[VIEWPOINT]Does Korea truly want a hub?The Asia Society’s 14th Corporate Conference opens today in Seoul. Its theme is “Envisioning the World’s Next Great Market, Korea and the Economic Future of Northeast Asia.”
Odd focus that, given the existence of China next door. There was an obligatory session on the security issues posed by North Korea on Friday. Then an entire day was given over to reviews of Korea’s supposedly “new economy,” its banking and financial market reforms since 1997, and the outlook for overcoming the “Korea discount” through improvements in corporate governance. The conference reached a climax with an assessment of Korea’s ambition to be the business hub of Northeast Asia. The principal question is: Does Korea in fact have what it takes to realize its ambition?
I favor the hub project, but I am worried that it will not succeed. Not because of the usual laundry list of obstacles; my chief concern is more fundamental and about Korea’s approach to globalization.
I support the hub idea simply because, if properly implemented, it would be good not only for Koreans but also for my own business in Korea.
As a foreign direct investor, I depend on both my own resources and, because of the immaturity of the domestic financial markets, on my ability to mobilize additional foreign capital from other foreign investors for my projects.
In other words, even as a foreign investor, I am, at least in the economic sense, no different from a Korean businessman interested in attracting foreign investment to Korea for his own projects.
Although I am an entrepreneur, my interests are also essentially the same as those of the expatriate manager of a multinational corporation with operations here or considering operations here. We all have to convince ourselves and other foreign investors to put money to work or to reinvest earnings in Korea.
As potentially the most persuasive advocates for foreign investment in Korea, how can we convince our investor constituencies to pour in new money, reinvest some portion of our earnings in Korea and generally stay the course?
It will take more than celebratory reprises of Korea’s wonderful achievements in the World Cup, the Asian Games, the Universiade and a laundry list of conferences hosted. That’s eyewash. It will take more than congratulatory recitations of Korea’s undeniable and admirable progress in financial, accounting and corporate reform since 1998.
It will take more than promises ― regardless of their vehemence or repetition ― to continue with such reforms, because of incidents like the recent circling of Korea’s nativist wagons around SK, the Federation of Korean Industries’ recent demands to abandon generally accepted business norms in favor of a “Korean model” or the nearly unanimous calls to slow down or halt liberalization, reform and market opening. The Fair Trade Commission, for example, recently proposed more restrictions on conglomerates because of the latest economic waves.
Certainly it will take more than another round of promises, even realistic ones, of more foreign schools, better access to health care and other improvements in the expatriate quality of life.
As important as these are in themselves, they are really just icing on the cake and, because they are red flags in the face of resurgent Korean nativism, they are a potentially counterproductive distraction from the main issues.
And it will take much, much more than incantatory invocations of special economic zones and foreign economic zones and the like, even with the subsidies and tax incentives that go along with them ― at least for certain specially targeted industries.
In fact, the emphasis on special economic zones and the provision of discriminatory incentives and special amenities for foreigners, at the expense of Korean businesses and taxpayers, are a major and revealing symptom of precisely what is wrong with current Korean policy. There are big problems with the promotion of foreign direct investment generally and the hub initiative specifically.
As the Hermit Kingdom, Korea did everything possible to prevent foreigners from entering, excluding them as quickly as possible when they did or, if there was a perceived risk of their returning with more of their kind, killing them. If they might contribute something useful, they were sequestered indefinitely, like Hamel and his companions, under carefully controlled conditions of confinement. Even the envoys of Korea’s Chinese overlords were severely restricted during their periodic visits.
Old habits die hard, and when Korea’s sovereignty was restored to it after World War II, Korea reverted to type. South Korea could no longer physically exclude such foreigners as the American occupation forces, and in fact had no wish to do so given the threat from the north. But neither was simple physical isolation really necessary to achieve its purposes. As it pursued a mixture of import-substitution, export industry promotion and then heavy industry development as the engines of general economic growth, Korea very strictly limited foreign direct investment in its economy. It used both sectoral restrictions and requirements that foreign interests work with local partners. It also effectively indentured the country’s farmers and workers to support the borrowed capital from abroad. Those steps ensured effective Korean control of economic development and the ability to allocate business control to favored Korean owners.
A lot has changed since the “IMF era,” and even more has changed during the 11 years that I’ve been here. Trying to squeeze into my foreign economic zone, though, it seems that the mentality that labeled the Korean economic crisis of 1997-98 a problem forced on Korea from the outside still persists at a deep level. Despite the retreat of some of the uglier manifestations of nativism on the surface, when it comes to economic issues that nativism still hides beneath even the arguably well-intentioned schemes.
* The writer is a Harvard-trained lawyer. He is on the real estate committee of the American Chamber of Commerce in Korea. The views expressed in this article are his own.
by Kent A. Davy