Time for big gov’t to back offThere has been ongoing criticism of the president for failing to achieve more in economic development during her presidency. At the same time, there has been a great deal of expressed anxiety that she acts too imperial like her father — who is still well regarded for his intervention in the Korean economy. And while the criticisms can stand together, there remains an irony.
Even worse, one may argue, the central government is talking about getting involved in restructuring at least one important part of the economy, the shipbuilding sector. Given the bureaucrats’ track record, business professionals have good cause to worry with reported talk of “command-economy” measures.
Consider the consolidation of shipyards constructing warships. There are three yards making naval warships: Hyundai Heavy Industries, Daewoo Shipbuilding & Marine Engineering (DSME) and Hanjin Heavy Industries. DSME is by far the largest and most technologically advanced in this field and very successful (for the Korean Navy and for export).
As part of their industrial restructuring plans, the Korean government is considering “consolidation” of the warship divisions of the three major yards, which includes forcing DSME to sell off their warship operation to make it easier for the bank to sell their shares in DSME. This will kill off the only division of DSME still producing profitably and expanding successfully. Consolidation of all three warship-producing yards could damage competitiveness and erode R&D effectiveness, as was the case with previous government intervention.
These latest developments come across as a déjà vu of the consolidation of roughly 15 years ago, when all the companies producing rolling stock (trains, etc.) were forced into a quasi-government company. This, in effect, caused stagnation of truly competitive and timely R&D — and effectively killed the creativity for new engineering and designs spurred on by competitiveness among Hanjin Heavy Industries, Daewoo Heavy Industries and Hyundai Precision & Industries.
Up to the “consolidation” into the quasi-government company, Korea had an active, successful and competitive export business for rolling stock, and two of these companies were competitively developing their own technology for high-speed trains. After the consolidation came stagnation of development. Korea had to import high-speed train technology (for the KTX) from Athsolm Atlantique in France, as all meaningful high-speed R&D had become bogged down in the new quasi-government company bureaucracy. Competitiveness was gone, and technology ceased to be created in a meaningful way that leads to higher competitiveness and growing sales.
Another current trend that is being lauded by domestic industry observers is the government’s moves to “central plan” how Korean industry and business should be restructured and which industries should be “fostered and promoted” as the “drivers” for Korea’s economic recovery. This is so full of decades-old and overworked (non-applicable) syllogisms that it is frightening. It is also very worrisome that these same ill-informed people are the very individuals authorized to create a national recovery plan.
What bothers some shipbuilding insiders is the media reporting incorrect knee-jerk assumptions, stated as “facts,” that Korean shipbuilding has lost its competitiveness and this is why the yards are in trouble. This is absolutely untrue for the target “products” of high-tech offshore oil-and-gas facilities, industrial plants (modular and on-site constructed) and state-of-the-art, fully automated cargo vessels, for which Korea has a strong edge over the Chinese and in many areas, over the Japanese and Europeans.
Korean shipbuilding is suffering a depression due to the worldwide economic downturn, plain and simple. China is suffering just as badly (as well as Europe and Japan). The issue of the government’s ill-informed misunderstanding has a double meaning by also raising serious concerns about the qualifications and capabilities of these bureaucrats, especially when they promulgate “command-economy” solutions, bringing back previously unsuccessful formulae such as “consolidation.”
One could well contend that this “hangover” legacy of Korea’s early development period mentality in government is itself one of the causes of Korea’s failure to be more industrially and business-savvy creative, leading to an expansion of business and industrial disciplines where Korea is a world leader.
Too many companies and business leaders today seem to wait around for the next proclamation of “the five drivers” of Korea’s future economy. Once the president and/or the bureaucrats decree the planned direction of the national economy, all of the bank loans and other incentive “goodies” suddenly become available for those companies who sign up to be part of one or more of the “drivers,” rather than creating their own creative and competitive solutions.
Considering the above, it becomes ironic that the current administration’s arguable achievement is the creation of centers of creativity. At the same time, the same people are now talking about taking a page out of Park Chung Hee’s playbook of directing the economy.
To be sure, much of the “Miracle on the Han River” can be directly ascribed to the first President Park’s command of the economy and pushing and fostering major companies that evolved into today’s chaebol. As such, South Korea offers an excellent case study for developing economies. But this is 2016, and this nation is no longer considered a developing nation. It is a stagnant nation, with a world-class workforce, infrastructure and technology. What it does not need moving forward is a regressive developing world mentality shared by government and national leaders.
It is well past time for big business and big government to back off and let small and medium-size companies flourish and compete on their own. No one can “fix” the global economy, but we can allow more agile economic players the freedom to move forward. That includes allowing once powerful companies now humbled by macroeconomics to have more microeconomic freedom.
*The author is a long-term resident of Korea and author of two books on doing business, including “Doing Business in Korea: An Expanded Guide.”