch of Samsung’s founding family, as its chairman even though he resigned from that post amid a scandal two years ago. But Korea is much farther down the path towards becoming an advanced, U.S.-style economy than I thought possible a decade ago.
Lesson Three: Don’t forget the BRICs. Korea shows the growing importance of links between emerging markets in today’s global economy. Hyundai, Samsung and LG have been aggressive, and in most cases, early investors in India and China and are now top brands in local car and electronics markets. To a great degree, they’ve outmaneuvered the slower-moving Japanese in these key economies. That puts them in a position to switch from followers in the global economy, who latch onto market trends set by American or Japanese firms, to leaders, able to direct where these industries are headed.
In this way, Korea is again pointing the way forward for the world’s remaining poor countries. When Korea was on its drive to wealth, the U.S. was the primary source of customers. However, today’s developing nations, can increasingly rely on each other to both drive growth and offer opportunities for their up-and-coming corporations to gain international prominence.
South Korea comes of age with G20 leadership March 22, 2010
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As South Korea prepares this week to assume the presidency of the Group of 20 leading economies, officials in Seoul are eager to use the city’s rare foray into the international limelight to win acceptance as the capital of a developed economy.
“Korea will come into global focus as a host of the G20 summit and, by taking on that responsibility, will become a genuinely developed nation,” said Lee Myung-bak, South Korea’s president.
Seoul’s mayor has proposed building a floating island in the middle of the Han river that bisects the capital as a venue for the November summit, which will coincide with ceremonies marking the 60th anniversary of the outbreak of the Korean war.
For those who know the country for its mighty Samsung Electronics and the world’s biggest shipbuilders, it may comes as a surprise to hear South Korean officials insist that they still have a toehold in the developing world.
Yet the United Nations Development Programme is closing its office in South Korea this week as the Asia-Pacific region’s fifth biggest economy becomes recognised as an important international donor.
On the environmental front, diplomats reckon the successor to the Kyoto Protocol on carbon emissions will place South Korea among the developed economies required to cut CO2 output, unlike developing countries that will be free of such commitments. Determined to lead the G20 by example, Seoul recently announced a 2020 target of cutting emissions by 4 per cent from 2005 levels.
South Korea plans to tap its transitional status as it steers the G20. “Korea hopes to act as a bridge between advanced and developing countries,” said Kim Young-hak, vice-minister for trade, energy and resources at the ministry of knowledge economy.
Key figures
$100
South Korean annual per capita income in 1960s
$20,000
Annual per capita income in 2009
4%
Targeted cut in CO2 emissions by 2020
Mr Kim said Seoul’s G20 presidency would try to reconcile differences between rich and poor nations on when to implement exit strategies from economic stimuli, and would seek ways to avoid protectionism and explore more environmentally friendly economic practices.
Other officials have said South Korea will lead the G20’s efforts to lessen market volatility caused by speculation.
Some bankers and diplomats say South Korea is more interested in the kudos of G20 leadership than focusing on financial policy. “As far as they are concerned, they have already been successful,” said one senior foreign banker. “It’s like when Korea was awarded the Olympics – it’s a symbol.”
Diplomats say they have been impressed by the responsiveness of South Korean officials to adapt quickly to roles they have never held before, but say weak English skills are slowing preparations as the Koreans seek to handle communications in writing rather than orally.
Mr Kim said South Korea was fully aware of its G20 responsibilities. “We are willing to take the initiative in discussions,” he said.
The G20 presidency comes amid Mr Lee’s drive to create a national brand for a country that many people dismiss as a “little China” or “little Japan”. So far the campaign has focused on “soft power” – exporting Korean music, film and cuisine.
But Mr Lee realises that a greater global role demands more visible “hard power”, too. South Korea sent a warship to help combat Somali piracy this year, and Mr Lee is aiming to send 350 troops to guard Afghan development work.
