&#91INSIGHT&#93Bend or be left behind for good

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[INSIGHT]Bend or be left behind for good

There is a movie titled “Widow’s Peak (1994),” starring Mia Farrow as Katherine O’Hare, a woman from a small Irish town who overcame various hardships and a hard life in the United States as an immigrant. Ireland has a painful history, its most salient historical event is the great famine, which swept the country more than 150 years ago after a bad potato crop, causing one million deaths. Ireland, a poor country at that time, now surpasses Britain in per capita income.
Until 1987, Ireland was on the lower rungs of Europe, with 17 percent unemployment and 125 percent of gross domestic product in external debt. Feeling the crisis, the government and labor entered a social agreement, which included no strikes, and put every effort into attracting foreign investment. Thirteen years after that pact was made, Ireland began to exceed Britain in economic performance, posting 8.3 percent annual growth during the last decade. In 2001, Britain’s GDP per capita was $24,700; Ireland’s was $27,300, almost entering the era of $30,000 GDP per capita. What is the secret of achieving such success?
Recently, a column in the Chosun Ilbo related an encounter between Lee Jong-chan, a former head of the National Intelligence Service, and an Irish union leader. According to the column, Mr. Lee asked the union leader what was the secret to Ireland’s economic achievement. The reply was: “Attracting lots of foreign investment was the only way for Ireland to prosper. To do so, we had to shift our direction from the hardline German-style union to the flexible American-style union. As a result, foreign direct investment increased to act as an engine for our rapid growth.”
A look at Ireland shows that the formula behind its success is indeed attracting foreign investment and flexibility of the labor market. Looking at Korea, we find a situation in which we will all be ruined if we keep waging strikes on a level of intensity comparable to wars, as we have over the last decade. Koreans have pledged to abide by the laws and rules. Since the International Monetary Fund’s bailout for our economy, we have come to agree that the only way for us to survive in the world economy is to establish our country as the hub of logistics and finance in Northeast Asia and to attract foreign capital by creating a favorable climate for doing business here. But what is the real situation in our country today?
According to statistics released by the Bank of Korea, foreign direct investment from the start of this year to May fell by 50 percent year-on-year to $410 million. Analysts contend that the high cost of labor at domestic companies, rigidity of the labor market and various tight regulations, including rules on taxation, have forced foreign investors to head for China. And not only foreign companies are moving from our shores. Even Korean companies are finding it increasingly difficult to make money here.
Hyundai Motor built a plant with an annual production capacity of 300,000 automobiles in Montgomery, Alabama, in the United States. That state’s government promised to ensure a reasonable wage level and nonunion plants. Hyundai was given ownership of the auto plant, a site twice as large as the land area of Yeouido, Seoul’s financial district.
The average yearly pay of a production worker at Hyundai’s plant in Ulsan is 53 million won; whereas a worker at the company’s plant in Montgomery makes about 38 million won annually. The average annual wage of production workers at the Beijing plant of Hyundai Motor is about 6 million won. Where will companies build plants? In which country will they invest? The answers are obvious.
Why do the state governments of Alabama and Ireland try to attract foreign businesses, offering land free and promising to keep a cap on wages and a nonunion workplace? They offer these concessions to create jobs. Alabamians humbled themselves because 2,200 jobs were expected to be created at the Montgomery plant. The Beijing plant of Hyundai Motor has 1,500 Chinese employees. To create jobs for 1,000 to 2,000 people, the Chinese government took the lead and the union cooperated. In another case, POSCO Engineering & Construction (POSEC) built POS-Plaza, an office building in Pudong New Area, Shanghai, China. POS-Plaza received a tremendous bill for tap water, sewage and electricity. A representative of the company visited a public official in charge and expressed the company’s concern about the charges. The official immediately decreased the rate without inquiring into the law and regulations. Because of this kind of cooperation from the Chinese government, businesses from 78 countries have invested as much as $40 billion in Pudong New Area. One hundred and fifty companies among the world's top 500 companies have located there.
In Ireland, labor and management and the government all agreed to lower corporate taxes for foreign companies from the highest 10 percent rate to zero. As a result, foreign companies in Ireland account for 75 percent of that nation’s total exports and 50 percent of production in the manufacturing industry. This means jobs and food to eat.
We are wasting time indulging in empty talk about union participation in management, Dutch-style labor-management relations or British or American-style. Workers still go out into the streets with red scarfs tied about their shaved heads. Today, this is not the way. What will we do when there are no jobs, no food? We should follow Ireland, Alabama and Pudong. Use these lessons to open the era of $20,000 GDP per capita in Korea?

* The writer is executive editor of the JoongAng Ilbo.


by Kwon Young-bin
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