The Korean Paradox

 

WHAT IS THE NAME of North Korea’s leader? Why North Korea’s often in the international spotlight? No doubt many readers would know the answers. Now, what is the name of South Korean President? This question would most likely go unanswered. This is indicative of a paradox. European public opinion has a better knowledge of North Korea, an authoritarian regime, one of the poorest and most secretive states in the world, than of the Republic of Korea, its Southern neighbor and a country equally deserving of our attention.

“It's possibile!” - This sign can be found, both in English and Korean, on the facades of skyscrapers under construcion in Seoul, embodying the spirit of a nation which has witnessed Asia's most remarkable economic development of the last four decades behind China.

It is 1963: The Korean War ended ten years before and North Korea has the lead on South Korea both in terms of per capita income and industrial capacity. Now fast-forward to 2013: 50 years later, Seoul's economy is over thirty-nine times bigger than Pyongyang’s and GDP per capita shows a twentyfold gap. In 1960 the ROK was as poor as Ghana; now it holds OECD membership – indeed, South Koreans are very much proud to be the first OECD nation to become a donor afer being an aid recipient, therefore joining the Development Assistance Committee. “A country that lived by the mercy of others is now able to give to others in need and stand shoulder to shoulder with the most advanced countries”, said former President Lee Myung-bak during his inaugural speech.

Over the past 30 years South Korea has caught up with Japan to become one of the highly developed nations in East Asia. “Its income per capita has jumped from less than 20% of Japan's four decades ago to 90% today” – states Professor John West, Executive Director of Asian Century Institute - “but  the catchup vis-a-vis the US is equally impressive: from about 10% of US income per capita in 1970 to 64% today”.

From 1980 to 2010 South Korea's GDP per capita grew more than fivefold (by comparison, Japan's per capita GDP grew by just about 70%). Throughout the last ten years the nominal GDP and the per capita income have grown more than half, with public debt representing only roughly a third of the GDP. According to the IMF, South Korea posted a 2.8 GDP growth in 2013 and is expected to reach a 3.7% growth at the end of 2014, with unemployment faring around 3%.

Seoul is the 15th largest global economic power and the fourth largest in Asia (by GDP in nominal terms). It is also the world's seventh largest exporter and a leading global nation in shipbuilding, production of LCD screens and in the distribution of broadband per capita. It is the third leading nation in the production of semi-conductors, the fifth in automobile manufacturing and in scientific research.

On November 2010 the Republic of Korea presided over the G20 summit. This event was a milestone in the country's modern history, testament to the high esteem in which it is held by the international community and placing Korea amongst the major global economic - although not political - powers of the future. This is not to mention the huge boost to Koreans' national pride, accustomed as they are to deal with two giants as neighbours, China and Japan. Still labelled as an anonymous developing nation a decade ago, Korea is now one of the “Next 11”, a Goldman Sachs term coined to identify the eleven countries thought to have a high potential of becoming, along with the BRICS, the world's largest economies in the 21st century.

South Korea's growing international influence goes beyond the realm of trade and economics. Hallyu, the growing influence of Korean pop culture is running hand in hand with the country's economic success. Korean pop bands, know as K-Pop, have fans in East Asia, North America as well as Europe and Latin America. Korean soap operas can count on millions of viewers in Japan, China, Thailand and Southeast Asia. Korean movies and directors have captured Hollywood attention and amassed international prizes whereas Korean language courses are being initiated all over the world, from Milan to Dubai to Santiago. During her inauguration speech, President Park Geun-hye acknowledged this 'Korean Wave”, saying that it “is welcomed with great affection that not only triggers happiness and joy but one that instills abiding pride in all Koreans”.

Upon entering the WTO in 1995, Korea started to increase its international competitiveness, well aware of how important that is for an export-led economy. During the last two decades Korean governments have been pursuing a two-faceted strategy. On the one hand, they undertook domestic policies aimed at upgrading the economy's industrial structure, easing business regulations and attracting foreign investments. On the other hand, they set a geoeconomic strategy which focuses on the signing of bilateral Free Trade Agreements (FTAs) with meaningful economic players.

After the 1997 financial crisis Korea undertook significant reforms that brought about achievements such as consistent progress on fighting bribery and corruption and enabling foreign companies to better operate in the country. “Financial and economic crises were seized upon by the Korean government as moments for reform and relaunching economic development”, argues Professor John West. In 2011 South Korea entered for the first time the World Bank's Doing Business top ten, which provides an overall "ease of doing business" ranking of 185 economies. Not only did Seoul reduce red tape burocracy and strengthen the protection of investors. It also delivered to its export-led industries world class logistics and infrastructure, transforming the country into one of East Asia's major hubs: Incheon International Airport is one the best airports worldwide whereas the port of Busan ranks in the world's 10th largest. Equally important have been the well-planned investments on soft infrastructure, with internet broadband connection being so widespread and running so fast that online gaming has became a sort of national sport.

Seoul is also one of the world’s most enthusiastic champions of green growth policies. Through the National Strategy for Green Growth (2009-2050) the country “aims to become a leading exporter in the area of green research and technology”, as the OECD reported. The Global Green Growth Institute, established in Seoul in 2010, stands to prove the nation's commitment on pursuing a development model which fosters at the same time economic growth and environmental sustainability.

Competitiveness is deemed so important that in 2008 former President Lee Myung-bak set the Presidential Council on National Competitiveness (PCNC), which well represents the nation’s focus on competitiveness. The PCNC has four main missions: bringing about regulatory reforms, innovation within the public sector, investment promotion and legal and institutional advancement. The PCNC’s ultimate goal is “expanding the potential growth rate to 7 percent by promoting investment and enhancing economy-wide efficiency.” This goal is to be reached partly through the opening of the domestic market to foreign products and companies.

The increasing economic clout of South Korea is represented by its dynamic free trade agreements strategy, which are part of the “Global Korea” economic diplomacy strategy. Since the establishment of the FTA Roadmap in 2003, Korean governments have engaged in FTA negotiations with more than 50 countries. The signing of FTAs with both the European Union (2010) and the USA (2011) represents for Seoul a winning strategy to enhance future economic growth opportunities as well as deal with the growing influence of China. It is also a clear, landmark step towards South Korea’s further integration within the global economy and next-level relations with the West. According to economists, the US-Korea FTA would increase South Korea GDP between 0.38% and 2.41% whereas the U.S. economy would grow 0.02 to 0.2%. US exports to South Korea would rise by half and US imports from South Korea would rise by one-third. The Korea-EU FTA is estimated to increase South Korean exports of roughly 6 percent and EU exports of more than 1 percent along with creating between 300,000 and 600,000 jobs. According to the Italian Trade Commisson, the tariff reductions will bring about savings for those companies exporting machineries, chemical, fashion and food products – all industries where Corporate Italy holds a comparative advantage. Another crucial FTA was signed with Chile in 2002, for it opened to Korean companies the doors of South American markets.

If Brazil is the Latin American role model, and South Africa the example for the rest of its continent, Korea is certainly starting to be perceived as the successful case study in Eastern Asia of the last decade. Sure enough, Seoul has major challenges in the years ahead: among the most urgent are the improvement of income equality; an aggressive development of services, a troubled demographic transition, poor record in labour productivity and attraction of foreign direct investments. That said, South Korea is a country that weds a model of sustainable economic development with following its democratic obligations in a region where a ubiquitous political instability reigns, mostly caused by North Korea. Let’s talk more about the Korea that counts.

Article published on Globalisation Café

Asian Century, Australia and Europe

 

 

 

 

 

 

 

 

 

 

 

 

 

Emanuele Schibotto, ACI's Director for Development, recently interviewed John West on the Asian Century, Asia and Europe, for a book he is writing on the Asian Century. Here is the interview:
 

What are the most important features of the Asian Century?
 

The most important feature of the Asian Century is the renaissance of the Asian economy, after a couple of centuries of relative decline.

Asia's economy has been on an upward trend since Japan started its post-war recovery. Asia's weight in the world economy has risen from about 20% to 30% of global GDP these past couple of decades. But it is still well below its share of the world population, about 60%. If Asia's economic renaissance continues, it could account for 60% of the world economy sometime in the second half of the 21st century. Another way of expressing the same idea is that Asia's GDP per capita is well below the global average. Thanks to its dynamic economic performance, it is realising its potential to catchup to and possibly even surpass the global average.

This increase in Asia's economic weight is changing economic and political power relationships between Asia and the rest of the world, especially the West, with China and perhaps India now emerging as new global powers. It is also changing power relationships between the West's Asian allies (like Japan and Korea) and other Asian countries, notably China.

Will the Asian Century result in a "return of history" to Asia's pre-colonial dominance, or will we see a mere steady growth of Asia's global influence?

Historically, Asia always had the world's largest population and GDP. But its GDP fell behind the West through the 19th and 20th centuries, due to adverse effects of Western and Japanese colonisation and internal unrest in countries like China. The rapid economic progress of the West, thanks to the Industrial Revolution, meant that Asia slipped even further behind in relative terms.

Although Asia always had the world's biggest economic weight, it was never a global power in the past. Until the past few centuries, it was virtually impossible for countries to become global powers, like the US is today, because of the limited level of technological development. Even during the Ming Dynasty, China never had the naval or military resources to colonize Europe, in the same way that European powers were subsequently able to colonize much of the world. In East Asia, China was arguably a regional power, through its tributary (suzerainty) relations with many of its neighbors.

While Asia will overtake the West in economic size in the coming decades, it is quite unlikely that Asia will overtake the West in terms of GDP per capital or level of technological development for a very long time, if ever. Asia will long remain a continent with a large population, which is less prosperous and technologically advanced than the West.

At the present moment, it is also difficult to say that Asia is a coherent region, in the same way that the West is a coherent group. Asia does not have deep forms of political and economic cooperation like NATO (North Atlantic Treaty Organization), EU (European Union), ANZUS (Australia, New Zealand, United States Security Treaty) or even NAFTA (North Atlantic Free Trade Agreement). Indeed, the strongest Asian international relationships are the US-Japan Alliance and US-South Korea Alliance.

As it is today, Asia is defined by its diversity in terms of political systems, economic development, and culture. It is also defined by the rivalries and tensions that exist between many of its countries. We can validly question whether Asia even exists!

In short, it is very difficult to see how Asia could become a world leader, in the same way the West has been. Asia is very big, but not very powerful. Most Asian countries are more concerned with domestic problems, than international ones. No Asian countries are promoting universal values, like the West has done. Moreover, Asia has been a great beneficiary of the Western designed international system as it is, and does not appear to have any alternative to propose.

In conclusion, we are moving into a multi-polar world, where the West and the Western-designed international will still dominate, but where power is increasingly shared with Asia and other emerging economies. What is most striking in this geopolitical landscape is the decline in Europe's influence and relevance, as it is preoccupied by internal EU problems, and also as its military spending declines.
 

In its 2012 Asian Century White Paper, the former Australian government places the country's future squarely in Asia. Is it a statement of intentions or reality? Is Australia turning away from the US and Europe towards Asia?
 

Australia has been deepening its economic and political relationships with Asia ever since Japan began its post-war recovery. The 2012 White Paper should be seen as just another step in Australia's progressively closer linkages with Asia. Asia is now a much more important Australian trading partner than Europe or North America. Although Asian investment in Australia is on the rise, the stock of European and North American investment is still much higher. Asian migration to Australia is increasing strongly, making Australia a proudly multicultural country.

Australia has very close political relationships with some Asian countries like Japan, Korea and Singapore, and is developing relations with others. But Australia's political relationships remain strongest with the US, UK and other Western countries -- that is, countries with which Australia shares common values, like pluralist democracy, respect for human rights and market economy.
 

How do you see prospects for the Australian economy? Can it achieve a path of sustainable development?
 

There is every reason to believe that the Australian economy will continue to perform well in the years ahead. Indeed, Australia has had one of the best performing economies of the advanced OECD group for over two decades. As for every economy, continued success requires sound macroeconomic management, investments in human capital and infrastructure, and structural reform.

Australia has benefited greatly from the Asian Century boom, through the high demand for its natural resource exports. But as Asia's middle classes become a growing feature of the region, Australia should seek to take more advantage of the opportunity of exporting services to them, and rely less on exporting natural resources. Indeed, Australia's natural environment has suffered from its resource-based development. Much greater attention will be required to ensure that Australia achieves a path of sustainable development.
 

What are the main incentives and risks of investing in Australia?
 

Australia has always been a very attractive destination for foreign investment. In fact, modern Australia has been substantially built through foreign investment from Europe, North America and more recently Asia. Australia offers investors a relatively open market, rule of law, good infrastructure, a well-qualified work force, a vast range of natural resources, and a prosperous local market.

Once an investment is accepted in Australia, there are very few risks for investors, beyond normal business risks. Foreign investors must however do their homework because the investment environment is different in each and every country.

Investment proposals, especially in the natural resources area, may be closely scrutinised by environmental activists, labour unions and the media. Investors must be prepared for this. There have been cases of investors from non-democratic countries who have experienced challenges navigating the complexities of a vibrant democracy, with an active civil society.
 

What should European companies and entrepreneurs understand and know about Australia?
 

Australia is similar to Europe in many respects. It has a parliamentary democracy and a legal system based on the British system. It has a multicultural society, formed through several waves of migration from Britain and Ireland, continental Europe, and now Asia. Australia is a "new world" country, with a pioneering spirit, and is less bound to traditions than Europe.

Despite these obvious points, European countries and entrepreneurs should also do their homework before they come to Australia. Europeans should not imagine, because they have a longer and deeper history than Australia, that they are more sophisticated than Australians. Australia scores better than most European countries in the OECD's PISA exercise (Programme for International Student Assessment) for the level of education of 15 year old students. There have also been fifteen Australian winners of the Nobel Prize.

Australians also have a more "sunny" disposition than most Europeans, perhaps reflecting the agreeable climate. However, this invariably hides a tough, pragmatic and realistic nature. Australia's fighting spirit is on display for the world to see every four years at the Olympic Games, where Australia regularly outperforms most European countries.

Do you consider Australia a "globalization winner"?
 

Modern Australia is a product and a symbol of globalisation. Its modern development was propelled by migration, trade and investment, initially from Europe. Australia gradually forged its own identity over the decades. With the abolition of the "White Australia" policy some four decades ago, and the arrival of modern globalization following the end of the Cold War and the renaissance of Asia, Australia is becoming a microcosm of globalisation.

Australia's successful economic, social and political development should serve as a model for much of today's globalizing world. The US should look closely at Australia's prudent banking sector, and restrictive gun laws. Europe would benefit from Australian policies for sustainable public debt management and harmonious multicultural societies. And Asia would gain from Australian-style open markets and democratic politics.

At the same time, to remain a winner of globalization, Australia could learn many lessons from the rest of the world -- like East Asia's excellence in education, Northern Europe's concern for environmentally sustainable development, and the US's innovative and risk-taking business culture.

 

John West is Asian Century Institute Executive Director

 

Article previousyly published on Asian Century Institute